[Title 45 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 2002 Edition]
[From the U.S. Government Printing Office]



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                    45


          Parts 1 to 199

                         Revised as of October 1, 2002

Public Welfare





          Containing a codification of documents of general 
          applicability and future effect
          As of October 1, 2002
          With Ancillaries
          Published by
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002



  For sale by the Superintendent of Documents, U.S. Government Printing 
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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 45:
          Subtitle A--Department of Health and Human Services        3
  Finding Aids:
      Material Approved for Incorporation by Reference........     743
      Table of CFR Titles and Chapters........................     745
      Alphabetical List of Agencies Appearing in the CFR......     763
      List of CFR Sections Affected...........................     773



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                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 45 CFR 1.1 refers to 
                       title 45, part 1, section 
                       1.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, October 1, 2002), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

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Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
volumes. For the period beginning January 1, 2001, a ``List of CFR 
Sections Affected'' is published at the end of each CFR volume.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
containing that incorporation. If, after contacting the agency, you find 
the material is not available, please notify the Director of the Federal 
Register, National Archives and Records Administration, Washington DC 
20408, or call (202) 523-4534.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
and parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

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REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
[email protected].

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call toll free, 
866-512-1800 or DC area, 202-512-1800, M-F, 8 a.m. to 4 p.m. e.s.t. or 
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write to the Superintendent of Documents, Attn: New Orders, P.O. Box 
371954, Pittsburgh, PA 15250-7954. For GPO Customer Service call 202-
512-1803.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, The United States 
Government Manual, the Federal Register, Public Laws, Public Papers, 
Weekly Compilation of Presidential Documents and the Privacy Act 
Compilation are available in electronic format at www.access.gpo.gov/
nara (``GPO Access''). For more information, contact Electronic 
Information Dissemination Services, U.S. Government Printing Office. 
Phone 202-512-1530, or 888-293-6498 (toll-free). E-mail, 
[email protected].
    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.nara.gov/fedreg. The NARA 
site also contains links to GPO Access.

                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

October 1, 2002.



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                               THIS TITLE

    Title 45--Public Welfare is composed of four volumes. The parts in 
these volumes are arranged in the following order: Parts 1-199, 200-499, 
500-1199, and 1200 to end. Volume one (parts 1-199) contains all current 
regulations issued under subtitle A--Department of Health and Human 
Services. Volume two (parts 200-499) contains all current regulations 
issued under subtitle B--Regulations Relating to Public Welfare, chapter 
II--Office of Family Assistance (Assistance Programs), Administration 
for Children and Families, Department of Health and Human Services, 
chapter III--Office of Child Support Enforcement (Child Support 
Enforcement Program), Administration for Children and Families, 
Department of Health and Human Services, and chapter IV--Office of 
Refugee Resettlement, Administration for Children and Families, 
Department of Health and Human Services. Volume three (parts 500-1199) 
contains all current regulations issued under chapter V--Foreign Claims 
Settlement Commission of the United States, Department of Justice, 
chapter VI--National Science Foundation, chapter VII--Commission on 
Civil Rights, chapter VIII--Office of Personnel Management, chapter X--
Office of Community Services, Administration for Children and Families, 
Department of Health and Human Services, and chapter XI--National 
Foundation on the Arts and the Humanities. Volume four (part 1200 to 
end) contains all current regulations issued under chapter XII--
Corporation for National and Community Service, chapter XIII--Office of 
Human Development Services, Department of Health and Human Services, 
chapter XVI--Legal Services Corporation, chapter XVII--National 
Commission on Libraries and Information Science, chapter XVIII--Harry S 
Truman Scholarship Foundation, chapter XXI--Commission of Fine Arts, 
chapter XXIII--Artic Research Commission, chapter XXIV--James Madison 
Memorial Fellowship Foundation, and chapter XXV--Corporation for 
National and Community Service. The contents of these volumes represent 
all of the current regulations codified under this title of the CFR as 
of October 1, 2002.

    A subject index to 45 CFR parts 680-684 appears at the end of 
chapter VI in the volume containing parts 500-1199. Those amendments to 
part 801--Voting Rights Program, Appendixes A, B, and D, which apply to 
Texas also appear in Spanish following Appendix D.

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

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                        TITLE 45--PUBLIC WELFARE




                   (This book contains parts 1 to 199)

  --------------------------------------------------------------------
                                                                    Part

SUBTITLE A--Department of Health And Human Services.........           1

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                    SUBTITLE A--DEPARTMENT OF HEALTH






                           AND HUMAN SERVICES




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to subtitle A appear at 66 FR 
39452, July 31, 2001.

                  SUBCHAPTER A--GENERAL ADMINISTRATION
Part                                                                Page
1               HHS's regulations...........................           7
2               Testimony by employees and production of 
                    documents in proceedings where the 
                    United States is not a party............           7
3               Conduct of persons and traffic on the 
                    National Institutes of Health Federal 
                    enclave.................................           9
4               Service of process..........................          15
5               Freedom of Information Regulations..........          16
5a              [Reserved]

5b              Privacy Act regulations.....................          31
6               [Reserved]

7               Employee inventions.........................          44
8               [Reserved]

9               Use of HHS research facilities by academic 
                    scientists, engineers, and students.....          46
12              Disposal and utilization of surplus real 
                    property for public health purposes.....          47
12a             Use of Federal real property to assist the 
                    homeless................................          56
13              Implementation of the Equal Access to 
                    Justice Act in agency proceedings.......          64
15              Uniform relocation assistance and real 
                    property acquisition for Federal and 
                    federally assisted programs.............          72
16              Procedures of the Departmental Grant Appeals 
                    Board...................................          72
17              Release of adverse information to news media          80
30              Claims collection...........................          81
31              Referral of debt to IRS for tax refund 
                    offset..................................          97
35              Tort Claims against the government..........         100
36              Indemnification of HHS Employees............         103
46              Protection of human subjects................         104

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50              U.S. Exchange Visitor Program--request for 
                    waiver of the two-year foreign residence 
                    requirement.............................         123
51              Criteria for evaluating comprehensive plan 
                    to reduce reliance on alien physicians..         125
57              Volunteer services..........................         126
60              National Practitioner Data Bank for adverse 
                    information on physicians and other 
                    health care practitioners...............         127
61              Healthcare integrity and protection data 
                    bank for final adverse information on 
                    health care providers, suppliers and 
                    practitioners...........................         135
63              Grant programs administered by the Office of 
                    the Assistant Secretary for Planning and 
                    Evaluation..............................         145
73              Standards of conduct........................         153
73a             Standards of conduct: Food and Drug 
                    Administration supplement...............         186
73b             Debarment or suspension of former employees.         192
74              Uniform administrative requirements for 
                    awards and subawards to institutions of 
                    higher education, hospitals, other 
                    nonprofit organizations, and commercial 
                    organizations; and certain grants and 
                    agreements with States, local 
                    governments and Indian tribal 
                    governments.............................         194
76              Governmentwide debarment and suspension 
                    (nonprocurement) and governmentwide 
                    requirements for drug-free workplace 
                    (grants)................................         242
77              Remedial actions applicable to letter of 
                    credit administration...................         261
78              Conditions for waiver of denial of Federal 
                    benefits................................         263
79              Program fraud civil remedies................         264
80              Nondiscrimination under programs receiving 
                    Federal assistance through the 
                    Department of Health and Human Services 
                    effectuation of Title VI of the Civil 
                    Rights Act of 1964......................         279
81              Practice and procedure for hearings under 
                    Part 80 of this title...................         305
83              Regulation for the administration and 
                    enforcement of sections 799A and 845 of 
                    the Public Health Service Act...........         315
84              Nondiscrimination on the basis of handicap 
                    in programs and activities receiving 
                    Federal financial assistance............         321
85              Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    activities conducted by the Department 
                    of Health and Human Services............         361

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86              Nondiscrimination on the basis of sex in 
                    education programs and activities 
                    receiving or benefiting from Federal 
                    financial assistance....................         377
90              Nondiscrimination on the basis of age in 
                    programs or activities receiving Federal 
                    financial assistance....................         395
91              Nondiscrimination on the basis of age in HHS 
                    programs or activities receiving Federal 
                    financial assistance....................         403
92              Uniform administrative requirements for 
                    grants and cooperative agreements to 
                    State and local governments.............         410
93              New restrictions on lobbying................         437
94              Responsible prospective contractors.........         448
95              General administration--grant programs 
                    (public assistance, medical assistance 
                    and state children's health insurance 
                    programs)...............................         451
96              Block grants................................         470
97              Consolidation of grants to the insular areas         526
98              Child care and development fund.............         528
99              Procedure for hearings for the child care 
                    and development fund....................         558
100             Intergovernmental review of Department of 
                    Health and Human Services programs and 
                    activities..............................         563
        SUBCHAPTER B--REQUIREMENTS RELATING TO HEALTH CARE ACCESS
140-143         [Reserved]

144             Requirements relating to health insurance 
                    coverage................................         567
145             [Reserved]

146             Requirements for the group health insurace 
                    market..................................         572
147             [Reserved]

148             Requirements for the individual health 
                    insurance market........................         630
149             [Reserved]

150             CMS enforcement in group and individual 
                    insurance markets.......................         647
151-159         [Reserved]

  SUBCHAPTER C--ADMINISTRATIVE DATA STANDARDS AND RELATED REQUIREMENTS
160             General administrative requirements.........         667
162             Administrative requirements.................         675
163             [RESERVED]

164             Security and privacy........................         684
165-199         [Reserved]

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                  SUBCHAPTER A--GENERAL ADMINISTRATION





PART 1--HHS'S REGULATIONS--Table of Contents




Sec.
1.1  Location of HHS regulations.
1.2  Subject matter of Office of the Secretary regulations in parts 1-
          99.



Sec. 1.1  Location of HHS regulations.

    Regulations for HHS's programs and activities are located in several 
different titles of the Code of Federal Regulations:

     Regulations having HHS-wide application or which the Office 
of the Secretary administers are located in Parts 1-99 of Title 45.
     Health regulations are located at Parts 1-399 of Title 42.
     Health care financing regulations are located at Parts 400-
499 of Title 42. These include regulations for Medicare and Medicaid.
     Human development services regulations are located at Parts 
200-299 and 1300-1399 of Title 45. These include regulations for Head 
Start, social services, social and nutrition services for older persons, 
rehabilitative services, developmental disabilities services, Native 
American programs, and various programs relating to families and 
children.
     Social Security regulations are located at Parts 400-499 of 
Title 20.
     Food and Drug regulations are located at Parts 1-1299 of 
Title 21.
     Procurement (contract) regulations are located at Chapter 3 
of Title 41.

    Each volume of the Code contains an index of its parts.

(5 U.S.C. 301)

[44 FR 61598, Oct. 26, 1979, as amended at 48 FR 35099, Aug. 3, 1983]



Sec. 1.2  Subject matter of Office of the Secretary regulations in parts 1-99.

    This subject matter of the regulations in Parts 1-99 of this title 
includes:

     Civil rights/nondiscrimination: Parts 80, 81, 83, 84, 86, 
90.
     Protection of human subjects: Part 46.
     Day care requirements: Part 71.
     Information, privacy, advisory committees: Parts 5, 5a, 5b, 
11, 17, 99.
     Personnel: Parts 50, 57, 73, 73a.
     Grants and letter of credit administration, property, 
hearing rights: Parts 10, 12, 15, 16, 74, 75, 77, 95.
     Claims: Parts 30, 35.
     Inventions and patents: Parts 6, 7, 8.
     Miscellaneous: Parts 3, 4, 9, 67.

(5 U.S.C. 301)

[50 FR 781, Jan. 7, 1985, as amended at 52 FR 28658, July 31, 1987]



PART 2--TESTIMONY BY EMPLOYEES AND PRODUCTION OF DOCUMENTS IN PROCEEDINGS WHERE THE UNITED STATES IS NOT A PARTY--Table of Contents




Sec.
2.1  Scope, purpose, and applicability.
2.2  Definitions.
2.3  Policy on presentation of testimony and production of documents.
2.4  Procedures when voluntary testimony is requested or when an 
          employee is subpoenaed.
2.5  Subpoenas duces tecum.
2.6  Certification and authentication of records.

    Authority: 5 U.S.C. 301, 5 U.S.C. 552.

    Source: 52 FR 37146, Oct. 5, 1987, unless otherwise noted.



Sec. 2.1  Scope, purpose, and applicability.

    (a) This part sets forth rules to be followed when a Department of 
Health and Human Services employee, other than an employee of the Food 
and Drug Administration, is requested or subpoenaed to provide 
testimony, in a deposition, trial, or other similar proceeding, 
concerning information acquired in the course of performing official 
duties or because of the employee's official capacity. This part also 
sets forth procedures for the handling of subpoenas duces tecum and 
other requests for any document in the possession of the Department of 
Health and Human Services other than the Food and Drug Administration, 
and to requests for certification of copies of documents. Separate 
regulations, 21 CFR part 20 and 20 CFR part 401, govern the Food and 
Drug Administration and requests for certain information maintained by 
the Social Security Administration, and those regulations are not 
affected by this part.
    (b) It is the policy of the Department of Health and Human Services 
to provide information, data, and records to

[[Page 8]]

non-federal litigants to the same extent and in the same manner that 
they are available to the general public. The availability of Department 
of Health and Human Services' employees to testify in litigation not 
involving Federal parties is governed by the Department of Health and 
Human Services' policy on maintaining strict impartiality with respect 
to private litigants and to minimize the disruption of official duties.
    (c) This part applies to state and local court, administrative, and 
legislative proceedings and Federal court and administrative 
proceedings.
    (d) This part does not apply to:
    (1) Any civil or criminal proceedings where the United States, the 
Department of Health and Human Services, and any agency thereof, or any 
other Federal agency is a party.
    (2) Congressional requests or subpoenas for testimony or documents.
    (3) Consultative services and technical assistance provided by the 
Department of Health and Human Services, or any agency thereof, in 
carrying out its normal program activities.
    (4) Employees serving as expert witnesses in connection with 
professional and consultative services as approved outside activities in 
accordance with 45 CFR 73.735-704 and 73.735-708. (In cases where 
employees are providing such outside services, they must state for the 
record that the testimony represents their own views and does not 
necessarily represent the official position of the Department of Health 
and Human Services.)
    (5) Employees making appearances in their private capacity in legal 
or administrative proceedings that do not relate to the Department of 
Health and Human Services (such as cases arising out of traffic 
accidents, crimes, domestic relations, etc.) and not involving 
professional and consultative services.
    (6) Any matters covered in 21 CFR part 20, involving the Food and 
Drug Administration, and 20 CFR part 401, involving the Social Security 
Administration.
    (7) Any civil or criminal proceedings in State court brought on 
behalf of the Department of Health and Human Services.

[52 FR 37146, Oct. 5, 1987, as amended at 55 FR 4611, Feb. 9, 1990]



Sec. 2.2  Definitions.

    Agency Head refers to the head of the relevant operating division or 
other major component of the Deparment of Health and Human Services, or 
his or her delegatees. For each component of the Department, the Agency 
Head for the purposes of this part is as follows:
    (1) Office of the Secretary--Assistant Secretary for Management and 
Budget;
    (2) Office of Human Development Services--Assistant Secretary for 
Human Development Services;
    (3) Public Health Service--Assistant Secretary for Health;
    (4)Centers for Medicare & Medicaid Services--Administrator;
    (5) Family Support Administration--Assistant Secretary for Family 
Support;
    (6) Social Security Administration--Commissioner; and
    (7) Office of the Inspector General--Inspector General.
    Employee includes commissioned officers in the Public Health Service 
Commissioned Corps, as well as regular and special Department of Health 
and Human Services employees (except employees of the Food and Drug 
Administration), and any employees of health insurance intermediaries 
and carriers performing functions under agreements entered into pursuant 
to sections 1816 and 1842 of the Social Security Act, 42 U.S.C. 1395h, 
1395u.
    Testify and testimony includes both in-person, oral statements 
before a court, legislative or administrative body and statements made 
pursuant to depositions, interrogatories, declarations, affidavits, or 
other formal participation.

[52 FR 37146, Oct. 5, 1987, as amended at 55 FR 4611, Feb. 9, 1990]



Sec. 2.3  Policy on presentation of testimony and production of documents.

    (a) No Department of Health and Human Services employee may provide 
testimony or produce documents in any proceedings to which this part 
applies concerning information acquired

[[Page 9]]

in the course of performing official duties or because of the employee's 
official relationship with the Department of Health and Human Services 
unless authorized by the Agency head pursuant to this part based on a 
determination by the Agency head, after consultation with the Office of 
the General Counsel, that compliance with the request would promote the 
objectives of the Department of Health and Human Services.
    (b) The Office of the General Counsel will request the assistance of 
the Department of Justice where necessary to represent the interests of 
the Department of Health and Human Services and its employees under this 
part.



Sec. 2.4  Procedures when voluntary testimony is requested or when an employee is subpoenaed.

    (a) All requests for testimony by a Department of Health and Human 
Services employee in his or her official capacity and not subject to the 
exceptions set forth in Sec. 2.1(d), of this part, must be in writing 
and must state the nature of the requested testimony, why the 
information sought is unavailable by any other means, and the reasons 
why the testimony would be in the interests of the Department of Health 
and Human Services or the Federal Government.
    (b) If the Agency head denies approval to comply with a subpoena for 
testimony, or if the Agency head has not acted by the return date, the 
employee will appear at the stated time and place, unless advised by the 
Office of the General Counsel that responding to the subpoena would be 
inappropriate (in such circumstances as, for example, an instance where 
the subpoena was not validly issued or served, where the subpoena has 
been withdrawn, or where discovery has been stayed), produce a copy of 
these regulations, and respectfully decline to testify or produce any 
documents on the basis of these regulations.



Sec. 2.5  Subpoenas duces tecum.

    (a) Subpoenas duces tecum for records of the Department of Health 
and Human Services shall be deemed a request for records under the 
Freedom of Information Act and shall be handled pursuant to the rules 
governing public disclosure established in 45 CFR Part 5.
    (b) Whenever a subpoena duces tecum, in appropriate form, has been 
lawfully served upon a Department of Health and Human Services' employee 
commanding the production of any record, such employee, after 
consultation with the Office of the General Counsel, shall appear in 
response thereto, respectfully decline to produce the record(s) on the 
ground that it is prohibited by this section, and state that the 
production of the record(s) involved will be handled by the procedures 
and disclosure rules established in 45 CFR Part 5.



Sec. 2.6  Certification and authentication of records.

    Upon request, Department of Health and Human Services' agencies will 
certify the authenticity of copies of records that are to be disclosed 
pursuant to 45 CFR Part 5 and will authenticate copies of records 
previously disclosed. Fees for such certification are set forth in 45 
CFR 5.43(e).

[52 FR 37146, Oct. 5, 1987, as amended at 55 FR 4611, Feb. 9, 1990]



PART 3--CONDUCT OF PERSONS AND TRAFFIC ON THE NATIONAL INSTITUTES OF HEALTH FEDERAL ENCLAVE--Table of Contents




                           Subpart A--General

Sec.
3.1  Definitions.
3.2  Applicability.
3.3  Compliance.
3.4  False reports and reports of injury or damage.
3.5  Lost and found, and abandoned property.
3.6  Nondiscrimination.

                     Subpart B--Traffic Regulations

3.21  Emergency vehicles.
3.22  Request for identification.
3.23  Parking.
3.24  Parking permits.
3.25  Servicing of vehicles.
3.26  Speed limit.
3.27  Bicycles.

                    Subpart C--Facilities and Grounds

3.41  Admission to facilities or grounds.
3.42  Restricted activities.

[[Page 10]]

3.43  Removal of property.
3.44  Solicitation.

                          Subpart D--Penalties

3.61  Penalties.

    Authority: 40 U.S.C. 318-318d. 486; Delegation of Authority, 33 FR 
604.

    Source: 55 FR 2068, Jan. 22, 1990, unless otherwise noted.



                           Subpart A--General



Sec. 3.1  Definitions.

    Director means the Director or Acting Director of the National 
Institutes of Health (NIH), or other officer or employee of NIH to whom 
the authority involved has been delegated.
    Enclave means, unless the context requires a different meaning, the 
area, containing about 318 acres, acquired by the United States in 
several parcels in the years 1935 through 1983, and any further future 
acquisitions, comprising the National Institutes of Health located in 
Montgomery County, Maryland, over which the United States acquired 
exclusive jurisdiction under the Act of March 31, 1953, Chapter 158 
(1953 Maryland Laws 311).
    Police officer means a uniformed or non-uniformed police officer 
appointed under a delegation of authority to the Director under Title 40 
United States Code section 318 or 318d; any other Federal law 
enforcement officer; and any other person whose law enforcement services 
are secured by contract, or upon request or deputation from a State or 
local law enforcement agency.



Sec. 3.2  Applicability.

    (a) The regulations in this part apply to all areas in the enclave 
and to all persons on or within the enclave, except as otherwise 
provided.
    (b) The regulations in this part do not apply to occupants, their 
visitors, and other authorized persons in areas used as living quarters:
    (1) When specifically made inapplicable, and
    (2) In the case of the following provisions: Sec. 3.24 Parking 
permits; Sec. 3.25 Servicing of vehicles; Sec. 3.42 Hobbies and sports; 
and Sec. 3.42(f) Smoking.
    (c) All regulations in this part are in addition to the provisions 
in the United States Code, including title 18 relating to crimes and 
criminal procedure, and title 21 relating to food and drugs, which 
apply:
    (1) Without regard to the place of the offense, or
    (2) To areas (such as the enclave) subject to the ``special maritime 
and territorial jurisdiction of the United States,'' as defined in Title 
18 United States Code section 7.
    (d) In accordance with the Assimilative Crimes Act (18 U.S.C. 13), 
whoever is found guilty of an offense which, although not made 
punishable by any act of Congress, nor any provision of these 
regulations, would be punishable if committed within the State of 
Maryland, shall be guilty of a like offense and subject to a like 
punishment. In the event of an irreconcilable conflict between a 
provision of this part and a Maryland statute governing the identical 
subject matter, this part shall control.
    (e) Federal criminal statutes which apply. The following Federal 
criminal statutes in the United States Code apply to Federal enclaves 
and elsewhere without regard to the place of the offense. This listing 
is provided solely for the information of the public and is not all-
inclusive. The omission of other Federal statutes does not mean that 
such other statutes do not apply. In any given situation, the cited 
statutory provisions and any amendments in effect when the alleged 
offense occurred shall determine the specifics of the offense, 
applicability, and penalty.

[[Page 11]]



----------------------------------------------------------------------------------------------------------------
               Subject                        U.S. Code            Provides generally        Maximum penalty
----------------------------------------------------------------------------------------------------------------
1. By force or threat of force,        18 U.S.C. 245..........  Prohibits..............  Not involving death or
 willful injury, intimidation or                                                          bodily injury:
 interference with, or attempts to                                                        Imprisonment one year
 injure, intimidate or interfere                                                          and/or $1,000 fine.
 with, a person from participating in
 or enjoying any benefit, service,
 privilege, program, facility, or
 activity, provided by or
 administered by the U.S., and
 engaging in certain other Federal
 protected activities.
2. Malicious destruction or damage,    18 U.S.C. 844(f).......  Prohibits..............  First offense not
 by an explosive, to a building or                                                        involving death or
 other property owned, possessed,                                                         personal injury:
 used, or leased by the U.S., U.S.                                                        Imprisonment 10 years
 agency, or any organization                                                              and/or $10,000 fine
 receiving Federal financial                                                              and seizure and
 assistance.                                                                              forfeiture of
                                                                                          explosive materials.
3. Possession of explosive in          18 U.S.C. 844(g).......  Prohibits, except with   Imprisonment one year
 buildings owned, possessed, used, or                            written consent of the   and/or $1,000 fine and
 leased by U.S. or U.S. agency.                                  agency.                  seizure and forfeiture
                                                                                          of explosive
                                                                                          materials.
4. Use of or carrying an explosive to  18 U.S.C. 844(h).......  Prohibits..............  First offense:
 commit, or during commission of, a                                                       Imprisonment 10 years
 felony prosecutable in a U.S. court.                                                     and seizure and
                                                                                          forfeiture of
                                                                                          explosive materials.
5. Use of or carrying a firearm        18 U.S.C. 924(c).......  Prohibits..............  First offense:
 during and in relation to any crime                                                      Imprisonment 5 years
 of violence prosecutable in a U.S.                                                       and $5,000 fine and
 court.                                                                                   seizure and forfeiture
                                                                                          of firearm and
                                                                                          ammunition.
6. Manufacture, distribution,          21 U.S.C. 841, 842,      Prohibits, except as     First offense:
 dispensing, or possession with         843, 845.                authorized by the        Imprisonment 20 years
 intent to do these acts, of                                     Controlled Substances    and/or $250,000 fine
 narcotics and other controlled                                  Act (generally 21        depending on the
 substances and counterfeit                                      U.S.C. 801-904).         amount and kind of
 substances.                                                                              substance (twice the
                                                                                          above penalties for
                                                                                          distribution by a
                                                                                          person at least 18
                                                                                          years of age to one
                                                                                          under age 21).
7. Simple possession of narcotics or   21 U.S.C. 844..........  Prohibits, unless        First offense:
 other controlled substances.                                    substance obtained       Imprisonment 1 year
                                                                 directly, or pursuant    and/or $5,000 fine.
                                                                 to prescription or
                                                                 order, from a
                                                                 practitioner, acting
                                                                 in the course of
                                                                 professional practice,
                                                                 or as otherwise
                                                                 authorized under the
                                                                 Controlled Substances
                                                                 Act.
----------------------------------------------------------------------------------------------------------------

    (f) Maryland criminal statutes that apply. The matters described in 
this paragraph are governed, in whole or in part, by the current version 
of the cited Maryland criminal statutory provisions, which are made 
Federal criminal offenses under the Assimilative Crimes Act (18 U.S.C. 
13). This listing sets forth areas of conduct particularly relevant to 
the enclave and is provided solely for the information of the public. 
The list is not all-inclusive and omission of other Maryland criminal 
statutes does not mean that such other statutes are not assimilated as 
Federal offenses under the Act. Generally, other Maryland criminal 
statutes will apply on the enclave, by force of the Act, unless 
superseded by Federal Law or a given provision of this part. In any 
given situation, the cited statutory provisions and any amendments in 
effect when the alleged offense occured shall determine the specifics of 
the offense, applicability, and penalty.

----------------------------------------------------------------------------------------------------------------
               Subject                 Maryland code annotated     Provides generally        Maximum penalty
----------------------------------------------------------------------------------------------------------------
1. Pedestrian right-of-way...........  Transportation, Sec. 21- Pedestrians have the     Imprisonment 2 months
                                        502.                     right-of-way in          and/or $500 fine.
                                                                 crosswalks and certain
                                                                 other areas. Subject
                                                                 to certain limitations.

[[Page 12]]

 
                                       Sec. 21-511............  Blind, partially blind,  $500 fine.
                                                                 or hearing impaired
                                                                 pedestrians have the
                                                                 right-of-way at any
                                                                 crossing or
                                                                 intersection. Subject
                                                                 to certain limitations.
2. Drivers to exercise due care......  Transportation, Sec. 21- Drivers shall exercise   $500 fine.
                                        504.                     due care to avoid
                                                                 colliding with
                                                                 pedestrians, children
                                                                 and incapacitated
                                                                 individuals.
3. Driving while intoxicated, under    Transportation, Sec. 21- Prohibits..............  Sec. 21-902(a) (driving
 the influence of alcohol and/or a      902.                                              while intoxicated,
 drug or controlled substance.                                                            first offense):
                                                                                          Imprisonment 1 year
                                                                                          and/or $1,000 fine.
                                                                                         Sec. 21-902 (b), (c),
                                                                                          (d) (driving under the
                                                                                          influence):
                                                                                          Imprisonment 2 months
                                                                                          and/or $500 fine.
4. Unattended motor vehicles.........  Transportation, Sec. 21- Prohibits leaving motor  $500 fine.
                                        1101.                    vehicles unattended
                                                                 unless certain
                                                                 precautions are taken.
5. Carrying or wearing certain         Article 27, Sec. 36....  Prohibits, except for    Imprisonment 3 years or
 concealed weapons (other than                                   law enforcement          $1,000 fine.
 handguns) or openly with intent to                              personnel or as a
 injure.                                                         reasonable precaution
                                                                 against apprehended
                                                                 danger.
6. Unlawful wearing, carrying, or      Article 27, Sec. 36B...  Prohibits except by law  First offense and no
 transporting a handgun, whether                                 enforcement personnel    prior related offense:
 concealed or openly.                                            or with permit.          Imprisonment 3 years
                                                                                          and/or $2,500 fine.
7. Use of handgun or concealable       Article 27, Sec. 36B...  Prohibits..............  Imprisonment 20 years.
 antique firearm in commission of
 felony or crime of violence.
8. Disturbance of the peace..........  Article 27, Sec. 122...  Prohibits acting in a    Imprisonment 30 days
                                                                 disorderly manner in     and/or $500 fine.
                                                                 public places.
9. Gambling..........................  Article 27, Secs. 240,   Prohibits betting,       Sec. 240: Imprisonment
                                        245.                     wagering and gambling,   one year and/or $1,000
                                                                 and certain games of     fine. Sec. 245:
                                                                 chance (does not apply   Imprisonment 2 years
                                                                 to vending or            and/or $100 fine.
                                                                 purchasing lottery
                                                                 tickets authorized
                                                                 under State law in
                                                                 accordance with
                                                                 approved procedures).
----------------------------------------------------------------------------------------------------------------



Sec. 3.3  Compliance.

    A person must comply with the regulations in this part; with all 
official signs; and with the lawful directions or orders of a police 
officer or other authorized person, including traffic and parking 
directions.



Sec. 3.4  False reports and reports of injury or damage.

    A person may not knowingly give any false or fictitious report 
concerning an accident or violation of the regulations of this part or 
any applicable Federal or Maryland statute to any person properly 
investigating an accident or alleged violation. All incidents resulting 
in injury to persons or willful damage to property in excess of $100.00 
(one hundred dollars) in value must be reported by the persons involved 
to the Police Office as soon as possible. The Police Office's main 
location and telephone number is: Building 31, Room B3BN10; (301) 496-
5685.



Sec. 3.5  Lost and found, and abandoned property.

    Lost articles which are found on the enclave, including money and 
other personal property, together with any identifying information, must 
be deposited at the Police Office or with an office (such as the place 
where found) which may likely have some knowledge of ownership. If the 
article is deposited with an office other than the Police Office and the 
owner does not claim it within 30 days, it shall be deposited at the 
Police Office for further disposition in accordance with General 
Services Administration regulations (41 CFR part 101-48). Abandoned, or 
other unclaimed property and, in the absence of specific direction by a 
court, forfeited property, may be so identified by the Police Office and 
sold and the proceeds

[[Page 13]]

deposited in accordance with 41 CFR 101-45.304 and 101-48.305.

[57 FR 1874, Jan. 16, 1992]



Sec. 3.6  Nondiscrimination.

    A person may not discriminate by segregation or otherwise against 
another person because of age, color, creed, handicap, national origin, 
race or sex, in furnishing or by refusing to furnish to that person the 
use of any facility of a public nature, including all services, 
privileges, accommodations, and activities provided within the enclave. 
(Title 18 United States Code section 245 prohibits, by use of force or 
threat of force, willful injury, intimidation, or interference with, a 
person from participating in or enjoying any benefit, service, 
privilege, program, facility, or activity provided by or administered by 
the United States, attempts to do these acts, and engaging in certain 
other activities.)



                     Subpart B--Traffic Regulations



Sec. 3.21  Emergency vehicles.

    A person must yield the right of way to an emergency vehicle 
operating its siren or flashing lights.



Sec. 3.22  Request for identification.

    Upon request by a police officer, a person involved in any of the 
following situations must provide identification, for example, by 
exhibiting satisfactory credentials (such as an employment 
identification card or driver's license):
    (a) A traffic accident within the enclave;
    (b) The police officer reasonably believes that the individual is 
engaged in, or has engaged in, criminal conduct or a violation of the 
regulations of this part; or
    (c) The enclave or a portion of the enclave is not open to the 
public (see Sec. 3.41).
    A driver of a motor vehicle involved in an accident within the 
enclave shall also exhibit, upon the request of a police officer, the 
owner's registration card or other satisfactory proof of ownership.



Sec. 3.23  Parking.

    (a) A person may not stand (vehicle stopped, with or without, an 
occupant), or park a motor vehicle or other vehicle:
    (1) In a lane, space, or area not designated by a sign for parking, 
and/or standing;
    (2) On a sidewalk;
    (3) Within an intersection or crosswalk;
    (4) Within 10 feet of a fire hydrant, 5 feet of a driveway, or 20 
feet of a stop sign, crosswalk, or traffic control signal;
    (5) In a double-parked position;
    (6) At a curb painted yellow;
    (7) On the side of a street facing oncoming traffic;
    (8) In a position that would obstruct traffic;
    (9) For a period in excess of 24 hours, except at living quarters, 
or with the approval of the Police Office.
    (b) A person must park bicycles, motorbikes, and similar vehicles 
only in designated areas, and may not bring these vehicles inside 
buildings.
    (c) A visitor must park in an area identified for that purpose by 
posted signs or similar instructions, such as ``visitor parking'' and 
``reserved for visitors''.
    (d) A person may not drive or park an unauthorized motor vehicle on 
a grassy, or any other unpaved, area without the approval of the Police 
Office.



Sec. 3.24  Parking permits.

    Except for visitor parking, a person may not park a motor vehicle 
without displaying a parking permit, currently valid for that location. 
The Director may revoke or refuse to issue or renew any parking permit 
for violation of this section, or any provision of this part.



Sec. 3.25  Servicing of vehicles.

    A person may not wash, polish, change oil, lubricate, or make 
nonemergency repairs on a privately owned vehicle.



Sec. 3.26  Speed limit.

    The speed limit is 25 miles per hour, unless otherwise posted. A 
driver of a vehicle may not exceed the speed limit.

[[Page 14]]



Sec. 3.27  Bicycles.

    A person may not operate a bicycle, motorbike, or similar vehicle 
without a horn or other warning device, and, if the vehicle is operated 
between dusk and dawn, it must be equipped with an operating headlight, 
and taillight or reflector.



                    Subpart C--Facilities and Grounds



Sec. 3.41  Admission to facilities or grounds.

    The enclave is officially open to the public during normal working 
and visiting hours and for approved public events. The enclave is closed 
to the public at all other times, and the Director may also officially 
close all or part of the enclave, or any building, in emergency 
situations and at other times the Director deems necessary to ensure the 
orderly conduct of Government business. When all or part of the enclave 
is closed to the public, admission is restricted to employees and other 
authorized persons who may be required to display Government credentials 
or other identification when requested by a police officer and may be 
required to sign a register. The living quarters and adjacent areas are 
not open to the public but are open at all times to occupants and their 
visitors and business invitees, unless otherwise closed by the Director.



Sec. 3.42  Restricted activities.

    (a) Hobbies and sports. A person may undertake hobbies and sports 
only in designated areas or as approved by the Director.
    (b) Pets and other animals. A person may not bring on the enclave 
any cat, dog, or other animal except for authorized purposes. This 
prohibition does not apply to domestic pets at living quarters or to the 
exercise of these pets under leash or other appropriate restraints. The 
use of a dog by a handicapped person to assist that person is 
authorized.
    (c) Photography. A person may take photographs, films or 
audiovisuals, for personal or news purposes on the grounds of the 
enclave or in entrances, lobbies, foyers, corridors, and auditoriums in 
use for public meetings, except when contrary to security regulations or 
Department of Health and Human Services policies, or where prohibited by 
appropriate signs. Photographs and similar activities for advertising or 
commercial purposes may be taken only with the advance written approval 
of the Director. A person may take photographs of a patient only with 
the informed consent of the patient (or the natural or legal guardian) 
and of the Director of the Warren Grant Magnuson Clinical Center or 
delegate.
    (d) Intoxicating beverages, narcotics, and other controlled 
substances. A person may not possess, sell, consume, or use alcohol or 
other intoxicating beverages, except in connection with official duties, 
as part of authorized research, or as otherwise authorized by the 
Director, or, in the case of possession, consumption or use only, in 
living quarters. (The sale, consumption, use, or possession of narcotics 
and other controlled substances is prohibited and shall be governed by 
the Controlled Substances Act (21 U.S.C. 841-845); driving under the 
influence of an alcoholic beverage, drug or controlled substance is 
prohibited and shall be governed by the Maryland Transportation Code 
Annotated section 21-902.)
    (e) Nuisances and disturbances. The following acts by a person are 
prohibited: Unwarranted loitering, disorderly conduct (acting in a 
disorderly manner to the disturbance of the public peace is prohibited 
and shall be governed by Maryland Code Annotated, Article 27, section 
122); littering or disposal of rubbish in an unauthorized manner, the 
creation of any hazard to persons or property; the throwing of articles 
of any kind from or at a building; the climbing upon any part of a 
building for other than an authorized purpose; the loud playing of 
radios or other similar devices; and rollerskating, skateboarding, 
sledding or similar activities, except in officially designated areas.
    (f) Smoking. Except as part of an approved medical research 
protocol, a person may not smoke in any building on the enclave.
    (g) Firearms, explosive, and other weapons. No person other than a 
specifically authorized police officer shall possess

[[Page 15]]

firearms, explosives, or other dangerous or deadly weapons or dangerous 
materials intended to be used as weapons either openly or concealed. 
Upon written request, the Director may permit possession in living 
quarters of antique firearms held for collection purposes, if the 
Director finds that the collection does not present any risk of harm.

[55 FR 2068, Jan. 22, 1990, as amended at 57 FR 1874, Jan. 16, 1992]



Sec. 3.43  Removal of property.

    A person may not remove Federal property from the enclave or any 
building on the enclave without a property pass, signed by an authorized 
property custodian, which specifically describes the items to be 
removed. In an emergency, or when the property custodian is not 
available, a police officer may approve removal of Federal property if, 
after consulting with the administrative officer or other appropriate 
official, the police officer is authorized by the official to do so. 
Privately-owned property, other than that ordinarily carried on one's 
person, may be removed only under this property pass procedure, or upon 
properly establishing ownership of the property to a police officer.
    Packages, briefcases, or other containers brought within the enclave 
are subject to inspection while on, or being removed from, the enclave.



Sec. 3.44  Solicitation.

    It shall be unlawful for a person (other than an employee using 
authorized bulletin boards), without prior written approval of the 
Director, to offer or display any article or service for sale within the 
enclave buildings or grounds; or to display any sign, placard, or other 
form of advertisement; or to collect private debts; or to solicit 
business, alms, subscriptions or contributions, except in connection 
with approved national or local campaigns for funds for welfare, health 
and other public interest purposes, or solicitation of labor 
organization membership or dues as authorized under the Civil Service 
Reform Act of 1978 (Pub. L. 95-454).
    This provision shall not apply to authorized lessees and their 
agents and employees with regard to space leased for commercial, 
cultural, educational, or recreational purposes, under the Public 
Buildings Cooperative Use Act of 1976 (40 U.S.C. 490(A)(16)).



                          Subpart D--Penalties



Sec. 3.61  Penalties.

    (a) A person found guilty of violating any provision of the 
regulations in this part is subject to a fine of not more than $50 or 
imprisonment of not more than thirty days or both, for each violation 
(40 U.S.C. 318c).
    (b) Penalties for violation of offenses proscribed by Federal 
statutes (generally codified in title 18 of the United States Code) and 
Maryland criminal statutes which are made Federal offenses under the 
Assimilative Crimes Act and are prescribed in the applicable provisions 
of those statutes.



PART 4--SERVICE OF PROCESS--Table of Contents




Sec.
4.1  Suits against the Department and its employees in their official 
          capacities.
4.2  Other process directed to the Department or Secretary.
4.3  Process against Department officials in their individual 
          capacities.
4.4  Acknowledgment of mailed process.
4.5  Effect of regulations.
4.6  Materials related to petitions under the National Vaccine Injury 
          Compensation Program.

    Authority: 5 U.S.C. 301, 42 U.S.C. 300aa-11.

    Source: 48 FR 24079, May 31, 1983, unless otherwise noted.



Sec. 4.1  Suits against the Department and its employees in their official capacities.

    Summonses and complaints to be served by mail on the Department of 
Health and Human Services, the Secretary of Health and Human Services, 
or other employees of the Department in their official capacities should 
be sent to the General Counsel, Department of Health and Human Services, 
200 Independence Avenue, S.W., Washington, DC 20201.



Sec. 4.2  Other process directed to the Department or Secretary.

    Subpoenas and other process (other than summonses and complaints) 
that

[[Page 16]]

are required to be served on the Department of Health and Human Services 
or the Secretary of Health and Human Services in his official capacity 
should be served as follows:
    (a) If authorized by law to be served by mail, any mailed process 
should be sent to the General Counsel, Department of Health and Human 
Services, 200 Independence, S.W., Washington, DC 20201.
    (b) If served by an individual, the process should be delivered to 
the staff of the correspondence control unit in the Office of the 
General Counsel, Room 711-E, 200 Independence Avenue, S.W., Washington, 
DC, or, in the absence of that staff, to any Deputy General Counsel or 
secretary to any Deputy General Counsel of the Department.



Sec. 4.3  Process against Department officials in their individual capacities.

    Process to be served on Department officials in their individual 
capacities must be served in compliance with the requirements for 
service of process on individuals who are not governmental officials. 
The Office of the General Counsel is authorized but not required to 
accept process to be served on Departmental officials in their 
individual capacities if the suit relates to an employee's official 
duties.



Sec. 4.4  Acknowledgement of mailed process.

    The Department will not provide a receipt or other acknowledgement 
of process received, except for a return receipt associated with 
certified mail and, where required, the acknowledgement specified by 
Rule 4(c)(2)(C) of the Federal Rules of Civil Procedure.



Sec. 4.5  Effect of regulations.

    The regulations in this part are intended solely to identify 
Department officials who are authorized to accept service of process. 
Litigants must comply with all requirements pertaining to service of 
process that are established by statute and court rule even though they 
are not repeated in these regulations.



Sec. 4.6  Materials related to petitions under the National Vaccine Injury Compensation Program.

    Notwithstanding the provisions of Secs. 4.1, 4.2, and 4.3, service 
of the Secretary's copies of petitions for compensation under the 
National Vaccine Injury Compensation Program and of related filings, 
whether by mail or in person, shall be upon the Director, Bureau of 
Health Professions, 5600 Fishers Lane, Suite 8-05, Rockville, Maryland 
20857.

[53 FR 49552, Dec. 8, 1988]



PART 5--FREEDOM OF INFORMATION REGULATIONS--Table of Contents




                         Subpart A--Basic Policy

Sec.
5.1  Purpose.
5.2  Policy.
5.3  Scope.
5.4  Relationship between the FOIA and the Privacy Act of 1974.
5.5  Definitions.

                      Subpart B--Obtaining a Record

5.21  How to request records.
5.22  Requests not handled under the FOIA.
5.23  Referral of requests outside the Department.
5.24  Responding to your request.

                Subpart C--Release and Denial of Records

5.31  Designation of authorized officials.
5.32  Release of records.
5.33  Denial of requests.
5.34  Appeal of denials.
5.35  Time limits.

                             Subpart D--Fees

5.41  Fees to be charged--categories of requests.
5.42  Fees to be charged--general provisions.
5.43  Fee schedule.
5.44  Procedures for assessing and collecting fees.
5.45  Waiver or reduction of fees.

           Subpart E--Records Available for Public Inspection

5.51  Records available.
5.52  Indexes of records.

             Subpart F--Reasons for Withholding Some Records

5.61  General.

[[Page 17]]

5.62  Exemption one: National defense and foreign policy.
5.63  Exemption two: Internal personnel rules and practices.
5.64  Exemption three: Records exempted by other statutes.
5.65  Exemption four: Trade secrets and confidential commercial or 
          financial information.
5.66  Exemption five: Internal memoranda.
5.67  Exemption six: Clearly unwarranted invasion of personal privacy.
5.68  Exemption seven: Law enforcement.
5.69  Exemptions 8 and 9: Records on financial institutions; records on 
          wells.

    Authority: 5 U.S.C. 552, 18 U.S.C. 1905, 31 U.S.C. 9701, 42 U.S.C. 
1306(c), E.O. 12600.

    Source: 53 FR 47700, Nov. 25, 1988, unless otherwise noted.



                         Subpart A--Basic Policy



Sec. 5.1  Purpose.

    This part contains the rules that the Department of Health and Human 
Services (HHS) follows in handling requests for records under the 
Freedom of Information Act (FOIA). It describes how to make a FOIA 
request; who can release records and who can decide not to release; how 
much time it should take to make a determination regarding release; what 
fees may be charged; what records are available for public inspection; 
why some records are not released; and your right to appeal and then go 
to court if we refuse to release records.



Sec. 5.2  Policy.

    As a general policy, HHS follows a balanced approach in 
administering FOIA. We not only recognize the right of public access to 
information in the possession of the Department, but also protect the 
integrity of internal processes. In addition, we recognize the 
legitimate interests of organizations or persons who have submitted 
records to the Department or who would otherwise be affected by release 
of records. For example, we have no discretion to release certain 
records, such as trade secrets and confidential commercial information, 
prohibited from release by law. This policy calls for the fullest 
responsible disclosure consistent with those requirements of 
administrative necessity and confidentiality which are recognized in the 
Freedom of Information Act.



Sec. 5.3  Scope.

    These rules apply to all components of the Department. Some units 
may establish additional rules because of unique program requirements, 
but such rules must be consistent with these rules and must have the 
concurrence of the Assistant Secretary for Public Affairs. Existing 
implementing rules remain in effect to the extent that they are 
consistent with the new Departmental regulation. If additional rules are 
issued, they will be published in the Federal Register, and you may get 
copies from our Freedom of information Officers.



Sec. 5.4  Relationship between the FOIA and the Privacy Act of 1974.

    (a) Coverage. The FOIA and this rule apply to all HHS records. The 
Privacy Act, 5 U.S.C. 552a, applies to records that are about 
individuals, but only if the records are in a system of records. 
``Individuals'' and ``system of records'' are defined in the Privacy Act 
and in our Privacy Act regulation, part 5b of this title.
    (b) Requesting your own records. If you are an individual and 
request records, then to the extent you are requesting your own records 
in a system of records, we will handle your request under the Privacy 
Act and part 5b. If there is any record that we need not release to you 
under those provisions, we will also consider your request under the 
FOIA and this rule, and we will release the record to you if the FOIA 
requires it.
    (c) Requesting another individual's record. Whether or not you are 
an individual, if you request records that are about an individual 
(other than yourself) and that are in a system of records, we will 
handle your request under the FOIA and this rule. (However, if our 
disclosure in response to your request would be permitted by the Privacy 
Act's disclosure provision, 5 U.S.C. 552a(b), for reasons other than the 
requirements of the FOIA, and if we decide to make the disclosure, then 
we will not handle your request under the FOIA and this rule. For 
example, when we make routine use disclosures

[[Page 18]]

pursuant to requests, we do not handle them under the FOIA and this 
rule. ``Routine use'' is defined in the Privacy Act and in Part 5b). If 
we handle your request under the FOIA and this rule and the FOIA does 
not require releasing the record to you, then the Privacy Act may 
prohibit the release and remove our discretion to release.



Sec. 5.5  Definitions.

    As used in this part,
    Agency means any executive department, military department, 
government corporation, government controlled corporation, or other 
establishment in the executive branch of the Federal Government, or any 
independent regulatory agency. Thus, HHS is an agency. A private 
organization is not an agency even if it is performing work under 
contract with the Government or is receiving Federal financial 
assistance. Grantee and contractor records are not subject to the FOIA 
unless they are in the possession or under the control of HHS or its 
agents, such as Medicare health insurance carriers and intermediaries.
    Commercial use means, when referring to a request, that the request 
is from or on behalf of one who seeks information for a use or purpose 
that furthers the commercial, trade, or profit interests of the 
requester or of a person on whose behalf the request is made. Whether a 
request is for a commercial use depends on the purpose of the request 
and the use to which the records will be put; the identity of the 
requester (individual, non-profit corporation, for-profit corporation), 
on the nature of the records, while in some cases indicative of that 
purpose or use, is not necessarily determinative. When a request is from 
a representative of the news media, a purpose or use supporting the 
requester's news dissemination function is not a commercial use.
    Department or HHS means the Department of Health and Human Services. 
It includes Medicare health insurance carriers and intermediaries to the 
extent they are performing functions under agreements entered into under 
sections 1816 and 1842 of the Social Security Act, 42 U.S.C. 1395h, 
1395u.
    Duplication means the process of making a copy of a record and 
sending it to the requester, to the extent necessary to respond to the 
request. Such copies include paper copy, microform, audio-visual 
materials, and magnetic tapes, cards, and discs.
    Educational institution means a preschool, elementary or secondary 
school, institution of undergraduate or graduate higher education, or 
institution of professional or vocational education, which operates a 
program of scholarly research.
    Freedom of Information Act or FOIA means section 552 of Title 5, 
United States Code, as amended.
    Freedom of Information Officer means an HHS official who has been 
delegated the authority to release or withhold records and assess, 
waive, or reduce fees in response to FOIA requests.
    Non-commercial scientific institution means an institution that is 
not operated substantially for purposes of furthering its own or someone 
else's business, trade, or profit interests, and that is operated for 
purposes of conducting scientific research whose results are not 
intended to promote any particular product or industry.
    Records means any handwritten, typed, or printed documents (such as 
memoranda, books, brochures, studies, writings, drafts, letters, 
transcripts, and minutes) and documentary material in other forms (such 
as punchcards; magnetic tapes, cards, or discs; paper tapes; audio or 
video recordings; maps; photographs; slides; microfilm; and motion 
pictures). It does not include objects or articles such as exhibits, 
models, equipment, and duplication machines or audiovisual processing 
materials. Nor does it include books, magazines, pamphlets, or other 
reference material in formally organized and officially designated HHS 
libraries, where such materials are available under the rules of the 
particular library.
    Representative of the news media means a person actively gathering 
information for an entity organized and operated to publish or broadcast 
news to the public. News media entities include television and radio 
broadcasters, publishers of periodicals who distribute their products to 
the general public or who make their products available for purchase or 
subscription by the general

[[Page 19]]

public, and entities that may disseminate news through other media 
(e.g., electronic dissemination of text). We will treat freelance 
journalists as representatives of a new media entity if they can show a 
likelihood of publication through such an entity. A publication contract 
is such a basis, and the requester's past publication record may show 
such a basis.
    Request means asking for records, whether or not you refer 
specifically to the Freedom of Information Act. Requests from Federal 
agencies and court orders for documents are not included within this 
definition. Subpoenas are requests only to the extent provided by Part 2 
of this title.
    Review means, when used in connection with processing records for a 
commercial use request, examining the records to determine what 
portions, if any, may be withheld, and any other processing that is 
necessary to prepare the records for release. It includes only the 
examining and processing that are done the first time we analyze whether 
a specific exemption applies to a particular record or portion of a 
record. It does not include examination done in the appeal stage with 
respect to an exemption that was applied at the initial request stage. 
However, if we initially withhold a record under one exemption, and on 
appeal we determine that that exemption does not apply, then examining 
the record in the appeal stage for the purpose of determining whether a 
different exemption applies is included in review. It does not include 
the process of researching or resolving general legal or policy issues 
regarding exemptions.
    Search means looking for records or portions of records responsive 
to a request. It includes reading and interpreting a request, and also 
page-by-page and line-by-line examination to identify responsive 
portions of a document. However, it does not include line-by-line 
examination where merely duplicating the entire page would be a less 
expensive and quicker way to comply with the request.



                      Subpart B--Obtaining a Record



Sec. 5.21  How to request records.

    (a) General. Our policy is to answer all requests, both oral and 
written, for records. However, in order to have the rights given you by 
the FOIA and by this regulation (for example, the right to appeal if we 
deny your request and the right to have our decisions reviewed in 
court), you must either make your request in writing or make it orally 
to a Freedom of Information Officer. Freedom of Information Officers and 
their staffs may put in writing any oral requests they receive directly.
    (b) Addressing requests. It will help us to handle your request 
sooner if you address it to the Freedom of Information Officer in the 
HHS unit that is most likely to have the records you want. (See 
Sec. 5.31 of this Part for a list of Freedom of Information Officers.) 
If you cannot determine this, send the request to: HHS Freedom of 
Information Officer, 645-F, Hubert H. Humphrey Building, Department of 
Health and Human Services, 200 Independence Avenue SW., Washington, DC 
20201. Write the words ``Freedom of Information Act Request'' on the 
envelope and letter.
    (c) Details in the letter. You should provide details that will help 
us identify and find the records you are requesting. If there is 
insufficient information, we will ask you for more. Include your 
telephone number(s) to help us reach you if we have questions. If you 
are not sure how to write your request or what details to include, 
communicate with a Freedom of Information Officer.



Sec. 5.22  Requests not handled under the FOIA.

    (a) We will not handle your request under the FOIA and this 
regulation to the extent it asks for records that are currently 
available, either from HHS or from another part of the Federal 
Government, under a statute that provides for charging fees for those 
records. For example, we will not handle your request under the FOIA and 
this regulation to the extent it asks for

[[Page 20]]

detailed earnings statements under the Social Security program, or 
records currently available from the Government Printing Office of the 
National Technical Information Service.
    (b) We will not handle your request under the FOIA and this 
regulation to the extent it asks for records that are distributed by an 
HHS program office as part of its regular program activity, for example, 
health education brochures distributed by the Public Health Service or 
public information leaflets distributed by the Social Security 
Administration.



Sec. 5.23  Referral of requests outside the Department.

    If you request records that were created by, or provided to us by, 
another Federal agency, and if that agency asserts control over the 
records, we may refer the records and your request to that agency. We 
may likewise refer requests for classified records to the agency that 
classified them. In these cases, the other agency will process and 
respond to your request, to the extent it concerns those records, under 
that agency's regulation, and you need not make a separate request to 
that agency. We will notify you when we refer your request to another 
agency.



Sec. 5.24  Responding to your request.

    (a) Retrieving records. The Department is required to furnish copies 
of records only when they are in our possession or we can retrieve them 
from storage. If we have stored the records you want in the National 
Archives or another storage center, we will retrieve and review them for 
possible disclosure. However, the Federal Government destroys many old 
records, so sometimes it is impossible to fill requests. Various laws, 
regulations, and manuals give the time periods for keeping records 
before they may be destroyed. For example, there is information about 
retention of records in the Records Disposal Act of 1944, 44 U.S.C. 3301 
through 3314; the Federal Property Management Regulations, 41 CFR 101-
11.4; the General Records Schedules of the National Archives and Records 
Administration; and in the HHS Handbook: Files Maintenance and Records 
Disposition.
    (b) Furnishing records. The requirement is that we furnish copies 
only of records that we have or can retrieve. We are not compelled to 
create new records. For example, we are not required to write a new 
program so that a computer will print information in the format you 
prefer. However, if the requested information is maintained in 
computerized form, but we can, with minimal computer instructions, 
produce the information on paper, we will do this if it is the only way 
to respond to a request. Nor are we required to perform research for 
you. On the other hand, we may decide to conserve government resources 
and at the same time supply the records you need by consolidating 
information from various records rather than copying them all. Moreover, 
we are required to furnish only one copy of a record and usually impose 
that limit. If information exists in different forms, we will provide 
the record in the form that best conserves government resources. For 
example, if it requires less time and expense to provide a computer 
record as a paper printout rather than in an electronic medium, we will 
provide the printout.



                Subpart C--Release and Denial of Records



Sec. 5.31  Designation of authorized officials.

    (a) Freedom of Information Officers. To provide coordination and 
consistency in responding to FOIA requests, only Freedom of Information 
Officers have the authority to release or deny records. These same 
officials determine fees.
    (1) HHS Freedom of Information Officer. Only the HHS Freedom of 
Information Officer may determine whether to release or deny records in 
any of the following situations:
    (i) The records you seek include records addressed to or sent from 
an official or office of the Office of the Secretary, including its 
staff offices, or of any Regional Director's Office;
    (ii) The records you seek include any records of the Office of Human 
Development Services, the Family Support Administration, or any 
organizational unit of HHS not specifically indentified below; or

[[Page 21]]

    (iii) The records include records of more than one of the major 
units identified below (PHS, CMS, and SSA) either at headquarters or in 
a Regional Office.
    (2) PHS Freedom of Information Officer. If the records you seek are 
exclusively records of the Public Health Service or if the records you 
seek involve more than one health agency of the Public Health Service, 
including its records in the regions, only the Deputy Assistant 
Secretary for Health (Communications), who also is the PHS Freedom of 
Information Officer, may determine whether to release or deny the 
records, except as follows:
    (i) CDC and ATSDR Freedom of Information Officer. If the records you 
seek are exclusively records of the Centers for Disease Control and/or 
the Agency for Toxic Substances and Disease Registry, only the Director, 
Office of Public Affairs, CDC, who also is the CDC and ATSDR Freedom of 
Information Officer, may determine whether to release or deny the 
records.
    (ii) FDA Freedom of Information Officer. If the records you seek are 
exclusively records of the Food and Drug Administration, only the 
Associate Commissioner for Public Affairs, FDA, who also is the FDA 
Freedom of Information Officer, may determine whether to release or deny 
the records.
    (iii) NIH Freedom of Information Officer. If the records you seek 
are exclusively records of the National Institutes of Health, only the 
Associate Director of Communications, HIH, who also is the NIH Freedom 
of Information Officer, may determine whether to release or deny the 
records.
    (iv) HRSA Freedom of Information Officer. If the records you seek 
are exclusively records of the Health Resources and Services 
Administration, only the Associate Administrator for Communications, 
HRSA, who also is the HRSA Freedom of Information Officer, may determine 
whether to release or deny the records.
    (v) ADAMHA Freedom of Information Officer. If the records you seek 
are exclusively records of the Alcohol, Drug Abuse and Mental Health 
Administration, only the Associate Administrator for Communications and 
Public Affairs, ADAMHA, who is also the ADAMHA Freedom of Information 
Officer, may determine whether to release or deny the records.
    (vi) IHS Freedom of Information Officer. If the records you seek are 
exclusively records of the Indian Health Service, only the Director of 
Communications, IHS, who also is the IHS Freedom of Information Officer, 
may determine whether to release or deny the records.
    (3) SSA Freedom of Information Officer. If the records you seek are 
exclusively records of the Social Security Administration, including its 
records in the regions, only the Director, Office of Public Inquiries, 
SSA, who also is the SSA Freedom of Information Officer, may determine 
whether to release or deny the records.
    (4) CMS Freedom of Information Officer. If the records you seek are 
exclusively records of theCenters for Medicare & Medicaid Services, 
including its records in the regions, only the Director, Office of 
Public Affairs, CMS, who also is the CMS Freedom of Information Officer, 
may determine whether to release or deny the records.
    (b) Delegations. Any of the above Freedom of Information Officers 
may delegate his or her authority to release or deny records and to 
determine fees. Any such delegation requires the concurrence of the 
Assistant Secretary for Public Affairs.
    (c) Addresses and telephone numbers. The addresses and telephone 
numbers of the Freedom of Information Officers are listed below.

                     Freedom of Information Officers

HHS Freedom of Information Officer, Room 645-F, Hubert H. Humphrey 
Building, 200 Independence Avenue SW., Washington, DC 20201, Tel: (202) 
472-7453
SSA Freedom of Information Officer, Room 4-H-8, Annex Building, 6401 
Security Boulevard, Baltimore, Maryland 21235, Tel: (301) 965-3962
CMS Freedom of Information Officer, Room 100, Professional Building, 
Office of Public Affairs, 6660 Security Boulevard, Baltimore, Maryland 
21207, Tel: (301) 966-5352
PHS Freedom of Information Officer, Room 13-C-24, Parklawn Building, 
5600 Fishers Lane, Rockville, Maryland 20857, Tel: (301) 443-5252
FDA Freedom of Information Officer, HFW-35, Room 12A16, Parklawn 
Building, 5600

[[Page 22]]

Fishers Land, Rockville, Maryland 20857, Tel: (301) 443-1813
NIH Freedom of Information Officer, National Institutes of Health, 
Building 31, Room 2B39, 9000 Rockville Pike, Bethesda, Maryland 20892, 
Tel: (301) 496-5633
CDC Freedom of Information Officer, Centers for Disease Control, 1600 
Clifton Road, NE., Atlanta, Georgia 30333, Tel: (404) 329-3286
HRSA Freedom of Information Officer, Room 14-43, Parklawn Building, 5600 
Fishers Lane, Rockville, Maryland 20857, Tel: (301) 443-2086
ADAMHA Freedom of Information Officer, Room 12-C-15, Parklawn Building, 
5600 Fishers Lane, Rockville, Maryland 20857, Tel: (301) 443-3783
IHS Freedom of Information Officer, Room 5-A-39, Parklawn Building, 5600 
Fishers Land, Rockville, Maryland 20857, Tel: (301) 443-1397.



Sec. 5.32  Release of records.

    (a) Records previously released. If we have released a record, or a 
part of a record, to others in the past, we will ordinarily release it 
to you also. However, we will not release it to you if a statute forbids 
this disclosure, and we will not necessarily release it to you if an 
exemption applies in your situation and did not apply, or applied 
differently, in the previous situations.
    (b) Unauthorized disclosure. The principle stated in paragraph (a) 
of this section, does not apply if the previous release was 
unauthorized.
    (c) Poor copy. If we cannot make a legible copy of a record to be 
released, we do not attempt to reconstruct it. Instead, we furnish the 
best copy possible and note its poor quality in our reply.



Sec. 5.33  Denial of requests.

    (a) Information furnished. All denials are in writing and describe 
in general terms the material withheld; state the reasons for the 
denial, including, as applicable, a reference to the specific exemption 
of the FOIA authorizing the withholding or deletion; explain your right 
to appeal the decision and identify the official to whom you should send 
the appeal; and are signed by the person who made the decision to deny 
all or part of the request.
    (b) Unproductive searches. We make a diligent search for records to 
satisfy your request. Nevertheless, we may not be able always to find 
the records you want using the information you provided, or they may not 
exist. If we advise you that we have been unable to find the records 
despite a diligent search, this does not constitute a denial of your 
request.



Sec. 5.34  Appeal of denials.

    (a) Right of appeal. You have the right to appeal a partial or full 
denial of your FOIA request. To do so, you must put your appeal in 
writing and send it to the review official identified in the denial 
letter. You must send your appeal within 30 days from the date you 
receive that letter or from the date you receive the records released as 
a partial grant of your request, whichever is later.
    (b) Letter of appeal. The appeal letter should state reasons why you 
believe that the FOIA exemption(s) we cited do not apply to the records 
that you requested, or give reasons why they should be released 
regardless of whether the exemption(s) apply. Because we have some 
discretionary authority in deciding whether to release or withhold 
records, you may strengthen your request by explaining your reasons for 
wanting the records. However, you are not required to give any 
explanation.
    (c) Review process. Before making a decision on an appeal of a 
denial, the designated review official will consult with the General 
Counsel to ensure that the rights and interests of all parties affected 
by the request are protected. Also, the concurrence of the Assistant 
Secretary for Public Affairs is required in all appeal decisions, 
including those on fees. When the review official responds to an appeal, 
that constitutes the Department's final action on the request. If the 
review official grants your appeal, we will send the records to you 
promptly or let you inspect them, or else we will explain the reason for 
any delay and the approximate date you will receive copies or be allowed 
to inspect the records. If the decision is to deny your appeal, the 
official will state the reasons for the decision in writing and inform 
you of the FOIA provision for judicial review.

[[Page 23]]



Sec. 5.35  Time limits.

    (a) General. FOIA sets certain time limits for us to decide whether 
to disclose the records you requested, and to decide appeals. If we fail 
to meet the deadlines, you may proceed as if we had denied your request 
or your appeal. We will try diligently to comply with the time limits, 
but if it appears that processing your request may take longer than we 
would wish, we will acknowledge your request and tell you its status. 
Since requests may be misaddressed or misrouted, you should call or 
write to confirm that we have the request and to learn its status if you 
have not heard from us in a reasonable time.
    (b) Time allowed. (1) We will decide whether to release records 
within 10 working days after your request reaches the appropriate FOI 
office, as identified in Sec. 5.31 of this part. When we decide to 
release records, we will actually provide the records, or let you 
inspect them, as soon as possible after that decision.
    (2) We will decide an appeal within 20 working days after the appeal 
reaches the appropriate review official
    (c) Extension of time limits. FOI Officers of review officials may 
extend the time limits in unusual circumstances. Extension at the 
request stage and at the appeal stage may total up to 10 working days. 
We will notify you in writing of any extension. ``Unusual 
circumstances'' include situations when we:
    (1) Search for and collect records from field facilites, archives, 
or locations other than the office processing the request.
    (2) Search for, collect, or examine a great many records in response 
to a single request.
    (3) Consult with another office or agency that has substantial 
interest in the determination of the request.
    (4) Conduct negotiations with submitters and requesters of 
information to determine the nature and extent of non-disclosable 
proprietary materials.



                             Subpart D--Fees



Sec. 5.41  Fees to be charged--categories of requests.

    The paragraphs below state, for each category of request, the type 
of fees that we will generally charge. However, for each of these 
categories, the fees may be limited, waived, or reduced for the reasons 
given in Secs. 5.42 through 5.45 or for other reasons.
    (a) Commercial use request. If your request is for a commercial use, 
HHS will charge you the costs of search, review, and duplication.
    (b) Educational and scientific institutions and news media. If you 
are an educational institution or a non-commercial scientific 
institution, operated primarily for scholarly or scientific research, or 
a representative of the news media, and your request is not for a 
commercial use, HHS will charge you only for the duplication of 
documents. Also, HHS will not charge you the copying costs for the first 
100 pages of duplication.
    (c) Other requesters. If your request is not the kind described by 
paragraph (a) or (b) of this section, then HHS will charge you only for 
the search and the duplication. Also, we will not charge you for the 
first two hours of search time or for the copying costs of the first 100 
pages of duplication.



Sec. 5.42  Fees to be charged--general provisions.

    (a) We may charge search fees even if the records we find are exempt 
from disclosure, or even if we do not find any records at all.
    (b) If we are not charging you for the first two hours of search 
time, under Sec. 5.41(c), and those two hours are spent on a computer 
search, then the two free hours are the first two hours of the 
operator's own operation. If the operator spends less than two hours on 
the search, we well reduce the total search fees by the average hourly 
rate for the operator's time, multipled by two.
    (c) If we are not charging you for the first 100 pages of 
duplication, under Sec. 5.41 (b) or (c), then those 100 pages are the 
first 100 pages of photocopies of

[[Page 24]]

standard size pages, or the first 100 pages of computer printout. If we 
cannot use this method to calculate the fee reduction, then we will 
reduce your total duplication fee by the normal charge for photocopying 
a standard size page, multiplied by 100.
    (d) We will not charge you any fee at all if the costs of routine 
collection and processing of the fee are likely to equal or exceed the 
amount of the fee. As of May 1987, such costs among the units HHS ranged 
between $6.00 and $12.50.
    (e) If we determine that you (acting either alone or together with 
others) are breaking down a single request into a series of requests in 
order to avoid (or reduce) the fees charged, we may aggregate all these 
requests for purposes of calculating the fees charged.
    (f) We will charge interest on unpaid bills beginning on the 31st 
day following the day the bill was sent. We will use the provisions of 
Part 30 of this Title in assessing interest, administrative costs, and 
penalties and in taking actions to encourage payment.
    (g) This subpart does not apply to requests for Social Security 
program records on Social Security number holders, wage earners, 
employers, and claimants, where the requests are governed by section 
1106 of the Social Security Act, 42 U.S.C. 1306(c), and by 20 CFR 
442.441.



Sec. 5.43  Fee schedule.

    HHS charges the following fees:
    (a) Manual searching for or reviewing of records--when the search or 
review is performed by employees at grade GS-1 through GS-8, an hourly 
rate based on the salary of a GS-5, step 7, employee; when done by a GS-
9 through GS-14, an hourly rate based on the salary of a GS-12, step 4, 
employee; and when done by a GS-15 or above, an hourly rate based on the 
salary of a GS-15, step 7, employee. In each case, the hourly rate will 
be computed by taking the current hourly rate for the specified grade 
and step, adding 16% of that rate to cover benefits, and rounding to the 
nearest whole dollar. As of November 25, 1988, these rates were $10, 
$20, and $37 respectively. When a search involves employees at more than 
one of these levels, we will charge the rate appropriate for each.
    (b) Computer searching and printing--the actual cost of operating 
the computer plus charges for the time spent by the operator, at the 
rates given in paragraph (a) of this section.
    (c) Photocopying standard size pages--$0.10 per page. FOI Officers 
may charge lower fees for particular documents where--
    (1) The document has already been printed in large numbers,
    (2) The program office determines that using existing stock to 
answer this request, and any other anticipated FOI requests, will not 
interfere with program requirements, and
    (3) The FOI Officer determines that the lower fee is adequate to 
recover the prorated share of the original printing costs.
    (d) Photocopying odd-size documents (such as punchcards or 
blueprints), or reproducing other records (such as tapes)--the actual 
costs of operating the machine, plus the actual cost of the materials 
used, plus charges for the time spent by the operator, at the rates 
given in paragraph (a) of this section.
    (e) Certifying that records are true copies. This service is not 
required by the FOIA. If we agree to provide it, we will charge $10 per 
certification.
    (f) Sending records by express mail, certified mail, or other 
special methods. This service is not required by the FOIA. If we agree 
to provide it, we will charge our actual costs.
    (g) Performing any other special service that you request and we 
agree to--actual costs of operating any machinery, plus actual cost of 
any materials used, plus charges for the time of our employees, at the 
rates given in paragraph (a) of this section.



Sec. 5.44  Procedures for assessing and collecting fees.

    (a) Agreement to pay. We generally assume that when you request 
records you are willing to pay the fees we charge for services 
associated with your request. You may specify a limit on the amount you 
are willing to spend. We will notify you if it appears that the fees 
will exceed the limit and ask whether you nevertheless want us to 
proceed with the search.

[[Page 25]]

    (b) Advance payment. If you have failed to pay previous bills in a 
timely fashion, or if our initial review of your request indicates that 
we will charge you fees exceeding $250, we will require you to pay your 
past due fees and/or the estimated fees, or a deposit, before we start 
searching for the records you want. If so, we will let you know promptly 
upon receiving your request. In such cases, the administrative time 
limits prescribed in Sec. 5.35 of the part (i.e., ten working days from 
receipt of initial requests and 20 working days from receipt of appeals 
from initial denials, plus permissible extensions of these time limits) 
will begin only after we come to an agreement with you over payment of 
fees, or decide that fee waiver or reduction is appropriate.
    (c) Billing and payment. We will normally require you to pay all 
fees before we furnish the records to you. We may, at our discretion, 
send you a bill along with or following the furnishing of the records. 
For example, we may do this if you have a history of prompt payment. We 
may also, at our discretion, aggregate the charges for certain time 
periods in order to avoid sending numerous small bills to frequent 
requesters, or to businesses or agents representing requesters. For 
example, we might send a bill to such a requester once a month. Fees 
should be paid in accordance with the instructions furnished by the 
person who responds to your requests.



Sec. 5.45  Waiver or reduction of fees.

    (a) Standard. We will waive or reduce the fees we would otherwise 
charge if disclosure of the information meets both of the following 
tests:
    (1) It is in the public interest because it is likely to contribute 
significantly to public understanding of the operations or activities of 
the government, and
    (2) It is not primarily in the commercial interest of the requester.
    These two tests are explained in paragraphs (b) and (c) of this 
section.
    (b) Public interest. The disclosure passes the first test only if it 
furthers the specific public interest of being likely to contribute 
significantly to public understanding of government operations or 
activities, regardless of any other public interest it may further. In 
analyzing this question, we will consider the following factors.
    (1) How, if at all, do the records to be disclosed pertain to the 
operations or activities of the Federal Government?
    (2) Would disclosure of the records reveal any meaningful 
information about government operations or activities? Can one learn 
from these records anything about such operations that is not already 
public knowledge?
    (3) Will the disclosure advance the understanding of the general 
public as distinguished from a narrow segment of interested persons? 
Under this factor we may consider whether the requester is in a position 
to contribute to public understanding. For example, we may consider 
whether the requester has such knowledge or expertise as may be 
necessary to understand the information, and whether the requester's 
intended use of the information would be likely to disseminate the 
information among the public. An unsupported claim to be doing research 
for a book or article does not demonstrate that likelihood, while such a 
claim by a representative of the news media is better evidence.
    (4) Will the contribution to public understanding be a significant 
one? Will the public's understanding of the government's operations be 
substantially greater as a result of the disclosure?
    (c) Not primarily in the requester's commercial interest. If the 
disclosure passes the test of furthering the specific public interest 
described in paragraph (b) of this section, we will determine whether it 
also furthers the requester's commercial interest and, if so, whether 
this effect outweighs the advancement of that public interest. In 
applying this second test, we will consider the following factors:
    (1) Would the disclosure further a commercial interest of the 
requester, or of someone on whose behalf the requester is acting? 
``Commercial interests'' include interests relating to business, trade, 
and profit. Not only profit-making corporations have commercial

[[Page 26]]

interests--so do nonprofit corporations, individuals, unions, and other 
associations. The interest of a representative of the news media in 
using the information for news dissemination purposes will not be 
considered a commercial interest.
    (2) If disclosure would further a commercial interest of the 
requester, would that effect outweigh the advancement of the public 
interest defined in paragraph (b) of this section? Which effect is 
primary?
    (d) Deciding between waiver and reduction. If the disclosure passes 
both tests, we will normally waive fees. However, in some cases we may 
decide only to reduce the fees. For example, we may do this when 
disclosure of some but not all of the requested records passes the 
tests.
    (e) Procedure for requesting a waiver or reduction. You must make 
your request for a waiver or reduction at the same time you make your 
request for records. You should explain why you believe a waiver or 
reduction is proper under the analysis in paragraphs (a) through (d) of 
this section. Only FOI Officers may make the decision whether to waive, 
or reduce, the fees. If we do not completely grant your request for a 
waiver or reduction, the denial letter will designate a review official. 
You may appeal the denial to that official. In your appeal letter, you 
should discuss whatever reasons are given in our denial letter. The 
process prescribed in Sec. 5.34(c) of this part will also apply to these 
appeals.



           Subpart E--Records Available for Public Inspection



Sec. 5.51  Records available.

    (a) Records of general interest. We will make the following records 
of general interest available for your inspection and copying. Before 
releasing them, however, we may delete the names of people, or 
information that would identify them, if release would invade their 
personal privacy to a clearly unwarranted degree. (See Sec. 5.67 of this 
part.)
    (1) Orders and final opinions, including concurring and dissenting 
opinions in adjudications, such as Letters of Finding issued by the 
Office for Civil Rights in civil rights complaints, and Social Security 
Rulings. (See Sec. 5.66 of this part for availability of internal 
memoranda, including attorney opinions and advice.)
    (2) Statements of policy and interpretations that we have adopted 
but have not published in the Federal Register.
    (3) Administrative staff manuals and instructions to staff that 
affect the public. (We will not make available, however, manuals or 
instructions that reveal investigative or audit procedures as described 
in Secs. 5.63 and 5.68 of this part.)
    (b) Other records. In addition to such records as those described in 
paragraph (a) of this section, we will make available to any person a 
copy of all other agency records, unless we determine that such records 
should be withheld from disclosure under subsection (b) of the Act and 
Subpart F of this regulation.



Sec. 5.52  Indexes of records.

    (a) Inspection and copying. We will maintain and provide for your 
inspection and copying current indexes of the records described in 
Sec. 5.51(a). We will also publish and distribute copies of the indexes 
unless we announce in the Federal Register that it is unnecessary or 
impracticable to do so. For assistance in locating indexes maintained in 
the Department, you may contact the HHS Freedom of Information Officer 
at the address and telephone number in Sec. 5.31(c).
    (b) Record citation as precedent. We will not use or cite any record 
described in Sec. 5.51(a) as a precedent for an action against a person 
unless we have indexed the record and published it or made it available, 
or unless the person has timely notice of the record.



             Subpart F--Reasons for Withholding Some Records



Sec. 5.61  General.

    Section 552(b) of the Freedom of Information Act contains nine 
exemptions to the mandatory disclosure of records. We describe these 
exemptions below and explain how this Department

[[Page 27]]

applies them to disclosure determinations. (In some cases more than one 
exemption may apply to the same document.) Information obtained by the 
Department from any individual or organization, furnished in reliance on 
a provision for confidentiality authorized by applicable statute or 
regulation, will not be disclosed, to the extent it can be withheld 
under one of these exemptions. This section does not itself authorize 
the giving of any pledge of confidentiality by any officer or employee 
of the Department.



Sec. 5.62  Exemption one: National defense and foreign policy.

    We are not required to release records that, as provided by FOIA, 
are ``(a) specifically authorized under criteria established by an 
Executive Order to be kept secret in the interest of national defense or 
foreign policy and (b) are in fact properly classified pursuant to such 
Executive Order.'' Executive Order No. 12356 (1982) provides for such 
classification. When the release of certain records may adversely affect 
U.S. relations with foreign countries, we usually consult with officials 
of those countries or officials of the Department of State. Also, we may 
on occasion have in our possession records classified by some other 
agency. We may refer your request for such records to the agency that 
classified them and notify you that we have done so, as explained in 
Sec. 5.23.



Sec. 5.63  Exemption two: Internal personnel rules and practices.

    We are not required to release records that are ``related solely to 
the internal personnel rules and practices of an agency.'' Under this 
exemption, we may withhold routine internal agency practices and 
procedures. For example, we may withhold guard schedules and rules 
governing parking facilities or lunch periods. Also under this 
exemption, we may withhold internal records whose release would help 
some persons circumvent the law or agency regulations. For example, we 
ordinarily do not disclose manuals that instruct our investigators or 
auditors how to investigate possible violations of law, to the extent 
that this release would help some persons circumvent the law.



Sec. 5.64  Exemption three: Records exempted by other statutes.

    We are not required to release records if another statute 
specifically allows us to withhold them. We may use another statute to 
justify withholding only if it absolutely prohibits disclosure or if it 
sets forth criteria to guide our decision on releasing or identifies 
particular types of material to be withheld.



Sec. 5.65  Exemption four: Trade secrets and confidential commercial or financial information.

    We will withhold trade secrets and commercial or financial 
information that is obtained from a person and is privileged or 
confidential.
    (a) Trade secrets. A trade secret is a secret, commercially valuable 
plan, formula, process, or device that is used for the making, 
preparing, compounding, or processing of trade commodities and that can 
be said to be the end product of either innovation or substantial 
effort. There must be a direct relationship between the trade secret and 
the productive process.
    (b) Commercial or financial information. We will not disclose 
records whose information is ``commercial or financial,'' is obtained 
from a person, and is ``privileged or confidential.''
    (1) Information is ``commercial or financial'' if it relates to 
businesses, commerce, trade, employment, profits, or finances (including 
personal finances). We interpret this category broadly.
    (2) Information is ``obtained from a person'' if HHS or another 
agency has obtained it from someone outside the Federal Government or 
from someone within the Government who has a commercial or financial 
interest in the information. ``Person'' includes an individual, 
partnership, corporation, association, state or foreign government, or 
other organization. Information is not ``obtained from a person'' if it 
is generated by HHS or another federal agency. However, information is 
``obtained from a person'' if it is provided by someone, including but 
not limited to an agency employee, who retains a

[[Page 28]]

commercial or financial interest in the information.
    (3) Information is ``privileged'' if it would ordinarily be 
protected from disclosure in civil discovery by a recognized evidentiary 
privilege, such as the attorney-client privilege or the work product 
privilege. Information may be privileged for this purpose under a 
privilege belonging to a person outside the government, unless the 
providing of the information to the government rendered the information 
no longer protectable in civil discovery.
    (4) Information is ``confidential'' if it meets one of the following 
tests:
    (i) Disclosure may impair the government's ability to obtain 
necessary information in the future;
    (ii) Disclosure would substantially harm the competitive position of 
the person who submitted the information;
    (iii) Disclosure would impair other government interests, such as 
program effectiveness and compliance; or
    (iv) Disclosure would impair other private interests, such as an 
interest in controlling availability of intrinsically valuable records, 
which are sold in the market by their owner.

The following questions may be relevant in analyzing whether a record 
meets one or more of the above tests: Is the information of a type 
customarily held in strict confidence and not disclosed to the public by 
the person to whom it belongs? What is the general custom or usage with 
respect to such information in the relevant occupation or business? How 
many, and what types of, individuals have access to the information? 
What kind and degree of financial injury can be expected if the 
information is disclosed?
    (c) Designation of certain confidential information. A person who 
submits records to the government may designate part or all of the 
information in such records as exempt from disclosure under Exemption 4 
of the FOIA. The person may make this designation either at the time the 
records are submitted to the government or within a reasonable time 
thereafter. The designation must be in writing. Where a legend is 
required by a request for proposals or request for quotations, pursuant 
to 48 CFR 352.215-12, then that legend is necessary for this purpose. 
Any such designation will expire ten years after the records were 
submitted to the government.
    (d) Predisclosure notification. The procedures in this paragraph 
apply to records on which the submitter has designated information as 
provided in paragraph (c) of this section. They also apply to records 
that were submitted to the government where we have substantial reason 
to believe that information in the records could reasonably be 
considered exempt under Exemption 4. Certain exceptions to these 
procedures are stated in paragraph (e) of this section.
    (1) When we receive a request for such records, and we determine 
that we may be required to disclose them, we will make reasonable 
efforts to notify the submitter about these facts. The notice will 
include a copy of the request, and it will inform the submitter about 
the procedures and time limits for submission and consideration of 
objections to disclosure. If we must notify a large number of 
submitters, we may do this by posting or publishing a notice in a place 
where the submitters are reasonably likely to become aware of it.
    (2) The submitter has five working days from receipt of the notice 
to object to disclosure of any part of the records and to state all 
bases for its objections.
    (3) We will give consideration to all bases that have been timely 
stated by the submitter. If we decide to disclose the records, we will 
notify the submitter in writing. This notice will briefly explain why we 
did not sustain its objections. We will include with the notice a copy 
of the records about which the submitter objected, as we propose to 
disclose them. The notice will state that we intend to disclose the 
records five working days after the submitter receives the notice unless 
we are ordered by a United States District Court not to release them.
    (4) When a requester files suit under the FOIA to obtain records 
covered by this paragraph, we will promptly notify the submitter.
    (5) Whenever we send a notice to a submitter under paragraph (d)(1) 
of

[[Page 29]]

this section, we will notify the requester that we are giving the 
submitter a notice and an opportunity to object. Whenever we send a 
notice to a submitter under paragraph (d)(3) of this section, we will 
notify the requester of this fact.
    (e) Exceptions to predisclosure notification. The notice 
requirements in paragraph (d) of this section do not apply in the 
following situations:
    (1) We decided not to disclose the records;
    (2) The information has previously been published or made generally 
available;
    (3) Disclosure is required by a regulation, issued after notice and 
opportunity for public comment, that specifies narrow categories of 
records that are to be disclosed under the FOIA, but in this case a 
submitter may still designate records as described in paragraph (c) of 
this section, and in exceptional cases, we may, at our discretion, 
follow the notice procedures in paragraph (d) of this section; or
    (4) The designation appears to be obviously frivolous, but in this 
case we will still give the submitter the written notice required by 
paragraph (d)(3) of this section (although this notice need not explain 
our decision or include a copy of the records), and we will notify the 
requester as described in paragraph (d)(5) of this section.



Sec. 5.66  Exemption five: Internal memoranda.

    This exemption covers internal government communications and notes 
that fall within a generally recognized evidentiary privilege. Internal 
government communications include an agency's communications with an 
outside consultant or other outside person, with a court, or with 
Congress, when those communications are for a purpose similar to the 
purpose of privileged intra-agency communications. Some of the most-
commonly applicable privileges are described in the following 
paragraphs.
    (a) Deliberative process privilege. This privilege protects 
predecisional deliberative communications. A communication is protected 
under this privilege if it was made before a final decision was reached 
on some question of policy and if it expressed recommendations or 
opinions on that question. The purpose of the privilege is to prevent 
injury to the quality of the agency decisionmaking process by 
encouraging open and frank internal policy discussions, by avoiding 
premature disclosure of policies not yet adopted, and by avoiding the 
public confusion that might result from disclosing reasons that were not 
in fact the ultimate grounds for an agency's decision. Purely factual 
material in a deliberative document is within this privilege only if it 
is inextricably intertwined with the deliberative portions so that it 
cannot reasonably be segregated, if it would reveal the nature of the 
deliberative portions, or if its disclosure would in some other way make 
possible an intrusion into the decisionmaking process. We will release 
purely factual material in a deliberative document unless that material 
is otherwise exempt. The privilege continues to protect predecisional 
documents even after a decision is made.
    (b) Attorney work product privilege. This privilege protects 
documents prepared by or for an agency, or by or for its representative 
(typically, HHS attorneys) in anticipation of litigation or for trial. 
It includes documents prepared for purposes of administrative 
adjudications as well as court litigation. It includes documents 
prepared by program offices as well as by attorneys. It includes factual 
material in such documents as well as material revealing opinions and 
tactics. Finally, the privilege continues to protect the documents even 
after the litigation is closed.
    (c) Attorney-client communication privilege. This privilege protects 
confidential communications between a lawyer and an employee or agent of 
the government where there is an attorney-client relationship between 
them (typically, where the lawyer is acting as attorney for the agency 
and the employee is communicating on behalf of the agency) and where the 
employee has communicated information to the attorney in confidence in 
order to obtain legal advice or assistance.

[[Page 30]]



Sec. 5.67  Exemption six: Clearly unwarranted invasion of personal privacy.

    (a) Documents affected. We may withhold records about individuals if 
disclosure would constitute a clearly unwarranted invasion of their 
personal privacy.
    (b) Balancing test. In deciding whether to release records to you 
that contain personal or private information about someone else, we 
weigh the foreseeable harm of invading that person's privacy against the 
public benefit that would result from the release. If you were seeking 
information for a purely commercial venture, for example, we might not 
think that disclosure would primarily benefit the public and we would 
deny your request. On the other hand, we would be more inclined to 
release information if you were working on a research project that gave 
promise of providing valuable information to a wide audience. However, 
in our evaluation of requests for records we attempt to guard against 
the release of information that might involve a violation of personal 
privacy because of a requester being able to ``read between the lines'' 
or piece together items that would constitute information that normally 
would be exempt from mandatory disclosure under Exemption Six.
    (c) Examples. Some of the information that we frequently withhold 
under Exemption Six is: Home addresses, ages, and minority group status 
of our employees or former employees; social security numbers; medical 
information about individuals participating in clinical research 
studies; names and addresses of individual beneficiaries of our 
programs, or benefits such individuals receive; earning records, claim 
files, and other personal information maintained by the Social Security 
Administration, the Public Health Service, and theCenters for Medicare & 
Medicaid Services.



Sec. 5.68  Exemption seven: Law enforcement.

    We are not required to disclose information or records that the 
government has compiled for law enforcement purposes. The records may 
apply to actual or potential violations of either criminal or civil laws 
or regulations. We can withhold these records only to the extent that 
releasing them would cause harm in at least one of the following 
situations:
    (a) Enforcement proceedings. We may withhold information whose 
release could reasonably be expected to interfere with prospective or 
ongoing law enforcement proceedings. Investigations of fraud and 
mismanagement, employee misconduct, and civil rights violations may fall 
into this category. In certain cases--such as when a fraud investigation 
is likely--we may refuse to confirm or deny the existence of records 
that relate to the violations in order not to disclose that an 
investigation is in progress, or may be conducted.
    (b) Fair trial or impartial adjudication. We may withhold records 
whose release would deprive a person of a fair trial or an impartial 
adjudication because of prejudicial publicity.
    (c) Personal privacy. We are careful not to disclose information 
that could reasonably be expected to constitute an unwarranted invasion 
of personal privacy. When a name surfaces in an investigation, that 
person is likely to be vulnerable to innuendo, rumor, harassment, and 
retaliation.
    (d) Confidential sources and information. We may withhold records 
whose release could reasonably be expected to disclose the identity of a 
confidential source of information. A confidential source may be an 
individual; a state, local, or foreign government agency; or any private 
organization. The exemption applies whether the source provides 
information under an express promise of confidentiality or under 
circumstances from which such an assurance could be reasonably inferred. 
Also, where the record, or information in it, has been compiled by a 
criminal law enforcement authority conducting a criminal investigation, 
or by an agency conducting a lawful national security investigation, the 
exemption also protects all information supplied by a confidential 
source. Also protected from mandatory disclosure is any information 
which, if disclosed, could reasonably be expected to jeopardize the 
system of confidentiality that assures a flow of information from 
sources to investigatory agencies.

[[Page 31]]

    (e) Techniques and procedures. We may withhold records reflecting 
special techniques or procedures of investigation or prosecution, not 
otherwise generally known to the public. In some cases, it is not 
possible to describe even in general terms those techniques without 
disclosing the very material to be withheld. We may also withhold 
records whose release would disclose guidelines for law enforcement 
investigations or prosecutions if this disclosure could reasonably be 
expected to create a risk that someone could circumvent requirements of 
law or of regulation.
    (f) Life and physical safety. We may withhold records whose 
disclosure could reasonably be expected to endanger the life or physical 
safety of any individual. This protection extends to threats and 
harassment as well as to physical violence.



Sec. 5.69  Exemptions 8 and 9: Records on financial institutions; records on wells.

    Exemption eight permits us to withhold records about regulation or 
supervision of financial institutions. Exemption nine permits the 
withholding of geological and geophysical information and data, 
including maps, concerning wells.

                           PART 5a [RESERVED]



PART 5b--PRIVACY ACT REGULATIONS--Table of Contents




Sec.
5b.1  Definitions.
5b.2  Purpose and scope.
5b.3  Policy.
5b.4  Maintenance of records.
5b.5  Notification of or access to records.
5b.6  Special procedures for notification of or access to medical 
          records.
5b.7  Procedures for correction or amendment of records.
5b.8  Appeals of refusals to correct or amend records.
5b.9  Disclosure of records.
5b.10  Parents and guardians.
5b.11  Exempt systems.
5b.12  Contractors.
5b.13  Fees.

Appendix A to Part 5b--Employee Standards of Conduct
Appendix B to Part 5b--Routine Uses Applicable to More Than One System 
          of Records Maintained by HHS
Appendix C to Part 5b--Delegations of Authority [Reserved]

    Authority: 5 U.S.C. 301, 5 U.S.C. 552a.

    Source: 40 FR 47409, Oct. 8, 1975, unless otherwise noted.



Sec. 5b.1  Definitions.

    As used in this part:
    (a) Access means availability of a record to a subject individual.
    (b) Agency means the Department of Health and Human Services.
    (c) Department means the Department of Health and Human Services.
    (d) Disclosure means the availability or release of a record to 
anyone other than the subject individual.
    (e) Individual means a living person who is a citizen of the United 
States or an alien lawfully admitted for permanent residence. It does 
not include persons such as sole proprietorships, partnerships, or 
corporations. A business firm which is identified by the name of one or 
more persons is not an individual within the meaning of this part.
    (f) Maintain means to maintain, collect, use, or disseminate when 
used in connection with the term ``record''; and, to have control over 
or responsibility for a system of records when used in connection with 
the term ``system of records.''
    (g) Notification means communication to an individual whether he is 
a subject individual.
    (h) Record means any item, collection, or grouping of information 
about an individual that is maintained by the Department, including but 
not limited to the individual's education, financial transactions, 
medical history, and criminal or employment history and that contains 
his name, or an identifying number, symbol, or other identifying 
particular assigned to the individual, such as a finger or voice print 
or a photograph. When used in this part, record means only a record 
which is in a system of records.
    (i) Responsible Department official means that officer who is listed 
in a notice of a system of records as the system manager for a given 
system of records or another individual listed in the notice of a system 
of records to

[[Page 32]]

whom requests may be made, or the designee of either such officer or 
individual.
    (j) Routine use means the disclosure of a record outside the 
Department, without the consent of the subject individual, for a purpose 
which is compatible with the purpose for which the record was collected. 
It includes disclosures required to be made by statute other than the 
Freedom of Information Act, 5 U.S.C. 552. It does not include 
disclosures which are permitted to be made without the consent of the 
subject individual which are not compatible with the purpose for which 
it was collected such as disclosures to the Bureau of the Census, the 
General Accounting Office, or to Congress.
    (k) Secretary means the Secretary of Health and Human Services, or 
his designee.
    (l) Statistical record means a record maintained for statistical 
research or reporting purposes only and not maintained to make 
determinations about a particular subject individual.
    (m) Subject individual means that individual to whom a record 
pertains.
    (n) System of records means any group of records under the control 
of the Department from which a record is retrieved by personal 
identifier such as the name of the individual, number, symbol or other 
unique retriever assigned to the individual. Single records or groups of 
records which are not retrieved by a personal identifier are not part of 
a system of records. Papers maintained by individual employees of the 
Department which are prepared, maintained, or discarded at the 
discretion of the employee and which are not subject to the Federal 
Records Act, 44 U.S.C. 2901, are not part of a system of records; 
Provided, That such personal papers are not used by the employee or the 
Department to determine any rights, benefits, or privileges of 
individuals.



Sec. 5b.2  Purpose and scope.

    (a) This part implements section 3 of the Privacy Act of 1974, 5 
U.S.C. 552a (hereinafter referred to as the Act), by establishing agency 
policies and procedures for the maintenance of records. This part also 
establishes agency policies and procedures under which a subject 
individual may be given notification of or access to a record pertaining 
to him and policies and procedures under which a subject individual may 
have his record corrected or amended if he believes that his record is 
not accurate, timely, complete, or relevant or necessary to accomplish a 
Department function.
    (b) All components of the Department are governed by the provisions 
of this part. Also governed by the provisions of this part are:
    (1) Certain non-Federal entities which operate as agents of the 
Department for purposes of carrying out Federal functions, such as 
intermediaries and carriers performing functions under contracts and 
agreements entered into pursuant to sections 1816 and 1842 of the Social 
Security Act, 42 U.S.C. 1395h and 1395u.
    (2) Advisory committees and councils within the meaning of the 
Federal Advisory Committee Act which provide advice to (i) any official 
or component of the Department or (ii) the President and for which the 
Department has been delegated responsibility for providing services.
    (c) Employees of the Department governed by this part include all 
regular and special government employees of the Department; members of 
the Public Health Service Commissioned Corps; experts and consultants 
whose temporary (not in excess of 1 year) or intermittent services have 
been procured by the Department by contract pursuant to 3109 of Title 5, 
United States Code; volunteers where acceptance of their services are 
authorized by law; those individuals performing gratuitous services as 
permitted under conditions prescribed by the Civil Service Commission; 
and, participants in work-study or training programs.
    (d) Where other statutes mandate procedures which are inconsistent 
with the procedures set forth in this part, components of the Department 
may issue supplementary regulations containing procedures necessary to 
comply with such statutes. In addition, components of the Department may 
supplement by regulation the policies and procedures set forth in this 
part to meet particular needs of the programs administered by such 
components.

[[Page 33]]

    (e) This part does not:
    (1) Make available to a subject individual records which are not 
retrieved by that individual's name or other personal identifier.
    (2) Make available to the general public records which are retrieved 
by a subject individual's name or other personal identifier or make 
available to the general public records which would otherwise not be 
available to the general public under the Freedom of Information Act, 5 
U.S.C. 552, and Part 5 of this title.
    (3) Govern the maintenance or disclosure of, notification of or 
access to, records in the possession of the Department which are subject 
to regulations of another agency, such as personnel records subject to 
the regulations of the Civil Service Commission.
    (4) Apply to grantees, including State and local governments or 
subdivisions thereof, administering federally funded programs.
    (5) Make available records compiled by the Department in reasonable 
anticipation of court litigation or formal administrative proceedings. 
The availability of such records to the general public or to any subject 
individual or party to such litigation or proceedings shall be governed 
by applicable constitutional principles, rules of discovery, and 
applicable regulations of the Department and any of its components.



Sec. 5b.3  Policy.

    It is the policy of the Department to protect the privacy of 
individuals to the fullest extent possible while nonetheless permitting 
the exchange of records required to fulfill the administrative and 
program responsibilities of the Department, and responsibilities of the 
Department for disclosing records which the general public is entitled 
to have under the Freedom of Information Act, 5 U.S.C. 552, and Part 5 
of this title.



Sec. 5b.4  Maintenance of records.

    (a) No record will be maintained by the Department unless:
    (1) It is relevant and necessary to accomplish a Department function 
required to be accomplished by statute or Executive Order;
    (2) It is acquired to the greatest extent practicable from the 
subject individual when maintenance of the record may result in a 
determination about the subject individual's rights, benefits or 
privileges under Federal programs;
    (3) The individual providing the record is informed of the authority 
for providing the record (including whether the providing of the record 
is mandatory or voluntary, the principal purpose for maintaining the 
record, the routine uses for the record, what effect his refusal to 
provide the record may have on him), and if the record is not required 
by statute or Executive Order to be provided by the individual, he 
agrees to provide the record.
    (b) No record will be maintained by the Department which describes 
how an individual exercises rights guaranteed by the First Amendment 
unless expressly authorized (1) by statute, or (2) by the subject 
individual, or (3) unless pertinent to and within the scope of an 
authorized law enforcement activity.



Sec. 5b.5  Notification of or access to records.

    (a) Times, places, and manner of requesting notification of or 
access to a record. (1) Subject to the provisions governing medical 
records in Sec. 5b.6 of this part, any individual may request 
notification of a record. He may at the same time request access to any 
record pertaining to him. An individual may be accompanied by another 
individual of his choice when he requests access to a record in person; 
Provided, That he affirmatively authorizes the presence of such other 
individual during any discussion of a record to which access is 
requested.
    (2) An individual making a request for notification of or access to 
a record shall address his request to the responsible Department 
official and shall verify his identity when required in accordance with 
paragraph (b)(2) of this section. At the time the request is made, the 
individual shall specify which systems of records he wishes to have 
searched and the records to which he wishes to have access. He may also 
request that copies be made of all or any such records. An individual 
shall

[[Page 34]]

also provide the responsible Department official with sufficient 
particulars to enable such official to distinguish between records on 
subject individuals with the same name. The necessary particulars are 
set forth in the notices of systems of records.
    (3) An individual who makes a request in person may leave with any 
responsible Department official a request for notification of or access 
to a record under the control of another responsible Department 
official; Provided, That the request is addressed in writing to the 
appropriate responsible Department official.
    (b) Verification of identity--(1) When required. Unless an 
individual, who is making a request for notification of or access to a 
record in person, is personally known to the responsible Department 
official, he shall be required to verify his identity in accordance with 
paragraph (b)(2) of this section if:
    (i) He makes a request for notification of a record and the 
responsible Department official determines that the mere disclosure of 
the existence of the record would be a clearly unwarranted invasion of 
privacy if disclosed to someone other than the subject individual; or,
    (ii) He makes a request for access to a record which is not required 
to be disclosed to the general public under the Freedom of Information 
Act, 5 U.S.C. 552, and Part 5 of this title.
    (2) Manner of verifying identity. (i) An individual who makes a 
request in person shall provide to the responsible Department official 
at least one piece of tangible identification such as a driver's 
license, passport, alien or voter registration card, or union card to 
verify his identity. If an individual does not have identification 
papers to verify his identity, he shall certify in writing that he is 
the individual who he claims to be and that he understands that the 
knowing and willful request for or acquisition of a record pertaining to 
an individual under false pretenses is a criminal offense under the Act 
subject to a $5,000 fine.
    (ii) Except as provided in paragraph (b)(2)(v) of this section, an 
individual who does not make a request in person shall submit a 
notarized request to the responsible Department official to verify his 
identity or shall certify in his request that he is the individual who 
he claims to be and that he understands that the knowing and willful 
request for or acquisition of a record pertaining to an individual under 
false pretenses is a criminal offense under the Act subject to a $5,000 
fine.
    (iii) An individual who makes a request on behalf of a minor or 
legal incompetent as authorized under Sec. 5b.10 of this part shall 
verify his relationship to the minor or legal incompetent, in addition 
to verifying his own identity, by providing a copy of the minor's birth 
certificate, a court order, or other competent evidence of guardianship 
to the responsible Department official; except that, an individual is 
not required to verify his relationship to the minor or legal 
incompetent when he is not required to verify his own identity or when 
evidence of his relationship to the minor or legal incompetent has been 
previously given to the responsible Department official.
    (iv) An individual shall further verify his identity if he is 
requesting notification of or access to sensitive records such as 
medical records. Any further verification shall parallel the record to 
which notification or access is being sought. Such further verification 
may include such particulars as the individual's years of attendance at 
a particular educational institution, rank attained in the uniformed 
services, date or place of birth, names of parents, an occupation or the 
specific times the individual received medical treatment.
    (v) An individual who makes a request by telephone shall verify his 
identity by providing to the responsible Department official identifying 
particulars which parallel the record to which notification or access is 
being sought. If the responsible Department official determines that the 
particulars provided by telephone are insufficient, the requester will 
be required to submit the request in writing or in person. Telephone 
requests will not be accepted where an individual is requesting 
notification of or access to sensitive records such as medical records.
    (c) Granting notification of or access to a record. (1) Subject to 
the provisions governing medical records in Sec. 5b.6 of

[[Page 35]]

this part and the provisions governing exempt systems in Sec. 5b.11 of 
this part, a responsible Department official, who receives a request for 
notification of or access to a record and, if required, verification of 
an individual's identity, will review the request and grant notification 
or access to a record, if the individual requesting access to the record 
is the subject individual.
    (2) If the responsible Department official determines that there 
will be a delay in responding to a request because of the number of 
requests being processed, a breakdown of equipment, shortage of 
personnel, storage of records in other locations, etc., he will so 
inform the individual and indicate when notification or access will be 
granted.
    (3) Prior to granting notification of or access to a record, the 
responsible Department official may at his discretion require an 
individual making a request in person to reduce his request to writing 
if the individual has not already done so at the time the request is 
made.



Sec. 5b.6  Special procedures for notification of or access to medical records.

    (a) General. An individual in general has a right to notification of 
or access to his medical records, including psychological records, as 
well as to other records pertaining to him maintained by the Department. 
This section sets forth special procedures as permitted by the Act for 
notification of or access to medical records, including a special 
procedure for notification of or access to medical records of minors. 
The special procedures set forth in paragraph (b) of this section may 
not be suitable for use by every component of the Department. Therefore, 
components may follow the paragraph (b) procedure for notification of or 
access to medical records, or may issue regulations establishing special 
procedures for such purposes. The special procedure set forth in 
paragraph (c) of this section relating to medical records of minors is 
mandatory.
    (b) Medical records procedures--(1) Notification of or access to 
medical records. (i) Any individual may request notification of or 
access to a medical record pertaining to him. Unless the individual is a 
parent or guardian requesting notification of or access to a minor's 
medical record, an individual shall make a request for a medical record 
in accordance with this section and the procedures in Sec. 5b.5 of this 
part.
    (ii) An individual who requests notification of or access to a 
medical record shall, at the time the request is made, designate a 
representative in writing. The representative may be a physician, other 
health professional, or other responsible individual, who would be 
willing to review the record and inform the subject individual of its 
contents at the representative's discretion.
    (2) Utilization of the designated representative. A subject 
individual will be granted direct access to a medical record if the 
responsible official determines that direct access is not likely to have 
an adverse effect on the subject individual. If the responsible 
Department official believes that he is not qualified to determine, or 
if he does determine, that direct access to the subject individual is 
likely to have an adverse effect on the subject individual, the record 
will be sent to the designated representative. The subject individual 
will be informed in writing that the record has been sent.
    (c) Medical records of minors--(1) Requests by minors; notification 
of or access to medical records to minors. A minor may request 
notification of or access to a medical record pertaining to him in 
accordance with paragraph (b) of this section.
    (2) Requests on a minor's behalf; notification of or access to 
medical records to an individual on a minor's behalf. (i) In order to 
protect the privacy of a minor, a parent or guardian, authorized to act 
on a minor's behalf as provided in Sec. 5b.10 of this part, who makes a 
request for notification of or access to a minor's medical record will 
not be given direct notification of or access to such record.
    (ii) A parent or guardian shall make all requests for notification 
of or access to a minor's medical record in accordance with this 
paragraph and the procedures in Sec. 5b.5 of this part. A parent or 
guardian shall at the time he makes a request designate a family 
physician or other health professional

[[Page 36]]

(other than a family member) to whom the record, if any, will be sent.
    (iii) Where a medical record on the minor exists, it will be sent to 
the physician or health professional designated by the parent or 
guardian in all cases. If disclosure of the record would constitute an 
invasion of the minor's privacy, that fact will be brought to the 
attention of the physician or health professional to whom the record is 
sent. The physician or health professional will be asked to consider the 
effect that disclosure of the record to the parent or guardian would 
have on the minor in determining whether the minor's medical record 
should be made available to the parent or guardian. Response to the 
parent or guardian making the request will be made in substantially the 
following form:

We have completed processing your request for notification of or access 
to______________________________________________________________________

----------------------------------------------'s

      (Name of minor)

medical records. Please be informed that if any medical record were 
found pertaining to that individual, they have not been sent to your 
designated physician or health professional.


In each case where a minor's medical record is sent to a physician or 
health professional, reasonable efforts will be made to so inform the 
minor.



Sec. 5b.7  Procedures for correction or amendment of records.

    (a) Any subject individual may request that his record be corrected 
or amended if he believes that the record is not accurate, timely, 
complete, or relevant or necessary to accomplish a Department function. 
A subject individual making a request to amend or correct his record 
shall address his request to the responsible Department official in 
writing; except that, the request need not be in writing if the subject 
individual makes his request in person and the responsible Department 
official corrects or amends the record at that time. The subject 
individual shall specify in each request:
    (1) The system of records from which the record is retrieved;
    (2) The particular record which he is seeking to correct or amend;
    (3) Whether he is seeking an addition to or a deletion or 
substitution of the record; and,
    (4) His reasons for requesting correction or amendment of the 
record.
    (b) A request for correction or amendment of a record will be 
acknowledged within 10 working days of its receipt unless the request 
can be processed and the subject individual informed of the responsible 
Department official's decision on the request within that 10 day period.
    (c) If the responsible Department official agrees that the record is 
not accurate, timely, or complete based on a preponderance of the 
evidence, the record will be corrected or amended. The record will be 
deleted without regard to its accuracy, if the record is not relevant or 
necessary to accomplish the Department function for which the record was 
provided or is maintained. In either case, the subject individual will 
be informed in writing of the correction, amendment, or deletion and, if 
accounting was made of prior disclosures of the record, all previous 
recipients of the record will be informed of the corrective action 
taken.
    (d) If the responsible Department official does not agree that the 
record should be corrected or amended, the subject individual will be 
informed in writing of the refusal to correct or amend the record. He 
will also be informed that he may appeal the refusal to correct or amend 
his record to the appropriate appeal authority listed in Sec. 5b.8 of 
this part. The appropriate appeal authority will be identified to the 
subject individual by name, title, and business address.
    (e) Requests to correct or amend a record governed by the regulation 
of another government agency, e.g., Civil Service Commission, Federal 
Bureau of Investigation, will be forwarded to such government agency for 
processing and the subject individual will be informed in writing of the 
referral.



Sec. 5b.8  Appeals of refusals to correct or amend records.

    (a) Processing the appeal. (1) A subject individual who disagrees 
with a refusal to correct or amend his record may appeal the refusal in 
writing. All appeals

[[Page 37]]

shall be made to the following appeal authorities, or their designees, 
or successors in function:
    (i) Assistant Secretary for Administration and Management for 
records of the Office of the Secretary, or where the initial refusal to 
correct or amend was made by another appeal authority. The appeal 
authority for an initial refusal by the Assistant Secretary for 
Administration and Management is the Under Secretary.
    (ii) Assistant Secretary for Health for records of the Public Health 
Service including Office of Assistant Secretary for Health; Health 
Resources Administration; Health Services Administration; Alcohol, Drug 
Abuse, and Mental Health Administration; Center for Disease Control; 
National Institutes of Health; and Food and Drug Administration.
    (iii) Assistant Secretary for Education for records of the Office of 
the Assistant Secretary for Education, National Center for Education 
Statistics, National Institute of Education, and Office of Education.
    (iv) Assistant Secretary for Human Development for records of the 
Office of Human Development.
    (v) Commissioner of Social Security for records of the Social 
Security Administration.
    (vi) Administrator, Social and Rehabilitation Service for the 
records of the Social and Rehabilitation Service.
    (2) An appeal will be completed within 30 working days from its 
receipt by the appeal authority; except that, the appeal authority may 
for good cause extend this period for an additional 30 days. Should the 
appeal period be extended, the subject individual appealing the refusal 
to correct or amend the record will be informed in writing of the 
extension and the circumstances of the delay. The subject individual's 
request to amend or correct the record, the responsible Department 
official's refusal to correct or amend, and any other pertinent material 
relating to the appeal will be reviewed. No hearing will be held.
    (3) If the appeal authority agrees that the record subject to the 
appeal should be corrected or amended, the record will be amended and 
the subject individual will be informed in writing of the correction or 
amendment. Where an accounting was made of prior disclosures of the 
record, all previous recipients of the record will be informed of the 
corrective action taken.
    (4) If the appeal is denied, the subject individual will be informed 
in writing:
    (i) Of the denial and the reasons for the denial;
    (ii) That he has a right to seek judicial review of the denial; and,
    (iii) That he may submit to the responsible Department official a 
concise statement of disagreement to be associated with the disputed 
record and disclosed whenever the record is disclosed.
    (b) Notation and disclosure of disputed records. Whenever a subject 
individual submits a statement of disagreement to the responsible 
Department official in accordance with paragraph (a)(4)(iii) of this 
section, the record will be noted to indicate that it is disputed. In 
any subsequent disclosure, a copy of the subject individual's statement 
of disagreement will be disclosed with the record. If the responsible 
Department official deems it appropriate, a concise statement of the 
appeal authority's reasons for denying the subject individual's appeal 
may also be disclosed with the record. While the subject individual will 
have access to this statement of reasons, such statement will not be 
subject to correction or amendment. Where an accounting was made of 
prior disclosures of the record, all previous recipients of the record 
will be provided a copy of the subject individual's statement of 
disagreement, as well as the statement, if any, of the appeal 
authority's reasons for denying the subject individual's appeal.



Sec. 5b.9  Disclosure of records.

    (a) Consent to disclosure by a subject individual. (1) Except as 
provided in paragraph (b) of this section authorizing disclosures of 
records without consent, no disclosure of a record will be made without 
the consent of the subject individual. In each case the consent, whether 
obtained from the subject individual at the request of the Department or 
whether provided to the Department by the subject individual on his own 
initiative, shall be in writing. The consent shall specify the 
individual, organizational unit or class of

[[Page 38]]

individuals or organizational units to whom the record may be disclosed, 
which record may be disclosed and, where applicable, during which time 
frame the record may be disclosed (e.g., during the school year, while 
the subject individual is out of the country, whenever the subject 
individual is receiving specific services). A blanket consent to 
disclose all of a subject individual's records to unspecified 
individuals or organizational units will not be honored. The subject 
individual's identity and, where applicable (e.g., where a subject 
individual gives consent to disclosure of a record to a specific 
individual), the identity of the individual to whom the record is to be 
disclosed shall be verified.
    (2) A parent or guardian of any minor is not authorized to give 
consent to a disclosure of the minor's medical record.
    (b) Disclosures without the consent of the subject individual. The 
disclosures listed in this paragraph may be made without the consent of 
the subject individual. Such disclosures are:
    (1) To those officers and employees of the Department who have a 
need for the record in the performance of their duties. The responsible 
Department official may upon request of any officer or employee, or on 
his own initiative, determine what constitutes legitimate need.
    (2) Required to be disclosed under the Freedom of Information Act, 5 
U.S.C. 552, and Part 5 of this title.
    (3) For a routine use as defined in paragraph (j) of Sec. 5b.1 of 
this part. Routine uses will be listed in any notice of a system of 
records. Routine uses published in Appendix B are applicable to more 
than one system of records. Where applicable, notices of systems of 
records may contain references to the routine uses listed in Appendix B. 
Appendix B will be published with any compendium of notices of systems 
of records.
    (4) To the Bureau of the Census for purposes of planning or carrying 
out a census or survey or related activity pursuant to the provisions of 
Title 13 U.S.C.
    (5) To a recipient who has provided the agency with advance written 
assurance that the record will be used solely as a statistical research 
or reporting record; Provided, That, the record is transferred in a form 
that does not identify the subject individual.
    (6) To the National Archives of the United States as a record which 
has sufficient historical or other value to warrant its continued 
preservation by the United States Government, or for evaluation by the 
Administrator of General Services or his designee to determine whether 
the record has such value.
    (7) To another government agency or to an instrumentality of any 
governmental jurisdiction within or under the control of the United 
States for a civil or criminal law enforcement activity if the activity 
is authorized by law, and if the head of such government agency or 
instrumentality has submitted a written request to the Department 
specifying the record desired and the law enforcement activity for which 
the record is sought.
    (8) To an individual pursuant to a showing of compelling 
circumstances affecting the health or safety of any individual if a 
notice of the disclosure is transmitted to the last known address of the 
subject individual.
    (9) To either House of Congress, or to the extent of matter within 
its jurisdiction, any committee or subcommittee thereof, any joint 
committee of Congress or subcommittee of any such joint committee.
    (10) To the Comptroller General, or any of his authorized 
representatives, in the course of the performance of the duties of the 
General Accounting Office.
    (11) Pursuant to the order of a court of competent jurisdiction.
    (c) Accounting of disclosures. (1) An accounting of all disclosures 
of a record will be made and maintained by the Department for 5 years or 
for the life of the record, whichever is longer; except that, such an 
accounting will not be made:
    (i) For disclosures under paragraphs (b) (1) and (2) of this 
section; and,
    (ii) For disclosures made with the written consent of the subject 
individual.
    (2) The accounting will include:
    (i) The date, nature, and purpose of each disclosure; and

[[Page 39]]

    (ii) The name and address of the person or entity to whom the 
disclosure is made.
    (3) Any subject individual may request access to an accounting of 
disclosures of a record. The subject individual shall make a request for 
access to an accounting in accordance with the procedures in Sec. 5b.5 
of this part. A subject individual will be granted access to an 
accounting of the disclosures of a record in accordance with the 
procedures of this part which govern access to the related record. 
Access to an accounting of a disclosure of a record made under paragraph 
(b)(7) of this section may be granted at the discretion of the 
responsible Department official.



Sec. 5b.10  Parents and guardians.

    For the purpose of this part, a parent or guardian of any minor or 
the legal guardian or any individual who has been declared incompetent 
due to physical or mental incapacity or age by a court of competent 
jurisdiction is authorized to act on behalf of an individual or a 
subject individual. Except as provided in paragraph (b)(2) of Sec. 5b.5, 
of this part governing procedures for verifying an individual's 
identity, and paragraph (c) (2) of Sec. 5b.6 of this part governing 
special procedures for notification of or access to a minor's medical 
records, an individual authorized to act on behalf of a minor or legal 
incompetent will be viewed as if he were the individual or subject 
individual.



Sec. 5b.11  Exempt systems.

    (a) General policy. The Act permits certain types of specific 
systems of records to be exempt from some of its requirements. It is the 
policy of the Department to exercise authority to exempt systems of 
records only in compelling cases.
    (b) Specific systems of records exempted. (1) Those systems of 
records listed in paragraph (b)(2) of this section are exempt from the 
following provisions of the Act and this part:
    (i) 5 U.S.C. 552a(c)(3) and paragraph (c)(2) of Sec. 5b.9 of this 
part which require a subject individual to be granted access to an 
accounting of disclosures of a record.
    (ii) 5 U.S.C. 552a(d) (1) through (4) and (f) and Secs. 5b.6, 5b.7, 
and 5b.8 of this part relating to notification of or access to records 
and correction or amendment of records.
    (iii) 5 U.S.C. 552a(e)(4) (G) and (H) which require inclusion of 
information about Department procedures for notification, access, and 
correction or amendment of records in the notice for the systems of 
records.
    (iv) 5 U.S.C. 552(e)(3) and paragraph (a)(3) of Sec. 5b.4 of this 
part which require that an individual asked to provide a record to the 
Department be informed of the authority for providing the record 
(including whether the providing of the record is mandatory or 
voluntary, the principal purposes for maintaining the record, the 
routine uses for the record, and what effect his refusal to provide the 
record may have on him), and if the record is not required by statute or 
Executive Order to be provided by the individual, he agrees to provide 
the record. This exemption applies only to an investigatory record 
compiled by the Department for criminal law enforcement purposes in a 
system of records exempt under subsection (j)(2) of the Act to the 
extent that these requirements would prejudice the conduct of the 
investigation.
    (2) The following systems of records are exempt from those 
provisions of the Act and this part listed in paragraph (b) (1) of this 
section.
    (i) Pursuant to subsection (j)(2) of the Act:
    (A) The Saint Elizabeths Hospital's Court-Ordered Forensic 
Investigatory Materials Files; and
    (B) The Investigatory Material Compiled for Law Enforcement Purposes 
System, HHS.
    (ii) Pursuant to subsection (k)(2) of the Act:
    (A) The General Criminal Investigation Files, HHS/SSA;
    (B) The Criminal Investigations File, HHS/SSA; and,
    (C) The Program Integrity Case Files, HHS/SSA.
    (D) Civil and Administrative Investigative Files of the Inspector 
General, HHS/OS/OIG.
    (E) Complaint Files and Log. HHS/OS/OCR.
    (F) Investigative materials compiled for law enforcement purposes 
for the Healthcare Integrity and Protection

[[Page 40]]

Data Bank (HIPDB), of the Office of Inspector General. (See Sec. 61.15 
of this title for access and correction rights under the HIPDB by 
subjects of the Data Bank.)
    (iii) Pursuant to subsection (k)(4) of the Act:
    (A) The Health and Demographic Surveys Conduct in Random Samples of 
the U.S. Population;
    (B) The Health Manpower Inventories and Surveys;
    (C) The Vital Statistics for Births, Deaths, Fetal Deaths, Marriages 
and Divorces Occurring in the U.S. during Each Year; and,
    (D) The Maryland Psychiatric Case Register.
    (E) The Health Resources Utilization Statistics, DHHS/OASH/NCHS.
    (F) National Medical Expenditure Survey Records. HHS/OASH/NCHSR.
    (iv) Pursuant to subsection (k)(5) of the Act:
    (A) The Investigatory Material Compiled for Security and Suitability 
Purposes System, HHS; and,
    (B) The Suitability for Employment Records, HHS.
    (v) Pursuant to subsections (j)(2), (k)(2), and (k)(5) of the Act:
    (A) The Clinical Investigatory Records, HHS/FDA;
    (B) The Regulated Industry Employee Enforcement Records, HHS/FDA;
    (C) The Employee Conduct Investigative Records, HHS/FDA; and,
    (D) The Service Contractor Employee Investigative Records, HHS/FDA.
    (vi) Pursuant to subsection (k)(6) of the Act:
    (A) The Personnel Research and Merit Promotion Test Records, HHS/
SSA/OMA.
    (vii) Pursuant to subsections (k)(2) and (k)(5) of the Act:
    (A) Public Health Service Records Related to Investigations of 
Scientific Misconduct, HHS/OASH/ORI.
    (B) Administration: Investigative Records, HHS/NIH/OM/OA/OMA.
    (c) Notification of or access to records in exempt systems of 
records. (1) Where a system of records is exempt as provided in 
paragraph (b) of this section, any individual may nonetheless request 
notification of or access to a record in that system. An individual 
shall make requests for notification of or access to a record in an 
exempt system of records in accordance with the procedures of Secs. 5b.5 
and 5b.6 of this part.
    (2) An individual will be granted notification of or access to a 
record in an exempt system but only to the extent such notification or 
access would not reveal the identity of a source who furnished the 
record to the Department under an express promise, and prior to 
September 27, 1975 an implied promise, that his identity would be held 
in confidence, if:
    (i) The record is in a system of records which is exempt under 
subsection (k)(2) of the Act and the individual has been, as a result of 
the maintenance of the record, denied a right, privilege, or benefit to 
which he would otherwise be eligible; or,
    (ii) The record is in a system of records which is exempt under 
subsection (k)(5) of the Act.
    (3) If an individual is not granted notification of or access to a 
record in a system of records exempt under subsections (k) (2) and (5) 
of the Act in accordance with this paragraph, he will be informed that 
the identity of a confidential source would be revealed if notification 
of or access to the record were granted to him.
    (d) Discretionary actions by the responsible Department official. 
Unless disclosure of a record to the general public is otherwise 
prohibited by law, the responsible Department official may in his 
discretion grant notification of or access to a record in a system of 
records which is exempt under paragraph (b) of this section. 
Discretionary notification of or access to a record in accordance with 
this paragraph will not be a precedent for discretionary notification of 
or access to a similar or related record and will not obligate the 
responsible Department official to exercise his discretion to grant 
notification of or access to any other record in a system of records 
which is exempt under paragraph (b) of this section.

[40 FR 47409, Oct. 8, 1975, as amended at 43 FR 40229, Sept. 11, 1978; 
47 FR 57040, Dec. 22, 1982; 49 FR 14108, Apr. 10, 1984; 51 FR 41352, 
Nov. 14, 1986; 59 FR 36717, July 19, 1994; 65 FR 34988, June 1, 2000; 65 
FR 37289, June 14, 2000]

[[Page 41]]



Sec. 5b.12  Contractors.

    (a) All contracts entered into on or after September 27, 1975 which 
require a contractor to maintain or on behalf of the Department to 
maintain, a system of records to accomplish a Department function must 
contain a provision requiring the contractor to comply with the Act and 
this part.
    (b) All unexpired contracts entered into prior to September 27, 1975 
which require the contractor to maintain or on behalf of the Department 
to maintain, a system of records to accomplish a Department function 
will be amended as soon as practicable to include a provision requiring 
the contractor to comply with the Act and this part. All such contracts 
must be so amended by July 1, 1976 unless for good cause the appeal 
authority identified in Sec. 5b.8 of this part authorizes the 
continuation of the contract without amendment beyond that date.
    (c) A contractor and any employee of such contractor shall be 
considered employees of the Department only for the purposes of the 
criminal penalties of the Act, 5 U.S.C. 552a(i), and the employee 
standards of conduct listed in Appendix A of this part where the 
contract contains a provision requiring the contractor to comply with 
the Act and this part.
    (d) This section does not apply to systems of records maintained by 
a contractor as a result of his management discretion, e.g., the 
contractor's personnel records.



Sec. 5b.13  Fees.

    (a) Policy. Where applicable, fees for copying records will be 
charged in accordance with the schedule set forth in this section. Fees 
may only be charged where an individual requests that a copy be made of 
the record to which he is granted access. No fee may be charged for 
making a search of the system of records whether the search is manual, 
mechanical, or electronic. Where a copy of the record must be made in 
order to provide access to the record (e.g., computer printout where no 
screen reading is available), the copy will be made available to the 
individual without cost. Where a medical record is made available to a 
representative designated by the individual or to a physician or health 
professional designated by a parent or guardian under Sec. 5b.6 of this 
part, no fee will be charged.
    (b) Fee schedule. The fee schedule for the Department is as follows:
    (1) Copying of records susceptible to photocopying--$.10 per page.
    (2) Copying records not susceptible to photocopying (e.g., punch 
cards or magnetic tapes)--at actual cost to be determined on a case-by-
case basis.
    (3) No charge will be made if the total amount of copying does not 
exceed $25.

          Appendix A to Part 5b--Employee Standards of Conduct

    (a) General. All employees are required to be aware of their 
responsibilities under the Privacy Act of 1974, 5 U.S.C. 552a. 
Regulations implementing the Act are set forth in 45 CFR 5b. Instruction 
on the requirements of the Act and regulation shall be provided to all 
new employees of the Department. In addition, supervisors shall be 
responsible for assuring that employees who are working with systems of 
records or who undertake new duties which require the use of systems of 
records are informed of their responsibilities. Supervisors shall also 
be responsible for assuring that all employees who work with such 
systems of records are periodically reminded of the requirements of the 
Act and are advised of any new provisions or interpretations of the Act.
    (b) Penalties. (1) All employees must guard against improper 
disclosure f records which are governed by the Act. Because of the 
serious consequences of improper invasions of personal privacy, 
employees may be subject to disciplinary action and criminal prosecution 
for knowing and willful violations of the Act and regulation. In 
addition, employees may also be subject to disciplinary action for 
unknowing or unwillful violations, where the employee had notice of the 
provisions of the Act and regulations and failed to inform himself 
sufficiently or to conduct himself in accordance with the requirements 
to avoid violations.
    (2) The Department may be subjected to civil liability for the 
following actions undertaken by its employees:
    (a) Making a determination under the Act and Secs. 5b.7 and 5b.8 of 
the regulation not to amend an individual's record in accordance with 
his request, or failing to make such review in conformity with those 
provisions;
    (b) Refusing to comply with an individual's request for notification 
of or access to a record pertaining to hiem;

[[Page 42]]

    (c) Failing to maintain any record pertaining to any individual with 
such accuracy, relevance, timeliness, and completeness as is necessary 
to assure fairness in any determination relating to the qualifications, 
character, rights, or opportunities of, or benefits to the individual 
that may be made on the basis of such a record, and consequently a 
determination is made which is adverse to the individual; or
    (d) Failing to comply with any other provision of the Act or any 
rule promulgated thereunder, in such a way as to have an adverse effect 
on an individual.
    (3) An employee may be personally subject to criminal liability as 
set forth below and in 5 U.S.C. 552a (i):
    (a) Any officer or employee of an agency, who by virtue of his 
employment or official position, has possession of, or access to, agency 
records which contain individually identifiable information the 
disclosure of which is prohibited by the Act or by rules or regulations 
established thereunder, and who, knowing that disclosure of the specific 
material is so prohibited, willfully discloses the material in any 
manner to any person or agency not entitled to receive it, shall be 
guilty of a misdemeanor and fined not more than $5,000.
    (b) Any officer or employee of any agency who willfully maintains a 
system of records without meeting the notice requirements [of the Act] 
shall be guilty of a misdemeanor and fined not more than $5,000.
    (c) Rules Governing Employees Not Working With Systems of Records. 
Employees whose duties do not involve working with systems of records 
will not generally disclose to any one, without specific authorization 
from their supervisors, records pertaining to employees or other 
individuals which by reason of their official duties are available to 
them. Notwithstanding the above, the following records concerning 
Federal employees are a matter of public record and no further 
authorization is necessary for disclosure:
    (1) Name and title of individual.
    (2) Grade classification or equivalent and annual rate of salary.
    (3) Position description.
    (4) Location of duty station, including room number and telephone 
number.
    In addition, employees shall disclose records which are listed in 
the Department's Freedom of Information Regulation as being available to 
the public. Requests for other records will be referred to the 
responsible Department official. This does not preclude employees from 
discussing matters which are known to them personally, and without 
resort to a record, to official investigators of Federal agencies for 
official purposes such as suitability checks, Equal Employment 
Opportunity investigations, adverse action proceedings, grievance 
proceedings, etc.
    (d) Rules governing employees whose duties require use or reference 
to systems of records. Employees whose official duties require that they 
refer to, maintain, service, or otherwise deal with systems of records 
(hereinafter referred to as ``Systems Employees'') are governed by the 
general provisions. In addition, extra precautions are required and 
systems employees are held to higher standards of conduct.
    (1) Systems Employees shall:
    (a) Be informed with respect to their responsibilities under the 
Act;
    (b) Be alert to possible misuses of the system and report to their 
supervisors any potential or actual use of the system which they believe 
is not in compliance with the Act and regulation;
    (c) Make a disclosure of records within the Department only to an 
employee who has a legitimate need to know the record in the course of 
his official duties;
    (d) Maintain records as accurately as practicable.
    (e) Consult with a supervisor prior to taking any action where they 
are in doubt whether such action is in conformance with the Act and 
regulation.
    (2) Systems Employees shall not:
    (a) Disclose in any form records from a system of records except (1) 
with the consent or at the request of the subject individual; or (2) 
where its disclosure is permitted under Sec. 5b.9 of the regulation.
    (b) Permit unauthorized individuals to be present in controlled 
areas. Any unauthorized individuals observed in controlled areas shall 
be reported to a supervisor or to the guard force.
    (c) Knowingly or willfully take action which might subject the 
Department to civil liability.
    (d) Make any arrangements for the design development, or operation 
of any system of records without making reasonable effort to provide 
that the system can be maintained in accordance with the Act and 
regulation.
    (e) Contracting officers. In addition to any applicable provisions 
set forth above, those employees whose official duties involve entering 
into contracts on behalf of the Department shall also be governed by the 
following provisions:
    (1) Contracts for design, or development of systems and equipment. 
No contract for the design or development of a system of records, or for 
equipment to store, service or maintain a system of records shall be 
entered into unless the contracting officer has made reasonable effort 
to ensure that the product to be purchased is capable of being used 
without violation of the Act or regulation. Special attention shall be 
given to provision of physical safeguards.
    (2) Contracts for the operation of systems of records. A review by 
the Contracting Officer, in conjunction with other officials whom he

[[Page 43]]

feels appropriate, of all proposed contracts providing for the operation 
of systems of records shall be made prior to execution of the contracts 
to determine whether operation of the system of records is for the 
purpose of accomplishing a Department function. If a determination is 
made that the operation of the system is to accomplish a Department 
function, the contracting officer shall be responsible for including in 
the contract appropriate provisions to apply the provisions of the Act 
and regulation to the system, including prohibitions against improper 
release by the contractor, his employees, agents, or subcontractors.
    (3) Other service contracts. Contracting officers entering into 
general service contracts shall be responsible for determining the 
appropriateness of including provisions in the contract to prevent 
potential misuse (inadvertent or otherwise) by employees, agents, or 
subcontractors of the contractor.
    (f) Rules Governing Responsible Department Officials. In addition to 
the requirements for Systems Employees, responsible Department officials 
shall:
    (1) Respond to all requests for notification of or access, 
disclosure, or amendment of records in a timely fashion in accordance 
with the Act and regulation;
    (2) Make any amendment of records accurately and in a timely 
fashion;
    (3) Inform all persons whom the accounting records show have 
received copies of the record prior to the amendments of the correction; 
and
    (4) Associate any statement of disagreement with the disputed 
record, and
    (a) Transmit a copy of the statement to all persons whom the 
accounting records show have received a copy of the disputed record, and
    (b) Transmit that statement with any future disclosure.

 Appendix B to Part 5b--Routine Uses Applicable to More Than One System 
                      of Records Maintained by HHS

    (1) In the event that a system of records maintained by this agency 
or carry out its functions indicates a violation or potential violation 
of law, whether civil, criminal or regulatory in nature, and whether 
arising by general statute or particular program statute, or by 
regulation, rule or order issued pursuant thereto, the relevant records 
in the system of records may be referred, as a routine use, to the 
appropriate agency, whether federal, or foreign, charged with the 
responsibility of investigating or prosecuting such violation or charged 
with enforcing or implementing the statute, or rule, regulation or order 
issued pursuant thereto.
    (2) Referrals may be made of assignments of research investigators 
and project monitors to specific research projects to the Smithsonian 
Institution to contribute to the Smithsonian Science Information 
Exchange, Inc.
    (3) In the event the Department deems it desirable or necessary, in 
determining whether particular records are required to be disclosed 
under the Freedom of Information Act, disclosure may be made to the 
Department of Justice for the purpose of obtaining its advice.
    (4) A record from this system of records may be disclosed as a 
``routine use'' to a federal, state or local agency maintaining civil, 
criminal or other relevant enforcement records or other pertinent 
records, such as current licenses, if necessary to obtain a record 
relevant to an agency decision concerning the hiring or retention of an 
employee, the issuance of a security clearance, the letting of a 
contract, or the issuance of a license, grant or other benefit.
    A record from this system of records may be disclosed to a Federal 
agency, in response to its request, in connection with the hiring or 
retention of an employee, the issuance of a security clearance, the 
reporting of an investigation of an employee, the letting of a contract, 
or the issuance of a license, grant, or other benefit by the requesting 
agency, to the extent that the record is relevant and necessary to the 
requesting agency's decision on the matter.
    (5) In the event that a system of records maintained by this agency 
to carry out its function indicates a violation or potential violation 
of law, whether civil, criminal or regulatory in nature, and whether 
arising by general statute or particular program statute, or by 
regulation, rule or order issued pursuant thereto, the relevant records 
in the system of records may be referred, as a routine use, to the 
appropriate agency, whether state or local charged with the 
responsibility of investigating or prosecuting such violation or charged 
with enforcing or implementing the statute, or rule, regulation or order 
issued pursuant thereto.
    (6) Where Federal agencies having the power to subpoena other 
Federal agencies' records, such as the Internal Revenue Service or the 
Civil Rights Commission, issue a subpoena to the Department for records 
in this system of records, the Department will make such records 
available.
    (7) Where a contract between a component of the Department and a 
labor organization recognized under E.O. 11491 provides that the agency 
will disclose personal records relevant to the organization's mission, 
records in this system of records may be disclosed to such organization.
    (8) Where the appropriate official of the Department, pursuant to 
the Department's Freedom of Information Regulation determines that it is 
in the public interest to disclose a record which is otherwise exempt

[[Page 44]]

from mandatory disclosure, disclosure may be made from this system of 
records.
    (9) The Department contemplates that it will contract with a private 
firm for the purpose of collating, analyzing, aggregating or otherwise 
refining records in this system. Relevant records will be disclosed to 
such a contractor. The contractor shall be required to maintain Privacy 
Act safeguards with respect to such records.
    (10)-(99) [Reserved]
    (100) To the Department of Justice or other appropriate Federal 
agencies in defending claims against the United States when the claim is 
based upon an individual's mental or physical condition and is alleged 
to have arisen because of activities of the Public Health Service in 
connection with such individual.
    (101) To individuals and organizations, deemed qualified by the 
Secretary to carry out specific research solely for the purpose of 
carrying out such research.
    (102) To organizations deemed qualified by the Secretary to carry 
out quality assessment, medical audits or utilization review.
    (103) Disclosures in the course of employee discipline or competence 
determination proceedings.

       Appendix C to Part 5b--Delegations of Authority [Reserved]

                            PART 6 [RESERVED]



PART 7--EMPLOYEE INVENTIONS--Table of Contents




Sec.
7.0  Who are employees.
7.1  Duty of employee to report inventions.
7.3  Determination as to domestic rights.
7.4  Option to acquire foreign rights.
7.7  Notice to employee of determination.
7.8  Employee's right of appeal.

    Authority: Reorg. Plan No. 1 of 1953, 18 FR 2053; 3 CFR 1953 Supp. 
E.O. 10096, 15 FR 391; 3 CFR. 1950 Supp. and E.O. 10930, 26 FR 2583; 3 
CFR 1961 Supp.



Sec. 7.0  Who are employees.

    As used in this part, the term Government employee means any officer 
or employee, civilian or military, except such part-time employees or 
part-time consultants as may be excluded therefrom by a determination 
made in writing by the head of the employee's office or constituent 
organization, pursuant to an exemption approved by the Commissioner of 
Patents that to include him or them would be impracticable or 
inequitable, given the reasons therefor. A person shall not be 
considered to be a part-time employee or part-time consultant for this 
purpose unless the terms of his employment contemplate that he shall 
work for less than the minimum number of hours per day, or less than a 
minimum number of days per week, or less than the minimum number of 
weeks per year, regularly required of full-time employees of his class.

[27 FR 7986, Aug. 10, 1962]



Sec. 7.1  Duty of employee to report inventions.

    Every Department employee is required to report to the Assistant 
Secretary (Health and Scientific Affairs) in accordance with the 
procedures established therefor, every invention made by him (whether or 
not jointly with others) which bears any relation to his official duties 
or which was made in whole or in any part during working hours, or with 
any contribution of Government facilities, equipment, material, funds, 
or information, or of time or services of other Government employees on 
official duty.

[31 FR 12842, Oct. 1, 1966]



Sec. 7.3  Determination as to domestic rights.

    The determination of the ownership of the domestic right, title, and 
interest in and to an invention which is or may be patentable, made by a 
Government employee while under the administrative jurisdiction of the 
Department, shall be made in writing by the Assistant Secretary (Health 
and Scientific Affairs), in accordance with the provisions of Executive 
Order 10096 and Government-wide regulations issued thereunder by the 
Commissioner of Patents as follows:
    (a) The Government as represented by the Assistant Secretary (Health 
and Scientific Affairs) shall obtain the entire domestic right, title 
and interest in and to all inventions made by any Government employee 
(1) during working hours, or (2) with a contribution by the Government 
of facilities, equipment, materials, funds, or information, or of time 
or services of other Government employees on official duty, or (3) which 
bear a direct relation to or are

[[Page 45]]

made in consequence of the official duties of the inventor.
    (b) In any case where the contribution of the Government, as 
measured by any one or more of the criteria set forth in paragraph (a) 
of this section, to the invention is insufficient equitably to justify a 
requirement of assignment to the Government of the entire domestic 
right, title and interest in and to such invention, or in any case where 
the Government has insufficient interest in an invention to obtain the 
entire domestic right, title, and interest therein (although the 
Government could obtain same under paragraph (a) of this section), the 
Department, subject to the approval of the Commissioner, shall leave 
title to such invention in the employee, subject, however, to the 
reservation to the Government of a nonexclusive, irrevocable, royalty-
free license in the invention with power to grant licenses for all 
governmental purposes, such reservation to appear, where practicable, in 
any patent, domestic or foreign, which may issue on such invention.
    (c) In applying the provisions of paragraphs (a) and (b) of this 
section, to the facts and circumstances relating to the making of any 
particular invention, it shall be presumed that an invention made by an 
employee who is employed or assigned (1) to invent or improve or perfect 
any art, machine, manufacture, or composition of matter, (2) to conduct 
or perform research, development work, or both, (3) to supervise, 
direct, coordinate, or review Government financed or conducted research, 
development work, or both, or (4) to act in a liaison capacity among 
governmental or nongovernmental agencies or individuals engaged in such 
work, falls within the provisions of paragraph (a) of this section, and 
it shall be presumed that any invention made by any other employee falls 
within the provisions of paragraph (b) of this section. Either 
presumption may be rebutted by a showing of the facts and circumstances 
and shall not preclude a determination that these facts and 
circumstances justify leaving the entire right, title and interest in 
and to the invention in the Government employee, subject to law.
    (d) In any case wherein the Government neither (1) obtains the 
entire domestic right, title and interest in and to an invention 
pursuant to the provisions of paragraph (a) of this section, nor (2) 
reserves a nonexclusive, irrevocable, royalty-free license in the 
invention, with power to grant licenses for all governmental purposes, 
pursuant to the provisions of paragraph (b) of this section, the 
Government shall leave the entire right, title and interest in and to 
the invention in the Government employee, subject to law.

[27 FR 7986, Aug. 10, 1962, as amended at 31 FR 12842, Nov. 1, 1966]



Sec. 7.4  Option to acquire foreign rights.

    In any case where it is determined that all domestic rights should 
be assigned to the Government, it shall further be determined, pursuant 
to Executive Order 9865 and Government-wide regulations issued 
thereunder, that the Government shall reserve an option to require the 
assignment of such rights in all or in any specified foreign countries. 
In case where the inventor is not required to assign the patent rights 
in any foreign country or countries to the Government or the Government 
fails to exercise its option within such period of time as may be 
provided by regulations issued by the Commissioner of Patents, any 
application for a patent which may be filed in such country or countries 
by the inventor or his assignee shall nevertheless be subject to a 
nonexclusive, irrevocable, royalty-free license to the Government for 
all governmental purposes, including the power to issue sublicenses for 
use in behalf of the Government and/or in furtherance of the foreign 
policies of the Government.

[27 FR 7987, Aug. 10, 1962]



Sec. 7.7  Notice to employee of determination.

    The employee-inventor shall be notified in writing of the 
Department's determination of the rights to his invention and of his 
right of appeal, if any. Notice need not be given if the employee stated 
in writing that he would agree to the determination of ownership which 
was in fact made.

[31 FR 12842, Oct. 1, 1966]

[[Page 46]]



Sec. 7.8  Employee's right of appeal.

    An employee who is aggrieved by a determination of the Department 
may appeal to the Commissioner of Patents, pursuant to section 4(d) of 
Executive Order 10096, as amended by Executive Order 10930, and 
regulations issued thereunder, by filing a written appeal with the 
Commissioner, in duplicate, and a copy of the appeal with the Assistant 
Secretary (Health and Scientific Affairs), within 30 days (or such 
longer period as the Commissioner may, for good cause, fix in any case) 
after receiving written notice of such determination.

[27 FR 7986, Aug. 10, 1962, as amended at 31 FR 12842, Oct. 1, 1966]

                            PART 8 [RESERVED]



PART 9--USE OF HHS RESEARCH FACILITIES BY ACADEMIC SCIENTISTS, ENGINEERS, AND STUDENTS--Table of Contents




Sec.
9.1  Purpose.
9.2  Policy.
9.3  Delegations of authority.
9.4  Criteria.
9.5  Restrictions.

    Authority: 27 Stat. 395, as amended; 20 U.S.C. 91.

    Source: 34 FR 18938, Nov. 27, 1969, unless otherwise noted.



Sec. 9.1  Purpose.

    To enhance the availability of DHHS scientific research and study 
facilities to academic scientists, engineers, and qualified students.



Sec. 9.2  Policy.

    It is the policy of the Department of Health and Human Services in 
accordance with the policy of the President announced on February 21, 
1969, to make research and study facilities of the Department readily 
available to the scientific community, especially qualified academic 
scientists and engineers. Unique, unusual, and expensive-to-duplicate 
facilities at laboratories and other study and research facilities of 
the Department will be made available to the national scientific 
community, to the maximum extent practical without serious detriment to 
the missions of those facilities. It is also the policy of the 
Department to permit qualified students and graduates of institutions of 
learning in the several States, and territories, as well as the District 
of Columbia, to use study and research facilities of the Department. 
When such facilities are used by academic scientists, engineers, and 
students, the costs incurred for the operation of the unique or unusual 
research facilities, as well as of the other facilities, should be 
funded by the operating agency responsible for the operation of that 
facility, except for any significant incremental costs incurred in 
support of research not directly related to an HHS mission.



Sec. 9.3  Delegations of authority.

    (a) The heads of operating agencies are delegated authority for 
negotiations and decisions as to the use of Department facilities by 
qualified academic scientists, engineers, and students.
    (b) The heads of operating agencies may (and are encouraged to) 
redelegate to the heads of their respective component organizations, 
with the power to further redelegate to laboratory directors, the 
authority for negotiations and decisions as to the use of departmental 
facilities. Appropriate use shall be made of advisory groups in 
formulating their decisions.



Sec. 9.4  Criteria.

    (a) The official permitting use of Department facilities must 
determine that it would be consistent with the programs of his activity 
to participate. Facilities may be made available provided the use of 
such facilities will be of direct benefit to the objectives of the 
academic scientist, or engineer, or student, with the prospect of 
fruitful interchange of ideas and information between Department 
personnel and the academic scientist, or engineer, or student, and such 
use will not interfere with the Department program.
    (b) The official permitting use of Department facilities will 
furnish the non-Government user with safety requirements or operating 
procedures to be followed. Such requirements or procedures are to 
include the requirement

[[Page 47]]

to report to the permitting official any accident involving the non-
Government user.
    (c) The official delegated authority for approving the use of 
Department facilities will not permit the use of laboratory facilities 
unless he determines:
    (1) That facilities are available for the period desired; and
    (2) That the proposed research will not interfere with regular 
Department functions or needs, nor require the subsequent acquisition of 
additional equipment by the Department.



Sec. 9.5  Restrictions.

    (a) Each individual authorized to use Department facilities will be 
expected to use the facilities and equipment with customary care and 
otherwise conduct himself in such manner as to complete his research or 
study within any time limits prescribed.
    (b) Each individual authorized to use HHS facilities may not be 
authorized to sign requisitions for supplies and equipment.
    (c) Any official approving the use of HHS facilities should seek an 
agreement, executed by non-Government users, absolving the Federal 
agency of liability in case of personal injury, death, and failure or 
damage to the non-Government user's experiments or equipment. The 
agreement must also contain a statement that the non-Government user 
will comply with all safety regulations and procedures while using such 
facilities.



PART 12--DISPOSAL AND UTILIZATION OF SURPLUS REAL PROPERTY FOR PUBLIC HEALTH PURPOSES--Table of Contents




Sec.
12.1  Definitions.
12.2  Scope.
12.3  General policies.
12.4  Limitations.
12.5  Awards.
12.6  Notice of available property.
12.7  Applications for surplus real property.
12.8  Assignment of surplus real property.
12.9  General disposal terms and conditions.
12.10  Compliance with the National Environmental Policy Act of 1969 and 
          other related Acts (environmental impact).
12.11  Special terms and conditions.
12.12  Utilization.
12.13  Form of conveyance.
12.14  Compliance inspections and reports.
12.15  Reports to Congress.

Exhibit A to Part 12--Public Benefit Allowance for Transfer of Real 
          Property for Health Purposes

    Authority: Sec. 203, 63 Stat. 385, as amended; 40 U.S.C. 484; sec. 
501 of Pub. L. 100-77, 101 Stat. 509-10, 42 U.S.C. 11411.

    Source: 45 FR 72173, Oct. 31, 1980, unless otherwise noted.



Sec. 12.1  Definitions.

    (a) Act means the Federal Property and Administrative Services Act 
of 1949, 63 Stat. 377 (40 U.S.C. 471 et seq.). Terms defined in the Act 
and not defined in this section have the meanings given to them in the 
Act.
    (b) Accredited means having the approval of a recognized 
accreditation board or association on a regional, State, or national 
level, such as a State Board of Health. Approval as used above describes 
the formal process carried out by State Agencies and institutions in 
determining that health organizations or programs meet minimum 
acceptance standards.
    (c) Administrator means the Administrator of General Services.
    (d) Assigned property means real and related personal property 
which, in the discretion of the Administrator or his designee, has been 
made available to the Department for transfer for public health 
purposes.
    (e) Department means the U.S. Department of Health and Human 
Services.
    (f) Disposal agency means the executive agency of the Government 
which has authority to assign property to the Department for transfer 
for public health purposes.
    (g) Excess means any property under the control of any Federal 
agency which is not required for its needs and the discharge of its 
responsibilities, as determined by the head thereof.
    (h) Fair market value means the highest price which the property 
will bring by sale in the open market by a willing seller to a willing 
buyer.
    (i) Holding agency means the Federal agency which has control over 
and accountability for the property involved.
    (j) Nonprofit institution means any institution, organization, or 
association, whether incorporated or unincorporated, no part of the net 
earnings of

[[Page 48]]

which inures or may lawfully inure to the benefit of any private 
shareholder or individual, and (except for institutions which lease 
property to assist the homeless under Title V of Pub. L. 100-77) which 
has been held to be tax-exempt under section 501(c)(3) of the Internal 
Revenue Code of 1954.
    (k) Off-site property means surplus buildings, utilities and all 
other removable improvements, including related personal property, to be 
transferred by the Department for removal and use away from the site for 
public health purposes.
    (l) On-site means surplus real property, including related personal 
property, to be transferred by the Department for use in place for 
public health purposes.
    (m) Public benefit allowance means a discount on the sale or lease 
price of real property transferred for public health purposes, 
representing any benefit determined by the Secretary which has accrued 
or may accrue to the United States thereby.
    (n) Related personal property means any personal property: (1) Which 
is located on and is (i) an integral part of, or (ii) useful in the 
operation of real property; or (2) which is determined by the 
Administrator to be otherwise related to the real property.
    (o) Secretary means the Secretary of Health and Human Services.
    (p) State means a State of the United States, and includes the 
District of Columbia, the Commonwealth of Puerto Rico, and the 
Territories and possessions of the United States.
    (q) Surplus when used with respect to real property means any excess 
real property not required for the needs and the discharge of the 
responsibilities of all Federal agencies as determined by the 
Administrator.

[45 FR 72173, Oct. 31, 1980, as amended at 53 FR 7745, Mar. 10, 1988]



Sec. 12.2  Scope.

    This part is applicable to surplus real property located within any 
State which is appropriate for assignment to, or which has been assigned 
to, the Department for transfer for public health purposes, as provided 
for in section 203(k) of the Act.



Sec. 12.3  General policies.

    (a) It is the policy of the Department to foster and assure maximum 
utilization of surplus real property for public health purposes, 
including research.
    (b) Transfers may be made only to States, their political 
subdivisions and instrumentalities, tax-supported public health 
institutions, and nonprofit public health institutions which (except for 
institutions which lease property to assist the homeless under Title V 
of Pub. L. 100-77) have been held tax-exempt under section 501(c)(3) of 
the Internal Revenue Code of 1954.
    (c) Real property will be requested for assignment only when the 
Department has determined that the property is suitable and needed for 
public health purposes. The amount of real and related personal property 
to be transferred shall not exceed normal operating requirements of the 
applicant. Such property will not be requested for assignment unless it 
is needed at the time of application for public health purposes or will 
be so needed within the immediate or foreseeable future. Where 
construction or major renovation is not required or proposed, the 
property must be placed into use within twelve (12) months from the date 
of transfer. When construction or major renovation is contemplated at 
the time of transfer, the property must be placed in use within 36 
months from the date of transfer. If the applicable time limitation is 
not met, the transferee shall either commence payments in cash to the 
Department for each month thereafter during which the proposed use has 
not been implemented or take such other action as set forth in 
Sec. 12.12 as is deemed appropriate by the Department. Such monthly 
payments shall be computed on the basis of the current fair market value 
of the property at the time of the first payment by subtracting 
therefrom any portion of the purchase price paid in cash at the time of 
transfer, and by dividing the balance by the total number of months in 
the period of restriction. If the facility has not been placed into use 
within eight (8) years of the date of the deed, title to the property 
will be revested in the United States, or, at the discretion of the 
Department, the

[[Page 49]]

restrictions and conditions may be abrogated in accordance with 
Sec. 12.9.
    (d) Transfers will be made only after the applicant has certified 
that the proposed program is not in conflict with State or local zoning 
restrictions, building codes, or similar limitations.
    (e) Organizations which may be eligible include those which provide 
care and training for the physically and mentally ill, including medical 
care of the aged and infirm; clinical services; services (including 
shelter) to homeless individuals; other public health services 
(including water and sewer); or similar services devoted primarily to 
the promotion and protection of public health. In addition, 
organizations which provide assistance to homeless individuals may be 
eligible for leases under title V of Public Law 100-77. Except for the 
provision of services (including shelter) to homeless individuals, 
organizations which have as their principal purpose the providing of 
custodial or domiciliary care are not eligible. The eligible 
organization must be authorized to carry out the activity for which it 
requests the property.
    (f) An applicant's plan of operation will not be approved unless it 
provides that the applicant will not discriminate because of race, 
color, sex, handicap, or national origin in the use of the property.

[45 FR 72173, Oct. 31, 1980, as amended at 53 FR 7745, Mar. 10, 1988; 55 
FR 32252, Aug. 8, 1990]



Sec. 12.4  Limitations.

    (a) Surplus property transferred pursuant to this part will be 
disposed of on an ``as is, where is,'' basis without warranty of any 
kind.
    (b) Unless excepted by the General Services Administrator in his 
assignment, mineral rights will be conveyed together with the surface 
rights.



Sec. 12.5  Awards.

    Where there is more than one applicant for the same property, it 
will be awarded to the applicant having a program of utilization which 
provides, in the opinion of the Department, the greatest public benefit. 
Where the property will serve more than one program, it will be 
apportioned to fit the needs of as many programs as is practicable.



Sec. 12.6  Notice of available property.

    Reasonable publicity will be given to the availability of surplus 
real property which is suitable for assignment to the Department for 
transfer for public health uses. The Department will establish 
procedures reasonably calculated to afford all eligible users having a 
legitimate interest in acquiring the property for such uses an 
opportunity to make an application therefor. However, publicity need not 
be given to the availability of surplus real property which is occupied 
and being used for eligible public health purposes at the time the 
property is declared surplus, the occupant expresses interest in the 
property, and the Department determines that it has a continuing need 
therefor.



Sec. 12.7  Applications for surplus real property.

    Applications for surplus real property for public health purposes 
shall be made to the Department through the office specified in the 
notice of availability.

[55 FR 32252, Aug. 8, 1990]



Sec. 12.8  Assignment of surplus real property.

    (a) Notice of interest in a specific property for public health 
purposes will be furnished the General Services Administrator by the 
Department at the earliest possible date.
    (b) Requests to the Administrator for assignment of surplus real 
property to the Department for transfer for public health purposes will 
be based on the following conditions:
    (1) The Department has an acceptable application for the property.
    (2) The applicant is willing, authorized, and in a position to 
assume immediate care, custody, and maintenance of the property.
    (3) The applicant is able, willing and authorized to pay the 
administrative expenses incident to the transfer.
    (4) The applicant has the necessary funds, or the ability to obtain 
such funds, to carry out the approved program of use of the property.

[[Page 50]]



Sec. 12.9  General disposal terms and conditions.

    (a) Surplus real property transfers under this part will be limited 
to public health purposes. Transferees shall be entitled to a public 
benefit allowance in terms of a percentage which will be applied against 
the value of the property to be conveyed. Such an allowance will be 
computed on the basis of benefits to the United States from the use of 
such property for public health purposes. The computation of such public 
benefit allowances will be in accordance with Exhibit A attached hereto 
and made a part hereof.
    (b) A transfer of surplus real property for public health purposes 
is subject to the disapproval of the Administrator within 30 days after 
notice is given to him of the proposed transfer.
    (c) Transfers will be on the following terms and conditions:
    (1) The transferee will be obligated to utilize the property 
continuously in accordance with an approved plan of operation.
    (2) The transferee will not be permitted to sell, lease or sublease, 
rent, mortgage, encumber, or otherwise dispose of the property, or any 
part thereof, without the prior written authorization of the Department.
    (3) The transferee will file with the Department such reports 
covering the utilization of the property as may be required.
    (4) In the event the property is sold, leased or subleased, 
encumbered, disposed of, or is used for purposes other than those set 
forth in the approved plan without the consent of the Department, all 
revenues or the reasonable value of other benefits received by the 
transferee directly or indirectly from such use, as determined by the 
Department, will be considered to have been received and held in trust 
by the transferee for the account of the United States and will be 
subject to the direction and control of the Department. The provisions 
of this paragraph shall not impair or affect the rights reserved to the 
United States in paragraph (c)(6) of this section, or the right of the 
Department to impose conditions to its consent.
    (5) Lessees will be required to carry all perils and liability 
insurance to protect the Government and the Government's residual 
interest in the property. Transferees will be required to carry such 
flood insurance as may be required by the Department pursuant to Pub. L. 
93-234. Where the transferee elects to carry insurance against damages 
to or loss of on-site property due to fire or other hazards, and where 
loss or damage to transferred Federal surplus real property occurs, all 
proceeds from insurance shall be promptly used by the transferee for the 
purpose of repairing and restoring the property to its former condition, 
or replacing it with equivalent or more suitable facilities. If not so 
used, there shall be paid to the United States that part of the 
insurance proceeds that is attributable to the Government's residual 
interest in the property lost, damaged, or destroyed in the case of 
leases, attributable to the fair market value of the leased facilities.
    (6) With respect to on-site property, in the event of noncompliance 
with any of the conditions of the transfer as determined by the 
Department, title to the property transferred and the right to immediate 
possession shall, at the option of the Department, revert to the 
Government. In the event title is reverted to the United States for 
noncompliance or voluntarily reconveyed, the transferee shall, at the 
option of the Department, be required to reimburse the Government for 
the decrease in value of the property not due to reasonable wear and 
tear or acts of God or attributable to alterations completed by the 
transferee to adapt the property to the public health use for which the 
property was transferred. With respect to leased property, in the event 
of noncompliance with any of the conditions of the lease, as determined 
by the Department, the right of occupancy and possession shall, at the 
option of the Department, be terminated. In the event a leasehold is 
terminated by the United States for noncompliance or is voluntarily 
surrendered, the lessee shall be required at the option of the 
Department to reimburse the Government for the decrease in value of the 
property not due to reasonable wear and tear or acts of God or 
attributable to alterations completed by the lessee to adapt the 
property to the public

[[Page 51]]

health use for which the property was leased.

With respect to any reverter of title or termination of leasehold 
resulting from noncompliance, the Government shall, in addition thereto, 
be reimbursed for such costs as may be incurred in recovering title to 
or possession of the property.


Any payments of cash made by the transferee against the purchase price 
of property transferred shall, upon a forfeiture of title to the 
property for breach of condition, be forfeited.
    (7) With respect to off-site property, in the event of noncompliance 
with any of the terms and conditions of the transfer, the unearned 
public benefit allowance shall, at the option of the Department, become 
immediately due and payable or, if the property or any portion thereof 
is sold, leased, or otherwise disposed of without authorization from the 
Department, such sale, lease or sublease, or other disposal shall be for 
the benefit and account of the United States and the United States shall 
be entitled to the proceeds. In the event the transferee fails to remove 
the property or any portion thereof within the time specified, then in 
addition to the rights reserved above, at the option of the Department, 
all right, title, and interest in and to such unremoved property shall 
be retransferred to other eligible applicants or shall be forfeited to 
the United States.
    (8) With respect only to on-site property which has been declared 
excess by the Department of Defense, such declaration having included a 
statement indicating the property has a known potential for use during a 
national emergency, the Department shall reserve the right during any 
period of emergency declared by the President of the United States or by 
the Congress of the United States to the full and unrestricted use by 
the Government of the surplus real property, or of any portion thereof, 
disposed of in accordance with the provisions of this part. Such use may 
be either exclusive or nonexclusive. Prior to the expiration or 
termination of the period of restricted use by the transferee, the 
Government will not be obligated to pay rent or any other fees or 
charges during the period of emergency, except that the Government will:
    (i) Bear the entire cost of maintenance of such portion of the 
property used by it exclusively or over which it may have exclusive 
possession or control;
    (ii) Pay the fair share, commensurate with the use of the cost of 
maintenance of such surplus real property as it may use nonexclusively 
or over which it may have nonexclusive possession or control;
    (iii) Pay a fair rental for the use of improvements or additions to 
the surplus real property made by the purchaser or lessee without 
Government aid; and
    (iv) Be responsible for any damage to the surplus real property 
caused by its use, reasonable wear and tear, the common enemy and acts 
of God excepted. Subsequent to the expiration or termination of the 
period of restricted use, the obligations of the Government will be as 
set forth in the preceding sentence and, in addition, the Government 
shall be obligated to pay a fair rental for all or any portion of the 
conveyed premises which it uses.
    (9) The restrictions set forth in paragraphs (c) (1) through (7) of 
this section will extend for thirty (30) years for land with or without 
improvements; and for facilities being acquired separately from land 
whether they are for use on-site or off-site, the period of limitations 
on the use of the structures will be equal to their estimated economic 
life. The restrictions set forth in paragraphs (c) (1) through (7) of 
this section will extend for the entire initial lease period and for any 
renewal periods for property leased from the Department.
    (d) Transferees, by obtaining the consent of the Department, may 
abrogate the restrictions set forth in paragraph (c) of this section for 
all or any portion of the property upon payment in cash to the 
Department of an amount equal to the then current fair market value of 
the property to be released, multiplied by the public benefit allowance 
granted at the time of conveyance, divided by the total number of months 
of the period of restriction set forth in

[[Page 52]]

the conveyance document and multiplied by the number of months that 
remain in the period of restriction as determined by the Department. For 
purposes of abrogation payment computation, the current fair market 
value shall not include the value of any improvements placed on the 
property by the transferee.
    (e) Related personal property will be transferred or leased as a 
part of the realty and in accordance with real property procedures. It 
will be subject to the same public benefit allowance granted for the 
real property. Where related personal property is involved in an on-site 
transfer, the related personal property may be transferred by a bill of 
sale imposing restrictions for a period not to exceed five years from 
the date of transfer, other terms and conditions to be the same as, and 
made a part of, the real property transaction.



Sec. 12.10  Compliance with the National Environmental Policy Act of 1969 and other related Acts (environmental impact).

    (a) The Department will, prior to making a final decision to convey 
or lease, or to amend, reform, or grant an approval or release with 
respect to a previous conveyance or lease of, surplus real property for 
public health purposes, complete an environmental assessment of the 
proposed transaction in keeping with applicable provisions of the 
National Environmental Policy Act of 1969, the National Historic 
Preservation Act of 1966, the National Archeological Data Preservation 
Act, and other related acts. No permit to use surplus real property 
shall allow the permittee to make, or cause to be made, any irreversible 
change in the condition of said property, and no use permit shall be 
employed for the purpose of delaying or avoiding compliance with the 
requirements of these Acts.
    (b) Applicants shall be required to provide such information as the 
Department deems necessary to make an assessment of the impact of the 
proposed Federal action on the human environment. Materials contained in 
the applicant's official request, responses to a standard questionnaire 
prescribed by the Public Health Service, as well as other relevant 
information, will be used by the Department in making said assessment.
    (c) If the assessment reveals (1) That the proposed Federal action 
involves properties of historical significance which are listed, or 
eligible for listing, in the National Register of Historic Places, or 
(2) that a more than insignificant impact on the human environment is 
reasonably foreseeable as a result of the proposed action, or (3) that 
the proposed Federal action could result in irreparable loss or 
destruction of archeologically significant items or data, the Department 
will, except as provided for in paragraph (d) of this section, prepare 
and distribute, or cause to be prepared or distributed, such notices and 
statements and obtain such approvals as are required by the above cited 
Acts.
    (d) If a proposed action involves other Federal agencies in a 
sequence of actions, or a group of actions, directly related to each 
other because of their functional interdependence, the Department may 
enter into and support a lead agency agreement to designate a single 
lead agency which will assume primary responsibility for coordinating 
the assessment of environmental effects of proposed Federal actions, 
preparing and distributing such notices and statements, or obtaining 
such approvals, as are required by the above cited Acts. The procedures 
of the designated lead agency will be utilized in conducting the 
environmental assessment. In the event of disagreement between the 
Department and another Federal agency, the Department will reserve the 
right to abrogate its lead agency agreement with the other Federal 
Agency.

[45 FR 72173, Oct. 31, 1980, as amended at 55 FR 32252, Aug. 8, 1990]



Sec. 12.11  Special terms and conditions.

    (a) Applicants will be required to pay all external administrative 
costs which will include, but not be limited to, taxes, surveys, 
appraisals, inventory costs, legal fees, title search, certificate or 
abstract expenses, decontamination costs, moving costs, closing fees in 
connection with the transaction and service charges, if any, made by

[[Page 53]]

State Agencies for Federal Property Assistance under the terms of a 
cooperative agreement with the Department.
    (b) In the case of off-site property, applicants will be required to 
post performance bonds, make performance guarantee deposits, or give 
such other assurances as may be required by the Department or the 
holding agency to insure adequate site clearance and to pay service 
charges, if any, made by State Agencies for Federal Property Assistance 
under the terms of a cooperative agreement with the Department.
    (c) Whenever negotiations are undertaken for disposal to private 
nonprofit public health organizations of any surplus real property which 
cost the Government $1 million or more, the Department will give notice 
to the Attorney General of the United States of the proposed disposal 
and the terms and conditions thereof. The applicant shall furnish to the 
Department such information and documents as the Attorney General may 
determine to be appropriate or necessary to enable him to give the 
advice as provided for by section 207 of the Act.
    (d) Where an applicant proposes to acquire or lease and use in place 
improvements located on land which the Government does not own, he shall 
be required, before the transfer is consummated, to obtain a right to 
use the land commensurate with the duration of the restrictions 
applicable to the improvements, or the term of the lease. The applicant 
will be required to assume, or obtain release of, the Government's 
obligations respecting the land including but not limited to obligations 
relating to restoration, waste, and rent. At the option of the 
Department, the applicant may be required to post a bond to indemnify 
the Government against such obligations.
    (e) The Department may require the inclusion in the transfer or 
lease document of any other provision deemed desirable or necessary.
    (f) Where an eligible applicant for an on-site transfer proposes to 
construct new, or rehabilitate old, facilities, the financing of which 
must be accomplished through issuance of revenue bonds having terms 
inconsistent with the terms and conditions of transfer prescribed in 
Sec. 12.9 (c), (d), and (e) of this chapter, the Department may, in its 
discretion, impose such alternate terms and conditions of transfer in 
lieu thereof as may be appropriate to assure utilization of the property 
for public health purposes.



Sec. 12.12  Utilization.

    (a) Where property or any portion thereof is not being used for the 
purposes for which transferred, the transferee will be required at the 
direction of the Department:
    (1) To place the property into immediate use for an approved 
purpose;
    (2) To retransfer such property to such other public health user as 
the Department may direct;
    (3) To sell such property for the benefit and account of the United 
States;
    (4) To return title to such property to the United States or to 
relinquish any leasehold interest therein;
    (5) To abrogate the conditions and restrictions of the transfer, as 
set forth in Sec. 12.9(d) of this chapter, except that, where property 
has never been placed in use for the purposes for which transferred, 
abrogation will not be permitted except under extenuating circumstances; 
or
    (6) To make payments as provided for in Sec. 12.3(c) of this 
chapter.
    (b) Where the transferee or lessee desires to place the property in 
temporary use for a purpose other than that for which the property was 
transferred or leased, approval from the Department must be obtained, 
and will be conditioned upon such terms as the Department may impose.



Sec. 12.13  Form of conveyance.

    (a) Transfers or leases of surplus real property will be on forms 
approved by the Office of General Counsel of the Department and will 
include such of the disposal or lease terms and conditions set forth in 
this part and such other terms and conditions as the Office of General 
Counsel may deem appropriate or necessary.
    (b) Transfers of on-site property will normally be by quitclaim deed 
without warranty of title.

[[Page 54]]



Sec. 12.14  Compliance inspections and reports.

    The Department will make or have made such compliance inspections as 
are necessary and will require of the transferee or lessee such 
compliance reports and actions as are deemed necessary.



Sec. 12.15  Reports to Congress.

    The Secretary will make such reports of real property disposal 
activities as are required by section 203 of the Act and such other 
reports as may be required by law.

[[Page 55]]

 Exhibit A--Public Benefit Allowance for Transfer of Real Property for 
                           Health Purposes \1\

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Percent allowed
                                              --------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Organization allowances                                             Utilization allowances
                                              ---------------------------------------------------------------------------------------------------------------------------------------   Maximum
                Classification                    Basic                                                       Unmet needs                                                               public
                                                 public        Tax                               ------------------------------------ Integrated  Outpatient    Public     Training     benefit
                                                 benefit     support   Accreditation   Hardship                                        research    services    services     program    allowance
                                                allowance                                          10 to 25%   26 to 50%  51 to 100%    program
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Hospitals....................................          50          20            20           10          10          20          30          10          10          10          10         100
Clinics......................................          50          20            20           10          10          20          30  ..........  ..........  ..........  ..........         100
Nursing Homes................................          50          20            20           10          10          20          30  ..........  ..........  ..........          10         100
Public Health Administration.................     \2\ 100  ..........  .............  ..........  ..........  ..........  ..........  ..........  ..........  ..........  ..........     \2\ 100
Public Refuse Disposal and Water Systems.....     \2\ 100  ..........  .............  ..........  ..........  ..........  ..........  ..........  ..........  ..........  ..........     \2\ 100
Research.....................................     \2\ 100  ..........  .............  ..........  ..........  ..........  ..........  ..........  ..........  ..........  ..........     \2\ 100
Rehabilitation Facility......................          50          20            20           10          10          20          30          10          10          10          10         100
Special Services.............................          50          20            20           10          10          20          30  ..........  ..........          10  ..........         100
Assistance to the Homeless...................     \2\ 100  ..........  .............  ..........  ..........  ..........  ..........  ..........  ..........  ..........  ..........     \2\ 100
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ This public benefit allowance applies only to surplus real property being sold for on-site use. When surplus real property is to be moved from the site, a basic public benefit allowance of
  100% will be granted.
\2\ Applicable when this is the primary use to be made of the property. The public benefit allowance for the overall health program is applicable when such facilities are conveyed as a minor
  component of other facilities.

[45 FR 72173, Oct. 31, 1980, as amended at 53 FR 7745, Mar. 10, 1988]

[[Page 56]]



PART 12a--USE OF FEDERAL REAL PROPERTY TO ASSIST THE HOMELESS--Table of Contents




Sec.
12a.1  Definitions.
12a.2  Applicability.
12a.3  Collecting the information.
12a.4  Suitability determination.
12a.5  Real property reported excess to GSA.
12a.6  Suitability criteria.
12a.7  Determination of availability.
12a.8  Public notice of determination.
12a.9  Application process.
12a.10  Action on approved applications.
12a.11  Unsuitable properties.
12a.12  No applications approved.

    Authority: 42 U.S.C. 11411; 40 U.S.C. 484(k); 42 U.S.C. 3535(d).

    Source: 56 FR 23794, 23795, May 24, 1991, unless otherwise noted.

    Effective Date Note: At 56 FR 23794, 23795, May 24, 1991, part 12a 
was added, effective May 24, 1991, except for Sec. 12a.3, which will not 
become effective until approved by the District Court for the District 
of Columbia, pending further proceedings.



Sec. 12a.1  Definitions.

    Applicant means any representative of the homeless which has 
submitted an application to the Department of Health and Human Services 
to obtain use of a particular suitable property to assist the homeless.
    Checklist or property checklist means the form developed by HUD for 
use by landholding agencies to report the information to be used by HUD 
in making determinations of suitability.
    Classification means a property's designation as unutilized, 
underutilized, excess, or surplus.
    Day means one calendar day including weekends and holidays.
    Eligible organization means a State, unit of local government or a 
private non-profit organization which provides assistance to the 
homeless, and which is authorized by its charter or by State law to 
enter into an agreement with the Federal government for use of real 
property for the purposes of this subpart. Representatives of the 
homeless interested in receiving a deed for a particular piece of 
surplus Federal property must be section 501(c)(3) tax exempt.
    Excess property means any property under the control of any Federal 
executive agency that is not required for the agency's needs or the 
discharge of its responsibilities, as determined by the head of the 
agency pursuant to 40 U.S.C. 483.
    GSA means the General Services Administration.
    HHS means the Department of Health and Human Services.
    Homeless means:
    (1) An individual or family that lacks a fixed, regular, and 
adequate nighttime residence; and
    (2) An individual or family that has a primary nighttime residence 
that is:
    (i) A supervised publicly or privately operated shelter designed to 
provide temporary living accommodations (including welfare hotels, 
congregate shelters, and transitional housing for the mentally ill);
    (ii) An institution that provides a temporary residence for 
individuals intended to be institutionalized; or
    (iii) A public or private place not designed for, or ordinarily used 
as, a regular sleeping accommodation for human beings. This term does 
not include any individual imprisoned or otherwise detained under an Act 
of the Congress or a State law.
    HUD means the Department of Housing and Urban Development.
    ICH means the Interagency Council on the Homeless.
    Landholding agency means a Federal department or agency with 
statutory authority to control real property.
    Lease means an agreement between either the Department of Health and 
Human Services for surplus property, or landholding agencies in the case 
of non-excess properties or properties subject to the Base Closure and 
Realignment Act (Public Law 100-526; 10 U.S.C. 2687), and the applicant, 
giving rise to the relationship of lessor and lessee for the use of 
Federal real property for a term of at least one year under the 
conditions set forth in the lease document.
    Non-profit organization means an organization no part of the net 
earnings of which inures to the benefit of any member, founder, 
contributor, or individual; that has a voluntary board; that has an 
accounting system or has designated an entity that will maintain a 
functioning accounting system

[[Page 57]]

for the organization in accordance with generally accepted accounting 
procedures; and that practices nondiscrimination in the provision of 
assistance.
    Permit means a license granted by a landholding agency to use 
unutilized or underutilized property for a specific amount of time under 
terms and conditions determined by the landholding agency.
    Property means real property consisting of vacant land or buildings, 
or a portion thereof, that is excess, surplus, or designated as 
unutilized or underutilized in surveys by the heads of landholding 
agencies conducted pursuant to section 202(b)(2) of the Federal Property 
and Administrative Services Act of 1949 (40 U.S.C. 483(b)(2).)
    Regional Homeless Coordinator means a regional coordinator of the 
Interagency Council on the Homeless.
    Representative of the Homeless means a State or local government 
agency, or private nonprofit organization which provides, or proposes to 
provide, services to the homeless.
    Screen means the process by which GSA surveys Federal agencies, or 
State, local and non-profit entities, to determine if any such entity 
has an interest in using excess Federal property to carry out a 
particular agency mission or a specific public use.
    State Homeless Coordinator means a state contact person designated 
by a state to receive and disseminate information and communications 
received from the Interagency Council on the Homeless in accordance with 
section 210(a) of the Stewart B. McKinney Act of 1987, as amended.
    Suitable property means that HUD has determined that a particular 
property satisfies the criteria listed in Sec. 12a.6.
    Surplus property means any excess real property not required by any 
Federal landholding agency for its needs or the discharge of its 
responsibilities, as determined by the Administrator of GSA.
    Underutilized means an entire property or portion thereof, with or 
without improvements which is used only at irregular periods or 
intermittently by the accountable landholding agency for current program 
purposes of that agency, or which is used for current program purposes 
that can be satisfied with only a portion of the property.
    Unsuitable property means that HUD has determined that a particular 
property does not satisfy the criteria in Sec. 12a.6.
    Unutilized property means an entire property or portion thereof, 
with or without improvements, not occupied for current program purposes 
for the accountable executive agency or occupied in caretaker status 
only.



Sec. 12a.2  Applicability.

    (a) This part applies to Federal real property which has been 
designated by Federal landholding agencies as unutilized, underutilized, 
excess or surplus and is therefore subject to the provisions of title V 
of the McKinney Act (42 U.S.C. 11411).
    (b) The following categories of properties are not subject to this 
subpart (regardless of whether they may be unutilized or underutilized).
    (1) Machinery and equipment.
    (2) Government-owned, contractor-operated machinery, equipment, 
land, and other facilities reported excess for sale only to the using 
contractor and subject to a continuing military requirement.
    (3) Properties subject to special legislation directing a particular 
action.
    (4) Properties subject to a Court Order.
    (5) Property not subject to survey requirements of Executive Order 
12512 (April 29, 1985).
    (6) Mineral rights interests.
    (7) Air Space interests.
    (8) Indian Reservation land subject to section 202(a)(2) of the 
Federal Property and Administrative Service Act of 1949, as amended.
    (9) Property interests subject to reversion.
    (10) Easements.
    (11) Property purchased in whole or in part with Federal funds if 
title to the property is not held by a Federal landholding agency as 
defined in this Part.



Sec. 12a.3  Collecting the information.

    (a) Canvass of landholding agencies. On a quarterly basis, HUD will 
canvass

[[Page 58]]

landholding agencies to collect information about property described as 
unutilized, underutilized, excess, or surplus, in surveys conducted by 
the agencies under section 202 of the Federal Property and 
Administrative Services Act (40 U.S.C. 483), Executive Order 12512, and 
41 CFR part 101-47.800. Each canvass will collect information on 
properties not previously reported and about property reported 
previously the status or classification of which has changed or for 
which any of the information reported on the property checklist has 
changed.
    (1) HUD will request descriptive information on properties 
sufficient to make a reasonable determination, under the criteria 
described below, of the suitability of a property for use as a facility 
to assist the homeless.
    (2) HUD will direct landholding agencies to respond to requests for 
information within 25 days of receipt of such requests.
    (b) Agency Annual Report. By December 31 of each year, each 
landholding agency must notify HUD regarding the current availability 
status and classification of each property controlled by the agency 
that:
    (1) Was included in a list of suitable properties published that 
year by HUD, and
    (2) Remains available for application for use to assist the 
homeless, or has become available for application during that year.
    (c) GSA Inventory. HUD will collect information, in the same manner 
as described in paragraph (a) of this section, from GSA regarding 
property that is in GSA's current inventory of excess or surplus 
property.
    (d) Change in Status. If the information provided on the property 
checklist changes subsequent to HUD's determination of suitability, and 
the property remains unutilized, underutilized, excess or surplus, the 
landholding agency shall submit a revised property checklist in response 
to the next quarterly canvass. HUD will make a new determination of 
suitability and, if it differs from the previous determination, 
republish the property information in the Federal Register. For example, 
property determined unsuitable for national security concerns may no 
longer be subject to security restrictions, or property determined 
suitable may subsequently be found to be contaminated.



Sec. 12a.4  Suitability determination.

    (a) Suitability determination. Within 30 days after the receipt of 
information from landholding agencies regarding properties which were 
reported pursuant to the canvass described in Sec. 12a.3(a), HUD will 
determine, under criteria set forth in Sec. 12a.6, which properties are 
suitable for use as facilities to assist the homeless and report its 
determination to the landholding agency. Properties that are under 
lease, contract, license, or agreement by which a Federal agency retains 
a real property interest or which are scheduled to become unutilized or 
underutilized will be reviewed for suitability no earlier than six 
months prior to the expected date when the property will become 
unutilized or underutilized, except that properties subject to the Base 
Closure and Realignment Act may be reviewed up to eighteen months prior 
to the expected date when the property will become unutilized or 
underutilized.
    (b) Scope of suitability. HUD will determine the suitability of a 
property for use as a facility to assist the homeless without regard to 
any particular use.
    (c) Environmental information. HUD will evaluate the environmental 
information contained in property checklists forwarded to HUD by the 
landholding agencies solely for the purpose of determining suitability 
of properties under the criteria in Sec. 12a.6.
    (d) Written record of suitability determination. HUD will assign an 
identification number to each property reviewed for suitability. HUD 
will maintain a written public record of the following:
    (1) The suitability determination for a particular piece of 
property, and the reasons for that determination; and
    (2) The landholding agency's response to the determination pursuant 
to the requirements of Sec. 12a.7(a).
    (e) Property determined unsuitable. Property that is reviewed by HUD 
under this section and that is determined unsuitable for use to assist 
the homeless may not be made available

[[Page 59]]

for any other purpose for 20 days after publication in the Federal 
Register of a Notice of unsuitability to allow for review of the 
determination at the request of a representative of the homeless.
    (f) Procedures for appealing unsuitability determinations. (1) To 
request review of a determination of unsuitability, a representative of 
the homeless must contact HUD within 20 days of publication of notice in 
the Federal Register that a property is unsuitable. Requests may be 
submitted to HUD in writing or by calling 1-800-927-7588 (Toll Free). 
Written requests must be received no later than 20 days after notice of 
unsuitability is published in the Federal Register.
    (2) Requests for review of a determination of unsuitability may be 
made only by representatives of the homeless, as defined in Sec. 12a.1.
    (3) The request for review must specify the grounds on which it is 
based, i.e., that HUD has improperly applied the criteria or that HUD 
has relied on incorrect or incomplete information in making the 
determination (e.g., that property is in a floodplain but not in a 
floodway).
    (4) Upon receipt of a request to review a determination of 
unsuitability, HUD will notify the landholding agency that such a 
request has been made, request that the agency respond with any 
information pertinent to the review, and advise the agency that it 
should refrain from initiating disposal procedures until HUD has 
completed its reconsideration regarding unsuitability.
    (i) HUD will act on all requests for review within 30 days of 
receipt of the landholding agency's response and will notify the 
representative of the homeless and the landholding agency in writing of 
its decision.
    (ii) If a property is determined suitable as a result of the review, 
HUD will request the landholding agency's determination of availability 
pursuant to Sec. 12a.7(a), upon receipt of which HUD will promptly 
publish the determination in the Federal Register. If the determination 
of unsuitability stands, HUD will inform the representative of the 
homeless of its decision.



Sec. 12a.5  Real property reported excess to GSA.

    (a) Each landholding agency must submit a report to GSA of 
properties it determines excess. Each landholding agency must also 
provide a copy of HUD's suitability determination, if any, including 
HUD's identification number for the property.
    (b) If a landholding agency reports a property to GSA which has been 
reviewed by HUD for homeless assistance suitability and HUD determined 
the property suitable, GSA will screen the property pursuant to 
Sec. 12a.5(g) and will advise HUD of the availability of the property 
for use by the homeless as provided in Sec. 12a.5(e). In lieu of the 
above, GSA may submit a new checklist to HUD and follow the procedures 
in Sec. 12a.5(c) through Sec. 12a.5(g).
    (c) If a landholding agency reports a property to GSA which has not 
been reviewed by HUD for homeless assistance suitability, GSA will 
complete a property checklist, based on information provided by the 
landholding agency, and will forward this checklist to HUD for a 
suitability determination. This checklist will reflect any change in 
classification, i.e., from unutilized or underutilized to excess.
    (d) Within 30 days after GSA's submission, HUD will advise GSA of 
the suitability determination.
    (e) When GSA receives a letter from HUD listing suitable excess 
properties in GSA's inventory, GSA will transmit to HUD within 45 days a 
response which includes the following for each identified property:
    (1) A statement that there is no other compelling Federal need for 
the property, and therefore, the property will be determined surplus; or
    (2) A statement that there is further and compelling Federal need 
for the property (including a full explanation of such need) and that, 
therefore, the property is not presently available for use to assist the 
homeless.
    (f) When an excess property is determined suitable and available and 
notice is published in the Federal Register, GSA will concurrently 
notify HHS, HUD, State and local government units, known homeless 
assistance providers that have expressed interest in

[[Page 60]]

the particular property, and other organizations, as appropriate, 
concerning suitable properties.
    (g) Upon submission of a Report of Excess to GSA, GSA may screen the 
property for Federal use. In addition, GSA may screen State and local 
governmental units and eligible nonprofit organizations to determine 
interest in the property in accordance with current regulations. (See 41 
CFR 101-47.203-5, 101-47.204-1 and 101-47.303-2.)
    (h) The landholding agency will retain custody and accountability 
and will protect and maintain any property which is reported excess to 
GSA as provided in 41 CFR 101-47.402.



Sec. 12a.6  Suitability criteria.

    (a) All properties, buildings and land will be determined suitable 
unless a property's characteristics include one or more of the following 
conditions:
    (1) National security concerns. A property located in an area to 
which the general public is denied access in the interest of national 
security (e.g., where a special pass or security clearance is a 
condition of entry to the property) will be determined unsuitable. Where 
alternative access can be provided for the public without compromising 
national security, the property will not be determined unsuitable on 
this basis.
    (2) Property containing flammable or explosive materials. A property 
located within 2000 feet of an industrial, commercial or Federal 
facility handling flammable or explosive material (excluding underground 
storage) will be determined unsuitable. Above ground containers with a 
capacity of 100 gallons or less, or larger containers which provide the 
heating or power source for the property, and which meet local safety, 
operation, and permitting standards, will not affect whether a 
particular property is determined suitable or unsuitable. Underground 
storage, gasoline stations and tank trucks are not included in this 
category and their presence will not be the basis of an unsuitability 
determination unless there is evidence of a threat to personal safety as 
provided in paragraph (a)(5) of this section.
    (3) Runway clear zone and military airfield clear zone. A property 
located within an airport runway clear zone or military airfield clear 
zone will be determined unsuitable.
    (4) Floodway. A property located in the floodway of a 100 year 
floodplain will be determined unsuitable. If the floodway has been 
contained or corrected, or if only an incidental portion of the property 
not affecting the use of the remainder of the property is in the 
floodway, the property will not be determined unsuitable.
    (5) Documented deficiencies. A property with a documented and 
extensive condition(s) that represents a clear threat to personal 
physical safety will be determined unsuitable. Such conditions may 
include, but are not limited to, contamination, structural damage or 
extensive deterioration, friable asbestos, PCB's, or natural hazardous 
substances such as radon, periodic flooding, sinkholes or earth slides.
    (6) Inaccessible. A property that is inaccessible will be determined 
unsuitable. An inaccessible property is one that is not accessible by 
road (including property on small off-shore islands) or is land locked 
(e.g., can be reached only by crossing private property and there is no 
established right or means of entry).



Sec. 12a.7  Determination of availability.

    (a) Within 45 days after receipt of a letter from HUD pursuant to 
Sec. 12a.4(a), each landholding agency must transmit to HUD a statement 
of one of the following:
    (1) In the case of unutilized or underutilized property:
    (i) An intention to declare the property excess,
    (ii) An intention to make the property available for use to assist 
the homeless, or
    (iii) The reasons why the property cannot be declared excess or made 
available for use to assist the homeless. The reasons given must be 
different than those listed as suitability criteria in Sec. 12a.6.
    (2) In the case of excess property which had previously been 
reported to GSA:
    (i) A statement that there is no compelling Federal need for the 
property, and that, therefore, the property will be determined surplus; 
or

[[Page 61]]

    (ii) A statement that there is a further and compelling Federal need 
for the property (including a full explanation of such need) and that, 
therefore, the property is not presently available for use to assist the 
homeless.



Sec. 12a.8  Public notice of determination.

    (a) No later than 15 days after the last 45 day period has elapsed 
for receiving responses from the landholding agencies regarding 
availability, HUD will publish in the Federal Register a list of all 
properties reviewed, including a description of the property, its 
address, and classification. The following designations will be made:
    (1) Properties that are suitable and available.
    (2) Properties that are suitable and unavailable.
    (3) Properties that are suitable and to be declared excess.
    (4) Properties that are unsuitable.
    (b) Information about specific properties can be obtained by 
contacting HUD at the following toll free number, 1-800-927-7588.
    (c) HUD will transmit to the ICH a copy of the list of all 
properties published in the Federal Register. The ICH will immediately 
distribute to all state and regional homeless coordinators area-relevant 
portions of the list. The ICH will encourage the state and regional 
homeless coordinators to disseminate this information widely.
    (d) No later than February 15 of each year, HUD shall publish in the 
Federal Register a list of all properties reported pursuant to 
Sec. 12a.3(b).
    (e) HUD shall publish an annual list of properties determined 
suitable but which agencies reported unavailable including the reasons 
such properties are not available.
    (f) Copies of the lists published in the Federal Register will be 
available for review by the public in the HUD headquarters building 
library (room 8141); area-relevant portions of the lists will be 
available in the HUD regional offices and in major field offices.



Sec. 12a.9  Application process.

    (a) Holding period. (1) Properties published as available for 
application for use to assist the homeless shall not be available for 
any other purpose for a period of 60 days beginning on the date of 
publication. Any representative of the homeless interested in any 
underutilized, unutilized, excess or surplus Federal property for use as 
a facility to assist the homeless must send to HHS a written expression 
of interest in that property within 60 days after the property has been 
published in the Federal Register.
    (2) If a written expression of interest to apply for suitable 
property for use to assist the homeless is received by HHS within the 60 
day holding period, such property may not be made available for any 
other purpose until the date HHS or the appropriate landholding agency 
has completed action on the application submitted pursuant to that 
expression of interest.
    (3) The expression of interest should identify the specific 
property, briefly describe the proposed use, include the name of the 
organization, and indicate whether it is a public body or a private non-
profit organization. The expression of interest must be sent to the 
Division of Health Facilities Planning (DHFP) of the Department of 
Health and Human Services at the following address:

Director, Division of Health Facilities Planning, Public Health Service, 
Room 17A-10, Parklawn Building, 5600 Fishers Lane, Rockville, Maryland 
20857.


HHS will notify the landholding agency (for unutilized and underutilized 
properties) or GSA (for excess and surplus properties) when an 
expression of interest has been received for a particular property.
    (4) An expression of interest may be sent to HHS any time after the 
60 day holding period has expired. In such a case, an application 
submitted pursuant to this expression of interest may be approved for 
use by the homeless if:
    (i) No application or written expression of interest has been made 
under any law for use of the property for any purpose; and
    (ii) In the case of excess or surplus property, GSA has not received 
a bona fide offer to purchase that property or advertised for the sale 
of the property by public auction.

[[Page 62]]

    (b) Application Requirements. Upon receipt of an expression of 
interest, DHFP will send an application packet to the interested entity. 
The application packet requires the applicant to provide certain 
information, including the following--
    (1) Description of the applicant organization. The applicant must 
document that it satisfies the definition of a ``representative of the 
homeless,'' as specified in Sec. 12a.1 of this subpart. The applicant 
must document its authority to hold real property. Private non-profit 
organizations applying for deeds must document that they are section 
501(c)(3) tax-exempt.
    (2) Description of the property desired. The applicant must describe 
the property desired and indicate that any modifications made to the 
property will conform to local use restrictions except for local zoning 
regulations.
    (3) Description of the proposed program. The applicant must fully 
describe the proposed program and demonstrate how the program will 
address the needs of the homeless population to be assisted. The 
applicant must fully describe what modifications will be made to the 
property before the program becomes operational.
    (4) Ability to finance and operate the proposed program. The 
applicant must specifically describe all anticipated costs and sources 
of funding for the proposed program. The applicant must indicate that it 
can assume care, custody, and maintenance of the property and that it 
has the necessary funds or the ability to obtain such funds to carry out 
the approved program of use for the property.
    (5) Compliance with non-discrimination requirements. Each applicant 
and lessee under this part must certify in writing that it will comply 
with the requirements of the Fair Housing Act (42 U.S.C. 3601-3619) and 
implementing regulations; and as applicable, Executive Order 11063 
(Equal Opportunity in Housing) and implementing regulations; title VI of 
the Civil Rights Act of 1964 (42 U.S.C. 2000d to d-4) (Nondiscrimination 
in Federally Assisted Programs) and implementing regulations; the 
prohibitions against discrimination on the basis of age under the Age 
Discrimination Act of 1975 (42 U.S.C. 6101-6107) and implementing 
regulations; and the prohibitions against otherwise qualified 
individuals with handicaps under section 504 of the Rehabilitation Act 
of 1973 (29 U.S.C. 794) and implementing regulations. The applicant must 
state that it will not discriminate on the basis of race, color, 
national origin, religion, sex, age, familial status, or handicap in the 
use of the property, and will maintain the required records to 
demonstrate compliance with Federal laws.
    (6) Insurance. The applicant must certify that it will insure the 
property against loss, damage, or destruction in accordance with the 
requirements of 45 CFR 12.9.
    (7) Historic preservation. Where applicable, the applicant must 
provide information that will enable HHS to comply with Federal historic 
preservation requirements.
    (8) Environmental information. The applicant must provide sufficient 
information to allow HHS to analyze the potential impact of the 
applicant's proposal on the environment, in accordance with the 
instructions provided with the application packet. HHS will assist 
applicants in obtaining any pertinent environmental information in the 
possession of HUD, GSA, or the landholding agency.
    (9) Local government notification. The applicant must indicate that 
it has informed the applicable unit of general local government 
responsible for providing sewer, water, police, and fire services, in 
writing of its proposed program.
    (10) Zoning and Local Use Restrictions. The applicant must indicate 
that it will comply with all local use restrictions, including local 
building code requirements. Any applicant which applies for a lease or 
permit for a particular property is not required to comply with local 
zoning requirements. Any applicant applying for a deed of a particular 
property, pursuant to Sec. 12a. 9(b)(3), must comply with local zoning 
requirements, as specified in 45 CFR part 12.
    (c) Scope of evaluations. Due to the short time frame imposed for 
evaluating applications, HHS' evaluation will, generally, be limited to 
the information contained in the application.

[[Page 63]]

    (d) Deadline. Completed applications must be received by DHFP, at 
the above address, within 90 days after an expression of interest is 
received from a particular applicant for that property. Upon written 
request from the applicant, HHS may grant extensions, provided that the 
appropriate landholding agency concurs with the extension. Because each 
applicant will have a different deadline based on the date the applicant 
submitted an expression of interest, applicants should contact the 
individual landholding agency to confirm that a particular property 
remains available prior to submitting an application.

    (e) Evaluations. (1) Upon receipt of an application, HHS will review 
it for completeness, and, if incomplete, may return it or ask the 
applicant to furnish any missing or additional required information 
prior to final evaluation of the application.

    (2) HHS will evaluate each completed application within 25 days of 
receipt and will promptly advise the applicant of its decision. 
Applications are evaluated on a first-come, first-serve basis. HHS will 
notify all organizations which have submitted expressions of interest 
for a particular property regarding whether the first application 
received for that property has been approved or disapproved. All 
applications will be reviewed on the basis of the following elements, 
which are listed in descending order of priority, except that paragraphs 
(e)(2)(iv) and (e)(2)(v) of this section are of equal importance.

    (i) Services offered. The extent and range of proposed services, 
such as meals, shelter, job training, and counseling.

    (ii) Need. The demand for the program and the degree to which the 
available property will be fully utilized.

    (iii) Implementation Time. The amount of time necessary for the 
proposed program to become operational.

    (iv) Experience. Demonstrated prior success in operating similar 
programs and recommendations attesting to that fact by Federal, State, 
and local authorities.

    (v) Financial Ability. The adequacy of funding that will likely be 
available to run the program fully and properly and to operate the 
facility.

    (3) Additional evaluation factors may be added as deemed necessary 
by HHS. If additional factors are added, the application packet will be 
revised to include a description of these additional factors.

    (4) If HHS receives one or more competing applications for a 
property within 5 days of the first application HHS will evaluate all 
completed applications simultaneously. HHS will rank approved 
applications based on the elements listed in Sec. 12a.8(e)(2), and 
notify the landholding agency, or GSA, as appropriate, of the relative 
ranks.


(Approved by the Office of Management and Budget under control number 
0937-0191)



Sec. 12a.10  Action on approved applica-tions.

    (a) Unutilized and underutilized properties.

    (1) When HHS approves an application, it will so notify the 
applicant and forward a copy of the application to the landholding 
agency. The landholding agency will execute the lease, or permit 
document, as appropriate, in consultation with the applicant.
    (2) The landholding agency maintains the discretion to decide the 
following:
    (i) The length of time the property will be available. (Leases and 
permits will be for a period of at least one year unless the applicant 
requests a shorter term.)
    (ii) Whether to grant use of the property via a lease or permit;
    (iii) The terms and conditions of the lease or permit document.
    (b) Excess and surplus properties. (1) When HHS approves an 
application, it will so notify the applicant and request that GSA assign 
the property to HHS for leasing. Upon receipt of the assignment, HHS 
will execute a lease in accordance with the procedures and requirements 
set out in 45 CFR part 12. In accordance with 41 CFR 101-47.402, custody 
and accountability of the property will remain throughout the lease term 
with the agency which initially reported the property as excess.
    (2) Prior to assignment to HHS, GSA may consider other Federal uses 
and

[[Page 64]]

other important national needs; however, in deciding the disposition of 
surplus real property, GSA will generally give priority of consideration 
to uses to assist the homeless. GSA may consider any competing request 
for the property made under section 203(k) of the Federal Property and 
Administrative Services Act of 1949 (40 U.S.C. 484(k)) that is so 
meritorious and compelling that it outweighs the needs of the homeless, 
and HHS may likewise consider any competing request made under 
subsection 203(k)(1) of that law.
    (3) Whenever GSA or HHS decides in favor of a competing request over 
a request for property for homeless assistance use as provided in 
paragraph (b)(2) of this section, the agency making the decision will 
transmit to the appropriate committees of the Congress an explanatory 
statement which details the need satisfied by conveyance of the surplus 
property, and the reasons for determining that such need was so 
meritorious and compelling as to outweigh the needs of the homeless.
    (4) Deeds. Surplus property may be conveyed to representatives of 
the homeless pursuant to section 203(k) of the Federal Property and 
Administrative Services Act of 1949 (40 U.S.C. 484(k)(1), and section 
501(f) of the McKinney Act as amended, 42 U.S.C. 11411. Representatives 
of the homeless must complete the application packet pursuant to the 
requirements of Sec. 12a.9 of this part and in accordance with the 
requirements of 45 CFR part 12.
    (c) Completion of Lease Term and Reversion of Title. Lessees and 
grantees will be responsible for the protection and maintenance of the 
property during the time that they possess the property. Upon 
termination of the lease term or reversion of title to the Federal 
government, the lessee or grantee will be responsible for removing any 
improvements made to the property and will be responsible for 
restoration of the property. If such improvements are not removed, they 
will become the property of the Federal government. GSA or the 
landholding agency, as appropriate, will assume responsibility for 
protection and maintenance of a property when the lease terminates or 
title reverts.



Sec. 12a.11  Unsuitable properties.

    The landholding agency will defer, for 20 days after the date that 
notice of a property is published in the Federal Register, action to 
dispose of properties determined unsuitable for homeless assistance. HUD 
will inform landholding agencies or GSA if appeal of an unsuitability 
determination is filed by a representative of the homeless pursuant to 
Sec. 12a.4(f)(4). HUD will advise the agency that it should refrain from 
initiating disposal procedures until HUD has completed its 
reconsideration process regarding unsuitability. Thereafter, or if no 
appeal has been filed after 20 days, GSA or the appropriate landholding 
agency may proceed with disposal action in accordance with applicable 
law.



Sec. 12a.12  No applications approved.

    (a) At the end of the 60 day holding period described in 
Sec. 12a.9(a), HHS will notify GSA, or the landholding agency, as 
appropriate, if an expression of interest has been received for a 
particular property. Where there is no expression of interest, GSA or 
the landholding agency, as appropriate, will proceed with disposal in 
accordance with applicable law.
    (b) Upon advice from HHS that all applications have been 
disapproved, or if no completed applications or requests for extensions 
have been received by HHS within 90 days from the date of the last 
expression of interest, disposal may proceed in accordance with 
applicable law.



PART 13--IMPLEMENTATION OF THE EQUAL ACCESS TO JUSTICE ACT IN AGENCY PROCEEDINGS--Table of Contents




                      Subpart A--General Provisions

Sec.
13.1  Purpose of these rules.
13.2  When these rules apply.
13.3  Proceedings covered.
13.4  Eligibility of applicants.
13.5  Standards for awards.
13.6  Allowable fees and expenses.
13.7  Studies, exhibits, analyses, engineering reports, tests and 
          projects.

[[Page 65]]

             Subpart B--Information Required from Applicants

13.10  Contents of application.
13.11  Net worth exhibits.
13.12  Documentation of fees and expenses.

           Subpart C--Procedures for Considering Applications

13.21  Filing and service of pleadings.
13.22  When an application may be filed.
13.23  Responsive pleadings.
13.24  Settlements.
13.25  Further proceedings.
13.26  Decisions.
13.27  Agency review.
13.28  Judicial review.
13.29  Payment of award.
13.30  Designation of adjudicative officer.

Appendix A to Part 13

    Authority: Sec. 203(a)(1), Pub. L. 96-481, 94 Stat. 2325 (5 U.S.C. 
504(c)(1)).

    Source: 48 FR 45252, Oct. 4, 1983, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 13.1  Purpose of these rules.

    These rules implement section 203 of the Equal Access to Justice 
Act, 5 U.S.C. 504 and 504 note, for the Department of Health and Human 
Services. They describe the circumstances under which the Department may 
award attorney fees and certain other expenses to eligible individuals 
and entities who prevail over the Department in certain administrative 
proceedings (called ``adversary adjudications''). The Department may 
reimburse parties for expenses incurred in adversary adjudications if 
the party prevails in the proceeding and if the Department's position in 
the proceeding was not substantially justified. These rules explain how 
to apply for an award. They also describe what proceedings constitute 
adversary adjudications covered by the Act, what types of persons and 
entities may be eligible for an award, and what procedures and standards 
the Department will use to make a determination as to whether a party 
may receive an award.



Sec. 13.2  When these rules apply.

    These rules apply to adversary adjudications pending before the 
Department between October 1, 1981 and September 30, 1984.



Sec. 13.3  Proceedings covered.

    (a) These rules apply only to adversary adjudications. For the 
purpose of these rules, only an adjudication required to be under 5 
U.S.C. 554, in which the position of the Department or one of its 
components is represented by an attorney or other representative (``the 
agency's litigating party'') who enters an appearance and participates 
in the proceeding, constitutes an adversary adjudication. These rules do 
not apply to proceedings for the purpose of establishing or fixing a 
rate or for the purpose of granting, denying, or renewing a license. 
Department proceedings covered by these rules, if the agency's 
litigating party enters an appearance and participates, are listed in 
Appendix A.
    (b) If a proceeding is covered by these rules, but also involves 
issues excluded under paragraph (a) of this section from the coverage of 
these rules, reimbursement is available only for fees and expenses 
resulting from covered issues.



Sec. 13.4  Eligibility of applicants.

    (a) To be eligible for an award of attorney fees and other expenses 
under these regulations, the applicant must be a party, as defined in 5 
U.S.C. 551(3), to the adversary adjudication for which it seeks an 
award. An applicant must show that it meets all conditions of 
eligibility set out in this subpart and in Subpart B.
    (b) The categories of eligible applicants are as follows:
    (1) Individuals with a net worth of not more than $1 million;
    (2) Sole owners of unincorporated businesses if the owner has a net 
worth of not more than $5 million, including both personal and business 
interests, and not more than 500 employees;
    (3) Charitable or other tax-exempt organizations described in 
section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)) 
with not more than 500 employees;
    (4) Cooperative associations as defined in section 15(a) of the 
Agricultural Marketing Act (12 U.S.C. 1141j(a)) with not more than 500 
employees, and
    (5) All other partnerships, corporations, associations or public or 
private organizations with a net worth of not

[[Page 66]]

more than $5 million and with not more than 500 employees.
    (c) For the purpose of determining eligibility, the net worth and 
number of employees of an applicant is calculated as of the date the 
proceeding was initiated. The net worth of an applicant is determined by 
generally accepted accounting principles.
    (d) Whether an applicant who owns an unincorporated business will be 
considered as an ``individual'' or a ``sole owner of an unincorporated 
business'' will be determined by whether the applicant's participation 
in the proceeding is related primarily to individual interests or to 
business interests.
    (e) The employees of an applicant include all those persons 
regularly providing services for remuneration for the applicant, under 
the applicant's direction and control. Part-time employees shall be 
included on a proportional basis.
    (f) The net worth and number of employees of the applicant and all 
of its affiliates shall be aggregated to determine eligibility. Any 
individual, corporation or other entity that directly or indirectly 
controls or owns a majority of the voting shares or other interest of 
the applicant, or any corporation or other entity of which the applicant 
directly or indirectly owns or controls a majority of the voting shares 
or other interest, will be considered an affiliate for purposes of this 
part, unless the adjudicative officer determines that such treatment 
would be unjust and contrary to the purposes of the Act in light of the 
actual relationship between the affiliated entities. In addition, the 
adjudicative officer may determine that financial relationships of the 
applicant other than those described in this paragraph constitute 
special circumstances that would make an award unjust.
    (g) An applicant is not eligible if it appears from the facts and 
circumstances that it has participated in the proceedings only or 
primarily on behalf of other persons or entities that are ineligible.



Sec. 13.5  Standards for awards.

    (a) Awards will not be made for fees and expenses where the 
Department's position in the proceeding was substantially justified at 
the time the proceeding was initiated. The fact that a party has 
prevailed in a proceeding does not create a presumption that the 
Department's position was not substantially justified. The burden of 
proof that an award should not be made to an eligible prevailing 
applicant is on the agency's litigating party, which may avoid an award 
by showing that its position was reasonable in law and fact.
    (b) When two or more matters are joined together for one hearing, 
each of which could have been heard separately (without regard to laws 
or rules fixing a jurisdictional minimum amount for claims), and an 
applicant has prevailed with respect to one or several of the matters, 
an eligible applicant may receive an award for expenses associated only 
with the matters on which it prevailed if the Department's position on 
those matters was not substantially justified.
    (c) Awards for fees and expenses incurred before the date on which a 
proceeding was initiated will be made only if the applicant can 
demonstrate that they were reasonably incurred in preparation for the 
proceeding.
    (d) Awards will be reduced or denied if the applicant has unduly or 
unreasonably protracted the proceeding or if other special circumstances 
make an award unjust.



Sec. 13.6  Allowable fees and expenses.

    (a) Awards will be limited to the rates customarily charged by 
persons engaged in the business of acting as attorneys, agents and 
expert witnesses. Awards will not be made for more than the applicant's 
actual expenses. If a party has already received, or is eligible to 
receive, reimbursement for any expenses under another statutory 
provision or another program allowing reimbursement, its award under 
these rules must be reduced by the amount the prevailing party has 
already received, or is eligible to receive, from the Federal 
government.
    (b) An award for the fees of an attorney or agent may not exceed 
$75.00 per hour, regardless of the actual rate charged by the attorney 
or agent. An award for the fees of an expert witness

[[Page 67]]

may not exceed the highest rate at which the Department pays expert 
witnesses, which is $24.09 per hour, regardless of the actual rates 
charged by the witness. These limits apply only to fees; an award may 
include the reasonable expenses of the attorney, agent, or witness as a 
separate item, if the attorney, agent or witness ordinarily charges 
separately for such expenses.
    (c) In determining the reasonableness of the fees sought for 
attorneys, agents or expert witnesses, the adjudicative officer must 
consider factors bearing on the request, which include, but are not 
limited to:
    (1) If the attorney, agent or witness is in private practice, his or 
her customary fee for like services; if the attorney, agent or witness 
is an employee of the applicant, the fully allocated cost of service;
    (2) The prevailing rate for similar services in the community in 
which the attorney, agent or witness ordinarily performs services;
    (3) The time actually spent in the representation of the applicant;
    (4) The time reasonably spent in light of the difficulty or 
complexity of the issues in the proceeding; and
    (5) Such other factors as may bear on the value of the services 
provided.



Sec. 13.7  Studies, exhibits, analyses, engineering reports, tests and projects.

    The reasonable cost (or the reasonable portion of the cost) for any 
study, exhibit, analysis, engineering report, test, project or similar 
matter prepared on behalf of a party may be awarded to the extent that:
    (a) The charge for the service does not exceed the prevailing rate 
payable for similar services,
    (b) The study or other matter was necessary to the preparation for 
the administrative proceeding, and
    (c) The study or other matter was prepared for use in connection 
with the administrative proceeding. No award will be made for a study or 
other matter which was necessary to satisfy statutory or regulatory 
requirements, or which would ordinarily be conducted as part of the 
party's business irrespective of the administrative proceeding.



             Subpart B--Information Required from Applicants



Sec. 13.10  Contents of application.

    (a) Applications for an award of fees and expenses must include:
    (1) The name of the applicant and the identification of the 
proceeding;
    (2) A declaration that the applicant believes it has prevailed, and 
an identification of the position of the Department that the applicant 
alleges was not substantially justified at the time of the initiation of 
the proceeding;
    (3) Unless the applicant is an individual, a statement of the number 
of its employees on the date on which the proceeding was initiated, and 
a brief description of the type and purpose of its organization or 
business;
    (4) A description of any affiliated individuals or entities, as the 
term ``affiliate'' is defined in Sec. 13.4(f), or a statement that none 
exist;
    (5) A statement that the applicant's net worth as of the date on 
which the proceeding was initiated did not exceed $1 million (if an 
individual) or $5 million (for all other applicants, including their 
affiliates). However, an applicant may omit this statement if:
    (i) It attaches a copy of a ruling by the Internal Revenue Service 
that it qualifies as an organization described in section 501(c)(3) of 
the Internal Revenue Code (26 U.S.C. 501(c)(3)) or, in the case of a 
tax-exempt organization not required to obtain a ruling from the 
Internal Revenue Service on its exempt status, a statement that 
describes the basis for the applicant's belief that it qualified under 
such section; or
    (ii) It states that it is a cooperative association as defined in 
section 15(a) of the Agricultural Marketing Act (12 U.S.C. 1141j(a));
    (6) A statement of the amount of fees and expenses for which an 
award is sought;
    (7) A declaration that the applicant has not received, has not 
applied for, and does not intend to apply for reimbursement of the cost 
of items listed in the Statement of Fees and Expenses under any other 
program or statute; or if the applicant has received or applied for or 
will receive or apply for reimbursement of those expenses under another 
program or statute, a statement

[[Page 68]]

of the amount of reimbursement received or applied for or intended to be 
applied for; and
    (8) Any other matters the applicant wishes the Department to 
consider in determining whether and in what amount an award should be 
made.
    (b) All applications must be signed by the applicant or by an 
authorized officer or attorney of the applicant. It shall also contain 
or be accompanied by a written verification under oath or under penalty 
of perjury that the information provided in the application is true and 
correct.

(Approved by the Office of Management and Budget under control number 
0990-0118)



Sec. 13.11  Net worth exhibits.

    (a) Each applicant except a qualified tax-exempt organization or 
cooperative association must provide with its application a detailed 
exhibit showing the net worth of the applicant and any affiliates (as 
defined in Sec. 13.4(f) of this part) when the proceeding was initiated. 
If any individual, corporation, or other entity directly or indirectly 
controls or owns a majority of the voting shares or other interest of 
the applicant, or if the applicant directly or indirectly owns or 
controls a majority of the voting shares or other interest of any 
corporation or other entity, the exhibit must include a showing of the 
net worth of all such affiliates or of the applicant including the 
affiliates. The exhibit may be in any form convenient to the applicant 
that provides full disclosure of the applicant's and its affiliates' 
assets and liabilities and is sufficient to determine whether the 
applicant qualifies under the standards in this part. The adjudicative 
officer may require an applicant to file additional information to 
determine its eligibility for an award.
    (b) The net worth exhibit shall describe any transfers of assets 
from, or obligations incurred by, the applicant or any affiliate, 
occurring in the one year period prior to the date on which the 
proceeding was initiated, that reduced the net worth of the applicant 
and its affiliates below the applicable net worth ceiling. If there were 
no such transactions, the applicant shall so state.
    (c) Ordinarily, the net worth exhibit will be included in the public 
record of the proceeding. However, an applicant that objects to public 
disclosure of information in any portion of the exhibit and believes 
there are legal grounds for withholding it from disclosure may submit 
that portion of the exhibit directly to the adjudicative officer in a 
sealed envelope labeled ``Confidential Financial Information,'' 
accompanied by a motion to withhold the information from public 
disclosure. The motion shall describe the information sought to be 
withheld and explain, in detail, why it falls within one or more of the 
specific exemptions from mandatory disclosure under the Freedom of 
Information Act, 5 U.S.C. 552(b)(1)-(9), why public disclosure of the 
information would adversely affect the applicant, and why disclosure is 
not required in the public interest. The material in question shall be 
served on counsel representing the agency against which the applicant 
seeks an award, but need not be served on any other party to the 
proceeding. If the adjudicative officer finds that the information 
should not be withheld from disclosure, it shall be placed in the public 
record of the proceeding. Otherwise, the officer will omit the material 
from the public record. In that case, any decision regarding disclosure 
of the material (whether in response to a request from an agency or 
person outside the Department or on the Department's own initiative) 
will be made in accordance with applicable statutes and Department rules 
and procedures for commercial and financial records which the submitter 
claims are confidential or privileged. In particular, this regulation is 
not a basis for a promise or obligation of confidentiality.

(Approved by the Office of Management and Budget under control number 
0990-0118)



Sec. 13.12  Documentation of fees and expenses.

    (a) All applicants must be accompanied by full documentation of the 
fees and expenses, including the cost of any study, exhibit, analysis, 
report, test or other similar item, for which the applicant seeks 
reimbursement.

[[Page 69]]

    (b) The documentation shall include an affidavit from each attorney, 
agent, or expert witness representing or appearing in behalf of the 
party, stating the actual time expended, the rate at which fees and 
other expenses were computed, a description of the specific services 
performed, the total amount claimed, and the total amount paid or 
payable by the applicant or by any other person or entity for the 
services provided. Where the adversary adjudication includes covered 
proceedings (as described in Sec. 13.3) as well as excluded proceedings, 
or two or more matters, each of which could have been heard separately, 
the fees and expenses shall be shown separately for each proceeding or 
matter, and the basis for allocating expenses among the proceedings or 
matters shall be indicated.
    (1) The affidavit shall itemize in detail the services performed by 
the date, number of hours per date and the services performed during 
those hours. In order to establish the hourly rate, the affidavit shall 
state the hourly rate which is billed and paid by the majority of 
clients during the relevant time periods.
    (2) If no hourly rate is paid by the majority of clients because, 
for instance, the attorney or agent represents most clients on a 
contingency basis, the attorney or agent shall provide affidavits from 
two attorneys or agents with similar experience, who perform similar 
work, stating the hourly rate which they bill and are paid by the 
majority of their clients during a comparable time period.
    (c) If the applicant seeks reimbursement of any expenses not covered 
by the affidavit described in paragraph (b), the documentation must also 
include an affidavit describing all such expenses and stating the 
amounts paid or payable by the applicant or by any other person or 
entity for the services provided.
    (d) The adjudicative officer may require the applicant to provide 
vouchers, receipts, or other substantiation for any expenses claimed.

(Approved by the Office of Management and Budget under control number 
0990-0118)



           Subpart C--Procedures for Considering Applications



Sec. 13.21  Filing and service of pleadings.

    All pleadings, including applications for an award of fees, answers, 
comments, and other pleadings related to the applications, shall be 
filed in the same manner as other pleadings in the proceeding and served 
on all other parties and participants, except as provided in 
Sec. 13.11(b) of this part concerning confidential financial 
information.



Sec. 13.22  When an application may be filed.

    (a) The applicant must file and serve its application no later than 
30 calendar days after the Department's final disposition of the 
proceeding which makes the applicant a prevailing party.
    (b) For purposes of this rule, final disposition means the later of 
(1) the date on which an initial decision or other recommended 
disposition of the merits of the proceeding by an adjudicative officer 
or intermediate review board becomes administratively final; (2) 
issuance of an order disposing of any petitions for reconsideration of 
the Department's final order in the proceeding; (3) if no petition for 
reconsideration is filed, the last date on which such a petition could 
have been filed; or (4) issuance of a final order or any other final 
resolution of a proceeding, such as a settlement or voluntary dismissal, 
which is not subject to a petition for reconsideration.
    (c) For purposes of this rule, an applicant has prevailed when the 
agency has made a final disposition favorable to the applicant with 
respect to any matter which could have been heard as a separate 
proceeding, regardless of whether it was joined with other matters for 
hearing.
    (d) If review or reconsideration is sought or taken of a decision as 
to which an applicant believes it has prevailed, proceedings for the 
award of fees shall be stayed pending final disposition of the 
underlying controversy.



Sec. 13.23  Responsive pleadings.

    (a) Within 30 calendar days after service of the application, the 
agency's

[[Page 70]]

litigating party shall file an answer either consenting to the award or 
explaining in detail any objections to the award requested, and 
identifying the facts relied on in support of its position. The 
adjudicative officer may for good cause grant an extension of time for 
filing an answer.
    (b) Within 15 calendar days after service of an answer, the 
applicant may file a reply. If the reply is based on any alleged facts 
not already in the record of the proceeding, the applicant shall include 
with the reply either supporting affidavits or a request for further 
proceedings under Sec. 13.25.
    (c) Any party to or participant in a proceeding may file comments on 
an application within 30 calendar days, or on an answer within 15 
calendar days after service of the application or answer.



Sec. 13.24  Settlements.

    The applicant and the agency's litigating party may agree on a 
proposed settlement of the award at any time prior to final action on 
the application. If the parties agree on a proposed settlement of an 
award before an application has been filed, the application shall be 
filed with the proposed settlement. All settlements must be approved by 
the adjudicative officer and the head of the agency or office or his or 
her designee before becoming final.



Sec. 13.25  Further proceedings.

    (a) Ordinarily, a decision on an application will be made on the 
basis of the hearing record and pleadings related to the application. 
However, at the request of either the applicant or the agency's 
litigating party, or on his or her own initiative, the adjudicative 
officer may order further proceedings, including an informal conference, 
oral argument, additional written submissions, or an evidentiary 
hearing. Such further proceedings shall be held only when necessary for 
full and fair resolution of the issues arising from the application, and 
shall be conducted as promptly as possible.
    (b) A request that the adjudicative officer order additional written 
submissions or oral testimony shall identify the information sought and 
shall explain why the information is necessary to decide the issues.
    (c) The adjudicative officer may impose sanctions on any party for 
failure to comply with his or her order to file pleadings, produce 
documents, or present witnesses for oral examination. These sanctions 
may include but are not limited to granting the application partly or 
completely, dismissing the application, and diminishing the award 
granted.



Sec. 13.26  Decisions.

    The adjudicative officer shall issue an initial decision on the 
application as promptly as possible after the filing of the last 
document or conclusion of the hearing. The decision must include written 
findings and conclusions on the applicant's eligibility and status as a 
prevailing party, including a finding on the net worth of the applicant. 
Where the adjudicative officer has determined under Sec. 13.11(b) that 
the applicant's net worth information is exempted from disclosure under 
the Freedom of Information Act, the finding on net worth shall be kept 
confidential. The decision shall also include, if at issue, findings on 
whether the agency's position was substantially justified, whether the 
applicant unduly protracted the proceedings, an explanation of any 
difference between the amount requested and the amount awarded, and 
whether any special circumstances make the award unjust.



Sec. 13.27  Agency review.

    (a) The head of the agency or office, or his or her designee, shall 
review any award granted under this part whether or not the parties 
request such review, and issue a final decision. No award shall be made 
under this subpart without approval of the head of the agency or office 
or his or her designee.
    (b) If either the applicant or the agency's litigating party seeks 
review of the adjudicative officer's decision on the fee application, it 
shall file and serve exceptions within 30 days after issuance of the 
initial decision. The head of the agency or office or his or her 
designee shall issue a final decision on the application as soon as 
possible or remand the application to the adjudicative officer for 
further proceedings.

[[Page 71]]

Any party that does not file and serve exceptions within the stated time 
limit loses the opportunity to do so.



Sec. 13.28  Judicial review.

    Judicial review of final agency decisions on awards may be obtained 
as provided in 5 U.S.C. 504(c)(2).



Sec. 13.29  Payment of award.

    The notification to an applicant of a final decision that an award 
will be made shall contain the name and address of the appropriate 
Departmental finance office that will pay the award. An applicant 
seeking payment of an award shall submit to that finance officer a copy 
of the final decision granting the award, accompanied by a statement 
that the applicant will not seek review of the decision in the United 
States courts. The Department will pay the amount awarded to the 
applicant within 60 days, unless judicial review of the award or of the 
underlying decision of the adversary adjudication has been sought by the 
applicant or any other party to the proceedings.



Sec. 13.30  Designation of adjudicative officer.

    Upon the filing of an application pursuant to Sec. 13.11(a), the 
officer who presided over the taking of evidence in the proceeding which 
gave rise to the application will, if available, be automatically 
designated as the adjudicative officer for the handling of the 
application.
                          Appendix A to Part 13

----------------------------------------------------------------------------------------------------------------
                 Proceedings covered                        Statutory authority         Applicable regulations
----------------------------------------------------------------------------------------------------------------
           Office of the Inspector General
 
Proceeding to impose civil monetary penalties or       42 U.S.C. 1320a-7a..........  ...........................
 assessments for fraudulent claims under Medicare,
 Medicaid, and Title V.
 
         Health Care Financing Administration
 
Proceedings to suspend or revoke licenses of clinical  42 U.S.C. 263a(e), (g)......  ...........................
 laboratories.
Proceedings provided to a fiscal intermediary before   42 U.S.C. 1395h.............  ...........................
 assigning or reassigning Medicare providers to a
 different fiscal intermediary.
Proceedings before the Provider Reimbursement Review   42 U.S.C. 1395oo............  42 CFR Part 405, Subpart R.
 Board when CMS acts as fiscal intermediary.
 
             Food and Drug Administration
 
Proceedings to withdraw approval of new drug           21 U.S.C. 355(d), (e).......  21 CFR Part 12, 21 CFR
 applications.                                                                        314.200.
Proceedings to withdraw approval of new animal drug    21 U.S.C. 360b(d), (e), (m).  21 CFR Part 12, 21 CFR Part
 applications and medicated feed applications.                                        514, Subpart B.
Proceedings to withdraw approval of medical device     21 U.S.C. 306e(d), (e), (g).  21 CFR Part 12.
 premarket approval applications.
 
                Office of Civil Rights
 
Proceedings to enforce Title VI of the Civil Rights    42 U.S.C. 200d-1............  45 CFR 80.9.
 Act of 1964, which prohibits descrimination on the
 basis of race, color or national origin by
 recipients of Federal financial assistance.
Proceedings to enforce Section 504 of the              29 U.S.C. 794...............  45 CFR 84.61.
 Rehabilitation Act of 1973, which prohibits
 discrimination on the basis of handicap by
 recipients of Federal financial assistance.
Proceedings to enforce the Age Discrimination Act of   42 U.S.C. 6101, 6104(a).....  45 CFR 90.47.
 1975, which prohibits discrimination on the basis of
 age by recipients of Federal financial assistance.
Proceedings to enforce Title IX of the Education       20 U.S.C. 1681, 1682........  45 CFR 86.71.
 Amendments of 1972, which prohibits discrimination
 on the basis of sex in certain education programs by
 recipients of Federal financial assistance.
----------------------------------------------------------------------------------------------------------------


[[Page 72]]



PART 15--UNIFORM RELOCATION ASSISTANCE AND REAL PROPERTY ACQUISITION FOR FEDERAL AND FEDERALLY ASSISTED PROGRAMS--Table of Contents




    Authority: Sec. 213, Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, Pub. L. 91-646, 84 Stat. 1894 (42 
U.S.C. 4633) as amended by the Surface Transportation and Uniform 
Relocation Assistance Act of 1987, Title IV of Pub. L. 100-17, 101 Stat. 
246-256 (42 U.S.C. 4601 note).



Sec. 15.1  Uniform relocation assistance and real property acquisition.

    Regulations and procedures for complying with the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970 (Pub. L. 
91-646, 84 Stat. 1894, 42 U.S.C. 4601 et seq.), as amended by the 
Surface Transportation and Uniform Relocation Assistance Act of 1987 
(Title IV of Pub. L. 100-17, 101 Stat. 246-256, 42 U.S.C. 4601 note) are 
set forth in 49 CFR Part 24.

[52 FR 48026, Dec. 17, 1987 and 54 FR 8912, Mar. 2, 1989]



PART 16--PROCEDURES OF THE DEPARTMENTAL GRANT APPEALS BOARD--Table of Contents




Sec.
16.1  What this part does.
16.2  Definitions.
16.3  When these procedures become available.
16.4  Summary of procedures below.
16.5  How the Board operates.
16.6  Who represents the parties.
16.7  The first steps in the appeal process: The notice of appeal and 
          the Board's response.
16.8  The next step in the appeal process: Preparation of an appeal file 
          and written argument.
16.9  How the Board will promote development of the record.
16.10  Using a conference.
16.11  Hearing.
16.12  The expedited process.
16.13  Powers and responsibilities.
16.14  How Board review is limited.
16.15  Failure to meet deadlines and other requirements.
16.16  Parties to the appeal.
16.17  Ex parte communications (communications outside the record).
16.18  Mediation.
16.19  How to calculate deadlines.
16.20  How to submit material to the Board.
16.21  Record and decisions.
16.22  The effect of an appeal.
16.23  How long an appeal takes.

Appendix A to Part 16--What Disputes the Board Reviews

    Authority: 5 U.S.C. 301 and secs. 1, 5, 6, and 7 of Reorganization 
Plan No. 1 of 1953, 18 FR 2053, 67 Stat. 631 and authorities cited in 
the Appendix.

    Source: 46 FR 43817, Aug. 31, 1981, unless otherwise noted.



Sec. 16.1  What this part does.

    This part contains requirements and procedures applicable to certain 
disputes arising under the HHS programs described in Appendix A. This 
part is designed to provide a fair, impartial, quick and flexible 
process for appeal from written final decisions. This part supplements 
the provisions in Part 74 of this title.



Sec. 16.2  Definitions.

    (a) Board means the Departmental Grant Appeals Board of the 
Department of Health and Human Services. Reference below to an action of 
the Board means an action of the Chair, another Board member, or Board 
staff acting at the direction of a Board member. In certain instances, 
the provisions restrict action to particular Board personnel, such as 
the Chair or a Board member assigned to a case.
    (b) Other terms shall have the meaning set forth in Part 74 of this 
title, unless the context below otherwise requires.



Sec. 16.3  When these procedures become available.

    Before the Board will take an appeal, three circumstances must be 
present:
    (a) The dispute must arise under a program which uses the Board for 
dispute resolution, and must meet any special conditions established for 
that program. An explanation is contained in Appendix A.
    (b) The appellant must have received a final written decision, and 
must appeal that decision within 30 days after receiving it. Details of 
how final decisions are developed and issued, and what must be in them, 
are contained in 45 CFR 74.304.

[[Page 73]]

    (c) The appellant must have exhausted any preliminary appeal process 
required by regulation. For example, see 42 CFR part 50 (subpart D) for 
Public Health Service programs. In such cases, the final written 
decision required for the Board's review is the decision resulting from 
the preliminary review or appeal process. Appendix A contains further 
details.

[46 FR 43817, Aug. 31, 1981, as amended at 62 FR 38218, July 17, 1997]



Sec. 16.4  Summary of procedures below.

    The Board's basic process is review of a written record (which both 
parties are given ample opportunity to develop), consisting of relevant 
documents and statements submitted by both parties (see Sec. 16.8). In 
addition, the Board may hold an informal conference (see Sec. 16.10). 
The informal conference primarily involves questioning of the 
participants by a presiding Board member. Conferences may be conducted 
by telephone conference call. The written record review also may be 
supplemented by a hearing involving an opportunity for examining 
evidence and witnesses, cross-examination, and oral argument (see 
Sec. 16.11). A hearing is more expensive and time-consuming than a 
determination on the written record alone or with an informal 
conference. Generally, therefore, the Board will schedule a hearing only 
if the Board determines that there are complex issues or material facts 
in dispute, or that the Board's review would otherwise be significantly 
enhanced by a hearing. Where the amount in dispute is $25,000 or less, 
there are special expedited procedures (see Sec. 16.12 of this part). In 
all cases, the Board has the flexibility to modify procedures to ensure 
fairness, to avoid delay, and to accommodate the peculiar needs of a 
given case. The Board makes maximum feasible use of preliminary informal 
steps to refine issues and to encourage resolution by the parties. The 
Board also has the capability to provide mediation services (see 
Sec. 16.18).



Sec. 16.5  How the Board operates.

    (a) The Board's professional staff consists of a Chair (who is also 
a Board member) and full- and part-time Board members, all appointed by 
the Secretary; and a staff of employees and consultants who are 
attorneys or persons from other relevant disciplines, such as 
accounting.
    (b) The Chair will assign a Board member to have lead responsibility 
for each case (the ``presiding Board member''). The presiding Board 
member will conduct the conference or hearing, if one is held. Each 
decision of the Board is issued by the presiding Board member and two 
other Board members.
    (c) The Board staff assists the presiding Board member, and may 
request information from the parties; conduct telephone conference calls 
to request information, to clarify issues, or to schedule events; and 
assist in developing decisions and other documents in a case.
    (d) The Chair will assure that no Board or staff member will 
participate in a case where his or her impartiality could reasonably be 
questioned.
    (e) The Board's powers and responsibilities are set forth in 
Sec. 16.13.



Sec. 16.6  Who represents the parties.

    The appellant's notice of appeal, or the first subsequent submission 
to the Board, should specify the name, address and telephone number of 
the appellant's representative. In its first submission to the Board and 
the appellant, the respondent (i.e., the federal party to the appeal) 
should specify the name, address and telephone number of the 
respondent's representative.



Sec. 16.7  The first steps in the appeal process: The notice of appeal and the Board's response.

    (a) As explained in 45 CFR 74.304, a prospective appellant must 
submit a notice of appeal to the Board within 30 days after receiving 
the final decision. The notice of appeal must include a copy of the 
final decision, a statement of the amount in dispute in the appeal, and 
a brief statement of why the decision is wrong.
    (b) Within ten days after receiving the notice of appeal, the Board 
will send an acknowledgment, enclose a copy of these procedures, and 
advise the appellant of the next steps. The Board will also send a copy 
of the notice of appeal, its attachments, and the

[[Page 74]]

Board's acknowledgment to the respondent. If the Board Chair has 
determined that the appeal does not meet the conditions of Sec. 16.3 or 
if further information is needed to make this determination, the Board 
will notify the parties at this point.



Sec. 16.8  The next step in the appeal process: Preparation of an appeal file and written argument.

    Except in expedited cases (generally those of $25,000 or less; see 
Sec. 16.12 for details), the appellant and the respondent each 
participate in developing an appeal file for the Board to review. Each 
also submits written argument in support of its position. The 
responsibilities of each are as follows:
    (a) The appellant's responsibility. Within 30 days after receiving 
the acknowledgment of the appeal, the appellant shall submit the 
following to the Board (with a copy to the respondent):
    (1) An appeal file containing the documents supporting the claim, 
tabbed and organized chronologically and accompanied by an indexed list 
identifying each document. The appellant should include only those 
documents which are important to the Board's decision on the issues in 
the case.
    (2) A written statement of the appellant's argument concerning why 
the respondent's final decision is wrong (appellant's brief).
    (b) The respondent's responsibility. Within 30 days after receiving 
the appellant's submission under paragraph (a) of this section, the 
respondent shall submit the following to the Board (with a copy to the 
appellant):
    (1) A supplement to the appeal file containing any additional 
documents supporting the respondent's position, organized and indexed as 
indicated under paragraph (a) of this section. The respondent should 
avoid submitting duplicates of documents submitted by the appellant.
    (2) A written statement (respondent's brief) responding to the 
appellant's brief.
    (c) The appellant's reply. Within 15 days after receiving the 
respondent's submission, the appellant may submit a short reply. The 
appellant should avoid repeating arguments already made.
    (d) Cooperative efforts. Whenever possible, the parties should try 
to develop a joint appeal file, agree to preparation of the file by one 
of them, agree to facts to eliminate the need for some documents, or 
agree that one party will submit documents identified by the other.
    (e) Voluminous documentation. Where submission of all relevant 
documents would lead to a voluminous appeal file (for example where 
review of a disputed audit finding of inadequate documentation might 
involve thousands of receipts), the Board will consult with the parties 
about how to reduce the size of the file.



Sec. 16.9  How the Board will promote development of the record.

    The Board may, at the time it acknowledges an appeal or at any 
appropriate later point, request additional documents or information; 
request briefing on issues in the case; issue orders to show cause why a 
proposed finding or decision of the Board should not become final; hold 
preliminary conferences (generally by telephone) to establish schedules 
and refine issues; and take such other steps as the Board determines 
appropriate to develop a prompt, sound decision.



Sec. 16.10  Using a conference.

    (a) Once the Board has reviewed the appeal file, the Board may, on 
its own or in response to a party's request, schedule an informal 
conference. The conference will be conducted by the presiding Board 
member. The purposes of the conference are to give the parties an 
opportunity to make an oral presentation and the Board an opportunity to 
clarify issues and question both parties about matters which the Board 
may not yet fully understand from the record.
    (b) If the Board has decided to hold a conference, the Board will 
consult or correspond with the parties to schedule the conference, 
identify issues, and discuss procedures. The Board will identify the 
persons who will be allowed to participate, along with the parties' 
representatives, in the conference. The parties can submit with their 
briefs under Sec. 16.8 a list of persons who might participate with 
them, indicating how

[[Page 75]]

each person is involved in the matter. If the parties wish, they may 
also suggest questions or areas of inquiry which the Board may wish to 
pursue with each participant.
    (c) Unless the parties and the Board otherwise agree, the following 
procedures apply:
    (1) Conferences will be recorded at Department expense. On request, 
a party will be sent one copy of the transcript. The presiding Board 
member will insure an orderly transcript by controlling the sequence and 
identification of speakers.
    (2) Only in exceptional circumstances will documents be received at 
a conference. Inquiry will focus on material in the appeal file. If a 
party finds that further documents should be in the record for the 
conference, the party should supplement the appeal file, submitting a 
supplementary index and copies of the documents to the Board and the 
other party not less than ten days prior to the conference.
    (3) Each party's representative may make an oral presentation. 
Generally, the only oral communications of other participants will 
consist of statements requested by the Board or responses to the Board's 
questions. The Board will allow reply comment, and may allow short 
closing statements. On request, the Board may allow the participants to 
question each other.
    (4) There will be no post-conference submissions, unless the Board 
determines they would be helpful to resolve the case. The Board may 
require or allow the parties to submit proposed findings and 
conclusions.



Sec. 16.11  Hearing.

    (a) Electing a hearing. If the appellant believes a hearing is 
appropriate, the appellant should specifically request one at the 
earliest possible time (in the notice of appeal or with the appeal 
file). The Board will approve a request (and may schedule a hearing on 
its own or in response to a later request) if it finds there are complex 
issues or material facts in dispute the resolution of which would be 
significantly aided by a hearing, or if the Board determines that its 
decisionmaking otherwise would be enhanced by oral presentations and 
arguments in an adversary, evidentiary hearing. The Board will also 
provide a hearing if otherwise required by law or regulation.
    (b) Preliminary conference before the hearing. The Board generally 
will hold a prehearing conference (which may be conducted by telephone 
conference call) to consider any of the following: the possibility of 
settlement; simplifying and clarifying issues; stipulations and 
admissions; limitations on evidence and witnesses that will be presented 
at the hearing; scheduling the hearing; and any other matter that may 
aid in resolving the appeal. Normally, this conference will be conducted 
informally and off the record; however, the Board, after consulting with 
the parties, may reduce results of the conference to writing in a 
document which will be made part of the record, or may transcribe 
proceedings and make the transcript part of the record.
    (c) Where hearings are held. Hearings generally are held in 
Washington, DC. In exceptional circumstances, the Board may hold the 
hearing at an HHS Regional Office or other convenient facility near the 
appellant.
    (d) Conduct of the hearing. (1) The presiding Board member will 
conduct the hearing. Hearings will be as informal as reasonably 
possible, keeping in mind the need to establish an orderly record. The 
presiding Board member generally will admit evidence unless it is 
determined to be clearly irrelevant, immaterial or unduly repetitious, 
so the parties should avoid frequent objections to questions and 
documents. Both sides may make opening and closing statements, may 
present witnesses as agreed upon in the prehearing conference, and may 
cross-examine. Since the parties have ample opportunity to develop a 
complete appeal file, a party may introduce an exhibit at the hearing 
only after explaining to the satisfaction of the presiding Board member 
why the exhibit was not submitted earlier (for example, because the 
information was not available).
    (2) The Board may request the parties to submit written statements 
of witnesses to the Board and each other prior to the hearing so that 
the hearing will primarily be concerned with cross-examination and 
rebuttal.

[[Page 76]]

    (3) False statements of a witness may be the basis for criminal 
prosecution under sections 287 and 1001 of Title 18 of the United States 
Code.
    (4) The hearing will be recorded at Department expense.
    (e) Procedures after the hearing. The Board will send one copy of 
the transcript to each party as soon as it is received by the Board. At 
the discretion of the Board, the parties may be required or allowed to 
submit post-hearing briefs or proposed findings and conclusions (the 
parties will be informed at the hearing). A party should note any major 
prejudicial transcript errors in an addendum to its post-hearing brief 
(or if no brief will be submitted, in a letter submitted within a time 
limit set by the Board).



Sec. 16.12  The expedited process.

    (a) Applicability. Where the amount in dispute is $25,000 or less, 
the Board will use these expedited procedures, unless the Board Chair 
determines otherwise under paragraph (b) of this section. If the Board 
and the parties agree, the Board may use these procedures in cases of 
more than $25,000.
    (b) Exceptions. If there are unique or unusually complex issues 
involved, or other exceptional circumstances, the Board may use 
additional procedures.
    (c) Regular expedited procedures. (1) Within 30 days after receiving 
the Board's acknowledgment of the appeal (see Sec. 16.7), each party 
shall submit to the Board and the other party any relevant background 
documents (organized as required under Sec. 16.8), with a cover letter 
(generally not to exceed ten pages) containing any arguments the party 
wishes to make.
    (2) Promptly after receiving the parties' submissions, the presiding 
Board member will arrange a telephone conference call to receive the 
parties' oral comments in response to each other's submissions. After 
notice to the parties, the Board will record the call. The Board member 
will advise the parties whether any opportunities for further briefing, 
submissions or oral presentations will be established. Cooperative 
efforts will be encouraged (see Sec. 16.8(d)).
    (3) The Board may require the parties to submit proposed findings 
and conclusions.
    (d) Special expedited procedures where there has already been 
review. Some HHS components (for example, the Public Health Service) use 
a board or other relatively independent reviewing authority to conduct a 
formal preliminary review process which results in a written decision 
based on a record including documents or statements presented after 
reasonable notice and opportunity to present such material. In such 
cases, the following rules apply to appeals of $25,000 or less instead 
of those under paragraph (c) of this section:
    (1) Generally, the Board's review will be restricted to whether the 
decision of the preliminary review authority was clearly erroneous. But 
if the Board determines that the record is inadequate, or that the 
procedures under which the record was developed in a given instance were 
unfair, the Board will not be restricted this way.
    (2) Within 30 days after receiving the Board's acknowledgment of 
appeal (see Sec. 16.7), the parties shall submit the following:
    (i) The appellant shall submit to the Board and the respondent a 
statement why the decision was clearly erroneous. Unless allowed by the 
Board after consultation with the respondent, the appellant shall not 
submit further documents.
    (ii) The respondent shall submit to the Board the record in the 
case. If the respondent has reason to believe that all materials in the 
record already are in the possession of the appellant, the respondent 
need only send the appellant a list of the materials submitted to the 
Board.
    (iii) The respondent may, if it wishes, submit a statement why the 
decision was not clearly erroneous.
    (3) The Board, in its discretion, may allow or require the parties 
to present further arguments or information.



Sec. 16.13  Powers and responsibilities.

    In addition to powers specified elsewhere in these procedures, Board 
members have the power to issue orders (including ``show cause'' 
orders); to examine witnesses; to take all steps necessary for the 
conduct of an orderly hearing; to rule on requests and motions, 
including motions to dismiss; to

[[Page 77]]

grant extensions of time for good reasons; to dismiss for failure to 
meet deadlines and other requirements; to close or suspend cases which 
are not ready for review; to order or assist the parties to submit 
relevant information; to remand a case for further action by the 
respondent; to waive or modify these procedures in a specific case with 
notice to the parties; to reconsider a Board decision where a party 
promptly alleges a clear error of fact or law; and to take any other 
action necessary to resolve disputes in accordance with the objectives 
of these procedures.



Sec. 16.14  How Board review is limited.

    The Board shall be bound by all applicable laws and regulations.



Sec. 16.15  Failure to meet deadlines and other requirements.

    (a) Since one of the objectives of administrative dispute resolution 
is to provide a decision as fast as possible consistent with fairness, 
the Board will not allow parties to delay the process unduly. The Board 
may grant extensions of time, but only if the party gives a good reason 
for the delay.
    (b) If the appellant fails to meet any filing or procedural 
deadlines, appeal file or brief submission requirements, or other 
requirements established by the Board, the Board may dismiss the appeal, 
may issue an order requiring the party to show cause why the appeal 
should not be dismissed, or may take other action the Board considers 
appropriate.
    (c) If the respondent fails to meet any such requirements, the Board 
may issue a decision based on the record submitted to that point or take 
such other measures as the Board considers appropriate.



Sec. 16.16  Parties to the appeal.

    (a) The only parties to the appeal are the appellant and the 
respondent. If the Board determines that a third person is a real party 
in interest (for example, where the major impact of an audit 
disallowance would be on the grantee's contractor, not on the grantee), 
the Board may allow the third person to present the case on appeal for 
the appellant or to appear with a party in the case, after consultation 
with the parties and if the appellant does not object.
    (b) The Board may also allow other participation, in the manner and 
by the deadlines established by the Board, where the Board decides that 
the intervenor has a clearly identifiable and substantial interest in 
the outcome of the dispute, that participation would sharpen issues or 
otherwise be helpful in resolution of the dispute, and that 
participation would not result in substantial delay.



Sec. 16.17  Ex parte communications (communications outside the record).

    (a) A party shall not communicate with a Board or staff member about 
matters involved in an appeal without notice to the other party. If such 
communication occurs, the Board will disclose it to the other party and 
make it part of the record after the other party has an opportunity to 
comment. Board members and staff shall not consider any information 
outside the record (see Sec. 16.21 for what the record consists of) 
about matters involved in an appeal.
    (b) The above does not apply to the following: Communications among 
Board members and staff; communications concerning the Board's 
administrative functions or procedures; requests from the Board to a 
party for a document (although the material submitted in response also 
must be given to the other party); and material which the Board includes 
in the record after notice and an opportunity to comment.



Sec. 16.18  Mediation.

    (a) In cases pending before the Board. If the Board decides that 
mediation would be useful to resolve a dispute, the Board, in 
consultation with the parties, may suggest use of mediation techniques 
and will provide or assist in selecting a mediator. The mediator may 
take any steps agreed upon by the parties to resolve the dispute or 
clarify issues. The results of mediation are not binding on the parties 
unless the parties so agree in writing. The Board will internally 
insulate the mediator from any Board or staff members assigned to handle 
the appeal.
    (b) In other cases. In any other grants dispute, the Board may, 
within the

[[Page 78]]

limitations of its resources, offer persons trained in mediation skills 
to aid in resolving the dispute. Mediation services will only be offered 
at the request, or with the concurrence, of a responsible federal 
program official in the program under which the dispute arises. The 
Board will insulate the mediator if any appeal subsequently arises from 
the dispute.



Sec. 16.19  How to calculate deadlines.

    In counting days, include Saturdays, Sundays, and holidays; but if a 
due date would fall on a Saturday, Sunday or Federal holiday, then the 
due date is the next Federal working day.



Sec. 16.20  How to submit material to the Board.

    (a) All submissions should be addressed as follows: Departmental 
Grant Appeals Board, Room 2004, Switzer Building, 330 C Street SW., 
Washington, DC 20201.
    (b) All submissions after the notice of appeal should identify the 
Board's docket number (the Board's acknowledgement under Sec. 16.7 will 
specify the docket number).
    (c) Unless the Board otherwise specifies, parties shall submit to 
the Board an original and two copies of all materials. Each submission 
other than the notice of appeal, must include a statement that one copy 
of the materials has been sent to the other party, identifying when and 
to whom the copy was sent.
    (d) Unless hand delivered, all materials should be sent to the Board 
and the other party by certified or registered mail, return receipt 
requested.
    (e) The Board considers material to be submitted on the date when it 
is postmarked or hand delivered to the Board.



Sec. 16.21  Record and decisions.

    (a) Each decision is issued by three Board members (see 
Sec. 16.5(b)), who base their decision on a record consisting of the 
appeal file; other submissions of the parties; transcripts or other 
records of any meetings, conferences or hearings conducted by the Board; 
written statements resulting from conferences; evidence submitted at 
hearings; and orders and other documents issued by the Board. In 
addition, the Board may include other materials (such as evidence 
submitted in another appeal) after the parties are given notice and an 
opportunity to comment.
    (b) The Board will promptly notify the parties in writing of any 
disposition of a case and the basis for the disposition.



Sec. 16.22  The effect of an appeal.

    (a) General. Until the Board disposes of an appeal, the respondent 
shall take no action to implement the final decision appealed.
    (b) Exceptions. The respondent may--
    (1) Suspend funding (see Sec. 74.114 of this title);
    (2) Defer or disallow other claims questioned for reasons also 
disputed in the pending appeal;
    (3) In programs listed in Appendix A, B.(a)(1), implement a decision 
to disallow Federal financial participation claimed in expenditures 
reported on a statement of expenditures, by recovering, withholding or 
offsetting payments, if the decision is issued before the reported 
expenditures are included in the calculation of a subsequent grant; or
    (4) Take other action to recover, withhold, or offset funds if 
specifically authorized by statute or regulation.



Sec. 16.23  How long an appeal takes.

    The Board has established general goals for its consideration of 
cases, as follows (measured from the point when the Board receives the 
first submission after the notice of appeal):

--For regular review based on a written record under Sec. 16.8, 6 
    months. When a conference under Sec. 16.10 is held, the goal remains 
    at 6 months, unless a requirement for post-conference briefing in a 
    particular case renders the goal unrealistic.
--For cases involving a hearing under Sec. 16.11, 9 months.
--For the expedited process under Sec. 16.12, 3 months.

    These are goals, not rigid requirements. The paramount concern of 
the Board is to take the time needed to review a record fairly and 
adequately in order to produce a sound decision. Furthermore, many 
factors are beyond the

[[Page 79]]

Board's direct control, such as unforeseen delays due to the parties' 
negotiations or requests for extensions, how many cases are filed, and 
Board resources. On the other hand, the parties may agree to steps which 
may shorten review by the Board; for example, by waiving the right to 
submit a brief, by agreeing to shorten submission schedules, or by 
electing the expedited process.

         Appendix A to Part 16--What Disputes the Board Reviews

A. What this Appendix covers.
    This appendix describes programs which use the Board for dispute 
resolution, the types of disputes covered, and any conditions for Board 
review of final written decisions resulting from those disputes. 
Disputes under programs not specified in this appendix may be covered in 
a program regulation or in a memorandum of understanding between the 
Board and the head of the appropriate HHS operating component or other 
agency responsible for administering the program. If in doubt, call the 
Board. Even though a dispute may be covered here, the Board still may 
not be able to review it if the limits in paragraph F apply.

B. Mandatory grant programs.
    (a) The Board reviews the following types of final written decisions 
in disputes arising in HHS programs authorizing the award of mandatory 
grants:
    (1) Disallowances under Titles I, IV, VI, X, XIV, XVI(AABD), XIX, 
and XX of the Social Security Act, including penalty disallowances such 
as those under sections 403(g) and 1903(g) of the Act and fiscal 
disallowances based on quality control samples.
    (2) Disallowances in mandatory grant programs administered by the 
Public Health Service, including Title V of the Social Security Act.
    (3) Disallowances in the programs under sections 113 and 132 of the 
Developmental Disabilities Act.
    (4) Disallowances under Title III of the Older American Act.
    (5) Decisions relating to repayment and withholding under block 
grant programs as provided in 45 CFR 96.52.
    (6) Decisions relating to repayment and withholding under State 
Legalization Impact Assistance Grants as provided in 45 CFR 402.24 and 
402.25.
    (b) In some of these disputes, there is an option for review by the 
head of the granting agency prior to appeal to the Board. Where an 
appellant has requested review by the agency head first, the ``final 
written decision'' required by Sec. 16.3 for purposes of Board review 
will generally be the agency head's decision affirming the disallowance. 
If the agency head declines to review the disallowance or if the 
appellant withdraws its request for review by the agency head, the 
original disallowance decision is the ``final written decision.'' In the 
latter cases, the 30-day period for submitting a notice of appeal begins 
with the date of receipt of the notice declining review or with the date 
of the withdrawal letter.

C. Direct, discretionary project programs.
    (a) The Board reviews the following types of final written decisions 
in disputes arising in any HHS program authorizing the award of direct, 
discretionary project grants or cooperative agreements:
    (1) A disallowance or other determination denying payment of an 
amount claimed under an award, or requiring return or set-off of funds 
already received. This does not apply to determinations of award amount 
or disposition of unobligated balances, or selection in the award 
document of an option for disposition of program-related income.
    (2) A termination for failure to comply with the terms of an award.
    (3) A denial of a noncompeting continuation award under the project 
period system of funding where the denial is for failure to comply with 
the terms of a previous award.
    (4) A voiding (a decision that an award is invalid because it was 
not authorized by statute or regulation or because it was fraudulently 
obtained).
    (b) Where an HHS component uses a preliminary appeal process (for 
example, the Public Health Service), the ``final written decision'' for 
purposes of Board review is the decision issued as a result of that 
process.

D. Cost allocation and rate disputes.
    The Board reviews final written decisions in disputes which may 
affect a number of HHS programs because they involve cost allocation 
plans or rate determinations. These include decisions related to cost 
allocation plans negotiated with State or local governments and 
negotiated rates such as indirect cost rates, fringe benefit rates, 
computer rates, research patient care rates, and other special rates.

E. SSI agreement disputes.
    The Board reviews disputes in the Supplemental Security Income (SSI) 
program arising under agreements for Federal administration of State 
supplementary payments under section 1616 of the Social Security Act or 
mandatory minimum supplements under section 212 of Pub. L. 93-66. In 
these cases, the Board provides an opportunity to be heard and offer 
evidence at the Secretarial level of review as set out in the applicable 
agreements. Thus, the ``final written decision'' for purposes of Board 
review is that determination appealable to the Secretary under the 
agreement.

F. Where Board review is not available.

[[Page 80]]

    The Board will not review a decision if a hearing under 5 U.S.C. 554 
is required by statute, if the basis of the decision is a violation of 
applicable civil rights or nondiscrimination laws or regulations (for 
example, Title VI of the Civil Rights Act), or if some other hearing 
process is established pursuant to statute.

G. How the Board determines whether it will review a case.
    Under Sec. 16.7, the Board Chair determines whether an appeal meets 
the requirements of this Appendix. If the Chair finds that there is some 
question about this, the Board will request the written opinion of the 
HHS component which issued the decision. Unless the Chair determines 
that the opinion is clearly erroneous, the Board will be bound by the 
opinion. If the HHS component does not respond within a time set by the 
Chair, or cannot determine whether the Board clearly does or does not 
have jurisdiction, the Board will take the appeal.

[46 FR 43817, Aug. 31, 1981, as amended at 47 FR 29492, July 6, 1982; 53 
FR 7864, Mar. 10, 1988; 62 FR 38218, July 17, 1997]



PART 17--RELEASE OF ADVERSE INFORMATION TO NEWS MEDIA--Table of Contents




Sec.
17.1  Definition.
17.2  Basic policy.
17.3  Precautions to be taken.
17.4  Regulatory investigations and trial-type proceedings.
17.5  Context to be reflected.
17.6  Advance notice.
17.7  Retractions or corrections.

    Authority: 5 U.S.C. 301.

    Source: 41 FR 3, Jan. 2, 1976, unless otherwise noted.



Sec. 17.1  Definition.

    Adverse information released by an agency means any statement or 
release by the Department or any principal operating component made to 
the news media inviting public attention to an action or a finding by 
the Department or principal operating component of the Department which 
may adversely affect persons or organizations identified therein. This 
part does not apply to nor is it affected by any disclosure of records 
to the public in response to requests made under the Freedom of 
Information Act (Pub. L. 90-23). The criteria for such disclosures are 
set forth in the Department's Public Information Regulation (45 CFR Part 
5).



Sec. 17.2  Basic policy.

    All adverse information release to news media shall be factual in 
content and accurate in description. Disparaging terminology not 
essential to the content and purpose of the publicity shall be avoided.



Sec. 17.3  Precautions to be taken.

    The issuing organization shall take reasonable precautions to assure 
that information released is accurate and that its release fulfills an 
authorized purpose.



Sec. 17.4  Regulatory investigations and trial-type proceedings.

    Adverse information relating to regulatory investigations of 
specifically identified persons or organizations or to pending agency 
trial-type proceedings shall be released only in limited circumstances 
in accordance with the criteria outlined below:
    (a) Where the Department or a principal operating component 
determines that there is a significant risk that the public health or 
safety may be impaired or substantial economic harm may occur unless the 
public is notified immediately, it may release information to news media 
as one of the means of notifying the affected public speedily and 
accurately. However, where the Department or principal operating 
component determines that public harm can be avoided by immediate 
discontinuance of an offending practice, a respondent shall be allowed 
an opportunity, where feasible, to cease the practice (pending a legal 
test) in lieu of release of adverse information by the agency.
    (b) Where it is required in order to bring notice of pending agency 
adjudication to persons likely to desire to participate therein or 
likely to be affected by that or a related adjudication, the Department 
or principal operating component shall rely on the news media to the 
extent necessary to provide such notice even though it may be adverse to 
a respondent.



Sec. 17.5  Context to be reflected.

    The authority for and the character of the information shall be made 
clear,

[[Page 81]]

where appropriate, the release shall explain the nature of any studies 
performed, the sources of relevant data, the areas in which 
administrative findings of fact were made, and whether the information 
is based on allegations subject to subsequent adjudication.



Sec. 17.6  Advance notice.

    Any respondent or prospective respondent in an agency proceeding 
shall, if practicable and consistent with the nature of the proceeding, 
be given advance notice of information to be released about the 
proceeding and a reasonable opportunity to prepare in advance a response 
to the information released.



Sec. 17.7  Retractions or corrections.

    Where the Assistant Secretary for Public Affairs finds that 
information released by the Department was misleading or a misstatement 
of fact and any person named therein requests a retraction or 
correction, the Department shall issue a retraction or correction in the 
same manner to all of the media outlets that received the original 
information (or as many of them as is feasible). Where information shown 
to be misleading or misstatement of fact has been released by a 
principal operating component of the Department and any person named 
therein requests a retraction or correction, the agency head shall issue 
a retraction or correction in the same manner to all of the media 
outlets that received the original information (or as many of them as is 
feasible).



PART 30--CLAIMS COLLECTION--Table of Contents




                           Subpart A--General

Sec.
30.1  Purpose and scope.
30.2  Definitions.
30.3  Interagency claims.
30.4  Other administrative proceedings.
30.5  Other remedies.
30.6  Property claims.
30.7  Claims involving criminal activity or misconduct.
30.8  Claims arising from GAO exceptions.
30.9  Subdivision of claims.
30.10  Omissions not a defense.

                     Subpart B--Collection of Claims

30.11  Collection rule.
30.12  Notices to debtor.
30.13  Interest, administrative costs and late payment penalties.
30.14  Interest and charges pending waiver or review.
30.15  Administrative offset.
30.16  Use of credit reporting agencies.
30.17  Contracting for collection services.
30.18  Liquidation of collateral.
30.19  Installment payments.
30.20  Taxpayer information.
30.21  Army hold-up list.

                     Subpart C--Compromise of Claims

30.22  Compromise rule.
30.23  Exceptions.
30.24  Inability to collect the full amount.
30.25  Litigative probabilities.
30.26  Cost of collecting claim.
30.27  Enforcement policy.
30.28  Joint and several liability.
30.29  Further review of compromise offers.
30.30  Restriction.

        Subpart D--Termination or Suspension of Collection Action

30.31  Termination rule.
30.32  Exceptions.

        Subpart E--Referrals to the Department of Justice or GAO

30.33  Litigation.
30.34  Claims over $20,000.
30.35  GAO exceptions.

    Authority: Subchapter II of Chapter 37 of Title 31, United States 
Code, 5 U.S.C. 5514 and 5 U.S.C. 552a as amended by Pub. L. 97-365, 96 
Stat. 1749.

    Source: 52 FR 264, Jan. 5, 1987, unless otherwise noted.



                           Subpart A--General



Sec. 30.1  Purpose and scope.

    (a) This regulation prescribes standards and procedures for the 
officers and employees of the Department, including officers and 
employees of the various Operating Divisions and regional offices of the 
Department, charged with collection and disposition of debts owed to the 
United States.
    (b) These standards and procedures will be applied where a statute, 
regulation or contract does not prescribe different standards or 
procedures. The authority for the regulation lies in the Federal Claims 
Collection Act of 1966,

[[Page 82]]

as amended, 31 U.S.C. 3711 and 3716-3718; the Federal Claims Collection 
Standards, at 4 CFR Parts 101-105; related statutes (5 U.S.C. 5512 and 
5514, 5 U.S.C. 552a) and regulations (5 CFR Part 550); and the common 
law. The covered activities include collecting claims in any amount; 
compromising claims, or suspending or terminating collection of claims 
that do not exceed $20,000, exclusive of interest and charges; and 
referring debts that cannot be disposed of by the Department to the 
Department of Justice or to the General Accounting Office for further 
administrative action or litigation. Further guidance may be found in 
the Departmental General Administration Manual, Personnel Manual, 
Accounting Manual and Grants Administration Manual, and any other 
manuals which may be issued by each Operating Division, office, or 
program.



Sec. 30.2  Definitions.

    In this part, unless the context otherwise requires--
    Amounts payable under the Social Security Act means payments by the 
Department to beneficiaries, providers, intermediaries, physicians, 
suppliers, carriers, States, or other contractors or grantees under a 
Social Security Act program, including: Title I (Grants to States for 
Old-Age Assistance and Medical Assistance for the Aged); Title II 
(Federal Old-Age Survivors, and Disability Insurance Benefits); Title 
III (Grants to States for Unemployment Compensation Administration); 
Title IV (Grants to States for Aid and Services to Needy Families with 
Children and for Child-Welfare Services); Title V (Maternal and Child 
Health and Crippled Children's Services); Title IX (Unemployment 
Compensation Program); Title X (Grants to States for Aid to the Blind); 
Title XI, Part B (Peer Review of the Utilization and Quality of Health 
Care Services); Title XII (Advances to State Unemployment Funds); Title 
XIV (Grants to States for Aid to Permanently and Totally Disabled); 
Title XVI (Supplemental Security Income for the Aged, Blind, and 
Disabled); Title XVII (Grants to States to Fight Mental Retardation); 
Title XVIII (Medicare); Title XIX (Medicaid); and Title XX (Block Grants 
to States for Social Services). Federal employee salaries and other 
payments made by the Department in the course of administering the 
provisions of the Social Security Act are not deemed to be ``payable 
under'' the Social Security Act for purposes of this regulation.
    Claim or Debt means an amount of money or other property owed to the 
United States. Debts include, but are not limited to amounts owed on 
account of loans made, insured or guaranteed by the United States; 
salary overpayments to employees; overpayments to program beneficiaries; 
overpayments to contractors and grantees, including overpayments arising 
from audit disallowances; excessive cash advances to employees, grantees 
and contractors; civil penalties and assessments; theft or loss of money 
or property; and damages.
    Debtor means an individual, organization, association, partnership, 
corporation, or a State or local government or subdivision indebted to 
the Department; or the person or entity with legal responsibility for 
assuming the debtor's obligation.
    Debts arising under the Social Security Act are overpayments to, or 
contributions, penalties or assessments owed by, beneficiaries, 
providers, intermediaries, physicians, suppliers, carriers, States or 
other contractors or grantees under Titles I, II, III, IV, V, IX, X, XI 
(Part B), XII, XIV, XVI, XVII, XVIII, XIX and XX of the Social Security 
Act. Salary overpayments and other debts that result from the 
administration of the provisions of the Social Security Act are not 
deemed to ``arise under'' the Social Security Act for purposes of this 
regulation.
    Department means the United States Department of Health and Human 
Services and each of its Operating Divisions and regional offices.
    Liquidated or certain in amount refers to a debt of an amount 
already fixed and determined by the Secretary, or which may be readily 
fixed and determined from the information available in the debt file, 
irrespective of any dispute by the debtor.
    Local government means a political subdivision, instrumentality, or 
authority of any State; the District of

[[Page 83]]

Columbia; the Commonwealth of Puerto Rico; a territory or possession of 
the United States; or an Indian tribe, band or nation.
    Operating Division means each separate component within the 
Department of Health and Human Services, and includes the Office of the 
Secretary, the Office of Human Development Services, the Family Support 
Administration, theCenters for Medicare & Medicaid Services, the Public 
Health Service and the Social Security Administration.
    Overdue refers to a debt not paid by the payment due date specified 
in the notice of the debt to the debtor (see Sec. 30.13(a)) and not the 
subject of a repayment agreement approved by the Secretary. Also, a debt 
subject to repayment agreement is considered overdue if the debtor fails 
to satisfy his or her obligations under that agreement. ``Overdue'' and 
``delinquent'' have the same meaning. See 4 CFR 101.2(b).
    Secretary means the Secretary of Health and Human Services or the 
Secretary's designee within any Operating Division or Regional Office.



Sec. 30.3  Interagency claims.

    This regulation does not apply to debts owed by other Federal 
agencies. These debts will be resolved by negotiation or referral to the 
General Accounting Office.



Sec. 30.4  Other administrative proceedings.

    This regulation does not supersede or require omission or 
duplication of administrative proceedings required under contract, 
statute, regulation or other agency procedures. Examples: Resolution of 
audit findings under grants or contracts, Chapter 1-105, Grants 
Administration Manual (GAM); informal grant appeals, 45 CFR Part 75 
(Departmental), 42 CFR 50.401 et seq. (Public Health Service); formal 
appeals to the Departmental Grant Appeals Board, 45 CFR Part 16; and 
review under a procurement contract Disputes Clause and the Contract 
Disputes Act of 1978 (41 U.S.C. 601 et seq.), 48 CFR Part 33.



Sec. 30.5  Other remedies.

    The remedies and sanctions available to the Department under this 
regulation when collecting debts are not intended to be exclusive. The 
Secretary may impose other appropriate sanctions upon a debtor for 
inexcusable, prolonged or repeated failure to pay a debt. For example, 
the Secretary may stop doing business with a grantee, contractor, 
borrower or lender; convert the method of payment under a grant from an 
advance to a reimbursement method; or revoke a grantee's letter-of-
credit.



Sec. 30.6  Property claims.

    Any person who converts, or negligently loses or destroys personal 
property belonging, entrusted or loaned to the Department is liable for 
the return of the property or payment of its fair market value. A person 
who damages such property is liable for the cost of repairs or its fair 
market value, whichever is less. Collection of these debts means the 
recovery of the property, its fair market value, or the cost of repairs. 
Demand for payment of these claims means a demand for the return of the 
property or for payment of its fair market value or the cost of repairs.



Sec. 30.7  Claims involving criminal activity or misconduct.

    (a) A debtor whose indebtedness involves criminal activity is 
subject to punishment by fine or imprisonment as well as to a civil 
claim by the United States for compensation for the misappropriated 
funds or property. Examples of such activity are fraud, embezzlement and 
theft or misuse of Government money or property. See 18 U.S.C. 641, 643. 
The Secretary will refer cases of suspected criminal activity or 
misconduct to the Office of Inspector General. That office will 
investigate such cases, refer them to the Department of Justice for 
criminal prosecution and/or return them to the Secretary for collection, 
application of administrative sanctions or other disposition.
    (b) Debts involving anti-trust violations, fraud, false claims or 
misrepresentation--
    (1) Shall be referred by the Secretary to the Office of Inspector 
General for review. The Office of Inspector General

[[Page 84]]

shall refer the claim back to the Secretary for collection or other 
disposition to the extent authorized by the Department of Justice.
    (2) Shall not be compromised, terminated, suspended or otherwise 
disposed of by the Secretary under these regulations. Only the 
Department of Justice is authorized to compromise, terminate, suspend or 
otherwise dispose of such debts.



Sec. 30.8  Claims arising from GAO exceptions.

    The Secretary may not compromise but will collect, suspend or 
terminate collection of debts due on account of illegal, improper or 
incorrect payments shown in General Accounting Office notices of 
exception issued to certifying or disbursing officers. Only the General 
Accounting Office has the authority to compromise such debts.



Sec. 30.9  Subdivision of claims.

    Debts may not be subdivided to avoid the monetary ceilings imposed 
by 31 U.S.C. 3711(a) (2) and (3) on the Secretary's authority to 
compromise, suspend or terminate collection of debts. A debtor's 
liability arising from a particular incident or transaction will be 
considered a single debt in determining whether the claim exceeds 
$20,000 for purposes of compromising, suspending or terminating 
collection efforts.



Sec. 30.10  Omissions not a defense.

    Failure by the Secretary to comply with any provision of this 
regulation may not serve as a defense to any debtor.



                     Subpart B--Collection of Claims



Sec. 30.11  Collection rule.

    (a) Aggressive agency action. The Secretary will take aggressive 
action to collect debts and reduce delinquencies. Collection efforts 
shall, at a minimum, normally include sending to the debtor's last known 
address a total of three progressively stronger written demands for 
payment at not more than 30-day intervals unless amounts are available 
for offset under section 30.15, or a response to the first or second 
demand indicates that further demand would be futile and the debtor's 
response does not require rebuttal.
    (b) Immediate action. When necessary to protect the Government's 
interest, written demand may be preceded by other appropriate action, 
such as withholding of amounts payable to the debtor or immediate 
referral of the debt for litigation or filing of a claim in bankruptcy 
court or against a decedent's estate.
    (c) Finding debtors. The Secretary will exhaust every reasonable 
effort to locate debtors, using such sources as telephone directories, 
city directories, postmasters, driving license records, automobile title 
and license records in State and local government agencies, the Internal 
Revenue Service, credit reporting agencies and skip locator services. 
Referral of a confess-judgment note to the appropriate United States 
Attorney's Office for entry of judgment will not be delayed because the 
debtor cannot be located.
    (d) Joint and several liability. Collection of the full amount of 
the debt will be pursued from each debtor jointly and severally liable.
    (e) Debtor disputes. A debtor who disputes a debt must promptly 
provide available supporting evidence.
    (f) Debt files. The Secretary will maintain an administrative file 
for each debt or debtor, documenting the debt(s), all administrative 
collection action, including communications to and from the debtor, and 
disposition of the debt(s). Information from a debt file relating to an 
individual may be disclosed only for purposes consistent with this 
regulation, the Privacy Act of 1974 (5 U.S.C. 552a), and any other 
applicable law.



Sec. 30.12  Notices to debtor.

    (a) Required notice. The first written demand for payment must 
inform the debtor of--
    (1) The amount and nature of the debt;
    (2) The date payment is due, which will generally be 30 days from 
the date the notice was mailed; and
    (3) The assessment under Sec. 30.13 of interest from the date the 
notice was mailed, and full administrative costs if payment is not 
received within the 30 days.

[[Page 85]]

    (b) Other notice. Where applicable, the Secretary must inform the 
debtor in writing of--(1) His or her right to dispute the debt or 
request a waiver of the debt, citing the applicable review or waiver 
authority, the conditions for review or waiver, and the effect of the 
review or waiver request on collection of the debt, interest, charges 
and late payment penalties (see Sec. 30.14);
    (2) The office, address and telephone number that the debtor should 
contact to discuss repayment, reconsideration or waiver of the debt;
    (3) The proposed sanctions if the debt is overdue, including 
assessment of late payment penalties under 30.13 (if the debt is more 
than 90 days overdue) or referral of the debt to a credit reporting 
agency under Sec. 30.17, or to a collection agency under Sec. 30.18. 
(See also Sec. 30.5).
    (c) Exception. This section does not require duplication of any 
notice already contained in a written agreement, letter or other 
document signed by, or provided to the debtor.



Sec. 30.13  Interest, administrative costs and late payment penalties.

    (a) Interest. (1) Interest will accrue on all debts from the date 
notice of the debt and the interest requirement is first mailed to the 
last known address or hand-delivered to the debtor if the debt is not 
paid within 30 days from the date of mailing of the notice. Except as 
provided in paragraph (a)(2) of this section, or unless the Secretary 
determines a higher rate is necessary to protect the Government's 
interests, the Secretary shall charge an annual rate of interest as 
fixed by the Secretary of the Treasury after taking into consideration 
private consumer rates of interest prevailing on the date that the 
Department becomes entitled to recovery. This rate may be revised 
quarterly by the Secretary of the Treasury and shall be published by the 
HHS Assistant Secretary for Management and Budget quarterly in the 
Federal Register. Debtors who were not paying interest, or were paying 
interest at a different rate prior to October 25, 1982, may be charged 
interest at the above-stated rate in effect on the date that notice of 
the new interest requirement is mailed after 1982. The Secretary may use 
the advance billing procedure and include the interest notification 
prior to the debt being owed. Bills sent before a debt is due will 
include notification of the interest requirement. In these cases, 
interest will begin to accrue on the day after the due date.
    (2) The interest rate established in paragraph (a) of this section 
shall be no lower than the current value of funds rate, as set by the 
Secretary of the Treasury pursuant to 31 U.S.C. 3717, except that in the 
case of installment payment agreements under Sec. 30.19, such rate shall 
be no lower than the applicable rate determined from the U.S. Treasury 
``Schedule of Certified Interest Rates with Range of Maturities.''
    (3) The Secretary may, at his or her discretion, extend the 30 day 
interest-free period an additional 30 days if the Secretary determines 
that such action is in the best interests of the Government, or 
otherwise warranted by equity and good conscience.
    (4) The rate of interest, as initially assessed, will remain fixed 
for the duration of the indebtedness; except that if a debtor defaults 
on a repayment agreement, interest may be set at the Treasury rate in 
effect on the date a new agreement is executed.
    (5) Interest will not be charged on interest, administrative costs 
or late payment penalties required by this section. However, if the 
debtor defaults on a previous repayment agreement, unpaid accrued 
interest, charges and late payment penalties under the defaulted 
agreement may be added to the principal to be paid under a new repayment 
agreement.
    (b) Administrative costs of collecting overdue debts. Delinquent 
debtors will be assessed the administrative costs incurred by the 
Department as a result of handling and collecting the overdue debts, 
based on either actual or average costs incurred. These costs will 
include direct (personnel, supplies, etc.) and indirect costs of 
collecting inhouse and contracting with collection agencies and may 
include the costs of providing hearings or any other form of review 
requested by debtors. See Sec. 30.14. These charges will be assessed 
monthly, or per payment period, throughout the period that the debt is 
overdue. Such costs may also be additive to

[[Page 86]]

other administrative costs if collection is being made for another 
Federal agency or unit.
    (c) Late payment penalties. A penalty charge of 6 percent a year 
will be assessed on a debt, a payment, or any portion thereof that is 
more than 90 days overdue. Late payment penalty charges will accrue from 
the date the debt, or portion thereof, became overdue until the overdue 
amount is paid. These charges will be assessed monthly, or per payment 
period. See also Sec. 30.14.
    (d) Social Security Act debts. (1) Unless specifically authorized by 
statute, regulations or written agreement, or unless the debts arise 
from, or involve, fraud or criminal activity, the Secretary will not 
charge interest on debts arising from payments to beneficiaries under 
Titles II, XVI and XVIII of Social Security Act. The charging of 
interest is appropriate on debts arising from section 1862(b) of the Act 
for Medicare payments for which a beneficiary has been reimbursed by a 
liable third party, in which case the charging of interest would be 
appropriate.
    (2) The Secretary will charge administrative costs or late payment 
penalties on debts arising under the Social Security Act where 
authorized by statute, regulations, or written agreement.
    (e) Other debts not covered by 31 U.S.C. 3717. The Secretary will 
charge administrative costs or late payment penalties on debts arising 
under a contract executed prior to, and in effect on October 25, 1982, 
or debts owed by State or local governments where authorized by statute, 
regulation, or written agreement.
    (f) Allocation of payments. Partial or installment payments will be 
applied first to outstanding administrative cost charges and late 
payment penalties, second to accrued interest and third to outstanding 
principal.
    (g) Inactive claims. Interest, but not administrative cost charges 
or late payment penalties, will continue to accrue when collection of a 
debt is suspended under Sec. 30.33(a).
    (h) Waivers. The Secretary may waive collecting all or part of 
interest, administrative costs or late payment penalties, if--
    (1) The debt or the charges resulted from the agency's error, action 
or inaction (other than normal processing delays), and without fault on 
the part of the debtors; or
    (2) Collection in any manner authorized under this regulation would 
defeat the overall objectives of a Departmental program.



Sec. 30.14  Interest and charges pending waiver or review.

    (a) Rule. A debtor may either pay the debt, or be liable for 
interest on the uncollected debt, while a waiver determination, a bona 
fide dispute or a formal or informal review of the debt is pending. If a 
final determination is to the effect that any amount was properly a debt 
to HHS and the debtor chose to retain the amount in dispute, the 
Secretary shall collect or offset from any future payments to the 
debtor, an amount equal to the amount of the debt plus interest (as 
calculated under Sec. 30.13(a)) on such debt amount starting from the 
date the debtor was first made aware of the debt and ending when such 
debt is repaid. The debtor will also be assessed administrative cost 
charges and late payment penalties on the upaid debt for this period if 
the reviewing or hearing officer determines in writing that the request 
for a waiver, a hearing or other form of review was spurious.
    (b) Exception. Interest, late payment penalties and administrative 
cost charges will not be assessed pending consideration of waiver or 
review under a statute which prohibits collection of the debt during 
this period, unless the reviewing or hearing officer determines in 
writing that the request for a waiver, a hearing or other form of review 
was spurious.



Sec. 30.15  Administrative offset.

    (a) Rule. The Secretary will collect debts owed to the Department by 
administrative offset if--
    (1) The debt is liquidated or certain in amount;
    (2) Offset is not expressly or implicitly prohibited by statute or 
regulation;
    (3) Offset is cost-effective or has significant deterrent value;

[[Page 87]]

    (4) Offset does not substantially impair or defeat program 
objectives; and
    (5) Overall, offset is best suited to further and protect the 
Government's interest.

The Secretary may consider financial impact of the proposed offset on 
the debtor in determining the method and amount of the offset.
    (b) Definitions. (1) ``Administrative Offset'' means satisfying a 
debt by withholding money payable by the Department to, or held by the 
Department for a debtor. Amounts available for offset include, for 
example, benefit payments to a program beneficiary overpaid under the 
same or a different program, amounts due a defaulting or overpaid 
contractor or grantee under the same or a different agreement, salaries 
of Federal employees, Federal income tax refunds and judgments held by 
the debtor against the United States. (Offset against judgments will be 
effected through the Comptroller General pursuant to 31 U.S.C. 3728.)
    (2) ``Hearing'' means either a review of the record or an oral 
hearing. A review of the record means a review of the documentary 
evidence by a designated hearing officer. An oral hearing means an 
informal conference before a designated hearing officer.
    (3) ``Hearing officer'' is an individual appointed by the Secretary 
to review and issue a final decision on an employee's dispute of a debt. 
In the case of an employee debt subject to 5 U.S.C. 5514, the hearing 
officer may not be an individual under the supervision of the Secretary; 
will normally be an independent contractor of the Department or an 
employee of another Federal agency, see 4 CFR 102.1 and 5 CFR 550.1107; 
and may be an administrative law judge if appointment of an independent 
contractor or an employee of another Federal agency is not feasible.
    (4) ``Pay'' means basic pay, special pay, incentive pay, retired 
pay, retainer pay, or, in case of an employee not entitled to basic pay, 
other authorized pay.
    (5) ``Disposable pay'' means the amount that remains from an 
employee's Federal pay after withholding of all deductions listed in 5 
CFR 581.105(b) and any other deductions required by law (including, but 
not limited to, Federal, State, and local income taxes; Social Security 
taxes, including Medicare taxes; and Federal retirement programs).
    (c) Scope. This section satisfies the standards in 4 CFR 102.3 and 
102.4 and 5 CFR Part 550, for offset under the common law, 31 U.S.C. 
3716, 5 U.S.C. 5514 and any other statute under which standards and 
procedures for offset have not otherwise been promulgated, including:
    (1) Offset of debts owed or to amounts payable, under a grant or 
contract; except that paragraphs (j)-(p) of this section do not apply. 
See Sec. 30.4.
    (2) Offset of debts owed by former employees from final salary and 
lump sum payments; and from the Civil Service Retirement and Disability 
Fund (which also requires compliance with 5 CFR Part 831, Subpart R);
    (3) Offset of salary overpayments and other debts under statutes 
such as 5 U.S.C. 5514 (or 31 U.S.C. 3716 in the case of commissioned 
officers), travel advances under 5 U.S.C. 5705, training expenses under 
5 U.S.C. 4108, debts of employees removed for cause under 5 U.S.C. 5511 
and amounts owed by accountable officers under 5 U.S.C. 5512, from the 
current pay of Federal employees, including employees of the Social 
Security Administration and other offices administering a Social 
Security Act program;
    (4) Offset of debts owed by state or local governments;
    (5) Offset of debts arising, or from amounts payable, under the 
Social Security Act, except that unless specifically authorized by 
statute, regulation, or written agreement, or unless the debts arise 
from, or involve, fraud or criminal activity, administrative offset will 
not be applied to recover debts arising from, or to withhold, payments 
to beneficiaries under Titles II, XVI, and XVIII of the Social Security 
Act with the exception of debts arising from section 1862(b) of the Act 
for Medicare payments for which a beneficiary has been reimbursed by a 
liable third party.
    (d) Exceptions. (1) So long as the conditions listed in paragraphs 
(a) (2)-(5) and (e) are met, offset may be effected

[[Page 88]]

with the debtor's consent without regard to the other provisions in this 
section.
    (2) This section does not apply to debts reduced to judgment, debts 
already subject to a written repayment or settlement agreement, or debts 
with respect to which the specified procedures have already been 
otherwise afforded. Debts reduced to judgment may be offset from the 
current pay of a Federal employee under Federal Personnel Manual 
Supplement 552-1.
    (3) This section does not apply to any adjustment to a Federal 
employee's pay arising out of the employee's request for, or change in, 
coverage under a Federal benefits program such as health or life 
insurance, which requires periodic deductions from pay, if the amount to 
be recovered was accumulated over four pay periods or less. Employees 
consent to deductions from pay whenever they elect or change coverage. 
Affected employees will receive a notice informing them of these 
retroactive adjustments to pay and the office to contact if the employee 
disputes the amount of the adjustment.
    (e) Advance payments. Under many programs, the Department advances 
funds to pay for a recipient's anticipated costs. Before offsetting such 
an advance payment in order to collect a debt, the Secretary may request 
an assurance that the recipient will incur additional allowable costs 
whose Federal share is at least equal to the amount of the offset plus 
the amount of funds actually advanced. If the Secretary believes that 
the recipient will not incur sufficient costs, the advance will not be 
offset. In such case, the Secretary may request cash payment or convert 
the method of paying the recipient from an advance to a reimbursement 
basis and collect the debt by offsetting payments for costs already 
incurred.
    (f) Multiple debts. Amounts available for offset will be applied to 
multiple debts in accordance with the best interests of the Department 
and the Government as determined on a case-by-case basis. Other factors 
being equal, recovery will be equally apportioned, except that debts 
owed to the Department will be satisfied before debts owed to other 
Federal agencies.
    (g) Statutory bar to offset. (1) Administrative offset will not be 
initiated more than 10 years after the Government's right to collect the 
debt first accrued, unless facts material to the Government's right to 
collect the debt were not known and could not reasonably have been known 
by the officer responsible for discovering or collecting the debt. For 
this purpose, a debt accrues when it is administratively determined to 
exist, when it is affirmed by an administrative appeals board or a court 
having jurisdiction, or when a debtor defaults on a repayment agreement, 
whichever is later. Offset is initiated when the notice of the proposed 
offset is mailed to the debtor under paragraph (i) of this section or 
under other agency procedures, when money payable to the debtor is first 
withheld, or when the Department requests offset from money held by 
another agency, whichever is first.
    (2) The 10 year statutory bar does not apply to offset of a debt 
arising out of the Social Security Act. However, offset against such 
debts will generally not be initiated more than 10 years after the debt 
accrued unless the Secretary did not previously have the necessary 
information or the means by which to collect the debt by administrative 
offset.
    (h) Offset against assigned claims. The Assignment of Claims Act of 
1940, 31 U.S.C. 3727, 41 U.S.C. 15, strictly limits the conditions under 
which a contractor or any other person or entity entitled to receive 
payments from the United States may assign his or her rights to the 
payments to a third party. The Federal Acquisition Regulations implement 
at 48 CFR Part 32, Subpart 32.8, the statutory conditions to assignment 
of a contractor's right to be paid by the United States for performance 
under a Federal procurement contract. A contractor may assign his or her 
right to payment by the United States only to a bank, trust company, or 
other financing institution, as security for a loan to the contrator.
    (1) The Secretary normally may not collect a debt owed by a 
contractor by offset from payments due the contractor if the contractor 
has properly assigned his or her rights to such payments to a financing 
institution, the

[[Page 89]]

assigned payments are due under a contract with a ``no setoff'' 
provision, and--
    (i) The contractor's debt to the United States arose independently 
of the contract; or
    (ii) The debt arose under the contract because of renegotiation, 
fines, penalties (other than penalties for noncompliance with the terms 
of the contract), taxes or social security contributions, or withholding 
or nonwithholding of taxes or social security contributions. 
Notwithstanding the satisfaction of all the conditions of this 
paragraph, offset may be appropriate under certain circumstances, for 
example: If the financing institution has made neither a loan nor a firm 
commitment to make a loan under the assignment; or to the extent that 
the amount due on the contract exceeds the amount of any loans made or 
expected to be made under a firm commitment.
    (2) The Secretary may not offset a debt from payments due any debtor 
if the debtor has properly assigned his or her right to such payments 
and the debt arose after the effective date of the assignment.
    (3) The Secretary may not attempt to satisfy the assignor's 
indebtedness by recovering payments already made to the assignee.
    (i) Amount of offset. Whenever feasible debts will be offset in one 
lump sum, except that deductions from an employee's current pay pursuant 
to 5 U.S.C. 5514 may not exceed 15 percent of the employee's disposable 
pay for any pay period, unless the employee agrees in writing to a 
larger deduction. However, if the employee retires, resigns, or is 
discharged, or if his or her employment or active duty otherwise ends, 
an amount necessary to satisfy the debt may be offset immediately from 
payments of any nature due the individual.
    (j) Pre-offset requirements. Before effecting offset, the Secretary 
will send the debtor written notice of the following--
    (1) The nature and amount of the debt;
    (2) The agency intention to collect the debt by offsetting the lump 
sum or installments (stating the amount, frequency, proposed beginning 
date and duration of the installments) unless the debtor pays the debt 
or responds within 30 days from the date the notice was mailed to the 
debtor;
    (3) The interest, administrative cost charges and penalties that 
will or may be assessed under Secs. 30.13 and 30.14 if the debt is not 
paid, or the debtor has not consented to a lump sum offset, within 30 
days from the date the notice was mailed to the debtor;
    (4) The debtor's right, if a previous opportunity was not provided, 
to request within 15 days (unless otherwise provided by statute or 
regulation) from the date of mailing of the notice--
    (i) Copies of agency records pertaining to the debt;
    (ii) An alternative repayment schedule; or
    (iii) A hearing if the debtor contends no debt is owed, the debt is 
for a different amount, or the proposed offset does not comply with this 
section;
    (5) The debtor's right, if any, to request waiver of the debt, 
interest or changes, citing the applicable statutory authority, request 
procedures and waiver conditions and the effect of the waiver request on 
collection of the debt, interest and charges by offset;
    (6) The office, address and telephone number of whom the debtor 
should address any inquiries or requests;
    (7) The requirement that the hearing officer issue a decision at the 
earliest practical date; except that under 5 U.S.C. 5514, the decision 
may be issued no later than 60 days after the request for the hearing 
was filed unless the employee requested and was granted an extension;
    (8) That any knowingly false or frivolous statements, 
representations or evidence may subject the debtor to criminal or civil 
penalties under 18 U.S.C. 286, 287, 1001 and 1002 or 31 U.S.C. 3729-
3731; or also disciplinary action under 5 CFR Part 752 or any other 
applicable authority if the debtor is an employee;
    (9) Any other rights and remedies available to the debtor under the 
statutes or regulations governing the program under which the debt is 
being collected; and

[[Page 90]]

    (10) That, unless otherwise provided by statute or contract, amounts 
collected and later waived or found not owed will be promptly refunded.
    (k) Alternative repayment proposal. A debtor may propose a different 
offset schedule or repayment by cash installments pursuant to 
Sec. 30.19.
    (l) Request for hearing. A debtor may submit to the address 
specified in the notice letter a written request for a hearing to 
dispute the administrative determination of the existence or amount of 
the debt, or whether the proposed offset schedule complies with this 
section, before the initiation of collection by offset. The request must 
be postmarked no later than 15 days (unless otherwise provided by 
statute or regulation) from the date the notice was mailed to the 
debtor. The debtor must sign the request and briefly state each agency 
conclusion being disputed and the reasons for the dispute. Supporting 
facts, witnesses, and documents must be identified in the request. The 
request, with supporting documents, must, on its face, sufficiently 
raise a genuine issue of fact or law. Receipt of the request will be 
acknowledged. The Secretary may grant an extension or excuse a delay if 
the debtor shows good cause for late filing of a request for a hearing. 
A reasonable extension will be granted only if the debtor shows that the 
delay was caused by circumstances beyond the debtor's control or because 
the debtor did not receive notice, and was not otherwise aware of the 
time limit. A debtor who fails to meet the filing deadline or to request 
an extension waives the right to a hearing and will be immediately 
subject to offset.
    (m) Denial of request. The Secretary will summarily deny a request 
for an oral hearing pursuant to a written finding that the request 
raises no genuine issue of fact or law, or is otherwise spurious or 
frivolous. In addition, if the Secretary finds that the request raises 
issues which may properly constitute grounds for waiver of the debt 
under 5 U.S.C. 5584 or any other statute, the request will be deemed to 
be a request for a waiver and will be so handled with notification to 
the debtor.
    (n) Hearings--(1) Type of hearing. The hearing will normally be a 
review of the record, unless the hearing officer determines that a 
decision cannot be made without resolving an issue of credibility or 
veracity, in which case the hearing officer will provide for an oral 
hearing.
    (2) Date and place of oral hearing. The oral hearing will normally 
be held no later than 30 days from the date of receipt by the agency of 
the request for a hearing. The hearing officer will give the debtor and 
the Secretary at least 10 days prior notice of the hearing date, time, 
place, procedures and issues. The hearing officer, for good cause, may 
grant the parties each one request to change the hearing date and 
reschedule the hearing for the earliest practical date. To the extent 
feasible the hearing will be held at a location convenient to the 
debtor, and will be open to the public.
    (3) Oral hearing procedures. The hearing officer will:
    (i) Make a summary record of the hearing;
    (ii) Decide the order of hearing the evidence;
    (iii) Allow the debtor and the agency to introduce relevant evidence 
not previously submitted and informally call and cross examine 
witnesses;
    (iv) Question parties and witnesses as appropriate;
    (v) Allow the debtor and the agency to be represented by counsel; 
and
    (vi) Limit review of the case to the particulars of the agency 
determination challenged by the debtor.
    (o) Decision of hearing officer. The hearing officer will issue a 
written decision at the earliest practical date; but not later than 60 
days after a request for a hearing or extension is filed under 5 U.S.C. 
5514. The decision will, at a minimum, state the relevant facts, include 
the hearing officer's analysis, findings and conclusions based on the 
issues and, if unfavorable to the debtor, inform the debtor of any 
available rights or remedies.
    (p) Employee waiver requests. Requests for waiver of overpayments of 
pay under 5 U.S.C. 5584 will continue to be handled under 4 CFR parts 
91-93 and Chapter 4-40 of the HHS General Administration Manual, except 
that a waiver request made simultaneously

[[Page 91]]

with, or during the pendency of a request for review under this section 
may be referred for a decision under the waiver standards to the hearing 
officer reviewing the debt under this section.
    (q) Deductions. Unless an alternative repayment arrangement has been 
accepted, the Secretary may initiate offset 30 days after the date that 
notice of the proposed action was mailed to the debtor if no review or 
hearing is pending, or as soon as practical after a hearing officer's 
decision affirming the debt.
    (r) Protection of the Government's interest. Notwithstanding the 
provisions of paragraphs (j) through (q) of this section, the Secretary 
may take immediate action to delay a lump sum or final payment to the 
debtor whenever such action is necessary to protect the Government's 
ability to recover the debt by offset. The amount withheld may not 
exceed the amount of the debt plus any accrued or anticipated interest, 
administrative cost charges and penalties. The Secretary shall promptly 
send the debtor the notice specified in paragraph (j) of this section. 
The Secretary may not take final action to effect offset of the debt 
from the withheld amount until the procedures required by paragraphs (j) 
through (l) of this section have been exhausted. The appropriate amount 
will be paid to the debtor as soon as practical after the debt, or a 
portion of the debt, is found not to be owed.
    (s) Interagency offsets. The Secretary may offset a debt owed to 
another Federal agency from amounts due or payable by the Department to 
the debtor; or request another Federal agency to offset a debt owed to 
the Department. Pursuant to 31 U.S.C. 3720a, Department of the Treasury 
regulations, 26 CFR part 301, and HHS' implementing regulations, 45 CFR 
part 31, the Secretary may seek to offset an overdue debt from a Federal 
income tax refund due the debtor where reasonable attempts to obtain 
payment from the debtor have failed.
    (1) In attempting to collect a debt from an employee of another 
Federal agency by deduction from the debtor's pay, the Secretary will 
follow the procedures set forth in this section. When those procedures 
are exhausted, a written request for offset will be submitted to the 
employing agency. The request will--
    (i) Certify that the debt is valid;
    (ii) Certify the amount and basis of the debt;
    (iii) Certify the date the Government's right to collect the debt 
first accrued;
    (iv) Certify that this section has been approved by OPM;
    (v) Either--
    (A) Certify that the procedures required by this section have been 
complied with;
    (B) Include the employee's written consent to the offset or 
acknowledgment of receipt of the required procedures; or
    (C) If the debt is reduced to judgment, include a copy of the court 
judgment; and
    (vi) Indicate whether collection is to be made in a lump sum or by 
installments and the number, amount and beginning date of the 
installments.
    (2)(i) The Secretary may deduct from an employee's pay a debt owed 
to another Federal agency in accordance with this section. The creditor 
agency must submit the properly certified claim form described in 
paragraph (s)(1) of this section. No deductions will be made until a 
properly completed claim form is received.
    (ii) Before initiating deductions, the Secretary must send the 
employee a letter:
    (A) Transmitting a copy of the creditor agency's request;
    (B) Notifying the employee of the proposed action;
    (C) Instructing the employee to contact the creditor agency 
regarding payment or any dispute of the debt, the certification or the 
proposed collection; and
    (D) Informing the employee of the date that deduction will begin 
(which should be at the next officially established pay interval) and 
that deductions will continue until the debt is paid unless the creditor 
agency directs otherwise.
    (iii) The creditor agency must resolve any disputes concerning the 
debt or the offset and promptly inform the Department of any 
circumstances affecting the collection by offset. The

[[Page 92]]

Department may not review the merits of the creditor agency's decisions.
    (iv) The Secretary may temporarily withhold lump sum or final leave 
payments to the employee who is in the process of separating or to a 
former employee for no more than 30 days beyond normal processing time 
periods pending certification.
    (v) If the employee subject to salary offset is in the process of 
separating, and is entitled to payment from the Civil Service Retirement 
and Disability Fund, the Secretary will send OPM a copy of the creditor 
agency's original offset request. If the employee transfers to another 
Federal agency, the Secretary will certify in writing the total amount 
collected on the debt and send one copy of the certification to the 
employee and another to the creditor agency, with notice of the 
transfer. A copy of the certification, along with the creditor agency's 
original offset request will be inserted in the employee's official 
personnel folder.
    (vi) When a new Department employee transfers from another Federal 
agency and the employee's official personnel folder contains a creditor 
agency's offset request to the former employing agency and the former 
employing agency's certification of the amount of the debt already 
collected, the Secretary will resume collection by offset. If either 
item is missing, the creditor agency must comply with paragraph (s)(1).
    (t) Non-waiver of debtor rights by payment. Unless a statute or 
contract provides otherwise, a debtor does not waive any rights under 
law or contract by paying all or part of a debt by offset or cash 
payment.

(Approved by the Office of Management and Budget under control number 
0990-0148)



Sec. 30.16  Use of credit reporting agencies.

    (a) Overdue debts. (1) The Secretary will report overdue debts over 
$100 owed by individuals and all debts over $100 owed by business 
concerns and private non-profit organizations to consumer or commercial 
credit reporting agencies. Except as provided in paragraph (a)(3) of 
this section, beneficiary debts which arise under the Social Security 
Act may be reported under this section.
    (2) Debts owed by individuals, except debts arising under the Social 
Security Act, will be reported to consumer reporting agencies as defined 
in 31 U.S.C. 3701(a)(3) pursuant to 5 U.S.C. 552a(b)(12) and 31 U.S.C. 
3711(f). The Secretary must first give the individual, but not the 
corporate debtor at least 60 days' written notice that the debt is 
overdue and will be reported to a credit reporting agency (including the 
specific information that will be disclosed); that the debtor may 
dispute the accuracy and validity of the information being disclosed; 
and, if a previous opportunity was not provided, that the debtor may 
request review of the debt or rescheduling of payment. The Secretary may 
disclose only the individual's name, address and Social Security number, 
and the nature, amount, status and history of the debt.
    (3) Unless specifically authorized by statute, regulation or written 
agreement, or unless the debts arise from, or involve, fraud or criminal 
activity, overdue debts arising from payments to beneficaries under 
Titles II, XVI and XVIII of the Social Security Act will not be reported 
to credit reporting agencies. All other overdue debts of individuals 
which arise under the Social Security Act may be reported to credit 
reporting agencies subject to the conditions stated in paragraph (a)(2) 
of this section, except that such disclosure would be as a routine use 
under 5 U.S.C. 552a(b)(3), rather than a disclosure under 552a(b)(12).
    (b) Credit reports and locator services. The Secretary may also use 
credit reporting agencies to obtain credit reports to evaluate the 
financial status of loan applicants and potential contractors and 
grantees; to obtain credit reports when collecting or disposing of debts 
to determine a debtor's ability to repay a debt; and to locate debtors. 
In the case of an individual, the Secretary may disclose, as a routine 
use under 5 U.S.C. 552a(b)(3), only the individual's name, address, 
Social Security number and the purpose for which the information will be 
used.
    (c) Disclosures pertaining to individuals may be made to credit 
reporting agencies generally from the primary

[[Page 93]]

systems of records containing information about the debt or the loan, 
contract or grant application.
    (d) Addresses obtained from the Internal Revenue Service may be 
disclosed to credit reporting agencies only to obtain credit reports 
(see Sec. 30.21).



Sec. 30.17  Contracting for collection services.

    (a) Rule. Except as provided in paragraph (b) of this section, the 
Secretary may contract for collection services to recover outstanding 
debts and may pay the contractor's fee from the amounts collected, from 
funds specifically available for that purpose, or from a revolving fund. 
The amount of the fee must be consistent with prevailing commercial 
practice. The Secretary may contract for collection services only if 
reasonable in-house collection efforts and remedies were, or are likely 
to be, unsuccessful or not feasible; and the total amount of anticipated 
recoveries exceeds the total cost of the contract and incidental 
expenses. The Secretary must retain the authority to resolve disputes, 
compromise debts, terminate collection action (or recommend such action 
to the Department of Justice) and refer debts to the Department of 
Justice for litigation. Contracts for collection services must conform 
to the standards set forth in the Federal and Departmental Acquisitions 
Regulations at 48 CFR, Chapters 1 and 3. The Secretary may disclose to 
the contractor the information about debtors necessary to accomplish the 
purpose of the contract. The contractor must provide any data from its 
files relating to the account to the Secretary upon request or upon 
return of the account. The contractor will be subject to the Privacy Act 
of 1974, as amended, as specified in 5 U.S.C. 552a(m), and to applicable 
Federal and State laws and regulations regarding debt collection 
practices, including the Fair Debt Collection Practices Act, 15 U.S.C. 
1692. The contractor will be strictly accountable for all amounts 
collected.
    (b) Social Security Act debts. (1) A contractor's fee for collecting 
debts arising under the Social Security Act may be paid from any funds 
available for that purpose, but not from the amounts collected unless 
those amounts belong to a revolving fund.
    (2) Unless specifically authorized by statute, regulation or written 
agreement, or unless the debts arise from, or involve, fraud or criminal 
activity, debts arising from payments to beneficiaries under Titles II, 
XVI and XVIII of the Social Security Act will not be referred to private 
collection agencies for collection.



Sec. 30.18  Liquidation of collateral.

    If the Secretary holds a security instrument with a power of sale or 
has physical possession of collateral, the Secretary will liquidate the 
security or collateral when it is cost-effective to do so and apply the 
proceeds to an overdue debt. The Secretary will give the debtor 
reasonable notice of the sale and an accounting of any surplus proceeds 
and will comply with other requirements under law or contract.



Sec. 30.19  Installment payments.

    The Secretary may enter into a written agreement with a debtor for 
payment of a debt in regular installments if payment in one lump sum, 
either by cash or offset, will cause the debtor extreme financial 
hardship. The debtor must submit sufficient information to determine his 
or her ability to pay. A request by a debtor for installment payment 
will delay initiation of offset under Sec. 30.15 only if the request is 
in writing, is accompanied by a statement with supporting documents 
indicating how the proposed offset would cause extreme financial 
hardship and, unless an extension is granted for good cause, is received 
by the Secretary no later than 15 days (unless otherwise provided by 
statute or regulation) from the date that notice of the proposed offset 
was mailed to the debtor. The Secretary will consider factors such as 
the amount of the debt, the length of the proposed repayment period, 
whether the debtor is willing to sign a confess-judgment note or give 
collateral, past dealings with the debtor and documentation indicating 
that the offset will cause the debtor extreme financial hardship and 
that the debtor will be financially capable of adhering to the terms of 
the agreement. The size and

[[Page 94]]

frequency of the payments will reasonably relate to the size of the debt 
and the debtor's present and future ability to pay. Whenever feasible, 
the installment agreement will provide for full payment of the debt, 
including interest and charges, in three years or less, and include a 
security or confess judgment provision. The full balance, including 
accrued interest, charges and penalties, will be immediately due and 
payable if the debtor defaults on any installment made pursuant to a 
repayment agreement. Interest under installment agreements will be 
payable at the applicable rate as provided in Sec. 30.13. When a debtor 
owes several debts and does not designate how an installment payment 
should be applied as among the various debts, the payment will be 
applied in accordance with Sec. 30.15(f).

(Approved by the Office of Management and Budget under control number 
0990-0148)



Sec. 30.20  Taxpayer information.

    (a) The Secretary shall enter into reimbursable agreements with the 
Internal Revenue Service in accordance with IRS Revenue Procedure 83-29, 
26 CFR 601.702, to obtain the current mailing addresses of debtors and 
to find out whether applicants under included Federal loan programs have 
overdue tax accounts.
    (b) ``Included Federal loan program'' means any program under which 
the Department makes, guarantees or insures loans and which appears in 
the current list of included Federal loan programs published by the 
Director of the Office of Management and Budget in the Federal Register. 
An applicant for a loan under an included Federal loan program 
administered by the Department must furnish his or her taxpayer 
identification number, which, for an individual, means the Social 
Security number.
    (c) Tax delinquency information may not be redisclosed or used for 
any other purpose. Addresses obtained from the Internal Revenue Service 
may be used by the Department, its officers, employees, agents or 
contractors and other Federal agencies to collect or dispose of debts, 
but may be disclosed to consumer reporting agencies only to obtain 
credit reports, unless otherwise independently verified.



Sec. 30.21  Army hold-up list.

    The Secretary may use the Army hold-up list to report indebted 
contractors to the Department of the Army for inclusion in the list and 
to check whether a prospective contractor is indebted to another agency. 
The reported information will be limited to the contractor's name, 
address and taxpayer identification number if available, and the amount 
of the debt. The Secretary will promptly report any partial or full 
satisfaction or waiver of a reported debt and will screen the hold-up 
list periodically and request removal of any debt of less than $1,000 
that has been on the list for over twelve months.



                     Subpart C--Compromise of Claims



Sec. 30.22  Compromise rule.

    The Secretary may attempt to dispose of debts, including accrued 
interest, charges and penalties, by compromise settlement whenever the 
Department's ability to collect the full amount is uncertain because of 
the debtor's financial status or the litigation risks or because 
enforced collection would not be cost-effective. When the outstanding 
principal amount of the debt before compromise exceeds $20,000 and the 
debtor has exhausted all Departmental administrative remedies, the debt 
may be compromised only with the approval of the Department of Justice.



Sec. 30.23  Exceptions.

    The Secretary may not compromise debts--
    (a) Which arise out of exceptions made by the General Accounting 
Office in the accounts of accountable officers (only the General 
Accounting Office has authority to compromise such debts); or
    (b) Where there is an indication of fraud, the presentation of a 
false claim or misrepresentation by the debtor or any other party having 
an interest in the claim, or where the claim is based on conduct in 
violation of antitrust laws. (Only the Department of Justice has 
authority to compromise or terminate collection of these claims.)

[[Page 95]]



Sec. 30.24  Inability to collect the full amount.

    (a) The Secretary may compromise a debt if the full amount cannot be 
collected because the debtor--
    (1) Is unable to pay the full amount within a reasonable time; or
    (2) Refuses to pay the full amount and the Government is unable to 
enforce full collection within a reasonable time.
    (b) Ability to pay. In determining a debtor's ability to pay, the 
Secretary may consider the age and health of the individual debtor; 
present and future income and assets; and the possibility of an improper 
transfer or concealment of assets by the debtor.
    (c) Amount of compromise. The amount of compromise will reasonably 
relate to the amount recoverable by enforced action, considering such 
factors as State or Federal exemptions available to the debtor, and the 
price that collateral will bring at a forced sale.
    (d) Installments. Compromises will be paid in one lump sum whenever 
possible. Payment by installments may be accepted on a case-by-case 
basis bearing in mind the conditions specified in Sec. 30.20.
    (e) Credit information. If reasonably up-to-date credit information 
to evaluate a compromise proposal is not available, the Secretary may 
obtain credit reports from credit reporting agencies or a statement from 
the debtor executed under penalty of perjury showing the debtor's assets 
and liabilities, income and expenses.



Sec. 30.25  Litigative probabilities.

    The Secretary may compromise a debt if the Government's ability to 
prove its case in court for the full amount claimed is doubtful either 
because of the legal issues involved or a bona fide dispute as to the 
facts. The amount accepted in compromise in such cases should fairly 
reflect the probability of prevailing on the issues and the prospects 
for full or partial recovery of a judgment, paying due regard to the 
availability of evidence and witnesses, and related pragmatic 
considerations.



Sec. 30.26  Cost of collecting claim.

    The Secretary may compromise a debt if the cost or deterrence value 
of collection do not justify the enforced collection of the full amount. 
The amount accepted in compromise in such cases may reflect an 
appropriate discount for the administrative and litigative costs of 
collection, taking into account the time which it will take to effect 
collection. Costs of collection may be a substantial factor in the 
settlement of small debts, but not normally in the settlement of large 
debts.



Sec. 30.27  Enforcement policy.

    Statutory penalties, forfeitures, or debts established as an aid to 
enforcement and to compel compliance may be compromised if not 
prohibited by law and consistent with the agency's enforcement policy.



Sec. 30.28  Joint and several liability.

    When two or more debtors are jointly and severally liable, a 
compromise with one debtor will not release the remaining debtors. The 
amount of a compromise with one debtor will not be considered a 
precedent or binding in determining the amount which will be required 
from other debtors jointly and severally liable on the debt.



Sec. 30.29  Further review of compromise offers.

    A debtor's firm written offer of compromise for a substantial amount 
may be referred to the General Accounting Office or to the Department of 
Justice when the acceptability of the offer is in doubt. (See 30.36).



Sec. 30.30  Restriction.

    The Secretary may not accept a percentage of a debtor's profits or 
stock in a debtor corporation in compromise of a debt.



        Subpart D--Termination or Suspension of Collection Action



Sec. 30.31  Termination rule.

    (a) The Secretary may terminate collection activity and write off a 
debt, including accrued interest, charges and

[[Page 96]]

penalties if the outstanding principal does not exceed $20,000 and:
    (1) The Government cannot collect or enforce collection of any 
significant sum from the debtor, having due regard for the judicial 
remedies available to the Government, the debtor's ability to pay (see 
Sec. 30.25(b)) and the exemptions available to the debtor under State 
and Federal law;
    (2) The debtor cannot be located, there is no security remaining to 
be liquidated, the applicable statute of limitations has run, and the 
prospects of collecting by offset are too remote to justify retention of 
the claim;
    (3) The cost of further collection action is likely to exceed the 
recoverable amount;
    (4) The basis for the claim has proved to be unsupportable; or
    (5) The evidence necessary to prove the claim cannot be produced or 
the necessary witnesses are unavailable.
    (b) As required by section 61(a)(2) of the Internal Revenue Code, 
income arising from the discharge in whole or in part of a debt is to be 
included in the debtor's gross income for the year in which the debt is 
discharged. The Secretary will report to the Internal Revenue Service, 
using Form 1099G, any amount over $600 which becomes uncollectible 
because the applicable statute of limitations expires or because the 
Government agrees with the debtor to forgive or compromise a debt. An 
amount which is in dispute, which is discharged under Title 11 of the 
Bankruptcy Act or which arises out of an overpayment which was already 
taxed, will not be reported. See IRS Instructions for Form 1096 and 
Revenue Procedure 83-48 for further instructions.



Sec. 30.32  Exceptions.

    (a) The Secretary may suspend, rather than terminate collection of a 
debt that arises out of its activities if the outstanding principal does 
not exceed $20,000 and the Government cannot collect or enforce 
collection of any significant sum from the debtor (e.g., the debtor 
cannot be located or is financially unable to pay), but the prospects of 
future collection are promising enough to justify periodic review of the 
debt, and there is no statute of limitations problem. Interest will 
accrue under Sec. 30.13(a).
    (b) Where a significant enforcement policy is involved, the 
Secretary will, instead of terminating or suspending collection, refer 
debts to the Department of Justice for litigation.



        Subpart E--Referrals to the Department of Justice or GAO



Sec. 30.33  Litigation.

    (a) Debts over $600 that cannot be collected or otherwise disposed 
of by the Secretary or its agents will be referred to the appropriate 
United States Attorney (if the amount does not exceed $100,000) or the 
Civil Division of the Department of Justice (if the amount exceeds 
$100,000) for litigation. Each referral will include all pertinent 
information, as required by the Claims Collection Litigation Report, 
including:
    (1) The most current address of the debtor or the name and address 
of the agent for a corporation upon whom service may be made;
    (2) Reasonably current credit data in the form of a credit report or 
a financial statement showing reasonable prospects of enforcing 
collection from the debtor, having due regard for the exemptions 
available to the debtor under State and Federal law and the judicial 
remedies available to the Government; and
    (3) A summary of prior collection efforts. Credit data may be 
omitted if a surety bond, insurance, or the sale of collateral will 
satisfy the claim in full; or the debtor is in bankruptcy or 
receivership, or is a unit of State or local government.
    (b) Debts of $600 or less, exclusive of interest and charges, may be 
referred for litigation if a significant enforcement policy is involved 
or the debtor is clearly able to pay and the Government can effectively 
enforce payment.



Sec. 30.34  Claims over $20,000.

    The Secretary may compromise or suspend or terminate collection of 
debts where the outstanding principal exceeds $20,000 only with the 
approval of, or referral to, the appropriate United States Attorney (if 
the debt

[[Page 97]]

does not exceed $100,000) or the Department of Justice (if the debt 
exceeds $100,000).



Sec. 30.35  GAO exceptions.

    The Secretary will refer to the General Accounting Office (GAO) 
debts arising from GAO audit exceptions.



PART 31--REFERRAL OF DEBT TO IRS FOR TAX REFUND OFFSET--Table of Contents




Sec.
31.1  Scope.
31.2  Notice of requirements before offset.
31.3  Review within the Department of a determination that an amount is 
          past due and legally enforceable.
31.4  Determination of the hearing officer.
31.5  Review of departmental records related to the debt.
31.6  Stay of offset.
31.7  Application of offset funds: Single debt.
31.8  Application of offset funds: Multiple debts.
31.9  Application of offset funds: Tax refund insufficient to cover 
          amount of debt.
31.10  Time limitation for notifying the IRS to request offset of tax 
          refunds due.
31.11  Correspondence with the Department.

    Authority: 31 U.S.C. 3711, 3716, 3718; Section 2653 of the Deficit 
Reduction Act (31 U.S.C. 3720A); 26 CFR 301.6402-6T; and 45 CFR Part 30.

    Source: 53 FR 25593, July 8, 1988, unless otherwise noted.



Sec. 31.1  Scope.

    (a) The standards set forth in Secs. 31.1 through 31.11 are the 
Department's procedures for requesting the Internal Revenue Service 
(IRS) to offset tax refunds due taxpayers who have a past due debt 
obligation to the Department. These procedures are authorized by the 
Deficit Reduction Act of 1984 (31 U.S.C. 3720A), as implemented by 
regulation at 26 CFR 301.6402-6T, and apply to the collection of debts 
as authorized by common law, by 31 U.S.C. 3716, or under other statutory 
authority.
    (b) The Secretary will use the IRS tax refund offset to collect 
claims which are liquidated or certain in amount, past due and legally 
enforceable, and which are eligible for tax refund offset under 
regulations issued by the Secretary of the Treasury.
    (c) Except as provided in paragraph (d) of this section, the 
Secretary will not report debts to the IRS except for the purpose of 
using the offset procedures described in Secs. 31.1 through 31.11. Debts 
of less than $25.00, exclusive of interest and other charges, will not 
be reported.
    (d) If not legally enforceable because of the lapse of the statute 
of limitations but otherwise valid, a debt amounting to over $600 will 
be reported to the IRS as a discharged debt on Form 1099G. (Form 1099G 
is an information return which government agencies file with the IRS to 
report discharged debt, and the discharged amount is considered as 
income to the taxpayer.) [See Sec. 31.9; 45 CFR 30.31(b).]



Sec. 31.2  Notice of requirements before offset.

    A request for reduction of an IRS tax refund will be made only after 
the Secretary makes a determination that an amount is owed and past due 
and provides the debtor with 60 calendar days written notice. The 
Department's Notice of Intent to Collect by IRS Tax Refund Offset 
(Notice of Intent) will state:
    (a) The nature and amount of the debt;
    (b) That unless the debt is repaid within 60 calendar days from the 
date of the Department's Notice of Intent, the Secretary intends to 
collect the debt by requesting the IRS to reduce any amounts payable to 
the debtor as refunds of Federal taxes paid by an amount equal to the 
amount of the debt and all accumulated interest and other charges;
    (c) That the debtor has a right to obtain review, within the 
Department, of the Secretary's initial determination that the debt is 
past due and legally enforceable (See Sec. 31.3); and
    (d) That the debtor has a right to inspect and copy departmental 
records related to the debt as determined by the Secretary and will be 
informed as to where and when the inspection and copying can be done 
after the Department receives notice from the debtor that inspection and 
copying are requested (See Sec. 31.5).

[[Page 98]]



Sec. 31.3  Review within the Department of a determination that an amount is past due and legally enforceable.

    (a) Notification by debtor. A debtor who receives a Notice of Intent 
has the right to present evidence that all or part of the debt is not 
past due or not legally enforceable. To exercise this right, the debtor 
shall send a letter notifying the applicable delegatee of the HHS 
Departmental Claims Officer specified in Sec. 31.11 that the debtor 
intends to present evidence to a designated hearing officer. The letter 
must be received by such designated claims officer within 60 calendar 
days from the date of the Department's Notice of Intent.
    (b) Submission of evidence. The debtor may submit evidence showing 
that all or part of the debt is not past due or not legally enforceable 
along with the notification required by paragraph (a) of this section. 
Failure to submit the notification and evidence within 60 calendar days 
will result in an automatic referral of the debt to the IRS without 
further action. Evidence submitted by a debtor who has requested prior 
review of a claim under 45 CFR part 30 will not be reconsidered unless 
such evidence raises a new defense not considered in connection with 
such prior review.
    (c) Review of the record. After a timely submission of evidence by 
the debtor, the claims officer will submit such evidence to a designated 
hearing officer, who will review all material related to the debt which 
is in possession of the Department. The hearing officer shall make a 
determination based upon a review of the written record, except that the 
hearing officer may order an oral hearing if the officer finds that:
    (1) An applicable statute authorizes or requires the Secretary to 
consider waiver of the indebtedness and the waiver determination turns 
on credibility or veracity; or
    (2) The question of indebtedness cannot be resolved by review of the 
documentary evidence.



Sec. 31.4  Determination of the hearing officer.

    (a) Following the hearing or the review of the record, the hearing 
officer shall issue a written decision which includes the supporting 
rationale for the decision. The decision of the hearing officer 
concerning whether a debt or part of a debt is past due and legally 
enforceable is the final agency decision with respect to the past due 
status and enforceability of the debt.
    (b) Copies of the hearing officer's decision will be distributed to 
the designated claims officer, the Department's Office of the Assistant 
Secretary for Management and Budget, the debtor, and the debtor's 
attorney or other representative, if any.
    (c) If the hearing officer's decision affirms that all or part of 
the debt is past due and legally enforceable, the Secretary will notify 
the IRS after the hearing officer's determination has been issued under 
paragraph (a) of this section and a copy of the determination is 
received by the Department's Office of the Assistant Secretary for 
Management and Budget. No referral will be made to the IRS if review of 
the debt by the hearing officer reverses the initial decision that the 
debt is past due and legally enforceable.



Sec. 31.5  Review of departmental records related to the debt.

    (a) Notification by debtor. A debtor who intends to inspect or copy 
departmental records related to the debt as determined by the Secretary 
must send a letter to the designated claims officer stating the debtor's 
intention. The letter must be received by the designated claims officer 
within 60 calendar days from the date of the Department's Notice of 
Intent.
    (b) Department's response. In response to timely notification by the 
debtor as described in paragraph (a) of this section, the designated 
claims officer will notify the debtor of the location and time when the 
debtor may inspect or copy departmental records related to the debt. At 
his or her discretion, the designated claims officer may also mail 
copies of the debt-related records to the debtor.



Sec. 31.6  Stay of offset.

    If the debtor timely notifies the Secretary that the debtor is 
exercising a right described in Sec. 31.3(a) and timely submits evidence 
pursuant to Sec. 31.3(b), any notice to the IRS will be stayed

[[Page 99]]

until the issuance of a written decision by the hearing officer which 
determines that a debt or part of a debt is past due and legally 
enforceable.



Sec. 31.7  Application of offset funds: Single debt.

    If the debtor does not timely notify the Secretary that the debtor 
is exercising a right described in Sec. 31.3, the Secretary will notify 
the IRS of the debt 60 calendar days from the date of the Department's 
Notice of Intent, and will request that the amount of the debt be offset 
against any amount payable by the IRS as refund of Federal taxes paid. 
Normally, recovered funds will be applied first to any special charges 
provided for in HHS regulations or contracts, then to interest, and 
finally, to the principal owed by the debtor.



Sec. 31.8  Application of offset funds: Multiple debts.

    The Secretary will use the procedures set out in Sec. 31.7 for the 
offset of multiple debts. However, when collecting on multiple debts the 
Secretary will apply the recovered amounts against the debts in order in 
which the debts accrued.



Sec. 31.9  Application of offset funds: Tax refund insufficient to cover amount of debt.

    If a tax refund is insufficient to satisfy a debt in a given tax 
year, the Secretary will recertify to the IRS on the following year to 
collect further on the debt. If, in the following year, the debt has 
become legally unenforceable because of the lapse of the statute of 
limitations, the debt will be reported to the IRS as a discharged debt 
in accordance with Sec. 31.1(d) and 45 CFR 30.31(b).



Sec. 31.10  Time limitation for notifying the IRS to request offset of tax refunds due.

    (a) The Secretary may not initiate offset of tax refunds due to 
collect a debt for which authority to collect arises under 31 U.S.C. 
3716 more than 10 years after the Secretary's right to collect the debt 
first accrued, unless facts material to the Secretary's right to collect 
the debt were not known and could not reasonably have been known by the 
officials of the Department who were responsible for discovering and 
collecting such debts.
    (b) When the debt first accrued is determined according to existing 
law regarding the accrual of debts. (See, for example, 28 U.S.C. 2415.)



Sec. 31.11  Correspondence with the Department.

    (a) All correspondence from the debtor to the Secretary concerning 
the right to review as described in Sec. 31.3 shall be addressed to the 
appropriate office of the Department at the following locations:

Office of the Secretary: Office of Financial Operations, Room 705D, 
Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201
Public Health Service: PHS Claims Office, Room 18-20, Parklawn Building, 
5600 Fishers Lane, Rockville, Maryland 20857
Social Security Administration: SSA Claims Office, P.O. Box 17042, 
Baltimore, Maryland 21235
Health Care Financing Administration: CMS Claims Office, Division of 
Accounting, P.O. Box 17255, Baltimore, Maryland 21203
Family Support Administration: FSA Claims Office, Switzer Building, Room 
2222, 330 C Street SW., Washington, DC 20201
Region I: Office of the General Counsel, John F. Kennedy Federal 
Building, Room 2047, Boston, Massachusetts 02203
Region II: Office of the General Counsel, Jacob K. Javits Federal 
Building, Room 3908, New York, New York 10278
Region III: Office of the General Counsel, 3535 Market Street, Room 
9100, P.O. Box 13716, Philadelphia, Pennsylvania 19101
Region IV: Office of the General Counsel, 101 Marietta Tower, Room 221, 
Atlanta, Georgia 30323
Region V: Office of the General Counsel, 18th Floor, 300 South Wacker 
Drive, Chicago, Illinois 60606
Region VI: Office of the General Counsel, 1200 Main Tower, Room 1330, 
Dallas, Texas 75202
Region VII: Office of the General Counsel, 601 East 12th Street, Room 
535, Kansas City, Missouri 64106
Region VIII: Office of the General Counsel, 1961 Stout Street, Room 
1106, Denver, Colorado 80294
Region IX: Office of the General Counsel, 50 United Nations Plaza, Room 
420, San Francisco, California 94102
Region X: Office of the General Counsel, 2901 3rd Avenue, Room 580, 
Seattle, Washington, 98121.

    (b) All other correspondence shall be addressed to the appropriate 
office as

[[Page 100]]

described in paragraph (a) of this section. All requests for review of 
departmental records must be marked: Attention: Records Inspection 
Request.



PART 35--TORT CLAIMS AGAINST THE GOVERNMENT--Table of Contents




                           Subpart A--General

Sec.
35.1  Scope of regulations.

                          Subpart B--Procedures

35.2  Administrative claim; when presented; place of filing.
35.3  Administrative claim; who may file.
35.4  Administrative claims; evidence and information to be submitted.
35.5  Investigation, examination, and determination of claims.
35.6  Final denial of claim.
35.7  Payment of approved claims.
35.8  Release.
35.9  Penalties.
35.10  Limitation on Department's authority.

    Authority: Sec. 1(a), 80 Stat. 306; 28 U.S.C. 2672; 28 CFR Part 14.

    Source: 32 FR 14101, Oct. 11, 1967, unless otherwise noted.



                           Subpart A--General



Sec. 35.1  Scope of regulations.

    The regulations in this part shall apply only to claims asserted 
under the Federal Tort Claims Act, as amended, 28 U.S.C. sections 2671-
2680, accruing on or after January 18, 1967, for money damages against 
the United States for damage to or loss of property or personal injury 
or death caused by the negligent or wrongful act or omission of any 
employee of the Department of Health and Human Services while acting 
within the scope of his office or employment.



                          Subpart B--Procedures



Sec. 35.2  Administrative claim; when presented; place of filing.

    (a) For purposes of the regulations in this part, a claim shall be 
deemed to have been presented when the Department of Health and Human 
Services receives, at a place designated in paragraph (b) of this 
section, an executed Standard Form 95 or other written notification of 
an incident accompanied by a claim for money damages in a sum certain 
for damage to or loss of property, for personal injury, or for death, 
alleged to have occurred by reason of the incident. A claim which should 
have been presented to the Department but which was mistakenly addressed 
to or filed with another Federal agency, shall be deemed to be presented 
to the Department as of the date that the claim is received by the 
Department. A claim mistakenly addressed to or filed with the Department 
shall forthwith be transferred to the appropriate Federal agency, if 
ascertainable, or returned to the claimant.
    (b) A claim presented in compliance with paragraph (a) of this 
section may be amended by the claimant at any time prior to final action 
by the Department Claims Officer or prior to the exercise of the 
claimant's option to bring suit under 28 U.S.C. 2675(a). Amendments 
shall be submitted in writing and signed by the claimant or his duly 
authorized agent or legal representative. Upon the timely filing of an 
amendment to a pending claim, the Department shall have 6 months in 
which to make a final disposition of the claim as amended and the 
claimant's option under 28 U.S.C. 2675(a) shall not accrue until 6 
months after the filing of an amendment.
    (c) Forms may be obtained and claims may be filed, with the office, 
local, regional, or headquarters, of the constituent organization having 
jurisdiction over the employee involved in the accident or incident, or 
with the Department of Health and Human Services Claims Officer, 
Washington, DC 20201.

[32 FR 14101, Oct. 11, 1967, as amended at 35 FR 4517, Mar. 13, 1970]



Sec. 35.3  Administrative claim; who may file.

    (a) A claim for injury to or loss of property may be presented by 
the owner of the property interest which is the subject of the claim, 
his duly authorized agent, or his legal representative.
    (b) A claim for personal injury may be presented by the injured 
person, his duly authorized agent, or his legal representative.

[[Page 101]]

    (c) A claim based on death may be presented by the executor or 
administrator of the decedent's estate or by any other person legally 
entitled to assert such a claim under applicable state law.
    (d) A claim for loss wholly compensated by an insurer with the 
rights of a subrogee may be presented by the insurer. A claim for loss 
partially compensated by an insurer with the rights of a subrogee may be 
presented by the insurer or the insured individually, as their 
respective interests appear, or jointly. Whenever an insurer presents a 
claim asserting the rights of a subrogee, he shall present with his 
claim appropriate evidence that he has the rights of a subrogee.
    (e) A claim presented by an agent or legal representative shall be 
presented in the name of the claimant, be signed by the agent or legal 
representative, show the title or legal capacity of the person signing, 
and be accompanied by evidence of his authority to present a claim on 
behalf of the claimant as agent, executor, administrator, parent, 
guardian, or other representative.



Sec. 35.4  Administrative claims; evidence and information to be submitted.

    (a) Death. In support of a claim based on death, the claimant may be 
required to submit the following evidence or information:
    (1) An authenticated death certificate or other competent evidence 
showing cause of death, date of death, and age of the decedent.
    (2) Decedent's employment or occupation at time of death, including 
his monthly or yearly salary or earnings (if any), and the duration of 
his last employment or occupation.
    (3) Full names, addresses, birth dates, kinship, and marital status 
of the decedent's survivors, including identification of those survivors 
who were dependent for support upon the decedent at the time of his 
death.
    (4) Degree of support afforded by the decedent to each survivor 
dependent upon him for support at the time of his death.
    (5) Decedent's general physical and mental condition before death.
    (6) Itemized bills for medical and burial expenses incurred by 
reason of the incident causing death, or itemized receipts of payments 
for such expenses.
    (7) If damages for pain and suffering prior to death are claimed, a 
physician's detailed statement specifying the injuries suffered, 
duration of pain and suffering, any drugs administered for pain and the 
decedent's physical condition in the interval between injury and death.
    (8) Any other evidence or information which may have a bearing on 
either the responsibility of the United States for the death or the 
damages claimed.
    (b) Personal injury. In support of a claim for personal injury, 
including pain and suffering, the claimant may be required to submit the 
following evidence or information:
    (1) A written report by his attending physician or dentist setting 
forth the nature and extent of the injury, nature and extent of 
treatment, any degree of temporary or permanent disability, the 
prognosis, period of hospitalization, and any diminished earning 
capacity. In addition, the claimant may be required to submit to a 
physical or mental examination by a physician employed or designated by 
the Department or the constituent organization. A copy of the report of 
the examining physician shall be made available to the claimant upon the 
claimant's written request provided that claimant has, upon request, 
furnished the report referred to in the first sentence of this 
subparagraph and has made or agrees to make available to the Department 
or the operating agency any other physician's reports previously or 
thereafter made of the physical or mental condition which is the subject 
matter of his claim.
    (2) Itemized bills for medical, dental, and hospital expenses 
incurred, or itemized receipts of payment for such expenses.
    (3) If the prognosis reveals the necessity for future treatment, a 
statement of expected duration of and expenses for such treatment.
    (4) If a claim is made for loss of time from employment, a written 
statement from his employer showing actual time lost from employment, 
whether he is a full or part-time employee, and wages or salary actually 
lost.

[[Page 102]]

    (5) If a claim is made for loss of income and the claimant is self-
employed, documentary evidence showing the amount of earnings actually 
lost.
    (6) Any other evidence or information which may have a bearing on 
either the responsibility of the United States for the personal injury 
or the damages claimed.
    (c) Property damage. In support of a claim for damage to or loss of 
property, real or personal, the claimant may be required to submit the 
following evidence or information:
    (1) Proof of ownership.
    (2) A detailed statement of the amount claimed with respect to each 
item of property.
    (3) An itemized receipt of payment for necessary repairs or itemized 
written estimates of the cost of such repairs.
    (4) A statement listing date of purchase, purchase price, market 
value of the property as of date of damage, and salvage value, where 
repair is not economical.
    (5) Any other evidence or information which may have a bearing 
either on the responsibility of the United States for the injury to or 
loss of property or the damages claimed.
    (d) Time limit. All evidence required to be submitted by this 
section shall be furnished by the claimant within a reasonable time. 
Failure of a claimant to furnish evidence necessary to a determination 
of his claim within three months after a request therefor has been 
mailed to his last known address may be deemed an abandonment of the 
claim. The claim may be thereupon disallowed.



Sec. 35.5  Investigation, examination, and determination of claims.

    When a claim is received, the constituent agency out of whose 
activities the claim arose shall make such investigation as may be 
necessary or appropriate for a determination of the validity of the 
claim and thereafter shall forward the claim, together with all 
pertinent material, and a recommendation based on the merits of the 
case, with regard to allowance or disallowance of the claim, to the 
Department Claims Officer to whom authority has been delegated to 
adjust, determine, compromise and settle all claims hereunder.



Sec. 35.6  Final denial of claim.

    (a) Final denial of an administrative claim shall be in writing and 
sent to the claimant, his attorney, or legal representative by certified 
or registered mail. The notification of final denial may include a 
statement of the reasons for the denial and shall include a statement 
that, if the claimant is dissatisfied with the Department's action, he 
may file suit in an appropriate U.S. District Court not later than 6 
months after the date of mailing of the notification.
    (b) Prior to the commencement of suit and prior to the expiration of 
the 6-month period after the date of mailing, by certified or registered 
mail of notice of final denial of the claim as provided in 28 U.S.C. 
2401(b), a claimant, his duly authorized agent, or legal representative, 
may file a written request with the Department for reconsideration of a 
final denial of a claim under paragraph (a) of this section. Upon the 
timely filing of a request for reconsideration the Department shall have 
6 months from the date of filing in which to make a final disposition of 
the claim and the claimant's option under 28 U.S.C. 2675(a) to bring 
suit shall not accrue until 6 months after the filing of a request for 
reconsideration. Final Department action on a request for 
reconsideration shall be effected in accordance with the provisions of 
paragraph (a) of this section.

[32 FR 14101, Oct. 11, 1967, as amended at 35 FR 4517, Mar. 13, 1970]



Sec. 35.7  Payment of approved claims.

    (a) Upon allowance of his claim, claimant or his duly authorized 
agent shall sign the voucher for payment, Standard Form 1145, before 
payment is made.
    (b) When the claimant is represented by an attorney, the voucher for 
payment (SF 1145) shall designate both the claimant and his attorney as 
``payees.'' The check shall be delivered to the attorney whose address 
shall appear on the voucher.

[[Page 103]]



Sec. 35.8  Release.

    Acceptance by the claimant, his agent or legal representative, of 
any award, compromise or settlement made hereunder, shall be final and 
conclusive on the claimant, his agent or legal representative and any 
other person on whose behalf or for whose benefit the claim has been 
presented, and shall constitute a complete release of any claim against 
the United States and against any employee of the Government whose act 
or omission gave rise to the claim, by reason of the same subject 
matter.



Sec. 35.9  Penalties.

    A person who files a false claim or makes a false or fraudulent 
statement in a claim against the United States may be liable to a fine 
of not more than $10,000 or to imprisonment of not more than 5 years, or 
both (18 U.S.C. 287.1001), and, in addition, to a forfeiture of $2,000 
and a penalty of double the loss or damage sustained by the United 
States (31 U.S.C. 231).



Sec. 35.10  Limitation on Department's authority.

    (a) An award, compromise or settlement of a claim hereunder in 
excess of $25,000 shall be effected only with the prior written approval 
of the Attorney General or his designee. For the purposes of this 
paragraph, a principal claim and any derivative or subrogated claim 
shall be treated as a single claim.
    (b) An administrative claim may be adjusted, determined, compromised 
or settled hereunder only after consultation with the Department of 
Justice when, in the opinion of the Department:
    (1) A new precedent or a new point of law is involved; or
    (2) A question of policy is or may be involved; or
    (3) The United States is or may be entitled to indemnity or 
contribution from a third party and the Department is unable to adjust 
the third party claim; or
    (4) The compromise of a particular claim, as a practical matter, 
will or may control the disposition of a related claim in which the 
amount to be paid may exceed $25,000.
    (c) An administrative claim may be adjusted, determined, compromised 
or settled only after consultation with the Department of Justice when 
it is learned that the United States or an employee, agent or cost plus 
contractor of the United States is involved in litigation based on a 
claim arising out of the same incident or transaction.



PART 36--INDEMNIFICATION OF HHS EMPLOYEES--Table of Contents






Sec. 36.1  Policy.

    (a) The Department of Health and Human Services may indemnify, in 
whole or in part, its employees (which for the purpose of this 
regulation includes former employees) for any verdict, judgment or other 
monetary award which is rendered against any such employee, provided 
that the conduct giving rise to the verdict, judgment or award was taken 
within the scope of his or her employment with the Department and that 
such indemnification is in the interest of the United States, as 
determined by the Secretary, or his or her designee, in his or her 
discretion.
    (b) The Department of Health and Human Services may settle or 
compromise a personal damage claim against its employee by the payment 
of available funds, at any time, provided the alleged conduct giving 
rise to the personal damage claim was taken within the scope of 
employment and that such settlement or compromise is in the interest of 
the United States, as determined by the Secretary, or his or her 
designee, in his or her discretion.
    (c) Absent exceptional circumstances, as determined by the Secretary 
or his or her designee, the Department will not entertain a request 
either to agree to indemnify or to settle a personal damage claim before 
entry of an adverse verdict, judgment or monetary award.
    (d) When an employee of the Department of Health and Human Services 
becomes aware that an action has been filed against the employee in his 
or her individual capacity as a result of conduct taken within the scope 
of his or her employment, the employee should

[[Page 104]]

immediately notify the Department that such an action is pending.
    (e) The employee may, thereafter, request either (1) indemnification 
to satisfy a verdict, judgment or award entered against the employee or 
(2) payment to satisfy the requirements of a settlement proposal. The 
employee shall submit a written request, with documentation including 
copies of the verdict, judgment, award or settlement proposal, as 
appropriate, to the head of his employing component, who shall thereupon 
submit to the General Counsel, in a timely manner, a recommended 
disposition of the request. The General Counsel shall also seek the 
views of the Department of Justice. The General Counsel shall forward 
the request, the employing component's recommendation and the General 
Counsel's recommendation to the Secretary for decision.
    (f) Any payment under this section either to indemnify a Department 
of Health and Human Services employee or to settle a personal damage 
claim shall be contingent upon the availability of appropriated funds of 
the employing component of the Department of Health and Human Services.

(Authority: 5 U.S.C. 301)

[53 FR 11280, Apr. 6, 1988]



PART 46--PROTECTION OF HUMAN SUBJECTS--Table of Contents




  Subpart A--Basic HHS Policy for Protection of Human Research Subjects

Sec.
46.101  To what does this policy apply?
46.102  Definitions.
46.103  Assuring compliance with this policy--research conducted or 
          supported by any Federal Department or Agency.
46.104-46.106  [Reserved]
46.107  IRB membership.
46.108  IRB functions and operations.
46.109  IRB review of research.
46.110  Expedited review procedures for certain kinds of research 
          involving no more than minimal risk, and for minor changes in 
          approved research.
46.111  Criteria for IRB approval of research.
46.112  Review by institution.
46.113  Suspension or termination of IRB approval of research.
46.114  Cooperative research.
46.115  IRB records.
46.116  General requirements for informed consent.
46.117  Documentation of informed consent.
46.118  Applications and proposals lacking definite plans for 
          involvement of human subjects.
46.119  Research undertaken without the intention of involving human 
          subjects.
46.120  Evaluation and disposition of applications and proposals for 
          research to be conducted or supported by a Federal Department 
          or Agency.
46.121  [Reserved]
46.122  Use of Federal funds.
46.123  Early termination of research support: Evaluation of 
          applications and proposals.
46.124  Conditions.

Subpart B--Additional Protections for Pregnant Women, Human Fetuses and 
                      Neonates Involved in Research

46.201  To what do these regulations apply?
46.202  Definitions.
46.203  Duties of IRBs in connection with research involving pregnant 
          women, fetuses, and neonates.
46.204  Research involving pregnant women or fetuses.
46.205  Research involving neonates.
46.206  Research involving, after delivery, the placenta, the dead fetus 
          or fetal material.
46.207  Research not otherwise approvable which presents an opportunity 
          to understand, prevent, or alleviate a serious problem 
          affecting the health or welfare of pregnant women, fetuses, or 
          neonates.

     Subpart C--Additional Protections Pertaining to Biomedical and 
           Behavioral Research Involving Prisoners as Subjects

46.301  Applicability.
46.302  Purpose.
46.303  Definitions.
46.304  Composition of Institutional Review Boards where prisoners are 
          involved.
46.305  Additional duties of the Institutional Review Boards where 
          prisoners are involved.
46.306  Permitted research involving prisoners.

 Subpart D--Additional Protections for Children Involved as Subjects in 
                                Research

46.401  To what do these regulations apply?
46.402  Definitions.
46.403  IRB duties.
46.404  Research not involving greater than minimal risk.
46.405  Research involving greater than minimal risk but presenting the 
          prospect of direct benefit to the individual subjects.

[[Page 105]]

46.406  Research involving greater than minimal risk and no prospect of 
          direct benefit to individual subjects, but likely to yield 
          generalizable knowledge about the subject's disorder or 
          condition.
46.407  Research not otherwise approvable which presents an opportunity 
          to understand, prevent, or alleviate a serious problem 
          affecting the health or welfare of children.
46.408  Requirements for permission by parents or guardians and for 
          assent by children.
46.409  Wards.

    Authority: 5 U.S.C. 301; 42 U.S.C. 289(a).

    Editorial Note: The Department of Health and Human Services issued a 
notice of waiver regarding the requirements set forth in part 46, 
relating to protection of human subjects, as they pertain to 
demonstration projects, approved under section 1115 of the Social 
Security Act, which test the use of cost--sharing, such as deductibles, 
copayment and coinsurance, in the Medicaid program. For further 
information see 47 FR 9208, Mar. 4, 1982.



  Subpart A--Basic HHS Policy for Protection of Human Research Subjects

    Authority: 5 U.S.C. 301; 42 U.S.C. 289, 42 U.S.C. 300v-1(b).

    Source: 56 FR 28012, 28022, June 18, 1991, unless otherwise noted.



Sec. 46.101  To what does this policy apply?

    (a) Except as provided in paragraph (b) of this section, this policy 
applies to all research involving human subjects conducted, supported or 
otherwise subject to regulation by any federal department or agency 
which takes appropriate administrative action to make the policy 
applicable to such research. This includes research conducted by federal 
civilian employees or military personnel, except that each department or 
agency head may adopt such procedural modifications as may be 
appropriate from an administrative standpoint. It also includes research 
conducted, supported, or otherwise subject to regulation by the federal 
government outside the United States.
    (1) Research that is conducted or supported by a federal department 
or agency, whether or not it is regulated as defined in Sec. 46.102(e), 
must comply with all sections of this policy.
    (2) Research that is neither conducted nor supported by a federal 
department or agency but is subject to regulation as defined in 
Sec. 46.102(e) must be reviewed and approved, in compliance with 
Sec. 46.101, Sec. 46.102, and Sec. 46.107 through Sec. 46.117 of this 
policy, by an institutional review board (IRB) that operates in 
accordance with the pertinent requirements of this policy.
    (b) Unless otherwise required by department or agency heads, 
research activities in which the only involvement of human subjects will 
be in one or more of the following categories are exempt from this 
policy:
    (1) Research conducted in established or commonly accepted 
educational settings, involving normal educational practices, such as 
(i) research on regular and special education instructional strategies, 
or (ii) research on the effectiveness of or the comparison among 
instructional techniques, curricula, or classroom management methods.
    (2) Research involving the use of educational tests (cognitive, 
diagnostic, aptitude, achievement), survey procedures, interview 
procedures or observation of public behavior, unless:
    (i) Information obtained is recorded in such a manner that human 
subjects can be identified, directly or through identifiers linked to 
the subjects; and (ii) any disclosure of the human subjects' responses 
outside the research could reasonably place the subjects at risk of 
criminal or civil liability or be damaging to the subjects' financial 
standing, employability, or reputation.
    (3) Research involving the use of educational tests (cognitive, 
diagnostic, aptitude, achievement), survey procedures, interview 
procedures, or observation of public behavior that is not exempt under 
paragraph (b)(2) of this section, if:
    (i) The human subjects are elected or appointed public officials or 
candidates for public office; or (ii) federal statute(s) require(s) 
without exception that the confidentiality of the personally 
identifiable information will be maintained throughout the research and 
thereafter.

[[Page 106]]

    (4) Research, involving the collection or study of existing data, 
documents, records, pathological specimens, or diagnostic specimens, if 
these sources are publicly available or if the information is recorded 
by the investigator in such a manner that subjects cannot be identified, 
directly or through identifiers linked to the subjects.
    (5) Research and demonstration projects which are conducted by or 
subject to the approval of department or agency heads, and which are 
designed to study, evaluate, or otherwise examine:
    (i) Public benefit or service programs; (ii) procedures for 
obtaining benefits or services under those programs; (iii) possible 
changes in or alternatives to those programs or procedures; or (iv) 
possible changes in methods or levels of payment for benefits or 
services under those programs.
    (6) Taste and food quality evaluation and consumer acceptance 
studies, (i) if wholesome foods without additives are consumed or (ii) 
if a food is consumed that contains a food ingredient at or below the 
level and for a use found to be safe, or agricultural chemical or 
environmental contaminant at or below the level found to be safe, by the 
Food and Drug Administration or approved by the Environmental Protection 
Agency or the Food Safety and Inspection Service of the U.S. Department 
of Agriculture.
    (c) Department or agency heads retain final judgment as to whether a 
particular activity is covered by this policy.
    (d) Department or agency heads may require that specific research 
activities or classes of research activities conducted, supported, or 
otherwise subject to regulation by the department or agency but not 
otherwise covered by this policy, comply with some or all of the 
requirements of this policy.
    (e) Compliance with this policy requires compliance with pertinent 
federal laws or regulations which provide additional protections for 
human subjects.
    (f) This policy does not affect any state or local laws or 
regulations which may otherwise be applicable and which provide 
additional protections for human subjects.
    (g) This policy does not affect any foreign laws or regulations 
which may otherwise be applicable and which provide additional 
protections to human subjects of research.
    (h) When research covered by this policy takes place in foreign 
countries, procedures normally followed in the foreign countries to 
protect human subjects may differ from those set forth in this policy. 
[An example is a foreign institution which complies with guidelines 
consistent with the World Medical Assembly Declaration (Declaration of 
Helsinki amended 1989) issued either by sovereign states or by an 
organization whose function for the protection of human research 
subjects is internationally recognized.] In these circumstances, if a 
department or agency head determines that the procedures prescribed by 
the institution afford protections that are at least equivalent to those 
provided in this policy, the department or agency head may approve the 
substitution of the foreign procedures in lieu of the procedural 
requirements provided in this policy. Except when otherwise required by 
statute, Executive Order, or the department or agency head, notices of 
these actions as they occur will be published in the Federal Register or 
will be otherwise published as provided in department or agency 
procedures.
    (i) Unless otherwise required by law, department or agency heads may 
waive the applicability of some or all of the provisions of this policy 
to specific research activities or classes of research activities 
otherwise covered by this policy. Except when otherwise required by 
statute or Executive Order, the department or agency head shall forward 
advance notices of these actions to the Office for Protection from 
Research Risks, Department of Health and Human Services (HHS), and shall 
also publish them in the Federal Register or in such other manner as 
provided in department or agency procedures.\1\
---------------------------------------------------------------------------

    \1\ Institutions with HHS-approved assurances on file will abide by 
provisions of title 45 CFR part 46 subparts A-D. Some of the other 
Departments and Agencies have incorporated all provisions of title 45 
CFR part 46 into their policies and procedures as well. However, the 
exemptions at 45 CFR 46.101(b) do not apply to research involving 
prisoners, fetuses, pregnant women, or human in vitro fertilization, 
subparts B and C. The exemption at 45 CFR 46.101(b)(2), for research 
involving survey or interview procedures or observation of public 
behavior, does not apply to research with children, subpart D, except 
for research involving observations of public behavior when the 
investigator(s) do not participate in the activities being observed.

[56 FR 28012, 28022, June 18, 1991; 56 FR 29756, June 28, 1991]

[[Page 107]]



Sec. 46.102  Definitions.

    (a) Department or agency head means the head of any federal 
department or agency and any other officer or employee of any department 
or agency to whom authority has been delegated.
    (b) Institution means any public or private entity or agency 
(including federal, state, and other agencies).
    (c) Legally authorized representative means an individual or 
judicial or other body authorized under applicable law to consent on 
behalf of a prospective subject to the subject's participation in the 
procedure(s) involved in the research.
    (d) Research means a systematic investigation, including research 
development, testing and evaluation, designed to develop or contribute 
to generalizable knowledge. Activities which meet this definition 
constitute research for purposes of this policy, whether or not they are 
conducted or supported under a program which is considered research for 
other purposes. For example, some demonstration and service programs may 
include research activities.
    (e) Research subject to regulation, and similar terms are intended 
to encompass those research activities for which a federal department or 
agency has specific responsibility for regulating as a research 
activity, (for example, Investigational New Drug requirements 
administered by the Food and Drug Administration). It does not include 
research activities which are incidentally regulated by a federal 
department or agency solely as part of the department's or agency's 
broader responsibility to regulate certain types of activities whether 
research or non-research in nature (for example, Wage and Hour 
requirements administered by the Department of Labor).
    (f) Human subject means a living individual about whom an 
investigator (whether professional or student) conducting research 
obtains
    (1) Data through intervention or interaction with the individual, or
    (2) Identifiable private information.

Intervention includes both physical procedures by which data are 
gathered (for example, venipuncture) and manipulations of the subject or 
the subject's environment that are performed for research purposes. 
Interaction includes communication or interpersonal contact between 
investigator and subject. Private information includes information about 
behavior that occurs in a context in which an individual can reasonably 
expect that no observation or recording is taking place, and information 
which has been provided for specific purposes by an individual and which 
the individual can reasonably expect will not be made public (for 
example, a medical record). Private information must be individually 
identifiable (i.e., the identity of the subject is or may readily be 
ascertained by the investigator or associated with the information) in 
order for obtaining the information to constitute research involving 
human subjects.
    (g) IRB means an institutional review board established in accord 
with and for the purposes expressed in this policy.
    (h) IRB approval means the determination of the IRB that the 
research has been reviewed and may be conducted at an institution within 
the constraints set forth by the IRB and by other institutional and 
federal requirements.
    (i) Minimal risk means that the probability and magnitude of harm or 
discomfort anticipated in the research are not greater in and of 
themselves than those ordinarily encountered in daily life or during the 
performance of routine physical or psychological examinations or tests.
    (j) Certification means the official notification by the institution 
to the supporting department or agency, in accordance with the 
requirements of this policy, that a research project or activity 
involving human subjects has been reviewed and approved by an IRB in 
accordance with an approved assurance.

[[Page 108]]



Sec. 46.103  Assuring compliance with this policy--research conducted or supported by any Federal Department or Agency.

    (a) Each institution engaged in research which is covered by this 
policy and which is conducted or supported by a federal department or 
agency shall provide written assurance satisfactory to the department or 
agency head that it will comply with the requirements set forth in this 
policy. In lieu of requiring submission of an assurance, individual 
department or agency heads shall accept the existence of a current 
assurance, appropriate for the research in question, on file with the 
Office for Protection from Research Risks, HHS, and approved for 
federalwide use by that office. When the existence of an HHS-approved 
assurance is accepted in lieu of requiring submission of an assurance, 
reports (except certification) required by this policy to be made to 
department and agency heads shall also be made to the Office for 
Protection from Research Risks, HHS.
    (b) Departments and agencies will conduct or support research 
covered by this policy only if the institution has an assurance approved 
as provided in this section, and only if the institution has certified 
to the department or agency head that the research has been reviewed and 
approved by an IRB provided for in the assurance, and will be subject to 
continuing review by the IRB. Assurances applicable to federally 
supported or conducted research shall at a minimum include:
    (1) A statement of principles governing the institution in the 
discharge of its responsibilities for protecting the rights and welfare 
of human subjects of research conducted at or sponsored by the 
institution, regardless of whether the research is subject to federal 
regulation. This may include an appropriate existing code, declaration, 
or statement of ethical principles, or a statement formulated by the 
institution itself. This requirement does not preempt provisions of this 
policy applicable to department- or agency-supported or regulated 
research and need not be applicable to any research exempted or waived 
under Sec. 46.101 (b) or (i).
    (2) Designation of one or more IRBs established in accordance with 
the requirements of this policy, and for which provisions are made for 
meeting space and sufficient staff to support the IRB's review and 
recordkeeping duties.
    (3) A list of IRB members identified by name; earned degrees; 
representative capacity; indications of experience such as board 
certifications, licenses, etc., sufficient to describe each member's 
chief anticipated contributions to IRB deliberations; and any employment 
or other relationship between each member and the institution; for 
example: full-time employee, part-time employee, member of governing 
panel or board, stockholder, paid or unpaid consultant. Changes in IRB 
membership shall be reported to the department or agency head, unless in 
accord with Sec. 46.103(a) of this policy, the existence of an HHS-
approved assurance is accepted. In this case, change in IRB membership 
shall be reported to the Office for Protection from Research Risks, HHS.
    (4) Written procedures which the IRB will follow (i) for conducting 
its initial and continuing review of research and for reporting its 
findings and actions to the investigator and the institution; (ii) for 
determining which projects require review more often than annually and 
which projects need verification from sources other than the 
investigators that no material changes have occurred since previous IRB 
review; and (iii) for ensuring prompt reporting to the IRB of proposed 
changes in a research activity, and for ensuring that such changes in 
approved research, during the period for which IRB approval has already 
been given, may not be initiated without IRB review and approval except 
when necessary to eliminate apparent immediate hazards to the subject.
    (5) Written procedures for ensuring prompt reporting to the IRB, 
appropriate institutional officials, and the department or agency head 
of (i) any unanticipated problems involving risks to subjects or others 
or any serious or continuing noncompliance with this

[[Page 109]]

policy or the requirements or determinations of the IRB and (ii) any 
suspension or termination of IRB approval.
    (c) The assurance shall be executed by an individual authorized to 
act for the institution and to assume on behalf of the institution the 
obligations imposed by this policy and shall be filed in such form and 
manner as the department or agency head prescribes.
    (d) The department or agency head will evaluate all assurances 
submitted in accordance with this policy through such officers and 
employees of the department or agency and such experts or consultants 
engaged for this purpose as the department or agency head determines to 
be appropriate. The department or agency head's evaluation will take 
into consideration the adequacy of the proposed IRB in light of the 
anticipated scope of the institution's research activities and the types 
of subject populations likely to be involved, the appropriateness of the 
proposed initial and continuing review procedures in light of the 
probable risks, and the size and complexity of the institution.
    (e) On the basis of this evaluation, the department or agency head 
may approve or disapprove the assurance, or enter into negotiations to 
develop an approvable one. The department or agency head may limit the 
period during which any particular approved assurance or class of 
approved assurances shall remain effective or otherwise condition or 
restrict approval.
    (f) Certification is required when the research is supported by a 
federal department or agency and not otherwise exempted or waived under 
Sec. 46.101 (b) or (i). An institution with an approved assurance shall 
certify that each application or proposal for research covered by the 
assurance and by Sec. 46.103 of this Policy has been reviewed and 
approved by the IRB. Such certification must be submitted with the 
application or proposal or by such later date as may be prescribed by 
the department or agency to which the application or proposal is 
submitted. Under no condition shall research covered by Sec. 46.103 of 
the Policy be supported prior to receipt of the certification that the 
research has been reviewed and approved by the IRB. Institutions without 
an approved assurance covering the research shall certify within 30 days 
after receipt of a request for such a certification from the department 
or agency, that the application or proposal has been approved by the 
IRB. If the certification is not submitted within these time limits, the 
application or proposal may be returned to the institution.


(Approved by the Office of Management and Budget under control number 
9999-0020)

[56 FR 28012, 28022, June 18, 1991; 56 FR 29756, June 28, 1991]



Secs. 46.104--46.106  [Reserved]



Sec. 46.107  IRB membership.

    (a) Each IRB shall have at least five members, with varying 
backgrounds to promote complete and adequate review of research 
activities commonly conducted by the institution. The IRB shall be 
sufficiently qualified through the experience and expertise of its 
members, and the diversity of the members, including consideration of 
race, gender, and cultural backgrounds and sensitivity to such issues as 
community attitudes, to promote respect for its advice and counsel in 
safeguarding the rights and welfare of human subjects. In addition to 
possessing the professional competence necessary to review specific 
research activities, the IRB shall be able to ascertain the 
acceptability of proposed research in terms of institutional commitments 
and regulations, applicable law, and standards of professional conduct 
and practice. The IRB shall therefore include persons knowledgeable in 
these areas. If an IRB regularly reviews research that involves a 
vulnerable category of subjects, such as children, prisoners, pregnant 
women, or handicapped or mentally disabled persons, consideration shall 
be given to the inclusion of one or more individuals who are 
knowledgeable about and experienced in working with these subjects.
    (b) Every nondiscriminatory effort will be made to ensure that no 
IRB consists entirely of men or entirely of women, including the 
institution's consideration of qualified persons of both sexes, so long 
as no selection is made to the IRB on the basis of gender. No IRB may 
consist entirely of members of one profession.

[[Page 110]]

    (c) Each IRB shall include at least one member whose primary 
concerns are in scientific areas and at least one member whose primary 
concerns are in nonscientific areas.
    (d) Each IRB shall include at least one member who is not otherwise 
affiliated with the institution and who is not part of the immediate 
family of a person who is affiliated with the institution.
    (e) No IRB may have a member participate in the IRB's initial or 
continuing review of any project in which the member has a conflicting 
interest, except to provide information requested by the IRB.
    (f) An IRB may, in its discretion, invite individuals with 
competence in special areas to assist in the review of issues which 
require expertise beyond or in addition to that available on the IRB. 
These individuals may not vote with the IRB.



Sec. 46.108  IRB functions and operations.

    In order to fulfill the requirements of this policy each IRB shall:
    (a) Follow written procedures in the same detail as described in 
Sec. 46.103(b)(4) and, to the extent required by, Sec. 46.103(b)(5).
    (b) Except when an expedited review procedure is used (see 
Sec. 46.110), review proposed research at convened meetings at which a 
majority of the members of the IRB are present, including at least one 
member whose primary concerns are in nonscientific areas. In order for 
the research to be approved, it shall receive the approval of a majority 
of those members present at the meeting.



Sec. 46.109  IRB review of research.

    (a) An IRB shall review and have authority to approve, require 
modifications in (to secure approval), or disapprove all research 
activities covered by this policy.
    (b) An IRB shall require that information given to subjects as part 
of informed consent is in accordance with Sec. 46.116. The IRB may 
require that information, in addition to that specifically mentioned in 
Sec. 46.116, be given to the subjects when in the IRB's judgment the 
information would meaningfully add to the protection of the rights and 
welfare of subjects.
    (c) An IRB shall require documentation of informed consent or may 
waive documentation in accordance with Sec. 46.117.
    (d) An IRB shall notify investigators and the institution in writing 
of its decision to approve or disapprove the proposed research activity, 
or of modifications required to secure IRB approval of the research 
activity. If the IRB decides to disapprove a research activity, it shall 
include in its written notification a statement of the reasons for its 
decision and give the investigator an opportunity to respond in person 
or in writing.
    (e) An IRB shall conduct continuing review of research covered by 
this policy at intervals appropriate to the degree of risk, but not less 
than once per year, and shall have authority to observe or have a third 
party observe the consent process and the research.

(Approved by the Office of Management and Budget under control number 
9999-0020)



Sec. 46.110  Expedited review procedures for certain kinds of research involving no more than minimal risk, and for minor changes in approved research.

    (a) The Secretary, HHS, has established, and published as a Notice 
in the Federal Register, a list of categories of research that may be 
reviewed by the IRB through an expedited review procedure. The list will 
be amended, as appropriate after consultation with other departments and 
agencies, through periodic republication by the Secretary, HHS, in the 
Federal Register. A copy of the list is available from the Office for 
Protection from Research Risks, National Institutes of Health, HHS, 
Bethesda, Maryland 20892.
    (b) An IRB may use the expedited review procedure to review either 
or both of the following:
    (1) Some or all of the research appearing on the list and found by 
the reviewer(s) to involve no more than minimal risk,
    (2) Minor changes in previously approved research during the period 
(of one year or less) for which approval is authorized.

[[Page 111]]


Under an expedited review procedure, the review may be carried out by 
the IRB chairperson or by one or more experienced reviewers designated 
by the chairperson from among members of the IRB. In reviewing the 
research, the reviewers may exercise all of the authorities of the IRB 
except that the reviewers may not disapprove the research. A research 
activity may be disapproved only after review in accordance with the 
non-expedited procedure set forth in Sec. 46.108(b).
    (c) Each IRB which uses an expedited review procedure shall adopt a 
method for keeping all members advised of research proposals which have 
been approved under the procedure.
    (d) The department or agency head may restrict, suspend, terminate, 
or choose not to authorize an institution's or IRB's use of the 
expedited review procedure.



Sec. 46.111  Criteria for IRB approval of research.

    (a) In order to approve research covered by this policy the IRB 
shall determine that all of the following requirements are satisfied:
    (1) Risks to subjects are minimized: (i) By using procedures which 
are consistent with sound research design and which do not unnecessarily 
expose subjects to risk, and (ii) whenever appropriate, by using 
procedures already being performed on the subjects for diagnostic or 
treatment purposes.
    (2) Risks to subjects are reasonable in relation to anticipated 
benefits, if any, to subjects, and the importance of the knowledge that 
may reasonably be expected to result. In evaluating risks and benefits, 
the IRB should consider only those risks and benefits that may result 
from the research (as distinguished from risks and benefits of therapies 
subjects would receive even if not participating in the research). The 
IRB should not consider possible long-range effects of applying 
knowledge gained in the research (for example, the possible effects of 
the research on public policy) as among those research risks that fall 
within the purview of its responsibility.
    (3) Selection of subjects is equitable. In making this assessment 
the IRB should take into account the purposes of the research and the 
setting in which the research will be conducted and should be 
particularly cognizant of the special problems of research involving 
vulnerable populations, such as children, prisoners, pregnant women, 
mentally disabled persons, or economically or educationally 
disadvantaged persons.
    (4) Informed consent will be sought from each prospective subject or 
the subject's legally authorized representative, in accordance with, and 
to the extent required by Sec. 46.116.
    (5) Informed consent will be appropriately documented, in accordance 
with, and to the extent required by Sec. 46.117.
    (6) When appropriate, the research plan makes adequate provision for 
monitoring the data collected to ensure the safety of subjects.
    (7) When appropriate, there are adequate provisions to protect the 
privacy of subjects and to maintain the confidentiality of data.
    (b) When some or all of the subjects are likely to be vulnerable to 
coercion or undue influence, such as children, prisoners, pregnant 
women, mentally disabled persons, or economically or educationally 
disadvantaged persons, additional safeguards have been included in the 
study to protect the rights and welfare of these subjects.



Sec. 46.112  Review by institution.

    Research covered by this policy that has been approved by an IRB may 
be subject to further appropriate review and approval or disapproval by 
officials of the institution. However, those officials may not approve 
the research if it has not been approved by an IRB.



Sec. 46.113  Suspension or termination of IRB approval of research.

    An IRB shall have authority to suspend or terminate approval of 
research that is not being conducted in accordance with the IRB's 
requirements or that has been associated with unexpected serious harm to 
subjects. Any suspension or termination of approval shall include a 
statement of the reasons for the IRB's action and shall be reported 
promptly to the investigator,

[[Page 112]]

appropriate institutional officials, and the department or agency head.

(Approved by the Office of Management and Budget under control number 
9999-0020)



Sec. 46.114  Cooperative research.

    Cooperative research projects are those projects covered by this 
policy which involve more than one institution. In the conduct of 
cooperative research projects, each institution is responsible for 
safeguarding the rights and welfare of human subjects and for complying 
with this policy. With the approval of the department or agency head, an 
institution participating in a cooperative project may enter into a 
joint review arrangement, rely upon the review of another qualified IRB, 
or make similar arrangements for avoiding duplication of effort.



Sec. 46.115  IRB records.

    (a) An institution, or when appropriate an IRB, shall prepare and 
maintain adequate documentation of IRB activities, including the 
following:
    (1) Copies of all research proposals reviewed, scientific 
evaluations, if any, that accompany the proposals, approved sample 
consent documents, progress reports submitted by investigators, and 
reports of injuries to subjects.
    (2) Minutes of IRB meetings which shall be in sufficient detail to 
show attendance at the meetings; actions taken by the IRB; the vote on 
these actions including the number of members voting for, against, and 
abstaining; the basis for requiring changes in or disapproving research; 
and a written summary of the discussion of controverted issues and their 
resolution.
    (3) Records of continuing review activities.
    (4) Copies of all correspondence between the IRB and the 
investigators.
    (5) A list of IRB members in the same detail as described is 
Sec. 46.103(b)(3).
    (6) Written procedures for the IRB in the same detail as described 
in Sec. 46.103(b)(4) and Sec. 46.103(b)(5).
    (7) Statements of significant new findings provided to subjects, as 
required by Sec. 46.116(b)(5).
    (b) The records required by this policy shall be retained for at 
least 3 years, and records relating to research which is conducted shall 
be retained for at least 3 years after completion of the research. All 
records shall be accessible for inspection and copying by authorized 
representatives of the department or agency at reasonable times and in a 
reasonable manner.

(Approved by the Office of Management and Budget under control number 
9999-0020)



Sec. 46.116  General requirements for informed consent.

    Except as provided elsewhere in this policy, no investigator may 
involve a human being as a subject in research covered by this policy 
unless the investigator has obtained the legally effective informed 
consent of the subject or the subject's legally authorized 
representative. An investigator shall seek such consent only under 
circumstances that provide the prospective subject or the representative 
sufficient opportunity to consider whether or not to participate and 
that minimize the possibility of coercion or undue influence. The 
information that is given to the subject or the representative shall be 
in language understandable to the subject or the representative. No 
informed consent, whether oral or written, may include any exculpatory 
language through which the subject or the representative is made to 
waive or appear to waive any of the subject's legal rights, or releases 
or appears to release the investigator, the sponsor, the institution or 
its agents from liability for negligence.
    (a) Basic elements of informed consent. Except as provided in 
paragraph (c) or (d) of this section, in seeking informed consent the 
following information shall be provided to each subject:
    (1) A statement that the study involves research, an explanation of 
the purposes of the research and the expected duration of the subject's 
participation, a description of the procedures to be followed, and 
identification of any procedures which are experimental;
    (2) A description of any reasonably foreseeable risks or discomforts 
to the subject;
    (3) A description of any benefits to the subject or to others which 
may reasonably be expected from the research;

[[Page 113]]

    (4) A disclosure of appropriate alternative procedures or courses of 
treatment, if any, that might be advantageous to the subject;
    (5) A statement describing the extent, if any, to which 
confidentiality of records identifying the subject will be maintained;
    (6) For research involving more than minimal risk, an explanation as 
to whether any compensation and an explanation as to whether any medical 
treatments are available if injury occurs and, if so, what they consist 
of, or where further information may be obtained;
    (7) An explanation of whom to contact for answers to pertinent 
questions about the research and research subjects' rights, and whom to 
contact in the event of a research-related injury to the subject; and
    (8) A statement that participation is voluntary, refusal to 
participate will involve no penalty or loss of benefits to which the 
subject is otherwise entitled, and the subject may discontinue 
participation at any time without penalty or loss of benefits to which 
the subject is otherwise entitled.
    (b) Additional elements of informed consent. When appropriate, one 
or more of the following elements of information shall also be provided 
to each subject:
    (1) A statement that the particular treatment or procedure may 
involve risks to the subject (or to the embryo or fetus, if the subject 
is or may become pregnant) which are currently unforeseeable;
    (2) Anticipated circumstances under which the subject's 
participation may be terminated by the investigator without regard to 
the subject's consent;
    (3) Any additional costs to the subject that may result from 
participation in the research;
    (4) The consequences of a subject's decision to withdraw from the 
research and procedures for orderly termination of participation by the 
subject;
    (5) A statement that significant new findings developed during the 
course of the research which may relate to the subject's willingness to 
continue participation will be provided to the subject; and
    (6) The approximate number of subjects involved in the study.
    (c) An IRB may approve a consent procedure which does not include, 
or which alters, some or all of the elements of informed consent set 
forth above, or waive the requirement to obtain informed consent 
provided the IRB finds and documents that:
    (1) The research or demonstration project is to be conducted by or 
subject to the approval of state or local government officials and is 
designed to study, evaluate, or otherwise examine: (i) Public benefit of 
service programs; (ii) procedures for obtaining benefits or services 
under those programs; (iii) possible changes in or alternatives to those 
programs or procedures; or (iv) possible changes in methods or levels of 
payment for benefits or services under those programs; and
    (2) The research could not practicably be carried out without the 
waiver or alteration.
    (d) An IRB may approve a consent procedure which does not include, 
or which alters, some or all of the elements of informed consent set 
forth in this section, or waive the requirements to obtain informed 
consent provided the IRB finds and documents that:
    (1) The research involves no more than minimal risk to the subjects;
    (2) The waiver or alteration will not adversely affect the rights 
and welfare of the subjects;
    (3) The research could not practicably be carried out without the 
waiver or alteration; and
    (4) Whenever appropriate, the subjects will be provided with 
additional pertinent information after participation.
    (e) The informed consent requirements in this policy are not 
intended to preempt any applicable federal, state, or local laws which 
require additional information to be disclosed in order for informed 
consent to be legally effective.
    (f) Nothing in this policy is intended to limit the authority of a 
physician to provide emergency medical care, to the extent the physician 
is permitted to do so under applicable federal, state, or local law.

(Approved by the Office of Management and Budget under control number 
9999-0020)

[[Page 114]]



Sec. 46.117  Documentation of informed consent.

    (a) Except as provided in paragraph (c) of this section, informed 
consent shall be documented by the use of a written consent form 
approved by the IRB and signed by the subject or the subject's legally 
authorized representative. A copy shall be given to the person signing 
the form.
    (b) Except as provided in paragraph (c) of this section, the consent 
form may be either of the following:
    (1) A written consent document that embodies the elements of 
informed consent required by Sec. 46.116. This form may be read to the 
subject or the subject's legally authorized representative, but in any 
event, the investigator shall give either the subject or the 
representative adequate opportunity to read it before it is signed; or
    (2) A short form written consent document stating that the elements 
of informed consent required by Sec. 46.116 have been presented orally 
to the subject or the subject's legally authorized representative. When 
this method is used, there shall be a witness to the oral presentation. 
Also, the IRB shall approve a written summary of what is to be said to 
the subject or the representative. Only the short form itself is to be 
signed by the subject or the representative. However, the witness shall 
sign both the short form and a copy of the summary, and the person 
actually obtaining consent shall sign a copy of the summary. A copy of 
the summary shall be given to the subject or the representative, in 
addition to a copy of the short form.
    (c) An IRB may waive the requirement for the investigator to obtain 
a signed consent form for some or all subjects if it finds either:
    (1) That the only record linking the subject and the research would 
be the consent document and the principal risk would be potential harm 
resulting from a breach of confidentiality. Each subject will be asked 
whether the subject wants documentation linking the subject with the 
research, and the subject's wishes will govern; or
    (2) That the research presents no more than minimal risk of harm to 
subjects and involves no procedures for which written consent is 
normally required outside of the research context.
    In cases in which the documentation requirement is waived, the IRB 
may require the investigator to provide subjects with a written 
statement regarding the research.

(Approved by the Office of Management and Budget under control number 
9999-0020)



Sec. 46.118  Applications and proposals lacking definite plans for involvement of human subjects.

    Certain types of applications for grants, cooperative agreements, or 
contracts are submitted to departments or agencies with the knowledge 
that subjects may be involved within the period of support, but definite 
plans would not normally be set forth in the application or proposal. 
These include activities such as institutional type grants when 
selection of specific projects is the institution's responsibility; 
research training grants in which the activities involving subjects 
remain to be selected; and projects in which human subjects' involvement 
will depend upon completion of instruments, prior animal studies, or 
purification of compounds. These applications need not be reviewed by an 
IRB before an award may be made. However, except for research exempted 
or waived under Sec. 46.101 (b) or (i), no human subjects may be 
involved in any project supported by these awards until the project has 
been reviewed and approved by the IRB, as provided in this policy, and 
certification submitted, by the institution, to the department or 
agency.



Sec. 46.119  Research undertaken without the intention of involving human subjects.

    In the event research is undertaken without the intention of 
involving human subjects, but it is later proposed to involve human 
subjects in the research, the research shall first be reviewed and 
approved by an IRB, as provided in this policy, a certification 
submitted, by the institution, to the department or agency, and final 
approval given to the proposed change by the department or agency.

[[Page 115]]



Sec. 46.120  Evaluation and disposition of applications and proposals for research to be conducted or supported by a Federal Department or Agency.

    (a) The department or agency head will evaluate all applications and 
proposals involving human subjects submitted to the department or agency 
through such officers and employees of the department or agency and such 
experts and consultants as the department or agency head determines to 
be appropriate. This evaluation will take into consideration the risks 
to the subjects, the adequacy of protection against these risks, the 
potential benefits of the research to the subjects and others, and the 
importance of the knowledge gained or to be gained.
    (b) On the basis of this evaluation, the department or agency head 
may approve or disapprove the application or proposal, or enter into 
negotiations to develop an approvable one.



Sec. 46.121  [Reserved]



Sec. 46.122  Use of Federal funds.

    Federal funds administered by a department or agency may not be 
expended for research involving human subjects unless the requirements 
of this policy have been satisfied.



Sec. 46.123  Early termination of research support: Evaluation of applications and proposals.

    (a) The department or agency head may require that department or 
agency support for any project be terminated or suspended in the manner 
prescribed in applicable program requirements, when the department or 
agency head finds an institution has materially failed to comply with 
the terms of this policy.
    (b) In making decisions about supporting or approving applications 
or proposals covered by this policy the department or agency head may 
take into account, in addition to all other eligibility requirements and 
program criteria, factors such as whether the applicant has been subject 
to a termination or suspension under paragarph (a) of this section and 
whether the applicant or the person or persons who would direct or has 
have directed the scientific and technical aspects of an activity has 
have, in the judgment of the department or agency head, materially 
failed to discharge responsibility for the protection of the rights and 
welfare of human subjects (whether or not the research was subject to 
federal regulation).



Sec. 46.124  Conditions.

    With respect to any research project or any class of research 
projects the department or agency head may impose additional conditions 
prior to or at the time of approval when in the judgment of the 
department or agency head additional conditions are necessary for the 
protection of human subjects.



Subpart B--Additional Protections for Pregnant Women, Human Fetuses and 
                      Neonates Involved in Research

    Source: 66 FR 56778, Nov. 13, 2001, unless otherwise noted.



Sec. 46.201  To what do these regulations apply?

    (a) Except as provided in paragraph (b) of this section, this 
subpart applies to all research involving pregnant women, human fetuses, 
neonates of uncertain viability, or nonviable neonates conducted or 
supported by the Department of Health and Human Services (DHHS). This 
includes all research conducted in DHHS facilities by any person and all 
research conducted in any facility by DHHS employees.
    (b) The exemptions at Sec. 46.101(b)(1) through (6) are applicable 
to this subpart.
    (c) The provisions of Sec. 46.101(c) through (i) are applicable to 
this subpart. Reference to State or local laws in this subpart and in 
Sec. 46.101(f) is intended to include the laws of federally recognized 
American Indian and Alaska Native Tribal Governments.
    (d) The requirements of this subpart are in addition to those 
imposed under the other subparts of this part.



Sec. 46.202  Definitions.

    The definitions in Sec. 46.102 shall be applicable to this subpart 
as well. In addition, as used in this subpart:

[[Page 116]]

    (a) Dead fetus means a fetus that exhibits neither heartbeat, 
spontaneous respiratory activity, spontaneous movement of voluntary 
muscles, nor pulsation of the umbilical cord.
    (b) Delivery means complete separation of the fetus from the woman 
by expulsion or extraction or any other means.
    (c) Fetus means the product of conception from implantation until 
delivery.
    (d) Neonate means a newborn.
    (e) Nonviable neonate means a neonate after delivery that, although 
living, is not viable.
    (f) Pregnancy encompasses the period of time from implantation until 
delivery. A woman shall be assumed to be pregnant if she exhibits any of 
the pertinent presumptive signs of pregnancy, such as missed menses, 
until the results of a pregnancy test are negative or until delivery.
    (g) Secretary means the Secretary of Health and Human Services and 
any other officer or employee of the Department of Health and Human 
Services to whom authority has been delegated.
    (h) Viable, as it pertains to the neonate, means being able, after 
delivery, to survive (given the benefit of available medical therapy) to 
the point of independently maintaining heartbeat and respiration. The 
Secretary may from time to time, taking into account medical advances, 
publish in the Federal Register guidelines to assist in determining 
whether a neonate is viable for purposes of this subpart. If a neonate 
is viable then it may be included in research only to the extent 
permitted and in accordance with the requirements of subparts A and D of 
this part.



Sec. 46.203  Duties of IRBs in connection with research involving pregnant women, fetuses, and neonates.

    In addition to other responsibilities assigned to IRBs under this 
part, each IRB shall review research covered by this subpart and approve 
only research which satisfies the conditions of all applicable sections 
of this subpart and the other subparts of this part.



Sec. 46.204  Research involving pregnant women or fetuses.

    Pregnant women or fetuses may be involved in research if all of the 
following conditions are met:
    (a) Where scientifically appropriate, preclinical studies, including 
studies on pregnant animals, and clinical studies, including studies on 
nonpregnant women, have been conducted and provide data for assessing 
potential risks to pregnant women and fetuses;
    (b) The risk to the fetus is caused solely by interventions or 
procedures that hold out the prospect of direct benefit for the woman or 
the fetus; or, if there is no such prospect of benefit, the risk to the 
fetus is not greater than minimal and the purpose of the research is the 
development of important biomedical knowledge which cannot be obtained 
by any other means;
    (c) Any risk is the least possible for achieving the objectives of 
the research;
    (d) If the research holds out the prospect of direct benefit to the 
pregnant woman, the prospect of a direct benefit both to the pregnant 
woman and the fetus, or no prospect of benefit for the woman nor the 
fetus when risk to the fetus is not greater than minimal and the purpose 
of the research is the development of important biomedical knowledge 
that cannot be obtained by any other means, her consent is obtained in 
accord with the informed consent provisions of subpart A of this part;
    (e) If the research holds out the prospect of direct benefit solely 
to the fetus then the consent of the pregnant woman and the father is 
obtained in accord with the informed consent provisions of subpart A of 
this part, except that the father's consent need not be obtained if he 
is unable to consent because of unavailability, incompetence, or 
temporary incapacity or the pregnancy resulted from rape or incest.
    (f) Each individual providing consent under paragraph (d) or (e) of 
this section is fully informed regarding the reasonably foreseeable 
impact of the research on the fetus or neonate;
    (g) For children as defined in Sec. 46.402(a) who are pregnant, 
assent and permission are obtained in accord with the provisions of 
subpart D of this part;

[[Page 117]]

    (h) No inducements, monetary or otherwise, will be offered to 
terminate a pregnancy;
    (i) Individuals engaged in the research will have no part in any 
decisions as to the timing, method, or procedures used to terminate a 
pregnancy; and
    (j) Individuals engaged in the research will have no part in 
determining the viability of a neonate.



Sec. 46.205  Research involving neonates.

    (a) Neonates of uncertain viability and nonviable neonates may be 
involved in research if all of the following conditions are met:
    (1) Where scientifically appropriate, preclinical and clinical 
studies have been conducted and provide data for assessing potential 
risks to neonates.
    (2) Each individual providing consent under paragraph (b)(2) or 
(c)(5) of this section is fully informed regarding the reasonably 
foreseeable impact of the research on the neonate.
    (3) Individuals engaged in the research will have no part in 
determining the viability of a neonate.
    (4) The requirements of paragraph (b) or (c) of this section have 
been met as applicable.
    (b) Neonates of uncertain viability. Until it has been ascertained 
whether or not a neonate is viable, a neonate may not be involved in 
research covered by this subpart unless the following additional 
conditions are met:
    (1) The IRB determines that:
    (i) The research holds out the prospect of enhancing the probability 
of survival of the neonate to the point of viability, and any risk is 
the least possible for achieving that objective, or
    (ii) The purpose of the research is the development of important 
biomedical knowledge which cannot be obtained by other means and there 
will be no added risk to the neonate resulting from the research; and
    (2) The legally effective informed consent of either parent of the 
neonate or, if neither parent is able to consent because of 
unavailability, incompetence, or temporary incapacity, the legally 
effective informed consent of either parent's legally authorized 
representative is obtained in accord with subpart A of this part, except 
that the consent of the father or his legally authorized representative 
need not be obtained if the pregnancy resulted from rape or incest.
    (c) Nonviable neonates. After delivery nonviable neonate may not be 
involved in research covered by this subpart unless all of the following 
additional conditions are met:
    (1) Vital functions of the neonate will not be artificially 
maintained;
    (2) The research will not terminate the heartbeat or respiration of 
the neonate;
    (3) There will be no added risk to the neonate resulting from the 
research;
    (4) The purpose of the research is the development of important 
biomedical knowledge that cannot be obtained by other means; and
    (5) The legally effective informed consent of both parents of the 
neonate is obtained in accord with subpart A of this part, except that 
the waiver and alteration provisions of Sec. 46.116(c) and (d) do not 
apply. However, if either parent is unable to consent because of 
unavailability, incompetence, or temporary incapacity, the informed 
consent of one parent of a nonviable neonate will suffice to meet the 
requirements of this paragraph (c)(5), except that the consent of the 
father need not be obtained if the pregnancy resulted from rape or 
incest. The consent of a legally authorized representative of either or 
both of the parents of a nonviable neonate will not suffice to meet the 
requirements of this paragraph (c)(5).
    (d) Viable neonates. A neonate, after delivery, that has been 
determined to be viable may be included in research only to the extent 
permitted by and in accord with the requirements of subparts A and D of 
this part.



Sec. 46.206  Research involving, after delivery, the placenta, the dead fetus or fetal material.

    (a) Research involving, after delivery, the placenta; the dead 
fetus; macerated fetal material; or cells, tissue, or organs excised 
from a dead fetus, shall be conducted only in accord with any applicable 
Federal, State, or local laws and regulations regarding such activities.

[[Page 118]]

    (b) If information associated with material described in paragraph 
(a) of this section is recorded for research purposes in a manner that 
living individuals can be identified, directly or through identifiers 
linked to those individuals, those individuals are research subjects and 
all pertinent subparts of this part are applicable.



Sec. 46.207  Research not otherwise approvable which presents an opportunity to understand, prevent, or alleviate a serious problem affecting the health or 
          welfare of pregnant women, fetuses, or neonates.

    The Secretary will conduct or fund research that the IRB does not 
believe meets the requirements of Sec. 46.204 or Sec.  46.205 only if:
    (a) The IRB finds that the research presents a reasonable 
opportunity to further the understanding, prevention, or alleviation of 
a serious problem affecting the health or welfare of pregnant women, 
fetuses or neonates; and
    (b) The Secretary, after consultation with a panel of experts in 
pertinent disciplines (for example: science, medicine, ethics, law) and 
following opportunity for public review and comment, including a public 
meeting announced in the Federal Register, has determined either:
    (1) That the research in fact satisfies the conditions of 
Sec. 46.204, as applicable; or
    (2) The following:
    (i) The research presents a reasonable opportunity to further the 
understanding, prevention, or alleviation of a serious problem affecting 
the health or welfare of pregnant women, fetuses or neonates;
    (ii) The research will be conducted in accord with sound ethical 
principles; and
    (iii) Informed consent will be obtained in accord with the informed 
consent provisions of subpart A and other applicable subparts of this 
part.



     Subpart C--Additional Protections Pertaining to Biomedical and 
           Behavioral Research Involving Prisoners as Subjects

    Source: 43 FR 53655, Nov. l6, l978, unless otherwise noted.



Sec. 46.301  Applicability.

    (a) The regulations in this subpart are applicable to all biomedical 
and behavioral research conducted or supported by the Department of 
Health and Human Services involving prisoners as subjects.
    (b) Nothing in this subpart shall be construed as indicating that 
compliance with the procedures set forth herein will authorize research 
involving prisoners as subjects, to the extent such research is limited 
or barred by applicable State or local law.
    (c) The requirements of this subpart are in addition to those 
imposed under the other subparts of this part.



Sec. 46.302  Purpose.

    Inasmuch as prisoners may be under constraints because of their 
incarceration which could affect their ability to make a truly voluntary 
and uncoerced decision whether or not to participate as subjects in 
research, it is the purpose of this subpart to provide additional 
safeguards for the protection of prisoners involved in activities to 
which this subpart is applicable.



Sec. 46.303  Definitions.

    As used in this subpart:
    (a) Secretary means the Secretary of Health and Human Services and 
any other officer or employee of the Department of Health and Human 
Services to whom authority has been delegated.
    (b) DHHS means the Department of Health and Human Services.
    (c) Prisoner means any individual involuntarily confined or detained 
in a penal institution. The term is intended to encompass individuals 
sentenced to such an institution under a criminal or civil statute, 
individuals detained in other facilities by virtue of statutes or 
commitment procedures which provide alternatives to criminal prosecution 
or incarceration in a penal institution, and individuals detained 
pending arraignment, trial, or sentencing.
    (d) Minimal risk is the probability and magnitude of physical or 
psychological harm that is normally encountered in the daily lives, or 
in the routine medical, dental, or psychological examination of healthy 
persons.

[[Page 119]]



Sec. 46.304  Composition of Institutional Review Boards where prisoners are involved.

    In addition to satisfying the requirements in Sec. 46.107 of this 
part, an Institutional Review Board, carrying out responsibilities under 
this part with respect to research covered by this subpart, shall also 
meet the following specific requirements:
    (a) A majority of the Board (exclusive of prisoner members) shall 
have no association with the prison(s) involved, apart from their 
membership on the Board.
    (b) At least one member of the Board shall be a prisoner, or a 
prisoner representative with appropriate background and experience to 
serve in that capacity, except that where a particular research project 
is reviewed by more than one Board only one Board need satisfy this 
requirement.

[43 FR 53655, Nov. 16, 1978, as amended at 46 FR 8386, Jan. 26, 1981]



Sec. 46.305  Additional duties of the Institutional Review Boards where prisoners are involved.

    (a) In addition to all other responsibilities prescribed for 
Institutional Review Boards under this part, the Board shall review 
research covered by this subpart and approve such research only if it 
finds that:
    (1) The research under review represents one of the categories of 
research permissible under Sec. 46.306(a)(2);
    (2) Any possible advantages accruing to the prisoner through his or 
her participation in the research, when compared to the general living 
conditions, medical care, quality of food, amenities and opportunity for 
earnings in the prison, are not of such a magnitude that his or her 
ability to weigh the risks of the research against the value of such 
advantages in the limited choice environment of the prison is impaired;
    (3) The risks involved in the research are commensurate with risks 
that would be accepted by nonprisoner volunteers;
    (4) Procedures for the selection of subjects within the prison are 
fair to all prisoners and immune from arbitrary intervention by prison 
authorities or prisoners. Unless the principal investigator provides to 
the Board justification in writing for following some other procedures, 
control subjects must be selected randomly from the group of available 
prisoners who meet the characteristics needed for that particular 
research project;
    (5) The information is presented in language which is understandable 
to the subject population;
    (6) Adequate assurance exists that parole boards will not take into 
account a prisoner's participation in the research in making decisions 
regarding parole, and each prisoner is clearly informed in advance that 
participation in the research will have no effect on his or her parole; 
and
    (7) Where the Board finds there may be a need for follow-up 
examination or care of participants after the end of their 
participation, adequate provision has been made for such examination or 
care, taking into account the varying lengths of individual prisoners' 
sentences, and for informing participants of this fact.
    (b) The Board shall carry out such other duties as may be assigned 
by the Secretary.
    (c) The institution shall certify to the Secretary, in such form and 
manner as the Secretary may require, that the duties of the Board under 
this section have been fulfilled.



Sec. 46.306  Permitted research involving prisoners.

    (a) Biomedical or behavioral research conducted or supported by DHHS 
may involve prisoners as subjects only if:
    (1) The institution responsible for the conduct of the research has 
certified to the Secretary that the Institutional Review Board has 
approved the research under Sec. 46.305 of this subpart; and
    (2) In the judgment of the Secretary the proposed research involves 
solely the following:
    (i) Study of the possible causes, effects, and processes of 
incarceration, and of criminal behavior, provided that the study 
presents no more than minimal risk and no more than inconvenience to the 
subjects;
    (ii) Study of prisons as institutional structures or of prisoners as 
incarcerated persons, provided that the study

[[Page 120]]

presents no more than minimal risk and no more than inconvenience to the 
subjects;
    (iii) Research on conditions particularly affecting prisoners as a 
class (for example, vaccine trials and other research on hepatitis which 
is much more prevalent in prisons than elsewhere; and research on social 
and psychological problems such as alcoholism, drug addiction and sexual 
assaults) provided that the study may proceed only after the Secretary 
has consulted with appropriate experts including experts in penology 
medicine and ethics, and published notice, in the Federal Register, of 
his intent to approve such research; or
    (iv) Research on practices, both innovative and accepted, which have 
the intent and reasonable probability of improving the health or well-
being of the subject. In cases in which those studies require the 
assignment of prisoners in a manner consistent with protocols approved 
by the IRB to control groups which may not benefit from the research, 
the study may proceed only after the Secretary has consulted with 
appropriate experts, including experts in penology medicine and ethics, 
and published notice, in the Federal Register, of his intent to approve 
such research.
    (b) Except as provided in paragraph (a) of this section, biomedical 
or behavioral research conducted or supported by DHHS shall not involve 
prisoners as subjects.



 Subpart D--Additional Protections for Children Involved as Subjects in 
                                Research

    Source: 48 FR 9818, Mar. 8, 1983, unless otherwise noted.



Sec. 46.401  To what do these regulations apply?

    (a) This subpart applies to all research involving children as 
subjects, conducted or supported by the Department of Health and Human 
Services.
    (1) This includes research conducted by Department employees, except 
that each head of an Operating Division of the Department may adopt such 
nonsubstantive, procedural modifications as may be appropriate from an 
administrative standpoint.
    (2) It also includes research conducted or supported by the 
Department of Health and Human Services outside the United States, but 
in appropriate circumstances, the Secretary may, under paragraph (e) of 
Sec. 46.101 of Subpart A, waive the applicability of some or all of the 
requirements of these regulations for research of this type.
    (b) Exemptions at Sec. 46.101(b)(1) and (b)(3) through (b)(6) are 
applicable to this subpart. The exemption at Sec. 46.101(b)(2) regarding 
educational tests is also applicable to this subpart. However, the 
exemption at Sec. 46.101(b)(2) for research involving survey or 
interview procedures or observations of public behavior does not apply 
to research covered by this subpart, except for research involving 
observation of public behavior when the investigator(s) do not 
participate in the activities being observed.
    (c) The exceptions, additions, and provisions for waiver as they 
appear in paragraphs (c) through (i) of Sec. 46.101 of Subpart A are 
applicable to this subpart.

[48 FR 9818, Mar. 8, 1983; 56 FR 28032, June 18, 1991; 56 FR 29757, June 
28, 1991]



Sec. 46.402  Definitions.

    The definitions in Sec. 46.102 of Subpart A shall be applicable to 
this subpart as well. In addition, as used in this subpart:
    (a) Children are persons who have not attained the legal age for 
consent to treatments or procedures involved in the research, under the 
applicable law of the jurisdiction in which the research will be 
conducted.
    (b) Assent means a child's affirmative agreement to participate in 
research. Mere failure to object should not, absent affirmative 
agreement, be construed as assent.
    (c) Permission means the agreement of parent(s) or guardian to the 
participation of their child or ward in research.
    (d) Parent means a child's biological or adoptive parent.
    (e) Guardian means an individual who is authorized under applicable 
State or local law to consent on behalf of a child to general medical 
care.

[[Page 121]]



Sec. 46.403  IRB duties.

    In addition to other responsibilities assigned to IRBs under this 
part, each IRB shall review research covered by this subpart and approve 
only research which satisfies the conditions of all applicable sections 
of this subpart.



Sec. 46.404  Research not involving greater than minimal risk.

    HHS will conduct or fund research in which the IRB finds that no 
greater than minimal risk to children is presented, only if the IRB 
finds that adequate provisions are made for soliciting the assent of the 
children and the permission of their parents or guardians, as set forth 
in Sec. 46.408.



Sec. 46.405  Research involving greater than minimal risk but presenting the prospect of direct benefit to the individual subjects.

    HHS will conduct or fund research in which the IRB finds that more 
than minimal risk to children is presented by an intervention or 
procedure that holds out the prospect of direct benefit for the 
individual subject, or by a monitoring procedure that is likely to 
contribute to the subject's well-being, only if the IRB finds that:
    (a) The risk is justified by the anticipated benefit to the 
subjects;
    (b) The relation of the anticipated benefit to the risk is at least 
as favorable to the subjects as that presented by available alternative 
approaches; and
    (c) Adequate provisions are made for soliciting the assent of the 
children and permission of their parents or guardians, as set forth in 
Sec. 46.408.



Sec. 46.406  Research involving greater than minimal risk and no prospect of direct benefit to individual subjects, but likely to yield generalizable knowledge 
          about the subject's disorder or condition.

    HHS will conduct or fund research in which the IRB finds that more 
than minimal risk to children is presented by an intervention or 
procedure that does not hold out the prospect of direct benefit for the 
individual subject, or by a monitoring procedure which is not likely to 
contribute to the well-being of the subject, only if the IRB finds that:
    (a) The risk represents a minor increase over minimal risk;
    (b) The intervention or procedure presents experiences to subjects 
that are reasonably commensurate with those inherent in their actual or 
expected medical, dental, psychological, social, or educational 
situations;
    (c) The intervention or procedure is likely to yield generalizable 
knowledge about the subjects' disorder or condition which is of vital 
importance for the understanding or amelioration of the subjects' 
disorder or condition; and
    (d) Adequate provisions are made for soliciting assent of the 
children and permission of their parents or guardians, as set forth in 
Sec. 46.408.



Sec. 46.407  Research not otherwise approvable which presents an opportunity to understand, prevent, or alleviate a serious problem affecting the health or 
          welfare of children.

    HHS will conduct or fund research that the IRB does not believe 
meets the requirements of Sec. 46.404, Sec. 46.405, or Sec. 46.406 only 
if:
    (a) The IRB finds that the research presents a reasonable 
opportunity to further the understanding, prevention, or alleviation of 
a serious problem affecting the health or welfare of children; and
    (b) The Secretary, after consultation with a panel of experts in 
pertinent disciplines (for example: science, medicine, education, 
ethics, law) and following opportunity for public review and comment, 
has determined either:
    (1) That the research in fact satisfies the conditions of 
Sec. 46.404, Sec. 46.405, or Sec. 46.406, as applicable, or
    (2) The following:
    (i) The research presents a reasonable opportunity to further the 
understanding, prevention, or alleviation of a serious problem affecting 
the health or welfare of children;
    (ii) The research will be conducted in accordance with sound ethical 
principles;
    (iii) Adequate provisions are made for soliciting the assent of 
children and the permission of their parents or guardians, as set forth 
in Sec. 46.408.

[[Page 122]]



Sec. 46.408  Requirements for permission by parents or guardians and for assent by children.

    (a) In addition to the determinations required under other 
applicable sections of this subpart, the IRB shall determine that 
adequate provisions are made for soliciting the assent of the children, 
when in the judgment of the IRB the children are capable of providing 
assent. In determining whether children are capable of assenting, the 
IRB shall take into account the ages, maturity, and psychological state 
of the children involved. This judgment may be made for all children to 
be involved in research under a particular protocol, or for each child, 
as the IRB deems appropriate. If the IRB determines that the capability 
of some or all of the children is so limited that they cannot reasonably 
be consulted or that the intervention or procedure involved in the 
research holds out a prospect of direct benefit that is important to the 
health or well-being of the children and is available only in the 
context of the research, the assent of the children is not a necessary 
condition for proceeding with the research. Even where the IRB 
determines that the subjects are capable of assenting, the IRB may still 
waive the assent requirement under circumstances in which consent may be 
waived in accord with Sec. 46.116 of Subpart A.
    (b) In addition to the determinations required under other 
applicable sections of this subpart, the IRB shall determine, in 
accordance with and to the extent that consent is required by 
Sec. 46.116 of Subpart A, that adequate provisions are made for 
soliciting the permission of each child's parents or guardian. Where 
parental permission is to be obtained, the IRB may find that the 
permission of one parent is sufficient for research to be conducted 
under Sec. 46.404 or Sec. 46.405. Where research is covered by 
Secs. 46.406 and 46.407 and permission is to be obtained from parents, 
both parents must give their permission unless one parent is deceased, 
unknown, incompetent, or not reasonably available, or when only one 
parent has legal responsibility for the care and custody of the child.
    (c) In addition to the provisions for waiver contained in 
Sec. 46.116 of Subpart A, if the IRB determines that a research protocol 
is designed for conditions or for a subject population for which 
parental or guardian permission is not a reasonable requirement to 
protect the subjects (for example, neglected or abused children), it may 
waive the consent requirements in Subpart A of this part and paragraph 
(b) of this section, provided an appropriate mechanism for protecting 
the children who will participate as subjects in the research is 
substituted, and provided further that the waiver is not inconsistent 
with Federal, state or local law. The choice of an appropriate mechanism 
would depend upon the nature and purpose of the activities described in 
the protocol, the risk and anticipated benefit to the research subjects, 
and their age, maturity, status, and condition.
    (d) Permission by parents or guardians shall be documented in 
accordance with and to the extent required by Sec. 46.117 of Subpart A.
    (e) When the IRB determines that assent is required, it shall also 
determine whether and how assent must be documented.



Sec. 46.409  Wards.

    (a) Children who are wards of the state or any other agency, 
institution, or entity can be included in research approved under 
Sec. 46.406 or Sec. 46.407 only if such research is:
    (1) Related to their status as wards; or
    (2) Conducted in schools, camps, hospitals, institutions, or similar 
settings in which the majority of children involved as subjects are not 
wards.
    (b) If the research is approved under paragraph (a) of this section, 
the IRB shall require appointment of an advocate for each child who is a 
ward, in addition to any other individual acting on behalf of the child 
as guardian or in loco parentis. One individual may serve as advocate 
for more than one child. The advocate shall be an individual who has the 
background and experience to act in, and agrees to act in, the best 
interests of the child for the duration of the child's participation in 
the research and who is not associated in any way (except in the role as 
advocate or member of the IRB) with the research,

[[Page 123]]

the investigator(s), or the guardian organization.



PART 50--U.S. EXCHANGE VISITOR PROGRAM--REQUEST FOR WAIVER OF THE TWO-YEAR FOREIGN RESIDENCE REQUIREMENT--Table of Contents




Sec.
50.1  Authority.
50.2  Exchange Visitor Waiver Review Board.
50.3  Policy.
50.4  Procedures for submission of application to HHS.
50.5  Personal hardship, persecution and visa extension considerations.
50.6  Release from foreign government.

    Authority: 75 Stat. 527 (22 U.S.C. 2451 et seq.); 84 Stat. 116 (8 
U.S.C. 1182(e)).

    Source: 49 FR 9900, Mar. 16, 1984, unless otherwise noted.



Sec. 50.1  Authority.

    Under the authority of Mutual Educational and Cultural Exchange Act 
of 1961 (75 Stat. 527) and the Immigration and Nationality Act as 
amended (84 Stat. 116), the Department of Health and Human Services is 
an ``interested United States Government agency'' with the authority to 
request the United States Information Agency to recommend to the 
Attorney General waiver of the two-year foreign residence requirement 
for exchange visitors under the Mutual Educational and Cultural Exchange 
Program.



Sec. 50.2  Exchange Visitor Waiver Review Board.

    (a) Establishment. The Exchange Visitor Waiver Review Board is 
established to carry out the Department's responsibilities under the 
Exchange Visitor Program.
    (b) Functions. The Exchange Visitor Waiver Review Board is 
responsible for making thorough and equitable evaluations of 
applications submitted by institutions, acting on behalf of exchange 
visitors, to the Department of HHS for a favorable recommendation to the 
United States Information Agency that the two-year foreign residence 
requirement for exchange visitors under the Exchanges Visitor Program be 
waived.
    (c) Membership. The Exchange Visitor Waiver Review Board consists of 
no fewer than three members and two alternates, of whom no fewer than 
three shall consider any particular application. The Director of the 
Office of International Affairs, Office of the Secretary, is an ex 
officio member of the Board and serves as its Chairman. The Director may 
designate a staff member of the Office of the Secretary to serve as 
member and Chairman of the Board in the Director's absence. Two 
regularly assigned members and two alternates are appointed by the 
Assistant Secretary of Health to consider applications concerning 
health, biomedical research, and related fields. The Chairman may 
request the heads of operating divisions of the Department to appoint 
additional members to consider applications in other fields of interest 
to the Department (e.g. human services, social security). The Board may 
obtain expert advisory opinions from other sources.
    (d) Eligibility. The Board will review applications submitted by 
private or non-federal institutions, organizations or agencies or by a 
component agency of HHS. The Board will not consider applications 
submitted by exchange visitors or, unless under extenuating and 
exceptional circumstances, other U.S. Government Agencies.



Sec. 50.3  Policy.

    (a) Criteria and information pertaining to waivers. The Department 
of Health and Human Services endorses the philosophy of the Exchange 
Visitor Program that exchange visitors are committed to return home for 
at least two years after completing their program. This requirement was 
imposed to prevent the Program from becoming a stepping stone to 
immigration and to insure that exchange visitors make their new 
knowledge and skills available to their home countries. Accordingly, the 
Board carefully applies stringent and restrictive criteria to its 
consideration of requests that it support waivers for exchange visitors. 
Each application is evaluated individually on the basis of the facts 
available.

In determining whether to recommend an exemption for an exchange visitor 
from his/her obligation to the Exchange Visitor Program, the Board 
considers the following key factors:

[[Page 124]]

    (1) The program or activity at the applicant institution or 
organization in which the exchange visitor is employed must be of high 
priority and of national or international significance in an area of 
interest to the Department. The Board will not request a waiver when the 
application demonstrates that the exchange visitor is needed merely to 
provide services for a limited geographical area and/or to alleviate a 
local community or institutional manpower shortage, however serious.
    (2) The exchange visitor must be needed as an integral part of the 
program or activity, or of an essential component thereof, so that loss 
of his/her services would necessitate discontinuance of the program, or 
a major phase of it. Specific evidence must be provided as to how the 
loss or unavailability of the individual's services would adversely 
affect the initiation, continuance, completion, or success of the 
program or activity. The applicant organization/institution must clearly 
demonstrate that a suitable replacement for the exchange visitor cannot 
be found through recruitment or any other means. The Board will not 
request a waiver when the principal problem appears to be one of 
administrative, budgetary, or program inconvenience to the institution 
or other employer.
    (3) The exchange visitor must possess outstanding qualifications, 
training and experience well beyond the usually expected accomplishments 
at the graduate, postgraduate, and residency levels, and must clearly 
demonstrate the capability to make original and significant 
contributions to the program. The Board will not request a waiver simply 
because an individual has specialized training or experience or is 
occupying a senior staff position in a university, hospital, or other 
institution.
    (b) Waiver for members of exchange visitor's family. Where a 
decision is made to request a waiver for an exchange visitor, a waiver 
will also be requested for the spouse and children, if any, if they have 
J-2 visa status. When both members of a married couple are exchange 
visitors in their own right (i.e., each has J-1 visa status), separate 
applications must be submitted for each of them.



Sec. 50.4  Procedures for submission of application to HHS.

    (a) The applicant institution (educational institution, hospital, 
laboratory, corporation, etc.) should send a completed application (HHS 
Form 426; O.M.B. No. 0990-0001) to the Executive Secretary, Exchange 
Visitor Waiver Review Board, Room 655-G, Humphrey Building, Department 
of Health and Human Services, 200 Independence Avenue, S.W., Washington, 
DC 20201. Application forms, instruction sheets, and information may be 
obtained from the Executive Secretary (202/245-6174). The application 
must be filled out completely and signed by an authorized official of 
the applicant institution. The application and accompanying materials 
should include information that describes in detail the circumstances of 
the case involved.
    (b) Since the formal filing of an application for waiver with the 
Immigration and Naturalization Service automatically terminates the 
applicant's exchange visitor status, it is permissible to obtain the 
decision of the Exchange Visitor Waiver Review Board before filing with 
the Immigration and Naturalization Service.



Sec. 50.5  Personal hardship, persecution and visa extension considerations.

    (a) It is not within the Department's jurisdiction to consider 
applications for waiver based on:
    (1) Exceptional hardship to the exchange visitor's American or 
legally resident alien spouse or child; or
    (2) The alien's unwillingness to return to the country of his/her 
nationality or last residence on the grounds that he/she or family 
members would be subject to persecution on account of race, religion or 
political opinion.
    (b) Likewise, this Department is not responsible for considering 
requests to extend visas.
    (c) Inquiries concerning the above should be directed to the 
District Office of the Immigration and Naturalization Service which has 
jurisdiction over the exchange visitor's place of residence in the 
United States.

[[Page 125]]



Sec. 50.6  Release from foreign government.

    The United States Information Agency has the responsibility to 
consider applications for waivers that are based solely on a 
notification from the exchange visitor's country that it has no 
objection to a waiver (22 CFR 63.31).



PART 51--CRITERIA FOR EVALUATING COMPREHENSIVE PLAN TO REDUCE RELIANCE ON ALIEN PHYSICIANS--Table of Contents




Sec.
51.1  Purpose.
51.2  Application.
51.3  Who is eligible to apply?
51.4  How will the plans be evaluated?

    Authority: Sec. 212, Immigration and Nationality Act, Pub. L. 82-
114, as amended by Pub. L. 97-116, 95 Stat. 1611 (8 U.S.C. 
1182(j)(2)(A)).

    Source: 48 FR 2539, Jan. 20, 1983, unless otherwise noted.



Sec. 51.1  Purpose.

    The purpose of this regulation is to establish criteria for review 
and evaluation of the comprehensive plans of Graduate Medical Education 
Programs to reduce reliance on alien physicians, as required by the 
Immigration and Nationality Act Amendments of 1981, Pub. L. 97-116, for 
the waiver of certain requirements for exchange visitors who are coming 
to the United States to participate in programs of graduate medical 
education or training.



Sec. 51.2  Application.

    Materials covering procedures for applying for substantial 
disruption waivers (including the comprehensive plan) may be obtained 
from the Educational Commission for Foreign Medical Graduates, 3624 
Market Street, Philadelphia, Pennsylvania 19104.

    Explanatory Note: The Department of State entered into an agreement 
with the Educational Commission for Foreign Medical Graduates in 1971 
whereby the latter was designated the authority to administer the 
issuance of the Form IAP-66 in all cases involving the admission, 
certification, transfer or extension of stay for foreign physicians in 
exchange visitor status who are receiving graduate medical education or 
training. The Commission was further designated the authority (Federal 
Register, Volume 44, No. 59, March 26, 1979), to process waiver requests 
under the ``substantial disruption'' provision of Pub. L. 94-484, as 
amended, within criteria to be provided by the United States Information 
Agency on advice from the Department of Health and Human Services 
(formerly Department of Health, Education, and Welfare).



Sec. 51.3  Who is eligible to apply?

    Sponsors which had alien physicians in their exchange visitor 
programs on January 10, 1978, are eligible to apply. For purposes of 
this regulation, the term ``program'' relates to a graduate medical 
education program having an exchange visitor program for physicians 
participating in graduate medical education or training. An ``exchange 
visitor program'' is a program of a sponsor, designed to promote 
interchange of persons, knowledge and skills, and the interchange of 
developments in the field of education, the arts and sciences, and is 
concerned with one or more categories of participants to promote mutual 
understanding between the people of the United States and the people of 
other countries.



Sec. 51.4  How will the plans be evaluated?

    After consultation with the Federal Substantial Disruption Waiver 
Board (seven Federal representatives charged with the responsibility of 
reviewing substantial disruption waiver applications), the Secretary of 
Health and Human Services will make recommendations to the Director, 
United States Information Agency, for the purpose of granting waivers. 
The Secretary will consider the following factors in determining whether 
or not a plan is satisfactory:
    (a) The extent of the specific problems that the program or 
institution anticipates without a waiver, including, for example,
    (1) Curtailment of services currently provided,
    (2) Downgrading of medical care currently being provided,
    (3) Reduction in the number of inpatients and outpatients receiving 
care,
    (4) Inadequate medical coverage for population served, or
    (5) Inadequate supervision of junior residents.

[[Page 126]]

    (b) The adequacy of the alternative resources and methods (including 
use of physician assistants (as defined in 42 CFR 57.802), nurse 
practitioners (as defined in 42 CFR 57.2402), and other non-physician 
providers) that have been considered and have been and will be applied 
to reduce such disruption in the delivery of health services, especially 
in primary medical care manpower shortage areas, as established under 
section 332 of the Public Health Service Act, and for medicaid patients. 
This may include, for example:
    (1) Greater reliance on fully licensed physicians, and on physician 
assistants, nurse practitioners and other non-physician personnel in an 
expanded role in the delivery of health care, such as admission patient 
histories, making patient rounds, recording patient progress notes, 
doing the initial and follow-up evaluation of patients, performing 
routine laboratory and related studies, or
    (2) Utilization of the team approach to health care delivery 
(individuals functioning as an integral part of an interprofessional 
team of health personnel organized under the leadership of a physician 
working toward more efficient and/or more effective delivery of health 
services).
    (c) The extent to which changes (including improvement of 
educational and medical services) have been considered and which have 
been or will be applied to make the program more attractive to graduates 
of medical schools who are citizens of the United States, as 
demonstrated, for example, by:
    (1) Adding additional services to the existing programs to provide a 
broader educational experience for residents,
    (2) Expanding affiliations with other residency programs to offer a 
broader experience for residents,
    (3) Expanding undergraduate clerkships to provide a broader 
educational experience.
    (4) Creating or modifying administrative units which will provide 
broader clinical experiences, or
    (5) Initiating research projects.
    (d) The adequacy of the recruitment efforts which have been and will 
be undertaken to attract graduates of medical schools who are citizens 
of the United States, as demonstrated, for example, by:
    (1) Broad-based advertisement of the program and of the institution 
through notices in journals, contacts with medical schools, etc.
    (2) Forming committees for the purpose of recruiting U.S. citizens.
    (3) Working with national organizations which are involved with 
medical students and U.S. graduate medical trainees, e.g., the American 
Medical Student Association and the Physician National House Staff 
Association, to attract U.S. citizens.
    (e) The extent to which the program on a year-by-year basis has 
phased down its dependence upon aliens who are graduates of foreign 
medical schools so that the program will not be dependent upon the 
admission to the program of any additional such aliens after December 
31, 1983.



PART 57--VOLUNTEER SERVICES--Table of Contents




Sec.
57.1  Applicability.
57.2  Definitions.
57.3  Volunteer service programs.
57.4  Acceptance and use of volunteer services.
57.5  Services and benefits available to volunteers.

    Authority: Sec. 223, 58 Stat. 683, as amended by 81 Stat. 539: 42 
U.S.C. 217b.

    Source: 34 FR 13868, Aug. 29, 1969, unless otherwise noted.



Sec. 57.1  Applicability.

    The regulations in this part apply to the acceptance of volunteer 
and uncompensated services for use in the operation of any health care 
facility of the Department or in the provision of health care.



Sec. 57.2  Definitions.

    As used in the regulations in this part:
    Secretary means the Secretary of Health and Human Services.
    Department means the Department of Health and Human Services.
    Volunteer services are services performed by individuals (hereafter 
called volunteers) whose services have been

[[Page 127]]

offered to the Government and accepted under a formal agreement on a 
without compensation basis for use in the operation of a health care 
facility or in the provision of health care.
    Health care means services to patients in Department facilities, 
beneficiaries of the Federal Government, or individuals or groups for 
whom health services are authorized under the programs of the 
Department.
    Health care facility means a hospital, clinic, health center, or 
other facility established for the purpose of providing health care.



Sec. 57.3  Volunteer service programs.

    Programs for the use of volunteer services may be established by the 
Secretary, or his designee, to broaden and strengthen the delivery of 
health services, contribute to the comfort and well being of patients in 
Department hospitals or clinics, or expand the services required in the 
operation of a health care facility. Volunteers may be used to 
supplement, but not to take the place of, personnel whose services are 
obtained through the usual employment procedures.



Sec. 57.4  Acceptance and use of volunteer services.

    The Secretary, or his designee, shall establish requirements for: 
Accepting volunteer services from individuals or groups of individuals, 
using volunteer services, giving appropriate recognition to volunteers, 
and maintaining records of volunteer services.



Sec. 57.5  Services and benefits available to volunteers.

    (a) The following provisions of law may be applicable to volunteers 
whose services are offered and accepted under the regulations in this 
part:
    (1) Subchapter I of Chapter 81 of Title 5 of the United States Code 
relating to medical services for work related injuries;
    (2) Title 28 of the United States Code relating to tort claims;
    (3) Section 7903 of Title 5 of the United States Code relating to 
protective clothing and equipment; and
    (4) Section 5703 of Title 5 of the United States Code relating to 
travel and transportation expenses.
    (b) Volunteers may also be provided such other benefits as are 
authorized by law or by administrative action of the Secretary or his 
designee.



PART 60--NATIONAL PRACTITIONER DATA BANK FOR ADVERSE INFORMATION ON PHYSICIANS AND OTHER HEALTH CARE PRACTITIONERS--Table of Contents




                      Subpart A--General Provisions

Sec.
60.1  The National Practitioner Data Bank.
60.2  Applicability of these regulations.
60.3  Definitions.

                   Subpart B--Reporting of Information

60.4  How information must be reported.
60.5  When information must be reported.
60.6  Reporting errors, omissions, and revisions.
60.7  Reporting medical malpractice payments.
60.8  Reporting licensure actions taken by Boards of Medical Examiners.
60.9  Reporting adverse actions on clinical privileges.

 Subpart C--Disclosure of Information by the National Practitioner Data 
                                  Bank

60.10  Information which hospitals must request from the National 
          Practitioner Data Bank.
60.11  Requesting information from the National Practitioner Data Bank.
60.12  Fees applicable to requests for information.
60.13  Confidentiality of National Practitioner Data Bank information.
60.14  How to dispute the accuracy of National Practitioner Data Bank 
          information.

    Authority: Secs. 401-432 of the Health Care Quality Improvement Act 
of 1986, Pub. L. 99-660, 100 Stat. 3784-3794, as amended by section 402 
of Pub. L. 100-177, 101 Stat. 1007-1008 (42 U.S.C. 11101-11152).

    Source: : 54 FR 42730, Oct. 17, 1989, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 60.1  The National Practitioner Data Bank.

    The Health Care Quality Improvement Act of 1986 (the Act), title IV 
of Pub. L. 99-660, as amended, authorizes

[[Page 128]]

the Secretary to establish (either directly or by contract) a National 
Practitioner Data Bank to collect and release certain information 
relating to the professional competence and conduct of physicians, 
dentists and other health care practitioners. These regulations set 
forth the reporting and disclosure requirements for the National 
Practitioner Data Bank.



Sec. 60.2  Applicability of these regulations.

    The regulations in this part establish reporting requirements 
applicable to hospitals; health care entities; Boards of Medical 
Examiners; professional societies of physicians, dentists or other 
health care practitioners which take adverse licensure of professional 
review actions; and entities (including insurance companies) making 
payments as a result of medical malpractice actions or claims. They also 
establish procedures to enable individuals or entities to obtain 
information from the National Practitioner Data Bank or to dispute the 
accuracy of National Practitioner Data Bank information.

[59 FR 61555, Dec. 1, 1994]



Sec. 60.3  Definitions.

    Act means the Health Care Quality Improvement Act of 1986, title IV 
of Pub. L. 99-660, as amended.
    Adversely affecting means reducing, restricting, suspending, 
revoking, or denying clinical privileges or membership in a health care 
entity.
    Board of Medical Examiners, or Board, means a body or subdivision of 
such body which is designated by a State for the purpose of licensing, 
monitoring and disciplining physicians or dentists. This term includes a 
Board of Osteopathic Examiners or its subdivision, a Board of Dentistry 
or its subdivision, or an equivalent body as determined by the State. 
Where the Secretary, pursuant to section 423(c)(2) of the Act, has 
designated an alternate entity to carry out the reporting activities of 
Sec. 60.9 due to a Board's failure to comply with Sec. 60.8, the term 
Board of Medical Examiners or Board refers to this alternate entity.
    Clinical privileges means the authorization by a health care entity 
to a physician, dentist or other health care practitioner for the 
provision of health care services, including privileges and membership 
on the medical staff.
    Dentist means a doctor of dental surgery, doctor of dental medicine, 
or the equivalent who is legally authorized to practice dentistry by a 
State (or who, without authority, holds himself or herself out to be so 
authorized).
    Formal peer review process means the conduct of professional review 
activities through formally adopted written procedures which provide for 
adequate notice and an opportunity for a hearing.
    Health care entity means:
    (a) A hospital;
    (b) An entity that provides health care services, and engages in 
professional review activity through a formal peer review process for 
the purpose of furthering quality health care, or a committee of that 
entity; or
    (c) A professional society or a committee or agent thereof, 
including those at the national, State, or local level, of physicians, 
dentists, or other health care practitioners that engages in 
professional review activity through a formal peer review process, for 
the purpose of furthering quality health care.

For purposes of paragraph (b) of this definition, an entity includes: a 
health maintenance organization which is licensed by a State or 
determined to be qualified as such by the Department of Health and Human 
Services; and any group or prepaid medical or dental practice which 
meets the criteria of paragraph (b).
    Health care practitioner means an individual other than a physician 
or dentist, who is licensed or otherwise authorized by a State to 
provide health care services.
    Hospital means an entity described in paragraphs (1) and (7) of 
section 1861(e) of the Social Security Act.
    Medical malpractice action or claim means a written complaint or 
claim demanding payment based on a physician's, dentists or other health 
care practitioner's provision of or failure to provide health care 
services, and includes the filing of a cause of action based on the law 
of tort, brought in any State or Federal Court or other adjudicative 
body.

[[Page 129]]

    Physician means a doctor of medicine or osteopathy legally 
authorized to practice medicine or surgery by a State (or who, without 
authority, holds himself or herself out to be so authorized).
    Professional review action means an action or recommendation of a 
health care entity:
    (a) Taken in the course of professional review activity;
    (b) Based on the professional competence or professional conduct of 
an individual physician, dentist or other health care practitioner which 
affects or could affect adversely the health or welfare of a patient or 
patients; and
    (c) Which adversely affects or may adversely affect the clinical 
privileges or membership in a professional society of the physician, 
dentist or other health care practitioner.
    (d) This term excludes actions which are primarily based on:
    (1) The physician's, dentist's or other health care practitioner's 
association, or lack of association, with a professional society or 
association;
    (2) The physician's, dentist's or other health care practitioner's 
fees or the physician's, dentist's or other health care practitioner's 
advertising or engaging in other competitive acts intended to solicit or 
retain business;
    (3) The physician's, dentist's or other health care practitioner's 
participation in prepaid group health plans, salaried employment, or any 
other manner of delivering health services whether on a fee-for-service 
or other basis;
    (4) A physician's, dentist's or other health care practitioner's 
association with, supervision of, delegation of authority to, support 
for, training of, or participation in a private group practice with, a 
member or members of a particular class of health care practitioner or 
professional; or
    (5) Any other matter that does not relate to the competence or 
professional conduct of a physician, dentist or other health care 
practitioner.
    Professional review activity means an activity of a health care 
entity with respect to an individual physician, dentist or other health 
care practitioner:
    (a) To determine whether the physician, dentist or other health care 
practitioner may have clinical privileges with respect to, or membership 
in, the entity;
    (b) To determine the scope or conditions of such privileges or 
membership; or
    (c) To change or modify such privileges or membership.
    Secretary means the Secretary of Health and Human Services and any 
other officer or employee of the Department of Health and Human Services 
to whom the authority involved has been delegated.
    State means the fifty States, the District of Columbia, Puerto Rico, 
the Virgin Islands, Guam, American Samoa, and the Northern Mariana 
Islands.

[54 FR 42730, Oct. 17, 1989; 54 FR 43890, Oct. 27, 1989]



                   Subpart B--Reporting of Information



Sec. 60.4  How information must be reported.

    Information must be reported to the Data Bank or to a Board of 
Medical Examiners as required under Secs. 60.7, 60.8, and 60.9 in such 
form and manner as the Secretary may prescribe.



Sec. 60.5  When information must be reported.

    Information required under Secs. 60.7, 60.8, and 60.9 must be 
submitted to the Data Bank within 30 days following the action to be 
reported, beginning with actions occurring on or after September 1, 
1990, as follows:
    (a) Malpractice Payments (Sec. 60.7). Persons or entities must 
submit information to the Data Bank within 30 days from the date that a 
payment, as described in Sec. 60.7, is made. If required under 
Sec. 60.7, this information must be submitted simultaneously to the 
appropriate State licensing board.
    (b) Licensure Actions (Sec. 60.8). The Board must submit information 
within 30 days from the date the licensure action was taken.
    (c) Adverse Actions (Sec. 60.9). A health care entity must report an 
adverse action to the Board within 15 days from the date the adverse 
action was taken. The Board must submit the information received from a 
health care entity within 15 days from the date on which

[[Page 130]]

it received this information. If required under Sec. 60.9, this 
information must be submitted by the Board simultaneously to the 
appropriate State licensing board in the State in which the health care 
entity is located, if the Board is not such licensing Board.

[54 FR 42730, Oct. 17, 1989, as amended at 55 FR 50003, Dec. 4, 1990]



Sec. 60.6  Reporting errors, omissions, and revisions.

    (a) Persons and entities are responsible for the accuracy of 
information which they report to the Data Bank. If errors or omissions 
are found after information has been reported, the person or entity 
which reported it must send an addition or correction to the Data Bank 
or, in the case of reports made under Sec. 60.9, to the Board of Medical 
Examiners, as soon as possible.
    (b) An individual or entity which reports information on licensure 
or clinical privileges under Secs. 60.8 or 60.9 must also report any 
revision of the action originally reported. Revisions include reversal 
of a professional review action or reinstatement of a license. Revisions 
are subject to the same time constraints and procedures of Secs. 60.5, 
60.8, and 60.9, as applicable to the original action which was reported.


Approved by the Office of Management and Budget under control number 
0915-0126)

[54 FR 42730, Oct. 17, 1989, as amended at 55 FR 50004, Dec. 4, 1990]



Sec. 60.7  Reporting medical malpractice payments.

    (a) Who must report. Each entity, including an insurance company, 
which makes a payment under an insurance policy, self-insurance, or 
otherwise, for the benefit of a physician, dentist or other health care 
practitioner in settlement of or in satisfaction in whole or in part of 
a claim or a judgment against such physician, dentist, or other health 
care practitioner for medical malpractice, must report information as 
set forth in paragraph (b) to the Data Bank and to the appropriate State 
licensing board(s) in the State in which the act or omission upon which 
the medical malpractice claim was based. For purposes of this section, 
the waiver of an outstanding debt is not construed as a ``payment'' and 
is not required to be reported.
    (b) What information must be reported. Entities described in 
paragraph (a) must report the following information:
    (1) With respect to the physician, dentist or other health care 
practitioner for whose benefit the payment is made--
    (i) Name,
    (ii) Work address,
    (iii) Home address, if known,
    (iv) Social Security number, if known, and if obtained in accordance 
with section 7 of the Privacy Act of 1974,
    (v) Date of birth,
    (vi) Name of each professional school attended and year of 
graduation,
    (vii) For each professional license: the license number, the field 
of licensure, and the name of the State or Territory in which the 
license is held,
    (viii) Drug Enforcement Administration registration number, if 
known,
    (ix) Name of each hospital with which he or she is affiliated, if 
known;
    (2) With respect to the reporting entity--
    (i) Name and address of the entity making the payment,
    (ii) Name, title, and telephone number of the responsible official 
submitting the report on behalf of the entity, and
    (iii) Relationship of the reporting entity of the physician, 
dentists, or other health care practitioner for whose benefit the 
payment is made;
    (3) With respect to the judgment or settlement resulting in the 
payment--
    (i) Where an action or claim has been filed with an adjudicative 
body, identification of the adjudicative body and the case number,
    (ii) Date or dates on which the act(s) or omission(s) which gave 
rise to the action or claim occurred,
    (iii) Date of judgment or settlement,
    (iv) Amount paid, date of payment, and whether payment is for a 
judgment or a settlement,
    (v) Description and amount of judgment or settlement and any 
conditions attached thereto, including terms of payment,
    (vi) A description of the acts or omissions and injuries or 
illnesses upon which the action or claim was based,

[[Page 131]]

    (vii) Classification of the acts or omissions in accordance with a 
reporting code adopted by the Secretary, and
    (viii) Other information as required by the Secretary from time to 
time after publication in the Federal Register and after an opportunity 
for public comment.
    (c) Sanctions. Any entity that fails to report information on a 
payment required to be reported under this section is subject to a civil 
money penalty of up to $10,000 for each such payment involved. This 
penalty will be imposed pursuant to procedures at 42 CFR part 1003.
    (d) Interpretation of information. A payment in settlement of a 
medical malpractice action or claim shall not be construed as creating a 
presumption that medical malpractice has occurred.

(Approved by the Office of Management and Budget under control number 
0915-0126)

[54 FR 42730, Oct. 17, 1989, as amended at 59 FR 61555, Dec. 1, 1994]



Sec. 60.8  Reporting licensure actions taken by Boards of Medical Examiners.

    (a) What actions must be reported. Each Board of Medical Examiners 
must report to the Data Bank any action based on reasons relating to a 
physician's or dentist's professional competence or professional 
conduct-
    (1) Which revokes or suspends (or otherwise restricts) a physician's 
or dentist's license,
    (2) Which censures, reprimands, or places on probation a physician 
or dentist, or
    (3) Under which a physician's or dentist's license is surrendered.
    (b) Information that must be reported. The Board must report the 
following information for each action:
    (1) The physician's or dentist's name,
    (2) The physician's or dentist's work address,
    (3) The physician's or dentist's home address, if known,
    (4) The physician's or dentist's Social Security number, if known, 
and if obtained in accordance with section 7 of the Privacy Act of 1974,
    (5) The physician's or dentist's date of birth,
    (6) Name of each professional school attended by the physician or 
dentist and year of graduation,
    (7) For each professional license, the physician's or dentist's 
license number, the field of licensure and the name of the State or 
Territory in which the license is held,
    (8) The physician's or dentist's Drug Enforcement Administration 
registration number, if known,
    (9) A description of the acts or omissions or other reasons for the 
action taken,
    (10) A description of the Board action, the date the action was 
taken, and its effective date,
    (11) Classification of the action in accordance with a reporting 
code adopted by the Secretary, and
    (12) Other information as required by the Secretary from time to 
time after publication in the Federal Register and after an opportunity 
for public comment.
    (c) Sanctions. If, after notice of noncompliance and providing 
opportunity to correct noncompliance, the Secretary determines that a 
Board has failed to submit a report as required by this section, the 
Secretary will designate another qualified entity for the reporting of 
information under Sec. 60.9.

(Approved by the Office of Management and Budget under control number 
0915-0126)



Sec. 60.9  Reporting adverse actions on clinical privileges.

    (a) Reporting to the Board of Medical Examiners--(1) Actions that 
must be reported and to whom the report must be made. Each health care 
entity must report to the Board of Medical Examiners in the State in 
which the health care entity is located the following actions:
    (i) Any professional review action that adversely affects the 
clinical privileges of a physician or dentist for a period longer than 
30 days;
    (ii) Acceptance of the surrender of clinical privileges or any 
restriction of such privileges by a physician or dentist--
    (A) While the physician or dentist is under investigation by the 
health care entity relating to possible incompetence or improper 
professional conduct, or

[[Page 132]]

    (B) In return for not conducting such an investigation or 
proceeding; or
    (iii) In the case of a health care entity which is a professional 
society, when it takes a professional review action concerning a 
physician or dentist.
    (2) Voluntary reporting on other health care practitioners. A health 
care entity may report to the Board of Medical Examiners information as 
described in paragraph (a)(3) of this section concerning actions 
described in paragraph (a)(1) in this section with respect to other 
health care practitioners.
    (3) What information must be reported. The health care entity must 
report the following information concerning actions described in 
paragraph (a)(1) of this section with respect to the physician or 
dentist:
    (i) Name,
    (ii) Work address,
    (iii) Home address, if known,
    (iv) Social Security number, if known, and if obtained in accordance 
with section 7 of the Privacy Act of 1974,
    (v) Date of birth,
    (vi) Name of each professional school attended and year of 
graduation,
    (vii) For each professional license: the license number, the field 
of licensure, and the name of the State or Territory in which the 
license is held,
    (viii) Drug Enforcement Administration registration number, if 
known,
    (ix) A description of the acts or omissions or other reasons for 
privilege loss, or, if known, for surrender,
    (x) Action taken, date the action was taken, and effective date of 
the action, and
    (xi) Other information as required by the Secretary from time to 
time after publication in the Federal Register and after an opportunity 
for public comment.
    (b) Reporting by the Board of Medical Examiners to the National 
Practitioner Data Bank. Each Board must report, in accordance with 
Secs. 60.4 and 60.5, the information reported to it by a health care 
entity and any known instances of a health care entity's failure to 
report information as required under paragraph (a)(1) of this section. 
In addition, each Board must simultaneously report this information to 
the appropriate State licensing board in the State in which the health 
care entity is located, if the Board is not such licensing board.
    (c) Sanctions--(1) Health care entities. If the Secretary has reason 
to believe that a health care entity has substantially failed to report 
information in accordance with Sec. 60.9, the Secretary will conduct an 
investigation. If the investigation shows that the health care entity 
has not complied with Sec. 60.9, the Secretary will provide the entity 
with a written notice describing the noncompliance, giving the health 
care entity an opportunity to correct the noncompliance, and stating 
that the entity may request, within 30 days after receipt of such 
notice, a hearing with respect to the noncompliance. The request for a 
hearing must contain a statement of the material factual issues in 
dispute to demonstrate that there is cause for a hearing. These issues 
must be both substantive and relevant. The hearing will be held in the 
Washington, DC, metropolitan area. The Secretary will deny a hearing if:
    (i) The request for a hearing is untimely,
    (ii) The health care entity does not provide a statement of material 
factual issues in dispute, or
    (iii) The statement of factual issues in dispute is frivolous or 
inconsequential.

In the event that the Secretary denies a hearing, the Secretary will 
send a written denial to the health care entity setting forth the 
reasons for denial. If a hearing is denied, or if as a result of the 
hearing the entity is found to be in noncompliance, the Secretary will 
publish the name of the health care entity in the Federal Register. In 
such case, the immunity protections provided under section 411(a) of the 
Act will not apply to the health care entity for professional review 
activities that occur during the 3-year period beginning 30 days after 
the date of publication of the entity's name in the Federal Register.
    (2) Board of Medical Examiners. If, after notice of noncompliance 
and providing opportunity to correct noncompliance, the Secretary 
determines that a Board has failed to report information in accordance 
with paragraph

[[Page 133]]

(b) of this section, the Secretary will designate another qualified 
entity for the reporting of this information.

(Approved by the Office of Management and Budget under control number 
0915-0126)

[54 FR 42730, Oct. 17, 1989, as amended at 59 FR 61555, Dec. 1, 1994]



 Subpart C--Disclosure of Information by the National Practitioner Data 
                                  Bank



Sec. 60.10  Information which hospitals must request from the National Practitioner Data Bank.

    (a) When information must be requested. Each hospital, either 
directly or through an authorized agent, must request information from 
the Data Bank concerning a physician, dentist or other health care 
practitioner as follows:
    (1) At the time a physician, dentist or other health care 
practitioner applies for a position on its medical staff (courtesy or 
otherwise), or for clinical privileges at the hospital; and
    (2) Every 2 years concerning any physician, dentist, or other health 
care practitioner who is on its medical staff (courtesy or otherwise), 
or has clinical privileges at the hospital.
    (b) Failure to request information. Any hospital which does not 
request the information as required in paragraph (a) of this section is 
presumed to have knowledge of any information reported to the Data Bank 
concerning this physician, dentist or other health care practitioner.
    (c) Reliance on the obtained information. Each hospital may rely 
upon the information provided by the Data Bank to the hospital. A 
hospital shall not be held liable for this reliance unless the hospital 
has knowledge that the information provided was false.

(Approved by the Office of Management and Budget under control number 
0915-0126)



Sec. 60.11  Requesting information from the National Practitioner Data Bank.

    (a) Who may request information and what information may be 
available. Information in the Data Bank will be available, upon request, 
to the persons or entities, or their authorized agents, as described 
below:
    (1) A hospital that requests information concerning a physician, 
dentist or other health care practitioner who is on its medical staff 
(courtesy or otherwise) or has clinical privileges at the hospital,
    (2) A physician, dentist, or other health care practitioner who 
requests information concerning himself or herself,
    (3) Boards of Medical Examiners or other State licensing boards,
    (4) Health care entities which have entered or may be entering 
employment or affiliation relationships with a physician, dentist or 
other health care practitioner, or to which the physician, dentist or 
other health care practitioner has applied for clinical privileges or 
appointment to the medical staff,
    (5) An attorney, or individual representing himself or herself, who 
has filed a medical malpractice action or claim in a State or Federal 
court or other adjudicative body against a hospital, and who requests 
information regarding a specific physician, dentist, or other health 
care practitioner who is also named in the action or claim. Provided, 
that this information will be disclosed only upon the submission of 
evidence that the hospital failed to request information from the Data 
Bank as required by Sec. 60.10(a), and may be used solely with respect 
to ligitation resulting from the action or claim against the 
hospital,11(6) A health care entity with respect to professional review 
activity, and
    (7) A person or entity who requests information in a form which does 
not permit the identification of any particular health care entity, 
physician, dentist, or other health care practitioner.
    (b) Procedures for obtaining National Practitioner Data Bank 
information. Persons and entities may obtain information from the Data 
Bank by submitting a request in such form and manner as the Secretary 
may prescribe. These requests are subject to fees as described in 
Sec. 60.12.

[54 FR 42730, Oct. 17, 1989; 54 FR 43890, Oct. 27, 1989]

[[Page 134]]



Sec. 60.12  Fees applicable to requests for information.

    (a) Policy on Fees. The fees described in this section apply to all 
requests for information from the Data Bank. These fees are authorized 
by section 427(b)(4) of the Health Care Quality Improvement Act of 1986 
(42 U.S.C. 11137). They reflect the costs of processing requests for 
disclosure and of providing such information. The actual fees will be 
announced by the Secretary in periodic notices in the Federal Register.
    (b) Criteria for determining the fee. The amount of each fee will be 
determined based on the following criteria:
    (1) Use of electronic data processing equipment to obtain 
information--the actual cost for the service, including computer search 
time, runs, printouts, and time of computer programmers and operators, 
or other employees,
    (2) Photocopying or other forms of reproduction, such as magnetic 
tapes--actual cost of the operator's time, plus the cost of the machine 
time and the materials used,
    (3) Postage--actual cost, and
    (4) Sending information by special methods requested by the 
applicant, such as express mail or electronic transfer--the actual cost 
of the special service.
    (c) Assessing and collecting fees. The Secretary will announce 
through notice in the Federal Register from time to time the methods of 
payment of Data Bank fees. In determining these methods, the Secretary 
will consider efficiency, effectiveness, and convenience for the Data 
Bank users and the Department. Methods may include: credit card; 
electronic fund transfer; check; and money order.

[54 FR 42730, Oct. 17, 1989, as amended at 60 FR 27899, May 26, 1995; 64 
FR 9922, Mar. 1, 1999]



Sec. 60.13  Confidentiality of National Practitioner Data Bank information.

    (a) Limitations on disclosure. Information reported to the Data Bank 
is considered confidential and shall not be disclosed outside the 
Department of Health and Human Services, except as specified in 
Sec. 60.10, Sec. 60.11 and Sec. 60.14. Persons and entities which 
receive information from the Data Bank either directly or from another 
party must use it solely with respect to the purpose for which it was 
provided. Nothing in this paragraph shall prevent the disclosure of 
information by a party which is authorized under applicable State law to 
make such disclosure.
    (b) Penalty for violations. Any person who violates paragraph (a) 
shall be subject to a civil money penalty of up to $10,000 for each 
violation. This penalty will be imposed pursuant to procedures at 42 CFR 
part 1003.



Sec. 60.14  How to dispute the accuracy of National Practitioner Data Bank information.

    (a) Who may dispute National Practitioner Data Bank information. Any 
physician, dentist or other health care practitioner may dispute the 
accuracy of information in the Data Bank concerning himself or herself. 
The Secretary will routinely mail a copy of any report filed in the Data 
Bank to the subject individual.
    (b) Procedures for filing a dispute. A physician, dentist or other 
health care practitioner has 60 days from the date on which the 
Secretary mails the report in question to him or her in which to dispute 
the accuracy of the report. The procedures for disputing a report are:
    (1) Informing the Secretary and the reporting entity, in writing, of 
the disagreement, and the basis for it,
    (2) Requesting simultaneously that the disputed information be 
entered into a ``disputed'' status and be reported to inquirers as being 
in a ``disputed'' status, and
    (3) Attempting to enter into discussion with the reporting entity to 
resolve the dispute.
    (c) Procedures for revising disputed information. (1) If the 
reporting entity revises the information originally submitted to the 
Data Bank, the Secretary will notify all entities to whom reports have 
been sent that the original information has been revised.
    (2) If the reporting entity does not revise the reported 
information, the Secretary will, upon request, review the written 
information submitted by both parties (the physician, dentist or other

[[Page 135]]

health care practitioner), and the reporting entity. After review, the 
Secretary will either--
    (i) If the Secretary concludes that the information is accurate, 
include a brief statement by the physician, dentist or other health care 
practitioner describing the disagreement concerning the information, and 
an explanation of the basis for the decision that it is accurate, or
    (ii) If the Secretary concludes that the information was incorrect, 
send corrected information to previous inquirers.

(Approved by the Office of Management and Budget under control number 
0915-0126)

[54 FR 42730, Oct. 17, 1989, as amended at 54 FR 43890, Oct. 27, 1989]



PART 61--HEALTHCARE INTEGRITY AND PROTECTION DATA BANK FOR FINAL ADVERSE INFORMATION ON HEALTH CARE PROVIDERS, SUPPLIERS AND PRACTITIONERS--Table of Contents




                      Subpart A--General Provisions

Sec.
61.1  The Healthcare Integrity and Protection Data Bank.
61.2  Applicability of these regulations.
61.3  Definitions.

                   Subpart B--Reporting of Information

61.4  How information must be reported.
61.5  When information must be reported.
61.6  Reporting errors, omissions, revisions, or whether an action is on 
          appeal.
61.7  Reporting licensure actions taken by Federal or State licensing 
          and certification agencies.
61.8  Reporting Federal or State criminal convictions related to the 
          delivery of a health care item or service.
61.9  Reporting civil judgments related to the delivery of a health care 
          item or service.
61.10  Reporting exclusions from participation in Federal or State 
          health care programs.
61.11  Reporting other adjudicated actions or decisions.

  Subpart C--Disclosure of Information by the Healthcare Integrity and 
                          Protection Data Bank

61.12  Requesting information from the Healthcare Integrity and 
          Protection Data Bank.
61.13  Fees applicable to requests for information.
61.14  Confidentiality of Healthcare Integrity and Protection Data Bank 
          information.
61.15  How to dispute the accuracy of Healthcare Integrity and 
          Protection Data Bank information.
61.16  Immunity.

    Authority: 42 U.S.C. 1320a-7e.

    Source: 64 FR 57758, Oct. 26, 1999, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 61.1  The Healthcare Integrity and Protection Data Bank.

    (a) Section 1128E of the Social Security Act (the Act) authorizes 
the Secretary of Health and Human Services (the Secretary) to implement 
a national health care fraud and abuse data collection program for the 
reporting and disclosing of certain final adverse actions taken against 
health care providers, suppliers, or practitioners. Section 1128E of the 
Act also directs the Secretary to maintain a database of final adverse 
actions taken against health care providers, suppliers or practitioners. 
This data bank will be known as the Healthcare Integrity and Protection 
Data Bank (HIPDB). Settlements in which no findings or admissions of 
liability have been made will be excluded from being reported. However, 
if another action is taken against the provider, supplier or 
practitioner of a health care item or service as a result of or in 
conjunction with the settlement, that action is reportable to the HIPDB.
    (b) Section 1128E of the Act also requires the Secretary to 
implement the HIPDB in such a manner as to avoid duplication with the 
reporting requirements established for the National Practitioner Data 
Bank (NPDB) (See 45 CFR part 60). In accordance with the statute, the 
reporter responsible for reporting the final adverse actions to

[[Page 136]]

both the HIPDB and the NPDB will be required to submit only one report, 
provided that reporting is made through the Department's consolidated 
reporting mechanism that will sort the appropriate actions into the 
HIPDB, NPDB, or both.
    (c) The regulations in this part set forth the reporting and 
disclosure requirements for the HIPDB.



Sec. 61.2  Applicability of these regulations.

    The regulations in this part establish reporting requirements 
applicable to Federal and State Government agencies and to health plans, 
as the terms are defined under Sec. 61.3.



Sec. 61.3  Definitions.

    The following definitions apply to this part:
    Act means the Social Security Act.
    Affiliated or associated means health care entities with which a 
subject of a final adverse action has a commercial relationship, 
including but not limited to, organizations, associations, corporations, 
or partnerships. It also includes a professional corporation or other 
business entity composed of a single individual.
    Any other negative action or finding by a Federal or State licensing 
agency means any action or finding that under the State's law is 
publicly available information, and rendered by a licensing or 
certification authority, including but not limited to, limitations on 
the scope of practice, liquidations, injunctions and forfeitures. This 
definition also includes final adverse actions rendered by a Federal or 
State licensing or certification authority, such as exclusions, 
revocations or suspension of license or certification that occur in 
conjunction with settlements in which no finding of liability has been 
made (although such a settlement itself is not reportable under the 
statute). This definition excludes citations, corrective action plans 
and personnel actions.
    Civil judgment means a court-ordered action rendered in a Federal or 
State court proceeding, other than a criminal proceeding. This reporting 
requirement does not include Consent Judgments that have been agreed 
upon and entered to provide security for civil settlements in which 
there was no finding or admission of liability.
    Criminal conviction means a conviction as described in section 
1128(i) of the Act.
    Exclusion means a temporary or permanent debarment of an individual 
or entity from participation in any Federal or State health-related 
program, in accordance with which items or services furnished by such 
person or entity will not be reimbursed under any Federal or State 
health-related program.
    Government agency includes, but is not limited to--
    (1) The U.S. Department of Justice;
    (2) The U.S Department of Health and Human Services;
    (3) Any other Federal agency that either administers or provides 
payment for the delivery of health care services, including, but not 
limited to, the U.S. Department of Defense and the U.S. Department of 
Veterans Affairs;
    (4) Federal and State law enforcement agencies, including States 
Attorneys General and law enforcement investigators;
    (5) State Medicaid Fraud Control Units; and
    (6) Federal or State agencies responsible for the licensing and 
certification of health care providers, suppliers or licensed health 
care practitioners. Examples of such State agencies include Departments 
of Professional Regulation, Health, Social Services (including State 
Survey and Certification and Medicaid Single State agencies), Commerce 
and Insurance.
    Health care provider means a provider of services as defined in 
section 1861(u) of the Act; any health care entity (including a health 
maintenance organization, preferred provider organization or group 
medical practice) that provides health care services and follows a 
formal peer review process for the purpose of furthering quality health 
care, and any other health care entity that, directly or through 
contracts, provides health care services.
    Health care supplier means a provider of medical and other health 
care services as described in section 1861(s) of the Act; or any 
individual or entity, other than a provider, who furnishes,

[[Page 137]]

whether directly or indirectly, or provides access to, health care 
services, supplies, items, or ancillary services (including, but not 
limited to, durable medical equipment suppliers, manufacturers of health 
care items, pharmaceutical suppliers and manufacturers, health record 
services such as medical, dental and patient records, health data 
suppliers, and billing and transportation service suppliers). The term 
also includes any individual or entity under contract to provide such 
supplies, items or ancillary services; health plans as defined in this 
section (including employers that are self-insured); and health 
insurance producers (including but not limited to agents, brokers, 
solicitors, consultants and reinsurance intermediaries).
    Health plan means a plan, program or organization that provides 
health benefits, whether directly, through insurance, reimbursement or 
otherwise, and includes but is not limited to--
    (1) A policy of health insurance;
    (2) A contract of a service benefit organization;
    (3) A membership agreement with a health maintenance organization or 
other prepaid health plan;
    (4) A plan, program, agreement or other mechanism established, 
maintained or made available by a self insured employer or group of self 
insured employers, a practitioner, provider or supplier group, third 
party administrator, integrated health care delivery system, employee 
welfare association, public service group or organization or 
professional association; and
    (5) An insurance company, insurance service or insurance 
organization that is licensed to engage in the business of selling 
health care insurance in a State and which is subject to State law which 
regulates health insurance.
    Licensed health care practitioner, licensed practitioner, or 
practitioner means, with respect to a State, an individual who is 
licensed or otherwise authorized by the State to provide health care 
services (or any individual who, without authority, holds himself or 
herself out to be so licensed or authorized).
    Organization name means the subject's business or employer at the 
time the underlying acts occurred. If more than one business or employer 
is involved, the one most closely related to the underlying acts should 
be reported in the ``organization name,'' field with the others being 
reported in the ``affiliated or associated health care entities'' field.
    Organization type means a brief description of the nature of that 
business or employer.
    Other adjudicated actions or decisions means formal or official 
final actions taken against a health care provider, supplier or 
practitioner by a Federal or State governmental agency or a health plan; 
which include the availability of a due process mechanism, and; are 
based on acts or omissions that affect or could affect the payment, 
provision or delivery of a health care item or service. For example, a 
formal or official final action taken by a Federal or State governmental 
agency or a health plan may include, but is not limited to, a personnel-
related action such as suspensions without pay, reductions in pay, 
reductions in grade for cause, terminations or other comparable actions. 
A hallmark of any valid adjudicated action or decision is the 
availability of a due process mechanism. The fact that the subject 
elects not to use the due process mechanism provided by the authority 
bringing the action is immaterial, as long as such a process is 
available to the subject before the adjudicated action or decision is 
made final. In general, if an ``adjudicated action or decision'' follows 
an agency's established administrative procedures (which ensure that due 
process is available to the subject of the final adverse action), it 
would qualify as a reportable action under this definition. This 
definition specifically excludes clinical privileging actions taken by 
Federal or State Government agencies and similar paneling decisions made 
by health plans. This definition does not include overpayment 
determinations made by Federal or State Government programs, their 
contractors or health plans; and it does not include denial of claims 
determinations made by Government agencies or health plans. For health 
plans that are not Government entities, an action taken following 
adequate notice and the opportunity for a hearing that meets the 
standards of

[[Page 138]]

due process set out in section 412(b) of the HCQIA (42 U.S.C. 11112(b)) 
also would qualify as a reportable action under this definition.
    Secretary means the Secretary of Health and Human Services and any 
other officer or employee of the Department of Health and Human Services 
to whom the authority involved has been delegated.
    State means any of the fifty States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands and Guam.
    Voluntary surrender means a surrender made after a notification of 
investigation or a formal official request by a Federal or State 
licensing or certification authority for a health care provider, 
supplier or practitioner to surrender the license or certification 
(including certification agreements or contracts for participation in 
Federal or State health care programs). The definition also includes 
those instances where a health care provider, supplier or practitioner 
voluntarily surrenders a license or certification (including program 
participation agreements or contracts) in exchange for a decision by the 
licensing or certification authority to cease an investigation or 
similar proceeding, or in return for not conducting an investigation or 
proceeding, or in lieu of a disciplinary action.

[64 FR 57758, Oct. 26, 1999, as amended at 65 FR 70507, Nov. 24, 2000]



                   Subpart B--Reporting of Information



Sec. 61.4  How information must be reported.

    Information must be reported to the HIPDB as required under 
Secs. 61.6, 61.7, 61.8, 61.9, 61.10, 61.11 and 61.15 in such form and 
manner as the Secretary may prescribe.



Sec. 61.5  When information must be reported.

    (a) Information required under Secs. 61.7, 61.8, 61.9, 61.10 and 
61.11 must be submitted to the HIPDB--
    (1) Within 30 calendar days from the date the final adverse action 
was taken or the date when the reporting entity became aware of the 
final adverse action; or
    (2) By the close of the entity's next monthly reporting cycle, 
whichever is later.
    (b) The date the final adverse action was taken, its effective date 
and duration of the action would be contained in the information 
reported to the HIPDB under Secs. 61.7, 61.8, 61.9, 61.10 and 61.11.



Sec. 61.6  Reporting errors, omissions, revisions or whether an action is on appeal.

    (a) If errors or omissions are found after information has been 
reported, the reporter must send an addition or correction to the HIPDB. 
The HIPDB will not accept requests for readjudication of the case.
    (b) A reporter that reports information on licensure, criminal 
convictions, civil or administrative judgments, exclusions, or 
adjudicated actions or decisions under Secs. 61.7, 61.8, 61.9, 61.10 or 
61.11 also must report any revision of the action originally reported. 
Revisions include, but are not limited to, reversal of a criminal 
conviction, reversal of a judgment or other adjudicated decisions or 
whether the action is on appeal, and reinstatement of a license.
    (c) The subject will receive a copy of all reports, including 
revisions and corrections to the report.
    (d) Upon receipt of a report, the subject--
    (1) Can accept the report as written;
    (2) May provide a statement to the HIPDB that will be permanently 
appended to the report, either directly or through a designated 
representative (The HIPDB will distribute the statement to queriers, 
where identifiable, and to the reporting entity and the subject of the 
report. The HIPDB will not edit the statement; only the subject can, 
upon request, make changes to the statement); or
    (3) May follow the dispute process in accordance with Sec. 61.15.

[[Page 139]]



Sec. 61.7  Reporting licensure actions taken by Federal or State licensing and certification agencies.

    (a) What actions must be reported. Federal and State licensing and 
certification agencies must report to the HIPDB the following final 
adverse actions that are taken against a health care provider, supplier, 
or practitioner (regardless of whether the final adverse action is the 
subject of a pending appeal)--
    (1) Formal or official actions, such as revocation or suspension of 
a license or certification agreement or contract for participation in 
Federal or State health care programs (and the length of any such 
suspension), reprimand, censure or probation;
    (2) Any other loss of the license or loss of the certification 
agreement or contract for participation in Federal or State health care 
programs, or the right to apply for, or renew, a license or 
certification agreement or contract of the provider, supplier, or 
practitioner, whether by operation of law, voluntary surrender, non-
renewal (excluding nonrenewals due to nonpayment of fees, retirement, or 
change to inactive status), or otherwise; and
    (3) Any other negative action or finding by such Federal or State 
agency that is publicly available information.
    (b) Entities described in paragraph (a) of this section must report 
the following information:
    (1) If the subject is an individual, personal identifiers, 
including:
    (i) Name;
    (ii) Social Security Number;
    (iii) Home address or address of record;
    (iv) Sex; and
    (v) Date of birth.
    (2) If the subject is an individual, that individual's employment or 
professional identifiers, including:
    (i) Organization name and type;
    (ii) Occupation and specialty, if applicable;
    (iii) National Provider Identifier (NPI), when issued by theCenters 
for Medicare & Medicaid Services (CMS);
    (iv) Name of each professional school attended and year of 
graduation; and
    (v) With respect to the State professional license (including 
professional certification and registration) on which the reported 
action was taken, the license number, the field of licensure, and the 
name of the State or territory in which the license is held.
    (3) If the subject is an organization, identifiers, including:
    (i) Name;
    (ii) Business address;
    (iii) Federal Employer Identification Number (FEIN), or Social 
Security Number when used by the subject as a Taxpayer Identification 
Number (TIN);
    (iv) The NPI, when issued by CMS;
    (v) Type of organization; and
    (vi) With respect to the State license (including certification and 
registration) on which the reported action was taken, the license and 
the name of the State or territory in which the license is held.
    (4) For all subjects:
    (i) A narrative description of the acts or omissions and injuries 
upon which the reported action was based;
    (ii) Classification of the acts or omissions in accordance with a 
reporting code adopted by the Secretary;
    (iii) Classification of the action taken in accordance with a 
reporting code adopted by the Secretary, and the amount of any monetary 
penalty resulting from the reported action;
    (iv) The date the action was taken, its effective date and duration;
    (v) If the action is on appeal;
    (vi) Name of the agency taking the action;
    (vii) Name and address of the reporting entity; and
    (viii) The name, title and telephone number of the responsible 
official submitting the report on behalf of the reporting entity.
    (c) Entities described in paragraph (a) of this section should 
report, if known, the following information:
    (1) If the subject is an individual, personal identifiers, 
including:
    (i) Other name (s) used;
    (ii) Other address;
    (iii) FEIN, when used by the individual as a TIN; and
    (iv) If deceased, date of death.
    (2) If the subject is an individual, that individual's employment or 
professional identifiers, including:
    (i) Other State professional license number(s), field(s) of 
licensure, and the

[[Page 140]]

name(s) of the State or territory in which the license is held;
    (ii) Other numbers assigned by Federal or State agencies, to 
include, but not limited to Drug Enforcement Administration (DEA) 
registration number(s), Unique Physician Identification Number(s) 
(UPIN), and Medicaid and Medicare provider number(s);
    (iii) Name(s) and address(es) of any health care entity with which 
the subject is affiliated or associated; and
    (iv) Nature of the subject's relationship to each associated or 
affiliated health care entity.
    (3) If the subject is an organization, identifiers, including:
    (i) Other name(s) used;
    (ii) Other address(es) used;
    (iii) Other FEIN(s) or Social Security Number(s) used;
    (iv) Other NPI(s) used;
    (v) Other State license number(s) and the name(s) of the State or 
territory in which the license is held;
    (vi) Other numbers assigned by Federal or State agencies, to 
include, but not limited to Drug Enforcement Administration (DEA) 
registration number(s), Clinical Laboratory Improvement Act (CLIA) 
number(s), Food and Drug Administration (FDA) number(s), and Medicaid 
and Medicare provider number(s);
    (vii) Names and titles of principal officers and owners;
    (viii) Name(s) and address(es) of any health care entity with which 
the subject is affiliated or associated; and
    (ix) Nature of the subject's relationship to each associated or 
affiliated health care entity.
    (4) For all subjects:
    (i) If the subject will be automatically reinstated; and
    (ii) The date of appeal, if any.
    (d) Sanctions for failure to report. The Secretary will provide for 
a publication of a public report that identifies those Government 
agencies that have failed to report information on adverse actions as 
required to be reported under this section.



Sec. 61.8  Reporting Federal or State criminal convictions related to the delivery of a health care item or service.

    (a) Who must report. Federal and State prosecutors must report 
criminal convictions against health care providers, suppliers, and 
practitioners related to the delivery of a health care item or service 
(regardless of whether the conviction is the subject of a pending 
appeal).
    (b) Entities described in paragraph (a) of this section must report 
the following information:
    (1) If the subject is an individual, personal identifiers, 
including:
    (i) Name;
    (ii) Social Security Number;
    (iii) Home address or address of record;
    (iv) Sex; and
    (v) Date of birth.
    (2) If the subject is an individual, that individual's employment or 
professional identifiers, including:
    (i) Organization name and type;
    (ii) Occupation and specialty, if applicable; and
    (iii) National Provider Identifier (NPI), when issued by theCenters 
for Medicare & Medicaid Services (CMS).
    (3) If the subject is an organization, identifiers, including:
    (i) Name;
    (ii) Business address;
    (iii) Federal Employer Identification Number (FEIN), or Social 
Security Number when used by the subject as a Taxpayer Identification 
Number (TIN);
    (iv) The NPI, when issued by CMS; and
    (v) Type of organization.
    (4) For all subjects:
    (i) A narrative description of the acts or omissions and injuries 
upon which the reported action was based;
    (ii) Classification of the acts or omissions in accordance with a 
reporting code adopted by the Secretary;
    (iii) Name and location of court or judicial venue in which the 
action was taken;
    (iv) Docket or court file number;
    (v) Type of action taken;
    (vi) Statutory offense(s) and count(s);
    (vii) Name of primary prosecuting agency (or the plaintiff in civil 
actions);
    (viii) Date of sentence or judgment;
    (ix) Length of incarceration, detention, probation, community 
service or suspended sentence;

[[Page 141]]

    (x) Amounts of any monetary judgment, penalty, fine, assessment or 
restitution;
    (xi) Other sentence, judgment or orders;
    (xii) If the action is on appeal;
    (xiii) Name and address of the reporting entity; and
    (xiv) The name, title and telephone number of the responsible 
official submitting the report on behalf of the reporting entity.
    (c) Entities described in paragraph (a) of this section should 
report, if known, the following information:
    (1) If the subject is an individual, personal identifiers, 
including:
    (i) Other name (s) used;
    (ii) Other address; and
    (iii) FEIN, when used by the individual as a TIN.
    (2) If the subject is an individual, that individual's employment or 
professional identifiers, including:
    (i) State professional license (including professional certification 
and registration) number(s), field(s) of licensure, and the name(s) of 
the State or territory in which the license is held;
    (ii) Other numbers assigned by Federal or State agencies, to 
include, but not limited to Drug Enforcement Administration (DEA) 
registration number(s), Unique Physician Identification Number(s) 
(UPIN), and Medicaid and Medicare provider number(s);
    (iii) Name(s) and address(es) of any health care entity with which 
the subject is affiliated or associated; and
    (iv) Nature of the subject's relationship to each associated or 
affiliated health care entity.
    (3) If the subject is an organization, identifiers, including:
    (i) Other name(s) used;
    (ii) Other address(es) used;
    (iii) Other FEIN(s) or Social Security Number(s) used;
    (iv) Other NPI(s) used;
    (v) State license (including certification and registration) 
number(s) and the name(s) of the State or territory in which the license 
is held;
    (vi) Other numbers assigned by Federal or State agencies, to 
include, but not limited to Drug Enforcement Administration (DEA) 
registration number(s), Clinical Laboratory Improvement Act (CLIA) 
number(s), Food and Drug Administration (FDA) number(s), and Medicaid 
and Medicare provider number(s);
    (vii) Names and titles of principal officers and owners;
    (viii) Name(s) and address(es) of any health care entity with which 
the subject is affiliated or associated; and
    (ix) Nature of the subject's relationship to each associated or 
affiliated health care entity.
    (4) For all subjects:
    (i) Prosecuting agency's case number;
    (ii) Investigative agencies involved;
    (iii) Investigative agencies case of file number(s); and
    (iv) The date of appeal, if any.
    (d) Sanctions for failure to report. The Secretary will provide for 
publication of a public report that identifies those Government agencies 
that have failed to report information on criminal convictions as 
required to be reported under this section.



Sec. 61.9  Reporting civil judgments related to the delivery of a health care item or service.

    (a) Who must report. Federal and State attorneys and health plans 
must report civil judgments against health care providers, suppliers, or 
practitioners related to the delivery of a health care item or service 
(regardless of whether the civil judgment is the subject of a pending 
appeal). If a Government agency is party to a multi-claimant civil 
judgment, it must assume the responsibility for reporting the entire 
action, including all amounts awarded to all the claimants, both public 
and private. If there is no Government agency as a party, but there are 
multiple health plans as claimants, the health plan which receives the 
largest award must be responsible for reporting the total action for all 
parties.
    (b) Entities described in paragraph (a) of this section must report 
the information as required in Sec. 61.8(b).
    (c) Entities described in paragraph (a) of this section should 
report, if known the information as described in Sec. 61.8(c).
    (d) Sanctions for failure to report. Any health plan that fails to 
report information on a civil judgment required to be reported under 
this section will be

[[Page 142]]

subject to a civil money penalty (CMP) of not more than $25,000 for each 
such adverse action not reported. Such penalty will be imposed and 
collected in the same manner as CMPs under subsection (a) of section 
1128A of the Act. The Secretary will provide for publication of a public 
report that identifies those Government agencies that have failed to 
report information on civil judgments as required to be reported under 
this section.



Sec. 61.10  Reporting exclusions from participation in Federal or State health care programs.

    (a) Who must report. Federal and State Government agencies must 
report health care providers, suppliers, or practitioners excluded from 
participating in Federal or State health care programs, including 
exclusions that were made in a matter in which there was also a 
settlement that is not reported because no findings or admissions of 
liability have been made (regardless of whether the exclusion is the 
subject of a pending appeal) .
    (b) Entities described in paragraph (a) of this section must report 
the following information:
    (1) If the subject is an individual, personal identifiers, 
including:
    (i) Name;
    (ii) Social Security Number;
    (iii) Home address or address of record;
    (iv) Sex; and
    (v) Date of birth.
    (2) If the subject is an individual, that individual's employment or 
professional identifiers, including:
    (i) Organization name and type;
    (ii) Occupation and specialty, if applicable; and
    (iii) National Provider Identifier (NPI), when issued by theCenters 
for Medicare & Medicaid Services (CMS).
    (3) If the subject is an organization, identifiers, including:
    (i) Name;
    (ii) Business address;
    (iii) Federal Employer Identification Number (FEIN), or Social 
Security Number when used by the subject as a Taxpayer Identification 
Number (TIN);
    (iv) The NPI, when issued by CMS; and
    (v) Type of organization.
    (4) For all subjects:
    (i) A narrative description of the acts or omissions and injuries 
upon which the reported action was based;
    (ii) Classification of the acts or omissions in accordance with a 
reporting code adopted by the Secretary;
    (iii) Classification of the action taken in accordance with a 
reporting code adopted by the Secretary, and the amount of any monetary 
penalty resulting from the reported action;
    (iv) The date the action was taken, its effective date and duration;
    (v) If the action is on appeal;
    (vi) Name of the agency taking the action;
    (vii) Name and address of the reporting entity; and
    (viii) The name, title and telephone number of the responsible 
official submitting the report on behalf of the reporting entity.
    (c) Entities described in paragraph (a) of this section should 
report, if known, the following information:
    (1) If the subject is an individual, personal identifiers, 
including:
    (i) Other name(s) used;
    (ii) Other address;
    (iii) FEIN, when used by the individual as a TIN;
    (iv) Name of each professional school attended and year of 
graduation; and
    (v) If deceased, date of death.
    (2) If the subject is an individual, that individual's employment or 
professional identifiers, including:
    (i) State professional license (including professional registration 
and certification) number(s), field(s) of licensure, and the name(s) of 
the State or Territory in which the license is held;
    (ii) Other numbers assigned by Federal or State agencies, to 
include, but not limited to Drug Enforcement Administration (DEA) 
registration number(s), Unique Physician Identification Number(s) 
(UPIN), and Medicaid and Medicare provider number(s);
    (iii) Name(s) and address(es) of any health care entity with which 
the subject is affiliated or associated; and
    (iv) Nature of the subject's relationship to each associated or 
affiliated health care entity.
    (3) If the subject is an organization, identifiers, including:
    (i) Other name(s) used;

[[Page 143]]

    (ii) Other address(es) used;
    (iii) Other FEIN(s) or Social Security Number(s) used;
    (iv) Other NPI(s) used;
    (v) State license (including registration and certification) 
number(s) and the name(s) of the State or territory in which the license 
is held;
    (vi) Other numbers assigned by Federal or State agencies, to 
include, but not limited to Drug Enforcement Administration (DEA) 
registration number(s), Clinical Laboratory Improvement Act (CLIA) 
number(s), Food and Drug Administration (FDA) number(s), and Medicaid 
and Medicare provider number(s);
    (vii) Names and titles of principal officers and owners;
    (viii) Name(s) and address(es) of any health care entity with which 
the subject is affiliated or associated; and
    (ix) Nature of the subject's relationship to each associated or 
affiliated health care entity.
    (4) For all subjects:
    (i) If the subject will be automatically reinstated; and
    (ii) The date of appeal, if any.
    (d) Sanctions for failure to report. The Secretary will provide for 
publication of a public report that identifies those Government agencies 
that have failed to report information on exclusions or debarments as 
required to be reported under this section.



Sec. 61.11  Reporting other adjudicated actions or decisions.

    (a) Who must report. Federal and State governmental agencies and 
health plans must report other adjudicated actions or decisions as 
defined in Sec. 61.3 related to the delivery, payment or provision of a 
health care item or service against health care providers, suppliers, 
and practitioners (regardless of whether the other adjudicated action or 
decision is subject to a pending appeal).
    (b) Entities described in paragraph (a) of this section must report 
the information as required in Sec. 61.10(b).
    (c) Entities described in paragraph (a) of this section should 
report, if known the information as described in Sec. 61.10(c).
    (d) Sanctions for failure to report. Any health plan that fails to 
report information on an other adjudicated action or decision required 
to be reported under this section will be subject to a civil money 
penalty (CMP) of not more than $25,000 for each such action not 
reported. Such penalty will be imposed and collected in the same manner 
as CMPs under subsection (a) of section 1128A of the Act. The Secretary 
will provide for publication of a public report that identifies those 
Government agencies that have failed to report information on other 
adjudicated actions as required to be reported under this section.



  Subpart C--Disclosure of Information by the Healthcare Integrity and 
                          Protection Data Bank



Sec. 61.12  Requesting information from the Healthcare Integrity and Protection Data Bank.

    (a) Who may request information and what information may be 
available. Information in the HIPDB will be available, upon request, to 
the following persons or entities, or their authorized agents--
    (1) Federal and State Government agencies;
    (2) Health plans;
    (3) A health care practitioner, provider, or supplier requesting 
information concerning himself, herself or itself; and
    (4) A person or entity requesting statistical information, which 
does not permit identification of any individual or entity. (For 
example, researchers can use statistical information to identify the 
total number of practitioners excluded from the Medicare and Medicaid 
programs. Similarly, health plans can use statistical information to 
develop outcome measures in their efforts to monitor and improve quality 
care.)
    (b) Procedures for obtaining HIPDB information. Eligible individuals 
and entities may obtain information from the HIPDB by submitting a 
request in such form and manner as the Secretary may prescribe. These 
requests are subject to fees set forth in Sec. 61.13. The HIPDB will 
comply with the Department's principles of fair information practice by 
providing each subject of a report with

[[Page 144]]

a copy when the report is entered into the HIPDB.
    (c) Information provided in response to self-queries. (1) At the 
time subjects request information as part of a ``self-query,'' the 
subject will receive--
    (i) Any report(s) in the HIPDB specific to them; and
    (ii) A disclosure history from the HIPDB of the name(s) of any 
entity (or entities) that have previously received the report(s).
    (2) The disclosure history will be restricted in accordance with the 
Privacy Act regulations set forth in 45 CFR part 5b.



Sec. 61.13  Fees applicable to requests for information.

    (a) Policy on fees. The fees described in this section apply to all 
requests for information from the HIPDB, except requests from Federal 
agencies. However, for purposes of verification and dispute resolution 
at the time the report is accepted, the HIPDB will provide a copy--at 
the time a report has been submitted automatically, without a request 
and free of charge--of every report to the health care provider, 
supplier or practitioner who is the subject of the report. For the same 
purpose, the Department will provide a copy of the report--at the time a 
report has been submitted automatically, without a request and free of 
charge--to the reporter that submitted it. The fees are authorized by 
section 1128E(d)(2) of the Act, and they reflect the full costs of 
operating the database. The actual fees will be announced by the 
Secretary in periodic notices in the Federal Register.
    (b) Criteria for determining the fee. The amount of each fee will be 
determined based on the following criteria --
    (1) Direct and indirect personnel costs;
    (2) Physical overhead, consulting, and other indirect costs 
including rent and depreciation on land, buildings and equipment;
    (3) Agency management and supervisory costs;
    (4) Costs of enforcement, research and establishment of regulations 
and guidance;
    (5) Use of electronic data processing equipment to collect and 
maintain information--the actual cost of the service, including computer 
search time, runs and printouts; and
    (6) Any other direct or indirect costs related to the provision of 
services.
    (c) Assessing and collecting fees. The Secretary will announce 
through periodic notice in the Federal Register the method of payment of 
fees. In determining these methods, the Secretary will consider 
efficiency, effectiveness and convenience for users and for the 
Department. Methods may include credit card, electronic funds transfer 
and other methods of electronic payment.



Sec. 61.14  Confidentiality of Healthcare Integrity and Protection Data Bank information.

    Information reported to the HIPDB is considered confidential and 
will not be disclosed outside the Department, except as specified in 
Secs. 61.12 and 61.15. Persons and entities receiving information from 
the HIPDB, either directly or from another party, must use it solely 
with respect to the purpose for which it was provided. Nothing in this 
section will prevent the disclosure of information by a party from its 
own files used to create such reports where disclosure is otherwise 
authorized under applicable State or Federal law.



Sec. 61.15  How to dispute the accuracy of Healthcare Integrity and Protection Data Bank information.

    (a) Who may dispute the HIPDB information. The HIPDB will routinely 
mail or transmit electronically to the subject a copy of the report 
filed in the HIPDB. In addition, as indicated in Sec. 61.12(a)(3), the 
subject may also request a copy of such report. The subject of the 
report or a designated representative may dispute the accuracy of a 
report concerning himself, herself or itself as set forth in paragraph 
(b) of this section.
    (b) Procedures for disputing a report with the reporting entity. If 
the subject disagrees with the reported information, the subject must 
request in writing that the HIPDB enter the report into ``disputed 
status.''
    (2) The HIPDB will send the report, with a notation that the report 
has been placed in ``disputed status,'' to

[[Page 145]]

queriers (where identifiable), the reporting entity and the subject of 
the report.
    (3) The subject must attempt to enter into discussion with the 
reporting entity to resolve the dispute. If the reporting entity revises 
the information originally submitted to the HIPDB, the HIPDB will notify 
the subject and all entities to whom reports have been sent that the 
original information has been revised. If the reporting entity does not 
revise the reported information, or does not respond to the subject 
within 60 days, the subject may request that the Secretary review the 
report for accuracy. The Secretary will decide whether to correct the 
report within 30 days of the request. This time frame may be extended 
for good cause. The subject also may provide a statement to the HIPDB, 
either directly or through a designated representative, that will 
permanently append the report.
    (c) Procedures for requesting a Secretarial review. The subject must 
request, in writing, that the Secretary of the Department review the 
report for accuracy. The subject must return this request to the HIPDB 
along with appropriate materials that support the subject's position. 
The Secretary will only review the accuracy of the reported information, 
and will not consider the merits or appropriateness of the action or the 
due process that the subject received.
    (2) After the review, if the Secretary--
    (i) Concludes that the information is accurate and reportable to the 
HIPDB, the Secretary will inform the subject and the HIPDB of the 
determination. The Secretary will include a brief statement (Secretarial 
Statement) in the report that describes the basis for the decision. The 
report will be removed from ``disputed status.'' The HIPDB will 
distribute the corrected report and statement(s) to previous queriers 
(where identifiable), the reporting entity and the subject of the 
report.
    (ii) Concludes that the information contained in the report is 
inaccurate, the Secretary will inform the subject of the determination 
and direct the HIPDB or the reporting entity to revise the report. The 
Secretary will include a brief statement (Secretarial Statement) in the 
report describing the findings. The HIPDB will distribute the corrected 
report and statement (s) to previous queriers (where identifiable), the 
reporting entity and the subject of the report.
    (iii) Determines that the disputed issues are outside the scope of 
the Department's review, the Secretary will inform the subject and the 
HIPDB of the determination. The Secretary will include a brief statement 
(Secretarial Statement) in the report describing the findings. The 
report will be removed from ``disputed status.'' The HIPDB will 
distribute the report and the statement(s) to previous queriers (where 
identifiable), the reporting entity and the subject of the report.
    (iv) Determines that the adverse action was not reportable and 
therefore should be removed from the HIPDB, the Secretary will inform 
the subject and direct the HIPDB to void the report. The HIPDB will 
distribute a notice to previous queriers (where identifiable), the 
reporting entity and the subject of the report that the report has been 
voided.

[64 FR 57758, Oct. 26, 1999, as amended at 64 FR 71041, Dec. 20, 1999]



Sec. 61.16  Immunity.

    Individuals, entities or their authorized agents and the HIPDB shall 
not be held liable in any civil action filed by the subject of a report 
unless the individual, entity or authorized agent submitting the report 
has actual knowledge of the falsity of the information contained in the 
report.



PART 63--GRANT PROGRAMS ADMINISTERED BY THE OFFICE OF THE ASSISTANT SECRETARY FOR PLANNING AND EVALUATION--Table of Contents




                           Subpart A--General

Sec.
63.1  Purpose and scope.
63.2  Eligibility for award.
63.3  Program announcements and solicitations.
63.4  Cooperative arrangements.
63.5  Effective date of approved grant.
63.6  Evaluation of applications.
63.7  Disposition of applications.

[[Page 146]]

63.8  Supplemental regulations and grant conditions.

                     Subpart B--Financial Provisions

63.16  Scope of subpart.
63.17  Amount of award.
63.18  Limitations on costs.
63.19  Budget revisions and minor deviations.
63.20  Period during which grant funds may be obligated.
63.21  Obligation and liquidation by grantee.
63.22  Cost sharing.
63.23  Telecommunications Demonstration Grants.

                      Subpart C--Special Provisions

63.30  Scope of subpart.
63.31  Protection of human subjects.
63.32  Data collection instruments.
63.33  Treatment of animals.
63.34  Principal investigators.
63.35  Dual compensation.
63.36  Fees to Federal employees.
63.37  Leasing facilities.
63.38  Publications.
63.39  Religious worship or instruction.

    Authority: Sec. 602, Community Services Act (42 U.S.C. 2942); sec. 
1110, Social Security Act (42 U.S.C. 1310).

    Source: 40 FR 23295, May 29, 1975, unless otherwise noted.



                           Subpart A--General



Sec. 63.1  Purpose and scope.

    (a) Applicability. Except to the extent inconsistent with an 
applicable Federal statute the regulations in this part apply to all 
grant awards of Federal assistance made by the Assistant Secretary for 
Planning and Evaluation or his designee, hereinafter referred to in this 
part as the Assistant Secretary. Such grants include those under section 
232 of the Community Services Act (42 U.S.C. 2835), section 1110 of the 
Social Security Act (42 U.S.C. 1310), section 392A of the Communications 
Act of 1934, and such other authority as may be delegated to the 
Assistant Secretary for policy research activities.
    (b) Exceptions to applicability. The award and administration of 
contracts and cooperative agreements by the Assistant Secretary shall 
not be covered by this subchapter. Contracts entered into by the 
Assistant Secretary shall be subject to the regulations in 41 CFR 
Chapters 1 and 3. Generally, the Assistant Secretary will select between 
grant and contract procedures and instruments, both with regard to the 
solicitation process and with respect to unsolicited proposals, on the 
basis of criteria set forth in the proposed revision of 41 CFR 3-1.53 
published at 39 FR 27469 at any subsequent revision thereof.
    (c) Objectives--(1) Policy Research. The overall objective of policy 
research activities is to obtain information, as it relates to the 
mission of the Department of Health and Human Services, about the basic 
causes of and methods for preventing and eliminating poverty and 
dependency and about improved methods for delivering human resources 
services. Such information is obtained through the conduct of basic and 
applied research, statistical analyses, and demonstrations and 
evaluations which have demonstrated a high probability of impacting on 
the formulation or modification of major Departmental policies and 
programs.
    (2) Telecommunications Demonstrations. The overall objective of the 
Telecommunications Demonstration Program is to promote the development 
of nonbroadcast telecommunications facilities and services for the 
transmission, distribution, and delivery of health, education, and 
social service information.

[40 FR 23295, May 29, 1975, as amended at 42 FR 36149, July 13, 1977]



Sec. 63.2  Eligibility for award.

    (a) Groups and organizations eligible. Except where otherwise 
prohibited by law, any public or nonprofit private agency, institution, 
or organization which is found by the Assistant Secretary to be 
authorized and qualified by educational, scientific, or other relevant 
competence to carry out a proposed project in accordance with the 
regulations of this subchapter shall be eligible to receive a grant 
under this part.
    (b) Project eligible--(1) Policy Research. Any project found by the 
Assistant Secretary to be a research, pilot, evaluation, or 
demonstration project within the meaning of this section and Sec. 63.1 
shall be eligible for an award. Eligible projects may include planning, 
policy

[[Page 147]]

modeling or research utilization studies; experiments; demonstrations; 
field investigations; statistical data collections or analyses; or other 
types of investigation or studies, or combinations thereof, and may 
either be limited to one aspect of a problem or subject, or may consist 
of two or more related problems or subjects for concurrent or 
consecutive investigation and may involve multiple disciplines, 
facilities, and resources.
    (2) Telecommunications Demonstrations. Any projects which meet the 
special criteria in Sec. 63.6(c) shall be eligible for a 
telecommunications demonstration grant.

[40 FR 23295, May 29, 1975, as amended at 42 FR 36149, July 13, 1977]



Sec. 63.3  Program announcements and solicitations.

    (a) In each fiscal year the Assistant Secretary may from time to 
time solicit applications through one or more general or specialized 
program announcements. Such announcements will be published in the 
Federal Register as notices and will include:
    (1) A clear statement of the type(s) of applications requested;
    (2) A specified plan, time(s) of application, and criteria for 
reviewing and approving applications;
    (3) Any grant terms or conditions of general applicability (other 
than those set forth in this part) which are necessary (i) to meet the 
statutory requirements of applicable legislation, (ii) to assure or 
protect the advancement of the project, or (iii) to conserve grant 
funds.
    (b) Applications for grants: Any applicant eligible for grant 
assistance may submit on or before such cutoff date or dates as the 
Assistant Secretary may announce in program solicitations, an 
application containing such pertinent information and in accordance with 
the forms and instructions as prescribed herein and additional forms and 
instructions as may be specified by the Assistant Secretary. Such 
application shall be executed by the applicant or an official or 
representative of the applicant duly authorized to make such 
application. The Assistant Secretary may require any party eligible for 
assistance under this subchapter to submit a preliminary proposal for 
review and approval prior to the acceptance of an application submitted 
under these provisions.
    (c) All applications and preliminary proposals should be addressed 
to:

Grants Officer, Office of the Assistant Secretary for Planning and 
Evaluation, Department of Health and Human Services, 330 Independence 
Avenue, SW, Room 5027, Washington, DC 20201.



Sec. 63.4  Cooperative arrangements.

    (a) Eligible parties may enter into cooperative arrangements with 
other eligible parties, including those in another State, to apply for 
assistance.
    (b) A joint application made by two or more applicants for 
assistance under this subchapter may have separate budgets corresponding 
to the programs, services and activities performed by each of the joint 
applicants or may have a combined budget. If joint applications present 
separate budgets, the Assistant Secretary may make separate awards, or 
may award a single grant authorizing separate amounts for each of the 
joint applicants.
    (c) In the case of each cooperative arrangement authorized under 
paragraph (a) of this section and receiving assistance, except where the 
Assistant Secretary makes separate awards under paragraph (b) of this 
section all such applicants (1) shall be deemed to be joint legal 
recipients of the grant award and (2) shall be jointly and severally 
responsible for administering the project assisted under such grant.



Sec. 63.5  Effective date of approved grant.

    Federal financial participation is normally available only with 
respect to obligations incurred subsequent to the effective date of an 
approved project. The effective date of the project will be set forth in 
the notification of grant award. Grantees may be reimbursed for costs 
resulting from obligations incurred before the effective date of the 
grant award if such costs are authorized by the Assistant Secretary in 
the notification of grant award or subsequently in writing, and 
otherwise would be allowable as costs of the grant under the applicable 
regulations and grant terms and conditions.

[[Page 148]]



Sec. 63.6  Evaluation of applications.

    (a) Review procedures. All applications filed in accordance with 
Sec. 63.3 shall be evaluated by the Assistant Secretary through 
officers, employees, and such experts or consultants engaged for this 
purpose as he/she determines are specially qualified in the areas of 
research pursued by this office. The evaluation criteria below will be 
supplemented each fiscal year by a program announcement outlining 
priorities and objectives for policy research, and by other general or 
specialized solicitations. Such supplements may modify the criteria in 
paragraphs (b) and (c) of this section to provide greater specificity or 
otherwise improve their applicability to a given announcement or 
solicitation.
    (b) Criteria for evaluation of Policy Research Projects. Review of 
applications under paragraph (a) of this section will take into account 
such factors as:
    (1) Scientific merit and the significance of the project in relation 
to policy objectives;
    (2) Feasibility of the project;
    (3) Soundness of research design, statistical technique, and 
procedures and methodology;
    (4) Theoretical and technical soundness of the proposed plan of 
operation including consideration of the extent to which:
    (i) The objectives of the proposed project are sharply defined, 
clearly stated, and capable of being attained by the proposed 
procedures;
    (ii) The objectives of the proposed project show evidence of 
contributing to the achievement of policy objectives;
    (iii) Provisions are made for adequate evaluation of the 
effectiveness of the project and for determining the extent to which the 
objectives are accomplished; and
    (iv) Appropriate provisions are made for satisfactory inservice 
training connected with project services.
    (5) Expected potential for utilizing the results of the proposed 
project in other projects or programs for similar purposes;
    (6) Sufficiency of size, scope, and duration of the project so as to 
secure productive results;
    (7) Adequacy of qualifications and experience, including managerial, 
of personnel;
    (8) Adequacy of facilities and other resources; and
    (9) Reasonableness of estimated cost in relation to anticipated 
results.
    (c) Criteria for evaluation of Telecommunications Demonstrations 
Projects. Review of applications for Telecommunications Demonstrations 
grants will take into account such factors as are listed in paragraphs 
(c) (1) through (10) of this section. Each applicant must include in the 
application, prior to final evaluation by the Assistant Secretary, 
documentation indicating specifically and separately how and to what 
extent each of these criteria have been or will be met:
    (1) That the project for which application is made demonstrates 
innovative methods or techniques of utilizing nonbroadcast 
telecommunications equipment or facilities to satisfy the purpose of 
this authority;
    (2) That the project will have original research value which will 
demonstrate to other potential users that such methods or techniques are 
feasible and cost-effective;
    (3) That the services to be provided are responsive to local needs 
as identified and assessed by the applicant;
    (4) That the applicant has assessed existing telecommunications 
facilities (if any) in the proposed service area and explored their use 
of interconnection in conjunction with the project;
    (5) That there is significant local commitment (e.g., evidence of 
support, participation, and contribution by local institutions and 
agencies) to the proposed project, indicating that it fulfills local 
needs, and gives some promise that operational systems will result from 
successful demonstrations and will be supported by service recipients or 
providers;
    (6) That demonstrations and related activities assisted under this 
section will remain under the administration and control of the 
applicant;
    (7) That the applicant has the managerial and technical capability 
to carry out the project for which the application is made;
    (8) That the facilities and equipment acquired or developed pursuant 
to the

[[Page 149]]

applications will be used substantially for the transmission, 
distribution, and delivery of health, education, or social service 
information, and that use of such facilities and equipment may be shared 
among these and additional public or other services;
    (9) That the provision has been made to submit a summary and factual 
evaluation of the results of the demonstration at least annually for 
each year in which funds are received, in the form of a report suitable 
for dissemination to groups representative of national health, 
education, and social service telecommunications interests; and,
    (10) That the project has potential for stimulating cooperation and 
sharing among institutions and agencies, both within and across 
disciplines.
    (d) Applicant's performance on prior award. Where the applicant has 
previously received an award from the Department of Health and Human 
Services, the applicant's compliance or noncompliance with requirements 
applicable to such prior award as reflected in past written evaluation 
reports, memoranda on performance, and completeness of required 
submissions: Provided, That in any case where the Assistant Secretary 
proposes to deny assistance based upon the applicant's noncompliance 
with requirements applicable to a prior award, he shall do so only after 
affording the applicant reasonable notice and an opportunity to rebut 
the proposed basis for denial of assistance.

[40 FR 23295, May 29, 1975, as amended at 42 FR 36149, July 13, 1977]



Sec. 63.7  Disposition of applications.

    (a) Approval, disapproval, or deferral. On the basis of the review 
of an application pursuant to Sec. 63.6 the Assistant Secretary will 
either (1) approve the application in whole or in part, for such amount 
of funds and subject to such conditions as he/she deems necessary or 
desirable for the completion of the approved project, (2) disapprove the 
application, or (3) defer action on the application for such reasons as 
lack of funds or a need for further review.
    (b) Notification of disposition. The Assistant Secretary will notify 
the applicant in writing of the disposition of its application. A signed 
notification of grant award will be issued to notify the applicant of an 
approved project application.



Sec. 63.8  Supplemental regulations and grant conditions.

    (a) Grants under section 232 of the Community Services Act. (1) Any 
grants awarded with funds appropriated under section 232 of the 
Community Services Act shall be subject to the following regulations 
issued by the Director of the Community Services Administration 
(formerly the Office of Economic Opportunity):

45 CFR 1060.2...........................  (Income Poverty Guidelines.)
45 CFR 1060.3...........................  (Limitation on Benefits to
                                           Those Voluntarily Poor.)
45 CFR 1067.1...........................  (Suspension and Termination of
                                           Assistance.)
45 CFR 1068.6...........................  (Grantee Compliance with IRS
                                           Requirements for Withheld
                                           Federal Income and Social
                                           Security Taxes.)
45 CFR 1069.1...........................  (Employee Participation in
                                           Direct Action.)
45 CFR 1069.2...........................  (Limitations with Respect to
                                           Unlawful Demonstrations,
                                           Rioting, and Civil
                                           Disturbances.)
45 CFR 1070.1...........................  (Public Access to Grantee
                                           Information.)
 


No other portions of Chapter X of this title are applicable to such 
grants.
    (2) Grants awarded with funds appropriated under section 232 of the 
Community Services Act shall also be subject to the applicable statutory 
requirements in sections 242, 243, and 244, and title VI of the 
Community Services Act. The Assistant Secretary will advise grantees of 
the nature of these requirements at or prior to the time of award.
    (3) In the event that any provision of this part is inconsistent 
with a provision of law or a regulation referenced in paragraphs (a)(1) 
and (2) of this section with respect to any grant funded under section 
232 of the Community Services Act, the provision of this part shall, to 
the extent of any such inconsistency, not be effective.
    (b) Grants under other statutory authority. Grants awarded by the 
Assistant Secretary may be subject to regulations, other than those set 
forth in this part, which have been issued under the authority of 
statutes authorizing particular awards. In such a case, that fact will 
be set forth in the program announcement soliciting applications for 
such grants published in the Federal Register pursuant to Sec. 63.3.

[[Page 150]]

    (c) Other regulations applicable to grants under this part. Federal 
financial assistance provided under this part shall be subject to the 
following additional regulations except as otherwise provided in this 
part:
    (1) Part 74 of this title, establishing uniform administrative 
requirements and cost principles for grants by the Department of Health 
and Human Services.
    (2) Part 80 of this title, effectuating the provisions of title VI 
of the Civil Rights Act of 1964; and
    (3) Part 16 of this title, establishing a Departmental Grant Appeals 
Board for the resolution of specified post-award grant disputes.



                     Subpart B--Financial Provisions



Sec. 63.16  Scope of subpart.

    This subpart sets forth supplemental financial provisions which 
apply to all grants awarded by the Assistant Secretary, except as 
specified in Sec. 63.23 of this subpart.

[40 FR 23295, May 29, 1975, as amended at 42 FR 36149, July 13, 1977]



Sec. 63.17  Amount of award.

    Federal assistance shall be provided only to meet allowable costs 
incurred by the award recipient in carrying out an approved project in 
accordance with the authorizing legislation and the regulations of this 
part.



Sec. 63.18  Limitations on costs.

    The amount of the award shall be set forth in the grant award 
document. The total cost to the Government will not exceed the amount 
set forth in the grant award document or any modification thereof 
approved by the Assistant Secretary which meets the requirements of 
applicable statutes and regulations. The Government shall not be 
obligated to reimburse the grantee for costs incurred in excess of such 
amount unless and until the Assistant Secretary has notified the grantee 
in writing that such amount has been increased and has specified such 
increased amount in a revised grant award document. Such revised amount 
shall thereupon constitute the maximum cost to the Government for the 
performance of the grant.



Sec. 63.19  Budget revisions and minor deviations.

    Pursuant to Sec. 74.102(d) of this title, paragraphs (b)(3) and 
(b)(4) of that section are waived.



Sec. 63.20  Period during which grant funds may be obligated.

    (a) The amount of the grant award shall remain available for 
obligation by the grantee during the period specified in the grant award 
or until otherwise terminated. Such period may be extended by revision 
of the grant with or without additional funds pursuant to paragraph (b) 
of this section where otherwise permitted by law.
    (b) When it is determined that special or unusual circumstances will 
delay the completion of the project beyond the period for obligation, 
the grantee must in writing request the Assistant Secretary to extend 
such period and must indicate the reasons therefor.



Sec. 63.21  Obligation and liquidation by grantee.

    Obligations will be considered to have been incurred by a grantee on 
the basis of documentary evidence of binding commitments for the 
acquisition of goods or property or for the performance of work, except 
that funds for personal services, for services performed by public 
utilities, for travel, and for the rental of facilities, shall be 
considered to have been obligated as of the time such services were 
rendered, such travel was performed, and such rented facilities were 
used, respectively.



Sec. 63.22  Cost sharing.

    Policy Research funds shall not be used to pay any recipient of a 
grant for the conduct of a research project an amount equal to as much 
as the entire cost of the project.



Sec. 63.23  Telecommunications Demonstration Grants.

    The provisions of this section apply only to grants awarded under 
authority of 392A of the Communications Act of 1934.

[[Page 151]]

    (a) Funds provided under the Telecommunications Demonstrations 
Program shall be available to support the planning, development, and 
acquisition or leasing of facilities and equipment necessary to the 
demonstration. However, funds shall not be available for the 
construction, remodeling, or repair of structures to house facilities or 
equipment acquired or developed with such funds, except that such funds 
may be used for minor remodeling which is necessary for and incident to 
the installation of such facilities or equipment.
    (b) Funds shall not be available for the development of programming 
materials or content.
    (c) The funding of any demonstration under this authority shall 
continue for not more than three years from the date of the original 
grant or contract.
    (1) Applications for assistance under the Act may project goals and 
activities over a period of up to three years. Approval of a multi-year 
project is intended to offer the project a reasonable degree of 
stability over time and to facilitiate additional long range planning.
    (2) Applications proposing a multi-year project must be accompanied 
by an explanation of the need for multi-year support, an overview of the 
objectives and activities proposed, and budget estimates to attain these 
objectives in any proposed subsequent year.
    (3) Subject to the availability of funds, an application for 
assistance to continue a project during the project period will be 
reviewed on a non-competitive basis to determine--
    (i) If the award recipient has complied with the award terms and 
conditions, the Act, and applicable regulations;
    (ii) The effectiveness of the project to date in terms of progress 
toward its goals, or the constructive changes proposed as a result of 
the ongoing evaluation of the project; and,
    (iii) If continuation of the project would be in the best interests 
of the Government.
    (d) The use of equipment in demonstration projects shall be subject 
to the rules and regulations of the Federal Communications Commission 
(FCC), and grant funds may not be expended or obligated for purchase, 
lease, or use of such equipment prior to appropriate and necessary 
coordination by the grantee with the Commission. In particular:
    (1) For any project requiring a new or modification of an existing 
authorization(s) from the FCC, application(s) to the FCC for such 
authorization(s) must have been tendered for filing prior to the closing 
date established by any solicitation for grant applications offered 
under the Telecommunications Demonstration Program.
    (2) If the project is to be associated with an existing 
telecommunications activity requiring an FCC authorization, such 
operating authority for that activity must be current and valid.
    (3) For any project requiring a new or modification of an existing 
authorization(s) from the FCC, the applicant must file with the 
Secretary of Health and Human Services a copy of each FCC application 
and any amendments thereto.
    (4) For any project requiring a new or modification of an existing 
authorization(s) from the FCC, the applicant must tender for filing with 
the FCC a copy of the application to the Secretary for a 
telecommunications demonstration grant.
    (5) If the applicant fails to file required applications by the 
closing date established by the solicitation for grant applications, or 
if the FCC returns as substantially incomplete or deficient, dismisses, 
or denies an application required for the project, or any part thereof, 
or for the operation of any facility with which the project is 
associated, the Secretary may return the application for Federal 
assistance.
    (e) For the purposes of this program, the term ``non-broadcast 
telecommunications facilities'' includes but is not limited to, cable 
television systems, communications satellite systems and related 
terminal equipment, and other methods of transmitting, emitting, or 
receiving images and sounds or intelligence by means of wire, radio, 
optical, electromagnetic, and other means (including non-broadcast 
utilization of telecommunications equipment normally associated with 
broadcasting use).

[[Page 152]]

    (f) Each applicant shall provide such information as the Assistant 
Secretary deems necessary to make a Federal assessment of the impact of 
the project on the quality of the human environment in accordance with 
section 102(2)(C) of the National Environmental Policy Act of 1969 
(including the National Historical Preservation Act and other 
environmental acts). (42 U.S.C. 4332(2)(C)).

[42 FR 36149, July 13, 1977]



                      Subpart C--Special Provisions



Sec. 63.30  Scope of subpart.

    This subpart sets forth supplemental special provisions which apply 
to all grants awarded by the Assistant Secretary.



Sec. 63.31  Protection of human subjects.

    All grants made pursuant to this part are subject to the specific 
provisions of Part 46 of this subtitle relating to the protection of 
human subjects.



Sec. 63.32  Data collection instruments.

    (a) Definitions. For the purposes of this section ``Child'' means an 
individual who has not attained the legal age of consent to participate 
in research as determined under the applicable law of the jurisdiction 
in which such research is to be conducted.
    ``Data-collection instruments'' means tests, questionnaires, 
inventories, interview schedules or guides, rating scales, and survey 
plans or any other forms which are used to collect information on 
substantially identical items from 10 or more respondents.
    ``Respondents'' means individuals or organizations from whom 
information is collected.
    (b) Applicability. This section does not apply to instruments which 
deal solely with (1) functions of technical proficiency, such as 
scholastic aptitude or school achievement, or (2) routine demographic 
information.
    (c) Protection of privacy. (1) No project supported under this part 
may involve the use of data collection instruments which constitute 
invasion of personal privacy through inquiries regarding such matters as 
religion, sex, race, or politics.
    (2) A grantee which proposes to use a data collection instrument 
shall set forth in the grant application an explanation of the 
safeguards which will be used to restrict the use and disclosure of 
information so obtained to purposes directly connected with the project, 
including provisions for the destruction of such instruments where no 
longer needed for the purposes of the project.
    (d) Clearance of instruments. (1) Grantees will not be required to 
submit data-collection instruments to the Assistant Secretary or obtain 
the Assistant Secretary's approval for the use of these instruments, 
except where the notification of grant award specifically so provides.
    (2) If a grantee is required under paragraph (d)(1) of this section 
to submit data-collection instruments for the approval of the Assistant 
Secretary or if a grantee wishes the Assistant Secretary to review a 
data-collection instrument, the grantee shall submit seven copies of the 
document to the Assistant Secretary along with seven copies of the 
Office of Management and Budget's standard form No. 83 and seven copies 
of the Supporting Statement as required in the ``Instructions for 
Requesting OMB Approval under the Federal Reports Act'' (Standard form 
No. 83A).
    (e) Responsibility for collection of information. A grantee shall 
not in any way represent or imply (either in a letter of transmittal, in 
the data-gathering instruments themselves, or in any other manner) that 
the information is being collected by or for the Federal Government or 
any department, agency or instrumentality thereof. Basic responsibility 
for the study and the data-gathering instruments rests with the grantee.
    (f) Parental consent. In the case of any survey using data-
collection instruments in which children are involved as respondents, 
the grantee, in addition to observing the other requirements contained 
in this section, and in Part 46 of this subtitle as appropriate, shall 
provide assurances satisfactory to the Assistant Secretary that informed 
consent will be obtained from the parents of each such respondent prior 
to the use of such instruments, except that a waiver from the 
requirements of this

[[Page 153]]

paragraph for specific data-collection activities may be granted upon 
the written request by the grantee and a determination by the Assistant 
Secretary that a waiver is necessary in order to fully carry out the 
purposes of the grant.



Sec. 63.33  Treatment of animals.

    If animals are utilized in any project receiving assistance, the 
applicant for such assistance shall provide assurances satisfactory to 
the Assistant Secretary that such animals will be provided with proper 
care and humane treatment; in accordance with the Animal Welfare Act (7 
U.S.C. 2131 et seq.) and regulations set forth in (9 CFR Parts 1, 2, 3, 
4).



Sec. 63.34  Principal investigators.

    The principal investigator(s) designated in successful grant 
applications as responsible for the conduct of the approved project, 
shall not be replaced without the prior approval of the Assistant 
Secretary or his designee. Failure to seek and acquire such approval may 
result in the grant award being terminated in accordance with the 
procedures set forth in Sec. 74.114 of this subtitle or such other 
regulations as may be indicated in the grant terms and conditions.



Sec. 63.35  Dual compensation.

    If a project staff member or consultant of one grantee is involved 
simultaneously in two or more projects supported by any funds either 
under this part or otherwise, he/she may not be compensated for more 
than 100 percent of his/her time from any funds during any part of the 
period of dual involvement.



Sec. 63.36  Fees to Federal employees.

    The grantee shall not use funds from any sources to pay a fee to, or 
travel expenses of, employees of the Federal Government for lectures, 
attending program functions, or any other activities in connection with 
the grant.



Sec. 63.37  Leasing facilities.

    In the case of a project involving the leasing of a facility, the 
grantee shall demonstrate that it will have the right to occupy, to 
operate, and, if necessary, to maintain and improve the leased facility 
during the proposed period of the project.



Sec. 63.38  Publications.

    Any publication or presentation resulting from or primarily related 
to Federal financial assistance under this part shall contain an 
acknowledgement essentially as follows:

    The activity which is the subject of this report was supported in 
whole or part by a grant from the Office of the Assistant Secretary for 
Planning and Evaluation, Department of Health and Human Services. 
However, the opinions expressed herein do not necessarily reflect the 
position or policy of that Office and no official endorsement by that 
Office should be inferred.



Sec. 63.39  Religious worship or instruction.

    Federal funds shall not be used for the making of any payment for 
religious worship or instruction, or for the construction, operation, or 
maintenance of so much of any facility as is used or to be used for 
sectarian instruction or as a place for religious instruction.



PART 73--STANDARDS OF CONDUCT--Table of Contents




                      Subpart A--General Provisions

Sec.
73.735-101  Purpose.
73.735-102  Definitions.
73.735-103  Applicability.

                       Subpart B--Responsibilities

73.735-201  Employees and supervisors.
73.735-202  Management officials.

                      Subpart C--Conduct on the Job

73.735-301  Courtesy and consideration for others.
73.735-302  Support of department programs.
73.735-303  Use of government funds.
73.735-304  Use of government property.
73.735-305  Conduct in Federal buildings.
73.735-306  Sexual harassment.
73.735-307  Use of official information.

                    Subpart D--Financial Obligations

73.735-401  General provisions.

[[Page 154]]

               Subpart E--Gifts, Entertainment, and Favors

73.735-501  Prohibited acceptance of gifts, entertainment, and favors.
73.735-502  Permissible acceptance of gifts, entertainment, and favors.
73.735-503  Criminal provisions relating to gifts, entertainment, and 
          favors.
73.735-504  Gifts to official superiors.
73.735-505  Acceptance of awards and prizes.
73.735-506  Gifts and decorations from foreign governments.
73.735-507  Acceptance of travel and subsistence.
73.735-508  Other prohibitions.

                      Subpart F--Political Activity

73.735-601  Applicability.
73.735-602  Permissible activities.
73.735-603  Prohibited activities.

                      Subpart G--Outside Activities

73.735-701  General provisions.
73.735-702  Criminal prohibitions on outside activities.
73.735-703  Statutory prohibitions related to employment by a foreign 
          government.
73.735-704  Professional and consultative services.
73.735-705  Writing and editing.
73.735-706  Teaching, lecturing, and speechmaking.
73.735-707  Holding office in professional societies.
73.735-708  Administrative approval of certain outside activities.
73.735-709  Annual reporting of outside activities.
73.735-710  Maintenance of records.

                      Subpart H--Financial Interest

73.735-801  Participation in matters affecting a personal financial 
          interest.
73.735-802  Executive order prohibitions.
73.735-803  Prohibition against involvement in financial transactions 
          based on information obtained through Federal employment.
73.735-804  Waiver of the prohibitions in this subpart.
73.735-805  Advice and guidance on conflicts matters.
73.735-806  Documentation and publication of opinions.

                Subpart I--Reporting Financial Interests

73.735-901  Reporting requirement of the Ethics in Government Act of 
          1978.
73.735-902  Reporting requirements for certain employees not covered by 
          the Ethics in Government Act of 1978.
73.735-903  Action if conflicts of interest or possible conflicts are 
          noted.
73.735-904  Resolution of apparent or actual conflicts of interest.

  Subpart J--Provisions Relating to Experts, Consultants and Advisory 
                            Committee Members

73.735-1001  Coverage.
73.735-1002  Ethical standards of conduct.
73.735-1003  Conflicts of interest statutes.
73.735-1004  Requesting waivers or exemptions.
73.735-1005  Salary from two sources.
73.735-1006  Reporting financial interests.
73.735-1007  Political activity.

     Subpart K--Special Government Employees Other Than Consultants

73.735-1101  General provision.

                     Subpart L--Disciplinary Action

73.735-1201  General provisions.

                     Subpart M--Reporting Violations

73.735-1301  Responsibility for reporting possible criminal violations.
73.735-1302  Responsibility for reporting allegations of misconduct.
73.735-1303  Prohibition of reprisals.
73.735-1304  Referral of matters arising under the standards of this 
          part.

       Subpart N--Conduct and Responsibilities of Former Employees

73.735-1401  Prohibitions against post-employment conflicts of interest.

Appendix A to Part 73--List of Some Offenses for Which Disciplinary 
          Action May Be Taken
Appendix B to Part 73--Code of Ethics for Government Service

    Authority: 5 U.S.C. 7301, 42 U.S.C. 216; E.O. 11222, 30 FR 6469; 5 
CFR 735.101 et seq.

    Source: 46 FR 7369, Jan. 23, 1981, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 73.735-101  Purpose.

    To assure that the business of the Department of Health and Human 
Services (HHS) is conducted effectively, objectively, and without 
improper influence or the appearance of improper influence, employees 
and special Government employees must be persons of integrity and must 
observe high standards of honesty, impartiality, and behavior. They must 
not engage in any conduct prejudicial to the Government

[[Page 155]]

and must avoid conflicts of private interests with public duties and 
responsibilities. In accord with these principles, the regulations in 
this part are issued to inform HHS employees and special Government 
employees what standards of conduct are expected of them in performing 
their duties and what activities are permitted or prohibited both while 
they are employed and after their employment with the Department is 
ended.



Sec. 73.735-102  Definitions.

    In this part:
    (a) Employee means an officer or employee of HHS other than a 
special Government employee and includes Commissioned Officers of the 
Public Health Service who are on active duty, and individuals on 
assignment or detail to HHS pursuant to the Intergovernmental Personnel 
Act (5 U.S.C. 3371-3376). The term also includes HHS employees who are 
detailed to non-Federal or other Federal organizations. At times the 
term ``regular employee'' is used in place of ``employee'' to make a 
clear distinction between special Government employees and others 
employed by the Federal government.
    (b) Special Government employee means an individual who is retained, 
designated, appointed, or employed to perform temporary duties either on 
a full-time or intermittent basis, with or without compensation, for not 
to exceed 130 days during any period of 365 consecutive days.
    (c) Person means an individual, a corporation, a company, an 
association, a firm, a partnership or any other organization.
    (d) Former employee means a former employee of HHS or former special 
Government employee as defined in paragraph (b) of this section.
    (e) Principal Operating Component has the meaning given to that term 
in the Department's General Administration Manual. In addition, when 
used in these regulations, it includes the Office of the Secretary.
    (f) Department means the Department of Health and Human Services.



Sec. 73.735-103  Applicability.

    (a) The regulations in this part apply to all employees of the 
Department and to special Government employees to the extent indicated 
in Subparts J and K. They apply whether an employee is on leave, 
including leave without pay, or on duty.
    (b) These regulations may be supplemented by regulations governing 
principal operating components, or sub-units of principal operating 
components, provided the clearance and publication requirements for 
standards of conduct regulations are met and approval is obtained from 
the Department Ethics Counselor and the Assistant Secretary for 
Personnel Administration.



                       Subpart B--Responsibilities



Sec. 73.735-201  Employees and supervisors.

    (a) Employees and special Government employees shall be responsible 
for observing all generally accepted rules of conduct and the specific 
provisions of law and the regulations of this part that apply to them. 
They are required to become familiar with these regulations and to 
exercise informed judgments to avoid misconduct or conflicts of 
interest. They shall secure approvals when required and file financial 
disclosure reports or statements in accordance with the provisions of 
this part. Failure to observe any of these regulations may be cause for 
disciplinary action. Some of the provisions are required by law and 
carry criminal penalties which are in addition to any disciplinary 
action which could be taken. When employees have doubts about any 
provision, they should consult their supervisor, personnel office, or 
the Department Ethics Counselor or a deputy counselor.
    (b) Supervisors, because of their day-to-day relationships with 
employees, are responsible to a large degree for making sure high 
standards of conduct are maintained. They must become familiar with the 
Department's standards of conduct regulations and apply the standards to 
the work they do and supervise. Supervisors shall take suitable action, 
including disciplinary action in accordance with Subpart L of these 
regulations, when violations occur.

[[Page 156]]



Sec. 73.735-202  Management officials.

    (a) The Department has an obligation to enforce the requirements of 
this part in all respects and to help employees, special Government 
employees, and supervisors carry out their responsibilities to maintain 
high standards of ethical conduct. This includes an obligation for 
managers to provide information and training concerning the HHS conduct 
regulations, to provide advice and guidance with respect to them, and to 
review for possible conflicts of interest certain outside activities and 
financial interests of employees. The officials responsible for 
discharging the Department's oligations in this regard are identified in 
paragraphs (b) through (f) of this section.
    (b) Department Ethics Counselor. The Assistant General Counsel, 
Business and Administrative Law Division, shall be the Department Ethics 
Counselor and shall serve as the Designated Agency Official for matters 
arising under the Ethics in Government Act of 1978, (Pub. L. 95-521). 
The responsibilities of the Department Ethics Counselor shall include:
    (1) Rendering authoritative advice and guidance on matters of 
general applicability under the standards of this part and all other 
laws and regulations governing employee conduct, with particular 
reference to conflicts of interest matters.
    (2) Coordinating the Department's counselling and training services 
regarding conflicts of interest and assuring that employees of the 
Department are kept informed of developments in conflict of interest 
laws and other related matters of ethics.
    (3) Receiving information on conflicts of interest and appearances 
of conflicts of interest involving employees of the Department and 
forwarding this information to the appropriate management official, or 
the Inspector General, as necessary, with his or her legal evaluation of 
the matters addressed.
    (4) Reviewing the financial disclosure reports, requests for 
approval of outside activities, and similar reports filed by Executive 
level officers, non-career executives, deputy ethics counselors, and 
Schedule C employees in the Office of the Secretary for the purpose of 
identifying and resolving possible and actual conflicts of interest.
    (5) Maintaining liaison with the Office of Government Ethics.
    (6) Advising management officials on the resolution of conflicts of 
interest by any of the remedies set forth in Sec. 73.735-904 of this 
part.
    (7) Maintaining accurate and complete documentation of all formal 
guidance and advice regarding conflict of interest matters subject to 
the provisions of this part, except for routine or repetitious cases 
where the guidance given is not precedential.
    (8) Maintaining and publishing from time to time a list of those 
circumstances or situations which have resulted or may result in 
noncompliance with conflict of interest laws or regulations. [Section 
206(b)(7), Pub. L. 95-521].
    (9) Designating and training an appropriate number of reviewing 
officials to assist him or her in carrying out the duties of the 
Designated Agency Offical under the Ethics in Government Act.
    (10) Maintaining effective lines of communication with deputy ethics 
counselors on all matters regarding employee conduct and ethics.
    (c) Deputy Ethics Counselors. Assistant General Counsels and 
Regional Attorneys are designated deputy ethics counselors to assist the 
Department's Counselor in carrying out his or her responsibilities, 
particularly with respect to employees in the organization in which the 
deputy counselor serves. Regional Attorneys shall provide such 
assistance for all employees of the Department in organizations for 
which the Principal Regional Official provides personnel services.
    (d) The Assistant Secretary for Personnel Administration shall be 
responsible for developing and issuing procedures and requirements for 
the implementation of these regulations and for monitoring the 
application of such procedures and requirements throughout the 
Department.
    (e) Heads of Principal Operating Components and the Assistant 
Secretary for Management and Budget for the Office of the Secretary 
shall be ultimately responsible for assuring that persons who work for 
their respective

[[Page 157]]

organizations comply with the standards of this part. Their 
responsibilities shall include:
    (1) Designating officials to review and approve outside activity 
requests in accordance with Sec. 73.735-708 of this part or statements 
of employment or financial interests under Sec. 73.735-902. A list of 
the officials designated for these purposes shall be provided to the 
Department Ethics Counselor and to the Assistant Secretary for Personnel 
Administration and shall be updated in January and July of each year.
    (2) Designating for the components of his or her organization, other 
than those for which a principal regional official provides personnel 
services, one or more individuals to oversee and coordinate the 
administrative aspects of these regulations. Responsibilities of such a 
person include making sure each employee or special government employee 
is provided a copy of these regulations, or an appropriate summary 
thereof; ensuring that training in the requirements of the regulations 
is provided to supervisors and to new employees; providing for the 
distribution, receipt, review and retention of financial interest 
reports and statements as directed by the Department Ethics Counselor 
and the Assistant Secretary for Personnel Administration; sending annual 
reminders as required; providing for a file of outside work requests; 
giving information and assistance to employees on a day-to-day basis; 
and making available to employees the names and addresses of the 
Department's Ethics Counselor and deputy ethics counselors.
    (f) Principal Regional Officials (PROs) shall designate one or more 
regional employees to perform, for components for which personnel 
services are provided by the PROs, the responsibilities in paragraph 
(e)(2) of this section.



                      Subpart C--Conduct on the Job



Sec. 73.735-301  Courtesy and consideration for others.

    (a) An employee's conduct on the job is, in all respects, of concern 
to the Federal government. Courtesy, consideration, and promptness in 
dealing with the public must be shown in carrying out official 
responsibilities, and actions which deny the dignity of individuals or 
conduct which is disrespectful to others must be avoided. Employees must 
recognize that inattention to matters of common courtesy can adversely 
affect the quality of service the Department is responsible for 
providing. Where appropriate, courtesy to the public should be included 
in the standards for employee performance.
    (b) Of equal importance is the requirement that courtesy be shown in 
day-by-day interaction with co-workers. Employees shall be polite to and 
considerate of other employees, and shall respect their needs and 
concerns in the work environment.



Sec. 73.735-302  Support of department programs.

    (a) When a Department program is based on law, Executive Order or 
regulation, every employee has a positive obligation to make it function 
as efficiently and economically as possible and to support it as long as 
it is a part of recognized public policy. An employee may, therefore, 
properly make an address explaining and interpreting such a program, 
citing its achievements, defending it against uninformed or unjust 
criticism, or soliciting views for improving it.
    (b) An employee shall not, either directly or indirectly, use 
appropriated funds to influence, or attempt to influence, a Member of 
Congress to favor or oppose legislation. However, when authorized by his 
or her supervisor, an employee is not prohibited from:
    (1) Testifying, on request, as a representative of the Department on 
pending legislation or proposals before Congressional Committees; or
    (2) Assisting Congressional Committees in drafting bills or reports 
on request, when it is clear that the employee is serving solely as a 
technical expert under the direction of committee leadership.
    (c) All employees shall be familiar with regulations and published 
instructions that relate to their official duties and responsibilities 
and shall comply with those directives. This includes carrying out 
proper orders from officials authorized to give them.

[[Page 158]]

    (d) Employees are required to assist the Inspector General and other 
investigative officials in the performance of their duties or functions. 
This requirement includes the giving of statements or evidence to 
investigators of the Inspector General's office or other HHS 
investigators authorized to conduct investigations into potential 
violations.



Sec. 73.735-303  Use of government funds.

    (a) An employee shall not:
    (1) Improperly use official travel;
    (2) Improperly use payroll and other vouchers and documents on which 
Government payments are based;
    (3) Take or fail to account for funds with which the employee is 
entrusted in his or her official position; or
    (4) Take other Government funds for personal use. Violation of these 
prohibitions carry criminal penalties.
    (b) In addition, employees shall avoid wasteful actions or behavior 
in the performance of their assigned duties.



Sec. 73.735-304  Use of government property.

    (a) An employee shall not directly or indirectly use, or allow the 
use of, Government property of any kind, including property leased to 
the Government, for other than officially approved activities. An 
Employee has a positive duty to protect and conserve Government 
property, including equipment, supplies, and other property entrusted or 
issued to him or her. For example:
    (1) Only official documents and materials may be processed on 
Government reproduction facilities. Both supervisors and employees must 
assure that this rule is strictly followed. (Exception for employee 
welfare and recreation associations is stated in Chapter 25-10, General 
Administration Manual. Exception for labor organizations is stated in 
Personnel Instruction 711-1.)
    (2) Employees may drive or use Government automobiles or aircraft 
only on official business. Use of a Government owned, leased, or rented 
vehicle or aircraft for non-official purposes may result in suspension 
for at least 30 days or removal from the Federal service. 31 U.S.C. 
638a.

    Example: Normally, use of a Government automobile by travel between 
home and place of duty would not be considered official business and 
could not be authorized. An exception to this rule might be appropriate 
in a situation where an employee is required to leave early in the 
morning to attend a meeting in a distant city, or to return late in the 
day from such a meeting. Allowing the employee to drive a government car 
to his or her home the night before in order to leave from home, or to 
return to his or her home in the evening upon completion of the trip is 
permissible, provided the employee does not use the car for any personal 
reason.



Sec. 73.735-305  Conduct in Federal buildings.

    (a) An employee shall not participate while on Government-owned or 
leased property or while on duty for the Government, in any gambling 
activity including the operation of a gambling device, in conducting a 
lottery or pool, in a game for money or property, or in selling or 
purchasing a numbers slip or ticket.
    (b) An employee shall not while in or on Government-owned or leased 
property or while on duty for the Government solicit alms and 
contributions, engage in commercial soliciting and vending, display or 
distribute commercial advertisements, or collect private debts.
    (c) The prohibitions in paragraphs (a) and (b) of this section do 
not preclude:
    (1) Activities necessitated by an employee's law enforcement duties;
    (2) Participation in Federally sponsored fund-raising activities 
conducted pursuant to Executive Order 10927, or similar HHS-approved 
activities; or
    (3) Buying a lottery ticket at an authorized State lottery outlet 
for a lottery authorized by State law and conducted by an agency of a 
State within that State.
    (d) General Services Administration regulations on ``Conduct on 
Federal Property'' apply to all property under the control of the 
General Services Administration, and they are also applicable to all 
buildings and space under the control of this Department. These 
regulations prohibit, among other things, gambling, being intoxicated, 
and possession, distribution, or use of narcotic or dangerous drugs on 
the premises. The GSA regulations are found in Subpart 101-20.3 of the 
GSA Regulations, 41 CFR 101-20.3.

[[Page 159]]



Sec. 73.735-306  Sexual harassment.

    Sexual harassment is deliberate unsolicited verbal comments, 
gestures, or physical contact of a sexual nature which are unwelcome. 
Sexual harassment is unacceptable conduct and is expressly prohibited. 
In addition, supervisors and managers are prohibited from taking or 
promising personnel actions in exchange for sexual favors, or failing to 
take an action because an employee or applicant for employment, refuses 
to engage in sexual conduct. This same prohibition applies to 
relationships between Department personnel who take or recommend action 
on a grant or contract and the grantee or contractor. Those employees 
who wish to file a complaint of sexual harassment should contact the 
Office of Equal Employment Opportunity (EEO) within their respective 
agencies for guidance. (Time frames for pursuing a charge alleging 
sexual harassment are the same as for any other complaint based on 
allegations of sex discrimination.)



Sec. 73.735-307  Use of official information.

    (a) The public interest requires that certain information in the 
possession of the Government be kept confidential, and released only 
with general or specific authority under Department or operating 
component regulations. Such information may involve the national 
security or be private, personal, or business information which has been 
furnished to the Government in confidence. In addition, information in 
the possession of the Government and not generally available may not be 
used for private gain. The following paragraphs set forth the rules to 
be followed by Department employees in handling information in official 
files or documents:
    (1) Classified information. Employees who have access to information 
which is classified for security reasons in accordance with Executive 
Order 12065 are responsible for its custody and safekeeping, and for 
assuring that it is not disclosed to unauthorized persons. See the 
Department's Security Manual, Part 3 for details.
    (2) Security and investigative information. Security and 
investigative data received from Government agencies or other sources 
for official use only within the Department or developed under a pledge 
of confidence is not to be divulged to unauthorized persons or agencies.
    (3) Information obtained in confidence. Certain Department units 
(e.g., Food and Drug Administration, and the Social Security 
Administration) obtain in the course of their program activities certain 
information from businesses or individuals which they are forbidden by 
law from disclosing. These statutory prohibitions are found in 21 U.S.C. 
331j, and 18 U.S.C. 1905. Each employee is responsible for observing 
these laws.
    (4) Use of information for private gain. Government employees are 
sometimes able to obtain information about some action the Government is 
about to take or some other matter which is not generally known. 
Information of this kind shall not be used by the employee to further 
his or her or someone else's private financial or other interests. Such 
a use of official information is clearly a violation of a public trust. 
Employees shall not, directly or indirectly, make use of, or permit 
others to make use of, for the purpose of furthering any private 
interest, official information not made available to the general public.
    (b) The Privacy Act provides criminal penalties for an employee who 
willfully discloses individually identifiable information from records, 
disclosure of which is prohibited by that Act. 5 U.S.C. 552a(i).



                    Subpart D--Financial Obligations



Sec. 73.735-401  General provisions.

    (a) The Department considers the indebtedness of its employees to be 
a matter of their own concern. However, employees shall not by failure 
to meet their just financial obligations reflect adversely on the 
Government as their employer. Employees are expected to pay each just 
financial obligation in a proper and timely manner. A ``just financial 
obligation'' is one acknowledged by the employee or reduced to judgment 
by a court, or one imposed by law such as Federal, State, or local

[[Page 160]]

taxes. ``In a proper and timely manner'' is a manner which the 
Department determines does not, under the circumstances, reflect 
adversely on the part of an employee in meeting his or her financial 
obligations, particularly those that relate to support of the employee's 
family, to payment of Federal, State, or local taxes, or to payments to 
tax-supported institutions such as a city or State hospital, or 
educational institution. If for some reason an employee is unable to pay 
these obligations promptly, he or she is expected to make satisfactory 
arrangements for payment and abide by these arrangements.
    (b) Disciplinary action may be considered when an employee has 
handled his or her financial affairs in such a way that:
    (1) Action on complaints received from creditors requires the use of 
a considerable amount of official time, or
    (2) It appears that financial difficulties are impairing the 
employee's efficiency on the job, or
    (3) Because of the employee's financial irresponsibility, the 
attitude of the general public toward the Department may be adversely 
affected; and the employee after counseling does not make arrangements 
to meet his or her financial obligations.



               Subpart E--Gifts, Entertainment, and Favors



Sec. 73.735-501  Prohibited acceptance of gifts, entertainment, and favors.

    (a) Except as provided in Secs. 73.735-502 and 73.735-506, an 
employee shall not directly or indirectly solicit or accept anything of 
monetary value, including gifts, gratuities, favors, entertainment or 
loans from a person who the employee knows, or should know because of 
the nature of the employee's work:
    (1) Has, or is seeking to obtain, contractual or other business or 
financial relations with the employee's principal operating component, 
or sub-unit thereof; or with a component of the Department with respect 
to which the employee has official duties;
    (2) Conducts operations or activities that are regulated by the 
employee's principal operating component, or sub-unit thereof or by a 
component of the Department with respect to which the employee has 
official duties; or
    (3) Has interests that may be substantially affected by the 
performance or non-performance of the employee's official duties.
    (b) Employees may not designate a person or an organization, 
including charitable or non-profit organizations, to accept any gift 
which an employee is prohibited from accepting directly.



Sec. 73.735-502  Permissible acceptance of gifts, entertainment, and favors.

    (a) An employee may accept a gift, gratuity, favor, entertainment, 
loan or similar favor of monetary value which stems from a family 
relationship such as that between the employee and his or her parents, 
spouse or children, if it is clear that the relationship is the 
motivating factor.
    (b) Loans from banks or other financial institutions may be accepted 
on customary terms.
    (c) Unsolicited advertising or promotional material such as pens, 
note pads, calendars and similar items of nominal intrinsic value may be 
accepted.
    (d) An employee may accept food or refreshment of nominal value on 
infrequent occasions in the ordinary course of a luncheon or dinner 
meeting or on an inspection tour only if the employee is properly in 
attendance and there is not a reasonable opportunity to pay.

    Example 1: Employee is on the premises of Company participating in a 
meeting at a normal mealtime. A representative of Company provides a 
meal for all meeting participants from a Company facility and there is 
no established method for payment. Employee may accept.
    Example 2: Employee is on the premises of Company and he or she goes 
outside for lunch with a representative of the Company. The 
representative offers to pay the bill. Since it is practical for the 
employee to pay for his or her own meal, the employee may not accept.

    (e) An employee may also accept food or refreshment of nominal value 
on infrequent occasions if the food and/or refreshment is offered to all 
participants or attendees of a meeting or convention.


[[Page 161]]


    Example 1: During the course of a convention of a professional 
organization a luncheon open to all attendees is sponsored by a 
corporation which conducts business with the Department and the employee 
has official dealings with representatives of the corporation. The 
employee may attend the luncheon.



Sec. 73.735-503  Criminal provisions relating to gifts, entertainment, and favors.

    (a) The law provides criminal penalties for whoever, directly or 
indirectly:
    (1) Receives or accepts anything of value for or because of any 
official act the employee has performed or will perform; or
    (2) Gives, offers or promises anything of value for the performance 
of an official act or to influence the performance of an official act. 
18 USC 201.
    (b) The law prohibits an employee from receiving any salary or any 
contribution to, or supplementation of, his or her salary as 
compensation for services as an officer or employee of the Government 
from any source other than the United States or any State, county or 
municipality. This law does not prohibit an employee from continuing to 
participate in a bona fide pension, retirement, group life, health or 
accident insurance, profit-sharing, stock bonus or other employee 
welfare or benefit plan maintained by a former employer. 18 U.S.C. 209.

    Example 1: A corporate executive is asked to accept a position in 
the Department. The corporation offers to continue to pay the executive 
the difference between his or her salary as a Government employee and 
that received by an employee of the corporation. Such payment would be 
considered to be ``compensation for'' the employee's Government service 
and is prohibited.
    Example 2: A corporate executive is asked to accept a position in 
the Department. The corporation proposes to pay him or her a special 
severance payment in anticipation of this or her serving in the 
Government. This proposal would be prohibited because there is no 
distinction between the proposed lump-sum payment and the prohibited 
continuation of salary payments described in the example above.
    Example 3: A corporate executive is asked to accept a position in 
the Department. The corporation has an established policy which provides 
for an amount of severance pay to be paid any departing executive and 
proposes to make payment based on that policy when the executive leaves. 
The executive may accept the payment. Under these circumstances it is 
clear that the severance pay is in payment for past services not in 
anticipation of the future services for the Government.



Sec. 73.735-504  Gifts to official superiors.

    An employee shall not solicit a contribution from another employee 
for a gift to an official superior, make a donation as a gift to an 
official superior, or accept a gift from an employee receiving less pay 
than himself or herself. 5 U.S.C. 7351. This section does not prohibit a 
voluntary gift of nominal value or donation in nominal amount made on a 
special occasion such as marriage, illness or retirement.



Sec. 73.735-505  Acceptance of awards and prizes.

    (a) Employees may accept awards, including cash awards, given in 
recognition of a meritorious public contribution or achievement. 
However, if there is any indication that the award may improperly 
influence the employee in the performance of his or her offical duties, 
advice about the acceptance of it should be sought from a deputy ethics 
counselor. Also, an employee may not accept an award from an 
organization which the employee knows, or should know, has a contractual 
or other business arrangement with, or is regulated by, the principal 
operating component, or a sub-unit, in which he or she is employed or 
with respect to which the employee has official duties, unless 
acceptance is approved by the head of the employee's principal operating 
component. The head of the component may not approve acceptance unless 
he or she is satisfied that no actual conflict of interest would result.
    (b) Employees may generally accept trophies, entertainment, rewards, 
and prizes given to competitors in contests or events which are open to 
the public.
    (c) Employees may not accept gifts, awards, decorations or other 
things of value from a foreign government except as provided in 
Sec. 73.735-506.



Sec. 73.735-506  Gifts and decorations from foreign governments.

    (a) An employee may not request or otherwise encourage the tender of 
a

[[Page 162]]

gift or decorations from a foreign government or official thereof.
    (b) An employee may accept from a foreign government:
    (1) A gift which is in the nature of medical treatment or an 
educational scholarship;
    (2) A tangible gift of minimal value tendered or received as a mark 
of courtesy; (``Minimal value'' means a retail value in the United 
States at the time of acceptance of not more than one hundred dollars, 
unless the Administrator of the General Services Administration adjusts 
the value by regulation.) or
    (3) A tangible gift of more than minimal value when it appears that 
to refuse the gift would be likely to cause offense or embarrassment or 
otherwise adversely affect the foreign relations of the United States. 
However, the acceptance of such a gift would be on behalf of the United 
States and the gift would become the property of the United States. See 
the Department's General Administration Manual, Chapter 20-25 for 
information regarding the disposition of a gift accepted under these 
circumstances.
    (c) An employee may also accept from a foreign government gifts of 
travel or expenses for travel (such as transportation, food and lodging) 
that take place entirely outside the United States and are of more than 
minimal value, if such acceptance is consistent with the interests of 
the United States and is approved by the travel approving authority in 
accordance with the Department's Travel Manual. See General 
Administration Manual, Chapter 20-25 for a requirement to report such 
travel.
    (d) An employee may accept, retain, and wear a decoration tendered 
in recognition of active field service in time of combat operations or 
awarded for other outstanding or unusually meritorious performance, 
subject to the approval of the Secretary or his or her designee.
    (e) Members of an employee's family and household are also subject 
to the regulations in this section. A member of an employee's family and 
household is a relative by blood, marriage or adoption who is a resident 
of the household. However, if a member of an employee's family and 
household is employed by another agency of the Government, the offer or 
acceptance of a gift shall be treated under the regulations of that 
agency.
    (f) For purposes of this section ``foreign government'' means:
    (1) Any unit of foreign government authority including any foreign 
national, state, local and municipal government;
    (2) Any international or multinational organization whose membership 
is composed of any unit of foreign government described in paragraph 
(f)(1) of this section; or
    (3) Any agent or representative of any such unit or organization 
when acting as such agent or representative. (5 U.S.C. 7342)



Sec. 73.735-507  Acceptance of travel and subsistence.

    (a) Except as provided in paragraph (b) of this section, employees 
may accept accommodations, subsistence, and travel in cash or in kind in 
connection with official travel for attendance at meetings, conferences, 
training in non-Governmental facilities or for performing advisory 
services, if approved in accordance with the provisions of the HHS 
Travel Manual. (5 U.S.C. 4111; 42 U.S.C. 3506)
    (b) Employees may not accept accommodations, subsistence, or travel 
in cash or in kind in connection with official travel from a non-
Governmental source with which they have official dealings unless 
Government or commercial travel and/or accommodations are not available. 
If travel and/or subsistence is accepted for official travel under these 
circumstances, such acceptance and the basis for it must be reported in 
writing to the Head of the Principal Operating Component or Assistant 
Secretary for Management and Budget for the Office of the Secretary.



Sec. 73.735-508  Other prohibitions.

    Employees shall avoid any action whether or not specifically 
prohibited by this part, which might result in or create the appearance 
of:
    (a) Using public office for private gain;
    (b) Giving preferential treatment to any person;

[[Page 163]]

    (c) Impeding Government efficiency or economy;
    (d) Losing complete independence or impartiality in the performance 
of their Government duties;
    (e) Making a Government decision outside official channels; or
    (f) Affecting adversely the confidence of the public in the 
integrity of the Government.



                      Subpart F--Political Activity



Sec. 73.735-601  Applicability.

    (a) All employees in the Executive Branch of the Federal Government, 
including non-career employees, are subject to basic political activity 
restrictions in subchapter III of chapter 73 of title 5, United States 
Code (the former Hatch Act) and Civil Service Rule IV. Employees are 
individually responsible for refraining from prohibited political 
activity. Ignorance of a prohibition does not excuse a violation. This 
subpart summarizes provisions of law and regulation concerning political 
activity of employees. The Federal Personnel Manual and other 
publications of the Office of Personnel Management contain more detailed 
information on this subject. These may be reviewed in Department 
personnel offices, or will be made available by the Ethics Counselor, or 
the deputy counselor for the employee's organizational component.
    (b) The Secretary and Under Secretary are exempt from the 
prohibitions concerning active participation in political management and 
political campaigns. Also exempt are other officials of the Department, 
except the Inspector General and Deputy Inspector General, who are 
appointed by the President by and with the advice and consent of the 
Senate, and who determine policies to be pursued by the United States in 
the nationwide administration of Federal laws.
    (c) Intermittent employees are subject to the restrictions when in 
active duty status only and for the entire 24 hours of any day of actual 
employment.
    (d) Employees on leave, on leave without pay, or on furlough even 
though an employee's resignation has been accepted, are subject to the 
restrictions. Separated employees who have received a lump-sum payment 
for annual leave are not subject to the restriction during the period 
covered by the lump-sum payment or thereafter, provided they do not 
return to Federal employment during that period. Employees are not 
permitted to take a leave of absence to work with a political candidate, 
committee, or organization or to become a candidate for office with the 
understanding that they will resign their position if nominated or 
elected.
    (e) Employees are accountable for political activity by another 
person acting as their agent or under the employee's direction or 
control, if they are thus accomplishing indirectly what they may not 
lawfully do directly and openly.
    (f) Though officers in the Public Health Service Commissioned Corps 
are not subject to the restrictions in Subchapter III of Chapter 73 of 
Title 5, United States Code, the provisions of this subpart apply to 
them.



Sec. 73.735-602  Permissible activities.

    (a) Section 7324 of Title 5, United States Code, provides that 
employees have the right to vote as they please and to express their 
opinions on political subjects and candidates. Generally, however, 
employees are prohibited from taking an active part in political 
management or political campaigns or using official authority or 
influence to interfere with an election or affect its results. There are 
some exemptions from the restrictions of the statute:
    (1) Employees may engage in political activity in connection with 
any question not specifically identified with a national or State 
political party. They also may engage in political activity in 
connection with an election, if none of the candidates represents a 
party any of whose candidates for presidential elector received votes at 
the last preceding election at which presidential electors were 
selected.
    (2) An exception relates to political campaigns within, or in 
communities adjacent to, the District of Columbia, or in communities the 
majority of whose voters are employees of the Federal government. 
Communities to

[[Page 164]]

which the exception applies are specifically designated by the Office of 
Personnel Management. Information regarding the localities and the 
conditions under which the exceptions are granted may be obtained from 
personnel offices or the Department Counselor or deputy counselors.
    (b) A covered employee is permitted to:
    (1) Register and vote in any election;
    (2) Express his or her opinion as an individual citizen privately 
and publicly on political subjects and candidates;
    (3) Display a political picture, sticker, badge or button;
    (4) Participate in the nonpartisan activities of a civic, community, 
social, labor, or professional organization, or of a similar 
organization;
    (5) Be a member of a political party or other political organization 
and participate in its activities to the extent consistent with law;
    (6) Attend a political convention, rally, fund raising function; or 
other political gathering;
    (7) Sign a political petition as an individual citizen;
    (8) Make a financial contribution to a political party organization;
    (9) Take an active part, as an independent candidate, or support of 
an independent candidate, in a partisan election in localities 
identified as permissible for such activities by the Office of Personnel 
Management;
    (10) Take an active part, as a candidate or in support of a 
candidate, in a nonpartisan election;
    (11) Be politically active in connection with a question which is 
not specifically identified with a political party, such as a 
constitutional amendment, referendum, approval of a municipal ordinance 
or any other question or issue of a similar character;
    (12) Serve as an election judge or clerk, or in a similar position 
to perform nonpartisan duties as prescribed by State or local law; and
    (13) Otherwise participate fully in public affairs, except as 
prohibited by law, in a manner which does not materially compromise his 
or her efficiency or integrity as an employee or the neutrality, 
efficiency, or integrity of his or her agency.
    (c) The head of a principal operating component may prohibit or 
limit the participation of an employee or class of employees of his or 
her component in an activity permitted by paragraph (b) of this section, 
if participation in the activity would interfere with the efficient 
performance of official duties, or create a conflict or apparent 
conflict of interest.



Sec. 73.735-603  Prohibited activities.

    (a) The following are prohibited activities:
    (1) Serving as an officer of a political party, a member of a 
national, State or local committee of a political party, an officer or 
member of a committee of a partisan political club, or being a candidate 
for any of these positions;
    (2) Organizing or reorganizing a political party organization or 
political club;
    (3) Directly or indirectly soliciting, receiving, collecting, 
handling, disbursing, or accounting for assessments, contributions, or 
other funds for a partisan political purpose or in connection with a 
partisan election;
    (4) Organizing, selling tickets to, seeking support for, or actively 
participating in a fund-raising activity of, a political party or 
political club;
    (5) Taking an active part in managing the political party campaign 
of a candidate for public office or political office;
    (6) Being a candidate for, or campaigning for, an elective public 
office, except as permitted in Sec. 73.735-602(b)(9);
    (7) Taking an active part in an organized solicitation of votes in 
support of or in opposition to a candidate for public office or 
political party office;
    (8) Acting as recorder, watcher, challenger, or similar officer at 
the polls on behalf of a political party or candidate in a partisan 
election;
    (9) Driving voters to the polls on behalf of a political paty or a 
candidate in a partisan election;
    (10) Endorsing or opposing a candidate in a partisan election in a 
political advertisement, a broadcast, campaign literature, or similar 
material;
    (11) Serving as a delegate, alternate, or proxy to a political party 
convention;

[[Page 165]]

    (12) Addressing a State or national convention or caucus, or a rally 
or similar gathering of a political party, in support of or in 
opposition to a candidate for public or political party office, or on a 
partisan political question; and
    (13) Initiating or circulating a nominating petition for a candidate 
in a partisan election.
    (b) In addition, certain political activities are prohibited by 
Federal criminal law:
    (1) Officers and employees may not directly or indirectly solicit or 
receive, or be in any way involved in soliciting or receiving, any 
assessment, subscription or contribution for any political purpose 
whatever from another officer or employee. This prohibition extends to 
one who acts as a mere agent or messenger for the purpose of turning the 
contribution over to a political organization. 18 U.S.C. 602.
    (2) All persons, whether employees or not, are prohibited from 
soliciting in any manner, or receiving a contribution of, money or a 
thing of value, in any room or building occupied in the discharge of 
official duties by any officer or employee of the United States. 18 
U.S.C. 603. This prohibition extends to the sending of a letter 
soliciting political contributions for delivery in a Government 
building.
    (3) No officer or employee may directly or indirectly give to any 
other officer, employee or person in the service of the United States, 
any money or other thing of value to be applied to the promotion of any 
political objective. 18 U.S.C. 607.
    (4) Discrimination for giving or withholding any contribution for 
any political purpose and discrimination based on political influence or 
recommendations is prohibited.
    (c) Various other laws prohibit certain activities in connection 
with political campaigns and elections. They include:
    (1) Intimidating, threatening, or coercing voters in Federal 
elections (18 U.S.C. 594).
    (2) Using official authority in interfering with a Federal election 
by a person employed in any administrative position by the United States 
or by any department, independent establishment, or agency of the United 
States or by any State, agency, or political subdivision thereof in 
connection with any activity financed in whole or in part by Federal 
funds (18 U.S.C. 595).
    (3) Promising Federal employment, compensation, or any benefit from 
Federal funds, in return for political activity or support (18 U.S.C. 
600).
    (4) Depriving anyone of employment, compensation, or any benefit 
derived from Federal relief or work relief funds on account of race, 
creed, color, or political activity (18 U.S.C. 601).
    (5) Soliciting, assessing, or receiving subscriptions or 
contributions for political purpose from anyone on Federal relief or 
work relief (18 U.S.C. 604).



                      Subpart G--Outside Activities



Sec. 73.735-701  General provisions.

    (a) Outside employment may be appropriate when it will not adversely 
affect performance of an employee's official duties and will not reflect 
discredit on the Government or the Department. Such work may include 
civic, charitable, religious, and community undertakings. There are 
certain types of outside work, however, which give rise to a real or 
apparent conflict of interest. Some of these are prohibited by law. 
Others are prohibited by regulation, as discussed in paragraph (b) of 
this section, or by criteria developed by heads of operating components 
for application within a particular component. All of these provisions 
are binding, but they do not necessarily include all possible conflicts 
of interest. In all instances, good judgment must be used to avoid a 
conflict between an employee's Federal responsibilities and outside 
activities.
    (b) An employee shall not engage in outside employment or other 
outside activity not compatible with the full and proper discharge of 
the duties and responsibilities of his or her Government employment 
whether or not in violation of any specific provision of law. 
Incompatible activities include, but are not limited to:
    (1) Acceptance of a fee, compensation, gift, payment of expense, or 
any other thing of monetary value in any circumstances in which 
acceptance

[[Page 166]]

may result in, or create the appearance of, conflicts of interest;
    (2) Outside employment which tends to impair the employee's mental 
or physical capacity to perform Government duties and responsibilities 
in an acceptable manner;
    (3) Work which identifies the Department or any employee in his or 
her official capacity with any organization commercializing products 
relating to work conducted by the Department, or with any commercial 
advertising matter, or work performed under such circumstances as to 
give the impression that it is an official act of the Department or 
represents an official point of view;
    (4) Outside work or activity that takes the employee's time and 
attention during his official work hours.
    (c) An employee shall not receive any salary or anything of monetary 
value from a private source as compensation for services to the 
Government. For example, a Department employee may be called upon, as a 
part of his or her official duties, to participate in a professional 
meeting sponsored by a non-Government organization, or to contribute a 
paper or other writing prepared on official time for publication under 
non-Government auspices. The employee must not accept an honorarium or 
fee for such services, even though the organization accepting the 
service customarily makes such a payment to those who participate. Nor 
may the employee accept a contribution to some charity, educational 
institution, or the like, in appreciation of the services furnished by 
the Department employee who cannot accept the usual payment. All offers 
to make such a contribution must be refused. Any employee with whom such 
a question is raised shall explain that the service involved was 
provided as an official action of the Department and is authorized by 
law. Under these circumstances, it is inappropriate for any payment to 
be made, even indirectly and to a third party, for services which are 
furnished without charge by the Government.
    (d) Other than as provided in paragraph (c) of this section, 
employees may receive compensation or other things of monetary value for 
any lecture, discussion, writing or appearance the subject matter of 
which is in part devoted to the responsibility, programs or operations 
of the Department so long as the activity is undertaken in a personal 
capacity, is not performed as official duty, is not done while on 
official time, and does not create a conflict of interest or appearance 
of conflict of interest. However, such activities are considered outside 
employment and may be undertaken only as provided in this subpart.
    (e) This section does not restrict the acceptance of compensation or 
other things of monetary value for any lecture, discussion, writing or 
appearance, the subject matter of which is not devoted to the 
responsibilities, programs, or operations of the Department and which 
are undertaken in a private capacity and in accordance with 
Secs. 73.735-704, 73.735-705, or 73.735-706.
    (f) Federal law limits the amount of honorarium that may be paid any 
employee for any one speech, writing or appearance to $2,000.00 (not to 
include amounts for actual travel and subsistence expenses for the 
employee and his or her spouse) and an aggregate of $25,000.00 in any 
calendar year. This limitation applies to such activities whether or not 
the subject matter is related to the responsibilities, programs or 
operations of the Department. (2 U.S.C. 441i) The term ``honorarium'' 
means payment of money or other thing of value whether made gratuitously 
or as a fee for an appearance, speech or article but does not include 
salary or compensation made for services rendered on a continuing basis, 
such as for teaching, or as proceeds from the sale of a book or similar 
undertaking.
    (g) An employee who is a Presidential appointee covered by section 
401(a) of Executive Order 11222 shall not receive compensation or 
anything of monetary value for any consultation, lecture, discussion, 
writing or appearance, the subject matter of which is devoted 
substantially to the responsibilities, programs, or operations of his or 
her component, or which draws substantially on official data or ideas 
which have not or will not on request become public information.

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    (h) Application of these general provisions to some specific 
activities is discussed below.



Sec. 73.735-702  Criminal prohibitions on outside activities.

    (a) An employee may not, with or without compensation, represent 
another before any Government agency, court or commission in connection 
with any proceeding, application, request for a ruling, contract, claim 
or other particular matter in which the United States is a party or has 
a direct and substantial interest. (18 U.S.C. 203 and 205)
    (b) An employee may not act as agent or attorney for anyone else in 
prosecuting any claim against the United States (18 U.S.C. 205).
    (c) As an exception to the above, if it is not inconsistent with the 
performance of his or her duties, an employee may act without 
compensation as an agent or attorney for another employee, or a person 
under active consideration for Federal employment, who is the subject of 
disciplinary, loyalty, or other personnel administration proceedings in 
connection with those proceedings at the administrative level. For 
example, an employee may represent another employee who is the subject 
of disciplinary action, or the complainant in a discrimination 
proceeding, at all stages within the Department and before the Merit 
Systems Protection Board or Equal Employment Opportunity Commission but 
not in Federal Court. It would be inconsistent with the performance of 
official duties for a supervisor to represent subordinate employees.
    (d) The law and these regulations do not prohibit an employee from 
acting, with or without compensation, as agent or attorney for his or 
her parents, spouse, child or any person for whom, or estate for which, 
he or she is acting as fiduciary provided that the head of the principal 
operating component or his or her designee approve. Such approval, if 
granted, must be granted in accordance with the procedures for approval 
of outside activity. However, the employee may not do so if the 
particular matter is one in which he or she has participated personally 
and substantially or which is his or her official responsibility. (18 
U.S.C. 205).



Sec. 73.735-703  Statutory prohibitions related to employment by a foreign government.

    Employees, including officers in the Public Health Service (PHS) 
Commissioned Corps and retired officers of the Regular Commissioned 
Corps of the PHS, may not, without the consent of Congress, be employed 
by a foreign government or agency of a foreign government (Art. I, Sec. 
9, U.S. Const.). Congress has consented to such employment by Reserve 
Commissioned Officers of the PHS not on active duty and by Retired 
Regular Commissioned Officers (37 U.S.C. 801, note) if approved under 
regulations of the Department of State. 22 CFR part 3a.



Sec. 73.735-704  Professional and consultative services.

    (a) Employees may engage in outside professional or consultative 
work only after meeting certain conditions. Except as provided in 
Secs. 73.735-705 and 73.735-706 for activities discussed in those 
sections, the conditions which must be met are:
    (1) The work is not to be rendered, with or without compensation, to 
organizations, institutions, or state or local governments with which 
the official duties of the employee are directly related, or indirectly 
related if the indirect relationship is significant enough to cause the 
existence of conflict or apparent conflict of interest; or
    (2) The work is not to be rendered for compensation to help a 
person, institution, or government unit prepare or aid in the 
preparation of grant applications, contract proposals, program reports, 
and other material which are designed to become the subject of dealings 
between the institutions or government units and the Federal Government. 
All requests to perform consultative services, either compensated or 
uncompensated, for institutions or government units which have recently 
negotiated or may in the near future seek a contract or grant from this 
Department must be carefully appraised to avoid any conflict or apparent 
conflict of interest.

[[Page 168]]

    (b) Advance administrative approval in accordance with Sec. 73.735-
708 of this subpart must be obtained. Such approval is required whether 
or not the services are for compensation, and whether or not related to 
the employee's official duties.
    (c) For the purpose of this section, ``professional and consultative 
work'' is performance of work requiring knowledge of an advanced type in 
a field of science or learning customarily acquired by a course of 
specialized instruction and study in an institution of higher education, 
or hospital which requires the exercise of judgment and discretion in 
its performance and is primarily intellectual in nature as opposed to 
manual, mechanical or physical work.
    (d) Membership on a Board of Directors, Board of Regents, Board of 
Trustees, Planning Commission, Advisory Council or Committee, or on any 
similar body which provides advice, counsel, or consultation, shall be 
considered outside consultative services for which advance 
administrative approval is required.



Sec. 73.735-705  Writing and editing.

    (a) Employees are encouraged to engage in outside writing and 
editing whether or not done for compensation, when such activity is not 
otherwise prohibited. Such writing and editing, though not a part of 
official duties, may be on a directly related subject or entirely 
unrelated. Certain conditions must be met in either case, however, and 
certain clearances or approvals are prescribed according to the content 
of the material as set forth in paragraphs (b) through (e) of this 
section.
    (b) Conditions applying to writing and editing done not as a part of 
official duties.
    (1) The following conditions shall apply to all writing and editing 
whether related or unrelated to the employee's official duties:
    (i) Government-financed time or supplies shall not be used by the 
author or by other Government employees in connection with the activity; 
and
    (ii) Official support must not be expressed or implied in the 
material itself or advertising or promotional material, including book 
jackets and covers, relating to the employee and his or her contribution 
to the publication.
    (2) If the writing or editing activity is unrelated to the 
employee's official duties or other responsibilities and programs of the 
Federal government, the employee must:
    (i) Make no mention of his or her official title or affiliation with 
the Department, or
    (ii) Use his or her official title or affiliation with the 
Department in a way that will not suggest or convey official endorsement 
of the work.
    (3) If the writing or editing activity is related to the employee's 
official duties or other responsibilities and programs of the Federal 
government, the employee must:
    (i) Make no mention of his or her official title or affiliation with 
the Department, or
    (ii) Use his or her official title or affiliation with the 
Department and a disclaimer as provided in paragraph (c) of this 
section, or
    (iii) Submit the material for clearance within the operating 
component, under procedures established by the component. When clearance 
is denied at any lower level, the employee shall have recourse for 
review up to the head of the principal operating component. This 
clearance will show there are no official objections to the activity and 
the employee may then use his or her official title or affiliation with 
the Department usually without a disclaimer.
    (c) Disclaimers. (1) Except where the requirement for disclaimer is 
waived as a result of official clearance, disclaimers shall be used in 
all writing and editing related to the employee's official duties or 
other responsibilities and programs of the Federal government:
    (i) In which the employee identifies himself or herself by official 
title or affiliation with the Department, or
    (ii) When the prominence of the employee or the employee's position 
might lead the public to associate him or her with the Department, even 
without identification other than name.
    (2) Disclaimers shall read as follows unless a different wording is 
approved by the Assistant General Counsel,

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Business and Administrative Law Division, Office of the General Counsel: 
``This (article, book, etc.) was (written, edited) by (employee's name) 
in (his or her) private capacity. No official suport or endorsement by 
(name of operating component or of Department) is intended or should be 
inferred.''
    (d) Advance approval. Advance approval is required in accordance 
with Sec. 73.735-708 of this subpart when one or more of the following 
conditions apply:
    (1) Any Government information is used which is not available on 
request to persons outside the Government;
    (2) Material is written or edited which pertains to subject matter 
directly related to an employee's official duties; (This includes 
editing for scientific or professional journals which is related to his 
or her official duties.)
    (3) Material is written or edited which pertains to any Government-
sponsored research or other studies for which clinical case records or 
other material of a confidential nature are used or to which access is 
limited for persons outside the Government. Such use will not be 
permitted unless made under safeguards established by the operating 
component to retain the confidentiality of the material, and such use is 
determined to be in the public interest.



Sec. 73.735-706  Teaching, lecturing, and speechmaking.

    (a) Employees are encouraged to engage in teaching and lecturing 
activities which are not part of their official duties when certain 
conditions are met. These conditions, which apply to outside teaching 
and lecturing (including giving single addresses such as commencement 
and Memorial Day speeches) whether or not done for compensation, are:
    (1) No Government-financed time, or Government supplies not 
otherwise available to the public, are used in connection with such 
activity;
    (2) Government travel or per diem funds are not used for the sole 
purpose of obtaining or performing such teaching or lecturing;
    (3) Such teaching or lecturing is not dependent on specific 
information which would not otherwise be available to the public;
    (4) Teaching, lecturing, or writing may not be for the purpose of 
the special preparation of a person or class of persons for an 
examination of the Office of Personnel Management or Board of Examiners 
for the Foreign Service, that depends on information obtained as a 
result of the employee's Government employment, except when that 
information has been made available to the general public or will be 
made available on request;
    (5) Such activities do not involve knowingly instructing persons on 
dealing with particular matters pending before Government organizations 
with which the employee is associated in an official capacity;
    (6) Advance approval is obtained when required by paragraph (b) of 
this section.
    (b) Advance approval. Advance approval must be obtained in 
accordance with Sec. 73.735-708 of this subpart before an employee may:
    (1) Teach or lecture for an institution which has or is likely to 
have official dealings with the bureau or comparable organizational unit 
in which he or she is employed;
    (2) Use, for teaching or lecturing purposes, clinical case records 
or other material of a confidential nature or to which access is limited 
for persons outside the Government. Such use will not be permitted 
unless made under safeguards established by the operating component to 
retain the confidentiality of the material, and such use is determined 
to be in the public interest.



Sec. 73.735-707  Holding office in professional societies.

    (a) Employees may be members of professional societies and be 
elected or appointed to office in such a society. Activity in 
professional associations is generally desirable from the point of view 
of both the Department and the employee. Employees shall avoid, however, 
any real or apparent conflict of interest in connection with such 
membership. For example, they must not:
    (1) Directly or indirectly commit the Department or any portion of 
it on any matter unless such action is taken in an official capacity;
    (2) Permit their names to be attached to documents the distribution 
of which

[[Page 170]]

would be likely to embarrass the Department; or
    (3) Serve in capacities involving them as representatives of non-
Government organizations in dealing with the Government.
    (b) In undertaking any office or function beyond ordinary membership 
in a professional association, a Department employee must obtain advance 
approval in accordance with Sec. 73.735-708 of this subpart in any 
situation in which his or her responsibilities as an officer would 
relate to his or her official duties or would create a real or apparent 
conflict of interest with responsibilities as a Department employee. For 
example, advance administrative approval must be obtained:
    (1) Before an employee who is responsible for review and approval of 
grants or contracts, or is in a supervisory position over those who 
conduct review and approval, may hold office, or be a trustee or member 
of the governing board, or the chairman or member of a committee, in any 
organization which has or is seeking a grant or contract with the bureau 
or comparable organizational unit in which he or she is employed;
    (2) Before an employee may hold office in an organization which 
customarily expresses publicly views on matters of legislative or 
administrative policy within the specific areas of concern to the 
Department.



Sec. 73.735-708  Administrative approval of certain outside activities.

    (a) Scope. As specified in Sec. 73.735-704 through 707, an employee 
is required to obtain advance administrative approval to engage in the 
following outside activities:
    (1) Certain writing or editing activities;
    (2) Certain types of teaching and lecturing;
    (3) All professional and consultative services;
    (4) Any other outside activity for which the head of a principal 
operating component or the head of a sub-unit of a principal operating 
component imposes internal requirements for administrative approval; and
    (5) Certain office-holding activities in professional societies.
    (b) Requests for Administrative Approval. An employee seeking to 
engage in any of the activities for which advance approval is required 
shall make a written request for administrative approval a reasonable 
time before beginning the activity. (See Sec. 73.735-202(e)(1)). This 
request should be directed to the employee's supervisor who will forward 
it to the official authorized to approve outside work requests for the 
employee's component. The request should include the following 
information:
    (1) Employee's name, position title, grade or rank;
    (2) Nature of the activity, fully describing the specific duties or 
services for which approval is requested;
    (3) Name and business of person or organization for which work will 
be done, or statement that work will be self-employment. If self-
employment, employee must state whether activity will be conducted alone 
or with partners;
    (4) Place where work will be performed;
    (5) Estimated total time to be devoted to activity. If on a 
continuing basis, indicate estimated time per year and the anticipated 
termination date;
    (6) Whether services can be performed entirely outside of usual duty 
hours. If not, the estimated number of hours absent from work should be 
indicated;
    (7) Method or basis of compensation if any (e.g., fee, per diem, per 
annum, or other).
    (8) Where an employee seeks approval to provide consultative or 
professional services to organizations including governments which have 
been awarded or may apply for a Federal grant or contract, the request 
shall also include full details on any aspect of the professional and 
consultative services which could relate in any way, either directly or 
indirectly, to grant applications, contract proposals, program reports, 
and other material which are designed to become the subject of dealings 
between the grantee or contractor and the Government. (See Sec. 73.735-
704(a)(2))
    (c) The Department Ethics Counselor will review and approve outside 
work requests for Executive level officers, non-career executives, 
deputy ethics

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counselors, and Schedule C employees in the Office of the Secretary.
    (d) Granting Approval of Certain Activities. The approving official 
shall review each request submitted under paragraph (b) of this section, 
and appraise each request on the basis of the standards of this part and 
all other applicable laws, regulations or internal rules of the 
principal operating component or sub-unit thereof. He or she should 
consult with a deputy ethics counselor or the Department Ethics 
Counselor in all cases that raise a difficult or novel question of law 
or fact. The approving official shall approve or disapprove each request 
and communicate his or her decision in writing to the employee.



Sec. 73.735-709  Annual reporting of outside activities.

    By September 10 of each year the approving official shall require a 
report from each person for whom outside work has been approved during 
the past year. The report shall show:
    (a) For the 12 months just past (ending August 31):
    (1) Whether the anticipated work was actually performed for the 
person or organization named in the request for approval;
    (2) Actual amount of time spent on the activity.
    (b) For the forthcoming 12 months (ending August 31):
    (1) Whether it is anticipated that the outside work will continue;
    (2) Whether any change is anticipated with respect to information 
supplied in accordance with the original request on which approval was 
based.



Sec. 73.735-710  Maintenance of records.

    The official responsible for the administrative aspects of these 
regulations (Sec. 73.735-202) shall make provisions for the retention 
and filing of requests for approval of outside work (or copies of such 
requests), a copy of the notification of approval or disapproval, and 
the annual report.



                      Subpart H--Financial Interest



Sec. 73.735-801  Participation in matters affecting a personal financial interest.

    (a) An employee shall not participate personally and substantially 
as a Government employee in a matter in which any of the following 
individuals or organizations has a financial interest:
    (1) The employee;
    (2) The employee's spouse;
    (3) The employee's minor child;
    (4) An organization in which the employee serves as an officer, 
director, trustee, partner, or employee; or
    (5) A person or organization with which the employee is negotiating 
for prospective employment or has an arrangement for prospective 
employment. Criminal penalties may be imposed under 18 U.S.C. 208 for 
violations of the prohibition.
    (b) Applying the provision of 18 U.S.C. 208:
    (1) A ``financial interest'' is any interest of monetary value which 
may be directly and predictably affected by the official action of an 
employee. There is no minimum amount of value or control that 
constitutes a financial interest.

    Example 1: An employee owns a single share of stock in a widely-held 
corporation. If the corporation is likely to be affected by a matter in 
which the employee participates as a Government official, the employee 
may violate 18 U.S.C. 208.
    Example 2: An employee has a paid part-time position with a non-
federal organization. If the organization is likely to be affected by a 
matter in which the employee participates as a Government official, the 
employee would violate 18 U.S.C. 208.

    (2) The prohibition of 18 U.S.C. 208 applies to personal and 
substantial involvement by an employee in a matter, exercised through 
decision, approval, disapproval, recommendation, investigation, giving 
advice, or other significant effort regarding the matter.

    Example 1: An employee is a member of a panel that evaluates 
proposals for contracts and makes recommendations as to their award. If 
the employee's spouse owns stock in a company which submits a proposal 
that

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is reviewed by the panel, the employee would violate 18 U.S.C. 208 even 
though the panel recommendation may be rejected by the contracting 
officer.
    Example 2: An employee is on a leave of absence from a university. 
He or she would violate 18 U.S.C. 208 by participating in the drafting 
of regulations which would have a ``direct and predictable effect'' upon 
universities in general and, therefore, upon the employee's university.

    (3) An employee must know that the financial interest exists in 
order to violate 18 U.S.C. 208.

    Example: An employee inherited a beneficial interest in a trust. He 
or she does not, however, have actual knowledge of the specific property 
held by the trustee. If the trust contains stock in a corporation which 
may be affected by the employee's official actions, he or she would not 
violate 18 U.S.C. 208 in taking official action affecting the 
corporation.

    (4) Negotiation for prospective employment includes both an 
indication of interest on the part of the employee in working for an 
organization and an affirmative action on the part of the organization 
to show consideration of the employee.

    Example 1: An employee of the Department sends resumes and cover 
letters to fifty prospective employers, all of whom regularly have 
dealings with HHS. Forty employers do not respond; however, ten respond 
with cordial form letters stating that the employee's resume will be 
retained for future reference. For purposes of the 18 U.S.C. 208 
prohibition, the employee is negotiating for prospective employment at 
the time he or she sends resumes.
    Example 2: At a site visit to a grantee institution, an employee who 
is officially responsible for a grant to that institution informs an 
officer of the institution that he or she is seeking a new position 
outside HHS. The grantee subsequently makes a conditional offer of 
employment to the employee who promptly responds by asking for an 
opportunity to discuss salary and related matters. Under these 
circumstances, a negotiation for prospective employment is underway.

    (c) An employee may obtain approval to participate in his or her 
official capacity in a matter in which he or she has a direct or 
indirect financial interest, if the interest is not so substantial as to 
affect the integrity of his or her official duties. An employee who 
believes that such participation is warranted should follow the 
procedures in Sec. 73.735-804.
    (d) An employee convicted of violating 18 U.S.C. 208 may be fined up 
to $10,000, or imprisoned up to two years, or both.



Sec. 73.735-802  Executive order prohibitions.

    (a) Basic prohibition of Executive Order 11222. (1) An employee 
shall not have a direct or indirect financial interest that conflicts 
substantially, or appears to conflict substantially, with his or her 
duties as a Federal employee.
    (2) An employee need not have a financial interest that actually 
conflicts with his or her duties to violate the prohibition of E.O. 
11222. Any financial interest that could reasonably be viewed as an 
interest which might compromise the employee's integrity, whether or not 
this is in fact true, is subject to this prohibition.
    (3) Except as provided in Sec. 73.735-802 (b) and (c), an employee 
who has an indirect financial interest in a business entity through the 
ownership of shares in a widely-held mutual fund or other regulated 
investment company will not violate E.O. 11222. Stocks in business 
entities held by an intermediary such as a mutual fund are generally too 
remote or inconsequential to affect the integrity of an employee's 
services.
    (b) Employees in regulatory activities. (1) An employee who is 
working in a regulatory activity shall not have a financial interest in 
any company whose business activities are subject to the regulations of 
the particular activity with which the employee is associated, unless 
the regulated activities of the company are an insignificant part of its 
total business operations.
    (2) An employee working in a regulatory activity may not hold shares 
in a mutual fund or other regulated investment company which specializes 
in holdings in industries that are regulated by the particular activity 
in which he or she is employed.

    Example: An employee working for the Bureau of Laboratories, Centers 
for Disease Control, may not hold shares in a regulated investment 
company which specializes in holdings that include medical testing 
laboratories.


[[Page 173]]


    (c) Employees having procurement or contracting responsibilities.
    (1) An employee who serves as a procurement or contracting officer 
shall not have a financial interest in a company or companies with which 
he or she in the course of his or her official duties would be likely to 
have procurement or contracting relationships.
    (2) A procurement or contracting officer may not hold shares in a 
mutual fund or other regulated investment company that specializes in 
holdings in industries with which such officer would be likely to have 
procurement or contracting relationships.

    Example: A contracting officer in the Social Security Administration 
owns shares in the XYZ Mutual Fund which specializes in stock in firms 
manufacturing electronic data processing equipment. Ownership of XYZ 
Mutual Fund shares would be prohibited in this instance. On the other 
hand, a contracting officer for a Public Health Service hospital, who is 
not likely to have responsibility for major contracts relating to 
electronic data processing, could hold such shares.



Sec. 73.735-803  Prohibition against involvement in financial transactions based on information obtained through Federal employment.

    An employee shall not engage in, directly or indirectly, a financial 
transaction as a result of, or in primary reliance upon, any information 
gained through his or her official duties. Information gained through 
official duties are those facts and other data that relate to the 
employee's official duties or to the functions of the employing 
component and would not be available to the employee were he or she not 
an officer of the Federal government.

    Example 1: An employee working part-time for a consulting firm that 
does no business with the employee's principal operating component, in 
the area of health care planning advises it, based upon his or her 
knowledge of a new health care planning program about to be initiated by 
the Public Health Service. The employee's knowledge of the program was 
acquired solely through reading policy statements and other PHS 
literature available to the public under the Freedom of Information Act. 
In such case, the employee would not violate this regulation if the 
outside activity was otherwise approvable under Subpart G.
    Example 2: A contracting officer with detailed knowledge of a 
negotiated procurement contract invests in a corporation that is likely 
to indirectly profit from the award of that contract. The officer's 
decision to invest is based upon technical details of the successful 
contract proposal that would not otherwise be available to a private 
citizen. The officer would violate this regulation in such a situation.



Sec. 73.735-804  Waiver of the prohibitions in this subpart.

    (a) An employee may request approval to participate in his or her 
official capacity in a matter in which he or she has a direct or 
indirect financial interest if the employee believes the interest is so 
remote and inconsequential that it would not affect the integrity of his 
or her official duties. Also an employee who has a financial interest 
that would otherwise be prohibited under these regulations may request 
an exemption from the prohibition for the reason stated in the preceding 
sentence.
    (b) The request shall be in writing and shall include the following 
information:
    (1) Employee's name, occupational title, grade or rank and Federal 
salary;
    (2) Full description of financial interest: including whether 
ownership, service as officer, partner, etc.;
    (3) Business or activity in which financial interest exists;
    (4) Description of official matter in which employee is requesting 
approval to participate;
    (5) Basis for requesting determination that the interest is ``not so 
substantial as to be deemed likely to affect the integrity of the 
services which the Government may expect.'' (If based on a small total 
value of investment, supply appropriate information on total value, such 
as total shares held and latest quoted market price. If other basis, 
explain fully.)

The request should be sent through usual administrative channels to the 
official responsible for reviewing financial disclosure reports or 
statements for the employee's organization (Subpart I). That official, 
after conferring with a deputy ethics counselor or with the Department 
Ethics Counselor as appropriate, will make a decision about the 
exemption or exception and inform the employee in writing.

[[Page 174]]



Sec. 73.735-805  Advice and guidance on conflicts matters.

    (a) Whenever an employee has a question about the appropriate course 
of conduct to be followed in a matter that may involve an actual or 
apparent conflict of interest, he or she should immediately consult with 
his or her supervisor or a deputy ethics counselor, or both. If a 
supervisor who is consulted determines that the matter warrants further 
consideration, he or she may, in conjunction with the employee, submit 
the details of the matter, in writing, to the appropriate deputy ethics 
counselor. These details should include a description of:
    (1) The activity, relationship, or interest giving rise to the 
question posed by the employee;
    (2) The duties or official responsibilities of the employee(s) 
involved;
    (3) The nature of the actual or apparent conflict of interest; and
    (4) Any other information that may be helpful in reviewing the 
problem.
    (b) Upon receiving the submission of an employee or a supervisor, 
the deputy ethics counselor will develop any additional information 
about the matter as necessary, and will confer with the Department 
Ethics Counselor as appropriate. The Department Ethics Counselor and the 
head of the principal operating component or his or her designee will be 
informed of any serious violation of the standards of this subpart or 
any other conflict of interest law. Questions of first impression or 
other unusual matters shall be brought to the attention of the 
Department Ethics Counselor and the head of the principal operating 
component or his or her designee.
    (c) On the basis of all information gathered including, where 
appropriate, the advice of the Department Ethics Counselor, the deputy 
ethics counselor will:
    (1) Decide that there is no violation or potential violation of the 
standards of this subpart or any other law and so notify the employee 
and his or her supervisor in writing; or
    (2) Decide that a violation or potential violation of the standards 
of this subpart or other law has occurred or may occur, and that the 
employee involved shall take one or more of the steps set forth in 
Sec. 731.735-904 to resolve the problem and notify the employee and his 
or her supervisor in writing; or
    (3) Decide that, although no violation of this subpart or other law 
has occurred, the nature of the matter is such that the employee should 
periodically report any additional information that would require 
reconsideration of the initial submission.



Sec. 73.735-806  Documentation and publication of opinions.

    (a) The Department Ethics Counselor, deputy ethics counselors, and 
any other individuals required to be involved in the review and 
resolution of violations or potential violations of this subpart shall 
maintain full and accurate documentation of the formal advice and 
guidance given.
    (b) From time to time, the Department Ethics Counselor shall publish 
summaries of advisory opinions issued by his or her office, deleting, as 
necessary, any personal identifiers or other information which may give 
rise to an unwarranted invasion of personal privacy. These summaries 
shall be distributed to all deputy ethics counselors, heads of principal 
operating components, and principal regional officials.
    (c) From time to time, the Department Ethics Counselor shall publish 
an index of all summaries issued in accordance with paragraph (b) of 
this section, and shall distribute these indexes to all deputy ethics 
counselors and heads of principal operating components who shall in turn 
make them available for review by supervisors and interested employees.



                Subpart I--Reporting Financial Interests



Sec. 73.735-901  Reporting requirement of the Ethics in Government Act of 1978.

    (a) Applicability. The following employees and special Government 
employees shall submit public financial disclosure reports in accordance 
with the provisions of Title II of the Ethics in Government Act of 1978, 
Pub. L. 95-521, as amended:
    (1) Officers and employees (including consultants who will work more 
than

[[Page 175]]

60 days in a calendar year) whose positions are classified at GS-16 or 
above of the General Schedule, or whose basic rate of pay (excluding 
``step'' increases) under other pay schedules is equal to, or greater 
than, the rate for GS-16 (step 1);
    (2) Members of the uniformed services whose pay grade is 0-7 or 
above;
    (3) Officers and employees in any other positions determined by the 
Director of the Office of Government Ethics to be of equal 
classification to GS-16;
    (4) Administrative Law Judges;
    (5) Employees in the excepted service in positions which are of a 
confidential or policy-making character, unless their position has been 
excluded by the Director of the Office of Government Ethics;
    (6) Department Ethics Counselor; and
    (7) Deputy Ethics Counselors.


An employee who thinks that his or her position has been improperly 
included under the reporting requirements of this part may obtain a 
review of that determination by writing to the Department Ethics 
Counselor.
    (b) Filing Dates. Employees listed in Sec. 73.735-901 (a) of this 
subpart shall file a financial disclosure report:
    (1) Within 5 days after the transmittal by the President to the 
Senate of their nomination to a position requiring Senate confirmation, 
or
    (2) Within 30 days after assuming a covered position not requiring 
Senate confirmation unless the employee has left another covered 
position listed in Sec. 73.735-901 (a) of this subpart, or
    (3) Within 30 days after terminating Federal employment or assuming 
a position which is not listed in Sec. 73.735-901 (a) of this subpart; 
and
    (4) By May 15 of each calendar year, unless the employee has in that 
calendar year already submitted a financial disclosure report covering 
the preceding calendar year.
    (c) Submission of reports. (1) Executive level officers, non-career 
executives, deputy ethics counselors and Schedule C employees in the 
Office of the Secretary who are required to report in accordance with 
Sec. 73.735-901 (a) of this subpart shall submit their reports to the 
Department Ethics Counselor.
    (2) All other employees required to report in accordance with 
Sec. 73.735-901 (a) of this subpart shall submit their reports to the 
reviewing official for their organizational component under procedures 
described in the Department's Personnel Manual. Personnel offices will 
keep a list of reviewing officials and will give each covered employee 
the name of the official to whom his or her report should be sent.
    (d) Review and certification of reports. (1) Each report submitted 
in accordance with this section shall be reviewed by the appropriate 
reviewing official within 60 days of its receipt. Upon reviewing a 
report and finding that the information contained therein reveals no 
conflict of interest or other violation of any provision of this part or 
applicable law, the reviewing officer shall certify the report with his 
or her signature.
    (2) The certification of a report filed in accordance with this 
section shall have the concurrence of the Office of the General Counsel.
    (3) Action to be taken by the reviewing official if the individual 
is not in compliance with applicable laws and regulations is discussed 
in Sec. 73.735-903 and Sec. 73.735-904.



Sec. 73.735-902  Reporting requirements for certain employees not covered by the Ethics in Government Act of 1978.

    (a) Applicability. The following employees and special Government 
employees shall submit confidential statements of employment and 
financial interests in accordance with the provisions of this subpart, 
provided they are not required to submit financial disclosure reports 
under Sec. 73.735-901. A list of the positions in this Department whose 
incumbents are required to file financial interest statements as 
prescribed by this subpart is available for review in all of the 
Departments servicing personnel offices.
    (1) Officers and employees in positions classified at GS-13 or above 
(or comparable pay level) who have decision-making responsibility for 
the following matters:
    (i) Contracting or procurement,
    (ii) Administering or monitoring grants or subsidies,

[[Page 176]]

    (iii) Regulating or auditing private or other non-Federal 
enterprises, or
    (iv) Other activities where the decision or action would have an 
economic impact on the interest of any non-Federal enterprise.
    (2) Incumbents of any other positions designated by the head of the 
principal operating component, or by the Assistant Secretary for 
Management and Budget for the Office of the Secretary, to report 
employment and financial interests in order to protect the integrity of 
the Government and to avoid possible conflicts of interest. The 
designation of any such positions below the GS-13 grade must be approved 
by the Office of Personnel Management.
    (3) All experts, consultants, or advisory committee members who are 
not required to submit a public financial disclosure report in 
accordance with the Ethics in Government Act except:
    (i) Doctors, dentists and allied medical specialists performing 
services for, or consulted as to the diagnosis or treatment of, 
individual patients; or
    (ii) Veterinarians performing services for or consulted as to care 
and service to animals.
    (b) Filing dates. (1) Experts, consultants, and advisory committee 
members shall file a confidential Statement of Employment and Financial 
Interest no later than the date employment commences and shall file 
supplemental statements as necessary to keep all information submitted 
current and accurate.
    (2) Other individuals covered by Sec. 73.735-902 (a) of this subpart 
shall:
    (i) File a confidential statement no later than 30 days after 
assuming a covered position unless the employee, within 30 days before 
assuming the position, left another covered position in HHS that is 
included in Sec. 73.735-901(a) or Sec. 73.735-902(a) of this subpart; 
and
    (ii) Report changes in or additions to the information in the 
statement as of June 30 of each calendar year, or a different date set 
by employee's component with authorization by the Office of Personnel 
Management.
    (c) Submission and review of financial statements. (1) Heads of 
principal operating components, the Assistant Secretary for Management 
and Budget, and principal regional officials for employees under their 
appointing authority shall establish procedures to ensure that financial 
statements from covered employees are received and updated on a timely 
basis and are referred to the appropriate reviewing officials for review 
and certification. (See Sec. 73.735-202 (e)(1)).
    (2) The reviewing official shall review statements to determine 
whether conflicts of interest or apparent conflicts might arise from the 
activities reported thereon. If the review discloses no conflict or 
apparent conflict, the reviewing official shall certify the statement 
with his or her signature. Action to take if the individual is not in 
compliance with applicable laws and regulations is discussed in 
Sec. 73.735-903 and Sec. 73.735-904.



Sec. 73.735-903  Action if conflicts of interest or possible conflicts are noted.

    (a) If after reviewing a financial disclosure report or a financial 
interest statement, a reviewing official believes that additional 
information is needed, he or she shall tell the individual submitting 
such report what additional information is required and the time by 
which it must be submitted.
    (b) If the reviewing official is of the opinion that, on the basis 
of information submitted, the reporting individual is not in compliance 
with applicable laws and regulations, he or she shall notify the 
individual, afford him or her a reasonable opportunity for a written or 
oral response, and after consideration of such response, determine 
whether or not the individual is in compliance.
    (c) If the reviewing official determines that an individual is not 
in compliance with applicable laws and regulations, he or she shall 
notify the individual of that determination in writing and, after an 
opportunity for personal consultation, determine and notify the 
individual of the action, including those actions set forth in 
Sec. 73.735-904, that would be appropriate to assure compliance with 
such laws and regulations, and the date by which such action should be 
taken. The action required and the date for taking it shall be 
determined by the nature of the financial interest or other 
relationship,

[[Page 177]]

the particular circumstances of the reporting individual (including his 
or her ability to resolve the problem), and other factors which the 
reviewing official deems relevant. In no case, however, should the date 
be later than 90 days after the reporting individual is notified of the 
reviewing official's opinion.
    (d) If steps for assuring compliance with applicable laws and 
regulations are not taken by the date set in paragraph (c) of this 
section, the matter shall be referred to the Department Ethics 
Counselor.



Sec. 73.735-904  Resolution of apparent or actual conflicts of interest.

    (a) Disqualification from participating in a particular matter or 
category of matters is an appropriate method for resolving apparent or 
actual conflicts of interest when the interest or activity giving rise 
to the problem:
    (1) Bears a direct or indirect relationship to particular, 
identifiable duties of the employee involved; and
    (2) Is not so substantial as to affect or give the appearance of 
affecting the integrity of the services which the Government may expect 
of the employee. Whenever disqualification is employed to resolve an 
apparent or actual conflict of interest, the disqualified employee shall 
sign a written statement reflecting the scope of the disqualification 
and the precise nature of the conflicting interest or activity. The 
reviewing official shall keep a file of all such disqualification 
statements and shall monitor compliance with these statements on a 
regular basis.
    (b) Change of assignment is an appropriate method for resolving 
apparent or actual conflicts of interest when the interest giving rise 
to the problem bears a direct or indirect relationship to particular, 
identifiable duties of the employee involved, and those duties 
constitute a significant portion of the employee's position.
    (c) Waiver under 18 U.S.C. 208(b) is an appropriate method for 
resolving apparent or actual conflicts of interest when:
    (1) The employee seeking the waiver reported the financial interest 
that bears some relationship to his or her official duties, and the 
reviewing official, in consultation with a deputy ethics counselor or 
the Department Ethics Counselor, determines that the financial interest 
is not so substantial as to be deemed likely to affect the integrity of 
the services which the Government may expect from such employee; or
    (2) By general rule or regulation published in the Federal Register, 
the Department has exempted the financial interest from the requirements 
of 18 U.S.C. 208 and this part as being too remote or too 
inconsequential to affect the integrity of the Government officers' 
service.
    (d) A trust containing a financial interest which may give rise to 
an apparent or actual conflict of interest is an appropriate method of 
resolving such conflicts when:
    (1) The trust is qualified under section 202(f) of the Ethics in 
Government Act of 1978 (Pub. L. 95-521), as amended, and subject to the 
regulations of the Office of Government Ethics; or
    (2) In the opinion of the Department's Ethics Counselor, it is 
sufficiently independent of the employee involved so that the integrity 
of the employee's services to the Government are not compromised.
    (e) Divestiture is an appropriate method for resolving actual 
conflicts of interest when the nature of the financial interest is such 
that the conflict of interest cannot be adequately resolved by any of 
the methods set forth in paragraphs (a), (b), (c), and (d) of this 
section.
    (f) Terminating an appointment as a method for resolving an actual 
conflict of interest should be used only when it is clear that no other 
remedy can be found which would be acceptable to both the Department and 
the employee. Generally, this method will be employed only in the most 
extreme cases. Such a termination would be subject to adverse action.



  Subpart J--Provisions Relating to Experts, Consultants and Advisory 
                            Committee Members



Sec. 73.735-1001  Coverage.

    (a) For purposes of this subpart the title ``consultant'' will be 
used to include those who are appointed to serve

[[Page 178]]

as experts, consultants or members of advisory committees. All persons 
who serve as an employee of the Government in the capacity of a 
consultant are covered by the provisions of this subpart irrespective 
of:
    (1) The title by which designated;
    (2) The statutory authority under which services are obtained;
    (3) The duration of the period for which services are obtained;
    (4) Whether services are obtained by appointment or invitation and 
acceptance;
    (5) Whether services are compensated or rendered without 
compensation;
    (6) Whether or not services are obtained pursuant to a statute 
excepting employees or special Government employees from conflict of 
interest statutes.
    (b) When the service is for less than 130 days in a service year, 
experts, consultants, and advisory committee members are included in the 
group of employees designated by law (18 U.S.C. 202) as ``Special 
Government employees.''



Sec. 73.735-1002  Ethical standards of conduct.

    (a) Like other Federal employees, an individual serving in a 
consultant capacity must conduct himself or herself according to ethical 
behavior standards of the highest order. In particular, such an 
individual must:
    (1) Refrain from any use of office which is, or appears to be, 
motivated by a private gain for himself or herself or other persons, 
particularly those with whom he or she has family, business, or 
financial ties. The fact that desired gain, if it materializes, will not 
take place at the expense of the Government makes his or her actions no 
less improper.
    (2) Conduct himself or herself in a manner devoid of any suggestion 
that he or she is exploiting Government employment for private 
advantage. A consultant must not, on the basis of any inside 
information, enter into any speculation or recommend speculation to 
members of his or her family or business associates, in commodities, 
land, or the securities of any private company. This injunction applies 
even though the consultant's duties have no connection whatever with the 
Government programs or activities which may affect the value of such 
commodities, land, or securities. He or she should be careful in all 
personal financial activities to avoid any appearance of acting on the 
basis of information obtained in the course of his or her Government 
work.
    (3) Refrain from using information not generally available to those 
outside the Government for the special benefit of a business or other 
entity by which the consultant is employed or retained or in which he or 
she has a financial interest. Information not available to private 
industry should remain confidential in the consultant's hands and not be 
divulged to his or her private employer or clients. In cases of doubt 
whether information is generally available to the public, the consultant 
should confer with the person for whom he or she provides services, with 
the office having functional responsibility for a specific type of 
information, or, as appropriate, with the officials designated in 
Sec. 73.735-202 to give interpretive and advisory service.
    (4) Where requested by a private enterprise to act for it in a 
consultant or advisory capacity and the request appears motivated by the 
desire for inside information, make a choice between acceptance of the 
tendered private employment and continuation of his or her Government 
consultancy. He or she may not engage in both.
    (5) Not use his or her position in any way to coerce, or give the 
appearance of coercing, anyone to provide a financial benefit to him or 
her or another person, particularly one with whom the consultant has 
family, business, or financial ties.
    (6) Not receive or solicit anything of value as a gift, gratuity, 
loan, entertainment, or favor for himself or herself or another person, 
particularly one with whom he or she has family, business, or financial 
ties if the acceptance would result in loss of complete independence or 
impartiality in serving the Government. All consultants are subject to 
the restrictions in Sec. 73.735-506 of this part concerning gifts and 
decorations from foreign governments.
    (b) Consultants may engage in other employment so long as there is 
no real

[[Page 179]]

or apparent conflict between the consultant's private employment and his 
or her official duties. See Sec. 73.735 Subpart G. The regular 
employment of a consultant who is a special Government employee is not 
considered outside work for purposes of Subpart G. Also, the limitation 
in Sec. 73.735-701(f) regarding the amount of an honorarium that may be 
received does not apply to special Government employees.
    (c) A consultant who has questions about conflicts of interest or 
the application of the regulations in this part to him or her or to his 
or her assigned work should make inquiry of the person for whom services 
are provided. That person may direct the consultant to the Department 
Ethics Counselor or a deputy ethics counselor for interpretative and 
advisory services as provided in Sec. 73.735-202.



Sec. 73.735-1003  Conflicts of interest statutes.

    (a) Each consultant should acquaint himself or herself with sections 
203, 205, 207 and 208 of title 18, United States Code, all of which 
carry criminal penalties related to conflicts of interest. The 
restraints imposed by the four criminal sections are summarized in 
paragraphs (b) and (c) of this section.
    (b) 18 U.S.C. 203 and 205.
    (1) These two sections in general operate to preclude a person who 
works for the Government, except in the discharge of his or her official 
duties, from representing anyone else before a court or Government 
agency in a matter in which the United States is a party or has a direct 
and substantial interest. The prohibition applies whether or not 
compensation is received for the representation. However, if the 
individual is a special Government employee, this restriction applies 
only if:
    (i) The representation involves a matter in which the individual has 
at any time participated personally and substantially in the course of 
his or her Government employment; or
    (ii) The individual has served the Department for more than 60 days 
in the immediately preceding period of 365 days, and the matter is one 
which is pending before the Department. This second restraint applies 
whether or not the matter is one in which the individual participated 
personally and substantially in his or her Government employment. These 
two provisions apply to a special Government employee on days when he or 
she does not serve the Government as well as on the days when services 
are rendered, and they apply to both paid and unpaid representation.
    (2) To a considerable extent the prohibitions of sections 203 and 
205 are aimed at the sale of influence to gain special favors for 
private businesses and other organizations and at the misuse of 
governmental position or information. In accordance with these aims, a 
consultant, even when not compelled to do so by sections 203 and 205, 
should make every effort in his or her private work to avoid any 
personal contact with respect to negotiations for contracts or grants 
with the component of the department in which he or she is serving, if 
the subject matter is related to the subject matter of his or her 
consultancy or other service. This will not always be possible to 
achieve where, for example, a consultant has an executive position with 
his or her regular employer which requires him or her to participate 
personally in contract negotiations with the department or agency he or 
she is advising. Whenever this is the case, the consultant should 
participate in the negotiations for his or her employer only after 
advising the responsible Government official of his or her involvement 
in other matters in the Department. In other instances an occasional 
consultant may have technical knowledge which is indispensable to his or 
her regular employer in his efforts to formulate a research and 
development contract or a research grant, and for the same reason, it is 
in the interest of the Government that the consultant should take part 
in negotiations for his or her private employer. Again, the individual 
should participate only after advising the responsible Government 
official of the relevant facts.
    (3) Section 205 permits both the Government and the private employer 
of a special Government employee to benefit, in certain cases, from his 
or her performance of work under a grant or

[[Page 180]]

contract for which he or she would otherwise be disqualified because of 
having participated in the matter for the Government or because it is 
pending in a component in which the consultant had served more than 60 
days in the past year. This provision gives the head of a department the 
authority, notwithstanding any prohibition in either section 203 or 205, 
to allow a special Government employee to represent before such 
department or agency either his or her regular employer or another 
person or organization in the performance of work under a grant or 
contract. As a basis for this action, the Secretary must first make a 
certification in writing, published in the Federal Register, that it is 
required by the national interest.
    (4) Section 205 contains two other exemptive provisions, which apply 
to both special and regular Government employees. See Sec. 73.735-702.
    (c) 18 U.S.C. 207 applies to individuals who have left Government 
service. See Subpart N of these regulations.
    (d) 18 U.S.C. 208 bears on the activities of Government personnel, 
including special Government employees, in the course of their official 
duties. In general, it prevents a Government employee from participating 
as such in a particular matter in which, to his or her knowledge, he or 
she, his or her spouse, minor child, partner, or a profit or non-profit 
enterprise with which he or she is connected has a financial interest. 
However, the section permits an employee's agency to grant him or her an 
ad hoc exemption if the interest is not so substantial as to affect the 
integrity of his or her services. Insignificant interests may also be 
waived by a general rule or regulation. The matters in which special 
Government employees are disqualified by section 208 are not limited to 
those involving a specific party or parties in which the United States 
is a party or has an interest, as in the case of sections 203, 205 and 
207. Section 208 therefore extends to matters in addition to contracts, 
grants, judicial and quasi-judicial proceedings, and other matters of an 
adversary nature. Accordingly, a special Government employee, like all 
government employees, should in general be disqualified from 
participating as such in a matter of any type the outcome of which will 
have a direct and predictable effect upon the financial interests 
covered by the section.

However, the power of exemption may be exercised in this situation if 
the special Government employee renders advice of a general nature from 
which no preference or advantage over others might be gained by any 
particular person or organization. The power of exemption may also be 
exercised where the financial interests involved are minimal in value.



Sec. 73.735-1004  Requesting waivers or exemptions.

    (a) A consultant may present in writing to the official for whom he 
or she provides services requests for the waivers or exemptions 
specified in Sec. 73.735-1003. That official will take, or refer the 
request for, action as appropriate, and will see that the employee 
receives advice or decision on his or her request.
    (b) A file of all waivers or exemptions granted shall be maintained 
in such manner that information can be given promptly on individual 
cases or statistics provided upon request. Generally, these records, 
together with written advice given in connection with less formal 
requests concerning questions of ethical standards, are kept with the 
employee's statement of employment and financial interests or financial 
disclosure report (Sec. 73.735-1006).
    (c)(1) Waiver for reviewers from certain multi-campus institutions. 
Applicability of the prohibitions of 18 U.S.C. 208(a) and this subpart 
are hereby waived pursuant to a determination that the interest involved 
is too remote or too inconsequential to affect the integrity of a 
special Government employee's review of a funding application or 
contract proposal from one campus of one of the following multi-campus 
institutions, where the interest consists solely of employment as a 
faculty member (including Department Chairman) at a separate campus of 
the same multi-campus institution:

    The University of Alabama system consisting of the University of 
Alabama, the University of Alabama in Birmingham, and the University of 
Alabama in Huntsville.

[[Page 181]]

    The campuses of the University of California.
    The system consisting of Colorado State University, the University 
of Southern Colorado, and Fort Lewis College.
    The Indiana University system consisting of eight universities on 
nine campuses, with the exception of the system-wide schools: the School 
of Business; the School of Dentistry; the School of Medicine; the School 
of Nursing; and the School of Public and Environmental Affairs.
    The University of Nebraska system consisting of the University of 
Nebraska--Lincoln, the University of Nebraska at Omaha, and the 
University of Nebraska Medical Center.
    The campuses of the State University of New York.
    The Oregon system of higher education consisting of the University 
of Oregon, Oregon State University, Oregon Health Sciences University, 
Portland State University, Western Oregon State College, Southern Oregon 
State College, Eastern Oregon State College, and the Oregon Institute of 
Technology.
    The campuses of the University of Tennessee.
    The separate universities comprising the University of Texas System.
    The separate universities comprising the University of Wisconsin 
System.

    (2) Institutions that are not subject to 18 U.S.C. 208(a) and the 
subpart, because they are not part of the same organization within the 
State. The following State institutions and systems of higher education 
have been determined to be separate from each other to such a degree 
that no waiver is necessary in order to permit a faculty member 
(including Department Chairman) employed by one of the State 
institutions of higher education to review a funding application or 
contract proposal from another of the named institutions within that 
State:

    The University of Alabama System and other Alabama State owned 
institutions of higher education.
    The California Community Colleges, the California State Universities 
and Colleges, and the University of California.
    The University of Colorado, Colorado State University, and other 
Colorado State owned institutions of higher education.
    The University of Connecticut, Connecticut State University, the 
Connecticut Technical Colleges, and the Connecticut Community Colleges.
    The University of Illinois, Illinois State University, Western 
Illinois University, Southern Illinois University, and the Illinois 
Community Colleges.
    The Indiana University and the other Indiana State owned 
institutions of higher education.
    The University of Iowa, and Iowa State University.
    The University of Kansas, Kansas State University, Wichita State 
University, Fort Hays State University, Pittsburg State University, and 
the Kansas Technological Institute.
    Louisiana State University, and other Louisiana State owned 
institutions of higher education.
    The University of Massachusetts, and other Massachusetts State owned 
institutions of higher education.
    The University of Michigan, Michigan State University, and Wayne 
State University.
    The University of Minnesota, the Minnesota State University System, 
and the Minnesota Community College System.
    The University of Missouri, and other Missouri State owned 
institutions of higher education.
    The University of Nebraska, and other Nebraska State owned 
institutions of higher education.
    The State University of New York System, and the City University of 
New York System.
    The University of North Carolina, North Carolina State, and other 
North Carolina State owned institutions of higher education.
    Pennsylvania State University, the University of Pittsburgh, Temple 
University, Lincoln University, and the other State owned colleges and 
universities in Pennsylvania.
    The University of Texas System, the Texas A&M System, the Texas 
State University System, the University System of South Texas, the Lamar 
University System, the University of Houston System, East Texas State 
University, Stephen F. Austin State University, West Texas State 
University, Midwestern University, North Texas State University, Texas 
Southern University, Texas Woman's University, Texas Tech University and 
Pan American University.
    The University of Utah and Utah State University.

[46 FR 7369, Jan. 23, 1981, as amended at 51 FR 15627, Apr. 25, 1986]



Sec. 73.735-1005  Salary from two sources.

    Special Government employees are not subject to 18 U.S.C. 209 which 
prohibits other employees from receiving any salary, or supplementation 
of Government salary, from a private source as a compensation for 
services to the

[[Page 182]]

Government. This Department will not knowingly pay per diem to a 
consultant who also receives per diem pay for the same day from another 
Government agency (in or outside the Department). Erroneous payments in 
contravention of this provision will be subject to collection, and any 
consultant who willfully collects double payments may be barred from 
further employment.



Sec. 73.735-1006  Reporting financial interests.

    (a) Consultants who will work more than 60 days in a calendar year 
are subject to the provisions of title II of the Ethics in Government 
Act of 1978 when their rate of pay is equal to or greater than the basic 
rate for GS-16, Step 1. Such consultants are covered by the reporting 
requirements of Sec. 73.735-901 of these regulations.
    (b) Consultants not subject to the Ethics in Government Act shall 
file statements of financial interests as provided by Sec. 73.735-902 of 
these regulations.



Sec. 73.735-1007  Political activity.

    Consultants who serve intermittently are subject to the political 
activity restrictions of Subchapter III of Chapter 73 of Title 5 U.S.C. 
and Civil Service Rule IV only on days on which service is rendered and 
then for the entire 24 hours of such service day. Other consultants are 
subject to these restrictions at all times.



     Subpart K--Special Government Employees Other Than Consultants



Sec. 73.735-1101  General provision.

    Individuals who are designated as special Government employees 
because of the nature of their services but who are not serving as a 
consultant, expert, or advisory committee member are subject to the 
provisions of Subparts B through I of these regulations. However, the 
provisions of 18 U.S.C. 205, 206, 207, and 208 apply to them only as 
described in Subpart J. Also, the limitation in Sec. 73.735-701(f) on 
the amount of an honorarium that may be received does not apply.



                     Subpart L--Disciplinary Action



Sec. 73.735-1201  General provisions.

    (a) Violations of the regulations contained in the Part may be cause 
for disciplinary action which could be in addition to any penalty 
prescribed by law. (For a list of some offenses for which disciplinary 
action may be taken and ``The Code of Ethics for Government Service,'' 
the violation of which may also result in disciplinary action, see 
Appendixes A and B of this Part).
    (b) The type of disciplinary action to be taken must be determined 
in relation to the specific violation. Those responsible for 
recommending and for taking disciplinary action must apply judgment to 
each case, taking into account the general objectives of meeting any 
requirements of law, deterring similar offenses by the employee and 
other employees, and maintaining high standards of employee conduct and 
public confidence. Some types of disciplinary action which may be 
considered are:
    (1) Admonishment
    (2) Written reprimand
    (3) Reassignment
    (4) Suspension
    (5) Demotion
    (6) Removal
    (c) Suspension, demotion, and removal are adverse actions; and when 
such actions are taken, applicable laws, regulations, and policies must 
be followed.

[46 FR 7369, Jan. 23, 1981, as amended at 53 FR 4409, Feb. 16, 1988]



                     Subpart M--Reporting Violations



Sec. 73.735-1301  Responsibility for reporting possible criminal violations.

    An employee who has information which he or she reasonably believes 
indicates a possible offense against the United States by an employee of 
the Department, or any other individual working on behalf of the 
Department, shall immediately report such information to his or her 
supervisor, any management official, or directly to the Office of the 
Inspector General. Offenses covered by the preceding sentence include, 
but are not limited to, bribery,

[[Page 183]]

fraud, perjury, conflict of interest, misuse of funds, equipment, or 
facilities, and other conduct by a government officer or employee, 
grantee, contractor or other person which is prohibited by title 18 of 
the United States Code. Employees and supervisors should refer to 
chapter 5-10 of the Department's General Administration Manual for 
procedures regarding the reporting and handling of such information.



Sec. 73.735-1302  Responsibility for reporting allegations of misconduct.

    An employee who has information which he or she reasonably believes 
indicates the existence of an activity constituting (a) a possible 
violation of a rule or regulation of the Department; or (b) 
mismanagement, a gross waste of funds, or abuse of authority; or (c) a 
substantial and specific danger to the public health and safety, shall 
immediately report such information to his or her supervisor, any 
management official of the Department, or directly to the Office of the 
Inspector General. Employees and supervisors should refer to chapter 5-
10 of the Department's General Administration Manual for procedures 
regarding the reporting and handling of such information. This 
subsection does not cover employee grievances, equal employment 
opportunity complaints, classification appeals, or other matters for 
which a formal government-wide review system has been established by the 
Federal government.



Sec. 73.735-1303  Prohibition of reprisals.

    (a) Any employee who has authority to take, direct others to take, 
recommend, or approve any personnel action, shall not, with respect to 
such authority, take or threaten to take any action against any employee 
as a reprisal for making a complaint or providing any information 
pursuant to Secs. 73.735-1301 and 73.735-1302. If the complaint was made 
or the information was disclosed with the knowledge that it was false, 
or with willful disregard of its truth or falsity, any personnel action 
taken against the employee based on those reasons would not constitute a 
reprisal action.
    (b) An employee who believes that he or she has been threatened with 
a personnel action, any other action, or harassment or has been harmed 
by any action as a reprisal for having made a complaint or providing 
information pursuant to Sec. 73.735-1301 or Sec. 73.735-1302 may request 
the Office of the Inspector General to review his or her allegations. 
Whenever the Inspector General has reason to believe that the 
allegations may be true, he or she will refer the matter to the 
Assistant Secretary for Personnel Administration for appropriate action. 
The Assistant Secretary for Personnel Administration may order a stay of 
any personnel action if he or she determines that there are reasonable 
grounds to believe that the personnel action is being taken as a 
reprisal for making a complaint or providing information pursuant to 
Sec. 73.735-1301 or Sec. 73.735-1302.



Sec. 73.735-1304  Referral of matters arising under the standards of this part.

    (a) The Department Ethics Counselor may refer to the Inspector 
General for investigation and/or further action any matter arising under 
the standards of this part.
    (b) The Department Ethics Counselor may refer to the Office of 
Government Ethics, or the Inspector General may refer to the Department 
of Justice, suspected violations of the criminal laws regarding employee 
standards of conduct and conflicts of interest.



       Subpart N--Conduct and Responsibilities of Former Employees



Sec. 73.735-1401  Prohibitions against post-employment conflicts of interest.

    (a) The purpose of criminal prohibition in 18 U.S.C. 207 is to 
prevent the unfair use of inside knowledge or influence that results 
from Federal service. 18 U.S.C. 207 generally prohibits a former 
employee from acting as another person's representative to the 
Government in particular matters involving a specific party or parties 
in which the employee had been involved while in Federal service. This 
prohibition does not require a former employee to decline employment 
with any organization regardless of his or her dealings with that 
organization while

[[Page 184]]

employed by the Government. It applies solely to activities, not the 
mere existence of an employment arrangement.
    (b) The Office of Government Ethics, Office of Personnel Management, 
has issued Government-wide regulations covering post-employment conflict 
of interest (5 CFR Part 737). Those regulations are incorporated herein 
by reference, and they are available for review in personnel offices 
throughout the Department.

  Appendix A to Part 73--List of Some Offenses for Which Disciplinary 
                           Action May Be Taken

    Following is a list of some offenses for which disciplinary action 
may be taken under this Part. When a statute applies specifically to a 
particular offense, either wholly or in part, the statute is cited. 
Neither the list of offenses nor the statutory citations are all-
inclusive. The ``Code of Ethics for Government Service'' is not cited 
because of its general applicability but is published in its entirety in 
Appendix B.
    A. Concerning Efficiency of Operations in General. 1. Engaging in 
wasteful actions or behavior in the performance of assigned duties; 
conducting non-Government business during official work hours; or 
participating in a strike (18 U.S.C. 1918), work stoppage, slowdown, 
sickout, or other similar action.
    2. Absence without leave, failure to adhere to the rules and 
regulations for requesting and obtaining leave, or improper use of sick 
leave.
    3. Deliberate insubordination or refusal to carry out lawful orders 
or assignments given.
    4. Disruptive behavior, such as:
    a. Inflicting or threatening or attempting to inflict bodily injury 
on another (except for necessary defense of self or others) while on the 
job or on Federal premises.
    b. Discourtesy, disreputable conduct, or use of insulting, abusive 
or obscene language to or about other individuals while on the job.
    5. Sexual harassment of employees or members of the public.
    6. Failure to observe precautions for safety, such as failure to use 
safety equipment when it is provided or ignoring signs, posted rules or 
regulations, or written or verbal safety instructions.
    7. Unauthorized use, possession, or distribution of alcoholic 
beverages (5 U.S.C. 7352) or controlled substances (e.g., hallucinogens, 
such as LSD; stimulants, such as cocaine and amphetamines; sedatives, 
such as barbiturates; narcotics and other drugs or substances, such as 
hashish and other cannabis substances).
    8. Unauthorized gambling; or canvassing, soliciting, or peddling on 
Government premises.
    9. Failure to carry or show proper identification or credentials as 
required by competent authority; misuse of identification cards or 
investigative or identification credentials or badges.
    10. Failure to disclose (i.e., report) information, when such 
disclosure is not specifically prohibited by law or Executive Order, 
that involves (a) violation of law, rule, or regulation, (b) 
mismanagement or gross waste of funds or abuse of authority, or (c) 
posing a substantial and specific danger to public health or safety; 
failure to cooperate in an official Department inquiry.
    11. Failure to pay just debts, including taxes to and loans from 
governmental sources.
    12. Deceit or interference in a Civil Service examination (18 U.S.C. 
1917) or in connection with a Government personnel action.
    13. Fraud or false statements in a Government matter. (18 U.S.C. 
1001 through 1003.)
    14. Supervisory failure to initiate disciplinary or corrective 
action when the facts are known and disciplinary or corrective action is 
warranted.
    15. Employment of a member of an organization that advocates the 
overthrow of our constitutional form of government. (5 U.S.C. 7311; 50 
U.S.C. 784.)
    B. Concerning Government Funds, Property, Documents, and Records. 1. 
Actual or attempted embezzlement or theft of Government or personal 
money or property either directly or through use of Government 
documents, automated equipment, or other means; actual or attempted 
embezzlement or theft of the money or property of another person in the 
possession of an employee by reason of his or her employment. (18 U.S.C. 
641 and 654.)
    2. Failure to account for public money. (18 U.S.C. 643.)
    3. Deliberate falsifying of official time and attendance records; 
improper use of official travel or forging, counterfeiting, or otherwise 
falsifying official Government travel records or documents. (18 U.S.C. 
508.)
    4. False record entries or false reports of money or securities. (18 
U.S.C. 2073.)
    5. Loss or misuse of or damage to Government property or endangering 
persons or Government property through carelessness or by willful 
malicious conduct.
    6. Mutilating, destroying, or concealing public records. (18 U.S.C. 
2071.)
    7. Misuse of penalty (postal) privilege. (18 U.S.C. 1719.)
    8. Failure to safeguard administratively confidential, financial, 
and trade secrets information.

[[Page 185]]

    9. Unauthorized use of documents presented or used to procure the 
payment of money from or by the Government. (18 U.S.C. 285.)
    10. Unauthorized use of a Government vehicle; serious or repeated 
violations of traffic regulations while driving a Government vehicle or 
a vehicle rented or leased for official Government purposes; reckless 
driving or improper operation of any Government owned, rented, or leased 
motor vehicle. (31 U.S.C. 1349[b].)
    11. Violations of the Privacy Act, including:
    a. Willful prohibited disclosure of individually identifiable 
information in violation of 5 U.S.C. 552a.
    b. Willfully maintaining a system of records without meeting the 
notice requirements of the Privacy Act as required by 5 U.S.C. 552a.
    12. Violation of regulations concerning the release of classified 
information, confidential, or security and investigative information. 
(18 U.S.C. 798 and 1905; 21 U.S.C. 331j; and 50 U.S.C. 783.)
    C. Concerning Conflicts of Interest and Related Unethical Conduct: 
1. Violations of 18 U.S.C. Chapter 11: Bribery, Graft, and Conflicts of 
Interest, including:
    a. Having a direct or indirect financial interest (includes employee 
ownership of stocks, bonds, or partnership interests in an entity or 
employment of the employee, his or her spouse, or dependent child) that 
conflicts with one's Government duties because such entity is either 
regulated by, has or seeks to do business with the agency, or has any 
other particular matter with or pending before the agency that may give 
rise to either an actual conflict or the appearance thereof. (18 U.S.C. 
208.)
    b. Bribery of a public official; soliciting or accepting directly or 
indirectly anything of monetary value, including gifts, gratuities, 
favors, entertainment, or loans either as compensation for governmental 
services or from individuals who are seeking contractual or other 
business or financial relations with the Department, are conducting 
operations or activities that are regulated by the Department, or have 
interests that may be substantially affected by the performance or 
nonperformance of the employee's official duties; receiving salary or 
any contribution to or supplementation of salary from a private source 
as compensation for services for the Government. (18 U.S.C. 201 and 
209.)
    c. Acting as the agent of a foreign principal registered under the 
Foreign Agents Registration Act. (18 U.S.C. 219.)
    2. Engaging, directly or indirectly, in a financial transaction as a 
result of or primarily relying on information that is obtained through 
one's official duties and would not be available were the employee not 
an employee of the Federal Government.
    3. Soliciting a contribution from another employee for a gift to an 
official superior, making a donation as a gift to an official superior, 
or accepting a gift from an employee receiving less pay than oneself. (5 
U.S.C. 7351.)
    4. Engaging, without required permission, in outside activities that 
result in or create the appearance of a conflict of interest.
    5. Teaching, lecturing, or writing that depends on specific 
information obtained as a result of one's Government employment when 
that information is not otherwise available to the public.
    6. Failure to obtain required clearance of an official speech or 
article.
    7. Lobbying with appropriated funds. (18 U.S.C. 1913.)
    8. Representation before a Federal agency (other than in the proper 
discharge of one's official duties) as an agent or attorney in a claim 
against the United States (or receiving any gratuity or share in any 
such claim in considertion for assistance given) or as an agent or 
attorney for anyone before any department, agency, court, or otherwise 
in connection with any proceeding, application, request for a ruling, or 
claim on any other particular matter in which the United States is a 
party or has a direct and substantial interest. (18 U.S.C. 205.) (Note: 
This section notwithstanding, an employee may, if not inconsistent with 
the performance of his or her official duties, act without compensation 
as an agent or attorney for another person who is the subject of any 
disciplinary or other administrative proceeding or as an agent or 
attorney for one's parent, spouse, child, or any person or estate for 
whom or which he or she serves as personal fiduciary except in those 
matters in which the employee has participated personally and 
substantially.)
    D. Concerning Prohibited Political and Election Activities. 1. 
Activities prohibited by 5 U.S.C. Chapter 73, Subchapter III, including:
    a. Section 7323, ``Political contributions; prohibition.''
    b. Section 7324, ``Influencing elections; taking part in political 
campaigns; prohibitions; exceptions.''
    2. Activities prohibited by 18 U.S.C. Chapter 29, including:
    a. Section 594, ``Intimidation of voters.''
    b. Section 597, ``Expenditures to influence voting.''
    c. Section 598, ``Coercion by means of relief appropriations.''
    d. Section 600, ``Promise of employment or other benefit for 
political activity.''
    e. Section 601, ``Deprivation of employment or other benefit for 
political contribution.''
    f. Section 602, ``Solicitation of political contributions.''
    g. Section 604, ``Solicitation from persons on relief.''
    h. Section 606, ``Intimidation to secure political contributions.''

[[Page 186]]

    E. Concerning Prohibited Personnel Practices. 1. Commission of a 
prohibited personnel practice (as defined in 5 U.S.C. 2302[b] [1-11]); 
that is, any employee who has authority to take, direct others to take, 
recommend, or approve any personnel action, shall not, with respect to 
such authority, commit any of the following practices:
    a. Discriminate for or against any employee or applicant for 
employment on the basis of race, color, religion, sex, national origin, 
age, handicapping condition, marital status, or political affiliation.
    b. Solicit or consider any recommendation or statement, oral or 
written, with respect to any individual who requests or is under 
consideration for any personnel action unless such recommendation or 
statement is based on the personal knowledge or records of the person 
furnishing it and consists of (1) an evaluation of the work performance 
ability, aptitude, or general qualifications of such individual or (2) 
an evaluation of the character, loyalty, or suitability of such 
individual.
    c. Coerce the political activity of any person (including the 
providing of any political contribution or service) or take any action 
against any employee or applicant for employment as a reprisal for the 
refusal of any person to engage in such political activity.
    d. Deceive or willfully obstruct any person with respect to such 
person's right to compete for employment.
    e. Influence any person to withdraw from competition for any 
position for the purpose of improving or injuring the prospects of any 
other person for employment.
    f. Grant any preference or advantage not authorized by law, rule, or 
regulation to any employee or applicant for employment (including 
defining the scope or manner of competition or the requirements for any 
position) for the purpose of improving or injuring the prospects of any 
particular person for employment.
    g. Appoint, employ, promote, advance, or advocate for appointment, 
employment, promotion, or advancement, in or to a civilian position any 
individual who is a relative (as defined in 5 U.S.C. 3110) when the 
civilian position is in the Department or under his or her jurisdiction 
or control.
    h. Take or fail to take a personnel action with respect to any 
employee or applicant for employment as a reprisal for the lawful 
disclosure of information.
    i. Take or fail to take any personnel action against an employee or 
applicant for employment as a reprisal for the exercise of any appeal 
right granted by any law, rule, or regulation (including HHS 
Instructions and issuances).
    j. Discriminate for or against any employee or applicant for 
employment on the basis of conduct that does not adversely affect the 
performance of the employee or applicant or the performance of others 
(except criminal conviction in determining suitability or fitness).
    k. Take or fail to take any personnel action when the taking of or 
failure to take such action violates any law, rule, or regulation 
implementing, or directly concerning the merit system principles (as set 
forth in 5 U.S.C. 2301).

[53 FR 4410, Feb. 16, 1988]

      Appendix B to Part 73--Code of Ethics for Government Service

    Any person in Government service should:
    I. Put loyalty to the highest moral principles and to country above 
loyalty to persons, party, or Government department.
    II. Uphold the Constitution, laws, and regulations of the United 
States and all governments therein and never be a party to their 
evasion.
    III. Give a full day's labor for a full day's pay, giving earnest 
effort and best thought to the performance of duties.
    IV. Seek to find and employ more efficient and economical ways of 
getting tasks accomplished.
    V. Never discriminate unfairly by the dispensing of special favors 
or privileges to anyone, whether for remuneration or not; and never 
accept, for himself or herself or family members, favors or benefits 
under circumstances which might be construed by reasonable persons as 
influencing the performance of governmental duties.
    VI. Make no private promises of any kind binding upon the duties of 
office, since a Government employee has no private word which can be 
binding on public duty.
    VII. Engage in no business with the Government, either directly or 
indirectly, which is inconsistent with the conscientious performance of 
governmental duties.
    VIII. Never use any information gained confidentially in the 
performance of governmental duties as a means of making private profit.
    IX. Expose corruption wherever discovered.
    X. Uphold these principles, ever conscious that public office is a 
public trust.

[53 FR 4410, Feb. 16, 1988]



PART 73a--STANDARDS OF CONDUCT: FOOD AND DRUG ADMINISTRATION SUPPLEMENT--Table of Contents




                      Subpart A--General Provisions

Sec.
73a.735-101  Principles and purpose.
73a.735-103  Responsibilities.
73a.735-104  Advice and guidance.

[[Page 187]]

                   Subpart B--Miscellaneous Provisions

73a.735-201  Control activity employees formerly associated with 
          organizations subject to FDA regulation.

Subpart C [Reserved]

                      Subpart D--Outside Employment

73a.735-401  General provisions.

                     Subpart E--Financial Interests

73a.735-501  General provisions.
73a.735-502  Employees in regulatory activities.
73a.735-504  Exceptions.

Subparts F-I [Reserved]

       Subpart J--Statements of Employment and Financial Interests

73a.735-1004  Submission and review of statements.

    Authority: 45 CFR 73.735-105.

    Source: 43 FR 7619, Feb. 24, 1978, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 73a.735-101  Principles and purpose.

    (a) To assure that the business of the Food and Drug Administration 
(FDA) is conducted effectively, objectively, and without improper 
influence or appearance thereof, all employees must be persons of 
integrity and observe the highest standards of conduct. Because of FDA's 
special regulatory responsibilities to the consumer and industry, its 
employees must be especially alert to avoid any real or appearance of 
conflict of their private interests with their public duties. Their 
actions must be unquestionable and free from suspicion of partiality, 
favoritism, or any hint of conflicting interests. This supplement 
recognizes FDA's public obligation to set reasonable and fair safeguards 
for the prevention of employee conflicts of interest. It is necessary to 
meet FDA's regulatory responsibilities and to otherwise assure full 
protection of the public confidence in the integrity of its employees.
    (b) Since FDA is a unique consumer protection and regulatory agency 
within the Department, the DHHS Standards of Conduct need further 
supplementation to reflect this role. Therefore, for purposes of 
implementing the DHHS Standards of Conduct regulations within the FDA, 
this supplement provides interpretive definitions and additional 
requirements. As further guidance to its employees and supervisory 
officials, FDA will issue internal procedural instructions in accordance 
with this supplement.



Sec. 73a.735-103  Responsibilities.

    (a) A ``control activity'' employee shall be personally responsible 
for assuring that he does not hold an interest in any organization whose 
FDA-regulated activities constitute more than an insignificant part of 
its business as defined in Sec. 73a.735-502(b)(2). The Associate 
Commissioner for Administration (or his designee) is available to assist 
such employees in obtaining corporate data necessary to make such a 
determination.
    (b) Other employees are similarly responsible for observing the 
financial interest retention requirements in Secs. 73a.735-501(b) and 
73a.735-502(a)(2).



Sec. 73a.735-104  Advice and guidance.

    (a) The Associate Commissioner for Administration (or his designee) 
shall provide day-to-day guidance and assistance to employees and 
supervisors on matters covered by regulations in Part 73 and this part 
of this chapter.
    (b) The FDA Conflict of Interest Review Board shall review and make 
recommendations to the Commissioner on requests for exceptions to 
conflict of interest policies and procedures in regulations in this part 
and Part 73 of this chapter.



                   Subpart B--Miscellaneous Provisions



Sec. 73a.735-201  Control activity employees formerly associated with organizations subject to FDA regulation.

    (a) For a period of 1 year after FDA appointment, or appointment to 
the Food and Drug Division, Office of the General Counsel, a control 
activity employee who was employed in a regulated organization within 1 
year before FDA employment shall not participate in any regulatory 
action before FDA

[[Page 188]]

that involves the former employer organization. Exceptions may be 
authorized only under paragraph (e) of this section.
    (b) A control activity employee who was previously employed in a 
regulated organization shall not participate in any regulatory action 
before FDA in which the employee had participated personally and 
substantially in behalf of the former employer organization, e.g., drug 
investigations/applications, food additive petitions, matters dealing 
with compliance in areas of radiation-producing products or medical 
devices. Exceptions may be authorized only under paragraph (e) of this 
section.
    (c) Employment in a regulated organization includes contractual 
relationships, e.g., attorneys who may have represented an FDA-regulated 
firm or industry or an association of such firms and individuals who may 
have served a firm, industry or association in a consultant capacity.
    (d) Within 30 days after assignment to a control activity position, 
an employee shall submit to his supervisor detailed information 
concerning former industry employers, and dates and substance of 
involvement in such regulatory matters as may be subject to the 
prohibition in paragraph (b) of this action.
    (e) The Commissioner may grant individual exceptions to paragraphs 
(a) and (b) of this section whenever he determines that strict 
application would not be in the best interests of the United States. A 
memorandum of any exception granted shall be filed for public inspection 
in the Public Records and Documents Center, Food and Drug 
Administration, Room 4-68, 5600 Fishers Lane, Rockville, Md. 20857, 
within 10 days after the Commissioner's decision. The memorandum shall 
include the employee's name, title, grade, summary of official duties, 
prior pertinent industry involvement, a brief description of the 
specific regulatory action in which the employee has been permitted to 
participate, and a statement explaining why such strict application of 
the subpart would not be in the best interests of the United States.

Subpart C [Reserved]



                      Subpart D--Outside Employment



Sec. 73a.735-401  General provisions.

    (a) Employees of the Food and Drug Administration shall obtain 
advance approval for all outside employment, whether paid or unpaid. 
Employment, as used in this section, does not include:
    (1) Memberships in charitable, religious, social, fraternal, 
recreational, public service, civic, or similar nonbusiness 
organizations.
    (2) Memberships in professional organizations. (Officeholding, 
however, requires advance approval.)
    (3) Performance of duties in the Armed Forces Reserve or National 
Guard.
    (b) Control activity employees (defined in Sec. 73a.735-502) will 
not generally be granted approval to:
    (1) Manage or direct an organization whose activities are subject to 
FDA regulation, or
    (2) Be employed in an organization whose business activities are 
subject to FDA regulation unless:
    (i) The regulated activities of the organization are an 
insignificant part of its total operations, i.e., the regulated products 
of the organization constitute no more than 10 percent of its annual 
gross sales, and
    (ii) The outside employment is in nonregulated activities of the 
organization.
    (c) All other employees will generally be granted approval to engage 
in outside employment which is compatible with the full performance of 
their FDA duties and responsibilities and which will not give rise to a 
real or apparent conflict of interest. Permissible employment includes 
but is not limited to:
    (1) Employment where the sale of FDA-regulated products is 
incidential to the purpose of the establishment, e.g., hotels, theaters, 
bowling alleys, and sports arenas.
    (2) Sales and clerical occupations relating to regulated products, 
e.g., supermarkets, drugstores, department stores, liquor stores.
    (3) Trade, industrial, and service occupations relating to regulated 
products, e.g., gasoline service station attendant, line production or 
assembly

[[Page 189]]

work, cook, waiter, waitress, hospital attendant, snack bar vendor, 
warehouseman.
    (d) All employees will generally be granted approval to engage in 
paid or unpaid outside employment which contributes to their technical 
or professional development, e.g.,
    (1) Medical, dental, and veterinary practices.
    (2) Pharmacy practice after meeting the following conditions which 
will serve to protect against possible conflicts or apparent conflicts 
of interest and to avoid other problems resulting in embarrassment to 
the employee or FDA:
    (i) The primary purpose of the part-time employment is to contribute 
to the overall professional development of the employee and generally 
enhance his capability to better perform his current FDA duties.
    (ii) The part-time duties will be confined generally to dispensing 
Rx drugs and related professional pharmacy duties.
    (iii) The employee will avoid unrelated nonprofessional duties such 
as supervision or management of store operations, contractual or 
purchasing responsibilities (except normal ``out-of-stock'' 
requisitioning) and repacking and relabeling of bulk items.
    (iv) The employee will demonstrate a high degree of discretion and 
judgment in his contacts with customers and representatives of regulated 
industry and competitor firms so as to avoid giving the impression that:
    (a) His part-time actions, recommendations, opinions, or remarks are 
official points of view;
    (b) He is using his FDA position for private gain by oral 
misrepresentations and false claims of the company's products;
    (c) He is making a Government decision outside official channels, 
e.g., to customers, prescribing physicians, buyers, distributors;
    (d) He or other FDA representatives will give preferential treatment 
to any regulated organization or representatives of such organizations, 
or that FDA employees have not exercised complete independence or 
impartiality in carrying out their regulatory and consumer protection 
responsibilities; or
    (e) His part-time work is creating an adverse effect on the image of 
FDA or discrediting the integrity of official FDA regulatory decisions.



                     Subpart E--Financial Interests



Sec. 73a.735-501  General provisions.

    (a) No restrictions are placed on ownership of diversified mutual 
funds.
    (b) An FDA employee, other than a control activity employee (defined 
in Sec. 73a.735-502), may have financial interests:
    (1) In an organization whose FDA-regulated activities are an 
insignificant part of its total operations, i.e., no more than 10 
percent of the organization's annual gross sales are in products 
regulated by FDA; or
    (2) In an organization whose FDA-regulated business activities are a 
significant part of its total business operations: Provided, That:
    (i) The holding is less than $5,000 (value or cost at time of 
initial reporting),
    (ii) The holding represents less than 1 percent of the total 
outstanding stock shares of that organization, and
    (iii) No more than 50 percent of the employee's total investment 
value is concentrated in organizations whose FDA-regulated business 
activities are a significant part of their business operations.
    (c) Notwithstanding the provisions of this part permitting employees 
to hold financial interests in organizations subject to FDA regulation, 
an employee holding such an interest shall not participate in an 
official matter whose outcome would have a direct and predictable effect 
on his financial interest. However, this prohibition is not applicable 
to:
    (1) Diversified mutual funds, which are exempted from 18 U.S.C. 208 
by Sec. 73.735-501(a) of this chapter.
    (2) Financial interests for which the Commissioner has in advance 
granted a written exception on the ground that the public interest would 
be served if a particular employee is allowed to participate in an 
official matter whose

[[Page 190]]

outcome may have a direct and predictable effect on the employee's 
financial interest. Such exemptions will be granted only in exceptional 
circumstances. Any determination to authorize such exceptions shall be 
made in accordance with 18 U.S.C. 208(b)(1) and documented for public 
inspection in accordance with Sec. 73a.735-504.



Sec. 73a.735-502  Employees in regulatory activities.

    (a) An employee in regulatory activities (``control activity'' 
employee) may hold financial interests in an FDA-regulated organization 
only if either of the following conditions are met:
    (1) The regulated activities of the organization are an 
``insignificant'' part of its total business operations, or
    (2) Written approval for an individual exception is granted by the 
Commissioner in accordance with Sec. 73a.735-504; however, such approval 
will not be considered unless all of the following conditions are met:
    (i) Retention of the financial interest does not give rise to an 
actual conflict of interest;
    (ii) Acquisition of the financial interest occurred by marriage or 
inheritance, or the interest was held prior to an FDA reorganization, 
change in regulations, or similar circumstances beyond the control of 
the employee that resulted in the interest becoming prohibited;
    (iii) No direct relationship exists between the employee's official 
duties and the regulated activities of the organization in which the 
financial interest is held;
    (iv) The employee occupies a position below that of Bureau/Deputy 
Bureau Director (or Assistant/Deputy General Counsel, Food and Drug 
Division, Office of the General Counsel); and
    (v) The employee agrees to refrain from engaging, either directly or 
indirectly, in transactions that are designed to increase the value of 
his ``excepted'' financial interest.
    (b) To administer provisions within this part, the following 
interpretations apply:
    (1) A ``control activity'' employee (``control activity'' positions 
are identified in Appendix C to Part 73 of this chapter), means one who:
    (i) Occupies an FDA position classified at GS-11 or above, or PHS 
Commissioned Officer 0-3 or above, or equivalent;
    (ii) Occupies an FDA position below GS-11 with duties of a nature 
that the employee could in the discharge of his official duties and 
responsibilities cause an economic advantage for or impose a handicap on 
a non-Federal enterprise (includes investigators, inspectors, regulatory 
analysts);
    (iii) Occupies a position at GS-11 or above in the Office of the 
Assistant General Counsel, Food and Drug Division.
    (2) ``Insignificant'' (part of an organization's total business 
operations) means that the FDA-regulated products constitute no more 
than 10 percent of the organization's annual gross sales.



Sec. 73a.735-504  Exceptions.

    (a) A control activity employee who can satisfy all of the 
conditions specified in Sec. 73a.735-502(a)(2) may submit a request to 
retain a prohibited financial interest. Any such request must be 
submitted no later than 30 days after the event that results in the 
employee holding the prohibited financial interest. Such requests for 
exception should be forwarded in writing through supervisory channels to 
the Associate Commissioner for Administration for review by the FDA 
Conflict of Interest Review Board and subsequent recommendation to the 
Commissioner. All decisions on requests for exceptions shall be in 
writing and a copy furnished to the employee involved.
    (b) A memorandum of each approved exception shall be filed in the 
Public Records and Documents Center for public inspection. Such public 
disclosure shall be made within 10 days after the Commissioner's 
decision. The following is an example of the format of such memorandum 
(in a hypothetical employee situation):
    (1) Employee: Joe Doe.
    (2) Title: Research Chemist.
    (3) Grade/Salary: GS-14.
    (4) Organization: Bureau of Biologics, Food and Drug Administration, 
Bethesda, Md.
    (5) Date of employee's request for exception: ------.

[[Page 191]]

    (6) Date of Commissioner's approval: ------.
    (7) Basis for exception: Employee owns financial interest in the ABC 
Foods Corporation, and permanent retention is normally prohibited under 
FDA/HHS conflict of interest regulations for such an employee. The 
employee, however, acquired this financial interest prior to his 
reassignment to FDA on ------, which was part of a major Department 
reorganization transferring certain functions from NIH to the FDA (i.e., 
FDA's Bureau of Biologics). At the time of acquisition and immediately 
prior to the reorganization, the employee's financial interest was 
allowable under Department regulations. The employee's official duties 
are fully confined to the matters under the jurisdiction of the Bureau 
of Biologics, and his official duties do not involve any contact with 
the food industry. The Commissioner has determined that an exception is 
warranted under the following criteria:
    (i) Acquisition occurred prior to Department reorganization;
    (ii) Financial interest retention will not give rise to an actual 
conflict of interest situation;
    (iii) There is no direct relationship between the employee's 
official duties and the regulated activities of ABC Foods;
    (iv) The employee occupies a position below that of Bureau or Deputy 
Bureau Director (or equivalent position in the Office of the 
Commissioner); and
    (v) The employee agrees to refrain from engaging in any direct or 
indirect transactions that are designed to increase the value/shares of 
the ``excepted'' ABC Foods interests.

This exception is considered equitable to the employee involved, and 
retention of the ABC Foods interest will not in any way impair the 
interests of the Government or of the public.
    (c) In interpreting the requirement of Sec. 73a.735-502(a)(2)(v), 
events not involving employee discretion (e.g., accepting dividends in 
the form of cash or additional shares) do not constitute transactions 
designed to increase the value/shares of an ``excepted'' financial 
interest. A transaction involving discretion, e.g., exercise of stock 
options, may be made only if proposed to the Associate Commissioner for 
Administration and approved by the Conflict of Interest Review Board as 
an amendment to the original exception. A memorandum recording such 
approval shall be made public in accordance with paragraph (b) of this 
section.
    (d) An employee may temporarily retain a prohibited financial 
interest pending review of a written request for an exception submitted 
in accordance with this section.
    (e) Except as provided in Sec. 73a.735-501(c), no employee may 
participate in an official matter whose outcome will have a direct and 
predictable effect on a financial interest held by him. This prohibition 
applies to official matters handled before and after approval of an 
exception under this section.

Subparts F-I [Reserved]



       Subpart J--Statements of Employment and Financial Interests



Sec. 73a.735-1004  Submission and review of statements.

    (a) Employees occupying control activity positions shall file Form 
HHS-473 ``Confidential Statement of Employment and Financial Interests'' 
with the Associate Commissioner for Administration within 30 days after 
entrance in this category and annually thereafter as of June 30, or such 
other dates as the Secretary, with the concurrence of the Civil Service 
Commission, may approve. Prior to the due date, the Associate 
Commissioner for Administration shall advise ``control activity'' 
employees of the annual filing requirement through normal administrative 
channels. The annual reporting requirement shall commence as of June 30, 
1977.
    (b) The Associate Commissioner for Administration (or his designee) 
shall serve as the principal reviewing official for Outside Activity 
Forms, HHS-520 and 521, and shall make final determinations on matters 
arising from activities reported on Form HHS-473.

[[Page 192]]



PART 73b--DEBARMENT OR SUSPENSION OF FORMER EMPLOYEES--Table of Contents




Sec.
73b.1  Scope.
73b.2  Rules and regulations.
73b.3  Reports of violations.
73b.4  Proceedings.
73b.5  Hearings.

    Authority: 18 U.S.C. 207(j).

    Source: 47 FR 17505, Apr. 23, 1982, unless otherwised noted.



Sec. 73b.1  Scope.

    This part contains rules governing debarment or disqualification 
action against a former officer or employee of the Department, including 
former and retired officers of the commissioned corps of the Public 
Health Service, because of violation of the post-employment restrictions 
of the conflict of interest laws and regulations.



Sec. 73b.2  Rules and regulations.

    This part will be applied in conformance with the standards 
established by the Office of Government Ethics in its regulations, 5 CFR 
Part 737, and interpretations thereof. Former officers and employees of 
the Department may request advice and assistance in compliance with 
those regulations from the Assistant General Counsel, Business and 
Administrative Law Division, Department of Health and Human Services.



Sec. 73b.3  Reports of violations.

    (a) If an officer or employee of the Department has reason to 
believe that a former officer or employee of the Department has violated 
any provision of 18 U.S.C. 207 (a), (b) or (c) or if any such officer or 
employee receives information to that effect, he/she shall promptly make 
a written report thereof which shall be forwarded to the Inspector 
General. If any other person has information of such violations, he/she 
may make a report thereof to the Inspector General or to any officer or 
employee of the Department.
    (b) The Inspector General shall coordinate proceedings under this 
part with the Department of Justice in cases where it appears criminal 
prosecution is warranted.



Sec. 73b.4  Proceedings.

    (a) Upon a determination by the Assistant General Counsel, Business 
and Administrative Law Division, or his/her designee, after 
investigation by the Inspector General, that there is reasonable cause 
to believe that a former officer or employee, including a former special 
Government employee, of the Department of Health and Human Services 
(former departmental employee) has violated 18 US.C. 207 (a), (b) or 
(c), the Assistant General Counsel, or his/her designee, shall cause a 
copy of written charges of the violation(s) to be served upon such 
individual, either personally or by registered mail. The charges shall 
be accompanied by a notice to the former departmental employee to show 
cause within a specified time of not less than 30 days after receipt of 
the notice why he/she should not be prohibited from engaging in 
representational activities in relation to matters pending in the 
Department, as authorized by 18 U.S.C. 207(j), or subjected to other 
appropriate debarment or disqualification action under that statute. The 
notice to show cause shall include:
    (1) A statement of allegations, and their bases, sufficiently 
detailed to enable the former departmental employee to prepare an 
adequate defense;
    (2) Notification of the right to a hearing, and that failure to 
answer shall constitute a waiver of defense; and
    (3) An explanation of the method by which a hearing may be 
requested.
    (b) If a former departmental employee who submits an answer to the 
notice to show cause does not request a hearing or if the Assistant 
General Counsel does not receive an answer within the time prescribed by 
the notice, the Assistant General Counsel shall forward the record, 
including the report(s) of investigation, to the Assistant Secretary for 
Personnel Administration (Assistant Secretary). In the case of a failure 
to answer, such failure shall constitute a waiver of defense.
    (c) Upon receipt of a former departmental employee's request for a 
hearing, the Assistant General Counsel shall notify him/her of the time 
and

[[Page 193]]

place thereof, giving due regard both to such person's need for an 
adequate period to prepare a suitable defense and an expeditious 
resolution of allegations that may be damaging to his or her reputation.
    (d) The presiding officer at the hearing and any related proceedings 
shall be a federal administrative law judge. He/she shall insure that 
the former departmental employee has the following rights:
    (1) To self-representation or representation by counsel,
    (2) To introduce and examine witnesses and submit physical evidence,
    (3) To confront and cross-examine adverse witnesses,
    (4) To present oral argument, and
    (5) To a transcript or recording of the proceedings, upon request.
    (e) The Assistant General Counsel shall designate one or more 
officers or employees of the Department to present the evidence against 
the former departmental employee and perform other functions incident to 
the proceedings.
    (f) A decision adverse to the former departmental employee must be 
sustained by substantial evidence that he/she violated 18 U.S.C. 207 
(a), (b) or (c). If a judgment of conviction has been entered by a 
Federal district court against the former departmental employee for 
violation of 18 U.S.C. 207 (a), (b) or (c), regardless of whether the 
judgment is based upon a verdict or a plea of guilty, such judgment of 
conviction shall be conclusive evidence of a violation of 18 U.S.C. 207 
(a), (b) or (c), unless and until the judgment is vacated or reversed on 
appeal.
    (g) The administrative law judge shall issue an initial decision 
based exclusively on the transcript of testimony and exhibits, together 
with all papers and requests filed in the proceeding, and shall set 
forth in the decision findings and conclusions, supported by reasons, on 
the material issues of fact and law presented on the record.
    (h) Within 30 days after issuance of the initial decision, either 
party may appeal in writing to the Assistant Secretary who in that event 
shall issue the final decision based on the record of the proceedings or 
those portions thereof cited by the parties to limit the issues. If the 
final decision modifies or reverses the initial decision, the Assistant 
Secretary shall specify the findings of fact and conclusions of law that 
vary from those of the presiding officer.
    (i) If a former departmental employee fails to appeal from an 
adverse initial decision within the prescribed period of time, the 
administrative law judge shall forward the record of the proceedings to 
the Assistant Secretary.
    (j) In the case of a former departmental employee who filed an 
answer to the notice to show cause but did not request a hearing, the 
Assistant Secretary shall make the final decision on the record 
submitted to him by the Assistant General Counsel pursuant to paragraph 
(b) of this section.
    (k) In a case where:
    (1) The defense has been waived,
    (2) The former departmental employee has failed to appeal from an 
adverse initial decision, or
    (3) The Assistant Secretary has issued a final decision that the 
former departmental employee violated 18 U.S.C. 207 (a), (b) or (c),

The Assistant Secretary may issue an order:
    (i) Prohibiting the former departmental employee from making, on 
behalf of any other person (except the United States), any informal or 
formal appearance before, or, with the intent to influence, any oral or 
written communication to, the Department on a pending matter of business 
for a period not to exceed five years, or
    (ii) Prescribing other appropriate debarment or disqualification 
action, such as limiting the action to a particular organization or 
organizations within the Department.
    (l) An order issued under either paragraph (k)(i) or (k)(ii) of this 
section shall be supplemented by a directive to officers and employees 
of the Department not to engage in conduct in relation to the former 
departmental employee that would contravene such order.



Sec. 73b.5  Hearings.

    (a) Hearings shall be stenographically recorded and transcribed and 
the testimony of witnesses shall be taken

[[Page 194]]

under oath or affirmation. Hearings will be closed unless an open 
hearing is requested by the respondent, except that if classified 
information or protected information of third parties is likely to be 
adduced at the hearing, it will remain closed. If either party to the 
proceeding fails to appear at the hearing, after due notice thereof has 
been sent to him/her, he/she shall be deemed to have waived the right to 
a hearing and the administrative law judge may make a decision on the 
basis of the record before him/her at that time.
    (b) The rules of evidence prevailing in courts of law and equity are 
not controlling in hearings under this part. However, the administrative 
law judge shall exclude evidence which is irrelevant, immaterial, or 
unduly repetitious.
    (c) Depositions for use at a hearing may, with the consent of the 
parties in writing or the written approval of the administrative law 
judge be taken by either the Assistant General Counsel or the respondent 
or their duly authorized representatives. Depositions may be taken upon 
oral or written interrogatories. There shall be at least 10 days written 
notice to the other party. The requirement of a 10-day written notice 
may be waived by the parties in writing. When a deposition is taken upon 
written interrogatories, any cross-examination shall be upon written 
interrogatories. Copies of such written interrogatories shall be served 
upon the other party with the notice, and copies of any written cross-
interrogation shall be mailed or delivered to the opposing party at 
least 5 days before the date of taking the depositions, unless the 
parties mutually agree otherwise. Expenses in the reporting of 
depositions shall be borne by the party at whose instance the deposition 
is taken.



    PART 74--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR AWARDS AND SUBAWARDS 

TO INSTITUTIONS OF HIGHER EDUCATION, HOSPITALS, OTHER NONPROFIT ORGANIZATIONS, AND 
COMMERCIAL ORGANIZATIONS; AND CERTAIN GRANTS AND AGREEMENTS WITH STATES, LOCAL GOVERNMENTS AND INDIAN TRIBAL GOVERNMENTS--Table of Contents




                           Subpart A--General

Sec.
74.1  Purpose and applicability.
74.2  Definitions.
74.3  Effect on other issuances.
74.4  Deviations.
74.5  Subawards.

                    Subpart B--Pre-Award Requirements

74.10  Purpose.
74.11  Pre-award policies.
74.12  Forms for applying for HHS financial assistance.
74.13  Debarment and suspension.
74.14  Special award conditions.
74.15  Metric system of measurement.
74.16  Resource Conservation and Recovery Act (RCRA, Section 6002 of 
          Pub. L. No. 94-580 (Codified at 42 U.S.C. 6962)).
74.17  Certifications and representations.

                   Subpart C--Post-Award Requirements

                    Financial and Program Management

74.20  Purpose of financial and program management.
74.21  Standards for financial management systems.
74.22  Payment.
74.23  Cost sharing or matching.
74.24  Program income.
74.25  Revision of budget and program plans.
74.26  Non-Federal audits.
74.27  Allowable costs.
74.28  Period of availability of funds.

                           Property Standards

74.30  Purpose of property standards.
74.31  Insurance coverage.
74.32  Real property.
74.33  Federally-owned and exempt property.
74.34  Equipment.
74.35  Supplies.

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74.36  Intangible property.
74.37  Property trust relationship.

                          Procurement Standards

74.40  Purpose of procurement standards.
74.41  Recipient responsibilities.
74.42  Codes of conduct.
74.43  Competition.
74.44  Procurement procedures.
74.45  Cost and price analysis.
74.46  Procurement records.
74.47  Contract administration.
74.48  Contract provisions.

                           Reports and Records

74.50  Purpose of reports and records.
74.51  Monitoring and reporting program performance.
74.52  Financial reporting.
74.53  Retention and access requirements for records.

                       Termination and Enforcement

74.60  Purpose of termination and enforcement.
74.61  Termination.
74.62  Enforcement.

                 Subpart D--After-the-Award Requirements

74.70  Purpose.
74.71  Closeout procedures.
74.72  Subsequent adjustments and continuing responsibilities.
74.73  Collection of amounts due.

  Subpart E--Special Provisions for Awards to Commercial Organizations

74.80  Scope of subpart.
74.81  Prohibition against profit.
74.82  Program income.
74.83  Effect on intangible property.

                           Subpart F--Disputes

74.90  Final decisions in disputes.
74.91  Alternative dispute resolution.

Appendix A to Part 74--Contract Provisions
Appendixes B-D to Part 74 [Reserved]
Appendixes E to Part 74--Principles for Determining Costs Applicable to 
          Research and Development Under Grants and Contracts With 
          Hospitals
Appendixes F-H to Part 74 [Reserved]

    Authority: 5 U.S.C. 301; OMB Circular A-110 (64 FR 54926, October 8, 
1999).



                           Subpart A--General

    Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.



Sec. 74.1  Purpose and applicability.

    (a) Unless inconsistent with statutory requirements, this part 
establishes uniform administrative requirements governing:
    (1) Department of Health and Human Services' (HHS) grants and 
agreements awarded to institutions of higher education, hospitals, other 
nonprofit organizations and only to commercial organizations in 
instances other than those involving procedures to make data available 
under the Freedom of Information Act provision set forth in 
Sec. 74.36(d)(1).
    (2) Subgrants or other subawards awarded by recipients of HHS grants 
and agreements to institutions of higher education, hospitals, other 
nonprofit organizations and commercial organizations, including 
subgrants or other subawards awarded under HHS grants and agreements 
administered by State, local and Indian Tribal governments; and
    (3) HHS grants and agreements, and any subawards under such grants 
and agreements, awarded to carry out the entitlement programs identified 
at 45 CFR Part 92, Sec. 92.4(a)(3), (a)(7), and (a)(8), except that 
Secs. 74.12, 74.23, 74.25, and 74.52 of this part do not apply. Under 
these programs, requests to HHS from Governors or other duly constituted 
State authorities for waiver of single State agency requirements in 
accordance with 31 U.S.C. 6501-6508 will be given expeditious handling. 
Whenever possible, such requests will be granted.
    (b) Nonprofit organizations that implement HHS programs for the 
States are also subject to state requirements.
    (c) HHS shall not impose additional or inconsistent requirements 
except as provided in Secs. 74.4 and 74.14, or unless specifically 
required by Federal statute or executive order.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, 11747, Mar. 22, 
1996; 65 FR 14418, Mar. 16, 2000]



Sec. 74.2  Definitions.

    Accrued expenditures mean the charges incurred by the recipient 
during a given period requiring the provision of funds for: (1) Goods 
and other tangible property received; (2) services

[[Page 196]]

performed by employees, contractors, subrecipients, and other payees; 
and, (3) other amounts becoming owed under programs for which no current 
services or performance is required.
    Accrued income means the sum of: (1) Earnings during a given period 
from (i) services performed by the recipient, and (ii) goods and other 
tangible property delivered to purchasers; and (2) amounts becoming owed 
to the recipient for which no current services or performance is 
required by the recipient.
    Acquisition cost of equipment means the net invoice price of the 
equipment, including the cost of modifications, attachments, 
accessories, or auxiliary apparatus necessary to make the property 
usable for the purpose for which it was acquired. Other charges, such as 
the cost of installation, transportation, taxes, duty or protective in-
transit insurance, shall be included or excluded from the unit 
acquisition cost in accordance with the recipient's regular accounting 
practices.
    Advance means a payment made by Treasury check or other appropriate 
payment mechanism to a recipient upon its request either before 
outlaysare made by the recipient or through the use of predetermined 
payment schedules.
    Award means financial assistance that provides support or 
stimulation to accomplish a public purpose. Awards include grants and 
other agreements in the form of money or property in lieu of money, by 
the Federal Government to an eligible recipient. The term does not 
include: technical assistance, which provides services instead of money; 
other assistance in the form of loans, loan guarantees, interest 
subsidies, or insurance; direct payments of any kind to individuals; 
and, contracts which are required to be entered into and administered 
under Federal procurement laws and regulations.
    Cash contributions mean the recipient's cash outlay, including the 
outlay of money contributed to the recipient by third parties.
    Closeout means the process by which the HHS awarding agency 
determines that all applicable administrative actions and all required 
work of the award have been completed by the recipient and HHS.
    Contract means a procurement contract under an award or subaward, 
and a procurement subcontract under a recipient's or subrecipient's 
contract.
    Cost sharing or matching means that portion of project or program 
costs not borne by the Federal Government.
    Current accounting period means, with respect to Sec. 74.27(b), the 
period of time the recipient chooses for purposes of financial 
statements and audits.
    Date of completion means the date on which all work under an award 
is completed or the date on the award document, or any supplement or 
amendment thereto, on which HHS awarding agency sponsorship ends.
    Departmental Appeals Board means the independent office established 
in the Office of the Secretary with delegated authority from the 
Secretary to review and decide certain disputes between recipients of 
HHS funds and HHS awarding agencies under 45 CFR part 16 and to perform 
other review, adjudication and mediation services as assigned.
    Disallowed costs mean those charges to an award that the HHS 
awarding agency determines to be unallowable, in accordance with the 
applicable Federal cost principles or other terms and conditions 
contained in the award.
    Discretionary award means an award made by an HHS awarding agency in 
keeping with specific statutory authority which enables the agency to 
exercise judgment (``discretion'') in selecting the applicant/recipient 
organization through a competitive award process.
    Equipment means tangible nonexpendable personal property, including 
exempt property, charged directly to the award having a useful life of 
more than one year and an acquisition cost of $5000 or more per unit. 
However, consistent with recipient policy, lower limits may be 
established.
    Excess property means property under the control of any HHS awarding 
agency that, as determined by the head of the awarding agency or his/her 
delegate, is no longer required for the agency's needs or the discharge 
of its responsibilities.

[[Page 197]]

    Exempt property means tangible personal property acquired in whole 
or in part with Federal funds, where the HHS awarding agency has 
statutory authority to vest title in the recipient without further 
obligation to the Federal Government. An example of exempt property 
authority is contained in the Federal Grant and Cooperative Agreement 
Act, 31 U.S.C. 6306, for property acquired under an award to conduct 
basic or applied research by a nonprofit institution of higher education 
or nonprofit organization whose principal purpose is conducting 
scientific research.
    Federal funds authorized mean the total amount of Federal funds 
obligated by the HHS awarding agency for use by the recipient. This 
amount may include any authorized carryover of unobligated funds from 
prior funding periods when permitted by the HHS awarding agency's 
implementing instructions or authorized by the terms and conditions of 
the award.
    Federal share of real property, equipment, or supplies means that 
percentage of the property's or supplies' acquisition costs and any 
improvement expenditures paid with Federal funds. This will be the same 
percentage as the Federal share of the total costs under the award for 
the funding period in which the property was acquired (excluding the 
value of third party in-kind contributions).
    Federally recognized Indian Tribal government means the governing 
body of any Indian tribe, band, nation, or other organized group or 
community (including any Native village as defined in section 3 of the 
Alaska Native Claims Settlement Act certified by the Secretary of the 
Interior as eligible for the special programs and services provided by 
him through the Bureau of Indian Affairs.
    Funding period means the period of time when Federal funding is 
available for obligation by the recipient.
    Government means a State or local government or a federally 
recognized Indian tribal government.
    HHS means the U.S. Department of Health and Human Services.
    HHS awarding agency means any organization component of HHS that is 
authorized to make and administer awards.
    Intangible property and debt instruments mean, but are not limited 
to, trademarks, copyrights, patents and patent applications and such 
property as loans, notes and other debt instruments, lease agreements, 
stock and other instruments of property ownership, whether considered 
tangible or intangible.
    Local government means a local unit of government, including 
specifically a county, municipality, city, town, township, local public 
authority, school district, special district, intra-state district, 
council of governments (whether or not incorporated as a nonprofit 
corporation under State law), any other regional or interstate entity, 
or any agency or instrumentality of local government.
    Obligations mean the amounts of orders placed, contracts and grants 
awarded, services received and similar transactions during a given 
period that require payment by the recipient during the same or a future 
period.
    OGAM means the Office of Grants and Acquisition Management, which is 
an organizational component within the Office of the Secretary, HHS, and 
reports to the Assistant Secretary for Management and Budget.
    OMB means the U.S. Office of Management and Budget.
    Outlays or expenditures mean charges made to the project or program. 
They may be reported on a cash or accrual basis. For reports prepared on 
a cash basis, outlays are the sum of cash disbursements for direct 
charges for goods and services, the amount of indirect expense charged, 
the value of third party in-kind contributions applied and the amount of 
cash advances and payments made to subrecipients. For reports prepared 
on an accrual basis, outlays are the sum of cash disbursements for 
direct charges for goods and services, the amount of indirect expense 
incurred, the value of in-kind contributions applied, and the net 
increase (or decrease) in the amounts owed by the recipient for goods 
and other property received, for services performed by employees, 
contractors, subrecipients and other payees and other amounts becoming 
owed under programs for which

[[Page 198]]

no current services or performance are required.
    Personal property means property of any kind except real property. 
It may be tangible, having physical existence, or intangible, having no 
physical existence, such as copyrights, patents, or securities.
    Prior approval means written approval by an authorized HHS official 
evidencing prior consent.
    Program income means gross income earned by the recipient that is 
directly generated by a supported activity or earned as a result of the 
award (see exclusions in Sec. 74.24 (e) and (h)). Program income 
includes, but is not limited to, income from fees for services 
performed, the use or rental of real or personal property acquired under 
federally-funded projects, the sale of commodities or items fabricated 
under an award, license fees and royalties on patents and copyrights, 
and interest on loans made with award funds. Interest earned on advances 
of Federal funds is not program income. Except as otherwise provided in 
the terms and conditions of the award, program income does not include 
the receipt of principal on loans, rebates, credits, discounts, etc., or 
interest earned on any of them. Furthermore, program income does not 
include taxes, special assessments, levies, and fines raised by 
governmental recipients.
    Project costs means all allowable costs, as set forth in the 
applicable Federal cost principles (see Sec. 74.27), incurred by a 
recipient and the value of the contributions made by third parties in 
accomplishing the objectives of the award during the project period.
    Project period means the period established in the award document 
during which HHS awarding agency sponsorship begins and ends.
    Property means, unless otherwise stated, real property, equipment, 
intangible property and debt instruments.
    Real property means land, including land improvements, structures 
and appurtenances thereto, but excludes movable machinery and equipment.
    Recipient means an organization receiving financial assistance 
directly from an HHS awarding agency to carry out a project or program. 
The term includes public and private institutions of higher education, 
public and private hospitals, commercial organizations, and other quasi-
public and private nonprofit organizations such as, but not limited to, 
community action agencies, research institutes, educational 
associations, and health centers. The term may include foreign or 
international organizations (such as agencies of the United Nations) 
which are recipients, subrecipients, or contractors or subcontractors of 
recipients or subrecipients at the discretion of the HHS awarding 
agency. The term does not include government-owned contractor-operated 
facilities or research centers providing continued support for mission-
oriented, large-scale programs that are government-owned or controlled, 
or are designated as federally-funded research and development centers. 
For entitlement programs listed at 45 CFR 92.4(a)(3), (a)(7), and (a)(8) 
``recipient'' means the government to which an HHS awarding agency 
awards funds and which is accountable for the use of the funds provided. 
The recipient in this case is the entire legal entity even if only a 
particular component of the entity is designated in the award document.
    Research and development means all research activities, both basic 
and applied, and all development activities that are supported at 
universities, colleges, hospitals, other nonprofit institutions, and 
commercial organizations. ``Research'' is defined as a systematic study 
directed toward fuller scientific knowledge or understanding of the 
subject studied. ``Development'' is the systematic use of knowledge and 
understanding gained from research directed toward the production of 
useful materials, devices, systems, or methods, including design and 
development of prototypes and processes. The term research also includes 
activities involving the training of individuals in research techniques 
where such activities utilize the same facilities as other research and 
development activities and where such activities are not included in the 
instruction function.
    Small awards means a grant or cooperative agreement not exceeding 
the simplified acquisition threshold fixed at 41 U.S.C. 403(11) 
(currently $100,000).

[[Page 199]]

    State means any of the several States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency or instrumentality of a 
State exclusive of local governments.
    Subaward means an award of financial assistance in the form of 
money, or property in lieu of money, made under an award by a recipient 
to an eligible subrecipient or by a subrecipient to a lower tier 
subrecipient. The term includes financial assistance when provided by 
any legal agreement, even if the agreement is called a contract, but 
does not include procurement of goods and services nor does it include 
any form of assistance which is excluded from the definition of 
``award'' in this section.
    Subrecipient means the legal entity to which a subaward is made and 
which is accountable to the recipient for the use of the funds provided. 
The term may include foreign or international organizations (such as 
agencies of the United Nations) at the discretion of the HHS awarding 
agency.
    Supplies means all personal property excluding equipment, intangible 
property, and debt instruments as defined in this section, and 
inventions of a contractor conceived or first actually reduced to 
practice in the performance of work under a funding agreement (``subject 
inventions''), as defined in 37 CFR part 401, ``Rights to Inventions 
Made by Nonprofit Organizations and Business Firms Under Government 
Grants, Contracts, and Cooperative Agreements.''
    Suspension means an action by the HHS awarding agency that 
temporarily withdraws the agency's financial assistance sponsorship 
under an award, pending corrective action by the recipient or pending a 
decision to terminate the award.
    Suspension of an award is a separate action from suspension under 
HHS regulations (45 CFR part 76) implementing E.O.s 12549 and 12689, 
``Debarment and Suspension.''
    Termination means the cancellation of HHS awarding agency 
sponsorship, in whole or in part, under an agreement at any time prior 
to the date of completion. For the entitlement programs listed at 45 CFR 
92.4 (a)(3), (a)(7), and (a)(8), ``termination'' shall have that meaning 
assigned at 45 CFR 92.3.
    Third party in-kind contributions means the value of non-cash 
contributions provided by non-Federal third parties. Third party in-kind 
contributions may be in the form of real property, equipment, supplies 
and other expendable property, and the value of goods and services 
directly benefiting and specifically identifiable to the project or 
program.
    Unliquidated obligations, for financial reports prepared on a cash 
basis, mean the amount of obligations incurred by the recipient that has 
not been paid. For reports prepared on an accrued expenditure basis, 
they represent the amount of obligations incurred by the recipient for 
which an outlay has not been recorded.
    Unobligated balance means the portion of the funds authorized by the 
HHS awarding agency that has not been obligated by the recipient and is 
determined by deducting the cumulative obligations from the cumulative 
funds authorized.
    Unrecovered indirect cost means the difference between the amount 
awarded and the amount which could have been awarded under the 
recipient's approved negotiated indirect cost rate.
    Working capital advance means a procedure whereby funds are advanced 
to the recipient to cover its estimated disbursement needs for a given 
initial period.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996; 
62 FR 41878, Aug. 4, 1997]



Sec. 74.3  Effect on other issuances.

    This part supersedes all administrative requirements of codified 
program regulations, program manuals, handbooks and other nonregulatory 
materials which are inconsistent with the requirements of this part, 
except to the extent they are required by Federal statute, or authorized 
in accordance with the deviations provision in Sec. 74.4.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]

[[Page 200]]



Sec. 74.4  Deviations.

    (a) After consultation with OMB, the HHS OGAM may grant exceptions 
to HHS awarding agencies for classes of awards or recipients subject to 
the requirements of this part when exceptions are not prohibited by 
statute. However, in the interest of maximum uniformity, exceptions from 
the requirements of this part shall be permitted only in unusual 
circumstances. HHS awarding agencies may apply more restrictive 
requirements to a class of awards or recipients when approved by the 
OGAM, after consultation with the OMB. HHS awarding agencies may apply 
less restrictive requirements without approval by the OGAM when making 
small awards except for those requirements which are statutory. 
Exceptions on a case-by-case basis may also be made by HHS awarding 
agencies without seeking prior approval from the OGAM. OGAM will 
maintain a record of all requests for exceptions from the provisions of 
this part that have been approved for classes of awards or recipients.
    (b) As a matter of Departmental policy, requests for individual case 
deviations will be considered favorably by HHS and its awarding agencies 
whenever the deviation will facilitate comprehensive or integrated 
service delivery, or multiple-source consolidated awards, unless the 
deviation would impair the integrity of the program.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]



Sec. 74.5  Subawards.

    (a) Unless inconsistent with statutory requirements, this part 
(except for Sec. 74.12 and the forms prescribed in Sec. 74.22) shall 
apply to--
    (1) Except for subawards under block grants (45 CFR part 96), all 
subawards received by institutions of higher education, hospitals, other 
nonprofit organizations, and commercial organizations from any recipient 
of an HHS award, including any subawards received from States, local 
governments, and Indian tribal governments covered by 45 CFR part 92; 
and
    (2) All subawards received from States by any entity, including a 
government entity, under the entitlement programs identified at 45 CFR 
part 92, Sec. 92.4 (a), (a)(7), and (a)(8), except that Secs. 74.12 and 
74.25 of this part shall not apply.
    (b) Except as provided in paragraph (a)(2) of this section, when 
State, local, and Indian Tribal government recipients of HHS awards make 
subawards to a government entity, they shall apply the regulations at 45 
CFR part 92, ``Uniform Administrative Requirements for Grants and 
Cooperative Agreements to State and Local Governments,'' or State rules, 
whichever apply, to such awards.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]



                    Subpart B--Pre-Award Requirements

    Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.



Sec. 74.10  Purpose.

    Sections 74.11 through 74.17 prescribe forms and instructions and 
other pre-award matters to be used in applying for HHS awards.



Sec. 74.11  Pre-award policies.

    (a) Use of Grants and Cooperative Agreements, and Contracts. The 
Federal Grant and Cooperative Agreement Act, 31 U.S.C. 6301-08, governs 
the use of grants, cooperative agreements and contracts. A grant or 
cooperative agreement shall be used only when the principal purpose of a 
transaction is to accomplish a public purpose of support or stimulation 
authorized by Federal statute. The statutory criterion for choosing 
between grants and cooperative agreements is that for the latter, 
``substantial involvement is expected between the executive agency and 
the State, local government, or other recipient when carrying out the 
activity contemplated in the agreement.'' Contracts shall be used when 
the principal purpose is acquisition of property or services for the 
direct benefit or use of the HHS awarding agency.
    (b) HHS awarding agencies shall notify the public of funding 
priorities for discretionary grant programs, unless funding priorities 
are established by Federal statute.

[[Page 201]]



Sec. 74.12  Forms for applying for HHS financial assistance.

    (a) HHS awarding agencies shall comply with the applicable report 
clearance requirements of 5 CFR part 1320, ``Controlling Paperwork 
Burdens on the Public,'' with regard to all forms used in place of or as 
a supplement to the Standard Form 424 (SF-424) series. However, HHS 
awarding agencies should use the SF-424 series and its program narrative 
whenever possible.
    (b) Applicants shall use the SF-424 series or those forms and 
instructions prescribed by the HHS awarding agency. Applicants shall 
submit the original and two copies of any applications unless additional 
copies are required pursuant to 5 CFR part 1320.
    (c) For Federal programs covered by E.O. 12372, as amended by E.O. 
12416, ``Intergovernmental Review of Federal Programs,'' the applicant 
shall complete the appropriate sections of the SF-424 (Application for 
Federal Assistance) indicating whether the application was subject to 
review by the State Single Point of Contact (SPOC). The name and address 
of the SPOC for a particular State can be obtained from the HHS awarding 
agency or the Catalog of Federal Domestic Assistance. The SPOC shall 
advise the applicant whether the program for which application is made 
has been selected by that State for review. (See also 45 CFR part 100.)
    (d) HHS awarding agencies that do not use the SF-424 form will 
indicate on the application form they prescribe whether the application 
is subject to review by the State under E.O. 12372.
    (e) This section does not apply to applications for subawards.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]



Sec. 74.13  Debarment and suspension.

    Recipients are subject to the nonprocurement debarment and 
suspension common rule implementing E.O.s 12549 and 12689, ``Debarment 
and Suspension,'' 45 CFR part 76. This common rule restricts subawards 
and contracts with certain parties that are debarred, suspended or 
otherwise excluded from or ineligible for participation in Federal 
assistance programs or activities.



Sec. 74.14  Special award conditions.

    (a) The HHS awarding agency may impose additional requirements as 
needed, without regard to Sec. 74.4, above, if an applicant or 
recipient:
    (1) Has a history of poor performance;
    (2) Is not financially stable;
    (3) Has a management system that does not meet the standards 
prescribed in this part;
    (4) Has not conformed to the terms and conditions of a previous 
award; or
    (5) Is not otherwise responsible.
    (b) When it imposes any additional requirements, the HHS awarding 
agency must notify the recipient in writing as to the following:
    (1) The nature of the additional requirements;
    (2) The reason why the additional requirements are being imposed;
    (3) The nature of the corrective actions needed;
    (4) The time allowed for completing the corrective actions; and
    (5) The method for requesting reconsideration of the additional 
requirements imposed.
    (c) The HHS awarding agency will promptly remove any additional 
requirements once the conditions that prompted them have been corrected.



Sec. 74.15  Metric system of measurement.

    The Metric Conversion Act, as amended by the Omnibus Trade and 
Competitiveness Act, 15 U.S.C. 205, declares that the metric system is 
the preferred measurement system for U.S. trade and commerce. The Act 
requires each Federal agency to establish a date or dates in 
consultation with the Secretary of Commerce, when the metric system of 
measurement will be used in the agency's procurements, grants, and other 
business-related activities. Metric implementation may take longer where 
the use of the system is initially impractical or likely to cause 
significant inefficiencies in the accomplishment of federally-funded 
activities. HHS awarding agencies will follow the provisions of E.O. 
12770, ``Metric Usage in Federal Government Programs.''

[[Page 202]]



Sec. 74.16  Resource Conservation and Recovery Act (RCRA, Section 6002 of Pub. L. No. 94-580 (Codified at 42 U.S.C. 6962)).

    Under the Act, any State agency or agency of a political subdivision 
of a State which is using appropriated Federal funds must comply with 
section 6002 of the RCRA. This section requires that preference be given 
in procurement programs to the purchase of specific products containing 
recycled materials identified in guidelines developed by the 
Environmental Protection Agency (EPA) (40 CFR parts 247-254). 
Accordingly, State and local institutions of higher education, 
hospitals, and other nonprofit organizations that receive direct HHS 
awards or other Federal funds shall give preference in their procurement 
programs funded with Federal funds to the purchase of recycled products 
pursuant to the EPA guidelines.



Sec. 74.17  Certifications and representations.

    Unless prohibited by statute or codified regulation, each HHS 
awarding agency is authorized and encouraged to allow recipients to 
submit certifications and representations required by statute, executive 
order, or regulation on an annual basis, if the recipients have ongoing 
and continuing relationships with the HHS awarding agency. Annual 
certifications and representations shall be signed by the responsible 
official(s) with the authority to ensure recipients' compliance with the 
pertinent requirements.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]



                   Subpart C--Post-Award Requirements

    Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.

                    Financial and Program Management



Sec. 74.20  Purpose of financial and program management.

    Sections 74.21 through 74.28 prescribe standards for financial 
management systems, methods for making payments, and rules for 
satisfying cost sharing and matching requirements, accounting for 
program income, budget revision approvals, making audits, determining 
allowability of cost, and establishing fund availability.



Sec. 74.21  Standards for financial management systems.

    (a) Recipients shall relate financial data to performance data and 
develop unit cost information whenever practical. For awards that 
support research, unit cost information is usually not appropriate.
    (b) Recipients' financial management systems shall provide for the 
following:
    (1) Accurate, current and complete disclosure of the financial 
results of each HHS-sponsored project or program in accordance with the 
reporting requirements set forth in Sec. 74.52. If the HHS awarding 
agency requires reporting on an accrual basis from a recipient that 
maintains its records on other than an accrual basis, the recipient 
shall not be required to establish an accrual accounting system. These 
recipients may develop such accrual data for their reports on the basis 
of an analysis of the documentation on hand.
    (2) Records that identify adequately the source and application of 
funds for HHS-sponsored activities. These records shall contain 
information pertaining to Federal awards, authorizations, obligations, 
unobligated balances, assets, outlays, income and interest.
    (3) Effective control over and accountability for all funds, 
property and other assets. Recipients shall adequately safeguard all 
such assets and assure they are used solely for authorized purposes.
    (4) Comparison of outlays with budget amounts for each award. 
Whenever appropriate, financial information should be related to 
performance and unit cost data. (Unit cost data are usually not 
appropriate for awards that support research.)
    (5) Written procedures to minimize the time elapsing between the 
transfer of funds to the recipient from the U.S. Treasury and the 
issuance or redemption of checks, warrants or payments by other means 
for program purposes by the recipient. To the extent that the provisions 
of the Cash Management Improvement Act (CMIA) (Pub. L. 101-453)

[[Page 203]]

and its implementing regulations, ``Rules and Procedures for Funds 
Transfers,'' (31 CFR part 205) apply, payment methods of State agencies, 
instrumentalities, and fiscal agents shall be consistent with CMIA 
Treasury-State Agreements, or the CMIA default procedures codified at 31 
CFR 205.9(f).
    (6) Written procedures for determining the reasonableness, 
allocability and allowability of costs in accordance with the provisions 
of the applicable Federal cost principles and the terms and conditions 
of the award.
    (7) Accounting records, including cost accounting records, that are 
supported by source documentation.
    (c) Where the Federal Government guarantees or insures the repayment 
of money borrowed by the recipient, the HHS awarding agency, at its 
discretion, may require adequate bonding and insurance if the bonding 
and insurance requirements of the recipient are not deemed adequate to 
protect the interest of the Federal Government.
    (d) The HHS awarding agency may require adequate fidelity bond 
coverage where the recipient lacks sufficient coverage to protect the 
Federal Government's interest.
    (e) Where bonds are required in the situations described in 
Sec. 74.21 (c) and (d), the bonds shall be obtained from companies 
holding certificates of authority as acceptable sureties, as prescribed 
in 31 CFR part 223, ``Surety Companies Doing Business with the United 
States.''



Sec. 74.22  Payment.

    (a) Unless inconsistent with statutory program purposes, payment 
methods shall minimize the time elapsing between the transfer of funds 
from the U.S. Treasury and the issuance or redemption of checks, 
warrants, or payment by other means by the recipients. Payment methods 
of State agencies or instrumentalities shall be consistent with 
Treasury-State CMIA agreements, or the CMIA default procedures codified 
at 31 CFR 205.9, to the extent that either applies.
    (b)(1) Recipients will be paid in advance, provided they maintain or 
demonstrate the willingness to maintain:
    (i) Written procedures that minimize the time elapsing between the 
transfer of funds and disbursement by the recipient; and
    (ii) Financial management systems that meet the standards for fund 
control and accountability as established in Sec. 74.21.
    (2) Unless inconsistent with statutory program purposes, cash 
advances to a recipient organization shall be limited to the minimum 
amounts needed and be timed to be in accordance with the actual, 
immediate cash requirements of the recipient organization in carrying 
out the purpose of the approved program or project. The timing and 
amount of cash advances shall be as close as is administratively 
feasible to the actual disbursements by the recipient organization for 
direct program or project costs and the proportionate share of any 
allowable indirect costs.
    (c) Whenever possible, advances will be consolidated to cover 
anticipated cash needs for all awards made by all HHS awarding agencies 
to the recipient.
    (1) Advance payment mechanisms include electronic funds transfer, 
with Treasury checks available on an exception basis.
    (2) Advance payment mechanisms are subject to 31 CFR part 205.
    (3) Recipients may submit requests for advances and reimbursements 
at least monthly when electronic fund transfers are not used.
    (d) Requests for Treasury check advance payment shall be submitted 
on PMS-270, ``Request for Advance or Reimbursement,'' or other forms as 
may be authorized by HHS. This form is not to be used when Treasury 
check advance payments are made to the recipient automatically through 
the use of a predetermined payment schedule or if precluded by special 
HHS-wide instructions for electronic funds transfer.
    (e) Reimbursement is the preferred method when the requirements in 
paragraph (b) of this section cannot be met. The HHS awarding agency may 
also use this method on any construction agreement, or if the major 
portion of the construction project is accomplished through private 
market financing or Federal loans, and the HHS assistance constitutes a 
minor portion of the project.

[[Page 204]]

    (1) When the reimbursement method is used, HHS will make payment 
within 30 days after receipt of the billing, unless the billing is 
improper.
    (2) Recipients may submit a request for reimbursement at least 
monthly when electronic funds transfers are not used.
    (f) If a recipient cannot meet the criteria for advance payments and 
the HHS awarding agency has determined that reimbursement is not 
feasible because the recipient lacks sufficient working capital, HHS may 
provide cash on a working capital advance basis. Under this procedure, 
HHS advances cash to the recipient to cover its estimated disbursement 
needs for an initial period generally geared to the recipient's 
disbursing cycle. Thereafter, HHS reimburses the recipient for its 
actual cash disbursements. The working capital advance method of payment 
will not be used for recipients unwilling or unable to provide timely 
advances to their subrecipient to meet the subrecipient's actual cash 
disbursements.
    (g) Unless inconsistent with statutory program purposes, to the 
extent available, recipients shall disburse funds available from 
repayments to and interest earned on a revolving fund, program income, 
rebates, refunds, contract settlements, audit recoveries and interest 
earned on such funds before requesting additional cash payments.
    (h) Unless otherwise required by statute, the HHS awarding agency 
will not withhold payments for proper charges made by recipients at any 
time during the project period unless paragraph (h) (1) or (2) of this 
section applies:
    (1) A recipient has failed to comply with the project objectives, 
the terms and conditions of the award, or HHS awarding agency reporting 
requirements.
    (2) The recipient or subrecipient is delinquent in a debt to the 
United States. Under such conditions, the HHS awarding agency may, upon 
reasonable notice, inform the recipient that payments shall not be made 
for obligations incurred after a specified date until the conditions are 
corrected or the indebtedness to the Federal Government is liquidated. 
(See 45 CFR part 30).
    (i) Standards governing the use of banks and other institutions as 
depositories of funds advanced under awards are as follows.
    (1) Except for situations described in paragraph (i)(2) of this 
section, HHS will not require separate depository accounts for funds 
provided to a recipient or establish any eligibility requirements for 
depositories for funds provided to a recipient. However, recipients must 
be able to account for the receipt, obligation and expenditure of funds.
    (2) Advances of Federal funds shall be deposited and maintained in 
insured accounts whenever possible.
    (j) Consistent with the national goal of expanding the opportunities 
for women-owned and minority-owned business enterprises, recipients are 
encouraged to use women-owned and minority-owned banks (a bank which is 
owned at least 50 percent by women or minority group members).
    (k) Recipients shall maintain advances of Federal funds in interest 
bearing accounts, unless one of the following conditions apply:
    (1) The recipient receives less than $120,000 in Federal awards per 
year.
    (2) The best reasonably available interest bearing account would not 
be expected to earn interest in excess of $250 per year on Federal cash 
balances.
    (3) The depository would require an average or minimum balance so 
high that it would not be feasible within the expected Federal and non-
Federal cash resources.
    (l) For those entities where CMIA and its implementing regulations 
do not apply (see 31 CFR part 205), interest earned on Federal advances 
deposited in interest bearing accounts shall be remitted annually to the 
Department of Health and Human Services, Payment Management System, P.O. 
Box 6021, Rockville, MD 20852. Recipients with Electronic Funds Transfer 
capability should use an electronic medium such as the FEDWIRE Deposit 
System. Interest amounts up to $250 per year may be retained by the 
recipient for administrative expense. State universities and hospitals 
shall comply with CMIA, as it pertains to interest. If an entity subject 
to CMIA uses its own

[[Page 205]]

funds to pay pre-award costs for discretionary awards without prior 
written approval from the HHS awarding agency, it waives its right to 
recover the interest under CMIA. (See Sec. 74.25(d)).
    (m) PMS-270, Request for Advance or Reimbursement. Recipients shall 
use the PMS-270 to request advances or reimbursement for all programs 
when electronic funds transfer or predetermined advance methods are not 
used. HHS shall not require recipients to submit more than an original 
and two copies.
    (n) Recipients and subrecipients are not required to use forms PMS-
270 and 272 in connection with subaward payments.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]



Sec. 74.23  Cost sharing or matching.

    (a) To be accepted, all cost sharing or matching contributions, 
including cash and third party in-kind, shall meet all of the following 
criteria:
    (1) Are verifiable from the recipient's records;
    (2) Are not included as contributions for any other federally-
assisted project or program;
    (3) Are necessary and reasonable for proper and efficient 
accomplishment of project or program objectives;
    (4) Are allowable under the applicable cost principles;
    (5) Are not paid by the Federal Government under another award, 
except where authorized by Federal statute to be used for cost sharing 
or matching;
    (6) Are provided for in the approved budget; and
    (7) Conform to other provisions of this part, as applicable.
    (b) Unrecovered indirect costs may be included as part of cost 
sharing or matching.
    (c) Values for recipient contributions of services and property 
shall be established in accordance with the applicable cost principles. 
If the HHS awarding agency authorizes recipients to donate buildings or 
land for construction/facilities acquisition projects or long-term use, 
the value of the donated property for cost sharing or matching shall be 
the lesser of:
    (1) The certified value of the remaining life of the property 
recorded in the recipient's accounting records at the time of donation; 
or
    (2) The current fair market value. However, when there is sufficient 
justification, the HHS awarding agency may approve the use of the 
current fair market value of the donated property, even if it exceeds 
the certified value at the time of donation to the project.
    (d) Volunteer services furnished by professional and technical 
personnel, consultants, and other skilled and unskilled labor may be 
counted as cost sharing or matching if the service is an integral and 
necessary part of an approved project or program. Rates for volunteer 
services shall be consistent with those paid for similar work in the 
recipient's organization. In those instances in which the required 
skills are not found in the recipient's organization, rates shall be 
consistent with those paid for similar work in the labor market in which 
the recipient competes for the kind of services involved. In either 
case, fringe benefits consistent with those paid that are reasonable, 
allowable, and allocable may be included in the valuation.
    (e) When an employer other than the recipient furnishes the services 
of an employee, these services shall be valued at the employee's regular 
rate of pay (plus an amount of fringe benefits that are reasonable, 
allowable, and allocable, but exclusive of overhead costs), provided 
these services are in the same skill for which the employee is normally 
paid.
    (f) Donated supplies may include such items as expendable property, 
office supplies, laboratory supplies or workshop and classroom supplies. 
Value assessed to donated supplies included in the cost sharing or 
matching share shall be reasonable and shall not exceed the fair market 
value of the property at the time of the donation.
    (g) The method used for determining cost sharing or matching for 
donated equipment, buildings and land for which title passes to the 
recipient may differ according to the purpose of the award, if paragraph 
(g)(1) or (2) of this section applies:
    (1) If the purpose of the award is to assist the recipient in the 
acquisition of equipment, buildings or land, the total value of the 
donated property

[[Page 206]]

may be claimed as cost sharing or matching.
    (2) If the purpose of the award is to support activities that 
require the use of equipment, buildings or land, normally only 
depreciation or use charges for equipment and buildings may be made. 
However, the full value of equipment or other capital assets and fair 
rental charges for land may be allowed, provided that the HHS awarding 
agency has approved the charges.
    (h) The value of donated property shall be determined in accordance 
with the usual accounting policies of the recipient, with the following 
qualifications.
    (1) The value of donated land and buildings shall not exceed its 
fair market value at the time of donation to the recipient as 
established by an independent appraiser (e.g., certified real property 
appraiser or General Services Administration representative) and 
certified by a responsible official of the recipient.
    (2) The value of donated equipment shall not exceed the fair market 
value of equipment of the same age and condition at the time of 
donation.
    (3) The value of donated space shall not exceed the fair rental 
value of comparable space as established by an independent appraisal of 
comparable space and facilities in a privately-owned building in the 
same locality.
    (4) The value of loaned equipment shall not exceed its fair rental 
value.
    (i) The following requirements pertain to the recipient's supporting 
records for in-kind contributions from third parties.
    (1) Volunteer services shall be documented and, to the extent 
feasible, supported by the same methods used by the recipient for its 
own employees, including time records.
    (2) The basis for determining the valuation for personal service, 
material, equipment, buildings and land shall be documented.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]



Sec. 74.24  Program income.

    (a) The standards set forth in this section shall be used to account 
for program income related to projects financed in whole or in part with 
Federal funds.
    (b) Except as provided below in paragraph (h) of this section, 
program income earned during the project period shall be retained by the 
recipient and, in accordance with the terms and conditions of the award, 
shall be used in one or more of the following ways:
    (1) Added to funds committed to the project or program, and used to 
further eligible project or program objectives;
    (2) Used to finance the non-Federal share of the project or program; 
or
    (3) Deducted from the total project or program allowable cost in 
determining the net allowable costs on which the Federal share of costs 
is based.
    (c) When the HHS awarding agency authorizes the disposition of 
program income as described in paragraph (b)(1) or (b)(2) of this 
section, program income in excess of any limits stipulated shall be used 
in accordance with paragraph (b)(3) of this section.
    (d) In the event that the HHS awarding agency does not specify in 
the terms and conditions of the award how program income is to be used, 
paragraph (b)(3) of this section shall apply automatically to all 
projects or programs except research. For awards that support 
performance of research work, paragraph (b)(1) of this section shall 
apply automatically unless:
    (1) The HHS awarding agency indicates in the terms and conditions of 
the award another alternative; or
    (2) The recipient is subject to special award conditions under 
Sec. 74.14; or
    (3) The recipient is a commercial organization (see Sec. 74.82).
    (e) Unless the terms and conditions of the award provide otherwise, 
recipients shall have no obligation to the Federal Government regarding 
program income earned after the end of the project period.
    (f) Costs incident to the generation of program income may be 
deducted from gross income to determine program income, provided these 
costs have not been charged to the award.
    (g) Proceeds from the sale of property shall be handled in 
accordance with the requirements of the Property Standards. (See 
Secs. 74.30 through 74.37, below).
    (h) The Patent and Trademark Laws Amendments, 35 U.S.C. section 200-
212,

[[Page 207]]

apply to inventions made under an award for performance of experimental, 
developmental, or research work. Unless the terms and conditions for the 
award provide otherwise, recipients shall have no obligation to HHS with 
respect to program income earned from license fees and royalties for 
copyrighted material, patents, patent applications, trademarks, and 
inventions made under an award. However, no scholarship, fellowship, 
training grant, or other funding agreement made primarily to a recipient 
for educational purposes will contain any provision giving the Federal 
agency rights to inventions made by the recipient.



Sec. 74.25  Revision of budget and program plans.

    (a) The budget plan is the financial expression of the project or 
program as approved during the award process. It may include either the 
sum of the Federal and non-Federal shares, or only the Federal share, 
depending upon HHS awarding agency requirements. It shall be related to 
performance for program evaluation purposes whenever appropriate.
    (b) Recipients are required to report deviations from budget and 
program plans, and request prior approvals for budget and program plan 
revisions, in accordance with this section. Except as provided at 
Secs. 74.4, 74.14, and this section, HHS awarding agencies may not 
impose other prior approval requirements for specific items.
    (c) For nonconstruction awards, recipients shall obtain prior 
approvals from the HHS awarding agency for one or more of the following 
program or budget related reasons.
    (1) Change in the scope or the objective of the project or program 
(even if there is no associated budget revision requiring prior written 
approval).
    (2) Change in the project director or principal investigator or 
other key persons specified in the application or award document.
    (3) The absence for more than three months, or a 25 percent 
reduction in time devoted to the project, by the approved project 
director or principal investigator.
    (4) The need for additional Federal funding.
    (5) The inclusion, unless waived by the HHS awarding agency, of 
costs that require prior approval in accordance with OMB Circular A-21, 
``Cost Principles for Educational Institutions;'' OMB Circular A-122, 
``Cost Principles for Nonprofit Organizations;'' or appendix E of this 
part, ``Principles for Determining Costs Applicable to Research and 
Development under Grants and Contracts with Hospitals,'' or 48 CFR part 
31, ``Contract Cost Principles and Procedures,'' as applicable.
    (6) The transfer of funds allotted for training allowances (direct 
payment to trainees) to other categories of expense.
    (7) Unless described in the application and funded in the approved 
award, the subaward, transfer or contracting out of any work under an 
award. This provision does not apply to the purchase of supplies, 
material, equipment or general support services.
    (8) The inclusion of research patient care costs in research awards 
made for the performance of research work.
    (d) Except for requirements listed in paragraphs (c)(1) and (c)(4) 
of this section, the HHS awarding agency is authorized, at its option, 
to waive cost-related and administrative prior written approvals 
required by this part and its appendixes. Additional waivers may be 
granted authorizing recipients to do any one or more of the following:
    (1) Incur pre-award costs up to 90 calendar days prior to award, or 
more than 90 calendar days with the prior approval of the HHS awarding 
agency. However, all pre-award costs are incurred at the recipient's 
risk: the HHS awarding agency is under no obligation to reimburse such 
costs if for any reason the applicant does not receive an award or if 
the award to the recipient is less than anticipated and inadequate to 
cover such costs.
    (2) Initiate a one-time extension of the expiration date of the 
award of up to 12 months unless one or more of the conditions identified 
at paragraphs (d)(2)(i), (ii), and (iii) of this section apply. For one-
time extensions, the recipient must notify the HHS awarding agency in 
writing, with the supporting reasons and revised expiration date, at 
least 10 days before the date specified in the award. This one-time 
extension

[[Page 208]]

may not be exercised either by recipients or HHS awarding agencies 
merely for the purpose of using unobligated balances. Such extensions 
are not permitted where:
    (i) The terms and conditions of award prohibit the extension; or
    (ii) The extension requires additional Federal funds; or
    (iii) The extension involves any change in the approved objectives 
or scope of the project.
    (3) Carry forward unobligated balances to subsequent funding 
periods.
    (4) For awards that support performance of research work, unless the 
HHS awarding agency provides otherwise in the award, or the award is 
subject to Sec. 74.14 or subpart E of this Part, the prior approval 
requirements described in paragraphs (d) (1)-(3) of this section are 
automatically waived (i.e., recipients need not obtain such prior 
approvals). However, extension of award expiration dates must be 
approved by the HHS awarding agency if one of the conditions in 
paragraph (d)(2) of this section applies.
    (e) The HHS awarding agencies may not permit any budget changes in a 
recipient's award that would cause any Federal appropriation to be used 
for purposes other then those consistent with the original purpose of 
the authorization and appropriation under which the award was funded.
    (f) For construction awards, recipients shall obtain prior written 
approval promptly from the HHS awarding agency for budget revisions 
whenever:
    (1) The revision results from changes in the scope or the objective 
of the project or program;
    (2) The need arises for additional Federal funds to complete the 
project; or
    (3) A revision is desired which involves specific costs for which 
prior written approval requirements apply in keeping with the applicable 
cost principles listed in Sec. 74.27.
    (g) When an HHS awarding agency makes an award that provides support 
for both construction and nonconstruction work, it may require the 
recipient to obtain prior approval before making any fund or budget 
transfers between the two types of work supported.
    (h) For both construction and nonconstruction awards, recipients 
shall notify the HHS awarding agency in writing promptly whenever the 
amount of Federal authorized funds is expected to exceed the needs of 
the recipient for the project period by more than $5000 or five percent 
of the Federal award, whichever is greater. This notification shall not 
be required if an application for additional funding is submitted for a 
continuation award.
    (i) Within 30 calendar days from the date of receipt of the request 
for budget revisions, HHS awarding agencies shall notify the recipient 
whether its requested budget revisions have been approved. If the 
requested revision is still under consideration at the end of 30 
calendar days, the HHS awarding agency must inform the recipient in 
writing of the date when the recipient may expect a decision.
    (j) When requesting approval for budget changes, recipients shall 
make their requests in writing.
    (k) All approvals granted in keeping with the provisions of this 
section shall not be valid unless they are in writing, and signed by at 
least one of the following HHS officials:
    (1) The Head of the HHS Operating or Staff Division that made the 
award or subordinate official with proper delegated authority from the 
Head, including the Head of the Regional Office of the HHS Operating or 
Staff Division that made the award; or
    (2) The responsible Grants Officer of the HHS Operating or Staff 
Division that made the award or an individual duly authorized by the 
Grants Officer.
    (l) No other prior approval requirements for specific items may be 
imposed unless a class deviation has been approved by OMB.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996]



Sec. 74.26  Non-Federal audits.

    (a) Recipients and subrecipients that are institutions of higher 
education or other non-profit organizations (including hospitals) shall 
be subject to the audit requirements contained in the Single Audit Act 
Amendments of 1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133, 
``Audits of States,

[[Page 209]]

Local Governments, and Non-Profit Organizations.''
    (b) State and local governments shall be subject to the audit 
requirements contained in the Single Audit Act Amendments of 1996 (31 
U.S.C. 7501-7507) and revised OMB Circular A-133, ``Audits of States, 
Local Governments, and Non-Profit Organizations.''
    (c) For-profit hospitals not covered by the audit provisions of 
revised OMB Circular A-133 shall be subject to the audit requirements of 
the Federal awarding agencies.
    (d)(1) Recipients and subrecipients that are commercial 
organizations (including for-profit hospitals) have two options 
regarding audits:
    (i) A financial related audit (as defined in the Government Auditing 
Standards, GPO Stock 020-000-00-265-4) of a particular award in 
accordance with Government Auditing Standards, in those cases where the 
recipient receives awards under only one HHS program; or, if awards are 
received under multiple HHS programs, a financial related audit of all 
HHS awards in accordance with Government Auditing Standards; or
    (ii) An audit that meets the requirements contained in OMB Circular 
A-133.
    (2) Commercial organizations that receive annual HHS awards totaling 
less than OMB Circular A-133's audit requirement threshold are exempt 
from requirements for a non-Federal audit for that year, but records 
must be available for review by appropriate officials of Federal 
agencies.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11746, Mar. 22, 1996; 
61 FR 15564, Apr. 8, 1996; 62 FR 41878, Aug. 4, 1997; 62 FR 45939, 
45945, Aug. 29, 1997]



Sec. 74.27  Allowable costs.

    (a) For each kind of recipient, there is a particular set of Federal 
principles that applies in determining allowable costs. Allowability of 
costs shall be determined in accordance with the cost principles 
applicable to the entity incurring the costs. Thus, allowability of 
costs incurred by State, local or federally-recognized Indian tribal 
governments is determined in accordance with the provisions of OMB 
Circular A-87, ``Cost Principles for State and Local Governments.'' The 
allowability of costs incurred by nonprofit organizations (except for 
those listed in Attachment C of Circular A-122) is determined in 
accordance with the provisions of OMB Circular A-122, ``Cost Principles 
for Nonprofit Organizations'' and paragraph (b) of this section. The 
allowability of costs incurred by institutions of higher education is 
determined in accordance with the provisions of OMB Circular A-21, 
``Cost Principles for Educational Institutions.'' The allowability of 
costs incurred by hospitals is determined in accordance with the 
provisions of appendix E of this part, ``Principles for Determining 
Costs Applicable to Research and Development Under Grants and Contracts 
with Hospitals.'' The allowability of costs incurred by commercial 
organizations and those nonprofit organizations listed in Attachment C 
to Circular A-122 is determined in accordance with the provisions of the 
Federal Acquisition Regulation (FAR) at 48 CFR part 31, except that 
independent research and development costs are unallowable.
    (b) OMB Circular A-122 does not cover the treatment of bid and 
proposal costs or independent research and development costs. The 
following rules apply to these costs for nonprofit organizations subject 
to that Circular.
    (1) Bid and proposal costs. Bid and proposal costs are the immediate 
costs of preparing bids, proposals, and applications for Federal and 
non-Federal awards, contracts, and other agreements, including the 
development of scientific, cost, and other data needed to support the 
bids, proposals, and applications. Bid and proposal costs of the current 
accounting period are allowable as indirect costs. Bid and proposal 
costs of past accounting periods are unallowable in the current period. 
However, if the recipient's established practice is to treat these costs 
by some other method, they may be accepted if they are found to be 
reasonable and equitable. Bid and proposal costs do not include 
independent research and development costs covered by paragraph (b)(2) 
of this section, or pre-award costs covered by OMB Circular A-122, 
Attachment B, paragraph 33 and Sec. 74.25(d)(1).

[[Page 210]]

    (2) Independent Research and Development costs. Independent research 
and development is research and development which is conducted by an 
organization, and which is not sponsored by Federal or non-Federal 
awards, contracts, or other agreements. Independent research and 
development shall be allocated its proportionate share of indirect costs 
on the same basis as the allocation of indirect costs to sponsored 
research and development. The cost of independent research and 
development, including their proportionate share of indirect costs, are 
unallowable.



Sec. 74.28  Period of availability of funds.

    Where a funding period is specified, a recipient may charge to the 
award only allowable costs resulting from obligations incurred during 
the funding period and any pre-award costs authorized by the HHS 
awarding agency pursuant to Sec. 74.25(d)(1).

                           Property Standards



Sec. 74.30  Purpose of property standards.

    Sections 74.31 through 74.37 set forth uniform standards governing 
management and disposition of property furnished by HHS or whose cost 
was charged directly to a project supported by an HHS award. The HHS 
awarding agency may not impose additional requirements, unless 
specifically required to do so by Federal statute. The recipient may use 
its own property management standards and procedures provided they meet 
the provisions of Secs. 74.31 through 74.37.



Sec. 74.31  Insurance coverage.

    Recipients shall, at a minimum, provide the equivalent insurance 
coverage for real property and equipment acquired with HHS funds as 
provided to other property owned by the recipient.



Sec. 74.32  Real property.

    (a) Title to real property shall vest in the recipient subject to 
the condition that the recipient shall use the real property for the 
authorized purpose of the project as long as it is needed and shall not 
encumber the property without approval of the HHS awarding agency.
    (b) The recipient shall obtain written approval from the HHS 
awarding agency for the use of real property in other federally-
sponsored projects when the recipient determines that the property is no 
longer needed for the purpose of the original project. Use in other 
projects shall be limited to those under federally-sponsored projects 
(i.e., awards) or programs that have purposes consistent with those 
authorized for support by the HHS awarding agency.
    (c) When the real property is no longer needed as provided in 
paragraphs (a) and (b) of this section, the recipient shall request 
disposition instructions from the HHS awarding agency or its successor. 
The HHS awarding agency must provide one or more of the following 
disposition instructions:
    (1) The recipient may be permitted to retain title without further 
obligation to the Federal Government after it compensates the Federal 
Government for that percentage of the current fair market value of the 
property attributable to the Federal share in the project.
    (2) The recipient may be directed to sell the property under 
guidelines provided by the HHS awarding agency and pay the Federal 
Government for that percentage of the current fair market value of the 
property attributable to the Federal share in the project (after 
deducting actual and reasonable selling and fix-up expenses, if any, 
from the sales proceeds). When the recipient is authorized or required 
to sell the property, proper sales procedures shall be established that 
provide for competition to the extent practicable and result in the 
highest possible return.
    (3) The recipient may be directed to transfer title to the property 
to the Federal Government or to an eligible third party provided that, 
in such cases, the recipient shall be entitled to compensation for its 
attributable percentage of the current fair market value of the 
property.



Sec. 74.33  Federally-owned and exempt property.

    (a)(1) Title of federally-owned property remains vested in the 
Federal Government. Recipients shall submit

[[Page 211]]

annually an inventory listing of federally-owned property in their 
custody to the HHS awarding agency. Upon completion of the award or when 
the property is no longer needed, the recipient shall report the 
property to the HHS awarding agency for further agency utilization.
    (2) If the HHS awarding agency has no further need for the property, 
it shall be declared excess and reported to the General Services 
Administration, unless the HHS awarding agency has statutory authority 
to dispose of the property by alternative methods (e.g., the authority 
provided by the Federal Technology Transfer Act, 15 U.S.C. 3710(I), to 
donate research equipment to educational and nonprofit organizations in 
accordance with E.O. 12821, ``Improving Mathematics and Science 
Education in Support of the National Education Goals''). Appropriate 
instructions shall be issued to the recipient by the HHS awarding 
agency.
    (b) For research awards to certain types of recipients, 31 U.S.C. 
6306 authorizes HHS to vest title to property acquired with Federal 
funds in the recipient without further obligation to the Federal 
government and under conditions that HHS considers appropriate. Such 
property is ``exempt property''. Exempt property shall not be subject to 
the requirements of Sec. 74.34, except that it shall be subject to 
paragraphs (h)(1), (2), and (4) of that section concerning the HHS 
awarding agency's right to require transfer.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996]



Sec. 74.34  Equipment.

    (a) Title to equipment acquired by a recipient with HHS funds shall 
vest in the recipient, subject to the conditions of this section.
    (b)(1) The recipient shall not use equipment acquired with HHS funds 
to provide services to non-Federal organizations for a fee that is less 
than private companies charge for equivalent services, unless 
specifically authorized by Federal statute, for so long as the Federal 
Government retains an interest in the equipment.
    (2) If the equipment is owned by the Federal Government, use on 
other activities not sponsored by the Federal Government shall be 
permissible if authorized by the HHS awarding agency.
    (3) User charges shall be treated as program income, in keeping with 
the provisions of Sec. 74.24.
    (c) The recipient shall use the equipment in the project or program 
for which it was acquired as long as needed, whether or not the project 
or program continues to be supported by Federal funds and shall not 
encumber the property without approval of the HHS awarding agency. When 
no longer needed for the original project or program, the recipient 
shall use the equipment in connection with its other federally-sponsored 
activities, if any, in the following order of priority:
    (1) Programs, projects, or activities sponsored by the HHS awarding 
agency;
    (2) Programs, projects, or activities sponsored by other HHS 
awarding agencies; then
    (3) Programs, project, or activities sponsored by other Federal 
agencies.
    (d) During the time that equipment is used on the program, project, 
or activity for which it was acquired, the recipient shall make it 
available for use on other projects or programs if such other use will 
not interfere with the work on the program, project, or activity for 
which the equipment was originally acquired. First preference for such 
other use shall be given to other programs, projects, or activities 
sponsored by the HHS awarding agency. Second preference shall be given 
to programs, projects, or activities sponsored by other HHS awarding 
agencies. Third preference shall be given to programs, projects, or 
activities sponsored by other Federal agencies.
    (e) When acquiring replacement equipment, the recipient may use the 
equipment to be replaced as trade-in or sell the equipment and use the 
proceeds to offset the costs of the replacement equipment subject to the 
approval of the HHS awarding agency.
    (f) The recipient's property management standards for equipment 
acquired with Federal funds and federally-owned equipment shall include 
all of the following:
    (1) Equipment records shall be maintained accurately and shall 
include the following information:

[[Page 212]]

    (i) A description of the equipment;
    (ii) Manufacturer's serial number, model number, Federal stock 
number, national stock number, or other identification number;
    (iii) Source of the equipment, including the award number;
    (iv) Whether title vests in the recipient or the Federal Government;
    (v) Acquisition date (or date received, if the equipment was 
furnished by the Federal Government) and cost;
    (vi) Information from which one can calculate the percentage of 
HHS's share in the cost of the equipment (not applicable to equipment 
furnished by the Federal Government);
    (vii) Location and condition of the equipment and the date the 
information was reported;
    (viii) Unit acquisition cost; and
    (ix) Ultimate disposition data, including date of disposal and sales 
price or the method used to determine current fair market value where a 
recipient compensates the HHS awarding agency for its share.
    (2) Equipment owned by the Federal Government shall be identified to 
indicate Federal ownership.
    (3) The recipient shall take a physical inventory of equipment and 
the results reconciled with the equipment records at least once every 
two years. Any differences between quantities determined by the physical 
inspection and those shown in the accounting records shall be 
investigated to determine the causes of the difference. The recipient 
shall, in connection with the inventory, verify the existence, current 
utilization, and continued need for the equipment.
    (4) recipient shall maintain a control system to insure adequate 
safeguards to prevent loss, damage, or theft of the equipment. Any loss, 
damage, or theft of equipment shall be investigated and fully 
documented; if the equipment was owned by the Federal Government, the 
recipient shall promptly notify the HHS awarding agency.
    (5) The recipient shall implement adequate maintenance procedures to 
keep the equipment in good condition.
    (6) Where the recipient is authorized or required to sell the 
equipment, proper sales procedures shall be established which provide 
for competition to the extent practicable and result in the highest 
possible return.
    (g) When the recipient no longer needs the equipment, it may use the 
equipment for other activities in accordance with the following 
standards. For equipment with a current per unit fair market value of 
$5000 or more, the recipient may retain the equipment for other uses 
provided that compensation is made to the original HHS awarding agency 
or its successor. The amount of compensation shall be computed by 
applying the percentage of HHS's share in the cost of the original 
project or program to the current fair market value of the equipment. If 
the recipient has no need for the equipment, the recipient shall request 
disposition instructions from the HHS awarding agency; such instructions 
must be issued to the recipient no later than 120 calendar days after 
the recipient's request and the following procedures shall govern:
    (1) If so instructed or if disposition instructions are not issued 
within 120 calendar days after the recipient's request, the recipient 
shall sell the equipment and reimburse the HHS awarding agency an amount 
computed by applying to the sales proceeds the percentage of HHS share 
in the cost of the original project or program. However, the recipient 
shall be permitted to deduct and retain from the HHS share $500 or ten 
percent of the proceeds, whichever is less, for the recipient's selling 
and handling expenses.
    (2) If the recipient is instructed to ship the equipment elsewhere, 
the recipient shall be reimbursed by the HHS awarding agency by an 
amount which is computed by applying the percentage of the recipient's 
share in the cost of the original project or program to the current fair 
market value of the equipment, plus any reasonable shipping or interim 
storage costs incurred.
    (3) If the recipient is instructed to otherwise dispose of the 
equipment, the recipient will be reimbursed by the HHS awarding agency 
for such costs incurred in its disposition.
    (4) If the recipient's project or program for which or under which 
the equipment was acquired is still receiving support from the same HHS 
program, and if the HHS awarding agency approves, the net amount due may 
be

[[Page 213]]

used for allowable costs of that project or program. Otherwise the net 
amount must be remitted to the HHS awarding agency by check.
    (h) The HHS awarding agency reserves the right to order the transfer 
of title to the Federal Government or to a third party named by the 
awarding agency when such third party is otherwise eligible under 
existing statutes. Such transfer shall be subject to the following 
standards:
    (1) The equipment shall be appropriately identified in the award or 
otherwise made known to the recipient in writing.
    (2) The HHS awarding agency may require submission of a final 
inventory that lists all equipment acquired with HHS funds and 
federally-owned equipment.
    (3) If the HHS awarding agency fails to issue disposition 
instructions within 120 calendar days after receipt of the inventory, 
the recipient shall apply the standards of paragraph (g)(1) of this 
section as appropriate.
    (4) When the HHS awarding agency exercises its right to order the 
transfer of title to the Federal Government, the equipment shall be 
subject to the rules for federally-owned equipment. (See Sec. 74.34(g)).

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996]



Sec. 74.35  Supplies.

    (a) Title to supplies shall vest in the recipient upon acquisition. 
If there is a residual inventory of unused supplies exceeding $5000 in 
total aggregate value upon termination or completion of the project or 
program and the supplies are not needed for any other federally-
sponsored project or program, the recipient shall retain the supplies 
for use on non-federally sponsored activities or sell them, but shall, 
in either case, compensate the Federal Government for its share. The 
amount of compensation shall be computed in the same manner as for 
equipment. (See Sec. 74.34(g)).
    (b)(1) The recipient shall not use supplies acquired with Federal 
funds to provide services to non-Federal organizations for a fee that is 
less than private companies charge for equivalent services, unless 
specifically authorized by Federal statute as long as the Federal 
Government retains an interest in the supplies.
    (2) If the supplies are owned by the Federal Government, use on 
other activities not sponsored by the Federal Government shall be 
permissible if authorized by the HHS awarding agency.
    (3) User charges shall be treated as program income, in keeping with 
the provisions of Sec. 74.24.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996]



Sec. 74.36  Intangible property.

    (a) The recipient may copyright any work that is subject to 
copyright and was developed, or for which ownership was purchased, under 
an award. The HHS awarding agency reserves a royalty-free, nonexclusive 
and irrevocable right to reproduce, publish, or otherwise use the work 
for Federal purposes, and to authorize others to do so.
    (b) Recipients are subject to applicable regulations governing 
patents and inventions, including government-wide regulations issued by 
the Department of Commerce at 37 CFR part 401, ``Rights to Inventions 
Made by Nonprofit Organizations and Small Business Firms Under 
Government Grants, Contracts and Cooperative Agreements.''
    (c) The Federal Government has the right to:
    (1) Obtain, reproduce, publish or otherwise use the data first 
produced under an award; and
    (2) Authorize others to receive, reproduce, publish, or otherwise 
use such data for Federal purposes.
    (d)(1) In addition, in response to a Freedom of Information Act 
(FOIA) request for research data relating to published research findings 
produced under an award that were used by the Federal Government in 
developing an agency action that has the force and effect of law, the 
HHS Awarding Agency shall request, and the recipient shall provide, 
within a reasonable time, the research data so that they can be made 
available to the public through the procedures established under the 
FOIA. If the HHS Awarding Agency obtains the research data solely in 
response to a FOIA request, the agency may charge the requester a 
reasonable fee equaling

[[Page 214]]

the full incremental cost of obtaining the research data. This fee 
should reflect costs incurred by the agency, the recipient, and 
applicable subrecipients. This fee is in addition to any fees the agency 
may assess under the FOIA (5 U.S.C. 552(a)(4)(A)).
    (2) The following definitions apply for purposes of this paragraph 
(d):
    (i) Research data is defined as the recorded factual material 
commonly accepted in the scientific community as necessary to validate 
research findings, but not any of the following: preliminary analyses, 
drafts of scientific papers, plans for future research, peer reviews, or 
communications with colleagues. This ``recorded'' material excludes 
physical objects (e.g., laboratory samples). Research data also do not 
include:
    (A) Trade secrets, commercial information, materials necessary to be 
held confidential by a researcher until they are published, or similar 
information which is protected under law; and
    (B) Personnel and medical information and similar information the 
disclosure of which would constitute a clearly unwarranted invasion of 
personal privacy, such as information that could be used to identify a 
particular person in a research study.
    (ii) Published is defined as either when:
    (A) Research findings are published in a peer-reviewed scientific or 
technical journal; or
    (B) A Federal agency publicly and officially cites the research 
findings in support of an agency action that has the force and effect of 
law.
    (iii) Used by the Federal Government in developing an agency action 
that has the force and effect of law is defined as when an agency 
publicly and officially cites the research findings in support of an 
agency action that has the force and effect of law.
    (3) The requirements set forth in paragraph (d)(1) of this section 
do not apply to commercial organizations.
    (e) Title to intangible property and debt instruments purchased or 
otherwise acquired under an award or subaward vests upon acquisition in 
the recipient. The recipient shall use that property for the originally-
-authorized purpose, and the recipient shall not encumber the property 
without approval of the HHS awarding agency. When no longer needed for 
the originally authorized purpose, disposition of the intangible 
property shall occur in accordance with the provisions of Sec. 74.34 (g) 
and (h).

[59 FR 43760, Aug. 25, 1994, as amended at 65 FR 14407, 14418, Mar. 16, 
2000]



Sec. 74.37  Property trust relationship.

    Real property, equipment, intangible property and debt instruments 
that are acquired or improved with Federal funds shall be held in trust 
by the recipients as trustee for the beneficiaries of the project or 
program under which the property was acquired or improved, and shall not 
be encumbered without the approval of the HHS awarding agency. 
Recipients shall record liens or other appropriate notices of record to 
indicate that real property has been acquired or constructed or, where 
applicable, improved with Federal funds, and that use and disposition 
conditions apply to the property.

                          Procurement Standards



Sec. 74.40  Purpose of procurement standards.

    Sections 74.41 through 74.48 set forth standards for use by 
recipients in establishing procedures for the procurement of supplies 
and other expendable property, equipment, real property and other 
services with Federal funds. These standards are established to ensure 
that such materials and services are obtained in an effective manner and 
in compliance with the provisions of applicable Federal statutes and 
executive orders. The standards apply where the cost of the procurement 
is treated as a direct cost of an award.



Sec. 74.41  Recipient responsibilities.

    The standards contained in this section do not relieve the 
recipients of the contractual responsibilities arising under its 
contract(s). The recipient is the responsible authority, without 
recourse to the HHS awarding agency, regarding the settlement and 
satisfaction of all contractual and administrative issues arising out of 
procurements entered into in support of an award or

[[Page 215]]

other agreement. This includes disputes, claims, protests of award, 
source evaluation or other matters of a contractual nature. Matters 
concerning violation of statute are to be referred to such Federal, 
State or local authority as may have proper jurisdiction.



Sec. 74.42  Codes of conduct.

    The recipient shall maintain written standards of conduct governing 
the performance of its employees engaged in the award and administration 
of contracts. No employee, officer, or agent shall participate in the 
selection, award, or administration of a contract supported by Federal 
funds if a real or apparent conflict of interest would be involved. Such 
a conflict would arise when the employee, officer, or agent, or any 
member of his or her immediate family, his or her partner, or an 
organization which employs or is about to employ any of the parties 
indicated herein, has a financial or other interest in the firm selected 
for an award. The officers, employees, and agents of the recipient shall 
neither solicit nor accept gratuities, favors, or anything of monetary 
value from contractors, or parties to subagreements. However, recipients 
may set standards for situations in which the financial interest is not 
substantial or the gift is an unsolicited item of nominal value. The 
standards of conduct shall provide for disciplinary actions to be 
applied for violations of such standards by officers, employers, or 
agents of the recipients.



Sec. 74.43  Competition.

    All procurement transactions shall be conducted in a manner to 
provide, to the maximum extent practical, open and free competition. The 
recipient shall be alert to organizational conflicts of interest as well 
as noncompetitive practices among contractors that may restrict or 
eliminate competition or otherwise restrain trade. In order to ensure 
objective contractor performance and eliminate unfair competitive 
advantage, contractors that develop or draft grant applications, or 
contract specifications, requirements, statements of work, invitations 
for bids and/or requests for proposals shall be excluded from competing 
for such procurements. Awards shall be made to the bidder or offeror 
whose bid or offer is responsive to the solicitation and is most 
advantageous to the recipient, price, quality and other factors 
considered. Solicitations shall clearly set forth all requirements that 
the bidder or offeror shall fulfill in order for the bid or offer to be 
evaluated by the recipient. Any and all bids or offers may be rejected 
when it is in the recipient's interest to do so.



Sec. 74.44  Procurement procedures.

    (a) All recipients shall establish written procurement procedures. 
These procedures shall provide for, at a minimum, that:
    (1) Recipients avoid purchasing unnecessary items;
    (2) Where appropriate, an analysis is made of lease and purchase 
alternatives to determine which would be the most economical and 
practical procurement for the recipient and the Federal Government; and
    (3) Solicitations for goods and services provide for all of the 
following:
    (i) A clear and accurate description of the technical requirements 
for the material, product or service to be procured. In competitive 
procurements, such a description shall not contain features which unduly 
restrict competition.
    (ii) Requirements which the bidder/offeror must fulfill and all 
other factors to be used in evaluating bids or proposals.
    (iii) A description, whenever practicable, of technical requirements 
in terms of functions to be performed or performance required, including 
the range of acceptable characteristics or minimum acceptable standards.
    (iv) The specific features of ``brand name or equal'' descriptions 
that bidders are required to meet when such items are included in the 
solicitation.
    (v) The acceptance, to the extent practicable and economically 
feasible, of products and services dimensioned in the metric system of 
measurement.
    (vi) Preference, to the extent practicable and economically 
feasible, for products and services that conserve natural resources and 
protect the environment and are energy efficient.

[[Page 216]]

    (b) Positive efforts shall be made by recipients to utilize small 
businesses, minority-owned firms, and women's business enterprises, 
whenever possible. Recipients of HHS awards shall take all of the 
following steps to further this goal.
    (1) Ensure that small businesses, minority-owned firms, and women's 
business enterprises are used to the fullest extent practicable.
    (2) Make information on forthcoming opportunities available and 
arrange time frames for purchases and contracts to encourage and 
facilitate participation by small businesses, minority-owned firms, and 
women's business enterprises.
    (3) Consider in the contract process whether firms competing for 
larger contracts intend to subcontract with small businesses, minority-
owned firms, and women's business enterprises.
    (4) Encourage contracting with consortiums of small businesses, 
minority-owned firms and women's business enterprises when a contract is 
too large for one of these firms to handle individually.
    (5) Use the services and assistance, as appropriate, of such 
organizations as the Small Business Administration and the Department of 
Commerce's Minority Business Development Agency in the solicitation and 
utilization of small businesses, minority-owned firms and women's 
business enterprises.
    (c) The type of procuring instruments used (e.g., fixed price 
contracts, cost reimbursable contracts, purchase orders, and incentive 
contracts) shall be determined by the recipient but shall be appropriate 
for the particular procurement and for promoting the best interest of 
the program or project involved. The ``cost-plus-a-percentage-of-cost'' 
or ``percentage of construction cost'' methods of contracting shall not 
be used.
    (d) Contracts shall be made only with responsible contractors who 
possess the potential ability to perform successfully under the terms 
and conditions of the proposed procurement. Consideration shall be given 
to such matters as contractor integrity, record of past performance, 
financial and technical resources or accessibility to other necessary 
resources. In certain circumstances, contracts with certain parties are 
restricted by agencies' implementation of E.O.s 12549 and 12689, 
``Debarment and Suspension.'' (See 45 CFR part 76.)
    (e) Recipients shall, on request, make available for the HHS 
awarding agency, pre-award review, procurement documents such as 
requests for proposals or invitations for bids, independent cost 
estimates, etc., when any of the following conditions apply:
    (1) A recipient's procurement procedures or operation fails to 
comply with the procurement standards in this Part.
    (2) The procurement is expected to exceed the simplified acquisition 
threshold fixed at 41 U.S.C. 403(11) (currently $100,000) and is to be 
awarded without competition or only one bid or offer is received in 
response to a solicitation.
    (3) The procurement, which is expected to exceed the simplified 
acquisition threshold specifies a ``brand name'' product.
    (4) The proposed award over the simplified acquisition threshold is 
to be awarded to other than the apparent low bidder under a sealed bid 
procurement.
    (5) A proposed contract modification changes the scope of a contract 
or increases the contract amount by more than the amount of the 
simplified acquisition threshold.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996; 
62 FR 41878, Aug. 4, 1997; 62 FR 51377, Oct. 1, 1997]



Sec. 74.45  Cost and price analysis.

    Some form of cost or price analysis shall be made and documented in 
the procurement files in connection with every procurement action. Price 
analysis may be accomplished in various ways, including the comparison 
of price quotations submitted, market prices and similar indicia, 
together with discounts. Cost analysis is the review and evaluation of 
each element of cost to determine reasonableness, allocability and 
allowability.



Sec. 74.46  Procurement records.

    Procurement records and files for purchases in excess of the 
simplified

[[Page 217]]

acquisition threshold shall include the following at a minimum: (a) 
Basis for contractor selection, (b) justification for lack of 
competition when competitive bids or offers are not obtained, and (c) 
basis for award cost or price.

[59 FR 43760, Aug. 25, 1994, as amended at 62 FR 41878, Aug. 4, 1997]



Sec. 74.47  Contract administration.

    A system for contract administration shall be maintained to ensure 
contractor conformance with the terms, conditions and specifications of 
the contract and to ensure adequate and timely follow up of all 
purchases. Recipients shall evaluate contractor performance and 
document, as appropriate, whether contractors have met the terms, 
conditions and specifications of the contract.



Sec. 74.48  Contract provisions.

    The recipient shall include, in addition to provisions to define a 
sound and complete agreement, the following provisions in all contracts. 
The following provisions shall also be applied to subcontracts:
    (a) Contracts in excess of the simplified acquisition threshold 
shall contain contractual provisions or conditions that allow for 
administrative, contractual, or legal remedies in instances in which a 
contractor violates or breaches the contract terms, and provide for such 
remedial actions as may be appropriate.
    (b) All contracts in excess of the simplified acquisition threshold 
(currently $100,000) shall contain suitable provisions for termination 
by the recipient, including the manner by which termination shall be 
effected and the basis for settlement. In addition, such contracts shall 
describe conditions under which the contract may be terminated for 
default as well as conditions where the contract may be terminated 
because of circumstances beyond the control of the contractor.
    (c) Except as otherwise required by statute, an award that requires 
the contracting (or subcontracting) for construction or facility 
improvements shall provide for the recipient to follow its own 
requirements relating to bid guarantees, performance bonds, and payment 
bonds unless the construction contract or subcontract exceeds $100,000. 
For those contracts or subcontracts exceeding $100,000, the HHS awarding 
agency may accept the bonding policy and requirements of the recipient, 
provided the HHS awarding agency has made a determination that the 
Federal Government's interest is adequately protected. If such a 
determination has not been made, the minimum requirements shall be as 
follows:
    (1) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' shall consist of a firm commitment 
such as a bid bond, certified check, or other negotiable instrument 
accompanying a bid as assurance that the bidder shall, upon acceptance 
of his bid, execute such contractual documents as may be required within 
the time specified.
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price. A ``performance bond'' is one executed in 
connection with a contract to secure fulfillment of all the contractor's 
obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by statute of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (4) Where bonds are required in the situations described herein, the 
bonds shall be obtained from companies holding certificates of authority 
as acceptable sureties pursuant to 31 CFR part 223, ``Surety Companies 
Doing Business with the United States.''
    (d) All negotiated contracts (except those for less than the 
simplified acquisition threshold) awarded by recipients shall include a 
provision to the effect that the recipient, the HHS awarding agency, the 
U.S. Comptroller General, or any of their duly authorized 
representatives, shall have access to any books, documents, papers and 
records of the contractor which are directly pertinent to a specific 
program for the purpose of making audits, examinations, excerpts and 
transcriptions.
    (e) All contracts, including small purchases, awarded by recipients 
and

[[Page 218]]

their contractors shall contain the procurement provisions of appendix A 
to this part, as applicable.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996; 
62 FR 41878, Aug. 4, 1997]

                           Reports and Records



Sec. 74.50  Purpose of reports and records.

    Sections 74.51 through 74.53 set forth the procedures for monitoring 
and reporting on the recipient's financial and program performance and 
the necessary standard reporting forms. They also set forth record 
retention requirements.



Sec. 74.51  Monitoring and reporting program performance.

    (a) Recipients are responsible for managing and monitoring each 
project, program, subaward, function or activity supported by the award. 
Recipients shall monitor subawards to ensure that subrecipients have met 
the audit requirements as set forth in Sec. 74.26.
    (b) The HHS awarding agency will prescribe the frequency with which 
the performance reports shall be submitted. Except as provided in 
paragraph (f) of this section, performance reports will not be required 
more frequently than quarterly or, less frequently than annually. Annual 
reports shall be due 90 calendar days after the award year; quarterly or 
semi-annual reports shall be due 30 days after the reporting period. The 
HHS awarding agency may require annual reports before the anniversary 
dates of multiple year awards in lieu of these requirements. The final 
performance reports are due 90 calendar days after the expiration or 
termination of the award.
    (c) If inappropriate, a final technical or performance report will 
not be required after completion of the project.
    (d) Performance reports shall generally contain, for each award, 
brief information on each of the following:
    (1) A comparison of actual accomplishments with the goals and 
objectives established for the period, the findings of the investigator, 
or both. Whenever appropriate and the output of programs or projects can 
be readily quantified, such quantitative data should be related to cost 
data for computation of unit costs.
    (2) Reasons why established goals were not met, if appropriate.
    (3) Other pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (e) Recipients shall submit the original and two copies of 
performance reports.
    (f) Recipients shall immediately notify the HHS awarding agency of 
developments that have a significant impact on the award-supported 
activities. Also, notification shall be given in the case of problems, 
delays, or adverse conditions which materially impair the ability to 
meet the objectives of the award. This notification shall include a 
statement of the action taken or contemplated, and any assistance needed 
to resolve the situation.
    (g) HHS may make site visits, as needed.
    (h) The HHS awarding agency complies with the applicable report 
clearance requirements of 5 CFR part 1320, ``Controlling Paperwork 
Burdens on the Public,'' when requesting performance data from 
recipients.



Sec. 74.52  Financial reporting.

    (a) The following forms are used for obtaining financial information 
from recipients:
    (1) SF-269 or SF-269A, Financial Status Report.
    (i) The HHS awarding agency will require recipients to use either 
the SF-269 (long form) or SF-269A to report the status of funds for all 
nonconstruction projects or programs. The SF-269 shall always be used if 
income has been earned. The awarding agency may, however, waive the SF-
269 or SF-269A requirement when the PMS-270, Request for Advance or 
Reimbursement, or PMS-272, Report of Federal Cash Transactions, will 
provide adequate information to meet its needs, except that a final SF-
269 or SF-269A shall be required at the completion of the project when 
the PMS-270 is used only for advances.
    (ii) If the HHS awarding agency requires accrual information and the 
recipient's accounting records are not normally kept on the accrual 
basis, the

[[Page 219]]

recipient shall not be required to convert its accounting system, but 
shall develop such accrual information through best estimates based on 
an analysis of the documentation on hand.
    (iii) The HHS awarding agency will determine the frequency of the 
Financial Status Report for each project or program, considering the 
size and complexity of the particular project or program. However, the 
report will not be required more frequently than quarterly or less 
frequently than annually except under Sec. 74.14. A final report shall 
be required at the completion of the agreement.
    (iv) Recipients shall submit the SF-269 and SF-269A (an original and 
two copies) no later than 30 days after the end of each specified 
reporting period for quarterly and semi-annual reports, and 90 calendar 
days for annual and final reports. Extensions of reporting due dates may 
be approved by the HHS awarding agency upon request of the recipient.
    (2) PMS-272, Report of Federal Cash Transactions.
    (i) When funds are advanced to recipients, the HHS awarding agency 
requires each recipient to submit the PMS-272 and, when necessary, its 
continuation sheet, PMS-272A through G. The HHS awarding agency uses 
this report to monitor cash advanced to recipients and to obtain 
disbursement information for each agreement with the recipients.
    (ii) The HHS awarding agency may require forecasts of Federal cash 
requirements in the ``Remarks'' section of the report.
    (iii) Recipients shall submit the original and two copies of the 
PMS-272 15 calendar days following the end of each quarter. The HHS 
awarding agency may require a monthly report from those recipients 
receiving advances totaling $1 million or more per year.
    (iv) The HHS awarding agency may waive the requirement for 
submission of the PMS-272 for any one of the following reasons: (A) When 
monthly advances do not exceed $25,000 per recipient, provided that such 
advances are monitored through other forms contained in this section; 
(B) If, in HHS' opinion, the recipient's accounting controls are 
adequate to minimize excessive Federal advances; or, (C) When the 
electronic payment mechanisms provide adequate data.
    (b) When the HHS awarding agency needs additional information or 
more frequent reports, the following shall be observed.
    (1) When additional information is needed to comply with legislative 
requirements, the HHS awarding agency will issue instructions to require 
recipients to submit that information under the ``Remarks'' section of 
the reports.
    (2) When HHS determines that a recipient's accounting system does 
not meet the standards in Sec. 74.21, additional pertinent information 
to further monitor awards may be obtained, without regard to Sec. 74.4, 
upon written notice to the recipient until such time as the system is 
brought up to standard. In obtaining this information, the HHS awarding 
agencies comply with report clearance requirements of 5 CFR part 1320, 
``Controlling Paperwork Burdens on the Public.''
    (3) The HHS awarding agency may accept the identical information 
from a recipient in machine readable format or computer printouts or 
electronic outputs in lieu of prescribed formats.
    (4) The HHS awarding agency may provide computer or electronic 
outputs to recipients when such action expedites or contributes to the 
accuracy of reporting.



Sec. 74.53  Retention and access requirements for records.

    (a) This section sets forth requirements for record retention and 
access to records for awards to recipients.
    (b) Financial records, supporting documents, statistical records, 
and all other records pertinent to an award shall be retained for a 
period of three years from the date of submission of the final 
expenditure report or, for awards that are renewed quarterly or 
annually, from the date of the submission of the quarterly or annual 
financial report. The only exceptions are the following:
    (1) If any litigation, claim, financial management review, or audit 
is started before the expiration of the 3-year period, the records shall 
be retained until all litigation, claims or audit findings

[[Page 220]]

involving the records have been resolved and final action taken.
    (2) Records for real property and equipment acquired with Federal 
funds shall be retained for 3 years after final disposition.
    (3) When records are transferred to or maintained by the HHS 
awarding agency, the 3-year retention requirement is not applicable to 
the recipient.
    (4) Indirect cost rate proposals, cost allocations plans, etc., as 
specified in Sec. 74.53(g).
    (c) Copies of original records may be substituted for the original 
records if authorized by the HHS awarding agency.
    (d) The HHS awarding agency will request transfer of certain records 
to its custody from recipients when it determines that the records 
possess long term retention value. However, in order to avoid duplicate 
recordkeeping, the HHS awarding agency may make arrangements for 
recipients to retain any records that are continuously needed for joint 
use.
    (e) HHS awarding agencies, the HHS Inspector General, the U.S. 
Comptroller General, or any of their duly authorized representatives, 
have the right of timely and unrestricted access to any books, 
documents, papers, or other records of recipients that are pertinent to 
the awards, in order to make audits, examinations, excerpts, transcripts 
and copies of such documents. This right also includes timely and 
reasonable access to a recipient's personnel for the purpose of 
interview and discussion related to such documents. The rights of access 
in this paragraph are not limited to the required retention period, but 
shall last as long as records are retained.
    (f) Unless required by statute, the HHS awarding agency will not 
place restrictions on recipients that limit public access to the records 
of recipients that are pertinent to an award, except when the HHS 
awarding agency can demonstrate that such records shall be kept 
confidential and would have been exempted from disclosure pursuant to 
the Freedom of Information Act, 5 U.S.C. 552, if the records had 
belonged to the HHS awarding agency.
    (g) Paragraphs (g)(1) and (g)(2) of this section apply to the 
following types of documents, and their supporting records: Indirect 
cost rate computations or proposals, cost allocation plans, and any 
similar accounting computations of the rate at which a particular group 
of costs is chargeable (such as computer usage chargeback rates or 
composite fringe benefit rates).
    (1) If the recipient submits to the Federal Government or the 
subrecipient submits to the recipient the proposal, plan, or other 
computation to form the basis for negotiation of the rate, then the 3-
year retention period for its supporting records starts on the date of 
such submission.
    (2) If the recipient is not required to submit to the Federal 
Government or the subrecipient is not required to submit to the 
recipient the proposal, plan, or other computation for negotiation 
purposes, then the 3-year retention period for the proposal, plan, or 
other computation and its supporting records starts at the end of the 
fiscal year (or other accounting period) covered by the proposal, plan, 
or other computation.

                       Termination and Enforcement



Sec. 74.60  Purpose of termination and enforcement.

    Sections 74.61 and 74.62 set forth uniform suspension, termination 
and enforcement procedures.



Sec. 74.61  Termination.

    (a) Awards may be terminated in whole or in part only if paragraph 
(a) (1), (2), or (3) of this section applies.
    (1) By the HHS awarding agency, if a recipient materially fails to 
comply with the terms and conditions of an award.
    (2) By the HHS awarding agency with the consent of the recipient, in 
which case the two parties shall agree upon the termination conditions, 
including the effective date and, in the case of partial termination, 
the portion to be terminated.
    (3) By the recipient upon sending to the HHS awarding agency written 
notification setting forth the reasons for such termination, the 
effective date, and, in the case of partial termination, the portion to 
be terminated. However,

[[Page 221]]

if the HHS awarding agency determines in the case of partial termination 
that the reduced or modified portion of the award will not accomplish 
the purposes for which the award was made, it may terminate the award in 
its entirety.
    (b) If costs are allowed under an award, the responsibilities of the 
recipient referred to in Sec. 74.71(a), including those for property 
management as applicable, shall be considered in the termination of the 
award, and provision shall be made for continuing responsibilities of 
the recipient after termination, as appropriate.



Sec. 74.62  Enforcement.

    (a) If a recipient materially fails to comply with the terms and 
conditions of an award, whether stated in a Federal statute or 
regulation, an assurance, an application, or a notice of award, the HHS 
awarding agency may, in addition to imposing any of the special 
conditions outlined in Sec. 74.14, take one or more of the following 
actions, as appropriate in the circumstances:
    (1) Temporarily withhold cash payments pending correction of the 
deficiency by the recipient or more severe enforcement action by the HHS 
awarding agency.
    (2) Disallow (that is, deny both use of funds and any applicable 
matching credit for) all or part of the cost of the activity or action 
not in compliance.
    (3) Wholly or partly suspend or terminate the current award.
    (4) Withhold further awards for the project or program.
    (5) Take any other remedies that may be legally available.
    (b) In taking an enforcement action, the HHS awarding agency will 
provide the recipient or subrecipient an opportunity for such hearing, 
appeal, or other administrative proceeding to which the recipient or 
subrecipient is entitled under any statute or regulation applicable to 
the action. (See also 45 CFR parts 16 and 95.)
    (c) Costs to a recipient resulting from obligations incurred by the 
recipient during a suspension or after termination of an award are not 
allowable unless the HHS awarding agency expressly authorizes them in 
the notice of suspension or termination or subsequently. Other recipient 
costs during suspension or after termination which are necessary and not 
reasonably avoidable are allowable if:
    (1) The costs result from obligations which were properly incurred 
by the recipient before the effective date of suspension or termination, 
are not in anticipation of it, and in the case of a termination, are 
noncancellable; and
    (2) The costs would be allowable if the award were not suspended or 
expired normally at the end of the funding period in which the 
termination takes effect.
    (d) The enforcement remedies identified in this section, including 
suspension and termination, do not preclude a recipient from being 
subject to debarment and suspension under E.O.s 12549 and 12689 and the 
HHS implementing regulations at Sec. 74.13 of this part and 45 CFR part 
76.

[59 FR 43760, Aug. 25, 1994, as amended at 62FR 38218, July 17, 1997]



                 Subpart D--After-the-Award Requirements

    Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.



Sec. 74.70  Purpose.

    Sections 74.71 through 74.73 contain closeout procedures and other 
procedures for subsequent disallowances and adjustments.



Sec. 74.71  Closeout procedures.

    (a) Recipients shall submit, within 90 calendar days after the date 
of completion of the award, all financial, performance, and other 
reports as required by the terms and conditions of the award. The HHS 
awarding agency may approve extensions when requested by the recipient.
    (b) Unless the HHS awarding agency authorizes an extension, a 
recipient shall liquidate all obligations incurred under the award not 
later than 90 calendar days after the funding period or the date of 
completion as specified in the terms and conditions of the award or in 
agency implementing instructions.

[[Page 222]]

    (c) HHS will make prompt payments to a recipient for allowable 
reimbursable costs under the award being closed out.
    (d) The recipient shall promptly refund any balances of unobligated 
cash that HHS has advanced or paid and that is not authorized to be 
retained by the recipient for use in other projects. 45 CFR part 30 
governs unreturned amounts that become delinquent debts.
    (e) When authorized by the terms and conditions of the award, HHS 
will make a settlement for any upward or downward adjustments to the 
Federal share of costs after closeout reports are received.
    (f) The recipient shall account for any real and personal property 
acquired with HHS funds or received from the Federal Government in 
accordance with Secs. 74.31 through 74.37.
    (g) In the event a final audit has not been performed prior to the 
closeout of an award, HHS retains the right to recover an appropriate 
amount after fully considering the recommendations on disallowed costs 
resulting from the final audit.



Sec. 74.72  Subsequent adjustments and continuing responsibilities.

    (a) The closeout of an award does not affect any of the following:
    (1) The right of the HHS awarding agency to disallow costs and 
recover funds on the basis of a later audit or other review.
    (2) The obligation of the recipient to return any funds due as a 
result of later refunds, corrections, or other transactions.
    (3) Audit requirements in Sec. 74.26.
    (4) Property management requirements in Secs. 74.31 through 74.37.
    (5) Records retention requirements in Sec. 74.53.
    (b) After closeout of an award, a relationship created under an 
award may be modified or ended in whole or in part with the consent of 
the HHS awarding agency and the recipient, provided the responsibilities 
of the recipient referred to in Sec. 74.72(a), including those for 
property management as applicable, are considered and provisions made 
for continuing responsibilities of the recipient, as appropriate.



Sec. 74.73  Collection of amounts due.

    (a) Any funds paid to a recipient in excess of the amount to which 
the recipient is finally determined to be entitled under the terms and 
conditions of the award constitute a debt to the Federal Government. If 
not paid within a reasonable period after the demand for payment, the 
HHS awarding agency may reduce the debt by paragraph (a) (1), (2), or 
(3) of this section:
    (1) Making an administrative offset against other requests for 
reimbursements.
    (2) Withholding advance payments otherwise due the recipient.
    (3) Taking other action permitted by statute.
    (b) Except as otherwise provided by law, HHS awarding agencies will 
charge interest on an overdue debt in accordance with 4 CFR ch. II, 
``Federal Claims Collection Standards.'' (See 45 CFR part 30.)



  Subpart E--Special Provisions for Awards to Commercial Organizations

    Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.



Sec. 74.80  Scope of subpart.

    This subpart contains provisions that apply to awards to commercial 
organizations. These provisions are in addition to other applicable 
provisions of this part, or they make exceptions from other provisions 
of this part for awards to commercial organizations.



Sec. 74.81  Prohibition against profit.

    Except for awards under the Small Business Innovation Research 
(SBIR) and Small Business Technology Transfer Research (STTR) programs 
(15 U.S.C. 638), no HHS funds may be paid as profit to any recipient 
even if the recipient is a commercial organization. Profit is any amount 
in excess of allowable direct and indirect costs.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996]



Sec. 74.82  Program income.

    The additional costs alternative described in Sec. 74.24(b)(1) may 
not be applied to program income earned by a

[[Page 223]]

commercial organization except in the SBIR and STTR programs.



Sec. 74.83  Effect on intangible property.

    Data sharing (FOIA) requirements as set forth in Sec. 74.36(d)(1) do 
not apply to commercial organizations.

[65 FR 14418, Mar. 16, 2000]



                           Subpart F--Disputes

    Source: 59 FR 43760, Aug. 25, 1994, unless otherwise noted.



Sec. 74.90  Final decisions in disputes.

    (a) HHS attempts to promptly issue final decisions in disputes and 
in other matters affecting the interests of recipients. However, final 
decisions adverse to the recipient are not issued until it is clear that 
the matter cannot be resolved through further exchange of information 
and views.
    (b) Under various HHS statutes or regulations, recipients have the 
right to appeal from, or to have a hearing on, certain final decisions 
by HHS awarding agencies. (See, for example, subpart D of 42 CFR part 
50, and 45 CFR part 16). Paragraphs (c) and (d) of this section set 
forth the standards HHS expects its member agencies to meet in issuing a 
final decision covered by any of the statutes or regulations.
    (c) The decision may be brief but must contain:
    (1) A complete statement of the background and basis of the awarding 
agency's decision, including reference to the pertinent statutes, 
regulations, or other governing documents; and
    (2) Enough information to enable the recipient to understand the 
issues and the position of the HHS awarding agency.
    (d) The following or similar language (consistent with the 
terminology of the applicable statutes or regulations) should appear at 
the end of the decision: ``This is the final decision of the (title of 
grants officer or other official responsible for the decision). It shall 
be the final decision of the Department unless, within 30 days after 
receiving this decision, you deliver or mail (you should use registered 
or certified mail to establish the date) a written notice of appeal to 
(name and address of appropriate contact, e.g., the office responsible 
for awarding agency preliminary appeal process or, where none, the 
Departmental Appeals Board, Department of Health and Human Services, 
Washington, DC 20201). You shall attach to the notice a copy of this 
decision, note that you intend an appeal, state the amount in dispute, 
and briefly state why you think that this decision is wrong. You will be 
notified of further procedures.''

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996; 
62 FR 38218, July 17, 1997]



Sec. 74.91  Alternative dispute resolution.

    HHS encourages its awarding agencies and recipients to try to 
resolve disputes by using alternative dispute resolution (ADR) 
techniques. ADR often is effective in reducing the cost, delay and 
contentiousness involved in appeals and other traditional ways of 
handling disputes. ADR techniques include mediation, neutral evaluation 
and other consensual methods. Information about ADR is available from 
the HHS Dispute Resolution Specialist at the Departmental Appeals Board, 
U.S. Department of Health and Human Services, Washington, DC 20201.

               Appendix A to Part 74--Contract Provisions

    All contracts awarded by a recipient, including small purchases, 
shall contain the following provisions as applicable where the cost of 
the contract is treated as a direct cost of an award:
    1. Equal Employment Opportunity-- All contracts shall contain a 
provision requiring compliance with E.O. 11246, ``Equal Employment 
Opportunity,'' as amended by E.O. 11375, ``Amending Executive Order 
11246 Relating to Equal Employment Opportunity,'' and as supplemented by 
regulations at 41 CFR part 60, ``Office of Federal Contract Compliance 
Programs, Equal Employment Opportunity, Department of Labor.''
    2. Copeland ``Anti-Kickback'' Act (18 U.S.C. 874 and 40 U.S.C. 
276c)-- All contracts and subgrants in excess of $2,000 for construction 
or repair awarded by recipients and subrecipients shall include a 
provision for compliance with the Copeland ``Anti-Kickback'' Act, 18 
U.S.C. 874, as supplemented by Department of Labor regulations, 29 CFR 
part 3, ``Contractors and Subcontractors on Public Building or Public 
Work Financed in Whole or in Part by Loans or Grants from

[[Page 224]]

the United States.'' The Act provides that each contractor or 
subrecipient shall be prohibited from inducing, by any means, any person 
employed in the construction, completion, or repair of public work, to 
give up any part of the compensation to which he is otherwise entitled. 
The recipient shall report all suspected or reported violations to the 
Federal awarding agency.
    3. Davis-Bacon Act, as amended (40 U.S.C. 276a to a-7)-- When 
required by Federal program legislation, all construction contracts 
awarded by the recipients and subrecipients of more than $2000 shall 
include a provision for compliance with the Davis-Bacon Act, 40 U.S.C. 
276a to a-7, and as supplemented by Department of Labor regulations, 29 
CFR part 5, ``Labor Standards Provisions Applicable to Contracts 
Governing Federally Financed and Assisted Construction.'' Under this 
Act, contractors shall be required to pay wages to laborers and 
mechanics at a rate not less than the minimum wages specified in a wage 
determination made by the Secretary of Labor. In addition, contractors 
shall be required to pay wages not less than once a week. The recipient 
shall place a copy of the current prevailing wage determination issued 
by the Department of Labor in each solicitation and the award of a 
contract shall be conditioned upon the acceptance of the wage 
determination. The recipient shall report all suspected or reported 
violations to the HHS awarding agency.
    4. Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333)-
- Where applicable, all contracts awarded by recipients in excess of 
$100,000 for construction contracts and for other contracts that involve 
the employment of mechanics or laborers shall include a provision for 
compliance with sections 102 and 107 of the Contract Work Hours and 
Safety Standards Act, 40 U.S.C. 327-333, as supplemented by Department 
of Labor regulations, 29 CFR part 5. Under section 102 of the Act, each 
contractor shall be required to compute the wages of every mechanic and 
laborer on the basis of a standard work week of 40 hours. Work in excess 
of the standard work week is permissible provided that the worker is 
compensated at a rate of not less than 1\1/2\ times the basic rate of 
pay for all hours worked in excess of 40 hours in the work week. Section 
107 of the Act is applicable to construction work and provides that no 
laborer or mechanic shall be required to work in surroundings or under 
working conditions which are unsanitary, hazardous or dangerous. These 
requirements do not apply to the purchases of supplies or materials or 
articles ordinarily available on the open market, or contracts for 
transportation or transmission of intelligence.
    5. Rights to Inventions Made Under a Contract or Agreement-- 
Contracts or agreements for the performance of experimental, 
developmental, or research work shall provide for the rights of the 
Federal Government and the recipient in any resulting invention in 
accordance with 37 CFR part 401, ``Rights to Inventions Made by 
Nonprofit Organizations and Small Business Firms Under Government 
Grants, Contracts and Cooperative Agreements,'' and any further 
implementing regulations issued by HHS.
    6. Clean Air Act (42 U.S.C. 7401 et seq.) and the Federal Water 
Pollution Control Act as amended (33 U.S.C. 1251 et seq.)-- Contracts 
and subgrants of amounts in excess of $100,000 shall contain a provision 
that requires the recipient to agree to comply with all applicable 
standards, orders or regulations issued pursuant to the Clean Air Act, 
42 U.S.C. 7401 et seq., and the Federal Water Pollution Control Act, as 
amended 33 U.S.C. 1251 et seq. Violations shall be reported to the HHS 
and the appropriate Regional Office of the Environmental Protection 
Agency.
    7. Byrd Anti-Lobbying Amendment (31 U.S.C. 1352)-- Contractors who 
apply or bid for an award of more than $100,000 shall file the required 
certification. Each tier certifies to the tier above that it will not 
and has not used Federal appropriated funds to pay any person or 
organization for influencing or attempting to influence an officer or 
employee of any Federal agency, a member of Congress, officer or 
employee of Congress, or an employee of a member of Congress in 
connection with obtaining any Federal contract, grant or any other award 
covered by 31 U.S.C. 1352. Each tier shall also disclose any lobbying 
with non-Federal funds that takes place in connection with obtaining any 
Federal award. Such disclosures are forwarded from tier to tier up to 
the recipient. (See also 45 CFR part 93).
    8. Debarment and Suspension (E.O.s 12549 and 12689)-- Certain 
contracts shall not be made to parties listed on the nonprocurement 
portion of the General Services Administration's ``Lists of Parties 
Excluded from Federal Procurement or Nonprocurement Programs'' in 
accordance with E.O.s 12549 and 12689, ``Debarment and Suspension.'' 
(See 45 CFR part 76.) This list contains the names of parties debarred, 
suspended, or otherwise excluded by agencies, and contractors declared 
ineligible under statutory authority other than E.O. 12549. Contractors 
with awards that exceed the simplified acquisition threshold shall 
provide the required certification regarding their exclusion status and 
that of their principals prior to award.

[59 FR 43760, Aug. 25, 1994, as amended at 61 FR 11747, Mar. 22, 1996; 
62 FR 41878, Aug. 4, 1997]

[[Page 225]]

                  Appendixes B-D to Part 74 [Reserved]

 Appendix E to Part 74--Principles for Determining Costs Applicable to 
   Research and Development Under Grants and Contracts With Hospitals

                          i. purpose and scope

    A. Objectives. This appendix provides principles for determining the 
costs applicable to research and development work performed by hospitals 
under grants and contracts with the Department of Health and Human 
Services. These principles are confined to the subject of cost 
determination and make no attempt to identify the circumstances or 
dictate the extent of hospital participation in the financing of a 
particular research or development project. The principles are designed 
to provide recognition of the full allocated costs of such research work 
under generally accepted accounting principles. These principles will be 
applicable to both proprietary and non-profit hospitals. No provision 
for profit or other increment above cost is provided for in these 
principles. However, this is not to be interpreted as precluding a 
negotiated fee between contracting parties when a fee is appropriate.
    B. Policy guides. The successful application of these principles 
requires development of mutual understanding between representatives of 
hospitals and of the Department of Health and Human Services as to their 
scope, applicability and interpretation. It is recognized that:
    1. The arrangements for hospital participation in the financing of a 
research and development project are properly subject to negotiation 
between the agency and the hospital concerned in accordance with such 
Government-wide criteria as may be applicable.
    2. Each hospital, possessing its own unique combination of staff, 
facilities and experience, should be encouraged to conduct research in a 
manner consonant with its own institutional philosophies and objectives.
    3. Each hospital in the fulfillment of its contractual obligations 
should be expected to employ sound management practices.
    4. The application of the principles established herein shall be in 
conformance with the generally accepted accounting practices of 
hospitals.
    5. Hospitals receive reimbursements from the Federal Government for 
differing types of services under various programs such as support of 
Research and Development (including discrete clinical centers) Health 
Services Projects, Medicare, etc. It is essential that consistent 
procedures for determining reimbursable costs for similar services be 
employed without regard to program differences. Therefore, both the 
direct and indirect costs of research programs must be identified as a 
cost center(s) for the cost finding and step-down requirements of the 
Medicare program, or in its absence the Medicaid program.
    C. Application. All operating agencies within the Department of 
Health and Human Services that sponsor research and development work in 
hospitals will apply these principles and related policy guides in 
determining the costs incurred for such work under grants and cost-
reimbursement type contracts and subcontracts. These principles will 
also be used as a guide in the pricing of fixed-price contracts and 
subcontracts.

                        ii. definitions of terms

    A. Organized research means all research activities of a hospital 
that may be identified whether the support for such research is from a 
federal, non-federal or internal source.
    B. Departmental research means research activities that are not 
separately budgeted and accounted for. Such work, which includes all 
research activities not encompassed under the term organized research, 
is regarded for purposes of this document as a part of the patient care 
activities of the hospital.
    C. Research agreement means any valid arrangement to perform 
federally-sponsored research or development including grants, cost-
reimbursement type contracts, cost-reimbursement type subcontracts, and 
fixed-price contracts and subcontracts.
    D. Instruction and training means the formal or informal programs of 
educating and training technical and professional health services 
personnel, primarily medical and nursing training. This activity, if 
separately budgeted or identifiable with specific costs, should be 
considered as a cost objective for purposes of indirect cost allocations 
and the development of patient care costs.
    E. Other hospital activities means all organized activities of a 
hospital not immediately related to the patient care, research, and 
instructional and training functions which produce identifiable revenue 
from the performance of these activities. If a non-related activity does 
not produce identifiable revenue, it may be necessary to allocate this 
expense using an appropriate basis. In such a case, the activity may be 
included as an allocable cost (See paragraph III D below.) Also included 
under this definition is any category of cost treated as 
``Unallowable,'' provided such category of cost identifies a function or 
activity to which a portion of the institution's indirect cost (as 
defined in paragraph V. A.) are properly allocable.
    F. Patient care means those departments or cost centers which render 
routine or ancillary services to in-patients and/or out-patients. As 
used in paragraph IX B.23, it

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means the cost of these services applicable to patients involved in 
research programs.
    G. Allocation means the process by which the indirect costs are 
assigned as between:
    1. Organized research,
    2. Patient care including departmental research.
    3. Instruction and training, and
    4. Other hospital activities.
    H. Cost center means an identifiable department or area (including 
research) within the hospital which has been assigned an account number 
in the hospital accounting system for the purpose of accumulating 
expense by department or area.
    I. Cost finding is the process of recasting the data derived from 
the accounts ordinarily kept by a hospital to ascertain costs of the 
various types of services rendered. It is the determination of direct 
costs by specific identification and the proration of indirect costs by 
allocation.
    J. Step down is a cost finding method that recognizes that services 
rendered by certain nonrevenue-producing departments or centers are 
utilized by certain other nonrevenue producing centers as well as by the 
revenue-producing centers. All costs of nonrevenue-producing centers are 
allocated to all centers which they serve, regardless of whether or not 
these centers produce revenue. Following the apportionment of the cost 
of the nonrevenue-producing center, that center will be considered 
closed and no further costs are apportioned to that center.
    K. Scatter bed is a bed assigned to a research patient based on 
availability. Research patients occupying these beds are not physically 
segregated from nonresearch patients occupying beds. Scatter beds are 
geographically dispersed among all the beds available for use in the 
hospital. There are no special features attendant to a scatter bed that 
distinguishes it from others that could just as well have been occupied.
    L. Discrete bed is a bed or beds that have been set aside for 
occupancy by research patients and are physically segregated from other 
hospital beds in an environment that permits an easily ascertainable 
allocation of costs associated with the space they occupy and the 
services they generate.

                        iii. basic considerations

    A. Composition of total costs. The cost of a research agreement is 
comprised of the allowable direct costs incident to its performance plus 
the allocable portion of the allowable indirect costs of the hospital 
less applicable credits. (See paragraph III-E.)
    B. Factors affecting allowability of costs. The tests of 
allowability of costs under these principles are:
    1. They must be reasonable.
    2. They must be assigned to research agreements under the standards 
and methods provided herein.
    3. They must be accorded consistent treatment through application of 
those generally accepted accounting principles appropriate to the 
circumstances (See paragraph I-E.5.) and
    4. They must conform to any limitations or exclusions set forth in 
these principles or in the research agreement as to types or amounts of 
cost items.
    C. Reasonable costs. A cost may be considered reasonable if the 
nature of the goods or services acquired or applied, and the amount 
involved therefor reflect the action that a prudent person would have 
taken under the circumstances prevailing at the time the decision to 
incur the cost was made. Major considerations involved in the 
determination of the reasonableness of a cost are:
    1. Whether or not the cost is of a type generally recognized as 
necessary for the operation of the hospital or the performance of the 
research agreement,
    2. The restraints or requirements imposed by such factors as arm's 
length bargaining, federal and state laws and regulations, and research 
agreement terms and conditions,
    3. Whether or not the individuals concerned acted with due prudence 
in the circumstances, considering their responsibilities to the 
hospital, its patients, its employees, its students, the Government, and 
the public at large, and
    4. The extent to which the actions taken with respect to the 
incurrence of the cost are consistent with established hospital policies 
and practices applicable to the work of the hospital generally, 
including Government research.
    D. Allocable costs. 1. A cost is allocable to a particular cost 
center (i.e., a specific function, project, research agreement, 
department, or the like) if the goods or services involved are 
chargeable or assignable to such cost center in accordance with relative 
benefits received or other equitable relationship. Subject to the 
foregoing, a cost is allocable to a research agreement if it is incurred 
solely to advance the work under the research agreement; or it benefits 
both the research agreement and other work of the hospital in 
proportions that can be approximated through use of reasonable methods; 
or it is necessary to the overall operation of the hospital and, in 
light of the standards provided in this chapter, is deemed to be 
assignable in part to organized research. Where the purchase of 
equipment or other capital items are specifically authorized under a 
research agreement, the amounts thus authorized for such purchases are 
allocable to the research agreement regardless of the use that may 
subsequently be made of the equipment or other capital items involved.
    2. Any costs allocable to a particular research agreement under the 
standards provided in these principles may not be shifted to other 
research agreements in order to

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meet deficiencies caused by overruns or other fund considerations, to 
avoid restrictions imposed by law or by terms of the research agreement, 
or for other reasons of convenience.
    E. Applicable credits. 1. The term applicable credits refers to 
those receipts or negative expenditure types of transactions which 
operate to offset or reduce expense items that are allocable to research 
agreements as direct or indirect costs as outlined in paragraph V-A. 
Typical examples of such transactions are: purchase discounts, rebates, 
or allowances; recoveries or indemnities on losses; sales of scrap or 
incidental services; tuition; adjustments of overpayments or erroneous 
charges; and services rendered to patients admitted to federally funded 
clinical research centers, primarily for care though also participating 
in research protocols.
    2. In some instances, the amounts received from the Federal 
Government to finance hospital activities or service operations should 
be treated as applicable credits. Specifically, the concept of netting 
such credit items against related expenditures should be applied by the 
hospital in determining the rates or amounts to be charged to government 
research for services rendered whenever the facilities or other 
resources used in providing such services have been financed directly, 
in whole or in part, by federal funds. Thus, where such items are 
provided for or benefit a particular hospital activity, i.e., patient 
care, research, instruction and training, or other, they should be 
treated as an offset to the indirect costs apportioned to that activity. 
Where the benefits are common to all hospital activities they should be 
treated as a credit to the total indirect cost pool before allocation to 
the various cost objectives.

                            iv. direct costs

    A. General. Direct costs are those that can be identified 
specifically with a particular cost center. For this purpose, the term 
cost center refers not only to the ultimate centers against which costs 
are finally lodged such as research agreements, but also to other 
established cost centers such as the individual accounts for recording 
particular objects or items of expense, and the separate account 
groupings designed to record the expenses incurred by individual 
organizational units, functions, projects and the like. In general, the 
administrative functions and service activities described in paragraph 
VI are identifiable as separate cost centers, and the expenses 
associated with such centers become eligible in due course for 
distribution as indirect costs of research agreements and other ultimate 
cost centers.
    B. Application to research agreements. Identifiable benefit to the 
research work rather than the nature of the goods and services involved 
is the determining factor in distinguishing direct from indirect costs 
of research agreements. Typical of transactions chargeable to a research 
agreement as direct costs are the compensation of employees for the time 
or effort devoted to the performance of work under the research 
agreement, including related staff benefit and pension plan costs to the 
extent that such items are consistently accorded to all employees and 
treated by the hospital as direct rather than indirect costs (see 
paragraph V. B4b); the costs of materials consumed or expended in the 
performance of such work; and other items of expense incurred for the 
research agreement, such as extraordinary utility consumption. The cost 
of materials supplied from stock or services rendered by specialized 
facilities or other institutional service operations may be included as 
direct costs of research agreements provided such items are consistently 
treated by the institution as direct rather than indirect costs and are 
charged under a recognized method of costing or pricing designed to 
recover only the actual direct and indirect costs of such material or 
service and conforming to generally accepted cost accounting practices 
consistently followed by the institution.

                            v. indirect costs

    A. General. Indirect costs are those that have been incurred for 
common or joint objectives, and thus are not readily subject to 
treatment as direct costs of research agreements or other ultimate or 
revenue producing cost centers. In hospitals such costs normally are 
classified but not necessarily restricted to the following functional 
categories: Depreciation; Administrative and General (including fringe 
benefits if not charged directly); Operation of Plant; Maintenance of 
Plant; Laundry and Linen Service; Housekeeping; Dietary; Maintenance of 
Personnel; and Medical Records and Library.
    B. Criteria for distribution--1. Base period. A base period for 
distribution of indirect costs is the period during which such costs are 
incurred and accumulated for distribution to work performed within that 
period. The base period normally should coincide with the fiscal year 
established by the hospital, but in any event the base period should be 
so selected as to avoid inequities in the distribution of costs.
    2. Need for cost groupings. The overall objective of the allocation 
process is to distribute the indirect costs described in paragraph VI to 
organized research, patient care, instruction and training, and other 
hospital activities in reasonable proportions consistent with the nature 
and extent of the use of the hospital's resources by research personnel, 
medical staff, patients, students, and other personnel or organizations. 
In order to

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achieve this objective with reasonable precision, it may be necessary to 
provide for selective distribution by establishing separate groupings of 
cost within one or more of the functional categories of indirect costs 
referred to in paragraph V-A. In general, the cost groupings established 
within a functional category should constitute, in each case, a pool of 
those items of expense that are considered to be of like character in 
terms of their relative contribution to (or degree of remoteness from) 
the particular cost centers to which distribution is appropriate. Each 
such pool or cost grouping should then be distributed individually to 
the related cost centers, using the distribution base or method most 
appropriate in the light of the guides set out in B3 below. While this 
paragraph places primary emphasis on a step-down method of indirect cost 
computation, paragraph VIII provides an alternate method which may be 
used under certain conditions.
    3. Selection of distribution method. Actual conditions must be taken 
into account in selecting the method or base to be used in distributing 
to related cost centers the expenses assembled under each of the 
individual cost groups established as indicated under B2 above. Where a 
distribution can be made by assignment of a cost grouping directly to 
the area benefited, the distribution should be made in that manner. Care 
should be given, however, to eliminate similar or duplicative costs from 
any other distribution made to this area. Where the expenses under a 
cost grouping are more general in nature, the distribution to related 
cost centers should be made through use of a selected base which will 
produce results which are equitable to both the Government and the 
hospital. In general, any cost element or cost-related factor associated 
with the hospital's work is potentially adaptable for use as a 
distribution base provided:
    a. It can readily be expressed in terms of dollars or other 
quantitative measure (total direct expenditures, direct salaries, 
manhours applied, square feet utilized, hours of usage, number of 
documents processed, population served, and the like); and
    b. It is common to the related cost centers during the base period. 
The essential consideration in selection of the distribution base in 
each instance is that it be the one best suited for assigning the pool 
of costs to related cost centers in accord with the relative benefits 
derived; the traceable cause and effect relationship; or logic and 
reason, where neither benefit nor cause and effect relationship is 
determinable.
    4. General consideration on cost groupings. The extent to which 
separate cost groupings and selective distribution would be appropriate 
at a hospital is a matter of judgment to be determined on a case-by-case 
basis. Typical situations which may warrant the establishment of two or 
more separate cost groups (based on account classification or analysis) 
within a functional category include but are not limited to the 
following:
    a. Where certain items or categories of expense relate solely to one 
of the major divisions of the hospital (patient care, sponsored 
research, instruction and training, or other hospital activities) or to 
any two but not all, such expenses should be set aside as a separate 
cost grouping for direct assignment or selective distribution in 
accordance with the guides provided in B2 and B3 above.
    b. Where any types of expense ordinary treated as indirect cost as 
outlined in paragraph V-A are charged to research agreements as direct 
costs, the similar type expenses applicable to other activities of the 
institution must through separate cost grouping be excluded from the 
indirect costs allocable to research agreements.
    c. Where it is determined that certain expenses are for the support 
of a service unit or facility whose output is susceptible of measurement 
on a workload or other quantitative basis, such expenses should be set 
aside as a separate cost grouping for distribution on such basis to 
organized research and other hospital activities.
    d. Where organized activities (including identifiable segments of 
organized research as well as the activities cited in paragraph II-E) 
provide their own purchasing, personnel administration, building 
maintenance, or housekeeping or similar service, the distribution of 
such elements of indirect cost to such activities should be accomplished 
through cost grouping which includes only that portion of central 
indirect costs (such as for overall management) which are properly 
allocable to such activities.
    e. Where the hospital elects to treat as indirect charges the costs 
of pension plans and other staff benefits, such costs should be set 
aside as a separate cost grouping for selective distribution to related 
cost centers, including organized research.
    f. Where the hospital is affiliated with a medical school or some 
other institution which performs organized research on the hospital's 
premises, every effort should be made to establish separate cost 
groupings in the Administrative and General or other applicable category 
which will reasonably reflect the use of services and facilities by such 
research. (See also paragraph VII-A.3)
    5. Materiality. Where it is determined that the use of separate cost 
groupings and selective distribution are necessary to produce equitable 
results, the number of such separate cost groupings within a functional 
category should be held within practical limits, after taking into 
consideration the materiality of the amounts involved and the degree of 
precision attainable through less selective methods of distribution.

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    C. Administration of limitations on allowances for indirect costs. 
1. Research grants may be subject to laws and/or administrative 
regulations that limit the allowance for indirect costs under each such 
grant to a stated percentage of the direct costs allowed. Agencies that 
sponsor such grants will establish procedures which will assure that:
    a. The terms and amount authorized in each case conform with the 
provisions of paragraphs III, V and IX of these principles as they apply 
to matters involving the consistent treatment and allowability of 
individual items of cost; and
    b. The amount actually allowed for indirect costs under each such 
research grant does not exceed the maximum allowable under the 
limitation or the amount otherwise allowable under these principles, 
whichever is the smaller.
    2. Where the actual allowance for indirect costs on any research 
grant must be restricted to the smaller of the two alternative amounts 
referred to in C1 above, such alternative amounts should be determined 
in accordance with the following guides:
    a. The maximum allowable under the limitation should be established 
by applying the stated percentage to a direct cost base which shall 
include all items of expenditure authorized by the sponsoring agency for 
inclusion as part of the total cost for the direct benefit of the work 
under the grant; and
    b. The amount otherwise allowable under these principles should be 
established by applying the current institutional indirect cost rate to 
those elements of direct cost which were included in the base on which 
the rate was computed.
    3. When the maximum amount allowable under a statutory limitation or 
the terms of a research agreement is less than the amount otherwise 
allocable as indirect costs under these principles, the amount not 
recoverable as indirect costs under the research agreement involved may 
not be shifted to other research agreements.

           vi. identification and assignment of indirect costs

    A. Depreciation or use charge. 1. The expenses under this heading 
should include depreciation (as defined in paragraph IX-B.9a) on 
buildings, fixed equipment, and movable equipment, except to the extent 
purchased through federal funds. Where adequate records for the 
recording of depreciation are not available, a use charge may be 
substituted for depreciation (See paragraph IX-B.)
    2. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides set forth 
in paragraph V-B, on a basis that gives primary emphasis to (a) space 
utilization with respect to depreciation on buildings and fixed 
equipment; and (b) specific identification of assets and their use with 
respect to movable equipment as it relates to patient care, organized 
research, instruction and training, and other hospital activities. Where 
such records are not sufficient for the purpose of the foregoing, 
reasonable estimates will suffice as a means for effecting distribution 
of the amounts involved.
    B. Administration and general expenses. 1. The expenses under this 
heading are those that have been incurred for the administrative offices 
of the hospital including accounting, personnel, purchasing, information 
centers, telephone expense, and the like which do not relate solely to 
any major division of the institution, i.e., solely to patient care, 
organized research, instruction and training, or other hospital 
activities.
    2. The expenses included in this category may be allocated on the 
basis of total expenditures exclusive of capital expenditures, or 
salaries and wages in situations where the results of the distribution 
made on this basis are deemed to be equitable both to the Government and 
the hospital; otherwise the distribution of Administration and General 
expenses should be made through use of selected bases, applied to 
separate cost groupings established within this category of expenses in 
accordance with the guides set out in paragraph V-B.
    C. Operation of plant. 1. The expenses under this heading are those 
that have been incurred by a central service organization or at the 
departmental level for the administration, supervision, and provision of 
utilities (exclusive of telephone expense) and protective services to 
the physical plant. They include expenses incurred for such items as 
power plant operations, general utility costs, elevator operations, 
protection services, and general parking lots.
    2. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides provided 
in paragraph V-B, on a basis that gives primary emphasis to space 
utilization. The allocations should be developed as follows:
    a. Where actual space and related cost records are available or can 
readily be developed and maintained without significant change in the 
accounting practices, the amount distributed should be based on such 
records;
    b. Where the space and related cost records maintained are not 
sufficient for purposes of the foregoing, a reasonable estimate of the 
proportion of total space assigned to the various costs centers normally 
will suffice as a means for effecting distribution of the amounts 
involved; or
    c. Where it can be demonstrated that an area or volume or space 
basis of allocation is impractical or inequitable, other bases may be 
used provided consideration is given to

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the use of facilities by research personnel and others, including 
patients.
    D. Maintenance of plant. 1. The expenses under this heading should 
include:
    a. All salaries and wages pertaining to ordinary repair and 
maintenance work performed by employees on the payroll of the hospital;
    b. All supplies and parts used in the ordinary repairing and 
maintaining of buildings and general equipment; and
    c. Amounts paid to outside concerns for the ordinary repairing and 
maintaining of buildings and general equipment.
    2. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides provided 
in paragraph V-B. on a basis that gives primary emphasis to space 
utilization. The allocations and apportionments should be developed as 
follows:
    a. Where actual space and related cost records are available and can 
readily be developed and maintained without significant change in the 
accounting practices, the amount distributed should be based on such 
records;
    b. Where the space and related cost records maintained are not 
sufficient for purposes of the foregoing, a reasonable estimate of the 
proportion of total space assigned to the various cost centers normally 
will suffice as a means for effecting distribution of the amounts 
involved; or
    c. Where it can be demonstrated that an area or volume of space 
basis of allocation is impractical or inequitable, other basis may be 
used provided consideration is given to the use of facilities by 
research personnel and others, including patients.
    E. Laundry and linen. 1. The expenses under this heading should 
include:
    a. Salaries and wages of laundry department employees, seamstresses, 
clean linen handlers, linen delivery men, etc.;
    b. Supplies used in connection with the laundry operation and all 
linens purchased; and
    c. Amounts paid to outside concerns for purchased laundry and/or 
linen service.
    2. The expense included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided in 
paragraph V-B. on a basis that gives primary emphasis to actual pounds 
of linen used. The allocations should be developed as follows:
    a. Where actual poundage and related cost records are available or 
can readily be developed and maintained without significant change in 
the accounting practices, the amount distributed should be based on such 
records;
    b. Where it can be demonstrated that a poundage basis of allocation 
is impractical or inequitable other bases may be used provided 
consideration is given to the use of linen by research personnel and 
others, including patients.
    F. Housekeeping. 1. The expenses under this heading should include:
    a. All salaries and wages of the department head, foreman, maids, 
porters, janitors, wall washers, and other housekeeping employees;
    b. All supplies used in carrying out the housekeeping functions; and
    c. Amounts paid to outside concerns for purchased services such as 
window washing, insect extermination, etc.
    2. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided in 
paragraph V-B. on a basis that gives primary emphasis to space actually 
serviced by the housekeeping department. The allocations and 
apportionments should be developed as follows:
    a. Where actual space serviced and related cost records are 
available or can readily be developed and maintained without significant 
change in the accounting practices, the amount distributed should be 
based on such records;
    b. Where the space serviced and related cost records maintained are 
not sufficient for purposes of the foregoing, a reasonable estimate of 
the proportion of total space assigned to the various cost centers 
normally will suffice as a means for effecting distribution of the 
amounts of housekeeping expenses involved; or
    c. Where it can be demonstrated that the space serviced basis of 
allocation is impractical or inequitable, other bases may be used 
provided consideration is given to the use of housekeeping services by 
research personnel and others, including patients.
    G. Dietary. 1. These expenses, as used herein, shall mean only the 
subsidy provided by the hospital to its employees including research 
personnel through its cafeteria operation. The hospital must be able to 
demonstrate through the use of proper cost accounting techniques that 
the cafeteria operates at a loss to the benefit of employees.
    2. The reasonable operating loss of a subsidized cafeteria operation 
should be allocated to related cost centers in a manner consistent with 
the guides provided in paragraph V-B. on a basis that gives primary 
emphasis to number of employees.
    H. Maintenance (housing) of personnel. 1. The expenses under this 
heading should include:
    a. The salaries and wages of matrons, clerks, and other employees 
engaged in work in nurses' residences and other employees' quarters;
    b. All supplies used in connection with the operation of such 
dormitories; and
    c. Payments to outside agencies for the rental of houses, 
apartments, or rooms used by hospital personnel.

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    2. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided in 
paragraph V-B. on a basis that gives primary emphasis to employee 
utilization of housing facilities. The allocation should be developed as 
follows:
    a. Appropriate credit should be given for all payments received from 
employees or otherwise to reduce the expense to be allocated;
    b. A net cost per housed employee may then be computed; and
    c. Allocation should be made on a departmental basis based on the 
number of housed employees in each respective department.
    I. Medical records and library. 1. The expenses under this heading 
should include:
    a. The salaries and wages of the records librarian, medical 
librarian, clerks, stenographers, etc.; and
    b. All supplies such as medical record forms, chart covers, filing 
supplies, stationery, medical library books, periodicals, etc.
    2. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided in 
paragraph V-B. on a basis that gives primary emphasis to a special time 
survey of medical records personnel. If this appears to be impractical 
or inequitable, other bases may be used provided consideration is given 
to the use of these facilities by research personnel and others, 
including patients.

    vii. determination and application of indirect cost rate or rates

    A. Indirect cost pools. 1. Subject to (2) below, indirect costs 
allocated to organized research should be treated as a common pool, and 
the costs in such common pool should be distributed to individual 
research agreements benefiting therefrom on a single rate basis.
    2. In some instances a single rate basis for use on all government 
research at a hospital may not be appropriate since it would not take 
into account those different environmental factors which may affect 
substantially the indirect costs applicable to a particular segment of 
government research at the institution. For this purpose, a particular 
segment of government research may be that performed under a single 
research agreement or it may consist of research under a group of 
research agreements performed in a common environment. The environmental 
factors are not limited to the physical location of the work. Other 
important factors are the level of the administrative support required, 
the nature of the facilities or other resources employed, the scientific 
disciplines or technical skills involved, the organizational 
arrangements used, or any combination thereof. Where a particular 
segment of government research is performed within an environment which 
appears to generate a significantly different level of indirect costs, 
provision should be made for a separate indirect cost pool applicable to 
such work. An example of this differential may be in the development of 
a separate indirect cost pool for a clinical research center grant. The 
separate indirect cost pool should be developed during the course of the 
regular distribution process, and the separate indirect cost rate 
resulting therefrom should be utilized provided it is determined that:
    a. Such indirect cost rate differs significantly from that which 
would have obtained under (1) above; and
    b. The volume of research work to which such rate would apply is 
material in relation to other government research at the institution.
    3. It is a common practice for grants or contracts awarded to other 
institutions, typically University Schools of Medicine, to be performed 
on hospital premises. In these cases the hospital should develop a 
separate indirect cost pool applicable to the work under such grants or 
contracts. This pool should be developed by a selective distribution of 
only those indirect cost categories which benefit the work performed by 
the other institution, within the practical limits dictated by available 
data and the materiality of the amounts involved. Hospital costs 
determined to be allocable to grants or contracts awarded to another 
institution may not be recovered as a cost of grants or contracts 
awarded directly to the hospital.
    B. The distribution base. Preferably, indirect costs allocated to 
organized research should be distributed to applicable research 
agreements on the basis of direct salaries and wages. However, where the 
use of salaries and wages results in an inequitable allocation of costs 
to the research agreements, total direct costs or a variation thereof, 
may be used in lieu of salaries and wages. Regardless of the base used, 
an indirect cost rate should be determined for each of the separate 
indirect cost pools developed pursuant to paragraph VII-A. The rate in 
each case should be stated as the percentage which the amount of the 
particular indirect cost pool is of the total direct salaries and wages 
(or other base selected) for all research agreements identified with 
such a pool.
    C. Negotiated lump sum for overhead. A negotiated fixed amount in 
lieu of indirect costs may be appropriate for self-contained or off-
campus research activities where the benefits derived from a hospital's 
indirect services cannot be readily determined. Such amount negotiated 
in lieu of indirect costs will be treated as an offset to the 
appropriate indirect cost pool after allocation to patient care, 
organized research, instruction and training, and other hospital 
activities. The base on which such remaining expenses

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are allocated should be appropriately adjusted.
    D. Predetermined overhead rates. The utilization of predetermined 
fixed overhead rates may offer potential advantages in the 
administration of research agreements by facilitating the preparation of 
research budgets and permitting more expeditious close out of the 
agreements when the work is completed. Therefore, to the extent allowed 
by law, consideration may be given to the negotiation of predetermined 
fixed rates in those situations where the cost experience and other 
pertinent factors available are deemed sufficient to enable the 
Government and the hospital to reach a reasonable conclusion as to the 
probable level of the indirect cost rate for the ensuing accounting 
period.

             viii. simplified method for small institutions

    A. General. 1. Where the total direct cost of all government-
sponsored research and development work at a hospital in a year is 
minimal, the use of the abbreviated procedure described in paragraph 
VIII-B below may be acceptable in the determination of allowable 
indirect costs. This method may also be used to initially determine a 
provisional indirect cost rate for hospitals that have not previously 
established a rate. Under this abbreviated procedure, data taken 
directly from the institution's most recent annual financial report and 
immediately available supporting information will be utilized as a basis 
for determining the indirect cost rate applicable to research agreements 
at the institution.
    2. The rigid formula approach provided under the abbreviated 
procedure has limitations which may preclude its use at some hospitals 
either because the minimum data required for this purpose are not 
readily available or because the application of the abbreviated 
procedure to the available data produces results which appear 
inequitable to the Government or the hospital. In any such case, 
indirect costs should be determined through use of the regular procedure 
rather than the abbreviated procedure.
    3. In certain instances where the total direct cost of all 
government-sponsored research and development work at the hospital is 
more than minimal, the abbreviated procedure may be used if prior 
permission is obtained. This alternative will be granted only in those 
cases where it can be demonstrated that the step-down technique cannot 
be followed.
    B. Abbreviated procedure. 1. Total expenditures as taken from the 
most recent annual financial report will be adjusted by eliminating from 
further consideration expenditures for capital items as defined in 
paragraph IX-B.4 and unallowable costs as defined under various headings 
in paragraph IX and paragraph III-E.
    2. Total expenditures as adjusted under the foregoing will then be 
distributed among (a) expenditures applicable to administrative and 
general overhead functions, (b) expenditures applicable to all other 
overhead functions, and (c) expenditures for all other purposes. The 
first group shall include amounts associated with the functional 
categories, Administration and General, and Dietary, as defined in 
paragraph VI. The second group shall include Depreciation, Operation of 
Plant, Maintenance of Plant, and Housekeeping. The third group--
expenditures for all other purposes--shall include the amounts 
applicable to all other activities, namely, patient care, organized 
research, instruction and training, and other hospital activities as 
defined under paragraph II-E. For the purposes of this section, the 
functional categories of Laundry and Linen, Maintenance of Personnel, 
and Medical Records and Library as defined in paragraph VI shall be 
considered as expenditures for all other purposes.
    3. The expenditures distributed to the first two groups in paragraph 
VIII-B.2 should then be adjusted by those receipts or negative 
expenditure types of transactions which tend to reduce expense items 
allocable to research agreements as indirect costs. Examples of such 
receipts or negative expenditures are itemized in paragraph III-E.1.
    4. In applying the procedures in paragraphs VIII-B.1 and B.2, the 
cost of unallowable activities such as Gift Shop, Investment Property 
Management, Fund Raising, and Public Relations, when they benefit from 
the hospital's indirect cost services, should be treated as expenditures 
for all other purposes. Such activities are presumed to benefit from the 
hospital's indirect cost services when they include salaries of 
personnel working in the hospital. When they do not include such 
salaries, they should be eliminated from the indirect cost rate 
computation.
    5. The indirect cost rate will then be computed in two stages. The 
first stage requires the computation of an Administrative and General 
rate component. This is done by applying a ratio of research direct 
costs over total direct costs to the Administrative and General pool 
developed under paragraphs VIII-B.2 and B.3 above. The resultant amount-
-that which is allocable to research--is divided by the direct research 
cost base. The second stage requires the computation of an All Other 
Indirect Cost rate component. This is done by applying a ratio of 
research direct space over total direct space to All Other Indirect Cost 
pool developed under paragraphs VIII-B.2 and B.3 above. The resultant 
amount--that which is allocable to research--is divided by the direct 
research cost base.
    The total of the two rate components will be the institution's 
indirect cost rate. For

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the purposes of this section, the research direct cost or space and 
total direct cost or space will be that cost or space identified with 
the functional categories classified under Expenditures for all other 
purposes under paragraph VIII-B.2.

            ix. general standards for selected items of cost

    A. General. This section provides standards to be applied in 
establishing the allowability of certain items involved in determining 
cost. These standards should apply irrespective of whether a particular 
item of cost is properly treated as direct cost or indirect cost. 
Failure to mention a particular item of cost in the standards is not 
intended to imply that it is either allowable or unallowable; rather, 
determination as to allowability in each case should be based on the 
treatment or standards provided for similar or related items of cost. In 
case of discrepancy between the provisions of a specific research 
agreement and the applicable standards provided, the provisions of the 
research agreement should govern. However, in some cases advance 
understandings should be reached on particular cost items in order that 
the full costs of research be supported. The extent of allowability of 
the selected items of cost covered in this section has been stated to 
apply broadly to many accounting systems in varying environmental 
situations. Thus, as to any given research agreement, the reasonableness 
and allocability of certain items of costs may be difficult to 
determine, particularly in connection with hospitals which have medical 
school or other affiliations. In order to avoid possible subsequent 
disallowance or dispute based on unreasonableness or nonallocability, it 
is important that prospective recipients of federal funds particularly 
those whose work is predominantly or substantially with the Government, 
seek agreement with the Government in advance of the incurrence of 
special or unusual costs in categories where reasonableness or 
allocability are difficult to determine. Such agreement may also be 
initiated by the Government. Any such agreement should be incorporated 
in the research agreement itself. However, the absence of such an 
advance agreement on any element of cost will not in itself serve to 
make that element either allowable or unallowable. Examples of costs on 
which advance agreements may be particularly important are:
    1. Facilities costs, such as;
    a. Depreciation
    b. Rental
    c. Use charges for fully depreciated assets
    d. Idle facilities and idle capacity
    e. Plant reconversion
    f. Extraordinary or deferred maintenance and repair
    g. Acquisition of automatic data processing equipment.
    2. Preaward costs
    3. Non-hospital professional activities
    4. Self-insurance
    5. Support services charged directly (computer services, printing 
and duplicating services, etc.)
    6. Employee compensation, travel, and other personnel costs, 
including;
    a. Compensation for personal service, including wages and salaries, 
bonuses and incentives, premium payments, pay for time not worked, and 
supplementary compensation and benefits, such as pension and retirement, 
group insurance, severance pay plans, and other forms of compensation
    b. Morale, health, welfare, and food service and dormitory costs
    c. Training and education costs
    d. Relocation costs, including special or mass personnel movement
    B. Selected items--1. Advertising costs. The term advertising costs 
means the costs of advertising media and corollary administrative costs. 
Advertising media include magazines, newspapers, radio and television 
programs, direct mail, exhibits, and the like. The only advertising 
costs allowable are those which are solely for;
    a. The recruitment of persons required for the performance by the 
institution of obligations arising under the research agreement, when 
considered in conjunction with all other recruitment costs as set forth 
in paragraph IX-B.34.
    b. The procurement of scarce items for the performance of the 
research agreement; or
    c. The disposal of scrap or surplus materials acquired in the 
performance of the research agreement.

Costs of this nature, if incurred for more than one research agreement 
or for both research agreement work and other work of the institution, 
are allowable to the extent that the principles in paragraphs IV and V 
are observed.
    2. Bad debts. Losses arising from uncollectible accounts and other 
claims and related collection and legal costs are unallowable except 
that a bad debt may be included as a direct cost of the research 
agreement to the extent that it is caused by a research patient and 
approved by the awarding agency. This inclusion is only intended to 
cover the situation of the patient admitted for research purposes who 
subsequently or in conjunction with the research receives clinical care 
for which a charge is made to the patient. If, after exhausting all 
means of collecting these charges, a bad debt results, it may be 
considered an appropriate charge to the research agreement.
    3. Bonding costs. a. Bonding costs arise when the Government 
requires assurance against financial loss to itself or others by reason 
of the act or default of the hospital. They arise also in instances 
where the hospital requires similar assurance.

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    Included are such types as bid, performance, payment, advance 
payment, infringement, and fidelity bonds.
    b. Costs of bonding required pursuant to the terms of the research 
agreement are allowable.
    c. Costs of bonding required by the hospital in the general conduct 
of its business are allowable to the extent that such bonding is in 
accordance with sound business practice and the rates and premiums are 
reasonable under the circumstances.
    4. Capital expenditures. The costs of equipment, buildings, and 
repairs which materially increase the value or useful life of buildings 
or equipment should be capitalized and are unallowable except as 
provided for in the research agreement.
    5. Civil defense costs. Civil defense costs are those incurred in 
planning for, and the protection of life and property against the 
possible effects of enemy attack. Reasonable costs of civil defense 
measures (including costs in excess of normal plant protection costs, 
first-aid training and supplies, fire-fighting training, posting of 
additional exit notices and directions, and other approved civil defense 
measures) undertaken on the institution's premises pursuant to 
suggestions or requirements of civil defense authorities are allowable 
when distributed to all activities of the institution. Capital 
expenditures for civil defense purposes will not be allowed, but a use 
allowance or depreciation may be permitted in accordance with provisions 
set forth elsewhere. Costs of local civil defense projects not on the 
institution's premises are unallowable.
    6. Communication costs. Costs incurred for telephone services, local 
and long distance telephone calls, telegrams, radiograms, postage, and 
the like are allowable.
    7. Compensation for personal services-- a. General. Compensation for 
personal services covers all remuneration paid currently or accrued to 
employees of the hospital for services rendered during the period of 
performance under government research agreements. Such remuneration 
includes salaries, wages, staff benefits (see paragraph IX-B.10), and 
pension plan costs (see paragraph IX-B.25). The costs of such 
remuneration are allowable to the extent that the total compensation to 
individual employees is reasonable for the services rendered and 
conforms to the established policy of the institution consistently 
applied, and provided that the charges for work performed directly on 
government research agreements and for other work allocable as indirect 
costs to sponsored research are determined and supported as hereinafter 
provided. For non-profit, non-proprietary institutions, where federally 
supported programs constitute less than a preponderance of the activity 
at the institution the primary test of reasonableness will be to require 
that the institution's compensation policies be applied consistently 
both to federally-sponsored and non-sponsored activities alike. However, 
where special circumstances so dictate a contractual clause may be 
utilized which calls for application of the test of comparability in 
determining the reasonableness of compensation.
    b. Payroll distribution. Amounts charged to organized research for 
personal services, regardless of whether treated as direct costs or 
allocated as indirect costs, will be based on hospital payrolls which 
have been approved and documented in accordance with generally accepted 
hospital practices. In order to develop necessary direct and indirect 
allocations of cost, supplementary data on time or effort as provided in 
paragraph (c) below, normally need be required only for individuals 
whose compensation is properly chargeable to two or more research 
agreements or to two or more of the following broad functional 
categories: (1) Patient care; (2) organized research; (3) instruction 
and training; (4) indirect activities as defined in paragraph V-A; or 
(5) other hospital activities as defined in paragraph II-E.
    c. Reporting time or effort. Charges for salaries and wages of 
individuals other than members of the professional staff will be 
supported by daily time and attendance and payroll distribution records. 
For members of the professional staff, current and reasonable estimates 
of the percentage distribution of their total effort may be used as 
support in the absence of actual time records. The term professional 
staff for purposes of this section includes physicians, research 
associates, and other personnel performing work at responsible levels of 
activities. These personnel normally fulfill duties, the competent 
performance of which usually requires persons possessing degrees from 
accredited institutions of higher learning and/or state licensure. In 
order to qualify as current and reasonable, estimates must be made no 
later than one month (though not necessarily a calendar month) after the 
month in which the services were performed.
    d. Preparation of estimates of effort. Where required under 
paragraph (c) above, estimates of effort spent by a member of the 
professional staff on each research agreement should be prepared by the 
individual who performed the services or by a responsible individual 
such as a department head or supervisor having first-hand knowledge of 
the services performed on each research agreement. Estimates must show 
the allocation of effort between organized research and all other 
hospital activities in terms of the percentage of total effort devoted 
to each of the broad functional categories referred to in (b) above. The 
estimate of effort spent on a research agreement may include a 
reasonable amount of time spent in activities contributing and 
intimately related to work under

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the agreement, such as preparing and delivering special lectures about 
specific aspects of the ongoing research, writing research reports and 
articles, participating in appropriate research seminars, consulting 
with colleagues with respect to related research, and attending 
appropriate scientific meetings and conferences. The term ``all other 
hospital activities'' would include departmental research, 
administration, committee work, and public services undertaken on behalf 
of the hospital.
    e. Application of budget estimates. Estimates determined before the 
performance of services, such as budget estimates on a monthly, 
quarterly, or yearly basis do not qualify as estimates of effort spent.
    f. Non-hospital professional activities. A hospital must not alter 
or waive hospital-wide policies and practices dealing with the 
permissible extent of professional services over and above those 
traditionally performed without extra hospital compensation, unless such 
arrangements are specifically authorized by the sponsoring agency. Where 
hospital-wide policies do not adequately define the permissible extent 
of consultantships or other non-hospital activities undertaken for extra 
pay, the Government may require that the effort of professional staff 
working under research agreements be allocated as between (1) hospital 
activities, and (2) non-hospital professional activities. If the 
sponsoring agency should consider the extent of non-hospital 
professional effort excessive, appropriate arrangements governing 
compensation will be negotiated on a case by case basis.
    g. Salary rates for part-time appointments. Charges for work 
performed on government research by staff members having only part-time 
appointments will be determined at a rate not in excess of that for 
which he is regularly paid for his part-time staff assignment.
    8. Contingency provisions. Contributions to a contingency reserve or 
any similar provisions made for events the occurrence of which cannot be 
foretold with certainty as to time, intensity, or with an assurance of 
their happening, are unallowable.
    9. Depreciation and use allowances. a. Hospitals may be compensated 
for the use of buildings, capital improvements and usable equipment on 
hand through depreciation or use allowances. Depreciation is a charge to 
current operations which distributes the cost of a tangible capital 
asset, less estimated residual value, over the estimated useful life of 
the asset in a systematic and logical manner. It does not involve a 
process of valuation. Useful life has reference to the prospective 
period of economic usefulness in the particular hospital's operations as 
distinguished from physical life. Use allowances are the means of 
allowing compensation when depreciation or other equivalent costs are 
not considered.
    b. Due consideration will be given to government-furnished research 
facilities utilized by the institution when computing use allowances 
and/or depreciation if the government-furnished research facilities are 
material in amount. Computation of the use allowance and/or depreciation 
will exclude both the cost or any portion of the cost of grounds, 
buildings and equipment borne by or donated by the Federal Government, 
irrespective of where title was originally vested or where it presently 
resides, and secondly, the cost of grounds. Capital expenditures for 
land improvements (paved areas, fences, streets, sidewalks, utility 
conduits, and similar improvements not already included in the cost of 
buildings) are allowable provided the systematic amortization of such 
capital expenditures has been provided in the institution's books of 
accounts, based on reasonable determinations of the probable useful 
lives of the individual items involved, and the share allocated to 
organized research is developed from the amount thus amortized for the 
base period involved.
    c. Normal depreciation on a hospital's plant, equipment, and other 
capital facilities, except as excluded by (d) below, is an allowable 
element of research cost provided that the amount thereof is computed:
    1. Upon the property cost basis used by the hospital for Federal 
Income Tax purposes (See section 167 of the Internal Revenue Code of 
1954); or
    2. In the case of non-profit or tax exempt organizations, upon a 
property cost basis which could have been used by the hospital for 
Federal Income Tax purposes, had such hospital been subject to the 
payment of income tax; and in either case
    3. By the consistent application to the assets concerned of any 
generally accepted accounting method, and subject to the limitations of 
the Internal Revenue Code of 1954 as amended, including--
    i. The straight line method;
    ii. The declining balance method, using a rate not exceeding twice 
the rate which would have been used had the annual allowance been 
computed under the method described in (i) above;
    iii. The sum of the years-digits method; and
    iv. Any other consistent method productive of an annual allowance 
which, when added to all allowances for the period commencing with the 
use of the property and including the current year, does not during the 
first two-thirds of the useful life of the property exceed the total of 
such allowances which would have been used had such allowances been 
computed under the method described in (ii) above.
    d. Where the depreciation method is followed, adequate property 
records must be

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maintained. The period of useful service (service life) established in 
each case for usable capital assets must be determined on a realistic 
basis which takes into consideration such factors as type of 
construction, nature of the equipment used, technological developments 
in the particular research area, and the renewal and replacement 
policies followed for the individual items or classes of assets 
involved. Where the depreciation method is introduced for application to 
assets acquired in prior years, the annual charges therefrom must not 
exceed the amounts that would have resulted had the depreciation method 
been in effect from the date of acquisition of such assets.
    e. Depreciation on idle or excess facilities shall not be allowed 
except on such facilities as are reasonably necessary for standby 
purposes.
    f. Where an institution elects to go on a depreciation basis for a 
particular class of assets, no depreciation, rental or use charge may be 
allowed on any such assets that would be viewed as fully depreciated; 
provided, however, that reasonable use charges may be negotiated for any 
such assets if warranted after taking into consideration the cost of the 
facility or item involved, the estimated useful life remaining at time 
of negotiation, the actual replacement policy followed in the light of 
service lives used for calculating depreciation, the effect of any 
increased maintenance charges or decreased efficiency due to age, and 
any other factors pertinent to the utilization of the facility or item 
for the purpose contemplated.
    g. Hospitals which choose a depreciation allowance for assets 
purchased prior to 1966 based on a percentage of operating costs in lieu 
of normal depreciation for purposes of reimbursement under Pub. L. 89-97 
(Medicare) shall utilize that method for determining depreciation 
applicable to organized research.
    The operating costs to be used are the lower of the hospital's 1965 
operating costs or the hospital's current year's allowable costs. The 
percent to be applied is 5 percent starting with the year 1966-67, with 
such percentage being uniformity reduced by one-half percent each 
succeeding year. The allowance based on operating costs is in addition 
to regular depreciation on assets acquired after 1965. However, the 
combined amount of such allowance on pre-1966 assets and the allowance 
for actual depreciation on assets acquired after 1965 may not exceed 6 
percent of the hospital's allowable cost for the current year. After 
total depreciation has been computed, allocation methods are used to 
determine the share attributable to organized research.
    For purposes of this section, Operating Costs means the total costs 
incurred by the hospital in operating the institution, and includes 
patient care, research, and other activities. Allowable Costs means 
operating costs less unallowable costs as defined in these principles; 
by the application of allocation methods to the total amount of such 
allowable costs, the share attributable to Federally-sponsored research 
is determined.
    A hospital which elects to use this procedure under Pub. L. 89-97 
and subsequently changes to an actual depreciation basis on pre-1966 
assets in accordance with the option afforded under the Medicare program 
shall simultaneously change to an actual depreciation basis for 
organized research.
    Where the hospital desires to change to actual depreciation but 
either has no historical cost records or has incomplete records, the 
determination of historical cost could be made through appropriate means 
involving expert consultation with the determination being subject to 
review and approval by the Department of Health and Human Services.
    h. Where the use allowance method is followed, the use allowance for 
buildings and improvements will be computed at an annual rate not 
exceeding two percent of acquisition cost. The use allowance for 
equipment will be computed at an annual rate not exceeding six and two-
thirds percent of acquisition cost of usable equipment in those cases 
where the institution maintains current records with respect to such 
equipment on hand. Where the institution's records reflect only the cost 
(actual or estimated) of the original complement of equipment, the use 
allowance will be computed at an annual rate not exceeding ten percent 
of such cost. Original complement for this purpose means the complement 
of equipment initially placed in buildings to perform the functions 
currently being performed in such buildings; however, where a permanent 
change in the function of a building takes place, a redetermination of 
the original complement of equipment may be made at that time to 
establish a new original complement. In those cases where no equipment 
records are maintained, the institution will justify a reasonable 
estimate of the acquisition cost of usable equipment which may be used 
to compute the use allowance at an annual rate not exceeding six and 
two-thirds percent of such estimate.
    i. Depreciation and/or use charges should usually be allocated to 
research and other activities as an indirect cost.
    10. Employee morale, health, and welfare costs and credits. The 
costs of house publications, health or first-aid benefits, recreational 
activities, employees' counseling services, and other expenses incurred 
in accordance with the hospital's established practice or custom for the 
improvement of working conditions, employer-employee relations, employee 
morale, and employee performance, are allowable. Such costs will be 
equitably apportioned to all activities of the hospital. Income 
generated from any of these activities will be credited to the cost 
thereof unless

[[Page 237]]

such income has been irrevocably set over to employee welfare 
organizations.
    11. Entertainment costs. Except as pertains to 10 above, costs 
incurred for amusement, social activities, entertainment, and any items 
relating thereto, such as meals, lodging, rentals, transportation, and 
gratuities are unallowable.
    12. Equipment and other facilities. The cost of equipment or other 
facilities are allowable on a direct charge basis where such purchases 
are approved by the sponsoring agency concerned or provided for by the 
terms of the research agreement.
    13. Fines and penalties. Costs resulting from violations of, or 
failure of the institution to comply with federal, state and local laws 
and regulations are unallowable except when incurred as a result of 
compliance with specific provisions of the research agreement, or 
instructions in writing from the awarding agency.
    14. Insurance and indemnification. a. Costs of insurance required or 
approved and maintained pursuant to the research agreement are 
allowable.
    b. Costs of other insurance maintained by the hospital in connection 
with the general conduct of its activities are allowable subject to the 
following limitations: (1) Types and extent and cost of coverage must be 
in accordance with sound institutional practice; (2) costs of insurance 
or of any contributions to any reserve covering the risk of loss of or 
damage to government owned property are unallowable except to the extent 
that the Government has specifically required or approved such costs; 
and (3) costs of insurance on the lives of officers or trustees are 
unallowable except where such insurance is part of an employee plan 
which is not unduly restricted.
    c. Contributions to a reserve for an approved self-insurance program 
are allowable to the extent that the types of coverage, extent of 
coverage, and the rates and premiums would have been allowed had 
insurance been purchased to cover the risks. Such contributions are 
subject to prior approval of the Government.
    d. Actual losses which could have been covered by permissible 
insurance (through an approved self-insurance program or otherwise) are 
unallowable unless expressly provided for in the research agreement, 
except that costs incurred because of losses not covered under nominal 
deductible insurance coverage provided in keeping with sound management 
practice as well as minor losses not covered by insurance such as 
spoilage, breakage and disappearance of small hand tools which occur in 
the ordinary course of operations are allowable.
    15. Interest, fund raising and investment management costs. a. Costs 
incurred for interest on borrowed capital or temporary use of endowment 
funds, however represented, are unallowable.
    b. Costs of organized fund raising, including financial campaigns, 
endowment drives, solicitation of gifts and bequests, and similar 
expenses incurred solely to raise capital or obtain contributions are 
not allowable.
    c. Costs of investment counsel and staff and similar expenses 
incurred solely to enhance income from investments are not allowable.
    d. Costs related to the physical custody and control of monies and 
securities are allowable.
    16. Labor relations costs. Costs incurred in maintaining 
satisfactory relations between the hospital and its employees, including 
costs of labor management committees, employees' publications, and other 
related activities are allowable.
    17. Losses on research agreements or contracts. Any excess of costs 
over income under any agreement or contract of any nature is 
unallowable. This includes, but is not limited to, the hospital's 
contributed portion by reason of cost-sharing agreements, under-
recoveries through negotiation of flat amounts for overhead, or legal or 
administrative limitations.
    18. Maintenance and repair costs. a. Costs necessary for the upkeep 
of property (including government property unless otherwise provided 
for), which neither add to the permanent value of the property nor 
appreciably prolong its intended life, but keep it in an efficient 
operating condition, are to be treated as follows:
    1. Normal maintenance and repair costs are allowable;
    2. Extraordinary maintenance and repair costs are allowable, 
provided they are allocated to the periods to which applicable for 
purposes of determining research costs.
    b. Expenditures for plant and equipment, including rehabilitation 
thereof, which according to generally accepted accounting principles as 
applied under the hospital's established policy, should be capitalized 
and subjected to depreciation, are allowable only on a depreciation 
basis.
    19. Material costs. Costs incurred for purchased materials, supplies 
and fabricated parts directly or indirectly related to the research 
agreement, are allowable. Purchases made specifically for the research 
agreement should be charged thereto at their actual prices after 
deducting all cash discounts, trade discounts, rebates, and allowances 
received by the institution. Withdrawals from general stores or 
stockrooms should be charged at their cost under any recognized method 
of pricing stores withdrawals conforming to sound accounting practices 
consistently followed by the hospital. Incoming transportation charges 
are a proper part of material cost. Direct material cost should

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include only the materials and supplies actually used for the 
performance of the research agreement, and due credit should be given 
for any excess materials retained or returned to vendors. Due credit 
should be given for all proceeds or value received for any scrap 
resulting from work under the research agreement. Where government 
donated or furnished material is used in performing the research 
agreement, such material will be used without charge.
    20. Memberships, subscriptions and professional activity costs. a. 
Costs of the hospital's membership in civic, business, technical and 
professional organizations are allowable.
    b. Costs of the hospital's subscriptions to civic, business, 
professional and technical periodicals are allowable.
    c. Costs of meetings and conferences, when the primary purpose is 
the dissemination of technical information, are allowable. This includes 
costs of meals, transportation, rental of facilities, and other items 
incidental to such meetings or conferences.
    21. Organization costs. Expenditures such as incorporation fees, 
attorneys' fees, accountants' fees, brokers' fees, fees to promoters and 
organizers in connection with (a) organization or reorganization of a 
hospital, or (b) raising capital, are unallowable.
    22. Other business expenses. Included in this item are such 
recurring expenses as registry and transfer charges resulting from 
changes in ownership of securities issued by the hospital, cost of 
shareholders meetings preparation and publication of reports to 
shareholders, preparation and submission of required reports and forms 
to taxing and other regulatory bodies, and incidental costs of directors 
and committee meetings. The above and similar costs are allowable when 
allocated on an equitable basis.
    23. Patient care. The cost of routine and ancillary or special 
services to research patients is an allowable direct cost of research 
agreements.
    a. Routine services shall include the costs of the regular room, 
dietary and nursing services, minor medical and surgical supplies and 
the use of equipment and facilities for which a separate charge is not 
customarily made.
    b. Ancillary or special services are the services for which charges 
are customarily made in addition to routine services, such as operating 
rooms, anesthesia, laboratory, BMR-EKG, etc.
    c. Patient care, whether expressed as a rate or an amount, shall be 
computed in a manner consistent with the procedures used to determine 
reimbursable costs under Pub. L. 89-97 (Medicare Program) as defined 
under the ``Principles Of Reimbursement For Provider Costs'' published 
by the Social Security Administration of the Department of Health and 
Human Services. The allowability of specific categories of cost shall be 
in accordance with those principles rather than the principles for 
research contained herein. In the absence of participation in the 
Medicare program by a hospital, all references to the Medicare program 
in these principles shall be construed as meaning the Medicaid program.
    i. Once costs have been recognized as allowable, the indirect costs 
or general service center's cost shall be allocated (stepped- down) to 
special service centers, and all patient and nonpatient costs centers 
based upon actual services received or benefiting these centers.
    ii. After allocation, routine and ancillary costs shall be 
apportioned to scatter-bed research patients on the same basis as is 
used to apportion costs to Medicare patients, i.e. using either the 
departmental method or the combination method, as those methods are 
defined by the Social Security Administration; except that final 
settlement shall be on a grant-by-grant basis. However, to the extent 
that the Social Security Administration has recognized any other method 
of cost apportionment, that method generally shall also be recognized as 
applicable to the determination of research patient care costs.
    iii. A cost center must be established on Medicare reimbursement 
forms for each discrete-bed unit grant award received by a hospital. 
Routine costs should be stepped-down to this line item(s) in the normal 
course of stepping-down costs under Medicare/Medicaid requirements. 
However, in stepping-down routine costs, consideration must be given to 
preventing a step-down of those costs to discrete-bed unit line items 
that have already been paid for directly by the grant, such as bedside 
nursing costs. Ancillary costs allocable to research discrete-bed units 
shall be determined and proposed in accordance with Section 23.c.ii.
    d. Where federally sponsored research programs provide specifically 
for the direct reimbursement of nursing, dietary, and other services, 
appropriate adjustment must be made to patient care costs to preclude 
duplication and/or misallocation of costs.
    24. Patent costs. Costs of preparing disclosures, reports and other 
documents required by the research agreement and of searching the art to 
the extent necessary to make such invention disclosures are allowable. 
In accordance with the clauses of the research agreement relating to 
patents, costs of preparing documents and any other patent costs, in 
connection with the filing of a patent application where title is 
conveyed to the Government, are allowable. (See also paragraph IX-B.36.)
    25. Pension plan costs. Costs of the hospital's pension plan which 
are incurred in accordance with the established policies of the 
institution are allowable, provided such policies meet the test of 
reasonableness and the

[[Page 239]]

methods of cost allocation are not discriminatory, and provided 
appropriate adjustments are made for credits or gains arising out of 
normal and abnormal employee turnover or any other contingencies that 
can result in forfeitures by employees which inure to the benefit of the 
hospital.
    26. Plan security costs. Necessary expenses incurred to comply with 
government security requirements including wages, uniforms and equipment 
of personnel engaged in plant protection are allowable.
    27. Preresearch agreement costs. Costs incurred prior to the 
effective date of the research agreement, whether or not they would have 
been allowable thereunder if incurred after such date, are unallowable 
unless specifically set forth and identified in the research agreement.
    28. Professional services costs. a. Costs of professional services 
rendered by the members of a particular profession who are not employees 
of the hospital are allowable subject to (b) and (c) below when 
reasonable in relation to the services rendered and when not contingent 
upon recovery of the costs from the Government. Retainer fees to be 
allowable must be reasonably supported by evidence of services rendered.
    b. Factors to be considered in determining the allowability of costs 
in a particular case include (1) the past pattern of such costs, 
particularly in the years prior to the award of government research 
agreements on the institution's total activity; (2) the nature and scope 
of managerial services expected of the institution's own organizations; 
and (3) whether the proportion of government work to the hospital's 
total activity is such as to influence the institution in favor of 
incurring the cost, particularly where the services rendered are not of 
a continuing nature and have little relationship to work under 
government research agreements.
    c. Costs of legal, accounting and consulting services, and related 
costs incurred in connection with organization and reorganization or the 
prosecution of claims against the Government are unallowable. Costs of 
legal, accounting and consulting services, and related costs incurred in 
connection with patent infringement litigation are unallowable unless 
otherwise provided for in the research agreement.
    29. Profits and losses on disposition of plant equipment, or other 
assets. Profits or losses of any nature arising from the sale or 
exchange of plant, equipment, or other capital assets, including sales 
or exchange of either short- or long-term investments, shall be excluded 
in computing research agreement costs.
    30. Proposal costs. Proposal costs are the costs of preparing bids 
or proposals on potential government and non-government research 
agreements or projects, including the development of technical data and 
cost data necessary to support the institution's bids or proposals. 
Proposal costs of the current accounting period of both successful and 
unsuccessful bids and proposals normally should be treated as indirect 
costs and allocated currently to all activities of the institution, and 
no proposal costs of past accounting periods will be allocable in the 
current period to the government research agreement. However, the 
institution's established practices may be to treat proposal costs by 
some other recognized method. Regardless of the methods used, the 
results obtained may be accepted only if found to be reasonable and 
equitable.
    31. Public information services costs. Costs of news releases 
pertaining to specific research or scientific accomplishment are 
unallowable unless specifically authorized by the sponsoring agency.
    32. Rearrangement and alteration costs. Costs incurred for ordinary 
or normal rearrangement and alteration of facilities are allowable. 
Special rearrangement and alteration costs incurred specifically for a 
project are allowable only as a direct charge when such work has been 
approved in advance by the sponsoring agency concerned.
    33. Reconversion costs. Costs incurred in the restoration or 
rehabilitation of the institution's facilities to approximately the same 
condition existing immediately prior to commencement of government 
research agreement work, fair wear and tear excepted, are allowable.
    34. Recruiting costs. a. Subject to (b), (c), and (d) below, and 
provided that the size of the staff recruited and maintained is in 
keeping with workload requirements, costs of ``help wanted'' 
advertising, operating costs of an employment office necessary to secure 
and maintain an adequate staff, costs of operating an aptitude and 
educational testing program, travel costs of employees while engaged in 
recruiting personnel, travel costs of applicants for interviews for 
prospective employment, and relocation costs incurred incident to 
recruitment of new employees are allowable to the extent that such costs 
are incurred pursuant to a well managed recruitment program. Where an 
institution uses employment agencies, costs not in excess of standard 
commercial rates for such services are allowable.
    b. In publications, costs of help wanted advertising that includes 
color, includes advertising material for other than recruitment 
purposes, or is excessive in size (taking into consideration recruitment 
purposes for which intended and normal institutional practices in this 
respect) are unallowable.
    c. Costs of help wanted advertising, special emoluments; fringe 
benefits, and salary allowances incurred to attract professional 
personnel from other institutions that do not meet the test of 
reasonableness or do not conform with the established practices of the 
institution are unallowable.

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    d. Where relocation costs incurred incident to recruitment of a new 
employee have been allowed either as an allocable direct or indirect 
cost, and the newly hired employee resigns for reasons within his 
control within twelve months after hire, the institution will be 
required to refund or credit such relocations costs as were charged to 
the Government.
    35. Rental costs (including sale and lease-back of facilities). a. 
Rental costs of land, building, and equipment and other personal 
property are allowable if the rates are reasonable in light of such 
factors as rental costs of comparable facilities and market conditions 
in the area, the type, life expectancy, condition, and value of the 
facilities leased, options available, and other provisions of the rental 
agreement. Application of these factors, in situations where rentals are 
extensively used, may involve among other considerations comparison of 
rental costs with the amount which the hospital would have received had 
it owned the facilities.
    b. Charges in the nature of rent between organizations having a 
legal or other affiliation or arrangement such as hospitals, medical 
schools, foundations, etc., are allowable to the extent such charges do 
not exceed the normal costs of ownership such as depreciation, taxes, 
insurance, and maintenance, provided that no part of such costs shall 
duplicate any other allowed costs.
    c. Unless otherwise specifically provided in the agreement, rental 
costs specified in sale and lease-back agreements incurred by hospitals 
through selling plant facilities to investment organizations such as 
insurance companies or to private investors, and concurrently leasing 
back the same facilities are allowable only to the extent that such 
rentals do not exceed the amount which the hospital would have received 
had it retained legal title to the facilities.
    36. Royalties and other costs for use of patents. Royalties on a 
patent or amortization of the cost of acquiring a patent or invention or 
rights thereto necessary for the proper performance of the research 
agreement and applicable to tasks or processes thereunder are allowable 
unless the Government has a license or the right to free use of the 
patent, the patent has been adjudicated to be invalid, or has been 
administratively determined to be invalid, the patent is considered to 
be unenforceable, or the patent has expired.
    37. Severance pay. a. Severance pay is compensation in addition to 
regular salaries and wages which is paid by a hospital to employees 
whose services are being terminated. Costs of severance pay are 
allowable only to the extent that such payments are required by law, by 
employer-employee agreement, by established policy that constitutes in 
effect an implied agreement on the institution's part, or by 
circumstances of the particular employment.
    b. Severance payments that are due to normal, recurring turnover, 
and which otherwise meet the conditions of (a) above may be allowed 
provided the actual costs of such severance payments are regarded as 
expenses applicable to the current fiscal year and are equitably 
distributed among the institution's activities during that period.
    c. Severance payments that are due to abnormal or mass terminations 
are of such conjectural nature that allowability must be determined on a 
case-by-case basis. However, the Government recognizes its obligation to 
participate to the extent of its fair share in any specific payment.
    38. Specialized service facilities operated by a hospital. a. The 
costs of institutional services involving the use of highly complex and 
specialized facilities such as electronic computers and reactors are 
allowable provided the charges therefor meet the conditions of (b) or 
(c) below, and otherwise take into account any items of income or 
federal financing that qualify as applicable credits under paragraph 
III-E.
    b. The costs of such hospital services normally will be charged 
directly to applicable research agreements based on actual usage or 
occupancy of the facilities at rates that (1) are designed to recover 
only actual costs of providing such services, and (2) are applied on a 
nondiscriminatory basis as between organized research and other work of 
the hospital including commercial or accommodation sales and usage by 
the hospital for internal purposes. This would include use of such 
facilities as radiology, laboratories, maintenance men used for a 
special purpose, medical art, photography, etc.
    c. In the absence of an acceptable arrangement for direct costing as 
provided in (b) above, the costs incurred for such institutional 
services may be assigned to research agreements as indirect costs, 
provided the methods used achieve substantially the same results. Such 
arrangements should be worked out in coordination with all government 
users of the facilities in order to assure equitable distribution of the 
indirect costs.
    39. Special administrative costs. Costs incurred for general public 
relations activities, catalogs, alumni activities, and similar services 
are unallowable.
    40. Staff and/or employee benefits. a. Staff and/or employee 
benefits in the form of regular compensation paid to employees during 
periods of authorized absences from the job such as for annual leave, 
sick leave, military leave and the like are allowable provided such 
costs are absorbed by all hospital activities including organized 
research in proportion to the relative amount of time or effort actually 
devoted to each.
    b. Staff benefits in the form of employer contributions or expenses 
for Social Security

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taxes, employee insurance, Workmen's Compensation insurance, the Pension 
Plan (see paragraph IX-B.25), hospital costs or remission of hospital 
charges to the extent of costs for individual employees or their 
families, and the like are allowable provided such benefits are granted 
in accordance with established hospital policies, and provided such 
contributions and other expenses whether treated as indirect costs or an 
increment of direct labor costs are distributed to particular research 
agreements and other activities in a manner consistent with the pattern 
of benefits accruing to the individuals or groups of employees whose 
salaries and wages are chargeable to such research agreements and other 
activities.
    41. Taxes. a. In general, taxes which the hospital is required to 
pay and which are paid or accrued in accordance with generally accepted 
accounting principles, and payments made to local governments in lieu of 
taxes which are commensurate with the local government services received 
are allowable except for (1) taxes from which exemptions are available 
to the hospital directly or which are available to the hospital based on 
an exemption afforded the Government and in the latter case when the 
sponsoring agency makes available the necessary exemption certificates, 
(2) special assessments on land which represent capital improvements, 
and (3) Federal Income Taxes.
    b. Any refund of taxes, interest, or penalties, and any payment to 
the hospital of interest thereon attributable to taxes, interest or 
penalties, which were allowed as research agreement costs will be 
credited or paid to the Government in the manner directed by the 
Government provided any interest actually paid or credited to a hospital 
incident to a refund of tax, interest, and penalty will be paid or 
credited to the Government only to the extent that such interest accrued 
over the period during which the hospital had been reimbursed by the 
Government for the taxes, interest, and penalties.
    42. Transportation costs. Costs incurred for inbound freight, 
express, cartage, postage and other transportation services relating 
either to goods purchased, in process, or delivered are allowable. When 
such costs can readily be identified with the items involved, they may 
be charged directly as transportation costs or added to the cost of such 
items. Where identification with the material received cannot readily be 
made, inbound transportation costs may be charged to the appropriate 
indirect cost accounts if the institution follows a consistent equitable 
procedure in this respect. Outbound freight, if reimbursable under the 
terms of the research agreement, should be treated as a direct cost.
    43. Travel costs. a. Travel costs are the expenses for 
transportation, lodging, subsistence, and related items incurred by 
employees who are in travel status on official business of the hospital. 
Such costs may be charged on an actual basis, on a per diem or mileage 
basis in lieu of actual costs incurred, or on a combination of the two 
provided the method used is applied to an entire trip and not to 
selected days of the trip, and results in charges consistent with those 
normally allowed by the institution in its regular operations.
    b. Travel costs are allowable subject to (c) and (d) below when they 
are directly attributable to specific work under a research agreement or 
when they are incurred in the normal course of administration of the 
hospital or a department or research program thereof.
    c. The difference in cost between first class air accommodations and 
less than first class air accommodations is unallowable except when less 
than first class air accommodations are not reasonably available to meet 
necessary mission requirements such as where less than first class 
accommodations would (1) require circuitous routing, (2) require travel 
during unreasonable hours, (3) greatly increase the duration of the 
flight, (4) result in additional costs which would offset the 
transportation savings, or (5) offer accommodations which are not 
reasonably adequate for the medical needs of the traveler.
    d. Costs of personnel movements of a special or mass nature are 
allowable only when authorized or approved in writing by the sponsoring 
agency or its authorized representative.
    44. Termination costs applicable to contracts. a. Contract 
terminations generally give rise to the incurrence of costs or to the 
need for special treatment of costs which would not have arisen had the 
contract not been terminated. Items peculiar to termination are set 
forth below. They are to be used in conjunction with all other 
provisions of these principles in the case of contract termination.
    b. The cost of common items of material reasonably usable on the 
hospital's other work will not be allowable unless the hospital submits 
evidence that it could not retain such items at cost without sustaining 
a loss. In deciding whether such items are reasonably usable on other 
work of the institution, consideration should be given to the hospital's 
plans for current scheduled work or activities including other research 
agreements. Contemporaneous purchases of common items by the hospital 
will be regarded as evidence that such items are reasonably usable on 
the hospital's other work. Any acceptance of common items as allowable 
to the terminated portion of the contract should be limited to the 
extent that the quantities of such items on hand, in transit, and on 
order are in excess of the reasonable quantitative requirement of other 
work.

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    c. If in a particular case, despite all reasonable efforts by the 
hospital, certain costs cannot be discontinued immediately after the 
effective date of termination, such costs are generally allowable within 
the limitations set forth in these principles, except that any such 
costs continuing after termination due to the negligent or willful 
failure of the hospital to discontinue such costs will be considered 
unacceptable.
    d. Loss of useful value of special tooling and special machinery and 
equipment is generally allowable, provided (1) such special tooling, 
machinery or equipment is not reasonably capable of use in the other 
work of the hospital; (2) the interest of the Government is protected by 
transfer of title or by other means deemed appropriate by the 
contracting officer; and (3) the loss of useful value as to any one 
terminated contract is limited to that portion of the acquisition cost 
which bears the same ratio to the total acquisition cost as the 
terminated portion of the contract bears to the entire terminated 
contract and other government contracts for which the special tooling, 
special machinery or equipment was acquired.
    e. Rental costs under unexpired leases are generally allowable where 
clearly shown to have been reasonably necessary for the performance of 
the terminated contract, less the residual value of such leases, if (1) 
the amount of such rental claimed does not exceed the reasonable use 
value of the property leased for the period of the contract and such 
further period as may be reasonable; and (2) the hospital makes all 
reasonable efforts to terminate, assign, settle, or otherwise reduce the 
cost of such lease. There also may be included the cost of alterations 
of such leased property, provided such alterations were necessary for 
the performance of the contract and of reasonable restoration required 
by the provisions of the lease.
    f. Settlement expenses including the following are generally 
allowable: (1) Accounting, legal, clerical, and similar costs reasonably 
necessary for the preparation and presentation to contracting officers 
of settlement claims and supporting data with respect to the terminated 
portion of the contract and the termination and settlement of 
subcontracts; and (2) reasonable costs for the storage, transportation, 
protection, and disposition of property provided by the Government or 
acquired or produced by the institution for the contract.
    g. Subcontractor claims including the allocable portion of claims 
which are common to the contract and to other work of the contractor are 
generally allowable.
    45. Voluntary services. The value of voluntary services provided by 
sisters or other members of religious orders is allowable provided that 
amounts do not exceed that paid other employees for similar work. Such 
amounts must be identifiable in the records of the hospital as a legal 
obligation of the hospital. This may be reflected by an agreement 
between the religious order and the hospital supported by evidence of 
payments to the order.

                  Appendixes F-H to Part 74 [Reserved]



PART 76--GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) AND GOVERNMENTWIDE REQUIREMENTS FOR DRUG--FREE WORKPLACE (GRANTS)--Table of Contents




                           Subpart A--General

Sec.
76.100  Purpose.
76.105  Definitions.
76.110  Coverage.
76.115  Policy.

                       Subpart B--Effect of Action

76.200  Debarment or suspension.
76.205  Ineligible persons.
76.210  Voluntary exclusion.
76.215  Exception provision.
76.220  Continuation of covered transactions.
76.225  Failure to adhere to restrictions.

                          Subpart C--Debarment

76.300  General.
76.305  Causes for debarment.
76.310  Procedures.
76.311  Investigation and referral.
76.312  Notice of proposed debarment.
76.313  Opportunity to contest proposed debarment.
76.314  Debarring official's decision.
76.315  Settlement and voluntary exclusion.
76.320  Period of debarment.
76.325  Scope of debarment.

                          Subpart D--Suspension

76.400  General.
76.405  Causes for suspension.
76.410  Procedures.
76.411  Notice of suspension.
76.412  Opportunity to contest suspension.
76.413  Suspending official's decision.
76.415  Period of suspension.
76.420  Scope of suspension.

       Subpart E--Responsibilities of GSA, Agency and Participants

76.500  GSA responsibilities.
76.505  HHS responsibilities.
76.510  Participants' responsibilities.

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          Subpart F--Drug-Free Workplace Requirements (Grants)

76.600  Purpose.
76.605  Definitions.
76.610  Coverage.
76.615  Grounds for suspension of payments, suspension or termination of 
          grants, or suspension or debarment.
76.620  Effect of violation.
76.625  Exception provisions.
76.630  Certification requirements and procedures.
76.635  Reporting of and employee sanctions for convictions of criminal 
          drug offenses.

Appendix A to Part 76--Certification Regarding Debarment, Suspension, 
          and Other Responsibility Matters--Primary Covered Transactions
Appendix B to Part 76--Certification Regarding Debarment, Suspension, 
          Ineligibility and Voluntary Exclusion--Lower Tier Covered 
          Transactions
Appendix C to Part 76--Certification Regarding Drug-Free Workplace 
          Requirements

    Authority: 5 U.S.C. 301; 41 U.S.C. 701 et seq.; Sec. 2455, Pub. L. 
103-355, 108 Stat. 3327 (31 U.S.C. 6101 note; E.O. 12549, 3 CFR, 1986 
Comp., p. 189; E.O. 12689, 3 CFR, 1989 Comp., p. 235.

    Cross Reference: See also Office of Management and Budget notice 
published at 55 FR 21679, May 25, 1990, and 60 FR 33036, June 26, 1995.

    Source: 53 FR 19200, 19204, May 26, 1988, unless otherwise noted.



                           Subpart A--General



Sec. 76.100  Purpose.

    (a) Executive Order (E.O.) 12549 provides that, to the extent 
permitted by law, Executive departments and agencies shall participate 
in a governmentwide system for nonprocurement debarment and suspension. 
A person who is debarred or suspended shall be excluded from Federal 
financial and nonfinancial assistance and benefits under Federal 
programs and activities. Debarment or suspension of a participant in a 
program by one agency shall have governmentwide effect.
    (b) These regulations implement section 3 of E.O. 12549 and the 
guidelines promulgated by the Office of Management and Budget under 
section 6 of the E.O. by:
    (1) Prescribing the programs and activities that are covered by the 
governmentwide system;
    (2) Prescribing the governmentwide criteria and governmentwide 
minimum due process procedures that each agency shall use;
    (3) Providing for the listing of debarred and suspended 
participants, participants declared ineligible (see definition of 
``ineligible'' in Sec. 76.105), and participants who have voluntarily 
excluded themselves from participation in covered transactions;
    (4) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion; and
    (5) Offering such other guidance as necessary for the effective 
implementation and administration of the governmentwide system.
    (c) These regulations also implement Executive Order 12689 (3 CFR, 
1989 Comp., p. 235) and 31 U.S.C. 6101 note (Public Law 103-355, sec. 
2455, 108 Stat. 3327) by--
    (1) Providing for the inclusion in the List of Parties Excluded from 
Federal Procurement and Nonprocurement Programs all persons proposed for 
debarment, debarred or suspended under the Federal Acquisition 
Regulation, 48 CFR Part 9, subpart 9.4; persons against which 
governmentwide exclusions have been entered under this part; and persons 
determined to be ineligible; and
    (2) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion.
    (d) Although these regulations cover the listing of ineligible 
participants and the effect of such listing, they do not prescribe 
policies and procedures governing declarations of ineligibility.

[60 FR 33040, 33062, June 26, 1995]



Sec. 76.105  Definitions.

    The following definitions apply to this part:
    Adequate evidence. Information sufficient to support the reasonable 
belief that a particular act or omission has occurred.
    Affiliate. Persons are affiliates of each other if, directly or 
indirectly, either one controls or has the power to control the other, 
or, a third person controls or has the power to control both. Indicia of 
control include, but are

[[Page 244]]

not limited to: interlocking management or ownership, identity of 
interests among family members, shared facilities and equipment, common 
use of employees, or a business entity organized following the 
suspension or debarment of a person which has the same or similar 
management, ownership, or principal employees as the suspended, 
debarred, ineligible, or voluntarily excluded person.
    Agency. Any executive department, military department or defense 
agency or other agency of the executive branch, excluding the 
independent regulatory agencies.
    Civil judgment. The disposition of a civil action by any court of 
competent jurisdiction, whether entered by verdict, decision, 
settlement, stipulation, or otherwise creating a civil liability for the 
wrongful acts complained of; or a final determination of liability under 
the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-12).
    (a) Civil judgment also includes determinations under the Civil 
Monetary Penalties Act (42 U.S.C. 1320a-7a).
    (b) [Reserved]
    Conviction. A judgment or conviction of a criminal offense by any 
court of competent jurisdiction, whether entered upon a verdict or a 
plea, including a plea of nolo contendere.
    Debarment. An action taken by a debarring official in accordance 
with these regulations to exclude a person from participating in covered 
transactions. A person so excluded is debarred.
    Debarring official. An official authorized to impose debarment. The 
debarring official is either:
    (a) The agency head, or
    (b) An official designated by the agency head.
    Indictment. Indictment for a criminal offense. An information or 
other filing by competent authority charging a criminal offense shall be 
given the same effect as an indictment.
    Ineligible. Excluded from participation in Federal nonprocurement 
programs pursuant to a determination of ineligibility under statutory, 
executive order, or regulatory authority, other than Executive Order 
12549 and its agency implementing regulations; for example, excluded 
pursuant to the Davis-Bacon Act and its implementing regulations, the 
equal employment opportunity acts and executive orders, or the 
environmental protection acts and executive orders. A person is 
ineligible where the determination of ineligibility affects such 
person's eligibility to participate in more than one covered 
transaction.
    Legal proceedings. Any criminal proceeding or any civil judicial 
proceeding to which the Federal Government or a State or local 
government or quasi-governmental authority is a party. The term includes 
appeals from such proceedings.
    List of Parties Excluded from Federal Procurement and Nonprocurement 
Programs. A list compiled, maintained and distributed by the General 
Services Administration (GSA) containing the names and other information 
about persons who have been debarred, suspended, or voluntarily excluded 
under Executive Orders 12549 and 12689 and these regulations or 48 CFR 
part 9, subpart 9.4, persons who have been proposed for debarment under 
48 CFR part 9, subpart 9.4, and those persons who have been determined 
to be ineligible.
    Notice. A written communication served in person or sent by 
certified mail, return receipt requested, or its equivalent, to the last 
known address of a party, its identified counsel, its agent for service 
of process, or any partner, officer, director, owner, or joint venturer 
of the party. Notice, if undeliverable, shall be considered to have been 
received by the addressee five days after being properly sent to the 
last address known by the agency.
    Participant. Any person who submits a proposal for, enters into, or 
reasonably may be expected to enter into a covered transaction. This 
term also includes any person who acts on behalf of or is authorized to 
commit a participant in a covered transaction as an agent or 
representative of another participant.
    Person. Any individual, corporation, partnership, association, unit 
of government or legal entity, however organized, except: foreign 
governments or foreign governmental entities, public international 
organizations, foreign government owned (in whole or in part)

[[Page 245]]

or controlled entities, and entities consisting wholly or partially of 
foreign governments or foreign governmental entities.
    Preponderance of the evidence. Proof by information that, compared 
with that opposing it, leads to the conclusion that the fact at issue is 
more probably true than not.
    Principal. Officer, director, owner, partner, key employee, or other 
person within a participant with primary management or supervisory 
responsibilities; or a person who has a critical influence on or 
substantive control over a covered transaction, whether or not employed 
by the participant. Persons who have a critical influence on or 
substantive control over a covered transaction are:
    (a) Principal investigators.
    (b) Researchers.
    Proposal. A solicited or unsolicited bid, application, request, 
invitation to consider or similar communication by or on behalf of a 
person seeking to participate or to receive a benefit, directly or 
indirectly, in or under a covered transaction.
    Respondent. A person against whom a debarment or suspension action 
has been initiated.
    State. Any of the States of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, any territory or possession 
of the United States, or any agency of a State, exclusive of 
institutions of higher education, hospitals, and units of local 
government. A State instrumentality will be considered part of the State 
government if it has a written determination from a State government 
that such State considers that instrumentality to be an agency of the 
State government.
    Suspending official. An official authorized to impose suspension. 
The suspending official is either:
    (a) The agency head, or
    (b) An official designated by the agency head.
    Suspension. An action taken by a suspending official in accordance 
with these regulations that immediately excludes a person from 
participating in covered transactions for a temporary period, pending 
completion of an investigation and such legal, debarment, or Program 
Fraud Civil Remedies Act proceedings as may ensue. A person so excluded 
is suspended.
    Voluntary exclusion or voluntarily excluded. A status of 
nonparticipation or limited participation in covered transactions 
assumed by a person pursuant to the terms of a settlement.
    HHS. The Department of Health and Human Services.

[53 FR 19200, 19204, May 26, 1988, as amended at 53 FR 19200, May 26, 
1988; 60 FR 33041, 33062, June 26, 1995]



Sec. 76.110  Coverage.

    (a) These regulations apply to all persons who have participated, 
are currently participating or may reasonably be expected to participate 
in transactions under Federal nonprocurement programs. For purposes of 
these regulations such transactions will be referred to as ``covered 
transactions.''
    (1) Covered transaction. For purposes of these regulations, a 
covered transaction is a primary covered transaction or a lower tier 
covered transaction. Covered transactions at any tier need not involve 
the transfer of Federal funds.
    (i) Primary covered transaction. Except as noted in paragraph (a)(2) 
of this section, a primary covered transaction is any nonprocurement 
transaction between an agency and a person, regardless of type, 
including: grants, cooperative agreements, scholarships, fellowships, 
contracts of assistance, loans, loan guarantees, subsidies, insurance, 
payments for specified use, donation agreements and any other 
nonprocurement transactions between a Federal agency and a person. 
Primary covered transactions also include those transactions specially 
designated by the U.S. Department of Housing and Urban Development in 
such agency's regulations governing debarment and suspension.
    (ii) Lower tier covered transaction. A lower tier covered 
transaction is:
    (A) Any transaction between a participant and a person other than a 
procurement contract for goods or services, regardless of type, under a 
primary covered transaction.
    (B) Any procurement contract for goods or services between a 
participant

[[Page 246]]

and a person, regardless of type, expected to equal or exceed the 
Federal procurement small purchase threshold fixed at 10 U.S.C. 2304(g) 
and 41 U.S.C. 253(g) (currently $25,000) under a primary covered 
transaction.
    (C) Any procurement contract for goods or services between a 
participant and a person under a covered transaction, regardless of 
amount, under which that person will have a critical influence on or 
substantive control over that covered transaction. Such persons are:
    (1) Principal investigators.
    (2) Providers of Federally-required audit services.
    (3) Researchers.
    (2) Exceptions. The following transactions are not covered:
    (i) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (ii) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, entities 
consisting wholly or partially of foreign governments or foreign 
governmental entities;
    (iii) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (iv) Federal employment;
    (v) Transactions pursuant to National or agency-recognized 
emergencies or disasters;
    (vi) Incidental benefits derived from ordinary governmental 
operations; and
    (vii) Other transactions where the application of these regulations 
would be prohibited by law.
    (b) Relationship to other sections. This section describes the types 
of transactions to which a debarment or suspension under the regulations 
will apply. Subpart B, ``Effect of Action,'' Sec. 76.200, ``Debarment or 
suspension,'' sets forth the consequences of a debarment or suspension. 
Those consequences would obtain only with respect to participants and 
principals in the covered transactions and activities described in 
Sec. 76.110(a). Sections 76.325, ``Scope of debarment,'' and 76.420, 
``Scope of suspension,'' govern the extent to which a specific 
participant or organizational elements of a participant would be 
automatically included within a debarment or suspension action, and the 
conditions under which affiliates or persons associated with a 
participant may also be brought within the scope of the action.
    (c) Relationship to Federal procurement activities. In accordance 
with E.O. 12689 and section 2455 of Public Law 103-355, any debarment, 
suspension, proposed debarment or other governmentwide exclusion 
initiated under the Federal Acquisition Regulation (FAR) on or after 
August 25, 1995 shall be recognized by and effective for Executive 
Branch agencies and participants as an exclusion under this regulation. 
Similarly, any debarment, suspension or other governmentwide exclusion 
initiated under this regulation on or after August 25, 1995 shall be 
recognized by and effective for those agencies as a debarment or 
suspension under the FAR.
    (d) Relationship to Medicare and State Health Care Program 
Exclusions. Any exclusion from Medicare and State health care program 
participation by HHS under Title XI of the Social Security Act, 42 
U.S.C. 1320a-7, (see also 42 CFR 1001.1901) on or after August 25, 1995 
shall be recognized by and effective, not only for all HHS programs, but 
also for all other Executive Branch procurement and nonprocurement 
activities.

[53 FR 19200, 19204, May 26, 1988, as amended at 53 FR 19200, May 26, 
1988; 60 FR 33041, 33062, June 26, 1995]



Sec. 76.115  Policy.

    (a) In order to protect the public interest, it is the policy of the 
Federal Government to conduct business only with responsible persons. 
Debarment and suspension are discretionary actions that, taken in 
accordance with Executive Order 12549 and these regulations, are 
appropriate means to implement this policy.
    (b) Debarment and suspension are serious actions which shall be used 
only in the public interest and for the Federal Government's protection 
and not

[[Page 247]]

for purposes of punishment. Agencies may impose debarment or suspension 
for the causes and in accordance with the procedures set forth in these 
regulations.
    (c) When more than one agency has an interest in the proposed 
debarment or suspension of a person, consideration shall be given to 
designating one agency as the lead agency for making the decision. 
Agencies are encouraged to establish methods and procedures for 
coordinating their debarment or suspension actions.



                       Subpart B--Effect of Action



Sec. 76.200  Debarment or suspension.

    (a) Primary covered transactions. Except to the extent prohibited by 
law, persons who are debarred or suspended shall be excluded from 
primary covered transactions as either participants or principals 
throughout the Executive Branch of the Federal Government for the period 
of their debarment, suspension, or the period they are proposed for 
debarment under 48 CFR part 9, subpart 9.4. Accordingly, no agency shall 
enter into primary covered transactions with such excluded persons 
during such period, except as permitted pursuant to Sec. 76.215.
    (b) Lower tier covered transactions. Except to the extent prohibited 
by law, persons who have been proposed for debarment under 48 CFR part 
9, subpart 9.4, debarred or suspended shall be excluded from 
participating as either participants or principals in all lower tier 
covered transactions (see Sec. 76.110(a)(1)(ii)) for the period of their 
exclusion.
    (c) Exceptions. Debarment or suspension does not affect a person's 
eligibility for--
    (1) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (2) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, and 
entities consisting wholly or partially of foreign governments or 
foreign governmental entities;
    (3) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (4) Federal employment;
    (5) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (6) Incidental benefits derived from ordinary governmental 
operations; and
    (7) Other transactions where the application of these regulations 
would be prohibited by law.

[60 FR 33041, 33062, June 26, 1995]



Sec. 76.205  Ineligible persons.

    Persons who are ineligible, as defined in Sec. 76.105(i), are 
excluded in accordance with the applicable statutory, executive order, 
or regulatory authority.



Sec. 76.210  Voluntary exclusion.

    Persons who accept voluntary exclusions under Sec. 76.315 are 
excluded in accordance with the terms of their settlements. HHS shall, 
and participants may, contact the original action agency to ascertain 
the extent of the exclusion.



Sec. 76.215  Exception provision.

    HHS may grant an exception permitting a debarred, suspended, or 
voluntarily excluded person, or a person proposed for debarment under 48 
CFR part 9, subpart 9.4, to participate in a particular covered 
transaction upon a written determination by the agency head or an 
authorized designee stating the reason(s) for deviating from the 
Presidential policy established by Executive Order 12549 and 
Sec. 76.200. However, in accordance with the President's stated 
intention in the Executive Order, exceptions shall be granted only 
infrequently. Exceptions shall be reported in accordance with 
Sec. 76.505(a).

[60 FR 33041, 33062, June 26, 1995]



Sec. 76.220  Continuation of covered transactions.

    (a) Notwithstanding the debarment, suspension, proposed debarment 
under

[[Page 248]]

48 CFR part 9, subpart 9.4, determination of ineligibility, or voluntary 
exclusion of any person by an agency, agencies and participants may 
continue covered transactions in existence at the time the person was 
debarred, suspended, proposed for debarment under 48 CFR part 9, subpart 
9.4, declared ineligible, or voluntarily excluded. A decision as to the 
type of termination action, if any, to be taken should be made only 
after thorough review to ensure the propriety of the proposed action.
    (b) Agencies and participants shall not renew or extend covered 
transactions (other than no-cost time extensions) with any person who is 
debarred, suspended, proposed for debarment under 48 CFR part 9, subpart 
9.4, ineligible or voluntary excluded, except as provided in 
Sec. 76.215.

[60 FR 33041, 33062, June 26, 1995]



Sec. 76.225  Failure to adhere to restrictions.

    (a) Except as permitted under Sec. 76.215 or Sec. 76.220, a 
participant shall not knowingly do business under a covered transaction 
with a person who is--
    (1) Debarred or suspended;
    (2) Proposed for debarment under 48 CFR part 9, subpart 9.4; or
    (3) Ineligible for or voluntarily excluded from the covered 
transaction.
    (b) Violation of the restriction under paragraph (a) of this section 
may result in disallowance of costs, annulment or termination of award, 
issuance of a stop work order, debarment or suspension, or other 
remedies as appropriate.
    (c) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, proposed for debarment under 48 
CFR part 9, subpart 9.4, ineligible, or voluntarily excluded from the 
covered transaction (See Appendix B of these regulations), unless it 
knows that the certification is erroneous. An agency has the burden of 
proof that a participant did knowingly do business with a person that 
filed an erroneous certification.

[60 FR 33041, 33062, June 26, 1995]



                          Subpart C--Debarment



Sec. 76.300  General.

    The debarring official may debar a person for any of the causes in 
Sec. 76.305, using procedures established in Secs. 76.310 through 
76.314. The existence of a cause for debarment, however, does not 
necessarily require that the person be debarred; the seriousness of the 
person's acts or omissions and any mitigating factors shall be 
considered in making any debarment decision.



Sec. 76.305  Causes for debarment.

    Debarment may be imposed in accordance with the provisions of 
Secs. 76.300 through 76.314 for:
    (a) Conviction of or civil judgment for:
    (1) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public or private 
agreement or transaction;
    (2) Violation of Federal or State antitrust statutes, including 
those proscribing price fixing between competitors, allocation of 
customers between competitors, and bid rigging;
    (3) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, or obstruction of 
justice; or
    (4) Commission of any other offense indicating a lack of business 
integrity or business honesty that seriously and directly affects the 
present responsibility of a person.
    (b) Violation of the terms of a public agreement or transaction so 
serious as to affect the integrity of an agency program, such as:
    (1) A willful failure to perform in accordance with the terms of one 
or more public agreements or transactions;
    (2) A history of failure to perform or of unsatisfactory performance 
of one or more public agreements or transactions; or
    (3) A willful violation of a statutory or regulatory provision or 
requirement applicable to a public agreement or transaction.
    (c) Any of the following causes:

[[Page 249]]

    (1) A nonprocurement debarment by any Federal agency taken before 
October 1, 1988, the effective date of these regulations, or a 
procurement debarment by any Federal agency taken pursuant to 48 CFR 
Subpart 9.4;
    (2) Knowingly doing business with a debarred, suspended, ineligible, 
or voluntarily excluded person, in connection with a covered 
transaction, except as permitted in Sec. 76.215 or Sec. 76.220;
    (3) Failure to pay a single substantial debt, or a number of 
outstanding debts (including disallowed costs and overpayments, but not 
including sums owed the Federal Government under the Internal Revenue 
Code) owed to any Federal agency or instrumentality, provided the debt 
is uncontested by the debtor or, if contested, provided that the 
debtor's legal and administrative remedies have been exhausted;
    (4) Violation of a material provision of a voluntary exclusion 
agreement entered into under Sec. 76.315 or of any settlement of a 
debarment or suspension action; or
    (5) Violation of any requirement of Subpart F of this part, relating 
to providing a drug-free workplace, as set forth in Sec. 76.615 of this 
part.
    (d) Any other cause of so serious or compelling a nature that it 
affects the present responsibility of a person.

[53 FR 19200, 19204, May 26, 1988, as amended at 54 FR 4950, 4963, Jan. 
31, 1989; 55 FR 21702, May 25, 1990]



Sec. 76.310  Procedures.

    HHS shall process debarment actions as informally as practicable, 
consistent with the principles of fundamental fairness, using the 
procedures in Secs. 76.311 through 76.314.



Sec. 76.311  Investigation and referral.

    Information concerning the existence of a cause for debarment from 
any source shall be promptly reported, investigated, and referred, when 
appropriate, to the debarring official for consideration. After 
consideration, the debarring official may issue a notice of proposed 
debarment.



Sec. 76.312  Notice of proposed debarment.

    A debarment proceeding shall be initiated by notice to the 
respondent advising:
    (a) That debarment is being considered;
    (b) Of the reasons for the proposed debarment in terms sufficient to 
put the respondent on notice of the conduct or transaction(s) upon which 
it is based;
    (c) Of the cause(s) relied upon under Sec. 76.305 for proposing 
debarment;
    (d) Of the provisions of Sec. 76.311 through Sec. 76.314, and any 
other HHS procedures, if applicable, governing debarment decisionmaking; 
and
    (e) Of the potential effect of a debarment.



Sec. 76.313  Opportunity to contest proposed debarment.

    (a) Submission in opposition. Within 30 days after receipt of the 
notice of proposed debarment, the respondent may submit, in person, in 
writing, or through a representative, information and argument in 
opposition to the proposed debarment.
    (b) Additional proceedings as to disputed material facts.
    (1) In actions not based upon a conviction or civil judgment, if the 
debarring official finds that the respondent's submission in opposition 
raises a genuine dispute over facts material to the proposed debarment, 
respondent(s) shall be afforded an opportunity to appear with a 
representative, submit documentary evidence, present witnesses, and 
confront any witness the agency presents.
    (2) A transcribed record of any additional proceedings shall be made 
available at cost to the respondent, upon request, unless the respondent 
and the agency, by mutual agreement, waive the requirement for a 
transcript.



Sec. 76.314  Debarring official's decision.

    (a) No additional proceedings necessary. In actions based upon a 
conviction or civil judgment, or in which there is no genuine dispute 
over material facts, the debarring official shall make a decision on the 
basis of all the information in the administrative record, including any 
submission made by the respondent. The decision shall be made within 45 
days after receipt of any information and argument submitted by the 
respondent, unless the debarring

[[Page 250]]

official extends this period for good cause.
    (b) Additional proceedings necessary.
    (1) In actions in which additional proceedings are necessary to 
determine disputed material facts, written findings of fact shall be 
prepared. The debarring official shall base the decision on the facts as 
found, together with any information and argument submitted by the 
respondent and any other information in the administrative record.
    (2) The debarring official may refer disputed material facts to 
another official for findings of fact. The debarring official may reject 
any such findings, in whole or in part, only after specifically 
determining them to be arbitrary and capricious or clearly erroneous.
    (3) The debarring official's decision shall be made after the 
conclusion of the proceedings with respect to disputed facts.
    (c) Standard of proof.
    (1) In any debarment action, the cause for debarment must be 
established by a preponderance of the evidence. Where the proposed 
debarment is based upon a conviction or civil judgment, the standard 
shall be deemed to have been met.
    (2) Burden of proof. The burden of proof is on the agency proposing 
debarment.
    (d) Notice of debarring official's decision. (1) If the debarring 
official decides to impose debarment, the respondent shall be given 
prompt notice:
    (i) Referring to the notice of proposed debarment;
    (ii) Specifying the reasons for debarment;
    (iii) Stating the period of debarment, including effective dates; 
and
    (iv) Advising that the debarment is effective for covered 
transactions throughout the executive branch of the Federal Government 
unless an agency head or an authorized designee makes the determination 
referred to in Sec. 76.215.
    (2) If the debarring official decides not to impose debarment, the 
respondent shall be given prompt notice of that decision. A decision not 
to impose debarment shall be without prejudice to a subsequent 
imposition of debarment by any other agency.



Sec. 76.315  Settlement and voluntary exclusion.

    (a) When in the best interest of the Government, HHS may, at any 
time, settle a debarment or suspension action.
    (b) If a participant and the agency agree to a voluntary exclusion 
of the participant, such voluntary exclusion shall be entered on the 
Nonprocurement List (see Subpart E).



Sec. 76.320  Period of debarment.

    (a) Debarment shall be for a period commensurate with the 
seriousness of the cause(s). If a suspension precedes a debarment, the 
suspension period shall be considered in determining the debarment 
period.
    (1) Debarment for causes other than those related to a violation of 
the requirements of Subpart F of this part generally should not exceed 
three years. Where circumstances warrant, a longer period of debarment 
may be imposed.
    (2) In the case of a debarment for a violation of the requirements 
of Subpart F of this part (see Sec. 76.305(c)(5)), the period of 
debarment shall not exceed five years.
    (b) The debarring official may extend an existing debarment for an 
additional period, if that official determines that an extension is 
necessary to protect the public interest. However, a debarment may not 
be extended solely on the basis of the facts and circumstances upon 
which the initial debarment action was based. If debarment for an 
additional period is determined to be necessary, the procedures of 
Secs. 76.311 through 76.314 shall be followed to extend the debarment.
    (c) The respondent may request the debarring official to reverse the 
debarment decision or to reduce the period or scope of debarment. Such a 
request shall be in writing and supported by documentation. The 
debarring official may grant such a request for reasons including, but 
not limited to:
    (1) Newly discovered material evidence;
    (2) Reversal of the conviction or civil judgment upon which the 
debarment was based;
    (3) Bona fide change in ownership or management;

[[Page 251]]

    (4) Elimination of other causes for which the debarment was imposed; 
or
    (5) Other reasons the debarring official deems appropriate.

[53 FR 19200, 19204, May 26, 1988, as amended at 54 FR 4950, 4963, Jan. 
31, 1989; 55 FR 21702, May 25, 1990]



Sec. 76.325  Scope of debarment.

    (a) Scope in general. (1) Debarment of a person under these 
regulations constitutes debarment of all its divisions and other 
organizational elements from all covered transactions, unless the 
debarment decision is limited by its terms to one or more specifically 
identified individuals, divisions or other organizational elements or to 
specific types of transactions.
    (2) The debarment action may include any affiliate of the 
participant that is specifically named and given notice of the proposed 
debarment and an opportunity to respond (see Secs. 76.311 through 
76.314).
    (b) Imputing conduct. For purposes of determining the scope of 
debarment, conduct may be imputed as follows:
    (1) Conduct imputed to participant. The fraudulent, criminal or 
other seriously improper conduct of any officer, director, shareholder, 
partner, employee, or other individual associated with a participant may 
be imputed to the participant when the conduct occurred in connection 
with the individual's performance of duties for or on behalf of the 
participant, or with the participant's knowledge, approval, or 
acquiescence. The participant's acceptance of the benefits derived from 
the conduct shall be evidence of such knowledge, approval, or 
acquiescence.
    (2) Conduct imputed to individuals associated with participant. The 
fraudulent, criminal, or other seriously improper conduct of a 
participant may be imputed to any officer, director, shareholder, 
partner, employee, or other individual associated with the participant 
who participated in, knew of, or had reason to know of the participant's 
conduct.
    (3) Conduct of one participant imputed to other participants in a 
joint venture. The fraudulent, criminal, or other seriously improper 
conduct of one participant in a joint venture, grant pursuant to a joint 
application, or similar arrangement may be imputed to other participants 
if the conduct occurred for or on behalf of the joint venture, grant 
pursuant to a joint application, or similar arrangement may be imputed 
to other participants if the conduct occurred for or on behalf of the 
joint venture, grant pursuant to a joint application, or similar 
arrangement or with the knowledge, approval, or acquiescence of these 
participants. Acceptance of the benefits derived from the conduct shall 
be evidence of such knowledge, approval, or acquiescence.



                          Subpart D--Suspension



Sec. 76.400  General.

    (a) The suspending official may suspend a person for any of the 
causes in Sec. 76.405 using procedures established in Secs. 76.410 
through 76.413.
    (b) Suspension is a serious action to be imposed only when:
    (1) There exists adequate evidence of one or more of the causes set 
out in Sec. 76.405, and
    (2) Immediate action is necessary to protect the public interest.
    (c) In assessing the adequacy of the evidence, the agency should 
consider how much information is available, how credible it is given the 
circumstances, whether or not important allegations are corroborated, 
and what inferences can reasonably be drawn as a result. This assessment 
should include an examination of basic documents such as grants, 
cooperative agreements, loan authorizations, and contracts.



Sec. 76.405  Causes for suspension.

    (a) Suspension may be imposed in accordance with the provisions of 
Secs. 76.400 through 76.413 upon adequate evidence:
    (1) To suspect the commission of an offense listed in 
Sec. 76.305(a); or
    (2) That a cause for debarment under Sec. 76.305 may exist.
    (b) Indictment shall constitute adequate evidence for purposes of 
suspension actions.



Sec. 76.410  Procedures.

    (a) Investigation and referral. Information concerning the existence 
of a cause for suspension from any source

[[Page 252]]

shall be promptly reported, investigated, and referred, when 
appropriate, to the suspending official for consideration. After 
consideration, the suspending official may issue a notice of suspension.
    (b) Decisionmaking process. HHS shall process suspension actions as 
informally as practicable, consistent with principles of fundamental 
fairness, using the procedures in Sec. 76.411 through Sec. 76.413.



Sec. 76.411  Notice of suspension.

    When a respondent is suspended, notice shall immediately be given:
    (a) That suspension has been imposed;
    (b) That the suspension is based on an indictment, conviction, or 
other adequate evidence that the respondent has committed irregularities 
seriously reflecting on the propriety of further Federal Government 
dealings with the respondent;
    (c) Describing any such irregularities in terms sufficient to put 
the respondent on notice without disclosing the Federal Government's 
evidence;
    (d) Of the cause(s) relied upon under Sec. 76.405 for imposing 
suspension;
    (e) That the suspension is for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings;
    (f) Of the provisions of Sec. 76.411 through Sec. 76.413 and any 
other HHS procedures, if applicable, governing suspension 
decisionmaking; and
    (g) Of the effect of the suspension.



Sec. 76.412  Opportunity to contest suspension.

    (a) Submission in opposition. Within 30 days after receipt of the 
notice of suspension, the respondent may submit, in person, in writing, 
or through a representative, information and argument in opposition to 
the suspension.
    (b) Additional proceedings as to disputed material facts.
    (1) If the suspending official finds that the respondent's 
submission in opposition raises a genuine dispute over facts material to 
the suspension, respondent(s) shall be afforded an opportunity to appear 
with a representative, submit documentary evidence, present witnesses, 
and confront any witness the agency presents, unless:
    (i) The action is based on an indictment, conviction or civil 
judgment, or
    (ii) A determination is made, on the basis of Department of Justice 
advice, that the substantial interests of the Federal Government in 
pending or contemplated legal proceedings based on the same facts as the 
suspension would be prejudiced.
    (2) A transcribed record of any additional proceedings shall be 
prepared and made available at cost to the respondent, upon request, 
unless the respondent and the agency, by mutual agreement, waive the 
requirement for a transcript.



Sec. 76.413  Suspending official's decision.

    The suspending official may modify or terminate the suspension (for 
example, see Sec. 76.320(c) for reasons for reducing the period or scope 
of debarment) or may leave it in force. However, a decision to modify or 
terminate the suspension shall be without prejudice to the subsequent 
imposition of suspension by any other agency or debarment by any agency. 
The decision shall be rendered in accordance with the following 
provisions:
    (a) No additional proceedings necessary. In actions: based on an 
indictment, conviction, or civil judgment; in which there is no genuine 
dispute over material facts; or in which additional proceedings to 
determine disputed material facts have been denied on the basis of 
Department of Justice advice, the suspending official shall make a 
decision on the basis of all the information in the administrative 
record, including any submission made by the respondent. The decision 
shall be made within 45 days after receipt of any information and 
argument submitted by the respondent, unless the suspending official 
extends this period for good cause.
    (b) Additional proceedings necessary.
    (1) In actions in which additional proceedings are necessary to 
determine disputed material facts, written findings of fact shall be 
prepared. The suspending official shall base the decision on the facts 
as found, together with any information and argument submitted by the 
respondent and any

[[Page 253]]

other information in the administrative record.
    (2) The suspending official may refer matters involving disputed 
material facts to another official for findings of fact. The suspending 
official may reject any such findings, in whole or in part, only after 
specifically determining them to be arbitrary or capricious or clearly 
erroneous.
    (c) Notice of suspending official's decision. Prompt written notice 
of the suspending official's decision shall be sent to the respondent.



Sec. 76.415  Period of suspension.

    (a) Suspension shall be for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings, unless terminated sooner by the 
suspending official or as provided in paragraph (b) of this section.
    (b) If legal or administrative proceedings are not initiated within 
12 months after the date of the suspension notice, the suspension shall 
be terminated unless an Assistant Attorney General or United States 
Attorney requests its extension in writing, in which case it may be 
extended for an additional six months. In no event may a suspension 
extend beyond 18 months, unless such proceedings have been initiated 
within that period.
    (c) The suspending official shall notify the Department of Justice 
of an impending termination of a suspension, at least 30 days before the 
12-month period expires, to give that Department an opportunity to 
request an extension.



Sec. 76.420  Scope of suspension.

    The scope of a suspension is the same as the scope of a debarment 
(see Sec. 76.325), except that the procedures of Secs. 76.410 through 
76.413 shall be used in imposing a suspension.



       Subpart E--Responsibilities of GSA, Agency and Participants



Sec. 76.500  GSA responsibilities.

    (a) In accordance with the OMB guidelines, GSA shall compile, 
maintain, and distribute a list of all persons who have been debarred, 
suspended, or voluntarily excluded by agencies under Executive Order 
12549 and these regulations, and those who have been determined to be 
ineligible.
    (b) At a minimum, this list shall indicate:
    (1) The names and addresses of all debarred, suspended, ineligible, 
and voluntarily excluded persons, in alphabetical order, with cross-
references when more than one name is involved in a single action;
    (2) The type of action;
    (3) The cause for the action;
    (4) The scope of the action;
    (5) Any termination date for each listing; and
    (6) The agency and name and telephone number of the agency point of 
contact for the action.



Sec. 76.505  HHS responsibilities.

    (a) The agency shall provide GSA with current information concerning 
debarments, suspension, determinations of ineligibility, and voluntary 
exclusions it has taken. Until February 18, 1989, the agency shall also 
provide GSA and OMB with information concerning all transactions in 
which HHS has granted exceptions under Sec. 76.215 permitting 
participation by debarred, suspended, or voluntarily excluded persons.
    (b) Unless an alternative schedule is agreed to by GSA, the agency 
shall advise GSA of the information set forth in Sec. 76.500(b) and of 
the exceptions granted under Sec. 76.215 within five working days after 
taking such actions.
    (c) The agency shall direct inquiries concerning listed persons to 
the agency that took the action.
    (d) HHS officials shall check the Nonprocurement List before 
entering covered transactions to determine whether a participant in a 
primary transaction is debarred, suspended, ineligible, or voluntarily 
excluded (Tel. ).
    (e) Agency officials shall check the Nonprocurement List before 
approving principals or lower tier participants where agency approval of 
the principal or lower tier participant is required under the terms of 
the transaction, to determine whether such principals or participants 
are debarred, suspended, ineligible, or voluntarily excluded.

[[Page 254]]



Sec. 76.510  Participants' responsibilities.

    (a) Certification by participants in primary covered transactions. 
Each participant shall submit the certification in Appendix A to this 
Part for it and its principals at the time the participant submits its 
proposal in connection with a primary covered transaction, except that 
States need only complete such certification as to their principals. 
Participants may decide the method and frequency by which they determine 
the eligibility of their principals. In addition, each participant may, 
but is not required to, check the Nonprocurement List for its principals 
(Tel. ). Adverse information on the certification will not 
necessarily result in denial of participation. However, the 
certification, and any additional information pertaining to the 
certification submitted by the participant, shall be considered in the 
administration of covered transactions.
    (b) Certification by participants in lower tier covered 
transactions. (1) Each participant shall require participants in lower 
tier covered transactions to include the certification in Appendix B to 
this Part for it and its principals in any proposal submitted in 
connection with such lower tier covered transactions.
    (2) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, ineligible, or voluntarily 
excluded from the covered transaction by any Federal agency, unless it 
knows that the certification is erroneous. Participants may decide the 
method and frequency by which they determine the eligiblity of their 
principals. In addition, a participant may, but is not required to, 
check the Nonprocurement List for its principals and for participants 
(Tel. ).
    (c) Changed circumstances regarding certification. A participant 
shall provide immediate written notice to HHS if at any time the 
participant learns that its certification was erroneous when submitted 
or has become erroneous by reason of changed circumstances. Participants 
in lower tier covered transactions shall provide the same updated notice 
to the participant to which it submitted its proposals.



          Subpart F--Drug-Free Workplace Requirements (Grants)

    Source: 55 FR 21688, 21702, May 25, 1990, unless otherwise noted.



Sec. 76.600  Purpose.

    (a) The purpose of this subpart is to carry out the Drug-Free 
Workplace Act of 1988 by requiring that--
    (1) A grantee, other than an individual, shall certify to the agency 
that it will provide a drug-free workplace;
    (2) A grantee who is an individual shall certify to the agency that, 
as a condition of the grant, he or she will not engage in the unlawful 
manufacture, distribution, dispensing, possession or use of a controlled 
substance in conducting any activity with the grant.
    (b) Requirements implementing the Drug-Free Workplace Act of 1988 
for contractors with the agency are found at 48 CFR subparts 9.4, 23.5, 
and 52.2.



Sec. 76.605  Definitions.

    (a) Except as amended in this section, the definitions of 
Sec. 76.105 apply to this subpart.
    (b) For purposes of this subpart--
    (1) Controlled substance means a controlled substance in schedules I 
through V of the Controlled Substances Act (21 U.S.C. 812), and as 
further defined by regulation at 21 CFR 1308.11 through 1308.15;
    (2) Conviction means a finding of guilt (including a plea of nolo 
contendere) or imposition of sentence, or both, by any judicial body 
charged with the responsibility to determine violations of the Federal 
or State criminal drug statutes;
    (3) Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance;
    (4) Drug-free workplace means a site for the performance of work 
done in connection with a specific grant at which employees of the 
grantee are prohibited from engaging in the unlawful manufacture, 
distribution, dispensing, possession, or use of a controlled substance;

[[Page 255]]

    (5) Employee means the employee of a grantee directly engaged in the 
performance of work under the grant, including:
    (i) All direct charge employees;
    (ii) All indirect charge employees, unless their impact or 
involvement is insignificant to the performance of the grant; and,
    (iii) Temporary personnel and consultants who are directly engaged 
in the performance of work under the grant and who are on the grantee's 
payroll.

This definition does not include workers not on the payroll of the 
grantee (e.g., volunteers, even if used to meet a matching requirement; 
consultants or independent contractors not on the payroll; or employees 
of subrecipients or subcontractors in covered workplaces);
    (6) Federal agency or agency means any United States executive 
department, military department, government corporation, government 
controlled corporation, any other establishment in the executive branch 
(including the Executive Office of the President), or any independent 
regulatory agency;
    (7) Grant means an award of financial assistance, including a 
cooperative agreement, in the form of money, or property in lieu of 
money, by a Federal agency directly to a grantee. The term grant 
includes block grant and entitlement grant programs, whether or not 
exempted from coverage under the grants management government-wide 
common rule on uniform administrative requirements for grants and 
cooperative agreements. The term does not include technical assistance 
that provides services instead of money, or other assistance in the form 
of loans, loan guarantees, interest subsidies, insurance, or direct 
appropriations; or any veterans' benefits to individuals, i.e., any 
benefit to veterans, their families, or survivors by virtue of the 
service of a veteran in the Armed Forces of the United States;
    (8) Grantee means a person who applies for or receives a grant 
directly from a Federal agency (except another Federal agency);
    (9) Individual means a natural person;
    (10) State means any of the States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency of a State, exclusive of 
institutions of higher education, hospitals, and units of local 
government. A State instrumentality will be considered part of the State 
government if it has a written determination from a State government 
that such State considers the instrumentality to be an agency of the 
State government.



Sec. 76.610  Coverage.

    (a) This subpart applies to any grantee of the agency.
    (b) This subpart applies to any grant, except where application of 
this subpart would be inconsistent with the international obligations of 
the United States or the laws or regulations of a foreign government. A 
determination of such inconsistency may be made only by the agency head 
or his/her designee.
    (c) The provisions of subparts A, B, C, D and E of this part apply 
to matters covered by this subpart, except where specifically modified 
by this subpart. In the event of any conflict between provisions of this 
subpart and other provisions of this part, the provisions of this 
subpart are deemed to control with respect to the implementation of 
drug-free workplace requirements concerning grants.



Sec. 76.615  Grounds for suspension of payments, suspension or termination of grants, or suspension or debarment.

    A grantee shall be deemed in violation of the requirements of this 
subpart if the agency head or his or her official designee determines, 
in writing, that--
    (a) The grantee has made a false certification under Sec. 76.630;
    (b) With respect to a grantee other than an individual--
    (1) The grantee has violated the certification by failing to carry 
out the requirements of paragraphs (A)(a)-(g) and/or (B) of the 
certification (Alternate I to Appendix C) or

[[Page 256]]

    (2) Such a number of employees of the grantee have been convicted of 
violations of criminal drug statutes for violations occurring in the 
workplace as to indicate that the grantee has failed to make a good 
faith effort to provide a drug-free workplace.
    (c) With respect to a grantee who is an individual--
    (1) The grantee has violated the certification by failing to carry 
out its requirements (Alternate II to Appendix C); or
    (2) The grantee is convicted of a criminal drug offense resulting 
from a violation occurring during the conduct of any grant activity.



Sec. 76.620  Effect of violation.

    (a) In the event of a violation of this subpart as provided in 
Sec. 76.615, and in accordance with applicable law, the grantee shall be 
subject to one or more of the following actions:
    (1) Suspension of payments under the grant;
    (2) Suspension or termination of the grant; and
    (3) Suspension or debarment of the grantee under the provisions of 
this part.
    (b) Upon issuance of any final decision under this part requiring 
debarment of a grantee, the debarred grantee shall be ineligible for 
award of any grant from any Federal agency for a period specified in the 
decision, not to exceed five years (see Sec. 76.320(a)(2) of this part).



Sec. 76.625  Exception provisions.

    The agency head may waive with respect to a particular grant, in 
writing, a suspension of payments under a grant, suspension or 
termination of a grant, or suspension or debarment of a grantee if the 
agency head determines that such a waiver would be in the public 
interest. This exception authority cannot be delegated to any other 
official.



Sec. 76.630  Certification requirements and procedures.

    (a)(1) As a prior condition of being awarded a grant, each grantee 
shall make the appropriate certification to the Federal agency providing 
the grant, as provided in Appendix C to this part.
    (2) Grantees are not required to make a certification in order to 
continue receiving funds under a grant awarded before March 18, 1989, or 
under a no-cost time extension of such a grant. However, the grantee 
shall make a one-time drug-free workplace certification for a non-
automatic continuation of such a grant made on or after March 18, 1989.
    (b) Except as provided in this section, all grantees shall make the 
required certification for each grant. For mandatory formula grants and 
entitlements that have no application process, grantees shall submit a 
one-time certification in order to continue receiving awards.
    (c) A grantee that is a State may elect to make one certification in 
each Federal fiscal year. States that previously submitted an annual 
certification are not required to make a certification for Fiscal Year 
1990 until June 30, 1990. Except as provided in paragraph (d) of this 
section, this certification shall cover all grants to all State agencies 
from any Federal agency. The State shall retain the original of this 
statewide certification in its Governor's office and, prior to grant 
award, shall ensure that a copy is submitted individually with respect 
to each grant, unless the Federal agency has designated a central 
location for submission.
    (d)(1) The Governor of a State may exclude certain State agencies 
from the statewide certification and authorize these agencies to submit 
their own certifications to Federal agencies. The statewide 
certification shall name any State agencies so excluded.
    (2) A State agency to which the statewide certification does not 
apply, or a State agency in a State that does not have a statewide 
certification, may elect to make one certification in each Federal 
fiscal year. State agencies that previously submitted a State agency 
certification are not required to make a certification for Fiscal Year 
1990 until June 30, 1990. The State agency shall retain the original of 
this State agency-wide certification in its central office and, prior to 
grant award, shall

[[Page 257]]

ensure that a copy is submitted individually with respect to each grant, 
unless the Federal agency designates a central location for submission.
    (3) When the work of a grant is done by more than one State agency, 
the certification of the State agency directly receiving the grant shall 
be deemed to certify compliance for all workplaces, including those 
located in other State agencies.
    (e)(1) For a grant of less than 30 days performance duration, 
grantees shall have this policy statement and program in place as soon 
as possible, but in any case by a date prior to the date on which 
performance is expected to be completed.
    (2) For a grant of 30 days or more performance duration, grantees 
shall have this policy statement and program in place within 30 days 
after award.
    (3) Where extraordinary circumstances warrant for a specific grant, 
the grant officer may determine a different date on which the policy 
statement and program shall be in place.



Sec. 76.635  Reporting of and employee sanctions for convictions of criminal drug offenses.

    (a) When a grantee other than an individual is notified that an 
employee has been convicted for a violation of a criminal drug statute 
occurring in the workplace, it shall take the following actions:
    (1) Within 10 calendar days of receiving notice of the conviction, 
the grantee shall provide written notice, including the convicted 
employee's position title, to every grant officer, or other designee on 
whose grant activity the convicted employee was working, unless a 
Federal agency has designated a central point for the receipt of such 
notifications. Notification shall include the identification number(s) 
for each of the Federal agency's affected grants.
    (2) Within 30 calendar days of receiving notice of the conviction, 
the grantee shall do the following with respect to the employee who was 
convicted.
    (i) Take appropriate personnel action against the employee, up to 
and including termination, consistent with requirements of the 
Rehabilitation Act of 1973, as amended; or
    (ii) Require the employee to participate satisfactorily in a drug 
abuse assistance or rehabilitation program approved for such purposes by 
a Federal, State, or local health, law enforcement, or other appropriate 
agency.
    (b) A grantee who is an individual who is convicted for a violation 
of a criminal drug statute occurring during the conduct of any grant 
activity shall report the conviction, in writing, within 10 calendar 
days, to his or her Federal agency grant officer, or other designee, 
unless the Federal agency has designated a central point for the receipt 
of such notices. Notification shall include the identification number(s) 
for each of the Federal agency's affected grants.

(Approved by the Office of Management and Budget under control number 
0991-0002)

[55 FR 21688, 21702, May 25, 1990]

 Appendix A to Part 76--Certification Regarding Debarment, Suspension, 
     and Other Responsibility Matters--Primary Covered Transactions

                     Instructions for Certification

    1. By signing and submitting this proposal, the prospective primary 
participant is providing the certification set out below.
    2. The inability of a person to provide the certification required 
below will not necessarily result in denial of participation in this 
covered transaction. The prospective participant shall submit an 
explanation of why it cannot provide the certification set out below. 
The certification or explanation will be considered in connection with 
the department or agency's determination whether to enter into this 
transaction. However, failure of the prospective primary participant to 
furnish a certification or an explanation shall disqualify such person 
from participation in this transaction.
    3. The certification in this clause is a material representation of 
fact upon which reliance was placed when the department or agency 
determined to enter into this transaction. If it is later determined 
that the prospective primary participant knowingly rendered an erroneous 
certification, in addition to other remedies available to the Federal 
Government, the department or agency may terminate this transaction for 
cause or default.
    4. The prospective primary participant shall provide immediate 
written notice to

[[Page 258]]

the department or agency to which this proposal is submitted if at any 
time the prospective primary participant learns that its certification 
was erroneous when submitted or has become erroneous by reason of 
changed circumstances.
    5. The terms covered transaction, debarred, suspended, ineligible, 
lower tier covered transaction, participant, person, primary covered 
transaction, principal, proposal, and voluntarily excluded, as used in 
this clause, have the meanings set out in the Definitions and Coverage 
sections of the rules implementing Executive Order 12549. You may 
contact the department or agency to which this proposal is being 
submitted for assistance in obtaining a copy of those regulations.
    6. The prospective primary participant agrees by submitting this 
proposal that, should the proposed covered transaction be entered into, 
it shall not knowingly enter into any lower tier covered transaction 
with a person who is proposed for debarment under 48 CFR part 9, subpart 
9.4, debarred, suspended, declared ineligible, or voluntarily excluded 
from participation in this covered transaction, unless authorized by the 
department or agency entering into this transaction.
    7. The prospective primary participant further agrees by submitting 
this proposal that it will include the clause titled ``Certification 
Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion-
Lower Tier Covered Transaction,'' provided by the department or agency 
entering into this covered transaction, without modification, in all 
lower tier covered transactions and in all solicitations for lower tier 
covered transactions.
    8. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not proposed for debarment under 48 CFR part 9, 
subpart 9.4, debarred, suspended, ineligible, or voluntarily excluded 
from the covered transaction, unless it knows that the certification is 
erroneous. A participant may decide the method and frequency by which it 
determines the eligibility of its principals. Each participant may, but 
is not required to, check the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs.
    9. Nothing contained in the foregoing shall be construed to require 
establishment of a system of records in order to render in good faith 
the certification required by this clause. The knowledge and information 
of a participant is not required to exceed that which is normally 
possessed by a prudent person in the ordinary course of business 
dealings.
    10. Except for transactions authorized under paragraph 6 of these 
instructions, if a participant in a covered transaction knowingly enters 
into a lower tier covered transaction with a person who is proposed for 
debarment under 48 CFR part 9, subpart 9.4, suspended, debarred, 
ineligible, or voluntarily excluded from participation in this 
transaction, in addition to other remedies available to the Federal 
Government, the department or agency may terminate this transaction for 
cause or default.

Certification Regarding Debarment, Suspension, and Other Responsibility 
                  Matters--Primary Covered Transactions

    (1) The prospective primary participant certifies to the best of its 
knowledge and belief, that it and its principals:
    (a) Are not presently debarred, suspended, proposed for debarment, 
declared ineligible, or voluntarily excluded by any Federal department 
or agency;
    (b) Have not within a three-year period preceding this proposal been 
convicted of or had a civil judgment rendered against them for 
commission of fraud or a criminal offense in connection with obtaining, 
attempting to obtain, or performing a public (Federal, State or local) 
transaction or contract under a public transaction; violation of Federal 
or State antitrust statutes or commission of embezzlement, theft, 
forgery, bribery, falsification or destruction of records, making false 
statements, or receiving stolen property;
    (c) Are not presently indicted for or otherwise criminally or 
civilly charged by a governmental entity (Federal, State or local) with 
commission of any of the offenses enumerated in paragraph (1)(b) of this 
certification; and
    (d) Have not within a three-year period preceding this application/
proposal had one or more public transactions (Federal, State or local) 
terminated for cause or default.
    (2) Where the prospective primary participant is unable to certify 
to any of the statements in this certification, such prospective 
participant shall attach an explanation to this proposal.

[60 FR 33042, 33062, June 26, 1995]

 Appendix B to Part 76--Certification Regarding Debarment, Suspension, 
 Ineligibility and Voluntary Exclusion--Lower Tier Covered Transactions

                     Instructions for Certification

    1. By signing and submitting this proposal, the prospective lower 
tier participant is providing the certification set out below.
    2. The certification in this clause is a material representation of 
fact upon which reliance was placed when this transaction was entered 
into. If it is later determined that

[[Page 259]]

the prospective lower tier participant knowingly rendered an erroneous 
certification, in addition to other remedies available to the Federal 
Government the department or agency with which this transaction 
originated may pursue available remedies, including suspension and/or 
debarment.
    3. The prospective lower tier participant shall provide immediate 
written notice to the person to which this proposal is submitted if at 
any time the prospective lower tier participant learns that its 
certification was erroneous when submitted or had become erroneous by 
reason of changed circumstances.
    4. The terms covered transaction, debarred, suspended, ineligible, 
lower tier covered transaction, participant, person, primary covered 
transaction, principal, proposal, and voluntarily excluded, as used in 
this clause, have the meaning set out in the Definitions and Coverage 
sections of rules implementing Executive Order 12549. You may contact 
the person to which this proposal is submitted for assistance in 
obtaining a copy of those regulations.
    5. The prospective lower tier participant agrees by submitting this 
proposal that, should the proposed covered transaction be entered into, 
it shall not knowingly enter into any lower tier covered transaction 
with a person who is proposed for debarment under 48 CFR part 9, subpart 
9.4, debarred, suspended, declared ineligible, or voluntarily excluded 
from participation in this covered transaction, unless authorized by the 
department or agency with which this transaction originated.
    6. The prospective lower tier participant further agrees by 
submitting this proposal that it will include this clause titled 
``Certification Regarding Debarment, Suspension, Ineligibility and 
Voluntary Exclusion-Lower Tier Covered Transaction,'' without 
modification, in all lower tier covered transactions and in all 
solicitations for lower tier covered transactions.
    7. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not proposed for debarment under 48 CFR part 9, 
subpart 9.4, debarred, suspended, ineligible, or voluntarily excluded 
from covered transactions, unless it knows that the certification is 
erroneous. A participant may decide the method and frequency by which it 
determines the eligibility of its principals. Each participant may, but 
is not required to, check the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs.
    8. Nothing contained in the foregoing shall be construed to require 
establishment of a system of records in order to render in good faith 
the certification required by this clause. The knowledge and information 
of a participant is not required to exceed that which is normally 
possessed by a prudent person in the ordinary course of business 
dealings.
    9. Except for transactions authorized under paragraph 5 of these 
instructions, if a participant in a covered transaction knowingly enters 
into a lower tier covered transaction with a person who is proposed for 
debarment under 48 CFR part 9, subpart 9.4, suspended, debarred, 
ineligible, or voluntarily excluded from participation in this 
transaction, in addition to other remedies available to the Federal 
Government, the department or agency with which this transaction 
originated may pursue available remedies, including suspension and/or 
debarment.

    Certification Regarding Debarment, Suspension, Ineligibility an 
          Voluntary Exclusion--Lower Tier Covered Transactions

    (1) The prospective lower tier participant certifies, by submission 
of this proposal, that neither it nor its principals is presently 
debarred, suspended, proposed for debarment, declared ineligible, or 
voluntarily excluded from participation in this transaction by any 
Federal department or agency.
    (2) Where the prospective lower tier participant is unable to 
certify to any of the statements in this certification, such prospective 
participant shall attach an explanation to this proposal.

[60 FR 33042, 33062, June 26, 1995]

   Appendix C to Part 76--Certification Regarding Drug-Free Workplace 
                              Requirements

                     Instructions for Certification

    1. By signing and/or submitting this application or grant agreement, 
the grantee is providing the certification set out below.
    2. The certification set out below is a material representation of 
fact upon which reliance is placed when the agency awards the grant. If 
it is later determined that the grantee knowingly rendered a false 
certification, or otherwise violates the requirements of the Drug-Free 
Workplace Act, the agency, in addition to any other remedies available 
to the Federal Government, may take action authorized under the Drug-
Free Workplace Act.
    3. For grantees other than individuals, Alternate I applies.
    4. For grantees who are individuals, Alternate II applies.
    5. Workplaces under grants, for grantees other than individuals, 
need not be identified on the certification. If known, they may be 
identified in the grant application. If the grantee does not identify 
the workplaces at the time of application, or upon award, if there is no 
application, the grantee must keep the identity of the workplace(s) on 
file

[[Page 260]]

in its office and make the information available for Federal inspection. 
Failure to identify all known workplaces constitutes a violation of the 
grantee's drug-free workplace requirements.
    6. Workplace identifications must include the actual address of 
buildings (or parts of buildings) or other sites where work under the 
grant takes place. Categorical descriptions may be used (e.g., all 
vehicles of a mass transit authority or State highway department while 
in operation, State employees in each local unemployment office, 
performers in concert halls or radio studios).
    7. If the workplace identified to the agency changes during the 
performance of the grant, the grantee shall inform the agency of the 
change(s), if it previously identified the workplaces in question (see 
paragraph five).
    8. Definitions of terms in the Nonprocurement Suspension and 
Debarment common rule and Drug-Free Workplace common rule apply to this 
certification. Grantees' attention is called, in particular, to the 
following definitions from these rules:
    Controlled substance means a controlled substance in Schedules I 
through V of the Controlled Substances Act (21 U.S.C. 812) and as 
further defined by regulation (21 CFR 1308.11 through 1308.15);
    Conviction means a finding of guilt (including a plea of nolo 
contendere) or imposition of sentence, or both, by any judicial body 
charged with the responsibility to determine violations of the Federal 
or State criminal drug statutes;
    Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance;
    Employee means the employee of a grantee directly engaged in the 
performance of work under a grant, including: (i) All direct charge 
employees; (ii) All indirect charge employees unless their impact or 
involvement is insignificant to the performance of the grant; and, (iii) 
Temporary personnel and consultants who are directly engaged in the 
performance of work under the grant and who are on the grantee's 
payroll. This definition does not include workers not on the payroll of 
the grantee (e.g., volunteers, even if used to meet a matching 
requirement; consultants or independent contractors not on the grantee's 
payroll; or employees of subrecipients or subcontractors in covered 
workplaces).

        Certification Regarding Drug-Free Workplace Requirements

             Alternate I. (Grantees Other Than Individuals)

    A. The grantee certifies that it will or will continue to provide a 
drug-free workplace by:
    (a) Publishing a statement notifying employees that the unlawful 
manufacture, distribution, dispensing, possession, or use of a 
controlled substance is prohibited in the grantee's workplace and 
specifying the actions that will be taken against employees for 
violation of such prohibition;
    (b) Establishing an ongoing drug-free awareness program to inform 
employees about--
    (1) The dangers of drug abuse in the workplace;
    (2) The grantee's policy of maintaining a drug-free workplace;
    (3) Any available drug counseling, rehabilitation, and employee 
assistance programs; and
    (4) The penalties that may be imposed upon employees for drug abuse 
violations occurring in the workplace;
    (c) Making it a requirement that each employee to be engaged in the 
performance of the grant be given a copy of the statement required by 
paragraph (a);
    (d) Notifying the employee in the statement required by paragraph 
(a) that, as a condition of employment under the grant, the employee 
will--
    (1) Abide by the terms of the statement; and
    (2) Notify the employer in writing of his or her conviction for a 
violation of a criminal drug statute occurring in the workplace no later 
than five calendar days after such conviction;
    (e) Notifying the agency in writing, within ten calendar days after 
receiving notice under paragraph (d)(2) from an employee or otherwise 
receiving actual notice of such conviction. Employers of convicted 
employees must provide notice, including position title, to every grant 
officer or other designee on whose grant activity the convicted employee 
was working, unless the Federal agency has designated a central point 
for the receipt of such notices. Notice shall include the identification 
number(s) of each affected grant;
    (f) Taking one of the following actions, within 30 calendar days of 
receiving notice under paragraph (d)(2), with respect to any employee 
who is so convicted--
    (1) Taking appropriate personnel action against such an employee, up 
to and including termination, consistent with the requirements of the 
Rehabilitation Act of 1973, as amended; or
    (2) Requiring such employee to participate satisfactorily in a drug 
abuse assistance or rehabilitation program approved for such purposes by 
a Federal, State, or local health, law enforcement, or other appropriate 
agency;
    (g) Making a good faith effort to continue to maintain a drug-free 
workplace through implementation of paragraphs (a), (b), (c), (d), (e) 
and (f).

[[Page 261]]

    B. The grantee may insert in the space provided below the site(s) 
for the performance of work done in connection with the specific grant:
Place of Performance (Street address, city, county, state, zip code)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

Check [squ] if there are workplaces on file that are not identified 
here.

              Alternate II. (Grantees Who Are Individuals)

    (a) The grantee certifies that, as a condition of the grant, he or 
she will not engage in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance in conducting 
any activity with the grant;
    (b) If convicted of a criminal drug offense resulting from a 
violation occurring during the conduct of any grant activity, he or she 
will report the conviction, in writing, within 10 calendar days of the 
conviction, to every grant officer or other designee, unless the Federal 
agency designates a central point for the receipt of such notices. When 
notice is made to such a central point, it shall include the 
identification number(s) of each affected grant.

[55 FR 21690, 21702, May 25, 1990]



PART 77--REMEDIAL ACTIONS APPLICABLE TO LETTER OF CREDIT ADMINISTRATION--Table of Contents




Sec.
77.1  Purpose.
77.2  Scope.
77.3  Conditions that may give rise to remedial actions.
77.4  Remedial actions.
77.5  Remedial action procedures.
77.6  Emergency procedures.

    Authority: 5 U.S.C. 301.

    Source: 50 FR 781, Jan. 7, 1985, unless otherwise noted.



Sec. 77.1  Purpose.

    Letters of credit with the United States Treasury, issued by the 
Department to States or other grantees and contractors, are a convenient 
means for disbursing Federal funds to recipients of grant awards or 
contracts (recipient organizations) under the programs of this and other 
Executive Departments. The sound and efficient operation of the letter-
of-credit system is dependent in large part upon the honesty, good 
faith, and responsible financial management of recipient organizations 
that receive funds pursuant to letters of credit. This part sets forth 
conditions that may prompt the Department to seek remedial action 
against a recipient organization operating under a letter of credit and 
the procedures that will be used to reach a final decision regarding the 
taking of remedial actions against a recipient organization.



Sec. 77.2  Scope.

    The regulations in this part apply to all recipient organizations 
under any program administered by the Department through which the 
organization receives Federal funds under a letter of credit.



Sec. 77.3  Conditions that may give rise to remedial actions.

    If the Department determines that any of the following conditions is 
present in a recipient organization's administration of a letter of 
credit, it may take remedial actions against the organization:
    (a) A recipient organization draws Federal funds through its letter 
of credit in excess of the aggregate grant award or contract authority 
currently available to it.
    (b) A recipient organization draws Federal funds for a particular 
program in excess of currently available grant award or contract 
authority for that program, even though the organization may not have 
exceeded its aggregate grant award or contract authority.
    (c) A recipient organization fails to file timely all reports and 
other data required by the Department in connection with its grant 
awards, contracts, or letter of credit.
    (d) A recipient organization accumulates, through its letter of 
credit or otherwise, excess amounts of Federal funds relative to its 
actual and immediate disbursement requirements.
    (e) A recipient organization's cash management system fails to 
comply with generally accepted accounting principles or Departmental 
regulations or demonstrates irregularities, misrepresentations, fraud, 
or abuse in its operation.

[[Page 262]]



Sec. 77.4  Remedial actions.

    If, after the conclusion of the procedures set forth in Sec. 77.5 or 
Sec. 77.6 the Department finds that one or more of the conditions set 
forth in Sec. 77.3 is or has been present, the Department may take the 
following remedial actions against a recipient organization's use of its 
letter of credit:
    (a) The Department may place special limits, restrictions, or 
controls upon the recipient organization's use of its letter of credit.
    (b) The Department may require more frequent or more detailed 
financial reporting from the recipient organization.
    (c) The Department may suspend, reduce, or terminate the recipient 
organization's use of its letter of credit.



Sec. 77.5  Remedial action procedures.

    Except as provided in Sec. 77.6, the Department will use the 
following procedures whenever it seeks the remedial action specified in 
Sec. 77.4.
    (a) Notice. Prior to taking remedial action, the Department will 
provide the recipient organization written notice of its intended action 
setting forth both the legal and factual reasons therefor. Notice may be 
provided by certified or express mail, TWX, telegram, delivery, or 
similar means.
    (b) Opportunity to respond. (1) The recipient organization has 30 
days after receipt of the notice in which to submit to the Department a 
written statement setting forth any legal and factual reasons why it 
believes the proposed remedial action would be inappropriate. If no 
response is received by the Department within the 30-day period, the 
Department may make the proposed remedial action effective immediately. 
If a response opposing the taking of remedial action is received from 
the recipient organization within the 30-day period, no remedial action 
will be taken until a final decision has been reached under paragraph 
(c) of this section. (2) The Department may prepare a written reply to 
the recipient organization's response. Any such reply will be forwarded 
to the deciding official together with the notice sent to the recipient 
organization and the organization's response, and a copy of the reply 
will be served on the recipient organization.
    (c) Departmental decision. The Department's decision to take 
remedial action under this part will be made by an official of the 
Department who had no involvement with the initial determination to seek 
remedial action. The deciding official may affirm, reverse, or modify 
the initial determination. In making the decision, the official will 
consider only the notice provided by the Department, the recipient 
organization's statement, the Department's reply, together with any 
other documents attached to them, and statements at any informal 
conference held pursuant to paragraph (d) of this section. The 
official's decision will be provided to the recipient organization in 
writing and will constitute the Department's final administrative action 
on the matter.
    (d) Informal conference. If, in the judgment of the official 
designated to make a final decision, it would materially enhance his 
ability to resolve the matters in dispute, he may convene an informal 
conference to question or hear an oral presentation by the parties. If 
an informal conference is convened it will be transcribed.
    (e) Effect of decision. The decision in a proceeding under this 
section affects only the recipient organization's obligations related to 
its letter of credit and does not determine the organization's ultimate 
liability with respect to improperly spent funds or other misconduct.



Sec. 77.6  Emergency procedures.

    (a) Should the Department determine that it cannot adequately 
protect assets of the Federal government available to a recipient 
organization under its letter of credit without taking remedial action 
prior to the procedures specified in Sec. 77.5, it may immediately take 
remedial action subject to the subsequent completion of those 
procedures.
    (b) Where the Department has taken remedial action as described in 
paragraph (a) of this section, it will notify the recipient organization 
orally of the remedial action within one business day of its imposition 
and in writing

[[Page 263]]

within seven business days of its imposition. The written notice will 
conform to that described in Sec. 77.5(a).
    (c) After receipt of the written notice, the recipient organization 
will have the same opportunity to respond as described in 
Sec. 77.5(b)(1).
    (d) The Department will issue a final decision in writing no later 
than twenty days following receipt of any response submitted by the 
recipient organization.



PART 78--CONDITIONS FOR WAIVER OF DENIAL OF FEDERAL BENEFITS--Table of Contents




Sec.
78.1  Applicability.
78.2  Definitions.
78.3  Benefits not denied to rehabilitated offenders.

    Authority: Section 5301 of Pub. L. 100-690, the Anti-Drug Abuse Act 
of 1988, 102 Stat. 4310, 21 U.S.C. 853a.

    Source: 56 FR 29592, June 28, 1991, unless otherwise noted.



Sec. 78.1  Applicability.

    This part is applicable to any decision to deny Federal benefits, 
under authority of 21 U.S.C. 853a, to an individual convicted of a 
Federal or State offense involving distribution or possession of a 
controlled substance as defined by the Controlled Substances Act, 21 
U.S.C. 802.



Sec. 78.2  Definitions.

    For the purposes of denying Federal benefits under 21 U.S.C. 853a:
    (a) Deemed to be rehabilitated means that an individual has 
abstained from the illicit use of a controlled substance for the period 
of at least 180 days immediately prior to and including the date of 
sentencing provided that such abstinence is documented by the results of 
periodic urine drug testing conducted during that period; and provided 
further that such drug testing is conducted using an immunoassay test 
approved by the Food and Drug Administration for commercial distribution 
or, in the case of a State offense, either using an immunoassay test 
approved by the Food and Drug Administration for commercial distribution 
or pursuant to standards approved by the State.
    (b) Long-term treatment program or long-term drug treatment program 
means any drug abuse treatment program of 180 days or more where the 
provider has been accredited by the Joint Commission on Accreditation of 
Health Organizations, the Commission on Accreditation of Rehabilitation 
Facilities, or the Council on Accreditation of Services for Families and 
Children, or licensed or otherwise approved by the State to provide drug 
abuse treatment.



Sec. 78.3  Benefits not denied to rehabilitated offenders.

    (a) No individual convicted of any Federal or State offense 
involving the distribution of controlled substances shall be denied 
Federal benefits relating to long-term drug treatment programs for 
addiction under 21 U.S.C. 853a(a)(2) if:
    (1) The individual declares himself or herself to be an addict and 
submits to a long-term treatment program for addiction as defined by 
Sec. 78.2(b), provided that in the determination of the sentencing court 
there is a reasonable body of evidence to substantiate the individual's 
declaration that such individual is an addict; or
    (2) The individual is, in the determination of the sentencing court, 
deemed to be rehabilitated as defined by Sec. 78.2(a).
    (b) No individual convicted of any Federal or State offense 
involving the possession of controlled substances shall be denied any 
Federal benefit, or otherwise subject to penalties and conditions, under 
21 U.S.C. 853a(b)(2) if:
    (1) The individual declares himself or herself to be an addict and 
submits to a long-term treatment program for addiction as defined by 
Sec. 78.2(b), provided that in the determination of the sentencing court 
there is a reasonable body of evidence to substantiate the individual's 
declaration that such individual is an addict; or
    (2) The individual is, in the determination of the sentencing court, 
deemed to be rehabilitated as defined by Sec. 78.2(a).

[[Page 264]]



PART 79--PROGRAM FRAUD CIVIL REMEDIES--Table of Contents




Sec.
79.1  Basis and purpose.
79.2  Definitions.
79.3  Basis for civil penalties and assessments.
79.4  Investigation.
79.5  Review by the reviewing official.
79.6  Prerequisites for issuing a complaint.
79.7  Complaint.
79.8  Service of complaint.
79.9  Answer.
79.10  Default upon failure to file an answer.
79.11  Referral of complaint and answer to the ALJ.
79.12  Notice of hearing.
79.13  Parties to the hearing.
79.14  Separation of functions.
79.15  Ex parte contacts.
79.16  Disqualification of reviewing official or ALJ.
79.17  Rights of parties.
79.18  Authority of the ALJ.
79.19  Prehearing conferences.
79.20  Disclosure of documents.
79.21  Discovery.
79.22  Exchange of witness lists, statements and exhibits.
79.23  Subpoenas for attendance at hearing.
79.24  Protective order.
79.25  Fees.
79.26  Form, filing and service of papers.
79.27  Computation of time.
79.28  Motions.
79.29  Sanctions.
79.30  The hearing and burden of proof.
79.31  Determining the amount of penalties and assessments.
79.32  Location of hearing.
79.33  Witnesses.
79.34  Evidence.
79.35  The record.
79.36  Post-hearing briefs.
79.37  Initial decision.
79.38  Reconsideration of initial decision.
79.39  Appeal to authority head.
79.40  Stays ordered by the Department of Justice.
79.41  Stay pending appeal.
79.42  Judicial review.
79.43  Collection of civil penalties and assessments.
79.44  Right to administrative offset.
79.45  Deposit in Treasury of United States.
79.46  Compromise or settlement.
79.47  Limitations.

    Authority: 31 U.S.C. 3801-3812.

    Source: 53 FR 11659, Apr. 8, 1988, unless otherwise noted.



Sec. 79.1  Basis and purpose.

    (a) Basis. This part implements the Program Fraud Civil Remedies Act 
of 1986, Pub. L. 99-509, Secs. 6101-6104, 100 Stat. 1874 (October 21, 
1986), to be codified at 31 U.S.C. 3801-3812, 31 U.S.C. 3809 of the 
statute requires each authority head to promulgate regulations necessary 
to implement the provisions of the statute.
    (b) Purpose. This part (1) establishes administrative procedures for 
imposing civil penalties and assessments against persons who make, 
submit, or present, or cause to be made, submitted, or presented, false, 
fictitious, or fraudulent claims or written statements to authorities or 
to their agents, and (2) specifies the hearing and appeal rights of 
persons subject to allegations of liability for such penalties and 
assessments.



Sec. 79.2  Definitions.

    ALJ means an Administrative Law Judge in the authority appointed 
pursuant to 5 U.S.C. 3105 or detailed to the authority pursuant to 5 
U.S.C. 3344.
    Authority means the Department of Health and Human Services.
    Authority head means the Departmental Grant Appeals Board of the 
Department of Health and Human Services.
    Benefit means, in the context of statement, anything of value, 
including but not limited to any advantage, preference, privilege, 
license, permit, favorable decision, ruling, status, or loan guarantee.
    Claim means any request, demand, or submission--
    (a) Made to the authority for property, services, or money 
(including money representing grants, loans, insurance, or benefits);
    (b) Made to a recipient of property, services, or money from the 
authority or to a party to a contract with the authority--
    (1) For property or services if the United States--
    (i) Provided such property or services;
    (ii) Provided any portion of the funds for the purchase of such 
property or services; or
    (iii) Will reimburse such recipient or party for the purchase of 
such property or services; or
    (2) For the payment of money (including money representing grants,

[[Page 265]]

loans, insurance, or benefits) if the United States--
    (i) Provided any portion of the money requested or demanded; or
    (ii) Will reimburse such recipient or party for any portion of the 
money paid on such request or demand: or
    (c) Made to the authority which has the effect of decreasing an 
obligation to pay or account for property, services, or money.
    Complaint means the administrative complaint served by the reviewing 
official on the defendant under Sec. 79.7.
    Defendant means any person alleged in a complaint under Sec. 79.7 to 
be liable for a civil penalty or assessment under Sec. 79.3.
    Department means the Department of Health and Human Services.
    Government means the United States Government.
    Individual means a natural person.
    Initial decision means the written decision of the ALJ required by 
Secs. 79.10 or 79.37, and includes a revised initial decision issued 
following a remand or a motion for reconsideration.
    Investigating official means the Inspector General of the Department 
of Health and Human Services or an officer or employee of the Office of 
the Inspector General designated by the Inspector General and serving in 
a position for which the rate of basic pay is not less than the minimum 
rate of basic pay for grade GS-16 under the General Schedule.
    Knows or has reason to know, means that a person, with respect to a 
claim or statement--
    (a) Has actual knowledge that the claim or statement is false, 
fictitious, or fraudulent;
    (b) Acts in deliberate ignorance of the truth or falsity of the 
claim or statement; or
    (c) Acts in reckless disregard of the truth or falsity of the claim 
or statement.
    Makes, wherever it appears, shall include the terms presents, 
submits, and causes to be made, presented, or submitted. As the context 
requires, making or made, shall likewise include the corresponding forms 
of such terms.
    Person means any individual, partnership, corporation, association 
or private organization, and includes the plural of that term.
    Representative means an attorney who is a member in good standing of 
the bar of any State, Territory, or possession of the United States or 
of the District of Columbia or the Commonwealth of Puerto Rico.
    Reviewing official means the General Counsel of the Department or 
his or her designee who is--
    (a) Not subject to supervision by, or required to report to, the 
investigating official;
    (b) Not employed in the organizational unit of the authority in 
which the investigating official is employed; and
    (c) Serving in a position for which the rate of basic pay is not 
less than the minimum rate of basic pay for grade GS-16 under the 
General Schedule.
    Statement means any representation, certification, affirmation, 
document, record, or accounting or bookkeeping entry made--
    (a) With respect to a claim or to obtain the approval or payment of 
a claim (including relating to eligibility to make a claim); or
    (b) With respect to (including relating to eligibility for)--
    (1) A contract with, or a bid or proposal for a contract with; or
    (2) A grant, loan, or benefit from, the authority, or any State, 
political subdivision of a State, or other party, if the United States 
Government provides any portion of the money or property under such 
contract or for such grant, loan, or benefit, or if the Government will 
reimburse such State, political subdivision, or party for any portion of 
the money or property under such contract or for such grant, loan, or 
benefit,



Sec. 79.3  Basis for civil penalties and assessments.

    (a) Claims. (1) Except as provided in paragraph (c) of this section, 
any person who makes a claim that the person knows or has reason to 
know--
    (i) Is false, fictitious, or fraudulent;
    (ii) Includes, or is supported by, any written statement which 
asserts a material fact which is false, fictitious, or fraudulent;

[[Page 266]]

    (iii) Includes, or is supported by, any written statement that--
    (A) Omits a material fact;
    (B) Is false, fictitious, or fraudulent as a result of such 
omission; and
    (C) Is a statement in which the person making such statement has a 
duty to include such material fact; or
    (iv) Is for payment for the provision of property or services which 
the person has not provided as claimed, shall be subject, in addition to 
any other remedy that may be prescribed by law, to a civil penalty of 
not more than $5,500\1\for each such claim.
---------------------------------------------------------------------------

    \1\ As adjusted in accordance with the Federal Civil Monetary 
Penalty Inflation Adjustment Act of 1990 (Pub. L. 101-140), as amended 
by the Debt Collection Improvement Act of 1996 (Pub. L. 104-143).
---------------------------------------------------------------------------

    (2) Each voucher, invoice, claim form, or other individual request 
or demand for property, services, or money constitutes a separate claim.
    (3) A claim shall be considered made to the authority, recipient, or 
party when such claim is actually made to an agent, fiscal intermediary, 
or other entity, including any State or political subdivision thereof, 
acting for or on behalf of the authority, recipient, or party.
    (4) Each claim for property, services, or money is subject to a 
civil penalty regardless of whether such property, services, or money is 
actually delivered or paid.
    (5) If the Government has made any payment (including transferred 
property or provided services) on a claim, a person subject to a civil 
penalty under paragraph (a)(1) of this section shall also be subject to 
an assessment of not more than twice the amount of such claim or that 
portion thereof that is determined to be in violation of paragraph 
(a)(1). Such assessment shall be in lieu of damages sustained by the 
Government because of such claim.
    (b) Statements. (1) Except as provided in paragraph (c) of this 
section, any person who makes a written statement that--
    (i) The person knows or has reason to know--
    (A) Asserts a material fact which is false, factitious, or 
fraudulent; or
    (B) Is false, factitious, or fraudulent because it omits a material 
fact that the person making the statement has a duty to include in such 
statement; and
    (ii) Contains, or is accompanied by, an express certification or 
affirmation of the truthfulness and accuracy of the contents of the 
statement, shall be subject, in addition to any other remedy that may be 
prescribed by law, to a civil penalty of not more than $5,500 \2\ for 
each such statement.
---------------------------------------------------------------------------

    \2\ As adjusted in accordance with the Federal Civil Monetary 
Penalty Inflation Adjustment Act of 1990 (Pub. L. 101-140), as amended 
by the Debt Collection Improvement Act of 1996 (Pub. L 104-143).
---------------------------------------------------------------------------

    (2) Each representation, certification, or affirmation constitutes a 
separate statement.
    (3) A statement shall be considered made to the authority when such 
statement is actually made to an agent, fiscal intermediary, or other 
entity, including any State or political subdivision thereof, acting for 
or on behalf of the authority.
    (c) Applications for certain benefits. (1) In the case of any claim 
or statement made by any individual relating to any of the benefits 
listed in paragraph (c)(2) of this section received by such individual, 
such individual may be held liable for penalties and assessments under 
this section only if such claim or statement is made by such individual 
in making application for such benefits with respect to such 
individual's eligibility to receive such benefits.
    (2) For purposes of paragraph (c) of this section, the term benefits 
means--
    (i) Benefits under the supplemental security income program under 
title XVI of the Social Security Act;
    (ii) Old age, survivors, and disability insurance benefits under 
title II of the Social Security Act;
    (iii) Benefits under title XVIII of the Social Security Act;
    (iv) Aid to families with dependent children under a State plan 
approved under section 402(a) of the Social Security Act;
    (v) Medical assistance under a State plan approved under section 
1902(a) of the Social Security Act;
    (vi) Benefits under title XX of the Social Security Act;
    (vii) Benefits under section 336 of the Older Americans Act; or,

[[Page 267]]

    (viii) Benefits under the Low-Income Home Energy Assistance Act of 
1981, which are intended for the personal use of the individual who 
receives the benefits or for a member of the individual's family.
    (d) No proof of specific intent to defraud is required to establish 
liability under this section.
    (e) In any case in which it is determined that more than one person 
is liable for making a claim or statement under this section, each such 
person may be held liable for a civil penalty.
    (f) In any case in which it is determined that more than one person 
is liable for making a claim under this section on which the Government 
has made payment (including transferred property or provided services), 
an assessment may be imposed against any such person or jointly and 
severally against any combination of such persons.

[53 FR 11659, Apr. 8, 1988, as amended at 61 FR 52301, Oct. 7, 1996]



Sec. 79.4  Investigation.

    (a) If an investigating official concludes that a subpoena pursuant 
to the authority conferred by 31 U.S.C. 3804(a) is warranted--
    (1) The subpoena so issued shall notify the person to whom it is 
addressed of the authority under which the subpoena is issued and shall 
identify the records or documents sought;
    (2) The investigating official may designate a person to act on his 
or her behalf to receive the documents sought; and
    (3) The person receiving such subpoena shall be required to tender 
to the investigating official, or the person designated to receive the 
documents, a certification that--
    (i) The documents sought have been produced;
    (ii) Such documents are not available and the reasons therefor; or
    (iii) Such documents suitably identified, have been withheld based 
upon the assertion of an identified privilege.
    (b) If the investigating official concludes that an action under the 
Program Fraud Civil Remedies Act may be warranted, the investigating 
official shall submit a report containing the findings and conclusions 
of such investigation to the reviewing official.
    (c) Nothing in this section shall preclude or limit an investigating 
official's discretion to refer allegations directly to the Department of 
Justice for suit under the False Claims Act or other civil relief, or to 
defer or postpone a report or referral to the reviewing official to 
avoid interference with a criminal investigation or prosecution.
    (d) Nothing in this section modifies any responsibility of an 
investigating official to report violations of criminal law to the 
Attorney General.



Sec. 79.5  Review by the reviewing official.

    (a) If, based on the report of the investigating official under 
Sec. 79.4(b), the reviewing official determines that there is adequate 
evidence to believe that a person is liable under Sec. 79.3, the 
reviewing official shall transmit to the Attorney General a written 
notice of the reviewing official's attention to issue a complaint under 
Sec. 79.7.
    (b) Such notice shall include--
    (1) A statement of the reviewing official's reasons for issuing a 
complaint;
    (2) A statement specifying the evidence that supports the 
allegations of liability;
    (3) A description of the claims or statements upon which the 
allegations of liability are based;
    (4) An estimate of the amount of money, or the value of property, 
services, or other benefits, requested or demanded in violation of 
Sec. 79.3 of this part;
    (5) A statement of any exculpatory or mitigating circumstances that 
may relate to the claims or statements known by the reviewing official 
or the investigating official; and
    (6) A statement that there is a reasonable prospect of collecting an 
appropriate amount of penalties and assessments.



Sec. 79.6  Prerequisites for issuing a complaint.

    (a) The reviewing official may issue a complaint under Sec. 79.7 
only if--
    (1) The Department of Justice approves the issuance of a complaint 
in a written statement described in 31 U.S.C. 3803(b)(1), and

[[Page 268]]

    (2) In the case of allegations of liability under Sec. 79.3(a) with 
respect to a claim, the reviewing official determines that, with respect 
to such claim or a group of related claims submitted at the same time 
such claim is submitted (as defined in paragraph (b) of this section), 
the amount of money, or the value of property or services, demanded or 
requested in violation of Sec. 79.3(a) does not exceed $150,000.
    (b) For the purposes of this section, a related group of claims 
submitted at the same time shall include only those claims arising from 
the same transaction (e.g., grant, loan, application, or contract) that 
are submitted simultaneously as part of a single request, demand, or 
submission.
    (c) Nothing in this section shall be construed to limit the 
reviewing official's authority to join in a single complaint against a 
person claims that are unrelated or were not submitted simultaneously, 
regardless of the amount of money, or the value of property or services, 
demanded or requested.



Sec. 79.7  Complaint.

    (a) On or after the date the Department of Justice approves the 
issuance of a complaint in accordance with 31 U.S.C. 3803(b)(1), the 
reviewing official may serve a complaint on the defendant, as provided 
in Sec. 79.8.
    (b) The complaint shall state--
    (1) The allegations of liability against the defendant, including 
the statutory basis for liability, an identification of the claims or 
statements that are the basis for the alleged liability, and the reasons 
why liability allegedly arises from such claims or statements;
    (2) The maximum amount of penalties and assessments for which the 
defendant may be held liable;
    (3) Instructions for filing an answer to request a hearing, 
including a specific statement of the defendant's right to request a 
hearing by filing an answer and to be represented by a representative; 
and
    (4) That failure to file an answer as set forth in Sec. 79.9 will 
result in the imposition of the maximum amount of penalties and 
assessments without right to appeal, as provided in Sec. 79.10.
    (c) At the same time the reviewing official serves the complaint, he 
or she shall serve the defendant with a copy of these regulations.



Sec. 79.8  Service of complaint.

    (a) Service of a complaint must be made by certified or registered 
mail or by delivery in any manner authorized by Rule 4(d) of the Federal 
Rules of Civil Procedure. Service is complete upon receipt.
    (b) Proof of service, stating the name and address of the person on 
whom the complaint was served, and the manner and date of service, may 
be made by--
    (1) Affidavit of the individual serving the complaint by delivery;
    (2) A United States Postal Service return receipt card acknowledging 
receipt; or
    (3) Written acknowledgment of receipt by the defendant or his or her 
representative.



Sec. 79.9  Answer.

    (a) The defendant may request a hearing by filing an answer with the 
reviewing official within 30 days of service of the complaint. An answer 
shall be deemed to be a request for hearing.
    (b) In the answer, the defendant--
    (1) Shall admit or deny each of the allegations of liability made in 
the complaint;
    (2) Shall state any defense on which the defendant intends to rely;
    (3) May state any reasons why the defendant contends that the 
penalties and assessments should be less than the statutory maximum; and
    (4) Shall state the name, address, and telephone number of the 
person authorized by the defendant to act as defendant's representative, 
if any.
    (c) If the defendant is unable to file an answer meeting the 
requirements of paragraph (b) of this section within the time provided, 
the defendant, before that time expires, may file with the reviewing 
official a general answer denying liability and requesting a hearing, 
and a request for an extension of time within which to file an answer 
meeting the requirements of paragraph (b) of this section. As provided 
in Sec. 79.11, the reviewing official shall file promptly

[[Page 269]]

with the ALJ the complaint, the general answer denying liability, and 
the request for an extension of time. For good cause shown, the ALJ may 
grant the defendant up to 30 additional days within which to file an 
answer meeting the requirements of paragraph (b) of this section.



Sec. 79.10  Default upon failure to file an answer.

    (a) If the defendant does not file an answer within the time 
prescribed in Sec. 79.9(a), the reviewing official may refer the 
complaint to the ALJ.
    (b) Upon the referral of the complaint, the ALJ shall promptly serve 
on the defendant in the manner prescribed in Sec. 79.8, a notice that an 
initial decision will be issued under this section.
    (c) The ALJ shall assume the facts alleged in the complaint to be 
true and, if such facts establish liability under Sec. 79.3, the ALJ 
shall issue an initial decision imposing the maximum amount of penalties 
and assessments allowed under the statute.
    (d) Except as otherwise provided in this section, by failing to file 
a timely answer, the defendant waives any right to further review of the 
penalties and assessments imposed under paragraph (c) of this section, 
and the initial decision shall become final and binding upon the parties 
30 days after it is issued.
    (e) If, before such an initial decision becomes final, the defendant 
files a motion with the ALJ seeking to reopen on the grounds that 
extraordinary circumstances prevented the defendant from filing an 
answer, the initial decision shall be stayed pending the ALJ's decision 
on the motion.
    (f) If, on such motion, the defendant can demonstrate extraordinary 
circumstances excusing the failure to file a timely answer, the ALJ 
shall withdraw the initial decision in paragraph (c) of this section, if 
such a decision has been issued, and shall grant the defendant an 
opportunity to answer the complaint.
    (g) A decision of the ALJ denying a defendant's motion under 
paragraph (e) of this section is not subject to reconsideration under 
Sec. 79.38.
    (h) The defendant may appeal to the authority head the decision 
denying a motion to reopen by filing a notice of appeal with the 
authority head within 15 days after the ALJ denies the motion. The 
timely filing of a notice of appeal shall stay the initial decision 
until the authority head decides the issue.
    (i) If the defendant files a timely notice of appeal with the 
authority head, the ALJ shall forward the record of the proceeding to 
the authority head.
    (j) The authority head shall decide expeditiously whether 
extraordinary circumstances excuse the defendant's failure to file a 
timely answer based solely on the record before the ALJ.
    (k) If the authority head decides that extraordinary circumstances 
excuse the defendant's failure to file a timely answer, the authority 
head shall remand the case to the ALJ with instructions to grant the 
defendant an opportunity to answer.
    (l) If the authority head decides that the defendant's failure to 
file a timely answer is not excused, the authority head shall reinstate 
the initial decision of the ALJ, which shall become final and binding 
upon the parties 30 days after the authority head issues such decision.



Sec. 79.11  Referral of complaint and answer to the ALJ.

    Upon receipt of an answer, the reviewing official shall file the 
complaint and answer with the ALJ.



Sec. 79.12  Notice of hearing.

    (a) When the ALJ receives the complaint and answer, the ALJ shall 
promptly serve a notice of hearing upon the defendant in the manner 
prescribed by Sec. 79.8. At the same time, the ALJ shall send a copy of 
such notice to the representative for the Government.
    (b) Such notice shall include--
    (1) The tentative time and place, and the nature of the hearing;
    (2) The legal authority and jurisdiction under which the hearing is 
to be held;
    (3) The matters of fact and law to be asserted;
    (4) A description of the procedures for the conduct of the hearing;

[[Page 270]]

    (5) The name, address, and telephone number of the representative of 
the Government and of the defendant, if any; and
    (6) Such other matters as the ALJ deems appropriate.



Sec. 79.13  Parties to the hearing.

    (a) The parities to the hearing shall be the defendant and the 
authority.
    (b) Pursuant to 31 U.S.C. 3730(c)(5), a private plaintiff under the 
False Claims Act may participate in these proceedings to the extent 
authorized by the provisions of that Act.



Sec. 79.14  Separation of functions.

    (a) The investigating official, the reviewing official, and any 
employee or agent of the authority who takes part in investigating, 
preparing, or presenting a particular case may not, in such case or a 
factually related case--
    (1) Participate in the hearing as the ALJ;
    (2) Participate or advise in the initial decision or the review of 
the initial decision by the authority head, except as a witness or a 
representative in public proceedings; or
    (3) Make the collection of penalties and assessments under 31 U.S.C. 
3806.
    (b) The ALJ shall not be responsible to, or subject to the 
supervision or direction of, the investigating official or the reviewing 
official.
    (c) Except as provided in paragraph (a) of this section, the 
representative for the Government may be employed anywhere in the 
authority, including in the offices of either the investigating official 
or the reviewing official.



Sec. 79.15  Ex parte contacts.

    No party or person (except employees of the ALJ's office) shall 
communciate in any way with the ALJ on any matter at issue in a case, 
unless on notice and opportunity for all parties to participate. This 
provision does not prohibit a person or party from inquiring about the 
status of a case or asking routine questions concerning administrative 
functions or procedures.



Sec. 79.16  Disqualification of reviewing official or ALJ.

    (a) A reviewing official or ALJ in a particular case may disqualify 
himself or herself at any time.
    (b) A party may file with the ALJ a motion for disqualification of a 
reviewing official or an ALJ. Such motion shall be accompanied by an 
affidavit alleging personal bias or other reason for disqualification.
    (c) Such motion and affidavit shall be filed promptly upon the 
party's discovery of reasons requiring disqualification, or such 
objections shall be deemed waived.
    (d) Such affidavit shall state specific facts that support the 
party's belief that personal bias or other reason for disqualification 
exists and the time and circumstances of the party's discovery of such 
facts. It shall be accompanied by a certificate of the representative of 
record that it is made in good faith.
    (e) Upon the filing of such a motion and affidavit, the ALJ shall 
proceed no further in the case until he or she resolves the matter of 
disqualification in accordance with paragraph (f) of this section.
    (f)(1) If the ALJ determines that a reviewing official is 
disqualified, the ALJ shall dismiss the complaint without prejudice.
    (2) If the ALJ disqualifies himself or herself, the case shall be 
reassigned promptly to another ALJ.
    (3) If the ALJ denies a motion to disqualify, the authority head may 
determine the matter only as part of his or her review of the initial 
decision upon appeal, if any.



Sec. 79.17  Rights of parties.

    Except as otherwise limited by this part, all parties may--
    (a) Be accompanied, represented, and advised by a representative;
    (b) Participate in any conference held by the ALJ;
    (c) Conduct discovery;
    (d) Agree to stipulations of fact or law, which shall be made part 
of the record;
    (e) Present evidence relevant to the issues at the hearing;
    (f) Present and cross-examine witnesses;

[[Page 271]]

    (g) Present oral arguments at the hearing as permitted by the ALJ; 
and
    (h) Submit written briefs and proposed findings of fact and 
conclusions of law after the hearing.



Sec. 79.18  Authority of the ALJ.

    (a) The ALJ shall conduct a fair and impartial hearing, avoid delay, 
maintain order, and assure that a record of the proceeding is made.
    (b) The ALJ has the authority to--
    (1) Set and change the date, time, and place of the hearing upon 
reasonable notice to the parties;
    (2) Continue or recess the hearing in whole or in part for a 
reasonable period of time;
    (3) Hold conferences to identify or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the proceeding;
    (4) Administer oaths and affirmations;
    (5) Issue subpoenas requiring the attendance of witnesses and the 
production of documents at depositions or at hearings;
    (6) Rule on motions and other procedural matters;
    (7) Regulate the scope and timing of discovery;
    (8) Regulate the course of the hearing and the conduct of 
representatives and parties;
    (9) Examine witnesses;
    (10) Receive, rule on, exclude, or limit evidence;
    (11) Upon motion of a party, take official notice of facts;
    (12) Upon motion of a party, decide cases, in whole or in part, by 
summary judgment where there is no disputed issue of material fact;
    (13) Conduct any conference, argument, or hearing on motions in 
person or by telephone; and
    (14) Exercise such other authority as is necessary to carry out the 
responsibilities of the ALJ under this part.
    (c) The ALJ does not have the authority to find Federal statutes or 
regulations invalid.



Sec. 79.19  Prehearing conferences.

    (a) The ALJ may schedule prehearing conferences as appropriate.
    (b) Upon the motion of any party, the ALJ shall schedule at least 
one prehearing conference at a reasonable time in advance of the 
hearing.
    (c) The ALJ may use prehearing conferences to discuss the following:
    (1) Simplication of the issues;
    (2) The necessity or desirability of amendments to the pleadings, 
including the need for a more definite statement;
    (3) Stipulations and admissions of fact----, or as to the contents 
and authenticity of documents;
    (4) Whether the parties can agree to submission of the case on a 
stipulated record;
    (5) Whether a party chooses to waive appearance at an oral hearing 
and to submit only documentary evidence (subject to the objection of 
other parties) and written argument;
    (6) Limitation of the number of witnesses;
    (7) Scheduling dates for the exchange of witness lists and of 
proposed exhibits;
    (8) Discovery;
    (9) The time and place for the hearing; and
    (10) Such other matters as may tend to expedite the fair and just 
disposition of the proceedings.
    (d) The ALJ may issue an order containing all matters agreed upon by 
the parties or ordered by the ALJ at a prehearing conference.



Sec. 79.20  Disclosure of documents.

    (a) Upon written request to the reviewing official, the defendant 
may review any relevant and material documents, transcripts, records, 
and other materials that relate to the allegations set out in the 
complaint and upon which the findings and conclusions of the 
investigating official under Sec. 79.4(b) are based, unless such 
documents are subject to a privilege under Federal law. Upon payment of 
fees for duplication, the defendant may obtain copies of such documents.
    (b) Upon written request to the reviewing official, the defendant 
also may obtain a copy of all exculpatory information in the possession 
of the reviewing official or investigating official relating to the 
allegations in the complaint, even if it is contained in a document that 
would otherwise be

[[Page 272]]

privileged. If the document would otherwise be privileged, only that 
portion containing exculpatory information must be disclosed.
    (c) The notice sent to the Attorney General from the reviewing 
official as described in Sec. 79.5 is not discoverable under any 
circumstances.
    (d) The defendant may file a motion to compel disclosure of the 
documents subject to the provisions of this section. Such a motion may 
only be filed with the ALJ following the filing of an answer pursuant to 
Sec. 79.9.



Sec. 79.21  Discovery.

    (a) The following types of discovery are authorized:
    (1) Requests for production of documents for inspection and copying;
    (2) Requests for admission of the contents or authenticity of any 
relevant document or of the truth of any revelant fact;
    (3) Written interrogatories; and
    (4) Depositions.
    (b) For the purpose of this section and Secs. 79.22 and 79.23, the 
term documents includes information, documents, reports, answers, 
records, accounts, papers, and other data and documentary evidence. 
Nothing contained herein shall be interpreted to require the creation of 
a document.
    (c) Unless mutually agreed to by the parties, discovery is available 
only as ordered by the ALJ. The ALJ shall regulate the timing of 
discovery.
    (d) Motions for discovery. (1) A party seeking discovery may file a 
motion with the ALJ. Such a motion shall be accompanied by a copy of the 
requested discovery, or in the case of depositions, a summary of the 
scope of the proposed deposition.
    (2) Within ten days of service, a party may file an opposition to 
the motion and/or a motion for protective order as provided in 
Sec. 79.24.
    (3) The ALJ may grant a motion for discovery only if he or she finds 
that the discovery sought--
    (i) Is necessary for the expeditious, fair, and reasonable 
consideration of the issues;
    (ii) Is not unduly costly or burdensome;
    (iii) Will not unduly delay the proceeding; and
    (iv) Does not seek privileged information.
    (4) The burden of showing that discovery should be allowed is on the 
party seeking discovery.
    (5) The ALJ may grant discovery subject to a protective order under 
Sec. 79.24.
    (e) Depositions. (1) If a motion for deposition is granted, the ALJ 
shall issue a subpoena for the deponent, which may require the deponent 
to produce documents. The subpoena shall specify the time and place at 
which the deposition will be held.
    (2) The party seeking to depose shall serve the subpoena in the 
manner prescribed in Sec. 79.8.
    (3) The deponent may file with the ALJ a motion to quash the 
subpoena or a motion for a protective order within ten days of service.
    (4) The party seeking to depose shall provide for the taking of a 
verbatim transcript of the deposition, which it shall make available to 
all other parties for inspection and copying.
    (f) Each party shall bear its own costs of discovery.



Sec. 79.22  Exchange of witness lists, statements and exhibits.

    (a) At least 15 days before the hearing or at such other time as may 
be ordered by the ALJ, the parties shall exchange witness lists, copies 
of prior statements of proposed witnesses, and copies of proposed 
hearing exhibits, including copies of any written statements that the 
party intends to offer in lieu of live testimony in accordance with 
Sec. 79.33(b). At the time the above documents are exchanged, any party 
that intends to rely on the transcript of deposition testimony in lieu 
of live testimony at the hearing, if permitted by the ALJ, shall provide 
each party with a copy of the specific pages of the transcript it 
intends to introduce into evidence.
    (b) If a party objects, the ALJ shall not admit into evidence the 
testimony of any witness whose name does not appear on the witness list 
or any exhibit not provided to the opposing party as provided above 
unless the ALJ finds good cause for the failure or that there is no 
prejudice to the objecting party.

[[Page 273]]

    (c) Unless another party objects within the time set by the ALJ, 
documents exchanged in accordance with paragraph (a) of this section 
shall be deemed to be authentic for the purpose of admissibility at the 
hearing.



Sec. 79.23  Subpoenas for attendance at hearing.

    (a) A party wishing to procure the appearance and testimony of any 
individual at the hearing may request that the ALJ issue a subpoena.
    (b) A subpoena requiring the attendance and testimony of an 
individual may also require the individual to produce documents at the 
hearing.
    (c) A party seeking a subpoena shall file a written request therefor 
not less than 15 days before the date fixed for the hearing unless 
otherwise allowed by the ALJ for good cause shown. Such request shall 
specify any documents to be produced and shall designate the witnesses 
and describe the address and location thereof with sufficient 
particularity to permit such witnesses to be found.
    (d) The subpoena shall specify the time and place at which the 
witness is to appear and any documents the witness is to produce.
    (e) The party seeking the subpoena shall serve it in the manner 
prescribed in Sec. 79.8, except that a subpoena on a party or upon an 
individual under the control of a party may be served as prescribed in 
Sec. 79.26(b).
    (f) A party or the individual to whom the subpoena is directed may 
file with the ALJ a motion to quash the subpoena within ten days after 
service or on or before the time specified in the subpoena for 
compliance if it is less than ten days after service.



Sec. 79.24  Protective order.

    (a) A party or a prospective witness or deponent may file a motion 
for a protective order with respect to discovery sought by an opposing 
party or with respect to the hearing, seeking to limit the availability 
or disclosure of evidence.
    (b) In issuing a protective order, the ALJ may make any order which 
justice requires to protect a party or person from annoyance, 
embarrassment, oppression, or undue burden or expense, including one or 
more of the following:
    (1) That the discovery not be had;
    (2) That the discovery may be had only on specified terms and 
conditions, including a designation of the time or place;
    (3) That the discovery may be had only through a method of discovery 
other than that requested:
    (4) That certain matters not be inquired into, or that the scope of 
discovery be limited to certain matters;
    (5) That discovery be conducted with no one present except persons 
designated by the ALJ;
    (6) That the contents of discovery or evidence be sealed;
    (7) That a deposition after being sealed be opened only by order of 
the ALJ;
    (8) That a trade secret or other confidential research, development, 
commercial information, or facts pertaining to any criminal 
investigation, proceeding, or other administrative investigation not be 
disclosed or be disclosed only in a designated way; or
    (9) That the parties simultaneously file specified documents or 
information enclosed in sealed envelopes to be opened as directed by the 
ALJ.



Sec. 79.25  Fees.

    The party requesting a subpoena shall pay the cost of the fees and 
mileage of any witness subpoenaed in the amounts that would be payable 
to a witness in a proceeding in United States District Court. A check 
for witness fees and mileage shall accompany the subpoena when served, 
except that when a subpoena is issued on behalf of the authority, a 
check for witness fees and mileage need not accompany the subpoena.



Sec. 79.26  Form, filing and service of papers.

    (a) Form. (1) Documents filed with the ALJ shall include an original 
and two copies.
    (2) Every pleading and paper filed in the proceeding shall contain a 
caption setting forth the title of the action, the case number assigned 
by the ALJ, and a designation of the paper (e.g., motion to quash 
subpoena).

[[Page 274]]

    (3) Every pleading and paper shall be signed by, and shall contain 
the address and telephone number of, the party or the person on whose 
behalf the paper was filed, or his or her representative.
    (4) Papers are considered filed when they are mailed. Date of 
mailing may be established by a certificate from the party or its 
representative or by proof that the document was sent by certified or 
registered mail.
    (b) Service. A party filing a document with the ALJ shall, at the 
time of filing, serve a copy of such document on every other party. 
Service upon any party of any document other than those required to be 
served as prescribed in Sec. 79.8 shall be made by delivering a copy or 
by placing a copy of the document in the United States mail, postage 
prepaid, and addressed to the party's last known address. When a party 
is represented by a representative, service shall be made upon such 
representative in lieu of the actual party.
    (c) Proof of service. A certificate of the individual serving the 
document by personal delivery or by mail, setting forth the manner of 
service, shall be proof of service.



Sec. 79.27  Computation of time.

    (a) In computing any period of time under this part or in an order 
issued thereunder, the time begins with the day following the act, 
event, or default, and includes the last day of the period, unless it is 
a Saturday, Sunday, or legal holiday observed by the Federal government, 
in which event it includes the next business day.
    (b) Except as provided in paragraph (c) of this section, when the 
period of time allowed is less than seven days, intermediate Saturdays, 
Sundays, and legal holidays observed by the Federal government shall be 
excluded from the computation.
    (c) Where a document has been served or issued by placing it in the 
mail, an additional five calendar days will be added to the time 
permitted for any response.



Sec. 79.28  Motions.

    (a) Any application to the ALJ for an order or ruling shall be by 
motion. Motions shall state the relief sought, the authority relied 
upon, and the facts alleged, and shall be filed with the ALJ and served 
on all other parties.
    (b) Except for motions made during a prehearing conference or at the 
hearing, all motions shall be in writing. The ALJ may require that oral 
motions be reduced to writing.
    (c) Within 15 days after a written motion is served, or such other 
time as may be fixed by the ALJ, any party may file a response to such 
motion.
    (d) The ALJ may not grant a written motion before the time for 
filing responses thereto has expired, except upon consent of the parties 
or following a hearing on the motion, but may overrule or deny such 
motion without awaiting a response.
    (e) The ALJ shall make a reasonable effort to dispose of all 
outstanding motions prior to the beginning of the hearing.



Sec. 79.29  Sanctions.

    (a) The ALJ may sanction a person, including any party or 
representative, for--
    (1) Failing to comply with an order, rule, or procedure governing 
the proceeding;
    (2) Failing to prosecute or defend an action; or
    (3) Engaging in other misconduct that interferes with the speedy, 
orderly, or fair conduct of the hearing.
    (b) Any such sanction, including but not limited to those listed in 
paragraphs (c), (d), and (e) of this section, shall reasonably relate to 
the severity and nature of the failure or misconduct.
    (c) When a party fails to comply with an order, including an order 
for taking a deposition, the production of evidence within the party's 
control, or a request for admission, the ALJ may--
    (1) Draw an inference in favor of the requesting party with regard 
to the information sought;
    (2) In the case of requests for admission, deem each matter of which 
an admission is requested to be admitted;
    (3) Prohibit the party failing to comply with such order from 
introducing evidence concerning, or otherwise relying upon, testimony 
relating to the information sought; and

[[Page 275]]

    (4) Strike any part of the pleadings or other submissions of the 
party failing to comply with such request.
    (d) If a party fails to prosecute or defend an action under this 
part commenced by service of a notice of hearing, the ALJ may dismiss 
the action or may issue an initial decision imposing penalties and 
assessments.
    (e) The ALJ may refuse to consider any motion, request, response, 
brief or other document which is not filed in a timely fashion.



Sec. 79.30  The hearing and burden of proof.

    (a) The ALJ shall conduct a hearing on the record in order to 
determine whether the defendant is liable for a civil penalty or 
assessment under Sec. 79.3 and, if so, the appropriate amount of any 
such civil penalty or assessment considering any aggravating or 
mitigating factors.
    (b) The authority shall prove defendant's liability and any 
aggravating factors by a preponderance of the evidence.
    (c) The defendant shall prove any affirmative defenses and any 
mitigating factors by a preponderance of the evidence.
    (d) The hearing shall be open to the public unless otherwise ordered 
by the ALJ for good cause shown.



Sec. 79.31  Determining the amount of penalties and assessments.

    (a) In determining an appropriate amount of civil penalties and 
assessments, the ALJ and the authority head, upon appeal, should 
evaluate any circumstances that mitigate or aggravate the violation and 
should articulate in their opinions the reasons that support the 
penalties and assessments they impose. Because of the intangible costs 
of fraud, the expense of investigating such conduct, and the need to 
deter others who might be similarly tempted, ordinarily double damages 
and a significant civil penalty should be imposed.
    (b) Although not exhaustive, the following factors are among those 
that may influence the ALJ and the authority head in determining the 
amount of penalties and assessments to impose with respect to the 
misconduct (i.e., the false, fictitious, or fraudulent claims or 
statements) charged in the complaint:
    (1) The number of false, fictitious, or fraudulent claims or 
statements;
    (2) The time period over which such claims or statements were made;
    (3) The degree of the defendant's culpability with respect to the 
misconduct;
    (4) The amount of money or the value of the property, services, or 
benefit falsely claimed;
    (5) The value of the Government's actual loss as a result of the 
misconduct, including foreseeable consequential damages and the costs of 
investigation;
    (6) The relationship of the amount imposed as civil penalties to the 
amount of the Government's loss;
    (7) The potential or actual impact of the misconduct upon national 
defense, public health or safety, or public confidence in the management 
of Government programs and operations, including particularly the impact 
on the intended beneficiaries of such programs;
    (8) Whether the defendant has engaged in a pattern of the same or 
similar misconduct;
    (9) Whether the defendant attempted to conceal the misconduct;
    (10) The degree to which the defendant has involved others in the 
misconduct or in concealing it;
    (11) Where the misconduct of employees or agents is imputed to the 
defendant, the extent to which the defendant's practices fostered or 
attempted to preclude such misconduct;
    (12) Whether the defendant cooperated in or obstructed an 
investigation of the misconduct;
    (13) Whether the defendant assisted in identifying and prosecuting 
other wrongdoers;
    (14) The complexity of the program or transaction, and the degree of 
the defendant's sophistication with respect to it, including the extent 
of the defendant's prior participation in the program or in similar 
transactions;
    (15) Whether the defendant has been found, in any criminal, civil, 
or administrative proceeding, to have engaged in similar misconduct or 
to have dealt dishonestly with the Government of the United States or of 
a State, directly or indirectly; and

[[Page 276]]

    (16) The need to deter the defendant and others from engaging in the 
same or similar misconduct.
    (c) Nothing in this section shall be construed to limit the ALJ or 
the authority head from considering any other factors that in any given 
case may mitigate or aggravate the offense for which penalties and 
assessments are imposed.



Sec. 79.32  Location of hearing.

    (a) The hearing may be held--
    (1) In any judicial district of the United States in which the 
defendant resides or transacts business;
    (2) In any judicial district of the United States in which the claim 
or statement in issue was made; or
    (3) In such other place as may be agreed upon by the defendant and 
the ALJ.
    (b) Each party shall have the opportunity to present argument with 
respect to the location of the hearing.
    (c) The hearing shall be held at the place and at the time ordered 
by the ALJ.



Sec. 79.33  Witnesses.

    (a) Except as provided in paragraph (b) of this section, testimony 
at the hearing shall be given orally by witnesses under oath or 
affirmation.
    (b) At the discretion of the ALJ, testimony may be admitted in the 
form of a written statement or deposition. Any such written statement 
must be provided to all other parties along with the last known address 
of such witness, in a manner which allows sufficient time for other 
parties to subpoena such witness for cross-examination at the hearing. 
Prior written statements of witnesses proposed to testify at the hearing 
and deposition transcripts shall be exchanged as provided in 
Sec. 79.22(a).
    (c) The ALJ shall exercise reasonable control over the mode and 
order of interrogating witnesses and presenting evidence so as to (1) 
make the interrogation and presentation effective for the ascertainment 
of the truth, (2) avoid needless consumption of time, and (3) protect 
witnesses from harassment or undue embarrassment.
    (d) The ALJ shall permit the parties to conduct such cross-
examination as may be required for a full and true disclosure of the 
facts.
    (e) At the discretion of the ALJ, a witness may be cross-examined on 
matters relevant to the proceeding without regard to the scope of his or 
her direct examination. To the extent permitted by the ALJ, cross-
examination on matters outside the scope of direct examination shall be 
conducted in the manner of direct examination and may proceed by leading 
questions only if the witness is a hostile witness, an adverse party, or 
a witness identified with an adverse party.
    (f) Upon motion of any party, the ALJ shall order witnesses excluded 
so that they cannot hear the testimony of other witnesses. This rule 
does not authorize exclusion of--
    (1) A party who is an individual;
    (2) In the case of a party that is not an individual, an officer or 
employee of the party appearing for the entity pro se or designated by 
the party's representative; or
    (3) An individual whose presence is shown by a party to be essential 
to the presentation of its case, including an individual employed by the 
Government engaged in assisting the representative for the Government.



Sec. 79.34  Evidence.

    (a) The ALJ shall determine the admissibility of evidence.
    (b) Except as provided in this part, the ALJ shall not be bound by 
the Federal Rules of Evidence. However, the ALJ may apply the Federal 
Rules of Evidence where appropriate, e.g., to exclude unreliable 
evidence.
    (c) The ALJ shall exclude irrelevant and immaterial evidence.
    (d) Although relevant, evidence may be excluded if its probative 
value is substantially outweighed by the danger of unfair prejudice, 
confusion of the issues, or by considerations of undue delay or needless 
presentation of cumulative evidence.
    (e) Although relevant, evidence may be excluded if it is privileged 
under Federal law.
    (f) Evidence concerning offers of compromise or settlement shall be 
inadmissible to the extent provided in Rule 408 of the Federal Rules of 
Evidence.

[[Page 277]]

    (g) The ALJ shall permit the parties to introduce rebuttal witnesses 
and evidence.
    (h) All documents and other evidence offered or taken for the record 
shall be open to examination by all parties, unless otherwise ordered by 
the ALJ pursuant to Sec. 79.24.



Sec. 79.35  The record.

    (a) The hearing will be recorded and transcribed. Transcripts may be 
obtained following the hearing from the ALJ at a cost not to exceed the 
actual cost of duplication.
    (b) The transcript of testimony, exhibits and other evidence 
admitted at the hearing, and all papers and requests filed in the 
proceeding constitute the record for the decision by the ALJ and the 
authority head.
    (c) The record may be inspected and copied (upon payment of a 
reasonable fee) by anyone, unless otherwise ordered by the ALJ pursuant 
to Sec. 79.24.



Sec. 79.36  Post-hearing briefs.

    The ALJ may require the parties to file post-hearing briefs. In any 
event, any party may file a post-hearing brief. The ALJ shall fix the 
time for filing such briefs, not to exceed 60 days from the date the 
party receives the transcript of the hearing or, if applicable, the 
stipulated record. Such briefs may be accompanied by proposed findings 
of fact and conclusions of law. The ALJ may permit the parties to file 
reply briefs.



Sec. 79.37  Initial decision.

    (a) The ALJ shall issue an initial decision based only on the 
record, which shall contain findings of fact, conclusions of law, and 
the amount of any penalties and assessments imposed.
    (b) The findings of fact shall include a finding on each of the 
following issues:
    (1) Whether the claims or statements identified in the complaint, or 
any portions thereof, violate Sec. 79.3;
    (2) If the person is liable for penalties or assessments, the 
appropriate amount of any such penalties or assessments considering any 
mitigating or aggravating factors that he or she finds in the case, such 
as those described in Sec. 79.31.
    (c) The ALJ shall promptly serve the initial decision on all parties 
within 90 days after the time for submission of post-hearing briefs and 
reply briefs (if permitted) has expired. The ALJ shall at the same time 
serve all parties with a statement describing the right of any defendant 
determined to be liable for a civil penalty or assessment to file a 
motion for reconsideration with the ALJ or a notice of appeal with the 
authority head. If the ALJ fails to meet the deadline contained in this 
paragraph, he or she shall notify the parties of the reason for the 
delay and shall set a new deadline.
    (d) Unless the initial decision of the ALJ is timely appealed to the 
authority head, or a motion for reconsideration of the initial decision 
is timely filed, the initial decision shall constitute the final 
decision of the authority head and shall be final and binding on the 
parties 30 days after it is issued by the ALJ.



Sec. 79.38  Reconsideration of initial decision.

    (a) Except as provided in paragraph (d) of this section, any party 
may file a motion for reconsideration of the initial decision within 20 
days of receipt of the initial decision. If service was made by mail, 
receipt will be presumed to be five days from the date of mailing in the 
absence of contrary proof.
    (b) Every such motion must set forth the matters claimed to have 
been erroneously decided and the nature of the alleged errors. Such 
motion shall be accompanied by a supporting brief.
    (c) Responses to such motions shall be allowed only upon request of 
the ALJ.
    (d) No party may file a motion for reconsideration of an initial 
decision that has been revised in response to a previous motion for 
reconsideration.
    (e) The ALJ may dispose of a motion for reconsideration by denying 
it or by issuing a revised initial decision.
    (f) If the ALJ denies a motion for reconsideration, the initial 
decision shall constitute the final decision of the authority head and 
shall be final and binding on the parties 30 days after the ALJ denies 
the motion, unless the initial decision is timely appealed to the

[[Page 278]]

authority head in accordance with Sec. 79.39.
    (g) If the ALJ issues a revised initial decision, that decision 
shall constitute the final decision of the authority head and shall be 
final and binding on the parties 30 days after it is issued, unless it 
is timely appealed to the authority head in accordance with Sec. 79.39.



Sec. 79.39  Appeal to authority head.

    (a) Any defendant who has filed a timely answer and who is 
determined in an initial decision to be liable for a civil penalty or 
assessment may appeal such decision to the authority head by filing a 
notice of appeal with the authority head in accordance with this 
section.
    (b)(1) A notice of appeal may be filed at any time within 30 days 
after the ALJ issues an initial decision. However, if another party 
files a motion for reconsideration under Sec. 79.38, consideration of 
the appeal shall be stayed automatically pending resolution of the 
motion for reconsideration.
    (2) If a motion for reconsideration is timely filed, a notice of 
appeal must be filed within 30 days after the ALJ denies the motion or 
issues a revised initial decision, whichever applies.
    (3) If no motion for reconsideration is timely filed, a notice of 
appeal must be filed within 30 days after the ALJ issues the initial 
decision.
    (4) The authority head may extend the initial 30-day period for an 
additional 30-days if the defendant files with the authority head a 
request for an extension within the initial 30 day period and shows good 
cause.
    (c) If the defendant files a timely notice of appeal with the 
authority head, and the time for filing motions for reconsideration 
under Sec. 79.38 has expired, the ALJ shall forward the record of the 
proceeding to the authority head.
    (d) A notice of appeal shall be accompanied by a written brief 
specifying exceptions to the initial decision and reasons supporting the 
exceptions.
    (e) The representative for the Government may file a brief in 
opposition to exceptions within 30 days of receiving the notice of 
appeal and accompanying brief.
    (f) There is no right to appear personally before the authority 
head.
    (g) There is no right to appeal any interlocutory ruling by the ALJ.
    (h) In reviewing the initial decision, the authority head shall not 
consider any objection that was not raised before the ALJ unless a 
demonstration is made of extraordinary circumstances causing the failure 
to raise the objection.
    (i) If any party demonstrates to the satisfaction of the authority 
head that additional evidence not presented at such hearing is material 
and that there were reasonable grounds for the failure to present such 
evidence at such hearing, the authority head shall remand the matter to 
the ALJ for consideration of such additional evidence.
    (j) The authority head may affirm, reduce, reverse, compromise, 
remand, or settle any penalty or assessment determined by the ALJ in any 
initial decision.
    (k) The authority head shall promptly serve each party to the appeal 
with a copy of the decision of the authority head and a statement 
describing the right of any person determined to be liable for a penalty 
or assessment to seek judicial review.
    (l) Unless a petition for review is filed as provided in 31 U.S.C. 
3805 after a defendant has exhausted all administrative remedies under 
this part and within 60 days after the date on which the authority head 
serves the defendant with a copy of the authority head's decision, a 
determination that a defendant is liable under Sec. 79.3 is final and is 
not subject to judicial review.



Sec. 79.40  Stays ordered by the Department of Justice.

    If at any time the Attorney General or an Assistant Attorney General 
designated by the Attorney General transmits to the authority head a 
written finding that continuation of the administrative process 
described in this part with respect to a claim or statement may 
adversely affect any pending or potential criminal or civil action 
related to such claim or statement, the authority head shall stay the 
process immediately. The authority head may order the process resumed 
only upon receipt of the written authorization of the Attorney General.

[[Page 279]]



Sec. 79.41  Stay pending appeal.

    (a) An initial decision is stayed automatically pending disposition 
of a motion for reconsideration or of an appeal to the authority head.
    (b) No administrative stay is available following a final decision 
of the authority head.



Sec. 79.42  Judicial review.

    Section 3805 of title 31, United States Code, authorizes judicial 
review by an appropriate United States District Court of a final 
decision of the authority head imposing penalties or assessments under 
this part and specifies the procedures for such review.



Sec. 79.43  Collection of civil penalties and assessments.

    Sections 3806 and 3808(b) of title 31, United States Code, authorize 
actions for collection of civil penalties and assessments imposed under 
this part and specify the procedures for such actions.



Sec. 79.44  Right to administrative offset.

    The amount of any penalty or assessment which has become final, or 
for which a judgment has been entered under Sec. 79.42 or Sec. 79.43, or 
any amount agreed upon in a compromise or settlement under Sec. 79.46, 
may be collected by administrative offset under 31 U.S.C. 3716, except 
that an administrative offset may not be made under this subsection 
against a refund of an overpayment of Federal taxes, then or later owing 
by the United States to the defendant.



Sec. 79.45  Deposit in Treasury of United States.

    All amounts collected pursuant to this part shall be deposited as 
miscellaneous receipts in the Treasury of the United States, except as 
provided in 31 U.S.C. 3806(g).



Sec. 79.46  Compromise or settlement.

    (a) Parties may make offers of compromise or settlement at any time.
    (b) The reviewing official has the exclusive authority to compromise 
or settle a case under this part at any time after the date on which the 
reviewing official is permitted to issue a complaint and before the date 
on which the ALJ issues an initial decision.
    (c) The authority head has exclusive authority to compromise or 
settle a case under this part at any time after the date on which the 
ALJ issues an initial decision, except during the pendency of any review 
under Sec. 79.42 or during the pendency of any action to collect 
penalties and assessments under Sec. 79.43.
    (d) The Attorney General has exclusive authority to compromise or 
settle a case under this part during the pendency of any review under 
Sec. 79.42 or of any action to recover penalties and assessments under 
31 U.S.C. 3806.
    (e) The investigating official may recommend settlement terms to the 
reviewing official, the authority head, or the Attorney General, as 
appropriate. The reviewing official may recommend settlement terms to 
the authority head, or the Attorney General, as appropriate.
    (f) Any compromise or settlement must be in writing.



Sec. 79.47  Limitations.

    (a) The notice of hearing with respect to a claim or statement must 
be served in the manner specified in Sec. 79.8 within 6 years after the 
date on which such claim or statement is made.
    (b) If the defendant fails to file a timely answer, service of a 
notice under Sec. 79.10(b) shall be deemed a notice of hearing for 
purposes of this section.
    (c) The statute of limitations may be extended by agreement of the 
parties.



PART 80--NONDISCRIMINATION UNDER PROGRAMS RECEIVING FEDERAL ASSISTANCE THROUGH THE DEPARTMENT OF HEALTH AND HUMAN SERVICES EFFECTUATION OF TITLE VI OF THE CIVIL 
RIGHTS ACT OF 1964--Table of Contents




Sec.
80.1  Purpose.
80.2  Application of this regulation.
80.3  Discrimination prohibited.
80.4  Assurances required.
80.5  Illustrative application.
80.6  Compliance information.
80.7  Conduct of investigations.
80.8  Procedure for effecting compliance.
80.9  Hearings.

[[Page 280]]

80.10  Decisions and notices.
80.11  Judicial review.
80.12  Effect on other regulations; forms and instructions.
80.13  Definitions.

Appendix A to Part 80--Federal Financial Assistance to Which These 
          Regulations Apply
Appendix B to Part 80--Guidelines for Eliminating Discrimination and 
          Denial of Services on the Basis of Race, Color, National 
          Origin, Sex, and Handicap in Vocational Education Programs

    Authority: Sec. 602, 78 Stat. 252; 42 U.S.C. 2000d-1.



Sec. 80.1  Purpose.

    The purpose of this part is to effectuate the provisions of title VI 
of the Civil Rights Act of 1964 (hereafter referred to as the ``Act'') 
to the end that no person in the United States shall; on the ground of 
race, color, or national origin, be excluded from participation in, be 
denied the benefits of, or be otherwise subjected to discrimination 
under any program or activity receiving Federal financial assistance 
from the Department of Health and Human Services.

(Sec. 601, Civil Rights Act of 1964, 78 Stat. 252 (42 U.S.C. 2000d))

[29 FR 16298, Dec. 4, 1964, as amended at 38 FR 17982, July 5, 1973]



Sec. 80.2  Application of this regulation.

    This regulation applies to any program for which Federal financial 
assistance is authorized to be extended to a recipient under a law 
administered by the Department, including the Federal assisted programs 
and activities listed in appendix A to this part. It applies to money 
paid, property transferred, or other Federal financial assistance 
extended after the effective date of the regulation pursuant to an 
application approved prior to such effective date. This regulation does 
not apply to (a) any Federal financial assistance by way of insurance or 
guaranty contracts, (b) money paid, property transferred, or other 
assistance extended before the effective date of this regulation, (c) 
the use of any assistance by any individual who is the ultimate 
beneficiary under any such program, or (d) any employment practice, 
under any such program, or any employer, employment agency, or labor 
organization, except to the extent described in Sec. 80.3. The fact that 
a type of Federal assistance is not listed in appendix A to this part 
shall not mean, if title VI of the Act is otherwise applicable, that a 
program is not covered. Federal financial assistance under statutes now 
in force or hereinafter enacted may be added to this list by notice 
published in the Federal Register.

(Secs. 602, 604, Civil Rights Act of 1964, 78 Stat. 252, 253 (42 U.S.C. 
2000d-1, 2000d-3))

[38 FR 17979, July 5, 1973]



Sec. 80.3  Discrimination prohibited.

    (a) General. No person in the United States shall, on the ground of 
race, color, or national origin be excluded from participation in, be 
denied the benefits of, or be otherwise subjected to discrimination 
under any program to which this part applies.
    (b) Specific discriminatory actions prohibited. (1) A recipient 
under any program to which this part applies may not, directly or 
through contractual or other arrangements, on ground of race, color, or 
national origin:
    (i) Deny an individual any service, financial aid, or other benefit 
provided under the program;
    (ii) Provide any service, financial aid, or other benefit to an 
individual which is different, or is provided in a different manner, 
from that provided to others under the program;
    (iii) Subject an individual to segregation or separate treatment in 
any matter related to his receipt of any service, financial aid, or 
other benefit under the program;
    (iv) Restrict an individual in any way in the enjoyment of any 
advantage or privilege enjoyed by others receiving any service, 
financial aid, or other benefit under the program;
    (v) Treat an individual differently from others in determining 
whether he satisfies any admission, enrollment, quota, eligibility, 
membership or other requirement or condition which individuals must meet 
in order to be provided any service, financial aid, or other benefit 
provided under the program;

[[Page 281]]

    (vi) Deny an individual an opportunity to participate in the program 
through the provision of services or otherwise or afford him an 
opportunity to do so which is different from that afforded others under 
the program (including the opportunity to participate in the program as 
an employee but only to the extent set forth in paragraph (c) of this 
section).
    (vii) Deny a person the opportunity to participate as a member of a 
planning or advisory body which is an integral part of the program.
    (2) A recipient, in determining the types of services, financial 
aid, or other benefits, or facilities which will be provided under any 
such program, or the class of individuals to whom, or the situations in 
which, such services, financial aid, other benefits, or facilities will 
be provided under any such program, or the class of individuals to be 
afforded an opportunity to participate in any such program, may not, 
directly or through contractual or other arrangements, utilize criteria 
or methods of administration which have the effect of subjecting 
individuals to discrimination because of their race, color, or national 
origin, or have the effect of defeating or substantially impairing 
accomplishment of the objectives of the program as respect individuals 
of a particular race, color, or national origin.
    (3) In determining the site or location of a facilities, an 
applicant or recipient may not make selections with the effect of 
excluding individuals from, denying them the benefits of, or subjecting 
them to discrimination under any programs to which this regulation 
applies, on the ground of race, color, or national origin; or with the 
purpose or effect of defeating or substantially impairing the 
accomplishment of the objectives of the Act or this regulation.
    (4) As used in this section, the services, financial aid, or other 
benefits provided under a program receiving Federal financial assistance 
shall be deemed to include any service, financial aid, or other benefits 
provided in or through a facility provided with the aid of Federal 
financial assistance.
    (5) The enumeration of specific forms of prohibited discrimination 
in this paragraph and paragraph (c) of this section does not limit the 
generality of the prohibition in paragraph (a) of this section.
    (6)(i) In administering a program regarding which the recipient has 
previously discriminated against persons on the ground of race, color, 
or national origin, the recipient must take affirmative action to 
overcome the effects of prior discrimination.
    (ii) Even in the absence of such prior discrimination, a recipient 
in administering a program may take affirmative action to overcome the 
effects of conditions which resulted in limiting participation by 
persons of a particular race, color, or national origin.
    (c) Employment practices. (1) Where a primary objective of the 
Federal financial assistance to a program to which this regulation 
applies is to provide employment, a recipient may not (directly or 
through contractual or other arrangements) subject an individual to 
discrimination on the ground of race, color, or national origin in its 
employment practices under such program (including recruitment or 
recruitment advertising, employment, layoff or termination, upgrading, 
demotion, or transfer, rates of pay or other forms of compensation, and 
use of facilities), including programs where a primary objective of the 
Federal financial assistance is (i) to reduce the employment of such 
individuals or to help them through employment to meet subsistence 
needs, (ii) to assist such individuals through employment to meet 
expenses incident to the commencement or continuation of their education 
or training, (iii) to provide work experience which contributes to the 
education or training of such individuals, or (iv) to provide 
remunerative activity to such individuals who because of handicaps 
cannot be readily absorbed in the competive labor market. The following, 
under existing laws, have one of the above objectives as a primary 
objective:
    (a) Projects under the Public Works Acceleration Act, Pub. L. 87-
658, 42 U.S.C. 2641-2643.
    (b) Work-study under the Vocational Education Act of 1963, as 
amended, 20 U.S.C. 1371-1374.

[[Page 282]]

    (c) Programs assisted under laws listed in Appendix A to this part 
as respects employment opportunities provided thereunder, or in 
facilities provided thereunder, which are limited, or for which 
preference is given, to students, fellows, or other persons in training 
for the same or related employments.
    (d) Assistance to rehabilitation facilities under the Vocational 
Rehabilitation Act, 29 U.S.C. 32-34, 41a and 41b.
    (2) The requirements applicable to construction employment under any 
such program shall be those specified in or pursuant to Part III of 
Executive Order 11246 or any Executive order which supersedes it.
    (3) Where a primary objective of the Federal financial assistance is 
not to provide employment, but discrimination on the ground of race, 
color, or national origin in the employment practices of the recipient 
or other persons subject to the regulation tends, on the ground of race, 
color, or national origin, to exclude individuals from participation in, 
to deny them the benefits of, or to subject them to discrimination under 
any program to which this regulation applies, the foregoing provisions 
of this paragraph (c) shall apply to the employment practices of the 
recipient or other persons subject to the regulation, to the extent 
necessary to assure equality of opportunity to, and nondiscriminatory 
treatment of, beneficiaries.
    (d) Indian Health and Cuban Refugee Services. An individual shall 
not be deemed subjected to discrimination by reason of his exclusion 
from the benefits of a program limited by Federal law to individuals of 
a particular race, color, or national origin different from his.
    (e) Medical emergencies. Notwithstanding the foregoing provisions of 
this section, a recipient of Federal financial assistance shall not be 
deemed to have failed to comply with paragraph (a) of this section if 
immediate provision of a service or other benefit to an individual is 
necessary to prevent his death or serious impairment of his health, and 
such service or other benefit cannot be provided except by or through a 
medical institution which refuses or fails to comply with paragraph (a) 
of this section.

(Secs. 601, 602, 604, Civil Rights Act of 1964, 78 Stat. 252, 253 (42 
U.S.C. 2000d, 2000d-1, 2000d-3))

[29 FR 16298, Dec. 4, 1964, as amended at 38 FR 17979, 17982, July 5, 
1973]



Sec. 80.4  Assurances required.

    (a) General. (1) Every application for Federal financial assistance 
to carry out a program to which this part applies, except a program to 
which paragraph (b) of this section applies, and every application for 
Federal financial assistance to provide a facility shall, as a condition 
to its approval and the extension of any Federal financial assistance 
pursuant to the application, contain or be accompanied by an assurance 
that the program will be conducted or the facility operated in 
compliance with all requirements imposed by or pursuant to this part. In 
the case of an application for Federal financial assistance to provide 
real property or structures thereon, the assurance shall obligate the 
recipient, or, in the case of a subsequent transfer, the transferee, for 
the period during which the real property or structures are used for a 
purpose for which the Federal financial assistance is extended or for 
another purpose involving the provision of similar services or benefits. 
In the case of personal property the assurance shall obligate the 
recipient for the period during which he retains ownership or possession 
of the property. In all other cases the assurance shall obligate the 
recipient for the period during which Federal financial assistance is 
extended pursuant to the application. The responsible Department 
official shall specify the form of the foregoing assurances for each 
program, and the extent to which like assurances will be required of 
subgrantees, contractors and subcontractors, transferees, successors in 
interest, and other participants in the program. Any such assurance 
shall include provisions which give the United States a right to seek 
its judicial enforcement.
    (2) Where Federal financial assistance is provided in the form of a 
transfer of real property or interest therein from the Federal 
Government the instrument effecting or recording the

[[Page 283]]

transfer shall contain a covenant running with the land to assure 
nondiscrimination for the period during which the real property is used 
for a purpose for which the Federal financial assistance is extended or 
for another purpose involving the provision of similar services or 
benefits. Where no transfer of property is involved but property is 
improved with Federal financial assistance, the recipient shall agree to 
include such a covenant to any subsequent transfer of the property. 
Where the property is obtained from the Federal Government, such 
covenant may also include a condition coupled with a right to be 
reserved by the Department to revert title to the property in the event 
of a breach of the covenant where, in the discretion of the responsible 
Department official, such a condition and right of reverter is 
appropriate to the statute under which the real property is obtained and 
to the nature of the grant and the grantee. In the event a transferee of 
real property proposes to mortgage or otherwise encumber the real 
property as security for financing construction of new, or improvement 
of existing, facilities on such property for the purposes for which the 
property was transferred, the responsible Department official may agree, 
upon request of the transferee and if necessary to accomplish such 
financing, and upon such conditions as he deems appropriate, to forbear 
the exercise of such right to revert title for so long as the lien of 
such mortgage or other encumbrance remains effective.
    (b) Continuing State programs. Every application by a State or a 
State agency to carry out a program involving continuing Federal 
financial assistance to which this regulation applies (including the 
Federal financial assistance listed in Part 2 of Appendix A to this 
part) shall as a condition to its approval and the extension of any 
Federal financial assistance pursuant to the application (1) contain or 
be accompanied by a statement that the program is (or, in the case of a 
new program, will be) conducted in compliance with all requirements 
imposed by or pursuant to this regulation, and (2) provide or be 
accompanied by provision for such methods of administration for the 
program as are found by the responsible Department official to give 
reasonable assurance that the applicant and all recipients of Federal 
financial assistance under such program will comply with all 
requirements imposed by or pursuant to this regulation.
    (c) Elementary and secondary schools. The requirements of paragraph 
(a) or (b) of this section with respect to any elementary or secondary 
school or school system shall be deemed to be satisfied if such school 
or school system (1) is subject to a final order of a court of the 
United States for the desegregation of such school or school system, and 
provides an assurance that it will comply with such order, including any 
future modification of such order, or (2) submits a plan for the 
desegregation of such school or school system which the responsible 
Department official determines is adequate to accomplish the purposes of 
the Act and this part, at the earliest practicable time, and provides 
reasonable assurance that it will carry out such plan; in any case of 
continuing Federal financial assistance the responsible Department 
official may reserve the right to redetermine, after such period as may 
be specified by him, the adequacy of the plan to accomplish the purposes 
of the Act and the regulations in this part. In any case in which a 
final order of a court of the United States for the desegregation of 
such school or school system is entered after submission of such a plan, 
such plan shall be revised to conform to such final order, including any 
future modification of such order.
    (d) Assurance from institutions. (1) In the case of any application 
for Federal financial assistance to an institution of higher education 
(including assistance for construction, for research, for special 
training project, for student loans or for any other purpose), the 
assurance required by this section shall extend to admission practices 
and to all other practices relating to the treatment of students.
    (2) The assurance required with respect to an institution of higher 
education, hospital, or any other institution, insofar as the assurance 
relates to the institution's practices with respect

[[Page 284]]

to admission or other treatment of individuals as students, patients, or 
clients of the institution or to the opportunity to participate in the 
provision of services or other benefits to such individuals, shall be 
applicable to the entire institution unless the applicant establishes, 
to the satisfaction of the responsible Department official, that the 
institution's practices in designated parts or programs of the 
institution will in no way affect its practices in the program of the 
institution for which Federal financial assistance is sought, or the 
beneficiaries of or participants in such program. If in any such case 
the assistance sought is for the construction of a facility or part of a 
facility, the assurance shall in any event extend to the entire facility 
and to facilities operated in connection therewith.

(Secs. 601, 602, Civil Rights Act of 1964, 78 Stat. 252 (42 U.S.C. 
2000d, 2000d-1); sec. 182, 80 Stat. 1209 (42 U.S.C. 2000d-5))

[29 FR 16298, Dec. 4, 1964, as amended at 32 FR 14555, Oct. 19, 1967; 38 
FR 17980, 17982, July 5, 1973]



Sec. 80.5  Illustrative application.

    The following examples will illustrate the programs aided by Federal 
financial assistance of the Department. (In all cases the discrimination 
prohibited is discrimination on the ground of race, color, or national 
origin prohibited by Title VI of the Act and this regulation, as a 
condition of the receipt of Federal financial assistance).
    (a) In federally assisted programs for the provision of health or 
welfare services, discrimination in the selection or eligibility of 
individuals to receive the services, and segregation or other 
discriminatory practices in the manner of providing them, are 
prohibited. This prohibition extends to all facilities and services 
provided by the grantee under the program or, if the grantee is a State, 
by a political subdivision of the State. It extends also to services 
purchased or otherwise obtained by the grantee (or political 
subdivision) from hospitals, nursing homes, schools, and similar 
institutions for beneficiaries of the program, and to the facilities in 
which such services are provided, subject, however, to the provisions of 
Sec. 80.3(e).
    (b) In federally-affected area assistance (Pub. L. 815 and Pub. L. 
874) for construction aid and for general support of the operation of 
elementary or secondary schools, or in more limited support to such 
schools such as for the acquisition of equipment, the provision of 
vocational education, or the provision of guidance and counseling 
services, discrimination by the recipient school district in any of its 
elementary or secondary schools in the admission of students, or in the 
treatment of its students in any aspect of the educational process, is 
prohibited. In this and the following illustrations the prohibition of 
discrimination in the treatment of students or other trainees includes 
the prohibition of discrimination among the students or trainees in the 
availability or use of any academic, dormitory, eating, recreational, or 
other facilities of the grantee or other recipient.
    (c) In a research, training, demonstration, or other grant to a 
university for activities to be conducted in a graduate school, 
discrimination in the admission and treatment of students in the 
graduate school is prohibited, and the prohibition extends to the entire 
university unless it satisfies the responsible Department official that 
practices with respect to other parts or programs of the university will 
not interfere, directly or indirectly, with fulfillment of the assurance 
required with respect to the graduate school.
    (d) In a training grant to a hospital or other nonacademic 
institution, discrimination is prohibited in the selection of 
individuals to be trained and in their treatment by the grantee during 
their training. In a research or demonstration grant to such an 
institution discrimination is prohibited with respect to any educational 
activity and any provision of medical or other services and any 
financial aid to individuals incident to the program.
    (e) In grants to assist in the construction of facilities for the 
provision of health, educational or welfare services, assurances will be 
required that services will be provided without discrimination, to the 
same extent that discrimination would be prohibited as a condition of 
Federal operating grants for the support of such services. Thus,

[[Page 285]]

as a condition of grants for the construction of academic, research, or 
other facilities at institutions of higher education, assurances will be 
required that there will be no discrimination in the admission or 
treatment of students. In case of hospital construction grants the 
assurance will apply to patients, to interns, residents, student nurses, 
and other trainees, and to the privilege of physicians, dentists, and 
other professionally qualified persons to practice in the hospital, and 
will apply to the entire facility for which, or for a part of which, the 
grant is made, and to facilities operated in connection therewith. In 
other construction grants the assurances required will similarly be 
adapted to the nature of the activities to be conducted in the 
facilities for construction of which the grants have been authorized by 
Congress.
    (f) Upon transfers of real or personal surplus property for health 
or educational uses, discrimination is prohibited to the same extent as 
in the case of grants for the construction of facilities or the 
provision of equipment for like purposes.
    (g) Each applicant for a grant for the construction of educational 
television facilities is required to provide an assurance that it will, 
in its broadcast services, give due consideration to the interests of 
all significant racial or ethnic groups within the population to be 
served by the applicant.
    (h) A recipient may not take action that is calculated to bring 
about indirectly what this regulation forbids it to accomplish directly. 
Thus, a State, in selecting or approving projects or sites for the 
construction of public libraries which will receive Federal financial 
assistance, may not base its selections or approvals on criteria which 
have the effect of defeating or of substantially impairing 
accomplishments of the objectives of the Federal assistance as respects 
individuals of a particular race, color or national origin.
    (i) In some situations, even though past discriminatory practices 
attributable to a recipient or applicant have been abandoned, the 
consequences of such practices continue to impede the full availability 
of a benefit. If the efforts required of the applicant or recipient 
under Sec. 80.6(d), to provide information as to the availability of the 
program or activity and the rights of beneficiaries under this 
regulation, have failed to overcome these consequences, it will become 
necessary under the requirement stated in (i) of Sec. 80.3(b) (6) for 
such applicant or recipient to take additional steps to make the 
benefits fully available to racial and nationality groups previously 
subject to discrimination. This action might take the form, for example, 
of special arrangements for obtaining referrals or making selections 
which will insure that groups previously subjected to discrimination are 
adequately served.
    (j) Even though an applicant or recipient has never used 
discriminatory policies, the services and benefits of the program or 
activity it administers may not in fact be equally available to some 
racial or nationality groups. In such circumstances, an applicant or 
recipient may properly give special consideration to race, color, or 
national origin to make the benefits of its program more widely 
available to such groups, not then being adequately served. For example, 
where a university is not adequately serving members of a particular 
racial or nationality group, it may establish special recruitment 
policies to make its program better known and more readily available to 
such group, and take other steps to provide that group with more 
adequate service.

(Secs. 601, 602, Civil Rights Act of 1964, 78 Stat. 252 (42 U.S.C. 
2000d, 2000d-1))

[29 FR 16298, Dec. 4, 1964; 29 FR 16988, Dec. 11, 1964, as amended at 38 
FR 17980, 17982, July 5, 1973]



Sec. 80.6  Compliance information.

    (a) Cooperation and assistance. The responsible Department official 
shall to the fullest extent practicable seek the cooperation of 
recipients in obtaining compliance with this part and shall provide 
assistance and guidance to recipients to help them comply voluntarily 
with this part.
    (b) Compliance reports. Each recipient shall keep such records and 
submit to the responsible Department official or his designee timely, 
complete and accurate compliance reports at such

[[Page 286]]

times, and in such form and containing such information, as the 
responsible Department official or his designee may determine to be 
necessary to enable him to ascertain whether the recipient has complied 
or is complying with this part. For example, recipients should have 
available for the Department racial and ethnic data showing the extent 
to which members of minority groups are beneficiaries of and 
participants in federally-assisted programs. In the case of any program 
under which a primary recipient extends Federal financial assistance to 
any other recipient, such other recipient shall also submit such 
compliance reports to the primary recipient as may be necessary to 
enable the primary recipient to carry out its obligations under this 
part.
    (c) Access to sources of information. Each recipient shall permit 
access by the responsible Department official or his designee during 
normal business hours to such of its books, records, accounts, and other 
sources of information, and its facilities as may be pertinent to 
ascertain compliance with this part. Where any information required of a 
recipient is in the exclusive possession of any other agency, 
institution or person and this agency, institution or person shall fail 
or refuse to furnish this information the recipient shall so certify in 
its report and shall set forth what efforts it has made to obtain the 
information. Asserted considerations of privacy or confidentiality may 
not operate to bar the Department from evaluating or seeking to enforce 
compliance with this part. Information of a confidential nature obtained 
in connection with compliance evaluation or enforcement shall not be 
disclosed except where necessary in formal enforcement proceedings or 
where otherwise required by law.
    (d) Information to beneficiaries and participants. Each recipient 
shall make available to participants, beneficiaries, and other 
interested persons such information regarding the provisions of this 
regulation and its applicability to the program for which the recipient 
receives Federal financial assistance, and make such information 
available to them in such manner, as the responsible Department official 
finds necessary to apprise such persons of the protections against 
discrimination assured them by the Act and this regulation.

(Secs. 601, 602, Civil Rights Act of 1964, 78 Stat. 252 ( 42 U.S.C. 
2000d, 2000d-1))

[29 FR 16298, Dec. 4, 1964, as amended at 32 FR 14555, Oct. 19, 1967; 38 
FR 17981, 17982, July 5, 1973]



Sec. 80.7  Conduct of investigations.

    (a) Periodic compliance reviews. The responsible Department official 
or his designee shall from time to time review the practices of 
recipients to determine whether they are complying with this part.
    (b) Complaints. Any person who believes himself or any specific 
class of individuals to be subjected to discrimination prohibited by 
this part may by himself or by a representative file with the 
responsible Department official or his designee a written complaint. A 
complaint must be filed not later than 180 days from the date of the 
alleged discrimination, unless the time for filing is extended by the 
responsible Department official or his designee.
    (c) Investigations. The responsible Department official or his 
designee will make a prompt investigation whenever a compliance review, 
report, complaint, or any other information indicates a possible failure 
to comply with this part. The investigation should include, where 
appropriate, a review of the pertinent practices and policies of the 
recipient, the circumstances under which the possible noncompliance with 
this part occurred, and other factors relevant to a determination as to 
whether the recipient has failed to comply with this part.
    (d) Resolution of matters. (1) If an investigation pursuant to 
paragraph (c) of this section indicates a failure to comply with this 
part, the responsible Department official or his designee will so inform 
the recipient and the matter will be resolved by informal means whenever 
possible. If it has been determined that the matter cannot be resolved 
by informal means, action will be taken as provided for in Sec. 80.8.
    (2) If an investigation does not warrant action pursuant to 
paragraph (d)(1) of this section the responsible Department official or 
his designee will

[[Page 287]]

so inform the recipient and the complainant, if any, in writing.
    (e) Intimidatory or retaliatory acts prohibited. No recipient or 
other person shall intimidate, threaten, coerce, or discriminate against 
any individual for the purpose of interfering with any right or 
privilege secured by section 601 of the Act or this part, or because he 
has made a complaint, testified, assisted, or participated in any manner 
in an investigation, proceeding or hearing under this part. The identity 
of complainants shall be kept confidential except to the extent 
necessary to carry out the purposes of this part, including the conduct 
of any investigation, hearing, or judicial proceeding arising 
thereunder.

(Secs. 601, 602, Civil Rights Act of 1964, 78 Stat. 252 (42 U.S.C. 
2000d, 2000d-1))

[29 FR 16298, Dec. 4, 1964, as amended at 38 FR 17981, 17982, July 5, 
1973]



Sec. 80.8  Procedure for effecting compliance.

    (a) General. If there appears to be a failure or threatened failure 
to comply with this regulation, and if the noncompliance or threatened 
noncompliance cannot be corrected by informal means, compliance with 
this part may be effected by the suspension or termination of or refusal 
to grant or to continue Federal financial assistance or by any other 
means authorized by law. Such other means may include, but are not 
limited to, (1) a reference to the Department of Justice with a 
recommendation that appropriate proceedings be brought to enforce any 
rights of the United States under any law of the United States 
(including other titles of the Act), or any assurance or other 
contractual undertaking, and (2) any applicable proceeding under State 
or local law.
    (b) Noncompliance with Sec. 80.4. If an applicant fails or refuses 
to furnish an assurance required under Sec. 80.4 or otherwise fails or 
refuses to comply with a requirement imposed by or pursuant to that 
section Federal financial assistance may be refused in accordance with 
the procedures of paragraph (c) of this section. The Department shall 
not be required to provide assistance in such a case during the pendency 
of the administrative proceedings under such paragraph except that the 
Department shall continue assistance during the pendency of such 
proceedings where such assistance is due and payable pursuant to an 
application therefor approved prior to the effective date of this part.
    (c) Termination of or refusal to grant or to continue Federal 
financial assistance. No order suspending, terminating or refusing to 
grant or continue Federal financial assistance shall become effective 
until (1) the responsible Department official has advised the applicant 
or recipient of his failure to comply and has determined that compliance 
cannot be secured by voluntary means, (2) there has been an express 
finding on the record, after opportunity for hearing, of a failure by 
the applicant or recipient to comply with a requirement imposed by or 
pursuant to this part, (3) the expiration of 30 days after the Secretary 
has filed with the committee of the House and the committee of the 
Senate having legislative jurisdiction over the program involved, a full 
written report of the circumstances and the grounds for such action. Any 
action to suspend or terminate or to refuse to grant or to continue 
Federal financial assistance shall be limited to the particular 
political entity, or part thereof, or other applicant or recipient as to 
whom such a finding has been made and shall be limited in its effect to 
the particular program, or part thereof, in which such noncompliance has 
been so found.
    (d) Other means authorized by law. No action to effect compliance by 
any other means authorized by law shall be taken until (1) the 
responsible Department official has determined that compliance cannot be 
secured by voluntary means, (2) the recipient or other person has been 
notified of its failure to comply and of the action to be taken to 
effect compliance, and (3) the expiration of at least 10 days from the 
mailing of such notice to the recipient or other person. During this 
period of at least 10 days additional efforts shall be made to persuade 
the recipient or other person to comply with the regulation and to

[[Page 288]]

take such corrective action as may be appropriate.

(Secs. 601, 602, Civil Rights Act of 1964, 78 Stat. 252 (42 U.S.C. 
2000d, 2000d-1; sec. 182, 80 Stat. 1209; (42 U.S.C. 2000d-5))

[29 FR 16298, Dec. 4, 1964, as amended at 32 FR 14556, Oct. 19, 1967; 38 
FR 17982, July 5, 1973]



Sec. 80.9  Hearings.

    (a) Opportunity for hearing. Whenever an opportunity for a hearing 
is required by Sec. 80.8(c), reasonable notice shall be given by 
registered or certified mail, return receipt requested, to the affected 
applicant or recipient. This notice shall advise the applicant or 
recipient of the action proposed to be taken, the specific provision 
under which the proposed action against it is to be taken, and the 
matters of fact or law asserted as the basis for this action, and either 
(1) fix a date not less than 20 days after the date of such notice 
within which the applicant or recipient may request of the responsible 
Department official that the matter be scheduled for hearing or (2) 
advise the applicant or recipient that the matter in question has been 
set down for hearing at a stated place and time. The time and place so 
fixed shall be reasonable and shall be subject to change for cause. The 
complainant, if any, shall be advised of the time and place of the 
hearing. An applicant or recipient may waive a hearing and submit 
written information and argument for the record. The failure of an 
applicant or recipient to request a hearing for which a date has been 
set shall be deemed to be a waiver of the right to a hearing under 
section 602 of the Act and Sec. 80.8(c) of this regulation and consent 
to the making of a decision on the basis of such information as may be 
filed as the record.
    (b) Time and place of hearing. Hearings shall be held at the offices 
of the Department in Washington, DC, at a time fixed by the responsible 
Department official unless he determines that the convenience of the 
applicant or recipient or of the Department requires that another place 
be selected. Hearings shall be held before a hearing examiner designated 
in accordance with 5 U.S.C. 3105 and 3344 (section 11 of the 
Administrative Procedure Act).
    (c) Right to counsel. In all proceedings under this section, the 
applicant or recipient and the Department shall have the right to be 
represented by counsel.
    (d) Procedures, evidence, and record. (1) The hearing, decision, and 
any administrative review thereof shall be conducted in conformity with 
sections 5-8 of the Administrative Procedure Act, and in accordance with 
such rules of procedure as are proper (and not inconsistent with this 
section) relating to the conduct of the hearing, giving of notices 
subsequent to those provided for in paragraph (a) of this section, 
taking of testimony, exhibits, arguments and briefs, requests for 
findings, and other related matters. Both the Department and the 
applicant or recipient shall be entitled to introduce all relevant 
evidence on the issues as stated in the notice for hearing or as 
determined by the officer conducting the hearing at the outset of or 
during the hearing. Any person (other than a Government employee 
considered to be on official business) who, having been invited or 
requested to appear and testify as a witness on the Government's behalf, 
attends at a time and place scheduled for a hearing provided for by this 
part, may be reimbursed for his travel and actual expenses of attendance 
in an amount not to exceed the amount payable under the standardized 
travel regulations to a Government employee traveling on official 
business.
    (2) Technical rules of evidence shall not apply to hearings 
conducted pursuant to this part, but rules or principles designed to 
assure production of the most credible evidence available and to subject 
testimony to test by cross-examination shall be applied where reasonably 
necessary by the officer conducting the hearing. The hearing officer may 
exclude irrelevant, immaterial, or unduly repetitious evidence. All 
documents and other evidence offered or taken for the record shall be 
open to examination by the parties and opportunity shall be given to 
refute facts and arguments advanced on either side of the issues. A 
transcript shall be made of the oral evidence except to the extent the 
substance thereof is stipulated for the record. All decisions shall be 
based upon the hearing record and written findings shall be made.

[[Page 289]]

    (e) Consolidated or Joint Hearings. In cases in which the same or 
related facts are asserted to constitute noncompliance with this 
regulation with respect to two or more programs to which this part 
applies, or noncompliance with this part and the regulations of one or 
more other Federal departments or agencies issued under Title VI of the 
Act, the responsible Department official may, by agreement with such 
other departments or agencies where applicable, provide for the conduct 
of consolidated or joint hearings, and for the application to such 
hearings of rules of procedures not inconsistent with this part. Final 
decisions in such cases, insofar as this regulation is concerned, shall 
be made in accordance with Sec. 80.10.

(Sec. 602, Civil Rights Act of 1964, 78 Stat. 252 (42 U.S.C. 2000d-1))

[29 FR 16298, Dec. 4, 1964, as amended at 32 FR 14555, Oct. 19, 1967; 38 
FR 17981, 17982, July 5, 1973]



Sec. 80.10  Decisions and notices.

    (a) Decisions by hearing examiners. After a hearing is held by a 
hearing examiner such hearing examiner shall either make an initial 
decision, if so authorized, or certify the entire record including his 
recommended findings and proposed decision to the reviewing authority 
for a final decision, and a copy of such initial decision or 
certification shall be mailed to the applicant or recipient and to the 
complainant, if any. Where the initial decision referred to in this 
paragraph or in paragraph (c) of this section is made by the hearing 
examiner, the applicant or recipient or the counsel for the Department 
may, within the period provided for in the rules of procedure issued by 
the responsible Department official, file with the reviewing authority 
exceptions to the initial decision, with his reasons therefor. Upon the 
filing of such exceptions the reviewing authority shall review the 
initial decision and issue its own decision thereof including the 
reasons therefor. In the absence of exceptions the initial decision 
shall constitute the final decision, subject to the provisions of 
paragraph (e) of this section.
    (b) Decisions on record or review by the reviewing authority. 
Whenever a record is certified to the reviewing authority for decision 
or it reviews the decision of a hearing examiner pursuant to paragraph 
(a) or (c) of this section, the applicant or recipient shall be given 
reasonable opportunity to file with it briefs or other written 
statements of its contentions, and a copy of the final decision of the 
reviewing authority shall be given in writing to the applicant or 
recipient and to the complainant, if any.
    (c) Decisions on record where a hearing is waived. Whenever a 
hearing is waived pursuant to Sec. 80.9(a) the reviewing authority shall 
make its final decision on the record or refer the matter to a hearing 
examiner for an initial decision to be made on the record. A copy of 
such decision shall be given in writing to the applicant or recipient, 
and to the complainant, if any.
    (d) Rulings required. Each decision of a hearing examiner or 
reviewing authority shall set forth a ruling on each finding, 
conclusion, or exception presented, and shall identify the requirement 
or requirements imposed by or pursuant to this part with which it is 
found that the applicant or recipient has failed to comply.
    (e) Review in certain cases by the Secretary. If the Secretary has 
not personally made the final decision referred to in paragraph (a), 
(b), or (c) of this section, a recipient or applicant or the counsel for 
the Department may request the Secretary to review a decision of the 
Reviewing Authority in accordance with rules of procedure issued by the 
responsible Department official. Such review is not a matter of right 
and shall be granted only where the Secretary determines there are 
special and important reasons therefor. The Secretary may grant or deny 
such request, in whole or in part. He may also review such a decision 
upon his own motion in accordance with rules of procedure issued by the 
responsible Department official. In the absence of a review under this 
paragraph, a final decision referred to in paragraphs (a), (b), and (c) 
of this section shall become the final decision of the Department when 
the Secretary transmits it as such to Congressional committees with the 
report required under section 602 of the

[[Page 290]]

Act. Failure of an applicant or recipient to file an exception with the 
Reviewing Authority or to request review under this paragraph shall not 
be deemed a failure to exhaust administrative remedies for the purpose 
of obtaining judicial review.
    (f) Content of orders. The final decision may provide for suspension 
or termination of, or refusal to grant or continue Federal financial 
assistance, in whole or in part, to which this regulation applies, and 
may contain such terms, conditions, and other provisions as are 
consistent with and will effectuate the purposes of the Act and this 
regulation, including provisions designed to assure that no Federal 
financial assistance to which this regulation applies will thereafter be 
extended under such law or laws to the applicant or recipient determined 
by such decision to be in default in its performance of an assurance 
given by it pursuant to this regulation, or to have otherwise failed to 
comply with this regulation unless and until it corrects its 
noncompliance and satisfies the responsible Department official that it 
will fully comply with this regulation.
    (g) Post-termination proceedings. (1) An applicant or recipient 
adversely affected by an order issued under paragraph (f) of this 
section shall be restored to full eligibility to receive Federal 
financial assistance if it satisfies the terms and conditions of that 
order for such eligibility or if it brings itself into compliance with 
this part and provides reasonable assurance that it will fully comply 
with this part. An elementary or secondary school or school system which 
is unable to file an assurance of compliance with Sec. 80.3 shall be 
restored to full eligibility to receive Federal financial assistance, if 
it files a court order or a plan for desegregation which meets the 
requirements of Sec. 80.4(c), and provides reasonable assurance that it 
will comply with the court order or plan.
    (2) Any applicant or recipient adversely affected by an order 
entered pursuant to paragraph (f) of this section may at any time 
request the responsible Department official to restore fully its 
eligibility to receive Federal financial assistance. Any such request 
shall be supported by information showing that the applicant or 
recipient has met the requirements of paragraph (g)(1) of this section. 
If the responsible Department official determines that those 
requirements have been satisfied, he shall restore such eligibility.
    (3) If the responsible Department official denies any such request, 
the applicant or recipient may submit a request for a hearing in 
writing, specifying why it believes such official to have been in error. 
It shall thereupon be given an expeditious hearing, with a decision on 
the record, in accordance with rules of procedure issued by the 
responsible Department official. The applicant or recipient will be 
restored to such eligibility if it proves at such hearing that it 
satisfied the requirements of paragraph (g)(1) of this section. While 
proceedings under this paragraph are pending, the sanctions imposed by 
the order issued under paragraph (f) of this section shall remain in 
effect.

(Sec. 602, Civil Rights Act of 1964, 78 Stat. 252 (42 U.S.C. 2000d-1))

[29 FR 16298, Dec. 4, 1964, as amended at 32 FR 14555, Oct. 19, 1967; 38 
FR 17981, 17982, July 5, 1973]



Sec. 80.11  Judicial review.

    Action taken pursuant to section 602 of the Act is subject to 
judicial review as provided in section 603 of the Act.

(Sec. 603, 78 Stat. 253, (42 U.S.C. 2000d-2))

[29 FR 16298, Dec. 4, 1964, as amended at 32 FR 14556, Oct. 19, 1967]



Sec. 80.12  Effect on other regulations; forms and instructions.

    (a) Effect on other regulations. All regulations, orders, or like 
directions heretofore issued by any officer of the Department which 
impose requirements designed to prohibit any discrimination against 
individuals on the ground of race, color, or national origin under any 
program to which this regulation applies, and which authorize the 
suspension or termination of or refusal to grant or to continue Federal 
financial assistance to any applicant for or recipient of assistance for 
failure to comply with such requirements, are hereby superseded to the 
extent that such discrimination is prohibited by

[[Page 291]]

this regulation, except that nothing in this regulation shall be deemed 
to relieve any person of any obligation assumed or imposed under any 
such superseded regulation, order, instruction, or like direction prior 
to the effective date of this regulation. Nothing in this regulation, 
however, shall be deemed to supersede any of the following (including 
future amendments thereof): (1) The ``Standards for a Merit System of 
Personnel Administration,'' issued jointly by the Secretaries of 
Defense, of Health and Human Services, and of Labor, 45 CFR Part 70; (2) 
Executive Order 11063 and regulations issued thereunder, or any other 
regulations or instructions, insofar as such Order, regulations, or 
instructions prohibit discrimination on the ground of race, color, or 
national origin in any program or situation to which this regulation is 
inapplicable, or prohibit discrimination on any other ground; or (3) 
requirements for Emergency School Assistance as published in 35 FR 13442 
and codified as 45 CFR Part 181.
    (b) Forms and instructions. The responsible Department official 
shall issue and promptly make available to interested persons forms and 
detailed instructions and procedures for effectuating this part.
    (c) Supervision and coordination. The responsible Department 
official may from time to time assign to officials of the Department, or 
to officials of other departments or agencies of the Government with the 
consent of such departments or agencies, responsibilities in connection 
with the effectuation of the purposes of Title VI of the Act and this 
regulation (other than responsibility for review as provided in 
Sec. 80.10(e)), including the achievements of effective coordination and 
maximum uniformity within the Department and within the Executive Branch 
of the Government in the application of Title VI and this regulation to 
similar programs and in similar situations. Any action taken, 
determination made, or requirement imposed by an official of another 
Department or Agency acting pursuant to an assignment of responsibility 
under this subsection shall have the same effect as though such action 
had been taken by the responsible official of this Department.

(Sec. 602, Civil Rights Act of 1964, 78 Stat. 252 (42 U.S.C. 2000d-10))

[29 FR 16298, Dec. 4, 1964, as amended at 32 FR 14555, Oct. 19, 1967; 38 
FR 17981, 17982, July 5, 1973]



Sec. 80.13  Definitions.

    As used in this part--
    (a) The term Department means the Department of Health and Human 
Services, and includes each of its operating agencies and other 
organizational units.
    (b) The term Secretary means the Secretary of Health and Human 
Services.
    (c) The term responsible Department official means the Secretary or, 
to the extent of any delegation by the Secretary of authority to act in 
his stead under any one or more provisions of this part, any person or 
persons to whom the Secretary has heretofore delegated, or to whom the 
Secretary may hereafter delegate such authority.
    (d) The term reviewing authority means the Secretary, or any person 
or persons (including a board or other body specially created for that 
purpose and also including the responsible Department official) acting 
pursuant to authority delegated by the Secretary to carry out 
responsibilities under Sec. 80.10 (a) through (d).
    (e) The term United States means the States of the United States, 
the District of Columbia, Puerto Rico, the Virgin Islands, American 
Samoa, Guam, Wake Island, the Canal Zone, and the territories and 
possessions of the United States, and the term State means any one of 
the foregoing.
    (f) The term Federal financial assistance includes (1) grants and 
loans of Federal funds, (2) the grant or donation of Federal property 
and interests in property, (3) the detail of Federal personnel, (4) the 
sale and lease of, and the permission to use (on other than a casual or 
transient basis), Federal property or any interest in such property 
without consideration or at a nominal consideration, or at a 
consideration which is reduced for the purpose of assisting the 
recipient, or in recognition of the public interest to be served by such 
sale or lease to the recipient, and

[[Page 292]]

(5) any Federal agreement, arrangement, or other contract which has as 
one of its purposes the provision of assistance.
    (g) The term program includes any program, project, or activity for 
the provision of services, financial aid, or other benefits to 
individuals (including education or training, health, welfare, 
rehabilitation, housing, or other services, whether provided through 
employees of the recipient of Federal financial assistance or provided 
by others through contracts or other arrangements with the recipient, 
and including work opportunities and cash or loan or other assistance to 
individuals), or for the provison of facilities for furnishing services, 
financial aid or other benefits to individuals. The services, financial 
aid, or other benefits provided under a program receiving Federal 
financial assistance shall be deemed to include any services, financial 
aid, or other benefits provided with the aid of Federal financial 
assistance or with the aid of any non-Federal funds, property, or other 
resources required to be expended or made available for the program to 
meet matching requirements or other conditions which must be met in 
order to receive the Federal financial assistance, and to include any 
services, financial aid, or other benefits provided in or through a 
facility provided with the aid of Federal financial assistance or such 
non-Federal resources.
    (h) The term facility includes all or any portion of structures, 
equipment, or other real or personal property or interests therein, and 
the provision of facilities includes the construction, expansion, 
renovation, remodeling, alteration or acquisition of facilities.
    (i) The term recipient means any State, political subdivision of any 
State, or instrumentality of any State or political subdivision, any 
public or private agency, institution, or organization, or other entity, 
or any individual, in any State, to whom Federal financial assistance is 
extended, directly or through another recipient, for any program, 
including any successor, assign, or transferee thereof, but such term 
does not include any ultimate beneficiary under any such program.
    (j) The term primary recipient means any recipient which is 
authorized or required to extend Federal financial assistance to another 
recipient for the purpose of carrying out a program.
    (k) The term applicant means one who submits an application, 
request, or plan required to be approved by a Department official, or by 
a primary recipient, as a condition to eligibility for Federal financial 
assistance, and the term application means such an application, request, 
or plan.

(Sec. 602, Civil Rights Act of 1964, 78 Stat. 252 ( 42 U.S.C. 2000d-1))

[29 FR 16298, Dec. 4, 1964; 29 FR 16988, Dec. 11, 1964, as amended at 32 
FR 14555, Oct. 19, 1967; 38 FR 17982, July 5, 1973]

   Appendix A to Part 80--Federal Financial Assistance to Which These 
                            Regulations Apply

Part 1. Assistance other than for State-Administered Continuing Programs

    1. Loans for acquisition of equipment for academic subjects, and for 
minor remodeling (20 U.S.C. 445).
    2. Construction of facilities for institutions of higher education 
(20 U.S.C. 701-758).
    3. School Construction in federally-affected and in major disaster 
areas (20 U.S.C. 631-647).
    4. Construction of educational broadcast facilities (47 U.S.C. 390-
399).
    5. Loan service of captioned films and educational media; research 
on, and production and distribution of, educational media for the 
handicapped, and training of persons in the use of such media for the 
handicapped (20 U.S.C. 1452).
    6. Demonstration residential vocational education schools (20 U.S.C. 
1321).
    7. Research and related activities in education of handicapped 
children (20 U.S.C. 1441).
    8. Educational research, dissemination and demonstration projects; 
research training; and construction under the Cooperation Research Act 
(20 U.S.C. 331-332(b)).
    9. Research in teaching modern foreign languages (20 U.S.C. 512).
    10. Training projects for manpower development and training (42 
U.S.C. 2601, 2602, 2610a-2610c).
    11. Research and training projects in Vocational Education (20 
U.S.C. 1281(a), 1282-1284).
    12. Allowances to institutions training NDEA graduate fellows (20 
U.S.C. 461-465).
    13. Grants for training in librarianship (20 U.S.C. 1031-1033).
    14. Grants for training personnel for the education of handicapped 
children (20 U.S.C. 1431).
    15. Allowances for institutions training teachers and related 
educational personnel

[[Page 293]]

in elementary and secondary education, or post-secondary vocational 
education (20 U.S.C. 1111-1118).
    16. Recruitment, enrollment, training and assignment of Teacher 
Corps personnel (20 U.S.C. 1101-1107a).
    17. Operation and maintenance of schools in Federally-affected and 
in major disaster areas (20 U.S.C. 236-241; 241-1; 242-244).
    18. Grants or contracts for the operation of training institutes for 
elementary or secondary school personnel to deal with special 
educational problems occasioned by desegregation (42 U.S.C. 2000c-3).
    19. Grants for in-service training of teachers and other schools 
personnel and employment of specialists in desegregation problems (42 
U.S.C. 2000c-4).
    20. Higher education students loan program (Title II, National 
Defense Education Act, 20 U.S.C. 421-429).
    21. Educational Opportunity grants and assistance for State and 
private programs of low-interest insured loans and State loans to 
students in institutions of higher education (Title IV, Higher Education 
Act of 1965, 20 U.S.C. 1061-1087).
    22. Grants and contracts for the conduct of Talent Search, Upward 
Bound, and Special Services Programs (20 U.S.C. 1068).
    23. Land-grant college aid (7 U.S.C. 301-308; 321-326; 328-331).
    24. Language and area centers (Title VI, National Defense Education 
Act, 20 U.S.C. 511).
    25. American Printing House for the Blind (20 U.S.C. 101-105).
    26. Future Farmers of America (36 U.S.C. 271-391) and similar 
programs.
    27. Science clubs (Pub. L. 85-875, 20 U.S.C. 2, note).
    28. Howard University (20 U.S.C. 121-129).
    29. Gallaudet College (31 D.C. Code, Ch. 10).
    30. Establishment and operation of a model secondary school for the 
deaf by Gallaudet College (31 D.C. Code 1051-1053; 80 Stat. 1027-1028).
    31. Faculty development programs, workshops and institutes (20 
U.S.C. 1131-1132).
    32. National Technical Institute for the Deaf (20 U.S.C. 681-685).
    33. Institutes and other programs for training educational personnel 
(Parts D, E, and F, Title V, Higher Education Act of 1965) (20 U.S.C. 
1119-1119c-4).
    34. Grants and contracts for research and demonstration projects in 
librarianship (20 U.S.C. 1034).
    35. Acquisition of college library resources (20 U.S.C. 1021-1028).
    36. Grants for strengthening developing institutions of higher 
education (20 U.S.C. 1051-1054); National Fellowships for teaching at 
developing institutions (20 U.S.C. 1055), and grants to retired 
professors to teach at developing institutions (20 U.S.C. 1056).
    37. College Work-Study Program (42 U.S.C. 2751-2757).
    38. Financial assistance for acquisition of higher education 
equipment, and minor remodeling (20 U.S.C. 1121-1129).
    39. Grants for special experimental demonstration projects and 
teacher training in adult education (20 U.S.C. 1208).
    40. Grant programs for advanced and undergraduate international 
studies (20 U.S.C. 1171-1176; 22 U.S.C. 2452(b)).
    41. Experimental projects for developing State leadership or 
establishment of special services (20 U.S.C. 865).
    42. Grants to and arrangements with State educational and other 
agencies to meet special educational needs of migratory children of 
migratory agricultural workers (20 U.S.C. 241e(c)).
    43. Grants by the Commissioner of Education to local educational 
agencies for supplementary educational centers and services; guidance, 
counseling, and testing (20 U.S.C. 841-844; 844b).
    44. Resource centers for improvement of education of handicapped 
children (20 U.S.C. 1421) and centers and services for deaf-blind 
children (20 U.S.C. 1422).
    45. Recruitment of personnel and dissemination of information on 
education of handicapped (20 U.S.C. 1433).
    46. Grants for research and demonstrations relating to physical 
education or recreation for handicapped children (20 U.S.C. 1442) and 
training of physical educators and recreation personnel (20 U.S.C. 
1434).
    47. Dropout prevention projects (20 U.S.C. 887).
    48. Bilingual education programs (20 U.S.C. 880b-880b-6).
    49. Grants to agencies and organizations for Cuban refugees (22) 
U.S.C. 2601(b)(4).
    50. Grants and contracts for special programs for children with 
specific learning disabilities including research and related 
activities, training and operating model centers (20 U.S.C. 1461).
    51. Curriculum development in vocational and technical education (20 
U.S.C. 1391).
    52. Establishment, including construction, and operation of a 
National Center on Educational Media and Materials for the Handicapped 
(20 U.S.C. 1453).
    53. Grants and contracts for the development and operation of 
experimental preschool and early education programs for handicapped (20 
U.S.C. 1423).
    54. Grants to public or private non-profit agencies to carry on the 
Follow Through Program in kindergarten and elementary schools (42 U.S.C. 
2809 (a)(2)).
    55. Grants for programs of cooperative education and grants and 
contracts for training and research in cooperative education (20 U.S.C. 
1087a-1087c).
    56. Grants and contracts to encourage the sharing of college 
facilities and resources

[[Page 294]]

(network for knowledge) (20 U.S.C. 1133- 1133b).
    57. Grants, contracts, and fellowships to improve programs preparing 
persons for public service and to attract students to public service (20 
U.S.C. 1134-1134b).
    58. Grants for the improvement of graduate programs (20 U.S.C. 1135-
1135c).
    59. Contracts for expanding and improving law school clinical 
experience programs (20 U.S.C. 1136-1136b).
    60. Exemplary programs and projects in vocational education (20 
U.S.C. 1301-1305).
    61. Grants to reduce borrowing cost for construction of residential 
schools and dormitories (20 U.S.C. 1323).
    62. Project grants and contracts for research and demonstration 
relating to new or improved health facilities and services (section 304, 
PHS Act, 42 U.S.C. 242b).
    63. Grants for construction or modernization of emergency rooms of 
general hospitals (Title VI, Part C, PHS Act, 42 U.S.C. 291j).
    64. Institutional and special projects grants to schools of nursing 
(sections 805-808, PHS Act, 42 U.S.C. 296d-296g).
    65. Grants for construction and initial staffing of facilities for 
prevention and treatment of alcoholism (section 241-2, Community Mental 
Health Centers Act (42 U.S.C. 2688 f and g).
    66. Grants for construction and initial staffing of specialized 
facilities for the treatment of alcoholics requiring care in such 
facilities (section 243, Community Mental Health Centers Act, 42 U.S.C. 
2688h).
    67. Special project grants for training programs, evaluation of 
existing treatment programs, and conduct of significant programs 
relating to treatment of alcoholics (section 246, Community Mental 
Health Centers Act, 42 U.S.C. 2688j-1).
    68. Grants for construction and initial staff of treatment 
facilities for narcotic addicts (section 251, Community Mental Health 
Centers Act, 42 U.S.C. 2688m).
    69. Special project grants for training programs, evaluation of 
existing treatment programs, and conduct of significant programs 
relating to treatment of narcotics addicts (section 252, Community 
Mental Health Centers Act, 42 U.S.C. 2688n-1).
    70. Grants for consultation services for Community Mental Health 
Centers, alcoholism prevention and treatment facilities for narcotic 
addicts, and facilities for mental health of children (section 264, 
Community Mental Health Centers Act, 42 U.S.C. 2688r).
    71. Grants for construction and initial staff of facilities for 
mental health of children (section 271, Community Mental Health Centers 
Act, 42 U.S.C. 2688u).
    72. Special project grants for training programs and evaluation of 
existing treatment program relating to mental health of children 
(section 272, Community Mental Health Centers Act, 42 U.S.C. 2688x).
    73. Grants and loans for construction and modernization of medical 
facilities in the District of Columbia (Pub. L. 90-457; 82 Stat. 631-3).
    74. Teaching facilities for nurse training (sections. 801-804, 
Public Health Service Act, 42 U.S.C. 296-296c).
    75. Teaching facilities for allied health professions personnel 
(section 791, Public Health Service Act, 42 U.S.C. 295h).
    76. Mental retardation research facilities (Title VI, Part D, Public 
Health Service Act, 42 U.S.C. 295-395e).
    77. George Washington University Hospital construction (76 Stat. 83, 
Pub. L. 87-460, May 31, 1962).
    78. Research projects, including conferences, communication 
activities and primate or other center grants (sections 301, 303, 304, 
and 308, Public Health Service Act, 42 U.S.C. 241, 242a, 242b, and 
242f).
    79. General research support (section 301(d), Public Health Service 
Act, 42 U.S.C. 241).
    80. Mental Health demonstrations and administrative studies (section 
303(a)(2), Public Health Service Act, 42 U.S.C. 242a).
    81. Migratory workers health services (section 310, Public Health 
Service Act, 42 U.S.C. 242h).
    82. Immunization programs (section 317, Public Health Service Act, 
42 U.S.C. 247b).
    83. Health research training projects and fellowship grants 
(sections 301, 433, Public Health Service Act, 42 U.S.C. 242, 289c).
    84. Categorical (heart, cancer, etc.) grants for training, 
traineeships or fellowships (sections 303, 433, etc., Public Health 
Service Act, 42 U.S.C. 242a, 289c, etc.).
    85. Advanced professional nurse traineeships (section 821, Public 
Health Service Act, 42 U.S.C. 297).
    86. Department projects under Appalachian Regional Development Act 
(40 U.S.C. App. A).
    87. Grants to institutions for traineeships for professional public 
health personnel section 306, Public Health Service Act, 42 U.S.C. 
242d).
    88. Grants for graduate or specialized training in public health 
(section 309, Public Health Service Act, 42 U.S.C. 242g).
    89. Health professions school student loan program (Title VII, Part 
C, Public Health Service Act, 42 U.S.C. 294-294(k)).
    90. Grants for provision in schools of public health of training, 
consultation and technical assistance in the field of public health and 
in the administration of state or local public health programs (section 
309(c)), Public Health Service Act, 42 U.S.C. 242(g)(c)).
    91. Project grants for training, studies, or demonstrations looking 
metropolitan area, or other local area plans for health services 
(section 314(c), Public Health Service Act, 42 U.S.C. 246(c)).

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    92. Project grants for training, studies, or demonstrations looking 
toward the development of improved comprehensive health planning 
(section 314(c), Public Health Service Act, 42 U.S.C. 246(c)).
    93. Project grants for health services development (section 314(e), 
Public Health Service Act, 42 U.S.C. 246(e)).
    94. Institutional and special grants to health professions schools 
(Title VII, Part E, Public Health Service Act, 42 U.S.C. 295f- 295f-4).
    95. Improvement grants to centers for allied health professions 
(section 792, Public Health Service Act, 42 U.S.C. 295h-1).
    96. Scholarship grants to health professions schools (Title VII, 
Part F, Public Health Service Act, 42 U.S.C. 295h-1).
    97. Scholarship grants to schools of nursing (Title VIII, Part D, 
Public Health Service Act, 42 U.S.C. 198c-298c-6).
    98. Traineeships for advanced training of allied health professions 
personnel (section 793, Public Health Service Act, 42 U.S.C. 295h-2).
    99. Contracts to encourage full utilization of nursing educational 
talent (section 868, Public Health Service Act, 42 U.S.C. 298c-7).
    100. Grants to community mental health centers for the compensation 
of professional and technical personnel for the initial operation of new 
centers or of new services in centers (Community Mental Health Centers 
Act, Part B, 42 U.S.C. 2688-2688d).
    101. Grants for the planning, construction, equipment and operation 
of multicounty demonstration health projects in the Appalachian region 
(section 202 of Appalachian Regional Development Act, Pub. L. 89-4, as 
amended, Pub. L. 90-103 40 U.S.C. App. 202).
    102. Education, research, training, and demonstrations in the fields 
of heart disease, cancer, stroke and related diseases (sections 900-110, 
Public Health Service Act, 42 U.S.C. 299a-j).
    103. Assistance to medical libraries (sections 390-399, Public 
Health Service Act, 42 U.S.C. 280b-280b-9).
    104. Nursing student loans (sections 822-828. Public Health Service 
Act, 42 U.S.C. 297a-g).
    105. Hawaii leprosy payments (section 331, Public Health Service 
Act, 42 U.S.C. 255).
    106. Heart disease laboratories and related facilities for patient 
care (section 412(d), Public Health Service Act, 42 U.S.C. 287a(d)).
    107. Grants for construction of hospitals serving Indians (Pub. L. 
85-151, 42 U.S.C. 2005).
    108. Indian Sanitation Facilities (Pub. L. 86-121, 42 U.S.C. 2004a).
    109. Research projects relating to maternal and child health 
services and crippled children's services (42 U.S.C. 712).
    110. Maternal and child health special project grants to State 
agencies and institutions of higher learning (42 U.S.C. 703(s)).
    111. Maternity and infant care and family planning services; special 
project grants to local health agencies and other organizations (42 
U.S.C. 708).
    112. Special project grants to State agencies and institutions of 
higher learning for crippled children's services (42 U.S.C. 704(2)).
    113. Special project grants for health of school and preschool 
children (42 U.S.C. 709) and for dental health of children (42 U.S.C. 
710).
    114. Grants to institutions of higher learning for training 
personnel for health care and related services for mothers and children 
(42 U.S.C. 711).
    115. Grants and contracts for the conduct of research, experiments, 
or demonstrations relating to the developments, utilization, quality, 
organization, and financing of services, facilities, and resources of 
hospitals, long-term care facilities, for other medical facilities 
(section 304, Public Health Service Act, as amended by Pub. L. 90-174, 
42 U.S.C. 242b).
    116. Health research facilities (Title VII Part A, Public Health 
Service Act, 42 U.S.C. 292-292j).
    117. Teaching facilities for health professions personnel (Title 
VII, Part B, Public Health Service Act, 42 U.S.C. 293-293h).
    118. Project grants and contracts for research, development, 
training, and studies in the field of electronic product radiation 
(section 356, Public Health Service Act, 42 U.S.C. 263d).
    119. Project grants and contracts for research, studies, 
demonstrations, training, and education relating to coal mine health 
(section 501, Federal Coal Mine Health and Safety Act of 1969, Public 
Law 91-173).
    120. Surplus real and related personal property disposal (40 U.S.C. 
484(k)).
    121. Supplementary medical insurance benefits for the aged (Title 
XVIII, Part A, Social Security Act, 42 U.S.C. 1395c-1395i-2).
    122. Issuance of rent-free permits for vending stands, credit 
unions, employee associations, etc. (20 U.S.C. 107-107f; 45 C.F.R. Part 
20; section 25, 12 U.S.C. 1170).
    123. Grants for special vocational rehabilitation projects (29 
U.S.C. 34(a)(1)).
    124. Experimental, pilot or demonstration projects to promote the 
objectives of Title I, X, XIV, XVI, or XIX or Part A of Title IV of the 
Social Security Act (42 U.S.C. 1315).
    125. Social Security and welfare cooperative research or 
demonstration projects (42 U.S.C. 1310).
    126. Child welfare research, training, or demonstration projects (42 
U.S.C. 626).
    127. Training projects (Title VI, Older Americans Act, 42 U.S.C. 
3041-3042).
    128. Grants for expansion of vocational rehabilitation services (29 
U.S.C. 34(a)(2) (A)).
    129. Grants for construction of rehabilitation facilities (29 U.S.C. 
41a(a)-(e)) and for

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initial staffing of rehabilitation facilities (29 U.S.C. 41a(f)).
    130. Project development grants for rehabilitation facilities (29 
U.S.C. 41a(g)(2)).
    131. Rehabilitation Facility improvement grants (29 U.S.C. 41b(b)).
    132. Agreement for the establishment and operation of a national 
center for deaf-blind youths and adults (29 U.S.C. 42a).
    133. Project grants for services for migratory agricultural workers 
(29 U.S.C. 42b).
    134. Grants for initial staffing of community mental retardation 
facilities (42 U.S.C. 2678-2678d).
    135. Grants for training welfare personnel and for expansion and 
development of undergraduate and graduate social work programs (42 
U.S.C. 906, 908).
    136. Research and development projects concerning older Americans 
(42 U.S.C. 3031- 3032).
    137. Grants to States for training of nursing home administrators 
(42 U.S.C. 1396g (e)).
    138. Contracts or jointly financed cooperative arrangements with 
industry (29 U.S.C. 34(a)(2)(B)).
    139. Project grants for new careers in rehabilitation (29 U.S.C. 
34(a)(2)(C)).
    140. Children of low-income families (20 U.S.C. 241a-241m).
    141. Grants for training (29 U.S.C. 37(a) (2)).
    142. Grants for projects for training services (29 U.S.C. 41b(a)).
    143. Grants for comprehensive juvenile delinquency planning (42 
U.S.C. 3811).
    144. Grants for project planning in juvenile delinquency (42 U.S.C. 
3812).
    145. Grants for juvenile delinquency rehabilitative services 
projects (42 U.S.C. 3822, 3842).
    146. Grants for juvenile delinquency preventive service projects (42 
U.S.C. 3861).
    147. Grants for training projects in juvenile delinquency fields (42 
U.S.C. 3861).
    148. Grants for development of improved techniques and practices in 
juvenile delinquency services (42 U.S.C. 3871).
    149. Grants for technical assistance in juvenile delinquency 
services (42 U.S.C. 3872).
    150. Grants for State technical assistance to local units in 
juvenile delinquency services (42 U.S.C. 3873).
    151. Grants for public service centers projects (42 U.S.C. 2744).
    152. Grants to public or private non-profit agencies to carry on the 
Project Headstart Program (42 U.S.C. 2809(a)(1)).
    153. Project grants for new careers for the handicapped (29 U.S.C. 
34(a)(2)(D)).
    154. Construction, demonstration, and training grants for 
university-affiliated facilities for persons with developmental 
disabilities (42 U.S.C. 2661-2666).

      Part 2. Continuing Assistance to State Administered Programs.

    1. Grants to States for public library services and construction, 
interlibrary cooperation and specialized State library services for 
certain State institutions and the physically handicapped (20 U.S.C. 
351-355).
    2. Grants to States for strengthening instruction in academic 
subjects (20 U.S.C. 441-444).
    3. Grants to States for vocational education (20 U.S.C. 1241-1264).
    4. Arrangements with State education agencies for training under the 
Manpower Development and Training Act (42 U.S.C. 2601-2602, 2610a).
    5. Grants to States to assist in the elementary and secondary 
education of children of low-income families (20 U.S.C. 241a-241m).
    6. Grants to States to provide for school library resources, 
textbooks and other instructional materials for pupils and teachers in 
elementary and secondary schools (20 U.S.C. 821-827).
    7. Grants to States to strengthen State departments of education (20 
U.S.C. 861-870).
    8. Grants to States for community service programs (20 U.S.C. 1001-
1011).
    9. Grants to States for adult basic education and related research, 
teacher training and special projects (20 U.S.C. 1201-1211).
    10. Grants to State educational agencies for supplementary 
educational centers and services, and guidance, counseling and testing 
(20 U.S.C. 841-847).
    11. Grants to States for research and training in vocational 
education (20 U.S.C. 1281(b)).
    12. Grants to States for exemplary programs and projects in 
vocational education (20 U.S.C. 1301-1305).
    13. Grants to States for residential vocational education schools 
(20 U.S.C. 1321).
    14. Grants to States for consumer and homemaking education (20 
U.S.C. 1341).
    15. Grants to States for cooperative vocational educational program 
(20 U.S.C. 1351- 1355).
    16. Grants to States for vocational workstudy programs (20 U.S.C. 
1371-1374).
    17. Grants to States to attract and qualify teachers to meet 
critical teaching shortages (20 U.S.C. 1108-1110c).
    18. Grants to States for education of handicapped children (20 
U.S.C. 1411-1414).
    19. Grants for administration of State plans and for comprehensive 
planning to determine construction needs of institutions of higher 
education (20 U.S.C. 715(b)).
    20. Grants to States for comprehensive health planning (section 
314(a), Public Health Service Act, 42 U.S.C. 246(a)).
    21. Grants to States for establishing and maintaining adequate 
public health services (section 314(d), Public Health Service Act, 42 
U.S.C. 246(d)).

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    22. Grants, loans, and loan guarantees with interest subsidies for 
hospital and medical facilities (Title VI, Public Health Service Act, 42 
U.S.C. 291 et seq.).
    23. Grants to States for community mental health centers 
construction (Community Mental Health Centers Act, Part A, 42 U.S.C. 
2681-2687).
    24. Cost of rehabilitation services (Title II, Social Security Act 
section 222(d); 42 U.S.C. 422(d)).
    25. Surplus personal property disposal donations for health and 
educational purposes through State agencies (40 U.S.C. 484(j)).
    26. Grants for State and community programs on aging (Title III, 
Older Americans Act, 42 U.S.C. 3021-3025).
    27. Grants to States for planning, provision of services, and 
construction and operation of facilities for persons with developmental 
disabilities (42 U.S.C. 2670-2677c).
    28. Grants to States for vocational rehabilitation services (29 
U.S.C. 32); for innovation of vocational rehabilitation services (29 
U.S.C. 33); and for rehabilitation facilities planning (29 U.S.C. 
41a(g)(1)).
    29. Designation of State licensing agency for blind operators of 
vending stands (20 U.S.C. 107-107f).
    30. Grants to States for old-age assistance (42 U.S.C. 301 et seq.); 
aid to families with dependent children (42 U.S.C. 601 et seq.); child-
welfare services (42 U.S.C. 620 et seq.); aid to the blind (42 U.S.C. 
1201 et seq.); aid to the permanently and totally disabled (42 U.S.C. 
1351 et seq.); aid to the aged, blind, or disabled (42 U.S.C. 1381 et 
seq.); medical assistance (42 U.S.C. 1396 et seq.).
    31. Grants to States for maternal and child health and crippled 
children's services (42 U.S.C. 701-707); for special projects for 
maternal and infant care (42 U.S.C. 708).
    32. Grants to States for juvenile delinquency preventive and 
rehabilitative services (42 U.S.C. 3841).

[38 FR 17982, July 5, 1973; 40 FR 18173, Apr. 25, 1975]

  Appendix B to Part 80--Guidelines for Eliminating Discrimination and 
 Denial of Services on the Basis of Race, Color, National Origin, Sex, 
              and Handicap in Vocational Education Programs

                          I. Scope and Coverage

                      a. application of guidelines

    These Guidelines apply to recipients of any Federal financial 
assistance from the Department of Health and Human Services that offer 
or administer programs of vocational education or training. This 
includes State agency recipients.

                       b. definition of recipient

    The definition of recipient of Federal financial assistance is 
established by Department regulations implementing title VI, title IX, 
and section 504 (45 CFR 80.13(i), 86.2(h), 84.3(f).
    For the purposes of title VI:
    The term recipient means any State, political subdivision of any 
State, or instrumentality of any State or political subdivision, any 
public or private agency, institution, or organization, or other entity, 
or any individual, in any State, to whom Federal financial assistance is 
extended, directly or through another recipient, for any program, 
including any successor, assignee, or transferee thereof, but such term 
does not include any ultimate beneficiary [e.g., students] under any 
such program. (45 CFR 80.13(i)).
    For the purpose of title IX:
    Recipient means any State or political subdivision thereof, or any 
instrumentality of a State or political subdivision thereof, any public 
or private agency, institution, or organization, or other entity, or any 
person to whom Federal financial assistance is extended directly or 
through another recipient and which operates an education program or 
activity which receives or benefits from such assistance, including any 
subunit, successor, assignee, or transferee thereof. (45 CFR 86.2(h)).
    For the purposes of section 504:
    Recipient means any State or its political subdivision, any 
instrumentality of a State or its political subdivision, any public or 
private agency, institution, organization, or other entity, or any 
person to which Federal financial assistance is extended directly or 
through another recipient, including any successor, assignee, or 
transferee of a recipient, but excluding the ultimate beneficiary of the 
assistance. (45 CFR 84.3(f)).

          c. examples of recipients covered by these guidelines

    The following education agencies, when they provide vocational 
education, are examples of recipients covered by these Guidelines:
    1. The board of education of a public school district and its 
administrative agency.
    2. The administrative board of a specialized vocational high school 
serving students from more than one school district.
    3. The administrative board of a technical or vocation school that 
is used exclusively or principally for the provision of vocational 
education to persons who have completed or left high school (including 
persons seeking a certificate or an associate degree through a 
vocational program offered by the school) and who are available for 
study in preparation for entering the labor market.

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    4. The administrative board of a postsecondary institution, such as 
a technical institute, skill center, junior college, community college, 
or four year college that has a department or division that provides 
vocational education to students seeking immediate employment, a 
certificate or an associate degree.
    5. The administrative board of a proprietary (private) vocational 
education school.
    6. A State agency recipient itself operating a vocational education 
facility.

         d. examples of schools to which these guidelines apply

    The following are examples of the types of schools to which these 
Guidelines apply.
    1. A junior high school, middle school, or those grades of a 
comprehensive high school that offers instruction to inform, orient, or 
prepare students for vocational education at the secondary level.
    2. A vocational education facility operated by a State agency.
    3. A comprehensive high school that has a department exclusively or 
principally used for providing vocational education; or that offers at 
least one vocational program to secondary level students who are 
available for study in preparation for entering the labor market; or 
that offers adult vocational education to persons who have completed or 
left high school and who are available for study in preparation for 
entering the labor market.
    4. A comprehensive high school, offering the activities described 
above, that receives students on a contract basis from other school 
districts for the purpose of providing vocational education.
    5. A specialized high school used exclusively or principally for the 
provision of vocational education, that enrolls students from one or 
more school districts for the purpose of providing vocational education.
    6. A technical or vocational school that primarily provides 
vocational education to persons who have completed or left high school 
and who are available for study in preparation for entering the labor 
market, including students seeking an associate degree or certificate 
through a course of vocational instruction offered by the school.
    7. A junior college, a community college, or four-year college that 
has a department or division that provides vocational education to 
students seeking immediate employment, an associate degree or a 
certificate through a course of vocational instruction offered by the 
school.
    8. A proprietary school, licensed by the State, that offers 
vocational education.

    Note: Subsequent sections of these Guidelines may use the term 
secondary vocational education center in referring to the institutions 
described in paragraphs 3, 4 and 5 above or the term postsecondary 
vocational education center in referring to institutions described in 
paragraphs 6 and 7 above or the term vocational education center in 
referring to any or all institutions described above.

      II. Responsibilities Assigned Only to State Agency Recipients

           a. responsibilities of all state agency recipients

    State agency recipients, in addition to complying with all other 
provisions of the Guidelines relevant to them, may not require, approve 
of, or engage in any discrimination or denial of services on the basis 
of race, color, national origin, sex, or handicap in performing any of 
the following activities:
    1. Establishment of criteria or formulas for distribution of Federal 
or State funds to vocational education programs in the State;
    2. Establishment of requirements for admission to or requirements 
for the administration of vocational education programs;
    3. Approval of action by local entities providing vocational 
education. (For example, a State agency must ensure compliance with 
section IV of these Guidelines if and when it reviews a vocational 
education agency decision to create or change a geographic service 
area.);
    4. Conducting its own programs. (For example, in employing its staff 
it may not discriminate on the basis of sex or handicap.)

         b. state agencies performing oversight responsibilities

    The State agency responsible for the administration of vocational 
education programs must adopt a compliance program to prevent, identify 
and remedy discrimination on the basis of race, color, national origin, 
sex or handicap by its subrecipients. (A subrecipient, in this context, 
is a local agency or vocational education center that receives financial 
assistance through a State agency.) This compliance program must 
include:
    1. Collecting and analyzing civil rights related data and 
information that subrecipients compile for their own purposes or that 
are submitted to State and Federal officials under existing authorities;
    2. Conducting periodic compliance reviews of selected subrecipients 
(i.e., an investigation of a subrecipient to determine whether it 
engages in unlawful discrimination in any aspect of its program); upon 
finding unlawful discrimination, notifying the subrecipient of steps it 
must take to attain compliance and attempting to obtain voluntary 
compliance;
    3. Providing technical assistance upon request to subrecipients. 
This will include assisting subrecipients identify unlawful 
discrimination and instructing them in remedies for and prevention of 
such discrimination;

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    4. Periodically reporting its activities and findings under the 
foregoing paragraphs, including findings of unlawful discrimination 
under paragraph 2, immediately above, to the Office for Civil Rights.
    State agencies are not required to terminate or defer assistance to 
any subrecipient. Nor are they required to conduct hearings. The 
responsibilities of the Office for Civil Rights to collect and analyze 
data, to conduct compliance reviews, to investigate complaints and to 
provide technical assistance are not diminished or attenuated by the 
requirements of Section II of the Guidelines.

                c. statement of procedures and practices

    Within one year from the publication of these Guidelines in final 
form, each State agency recipient performing oversight responsibilities 
must submit to the Office for Civil Rights the methods of administration 
and related procedures it will follow to comply with the requirements 
described in paragraphs A and B immediately above. The Department will 
review each submission and will promptly either approve it, or return it 
to State officials for revision.

 III. Distribution of Federal Financial Assistance and Other Funds for 
                          Vocational Education

                       a. agency responsibilities

    Recipients that administer grants for vocational education must 
distribute Federal, State, or local vocational education funds so that 
no student or group of students is unlawfully denied an equal 
opportunity to benefit from vocational education on the basis of race, 
color, national origin, sex, or handicap.

                        b. distribution of funds

    Recipients may not adopt a formula or other method for the 
allocation of Federal, State, or local vocational education funds that 
has the effect of discriminating on the basis of race, color, national 
origin, sex, or handicap. However, a recipient may adopt a formula or 
other method of allocation that uses as a factor race, color, national 
origin, sex, or handicap [or an index or proxy for race, color, national 
origin, sex, or handicap e.g., number of persons receiving Aid to 
Families with Dependent Children or with limited English speaking 
ability] if the factor is included to compensate for past discrimination 
or to comply with those provisions of the Vocational Education 
Amendments of 1976 designed to assist specified protected groups.

       c. example of a pattern suggesting unlawful discrimination

    In each State it is likely that some local recipients will enroll 
greater proportions of minority students in vocational education than 
the State-wide proportion of minority students in vocational education. 
A funding formula or other method of allocation that results in such 
local recipients receiving per-pupil allocations of Federal or State 
vocational education funds lower than the State-wide average per-pupil 
allocation will be presumed unlawfully discriminatory.

         d. distribution through competitive grants or contracts

    Each State agency that establishes criteria for awarding competitive 
vocational education grants or contracts must establish and apply the 
criteria without regard to the race, color, national origin, sex, or 
handicap of any or all of a recipient's students, except to compensate 
for past discrimination.

    e. application processes for competitive or discretionary grants

    State agencies must disseminate information needed to satisfy the 
requirements of any application process for competitive or discretionary 
grants so that all recipients, including those having a high percentage 
of minority or handicapped students, are informed of and able to seek 
funds. State agencies that provide technical assistance for the 
completion of the application process must provide such assistance 
without discrimination against any one recipient or class of recipients.

     f. alteration of fund distribution to provide equal opportunity

    If the Office for Civil Rights finds that a recipient's system for 
distributing vocational education funds unlawfully discriminates on the 
basis of race, color, national origin, sex, or handicap, it will require 
the recipient to adopt an alternative nondiscriminatory method of 
distribution. The Office for Civil Rights may also require the recipient 
to compensate for the effects of its past unlawful discrimination in the 
distribution of funds.

  IV. Access and Admission of Students To Vocational Education Programs

                      a. recipient responsibilities

    Criteria controlling student eligibility for admission to vocational 
education schools, facilities and programs may not unlawfully 
discriminate on the basis of race, color, national origin, sex, or 
handicap. A recipient may not develop, impose, maintain, approve, or 
implement such discriminatory admissions criteria.

                b. site selection for vocational schools

    State and local recipients may not select or approve a site for a 
vocational education facility for the purpose or with the effect of

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excluding, segregating, or otherwise discriminating against students on 
the basis of race, color, or national origin. Recipients must locate 
vocational education facilities at sites that are readily accessible to 
both nonminority and minority communities, and that do not tend to 
identify the facility or program as intended for nonminority or minority 
students.

 c. eligibility for admission to vocational education centers based on 
                                residence

    Recipients may not establish, approve or maintain geographic 
boundaries for a vocational education center service area or attendance 
zone, (hereinafter service area), that unlawfully exclude students on 
the basis of race, color, or national origin. The Office for Civil 
Rights will presume, subject to rebuttal, that any one or combination of 
the following circumstances indicates that the boundaries of a given 
service area are unlawfully constituted:
    1. A school system or service area contiguous to the given service 
area, contains minority or nonminority students in substantially greater 
proportion than the given service area;
    2. A substantial number of minority students who reside outside the 
given vocational education center service area, and who are not eligible 
for the center reside, nonetheless, as close to the center as a 
substantial number of non-minority students who are eligible for the 
center;
    3. The over-all vocational education program of the given service 
area in comparison to the over-all vocational education program of a 
contiguous school system or service area enrolling a substantially 
greater proportion of minority students: (a) Provides its students with 
a broader range of curricular offerings, facilities and equipment; or 
(b) provides its graduates greater opportunity for employment in jobs: 
(i) For which there is a demonstrated need in the community or region; 
(ii) that pay higher entry level salaries or wages; or (iii) that are 
generally acknowledged to offer greater prestige or status.

d. additions and renovations to existing vocational education facilities

    A recipient may not add to, modify, or renovate the physical plant 
of a vocational education facility in a manner that creates, maintains, 
or increases student segregation on the basis of race, color, national 
origin, sex, or handicap.

e. remedies for violations of site selection and geographic service area 
                              requirements

    If the conditions specified in paragraphs IV, A, B, C, or D, 
immediately above, are found and not rebutted by proof of 
nondiscrimination, the Office for Civil rights will require the 
recipient(s) to submit a plan to remedy the discrimination. The 
following are examples of steps that may be included in the plan, where 
necessary to overcome the discrimination: (1) Redrawing of the 
boundaries of the vocational education center's service area to include 
areas unlawfully excluded and/or to exclude areas unlawfully included; 
(2) provision of transportation to students residing in areas unlawfully 
excluded; (3) provision of additional programs and services to students 
who would have been eligible for attendance at the vocational education 
center but for the discriminatory service area or site selection; (4) 
reassignment of students; and (5) construction of new facilities or 
expansion of existing facilities.

 f. eligibility for admission to secondary vocational education centers 
          based on numerical limits imposed on sending schools

    A recipient may not adopt or maintain a system for admission to a 
secondary vocational education center or program that limits admission 
to a fixed number of students from each sending school included in the 
center's service area if such a system disproportionately excludes 
students from the center on the basis of race, sex, national origin or 
handicap. (Example: Assume 25 percent of a school district's high school 
students are black and that most of those black students are enrolled in 
one high school; the white students, 75 percent of the district's total 
enrollment, are generally enrolled in the five remaining high schools. 
This paragraph prohibits a system of admission to the secondary 
vocational education center that limits eligibility to a fixed and equal 
number of students from each of the district's six high schools.)

   g. remedies for violation of eligibility based on numerical limits 
                              requirements

    If the Office for Civil Rights finds a violation of paragraph F, 
above, the recipient must implement an alternative system of admissions 
that does not disproportionately exclude students on the basis of race, 
color, national origin, sex, or handicap.

 h. eligibility for admission to vocational education centers, branches 
                  or annexes based upon student option

    A vocational education center, branch or annex, open to all students 
in a service area and predominantly enrolling minority students or 
students of one race, national origin or sex, will be presumed 
unlawfully segregated if: (1) It was established by a recipient for 
members of one race, national origin or sex; or (2) it has since its 
construction been attended primarily by members of one race, national 
origin or sex; or (3) most of its

[[Page 301]]

program offerings have traditionally been selected predominantely by 
members of one race, national origin or sex.

     i. remedies for facility segregation under student option plans

    If the conditions specified in paragraph IV-H are found and not 
rebutted by proof of nondiscrimination, the Office for Civil Rights will 
require the recipient(s) to submit a plan to remedy the segregation. The 
following are examples of steps that may be included in the plan, where 
necessary to overcome the discrimination:
    (1) elimination of program duplication in the segregated facility 
and other proximate vocational facilities; (2) relocation or 
``clustering'' of programs or courses; (3) adding programs and courses 
that traditionally have been identified as intended for members of a 
particular race, national origin or sex to schools that have 
traditionally served members of the other sex or traditionally served 
persons of a different race or national origin; (4) merger of programs 
into one facility through school closings or new construction; (5) 
intensive outreach recruitment and counseling; (6) providing free 
transportation to students whose enrollment would promote desegregation.
    [Paragraph J omitted]

 k. eligibility based on evaluation of each applicant under admissions 
                                criteria

    Recipients may not judge candidates for admission to vocational 
education programs on the basis of criteria that have the effect of 
disproportionately excluding persons of a particular race, color, 
national origin, sex, or handicap. However, if a recipient can 
demonstrate that such criteria have been validated as essential to 
participation in a given program and that alternative equally valid 
criteria that do not have such a disproportionate adverse effect are 
unavailable, the criteria will be judged nondiscriminatory. Examples of 
admissions criteria that must meet this test are past academic 
performance, record of disciplinary infractions, counselors' approval, 
teachers' recommendations, interest inventories, high school diplomas 
and standardized tests, such as the Test of Adult Basic Education 
(TABE).
    An introductory, preliminary, or exploratory course may not be 
established as a prerequisite for admission to a program unless the 
course has been and is available without regard to race, color, national 
origin, sex, and handicap. However, a course that was formerly only 
available on a discriminatory basis may be made a prerequisite for 
admission to a program if the recipient can demonstrate that: (a) the 
course is essential to participation in the program; and (b) the course 
is presently available to those seeking enrollment for the first time 
and to those formerly excluded.

l. eligibility of national origin minority persons with limited english 
                             language skills

    Recipients may not restrict an applicant's admission to vocational 
education programs because the applicant, as a member of a national 
origin minority with limited English language skills, cannot participate 
in and benefit from vocational instruction to the same extent as a 
student whose primary language is English. It is the responsibility of 
the recipient to identify such applicants and assess their ability to 
participate in vocational instruction.
    Acceptable methods of identification include: (1) Identification by 
administrative staff, teachers, or parents of secondary level students; 
(2) identification by the student in postsecondary or adult programs; 
and (3) appropriate diagnostic procedures, if necessary.
    Recipients must take steps to open all vocational programs to these 
national origin minority students. A recipient must demonstrate that a 
concentration of students with limited English language skills in one or 
a few programs is not the result of discriminatory limitations upon the 
opportunities available to such students.

 m. remedial action in behalf of persons with limited english language 
                                 skills

    If the Office for Civil Rights finds that a recipient has denied 
national origin minority persons admission to a vocational school or 
program because of their limited English language skills or has assigned 
students to vocational programs solely on the basis of their limited 
English language skills, the recipient will be required to submit a 
remedial plan that insures national origin minority students equal 
access to vocational education programs.

                n. equal access for handicapped students

    Recipients may not deny handicapped students access to vocational 
education programs or courses because of architectural or equipment 
barriers, or because of the need for related aids and services or 
auxiliary aids. If necessary, recipients must: (1) Modify instructional 
equipment; (2) modify or adapt the manner in which the courses are 
offered; (3) house the program in facilities that are readily accessible 
to mobility impaired students or alter facilities to make them readily 
accessible to mobility impaired students; and (4) provide auxiliary aids 
that effectively make lectures and necessary materials available to 
postsecondary handicapped students; (5) provide related aids or services 
that assure secondary students an appropriate education.

[[Page 302]]

    Academic requirements that the recipient can demonstrate are 
essential to a program of instruction or to any directly related 
licensing requirement will not be regarded as discriminatory. However, 
where possible, a recipient must adjust those requirements to the needs 
of individual handicapped students.
    Access to vocational programs or courses may not be denied 
handicapped students on the ground that employment opportunities in any 
occupation or profession may be more limited for handicapped persons 
than for non-handicapped persons.

                         o. public notification

    Prior to the beginning of each school year, recipients must advise 
students, parents, employees and the general public that all vocational 
opportunities will be offered without regard to race, color, national 
origin, sex, or handicap. Announcement of this policy of non-
discrimination may be made, for example, in local newspapers, recipient 
publications and/or other media that reach the general public, program 
beneficiaries, minorities (including national origin minorities with 
limited English language skills), women, and handicapped persons. A 
brief summary of program offerings and admission criteria should be 
included in the announcement; also the name, address and telephone 
number of the person designated to coordinate Title IX and Section 504 
compliance activity.
    If a recipient's service area contains a community of national 
origin minority persons with limited English language skills, public 
notification materials must be disseminated to that community in its 
language and must state that recipients will take steps to assure that 
the lack of English language skills will not be a barrier to admission 
and participation in vocational education programs.

                V. Counseling and Prevocational Programs

                      a. recipient responsibilities

    Recipients must insure that their counseling materials and 
activities (including student program selection and career/employment 
selection), promotional, and recruitment efforts do not discriminate on 
the basis of race, color, national origin, sex, or handicap.

                 b. counseling and prospects for success

    Recipients that operate vocational education programs must insure 
that counselors do not direct or urge any student to enroll in a 
particular career or program, or measure or predict a student's 
prospects for success in in any career or program based upon the 
student's race, color, national origin, sex, or handicap. Recipients may 
not counsel handicapped students toward more restrictive career 
objectives than nonhandicapped students with similar abilities and 
interests. If a vocational program disproportionately enrolls male or 
female students, minority or nonminority students, or handicapped 
students, recipients must take steps to insure that the disproportion 
does not result from unlawful discrimination in counseling activities.

                    c. student recruitment activities

    Recipients must conduct their student recruitment activities so as 
not to exclude or limit opportunities on the basis of race, color, 
national origin, sex, or handicap. Where recruitment activities involve 
the presentation or portrayal of vocational and career opportunities, 
the curricula and programs described should cover a broad range of 
occupational opportunities and not be limited on the basis of the race, 
color, national origin, sex, or handicap of the students or potential 
students to whom the presentation is made. Also, to the extent possible, 
recruiting teams should include persons of different races, national 
origins, sexes, and handicaps.

   d. counseling of students with limited english-speaking ability or 
                           hearing impairments

    Recipients must insure that counselors can effectively communicate 
with national origin minority students with limited English language 
skills and with students who have hearing impairments. This requirement 
may be satisfied by having interpreters available.

                        e. promotional activities

    Recipients may not undertake promotional efforts (including 
activities of school officials, counselors, and vocational staff) in a 
manner that creates or perpetuates stereotypes or limitations based on 
race, color, national origin, sex or handicap. Examples of promotional 
efforts are career days, parents' night, shop demonstrations, 
visitations by groups of prospective students and by representatives 
from business and industry. Materials that are part of promotional 
efforts may not create or perpetuate stereotypes through text or 
illustration. To the extent possible they should portray males or 
females, minorities or handicapped persons in programs and occupations 
in which these groups traditionally have not been represented. If a 
recipient's service area contains a community of national origin 
minority persons with limited English language skills, promotional 
literature must be distributed to that community in its language.

[[Page 303]]

 VI. Equal Opportunity in the Vocational Education Instructional Setting

               a. accommodations for handicapped students

    Recipients must place secondary level handicapped students in the 
regular educational environment of any vocational education program to 
the maximum extent appropriate to the needs of the student unless it can 
be demonstrated that the education of the handicapped person in the 
regular environment with the use of supplementary aids and services 
cannot be achieved satisfactorily. Handicapped students may be placed in 
a program only after the recipient satisfies the provisions of the 
Department's Regulation, 45 CFR Part 84, relating to evaluation, 
placement, and procedural safeguards. If a separate class or facility is 
identifiable as being for handicapped persons, the facility, the 
programs, and the services must be comparable to the facilities, 
programs, and services offered to nonhandicapped students.

                     b. student financial assistance

    Recipients may not award financial assistance in the form of loans, 
grants, scholarships, special funds, subsidies, compensation for work, 
or prizes to vocational education students on the basis of race, color, 
national origin, sex, or handicap, except to overcome the effects of 
past discrimination. Recipients may administer sex restricted financial 
assistance where the assistance and restriction are established by will, 
trust, bequest, or any similar legal instrument, if the overall effect 
of all financial assistance awarded does not discriminate on the basis 
of sex. Materials and information used to notify students of 
opportunities for financial assistance may not contain language or 
examples that would lead applicants to believe the assistance is 
provided on a discriminatory basis. If a recipient's service area 
contains a community of national origin minority persons with limited 
English language skills, such information must be disseminated to that 
community in its language.

  c. housing in residential postsecondary vocational education centers

    Recipients must extend housing opportunities without discrimination 
based on race, color, national origin, sex, or handicap. This obligation 
extends to recipients that provide on-campus housing and/or that have 
agreements with providers of off-campus housing. In particular, a 
recipient postsecondary vocational education program that provides on-
campus or off-campus housing to its nonhandicapped students must 
provide, at the same cost and under the same conditions, comparable 
convenient and accessible housing to handicapped students.

                        d. comparable facilities

    Recipients must provide changing rooms, showers, and other 
facilities for students of one sex that are comparable to those provided 
to students of the other sex. This may be accomplished by alternating 
use of the same facilities or by providing separate, comparable 
facilities.
    Such facilities must be adapted or modified to the extent necessary 
to make the vocational education program readily accessible to 
handicapped persons.

 VII. Work Study, Cooperative Vocational Education, Job Placement, and 
                           Apprentice Training

 a. responsibilities in cooperative vocational education programs, work-
               study programs, and job placement programs

    A recipient must insure that: (a) It does not discriminate against 
its students on the basis of race, color, national origin, sex, or 
handicap in making available opportunities in cooperative education, 
work study and job placement programs; and (b) students participating in 
cooperative education, work study and job placement programs are not 
discriminated against by employers or prospective employers on the basis 
of race, color, national origin, sex, or handicap in recruitment, 
hiring, placement, assignment to work tasks, hours of employment, levels 
of responsibility, and in pay.
    If a recipient enters into a written agreement for the referral or 
assignment of students to an employer, the agreement must contain an 
assurance from the employer that students will be accepted and assigned 
to jobs and otherwise treated without regard to race, color, national 
origin, sex, or handicap.
    Recipients may not honor any employer's request for students who are 
free of handicaps or for students of a particular race, color, national 
origin, or sex. In the event an employer or prospective employer is or 
has been subject to court action involving discrimination in employment, 
school officials should rely on the court's findings if the decision 
resolves the issue of whether the employer has engaged in unlawful 
discrimination.

                     b. apprentice training programs

    A recipient may not enter into any agreement for the provision or 
support of apprentice training for students or union members with any 
labor union or other sponsor that discriminates against its members or 
applicants for membership on the basis of race, color, national origin, 
sex, or handicap. If a recipient enters into a written agreement with a 
labor union or other sponsor providing for apprentice training, the 
agreement must contain an assurance from the union or other sponsor: (1) 
That it does not

[[Page 304]]

engage in such discrimination against its membership or applicants for 
membership; and (2) that apprentice training will be offered and 
conducted for its membership free of such discrimination.

                  VIII. Employment of Faculty and Staff

                         a. employment generally

    Recipients may not engage in any employment practice that 
discriminates against any employee or applicant for employment on the 
basis of sex or handicap. Recipients may not engage in any employment 
practice that discriminates on the basis of race, color, or national 
origin if such discrimination tends to result in segregation, exclusion 
or other discrimination against students.

                             b. recruitment

    Recipients may not limit their recruitment for employees to schools, 
communities, or companies disproportionately composed of persons of a 
particular race, color, national origin, sex, or handicap except for the 
purpose of overcoming the effects of past discrimination. Every source 
of faculty must be notified that the recipient does not discriminate in 
employment on the basis of race, color, national origin, sex, or 
handicap.

                      c. patterns of discrimination

    Whenever the Office for Civil Rights finds that in light of the 
representation of protected groups in the relevant labor market there is 
a significant underrepresentation or overrepresentation of protected 
group persons on the staff of a vocational education school or program, 
it will presume that the disproportion results from unlawful 
discrimination. This presumption can be overcome by proof that qualified 
persons of the particular race, color, national origin, or sex, or that 
qualified handicapped persons are not in fact available in the relevant 
labor market.

                           d. salary policies

    Recipients must establish and maintain faculty salary scales and 
policy based upon the conditions and responsibilities of employment, 
without regard to race, color, national origin, sex or handicap.

         e. employment opportunities for handicapped applicants

    Recipients must provide equal employment opportunities for teaching 
and administrative positions to handicapped applicants who can perform 
the essential functions of the position in question. Recipients must 
make reasonable accommodation for the physical or mental limitations of 
handicapped applicants who are otherwise qualified unless recipients can 
demonstrate that the accommodation would impose an undue hardship.

                  f. the effects of past discrimination

    Recipients must take steps to overcome the effects of past 
discrimination in the recruitment, hiring, and assignment of faculty. 
Such steps may include the recruitment or reassignment of qualified 
persons of a particular race, national origin, or sex, or who are 
handicapped.

       g. staff of state advisory councils of vocational education

    State Advisory Councils of Vocational Education are recipients of 
Federal financial assistance and therefore must comply with Section VIII 
of the Guidelines.

  h. employment at state operated vocational education centers through 
                     state civil-service authorities

    Where recruitment and hiring of staff for State operated vocational 
education centers is conducted by a State civil service employment 
authority, the State education agency operating the program must insure 
that recruitment and hiring of staff for the vocational education center 
is conducted in accordance with the requirements of these Guidelines.

              IX. Proprietary Vocational Education Schools

                      a. recipient responsibilities

    Proprietary vocational education schools that are recipients of 
Federal financial assistance through Federal student assistance programs 
or otherwise are subject to all of the requirements of the Department's 
regulations and these Guidelines.

                        b. enforcement authority

    Enforcement of the provisions of Title IX of the Education 
Amendments of 1972 and section 504 of the Rehabilitation Act of 1973 is 
the responsibility of the Department of Health and Human Services. 
However, authority to enforce Title VI of the Civil Rights Act of 1964 
for proprietary vocational education schools has been delegated to the 
Veterans Administration.
    When the Office for Civil Rights receives a Title VI complaint 
alleging discrimination by a proprietary vocational education school it 
will forward the complaint to the Veterans Administration and cite the 
applicable requirements of the Department's regulations and these 
Guidelines. The complainant will be notified of such action.

[44 FR 17164, Mar. 21, l979]

[[Page 305]]



PART 81--PRACTICE AND PROCEDURE FOR HEARINGS UNDER PART 80 OF THIS TITLE--Table of Contents




                     Subpart A--General Information

Sec.
81.1  Scope of rules.
81.2  Records to be public.
81.3  Use of gender and number.
81.4  Suspension of rules.

                   Subpart B--Appearance and Practice

81.11  Appearance.
81.12  Authority for representation.
81.13  Exclusion from hearing for misconduct.

                           Subpart C--Parties

81.21  Parties; General Counsel deemed a party.
81.22  Amici curiae.
81.23  Complainants not parties.

       Subpart D--Form, Execution, Service and Filing of Documents

81.31  Form of documents to be filed.
81.32  Signature of documents.
81.33  Filing and service.
81.34  Service--how made.
81.35  Date of service.
81.36  Certificate of service.

                             Subpart E--Time

81.41  Computation.
81.42  Extension of time or postponement.
81.43  Reduction of time to file documents.

                 Subpart F--Proceedings Prior to Hearing

81.51  Notice of hearing or opportunity for hearing.
81.52  Answer to notice.
81.53  Amendment of notice or answer.
81.54  Request for hearing.
81.55  Consolidation.
81.56  Motions.
81.57  Responses to motions and petitions.
81.58  Disposition of motions and petitions.

       Subpart G--Responsibilities and Duties of Presiding Officer

81.61  Who presides.
81.62  Designation of hearing examiner.
81.63  Authority of presiding officer.

                      Subpart H--Hearing Procedures

81.71  Statement of position and trial briefs.
81.72  Evidentiary purpose.
81.73  Testimony.
81.74  Exhibits.
81.75  Affidavits.
81.76  Depositions.
81.77  Admissions as to facts and documents.
81.78  Evidence.
81.79  Cross-examination.
81.80  Unsponsored written material.
81.81  Objections.
81.82  Exceptions to rulings of presiding officer unnecessary.
81.83  Official notice.
81.84  Public document items.
81.85  Offer of proof.
81.86  Appeals from ruling of presiding officer.

                          Subpart I--The Record

81.91  Official transcript.
81.92  Record for decision.

              Subpart J--Posthearing Procedures, Decisions

81.101  Posthearing briefs: Proposed findings and conclusions.
81.102  Decisions following hearing.
81.103  Exceptions to initial or recommended decisions.
81.104  Final decisions.
81.105  Oral argument to the reviewing authority.
81.106  Review by the Secretary.
81.107  Service on amici curiae.

                Subpart K--Judicial Standards of Practice

81.111  Conduct.
81.112  Improper conduct.
81.113  Ex parte communications.
81.114  Expeditious treatment.
81.115  Matters not prohibited.
81.116  Filing of ex parte communications.

                 Subpart L--Posttermination Proceedings

81.121  Posttermination proceedings.

                         Subpart M--Definitions

81.131  Definitions.

    Authority: 5 U.S.C. 301 and 45 CFR 80.9(d).

    Source: 32 FR 15156, Nov. 2, 1967, unless otherwise noted.



                     Subpart A--General Information



Sec. 81.1  Scope of rules.

    The rules of procedure in this part supplement Secs. 80.9 and 80.10 
of this subtitle and govern the practice for hearings, decisions, and 
administrative review conducted by the Department of Health and Human 
Services, pursuant to Title VI of the Civil Rights Act of

[[Page 306]]

1964 (section 602, 78 Stat. 252) and Part 80 of this subtitle.



Sec. 81.2  Records to be public.

    All pleadings, correspondence, exhibits, transcripts, of testimony, 
exceptions, briefs, decisions, and other documents filed in the docket 
in any proceeding may be inspected and copied in the office of the Civil 
Rights hearing clerk. Inquiries may be made at the Central Information 
Center, Department of Health and Human Services, 330 Independence Avenue 
SW., Washington, DC 20201.



Sec. 81.3  Use of gender and number.

    As used in this part, words importing the singular number may extend 
and be applied to several persons or things, and vice versa. Words 
importing the masculine gender may be applied to females or 
organizations.



Sec. 81.4  Suspension of rules.

    Upon notice to all parties, the reviewing authority or the presiding 
officer, with respect to matters pending before them, may modify or 
waive any rule in this part upon determination that no party will be 
unduly prejudiced and the ends of justice will thereby be served.



                   Subpart B--Appearance and Practice



Sec. 81.11  Appearance.

    A party may appear in person or by counsel and participate fully in 
any proceeding. A State agency or a corporation may appear by any of its 
officers or by any employee it authorizes to appear on its behalf. 
Counsel must be members in good standing of the bar of a State, 
Territory, or possession of the United States or of the District of 
Columbia or the Commonwealth of Puerto Rico.



Sec. 81.12  Authority for representation.

    Any individual acting in a representative capacity in any proceeding 
may be required to show his authority to act in such capacity.



Sec. 81.13  Exclusion from hearing for misconduct.

    Disrespectful, disorderly, or contumacious language or contemptuous 
conduct, refusal to comply with directions, or continued use of dilatory 
tactics by any person at any hearing before a presiding officer shall 
constitute grounds for immediate exclusion of such person from the 
hearing by the presiding officer.



                           Subpart C--Parties



Sec. 81.21  Parties; General Counsel deemed a party.

    (a) The term party shall include an applicant or recipient or other 
person to whom a notice of hearing or opportunity for hearing has been 
mailed naming him a respondent.
    (b) The General Counsel of the Department of Health and Human 
Services shall be deemed a party to all proceedings.



Sec. 81.22  Amici curiae.

    (a) Any interested person or organization may file a petition to 
participate in a proceeding as an amicus curiae. Such petition shall be 
filed prior to the prehearing conference, or if none is held, before the 
commencement of the hearing, unless the petitioner shows good cause for 
filing the petition later. The presiding officer may grant the petition 
if he finds that the petitioner has a legitimate interest in the 
proceedings, that such participation will not unduly delay the outcome, 
and may contribute materially to the proper disposition thereof. An 
amicus curiae is not a party and may not introduce evidence at a 
hearing.
    (b) An amicus curiae may submit a statement of position to the 
presiding officer prior to the beginning of a hearing, and shall serve a 
copy on each party. The amicus curiae may submit a brief on each 
occasion a decision is to be made or a prior decision is subject to 
review. His brief shall be filed and served on each party within the 
time limits applicable to the party whose position he deems himself to 
support; or if he does not deem himself to support the position of any 
party, within the longest time limit applicable to

[[Page 307]]

any party at that particular stage of the proceedings.
    (c) When all parties have completed their initial examination of a 
witness, any amicus curiae may request the presiding officer to propound 
specific questions to the witness. The presiding officer, in his 
discretion, may grant any such request if he believes the proposed 
additional testimony may assist materially in elucidating factual 
matters at issue between the parties and will not expand the issues.



Sec. 81.23  Complainants not parties.

    A person submitting a complaint pursuant to Sec. 80.7(b) of this 
title is not a party to the proceedings governed by this part, but may 
petition, after proceedings are initiated, to become an amicus curiae.



       Subpart D--Form, Execution, Service and Filing of Documents



Sec. 81.31  Form of documents to be filed.

    Documents to be filed under the rules in this part shall be dated, 
the original signed in ink, shall show the docket description and title 
of the proceeding, and shall show the title, if any, and address of the 
signatory. Copies need not be signed but the name of the person signing 
the original shall be reproduced. Documents shall be legible and shall 
not be more than 8\1/2\ inches wide and 12 inches long.



Sec. 81.32  Signature of documents.

    The signature of a party, authorized officer, employee or attorney 
constitutes a certificate that he has read the document, that to the 
best of his knowledge, information, and belief there is good ground to 
support it, and that it is not interposed for delay. If a document is 
not signed or is signed with intent to defeat the purpose of this 
section, it may be stricken as sham and false and the proceeding may 
proceed as though the document had not been filed. Similar action may be 
taken if scandalous or indecent matter is inserted.



Sec. 81.33  Filing and service.

    All notices by a Department official, and all written motions, 
requests, petitions, memoranda, pleadings, exceptions, briefs, 
decisions, and correspondence to a Department official from a party, or 
vice versa, relating to a proceeding after its commencement shall be 
filed and served on all parties. Parties shall supply the original and 
two copies of documents submitted for filing. Filings shall be made with 
the Civil Rights hearing clerk at the address stated in the notice of 
hearing or notice of opportunity for hearing, during regular business 
hours. Regular business hours are every Monday through Friday (legal 
holidays in the District of Columbia excepted) from 9 a.m. to 5:30 p.m., 
eastern standard or daylight saving time, whichever is effective in the 
District of Columbia at the time. Originals only on exhibits and 
transcripts of testimony need be filed. For requirements of service on 
amici curiae, see Sec. 81.107.



Sec. 81.34  Service--how made.

    Service shall be made by personal delivery of one copy to each 
person to be served or by mailing by first-class mail, properly 
addressed with postage prepaid. When a party or amicus has appeared by 
attorney or other representative, service upon such attorney or 
representative will be deemed service upon the party or amicus. 
Documents served by mail preferably should be mailed in sufficient time 
to reach the addressee by the date on which the original is due to be 
filed, and should be air mailed if the addressee is more than 300 miles 
distant.



Sec. 81.35  Date of service.

    The date of service shall be the day when the matter is deposited in 
the U.S. mail or is delivered in person, except that the date of service 
of the initial notice of hearing or opportunity for hearing shall be the 
date of its delivery, or of its attempted delivery if refused.



Sec. 81.36  Certificate of service.

    The original of every document filed and required to be served upon 
parties to a proceeding shall be endorsed with a certificate of service 
signed by the party making service or by his attorney or representative, 
stating that such service has been made, the date of

[[Page 308]]

service, and the manner of service, whether by mail or personal 
delivery.



                             Subpart E--Time



Sec. 81.41  Computation.

    In computing any period of time under the rules in this part or in 
an order issued hereunder, the time begins with the day following the 
act, event, or default, and includes the last day of the period, unless 
it is a Saturday, Sunday, or legal holiday observed in the District of 
Columbia, in which event it includes the next following business day. 
When the period of time prescribed or allowed is less than 7 days, 
intermediate Saturdays, Sundays, and legal holidays shall be excluded 
from the computation.



Sec. 81.42  Extension of time or postponement.

    Requests for extension of time should be served on all parties and 
should set forth the reasons for the application. Applications may be 
granted upon a showing of good cause by the applicant. From the 
designation of a presiding officer until the issuance of his decision 
such requests should be addressed to him. Answers to such requests are 
permitted, if made promptly.



Sec. 81.43  Reduction of time to file documents.

    For good cause, the reviewing authority or the presiding officer, 
with respect to matters pending before them, may reduce any time limit 
prescribed by the rules in this part, except as provided by law or in 
Part 80 of this title.



                 Subpart F--Proceedings Prior to Hearing



Sec. 81.51  Notice of hearing or opportunity for hearing.

    Proceedings are commenced by mailing a notice of hearing or 
opportunity for hearing to an affected applicant or recipient, pursuant 
to Sec. 80.9 of this title.



Sec. 81.52  Answer to notice.

    The respondent, applicant or recipient may file an answer to the 
notice within 20 days after service thereof. Answers shall admit or deny 
specifically and in detail each allegation of the notice, unless the 
respondent party is without knowledge, in which case his answer should 
so state, and the statement will be deemed a denial. Allegations of fact 
in the notice not denied or controverted by answer shall be deemed 
admitted. Matters alleged as affirmative defenses shall be separately 
stated and numbered. Failure of the respondent to file an answer within 
the 20-day period following service of the notice may be deemed an 
admission of all matters of fact recited in the notice.



Sec. 81.53  Amendment of notice or answer.

    The General Counsel may amend the notice of hearing or opportunity 
for hearing once as a matter of course before an answer thereto is 
served, and each respondent may amend his answer once as a matter of 
course not later than 10 days before the date fixed for hearing but in 
no event later than 20 days from the date of service of his original 
answer. Otherwise a notice or answer may be amended only by leave of the 
presiding officer. A respondent shall file his answer to an amended 
notice within the time remaining for filing the answer to the original 
notice or within 10 days after service of the amended notice, whichever 
period may be the longer, unless the presiding officer otherwise orders.



Sec. 81.54  Request for hearing.

    Within 20 days after service of a notice of opportunity for hearing 
which does not fix a date for hearing the respondent, either in his 
answer or in a separate document, may request a hearing. Failure of the 
respondent to request a hearing shall be deemed a waiver of the right to 
a hearing and to constitute his consent to the making of a decision on 
the basis of such information as is available.



Sec. 81.55  Consolidation.

    The responsible Department official may provide for proceedings in 
the Department to be joined or consolidated for hearing with proceedings 
in other Federal departments or agencies, by

[[Page 309]]

agreement with such other departments or agencies. All parties to any 
proceeding consolidated subsequently to service of the notice of hearing 
or opportunity for hearing shall be promptly served with notice of such 
consolidation.



Sec. 81.56  Motions.

    Motions and petitions shall state the relief sought, the authority 
relied upon, and the facts alleged. If made before or after the hearing, 
these matters shall be in writing. If made at the hearing, they may be 
stated orally; but the presiding officer may require that they be 
reduced to writing and filed and served on all parties in the same 
manner as a formal motion. Motions, answers, and replies shall be 
addressed to the presiding officer, if the case is pending before him. A 
repetitious motion will not be entertained.



Sec. 81.57  Responses to motions and petitions.

    Within 8 days after a written motion or petition is served, or such 
other period as the reviewing authority or the presiding officer may 
fix, any party may file a response thereto. An immediate oral response 
may be made to an oral motion.



Sec. 81.58  Disposition of motions and petitions.

    The reviewing authority or the presiding officer may not sustain or 
grant a written motion or petition prior to expiration of the time for 
filing responses thereto, but may overrule or deny such motion or 
petition without awaiting response: Provided, however, That prehearing 
conferences, hearings and decisions need not be delayed pending 
disposition of motions or petitions. Oral motions and petitions may be 
ruled on immediately. Motions and petitions submitted to the reviewing 
authority or the presiding officer, respectively, and not disposed of in 
separate rulings or in their respective decisions will be deemed denied. 
Oral arguments shall not be held or written motions or petitions unless 
the presiding officer in his discretion expressly so orders.



       Subpart G--Responsibilities and Duties of Presiding Officer



Sec. 81.61  Who presides.

    A hearing examiner assigned under 5 U.S.C. 3105 or 3344 (formerly 
section 11 of the Administrative Procedure Act) shall preside over the 
taking of evidence in any hearing to which these rules of procedure 
apply.



Sec. 81.62  Designation of hearing examiner.

    The designation of the hearing examiner as presiding officer shall 
be in writing, and shall specify whether the examiner is to make an 
initial decision or to certify the entire record including his 
recommended findings and proposed decision to the reviewing authority, 
and may also fix the time and place of hearing. A copy of such order 
shall be served on all parties. After service of an order designating a 
hearing examiner to preside, and until such examiner makes his decision, 
motions and petitions shall be submitted to him. In the case of the 
death, illness, disqualification or unavailability of the designated 
hearing examiner, another hearing examiner may be designated to take his 
place.



Sec. 81.63  Authority of presiding officer.

    The presiding officer shall have the duty to conduct a fair hearing, 
to take all necessary action to avoid delay, and to maintain order. He 
shall have all powers necessary to these ends, including (but not 
limited to) the power to:
    (a) Arrange and issue notice of the date, time, and place of 
hearings, or, upon due notice to the parties, to change the date, time, 
and place of hearings previously set.
    (b) Hold conferences to settle, simplify, or fix the issues in a 
proceeding, or to consider other matters that may aid in the expeditious 
disposition of the proceeding.
    (c) Require parties and amici curiae to state their position with 
respect to the various issues in the proceeding.
    (d) Administer oaths and affirmations.
    (e) Rule on motions, and other procedural items on matters pending 
before him.

[[Page 310]]

    (f) Regulate the course of the hearing and conduct of counsel 
therein.
    (g) Examine witnesses and direct witnesses to testify.
    (h) Receive, rule on, exclude or limit evidence.
    (i) Fix the time for filing motions, petitions, briefs, or other 
items in matters pending before him.
    (j) Issue initial or recommended decisions.
    (k) Take any action authorized by the rules in this part or in 
conformance with the provisions of 5 U.S.C. 551-559 (the Administrative 
Procedure Act).



                      Subpart H--Hearing Procedures



Sec. 81.71  Statement of position and trial briefs.

    The presiding officer may require parties and amici curiae to file 
written statements of position prior to the beginning of a hearing. The 
presiding officer may also require the parties to submit trial briefs.



Sec. 81.72  Evidentiary purpose.

    (a) The hearing is directed to receiving factual evidence and expert 
opinion testimony related to the issues in the proceeding. Argument will 
not be received in evidence; rather it should be presented in 
statements, memoranda, or briefs, as determined by the presiding 
officer. Brief opening statements, which shall be limited to statement 
of the party's position and what he intends to prove, may be made at 
hearings.
    (b) Hearings for the reception of evidence will be held only in 
cases where issues of fact must be resolved in order to determine 
whether the respondent has failed to comply with one or more applicable 
requirements of Part 80 of this title. In any case where it appears from 
the respondent's answer to the notice of hearing or opportunity for 
hearing, from his failure timely to answer, or from his admissions or 
stipulations in the record, that there are no matters of material fact 
in dispute, the reviewing authority or presiding officer may enter an 
order so finding, vacating the hearing date if one has been set, and 
fixing the time for filing briefs under Sec. 81.101. Thereafter the 
proceedings shall go to conclusion in accordance with Subpart J of this 
part. The presiding officer may allow an appeal from such order in 
accordance with Sec. 81.86.



Sec. 81.73  Testimony.

    Testimony shall be given orally under oath or affirmation by 
witnesses at the hearing; but the presiding officer, in his discretion, 
may require or permit that the direct testimony of any witness be 
prepared in writing and served on all parties in advance of the hearing. 
Such testimony may be adopted by the witness at the hearing, and filed 
as part of the record thereof. Unless authorized by the presiding 
officer, witnesses will not be permitted to read prepared testimony into 
the record. Except as provided in Secs. 81.75 and 81.76, witnesses shall 
be available at the hearing for cross-examination.



Sec. 81.74  Exhibits.

    Proposed exhibits shall be exchanged at the prehearing conference, 
or otherwise prior to the hearing if the presiding officer so requires. 
Proposed exhibits not so exchanged may be denied admission as evidence. 
The authenticity of all proposed exhibits exchanged prior to hearing 
will be deemed admitted unless written objection thereto is filed prior 
to the hearing or unless good cause is shown at the hearing for failure 
to file such written objection.



Sec. 81.75  Affidavits.

    An affidavit is; not inadmissible as such. Unless the presiding 
officer fixes other time periods affidavits shall be filed and served on 
the parties not later than 15 days prior to the hearing; and not less 
than 7 days prior to hearing a party may file and serve written 
objection to any affidavit on the ground that he believes it necessary 
to test the truth of assertions therein at hearing. In such event the 
assertions objected to will not be received in evidence unless the 
affiant is made available for cross-examination, or the presiding 
officer determines that cross-examination is not necessary for the full 
and true disclosure of facts referred to in such assertions. 
Notwithstanding any objection, however, affidavits may be

[[Page 311]]

considered in the case of any respondent who waives a hearing.



Sec. 81.76  Depositions.

    Upon such terms as may be just, for the convenience of the parties 
or of the Department, the presiding officer may authorize or direct the 
testimony of any witness to be taken by deposition.



Sec. 81.77  Admissions as to facts and documents.

    Not later than 15 days prior to the scheduled date of the hearing 
except for good cause shown, or prior to such earlier date as the 
presiding officer may order, any party may serve upon an opposing party 
a written request for the admission of the genuineness and authenticity 
of any relevant documents described in and exhibited with the request, 
or for the admission of the truth of any relevant matters of fact stated 
in the request. Each of the matters of which an admission is requested 
shall be deemed admitted, unless within a period designated in the 
request (not less than 10 days after service thereof, or within such 
further time as the presiding officer or the reviewing authority if no 
presiding officer has yet been designated may allow upon motion and 
notice) the party to whom the request is directed serves upon the 
requesting party a sworn statement either denying specifically the 
matters of which an admission is requested or setting forth in detail 
the reasons why he cannot truthfully either admit or deny such matters. 
Copies of requests for admission and answers thereto shall be served on 
all parties. Any admission made by a party to such request is only for 
the purposes of the pending proceeding, or any proceeding or action 
instituted for the enforcement of any order entered therein, and shall 
not constitute and admission by him for any other purpose or be used 
against him in any other proceeding or action.



Sec. 81.78  Evidence.

    Irrelevant, immaterial, unreliable, and unduly repetitious evidence 
will be excluded.



Sec. 81.79  Cross-examination.

    A witness may be cross-examined on any matter material to the 
proceeding without regard to the scope of his direct examination.



Sec. 81.80  Unsponsored written material.

    Letters expressing views or urging action and other unsponsored 
written material regarding matters in issue in a hearing will be placed 
in the correspondence section of the docket of the proceeding. These 
data are not deemed part of the evidence or record in the hearing.



Sec. 81.81  Objections.

    Objections to evidence shall be timely and briefly state the ground 
relied upon.



Sec. 81.82  Exceptions to rulings of presiding officer unnecessary.

    Exceptions to rulings of the presiding officer are unnecessary. It 
is sufficient that a party, at the time the ruling of the presiding 
officer is sought, makes known the action which he desires the presiding 
officer to take, or his objection to an action taken, and his grounds 
therefor.



Sec. 81.83  Official notice.

    Where official notice is taken or is to be taken of a material fact 
not appearing in the evidence of record, any party, on timely request, 
shall be afforded an opportunity to show the contrary.



Sec. 81.84  Public document items.

    Whenever there is offered (in whole or in part) a public document, 
such as an official report, decision, opinion, or published scientific 
or economic statistical data issued by any of the executive departments 
(or their subdivisions), legislative agencies or committees, or 
administrative agencies of the Federal Government (including Government-
owned corporations), or a similar document issued by a State or its 
agencies, and such document (or part thereof) has been shown by the 
offeror to be reasonably available to the public, such document need not 
be produced or marked for identification, but may be offered for 
official notice, as a

[[Page 312]]

public document item by specifying the document or relevant part 
thereof.



Sec. 81.85  Offer of proof.

    An offer of proof made in connection with an objection taken to any 
ruling of the presiding officer rejecting or excluding proffered oral 
testimony shall consist of a statement of the substance of the evidence 
which counsel contends would be adduced by such testimony; and, if the 
excluded evidence consists of evidence in documentary or written form or 
of reference to documents or records, a copy of such evidence shall be 
marked for identification and shall accompany the record as the offer of 
proof.



Sec. 81.86  Appeals from ruling of presiding officer.

    Rulings of the presiding officer may not be appealed to the 
reviewing authority prior to his consideration of the entire proceeding 
except with the consent of the presiding officer and where he certifies 
on the record or in writing that the allowance of an interlocutory 
appeal is clearly necessary to prevent exceptional delay, expense, or 
prejudice to any party, or substantial detriment to the public interest. 
If an appeal is allowed, any party may file a brief with the reviewing 
authority within such period as the presiding officer directs. No oral 
argument will be heard unless the reviewing authority directs otherwise. 
At any time prior to submission of the proceeding to it for decisions, 
the reviewing authority may direct the presiding officer to certify any 
question or the entire record to it for decision. Where the entire 
record is so certified, the presiding officer shall recommend a 
decision.



                          Subpart I--The Record



Sec. 81.91  Official transcript.

    The Department will designate the official reporter for all 
hearings. The official transcripts of testimony taken, together with any 
exhibits, briefs, or memoranda of law filed therewith shall be filed 
with the Department. Transcripts of testimony in hearings may be 
obtained from the official reporter by the parties and the public at 
rates not to exceed the maximum rates fixed by the contract between the 
Department and the reporter. Upon notice to all parties, the presiding 
officer may authorize corrections to the transcript which involve 
matters of substance.



Sec. 81.92  Record for decision.

    The transcript of testimony, exhibits, and all papers and requests 
filed in the proceedings, except the correspondence section of the 
docket, including rulings and any recommended or initial decision shall 
constitute the exclusive record for decision.



              Subpart J--Posthearing Procedures, Decisions



Sec. 81.101  Posthearing briefs: Proposed findings and conclusions.

    (a) The presiding officer shall fix the time for filing posthearing 
briefs, which may contain proposed findings of fact and conclusions of 
law, and, if permitted, reply briefs.
    (b) Briefs should include a summary of the evidence relied upon 
together with references to exhibit numbers and pages of the transcript, 
with citations of the authorities relied upon.



Sec. 81.102  Decisions following hearing.

    When the time for submission of posthearing briefs has expired, the 
presiding officer shall certify the entire record, including his 
recommended findings and proposed decision, to the responsible 
Department official; or if so authorized he shall make an initial 
decision. A copy of the recommended findings and proposed decision, or 
of the initial decision, shall be served upon all parties, and amici, if 
any.



Sec. 81.103  Exceptions to initial or recommended decisions.

    Within 20 days after the mailing of an initial or recommended 
decision, any party may file exceptions to the decision, stating reasons 
therefor, with the reviewing authority. Any other party may file a 
response thereto within 30 days after the mailing of the decision. Upon 
the filing of such exceptions, the reviewing authority shall review the 
decision and issue its own decision thereon.

[[Page 313]]



Sec. 81.104  Final decisions.

    (a) Where the hearing is conducted by a hearing examiner who makes 
an initial decision, if no exceptions thereto are filed within the 20-
day period specified in Sec. 81.103, such decision shall become the 
final decision of the Department, and shall constitute ``final agency 
action'' within the meaning of 5 U.S.C. 704 (formerly section 10(c) of 
the Administrative Procedure Act), subject to the provisions of 
Sec. 81.106.
    (b) Where the hearing is conducted by a hearing examiner who makes a 
recommended decision, or upon the filing of exceptions to a hearing 
examiner's initial decision, the reviewing authority shall review the 
recommended or initial decision and shall issue its own decision 
thereon, which shall become the final decision of the Department, and 
shall constitute ``final agency action'' within the meaning of 5 U.S.C. 
704 (formerly section 10(c) of the Administrative Procedure Act), 
subject to the provisions of Sec. 81.106.
    (c) All final decisions shall be promptly served on all parties, and 
amici, if any.



Sec. 81.105  Oral argument to the reviewing authority.

    (a) If any party desires to argue a case orally on exceptions or 
replies to exceptions to an initial or recommended decision, he shall 
make such request in writing. The reviewing authority may grant or deny 
such requests in its discretion. If granted, it will serve notice of 
oral argument on all parties. The notice will set forth the order of 
presentation, the amount of time allotted, and the time and place for 
argument. The names of persons who will argue should be filed with the 
Department hearing clerk not later than 7 days before the date set for 
oral argument.
    (b) The purpose of oral argument is to emphasize and clarify the 
written argument in the briefs. Reading at length from the brief or 
other texts is not favored. Participants should confine their arguments 
to points of controlling importance and to points upon which exceptions 
have been filed. Consolidations of appearances at oral argument by 
parties taking the same side will permit the parties' interests to be 
presented more effectively in the time allotted.
    (c) Pamphlets, charts, and other written material may be presented 
at oral argument only if such material is limited to facts already in 
the record and is served on all parties and filed with the Department 
hearing clerk at least 7 days before the argument.



Sec. 81.106  Review by the Secretary.

    Within 20 days after an initial decision becomes a final decision 
pursuant to Sec. 81.104(a) or within 20 days of the mailing of a final 
decision referred to in Sec. 81.104(b), as the case may be, a party may 
request the Secretary to review the final decision. The Secretary may 
grant or deny such request, in whole or in part, or serve notice of his 
intent to review the decision in whole or in part upon his own motion. 
If the Secretary grants the requested review, or if he serves notice of 
intent to review upon his own motion, each party to the decision shall 
have 20 days following notice of the Secretary's proposed action within 
which to file exceptions to the decision and supporting briefs and 
memoranda, or briefs and memoranda in support of the decision. Failure 
of a party to request review under this paragraph shall not be deemed a 
failure to exhaust administrative remedies for the purpose of obtaining 
judicial review.



Sec. 81.107  Service on amici curiae.

    All briefs, exceptions, memoranda, requests, and decisions referred 
to in this Subpart J shall be served upon amici curiae at the same times 
and in the same manner required for service on parties. Any written 
statements of position and trial briefs required of parties under 
Sec. 81.71 shall be served on amici.



                Subpart K--Judicial Standards of Practice



Sec. 81.111  Conduct.

    Parties and their representatives are expected to conduct themselves 
with honor and dignity and observe judicial standards of practice and 
ethics in all proceedings. They should not indulge in offensive 
personalities, unseemly wrangling, or intemperate accusations

[[Page 314]]

or characterizations. A representative of any party whether or not a 
lawyer shall observe the traditional responsibilities of lawyers as 
officers of the court and use his best efforts to restrain his client 
from improprieties in connection with a proceeding.



Sec. 81.112  Improper conduct.

    With respect to any proceeding it is improper for any interested 
person to attempt to sway the judgment of the reviewing authority by 
undertaking to bring pressure or influence to bear upon any officer 
having a responsibility for a decision in the proceeding, or his 
decisional staff. It is improper that such interested persons or any 
members of the Department's staff or the presiding officer give 
statements to communications media, by paid advertisement or otherwise, 
designed to influence the judgment of any officer having a 
responsibility for a decision in the proceeding, or his decisional 
staff. It is improper for any person to solicit communications to any 
such officer, or his decisional staff, other than proper communications 
by parties or amici curiae.



Sec. 81.113  Ex parte communications.

    Only persons employed by or assigned to work with the reviewing 
authority who perform no investigative or prosecuting function in 
connection with a proceeding shall communicate ex parte with the 
reviewing authority, or the presiding officer, or any employee or person 
involved in the decisional process in such proceedings with respect to 
the merits of that or a factually related proceeding. The reviewing 
authority, the presiding officer, or any employee or person involved in 
the decisional process of a proceeding shall communicate ex parte with 
respect to the merits of that or a factually related proceeding only 
with persons employed by or assigned to work with them and who perform 
no investigative or prosecuting function in connection with the 
proceeding.



Sec. 81.114  Expeditious treatment.

    Requests for expeditious treatment of matters pending before the 
responsible Department official or the presiding officer are deemed 
communications on the merits, and are improper except when forwarded 
from parties to a proceeding and served upon all other parties thereto. 
Such communications should be in the form of a motion.



Sec. 81.115  Matters not prohibited.

    A request for information which merely inquires about the status of 
a proceeding without discussing issues or expressing points of view is 
not deemed an ex parte communication. Such requests should be directed 
to the Civil Rights hearing clerk. Communications with respect to minor 
procedural matters or inquiries or emergency requests for extensions of 
time are not deemed ex parte communications prohibited by Sec. 81.113. 
Where feasible, however, such communications should be by letter with 
copies to all parties. Ex parte communications between a respondent and 
the responsible Department official or the Secretary with respect to 
securing such respondent's voluntary compliance with any requirement of 
part 80 of this title are not prohibited.



Sec. 81.116  Filing of ex parte communications.

    A prohibited communication in writing received by the Secretary, the 
reviewing authority, or by the presiding officer, shall be made public 
by placing it in the correspondence file of the docket in the case and 
will not be considered as part of the record for decision. If the 
prohibited communication is received orally a memorandum setting forth 
its substance shall be made and filed in the correspondence section of 
the docket in the case. A person referred to in such memorandum may file 
a comment for inclusion in the docket if he considers the memorandum to 
be incorrect.



                 Subpart L--Posttermination Proceedings



Sec. 81.121  Posttermination proceedings.

    (a) An applicant or recipient adversely affected by the order 
terminating, discontinuing, or refusing Federal financial assistance in 
consequence of proceedings pursuant to this title may request the 
responsible

[[Page 315]]

Department official for an order authorizing payment, or permitting 
resumption, of Federal financial assistance. Such request shall be in 
writing and shall affirmatively show that since entry of the order, it 
has brought its program or activity into compliance with the 
requirements of the Act, and with the Regulation thereunder, and shall 
set forth specifically, and in detail, the steps which it has taken to 
achieve such compliance. If the responsible Department official denies 
such request the applicant or recipient shall be given an expeditious 
hearing if it so requests in writing and specifies why it believes the 
responsible Department official to have been in error. The request for 
such a hearing shall be addressed to the responsible Department official 
and shall be made within 30 days after the applicant or recipient is 
informed that the responsible Department official has refused to 
authorize payment or permit resumption of Federal financial assistance.
    (b) In the event that a hearing shall be requested pursuant to 
paragraph (a) of this section, the hearing procedures established by 
this part shall be applicable to the proceedings, except as otherwise 
provided in this section.



                         Subpart M--Definitions



Sec. 81.131  Definitions.

    The definitions contained in Sec. 80.13 of this subtitle apply to 
this part, unless the context otherwise requires, and the term reviewing 
authority as used herein includes the Secretary of Health and Human 
Services, with respect to action by that official under Sec. 81.106.
    Transition provisions: (a) The amendments herein shall become 
effective upon publication in the Federal Register.
    (b) These rules shall apply to any proceeding or part thereof to 
which Part 80 of this title as amended effective October 19, 1967 
(published in the Federal Register for October 19, 1967), and as the 
same may be hereafter amended, applies. In the case of any proceeding or 
part thereof governed by the provisions of part 80 as that part existed 
prior to such amendment, and rules in this part 81 shall apply as if 
these amendments were not in effect.



PART 83--REGULATION FOR THE ADMINISTRATION AND ENFORCEMENT OF SECTIONS 799A AND 845 OF THE PUBLIC HEALTH SERVICE ACT--Table of Contents




               Subpart A--Purposes; Definitions; Coverage

Sec.
83.1  Purposes.
83.2  Definitions.
83.3  Remedial and affirmative actions.
83.4  Coverage.
83.5  Effect of title IX of the Education Amendments of 1972.
83.6-83.9  [Reserved]

           Subpart B--Discrimination in Admissions Prohibited

83.10  General obligations.
83.11  Discriminatory acts prohibited.
83.12  Recruitment.
83.13  State law and licensure requirements.
83.14  Development and dissemination of nondiscrimination policy.
83.15  Designation by entity of responsible employee and adoption of 
          grievance procedures.
83.16-83.19  [Reserved]

                     Subpart C--Procedures [Interim]

83.20  Interim procedures.

    Authority: Sec. 215(b), Public Health Service Act (42 U.S.C. 
216(b)).

    Source: 40 FR 28573, July 7, 1975, unless otherwise noted.



               Subpart A--Purposes; Definitions; Coverage



Sec. 83.1  Purposes.

    (a) The purposes of this part are (1) to effectuate the provisions 
of sections 799A and 845 of the Public Health Service Act, which forbid 
the extension of Federal support under title VII or VIII of that Act to 
any entity of the types described in those sections unless that entity 
submits to the Secretary of Health and Human Services an assurance 
satisfactory to the Secretary that it will not discriminate on the basis 
of sex in the admission of individuals to its training programs, and (2) 
to implement the policy of the Secretary that no Federal support will be 
extended under those titles to any other entity

[[Page 316]]

unless that entity submits to the Secretary an assurance satisfactory to 
the Secretary that it will not discriminate on the basis of sex in the 
admission of individuals to its training programs.
    (b) The objective of this part is to abolish use of sex as a 
criterion in the admission of individuals to all training programs 
operated by an entity which receives support under title VII or VIII of 
the Act, and thereby to foster maximum use of all available human 
resources in meeting the Nation's needs for qualified health personnel.



Sec. 83.2  Definitions.

    As used in this part the term--
    (a) Act means the Public Health Service Act.
    (b) Administrative law judge means a person appointed by the 
Reviewing Authority to preside over a hearing held under this part.
    (c) Assurance commitment clause means a clause in an invitation for 
a contract offer extended by the Federal Government under title VII or 
VIII of the Act which, when executed by an entity as part of such offer, 
becomes, upon acceptance of such offer by the Federal Government, a 
contractual obligation of such entity to comply with its assurance 
submitted to the Director under this part.
    (d) Department means the Department of Health and Human Services.
    (e) Director means the Director of the Office for Civil Rights of 
the Department.
    (f) Entity means (1) a school of medicine, school of dentistry, 
school of osteopathy, school of pharmacy, school of optometry, school of 
podiatry, school of veterinary medicine, or school of public health, as 
defined by section 724 of the Act;
    (2) A school of nursing, as defined by section 843 of the Act;
    (3) A school or college of a training center for an allied health 
profession, as defined by section 795 of the Act, or of another 
institution of undergraduate education which school or college can 
provide a training program;
    (4) An affiliated hospital, as defined by section 724 or 795 of the 
Act; and
    (5) Any other institution, organization, consortium, or agency which 
is eligible to receive Federal support.
    (g) Federal support means assistance extended after November 18, 
1971, under title VII or VIII of the Act to an entity by means of a 
grant to, a contract with, or a loan guarantee or interest subsidy 
payment made on behalf of, such entity.
    (h) Federally supported entity means an entity which receives 
Federal support.
    (i) Reviewing authority means that component of the Department to 
which the Secretary delegates authority to review the decision of an 
administrative law judge in a proceeding arising under this part.
    (j) Secretary means the Secretary of Health and Human Services.
    (k) Training program means a program of training described by 
section 724(4) of the Act, a program of education described by, or 
specified by regulations pursuant to, section 795(1) of the Act, a 
program of education described by section 843(c), 843(d), or 843(e) of 
the Act, and a program leading to any license or certification requisite 
to the practice of a health profession for which a degree specified in 
any such section is granted.



Sec. 83.3  Remedial and affirmative actions.

    (a) Remedial action. If the Director finds that an entity has 
discriminated against persons on the basis of sex in any of its training 
programs, such entity shall take such remedial action as the Director 
deems necessary to overcome the effects of such discrimination.
    (b) Affirmative action. In the absence of a finding of 
discrimination on the basis of sex in a training program, an entity may 
take affirmative action to overcome the effects of conditions which 
resulted in limited participation therein by persons of a particular 
sex.



Sec. 83.4  Coverage.

    (a) If an entity receives Federal support for any of its training 
programs, all of its training programs thereby become subject to this 
part.
    (b) The obligation imposed by this part on a federally supported 
entity not to discriminate on the basis of sex in the admission of 
individuals to a training program includes not only the

[[Page 317]]

obligation not to discriminate on such basis in the selection of 
individuals for such program, but also the obligation not to 
discriminate on such basis against individuals after their selection for 
such program.
    (c) The obligation imposed by this part on a federally supported 
entity not to discriminate on the basis of sex against an individual who 
is an applicant for, or is enrolled in, a training program is applicable 
to the same extent to the actions of such entity with respect to an 
applicant for, or a student enrolled in, an undergraduate program of 
education of such entity if individuals enrolled in such program must 
complete all or a part of such programs to be eligible for admission to 
an undergraduate training program of such entity.
    (d) An entity shall not discriminate on the basis of sex in 
violation of this part for as long as such entity receives or benefits 
from Federal support. For purposes of the preceding sentence, an entity 
shall be deemed to continue to receive or benefit from Federal support 
for as long as it retains ownership, possession, or use of either real 
or personal property and which was acquired in whole or in part with 
Federal support. If an entity receives value for property which was 
acquired in whole or in part with Federal support and such value is 
applied toward the acquisition of other property, such entity shall be 
deemed to continue to receive or benefit from such support for as long 
as such entity retains ownership, use, or possession of such other 
property.
    (e) An entity shall not transfer property which was acquired, 
constructed, altered, repaired, expanded, or renovated in whole or in 
part with Federal support unless the agency, organization, or individual 
to whom such property is to be transferred has submitted to the 
Director, and he or she has found satisfactory, an assurance of 
compliance with this part. The preceding sentence shall not apply with 
respect to any real or personal property for which payments have been 
recaptured by the United States under title VII or VIII of the Act, with 
respect to any other property for which the transferring entity has 
refunded to the Federal Government the Federal share of the fair market 
value of such property, or with respect to any personal property which 
has only scrap value to both the entity and the agency, organization or 
individual to which the property is to be transferred.



Sec. 83.5  Effect of title IX of the Education Amendments of 1972.

    The obligations imposed by this part are independent of obligations 
imposed by or pursuant to title IX of the Education Amendments of 1972.



Secs. 83.6-83.9  [Reserved]



           Subpart B--Discrimination in Admissions Prohibited



Sec. 83.10  General obligations.

    (a) Eligibility for support. No entity will be provided Federal 
support unless such entity has furnished the Director assurances 
satisfactory to him or her that it will not discriminate on the basis of 
sex, in violation of this part, in the admission of individuals to each 
of its training programs.
    (b) Eliminating the effects of discrimination. An assurance of 
compliance with this part will not be satisfactory to the Director if 
the entity submitting such assurance fails to take whatever remedial 
action in accordance with Sec. 83.3(a) that is necessary for such entity 
to eliminate the effects of any discrimination on the basis of sex in 
the admission of individuals to its training programs that such entity 
practiced prior to the submission to the Director of such assurance, or 
practices at the time of or subsequent to such submission. The Director 
may require such entity, as a condition to determining that its 
assurance is, or remains, satisfactory, to take specific actions, or to 
submit to him or her specific information, bearing upon compliance with 
this part.



Sec. 83.11  Discriminatory acts prohibited.

    (a) General. No person shall, on the basis of sex, be excluded from 
participation in, be denied the benefits of, or be subjected to 
discrimination under any academic, extracurricular, research, 
occupational training, or other training program or activity operated by 
an entity.

[[Page 318]]

    (b) Discrimination in selection. In determining whether an 
individual satisfies any enrollment, eligibility, or other condition for 
selection for a training program, a federally supported entity shall 
not:
    (1) On the basis of sex, given preference to one individual over 
another by ranking applicants on such basis, or otherwise give such 
preference; or
    (2) Apply numerical limitations upon the number or proportion of 
persons of either sex who may be admitted; or
    (3) Otherwise treat one individual differently from another on the 
basis of sex.
    (c) Testing. A federally supported entity shall not administer or 
operate any test or use any criterion for admission which has a 
disproportionately adverse effect on persons on the basis of sex unless 
the use of such test or criterion is shown validly to predict success in 
the training program or activity in question and alternative tests or 
criteria which do not have such a disproportionately adverse effect are 
shown to be unavailable.
    (d) Prohibitions relating to marital or parental status. In 
determining whether a person satisfies any policy or criterion for 
admission, or in making any offer of admission, in providing financial 
aid or any other benefit, an entity to which this subpart applies:
    (1) Shall not apply any rule concerning the actual or potential 
parental, family, or marital status of a student or applicant which 
treats persons differently on the basis of sex;
    (2) Shall not discriminate against or exclude any person on the 
basis of pregnancy, childbirth, termination of pregnancy or recovery 
therefrom, or establish or follow any rule or practice which so 
discriminates or excludes;
    (3) Shall treat pregnancy, childbirth, termination of pregnancy and 
any temporary disabilities related to or resulting from pregnancy, 
childbirth, termination of pregnancy or recovery therefrom in the same 
manner and under the same policies as any other temporary disability or 
physical condition; and
    (4) Shall not make pre-admission inquiry as to the marital status of 
an applicant for admission, including whether such applicant is 
``Miss,'' or ``Mrs.'' A recipient may make pre-admission inquiry as to 
the sex of an applicant for admission, but only if such inquiry is made 
equally of such applicants of both sexes and if the results of such 
inquiry are not used in connection with discrimination prohibited by 
this part.
    (e) Preference to students from other institutions in admission. An 
entity shall not give preference to applicants for admission, on the 
basis of attendance at any educational institution or other school or 
entity which admits as students only or predominantly members of one 
sex, if the giving of such preference has the effect of discriminating 
on the basis of sex in violation of this part.
    (f) Discrimination in the provision of benefits and services--(1) 
General. Except as otherwise provided in this part in providing 
financial aid or any other benefit, or in providing any service, to an 
applicant for a training program or to a student enrolled in such 
program, no federally supported entity shall on the basis of sex:
    (i) Treat one individual differently from another in determining 
whether such individual satisfies any requirement or condition for the 
provision of such benefit of service;
    (ii) Provide a different benefit or service or provide a benefit or 
a service in a different manner;
    (iii) Deny an individual any such benefit or service;
    (iv) Subject an individual to separate treatment or rules of 
behavior;
    (v) Discriminate against any individual by assisting an agency, 
organization, or individual in providing, in a manner which 
discriminates on the basis of sex, a benefit or service to applicants 
for or students enrolled in a training program; or
    (vi) Otherwise limit any individual in the enjoyment of any right, 
privilege, advantage, or opportunity.
    (2) Financial aid established by certain legal instruments. (i) A 
recipient may administer or assist in the administration of 
scholarships, fellowships, or other forms of financial assistance 
established pursuant to domestic or foreign wills, trusts, bequests, or 
similar legal instruments or by acts of a foreign government which 
requires that awards be made to members of a particular sex specified 
therein: Provided,

[[Page 319]]

That the overall effect of the award of such sex-restricted 
scholarships, fellowships, and other forms of financial assistance does 
not discriminate on the basis of sex.
    (ii) To ensure nondiscriminatory awards of assistance as required in 
paragraph (f)(2)(i) of this section, recipients shall develop and use 
procedures under which:
    (A) Students are selected for award of financial assistance on the 
basis of non-discriminatory criteria and not on the basis of 
availability of funds restricted to members of a particular sex;
    (B) An appropriate sex-restricted scholarship, fellowship, or other 
form of financial assistance is allocated to each student selected under 
paragraph (f)(2)(ii) (A) of this section; and
    (C) No student is denied the award for which he or she was selected 
under paragraph (f)(2)(ii)(A) of this section because of the absence of 
a scholarship, fellowship, or other form of financial assistance 
designated for a member of that student's sex.
    (g) Housing. (1) An entity shall not, on the basis of sex, apply 
different rules or regulations, impose different fees or requirements, 
or offer different services or benefits related to housing, except as 
provided in this subsection (including housing provided only to married 
students).
    (2) An entity may provide separate housing on the basis of sex.
    (3) Housing provided by an entity to students of one sex, when 
compared to that provided to students of the other sex, shall be as a 
whole: (i) Proportionate in quantity to the number of students of that 
sex applying for such housing; and (ii) comparable in quality and cost 
to the student.
    (4) An entity shall not on the basis of sex, administer different 
policies or practices concerning occupancy by its students of housing 
other than that provided by such recipient.
    (5) An entity which, through solicitation, listing, approval of 
housing, or otherwise, assists any agency, organization, or person in 
making housing available to any of its students, shall take reasonable 
action to ensure that such housing is provided to students of one sex, 
when compared to that provided to students of the other sex, is as a 
whole: (i) Proportionate in quantity and (ii) comparable in quality and 
cost to the student. An entity may render such assistance to any agency, 
organization, or person which provides all or part of such housing to 
students only of one sex.
    (h) Inter-institutional programs. If a federally supported entity 
aids participation, by any applicant for or student enrolled in any of 
its training programs, in any program or activity of another 
organization or agency, such entity shall:
    (1) Develop and implement a procedure to assure itself that such 
organization or agency takes no action with respect to such applicants 
or students which this part would prohibit such entity from taking; and
    (2) Not aid such participation if such organization or agency takes 
such action.
    (i) Discrimination in employment prohibited. A federally supported 
entity shall not discriminate on the basis of sex in employment 
practices relating to its professional and other staff who work directly 
with applicants for or students enrolled in any of its training 
programs. The provisions of this subpart apply to:
    (1) Recruitment, advertising, and the process of application for 
employment;
    (2) Hiring, upgrading, promotion, consideration for and award of 
tenure, demotion, transfer, layoff, termination, right of return from 
layoff, and rehiring;
    (3) Rates of pay or any other form of compensation, and changes in 
compensation;
    (4) Job assignments, classifications and structure, including 
position descriptions, lines of progression, and seniority lists;
    (5) The terms of any collective bargaining agreement;
    (6) Granting and return from leaves of absence, pregnancy leave, 
leave for persons of either sex to care for children or dependents, or 
any other leave;
    (7) Fringe benefits available by virtue of employment, whether or 
not administered by the recipient;
    (8) Selection and financial support for training, including 
apprenticeship, professional meetings, conferences, and other related 
activities, selection for

[[Page 320]]

tuition assistance, selection for sabbaticals and leaves of absence to 
pursue training;
    (9) Employer-sponsored activities, including social or recreational 
programs; and
    (10) Any other term, condition, or privilege of employment.



Sec. 83.12  Recruitment.

    (a) Comparable recruitment. A federally supported entity shall, with 
respect to each of its training programs, make comparable efforts to 
recruit members of each sex in the geographic area from which such 
entity attracts its students. A federally supported entity shall not 
recruit for any of its training programs exclusively or primarily at 
organizations or agencies which admit as members or students, or which 
provide a service for, only members of one sex unless such entity can 
demonstrate that such action is part of a recruitment program which does 
not have the effect of discriminating on the basis of sex in selection 
for a training program.
    (b) Recruitment practices. A federally supported entity shall:
    (1) Prominently include a statement of its policy of 
nondiscrimination on the basis of sex in each announcement, bulletin, 
catalogue, or application form which describes the training program of 
such entity or is used in connection with the recruitment of employees 
who will work directly with applicants for or students enrolled in a 
training program;
    (2) Distribute without discrimination on the basis of sex any 
announcements, bulletins, catalogues, or other materials used in 
connection with the recruitment of students for a training program or 
employees who will work directly with applicants for such program or 
such students; and
    (3) Apprise each of its recruitment representatives of its policy of 
nondiscrimination on the basis of sex, and require such representatives 
to adhere to such policy.



Sec. 83.13  State law and licensure requirements.

    The obligation of an entity to comply with this part is not obviated 
or alleviated by any State or local law which would render an applicant 
for or student enrolled in a training program ineligible on the basis of 
sex for any license or certificate requisite to the practice of the 
health profession for which such applicant seeks, or student pursues, 
training.



Sec. 83.14  Development and dissemination of nondiscrimination policy.

    (a) A federally supported entity shall develop a written policy 
statement of nondiscrimination on the basis of sex, in accordance with 
this part, and shall implement specific and continuing steps to 
publicize such statement to applicants for admission or employment, 
students, employees, and sources of referral of applicants for admission 
or employment.
    (b) Each federally supported entity shall prominently include a 
statement of the policy described in paragraph (a) of this section in 
each announcement, bulletin, catalogue, and application form which it 
makes available to any person of a type described in paragraph (a) of 
this section, or which is otherwise used in connection with the 
recruitment of students or employees who work directly with students and 
applicants for admission.
    (c) A federally supported entity shall not use or distribute a 
publication of the type described in this section which suggests, by 
text or illustration, that such recipient treats applicants, students, 
or employees differently on the basis of sex except as such treatment is 
permitted by this part.



Sec. 83.15  Designation by entity of responsible employee and adoption of grievance procedures.

    (a) Designation of responsible employee. A federally supported 
entity shall designate at least one employee to coordinate its efforts 
to comply with and carry out its responsibilities under this part, 
including any investigation of any complaint communicated to such entity 
alleging its noncompliance with this part or alleging any action which 
would be prohibited by this part. The entity shall notify all of its 
students and employees who work directly with students and applicants 
for admission

[[Page 321]]

of the name, office address and telephone number of the employee or 
employees appointed pursuant to this paragraph.
    (b) Complaint procedure of entity. A federally supported entity 
shall adopt and publish grievance procedures providing for prompt and 
equitable resolution of student and employee complaints alleging any 
action which would be prohibited by this part. Such procedures shall be 
in writing and available to all present and prospective students and 
employees.



Secs. 83.16-83.19  [Reserved]



                     Subpart C--Procedures [Interim]



Sec. 83.20  Interim procedures.

    For the purposes of implementing this part during the period between 
its effective date and the final issuance by the Department of a 
consolidated procedural regulation applicable to sections 704 and 845 of 
the Act and other civil rights authorities administered by the 
Department, the procedural provisions applicable to title VI of the 
Civil Rights Act of 1964 are hereby adopted and incorporated herein by 
reference. These procedures may be found at 45 CFR 80.6 through 80.11 
and 45 CFR Part 81.



PART 84--NONDISCRIMINATION ON THE BASIS OF HANDICAP IN PROGRAMS AND ACTIVITIES RECEIVING FEDERAL FINANCIAL ASSISTANCE--Table of Contents




                      Subpart A--General Provisions

Sec.
84.1  Purpose.
84.2  Application.
84.3  Definitions.
84.4  Discrimination prohibited.
84.5  Assurances required.
84.6  Remedial action, voluntary action, and self-evaluation.
84.7  Designation of responsible employee and adoption of grievance 
          procedures.
84.8  Notice.
84.9  Administrative requirements for small recipients.
84.10  Effect of State or local law or other requirements and effect of 
          employment opportunities.

                     Subpart B--Employment Practices

84.11  Discrimination prohibited.
84.12  Reasonable accommodation.
84.13  Employment criteria.
84.14  Preemployment inquiries.
84.15-84.20  [Reserved]

                    Subpart C--Program Accessibility

84.21  Discrimination prohibited.
84.22  Existing facilities.
84.23  New construction.
84.24-84.30  [Reserved]

        Subpart D--Preschool, Elementary, and Secondary Education

84.31  Application of this subpart.
84.32  Location and notification.
84.33  Free appropriate public education.
84.34  Educational setting.
84.35  Evaluation and placement.
84.36  Procedural safeguards.
84.37  Nonacademic services.
84.38  Preschool and adult education programs.
84.39  Private education programs.
84.40  [Reserved]

                   Subpart E--Postsecondary Education

84.41  Application of this subpart.
84.42  Admissions and recruitment.
84.43  Treatment of students; general.
84.44  Academic adjustments.
84.45  Housing.
84.46  Financial and employment assistance to students.
84.47  Nonacademic services.
84.48-84.50  [Reserved]

             Subpart F--Health, Welfare, and Social Services

84.51  Application of this subpart.
84.52  Health, welfare, and other social services.
84.53  Drug and alcohol addicts.
84.54  Education of institutionalized persons.
84.55  Procedures relating to health care for handicapped infants.
84.56-84.60  [Reserved]

                          Subpart G--Procedures

84.61  Procedures.

Appendix A to Part 84--Analysis of Final Regulation
Appendix B to Part 84--Guidelines for Eliminating Discrimination and 
          Denial of Services on the Basis of Race, Color, National 
          Origin, Sex, and Handicap in Vocational Education Programs 
          [Note]
Appendix C to Part 84--Guidelines Relating to Health Care for 
          Handicapped Infants


[[Page 322]]


    Authority: 20 U.S.C. 1405; 29 U.S.C. 794; 42 U.S.C. 290dd-2; 21 
U.S.C. 1174.

    Source: 42 FR 22677, May 4, 1977, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 84.1  Purpose.

    The purpose of this part is to effectuate section 504 of the 
Rehabilitation Act of 1973, which is designed to eliminate 
discrimination on the basis of handicap in any program or activity 
receiving Federal financial assistance.



Sec. 84.2  Application.

    This part applies to each recipient of Federal financial assistance 
from the Department of Health and Human Services and to each program or 
activity that receives or benefits from such assistance.



Sec. 84.3  Definitions.

    As used in this part, the term:
    (a) The Act means the Rehabilitation Act of 1973, Pub. L. 93-112, as 
amended by the Rehabilitation Act Amendments of 1974, Pub. L. 93-516, 29 
U.S.C. 794.
    (b) Section 504 means section 504 of the Act.
    (c) Education of the Handicapped Act means that statute as amended 
by the Education for all Handicapped Children Act of 1975, Pub. L. 94-
142, 20 U.S.C. 1401 et seq.
    (d) Department means the Department of Health and Human Services.
    (e) Director means the Director of the Office for Civil Rights of 
the Department.
    (f) Recipient means any state or its political subdivision, any 
instrumentality of a state or its political subdivision, any public or 
private agency, institution, organization, or other entity, or any 
person to which Federal financial assistance is extended directly or 
through another recipient, including any successor, assignee, or 
transferee of a recipient, but excluding the ultimate beneficiary of the 
assistance.
    (g) Applicant for assistance means one who submits an application, 
request, or plan required to be approved by a Department official or by 
a recipient as a condition to becoming a recipient.
    (h) Federal financial assistance means any grant, loan, contract 
(other than a procurement contract or a contract of insurance or 
guaranty), or any other arrangement by which the Department provides or 
otherwise makes available assistance in the form of:
    (1) Funds;
    (2) Services of Federal personnel; or
    (3) Real and personal property or any interest in or use of such 
property, including:
    (i) Transfers or leases of such property for less than fair market 
value or for reduced consideration; and
    (ii) Proceeds from a subsequent transfer or lease of such property 
if the Federal share of its fair market value is not returned to the 
Federal Government.
    (i) Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, or other real or personal 
property or interest in such property.
    (j) Handicapped person. (1) Handicapped persons means any person who 
(i) has a physical or mental impairment which substantially limits one 
or more major life activities, (ii) has a record of such an impairment, 
or (iii) is regarded as having such an impairment.
    (2) As used in paragraph (j)(1) of this section, the phrase:
    (i) Physical or mental impairment means (A) any physiological 
disorder or condition, cosmetic disfigurement, or anatomical loss 
affecting one or more of the following body systems: neurological; 
musculoskeletal; special sense organs; respiratory, including speech 
organs; cardiovascular; reproductive, digestive, genito-urinary; hemic 
and lymphatic; skin; and endocrine; or (B) any mental or psychological 
disorder, such as mental retardation, organic brain syndrome, emotional 
or mental illness, and specific learning disabilities.
    (ii) Major life activities means functions such as caring for one's 
self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (iii) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.

[[Page 323]]

    (iv) Is regarded as having an impairment means (A) has a physical or 
mental impairment that does not substantially limit major life 
activities but that is treated by a recipient as constituting such a 
limitation; (B) has a physical or mental impairment that substantially 
limits major life activities only as a result of the attitudes of others 
toward such impairment; or (C) has none of the impairments defined in 
paragraph (j)(2)(i) of this section but is treated by a recipient as 
having such an impairment.
    (k) Qualified handicapped person means:
    (1) With respect to employment, a handicapped person who, with 
reasonable accommodation, can perform the essential functions of the job 
in question;
    (2) With respect to public preschool elementary, secondary, or adult 
educational services, a handicappped person (i) of an age during which 
nonhandicapped persons are provided such services, (ii) of any age 
during which it is mandatory under state law to provide such services to 
handicapped persons, or (iii) to whom a state is required to provide a 
free appropriate public education under section 612 of the Education of 
the Handicapped Act; and
    (3) With respect to postsecondary and vocational education services, 
a handicapped person who meets the academic and technical standards 
requisite to admission or participation in the recipient's education 
program or activity;
    (4) With respect to other services, a handicapped person who meets 
the essential eligibility requirements for the receipt of such services.
    (l) Handicap means any condition or characteristic that renders a 
person a handicapped person as defined in paragraph (j) of this section.



Sec. 84.4  Discrimination prohibited.

    (a) General. No qualified handicapped person shall, on the basis of 
handicap, be excluded from participation in, be denied the benefits of, 
or otherwise be subjected to discrimination under any program or 
activity which receives or benefits from Federal financial assistance.
    (b) Discriminatory actions prohibited. (1) A recipient, in providing 
any aid, benefit, or service, may not, directly or through contractual, 
licensing, or other arrangements, on the basis of handicap:
    (i) Deny a qualified handicapped person the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (ii) Afford a qualified handicapped person an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (iii) Provide a qualified handicapped person with an aid, benefit, 
or service that is not as effective as that provided to others;
    (iv) Provide different or separate aid, benefits, or services to 
handicapped persons or to any class of handicapped persons unless such 
action is necessary to provide qualified handicapped persons with aid, 
benefits, or services that are as effective as those provided to others;
    (v) Aid or perpetuate discrimination against a qualified handicapped 
person by providing significant assistance to an agency, organization, 
or person that discriminates on the basis of handicap in providing any 
aid, benefit, or service to beneficiaries of the recipients program;
    (vi) Deny a qualified handicapped person the opportunity to 
participate as a member of planning or advisory boards; or
    (vii) Otherwise limit a qualified handicapped person in the 
enjoyment of any right, privilege, advantage, or opportunity enjoyed by 
others receiving an aid, benefit, or service.
    (2) For purposes of this part, aids, benefits, and services, to be 
equally effective, are not required to produce the identical result or 
level of achievement for handicapped and nonhandicapped persons, but 
must afford handicapped persons equal opportunity to obtain the same 
result, to gain the same benefit, or to reach the same level of 
achievement, in the most integrated setting appropriate to the person's 
needs.
    (3) Despite the existence of separate or different programs or 
activities provided in accordance with this part, a

[[Page 324]]

recipient may not deny a qualified handicapped person the opportunity to 
participate in such programs or activities that are not separate or 
different.
    (4) A recipient may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration (i) that 
have the effect of subjecting qualified handicapped persons to 
discrimination on the basis of handicap, (ii) that have the purpose or 
effect of defeating or substantially impairing accomplishment of the 
objectives of the recipient's program with respect to handicapped 
persons, or (iii) that perpetuate the discrimination of another 
recipient if both recipients are subject to common administrative 
control or are agencies of the same State.
    (5) In determining the site or location of a facility, an applicant 
for assistance or a recipient may not make selections (i) that have the 
effect of excluding handicapped persons from, denying them the benefits 
of, or otherwise subjecting them to discrimination under any program or 
activity that receives or benefits from Federal financial assistance or 
(ii) that have the purpose or effect of defeating or substantially 
impairing the accomplishment of the objectives of the program or 
activity with respect to handicapped persons.
    (6) As used in this section, the aid, benefit, or service provided 
under a program or activity receiving or benefiting from Federal 
financial assistance includes any aid, benefit, or service provided in 
or through a facility that has been constructed, expanded, altered, 
leased or rented, or otherwise acquired, in whole or in part, with 
Federal financial assistance.
    (c) Programs limited by Federal law. The exclusion of nonhandicapped 
persons from the benefits of a program limited by Federal statute or 
executive order to handicapped persons or the exclusion of a specific 
class of handicapped persons from a program limited by Federal statute 
or executive order to a different class of handicapped persons is not 
prohibited by this part.



Sec. 84.5  Assurances required.

    (a) Assurances. An applicant for Federal financial assistance for a 
program or activity to which this part applies shall submit an 
assurance, on a form specified by the Director, that the program will be 
operated in compliance with this part. An applicant may incorporate 
these assurances by reference in subsequent applications to the 
Department.
    (b) Duration of obligation. (1) In the case of Federal financial 
assistance extended in the form of real property or to provide real 
property or structures on the property, the assurance will obligate the 
recipient or, in the case of a subsequent transfer, the transferee, for 
the period during which the real property or structures are used for the 
purpose for which Federal financial assistance is extended or for 
another purpose involving the provision of similar services or benefits.
    (2) In the case of Federal financial assistance extended to provide 
personal property, the assurance will obligate the recipient for the 
period during which it retains ownership or possession of the property.
    (3) In all other cases the assurance will obligate the recipient for 
the period during which Federal financial assistance is extended.
    (c) Covenants. (1) Where Federal financial assistance is provided in 
the form of real property or interest in the property from the 
Department, the instrument effecting or recording this transfer shall 
contain a covenant running with the land to assure nondiscrimination for 
the period during which the real property is used for a purpose for 
which the Federal financial assistance is extended or for another 
purpose involving the provision of similar services or benefits.
    (2) Where no transfer of property is involved but property is 
purchased or improved with Federal financial assistance, the recipient 
shall agree to include the covenant described in paragraph (b)(2) of 
this section in the instrument effecting or recording any subsequent 
transfer of the property.
    (3) Where Federal financial assistance is provided in the form of 
real property or interest in the property from the Department, the 
covenant shall also include a condition coupled

[[Page 325]]

with a right to be reserved by the Department to revert title to the 
property in the event of a breach of the covenant. If a transferee of 
real property proposes to mortgage or otherwise encumber the real 
property as security for financing construction of new, or improvement 
of existing, facilities on the property for the purposes for which the 
property was transferred, the Director may, upon request of the 
transferee and if necessary to accomplish such financing and upon such 
conditions as he or she deems appropriate, agree to forbear the exercise 
of such right to revert title for so long as the lien of such mortgage 
or other encumbrance remains effective.



Sec. 84.6  Remedial action, voluntary action, and self-evaluation.

    (a) Remedial action. (1) If the Director finds that a recipient has 
discriminated against persons on the basis of handicap in violation of 
section 504 or this part, the recipient shall take such remedial action 
as the Director deems necessary to overcome the effects of the 
discrimination.
    (2) Where a recipient is found to have discriminated against persons 
on the basis of handicap in violation of section 504 or this part and 
where another recipient exercises control over the recipient that has 
discriminated, the Director, where appropriate, may require either or 
both recipients to take remedial action.
    (3) The Director may, where necessary to overcome the effects of 
discrimination in violation of section 504 or this part, require a 
recipient to take remedial action (i) with respect to handicapped 
persons who are no longer participants in the recipient's program but 
who were participants in the program when such discrimination occurred 
or (ii) with respect to handicapped persons who would have been 
participants in the program had the discrimination not occurred.
    (b) Voluntary action. A recipient may take steps, in addition to any 
action that is required by this part, to overcome the effects of 
conditions that resulted in limited participation in the recipient's 
program or activity by qualified handicapped persons.
    (c) Self-evaluation. (1) A recipient shall, within one year of the 
effective date of this part:
    (i) Evaluate, with the assistance of interested persons, including 
handicapped persons or organizations representing handicapped persons, 
its current policies and practices and the effects thereof that do not 
or may not meet the requirements of this part;
    (ii) Modify, after consultation with interested persons, including 
handicapped persons or organizations representing handicapped persons, 
any policies and practices that do not meet the requirements of this 
part; and
    (iii) Take, after consultation with interested persons, including 
handicapped persons or organizations representing handicapped persons, 
appropriate remedial steps to eliminate the effects of any 
discrimination that resulted from adherence to these policies and 
practices.
    (2) A recipient that employs fifteen or more persons shall, for at 
least three years following completion of the evaluation required under 
paragraph (c)(1) of this section, maintain on file, make available for 
public inspection, and provide to the Director upon request: (i) A list 
of the interested persons consulted (ii) a description of areas examined 
and any problems identified, and (iii) a description of any 
modifications made and of any remedial steps taken.



Sec. 84.7  Designation of responsible employee and adoption of grievance procedures.

    (a) Designation of responsible employee. A recipient that employs 
fifteen or more persons shall designate at least one person to 
coordinate its efforts to comply with this part.
    (b) Adoption of grievance procedures. A recipient that employs 
fifteen or more persons shall adopt grievance procedures that 
incorporate appropriate due process standards and that provide for the 
prompt and equitable resolution of complaints alleging any action 
prohibited by this part. Such procedures need not be established with 
respect to complaints from applicants for employment or from applicants 
for admission to postsecondary educational institutions.

[[Page 326]]



Sec. 84.8  Notice.

    (a) A recipient that employs fifteen or more persons shall take 
appropriate initial and continuing steps to notify participants, 
beneficiaries, applications, and employees, including those with 
impaired vision or hearing, and unions or professional organizations 
holding collective bargaining or professional agreements with the 
recipient that it does not discriminate on the basis of handicap in 
violation of section 504 and this part. The notification shall state, 
where appropriate, that the recipient does not discriminate in admission 
or access to, or treatment or employment in, its programs and 
activities. The notification shall also include an identification of the 
responsible employee designated pursuant to Sec. 84.7(a). A recipient 
shall make the initial notification required by this paragraph within 90 
days of the effective date of this part. Methods of initial and 
continuing notification may include the posting of notices, publication 
in newspapers and magazines, placement of notices in recipients' 
publication, and distribution of memoranda or other written 
communications.
    (b) If a recipient publishes or uses recruitment materials or 
publications containing general information that it makes available to 
participants, beneficiaries, applicants, or employees, it shall include 
in those materials or publications a statement of the policy described 
in paragraph (a) of this section. A recipient may meet the requirement 
of this paragraph either by including appropriate inserts in existing 
materials and publications or by revising and reprinting the materials 
and publications.



Sec. 84.9  Administrative requirements for small recipients.

    The Director may require any recipient with fewer than fifteen 
employees, or any class of such recipients, to comply with Secs. 84.7 
and 84.8, in whole or in part, when the Director finds a violation of 
this part or finds that such compliance will not significantly impair 
the ability of the recipient or class of recipients to provide benefits 
or services.



Sec. 84.10  Effect of State or local law or other requirements and effect of employment opportunities.

    (a) The obligation to comply with this part is not obviated or 
alleviated by the existence of any state or local law or other 
requirement that, on the basis of handicap, imposes prohibitions or 
limits upon the eligibility of qualified handicapped persons to receive 
services or to practice any occupation or profession.
    (b) The obligation to comply with this part is not obviated or 
alleviated because employment opportunities in any occupation or 
profession are or may be more limited for handicapped persons than for 
nonhandicapped persons.



                     Subpart B--Employment Practices



Sec. 84.11  Discrimination prohibited.

    (a) General. (1) No qualified handicapped person shall, on the basis 
of handicap, be subjected to discrimination in employment under any 
program or activity to which this part applies.
    (2) A recipient that receives assistance under the Education of the 
Handicapped Act shall take positive steps to employ and advance in 
employment qualified handicapped persons in programs assisted under that 
Act.
    (3) A recipient shall make all decisions concerning employment under 
any program or activity to which this part applies in a manner which 
ensures that discrimination on the basis of handicap does not occur and 
may not limit, segregate, or classify applicants or employees in any way 
that adversely affects their opportunities or status because of 
handicap.
    (4) A recipient may not participate in a contractual or other 
relationship that has the effect of subjecting qualified handicapped 
applicants or employees to discrimination prohibited by this subpart. 
The relationships referred to in this paragraph include relationships 
with employment and referral agencies, with labor unions, with 
organizations providing or administering fringe benefits to employees of 
the recipient, and with organizations providing training and 
apprenticeship programs.

[[Page 327]]

    (b) Specific activities. The provisions of this subpart apply to:
    (1) Recruitment, advertising, and the processing of applications for 
employment;
    (2) Hiring, upgrading, promotion, award of tenure, demotion, 
transfer, layoff, termination, right of return from layoff and rehiring;
    (3) Rates of pay or any other form of compensation and changes in 
compensation;
    (4) Job assignments, job classifications, organizational structures, 
position descriptions, lines of progression, and seniority lists;
    (5) Leaves of absense, sick leave, or any other leave;
    (6) Fringe benefits available by virtue of employment, whether or 
not administered by the recipient;
    (7) Selection and financial support for training, including 
apprenticeship, professional meetings, conferences, and other related 
activities, and selection for leaves of absence to pursue training;
    (8) Employer sponsored activities, including social or recreational 
programs; and
    (9) Any other term, condition, or privilege of employment.
    (c) A recipient's obligation to comply with this subpart is not 
affected by any inconsistent term of any collective bargaining agreement 
to which it is a party.



Sec. 84.12  Reasonable accommodation.

    (a) A recipient shall make reasonable accommodation to the known 
physical or mental limitations of an otherwise qualified handicapped 
applicant or employee unless the recipient can demonstrate that the 
accommodation would impose an undue hardship on the operation of its 
program.
    (b) Reasonable accommodation may include: (1) Making facilities used 
by employees readily accessible to and usable by handicapped persons, 
and (2) job restructuring, part-time or modified work schedules, 
acquisition or modification of equipment or devices, the provision of 
readers or interpreters, and other similar actions.
    (c) In determining pursuant to paragraph (a) of this section whether 
an accommodation would impose an undue hardship on the operation of a 
recipient's program, factors to be considered include:
    (1) The overall size of the recipient's program with respect to 
number of employees, number and type of facilities, and size of budget;
    (2) The type of the recipient's operation, including the composition 
and structure of the recipient's workforce; and
    (3) The nature and cost of the accommodation needed.
    (d) A recipient may not deny any employment opportunity to a 
qualified handicapped employee or applicant if the basis for the denial 
is the need to make reasonable accommodation to the physical or mental 
limitations of the employee or applicant.



Sec. 84.13  Employment criteria.

    (a) A recipient may not make use of any employment test or other 
selection criterion that screens out or tends to screen out handicapped 
persons or any class of handicapped persons unless: (1) The test score 
or other selection criterion, as used by the recipient, is shown to be 
job-related for the position in question, and (2) alternative job-
related tests or criteria that do not screen out or tend to screen out 
as many handicapped persons are not shown by the Director to be 
available.
    (b) A recipient shall select and administer tests concerning 
employment so as best to ensure that, when administered to an applicant 
or employee who has a handicap that impairs sensory, manual, or speaking 
skills, the test results accurately reflect the applicant's or 
employee's job skills, aptitude, or whatever other factor the test 
purports to measure, rather than reflecting the applicant's or 
employee's impaired sensory, manual, or speaking skills (except where 
those skills are the factors that the test purports to measure).



Sec. 84.14  Preemployment inquiries.

    (a) Except as provided in paragraphs (b) and (c) of this section, a 
recipient may not conduct a preemployment medical examination or may not 
make preemployment inquiry of an applicant

[[Page 328]]

as to whether the applicant is a handicapped person or as to the nature 
or severity of a handicap. A recipient may, however, make preemployment 
inquiry into an applicant's ability to perform job-related functions.
    (b) When a recipient is taking remedial action to correct the 
effects of past discrimination pursuant to Sec. 84.6 (a), when a 
recipient is taking voluntary action to overcome the effects of 
conditions that resulted in limited participation in its federally 
assisted program or activity pursuant to Sec. 84.6(b), or when a 
recipient is taking affirmative action pursuant to section 503 of the 
Act, the recipient may invite applicants for employment to indicate 
whether and to what extent they are handicapped, Provided, That:
    (1) The recipient states clearly on any written questionnaire used 
for this purpose or makes clear orally if no written questionnaire is 
used that the information requested is intended for use solely in 
connection with its remedial action obligations or its voluntary or 
affirmative action efforts; and
    (2) The recipient states clearly that the information is being 
requested on a voluntary basis, that it will be kept confidential as 
provided in paragraph (d) of this section, that refusal to provide it 
will not subject the applicant or employee to any adverse treatment, and 
that it will be used only in accordance with this part.
    (c) Nothing in this section shall prohibit a recipient from 
conditioning an offer of employment on the results of a medical 
examination conducted prior to the employee's entrance on duty, 
Provided, That: (1) All entering employees are subjected to such an 
examination regardless of handicap, and (2) the results of such an 
examination are used only in accordance with the requirements of this 
part.
    (d) Information obtained in accordance with this section as to the 
medical condition or history of the applicant shall be collected and 
maintained on separate forms that shall be accorded confidentiality as 
medical records, except that:
    (1) Supervisors and managers may be informed regarding restrictions 
on the work or duties of handicapped persons and regarding necessary 
accommodations;
    (2) First aid and safety personnel may be informed, where 
appropriate, if the condition might require emergency treatment; and
    (3) Government officials investigating compliance with the Act shall 
be provided relevant information upon request.



Secs. 84.15-84.20  [Reserved]



                    Subpart C--Program Accessibility



Sec. 84.21  Discrimination prohibited.

    No qualified handicapped person shall, because a recipient's 
facilities are inaccessible to or unusable by handicapped persons, be 
denied the benefits of, be excluded from participation in, or otherwise 
be subjected to discrimination under any program or activity to which 
this part applies.



Sec. 84.22  Existing facilities.

    (a) Program accessibility. A recipient shall operate each program or 
activity to which this part applies so that the program or activity, 
when viewed in its entirety, is readily accessible to handicapped 
persons. This paragraph does not require a recipient to make each of its 
existing facilities or every part of a facility accessible to and usable 
by handicapped persons.
    (b) Methods. A recipient may comply with the requirements of 
paragraph (a) of this section through such means as redesign of 
equipment, reassignment of classes or other services to accessible 
buildings, assignment of aides to beneficiaries, home visits, delivery 
of health, welfare, or other social services at alternate accessible 
sites, alteration of existing facilities and construction of new 
facilities in conformance with the requirements of Sec. 84.23, or any 
other methods that result in making its program or activity accessible 
to handicapped persons. A recipient is not required to make structural 
changes in existing facilities where other methods are effective in 
achieving compliance with paragraph (a) of this section. In choosing 
among available methods for meeting the requirement of paragraph (a) of 
this section, a recipient shall give priority to those methods that

[[Page 329]]

offer programs and activities to handicapped persons in the most 
integrated setting appropriate.
    (c) Small health, welfare, or other social service providers. If a 
recipient with fewer than fifteen employees that provides health, 
welfare, or other social services finds, after consultation with a 
handicapped person seeking its services, that there is no method of 
complying with paragraph (a) of this section other than making a 
significant alteration in its existing facilities, the recipient may, as 
an alternative, refer the handicapped person to other providers of those 
services that are accessible.
    (d) Time period. A recipient shall comply with the requirement of 
paragraph (a) of this section within sixty days of the effective date of 
this part except that where structural changes in facilities are 
necessary, such changes shall be made within three years of the 
effective date of this part, but in any event as expeditiously as 
possible.
    (e) Transition plan. In the event that structural changes to 
facilities are necessary to meet the requirement of paragraph (a) of 
this section, a recipient shall develop, within six months of the 
effective date of this part, a transition plan setting forth the steps 
necessary to complete such changes. The plan shall be developed with the 
assistance of interested persons, including handicapped persons or 
organizations representing handicapped persons. A copy of the transition 
plan shall be made available for public inspection. The plan shall, at a 
minimum:
    (1) Identify physical obstacles in the recipient's facilities that 
limit the accessibility of its program or activity to handicapped 
persons;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
full program accessibility and, if the time period of the transition 
plan is longer than one year, identify the steps that will be taken 
during each year of the transition period; and
    (4) Indicate the person responsible for implementation of the plan.
    (f) Notice. The recipient shall adopt and implement procedures to 
ensure that interested persons, including persons with impaired vision 
or hearing, can obtain information as to the existence and location of 
services, activities, and facilities that are accessible to and usable 
by handicapped persons.



Sec. 84.23  New construction.

    (a) Design and construction. Each facility or part of a facility 
constructed by, on behalf of, or for the use of a recipient shall be 
designed and constructed in such manner that the facility or part of the 
facility is readily accessible to and usable by handicapped persons, if 
the construction was commenced after the effective date of this part.
    (b) Alteration. Each facility or part of a facility which is altered 
by, on behalf of, or for the use of a recipient after the effective date 
of this part in a manner that affects or could affect the usability of 
the facility or part of the facility shall, to the maximum extent 
feasible, be altered in such manner that the altered portion of the 
facility is readily accessible to and usable by handicapped persons.
    (c) Conformance with Uniform Federal Accessibility Standards. (1) 
Effective as of January 18, 1991, design, construction, or alteration of 
buildings in conformance with sections 3-8 of the Uniform Federal 
Accessibility Standards (UFSA) (appendix A to 41 CFR subpart 101-19.6) 
shall be deemed to comply with the requirements of this section with 
respect to those buildings. Departures from particular technical and 
scoping requirements of UFAS by the use of other methods are permitted 
where substantial equivalent or greater access to and usability of the 
building is provided.
    (2) For purposes of this section, section 4.1.6(1)(g) of UFAS shall 
be interpreted to exempt from the requirements of UFAS only mechanical 
rooms and other spaces that, because of their intended use, will not 
require accessibility to the public or beneficiaries or result in the 
employment or residence therein of persons with physical handicaps.
    (3) This section does not require recipients to make building 
alterations

[[Page 330]]

that have little likelihood of being accomplished without removing or 
altering a load-bearing structural member.

[42 FR 22677, May 4, 1977, as amended at 55 FR 52138, 52142, Dec. 19, 
1990]



Secs. 84.24-84.30  [Reserved]



        Subpart D--Preschool, Elementary, and Secondary Education



Sec. 84.31  Application of this subpart.

    Subpart D applies to preschool, elementary, secondary, and adult 
education programs and activities that receive or benefit from Federal 
financial assistance and to recipients that operate, or that receive or 
benefit from Federal financial assistance for the operation of, such 
programs or activities.



Sec. 84.32  Location and notification.

    A recipient that operates a public elementary or secondary education 
program shall annually:
    (a) Undertake to identify and locate every qualified handicapped 
person residing in the recipient's jurisdiction who is not receiving a 
public education; and
    (b) Take appropriate steps to notify handicapped persons and their 
parents or guardians of the recipient's duty under this subpart.



Sec. 84.33  Free appropriate public education.

    (a) General. A recipient that operates a public elementary or 
secondary education program shall provide a free appropriate public 
education to each qualified handicapped person who is in the recipient's 
jurisdiction, regardless of the nature or severity of the person's 
handicap.
    (b) Appropriate education. (1) For the purpose of this subpart, the 
provision of an appropriate education is the provision of regular or 
special education and related aids and services that (i) are designed to 
meet individual educational needs of handicapped persons as adequately 
as the needs of nonhandicapped persons are met and (ii) are based upon 
adherence to procedures that satisfy the requirements of Secs. 84.34, 
84.35, and 84.36.
    (2) Implementation of an individualized education program developed 
in accordance with the Education of the Handicapped Act is one means of 
meeting the standard established in paragraph (b)(1)(i) of this section.
    (3) A recipient may place a handicapped person in or refer such 
person to a program other than the one that it operates as its means of 
carrying out the requirements of this subpart. If so, the recipient 
remains responsible for ensuring that the requirements of this subpart 
are met with respect to any handicapped person so placed or referred.
    (c) Free education--(1) General. For the purpose of this section, 
the provision of a free education is the provision of educational and 
related services without cost to the handicapped person or to his or her 
parents or guardian, except for those fees that are imposed on non-
handicapped persons or their parents or guardian. It may consist either 
of the provision of free services or, if a recipient places a 
handicapped person in or refers such person to a program not operated by 
the recipient as its means of carrying out the requirements of this 
subpart, of payment for the costs of the program. Funds available from 
any public or private agency may be used to meet the requirements of 
this subpart. Nothing in this section shall be construed to relieve an 
insurer or similar third party from an otherwise valid obligation to 
provide or pay for services provided to a handicapped person.
    (2) Transportation. If a recipient places a handicapped person in or 
refers such person to a program not operated by the recipient as its 
means of carrying out the requirements of this subpart, the recipient 
shall ensure that adequate transportation to and from the program is 
provided at no greater cost than would be incurred by the person or his 
or her parents or guardian if the person were placed in the program 
operated by the recipient.
    (3) Residential placement. If placement in a public or private 
residential program is necessary to provide a free appropriate public 
education to a handicapped person because of his or her handicap, the 
program, including non-medical care and room and board, shall be 
provided at no cost to the person or his or her parents or guardian.

[[Page 331]]

    (4) Placement of handicapped persons by parents. If a recipient has 
made available, in conformance with the requirements of this section and 
Sec. 84.34, a free appropriate public education to a handicapped person 
and the person's parents or guardian choose to place the person in a 
private school, the recipient is not required to pay for the person's 
education in the private school. Disagreements between a parent or 
guardian and a recipient regarding whether the recipient has made such a 
program available or otherwise regarding the question of financial 
responsibility are subject to the due process procedures of Sec. 84.36.
    (d) Compliance. A recipient may not exclude any qualified 
handicapped person from a public elementary or secondary education after 
the effective date of this part. A recipient that is not, on the 
effective date of this regulation, in full compliance with the other 
requirements of the preceding paragraphs of this section shall meet such 
requirements at the earliest practicable time and in no event later than 
September 1, 1978.



Sec. 84.34  Educational setting.

    (a) Academic setting. A recipient to which this subpart applies 
shall educate, or shall provide for the education of, each qualified 
handicapped person in its jurisdiction with persons who are not 
handicapped to the maximum extent appropriate to the needs of the 
handicapped person. A recipient shall place a handicapped person in the 
regular educational environment operated by the recipient unless it is 
demonstrated by the recipient that the education of the person in the 
regular environment with the use of supplementary aids and services 
cannot be achieved satisfactorily. Whenever a recipient places a person 
in a setting other than the regular educational environment pursuant to 
this paragraph, it shall take into account the proximity of the 
alternate setting to the person's home.
    (b) Nonacademic settings. In providing or arranging for the 
provision of nonacademic and extracurricular services and activities, 
including meals, recess periods, and the services and activities set 
forth in Sec. 84.37(a)(2), a recipient shall ensure that handicapped 
persons participate with nonhandicapped persons in such activities and 
services to the maximum extent appropriate to the needs of the 
handicapped person in question.
    (c) Comparable facilities. If a recipient, in compliance with 
paragraph (a) of this section, operates a facility that is identifiable 
as being for handicapped persons, the recipient shall ensure that the 
facility and the services and activities provided therein are comparable 
to the other facilities, services, and activities of the recipient.



Sec. 84.35  Evaluation and placement.

    (a) Preplacement evaluation. A recipient that operates a public 
elementary or secondary education program shall conduct an evaluation in 
accordance with the requirements of paragraph (b) of this section of any 
person who, because of handicap, needs or is believed to need special 
education or related services before taking any action with respect to 
the initial placement of the person in a regular or special education 
program and any subsequent significant change in placement.
    (b) Evaluation procedures. A recipient to which this subpart applies 
shall establish standards and procedures for the evaluation and 
placement of persons who, because of handicap, need or are believed to 
need special education or related services which ensure that:
    (1) Tests and other evaluation materials have been validated for the 
specific purpose for which they are used and are administered by trained 
personnel in conformance with the instructions provided by their 
producer;
    (2) Tests and other evaluation materials include those tailored to 
assess specific areas of educational need and not merely those which are 
designed to provide a single general intelligence quotient; and
    (3) Tests are selected and administered so as best to ensure that, 
when a test is administered to a student with impaired sensory, manual, 
or speaking skills, the test results accurately reflect the student's 
aptitude or achievement level or whatever other factor the test purports 
to measure, rather than

[[Page 332]]

reflecting the student's impaired sensory, manual, or speaking skills 
(except where those skills are the factors that the test purports to 
measure).
    (c) Placement procedures. In interpreting evaluation data and in 
making placement decisions, a recipient shall (1) draw upon information 
from a variety of sources, including aptitude and achievement tests, 
teacher recommendations, physical condition, social or cultural 
background, and adaptive behavior, (2) establish procedures to ensure 
that information obtained from all such sources is documented and 
carefully considered, (3) ensure that the placement decision is made by 
a group of persons, including persons knowledgeable about the child, the 
meaning of the evaluation data, and the placement options, and (4) 
ensure that the placement decision is made in conformity with 
Sec. 84.34.
    (d) Reevaluation. A recipient to which this section applies shall 
establish procedures, in accordance with paragraph (b) of this section, 
for periodic reevaluation of students who have been provided special 
education and related services. A reevaluation procedure consistent with 
the Education for the Handicapped Act is one means of meeting this 
requirement.



Sec. 84.36  Procedural safeguards.

    A recipient that operates a public elementary or secondary education 
program shall establish and implement, with respect to actions regarding 
the identification, evaluation, or educational placement of persons who, 
because of handicap, need or are believed to need special instruction or 
related services, a system of procedural safeguards that includes 
notice, an opportunity for the parents or guardian of the person to 
examine relevant records, an impartial hearing with opportunity for 
participation by the person's parents or guardian and representation by 
counsel, and a review procedure. Compliance with the procedural 
safeguards of section 615 of the Education of the Handicapped Act is one 
means of meeting this requirement.



Sec. 84.37  Nonacademic services.

    (a) General. (1) A recipient to which this subpart applies shall 
provide non-academic and extracurricular services and activities in such 
manner as is necessary to afford handicapped students an equal 
opportunity for participation in such services and activities.
    (2) Nonacademic and extracurricular services and activities may 
include counseling services, physical recreational athletics, 
transportation, health services, recreational activities, special 
interest groups or clubs sponsored by the recipients, referrals to 
agencies which provide assistance to handicapped persons, and employment 
of students, including both employment by the recipient and assistance 
in making available outside employment.
    (b) Counseling services. A recipient to which this subpart applies 
that provides personal, academic, or vocational counseling, guidance, or 
placement services to its students shall provide these services without 
discrimination on the basis of handicap. The recipient shall ensure that 
qualified handicapped students are not counseled toward more restrictive 
career objectives than are nonhandicapped students with similar 
interests and abilities.
    (c) Physical education and athletics. (1) In providing physical 
education courses and athletics and similar programs and activities to 
any of its students, a recipient to which this subpart applies may not 
discriminate on the basis of handicap. A recipient that offers physical 
education courses or that operates or sponsors interscholastic, club, or 
intramural athletics shall provide to qualified handicapped students an 
equal opportunity for participation in these activities.
    (2) A recipient may offer to handicapped students physical education 
and athletic activities that are separate or different from those 
offered to nonhandicapped students only if separation or differentiation 
is consistent with the requirements of Sec. 84.34 and only if no 
qualified handicapped student is denied the opportunity to compete for 
teams or to participate in courses that are not separate or different.

[[Page 333]]



Sec. 84.38  Preschool and adult education programs.

    A recipient to which this subpart applies that operates a preschool 
education or day care program or activity or an adult education program 
or activity may not, on the basis of handicap, exclude qualified 
handicapped persons from the program or activity and shall take into 
account the needs of such persons in determining the aid, benefits, or 
services to be provided under the program or activity.



Sec. 84.39  Private education programs.

    (a) A recipient that operates a private elementary or secondary 
education program may not, on the basis of handicap, exclude a qualified 
handicapped person from such program if the person can, with minor 
adjustments, be provided an appropriate education, as defined in 
Sec. 84.33(b)(1), within the recipient's program.
    (b) A recipient to which this section applies may not charge more 
for the provision of an appropriate education to handicapped persons 
than to nonhandicapped persons except to the extent that any additional 
charge is justified by a substantial increase in cost to the recipient.
    (c) A recipient to which this section applies that operates special 
education programs shall operate such programs in accordance with the 
provisions of Secs. 84.35 and 84.36. Each recipient to which this 
section applies is subject to the provisions of Secs. 84.34, 84.37, and 
84.38.



Sec. 84.40  [Reserved]



                   Subpart E--Postsecondary Education



Sec. 84.41  Application of this subpart.

    Subpart E applies to postsecondary education programs and 
activities, including postsecondary vocational education programs and 
activities, that receive or benefit from Federal financial assistance 
and to recipients that operate, or that receive or benefit from Federal 
financial assistance for the operation of, such programs or activities.



Sec. 84.42  Admissions and recruitment.

    (a) General. Qualified handicapped persons may not, on the basis of 
handicap, be denied admission or be subjected to discrimination in 
admission or recruitment by a recipient to which this subpart applies.
    (b) Admissions. In administering its admission policies, a recipient 
to which this subpart applies:
    (1) May not apply limitations upon the number or proportion of 
handicapped persons who may be admitted;
    (2) May not make use of any test or criterion for admission that has 
a disproportionate, adverse effect on handicapped persons or any class 
of handicapped persons unless (i) the test or criterion, as used by the 
recipient, has been validated as a predictor of success in the education 
program or activity in question and (ii) alternate tests or criteria 
that have a less disproportionate, adverse effect are not shown by the 
Director to be available.
    (3) Shall assure itself that (i) admissions tests are selected and 
administered so as best to ensure that, when a test is administered to 
an applicant who has a handicap that impairs sensory, manual, or 
speaking skills, the test results accurately reflect the applicant's 
aptitude or achievement level or whatever other factor the test purports 
to measure, rather than reflecting the applicant's impaired sensory, 
manual, or speaking skills (except where those skills are the factors 
that the test purports to measure); (ii) admissions tests that are 
designed for persons with impaired sensory, manual, or speaking skills 
are offered as often and in as timely a manner as are other admissions 
tests; and (iii) admissions tests are administered in facilities that, 
on the whole, are accessible to handicapped persons; and
    (4) Except as provided in paragraph (c) of this section, may not 
make preadmission inquiry as to whether an applicant for admission is a 
handicapped person but, after admission, may make inquiries on a 
confidential basis as to handicaps that may require accommodation.
    (c) Preadmission inquiry exception. When a recipient is taking 
remedial action to correct the effects of past discrimination pursuant 
to Sec. 84.6(a) or

[[Page 334]]

when a recipient is taking voluntary action to overcome the effects of 
conditons that resulted in limited participation in its federally 
assisted program or activity pursuant to Sec. 84.6(b), the recipient may 
invite applicants for admission to indicate whether and to what extent 
they are handicapped, Provided, That:
    (1) The recipient states clearly on any written questionnaire used 
for this purpose or makes clear orally if no written questionnaire is 
used that the information requested is intended for use solely in 
connection with its remedial action obligations or its voluntary action 
efforts; and
    (2) The recipient states clearly that the information is being 
requested on a voluntary basis, that it will be kept confidential, that 
refusal to provide it will not subject the applicant to any adverse 
treatment, and that it will be used only in accordance with this part.
    (d) Validity studies. For the purpose of paragraph (b)(2) of this 
section, a recipient may base prediction equations on first year grades, 
but shall conduct periodic validity studies against the criterion of 
overall success in the education program or activity in question in 
order to monitor the general validity of the test scores.



Sec. 84.43  Treatment of students; general.

    (a) No qualified handicapped student shall, on the basis of 
handicap, be excluded from participation in, be denied the benefits of, 
or otherwise be subjected to discrimination under any academic, 
research, occupational training, housing, health insurance, counseling, 
financial aid, physical education, athletics, recreation, 
transportation, other extracurricular, or other postsecondary education 
program or activity to which this subpart applies.
    (b) A recipient to which this subpart applies that considers 
participation by students in education programs or activities not 
operated wholly by the recipient as part of, or equivalent to, and 
education program or activity operated by the recipient shall assure 
itself that the other education program or activity, as a whole, 
provides an equal opportunity for the participation of qualified 
handicapped persons.
    (c) A recipient to which this subpart applies may not, on the basis 
of handicap, exclude any qualified handicapped student from any course, 
course of study, or other part of its education program or activity.
    (d) A recipient to which this subpart applies shall operate its 
programs and activities in the most integrated setting appropriate.



Sec. 84.44  Academic adjustments.

    (a) Academic requirements. A recipient to which this subpart applies 
shall make such modifications to its academic requirements as are 
necessary to ensure that such requirements do not discriminate or have 
the effect of discriminating, on the basis of handicap, against a 
qualified handicapped applicant or student. Academic requirements that 
the recipient can demonstrate are essential to the program of 
instruction being pursued by such student or to any directly related 
licensing requirement will not be regarded as discriminatory within the 
meaning of this section. Modifications may include changes in the length 
of time permitted for the completion of degree requirements, 
substitution of specific courses required for the completion of degree 
requirements, and adaptation of the manner in which specific courses are 
conducted.
    (b) Other rules. A recipient to which this subpart applies may not 
impose upon handicapped students other rules, such as the prohibition of 
tape recorders in classrooms or of dog guides in campus buildings, that 
have the effect of limiting the participation of handicapped students in 
the recipient's education program or activity.
    (c) Course examinations. In its course examinations or other 
procedures for evaluating students' academic achievement in its program, 
a recipient to which this subpart applies shall provide such methods for 
evaluating the achievement of students who have a handicap that impairs 
sensory, manual, or speaking skills as will best ensure that the results 
of the evaluation represents the student's achievement in the course, 
rather than reflecting the student's impaired sensory, manual, or 
speaking skills (except where

[[Page 335]]

such skills are the factors that the test purports to measure).
    (d) Auxiliary aids. (1) A recipient to which this subpart applies 
shall take such steps as are necessary to ensure that no handicapped 
student is denied the benefits of, excluded from participation in, or 
otherwise subjected to discrimination under the education program or 
activity operated by the recipient because of the absence of educational 
auxiliary aids for students with impaired sensory, manual, or speaking 
skills.
    (2) Auxiliary aids may include taped texts, interpreters or other 
effective methods of making orally delivered materials available to 
students with hearing impairments, readers in libraries for students 
with visual impairments, classroom equipment adapted for use by students 
with manual impairments, and other similar services and actions. 
Recipients need not provide attendants, individually prescribed devices, 
readers for personal use or study, or other devices or services of a 
personal nature.



Sec. 84.45  Housing.

    (a) Housing provided by the recipient. A recipient that provides 
housing to its nonhandicapped students shall provide comparable, 
convenient, and accessible housing to handicapped students at the same 
cost as to others. At the end of the transition period provided for in 
Subpart C, such housing shall be available in sufficient quantity and 
variety so that the scope of handicapped students' choice of living 
accommodations is, as a whole, comparable to that of nonhandicapped 
students.
    (b) Other housing. A recipient that assists any agency, 
organization, or person in making housing available to any of its 
students shall take such action as may be necessary to assure itself 
that such housing is, as a whole, made available in a manner that does 
not result in discrimination on the basis of handicap.



Sec. 84.46  Financial and employment assistance to students.

    (a) Provision of financial assistance. (1) In providing financial 
assistance to qualified handicapped persons, a recipient to which this 
subpart applies may not (i), on the basis of handicap, provide less 
assistance than is provided to nonhandicapped persons, limit eligibility 
for assistance, or otherwise discriminate or (ii) assist any entity or 
person that provides assistance to any of the recipient's students in a 
manner that discriminates against qualified handicapped persons on the 
basis of handicap.
    (2) A recipient may administer or assist in the administration of 
scholarships, fellowships, or other forms of financial assistance 
established under wills, trusts, bequests, or similar legal instruments 
that require awards to be made on the basis of factors that discriminate 
or have the effect of discriminating on the basis of handicap only if 
the overall effect of the award of scholarships, fellowships, and other 
forms of financial assistance is not discriminatory on the basis of 
handicap.
    (b) Assistance in making available outside employment. A recipient 
that assists any agency, organization, or person in providing employment 
opportunities to any of its students shall assure itself that such 
employment opportunities, as a whole, are made available in a manner 
that would not violate Subpart B if they were provided by the recipient.
    (c) Employment of students by recipients. A recipient that employs 
any of its students may not do so in a manner that violates Subpart B.



Sec. 84.47  Nonacademic services.

    (a) Physical education and athletics. (1) In providing physical 
education courses and athletics and similar programs and activities to 
any of its students, a recipient to which this subpart applies may not 
discriminate on the basis of handicap. A recipient that offers physical 
education courses or that operates or sponsors intercollegiate, club, or 
intramural athletics shall provide to qualified handicapped students an 
equal opportunity for participation in these activities.
    (2) A recipient may offer to handicapped students physical education 
and athletic activities that are separate or different only if 
separation or differentiation is consistent with the requirements of 
Sec. 84.43(d) and only if no qualified handicapped student is denied the

[[Page 336]]

opportunity to compete for teams or to participate in courses that are 
not separate or different.
    (b) Counseling and placement services. A recipient to which this 
subpart applies that provides personal, academic, or vocational 
counseling, guidance, or placement services to its students shall 
provide these services without discrimination on the basis of handicap. 
The recipient shall ensure that qualified handicapped students are not 
counseled toward more restrictive career objectives than are 
nonhandicapped students with similar interests and abilities. This 
requirement does not preclude a recipient from providing factual 
information about licensing and certification requirements that may 
present obstacles to handicapped persons in their pursuit of particular 
careers.
    (c) Social organizations. A recipient that provides significant 
assistance to fraternities, sororities, or similar organizations shall 
assure itself that the membership practices of such organizations do not 
permit discrimination otherwise prohibited by this subpart.



Secs. 84.48-84.50  [Reserved]



             Subpart F--Health, Welfare, and Social Services



Sec. 84.51  Application of this subpart.

    Subpart F applies to health, welfare, and other social service 
programs and activities that receive or benefit from Federal financial 
assistance and to recipients that operate, or that receive or benefit 
from Federal financial assistance for the operation of, such programs or 
activities.



Sec. 84.52  Health, welfare, and other social services.

    (a) General. In providing health, welfare, or other social services 
or benefits, a recipient may not, on the basis of handicap:
    (1) Deny a qualified handicapped person these benefits or services;
    (2) Afford a qualified handicapped person an opportunity to receive 
benefits or services that is not equal to that offered nonhandicapped 
persons;
    (3) Provide a qualified handicapped person with benefits or services 
that are not as effective (as defined in Sec. 84.4(b)) as the benefits 
or services provided to others;
    (4) Provide benefits or services in a manner that limits or has the 
effect of limiting the participation of qualified handicapped persons; 
or
    (5) Provide different or separate benefits or services to 
handicapped persons except where necessary to provide qualified 
handicapped persons with benefits and services that are as effective as 
those provided to others.
    (b) Notice. A recipient that provides notice concerning benefits or 
services or written material concerning waivers of rights or consent to 
treatment shall take such steps as are necessary to ensure that 
qualified handicapped persons, including those with impaired sensory or 
speaking skills, are not denied effective notice because of their 
handicap.
    (c) Emergency treatment for the hearing impaired. A recipient 
hospital that provides health services or benefits shall establish a 
procedure for effective communication with persons with impaired hearing 
for the purpose of providing emergency health care.
    (d) Auxiliary aids. (1) A recipient to which this subpart applies 
that employs fifteen or more persons shall provide appropriate auxiliary 
aids to persons with impaired sensory, manual, or speaking skills, where 
necessary to afford such persons an equal opportunity to benefit from 
the service in question.
    (2) The Director may require recipients with fewer than fifteen 
employees to provide auxiliary aids where the provision of aids would 
not significantly impair the ability of the recipient to provide its 
benefits or services.
    (3) For the purpose of this paragraph, auxiliary aids may include 
brailled and taped material, interpreters, and other aids for persons 
with impaired hearing or vision.



Sec. 84.53  Drug and alcohol addicts.

    A recipient to which this subpart applies that operates a general 
hospital or outpatient facility may not discriminate in admission or 
treatment against a drug or alcohol abuser or alcoholic who is suffering 
from a medical condition, because of the person's drug or alcohol abuse 
or alcoholism.

[[Page 337]]



Sec. 84.54  Education of institutionalized persons.

    A recipient to which this subpart applies and that operates or 
supervises a program or activity for persons who are institutionalized 
because of handicap shall ensure that each qualified handicapped person, 
as defined in Sec. 84.3(k)(2), in its program or activity is provided an 
appropriate education, as defined in Sec. 84.33(b). Nothing in this 
section shall be interpreted as altering in any way the obligations of 
recipients under Subpart D.



Sec. 84.55  Procedures relating to health care for handicapped infants.

    (a) Infant Care Review Committees. The Department encourages each 
recipient health care provider that provides health care services to 
infants in programs receiving Federal financial assistance to establish 
an Infant Care Review Committee (ICRC) to assist the provider in 
delivering health care and related services to infants and in complying 
with this part. The purpose of the committee is to assist the health 
care provider in the development of standards, policies and procedures 
for providing treatment to handicapped infants and in making decisions 
concerning medically beneficial treatment in specific cases. While the 
Department recognizes the value of ICRC's in assuring appropriate 
medical care to infants, such committees are not required by this 
section. An ICRC should be composed of individuals representing a broad 
range of perspectives, and should include a practicing physician, a 
representative of a disability organization, a practicing nurse, and 
other individuals. A suggested model ICRC is set forth in paragraph (f) 
of this section.
    (b) Posting of informational notice. (1) Each recipient health care 
provider that provides health care services to infants in programs or 
activities receiving Federal financial assistance shall post and keep 
posted in appropriate places an informational notice.
    (2) The notice must be posted at location(s) where nurses and other 
medical professionals who are engaged in providing health care and 
related services to infants will see it. To the extent it does not 
impair accomplishment of the requirement that copies of the notice be 
posted where such personnel will see it, the notice need not be posted 
in area(s) where parents of infant patients will see it.
    (3) Each health care provider for which the content of the following 
notice (identified as Notice A) is truthful may use Notice A. For the 
content of the notice to be truthful: (i) The provider must have a 
policy consistent with that stated in the notice; (ii) the provider must 
have a procedure for review of treatment deliberations and decisions to 
which the notice applies, such as (but not limited to) an Infant Care 
Review Committee; and (iii) the statements concerning the identity of 
callers and retaliation are truthful.

                                Notice A:

               PRINCIPLES OF TREATMENT OF DISABLED INFANTS

    It is the policy of this hospital, consistent with Federal law, 
that, nourishment and medically beneficial treatment (as determined with 
respect for reasonable medical judgments) should not be withheld from 
handicapped infants solely on the basis of their present or anticipated 
mental or physical impairments.
    This Federal law, section 504 of the Rehabilitation Act of 1973, 
prohibits discrimination on the basis of handicap in programs or 
activities receiving Federal financial assistance. For further 
information, or to report suspected noncompliance, call:
    [Identify designated hospital contact point and telephone number] or
    [Identify appropriate child protective services agency and telephone 
number] or
    U.S. Department of Health and Human Services (HHS): 800-368-1019 
(Toll-free; available 24 hours a day; TDD capability).

The identity of callers will be held confidential. Retaliation by this 
hospital against any person for providing information about possible 
noncompliance is prohibited by this hospital and Federal regulations.

    (4) Health care providers other than those described in paragraph 
(b)(3) of this section must post the following notice (identified as 
Notice B):

[[Page 338]]

                                Notice B:

               PRINCIPLES OF TREATMENT OF DISABLED INFANTS

    Federal law prohibits discrimination on the basis of handicap. Under 
this law, nourishment and medically beneficial treatment (as determined 
with respect for reasonable medical judgments) should not be withheld 
from handicapped infants solely on the basis of their present or 
anticipated mental or physical impairments.
    This Federal law, section 504 of the Rehabilitation Act of 1973, 
applies to programs or activities receiving Federal financial 
assistance. For further information, or to report suspected 
noncompliance, call:
    [Identify appropriate child protective services agency and telephone 
number] or
    U.S. Department of Health and Human Services (HHS): 800-368-1019 
(Toll-free; available 24 hours a day: TDD capability)

The identity of callers will be held confidential. Federal regulations 
prohibit retaliation by this hospital against any person who provides 
information about possible violations.

    (5) The notice may be no smaller than 5 by 7 inches, and the type 
size no smaller than that generally used for similar internal 
communications to staff. The recipient must insert the specified 
information on the notice it selects. Recipient hospitals in Washington, 
DC, must list 863-0100 as the telephone number for HHS. No other 
alterations may be made to the notice. Copies of the notices may be 
obtained from the Department of Health and Human Services upon request, 
or the recipient may produce its own notices in conformance with the 
specified wording.
    (c) Responsibilities of recipient state child protective services 
agencies. (1) Within 60 days of the effective date of this section, each 
recipient state child protective services agency shall establish and 
maintain in written form methods of administration and procedures to 
assure that the agency utilizes its full authority pursuant to state law 
to prevent instances of unlawful medical neglect of handicapped infants. 
These methods of administration and procedures shall include:
    (i) A requirement that health care providers report on a timely 
basis to the state agency circumstances which they determine to 
constitute known or suspected instances of unlawful medical neglect of 
handicapped infants;
    (ii) A method by which the state agency can receive reports of 
suspected unlawful medical neglect of handicapped infants from health 
care providers, other individuals, and the Department on a timely basis;
    (iii) Immediate review of reports of suspected unlawful medical 
neglect of handicapped infants and, where appropriate, on-site 
investigation of such reports;
    (iv) Provision of child protective services to such medically 
neglected handicapped infants, including, where appropriate, seeking a 
timely court order to compel the provision of necessary nourishment and 
medical treatment; and
    (v) Timely notification to the responsible Department official of 
each report of suspected unlawful medical neglect involving the 
withholding, solely on the basis of present or anticipated physical or 
mental impairments, of treatment or nourishment from a handicapped 
infant who, in spite of such impairments, will medically benefit from 
the treatment or nourishment, the steps taken by the state agency to 
investigate such report, and the state agency's final disposition of 
such report.
    (2) Whenever a hospital at which an infant who is the subject of a 
report of suspected unlawful medical neglect is being treated has an 
Infant Care Review Committee (ICRC) the Department encourages the state 
child protective services agency to consult with the ICRC in carrying 
out the state agency's authorities under its state law and methods of 
administration. In developing its methods of administration and 
procedures, the Department encourages child protective services agencies 
to adopt guidelines for investigations similar to those of the 
Department regarding the involvement of ICRC's.
    (d) Expedited access to records. Access to pertinent records and 
facilities of a recipient pursuant to 45 CFR 80.6(c) (made applicable to 
this part by 45 CFR 84.61) shall not be limited to normal business hours 
when, in the judgment of the responsible Department official, immediate 
access is necessary to protect the life or health of a handicapped 
individual.

[[Page 339]]

    (e) Expedited action to effect compliance. The requirement of 45 CFR 
80.8(d)(3) pertaining to notice to recipients prior to the initiation of 
action to effect compliance (made applicable to this part by 45 CFR 
84.61) shall not apply when, in the judgment of the responsible 
Department official, immediate action to effect compliance is necessary 
to protect the life or health of a handicapped individual. In such cases 
the recipient will, as soon as practicable, be given oral or written 
notice of its failure to comply, of the action to be taken to effect 
compliance, and its continuing opportunity to comply voluntarily.
    (f) Model Infant Care Review Committee. Recipient health care 
providers wishing to establish Infant Care Review Committees should 
consider adoption of the following model. This model is advisory. 
Recipient health care providers are not required to establish a review 
committee or, if one is established, to adhere to this model. In seeking 
to determine compliance with this part, as it relates to health care for 
handicapped infants, by health care providers that have an ICRC 
established and operated substantially in accordance with this model, 
the Department will, to the extent possible, consult with the ICRC.
    (1) Establishment and purpose. (i) The hospital establishes an 
Infant Care Review Committee (ICRC) or joins with one or more other 
hospitals to create a joint ICRC. The establishing document will state 
that the ICRC is for the purpose of facilitating the development and 
implementation of standards, policies and procedures designed to assure 
that, while respecting reasonable medical judgments, treatment and 
nourishment not be withheld, solely on the basis of present or 
anticipated physical or mental impairments, from handicapped infants 
who, in spite of such impairments, will benefit medically from the 
treatment or nourishment.
    (ii) The activities of the ICRC will be guided by the following 
principles:
    (A) The interpretative guidelines of the Department relating to the 
applicability of this part to health care for handicapped infants.
    (B) As stated in the ``Principles of Treatment of Disabled Infants'' 
of the coalition of major medical and disability organizations, 
including the American Academy of Pediatrics, National Association of 
Children's Hospitals and Related Institutions, Association for Retarded 
Citizens, Down's Syndrome Congress, Spina Bifida Association, and 
others:

    When medical care is clearly beneficial, it should always be 
provided. When appropriate medical care is not available, arrangements 
should be made to transfer the infant to an appropriate medical 
facility. Consideration such as anticipated or actual limited potential 
of an individual and present or future lack of available community 
resources are irrelevant and must not determine the decisions concerning 
medical care. The individual's medical condition should be the sole 
focus of the decision. These are very strict standards.
    It is ethically and legally justified to withhold medical or 
surgical procedures which are clearly futile and will only prolong the 
act of dying. However, supportive care should be provided, including 
sustenance as medically indicated and relief of pain and suffering. The 
needs of the dying person should be respected. The family also should be 
supported in its grieving.
    In cases where it is uncertain whether medical treatment will be 
beneficial, a person's disability must not be the basis for a decision 
to withhold treatment. At all times during the process when decisions 
are being made about the benefit or futility of medical treatment, the 
person should be cared for in the medically most appropriate ways. When 
doubt exists at any time about whether to treat, a presumption always 
should be in favor of treatment.

    (C) As stated by the President's Commission for the Study of Ethical 
Problems in Medicine and Biomedical and Behavioral Research:

    This [standard for providing medically beneficial treatment] is a 
very strict standard in that it excludes consideration of the negative 
effects of an impaired child's life on other persons, including parents, 
siblings, and society. Although abiding by this standard may be 
difficult in specific cases, it is all too easy to undervalue the lives 
of handicapped infants; the Commission finds it imperative to counteract 
this by treating them no less vigorously than their healthy peers or 
than older children with similar handicaps would be treated.

    (iii) The ICRC will carry out its purposes by:
    (A) Recommending institutional policies concerning the withholding 
or

[[Page 340]]

withdrawal of medical or surgical treatments to infants, including 
guidelines for ICRC action for specific categories of life-threatening 
conditions affecting infants;
    (B) Providing advice in specific cases when decisions are being 
considered to withhold or withdraw from infant life-sustaining medical 
or surgical treatment; and
    (C) Reviewing retrospectively on a regular basis infant medical 
records in situations in which life-sustaining medical or surgical 
treatment has been withheld or withdrawn.
    (2) Organization and staffing. The ICRC will consist of at least 7 
members and include the following:
    (i) A practicing physician (e.g., a pediatrician, a neonatologist, 
or a pediatric surgeon),
    (ii) A practicing nurse,
    (iii) A hospital administrator,
    (iv) A representative of the legal profession,
    (v) A representative of a disability group, or a developmental 
disability expert,
    (vi) A lay community member, and
    (vii) A member of a facility's organized medical staff, who shall 
serve as chairperson.

In connection with review of specific cases, one member of the ICRC 
shall be designated to act as ``special advocate'' for the infant, as 
provided in paragraph (f)(3)(ii)(E) of the section. The hospital will 
provide staff support for the ICRC, including legal counsel. The ICRC 
will meet on a regular basis, or as required below in connection with 
review of specific cases. It shall adopt or recommend to the appropriate 
hospital official or body such administrative policies as terms of 
office and quorum requirements. The ICRC will recommend procedures to 
ensure that both hospital personnel and patient families are fully 
informed of the existence and functions of the ICRC and its availability 
on a 24-hour basis.
    (3) Operation of ICRC--(i) Prospective policy development. (A) The 
ICRC will develop and recommend for adoption by the hospital 
institutional policies concerning the withholding or withdrawal of 
medical treatment for infants with life-threatening conditions. These 
will include guidelines for management of specific types of cases or 
diagnoses, for example, Down's syndrome and spina bifida, and procedures 
to be followed in such recurring circumstances as, for example, brain 
death and parental refusal to consent to life-saving treatment. The 
hospital, upon recommendation of the ICRC, may require attending 
physicians to notify the ICRC of the presence in the facility of an 
infant with a diagnosis specified by the ICRC, e.g., Down's syndrome and 
spina bifida.
    (B) In recommending these policies and guidelines, the ICRC will 
consult with medical and other authorities on issues involving disabled 
individuals, e.g., neonatologists, pediatric surgeons, county and city 
agencies which provide services for the disabled, and disability 
advocacy organizations. It will also consult with appropriate committees 
of the medical staff, to ensure that the ICRC policies and guidelines 
build on existing staff by-laws, rules and regulations concerning 
consultations and staff membership requirements. The ICRC will also 
inform and educate hospital staff on the policies and guidelines it 
develops.
    (ii) Review of specific cases. In addition to regularly scheduled 
meetings, interim ICRC meetings will take place under specified 
circumstances to permit review of individual cases. The hospital will, 
to the extent possible, require in each case that life-sustaining 
treatment be continued, until the ICRC can review the case and provide 
advice.
    (A) Interim ICRC meetings will be convened within 24 hours (or less 
if indicated) when there is disagreement between the family of an infant 
and the infant's physician as to the withholding or withdrawal of 
treatment, when a preliminary decision to withhold or withdraw life-
sustaining treatment has been made in certain categories of cases 
identified by the ICRC, when there is disagreement between members of 
the hospital's medical and/or nursing staffs, or when otherwise 
appropriate.
    (B) Such interim ICRC meetings will take place upon the request of 
any member of the ICRC or hospital staff or parent or guardian of the 
infant. The ICRC will have procedures to preserve the confidentiality of 
the identity of

[[Page 341]]

persons making such requests, and such persons shall be protected from 
reprisal. When appropriate, the ICRC or a designated member will inform 
the requesting individual of the ICRC's recommendation.
    (C) The ICRC may provide for telephone and other forms of review 
when the timing and nature of the case, as identified in policies 
developed by the ICRC, make the convening of an interim meeting 
impracticable.
    (D) Interim meetings will be open to the affected parties. The ICRC 
will ensure that the interests of the parents, the physician, and the 
child are fully considered; that family members have been fully informed 
of the patient's condition and prognosis; that they have been provided 
with a listing which describes the services furnished by parent support 
groups and public and private agencies in the geographic vicinity to 
infants with conditions such as that before the ICRC; and that the ICRC 
will facilitate their access to such services and groups.
    (E) To ensure a comprehensive evaluation of all options and factors 
pertinent to the committee's deliberations, the chairperson will 
designate one member of the ICRC to act, in connection with that 
specific case, as special advocate for the infant. The special advocate 
will seek to ensure that all considerations in favor of the provision of 
life-sustaining treatment are fully evaluated and considered by the 
ICRC.
    (F) In cases in which there is disagreement on treatment between a 
physician and an infant's family, and the family wishes to continue 
life-sustaining treatment, the family's wishes will be carried out, for 
as long as the family wishes, unless such treatment is medically 
contraindicated. When there is physician/family disagreement and the 
family refuses consent to life-sustaining treatment, and the ICRC, after 
due deliberation, agrees with the family, the ICRC will recommend that 
the treatment be withheld. When there is physician/family disagreement 
and the family refuses consent, but the ICRC disagrees with the family, 
the ICRC will recommend to the hospital board or appropriate official 
that the case be referred immediately to an appropriate court or child 
protective agency, and every effort shall be made to continue treatment, 
preserve the status quo, and prevent worsening of the infant's condition 
until such time as the court or agency renders a decision or takes other 
appropriate action. The ICRC will also follow this procedure in cases in 
which the family and physician agree that life-sustaining treatment 
should be withheld or withdrawn, but the ICRC disagrees.
    (iii) Retrospective record review. The ICRC, at its regularly-
scheduled meeting, will review all records involving withholding or 
termination of medical or surgical treatment to infants consistent with 
hospital policies developed by the ICRC, unless the case was previously 
before the ICRC pursuant to paragraph (f)(3)(ii) of this section. If the 
ICRC finds that a deviation was made from the institutional policies in 
a given case, it shall conduct a review and report the findings to 
appropriate hospital personnel for appropriate action.
    (4) Records. The ICRC will maintain records of all of its 
deliberations and summary descriptions of specific cases considered and 
the disposition of those cases. Such records will be kept in accordance 
with institutional policies on confidentiality of medical information. 
They will be made available to appropriate government agencies, or upon 
court order, or as otherwise required by law.
    Note: The mandatory provisions set forth in paragraphs (b)--(e) 
inclusive of this section are subject to an injunction prohibiting their 
enforcement. In Bowen v. American Hospital Association, ------ U.S. ----
--, 106 S. Ct. 2101 (1986), the Supreme Court upheld the action of a 
United States District Court, 585 F. Supp. 541 (S.D.N.Y. 1984), 
declaring invalid and enjoining enforcement of provisions under this 
section, promulgated January 12, 1984.

(Information collection requirements contained in paragraph (c) have 
been approved by the Office of Management and Budget under control 
number 0990-0114)

[49 FR 1651, Jan. 12, 1984, as amended at 52 FR 3012, Jan. 30, 1987]

[[Page 342]]



Secs. 84.56-84.60  [Reserved]



                          Subpart G--Procedures



Sec. 84.61  Procedures.

    The procedural provisions applicable to title VI of the Civil Rights 
Act of 1964 apply to this part. These procedures are found in Secs. 80.6 
through 80.10 and Part 81 of this Title.

[42 FR 22677, May 4, 1977; 42 FR 22888, May 5, 1977]

           Appendix A to Part 84--Analysis of Final Regulation

                      subpart a--general provisions

    Definitions--1. ``Recipient''. Section 84.23 contains definitions 
used throughout the regulation. Most of the comments concerning 
Sec. 84.3(f), which contains the definition of ``recipient,'' commended 
the inclusion of recipient whose sole source of Federal financial 
assistance is Medicaid. The Secretary believes that such Medicaid 
providers should be regarded as recipients under the statute and the 
regulation and should be held individually responsible for administering 
services in a nondiscriminatory fashion. Accordingly, Sec. 84.3(f) has 
not been changed. Small Medicaid providers, however, are exempt from 
some of the regulation's administrative provisions (those that apply to 
recipients with fifteen or more employees). And such recipients will be 
permitted to refer patients to accessible facilities in certain limited 
circumstances under revised Sec. 84.22(b). The Secretary recognizes the 
difficulties involved in Federal enforcement of this regulation with 
respect to thousands of individual Medicaid providers. As in the case of 
title VI of the Civil Rights Act of 1964, the Office for Civil Rights 
will concentrate its compliance efforts on the state Medicaid agencies 
and will look primarily to them to ensure compliance by individual 
providers.
    One other comment requested that the regulation specify that 
nonpublic elementary and secondary schools that are not otherwise 
recipients do not become recipients by virtue of the fact their students 
participate in certain federally funded programs. The Secretary believes 
it unnecessary to amend the regulation in this regard, because almost 
identical language in the Department's regulations implementing title VI 
and Title IX of the Education Amendments of 1972 has consistently been 
interpreted so as not to render such schools recipients. These schools, 
however, are indirectly subject to the substantive requirements of this 
regulation through the application of Sec. 84.4(b)(iv), which prohibits 
recipients from assisting agencies that discriminate on the basis of 
handicap in providing services to beneficiairies of the recipients' 
programs.
    2. ``Federal financial assistance''. In Sec. 84.3(h), defining 
Federal financial assistance, a clarifying change has been made: 
procurement contracts are specifically excluded. They are covered, 
however, by the Department of Labor's regulation under section 503. The 
Department has never considered such contracts to be contracts of 
assistance; the explicit exemption has been added only to avoid possible 
confusion.
    The proposed regulation's exemption of contracts of insurance or 
guaranty has been retained. A number of comments argued for its deletion 
on the ground that section 504, unlike title VI and title IX, contains 
no statutory exemption for such contracts. There is no indication, 
however, in the legislative history of the Rehabilitation Act of 1973 or 
of the amendments to that Act in 1974, that Congress intended section 
504 to have a broader application, in terms of Federal financial 
assistance, than other civil rights statutes. Indeed, Congress directed 
that section 504 be implemented in the same manner as titles VI and IX. 
In view of the long established exemption of contracts of insurance or 
guaranty under title VI, we think it unlikely that Congress intended 
section 504 to apply to such contracts.
    In its May 1976 Notice of Intent, the Department suggested that the 
arrangement under which individual practitioners, hospitals, and other 
facilities receive reimbursement for providing services to beneficiaries 
under Part B of title XVIII of the Social Security Act (Medicare) 
constitutes a contract of insurance or guaranty and thus falls within 
the exemption from the regulation. This explanation oversimplified the 
Department's view of whether Medicare Part B constitutes Federal 
financial assistance. The Department's position has consistently been 
that, whether or not Medicare Part B arrangements involve a contract of 
insurance or guaranty, no Federal financial assistance flows from the 
Department to the doctor or other practitioner under the program, since 
Medicare Part B--like other social security programs--is basically a 
program of payments to direct beneficiaries.
    3. ``Handicapped person''. Section 84.3(j), which defines the class 
of persons protected under the regulation, has not been substantially 
changed. The definition of handicapped person in paragraph (j)(1) 
conforms to the statutory definition of handicapped person that is 
applicable to section 504, as set forth in section 111(a) of the 
Rehabilitation Act Amendments of 1974, Pub. L. 93-516.
    The first of the three parts of the statutory and regulatory 
definition includes any person who has a physical or mental impairment 
that substantially limits one or more major life activities. Paragraph 
(j)(2)(i) further defines physical or mental impairments.

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The definition does not set forth a list of specific diseases and 
conditions that constitute physical or mental impairments because of the 
difficulty of ensuring the comprehensiveness of any such list. The term 
includes, however, such diseases and conditions as orthopedic, visual, 
speech, and hearing impairments, cerebral palsy, epilepsy, muscular 
dystrophy, multiple sclerosis, cancer, heart disease, diabetes, mental 
retardation, emotional illness, and, as discussed below, drug addiction 
and alcoholism.
    It should be emphasized that a physical or mental impairment does 
not constitute a handicap for purposes of section 504 unless its 
severity is such that it results in a substantial limitation of one or 
more major life activities. Several comments observed the lack of any 
definition in the proposed regulation of the phrase ``substantially 
limits.'' The Department does not believe that a definition of this term 
is possible at this time.
    A related issue raised by several comments is whether the definition 
of handicapped person is unreasonably broad. Comments suggested 
narrowing the definition in various ways. the most common recommendation 
was that only ``traditional'' handicaps be covered. The Department 
continues to believe, however, that it has no flexibility within the 
statutory definition to limit the term to persons who have those severe, 
permanent, or progressive conditions that are most commonly regarded as 
handicaps. The Department intends, however, to give particular attention 
in its enforcement of section 504 to eliminating discrimination against 
persons with the severe handicaps that were the focus of concern in the 
Rehabilitation Act of 1973.
    The definition of handicapped person also includes specific 
limitations on what persons are classified as handicapped under the 
regulation. The first of the three parts of the definition specifies 
that only physical and mental handicaps are included. Thus, 
environmental, cultural, and economic disadvantage are not in themselves 
covered; nor are prison records, age, or homosexuality. Of course, if a 
person who has any of these characteristics also has a physical or 
mental handicap, the person is included within the definition of 
handicapped person.
    In paragraph (j)(2)(i), physical or mental impairment is defined to 
include, among other impairments, specific learning disabilities. The 
Department will interpret the term as it is used in section 602 of the 
Education of the Handicapped Act, as amended. Paragraph (15) of section 
602 uses the term ``specific learning disabilities'' to describe such 
conditions as perceptual handicaps, brain injury, minimal brain 
dysfunction, dyslexia, and developmental aphasia.
    Paragraph (j)(2)(i) has been shortened, but not substantively 
changed, by the deletion of clause (C), which made explicit the 
inclusion of any condition which is mental or physical but whose precise 
nature is not at present known. Clauses (A) and (B) clearly comprehend 
such conditions.
    The second part of the statutory and regulatory definition of 
handicapped person includes any person who has a record of a physical or 
mental impairment that substantially limits a major life activity. Under 
the definition of ``record'' in paragraph (j)(2)(iii), persons who have 
a history of a handicapping condition but no longer have the condition, 
as well as persons who have been incorrectly classified as having such a 
condition, are protected from discrimination under section 504. 
Frequently occurring examples of the first group are persons with 
histories of mental or emotional illness, heart disease, or cancer; of 
the second group, persons who have been misclassified as mentally 
retarded.
    The third part of the statutory and regulatory definition of 
handicapped person includes any person who is regarded as having a 
physical or mental impairment that substantially limits one or more 
major life activities. It includes many persons who are ordinarily 
considered to be handicapped but who do not technically fall within the 
first two parts of the statutory definition, such as persons with a 
limp. This part of the definition also includes some persons who might 
not ordinarily be considered handicapped, such as persons with 
disfiguring scars, as well as persons who have no physical or mental 
impairment but are treated by a recipient as if they were handicapped.
    4. Drug addicts and alcoholics. As was the case during the first 
comment period, the issue of whether to include drug addicts and 
alcoholics within the definition of handicapped person was of major 
concern to many commenters. The arguments presented on each side of the 
issue were similar during the two comment periods, as was the preference 
of commenters for exclusion of this group of persons. While some 
comments reflected misconceptions about the implications of including 
alcoholics and drug addicts within the scope of the regulation, the 
Secretary understands the concerns that underlie the comments on this 
question and recognizes that application of section 504 to active 
alcoholics and drug addicts presents sensitive and difficult questions 
that must be taken into account in interpretation and enforcement.
    The Secretary has carefully examined the issue and has obtained a 
legal opinion from the Attorney General. That opinion concludes that 
drug addiction and alcoholism are ``physical or mental impairments'' 
within the meaning of section 7(6) of the Rehabilitation Act of 1973, as 
amended, and that drug addicts and alcoholics are therefore handicapped 
for purposes of section 504 if their impairment substantially limits one 
of

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their major life activities. The Secretary therefore believes that he is 
without authority to exclude these conditions from the definition. There 
is a medical and legal consensus that alcoholism and drug addiction are 
diseases, although there is disagreement as to whether they are 
primarily mental or physical. In addition, while Congress did not focus 
specifically on the problems of drug addiction and alcoholism in 
enacting section 504, the committees that considered the Rehabilitation 
Act of 1973 were made aware of the Department's long-standing practice 
of treating addicts and alcoholics as handicapped individuals eligible 
for rehabilitation services under the Vocational Rehabilitation Act.
    The Secretary wishes to reassure recipients that inclusion of 
addicts and alcoholics within the scope of the regulation will not lead 
to the consequences feared by many commenters. It cannot be emphasized 
too strongly that the statute and the regulation apply only to 
discrimination against qualified handicapped persons solely by reason of 
their handicap. The fact that drug addiction and alcoholism may be 
handicaps does not mean that these conditions must be ignored in 
determining whether an individual is qualified for services or 
employment opportunities. On the contrary, a recipient may hold a drug 
addict or alcoholic to the same standard of performance and behavior to 
which it holds others, even if any unsatisfactory performance or 
behavior is related to the person's drug addiction or alcoholism. In 
other words, while an alcoholic or drug addict may not be denied 
services or disqualified from employment solely because of his or her 
condition, the behavioral manifestations of the condition may be taken 
into account in determining whether he or she is qualified.
    With respect to the employment of a drug addict or alcoholic, if it 
can be shown that the addiction or alcoholism prevents successful 
performance of the job, the person need not be provided the employment 
opportunity in question. For example, in making employment decisions, a 
recipient may judge addicts and alcoholics on the same basis it judges 
all other applicants and employees. Thus, a recipient may consider--for 
all applicants including drug addicts and alcoholics--past personnel 
records, absenteeism, disruptive, abusive, or dangerous behavior, 
violations of rules and unsatisfactory work performance. Moreover, 
employers may enforce rules prohibiting the possesion or use of alcohol 
or drugs in the work-place, provided that such rules are enforced 
against all employees.
    With respect to services, there is evidence that drug addicts and 
alcoholics are often denied treatment at hospitals for conditions 
unrelated to their addiction or alcoholism. In addition, some addicts 
and alcoholics have been denied emergency treatment. These practices 
have been specifically prohibited by section 407 of the Drug Abuse 
Office and Treatment Act of 1972 (21 U.S.C. 1174) and section 321 of the 
Comprehensive Alcohol Abuse and Alcoholism Prevention, Treatment and 
Rehabilitation Act of 1970 (42 U.S.C. 4581), as amended. These statutory 
provisions are also administered by the Department's Office for Civil 
Rights and are implemented in Sec. 84.53 of this regulation.
    With respect to other services, the implications of coverage, of 
alcoholics and drug addicts are two-fold: first, no person may be 
excluded from services solely by reason of the presence or history of 
these conditions; second, to the extent that the manifestations of the 
condition prevent the person from meeting the basic eligibility 
requirements of the program or cause substantial interference with the 
operation of the program, the condition may be taken into consideration. 
Thus, a college may not exclude an addict or alcoholic as a student, on 
the basis of addiction or alcoholism, if the person can successfully 
participate in the education program and complies with the rules of the 
college and if his or her behavior does not impede the performance of 
other students.
    Of great concern to many commenters was the question of what effect 
the inclusion of drug addicts and alcoholics as handicapped persons 
would have on school disciplinary rules prohibiting the use or 
possession of drugs or alcohol by students. Neither such rules nor their 
application to drug addicts or alcoholics is prohibited by this 
regulation, provided that the rules are enforced evenly with respect to 
all students.
    5. ``Qualified handicapped person.'' Paragraph (k) of Sec. 84.3 
defines the term ``qualified handicapped person.'' Throughout the 
regulation, this term is used instead of the statutory term ``otherwise 
qualified handicapped person.'' The Department believes that the 
omission of the word ``otherwise'' is necessary in order to comport with 
the intent of the statute because, read literally, ``otherwise'' 
qualified handicapped persons include persons who are qualified except 
for their handicap, rather than in spite of their handicap. Under such a 
literal reading, a blind person possessing all the qualifications for 
driving a bus except sight could be said to be ``otherwise qualified'' 
for the job of driving. Clearly, such a result was not intended by 
Congress. In all other respects, the terms ``qualified'' and ``otherwise 
qualified'' are intended to be interchangeable.
    Section 84.3(k)(1) defines a qualified handicapped person with 
respect to employment as a handicapped person who can, with reasonable 
accommodation, perform the essential functions of the job in question. 
The term ``essential functions'' does not appear in the corresponding 
provision of the Department of Labor's section 503 regulation, and a

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few commenters objected to its inclusion on the ground that a 
handicapped person should be able to perform all job tasks. However, the 
Department believes that inclusion of the phrase is useful in 
emphasizing that handicapped persons should not be disqualified simply 
because they may have difficulty in performing tasks that bear only a 
marginal relationship to a particular job. Further, we are convinced 
that inclusion of the phrase is not inconsistent with the Department of 
Labor's application of its definition.
    Certain commenters urged that the definition of qualified 
handicapped person be amended so as explicitly to place upon the 
employer the burden of showing that a particular mental or physical 
characteristic is essential. Because the same result is achieved by the 
requirement contained in paragraph (a) of Sec. 84.13, which requires an 
employer to establish that any selection criterion that tends to screen 
out handicapped persons is job-related, that recommendation has not been 
followed.
    Section 84.3(k)(2) (formerly Sec. 84.3(k)(3)) defines qualified 
handicapped person, with respect to preschool, elementary, and secondary 
programs, in terms of age. Several commenters recommended that 
eligibility for the services be based upon the standard of substantial 
benefit, rather than age, because of the need of many handicapped 
children for early or extended services if they are to have an equal 
opportunity to benefit from education programs. No change has been made 
in this provision, again because of the extreme difficulties in 
administration that would result from the choice of the former standard. 
Under the remedial action provisions of Sec. 84.6(a)(3), however, 
persons beyond the age limits prescribed in Sec. 84.3(k)(2) may in 
appropriate cases be required to be provided services that they were 
formerly denied because of a recipient's violation of section 504.
    Section 84.3(k)(2) states that a handicapped person is qualified for 
preschool, elementary, or secondary services if the person is of an age 
at which nonhandicapped persons are eligible for such services or at 
which state law mandates the provision of educational services to 
handicapped persons. In addition, the extended age ranges for which 
recipients must provide full educational opportunity to all handicapped 
persons in order to be eligible for assistance under the Education of 
the Handicapped Act--generally, 3-18 as of September 1978, and 3-21 as 
of September 1980 are incorporated by reference in this paragraph.
    Section 84.3(k)(3) formerly Sec. 84.3(k)(2)) defines qualified 
handicapped person with respect to postsecondary educational programs. 
As revised, the paragraph means that both academic and technical 
standards must be met by applicants to these programs. The term 
``technical standards'' refers to all nonacademic admissions criteria 
that are essential to participation in the program in question.
    6. General prohibitions against discrimination. Section 84.4 
contains general prohibitions against discrimination applicable to all 
recipients of assistance from this Department.
    Paragraph (b)(1(i) prohibits the exclusion of qualified handicapped 
persons from aids, benefits, or services, and paragraph (ii) requires 
that equal opportunity to participate or benefit be provided. Paragraph 
(iii) requires that services provided to handicapped persons be as 
effective as those provided to the nonhandicapped. In paragraph (iv), 
different or separate services are prohibited except when necessary to 
provide equally effective benefits.
    In this context, the term ``equally effective,'' defined in 
paragraph (b)(2), is intended to encompass the concept of equivalent, as 
opposed to identical, services and to acknowledge the fact that in order 
to meet the individual needs of handicapped persons to the same extent 
that the corresponding needs of nonhandicapped persons are met, 
adjustments to regular programs or the provision of different programs 
may sometimes be necessary. For example, a welfare office that uses the 
telephone for communicating with its clients must provide alternative 
modes of communicating with its deaf clients. This standard parallels 
the one established under title VI of Civil Rights Act of 1964 with 
respect to the provision of educational services to students whose 
primary language is not English. See Lau v. Nichols, 414 U.S. 563 
(1974). To be equally effective, however, an aid, benefit, or service 
need not produce equal results; it merely must afford an equal 
opportunity to achieve equal results.
    It must be emphasized that, although separate services must be 
required in some instances, the provision of unnecessarily separate or 
different services is discriminatory. The addition to paragraph (b)(2) 
of the phrase ``in the most integrated setting appropriated to the 
person's needs'' is intended to reinforce this general concept. A new 
paragraph (b)(3) has also been added to Sec. 84.4, requiring recipients 
to give qualified handicapped persons the option of participating in 
regular programs despite the existence of permissibly separate or 
different programs. The requirement has been reiterated in Secs. 84.38 
and 84.47 in connection with physical education and athletics programs.
    Section 84.4(b)(1)(v) prohibits a recipient from supporting another 
entity or person that subjects participants or employees in the 
recipient's program to discrimination on the basis of handicap. This 
section would, for example, prohibit financial support by a recipient to 
a community recreational group or to a professional or social 
organization

[[Page 346]]

that discriminates against handicapped persons. Among the criteria to be 
considered in each case are the substantiality of the relationship 
between the recipient and the other entity, including financial support 
by the recipient, and whether the other entity's activities relate so 
closely to the recipient's program or activity that they fairly should 
be considered activities of the recipient itself. Paragraph (b)(1)(vi) 
was added in response to comment in order to make explicit the 
prohibition against denying qualified handicapped persons the 
opportunity to serve on planning and advisory boards responsible for 
guiding federally assisted programs or activities.
    Several comments appeared to interpret Sec. 84.4(b)(5), which 
proscribes discriminatory site selection, to prohibit a recipient that 
is located on hilly terrain from erecting any new buildings at its 
present site. That, of course, is not the case. This paragraph is not 
intended to apply to construction of additional buildings at an existing 
site. Of course, any such facilities must be made accessible in 
accordance with the requirements of Sec. 84.23.
    7. Assurances of compliance. Section 84.5(a) requires a recipient to 
submit to the Director an assurance that each of its programs and 
activities receiving or benefiting from Federal financial assistance 
from this Department will be conducted in compliance with this 
regulation. To facilitate the submission of assurances by thousands of 
Medicaid providers, the Department will follow the title VI procedures 
of accepting, in lieu of assurances, certification on Medicaid vouchers. 
Many commenters also sought relief from the paperwork requirements 
imposed by the Department's enforcement of its various civil rights 
responsibilities by requesting the Department to issue one form 
incorporating title VI, title IX, and section 504 assurances. The 
Secretary is sympathetic to this request. While it is not feasible to 
adopt a single civil rights assurance form at this time, the Office for 
Civil Rights will work toward that goal.
    8. Private rights of action. Several comments urged that the 
regulation incorporate provision granting beneficiaries a private right 
of action against recipients under section 504. To confer such a right 
is beyond the authority of the executive branch of Government. There is, 
however, case law holding that such a right exists. Lloyd v. Regional 
Transportation Authority, 548 F. 2d 1277 (7th Cir. 1977); see Hairston 
v. Drosick, Civil No. 75-0691 (S.D. W. Va., Jan. 14, 1976); Gurmankin v. 
Castanzo, 411 F. Supp. 982 (E.D. Pa. 1976); cf. Lau v. Nichols, supra.
    9. Remedial action. Where there has been a finding of 
discrimination, Sec. 84.6 requires a recipient to take remedial action 
to overcome the effects of the discrimination. Actions that might be 
required under paragraph (a)(1) include provision of services to persons 
previously discriminated against, reinstatement of employees and 
development of a remedial action plan. Should a recipient fail to take 
required remedial action, the ultimate sanctions of court action or 
termination of Federal financial assistance may be imposed.
    Paragraph (a)(2) extends the responsibility for taking remedial 
action to a recipient that exercises control over a noncomplying 
recipient. Paragraph (a)(3) also makes clear that handicapped persons 
who are not in the program at the time that remedial action is required 
to be taken may also be the subject of such remedial action. This 
paragraph has been revised in response to comments in order to include 
persons who would have been in the program if discriminatory practices 
had not existed. Paragraphs (a) (1), (2), and (3) have also been amended 
in response to comments to make plain that, in appropriate cases, 
remedial action might be required to redress clear violations of the 
statute itself that occurred before the effective date of this 
regulation.
    10. Voluntary action. In Sec. 84.6(b), the term ``voluntary action'' 
has been substituted for the term ``affirmative action'' because the use 
of the latter term led to some confusion. We believe the term 
``voluntary action'' more accurately reflects the purpose of the 
paragraph. This provision allows action, beyond that required by the 
regulation, to overcome conditions that led to limited participation by 
handicapped persons, whether or not the limited participation was caused 
by any discriminatory actions on the part of the recipient. Several 
commenters urged that paragraphs (a) and (b) be revised to require 
remedial action to overcome effects of prior discriminatory practices 
regardless of whether there has been an express finding of 
discrimination. The self-evaluation requirement in paragraph (c) 
accomplishes much the same purpose.
    11. Self-evaluation. Paragraph (c) requires recipients to conduct a 
self-evaluation in order to determine whether their policies or 
practices may discriminate against handicapped persons and to take steps 
to modify any discriminatory policies and practices and their effects. 
The Department received many comments approving of the addition to 
paragraph (c) of a requirement that recipients seek the assistance of 
handicapped persons in the self-evaluation process. This paragraph has 
been further amended to require consultation with handicapped persons or 
organizations representing them before recipients undertake the policy 
modifications and remedial steps prescribed in paragraphs (c)(1)(ii) and 
(iii).
    Paragraph (c)(2), which sets forth the recordkeeping requirements 
concerning self-evaluation, now applies only to recipients with fifteen 
or more employees. This change

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was made as part of an effort to reduce unnecessary or counterproductive 
administrative obligations on small recipients. For those recipients 
required to keep records, the requirements have been made more specific; 
records must include a list of persons consulted and a description of 
areas examined, problems identified, and corrective steps taken. 
Moreover, the records must be made available for public inspection.
    12. Grievance procedure. Section 84.7 (formerly Sec. 84.8) requires 
recipients with fifteen or more employees to designate an individual 
responsible for coordinating its compliance efforts and to adopt a 
grievance procedure. Two changes were made in the section in response to 
comment. A general requirement that appropriate due process procedures 
be followed has been added. It was decided that the details of such 
procedures could not at this time be specified because of the varied 
nature of the persons and entities who must establish the procedures and 
of the programs to which they apply. A sentence was also added to make 
clear that grievance procedures are not required to be made available to 
unsuccessful applicants for employment or to applicants for admission to 
colleges and universities.
    The regulation does not require that grievance procedures be 
exhausted before recourse is sought from the Department. However, the 
Secretary believes that it is desirable and efficient in many cases for 
complainants to seek resolution of their complaints and disputes at the 
local level and therefore encourages them to use available grievance 
procedures.
    A number of comments asked whether compliance with this section or 
the notice requirements of Sec. 84.8 could be coordinated with 
comparable action required by the title IX regulation. The Department 
encourages such efforts.
    13. Notice. Section 84.8 (formerly Sec. 84.9) sets forth 
requirements for dissemination of statements of nondicrimination policy 
by recipients.
    It is important that both handicapped persons and the public at 
large be aware of the obligations of recipients under section 504. Both 
the Department and recipients have responsibilities in this regard. 
Indeed the Department intends to undertake a major public information 
effort to inform persons of their rights under section 504 and this 
regulation. In Sec. 84.8 the Department has sought to impose a clear 
obligation on major recipients to notify beneficiaries and employees of 
the requirements of section 504, without dictating the precise way in 
which this notice must be given. At the same time, we have avoided 
imposing requirements on small recipients (those with fewer than fifteen 
employees) that would create unnecessary and counterproductive paper 
work burdens on them and unduly stretch the enforcement resources of the 
Department.
    Section 84.8(a), as simplified, requires recipients with fifteen or 
more employees to take appropriate steps to notify beneficiaries and 
employees of the recipient's obligations under section 504. The last 
sentence of Sec. 84.8(a) has been revised to list possible, rather than 
required, means of notification. Section 84.8(b) requires recipients to 
include a notification of their policy of nondiscrimination in 
recruitment and other general information materials.
    In response to a number of comments, Sec. 84.8 has been revised to 
delete the requirements of publication in local newspapers, which has 
proved to be both troublesome and ineffective. Several commenters 
suggested that notification on separate forms be allowed until present 
stocks of publications and forms are depleted. The final regulation 
explicitly allows this method of compliance. The separate form should, 
however, be included with each significant publication or form that is 
distributed.
    Former Sec. 84.9(b)(2), which prohibited the use of materials that 
might give the impression that a recipient excludes qualified 
handicapped persons from its program, has been deleted. The Department 
is convinced by the comments that this provision is unnecessary and 
difficult to apply. The Department encourages recipients, however, to 
include in their recruitment and other general information materials 
photographs of handicapped persons and ramps and other features of 
accessible buildings.
    Under new Sec. 84.9 the Director may, under certain circumstances, 
require recipients with fewer than fifteen employees to comply with one 
or more of these requirements. Thus, if experience shows a need for 
imposing notice or other requirements on particular recipients or 
classes of small recipients, the Department is prepared to expand the 
coverage of these sections.
    14. Inconsistent State laws. Section 84.10(a) states that compliance 
with the regulation is not excused by state or local laws limiting the 
eligibility of qualified handicapped persons to receive services or to 
practice an occupation. The provision thus applies only with respect to 
state or local laws that unjustifiably differentiate on the basis of 
handicap.
    Paragraph (b) further points out that the presence of limited 
employment opportunities in a particular profession, does not excuse a 
recipient from complying with the regulation. Thus, a law school could 
not deny admission to a blind applicant because blind laywers may find 
it more difficult to find jobs that do nonhandicapped lawyers.

                     subpart b--employment practices

    Subpart B prescribes requirements for nondiscrimination in the 
employment practices

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of recipients of Federal financial assistance administered by the 
Department. This subpart is consistent with the employment provisions of 
the Department's regulation implementing title IX of the Education 
Amendments of 1972 (45 CFR Part 86) and the regulation of the Department 
of Labor under section 503 of the Rehabilitation Act, which requries 
certain Federal contractors to take affirmative action in the employment 
and advancement of qualified handicapped persons. All recipients subject 
to title IX are also subject to this regulation. In addition, many 
recipients subject to this regulation receive Federal procurement 
contracts in excess of $2,500 and are therefore also subject to section 
503.
    15. Discriminatory practices. Section 84.11 sets forth general 
provisions with respect to discrimination in employment. A new paragraph 
(a)(2) has been added to clarify the employment obligations of 
recipients that receive Federal funds under Part B of the Education of 
the Handicapped Act, as amended (EHA). Section 606 of the EHA obligates 
elementary or secondary school systems that receive EHA funds to take 
positive steps to employ and advance in employment qualified handicapped 
persons. This obligation is similar to the nondiscrimination requirement 
of section 504 but requires recipients to take additional steps to hire 
and promote handicapped persons. In enacting section 606 Congress chose 
the words ``positive steps'' instead of ``affirmative action'' advisedly 
and did not intend section 606 to incorporate the types of activities 
required under Executive Order 11246 (affirmative action on the basis of 
race, color, sex, or national origin) or under sections 501 and 503 of 
the Rehabilitation Act of 1973.
    Paragraph (b) of Sec. 84.11 sets forth the specific aspects of 
employment covered by the regulation. Paragraph (c) provides that 
inconsistent provisions of collective bargaining agreements do not 
excuse noncompliance.
    16. Reasonable accommodation. The reasonable accommodation 
requirement of Sec. 84.12 generated a substantial number of comments. 
The Department remains convinced that its approach is both fair and 
effective. Moreover, the Department of Labor reports that it has 
experienced little difficulty in administering the requirements of 
reasonable accommodation. The provision therefore remains basically 
unchanged from the proposed regulation.
    Section 84.12 requires a recipient to make reasonable accommodation 
to the known physical or mental limitations of a handicapped applicant 
or employee unless the recipient can demonstrate that the accommodation 
would impose an undue hardship on the operation of its program. Where a 
handicapped person is not qualified to perform a particular job, where 
reasonable accommodation does not overcome the effects of a person's 
handicap, or where reasonable accommodation causes undue hardship to the 
employer, failure to hire or promote the handicapped person will not be 
considered discrimination.
    Section 84.12(b) lists some of the actions that constitute 
reasonable accommodation. The list is neither all-inclusive nor meant to 
suggest that employers must follow all of the actions listed.
    Reasonable accommodation includes modification of work schedules, 
including part-time employment, and job restructuring. Job restructuring 
may entail shifting nonessential duties to other employees. In other 
cases, reasonable accommodation may include physical modifications or 
relocation of particular offices or jobs so that they are in facilities 
or parts of facilities that are accessible to and usable by handicapped 
persons. If such accommodations would cause undue hardship to the 
employer, they need not be made.
    Paragraph (c) of this section sets forth the factors that the Office 
for Civil Rights will consider in determining whether an accommodation 
necessary to enable an applicant or employee to perform the duties of a 
job would impose an undue hardship. The weight given to each of these 
factors in making the determination as to whether an accommodation 
constitutes undue hardship will vary depending on the facts of a 
particular situation. Thus, a small day-care center might not be 
required to expend more than a nominal sum, such as that necessary to 
equip a telephone for use by a secretary with impaired hearing, but a 
large school district might be required to make available a teacher's 
aide to a blind applicant for a teaching job. Further, it might be 
considered reasonable to require a state welfare agency to accommodate a 
deaf employee by providing an interpreter, while it would constitute an 
undue hardship to impose that requirement on a provider of foster home 
care services. The reasonable accommodation standard in Sec. 84.12 is 
similar to the obligation imposed upon Federal contractors in the 
regulation implementing section 503 of the Rehabilitation Act of 1973, 
administered by the Department of Labor. Although the wording of the 
reasonable accommodation provisions of the two regulations is not 
identical, the obligation that the two regulations impose is the same, 
and the Federal Government's policy in implementing the two sections 
will be uniform. The Department adopted the factors listed in paragraph 
(c) instead of the ``business necessity'' standard of the Labor 
regulation because that term seemed inappropriate to the nature of the 
programs operated by the majority of institutions subject to this 
regulation, e.g., public school systems, hospitals, colleges and 
universities, nursing homes, day-care centers, and welfare

[[Page 349]]

offices. The factors listed in paragraph (c) are intended to make the 
rationale underlying the business necessity standard applicable to an 
understandable by recipients of HHS funds.
    17. Tests and selection criteria. Revised Sec. 84.13(a) prohibits 
employers from using test or other selection criteria that screen out or 
tend to screen out handicapped persons unless the test or criterion is 
shown to be job-related and alternative tests or criteria that do not 
screen out or tend to screen out as many handicapped persons are not 
shown by the Director to be available. This paragraph is an application 
of the principle established under title VII of the Civil Rights Act of 
1964 in Griggs v. Duke Power Company, 401 U.S. 424 (1971).
    Under the proposed section, a statistical showing of adverse impact 
on handicapped persons was required to trigger an employer's obligation 
to show that employment criteria and qualifications relating to handicap 
were necessary. This requirement was changed because the small number of 
handicapped persons taking tests would make statistical showings of 
``disproportionate, adverse effect'' difficult and burdensome. Under the 
altered, more workable provision, once it is shown that an employment 
test substantially limits the opportunities of handicapped persons, the 
employer must show the test to be job-related. A recipient is no longer 
limited to using predictive validity studies as the method for 
demonstrating that a test or other selection criterion is in fact job-
related. Nor, in all cases, are predictive validity studies sufficient 
to demonstrate that a test or criterion is job-related. In addition, 
Sec. 84.13(a) has been revised to place the burden on the Director, 
rather than the recipient, to identify alternate tests.
    Section 84.13(b) requires that a recipient take into account that 
some tests and criteria depend upon sensory, manual, or speaking skills 
that may not themselves be necessary to the job in question but that may 
make the handicapped person unable to pass the test. The recipient must 
select and administer tests so as best to ensure that the test will 
measure the handicapped person's ability to perform on the job rather 
than the person's ability to see, hear, speak, or perform manual tasks, 
except, of course, where such skills are the factors that the test 
purports to measure. For example, a person with a speech impediment may 
be perfectly qualified for jobs that do not or need not, with reasonable 
accommodation, require ability to speak clearly. Yet, if given an oral 
test, the person will be unable to perform in a satisfactory manner. The 
test results will not, therefore, predict job performance but instead 
will reflect impaired speech.
    18. Preemployment inquiries. Section 84.14, concerning preemployment 
inquiries, generated a large number of comments. Commenters representing 
handicapped persons strongly favored a ban on preemployment inquiries on 
the ground that such inquiries are often used to discriminate against 
handicapped persons and are not necessary to serve any legitimate 
interests of employers. Some recipients, on the other hand, argued that 
preemployment inquiries are necessary to determine qualifications of the 
applicant, safety hazards caused by a particular handicapping condition, 
and accommodations that might required.
    The Secretary has concluded that a general prohibition of 
preemployment inquiries is appropriate. However, a sentence has been 
added to paragraph (a) to make clear that an employer may inquire into 
an applicant's ability to perform job-related tasks but may not ask if 
the person has a handicap. For example, an employer may not ask on an 
employment form if an applicant is visually impaired but may ask if the 
person has a current driver's license (if that is a necessary 
qualification for the position in question). Similarly, employers may 
make inquiries about an applicant's ability to perform a job safely. 
Thus, an employer may not ask if an applicant is an epileptic but may 
ask whether the person can perform a particular job without endangering 
other employees.
    Section 84.14(B) allows preemployment inquiries only if they are 
made in conjunction with required remedial action to correct past 
discrimination, with voluntary action to overcome past conditions that 
have limited the participation of handicapped persons, or with 
obligations under section 503 of the Rehabilitation Act of 1973. In 
these instances, paragraph (b) specifies certain safeguards that must be 
followed by the employer.
    Finally, the revised provision allows an employer to condition 
offers of employment to handicapped persons on the results of medical 
examinations, so long as the examinations are administered to all 
employees in a nondiscriminatory manner and the results are treated on a 
confidential basis.
    19. Specific acts of Discrimination. Sections 84.15 (recruitment), 
84.16 (compensation), 84.17 (job classification and structure) and 84.18 
(fringe benefits) have been deleted from the regulation as unnecessarily 
duplicative of Sec. 84.11 (discrimination prohibited). The deletion of 
these sections in no way changes the substantive obligations of 
employers subject to this regulation from those set forth in the July 16 
proposed regulation. These deletions bring the regulation closer in form 
to the Department of Labor's section 503 regulation.
    Proposed Sec. 84.18, concerning fringe benefits, had allowed for 
differences in benefits or contributions between handicapped and 
nonhandicapped persons in situations only where such differences could 
be justified on an actuarial basis. Section 84.11 simply bars

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discrimination in providing fringe benefits and does not address the 
issue of actuarial differences. The Department believes that currently 
available data and experience do not demonstrate a basis for 
promulgating a regulation specifically allowing for differences in 
benefits or contributions.

                    subpart c--program accessibility

    In general, subpart C prohibits the exclusion of qualified 
handicapped persons from federally assisted programs or activities 
because a recipient's facilities are inaccessible or unusable.
    20. Existing facilities. Section 84.22 maintains the same standard 
for nondiscrimination in regard to existing facilities as was included 
in the proposed regulation. The section states that a recipient's 
program or activity, when viewed in its entirety, must be readily 
accessible to and usable by handicapped persons. Paragraphs (a) and (b) 
make clear that a recipient is not required to make each of its existing 
facilities accessible to handicapped persons if its program as a whole 
is accessible. Accessibility to the recipient's program or activity may 
be achieved by a number of means, including redesign of equipment, 
reassignment of classes or other services to accessible buildings, and 
making aides available to beneficiaries. In choosing among methods of 
compliance, recipients are required to give priority consideration to 
methods that will be consistent with provision of services in the most 
appropriate integrated setting. Structural changes in existing 
facilities are required only where there is no other feasible way to 
make the recipient's program accessible.
    Under Sec. 84.22, a university does not have to make all of its 
existing classroom buildings accessible to handicapped students if some 
of its buildings are already accessible and if it is possible to 
reschedule or relocate enough classes so as to offer all required 
courses and a reasonable selection of elective courses in accessible 
facilities. If sufficient relocation of classes is not possible using 
existing facilities, enough alterations to ensure program accessibility 
are required. A university may not exclude a handicapped student from a 
specifically requested course offering because it is not offered in an 
accessible location, but it need not make every section of that course 
accessible.
    Commenters representing several institutions of higher education 
have suggested that it would be appropriate for one postsecondary 
institution in a geographical area to be made accessible to handicapped 
persons and for other colleges and universities in that area to 
participate in that school's program, thereby developing an educational 
consortium for the postsecondary education of handicapped students. The 
Department believes that such a consortium, when developed and applied 
only to handicapped persons, would not constitute compliance with 
Sec. 84.22, but would discriminate against qualified handicapped persons 
by restricting their choice in selecting institutions of higher 
education and would, therefore, be inconsistent with the basic 
objectives of the statute.
    Nothing in this regulation, however, should be read as prohibiting 
institutions from forming consortia for the benefit of all students. 
Thus, if three colleges decide that it would be cost-efficient for one 
college to offer biology, the second physics, and the third chemistry to 
all students at the three colleges, the arrangement would not violate 
section 504. On the other hand, it would violate the regulation if the 
same institutions set up a consortium under which one college undertook 
to make its biology lab accessible, another its physics lab, and a third 
its chemistry lab, and under which mobility-impaired handicapped 
students (but not other students) were required to attend the particular 
college that is accessible for the desired courses.
    Similarly, while a public school district need not make each of its 
buildings completely accessible, it may not make only one facility or 
part of a facility accessible if the result is to segregate handicapped 
students in a single setting.
    All recipients that proivde health, welfare, or other social 
services may also comply with Sec. 84.22 by delivering services at 
alternate accessible sites or making home visits. Thus, for example, a 
pharmacist might arrange to make home deliveries of drugs. Under revised 
Sec. 84.22(c), small providers of health, welfare, and social services 
(those with fewer than fifteen employees) may refer a beneficiary to an 
accessible provider of the desired service, but only if no means of 
meeting the program accessibility requirement other than a significant 
alteration in existing facilties is available. The referring recipient 
has the responsibility of determining that the other provider is in fact 
accessible and willing to provide the service. The Secretary believes 
this ``last resort'' referral provision is appropriate to avoid 
imposition of additional costs in the health care area, to encourage 
providers to remain in the Medicaid program, and to avoid imposing 
significant costs on small, low-budget providers such as day-care 
centers or foster homes.
    A recent change in the tax law may assist some recipients in meeting 
their obligations under this section. Under section 2122 of the Tax 
Reform Act of 1976, recipients that pay federal income tax are eligible 
to claim a tax deduction of up to $25,000 for architectural and 
transportation modifications made to improve accessibility for 
handicapped persons. Many physicians and dentists, among others, may be 
eligible for this tax deduction. See 42 FR 17870 (April 4, 1977), 
adopting 26 CFR 7.190.

[[Page 351]]

    Several commenters expressed concern about the feasibility of 
compliance with the program accessibility standard. The Secretary 
believes that the standard is flexible enough to permit recipients to 
devise ways to make their programs accessible short of extremely 
expensive or impractical physical changes in facilities. Accordingly, 
the section does not allow for waivers. The Department is ready at all 
times to provide technical assistance to recipients in meeting their 
program accessibility responsibilities. For this purpose, the Department 
is establishing a special technical assistance unit. Recipients are 
encouraged to call upon the unit staff for advice and guidance both on 
structural modifications and on other ways of meeting the program 
accessibility requirement.
    Paragraph (d) has been amended to require recipients to make all 
nonstructural adjustments necessary for meeting the program 
accessibility standard within sixty days. Only where structural changes 
in facilities are necessary will a recipient be permitted up to three 
years to accomplish program accessibility. It should be emphasized that 
the three-year time period is not a waiting period and that all changes 
must be accomplished as expeditiously as possible. Further, it is the 
Department's belief, after consultation with experts in the field, that 
outside ramps to buildings can be constructed quickly and at relatively 
low cost. Therefore, it will be expected that such structural additions 
will be made promptly to comply with Sec. 84.22(d).
    The regulation continues to provide, as did the proposed version, 
that a recipient planning to achieve program accessibility by making 
structural changes must develop a transition plan for such changes 
within six months of the effective date of the regulation. A number of 
commenters suggested extending that period to one year. The secretary 
believes that such an extension is unnecessary and unwise. Planning for 
any necessary structural changes should be undertaken promptly to ensure 
that they can be completed within the three-year period. The elements of 
the transition plan as required by the regulation remain virtually 
unchanged from the proposal but Sec. 84.22(d) now includes a requirement 
that the recipient make the plan available for public inspection.
    Several commenters expressed concern that the program accessibility 
standard would result in the segregation of handicapped persons in 
educational institutions. The regulation will not be applied to permit 
such a result. See Sec. 84.4(c)(2)(iv), prohibiting unnecessarily 
separate treatment; Sec. 84.35, requiring that students in elementary 
and secondary schools be educated in the most integrated setting 
appropriate to their needs; and new Sec. 84.43(d), applying the same 
standard to postsecondary education.
    We have received some comments from organizations of handicapped 
persons on the subject of requiring, over an extended period of time, a 
barrier-free environment--that is, requiring the removal of all 
architectural barriers in existing facilities. The Department has 
considered these comments but has decided to take no further action at 
this time concerning these suggestions, believing that such action 
should only be considered in light of experience in implementing the 
program accessibility standard.
    21. New construction. Section 84.23 requires that all new 
facilities, as well as alterations that could affect access to and use 
of existing facilities, be designed and constructed in a manner so as to 
make the facility accessible to and usable by handicapped persons. 
Section 84.23(a) has been amended so that it applies to each newly 
constructed facility if the construction was commenced after the 
effective date of the regulation. The words ``if construction has 
commenced'' will be considered to mean ``if groundbreaking has 
takenplace.'' Thus, a recipient will not be required to alter the design 
of a facility that has progressed beyond groundbreaking prior to the 
effective date of the regulation.
    Paragraph (b) requires certain alterations to conform to the 
requirement of physical accessibility in paragraph (a). If an alteration 
is undertaken to a portion of a building the accessibility of which 
could be improved by the manner in which the alteration is carried out, 
the alteration must be made in that manner. Thus, if a doorway or wall 
is being altered, the door or other wall opening must be made wide 
enough to accommodate wheelchairs. On the other hand, if the alteration 
consists of altering ceilings, the provisions of this section are not 
applicable because this alteration cannot be done in a way that affects 
the accessibility of that portion of the building. The phrase ``to the 
maximum extent feasible'' has been added to allow for the occasional 
case in which the nature of an existing facility is such as to make it 
impractical or prohibitively expensive to renovate the building in a 
manner that results in its being entirely barrier-free. In all such 
cases, however, the alteration should provide the maximum amount of 
physical accessibility feasible.
    As proposed, Sec. 84.23(c) required compliance with the American 
National Standards Institute (ANSI) standard on building accessibility 
as the minimum necessary for compliance with the accessibility 
requirement of Sec. 84.23 (a) and (b). The regerence to the ANSI 
standard created some ambiguity, since the standard itself provides for 
waivers where other methods are equally effective in providing 
accessibility to the facility. Moreover, the Secretary does not wish to 
discourage innovation in barrier-free construction

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by requiring absolute adherence to a rigid design standard. Accordingly, 
Sec. 84.23 (c) has been revised to permit departures from particular 
requirements of the ANSI standard where the recipient can demonstrate 
that equivalent access to the facility is provided.
    Section 84.23(d) of the proposed regulation, providing for a limited 
deferral of action concerning facilities that are subject to section 502 
as well as section 504 of the Act, has been deleted. The Secretary 
believes that the provision is unnecessary and inappropriate to this 
regulation. The Department will, however, seek to coordinate enforcement 
activities under this regulation with those of the Architectural and 
Transportation Barriers Compliance Board.

        subpart d--preschool, elementary, and secondary education

    Subpart D sets forth requirements for nondiscrimination in 
preschool, elementary, secondary, and adult education programs and 
activities, including secondary vocational education programs. In this 
context, the term ``adult education'' refers only to those educational 
programs and activities for adults that are operated by elementary and 
secondary schools.
    The provisions of Subpart D apply to state and local educational 
agencies. Although the subpart applies, in general, to both public and 
private education programs and activities that are federally assisted, 
Secs. 84.32 and 84.33 apply only to public programs and Sec. 84.39 
applies only to private programs; Secs. 84.35 and 84.36 apply both to 
public programs and to those private programs that include special 
services for handicapped students.
    Subpart B generally conforms to the standards established for the 
education of handicapped persons in Mills v. Board of Education of the 
District of Columbia, 348 F. Supp. 866 (D.D.C. 1972), Pennsylvania 
Association for Retarded Children v. Commonwealth of Pennsylvania, 344 
F. Supp. 1257 (E.D. 1971), 343 F. Supp. 279 (E.D. Pa. 1972), and Lebanks 
v. Spears, 60, F.R.D. 135 (E.D. La. 1973), as well as in the Education 
of the Handicapped Act, as amended by Pub. L. 94-142 (the EHA).
    The basic requirements common to those cases, to the EHA, and to 
this regulation are (1) that handicapped persons, regardless of the 
nature or severity of their handicap, be provided a free appropriate 
public education, (2) that handicapped students be educated with 
nonhandicapped students to the maximum extent appropriate to their 
needs, (3) that educational agencies undertake to identify and locate 
all unserved handicapped children, (4) that evaluation procedures be 
improved in order to avoid the inappropriate education that results from 
the misclassification of students, and (5) that procedural safeguard be 
established to enable parents and guardians to influence decisions 
regarding the evaluation and placement of their children. These 
requirements are designed to ensure that no handicapped child is 
excluded from school on the basis of handicap and, if a recipient 
demonstrates that placement in a regular educational setting cannot be 
achieved satisfactorily, that the student is provided with adequate 
alternative services suited to the student's needs without additional 
cost to the student's parents or guardian. Thus, a recipient that 
operates a public school system must either educate handicapped children 
in its regular program or provide such children with an appropriate 
alternative education at public expense.
    It is not the intention of the Department, except in extraordinary 
circumstances, to review the result of individual placement and other 
educational decisions, so long as the school district complies with the 
``process'' requirements of this subpart (concerning identification and 
location, evaluation, and due process procedures). However, the 
Department will place a high priority on investigating cases which may 
involve exclusion of a child from the education system or a pattern or 
practice of discriminatory placements or education.
    22. Location and notification. Section 84.32 requires public schools 
to take steps annually to identify and locate handicapped children who 
are not receiving an education and to publicize to handicapped children 
and their parents the rights and duties established by section 504 and 
this regulation. This section has been shortened without substantive 
change.
    23. Free appropriate public education. Former Secs. 84.34 (``Free 
education'') and 84.36(a) (``Suitable education'') have been 
consolidated and revised in new Sec. 84.33. Under Sec. 84.34(a), a 
recipient is responsible for providing a free appropriate public 
education to each qualified handicapped person who is in the recipient's 
jurisdiction. The word ``in'' encompasses the concepts of both domicile 
and actual residence. If a recipient places a child in a program other 
than its own, it remains financially responsible for the child, whether 
or not the other program is operated by another recipient or educational 
agency. Moreover, a recipient may not place a child in a program that is 
inappropriate or that otherwise violates the requirements of Subpart D. 
And in no case may a recipient refuse to provide services to a 
handicapped child in its jurisdiction because of another person's or 
entity's failure to assume financial responsibility.
    Section 84.33(b) concerns the provision of appropriate educational 
services to handicapped children. To be appropriate, such services must 
be designed to meet handicapped children's individual educational

[[Page 353]]

needs to the same extent that those of nonhandicapped children are met. 
An appropriate education could consist of education in regular classes, 
education in regular classes with the use of supplementary services, or 
special education and related services. Special education may include 
specially designed instruction in classrooms, at home, or in private or 
public institutions and may be accompanied by such related services as 
developmental, corrective, and other supportive services (including 
psychological, counseling, and medical diagnostic services). The 
placement of the child must however, be consistent with the requirements 
of Sec. 84.34 and be suited to his or her educational needs.
    The quality of the educational services provided to handicapped 
students must equal that of the services provided to nonhandicapped 
students; thus, handicapped student's teachers must be trained in the 
instruction of persons with the handicap in question and appropriate 
materials and equipment must be available. The Department is aware that 
the supply of adequately trained teachers may, at least at the outset of 
the imposition of this requirement, be insufficient to meet the demand 
of all recipients. This factor will be considered in determining the 
appropriateness of the remedy for noncompliance with this section. A new 
Sec. 84.33(b)(2) has been added, which allows this requirement to be met 
through the full implementation of an individualized education program 
developed in accordance with the standards of the EHA.
    Paragraph (c) of Sec. 84.33 sets forth the specific financial 
obligations of a recipient. If a recipient does not itself provide 
handicapped persons with the requisite services, it must assume the cost 
of any alternate placement. If, however, a recipient offers adequate 
services and if alternate placement is chosen by a student's parent or 
guardian, the recipient need not assume the cost of the outside 
services. (If the parent or guardian believes that his or her child 
cannot be suitably educated in the recipient's program, he or she may 
make use of the procedures established in Sec. 84.36.) Under this 
paragraph, a recipient's obligation extends beyond the provision of 
tuition payments in the case of placement outside the regular program. 
Adequate transportation must also be provided. Recipients must also pay 
for psychological services and those medical services necessary for 
diagnostic and evaluative purposes.
    If the recipient places a student, because of his or her handicap, 
in a program that necessitates his or her being away from home, the 
payments must also cover room and board and nonmedical care (including 
custodial and supervisory care). When residential care is necessitated 
not by the student's handicap but by factors such as the student's home 
conditions, the recipient is not required to pay the cost of room and 
board.
    Two new sentences have been added to paragraph (c)(1) to make clear 
that a recipient's financial obligations need not be met solely through 
its own funds. Recipients may rely on funds from any public or private 
source including insurers and similar third parties.
    The EHA requires a free appropriate education to be provided to 
handicapped children ``no later than September 1, 1978,'' but section 
504 contains no authority for delaying enforcement. To resolve this 
problem, a new paragraph (d) has been added to Sec. 84.33. Section 
84.33(d) requires recipients to achieve full compliance with the free 
appropriate public education requirements of Sec. 84.33 as expeditiously 
as possible, but in no event later than September 1, 1978. The provision 
also makes clear that, as of the effective date of this regulation, no 
recipient may exclude a qualified handicapped child from its educational 
program. This provision against exclusion is consistent with the order 
of providing services set forth in section 612(3) of the EHA, which 
places the highest priority on providing services to handicapped 
children who are not receiving an education.
    24. Educational setting. Section 84.34 prescribes standards for 
educating handicapped persons with nonhandicapped persons to the maximum 
extent appropriate to the needs of the handicapped person in question. A 
handicapped student may be removed from the regular educational setting 
only where the recipient can show that the needs of the student would, 
on balance, be served by placement in another setting.
    Although under Sec. 84.34, the needs of the handicapped person are 
determinative as to proper placement, it should be stressed that, where 
a handicapped student is so disruptive in a regular classroom that the 
education of other students is significantly impaired, the needs of the 
handicapped child cannot be met in that environment. Therefore, regular 
placement would not be appropriate to his or her needs and would not be 
required by Sec. 84.34.
    Among the factors to be considered in placing a child is the need to 
place the child as close to home as possible. A new sentence has been 
added to paragraph (a) requiring recipients to take this factor into 
account. As pointed out in several comments, the parents' right under 
Sec. 84.36 to challenge the placement of their child extends not only to 
placement in special classes or separate schools but also to placement 
in a distant school and, in particular, to residential placement. An 
equally appropriate educational program may exist closer to home; this 
issue may be raised by the parent or guardian under Secs. 84.34 and 
84.36.

[[Page 354]]

    New paragraph (b) specified that handicapped children must also be 
provided nonacademic services in as integrated a setting as possible. 
This requirement is especially important for children whose educational 
needs necessitate their being solely with other handicapped children 
during most of each day. To the maximum extent appropriate, children in 
residential settings are also to be provided opportunities for 
participation with other children.
    Section 84.34(c) (formerly Sec. 84.38) requires that any facilities 
that are identifiable as being for handicapped students be comparable in 
quality to other facilities of the recipient. A number of comments 
objected to this section on the basis that it encourages the creation 
and maintenance of such facilities. This is not the intent of the 
provision. A separate facility violates section 504 unless it is indeed 
necessary to the provision of an appropriate education to certain 
handicapped students. In those instances in which such facilities are 
necessary (as might be the case, for example, for severely retarded 
persons), this provision requires that the educational services provided 
be comparable to those provided in the facilities of the recipient that 
are not identifiable as being for handicapped persons.
    25. Evaluation and placement. Because the failure to provide 
handicapped persons with an appropriate education is so frequently the 
result of misclassification or misplacement, Sec. 84.33(b)(1) makes 
compliance with its provisions contingent upon adherence to certain 
procedures designed to ensure appropriate classification and placement. 
These procedures, delineated in Secs. 84.35 and 84.36, are concerned 
with testing and other evaluation methods and with procedural due 
process rights.
    Section 84.35(a) requires that an individual evaluation be conducted 
before any action is taken with respect either to the initial placement 
of a handicapped child in a regular or special education program or to 
any subsequent significant change in that placement. Thus, a full 
reevaluation is not required every time an adjustment in placement is 
made. ``Any action'' includes denials of placement.
    Paragraphs (b) and (c) of Sec. 84.35 establishes procedures designed 
to ensure that children are not misclassified, unnecessarily labeled as 
being handicapped, or incorrectly placed because of inappropriate 
selection, administration, or interpretation of evaluation materials. 
This problem has been extensively documented in ``Issues in the 
Classification of Children,'' a report by the Project on Classification 
of Exceptional Children, in which the HHS Interagency Task Force 
participated. The provisions of these paragraphs are aimed primarily at 
abuses in the placement process that result from misuse of, or undue or 
misplaced reliance on, standardized scholastic aptitude tests.
    Paragraph (b) has been shortened but not substantively changed. The 
requirement in former subparagraph (1) that recipients provide and 
administer evaluation materials in the native language of the student 
has been deleted as unnecessary, since the same requirement already 
exists under title VI and is more appropriately covered under that 
statute. Subparagraphs (1) and (2) are, in general, intended to prevent 
misinterpretation and similar misuse of test scores and, in particular, 
to avoid undue reliance on general intelligence tests. Subparagraph (3) 
requires a recipient to administer tests to a student with impaired 
sensory, manual, or speaking skills in whatever manner is necessary to 
avoid distortion of the test results by the impairment. Former 
subparagraph (4) has been deleted as unnecessarily repetitive of the 
other provisions of this paragraph.
    Paragraph (c) requires a recipient to draw upon a variety of sources 
in the evaluation process so that the possibility of error in 
classification is minimized. In particular, it requires that all 
significant factors relating to the learning process, including adaptive 
behavior, be considered. (Adaptive behavior is the effectiveness with 
which the individual meets the standards of personal independence and 
social responsibility expected of his or her age and cultural group.) 
Information from all sources must be documented and considered by a 
group of persons, and the procedure must ensure that the child is placed 
in the most integrated setting appropriate.
    The proposed regulation would have required a complete individual 
reevaluation of the student each year. The Department has concluded that 
it is inappropriate in the section 504 regulation to require full 
reevaluations on such a rigid schedule. Accordingly, Sec. 84.35(c) 
requires periodic reevaluations and specifies that reevaluations in 
accordance with the EHA will constitute compliance. The proposed 
regulation implementing the EHA allows reevaluation at three-year 
intervals except under certain specified circumstances.
    Under Sec. 84.36, a recipient must establish a system of due process 
procedures to be afforded to parents or guardians before the recipient 
takes any action regarding the identification, evaluation, or 
educational placement of a person who, because of handicap, needs or is 
believed to need special education or related services. This section has 
been revised. Because the due process procedures of the EHA, 
incorporated by reference in the proposed section 504 regulation, are 
inappropriate for some recipients not subject to that Act, the section 
now specifies minimum necessary procedures: notice, a right to inspect 
records, an impartial hearing with a right to

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representation by counsel, and a review procedure. The EHA procedures 
remain one means of meeting the regulation's due process requirements, 
however, and are recommended to recipients as a model.
    26. Nonacademic services. Section 84.37 requires a recipient to 
provide nonacademic and extracurricular services and activities in such 
manner as is necessary to afford handicapped students an equal 
opportunity for participation. Because these services and activities are 
part of a recipient's education program, they must, in accordance with 
the provisions of Sec. 84.34, be provided in the most integrated setting 
appropriate.
    Revised paragraph (c)(2) does permit separation or differentiation 
with respect to the provision of physical education and athletics 
activities, but only if qualified handicapped students are also allowed 
the opportunity to compete for regular teams or participate in regular 
activities. Most handicapped students are able to participate in one or 
more regular physical education and athletics activities. For example, a 
student in a wheelchair can participate in regular archery course, as 
can a deaf student in a wrestling course.
    Finally, the one-year transition period provided in former 
Sec. 84.37(a)(3) was deleted in response to the almost unanimous 
objection of commenters to that provision.
    27. Preschool and adult education. Section 84.38 prohibits 
discrimination on the basis of handicap in preschool and adult education 
programs. Former paragraph (b), which emphasized that compensatory 
programs for disadvantaged children are subject to section 504, has been 
deleted as unnecessary, since it is comprehended by paragraph (a).
    28. Private education. Section 84.39 sets forth the requirements 
applicable to recipients that operate private education programs and 
activities. The obligations of these recipients have been changed in two 
significant respects: First, private schools are subject to the 
evaluation and due process provisions of the subpart only if they 
operate special education programs; second, under Sec. 84.39(b), they 
may charge more for providing services to handicapped students than to 
nonhandicapped students to the extent that additional charges can be 
justified by increased costs.
    Paragraph (a) of Sec. 84.39 is intended to make clear that 
recipients that operate private education programs and activities are 
not required to provide an appropriate education to handicapped students 
with special educational needs if the recipient does not offer programs 
designed to meet those needs. Thus, a private school that has no program 
for mentally retarded persons is neither required to admit such a person 
into its program nor to arrange or pay for the provision of the person's 
education in another program. A private recipient without a special 
program for blind students, however, would not be permitted to exclude, 
on the basis of blindness, a blind applicant who is able to participate 
in the regular program with minor adjustments in the manner in which the 
program is normally offered.

                   subpart e--postsecondary education

    Subpart E prescribes requirements for nondiscrimination in 
recruitment, admission, and treatment of students in postsecondary 
education programs and activities, including vocational education.
    29. Admission and recruitment. In addition to a general prohibition 
of discrimination on the basis of handicap in Sec. 84.42(a), the 
regulation delineates, in Sec. 84.42(b), specific prohibitions 
concerning the establishment of limitations on admission of handicapped 
students, the use of tests or selection criteria, and preadmission 
inquiry. Several changes have been made in this provision.
    Section 84.42(b) provides that postsecondary educational 
institutions may not use any test or criterion for admission that has a 
disproportionate, adverse effect on handicapped persons unless it has 
been validated as a predictor of academic success and alternate tests or 
criteria with a less disproportionate, adverse effect are shown by the 
Department to be available. There are two significant changes in this 
approach from the July 16 proposed regulation.
    First, many commenters expressed concern that Sec. 84.42(b)(2)(ii) 
could be interpreted to require a ``global search'' for alternate tests 
that do not have a disproportionate, adverse impact on handicapped 
persons. this was not the intent of the provision and, therefore, it has 
been amended to place the burden on the Director of the Office for Civil 
Rights, rather than on the recipient, to identify alternate tests.
    Second, a new paragraph (d), concerning validity studies, has been 
added. Under the proposed regulation, overall success in an education 
program, not just first-year grades, was the criterion against which 
admissions tests were to be validated. This approach has been changed to 
reflect the comment of professional testing services that use of first 
year grades would be less disruptive of present practice and that 
periodic validity studies against overall success in the education 
program would be sufficient check on the reliability of first-year 
grades.
    Section 84.42(b)(3) also requires a recipient to assure itself that 
admissions tests are selected and administered to applicants with 
impaired sensory, manual, or speaking skills in such manner as is 
necessary to avoid unfair distortion of test results. Methods have been 
developed for testing the aptitude and achievement of persons who are 
not able to take written tests or even to make the marks required for 
mechanically scored objective tests; in addition, methods for testing

[[Page 356]]

persons with visual or hearing impairments are available. A recipient, 
under this paragraph, must assure itself that such methods are used with 
respect to the selection and administration of any admissions tests that 
it uses.
    Section 84.42(b)(3)(iii) has been amended to require that admissions 
tests be administered in facilities that, on the whole, are accessible. 
In this context, on the whole means that not all of the facilities need 
be accessibile so long as a sufficient number of facilities are 
available to handicapped persons.
    Revised Sec. 84.42(b)(4) generally prohibits preadmission inquiries 
as to whether an applicant has a handicap. The considerations that led 
to this revision are similar to those underlying the comparable revision 
of Sec. 84.14 on preemployment inquiries. The regulation does, however, 
allow inquiries to be made, after admission but before enrollment, as to 
handicaps that may require accommodation.
    New paragraph (c) parallels the section on preemployment inquiries 
and allows postsecondary institutions to inquire about applicants' 
handicaps before admission, subject to certain safeguards, if the 
purpose of the inquiry is to take remedial action to correct past 
discrimination or to take voluntary action to overcome the limited 
participation of handicapped persons in postsecondary educational 
institutions.
    Proposed Sec. 84.42(c), which would have allowed different 
admissions criteria in certain cases for handicapped persons, was widely 
misinterpreted in comments from both handicapped persons and recipients. 
We have concluded that the section is unnecessary, and it has been 
deleted.
    30. Treatment of students. Section 84.43 contains general provisions 
prohibiting the discriminatory treatment of qualified handicapped 
applicants. Paragraph (b) requires recipients to ensure that equal 
opportunities are provided to its handicapped students in education 
programs and activities that are not operated by the recipient. The 
recipient must be satisfied that the outside education program or 
activity as a whole is nondiscriminatory. For example, a college must 
ensure that discrimination on the basis of handicap does not occur in 
connection with teaching assignments of student teachers in elementary 
or secondary schools not operated by the college. Under the ``as a 
whole'' wording, the college could continue to use elementary or 
secondary school systems that discriminate if, and only if, the 
college's student teaching program, when viewed in its entirety, offered 
handicapped student teachers the same range and quality of choice in 
student teaching assignments afforded nonhandicapped students.
    Paragraph (c) of this section prohibits a recipient from excluding 
qualified handicapped students from any course, course of study, or 
other part of its education program or activity. This paragraph is 
designed to eliminate the practice of excluding handicapped persons from 
specific courses and from areas of concentration because of factors such 
as ambulatory difficulties of the student or assumptions by the 
recipient that no job would be available in the area in question for a 
person with that handicap.
    New paragraph (d) requires postsecondary institutions to operate 
their programs and activities so that handicapped students are provided 
services in the most integrated setting appropriate. Thus, if a college 
had several elementary physics classes and had moved one such class to 
the first floor of the science building to accommodate students in 
wheelchairs, it would be a violation of this paragraph for the college 
to concentrate handicapped students with no mobility impairments in the 
same class.
    31. Academic adjustments. Paragraph (a) of Sec. 84.44 requires that 
a recipient make certain adjustments to academic requirements and 
practices that discriminate or have the effect of discriminating on the 
basis of handicap. This requirement, like its predecessor in the 
proposed regulation, does not obligate an institution to waive course or 
other academic requirements. But such institutions must accommodate 
those requirements to the needs of individual handicapped students. For 
example, an institution might permit an otherwise qualified handicapped 
student who is deaf to substitute an art appreciation or music history 
course for a required course in music appreciation or could modify the 
manner in which the music appreciation course is conducted for the deaf 
student. It shoud be stressed that academic requirements that can be 
demonstrated by the recipient to be essential to its program of 
instruction or to particular degrees need not be changed.
    Paragraph (b) provides that postsecondary institutions may not 
impose rules that have the effect of limiting the participation of 
handicapped students in the education program. Such rules include 
prohibition of tape recorders or braillers in classrooms and dog guides 
in campus buildings. Several recipients expressed concern about allowing 
students to tape record lectures because the professor may later want to 
copyright the lectures. This problem may be solved by requiring students 
to sign agreements that they will not release the tape recording or 
transcription or otherwise hinder the professor's ability to obtain a 
copyright.
    Paragraph (c) of this section, concerning the administration of 
course examinations to students with impaired sensory, manual, or 
speaking skills, parallels the regulation's provisions on admissions 
testing (Sec. 84.42(b)) and will be similarly interpreted.
    Under Sec. 84.44(d), a recipient must ensure that no handicapped 
student is subject to

[[Page 357]]

discrimination in the recipient's program because of the absence of 
necessary auxiliary educational aids. Colleges and universities 
expressed concern about the costs of compliance with this provision.
    The Department emphasizes that recipients can usually meet this 
obligation by assisting students in using existing resources for 
auxiliary aids such as state vocational rehabilitation agencies and 
private charitable organizations. Indeed, the Department anticipates 
that the bulk of auxiliary aids will be paid for by state and private 
agencies, not by colleges or universities. In those circumstances where 
the recipient institution must provide the educational auxiliary aid, 
the institution has flexibility in choosing the methods by which the 
aids will be supplied. For example, some universities have used students 
to work with the institution's handicapped students. Other institutions 
have used existing private agencies that tape texts for handicapped 
students free of charge in order to reduce the number of readers needed 
for visually impaired students.
    As long as no handicapped person is excluded from a program because 
of the lack of an appropriate aid, the recipient need not have all such 
aids on hand at all times. Thus, readers need not be available in the 
recipient's library at all times so long as the schedule of times when a 
reader is available is established, is adhered to, and is sufficient. Of 
course, recipients are not required to maintain a complete braille 
library.
    32. Housing. Section 84.45(a) requires postsecondary institutions to 
provide housing to handicapped students at the same cost as they provide 
it to other students and in a convenient, accessible, and comparable 
manner. Commenters, particularly blind persons pointed out that some 
handicapped persons can live in any college housing and need not wait to 
the end of the transition period in Subpart C to be offered the same 
variety and scope of housing accommodations given to nonhandicapped 
persons. The Department concurs with this position and will interpret 
this section accordingly.
    A number of colleges and universities reacted negatively to 
paragraph (b) of this section. It provides that, if a recipient assists 
in making off-campus housing available to its students, it should 
develop and implement procedures to assure itself that off-campus 
housing, as a whole, is available to handicapped students. Since 
postsecondary institutions are presently required to assure themselves 
that off-campus housing is provided in a manner that does not 
discriminate on the basis of sex (Sec. 86.32 of the title IX 
regulation), they may use the procedures developed under title IX in 
order to comply with Sec. 84.45(b). It should be emphasized that not 
every off-campus living accommodation need be made accessible to 
handicapped persons.
    33. Health and insurance. Section 84.46 of the proposed regulation, 
providing that recipients may not discriminate on the basis of handicap 
in the provision of health related services, has been deleted as 
duplicative of the general provisions of Sec. 84.43. This deletion 
represents no change in the obligation of recipients to provide 
nondiscriminatory health and insurance plans. The Department will 
continue to require that nondiscriminatory health services be provided 
to handicapped students. Recipients are not required, however, to 
provide specialized services and aids to handicapped persons in health 
programs. If, for example, a college infirmary treats only simple 
disorders such as cuts, bruises, and colds, its obligation to 
handicapped persons is to treat such disorders for them.
    34. Financial assistance. Section 84.46(a) (formerly Sec. 84.47), 
prohibiting discrimination in providing financial assistance, remains 
substantively the same. It provides that recipients may not provide less 
assistance to or limit the eligibility of qualified handicapped persons 
for such assistance, whether the assistance is provided directly by the 
recipient or by another entity through the recipient's sponsorship. 
Awards that are made under wills, trusts, or similar legal instruments 
in a discriminatory manner are permissible, but only if the overall 
effect of the recipient's provision of financial assistance is not 
discriminatory on the basis of handicap.
    It will not be considered discriminatory to deny, on the basis of 
handicap, an athletic scholarship to a handicapped person if the 
handicap renders the person unable to qualify for the award. For 
example, a student who has a neurological disorder might be denied a 
varsity football scholarship on the basis of his inability to play 
football, but a deaf person could not, on the basis of handicap, be 
denied a scholarship for the school's diving team. The deaf person 
could, however, be denied a scholarship on the basis of comparative 
diving ability.
    Commenters on Sec. 84.46(b), which applies to assistance in 
obtaining outside employment for students, expressed similar concerns to 
those raised under Sec. 84.43(b), concerning cooperative programs. This 
paragraph has been changed in the same manner as Sec. 84.43(b) to 
include the ``as a whole'' concept and will be interpreted in the same 
manner as Sec. 84.43(b).
    35. Nonacademic services. Section 84.47 (formerly Sec. 84.48) 
establishes nondiscrimination standards for physical education and 
athletics counseling and placement services, and social organizations. 
This section sets the same standards as does Sec. 84.38 of Subpart D, 
discussed above, and will be interpreted in a similar fashion.

[[Page 358]]

             subpart f--health, welfare, and social services

    Subpart F applies to recipients that operate health, welfare, and 
social service programs. The Department received fewer comments on this 
subpart than on others.
    Although many commented that Subpart F lacked specificity, these 
commenters provided neither concrete suggestions nor additions. 
Nevertheless, some changes have been made, pursuant to comment, to 
clarify the obligations of recipients in specific areas. In addition, in 
an effort to reduce duplication in the regulation, the section governing 
recipients providing health services (proposed Sec. 84.52) has been 
consolidated with the section regulating providers of welfare and social 
services (proposed Sec. 84.53). Since the separate provisions that 
appeared in the proposed regulation were almost identical, no 
substantive change should be inferred from their consolidation.
    Several commenters asked whether Subpart F applies to vocational 
rehabilitation agencies whose purpose is to assist in the rehabilitation 
of handicapped persons. To the extent that such agencies receive 
financial assistance from the Department, they are covered by Subpart F 
and all other relevant subparts of the regulation. Nothing in this 
regulation, however, precludes such agencies from servicing only 
handicapped persons. Indeed, Sec. 84.4(c) permits recipients to offer 
services or benefits that are limited by federal law to handicapped 
persons or classes of handicapped persons.
    Many comments suggested requiring state health, welfare, and social 
service agencies to take an active role in the enforcement of section 
504 with regard to local health and social service providers. The 
Department believes that the possibility for federal-state cooperation 
in the administration and enforcement of section 504 warrants further 
consideration. Moreover, the Department will rely largely on state 
Medicaid agencies, as it has under title VI, for monitoring compliance 
by individual Medicaid providers.
    A number of comments also discussed whether section 504 should be 
read to require payment of compensation to institutionalized handicapped 
patients who perform services for the institution in which they reside. 
The Department of Labor has recently issued a proposed regulation under 
the Fair Labor Standards Act (FLSA) that covers the question of 
compensation for institutionalized persons, 42 FR 15224 (March 18, 
1977). This Department will seek information and comment from the 
Department of Labor concerning that agency's experience administering 
the FLSA regulation.
    36. Health, welfare, and other social service providers. As already 
noted, Sec. 84.53 has been combined with proposed Sec. 84.53 into a 
single section covering health, welfare, and other social services. 
Section 84.52(a) has been expanded in several respects. The addition of 
new paragraph (a)(2) is intended to make clear the basic requirement of 
equal opportunity to receive benefits or services in the health, 
welfare, and social service areas. The paragraph parallels 
Secs. 84.4(b)(ii) and 84.43(b). New paragraph (a)(3) requires the 
provision of effective benefits or services, as defined in 
Sec. 84.4(b)(2) (i.e., benefits or services which ``afford handicapped 
persons equal opportunity to obtain the same result (or) to gain the 
same benefit * * *'').
    Section 84.52(a) also includes provisions concerning the limitation 
of benefits or services to handicapped persons and the subjection of 
handicapped persons to different eligibility standards. (These 
provisions were previously included in the welfare recipient section 
(Sec. 84.53(a)).) One common misconception about the regulation is that 
it would require specialized hospitals and other health care providers 
to treat all handicapped persons. The regulation makes no such 
requirement. Thus, a burn treatment center need not provide other types 
of medical treatment to handicapped persons unless it provides such 
medical services to nonhandicapped persons. It could not, however, 
refuse to treat the burns of a deaf person because of his or her 
deafness.
    Commenters had raised the question of whether the prohibition 
against different standards of eligibility might preclude recipients 
from providing special services to handicapped persons or classes of 
handicapped persons. The regulation will not be so interpreted, and the 
specific section in question has been eliminated. Section 84.4(c) makes 
clear that special programs for handicapped persons are permitted.
    A new paragraph (a)(5) concerning the provision of different or 
separate services or benefits has been added. This provision prohibits 
such treatment unless necessary to provide qualified handicapped persons 
with benefits and services that are as effective as those provided to 
others.
    Section 84.52(a)(2) of the proposed regulation has been omitted as 
duplicative of revised Sec. 84.22 (b) and (c) in Subpart C. As discussed 
above, these sections permit health care providers to arrange to meet 
patients in accessible facilities and to make referrals in carefully 
limited circumstances.
    Section 84.52(a)(3) of the proposed regulation has been redesignated 
Sec. 84.52(b) and has been amended to cover written material concerning 
waivers of rights or consent to treatment as well as general notices 
concerning health benefits or services. The section requires the 
recipient to ensure that qualified handicapped persons are not denied 
effective notice because of their handicap. For example, recipients 
could use several different types of notice in order to reach persons 
with impaired vision or hearing, such as

[[Page 359]]

brailled messages, radio spots, and tacticle devices on cards or 
envelopes to inform blind persons of the need to call the recipient for 
further information.
    Sections 84.52(a)(4), 84.52(a)(5), and 84.52(b) have been omitted 
from the regulation as unnecessary. They are clearly comprehended by the 
more general sections banning discrimination.
    Section 84.52(c) is a new section requiring recipient hospitals to 
establish a procedure for effective communication with persons with 
impaired hearing for the purpose of providing emergency health care. 
Although it would be appropriate for a hospital to fulfill its 
responsibilities under this section by having a full-time interpreter 
for the deaf on staff, there may be other means of accomplishing the 
desired result of assuring that some means of communication is 
immediately available for deaf persons needing emergency treatment.
    Section 84.52(d), also a new provision, requires recipients with 
fifteen or more employees to provide appropriate auxiliary aids for 
persons with impaired sensory, manual, or speaking skills. Further, the 
Director may require a small provider to furnish auxiliary aids where 
the provision of aids would not adversely affect the ability of the 
recipient to provide its health benefits or service. Thus although a 
small nonprofit neighborhood clinic might not be obligated to have 
available an interpreter for deaf persons, the Director may require 
provision of such aids as may be reasonably available to ensure that 
qualified handicapped persons are not denied appropriate benefits or 
services because of their handicaps.
    37. Treatment of Drug Addicts and Alcoholics. Section 84.53 is a new 
section that prohibits discrimination in the treatment and admission of 
drug and alcohol addicts to hospitals and outpatient facilities. This 
section is included pursuant to section 407, Pub. L. 92--255, the Drug 
Abuse Office and Treatment Act of 1972 (21 U.S.C. 1174), as amended, and 
section 321, Public Law 91-616, the Comprehensive Alcohol Abuse and 
Alcoholism Prevention, Treatment, and Rehabilitation Act of 1970 (42 
U.S.C. 4581), as amended, and section 321, Public Law 93-282. Section 
504 itself also prohibits such discriminatory treatment and, in 
addition, prohibits similar discriminatory treatment by other types of 
health providers. Section 84.53 prohibits discrimination against drug 
abusers by operators of outpatient facilities, despite the fact that 
section 407 pertains only to hospitals, because of the broader 
application of section 504. This provision does not mean that all 
hospitals and outpatient facilities must treat drug addiction and 
alcoholism. It simply means, for example, that a cancer clinic may not 
refuse to treat cancer patients simply because they are also alcoholics.
    38. Education of institutionalized persons. The regulation retains 
Sec. 84.54 of the proposed regulation that requires that an appropriate 
education be provided to qualified handicapped persons who are confined 
to residential institutions or day care centers.

                          subpart g--procedures

    In Sec. 84.61, the Secretary has adopted the title VI complaint and 
enforcement procedures for use in implementing section 504 until such 
time as they are superseded by the issuance of a consolidated procedural 
regulation applicable to all of the civil rights statutes and executive 
orders administered by the Department.

  Appendix B to Part 84--Guidelines for Eliminating Discrimination and 
 Denial of Services on the Basis of Race, Color, National Origin, Sex, 
              and Handicap in Vocational Education Programs

    Note: For the text of these guidelines, see 45 CFR Part 80, Appendix 
B.

[44 FR 17168, Mar. 21, 1979]

     Appendix C to Part 84--Guidelines Relating to Health Care for 
                           Handicapped Infants

    (a) Interpretative guidelines relating to the applicability of this 
part to health care for handicapped infants. The following are 
interpretative guidelines of the Department set forth here to assist 
recipients and the public in understanding the Department's 
interpretation of section 504 and the regulations contained in this part 
as applied to matters concerning health care for handicapped infants. 
These interpretative guidelines are illustrative; they do not 
independently establish rules of conduct.
    (1) With respect to programs and activities receiving Federal 
financial assistance, health care providers may not, solely on the basis 
of present or anticipated physical or mental impairments of an infant, 
withhold treatment or nourishment from the infant who, in spite of such 
impairments, will medically benefit from the treatment or nourishment.
    (2) Futile treatment or treatment that will do no more than 
temporarily prolong the act of dying of a terminally ill infant is not 
considered treatment that will medically benefit the infant.
    (3) In determining whether certain possible treatments will be 
medically beneficial to an infant, reasonable medical judgments in 
selecting among alternative courses of treatment will be respected.
    (4) Section 504 and the provisions of this part are not applicable 
to parents (who are

[[Page 360]]

not recipients of Federal financial assistance). However, each recipient 
health care provider must in all aspects of its health care programs 
receiving Federal financial assistance provide health care and related 
services in a manner consistent with the requirements of section 504 and 
this part. Such aspects includes decisions on whether to report, as 
required by State law or otherwise, to the appropriate child protective 
services agency a suspected instance of medical neglect of a child, or 
to take other action to seek review or parental decisions to withhold 
consent for medically indicated treatment. Whenever parents make a 
decision to withhold consent for medically beneficial treatment or 
nourishment, such recipient providers may not, solely on the basis of 
the infant's present or anticipated future mental or physical 
impairments, fail to follow applicable procedures on reporting such 
incidents to the child protective services agency or to seek judicial 
review.
    (5) The following are examples of applying these interpretative 
guidelines. These examples are stated in the context of decisions made 
by recipient health care providers. Were these decisions made by 
parents, the guideline stated in section (a)(4) would apply. These 
examples assume no facts or complications other than those stated. 
Because every case must be examined on its individual facts, these are 
merely illustrative examples to assist in understanding the framework 
for applying the nondiscrimination requirements of section 504 and this 
part.
    (i) Withholding of medically beneficial surgery to correct an 
intestinal obstruction in an infant with Down's Syndrome when the 
withholding is based upon the anticipated future mental retardation of 
the infant and there are no medical contraindications to the surgery 
that would otherwise justify withholding the surgery would constitute a 
discriminatory act, violative of section 504.
    (ii) Withholding of treatment for medically correctable physical 
anomalies in children born with spina bifida when such denial is based 
on anticipated mental impairment paralysis or incontinence of the 
infant, rather than on reasonable medical judgments that treatment would 
be futile, too unlikely of success given complications in the particular 
case, or otherwise not of medical benefit to the infant, would 
constitute a discriminatory act, violative of section 504.
    (iii) Withholding of medical treatment for an infant born with 
anencephaly, who will inevitably die within a short period of time, 
would not constitute a discriminatory act because the treatment would be 
futile and do no more than temporarily prolong the act of dying.
    (iv) Withholding of certain potential treatments from a severely 
premature and low birth weight infant on the grounds of reasonable 
medical judgments concerning the improbability of success or risks of 
potential harm to the infant would not violate section 504.
    (b) Guidelines for HHS investigations relating to health care for 
handicapped infants. The following are guidelines of the Department in 
conducting investigations relating to health care for handicapped 
infants. They are set forth here to assist recipients and the public in 
understanding applicable investigative procedures. These guidelines do 
not establish rules of conduct, create or affect legally enforceable 
rights of any person, or modify existing rights, authorities or 
responsibilities pursuant to this part. These guidelines reflect the 
Department's recognition of the special circumstances presented in 
connection with complaints of suspected life-threatening noncompliance 
with this part involving health care for handicapped infants. These 
guidelines do not apply to other investigations pursuant to this part, 
or other civil rights statutes and rules. Deviations from these 
guidelines may occur when, in the judgment of the responsible Department 
official, other action is necessary to protect the life or health of a 
handicapped infant.
    (1) Unless impracticable, whenever the Department receives a 
complaint of suspected life-threatening noncompliance with this part in 
connection with health care for a handicapped infant in a program or 
activity receiving Federal financial assistance, HHS will immediately 
conduct a preliminary inquiry into the matter by initiating telephone 
contact with the recipient hospital to obtain information relating to 
the condition and treatment of the infant who is the subject of the 
complaint. The preliminary inquiry, which may include additional contact 
with the complainant and a requirement that pertinent records be 
provided to the Department, will generally be completed within 24 hours 
(or sooner if indicated) after receipt of the complaint.
    (2) Unless impracticable, whenever a recipient hospital has an 
Infant Care Review Committee, established and operated substantially in 
accordance with the provisions of 45 CFR 84.55(f), the Department will, 
as part of its preliminary inquiry, solicit the information available 
to, and the analysis and recommendations of, the ICRC. Unless, in the 
judgment of the responsible Department official, other action is 
necessary to protect the life or health of a handicapped infant, prior 
to initiating an on-site investigation, the Department will await 
receipt of this information from the ICRC for 24 hours (or less if 
indicated) after receipt of the complaint. The Department may require a 
subsequent written report of the ICRC's findings, accompanied by 
pertinent records and documentation.
    (3) On the basis of the information obtained during preliminary 
inquiry, including

[[Page 361]]

information provided by the hospital (including the hospital's ICRC, if 
any), information provided by the complainant, and all other information 
obtained, the Department will determine whether there is a need for an 
on-site investigation of the complaint. Whenever the Department 
determines that doubt remains that the recipient hospital or some other 
recipient is in compliance with this part or additional documentation is 
desired to substantiate a conclusion, the Department will initiate an 
on-site investigation or take some other appropriate action. Unless 
impracticable, prior to initiating an on-site investigation, the 
Department's medical consultant (referred to in paragraph 6) will 
contact the hospital's ICRC or appropriate medical personnel of the 
recipient hospital.
    (4) In conducting on-site investigations, when a recipient hospital 
has an ICRC established and operated substantially in accordance with 
the provisions of 45 CFR 84.55(f), the investigation will begin with, or 
include at the earliest practicable time, a meeting with the ICRC or its 
designees. In all on-site investigations, the Department will make every 
effort to minimize any potential inconvenience or disruption, 
accommodate the schedules of health care professionals and avoid making 
medical records unavailable. The Department will also seek to coordinate 
its investigation with any related investigations by the state child 
protective services agency so as to minimize potential disruption.
    (5) It is the policy of the Department to make no comment to the 
public or media regarding the substance of a pending preliminary inquiry 
or investigation.
    (6) The Department will obtain the assistance of a qualified medical 
consultant to evaluate the medical information (including medical 
records) obtained in the course of a preliminary inquiry or 
investigation. The name, title and telephone number of the Department's 
medical consultant will be made available to the recipient hospital. The 
Department's medical consultant will, if appropriate, contact medical 
personnel of the recipient hospital in connection with the preliminary 
inquiry, investigation or medical consultant's evaluation. To the extent 
practicable, the medical consultant will be a specialist with respect to 
the condition of the infant who is the subject of the preliminary 
inquiry or investigation. The medical consultant may be an employee of 
the Department or another person who has agreed to serve, with or 
without compensation, in that capacity.
    (7) The Department will advise the recipient hospital of its 
conclusions as soon as possible following the completion of a 
preliminary inquiry or investigation. Whenever final administrative 
findings following an investigation of a complaint of suspected life-
threatening noncompliance cannot be made promptly, the Department will 
seek to notify the recipient and the complainant of the Department's 
decision on whether the matter will be immediately referred to the 
Department of Justice pursuant to 45 CFR 80.8.
    (8) Except as necessary to determine or effect compliance, the 
Department will (i) in conducting preliminary inquiries and 
investigations, permit information provided by the recipient hospital to 
the Department to be furnished without names or other identifying 
information relating to the infant and the infant's family; and (ii) to 
the extent permitted by law, safeguard the confidentiality of 
information obtained.

[49 FR 1653, Jan. 12, 1984]



PART 85--ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF HANDICAP IN PROGRAMS OR ACTIVITIES CONDUCTED BY THE DEPARTMENT OF HEALTH AND HUMAN SERVICES--Table of Contents




Sec.
85.1  Purpose.
85.2  Application.
85.3  Definitions.
85.4-85.10  [Reserved]
85.11  Self-evaluation.
85.12  Notice.
85.13-85.20  [Reserved]
85.21  General prohibitions against discrimination.
85.22-85.30  [Reserved]
85.31  Employment.
85.32-85.40  [Reserved]
85.41  Program accessibility: Discrimination prohibited.
85.42  Program accessibility: Existing facilities.
85.43  Program accessibility: New construction and alterations.
85.44-85.50  [Reserved]
85.51  Communications.
85.52-85.60  [Reserved]
85.61  Compliance procedures.
85.62  Coordination and compliance responsibilities.

    Authority: 29 U.S.C. 794.

    Source: 53 FR 25603, July 8, 1988, unless otherwise noted.

    Editorial Note: At the request of the Department of Health and Human 
Services, the ``Section-by-Section Analysis'' portion of the preamble of 
the document published at 53 FR 25595, July 8, 1988, as corrected at 53 
FR 26559, July 13, 1988, appears at the end of Part 85.



Sec. 85.1  Purpose.

    The purpose of this part is to effectuate section 119 of the 
Rehabilitation,

[[Page 362]]

Comprehensive Services, and Developmental Disabilities Amendments of 
1978, which amended section 504 of the Rehabilitation Act of 1973 to 
prohibit discrimination on the basis of handicap in programs or 
activities conducted by Executive agencies or the United States Postal 
Service.



Sec. 85.2  Application.

    This part applies to all programs or activities conducted by the 
agency, except for programs or activities conducted outside the United 
States that do not involve individuals with handicaps in the United 
States.



Sec. 85.3  Definitions.

    For purposes of this part, the term--
    Agency means the Department of Health and Human Services or any 
component part of the Department of Health and Human Services that 
conducts a program or activity covered by this part. Component agency 
means such component part.
    Assistant Attorney General means the Assistant Attorney General, 
Civil Rights Division, United States Department of Justice.
    Auxiliary aids means services or devices that enable persons with 
impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the agency. For example, auxiliary aids useful 
for persons with impaired vision include readers, Brailled materials, 
audio recordings, and other similar services and devices. Auxiliary aids 
useful for persons with impaired hearing include telephone handset 
amplifiers, telephones compatible with hearing aids, telecommunication 
devices for deaf persons (TDD's) interpreters, notetakers, written 
materials, and other similar services and devices.
    Complete complaint means a written statement that contains the 
complainant's name and address and describes the agency's alleged 
discriminatory action in sufficient detail to inform the agency of the 
nature and date of the alleged violation of section 504. It shall be 
signed by the complainant or by someone authorized to do so on his or 
her behalf. Complaints filed on behalf of classes or third parties shall 
describe or identify (by name, if possible) the alleged victims of 
discrimination.
    Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, rolling stock or other 
conveyances, or other real or personal property.
    Individual with Handicaps means any person who has a physical or 
mental impairment that substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as having 
such an impairment. As used in this definition, the phrase:
    (1) Physical or mental impairment includes:
    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genito-urinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term physical or mental impairment 
includes, but is not limited to, such diseases and conditions as 
orthopedic, visual, speech and hearing impairments, cerebral palsy, 
epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, 
diabetes, mental retardation, emotional illness, and drug addiction and 
alcoholism.
    (2) Major life activities includes functions such as caring for 
one's self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning and working.
    (3) Has a record of such impairment means has a history of, or is 
misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means:
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the agency as constituting 
such a limitation.
    (ii) Has a physical or mental impairment that substantially limits 
major

[[Page 363]]

life activities only as a result of the attitudes of others toward such 
impairment; or
    (iii) Has none of the impairments defined in paragraph (1) of this 
definition but is treated by the agency as having such an impairment.
    OCR means the Office for Civil Rights of the Department of Health 
and Human Services.
    OCR Director/Special Assistant means the Director of the Office for 
Civil Rights, who serves concurrently as the Special Assistant to the 
Secretary for Civil Rights, or a designee of the Director/Special 
Assistant.
    Qualified individual with handicaps means:
    (1) With respect to preschool, elementary, or secondary education 
services provided by the agency, an individual with handicaps who is a 
member of a class of persons otherwise entitled by statute, regulation, 
or agency policy to receive educational services from the agency;
    (2) With respect to any other agency program or activity under which 
a person is required to perform services or to achieve a particular 
level of accomplishment, an individual with handicaps who meets the 
essential eligibility requirements and who can achieve the purpose of 
the program or activity without modifications in the program or activity 
that the agency can demonstrate would result in a fundamental alteration 
in its nature; and
    (3) With respect to any other program or activity, an individual 
with handicaps who meets the essential eligibility requirements for 
participation in, or receipt of benefits from, that program or activity; 
and
    (4) Qualified handicapped person as that term is defined for 
purposes of employment in 29 CFR 1613.702(f), which is made applicable 
to this part by Sec. 85.31.
    Secretary means the Secretary of the Department of Health and Human 
Services or his/her designee.
    Section 504 means section 504 of the Rehabilitation Act of 1973 
(Pub. L. 93-112, 87 Stat. 394 (29 U.S.C. 794)), as amended by the 
Rehabilitation Act Amendments of 1974 (Pub. L. 93-516, 88 Stat. 1617); 
the Rehabilitation, Comprehensive Services, and Developmental 
Disabilities Amendments of 1978 (Pub. L. 95-602, 92 Stat. 2955); the 
Rehabilitation Act Amendments of 1986 (Pub. L 99-566, 100 Stat. 1810); 
and the Civil Rights Restoration Act of 1987 (Pub. L. 100-259, 102 Stat. 
28). As used in this part, section 504 applies only to programs or 
activities conducted by the agency and not to federally assisted 
programs.



Secs. 85.4-85.10  [Reserved]



Sec. 85.11  Self-evaluation.

    (a) The agency shall, within one year of the effective date of this 
part, evaluate its current policies and practices, and the effects 
thereof, that do not or may not meet the requirements of this part, and, 
to the extent modification of any such policies and practices is 
required, the agency shall proceed to make the necessary modifications. 
Any new operating or staff divisions established within the agency shall 
have one year from the date of their establishment to carry out this 
evaluation.
    (b) The agency shall provide an opportunity to interested persons, 
including individuals with handicaps or organizations representing 
individuals with handicaps, to participate in the self-evaluation by 
submitting comments (both oral and written).
    (c) The agency shall, for at least three years following completion 
of the self-evaluation, maintain on file and make available for public 
inspection and copying--
    (1) A description of areas examined and any problems identified; and
    (2) A description of any modifications made.



Sec. 85.12  Notice.

    The agency shall make available to employees, applicants, 
participants, beneficiaries, and other interested persons such 
information regarding the provisions of this part and its applicability 
to the programs or activities conducted by the agency, and make such 
information available to them in such a manner as the agency head finds 
necessary to apprise such persons of the protections against 
discrimination assured them by section 504 and this part.

[[Page 364]]



Secs. 85.13-85.20  [Reserved]



Sec. 85.21  General prohibitions against discrimination.

    (a) No qualified individual with handicaps shall, on the basis of 
handicap, be excluded from participation in, be denied the benefits of, 
or otherwise be subjected to discrimination under any program or 
activity conducted by the agency.
    (b) (1) The agency, in providing any aid, benefit, or service, may 
not, directly or through contractual, licensing, or other arrangements, 
on the basis of handicap--
    (i) Deny a qualified individual with handicaps the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (ii) Afford a qualified individual with handicaps an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (iii) Provide a qualified individual with handicaps with an aid, 
benefit, or service that is not as effective in affording equal 
opportunity to obtain the same result, to gain the same benefit, or to 
reach the same level of achievement as that provided to others;
    (iv) Provide different or separate aids, benefits, or services to 
individuals with handicaps or to any class or individuals with handicaps 
than is provided to others unless such action is necessary to provide 
qualified individuals with handicaps with aids, benefits or services 
that are as effective as those provided to others;
    (v) Deny a qualified individual with handicaps the opportunity to 
participate as a member of a planning or advisory board; or
    (vi) Otherwise limit a qualified individual with handicaps in the 
enjoyment of any right, privilege, advantage, or opportunity enjoyed by 
others receiving the aid, benefit, or service.
    (2) The agency may not deny a qualified individual with handicaps 
the opportunity to participate in programs or activities that are not 
separate or different, despite the existence of permissibly separate or 
different programs or activities.
    (3) The agency may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration the purpose 
or effect of which would--
    (i) Subject qualified individuals with handicaps to discrimination 
on the basis of handicap; or
    (ii) Defeat or substantially impair accomplishment of the objectives 
of a program or activity with respect to individuals with handicaps.
    (4) The agency may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would--
    (i) Exclude individuals with handicaps from, deny them the benefits 
of, or otherwise subject them to discrimination under any program or 
activity conducted by the agency; or
    (ii) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to individuals with 
handicaps.
    (5) The agency, in the selection of procurement contractors, may not 
use criteria that subject qualified individuals with handicaps to 
discrimination on the basis of handicap.
    (6) The agency may not administer a licensing or certification 
program in a manner that subjects qualified individuals with handicaps 
to discrimination on the basis of handicap, nor may the agency establish 
requirements for the programs or activities of licensees or certified 
entities that subject qualified individuals with handicaps to 
discrimination on the basis of handicap. However, the programs or 
activities of entities that are licensed or certified by the agency are 
not, themselves, covered by this part.
    (c) The exclusion of individuals without handicaps from the benefits 
of a program limited by Federal statute or Executive order to 
individuals with handicaps or the exclusion of a specific class of 
individuals with handicaps from a program limited by Federal statute or 
Executive order to a different class of individuals with handicaps is 
not prohibited by this part.
    (d) The agency shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified individuals 
with handicaps.

[[Page 365]]



Secs. 85.22-85.30  [Reserved]



Sec. 85.31  Employment.

    No qualified individuals with handicaps shall, on the basis of 
handicap, be subjected to discrimination in employment under any program 
or activity conducted by the agency. The definitions, requirements, and 
procedures of section 501 of the Rehabilitation Act of 1973 (9 U.S.C. 
791), as established by the Equal Employment Opportunity Commission in 9 
CFR part 1613, shall apply to employment in federally conducted programs 
and activities.



Secs. 85.32-85.40  [Reserved]



Sec. 85.41  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec. 85.42, no qualified individual 
with handicaps shall, because the agency's facilities are inaccessible 
to or unusable by such persons, be denied the benefits of, be excluded 
from participation in, or otherwise be subjected to discrimination under 
any program or activity conducted by the agency.



Sec. 85.42  Program accessibility: Existing facilities.

    (a) General. The agency shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by individuals with handicaps. This paragraph 
does not--
    (1) Necessarily require the agency to make each of its existing 
facilities accessible to and usable by individuals with handicaps; or
    (2) Require the agency to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where agency personnel believe that the proposed action 
would fundamentally alter the program or activity or would result in 
undue financial and administrative burdens, the agency has the burden of 
proving that compliance with Sec. 85.42(a) would result in such 
alteration or burdens. The decision that compliance would result in such 
alteration or burdens must be made by the agency head or his or her 
designee after considering all agency resources available for use in the 
funding and operation of the conducted program or activity in question, 
and must be accompanied by a written statement of reasons for reaching 
that conclusion. If an action would result in such an alteration or such 
burdens, the agency shall take any other action that would not result in 
such an alteration or such burdens but would nevertheless ensure that 
individuals with handicaps receive the benefits and services of the 
program or activity.
    (b) Methods. (1) The agency may comply with the requirements of this 
section through such means as redesign of equipment, reassignment of 
services to accessible buildings, assignment of aides to beneficiaries, 
home visits, delivery of services at alternate accessible sites, 
alteration of existing facilities and construction of new facilities, 
use of accessible rolling stock, or any other methods that result in 
making its programs or activities readily accessible to and usable by 
individuals with handicaps. The agency is not required to make 
structural changes in existing facilities where other methods are 
effective in achieving compliance with this section. The agency, in 
making alterations to existing buildings, shall meet accessibility 
requirements to the extent compelled by the Architectural Barriers Act 
of 1968, as amended (42 U.S.C. 4151-4157), and any regulations 
implementing it.
    (2) In choosing among available methods for meeting the requirements 
of this section, the agency shall give priority to those methods that 
offer programs and activities to qualified individuals with handicaps in 
the most integrated setting appropriate.
    (c) Time period for compliance. The agency shall comply with the 
obligations established under this section within 60 days of the 
effective date of this part except where structural changes in 
facilities are undertaken; such changes shall be made within three years 
of the effective date of this part, but, in any event, as expeditiously 
as possible.
    (d) Transition plan. In the event that structural changes to 
facilities must be undertaken to achieve program accessibility, and it 
is not expected that

[[Page 366]]

such changes can be completed within six months, the agency shall 
develop, within six months of the effective date of this part, a 
transition plan setting forth the steps necessary to complete such 
changes. The agency shall provide an opportunity to interested persons, 
including individuals with handicaps or organizations representing 
individuals with handicaps, to participate in the development of the 
transition plan by submitting comments (both oral and written). A copy 
of the transition plan shall be made available for public inspection. 
The plan shall, at a minimum--
    (1) Identify physical obstacles in the agency's facilities that 
limit the accessibility of its programs or activities to individuals 
with handicaps;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
compliance with this section and, if the time period of the transition 
plan is longer than one year, identify steps that will be taken during 
each year of the transition period; and
    (4) Indicate the official responsible for the implementation of the 
plan.



Sec. 85.43  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, or on behalf of, or for the use of the agency shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
individuals with handicaps. The definitions, requirements, and standards 
of the Architectural Barriers Act (42 U.S.C. 4151-4157) as established 
in 41 CFR 101-19.600 to 101-19.607 apply to buildings covered by this 
section.



Secs. 85.44-85.50  [Reserved]



Sec. 85.51  Communications.

    (a) The agency shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The agency shall furnish appropriate auxiliary aids where 
necessary to afford an individual with handicaps an equal opportunity to 
participate in, and enjoy the benefits of, program or activity conducted 
by the agency.
    (i) In determining what type of auxiliary aid is necessary, the 
agency shall give primary consideration to the requests of the 
individual with handicaps.
    (ii) The agency need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the agency communicates with applicants and beneficiaries 
by telephone, telecommunications devices for deaf persons (TDD's) or 
equally effective telecommunication systems shall be used to communicate 
with persons with impaired hearing.
    (b) The agency shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The agency shall provide signage at a primary entrance to each 
of its inaccessible facilities, directing users to a location at which 
they can obtain information about accessible facilities. The 
international symbol for accessibility shall be used at each primary 
entrance of an accessible facility.
    (d) This section does not require the agency to take any action that 
it can demonstrate would result in a fundamental alteration in the 
nature of a program or activity or in undue financial and administrative 
burdens. In those circumstances where agency personnel believe that the 
proposed action would fundamentally alter the program or activity or 
would result in undue financial and administrative burdens, the agency 
has the burden of proving that compliance with Sec. 85.51 would result 
in such alteration or burdens. The decision that compliance would result 
in such alteration or burdens must be made by the agency head or his or 
her designee after considering all agency resources available for use in 
the funding and operation of the conducted program or activity in 
question and must be accompanied by a written statement of the reasons 
for reaching that conclusion. If an action required to comply with this 
section would result in such an alteration or such burdens, the

[[Page 367]]

agency shall take any other action that would not result in such an 
alteration or such burdens but would nevertheless ensure that, to the 
maximum extent possible, individuals with handicaps receive the benefits 
and services of the program or activity.



Secs. 85.52-85.60  [Reserved]



Sec. 85.61  Compliance procedures.

    (a) Except as provided in paragraph (c) of this section, this 
section applies to all allegations of discrimination on the basis of 
handicap in programs or activities conducted by the agency.
    (b) Responsibility for the implementation and operation of this 
section shall be vested in the CCR Director/Special Assistant.
    (c) The agency shall process complaints alleging violations of 
section 504 with respect to employment according to the procedures 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1613 pursuant to section 501 of the Rehabilitation Act of 1973 (29 
U.S.C. 791) and HHS Instruction 1613-3. Part 1613 requires complainants 
to obtain pre-complaint counseling within 30 days of the alleged 
discriminatory act, and to file complaints within 15 days of the close 
of counseling. Responsibility for the acceptance, investigation, and the 
rendering of decisions with respect to employment complaints is vested 
in the Assistant Secretary for Personnel Administration.
    (d) OCR shall accept and investigate all complete complaints for 
which it has jurisdiction. All complete complaints must be filed within 
180 days of the alleged act of discrimination. OCR may extend this time 
for good cause.
    (e) If OCR receives a complaint over which it does not have 
jurisdiction, it shall promptly notify the complainant and shall make 
reasonable efforts to refer the complaint to the appropriate Federal 
government entity.
    (f) OCR shall notify the Architectural and Transportation Barriers 
Compliance Board upon receipt of any complaint alleging that a building 
or facility that is subject to the Architectural Barriers Act of 1968, 
as amended (42 U.S.C. 4151-4157), is not readily accessible to and 
usable by individuals with handicaps.
    (g) Within 180 days of the receipt of a complete complaint for which 
it has jurisdiction, OCR shall notify the complainant of the results of 
the investigations in a letter containing--
    (1) Findings of fact and conclusions of law;
    (2) A description of a remedy for each violation found; and
    (3) A notice of the right to appeal.
    (h) Appeals of the findings of fact and conclusions of law or 
remedies must be filed by the complainant within 60 days of receipt from 
the agency of the letter required by Sec. 85.61(g). OCR may extend this 
time for good cause.
    (i) Timely appeals shall be accepted and processed by the OCR 
Director/Special Assistant. Decisions on such appeals shall not be heard 
by the person who made the initial decision.
    (j) OCR shall notify the complainant of the results of the appeal 
within 60 days of the receipt of the request. If OCR determines that it 
needs additional information from the complainant, it shall have 60 days 
from the date it receives the additional information to make its 
determination on the appeal.
    (k) The time limits cited in (g) and (j) above may be extended with 
the permission of the Assistant Attorney General.
    (l) The agency may delegate its authority for conducting complaint 
investigations to a component agency or other Federal agencies, except 
that the authority for making the final determination may not be 
delegated.

[53 FR 25603, July 8, 1988; 53 FR 26559, July 13, 1988]



Sec. 85.62  Coordination and compliance responsibilities.

    (a) Each component agency shall be primarily responsible for 
compliance with this part in connection with the programs and activities 
it conducts.
    (b) The OCR Director/Special Assistant shall have the overall 
responsibility to coordinate implementation of this part. The OCR 
Director/Special Assistant shall have authority to conduct 
investigations, to conduct compliance reviews, and to initiate such 
other actions as may be necessary to facilitate

[[Page 368]]

and ensure effective implementation of and compliance with, this part.
    (c) If as a result of an investigation or in connection with any 
other compliance or implementation activity, the OCR Director/Special 
Assistant determines that a component agency appears to be in 
noncompliance with its responsibilities under this part, OCR will 
undertake appropriate action with the component agency to assure 
compliance. In the event that OCR and the component agency are unable to 
agree on a resolution of any particular matter, the matter shall be 
submitted to the Secretary for resolution.

    Editorial Note: At the request of the Department of Health and Human 
Services, the ``Section-by-Section Analysis'' portion of the preamble of 
the document published at 53 FR 25595, July 8, 1988, as corrected at 53 
FR 26559, July 13, 1988, follows:

   Section-by-Section Analysis of Regulation and Response to Comments

    Where no discussion of comments follows the analysis of a section, 
no comments have been received thereon.

                         Section 85.1  Purpose.

    Section 85.1 states the purpose of the rule, which is to effectuate 
section 119 of the Rehabilitation, Comprehensive Services, and 
Developmental Disabilities Amendments of 1978, which amended section 504 
of the Rehabilitation Act of 1973 to prohibit discrimination on the 
basis of handicap in programs or activities conducted by Executive 
agencies or the United States Postal Service.

                       Section 85.2  Application.

    The proposed regulation covers all programs and activities conducted 
by the Department of Health and Human Services (``HHS'' or the 
``agency'').
    This includes the following components:

The Office of the Secretary
    Office of the Under Secretary
    Office of the Deputy Under Secretary
    Office of the Assistant Secretary for Public Affairs
    Office of the Assistant Secretary for Legislation
    Office of the Assistant Secretary for Planning and Evaluation
    Office of the Assistant Secretary for Management and Budget
    Office of the Assistant Secretary for Peronnel Administration
    Office of the General Counsel
    Office of Inspector General
    Office for Civil Rights
    Office of Consumer Affairs
Office of Human Development Services
    Office of the Assistant Secretary for Human Development Services
    Administration on Aging
    Administration for Children, Youth and Families
    Administration for Native Americans
    Administration on Developmental Disabilities
Public Health Service
    Office of the Assistant Secretary for Health
    Agency for Toxic Substances and Disease Registry
    Alcohol, Drug Abuse and Mental Health Administration
    Centers for Disease Control
    Food and Drug Administration
    Health Resources and Services Administration
    Indian Health Service
    National Institutes of Health
Health Care Financing Administration
Social Security Administration
Family Support Administration.

    Under this section, a federally conducted program or activity is, in 
simple terms, anything a Federal agency does. Aside from employment, 
there are two major categories of federally conducted programs or 
activities covered by this regulation: those involving general public 
contact as part of ongoing agency operations, and those directly 
administered by the agency for program beneficiaries and participants. 
Activities in the first category include communication with the public 
(telephone contacts, office walk-ins, or interviews) and the public's 
use of the agency's facilities. Activities in the second category 
include programs that provide Federal services or benefits. This 
regulation does not, however, apply to programs or activities conducted 
outside the United States that do not involve individuals with handicaps 
in the United States.
    The major programs subject to this regulation are listed below. Each 
of the components listed above occupies facilities which the public may 
have occasion to visit, engages in written and oral communication with 
the public, and hires Federal employees. In addition, some components 
operate programs which involve extensive public use, as summarized 
below:

    Office of the Secretary--No major operating programs or activities 
conducted directly by the Federal government.
    Office of Human Development Services--No major operating programs or 
activities conducted directly by the Federal government.\1\
---------------------------------------------------------------------------

    \1\ Financial assistance programs conducted through grants to States 
and other recipients are covered by the section 504 rule for federally 
assisted programs at 45 CFR Part 84.

---------------------------------------------------------------------------

[[Page 369]]

    Public Health Service--Directly operated programs include the Indian 
Health Service, and intramural research conducted by the National 
Institutes of Health.\1\
    Health Care Financing Administration--Directly operates the Medicare 
program.\1\
    Social Security Administration--Directly operates the Old Age, 
Survivors, and Disability Insurance, and Supplemental Security Income 
for the Aged, Blind, and Disabled programs.
    Family Support Administration--No major operating programs or 
activities conducted directly by the Federal government.\1\

    One commenter urged the inclusion of a program operated by one 
component of the Office of the Secretary, and for a list of all programs 
and activities to be appended to the regulation. In light of the fact 
that all programs and activities are covered, that a comprehensive list 
of all programs would be very lengthy, and that such a list would have 
to be amended frequently as new programs are enacted and existing 
programs expire, the above list appears to be sufficient.

                       Section 85.3  Definitions.

    Agency. For purposes of this part agency means the Department of 
Health and Human Services or any component part of the Department of 
Health and Human Services that conducts a program or activity covered by 
this part. Component agency means any such component part.
    Assistant Attorney General. Assistant Attorney General refers to the 
Assistant Attorney General, Civil Rights Division, United States 
Department of Justice.
    Auxiliary aids. Auxiliary aids means services or devices that enable 
persons with impaired sensory, manual, or speaking skills to have an 
equal opportunity to participate in, and enjoy the benefits of, the 
agency's programs or activities. The definition provides examples of 
commonly used auxiliary aids. Although auxiliary aids are required 
explicitly only by Sec. 85.51(a)(1), they may also be necessary to meet 
other requirements of this regulation.
    Two commenters suggested expanding the definition of auxiliary aids 
and one of them further suggested re-naming auxiliary aids to read aids 
for reasonable accommodation and specifically include the services of 
attendants.
    The items set out in Sec. 85.3 are clearly described as examples, 
and are not intended to constitute an exhaustive list. By giving 
examples rather than by including a list, other aids can be used, and, 
in appropriate cases, required, without amending the regulation. In 
certain instances, the services of attendants may indeed be appropriate; 
in those instances, they will fall under the definition in Sec. 85.3. 
Therefore, there is no need to change the text of the regulations.
    Complete complaint. Complete complaint is defined to include all of 
the information necessary to enable the agency to investigate the 
complaint. The definition is necessary, because the 180 day period for 
the agency's investigation (see Sec. 85.61(g)) begins when the agency 
receives a complete complaint.
    Two commenters stated their belief that the definition of complete 
complaint is too restrictive, and urged language which would give the 
complainant specific information as to what additional information is 
needed, and a further 30 days to submit such information, failing which 
the complaint would be dismissed without prejudice, and the complainant 
would be so informed.
    Procedures similar to this suggestion are currently in place, and 
complainants will be given reasonable opportunities to complete the 
information submitted. There appears to be no need to spell these 
procedures out in the regulation.
    Facility. The definition of facility is similar to that in the 
section 504 coordination regulation for federally assisted programs (28 
CFR 41.3(f)), except that the term rolling stock or other conveyances 
has been added and the phrase or interest in such property has been 
deleted because the term facility, as used in this part, refers to 
structures and not to intangible property rights. It should, however, be 
noted that this part applies to all programs and activities conducted by 
the agency regardless of whether the facility in which they are 
conducted is owned, leased, or used on some other basis by the agency. 
The term facility is used in Secs. 85.41, 85.42, and 85.61(f).
    One commenter proposed not to delete the phrase or interest in such 
property. As previously stated, the phrase or interest in such property 
has been deleted because the term facility, as used in this part, refers 
to structures and not to intangible property rights.
    Individual with Handicaps. The definition of individual with 
handicaps is identical to the definition of handicapped person appearing 
in the section 504 coordination regulation for federally assisted 
programs (28 CFR 41.31), and the HHS regulation for federally assisted 
programs (45 CFR 84.3(j)). Although section 103(d) of the Rehabilitation 
Act Amendments of 1986 changed the statutory term handicapped individual 
to individual with handicaps, the legislative history of the amendment 
indicates that no substantive change was intended. Thus, although the 
term has been changed in this regulation to be consistent with the 
statute as amended, the definition is unchanged. In particular, although 
the term as revised refers to handicaps in the plural, it does not 
exclude persons who have only one handicap.

[[Page 370]]

    One commenter suggested that we add sensory to the phrase physical 
or mental impairment. Since the definition set out in Sec. 85.3 
specifically includes the sense organs among the body systems whose 
impairment constitutes a handicap, we have not found it necessary to 
amend the regulation.
    OCR. OCR means the Office for Civil Rights of the Department of 
Health and Human Services.
    OCR Director/Special Assistant means the Director of the Office for 
Civil Rights, who serves concurrently as the Special Assistant to the 
Secretary for Civil Rights, or a designee of the OCR Director/Special 
Assistant.
    Qualified individual with handicaps. The definition of qualified 
individual with handicaps is a revised version of the definition of 
qualified handicapped person appearing in the section 504 coordination 
regulation for federally assisted programs (28 CFR 41.32) and the HHS 
section 504 regulation for federally assisted programs (45 CFR 84.3(k)).
    Paragraph (1) is an adaptation of existing definitions of qualified 
handicapped person for purposes of federally assisted preschool, 
elementary, and secondary education programs (see, e.g., 45 CFR 
84.3(k)(2)). It provides that an individual with handicaps is qualified 
for preschool, elementary, or secondary education programs conducted by 
the agency, if he or she is a member of a class of persons otherwise 
entitled by statute, regulation, or agency policy to receive these 
services from the agency. In other words, an individual with handicaps 
is qualified if, considering all factors other than the handicapping 
condition, he or she is entitled to receive educational services from 
the agency.
    Paragraph (2) deviates from existing regulations for federally 
assisted programs because of intervening court decisions. It defines 
qualified individual with handicaps with regard to any program other 
than those covered by paragraph (1) under which a person is required to 
perform services or to achieve a level of accomplishment. In such 
programs, a qualified individual with handicaps is one who can achieve 
the purpose of the program without modifications in the program that the 
agency can demonstrate would result in a fundamental alteration in its 
nature. This definition reflects the decision of the Supreme Court in 
Davis.
    In that case, the Court ruled that a hearing-impaired applicant to a 
nursing school was not a qualified handicapped person because her 
hearing impairment would prevent her from participating in the clinical 
training portion of the program. The Court found that, if the program 
were modified so as to enable the respondent to participate (by 
exempting her from the clinical training requirements), she would not 
receive even a rough equivalent of the training a nursing program 
normally gives. Id. at 410. It also found that the purpose of [the] 
program was to train persons who could serve the nursing profession in 
all customary ways, Id. at 413, and that the respondent would be unable, 
because of her hearing impairment, to perform some functions expected of 
a registered nurse. It, therefore, concluded that the school was not 
required by section 504 to make such modifications that would result in 
a fundamental alteration in the nature of the program. Id. at 410.
    We have incorporated the Court's language in the definition of 
qualified individual with handicaps in order to make clear that such a 
person must be able to participate in the program offered by the agency. 
The agency is required to make modifications in order to enable an 
applicant with handicaps to participate, but is not required to offer a 
program of a fundamentally different nature. The test is whether, with 
appropriate modifications, the applicant can achieve the purpose of the 
program offered, not whether the applicant could benefit or obtain 
results from some other program that the agency does not offer. Although 
the revised definition allows exclusion of some individuals with 
handicaps from some programs, it requires that an individual with 
handicaps who is capable of achieving the purpose of the program must be 
accommodated, provided that the modifications do not fundamentally alter 
the purpose of the program.
    One commenter proposed inserting the second sentence from the above 
paragraph into the regulatory text. We believe that the use of this 
language in the preamble is sufficient.
    Another commenter commended HHS for the discussion of Davis, and the 
cases interpreting the Davis decision, in order to explain why the 
language of this part does not precisely track that of the regulations 
concerning federally assisted recipients (45 CFR Part 84). Two other 
commenters stated their view that incorporating Davis and Alexander into 
the regulation was unduly restrictive, and that the differences between 
this part and Part 84 would result in holding HHS to a lesser standard 
than HHS holds recipients of Federal financial assistance.
    We believe that the Supreme Court's decision in Davis as well as the 
subsequent lower court decisions following Davis interpret section 504 
and that it is necessary to reflect those decisions in the Department's 
regulation. The suggested changes are therefore not being adopted.
    The agency has the burden of demonstrating that a proposed 
modification would constitute a fundamental alteration in the nature of 
its program or activity. Furthermore, in demonstrating that a 
modification would result in such an alteration, the

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agency must follow the procedures established in Secs. 85.42(a) and 
85.51(d), which are discussed below, for demonstrating that an action 
would result in undue financial and administrative burdens to the 
agency. That is, the decision must be made by the agency head or his or 
her designee in writing after consideration of all resources which are 
legally available to the agency for the purpose, and must be accompanied 
by an explanation of the reasons for the decision. If the agency head 
determines that an action would result in a fundamental alteration, the 
agency must consider options that would enable the individual with 
handicaps to achieve the purpose of the program but would not result in 
such an alteration.
    Two commenters suggested that the total resources of the agency be 
considered in determining undue burden. Because many Department funds 
are earmarked for specific purposes and are therefore unavailable for 
use elsewhere, the entire agency budget is not an appropriate 
consideration.
    For programs or activities which do not fall under either of the 
first two paragraphs, paragraph (3) adopts the existing definition of 
qualified handicapped person with respect to services (28 CFR 41.32(b)) 
in the coordination regulation for programs receiving Federal financial 
assistance. Under this definition, a qualified individual with handicaps 
is an individual with handicaps who meets the essential eligibility 
requirements for participation in the program or activity.
    Paragraph (4) explains that qualified individual with handicaps 
means qualified handicapped person as that term is defined for purposes 
of employment in the EEOC regulation at 29 CFR 1613.702(f), which is 
made applicable to this part by Sec. 85.31. Nothing in this part changes 
existing regulations pertaining to employment.
    One commenter proposed using the general section 504 definition of 
qualified handicapped person in employment cases rather than the 
definition of the EEOC regulation. The definition has been supplied by 
the Equal Employment Opportunity Commission which coordinates all 
employment discrimination matters throughout the government. It is also 
the Department's view that it is important to have a uniform definition 
of what constitutes employment discrimination throughout the Federal 
government.
    Secretary means the Secretary of the Department of Health and Human 
Services or the Secretary's designee.
    Section 504. This definition makes clear that, as used in this part, 
section 504 applies only to programs or activities conducted by the 
agency itself and not to programs or activities to which it provides 
Federal financial assistance.

                     Section 85.11  Self-evaluation.

    The agency shall conduct a self-evaluation of its compliance with 
section 504 within one year of the effective date of this regulation. 
The self-evaluation requirement is present in the existing section 504 
coordination regulation for programs or activities receiving Federal 
financial assistance (28 CFR 41.5(b)(2)) and the HHS regulations for 
federally assisted programs (45 CFR 84.6(k)). Experience has 
demonstrated the self-evaluation process to be a valuable means of 
establishing a working relationship with individuals with handicaps that 
promotes both effective and efficient implementation of section 504.
    One commenter stated that a three-year retention period is 
insufficient, and proposed that self-evaluations be kept indefinitely. 
The regulation requires the self-evaluation to be kept for a minimum of 
three years, but does not include a maximum. It is expected that the 
self-evaluation will be retained for the period provided in current 
document retention policies.
    Another commenter proposed that copies of the self-evaluation be 
made available for copying as well as for public inspection. This 
proposal has been adopted.
    A further commenter proposed the inclusion of provisions for 
assurances, transition plans and specific modification requirements. We 
believe that while assurances are appropriate--and can be specifically 
enforced--in section 504 regulations for federally assisted programs or 
activities, all of the entities involved in this part are under the 
control of the Secretary, who can issue the necessary directives; 
assurances are therefore not required.
    The final rule provides for participation in the self-evaluation 
process by individuals with handicaps or organizations representing 
individuals with handicaps by submitting comments, which may include the 
development of transition plans. It is expected that component agencies 
will consult with individuals with handicaps among their own staff in 
the course of preparing self-evaluations.
    Because modification requirements are intended to address any 
potential problems in the agency's programs or activities, they are not 
specified in the regulation.

                         Section 85.12  Notice.

    Section 85.12 requires the agency to disseminate sufficient 
information to employees, applicants, participants, beneficiaries, and 
other interested persons to apprise them of the rights and protections 
afforded by section 504 and this part. Methods of providing this 
information include, for example, the publication of information in 
handbooks, manuals, and pamphlets that are distributed

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to the public to describe the agency's programs and activities or in 
connection with recruitment; the display of informative posters in 
service centers and other public places; or the broadcasting of 
information by television or radio.
    One commenter suggested the inclusion of a reference to recruitment 
materials in the above examples. Such a reference has been included.

       Section 85.21  General prohibitions against discrimination.

    Section 85.21 is an adaptation of the corresponding section of the 
section 504 coordination regulation for programs and activities 
receiving Federal financial assistance (28 CFR 41.51).
    Paragraph (a) restates the nondiscrimination mandate of section 504. 
The remaining paragraphs in Sec. 85.21 establish the general principles 
for analyzing whether any particular action of the agency violates this 
mandate. These principles serve as the analytical foundation for the 
remaining sections of the part. If the agency violates a provision in 
any of the subsequent sections, it will also violate one of the general 
prohibitions found in Sec. 85.21. When there is no applicable subsequent 
provision, the general prohibitions stated in this section apply.
    Paragraph (b) prohibits overt denials of equal treatment of 
individuals with handicaps. The agency may not refuse to provide an 
individual with handicaps with an equal opportunity to participate in or 
benefit from its program simply because the person is handicapped. Such 
blatantly exclusionary practices could result from the use of 
irrebuttable presumptions that absolutely exclude certain classes of 
disabled persons (e.g., epileptics, hearing-impaired persons, persons 
with heart ailments) from participation in programs or activities 
without regard to an individual's actual ability to participate. Use of 
an irrebuttable presumption is permissible only when in all cases a 
physical condition by its very nature would prevent an individual from 
meeting the essential eligibility requirements for participation in the 
activity in question. It would be permissible, therefore, to exclude 
without an individual evaluation all persons who are blind in both eyes 
from eligibility for a license to operate a commercial vehicle in 
interstate commerce; but it may not be permissible to automatically 
disqualify all those who are blind in just one eye.
    In addition, section 504 prohibits more than just the most obvious 
denials of equal treatment. It is not enough to admit persons in 
wheelchairs to a program if the facilities in which the program is 
conducted are inaccessible. Paragraph (b)(1)(iii), therefore, requires 
that the opportunity to participate or benefit afforded to an individual 
with handicaps be as effective as that afforded to others. The later 
sections on program accessibility (Secs. 85.41-43) and communication 
(Sec. 85.51) are specific applications of this principle.
    Despite the mandate of paragraph (d) that the agency administer its 
programs and activities in the most integrated setting appropriate to 
the needs of qualified individuals with handicaps, paragraph (b)(1)(iv), 
in conjunction with paragraph (d), permits the agency to develop 
separate or different aids, benefits, or services when necessary to 
provide individuals with handicaps with an equal opportunity to 
participate in or benefit from the agency's programs or activities. 
Paragraph (b)(1)(iv) requires that different or separate aids, benefits, 
or services be provided only when necessary to ensure that the aids, 
benefits, or services are as effective as those provided to others. Even 
when separate or different aids, benefits or services would be more 
effective, paragraph (b)(2) provides that a qualified individual with 
handicaps still has the right to choose to participate in the program 
that is not designed to accommodate individuals with handicaps.
    Paragraph (b)(1)(v) prohibits the agency from denying a qualified 
individual with handicaps the opportunity to participate as a member of 
a planning or advisory board.
    Paragraph (b)(1)(vi) prohibits the agency from limiting a qualified 
individual with handicaps in the enjoyment of any right, privilege, 
advantage, or opportunity enjoyed by others receiving any aid, benefit, 
or service.
    Paragraph (b)(3) prohibits the agency from utilizing criteria or 
methods of administration that deny individuals with handicaps access to 
the agency's programs or activities. The phrase criteria or methods of 
administration refers to official written agency policies, as well as 
the actual practices of the agency. This paragraph prohibits both 
blatantly exclusionary policies or practices and nonessential policies 
and practices that are neutral on their face, but deny individuals with 
handicaps an effective opportunity to participate.
    Paragraph (b)(4) specifically applies the prohibition enunciated in 
Sec. 85.21(b)(3) to the process of selecting sites for construction of 
new facilities or existing facilities to be used by the agency. 
Paragraph (b)(4) does not apply to construction of additional buildings 
at an existing site.
    Paragraph (b)(5) prohibits the agency, in the selection of 
procurement contractors, from using criteria that subject qualified 
individuals with handicaps to discrimination on the basis of handicap.
    Paragraph (b)(6) prohibits the agency from discriminating against 
qualified individuals with handicaps on the basis of handicap in the 
granting of licenses or certifications. A person is a qualified 
individual with handicaps with respect to licensing or certification if

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he or she can meet the essential eligibility requirements for receiving 
the license or certification (see Sec. 85.3).
    In addition, the agency may not establish requirements for the 
programs or activities of licensees or certified entities that subject 
qualified individuals with handicaps to discrimination on the basis of 
handicap. For example, the agency must comply with this requirement when 
establishing safety standards for the operations of licensees. In that 
case, the agency must ensure that the standards it promulgates do not 
discriminate against the employment of qualified individuals with 
handicaps in an impermissible manner.
    Paragraph (b)(6) does not extend section 504 directly to the 
programs or activities of licensees or certified entities themselves. 
The programs or activities of Federal licensees or certified entities 
are not themselves federally conducted programs or activities; nor are 
they programs or activities receiving Federal financial assistance 
merely by virtue of the Federal license or certificate. However, as 
noted above, section 504 may affect the content of the rules established 
by the agency for the operation of the program or activity of the 
licensee or certified entity and thereby indirectly affect limited 
aspects of their operations.
    One commenter suggested pointing out that Federal licensees or 
certified entities, having received services from Federal employees 
during the process of licensing or certification, thereby become 
Federally assisted recipients, and are covered by 45 CFR Part 84. Such 
an argument is beyond the scope of this part, and is therefore not being 
included.
    Another commenter suggested including language such as that found in 
45 CFR 84.4(b)(1) to the effect that agencies may not perpetuate 
discrimination against qualified individuals with handicaps by providing 
significant assistance to an agency, organization or person that 
discriminates on the basis of handicap. Assistance from the agency that 
would provide significant support to an organization constitutes Federal 
financial assistance and the organization, as a recipient of such 
assistance, would be covered by the section 504 regulation for federally 
assisted programs.
    Paragraph (c) provides that programs conducted pursuant to Federal 
statute or Executive order that are designed to benefit only individuals 
with handicaps or a given class of individuals with handicaps may be 
limited to individuals those with handicaps.
    Paragraph (d) provides that the agency must administer programs and 
activities in the most integrated setting appropriate to the next of 
qualified individuals with handicaps, i.e. in a setting that enables 
individuals with handicaps to interact with nonhandicapped individuals 
to the fullest extent possible.

                       Section 85.31  Employment.

    Section 85.31 prohibits discrimination on the basis of handicap in 
employment by the agency. Courts have held that section 504, as amended 
in 1978, covers the employment practices of Executive agencies. Gardner 
v. Morris, 752 F.2d 1271, 1277 (8th Cir. 1985); Smith v. United States 
Postal Service, 742 F.2d 257, 259-60 (6th Cir. 1984); Prewitt v. United 
States Postal Service, 662 F.2d 292, 302-04 (5th Cir. 1981). Contra 
McGuiness v. United States Postal Service, 744 F.2d 1318, 1320-21 (7th 
Cir. 1984); Boyd v. United States Postal Service, 752 F.2d 410, 413-14 
(9th Cir. 1985).
    Courts uniformly have held that, in order to give effect to section 
501 of the Rehabilitation Act, which covers Federal employment, the 
administrative procedures of section 501 must be followed in processing 
complaints of employment discrimination under section 504. Morgan v. 
United States Postal Service, 798 F.2d 1162, 1164-65 (8th Cir. 1986); 
Smith, 742 F.2d at 262; Prewitt, 662 F.2d at 304. Accordingly, 
Sec. 85.31 (Employment) of this rule adopts the definitions, 
requirements, and procedures of section 501 as established in 
regulations of the EEOC at 29 CFR Part 1613. Responsibility for 
coordinating enforcement of Federal laws prohibiting discrimination in 
employment is assigned to the EEOC by Executive Order 12067 (3 CFR, 1978 
Comp., p. 206). Under this authority, the EEOC establishes government-
wide standards on nondiscrimination in employment on the basis of 
handicap.
    One commenter proposed that the general definition of qualified 
individual with handicaps be used in this section, instead of that used 
under section 501. We believe that the above paragraphs sufficiently 
explain the need for using the section 501 definition.
    In addition to this section, Sec. 85.61(c) specifies that the agency 
will use the existing EEOC procedures to resolve allegations of 
employment discrimination.

    Section 85.41  Program accessibility: Discrimination prohibited.

    Section 85.41 states the general nondiscrimination principle 
underlying the program accessibility requirements of Secs. 85.42 and 
85.43.

       Section 85.42  Program accessibility: Existing facilities.

    This part adopts the program accessibility concept found in the 
existing section 504 coordination regulation for programs or activities 
receiving Federal financial assistance (28 CFR 41.57) with certain 
modifications. Thus, Sec. 85.42 requires that each agency program or 
activity, when viewed in its entirety, be readily accessible to and 
usable by

[[Page 374]]

individuals with handicaps. The part also makes clear that the agency is 
not required to make each of its existing facilities accessible 
(Sec. 85.42(a)(1)). However, Sec. 85.42, unlike 28 CFR 41.57, places 
explicit limits on the agency's obligation to ensure program 
accessibility (Sec. 85.42(a)(2)).
    One commenter stated that the provisions of Sec. 85.42(a)(1) were 
negatively worded and may reflect a misinterpretation of the decision of 
the Supreme Court in Grove City College v. Bell, 465 U.S. 555 (1984), 
and argued for deletion of this language.
    The language is identical to that in the section 504 regulation for 
federally assisted programs or activities. We believe that the inclusion 
of this language is necessary in order to make clear that, while every 
aspect of every Federal program or activity need not be accessible, each 
program or activity, when viewed as a whole, must be accessible.
    Another commenter recommended adding the language ``where other 
methods are equally effective in achieving compliance from Sec. 84.42(b) 
to Sec. 84.42(a)(1). We believe that, because Secs. 84.42 (a) and (b) 
treat different aspects of the subject, their language must necessarily 
differ.
    Paragraph (a)(2) generally codifies recent case law that defines the 
scope of the agency's obligation to ensure program accessibility. This 
paragraph provides that in meeting the program accessibility 
requirement, the agency is not required to take any action that would 
result in a fundamental alteration in the nature of its program or 
activity, or in undue financial and administrative burdens. A similar 
limitation is provided in Sec. 85.51(d). This provision is based on the 
Supreme Court's holding in Southeastern Community College v. Davis, 442 
U.S. 397 (1979), that section 504 does not require program modifications 
that result in a fundamental alteration in the nature of a program, and 
on the Court's statement that section 504 does not require modifications 
that would result in ``undue financial and administrative burdens.'' 442 
U.S. at 412. Since Davis, circuit courts have applied this limitation on 
a showing that only one of the two ``undue burdens'' would be created as 
a result of the modification sought to be imposed under section 504. 
See, e.g., Dopico v. Goldschmidt, 687 F.2d 644 (2d Cir. 1982); American 
Public Transit Association v. Lewis, 655 F.2d 1272 (D.C. Cir. 1981).
    Paragraph (a)(2) and Sec. 85.51(d) are also supported by the Supreme 
Court's decision in Alexander v. Choate, 469 U.S. 287 (1985). Alexander 
involved a challenge to the State of Tennessee's reduction of inpatient 
hospital care coverage under Medicaid from 20 to 14 days per year. 
Plaintiffs argued that this reduction violated section 504 because it 
had an adverse impact on handicapped persons. The Court assumed without 
deciding that section 504 reaches at least some conduct that has an 
unjustifiable disparate impact on handicapped people, but held that the 
reduction was not ``the sort of disparate impact'' discrimination that 
might be prohibited by section 504 or its implementing regulation. Id at 
299.
    Relying on Davis, the Court said that section 504 guarantees 
qualified handicapped persons ``meaningful access to the benefits the 
grantee offers,'' id. at 301, and that ``reasonable adjustments in the 
nature of the benefit offered must at times be made to assure meaningful 
access.'' Id. n.21 (emphasis added). However, section 504 does not 
require `` `changes,' `adjustments,' or `modifications' to existing 
programs that would be `substantial' * * * or that would constitute 
`fundamental alteration[s] in the nature of a program.' '' Id. at n.20 
(citations omitted). Alexander supports the position, based on Davis and 
the earlier lower court decisions, that in some situations, certain 
accommodations for a handicapped person may so alter an agency's program 
or activity, or entail such extensive costs and administrative burdens 
that the refusal to undertake the accommodations is not discriminatory. 
Thus, failure to include such an ``undue burdens'' provision could lead 
to judicial invalidation of the regulation or reversal of a particular 
enforcement action taken pursuant to the regulation.
    This paragraph, however, does not establish an absolute defense; it 
does not relieve the agency of all obligations to individuals with 
handicaps. Although the agency is not required to take actions that 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens, it 
nevertheless must take any other steps necessary to ensure that 
individuals with handicaps receive the benefits and services of the 
federally conducted program or activity.
    It is our view that compliance with Sec. 85.42(a) would in most 
cases not result in undue financial and administrative burdens on the 
agency. In determining whether financial and administrative burdens are 
undue, all agency resources available for use in the funding and 
operation of the conducted program or activity should be considered. The 
burden of proving that compliance with Sec. 85.42(a) would fundamentally 
alter the nature of a program or activity or would result in undue 
financial and administrative burdens rests with the agency. The decision 
that compliance would result in such alteration or burdens must be made 
by the agency head or his or her designee, and must be accompanied by a 
written statement of the reasons for reaching that conclusion. Any 
person who believes that he or she or any specific class of persons has 
been injured by the agency head's decision or failure to make a decision 
may file a complaint under the compliance procedures established in 
Sec. 85.61.

[[Page 375]]

The opportunity to file such a complaint responds to one commenter's 
suggestion that review by a high level Department official be assured.
    Paragraph (b)(1) sets forth a number of means by which program 
accessibility may be achieved, including redesign of equipment, 
reassignment of services to accessible buildings, and provision of 
aides. In choosing among methods, the agency shall give priority 
consideration to those that will be consistent with provision of 
services in the most integrated setting appropriate to the needs of 
individuals with handicaps. Structural changes in existing facilities 
are required only when there is no other feasible way to make the 
agency's program accessible. (It should be noted that ``structural 
changes'' include all physical changes to a facility; the term does not 
refer only to changes to structural features, such as removal of or 
alteration to a load-bearing structural member.) The agency may comply 
with the program accessibility requirement by delivering services at 
alternate accessible sites or making home visits as appropriate.
    One commenter proposed that methods other than structural changes to 
ensure accessibility should be ``equally effective''. The regulations 
implementing section 504 for federally assisted programs do not contain 
such language. The addition of the proposed language would impose a 
regulatory standard on the Department not required of recipients. In 
view of the fact that the 1978 amendments were intended to apply the 
same requirements to federally conducted programs as apply to federally 
assisted programs, the proposed language is not being adopted.
    Paragraphs (c) and (d) establish time periods for complying with the 
program accessibility requirement. As currently required for federally 
assisted programs by 28 CFR 41.57(b), the agency must make any necessary 
structural changes in facilities as soon as practicable, but in no event 
later than three (3) years after the effective date of this part. Where 
structural modifications are required and it is not expected that these 
can be completed within six months, a transition plan should be 
developed within six months of the effective date of this part. Aside 
from structural changes, all other necessary steps to achieve compliance 
shall be taken within sixty days.
    One commenter proposes to limit the time allowed for making 
structural modifications to one year. We note that the basic requirement 
is that these changes be made ``as soon as practicable,'' and that the 
three-year limit is the maximum period of time. Furthermore, the three-
year maximum for transition plans is identical to that contained in the 
regulations for federally assisted recipients.

 Section 85.43  Program accessibility: New construction and alterations.

    Overlapping coverage exists with respect to new construction and 
alterations under section 504 and the Architectural Barriers Act of 
1968, as amended (42 U.S.C. 4151-4157). Section 85.43 provides that 
those buildings that are constructed or altered by, on behalf of, or for 
the use of the agency shall be designed, constructed, or altered to be 
readily accessible to and usable by individuals with handicaps in 
accordance with 41 CFR Part 101-19, 101-19.600 to 101-19.607 (GSA 
regulation which incorporates the Uniform Federal Accessibility 
Standards). This standard was promulgated pursuant to the Architectural 
Barriers Act of 1968, as amended (42 U.S.C. 4151-4157). We believe that 
it is appropriate to adopt the existing Architectural Barriers Act 
standard for section 504 compliance because new and altered buildings 
subject to this regulation are also subject to the Architectural 
Barriers Act and because adoption of the standard will avoid duplicative 
and possibly inconsistent standards.
    Existing buildings leased by the agency after the effective date of 
this regulation are not required by the regulation to meet accessibility 
standards simply by virtue of being leased. They are subject, however, 
to the program accessibility standards for existing facilities in 
Sec. 85.42. To the extent the buildings are newly constructed or 
altered, they must also meet the new constructions and alteration 
requirements of Sec. 85.43.
    Federal practice under section 504 has always treated newly leased 
buildings as subject to the existing facility program accessibility 
standard. Unlike the construction of new buildings where architectural 
barriers can be avoided at little or no cost, the application of new 
construction standards to an existing building being leased raises the 
same prospect of retrofitting buildings as the use of an existing 
Federal facility, and the agency believes that same program 
accessibility standards should apply to both owned and leased existing 
buildings.
    In Rose v. United States Postal Service, 774 F.2d 1355 (9th Cir. 
1985), the Ninth Circuit held that the Architectural Barriers Act 
requires accessibility at the time of lease. The Rose court did not 
address the question of whether section 504 likewise requires 
accessibility as a condition of lease, and the case was remanded to the 
District Court for, among other things, consideration of this issue. Two 
commenters urged that leased buildings be required to be accessible at 
the time of lease. The agency may provide more specific guidance on 
section 504 requirements for leased buildings after the litigation is 
completed.

[[Page 376]]

                     Section 85.51  Communications.

    Section 85.51 requires the agency to take appropriate steps to 
ensure effective communication with personnel of other Federal entities, 
applicants, participants, and members of the public. These steps shall 
include procedures for determining when auxiliary aids are necessary 
under Sec. 85.1(a)(1) to afford an individual with handicaps an equal 
opportunity to participate in, and enjoy the benefits of, the agency's 
program or activity. They shall also include an opportunity for 
individuals with handicaps to request the auxiliary aids of their 
choice. This expressed choice shall be given primary consideration by 
the agency (Sec. 85.51(a)(1)(i)). The agency shall honor the choice 
unless it can demonstrate that another effective means of communication 
exists or that use of the means chosen would not be required under 
Sec. 85.51(d). That paragraph limits the obligations of the agency to 
ensure effective communication in accordance with Davis and the circuit 
court opinions interpreting it (see supra preamble discussion of 
Sec. 85.42(c)(2)). Unless not required by Sec. 85.51(d), the agency 
shall provide auxiliary aids at no cost to the individual with 
handicaps.
    One commenter proposed that the choice of auxiliary aid made by the 
individual with handicaps should govern unless it would constitute an 
undue hardship on the agency. We believe that the language set out above 
is adequate to ensure consideration of an individual's preference.
    Another commenter proposed that the regulation require all films and 
videotapes produced by the agency to be captioned for the hearing-
impaired. The Department intends to examine all appropriate methods of 
ensuring effective communication.
    The same commenter applauded HHS for the inclusion of the language 
requiring HHS to inform individuals with handicaps of their section 504 
rights.
    The discussion of Sec. 85.42(a), Program accessibility, Existing 
facilities, regarding the determination of what constitutes undue 
financial and administrative burdens, also applies to Sec. 85.51(d) and 
should be referred to for a complete understanding of the agency's 
obligation to comply with Sec. 85.51.
    In some circumstances, a notepad and written materials may be 
sufficient to permit effective communication with a hearing-impaired 
person. In many circumstances, however, they may not be, particularly 
when the information being communicated is complex or exchanged for a 
lengthy period of time (e.g. a meeting) or where the hearing-impaired 
applicant or participant is not skilled in spoken or written language. 
In these cases, a sign language interpreter may be appropriate.
    One commenter proposed changing the language to state that notepads 
rarely suffice for communication with the hearing-impaired. Considering 
that a significant number of the hearing-impaired may not be skilled in 
sign language, we believe that the language used is appropriate.
    For vision-impaired persons, effective communication might be 
achieved by several means, including readers and audio recordings. In 
general, the agency intends to inform the public of (1) the 
communications services it offers to afford individuals with handicaps 
an equal opportunity to participate in or benefit from its programs and 
activities, (2) the opportunity to request a particular mode of 
communication, and (3) the agency's preferences regarding auxiliary aids 
if it can demonstrate that several different modes are effective.
    The agency shall ensure effective communication with vision-impaired 
and hearing-impaired persons involved in proceedings conducted by the 
agency. Auxiliary aids must be afforded where necessary to ensure 
effective communication at the proceedings. If sign language 
interpreters are necessary, the agency may require that it be given 
reasonable notice prior to the proceedings of the need for an 
interpreter. Moreover, the agency need not provide individually 
prescribed devices, readers for personal use or study, or other devices 
of a personal nature (Sec. 85.51(a)(1)(ii)). For example, the agency 
need not provide eye glasses or hearing aids to applicants or 
participants in its programs. Similarly, the regulation does not require 
the agency to provide wheelchairs to persons with mobility impairments.
    One commenter proposed that the items which agencies are not 
required to provide and the circumstances involved be described in more 
detail. We believe that the description given is sufficient, because the 
interpretation of this provision will be made on a case-by-case basis.
    Paragraph (b) requires the agency to ensure that individuals with 
handicaps can obtain information concerning accessible services, 
activities, and facilities.
    Paragraph (c) requires the agency to provide signage at inaccessible 
facilities that direct users to locations with information about 
accessible facilities.
    One commenter suggested specifically mentioning the international 
symbol for deafness, and placing such signs at the main entrance of 
buildings equipped to service the hearing-impaired. We believe that the 
language contained in Secs. 85.51 (b) and (c) requires the agency to 
ensure that individuals with handicaps, including those with impaired 
hearing, can obtain information regarding accessibility, and that this 
requirement is sufficient to afford flexibility on the part of the 
agency regarding use of appropriate signage.
    One commenter proposed adding the words ``in the most integrated 
setting appropriate''

[[Page 377]]

to the language in Sec. 85.51(d). This language already appears 
elsewhere in the regulation, e.g. in Sec. 85.42(b)(2), and it is the 
Department's intention to act in accordance with that provision.

                  Section 85.61  Compliance procedures.

    Paragraph (a) specifies that paragraphs (b) and (d) through (l) of 
this section establish the procedures for processing complaints other 
than employment complaints. Paragraph (c) provides that the agency will 
process employment complaints according to procedures established in 
existing regulations of the EEOC (29 CFR Part 1613) pursuant to section 
501 of the Rehabilitation Act of 1973 (29 U.S.C. 791).
    Paragraph (b) designates the official responsible for coordinating 
implementation of Sec. 85.61. The NPRM stated that responsibility for 
the implementation and operation of this ``part'' shall be vested in the 
OCR Director/Special Assistant. The final rule has been revised by 
replacing the word ``part'' with the word ``section'' to clarify the 
responsibility for coordinating implementation of Sec. 85.61.
    The agency is required to accept and investigate all complete 
complaints (Sec. 85.61(d)). Two commenters suggested that a complainant 
have an opportunity to remedy an incomplete complaint. Current 
administrative procedures provide for this practice and it need not be 
included in the text of the regulation.
    If the agency determines that it does not have jurisdiction over a 
complaint, it shall promptly notify the complainant and make reasonable 
efforts to refer the complaint to the appropriate entity of the Federal 
Government (Sec. 85.61(e)). One commenter pointed out that where a 
reference to another entity of the Federal government is required, the 
obligation to refer should be absolute, not limited to reasonable 
efforts. The language ``shall make reasonable efforts to refer'' is not 
intended to minimize the Department's obligation.
    Paragraph (f) requires the agency to notify the Architectural and 
Transportation Barriers Compliance Board (ATBCB) upon receipt of a 
complaint alleging that a building or facility subject to the 
Architectural Barriers Act was designed, constructed, or altered in a 
manner that does not provide ready access and use by individuals with 
handicaps.
    Paragraph (g) requires the agency to provide to the complainant, in 
writing, findings of fact and conclusions of law, the relief granted if 
noncompliance is found, and notice of the right to appeal 
(Sec. 85.61(g)). One appeal within the agency shall be provided 
(Sec. 85.61(i)). The appeal will not be heard by the same person who 
made the initial determination of compliance or noncompliance.
    Paragraph (1) permits the agency to delegate its authority for 
investigating complaints to other Federal agencies. However, the 
statutory obligation of the agency to make a final determination of 
compliance or noncompliance may not be delegated.
    Commenters have suggested the following:
    Notifying complainants whenever their complaints are referred to 
another agency. Current administrative procedures provide for this 
practice and it need not be included in the text of the regulation.
    Describing the basic parameters for submitting or obtaining evidence 
used to decide appeals. Since the grounds for appeal may be extremely 
varied, it would not be practicable to set out parameters for every 
appeal.
    Including a statement as to complainants' rights to judicial review. 
These rights are statutory and beyond the scope of this regulation.
    Obtaining the expertise of ATBCB in appropriate cases. A provision 
regarding notification of ATBCB is already included in the regulation.
    Including a statement that all other regulations, forms and 
directives issued by HHS are superseded by the nondiscrimination 
requirements of this part. The Department views any other issuances 
falling short of the requirements of this regulation as insufficient to 
ensure compliance and therefore such a statement is unnecessary.
    Provisions for attorneys fees and compensation to the prevailing 
party. Such provisions are statutory and beyond the scope of this 
regulation.

      Section 85.62  Coordination and compliance responsibilities.

    Section 85.62 sets out the respective responsibilities of the 
components of HHS and of the Director, OCR/Special Assistant in the 
implementation of section 504 to programs and activities conducted by 
HHS.
    Paragraph (c) specifies the respective roles of OCR and of the HHS 
component in cases in which noncompliance is found.
    In the event that OCR and the HHS component cannot agree on a 
resolution of any particular matter, such matter will be submitted to 
the Secretary for resolution.



PART 86--NONDISCRIMINATION ON THE BASIS OF SEX IN EDUCATION PROGRAMS AND ACTIVITIES RECEIVING OR BENEFITING FROM FEDERAL FINANCIAL ASSISTANCE--Table of Contents




                         Subpart A--Introduction

Sec.
86.1  Purpose and effective date.
86.2  Definitions.
86.3  Remedial and affirmative action and self-evaluation.

[[Page 378]]

86.4  Assurance required.
86.5  Transfers of property.
86.6  Effect of other requirements.
86.7  Effect of employment opportunities.
86.8  Designation of responsible employee and adoption of grievance 
          procedures.
86.9  Dissemination of policy.

                           Subpart B--Coverage

86.11  Application.
86.12  Educational institutions controlled by religious organizations.
86.13  Military and merchant marine educational institutions.
86.14  Membership practices of certain organizations.
86.15  Admissions.
86.16  Educational institutions eligible to submit transition plans.
86.17  Transition plans.
86.18-86.20  [Reserved]

     Subpart C--Discrimination on the Basis of Sex In Admission and 
                         Recruitment Prohibited

86.21  Admission.
86.22  Preference in admission.
86.23  Recruitment.
86.24-86.30  [Reserved]

Subpart D--Discrimination on the Basis of Sex in Education Programs and 
                          Activities Prohibited

86.31  Education programs and activities.
86.32  Housing.
86.33  Comparable facilities.
86.34  Access to course offerings.
86.35  Access to schools operated by L.E.A.s.
86.36  Counseling and use of appraisal and counseling materials.
86.37  Financial assistance.
86.38  Employment assistance to students.
86.39  Health and insurance benefits and services.
86.40  Marital or parental status.
86.41  Athletics.
86.42  Textbooks and curricular material.
86.43-86.50  [Reserved]

Subpart E--Discrimination on the Basis of Sex In Employment in Education 
                   Programs and Activities Prohibited

86.51  Employment.
86.52  Employment criteria.
86.53  Recruitment.
86.54  Compensation.
86.55  Job classification and structure.
86.56  Fringe benefits.
86.57  Marital or parental status.
86.58  Effect of State or local law or other requirements.
86.59  Advertising.
86.60  Pre-employment inquiries.
86.61  Sex as bona-fide occupational qualification.
86.62-86.70  [Reserved]

                     Subpart F--Procedures [Interim]

86.71  Interim procedures.

Subject Index to Title IX Preamble and Regulation
Appendix A to Part 86--Guidelines For Eliminating Discrimination and 
          Denial of Services on the Basis of Race, Color, National 
          Origin, Sex, and Handicap in Vocational Education Programs 
          [Note]

    Source: 40 FR 24137, June 4, 1975, unless otherwise noted.



                         Subpart A--Introduction



Sec. 86.1  Purpose and effective date.

    The purpose of this part is to effectuate title IX of the Education 
Amendments of 1972, as amended by Pub. L. 93-568, 88 Stat. 1855 (except 
sections 904 and 906 of those Amendments) which is designed to eliminate 
(with certain exceptions) discrimination on the basis of sex in any 
education program or activity receiving Federal financial assistance, 
whether or not such program or activity is offered or sponsored by an 
educational institution as defined in this part. This part is also 
intended to effectuate section 844 of the Education Amendments of 1974, 
Pub. L. 93-380, 88 Stat. 484. The effective date of this part shall be 
July 21, 1975.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682, as amended by Pub. L. 93-568, 88 Stat. 1855, and sec. 
844, Education Amendments of 1974, 88 Stat. 484, Pub. L. 93-380)



Sec. 86.2  Definitions.

    As used in this part, the term--
    (a) Title IX means title IX of the Education Amendments of 1972, 
Pub. L. 92-318, as amended by section 3 of Pub. L. 93-568, 88 Stat. 
1855, except sections 904 and 906 thereof; 20 U.S.C. 1681, 1682, 1683, 
1685, 1686.
    (b) Department means the Department of Health and Human Services.
    (c) Secretary means the Secretary of Health and Human Services.
    (d) Director means the Director of the Office for Civil Rights of 
the Department.

[[Page 379]]

    (e) Reviewing Authority means that component of the Department 
delegated authority by the Secretary to appoint, and to review the 
decisions of, administrative law judges in cases arising under this 
part.
    (f) Administrative law judge means a person appointed by the 
reviewing authority to preside over a hearing held under this part.
    (g) Federal financial assistance means any of the following, when 
authorized or extended under a law administered by the Department:
    (1) A grant or loan of Federal financial assistance, including funds 
made available for:
    (i) The acquisition, construction, renovation, restoration, or 
repair of a building or facility or any portion thereof; and
    (ii) Scholarships, loans, grants, wages or other funds extended to 
any entity for payment to or on behalf of students admitted to that 
entity, or extended directly to such students for payment to that 
entity.
    (2) A grant of Federal real or personal property or any interest 
therein, including surplus property, and the proceeds of the sale or 
transfer of such property, if the Federal share of the fair market value 
of the property is not, upon such sale or transfer, properly accounted 
for to the Federal Government.
    (3) Provision of the services of Federal personnel.
    (4) Sale or lease of Federal property or any interest therein at 
nominal consideration, or at consideration reduced for the purpose of 
assisting the recipient or in recognition of public interest to be 
served thereby, or permission to use Federal property or any interest 
therein without consideration.
    (5) Any other contract, agreement, or arrangement which has as one 
of its purposes the provision of assistance to any education program or 
activity, except a contract of insurance or guaranty.
    (h) Recipient means any State or political subdivision thereof, or 
any instrumentality of a State or political subdivision thereof, any 
public or private agency, institution, or organization, or other entity, 
or any person, to whom Federal financial assistance is extended directly 
or through another recipient and which operates an education program or 
activity which receives or benefits from such assistance, including any 
subunit, successor, assignee, or transferee thereof.
    (i) Applicant means one who submits an application, request, or plan 
required to be approved by a Department official, or by a recipient, as 
a condition to becoming a recipient.
    (j) Educational institution means a local educational agency 
(L.E.A.) as defined by section 801(f) of the Elementary and Secondary 
Education Act of 1965 (20 U.S.C. 881), a preschool, a private elementary 
or secondary school, or an applicant or recipient of the type defined by 
paragraph (k), (l), (m), or (n) of this section.
    (k) Institution of graduate higher education means an institution 
which:
    (1) Offers academic study beyond the bachelor of arts or bachelor of 
science degree, whether or not leading to a certificate of any higher 
degree in the liberal arts and sciences; or
    (2) Awards any degree in a professional field beyond the first 
professional degree (regardless of whether the first professional degree 
in such field is awarded by an institution of undergraduate higher 
education or professional education); or
    (3) Awards no degree and offers no further academic study, but 
operates ordinarily for the purpose of facilitating research by persons 
who have received the highest graduate degree in any field of study.
    (l) Institution of undergraduate higher education means:
    (1) An institution offering at least two but less than four years of 
college level study beyond the high school level, leading to a diploma 
or an associate degree, or wholly or principally creditable toward a 
baccalaureate degree; or
    (2) An institution offering academic study leading to a 
baccalaureate degree; or
    (3) An agency or body which certifies credentials or offers degrees, 
but which may or may not offer academic study.
    (m) Institution of professional education means an institution 
(except any institution of undergraduate higher education) which offers 
a program of

[[Page 380]]

academic study that leads to a first professional degree in a field for 
which there is a national specialized accrediting agency recognized by 
the United States Commissioner of Education.
    (n) Institution of vocational education means a school or 
institution (except an institution of professional or graduate or 
undergraduate higher education) which has as its primary purpose 
preparation of students to pursue a technical, skilled, or semiskilled 
occupation or trade, or to pursue study in a technical field, whether or 
not the school or institution offers certificates, diplomas, or degrees 
and whether or not it offers fulltime study.
    (o) Administratively separate unit means a school, department or 
college of an educational institution (other than a local educational 
agency) admission to which is independent of admission to any other 
component of such institution.
    (p) Admission means selection for part-time, full-time, special, 
associate, transfer, exchange, or any other enrollment, membership, or 
matriculation in or at an education program or activity operated by a 
recipient.
    (q) Student means a person who has gained admission.
    (r) Transition plan means a plan subject to the approval of the 
United States Commissioner of Education pursuant to section 901(a)(2) of 
the Education Amendments of 1972, under which an educational institution 
operates in making the transition from being an educational institution 
which admits only students of one sex to being one which admits students 
of both sexes without discrimination.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.3  Remedial and affirmative action and self-evaluation.

    (a) Remedial action. If the Director finds that a recipient has 
discriminated against persons on the basis of sex in an education 
program or activity, such recipient shall take such remedial action as 
the Director deems necessary to overcome the effects of such 
discrimination.
    (b) Affirmative action. In the absence of a finding of 
discrimination on the basis of sex in an education program or activity, 
a recipient may take affirmative action to overcome the effects of 
conditions which resulted in limited participation therein by persons of 
a particular sex. Nothing herein shall be interpreted to alter any 
affirmative action obligations which a recipient may have under 
Executive Order 11246.
    (c) Self-evaluation. Each recipient education institution shall, 
within one year of the effective date of this part:
    (1) Evaluate, in terms of the requirements of this part, its current 
policies and practices and the effects thereof concerning admission of 
students, treatment of students, and employment of both academic and 
non-academic personnel working in connection with the recipient's 
education program or activity;
    (2) Modify any of these policies and practices which do not or may 
not meet the requirements of this part; and
    (3) Take appropriate remedial steps to eliminate the effects of any 
discrimination which resulted or may have resulted from adherence to 
these policies and practices.
    (d) Availability of self-evaluation and related materials. 
Recipients shall maintain on file for at least three years following 
completion of the evaluation required under paragraph (c) of this 
section, and shall provide to the Director upon request, a description 
of any modifications made pursuant to paragraph (c) (2) of this section 
and of any remedial steps taken pursuant to paragraph (c) (3) of this 
section.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)

[40 FR 24128, June 4, 1975; 40 FR 39506, Aug. 28, 1975]



Sec. 86.4  Assurance required.

    (a) General. Every application for Federal financial assistance for 
any education program or activity shall as condition of its approval 
contain or be accompanied by an assurance from the applicant or 
recipient, satisfactory to the Director, that each education program or 
activity operated by the applicant or recipient and to which this part 
applies will be operated in compliance with this part. An assurance of 
compliance with this part shall not be satisfactory to the Director if 
the applicant or recipient to whom such assurance

[[Page 381]]

applies fails to commit itself to take whatever remedial action is 
necessary in accordance with Sec. 86.3(a) to eliminate existing 
discrimination on the basis of sex or to eliminate the effects of past 
discrimination whether occurring prior or subsequent to the submission 
to the Director of such assurance.
    (b) Duration of obligation. (1) In the case of Federal financial 
assistance extended to provide real property or structures thereon, such 
assurance shall obligate the recipient or, in the case of a subsequent 
transfer, the transferee, for the period during which the real property 
or structures are used to provide an education program or activity.
    (2) In the case of Federal financial assistance extended to provide 
personal property, such assurance shall obligate the recipient for the 
period during which it retains ownership or possession of the property.
    (3) In all other cases such assurance shall obligate the recipient 
for the period during which Federal financial assistance is extended.
    (c) Form. The Director will specify the form of the assurances 
required by paragraph (a) of this section and the extent to which such 
assurances will be required of the applicant's or recipient's 
subgrantees, contractors, subcontractors, transferees, or successors in 
interest.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.5  Transfers of property.

    If a recipient sells or otherwise transfers property financed in 
whole or in part with Federal financial assistance to a transferee which 
operates any education program or activity, and the Federal share of the 
fair market value of the property is not upon such sale or transfer 
properly accounted for to the Federal Government both the transferor and 
the transferee shall be deemed to be recipients, subject to the 
provisions of Subpart B of this part.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.6  Effect of other requirements.

    (a) Effect of other Federal provisions. The obligations imposed by 
this part are independent of, and do not alter, obligations not to 
discriminate on the basis of sex imposed by Executive Order 11246, as 
amended; sections 799A and 845 of the Public Health Service Act (42 
U.S.C. 295h-9 and 298b-2); Title VII of the Civil Rights Act of 1964 (42 
U.S.C. 2000e et seq.); the Equal Pay Act (29 U.S.C. 206 and 206(d)); and 
any other Act of Congress or Federal regulation.


(Secs. 901, 902, 905, Education Amendments of 1972, 86 Stat. 373, 374, 
375; 20 U.S.C. 1681, 1682, 1685)

    (b) Effect of State or local law or other requirements. The 
obligation to comply with this part is not obviated or alleviated by any 
State or local law or other requirement which would render any applicant 
or student ineligible, or limit the eligibility of any applicant or 
student, on the basis of sex, to practice any occupation or profession.
    (c) Effect of rules or regulations of private organizations. The 
obligation to comply with this part is not obviated or alleviated by any 
rule or regulation of any organization, club, athletic or other league, 
or association which would render any applicant or student ineligible to 
participate or limit the eligibility or participation of any applicant 
or student, on the basis of sex, in any education program or activity 
operated by a recipient and which receives or benefits from Federal 
financial assistance.


(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.7  Effect of employment opportunities.

    The obligation to comply with this part is not obviated or 
alleviated because employment opportunities in any occupation or 
profession are or may be more limited for members of one sex than for 
members of the other sex.


(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.8  Designation of responsible employee and adoption of grievance procedures.

    (a) Designation of responsible employee. Each recipient shall 
designate at least one employee to coordinate its efforts

[[Page 382]]

to comply with and carry out its responsibilities under this part, 
including any investigation of any complaint communicated to such 
recipient alleging its noncompliance with this part or alleging any 
actions which would be prohibited by this part. The recipient shall 
notify all its students and employees of the name, office address and 
telephone number of the employee or employees appointed pursuant to this 
paragraph.
    (b) Complaint procedure of recipient. A recipient shall adopt and 
publish grievance procedures providing for prompty and equitable 
resolution of student and employee complaints alleging any action which 
would be prohibited by this part.


(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.9  Dissemination of policy.

    (a) Notification of policy. (1) Each recipient shall implement 
specific and continuing steps to notify applicants for admission and 
employment, students and parents of elementary and secondary school 
students, employees, sources of referral of applicants for admission and 
employment, and all unions or professional organizations holding 
collective bargaining or professional agreements with the recipient, 
that it does not discriminate on the basis of sex in the educational 
programs or activities which it operates, and that is required by title 
IX and this part not to discriminate in such a manner. Such notification 
shall contain such information, and be made in such manner, as the 
Director finds necessary to apprise such persons of the protections 
against discrimination assured them by title IX and this part, but shall 
state at least that the requirement not to discriminate in education 
programs and activities extends to employment therein, and to admission 
thereto unless Subpart C does not apply to the recipient, and that 
inquiries concerning the application of title IX and this part to such 
recipient may be referred to the employee designated pursuant to 
Sec. 86.8, or to the Director.
    (2) Each recipient shall make the initial notification required by 
paragraph (a) (1) of this section within 90 days of the effective date 
of this part or of the date this part first applies to such recipient, 
whichever comes later, which notification shall include publication in:
    (i) Local newspapers;
    (ii) Newspapers and magazines operated by such recipient or by 
student, alumnae, or alumni groups for or in connection with such 
recipient; and
    (iii) Memoranda or other written communications distributed to every 
student and employee of such recipient.
    (b) Publications. (1) Each recipient shall prominently include a 
statement of the policy described in paragraph (a) of this section in 
each announcement, bulletin, catalog, or application form which it makes 
available to any person of a type, described in paragraph (a) of this 
section, or which is otherwise used in connection with the recruitment 
of students or employees.
    (2) A recipient shall not use or distribute a publication of the 
type described in this paragraph which suggests, by text or 
illustration, that such recipient treats applicants, students, or 
employees differently on the basis of sex except as such treatment is 
permitted by this part.
    (c) Distribution. Each recipient shall distribute without 
discrimination on the basis of sex each publication described in 
paragraph (b) of this section, and shall apprise each of its admission 
and employment recruitment representatives of the policy of 
nondiscrimination described in paragraph (a) of this section, and 
require such representatives to adhere to such policy.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



                           Subpart B--Coverage



Sec. 86.11  Application.

    Except as provided in this subpart, this Part 86 applies to every 
recipient and to each education program or activity operated by such 
recipient which receives or benefits from Federal financial assistance.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)

[[Page 383]]



Sec. 86.12  Educational institutions controlled by religious organizations.

    (a) Application. This part does not apply to an educational 
institution which is controlled by a religious organization to the 
extent application of this part would not be consistent with the 
religious tenets of such organization.
    (b) Exemption. An educational institution which wishes to claim the 
exemption set forth in paragraph (a) of this section, shall do so by 
submitting in writing to the Director a statement by the highest ranking 
official of the institution, identifying the provisions of this part 
which conflict with a specific tenet of the religious organization.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.13  Military and merchant marine educational institutions.

    This part does not apply to an educational institution whose primary 
purpose is the training of individuals for a military service of the 
United States or for the merchant marine.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.14  Membership practices of certain organizations.

    (a) Social fraternities and sororities. This part does not apply to 
the membership practices of social fraternities and sororities which are 
exempt from taxation under section 501(a) of the Internal Revenue Code 
of 1954, the active membership of which consists primarily of students 
in attendance at institutions of higher education.
    (b) YMCA, YWCA, Girl Scouts, Boy Scouts and Camp Fire Girls. This 
part does not apply to the membership practices of the Young Men's 
Christian Association, the Young Women's Christian Association, the Girl 
Scouts, the Boy Scouts and Camp Fire Girls.
    (c) Voluntary youth service organizations. This part does not apply 
to the membership practices of voluntary youth service organizations 
which are exempt from taxation under section 501(a) of the Internal 
Revenue Code of 1954 and the membership of which has been traditionally 
limited to members of one sex and principally to persons of less than 
nineteen years of age.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682; sec. 3(a) of Pub. L. 93-568, 88 Stat. 1862 amending 
sec. 901)



Sec. 86.15  Admissions.

    (a) Admissions to educational institutions prior to June 24, 1973, 
are not covered by this part.
    (b) Administratively separate units. For the purposes only of this 
section, Secs. 86.16 and 86.17, and Subpart C, each administratively 
separate unit shall be deemed to be an educational institution.
    (c) Application of Subpart C. Except as provided in paragraphs (d) 
and (e) of this section, Subpart C applies to each recipient. A 
recipient to which Subpart C applies shall not discriminate on the basis 
of sex in admission or recruitment in violation of that subpart.
    (d) Educational institutions. Except as provided in paragraph (e) of 
this section as to recipients which are educational institutions, 
Subpart C applies only to institutions of vocational education, 
professional education, graduate higher education, and public 
institutions of undergraduate higher education.
    (e) Public institutions of undergraduate higher education. Subpart C 
does not apply to any public institution of undergraduate higher 
education which traditionally and continually from its establishment has 
had a policy of admitting only students of one sex.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)

[40 FR 24128, June 4, 1975; 40 FR 39506, Aug. 28, 1975]



Sec. 86.16  Educational institutions eligible to submit transition plans.

    (a) Application. This section applies to each educational 
institution to which Subpart C applies which:
    (1) Admitted only students of one sex as regular students as of June 
23, 1972; or
    (2) Admitted only students of one sex as regular students as of June 
23, 1965, but thereafter admitted as regular students, students of the 
sex not admitted prior to June 23, 1965.

[[Page 384]]

    (b) Provision for transition plans. An educational institution to 
which this section applies shall not discriminate on the basis of sex in 
admission or recruitment in violation of Subpart C unless it is carrying 
out a transition plan approved by the United States Commissioner of 
Education as described in Sec. 86.17, which plan provides for the 
elimination of such discrimination by the earliest practicable date but 
in no event later than June 23, 1979.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.17  Transition plans.

    (a) Submission of plans. An institution to which Sec. 86.16 applies 
and which is composed of more than one administratively separate unit 
may submit either a single transition plan applicable to all such units, 
or a separate transition plan applicable to each such unit.
    (b) Content of plans. In order to be approved by the United States 
Commissioner of Education, a transition plan shall:
    (1) State the name, address, and Federal Interagency Committee on 
Education (FICE) Code of the educational institution submitting such 
plan, the administratively separate units to which the plan is 
applicable, and the name, address, and telephone number of the person to 
whom questions concerning the plan may be addressed. The person who 
submits the plan shall be the chief administrator or president of the 
institution, or another individual legally authorized to bind the 
institution to all actions set forth in the plan.
    (2) State whether the educational institution or administratively 
separate unit admits students of both sexes, as regular students and, if 
so, when it began to do so.
    (3) Identify and describe with respect to the educational 
institution or administratively separate unit any obstacles to admitting 
students without discrimination on the basis of sex.
    (4) Describe in detail the steps necessary to eliminate as soon as 
practicable each obstacle so identified and indicate the schedule for 
taking these steps and the individual directly responsible for their 
implementation.
    (5) Include estimates of the number of students, by sex, expected to 
apply for, be admitted to, and enter each class during the period 
covered by the plan.
    (c) Nondiscrimination. No policy or practice of a recipient to which 
Sec. 86.16 applies shall result in treatment of applicants to or 
students of such recipient in violation of Subpart C unless such 
treatment is necessitated by an obstacle identified in paragraph (b)(3) 
of this section and a schedule for eliminating that obstacle has been 
provided as required by paragraph (b)(4) of this section.
    (d) Effects of past exclusion. To overcome the effects of past 
exclusion of students on the basis of sex, each educational institution 
to which Sec. 86.16 applies shall include in its transition plan, and 
shall implement, specific steps designed to encourage individuals of the 
previously excluded sex to apply for admission to such institution. Such 
steps shall include instituting recruitment programs which emphasize the 
institution's commitment to enrolling students of the sex previously 
excluded.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)

[40 FR 24128, June 4, 1975; 40 FR 39506, Aug. 28, 1975]



Secs. 86.18-86.20  [Reserved]



     Subpart C--Discrimination on the Basis of Sex in Admission and 
                         Recruitment Prohibited



Sec. 86.21  Admission.

    (a) General. No person shall, on the basis of sex, be denied 
admission, or be subjected to discrimination in admission, by any 
recipient to which this subpart applies, except as provided in 
Secs. 86.16 and 86.17.
    (b) Specific prohibitions. (1) In determining whether a person 
satisfies any policy or criterion for admission, or in making any offer 
of admission, a recipient to which this subpart applies shall not:
    (i) Give preference to one person over another on the basis of sex, 
by ranking applicants separately on such basis, or otherwise;

[[Page 385]]

    (ii) Apply numerical limitations upon the number or proportion of 
persons of either sex who may be admitted; or
    (iii) Otherwise treat one individual differently from another on the 
basis of sex.
    (2) A recipient shall not administer or operate any test or other 
criterion for admission which has a disproportionately adverse effect on 
persons on the basis of sex unless the use of such test or criterion is 
shown to predict validly success in the education program or activity in 
question and alternative tests or criteria which do not have such a 
disproportionately adverse effect are shown to be unavailable.
    (c) Prohibitions relating to marital or parental status. In 
determining whether a person satisfies any policy or criterion for 
admission, or in making any offer of admission, a recipient to which 
this subpart applies:
    (1) Shall not apply any rule concerning the actual or potential 
parental, family, or marital status of a student or applicant which 
treats persons differently on the basis of sex;
    (2) Shall not discriminate against or exclude any person on the 
basis of pregnancy, childbirth, termination of pregnancy, or recovery 
therefrom, or establish or follow any rule or practice which so 
discriminates or excludes;
    (3) Shall treat disabilities related to pregnancy, childbirth, 
termination of pregnancy, or recovery therefrom in the same manner and 
under the same policies as any other temporary disability or physical 
condition; and
    (4) Shall not make pre-admission inquiry as to the marital status of 
an applicant for admission, including whether such applicant is ``Miss'' 
or ``Mrs.'' A recipient may make pre-admission inquiry as to the sex of 
an applicant for admision, but only if such inquiry is made equally of 
such applicants of both sexes and if the results of such inquiry are not 
used in connection with discrimination prohibited by this part.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.22  Preference in admission.

    A recipient to which this subpart applies shall not give preference 
to applicants for admission, on the basis of attendance at any 
educational institution or other school or entity which admits as 
students or predominantly members of one sex, if the giving of such 
preference has the effect of discriminating on the basis of sex in 
violation of this subpart.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.23  Recruitment.

    (a) Nondiscriminatory recruitment. A recipient to which this subpart 
applies shall not discriminate on the basis of sex in the recruitment 
and admission of students. A recipient may be required to undertake 
additional recruitment efforts for one sex as remedial action pursuant 
to Sec. 86.3(a), and may choose to undertake such efforts as affirmative 
action pursuant to Sec. 86.3(b).
    (b) Recruitment at certain institutions. A recipient to which this 
subpart applies shall not recruit primarily or exclusively at 
educational institutions, schools or entities which admit as students 
only or predominantly members of one sex, if such actions have the 
effect of discriminating on the basis of sex in violation of this 
subpart.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Secs. 86.24-86.30  [Reserved]



Subpart D--Discrimination on the Basis of Sex in Education Programs and 
                          Activities Prohibited



Sec. 86.31  Education programs and activities.

    (a) General. Except as provided elsewhere in this part, no person 
shall, on the basis of sex, be excluded from participation in, be denied 
the benefits of, or be subjected to discrimination under any academic, 
extracurricular, research, occupational training, or other education 
program or activity operated by a recipient which receives of benefits 
from Federal financial assistance. This subpart does not apply to 
actions of a recipient in connection with admission of its students to 
an education program or activity of (1) a recipient to which Subpart C 
does not apply, or (2) an entity, not a recipient, to which

[[Page 386]]

Subpart C would not apply if the entity were a recipient.
    (b) Specific prohibitions. Except as provided in this subpart, in 
providing any aid, benefit, or service to a student, a recipient shall 
not, on the basis of sex:
    (1) Treat one person differently from another in determining whether 
such person satisfies any requirement or condition for the provision of 
such aid, benefit, or service;
    (2) Provide different aid, benefits, or services or provide aid, 
benefits, or services in a different manner;
    (3) Deny any person any such aid, benefit, or service;
    (4) Subject any person to separate or different rules of behavior, 
sanctions, or other treatment;
    (5) Discriminate against any person in the application of any rules 
of appearance;
    (6) Apply any rule concerning the domicile or residence of a student 
or applicant, including eligibility for in-state fees and tuition;
    (7) Aid or perpetuate discrimination against any person by providing 
significant assistance to any agency, organization, or person which 
discriminates on the basis of sex in providing any aid, benefit or 
service to students or employees;
    (8) Otherwise limit any person in the enjoyment of any right, 
privilege, advantage, or opportunity.
    (c) Assistance administered by a recipient educational institution 
to study at a foreign institution. A recipient educational institution 
may administer or assist in the administration of scholarships, 
fellowships, or other awards established by foreign or domestic wills, 
trusts, or similar legal instruments, or by acts of foreign governments 
and restricted to members of one sex, which are designed to provide 
opportunities to study abroad, and which are awarded to students who are 
already matriculating at or who are graduates of the recipient 
institution; Provided, a recipient educational institution which 
administers or assists in the administration of such scholarships, 
fellowship, or other awards which are restricted to members of one sex 
provides, or otherwise makes available reasonable opportunities for 
similar studies for members of the other sex. Such opportunities may be 
derived from either domestic or foreign sources.
    (d) Programs not operated by recipient. (1) This paragraph applies 
to any recipient which requires participation by any applicant, student, 
or employee in any education program or activity not operated wholly by 
such recipient, or which facilitates, permits, or considers such 
participation as part of or equivalent to an education program or 
activity operated by such recipient, including participation in 
educational consortia and cooperative employment and student-teaching 
assignments.
    (2) Such recipient;
    (i) Shall develop and implement a procedure designed to assure 
itself that the operator or sponsor of such other education program or 
activity takes no action affecting any applicant, student, or employee 
of such recipient which this part would prohibit such recipient from 
taking; and
    (ii) Shall not facilitate, require, permit, or consider such 
participation if such action occurs.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.32  Housing.

    (a) Generally. A recipient shall not, on the basis of sex, apply 
different rules or regulations, impose different fees or requirements, 
or offer different services or benefits related to housing, except as 
provided in this section (including housing provided only to married 
students).
    (b) Housing provided by recipient. (1) A recipient may provide 
separate housing on the basis of sex.
    (2) Housing provided by a recipient to students of one sex, when 
compared to that provided to students of the other sex, shall be as a 
whole:
    (i) Proportionate in quantity to the number of students of that sex 
applying for such housing; and
    (ii) Comparable in quality and cost to the student.
    (c) Other housing. (1) A recipient shall not, on the basis of sex, 
administer different policies or practices concerning occupancy by its 
students of housing other than provided by such recipient.
    (2) A recipient which, through solicitation, listing, approval of 
housing, or

[[Page 387]]

otherwise, assists any agency, organization, or person in making housing 
available to any of its students, shall take such reasonable action as 
may be necessary to assure itself that such housing as is provided to 
students of one sex, when compared to that provided to students of the 
other sex, is as a whole: (i) Proportionate in quantity and (ii) 
comparable in quality and cost to the student. A recipient may render 
such assistance to any agency, organization, or person which provides 
all or part of such housing to students only of one sex.

(Secs. 901, 902, 907, Education Amendments of 1972, 86 Stat. 373, 374, 
375; 20 U.S.C. 1681, 1682, 1686)



Sec. 86.33  Comparable facilities.

    A recipient may provide separate toilet, locker room, and shower 
facilities on the basis of sex, but such facilities provided for 
students of one sex shall be comparable to such facilities provided for 
students of the other sex.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374)



Sec. 86.34  Access to course offerings.

    A recipient shall not provide any course or otherwise carry out any 
of its education program or activity separately on the basis of sex, or 
require or refuse participation therein by any of its students on such 
basis, including health, physical education, industrial, business, 
vocational, technical, home economics, music, and adult education 
courses.
    (a) With respect to classes and activities in physical education at 
the elementary school level, the recipient shall comply fully with this 
section as expeditiously as possible but in no event later than one year 
from the effective date of this regulation. With respect to physical 
education classes and activities at the secondary and post-secondary 
levels, the recipient shall comply fully with this section as 
expeditiously as possible but in no event later than three years from 
the effective date of this regulation.
    (b) This section does not prohibit grouping of students in physical 
education classes and activities by ability as assessed by objective 
standards of individual performance developed and applied without regard 
to sex.
    (c) This section does not prohibit separation of students by sex 
within physical education classes or activities during participation in 
wrestling, boxing, rugby, ice hockey, football, basketball and other 
sports the purpose or major activity of which involves bodily contact.
    (d) Where use of a single standard of measuring skill or progress in 
a physical education class has an adverse effect on members of one sex, 
the recipient shall use appropriate standards which do not have such 
effect.
    (e) Portions of classes in elementary and secondary schools which 
deal exclusively with human sexuality may be conducted in separate 
sessions for boys and girls.
    (f) Recipients may make requirements based on vocal range or quality 
which may result in a chorus or choruses of one or predominantly one 
sex.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.35  Access to schools operated by L.E.A.s.

    A recipient which is a local educational agency shall not, on the 
basis of sex, exclude any person from admission to:
    (a) Any institution of vocational education operated by such 
recipient; or
    (b) Any other school or educational unit operated by such recipient, 
unless such recipient otherwise makes available to such person, pursuant 
to the same policies and criteria of admission, courses, services, and 
facilities comparable to each course, service, and facility offered in 
or through such schools.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.36  Counseling and use of appraisal and counseling materials.

    (a) Counseling. A recipient shall not discriminate against any 
person on the basis of sex in the counseling or guidance of students or 
applicants for admission.
    (b) Use of appraisal and counseling materials. A recipient which 
uses testing or other materials for appraising or

[[Page 388]]

counseling students shall not use different materials for students on 
the basis of their sex or use materials which permit or require 
different treatment of students on such basis unless such different 
materials cover the same occupations and interest areas and the use of 
such different materials is shown to be essential to eliminate sex bias. 
Recipients shall develop and use internal procedures for ensuring that 
such materials do not discriminate on the basis of sex. Where the use of 
a counseling test or other instrument results in a substantially 
disproportionate number of members of one sex in any particular course 
of study or classification, the recipient shall take such action as is 
necessary to assure itself that such disproportion is not the result of 
discrimination in the instrument or its application.
    (c) Disproportion in classes. Where a recipient finds that a 
particular class contains a substantially disproportionate number of 
individuals of one sex, the recipient shall take such action as is 
necessary to assure itself that such disproportion is not the result of 
discrimination on the basis of sex in counseling or appraisal materials 
or by counselors.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.37  Financial assistance.

    (a) General. Except as provided in paragraphs (b) and (c) of this 
section, in providing financial assistance to any of its students, a 
recipient shall not: (1) On the basis of sex, provide different amount 
or types of such assistance, limit eligibility for such assistance which 
is of any particular type or source, apply different criteria, or 
otherwise discriminate; (2) through solicitation, listing, approval, 
provision of facilities or other services, assist any foundation, trust, 
agency, organization, or person which provides assistance to any of such 
recipient's students in a manner which discriminates on the basis of 
sex; or (3) apply any rule or assist in application of any rule 
concerning eligibility for such assistance which treats persons of one 
sex differently from persons of the other sex with regard to marital or 
parental status.
    (b) Financial aid established by certain legal instruments. (1) A 
recipient may administer or assist in the administration of 
scholarships, fellowships, or other forms of financial assistance 
established pursuant to domestic or foreign wills, trusts, bequests, or 
similar legal instruments or by acts of a foreign government which 
requires that awards be made to members of a particular sex specified 
therein; Provided, That the overall effect of the award of such sex-
restricted scholarships, fellowships, and other forms of financial 
assistance does not discriminate on the basis of sex.
    (2) To ensure nondiscriminatory awards of assistance as required in 
paragraph (b)(1) of this section, recipients shall develop and use 
procedures under which:
    (i) Students are selected for award of financial assistance on the 
basis of nondiscriminatory criteria and not on the basis of availability 
of funds restricted to members of a particular sex;
    (ii) An appropriate sex-restricted scholarship, fellowship, or other 
form of financial assistance is allocated to each student selected under 
paragraph (b)(2)(i) of this section; and
    (iii) No student is denied the award for which he or she was 
selected under paragraph (b)(2)(i) of this section because of the 
absence of a scholarship, fellowship, or other form of financial 
assistance designated for a member of that student's sex.
    (c) Athletic scholarships. (1) To the extent that a recipient awards 
athletic scholarships or grants-in-aid, it must provide reasonable 
opportunities for such awards for members of each sex in proportion to 
the number of students of each sex participating in interscholastic or 
intercollegiate athletics.
    (2) Separate athletic scholarships or grants-in-aid for members of 
each sex may be provided as part of separate athletic teams for members 
of each sex to the extent consistent with this paragraph and Sec. 86.41.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682; and sec. 844, Education Amendments of 1974, Pub. L. 
93-380, 88 Stat. 484)

[40 FR 24128, June 4, 1975; 40 FR 39506, Aug. 28, 1975]

[[Page 389]]



Sec. 86.38  Employment assistance to students.

    (a) Assistance by recipient in making available outside employment. 
A recipient which assists any agency, organization or person in making 
employment available to any of its students:
    (1) Shall assure itself that such employment is made available 
without discrimination on the basis of sex; and
    (2) Shall not render such services to any agency, organization, or 
person which discriminates on the basis of sex in its employment 
practices.
    (b) Employment of students by recipients. A recipient which employs 
any of its students shall not do so in a manner which violates Subpart E 
of this part.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.39  Health and insurance benefits and services.

    In providing a medical, hospital, accident, or life insurance 
benefit, service, policy, or plan to any of its students, a recipient 
shall not discriminate on the basis of sex, or provide such benefit, 
service, policy, or plan in a manner which would violate Subpart E of 
this part if it were provided to employees of the recipient. This 
section shall not prohibit a recipient from providing any benefit or 
service which may be used by a different proportion of students of one 
sex than of the other, including family planning services. However, any 
recipient which provides full coverage health service shall provide 
gynecological care.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.40  Marital or parental status.

    (a) Status generally. A recipient shall not apply any rule 
concerning a student's actual or potential parental, family, or marital 
status which treats students differently on the basis of sex.
    (b) Pregnancy and related conditions. (1) A recipent shall not 
discriminate against any student, or exclude any student from its 
education program or activity, including any class or extracurricular 
activity, on the basis of such student's pregnancy, childbirth, false 
pregnancy, termination of pregnancy or recovery therefrom, unless the 
student requests voluntarily to participate in a separate portion of the 
program or activity of the recipient.
    (2) A recipient may require such a student to obtain the 
certification of a physician that the student is physically and 
emotionally able to continue participation in the normal education 
program or activity so long as such a certification is required of all 
students for other physical or emotional conditions requiring the 
attention of a physician.
    (3) A recipient which operates a portion of its education program or 
activity separately for pregnant students, admittance to which is 
completely voluntary on the part of the student as provided in paragraph 
(b)(1) of this section shall ensure that the instructional program in 
the separate program is comparable to that offered to non-pregnant 
students.
    (4) A recipient shall treat pregnancy, childbirth, false pregnancy, 
termination of pregnancy and recovery therefrom in the same manner and 
under the same policies as any other temporary disability with respect 
to any medical or hospital benefit, service, plan or policy which such 
recipient administers, operates, offers, or participates in with respect 
to students admitted to the recipient's educational program or activity.
    (5) In the case of a recipient which does not maintain a leave 
policy for its students, or in the case of a student who does not 
otherwise qualify for leave under such a policy, a recipient shall treat 
pregnancy, childbirth, false pregnancy, termination of pregnancy and 
recovery therefrom as a justification for a leave of absence for so long 
a period of time as is deemed medically necessary by the student's 
physician, at the conclusion of which the student shall be reinstated to 
the status which she held when the leave began.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.41  Athletics.

    (a) General. No person shall, on the basis of sex, be excluded from 
participation in, be denied the benefits of, be treated differently from 
another person or otherwise be discriminated against in any 
interscholastic, intercollegiate,

[[Page 390]]

club or intramural athletics offered by a recipient, and no recipient 
shall provide any such athletics separately on such basis.
    (b) Separate teams. Notwithstanding the requirements of paragraph 
(a) of this section, a recipient may operate or sponsor separate teams 
for members of each sex where selection for such teams is based upon 
competitive skill or the activity involved is a contact sport. However, 
where a recipient operates or sponsors a team in a particular sport for 
members of one sex but operates or sponsors no such team for members of 
the other sex, and athletic opportunities for members of that sex have 
previously been limited, members of the excluded sex must be allowed to 
try-out for the team offered unless the sport involved is a contact 
sport. For the purposes of this part, contact sports include boxing, 
wrestling, rugby, ice hockey, football, basketball and other sports the 
purpose of major activity of which involves bodily contact.
    (c) Equal opportunity. A recipient which operates or sponsors 
interscholastic, intercollegiate, club or intramural athletics shall 
provide equal athletic opportunity for members of both sexes. In 
determining whether equal opportunities are available the Director will 
consider, among other factors:
    (1) Whether the selection of sports and levels of competition 
effectively accommodate the interests and abilities of members of both 
sexes;
    (2) The provision of equipment and supplies;
    (3) Scheduling of games and practice time;
    (4) Travel and per diem allowance;
    (5) Opportunity to receive coaching and academic tutoring;
    (6) Assignment and compensation of coaches and tutors;
    (7) Provision of locker rooms, practice and competitive facilities;
    (8) Provision of medical and training facilities and services;
    (9) Provision of housing and dining facilities and services;
    (10) Publicity.

Unequal aggregate expenditures for members of each sex or unequal 
expenditures for male and female teams if a recipient operates or 
sponsors separate teams will not constitute noncompliance with this 
section, but the Director may consider the failure to provide necessary 
funds for teams for one sex in assessing equality of opportunity for 
members of each sex.
    (d) Adjustment period. A recipient which operates or sponsors 
interscholastic, intercollegiate, club or intramural athletics at the 
elementary school level shall comply fully with this section as 
expeditiously as possible but in no event later than one year from the 
effective date of this regulation. A recipient which operates or 
sponsors interscholastic, intercollegiate, club or intramural athletics 
at the secondary or post-secondary school level shall comply fully with 
this section as expeditiously as possible but in no event later than 
three years from the effective date of this regulation.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682; and sec. 844, Education Amendments of 1974, Pub. L. 
93-380, 88 Stat. 484)

[40 FR 24128, June 4, 1975; 40 FR 39506, Aug. 28, 1975]



Sec. 86.42  Textbooks and curricular material.

    Nothing in this regulation shall be interpreted as requiring or 
prohibiting or abridging in any way the use of particular textbooks or 
curricular materials.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Secs. 86.43-86.50  [Reserved]



Subpart E--Discrimination on the Basis of Sex in Employment in Education 
                   Programs and Activities Prohibited



Sec. 86.51  Employment.

    (a) General. (1) No person shall, on the basis of sex, be excluded 
from participation in, be denied the benefits of, or be subjected to 
discrimination in employment, or recruitment, consideration, or 
selection therefor, whether full-time or part-time, under any education 
program or activity operated by a recipient which receives or benefits 
from Federal financial assistance.

[[Page 391]]

    (2) A recipient shall make all employment decisions in any education 
program or activity operated by such recipient in a nondiscriminatory 
manner and shall not limit, segregate, or classify applicants or 
employees in any way which could adversely affect any applicant's or 
employee's employment opportunities or status because of sex.
    (3) A recipient shall not enter into any contractual or other 
relationship which directly or indirectly has the effect of subjecting 
employees or students to discrimination prohibited by this subpart, 
including relationships with employment and referral agencies, with 
labor unions, and with organizations providing or administering fringe 
benefits to employees of the recipient.
    (4) A recipient shall not grant preferences to applicants for 
employment on the basis of attendance at any educational institution or 
entity which admits as students only or predominantly members of one 
sex, if the giving of such preferences has the effect of discriminating 
on the basis of sex in violation of this part.
    (b) Application. The provisions of this subpart apply to:
    (1) Recruitment, advertising, and the process of application for 
employment;
    (2) Hiring, upgrading, promotion, consideration for and award of 
tenure, demotion, transfer, layoff, termination, application of nepotism 
policies, right of return from layoff, and rehiring;
    (3) Rates of pay or any other form of compensation, and changes in 
compensation;
    (4) Job assignments, classifications and structure, including 
position descriptions, lines of progression, and seniority lists;
    (5) The terms of any collective bargaining agreement;
    (6) Granting and return from leaves of absence, leave for pregnancy, 
childbirth, false pregnancy, termination of pregnancy, leave for persons 
of either sex to care for children or dependents, or any other leave;
    (7) Fringe benefits available by virtue of employment, whether or 
not administered by the recipient;
    (8) Selection and financial support for training, including 
apprenticeship, professional meetings, conferences, and other related 
activities, selection for tuition assistance, selection for sabbaticals 
and leaves of absence to pursue training;
    (9) Employer-sponsored activities, including social or recreational 
programs; and
    (10) Any other term, condition, or privilege of employment.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.52  Employment criteria.

    A recipient shall not administer or operate any test or other 
criterion for any employment opportunity which has a disproportionately 
adverse effect on persons on the basis of sex unless:
    (a) Use of such test or other criterion is shown to predict validly 
successful performance in the position in question; and
    (b) Alternative tests or criteria for such purpose, which do not 
have such disproportionately adverse effect, are shown to be 
unavailable.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.53  Recruitment.

    (a) Nondiscriminatory recruitment and hiring. A recipient shall not 
discriminate on the basis of sex in the recruitment and hiring of 
employees. Where a recipient has been found to be presently 
discriminating on the basis of sex in the recruitment or hiring of 
employees, or has been found to have in the past so discriminated, the 
recipient shall recruit members of the sex so discriminated against so 
as to overcome the effects of such past or present discrimination.
    (b) Recruitment patterns. A recipient shall not recruit primarily or 
exclusively at entities which furnish as applicants only or 
predominantly members of one sex if such actions have the effect of 
discriminating on the basis of sex in violation of this subpart.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.54  Compensation.

    A recipient shall not make or enforce any policy or practice which, 
on the basis of sex:

[[Page 392]]

    (a) Makes distinctions in rates of pay or other compensation;
    (b) Results in the payment of wages to employees of one sex at a 
rate less than that paid to employees of the opposite sex for equal work 
on jobs the performance of which requires equal skill, effort, and 
responsibility, and which are performed under similar working 
conditions.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.55  Job classification and structure.

    A recipient shall not:
    (a) Classify a job as being for males or for females;
    (b) Maintain or establish separate lines of progression, seniority 
lists, career ladders, or tenure systems based on sex; or
    (c) Maintain or establish separate lines of progression, seniority 
systems, career ladders, or tenure systems for similar jobs, position 
descriptions, or job requirements which classify persons on the basis of 
sex, unless sex is a bona-fide occupational qualification for the 
positions in question as set forth in Sec. 86.61.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)

[40 FR 24128, June 4, 1975; 40 FR 39506, Aug. 28, 1975]



Sec. 86.56  Fringe benefits.

    (a) Fringe benefits defined. For purposes of this part, fringe 
benefits means: Any medical, hospital, accident, life insurance or 
retirement benefit, service, policy or plan, any profit-sharing or bonus 
plan, leave, and any other benefit or service of employment not subject 
to the provision of Sec. 86.54.
    (b) Prohibitions. A recipient shall not:
    (1) Discriminate on the basis of sex with regard to making fringe 
benefits available to employees or make fringe benefits available to 
spouses, families, or dependents of employees differently upon the basis 
of the employee's sex;
    (2) Administer, operate, offer, or participate in a fringe benefit 
plan which does not provide either for equal periodic benefits for 
members of each sex, or for equal contributions to the plan by such 
recipient for members of each sex; or
    (3) Administer, operate, offer, or participate in a pension or 
retirement plan which establishes different optional or compulsory 
retirement ages based on sex or which otherwise discriminates in 
benefits on the basis of sex.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.57  Marital or parental status.

    (a) General. A recipient shall not apply any policy or take any 
employment action:
    (1) Concerning the potential marital, parental, or family status of 
an employee or applicant for employment which treats persons differently 
on the basis of sex; or
    (2) Which is based upon whether an employee or applicant for 
employment is the head of household or principal wage earner in such 
employee's or applicant's family unit.
    (b) Pregnancy. A recipient shall not discriminate against or exclude 
from employment any employee or applicant for employment on the basis of 
pregnancy, childbirth, false pregnancy, termination of pregnancy, or 
recovery therefrom.
    (c) Pregnancy as a temporary disability. A recipient shall treat 
pregnancy, childbirth, false pregnancy, termination of pregnancy, and 
recovery therefrom and any temporary disability resulting therefrom as 
any other temporary disability for all job related purposes, including 
commencement, duration and extensions of leave, payment of disability 
income, accrual of seniority and any other benefit or service, and 
reinstatement, and under any fringe benefit offered to employees by 
virtue of employment.
    (d) Pregnancy leave. In the case of a recipient which does not 
maintain a leave policy for its employees, or in the case of an employee 
with insufficient leave or accrued employment time to qualify for leave 
under such a policy, a recipient shall treat pregnancy, childbirth, 
false pregnancy, termination of pregnancy and recovery therefrom as a 
justification for a leave of absence without pay for a reasonable period 
of time, at the conclusion of which the

[[Page 393]]

employee shall be reinstated to the status which she held when the leave 
began or to a comparable position, without decrease in rate of 
compensation or loss of promotional opportunities, or any other right or 
privilege of employment.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.58  Effect of State or local law or other requirements.

    (a) Prohibitory requirements. The obligation to comply with this 
subpart is not obviated or alleviated by the existence of any State or 
local law or other requirement which imposes prohibitions or limits upon 
employment of members of one sex which are not imposed upon members of 
the other sex.
    (b) Benefits. A recipient which provides any compensation, service, 
or benefit to members of one sex pursuant to a State or local law or 
other requirement shall provide the same compensation, service, or 
benefit to members of the other sex.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.59  Advertising.

    A recipient shall not in any advertising related to employment 
indicate preference, limitation, specification, or discrimination based 
on sex unless sex is a bona-fide occupational qualification for the 
particular job in question.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.60  Pre-employment inquiries.

    (a) Marital status. A recipient shall not make pre-employment 
inquiry as to the marital status of an applicant for employment, 
including whether such applicant is ``Miss or Mrs.''
    (b) Sex. A recipient may make pre-employment inquiry as to the sex 
of an applicant for employment, but only if such inquiry is made equally 
of such applicants of both sexes and if the results of such inquiry are 
not used in connection with discrimination prohibited by this part.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Sec. 86.61  Sex as a bona-fide occupational qualification.

    A recipient may take action otherwise prohibited by this subpart 
provided it is shown that sex is a bona-fide occupational qualification 
for that action, such that consideration of sex with regard to such 
action is essential to successful operation of the employment function 
concerned. A recipient shall not take action pursuant to this section 
which is based upon alleged comparative employment characteristics or 
stereotyped characterizations of one or the other sex, or upon 
preference based on sex of the recipient, employees, students, or other 
persons, but nothing contained in this section shall prevent a recipient 
from considering an employee's sex in relation to employment in a locker 
room or toilet facility used only by members of one sex.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)



Secs. 86.62-86.70  [Reserved]



                     Subpart F--Procedures [Interim]



Sec. 86.71  Interim procedures.

    For the purposes of implementing this part during the period between 
its effective date and the final issuance by the Department of a 
consolidated procedural regulation applicable to title IX and other 
civil rights authorities administered by the Department, the procedural 
provisions applicable to title VI of the Civil Rights Act of 1964 are 
hereby adopted and incorporated herein by reference. These procedures 
may be found at 45 CFR 80-6 through 80-11 and 45 CFR Part 81.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)

          Subject Index to Title IX Preamble and Regulation \1\
---------------------------------------------------------------------------

    \1\ Preamble paragraph numbers are in brackets [ ].
---------------------------------------------------------------------------

                                    A

Access to Course Offerings [43, 55, 56, 57, 58]; 86.34
Access to Schools Operated by LEA's, [44]; 86.35
Admissions, [5, 6, 30]; 86.15, 86.21

[[Page 394]]

    Affirmative and remedial action, [16, 17, 24]; 86.3 (a), (b)
    Administratively separate units, [30];86.15(b), 86.2(o)
    Educational Institutions, [30], 86.15(d), 86.2(n)
    General, 86.21(a), 86.2(p),
    Prohibitions relating to marital and parental status, [32, 36]; 
86.21(c)
    Professional schools, [30], 86.2(m)
    Public institutions of undergraduate higher education, 86.15(e)
    Recruitment, [34, 35]; 86.23
    Specific prohibitions, 86.21(b)
    Tests, [31]; 86.21(b)(2)
    Preference in admission, [35]; 86.22
Advertising, 86.59
Affirmative Action, see ``Remedial and Affirmative Actions''
Assistance to ``outside'' discriminatory organizations, [40, 53]; 
          86.31(b)(7), (c)
Assurances, [18]; 86.4
    Duration of obligation, 86.4(b)
    Form, 86.4(c)
Athletics, [69 to 78]; 86.41
    Adjustment period, [78]; 86.41(d)
    Contact sport defined, 86.41(d)
    Equal opportunity, [76, 77]; 86.41(d)
    Determining factors, 86.41(c) (i) to (x)
    Equipment, 86.41(c)
    Expenditures, 86.41(c)
    Facilities, 86.41(c)
    Travel, 86.41(c)
    Scholarships, [64, 65]; 86.37(d)
    General, [69, 70, 71, 72, 73, 74, 75]; 86.41(a)
    Separate teams, [75]; 86.41(b)

                                    B

BFOQ, [96]; 86.61

                                    C

Comparable facilities
    Housing, [42, 54]; 86.32
    Other, 86.33, 86.35(b)
Compensation, [84, 87, 92]; 86.54
Counseling
    Disproportionate classes, [45, 59]; 86.36(c)
    General, [45, 59]; 86.36(a)
    Materials, [45, 59]; 86.36(b)
Course Offerings
    Adjustment period, [55]; 86.34(a) (i)
    General, [7, 43]; 86.34
    Music classes, [43]; 86.34(f)
    Physical education, [43, 56, 58];
    Sex education, [43, 57]; 86.34(e)
Coverage, [5]; 86.11 to 86.17
    Exemptions
Curricular materials, [52]; 86.42(a)

                                    D

Definitions, [14, 15]; 86.2(a) to (r)
Designation of responsible employee, [20, 22]; 86.8(a), (b)
Dissemination of policy, [21]; 86.9
    Distribution, 86.9(c)
    Notification of policy, [21]; 86.9(a)
    Publications, 86.9(b)
Dress codes 86.31(b) (4)

                                    E

Education Institutions
    Controlled by religious organizations, 86.12
    Application, [28, 29]; 86.12(a)
    Exemption, [26]; 86.12(b)
Education Program and Activities
    Benefiting from Federal financial assistance, [10, 11]; 86.11
    General, [10, 11, 53]; 86.31(a)
    Programs not operated by recipient, [41, 54]; 86.31(c)
    Specific prohibitions, [38, 39, 40, 53]; 86.31 (b)
Effective Date, [3]
    Employee responsible for Title IX, see ``Designation of Responsible 
Employee''
Employment
    Advertising, 86.59
    Application, 86.51(b)
    Compensation, [84, 92]; 86.54
    Employment criteria, 86.52
    Fringe benefits, [88, 89]; 86.56
    General, [81, 82, 87]; 86.51
    Job Classification and Structure, 86.55
    Marital and Parental Status, 86.57
    Pregnancy, [85, 93]; 86.57(b)
    Pregnancy as Temporary Disability, [85, 93]; 86.57(c)
    Pregnancy Leave, [85, 93, 94]; 86.57(d)
Pre-Employment Inquiry
    Recruitment, [83, 90, 91, 95]
    Sex as a BFOQ, [96]; 86.61
    Student Employment, [66]; 86.38
    Tenure, 86.51(b) (2)
Exemptions, [5, 27, 28, 29, 30, 53]; 86.12(b), 86.13, 86.14, 86.15(a), 
          86.15(d), 86.16

                                    F

Federal Financial Assistance, 86.2(a)
Financial Assistance to students, [46, 60, 61]; 86.37
    Athletic Scholarships, [46, 64, 65]; 86.37(d)
    Foreign institutions, study at [63]; 86.31(c)
    General, 86.37
    Non-need scholarships, [62]; 86.37(b)
    Pooling of sex-restrictive, [46, 61, 62]; 86.37(b)
    Sex-restrictive assistance through foreign or domestic wills [46, 
61, 62]; 86.37(b)
Foreign Scholarships, see ``Financial assistance'' 86.37 and 
          ``Assistance to `outside' discriminatory organizations'', 
          86.31(c)
Fraternities/Sororities
    Social, [53, 27, 28]; 86.14(a)
    Business/professional, [40, 53, 27, 28]; 86.31(b) (7)
    Honor societies, [40, 53]; 86.31(b) (7)
Fringe benefits, [67, 88, 89]; 86.56, 86.39
    Part-time employees, [89]

                                    G

Grievance Procedure, see ``Designation of responsible employee'', 
          86.8(a) (b)

[[Page 395]]

                                    H

Health and Insurance Benefits and Services, [67, 88, 93]; 86.39, 86.56
Honor societies, [40, 53]; 86.31(b) (7)
Housing, 86.32
    Generally, [42]; 86.32(b)
    Provided by recipient, 86.32(b)
    Other housing, [54]; 86.32(c)

                                    J

Job Classification and Structure, 86.55

                                    L

LEA's, [44]; 86.35

                                    M

Marital and Parental Status
    Employment
    General, [85, 93, 94]; 86.57
    Pregnancy, [85, 93, 94]; 86.57(b)
    Pregnancy as a temporary disability, [85, 93, 94]; 86.57(c)
    Pregnancy leave, [85, 93, 94]; 86.57(d)
    Students
    General, [49]; 86.40(a) (b)
    Pregnancy and related conditions, [50]; 86.40(b) (1) (2) (3) (4) (5)
    Class participation, [50]; 86.40(b) (1)
    Physician certification, [50]; 86.40(b) (2)
    Special classes, [50]; 86.40(b) (3)
    Temporary leave, [50]; 86.40(b) (4) (5)
Membership Practices of Social fraternities and sororities, [27, 28, 
          53]; 86.14(a)
    Voluntary youth service organizations, [27, 28, 53]; 86.14(c)
    YMCA, YWCA and others, [27, 28, 53]; 86.14(b)
Military and Merchant Marine Educational Institutions, [29]; 86.13

                                    P

Pooling, see ``Financial Assistance'', 86.37
Pre-employment Inquiries
    Marital status, [86, 95]; 86.60(a)
    Sex, 86.60(b)
Preference in Admissions, [35]; 86.22
    See also ``Remedial and Affirmative Action''
Pregnancy, Employment
    General, [85, 93, 94]; 86.57
    Pregnancy, [85, 93, 94]; 86.57(b)
    Pregnancy as temporary disability, [85, 93, 94]; 86.57(c)
    Pregnancy leave, [85, 93, 94]; 86.57(d)
    Students
    General, [49, 50]; 86.40(a) and (b)
    Pregnancy and related conditions; [50]; 86.40(b) (1) to (5)
    Class Participation, [50, 55, 58]; 86.40(b) (1)
    Physical certification, [50]; 86.40(b) (2)
    Special class, [50]; 86.40 (b) (3)
    Temporary leave, [50]; 86.40(b) (4), (5)
Private Undergraduate Professional Schools, [30]; 86.15(d)
Purpose of Regulation, [13]; 86.1

                                    R

Real Property, 86.2(g)
Recruitment
    Employment
    Nondiscrimination, [83, 91]; 86.53(a)
    Patterns, 86.53(b)
Student
    Nondiscrimination, [34, 35]; 86.23(a)
    Recruitment at certain institutions, 86.23 (b)
Religious Organizations
    Application, [29, 28]; 86.12(a)
    Exemption, [26]; 86.12(b)
Remedial and Affirmative Actions, [16, 17, 24]; 86.3

                                    S

Scholarships, see ``Financial Assistance'', 86.37
Self-evaluation, [16, 22]; 86.3(c) (d)
Surplus Property (see Transfer of Property 86.5)
    Duration of obligation 86.4(b)
    Real Property 86.4(b) (1)

                                    T

Textbooks and curricular materials, [52, 79, 80]; 86.42
Termination of funds, [10, 11]
Transfer of property, 86.5
Transition Plans
    Content of plans, 86.17(b)
    Different from Adjustment period, [78]; 86.41(d)
  Submission of plans, 86.17(a)

  Appendix A to Part 86--Guidelines for Eliminating Discrimination and 
 Denial of Services on the Basis of Race, Color, National Origin, Sex, 
              and Handicap in Vocational Education Programs

    Note: For the text of these guidelines, see 45 CFR Part 80, Appendix 
B.

[44 FR 17168, Mar. 21, 1979]



PART 90--NONDISCRIMINATION ON THE BASIS OF AGE IN PROGRAMS OR ACTIVITIES RECEIVING FEDERAL FINANCIAL ASSISTANCE--Table of Contents




                           Subpart A--General

Sec.
90.1  What is the purpose of the Age Discrimination Act of 1975?
90.2  What is the purpose of these regulations?
90.3  What programs and activities does the Age Discrimination Act of 
          1975 cover?
90.4  How are the terms in the regulations defined?

[[Page 396]]

                 Subpart B--What is Age Discrimination?

           Standards for Determining Discriminatory Practices

90.11  Purpose of this subpart.
90.12  Rules against age discrimination.
90.13  Definitions of normal operation and statutory objective.
90.14  Exceptions to the rules against age discrimination. Normal 
          operation or statutory objective of any program or activity.
90.15  Exceptions to the rules against age discrimination. Reasonable 
          factors other than age.
90.16  Burden of proof.

    Subpart C--What are the Responsibilities of the Federal Agencies?

90.31  Issuance of regulations.
90.32  Review of agency policies and administrative practices.
90.33  Interagency cooperation.
90.34  Agency reports.

    Subpart D--Investigation, Conciliation and Enforcement Procedures

90.41  What is the purpose of this subpart?
90.42  What responsibilities do recipients and agencies have generally 
          to ensure compliance with the Act?
90.43  What specific responsibilities do agencies and recipients have to 
          ensure compliance with the Act?
90.44  Compliance reviews.
90.45  Information requirements.
90.46  Prohibition against intimidation or retaliation.
90.47  What further provisions must an agency make in order to enforce 
          its regulations after an investigation indicates that a 
          violation of the Act has been committed?
90.48  Alternate funds disbursal procedure.
90.49  Remedial and affirmative action by recipients.
90.50  Exhaustion of administrative remedies.

       Subpart E--Future Review of Age Discrimination Regulations

90.61  Review of general regulations.
90.62  Review of agency regulations.

    Authority: Age Discrimination Act of 1975, 42 U.S.C. 6101 et seq.

    Source: 44 FR 33776, June 12, l979, unless otherwise noted.



                           Subpart A--General



Sec. 90.1  What is the purpose of the Age Discrimination Act of 1975?

    The Age Discrimination Act of 1975, as amended, is designed to 
prohibit discrimination on the basis of age in programs or activities 
receiving Federal financial assistance. The Act also permits federally 
assisted programs and activities, and recipients of Federal funds, to 
continue to use certain age distinctions and factors other than age 
which meet the requirements of the Act and these regulations.



Sec. 90.2  What is the purpose of these regulations?

    (a) The purpose of these regulations is to state general, 
government-wide rules for the implementation of the Age Discrimination 
Act of 1975, as amended, and to guide each agency in the preparation of 
agency-specific age discrimination regulations.
    (b) These regulations apply to each Federal agency which provides 
Federal financial assistance to any program or activity.



Sec. 90.3  What programs and activities does the Age Discrimination Act of 1975 cover?

    (a) The Age Discrimination Act of 1975 applies to any program or 
activity receiving Federal financial assistance, including programs or 
activities receiving funds under the State and Local Fiscal Assistance 
Act of 1972 (31 U.S.C. 1221 et seq.).
    (b) The Age Discrimination Act of 1975 does not apply to:
    (1) An age distinction contained in that part of a Federal, State or 
local statute or ordinance adopted by an elected, general purpose 
legislative body which:
    (i) Provides any benefits or assistance to persons based on age; or
    (ii) Establishes criteria for participation in age-related terms; or
    (iii) Describes intended beneficiaries or target groups in age-
related terms.
    (2) Any employment practice of any employer, employment agency, 
labor

[[Page 397]]

organization, or any labor-management joint apprenticeship training 
program, except for any program or activity receiving Federal financial 
assistance for public service employment under the Comprehensive 
Employment and Training Act of 1974 (CETA), (29 U.S.C. 801 et seq.).



Sec. 90.4  How are the terms in these regulations defined?

    As used in these regulations, the term:
    Act means the Age Discrimination Act of 1975, as amended, (Title III 
of Pub. L. 94-135).
    Action means any act, activity, policy, rule, standard, or method of 
administration; or the use of any policy, rule, standard, or method of 
administration.
    Age means how old a person is, or the number of elapsed years form 
the date of a person's birth.
    Age distinction means any action using age or an age-related term.
    Age-related term means a word or words which necessarily imply a 
particular age or range of ages (for example, children, adult, older 
persons, but not student).
    Agency means a Federal department or agency that is empowered to 
extend financial assistance.
    Federal financial assistance means any grant, entitlement, loan, 
cooperative agreement, contract (other than a procurement contract or a 
contract of insurance or guaranty), or any other arrangement by which 
the agency provides or otherwise makes available assistance in the form 
of:
    (a) Funds;
    (b) Services of Federal personnel; or
    (c) Real and personal property or any interest in or use of 
property, including:
    (1) Transfers or leases of property for less than fair market value 
or for reduced consideration; and
    (2) Proceeds from a subsequent transfer or lease of property if the 
Federal share of its fair market value is not returned to the Federal 
Government.
    Recipient means any State or its political subdivision, any 
instrumentality of a State or its political sub-division, any public or 
private agency, institution, organization, or other entity, or any 
person to which Federal financial assistance is extended, directly or 
through another recipient. Recipient includes any successor, assignee, 
or transferee, but excludes the ultimate beneficiary of the assistance.
    Secretary means the Secretary of the Department of Health and Human 
Services.
    United States means the fifty States, the District of Columbia, 
Puerto Rico, the Virgin Islands, American Samoa, Guam, Wake Island, the 
Canal Zone, the Trust Territory of the Pacific Islands, the Northern 
Marianas, and the territories and possessions of the United States.



                 Subpart B--What is Age Discrimination?

           Standards for Determining Discriminatory Practices



Sec. 90.11  Purpose of this subpart.

    The purpose of this subpart is to set forth the prohibitions against 
age discrimination and the exceptions to those prohibitions.



Sec. 90.12  Rules against age discrimination.

    The rules stated in this section are limited by the exceptions 
contained in Secs.  90.14, and 90.15 of these regulations.
    (a) General rule: No person in the United states shall, on the basis 
of age, be excluded from participation in, be denied the benefits of, or 
be subjected to discrimination under, any program or activity receiving 
Federal financial assistance.
    (b) Specific rules: A recipient may not, in any program or activity 
receiving Federal financial assistance, directly or through contractual, 
licensing, or other arrangements use age distinctions or take any other 
actions which have the effect, on the basis of age, of:
    (1) Excluding individuals from, denying them the benefits of, or 
subjecting them to discrimination under, a program or activity receiving 
Federal financial assistance, or
    (2) Denying or limiting individuals in their opportunity to 
participate in any program or activity receiving Federal financial 
assistance.

[[Page 398]]

    (c) The specific forms of age discrimination listed in paragraph (b) 
of this section do not necessarily constitute a complete list.



Sec. 90.13  Definitions of normal operation and statutory objective.

    For purposes of Secs. 90.14, and 90.15, the terms normal operation 
and statutory objective shall have the following meaning:
    (a) Normal operation means the operation of a program or activity 
without significant changes that would impair its ability to meet its 
objectives.
    (b) Statutory objective means any purpose of a program or activity 
expressly stated in any Federal statute, State statute, or local statute 
or ordinance adopted by an elected, general purpose legislative body.



Sec. 90.14  Exceptions to the rules against age discrimination. Normal operation or statutory objective of any program or activity.

    A recipient is permitted to take an action, otherwise prohibited by 
Sec. 90.12, if the action reasonably takes into account age as a factor 
necessary to the normal operation or the achievement of any statutory 
objective of a program or activity. An action reasonably takes into 
account age as a factor necessary to the normal operation or the 
achievement of any statutory objective of a program or activity, if:
    (a) Age is used as a measure or approximation of one or more other 
characteristics; and
    (b) The other characteristic(s) must be measured or approximated in 
order for the normal operation of the program or activity to continue, 
or to achieve any statutory objective of the program or activity; and
    (c) The other characteristic(s) can be reasonably measured or 
approximated by the use of age; and
    (d) The other characteristic(s) are impractical to measure directly 
on an individual basis.



Sec. 90.15  Exceptions to the rules against age discrimination. Reasonable factors other than age.

    A recipient is permitted to take an action otherwise prohibited by 
Sec. 90.12 which is based on a factor other than age, even though that 
action may have a disproportionate effect on persons of different ages. 
An action may be based on a factor other than age only if the factor 
bears a direct and substantial relationship to the normal operation of 
the program or activity or to the achievement of a statutory objective.



Sec. 90.16  Burden of proof.

    The burden of proving that an age distinction or other action falls 
within the exceptions outlined in Secs.  90.14 and 90.15 is on the 
recipient of Federal financial assistance.



    Subpart C--What are the Responsibilities of the Federal Agencies?



Sec. 90.31  Issuance of regulations.

    (a) The head of each agency which extends Federal financial 
assistance to any program or activity shall publish proposed and final 
age discrimination regulations in the Federal Register to:
    (1) Carry out the provisions of section 303 of the Age 
Discrimination Act of 1975; and
    (2) Provide for appropriate investigative, conciliation, and 
enforcement procedures.
    (b) Each agency shall publish its proposed agency age discrimination 
regulations no later than 90 days after the publication date of the 
final general, government-wide age discrimination regulations.
    (c) Each agency shall submit its final agency regulations to HHS for 
review no later than 120 days after publication of proposed agency age 
discrimination regulations.
    (d) Final agency age discrimination regulations shall be consistent 
with these general, government-wide age discrimination regulations and 
shall not be published until the Secretary approves them.
    (e) Each agency shall include in its regulations a provision 
governing the operation of an alternate funds disbursal procedure as 
described in Sec.  90.48 of these regulations.
    (f) Each agency shall publish an appendix to its final age 
discrimination regulations containing a list of each age distinction 
provided in a Federal

[[Page 399]]

statute or in regulations affecting financial assistance administered by 
the agency.



Sec. 90.32  Review of agency policies and administrative practices.

    (a) Each agency shall conduct a review of age distinctions it 
imposes on its recipients by regulations, policies, and administrative 
practices. The purpose of this review is to identify how age 
distinctions are used by each Federal agency and whether those age 
distinctions are permissible under the Act and implementing regulations.
    (b) No later than 12 months from the date the agency published its 
final regulations, the agency shall publish, for public comment, a 
report in the Federal Register containing:
    (1) The results of the review conducted under paragraph (a) of this 
section;
    (2) A list of the age distinctions contained in regulations which 
are to be continued;
    (3) The justification under the requirements of the Act and these 
regulations for each age distinction to be continued;
    (4) A list of the age distinctions not contained in regulations but 
which will be adopted by regulation under the Administrative Procedure 
Act using the notice and comment procedures specified in 5 U.S.C. 553; 
and
    (5) A list of the age distinctions to be eliminated.
    (c) Beginning with the effective date of an agency's final 
regulations, the agency may not impose a new age distinction unless the 
age distinction is adopted by regulation under the Administrative 
Procedure Act using the notice and comment procedures specified in 5 
U.S.C. 553.
    (d) Beginning 12 months after the publication of its age 
discrimination regulations, an agency may not continue an existing age 
distinction, unless the age distinction has already been adopted by 
regulation or is adopted by regulation under the Administrative 
Procedure Act using the notice and comment procedures specified in 5 
U.S.C. 553.



Sec. 90.33  Interagency cooperation.

    Where two or more agencies provide Federal financial assistance to a 
recipient or class of recipients, the Secretary may designate one of the 
agencies as the sole agency for all compliance and enforcement purposes 
with respect to those recipients, except for the ordering of termination 
of funds and the notification of the appropriate committees of Congress.



Sec. 90.34  Agency reports.

    Each agency shall submit to the Secretary not later than December 31 
of each year, beginning in 1979, a report which:
    (a) Describes in detail the steps taken during the preceding fiscal 
year to carry out the Act; and
    (b) Contains data on the frequency, type, and resolution of 
complaints and on any compliance reviews, sufficient to permit analysis 
of the agency's progress in reducing age discrimination in programs 
receiving Federal financial assistance from the agency; and
    (c) Contains data directly relevant to the extent of any pattern or 
practice of age discrimination which the agency has identified in any 
programs receiving Federal financial assistance from the agency and to 
progress toward eliminating it; and
    (d) Contains evaluative or interpretative information which the 
agency determines is useful in analyzing agency progress in reducing age 
discrimination in programs receiving Federal financial assistance from 
the agency; and
    (e) Contains whatever other data the Secretary may require.



    Subpart D--Investigation, Conciliation and Enforcement Procedures



Sec. 90.41  What is the purpose of this subpart?

    This subpart sets forth requirements for the establishment of 
compliance, investigation, conciliation, and enforcement procedures by 
agencies which extend Federal financial assistance.

[[Page 400]]



Sec. 90.42  What responsibilities do recipients and agencies have generally to ensure compliance with the Act?

    (a) A recipient has primary responsibility to ensure that its 
programs and activities are in compliance with the Age Discrimination 
Act and shall take steps to eliminate violations of the Act. A recipient 
also has responsibility to maintain records, provide information, and to 
afford access to its records to an agency to the extent required to 
determine whether it is in compliance with the Act.
    (b) An agency has responsibility to attempt to secure recipient 
compliance with the Act by voluntary means. This may include the use of 
the services of appropriate Federal, State, local, or private 
organizations. An agency also has the responsibility to enforce the Age 
Discrimination Act when a recipient fails to eliminate violations of the 
Act.



Sec. 90.43  What specific responsibilities do agencies and recipients have to ensure compliance with the Act?

    (a) Written notice, technical assistance, and educational materials. 
Each agency shall: (1) Provide written notice to each recipient of its 
obligations under the Act. The notice shall include a requirement that 
where the recipient initially receiving funds makes the funds available 
to a sub-recipient, the recipient must notify the sub-recipient of its 
obligations under the Act.
    (2) Provide technical assistance, where necessary, to recipients to 
aid them in complying with the Act.
    (3) Make available educational materials setting forth the rights 
and obligations of beneficiaries and recipients under the Act.
    (b) Self-evaluation. (1) Each agency shall require each recipient 
employing the equivalent of 15 or more full time employees to complete a 
written self-evaluation of its compliance under the Act within 18 months 
of the effective date of the agency regulations.
    (2) Each recipient's self-evaluation shall identify and justify each 
age distinction imposed by the recipient.
    (3) Each recipient shall take corrective and remedial action 
whenever a self-evaluation indicates a violation of the Act.
    (4) Each recipient shall make the self-evaluation available on 
request to the agency and to the public for a period of 3 years 
following its completion.
    (c) Complaints--(1) Receipt of complaints. Each agency shall 
establish a complaint processing procedure which includes the following:
    (i) A procedure for the filing of complaints with the agency;
    (ii) A review of complaints to assure that they fall within the 
coverage of the Act and contain all information necessary for further 
processing;
    (iii) Notice to the complainant and the recipient of their rights 
and obligations under the complaint procedure, including the right to 
have a representative at all stages of the complaint procedure; and
    (iv) Notice to the complainant and the recipient (or their 
representatives) of their right to contact the agency for information 
and assistance regarding the complaint resolution process.
    (2) Prompt resolution of complaints. Each agency shall establish 
procedures for the prompt resolution of complaints. These procedures 
shall require each recipient and complainant to participate actively in 
efforts toward speedy resolution of the complaint.
    (3) Mediation of complaints. Each agency shall promptly refer all 
complaints which fall within the coverage of the Act to a mediation 
agency designated by the Secretary.
    (i) The referring agency shall require the participation of the 
recipient and the complainant in the mediation process, although both 
parties need not meet with the mediator at the same time.
    (ii) If the complainant and recipient reach a mutually satisfactory 
resolution of the complaint during the mediation period, they shall 
reduce the agreement to writing. The mediator shall send a copy of the 
settlement to the referring agency. No further action shall be taken 
based on that complaint unless it appears that the complainant or the 
recipient is failing to comply with the agreement.
    (iii) Not more than 60 days after the agency receives the complaint, 
the mediator shall return a still unresolved complaint to the referring 
agency for

[[Page 401]]

initial investigation. The mediator may return a complaint at any time 
before the end of the 60 day period if it appears that the complaint 
cannot be resolved through mediation.
    (iv) The mediator shall protect the confidentiality of all 
information obtained in the course of the mediation process. No mediator 
shall testify in any adjudicative proceeding, produce any document, or 
otherwise disclose any information obtained in the course of the 
mediation process without prior approval of the head of the agency 
appointing the mediator.
    (4) Federal initial investigation. Each agency shall investigate 
complaints unresolved after mediation or reopened because of a violation 
of the mediation agreement. As part of the initial investigation, the 
agency shall use informal fact finding methods including joint or 
individual discussions with the complainant and the recipient to 
establish the facts, and, if possible, resolve the complaint to the 
mutual satisfaction of the parties. The agency may seek the assistance 
of any involved State program agency.
    (5) Formal investigation, conciliation, and hearing. If the agency 
cannot resolve the complaint during the early stages of the 
investigation, it shall:
    (i) Complete the investigation of the complaint.
    (ii) Attempt to achieve voluntary compliance satisfactory to the 
agency, if the investigation indicates a violation.
    (iii) Arrange for enforcement as described in Sec. 90.47, if 
necessary.



Sec. 90.44  Compliance reviews.

    (a) Each agency shall provide in its regulations that it may conduct 
compliance reviews, pre-award reviews, and other similar procedures 
which permit the agency to investigate, and correct, violations of the 
Act without regard to its procedures for handling complaints.
    (b) If a compliance review or pre-award review indicates a violation 
of the Act, the agency shall attempt to achieve voluntary compliance 
with the Act. If voluntary compliance cannot be achieved, the agency 
shall arrange for enforcement as described in Sec. 90.47.



Sec. 90.45  Information requirements.

    Each agency shall provide in its regulations a requirement that the 
recipient:
    (a) Provide to the agency information necessary to determine whether 
the recipient is in compliance with the Act; and
    (b) Permit reasonable access by the agency to the books, records, 
accounts, and other recipient facilities and sources of information to 
the extent necessary to determine whether a recipient is in compliance 
with the Act.



Sec. 90.46  Prohibition against intimidation or retaliation.

    Each agency shall provide in its regulations that recipients may not 
engage in acts of intimidation or retaliation against any person who:
    (a) Attempts to assert a right protected by the Act; or
    (b) Cooperates in any mediation, investigation, hearing, or other 
part of the agency's investigation, conciliation, and enforcement 
process.



Sec. 90.47  What further provisions must an agency make in order to enforce its regulations after an investigation indicates that a violation of the Act has 
          been committed?

    (a) Each agency shall provide for enforcement of its regulations 
through:
    (1) Termination of a recipient's Federal financial assistance under 
the program or activity involved where the recipient has violated the 
Act or the agency's regulations. The determination of the recipient's 
violation may be made only after a recipient has had an opportunity for 
a hearing on the record before an administrative law judge.
    (2) Any other means authorized by law including but not limited to:
    (i) Referral to the Department of Justice for proceedings to enforce 
any rights of the United States or obligations of the recipient created 
by the Act or the agency's regulations.
    (ii) Use of any requirement of or referral to any Federal, State, or 
local government agency which will have the effect of correcting a 
violation of the Act or implementing regulations.
    (b) Any termination under paragraph (a)(1) shall be limited to the 
particular

[[Page 402]]

recipient and particular program or activity receiving Federal financial 
assistance or portion thereof found to be in violation of the Act or 
agency regulations. No termination shall be based in whole or in part on 
a finding with respect to any program or activity which does not receive 
Federal financial assistance.
    (c) No action under paragraph (a) of this section may be taken 
until:
    (1) The head of the agency involved has advised the recipient of its 
failure to comply with the Act or the agency's regulations and has 
determined that voluntary compliance cannot be obtained.
    (2) Thirty days have elapsed after the head of the agency involved 
has sent a written report of the circumstances and grounds of the action 
to the committees of the Congress having legislative jurisdiction over 
the Federal program or activity involved. A report shall be filed 
whenever any action is taken under paragraph (a) of this section.
    (d) An agency may defer granting new Federal financial assistance to 
a recipient when termination proceedings under paragraph (a)(1) of this 
section are initiated.
    (1) New Federal financial assistance includes all assistance 
administered by or through the agency for which an application or 
approval, including renewal or continuation of existing activities, or 
authorization of new activities, is required during the deferral period. 
New Federal financial assistance does not include assistance approved 
prior to the beginning of termination proceedings or to increases in 
funding as a result of changed computation of formula awards.
    (2) A deferral may not begin until the recipient has received a 
notice of opportunity for a hearing under paragraph (a)(1). A deferral 
may not continue for more than 60 days unless a hearing has begun within 
that time or the time for beginning the hearing has been extended by 
mutual consent of the recipient and the agency. A deferral may not 
continue for more than 30 days after the close of the hearing, unless 
the hearing results in a finding against the recipient.



Sec. 90.48  Alternate funds disbursal procedure.

    When an agency withholds funds from a recipient under its 
regulations issued under Sec. 90.31, the head of the agency may disburse 
the withheld funds so directly to any public or non-profit private 
organization or agency, or State or political subdivision of the State. 
These alternate recipients must demonstrate the ability to comply with 
the agency's regulations issued under this Act and to achieve the goals 
of the Federal statute authorizing the program or activity.



Sec. 90.49  Remedial and affirmative action by recipients.

    (a) Where a recipient is found to have discriminated on the basis of 
age, the recipient shall take any remedial action which the agency may 
require to overcome the effects of the discrimination. If another 
recipient exercises control over the recipient that has discriminated, 
both recipients may be required to take remedial action.
    (b) Even in the absence of a finding of discrimination, a recipient 
may take affirmative action to overcome the effects of conditions that 
resulted in limited participation in the recipient's program or activity 
on the basis of age.
    (c) If a recipient operating a program which serves the elderly or 
children in addition to persons of other ages, provides special benefits 
to the elderly or to children the provision of those benefits shall be 
presumed to be voluntary affirmative action provided that it does not 
have the effect of excluding otherwise eligible persons from 
participation in the program.



Sec. 90.50  Exhaustion of administrative remedies.

    (a) The agency shall provide in its regulations that a complainant 
may file a civil action following the exhaustion of adminstrative 
remedies under the Act. Administrative remedies are exhausted if:
    (1) 180 days have elapsed since the complainant filed the complaint 
and the agency has made no finding with regard to the complaint; or
    (2) The agency issues any finding in favor of the recipient.

[[Page 403]]

    (b) If either of the conditions set forth in Sec. 90.50(a) is 
satisfied the agency shall:
    (1) Promptly advise the complainant of this fact; and
    (2) Advise the complainant of his or her right, under section 305(e) 
of the Act, to bring a civil action for injunctive relief that will 
effect the purposes of the Act; and
    (3) Inform the complainant:
    (i) That a civil action can only be brought in a United States 
district court for the district in which the recipient is found or 
transacts business;
    (ii) That a complainant prevailing in a civil action has the right 
to be awarded the costs of the action, including reasonable attorney's 
fees, but that these costs must be demanded in the complaint;
    (iii) That before commencing the action the complainant shall give 
30 days notice by registered mail to the Secretary, the Attorney General 
of the United States, the head of the granting agency, and the 
recipient;
    (iv) That the notice shall state: the alleged violation of the Act; 
the relief requested; the court in which the action will be brought; and 
whether or not attorney's fees are demanded in the event the complainant 
prevails; and
    (v) That no action shall be brought if the same alleged violation of 
the Act by the same recipient is the subject of a pending action in any 
court of the United States.



       Subpart E--Future Review of Age Discrimination Regulations



Sec. 90.61  Review of general regulations.

    The Secretary shall review the effectiveness of these regulations in 
securing compliance with the Act. As part of this review, 30 months 
after the effective date of these regulations, the Secretary shall 
publish a notice of opportunity for public comment on the effectiveness 
of the regulations. The Secretary will assess the comments and publish 
the results of the review and assessment in the Federal Register.



Sec. 90.62  Review of agency regulations.

    Each agency shall review the effectiveness of its regulations in 
securing compliance with the Act. As part of this review, 30 months 
after the effective date of its regulations, each agency shall publish a 
notice of opportunity for public comment on the effectiveness of the 
agency regulations. Each agency shall assess the comments and publish 
the results of the review in the Federal Register.



PART 91--NONDISCRIMINATION ON THE BASIS OF AGE IN HHS PROGRAMS OR ACTIVITIES RECEIVING FEDERAL FINANCIAL ASSISTANCE--Table of Contents




                           Subpart A--General

Sec.
91.1  What is the purpose of the Age Discrimination Act of 1975?
91.2  What is the purpose of HHS' age discrimination regulations?
91.3  To what programs do these regulations apply?
91.4  Definition of terms used in these regulations.

         Subpart B--Standards for Determining Age Discrimination

91.11  Rules against age discrimination.
91.12  Definitions of normal operation and statutory objective.
91.13  Exceptions to the rules against age discrimination: Normal 
          operation or statutory objective of any program or activity.
91.14  Exceptions to the rules against age discrimination: Reasonable 
          factors other than age.
91.15  Burden of proof.
91.16  Affirmative action by recipient.
91.17  Special benefits for children and the elderly.
91.18  Age distinctions contained in HHS regulations.

                   Subpart C--Duties of HHS Recipients

91.31  General responsibilities.
91.32  Notice to subrecipients and beneficiaries.
91.33  Assurance of compliance and recipient assessment of age 
          distinctions.
91.34  Information requirements.

   Subpart D--Investigation, Conciliation, and Enforcement Procedures

91.41  Compliance reviews.
91.42  Complaints.
91.43  Mediation.
91.44  Investigation.
91.45  Prohibition against intimidation or retaliation.

[[Page 404]]

91.46  Compliance procedure.
91.47  Hearings, decisions, post-termination proceedings.
91.48  Remedial action by recipient.
91.49  Alternate funds disbursal procedure.
91.50  Exhaustion of administrative remedies.

    Authority: Age Discrimination Act of 1975, as amended, 42 U.S.C. 
6101 et seq. (45 CFR part 90).

    Source: 47 FR 57858, Dec. 28, 1982, unless otherwise noted.



                           Subpart A--General



Sec. 91.1  What is the purpose of the Age Discrimination Act of 1975?

    The Age Discrimination Act of 1975, as amended, is designed to 
prohibit discrimination on the basis of age in programs or activities 
receiving Federal financial assistance. The Act also permits federally 
assisted programs and activities, and recipients of Federal funds, to 
continue to use certain age distinctions and factors other than age 
which meet the requirements of the Act and these regulations.



Sec. 91.2  What is the purpose of HHS' age discrimination regulations?

    The purpose of these regulations is to set out HHS' policies and 
procedures under the Age Discrimination Act of 1975 and the general age 
discrimination regulations at 45 CFR part 90.\1\ The Act and the general 
regulations prohibit discrimination on the basis of age in programs or 
activities receiving Federal financial assistance. The Act and the 
general regulations permit federally assisted programs and activities, 
and recipients of Federal funds, to continue to use age distinctions and 
factors other than age which meet the requirements of the Act and its 
implementing regulations.
---------------------------------------------------------------------------

    \1\ Published at 44 FR 33768, June 12, 1979.
---------------------------------------------------------------------------



Sec. 91.3  To what programs do these regulations apply?

    (a) The Act and these regulations apply to each HHS recipient and to 
each program or activity operated by the recipient which receives or 
benefits from Federal financial assistance provided by HHS.
    (b) The Act and these regulations do not apply to:
    (1) An age distinction contained in that part of a Federal, State, 
or local statute or ordinance adopted by an elected, general purpose 
legislative body which:
    (i) Provides any benefits or assistance to persons based on age; or
    (ii) Establishes criteria for participation in age-related terms; or
    (iii) Describes intended beneficiaries or target groups in age-
related terms.
    (2) Any employment practice of any employer, employment agency, 
labor organization, or any labor-management joint apprenticeship 
training program, except for any program or activity receiving Federal 
financial assistance for public service employment under the 
Comprehensive Employment and Training Act (CETA), (29 U.S.C. 801 et 
seq.)



Sec. 91.4  Definition of terms used in these regulations.

    As used in these regulations, the term:
    Act means the Age Discrimination Act of 1975, as amended, (Title III 
of Pub. L. 94-135).
    Action means any act, activity, policy, rule, standard, or method of 
administration; or the use of any policy, rule, standard, or method of 
administration.
    Age means how old a person is, or the number of years from the date 
of a person's birth.
    Age distinction means any action using age or an age-related term.
    Age-related term means a word or words which necessarily imply a 
particular age or range of ages (for example, children, adult, older 
persons, but not student).
    Agency means a Federal department or agency that is empowered to 
extend financial assistance.
    Federal financial assistance means any grant, entitlement, loan, 
cooperative agreement, contract (other than a procurement contract or a 
contract of insurance or guaranty), or any other arrangement by which 
the agency provides or otherwise makes available assistance in the form 
of:
    (a) Funds; or
    (b) Services of Federal personnel; or

[[Page 405]]

    (c) Real and personal property or any interest in or use of 
property, including:
    (1) Transfers or leases of property for less than fair market value 
or for reduced consideration; and
    (2) Proceeds from a subsequent transfer or lease of property if the 
Federal share of its fair market value is not returned to the Federal 
Government.

    HHS means the United States Department of Health and Human Services.
    Recipient means any State or its political subdivision, any 
instrumentality of a State or its political subdivision, any public or 
private agency, institution, organization, or other entity, or any 
person to which Federal financial assistance is extended, directly or 
through another recipient. Recipient includes any successor, assignee, 
or transferee, but excludes the ultimate beneficiary of the assistance.
    Secretary means the Secretary of Health and Human Services, or his 
or her designee.
    Subrecipient means any of the entities in the definition of 
recipient to which a recipient extends or passes on Federal financial 
assistance. A subrecipient is generally regarded as a recipient of 
Federal financial assistance and has all the duties of a recipient in 
these regulations.
    United States means the fifty States, the District of Columbia, 
Puerto Rico, the Virgin Islands, American Samoa, Guam, Wake Island, the 
Canal Zone, the Trust Territory of the Pacific Islands, the Northern 
Marianas, and the territories and possessions of the United States.



         Subpart B--Standards for Determining Age Discrimination



Sec. 91.11  Rules against age discrimination.

    The rules stated in this section are limited by the exceptions 
contained in Secs. 91.13 and 91.14 of these regulations.
    (a) General rule: No person in the United States shall, on the basis 
of age, be excluded from participation in, be denied the benefits of, or 
be subjected to discrimination under, any program or activity receiving 
Federal financial assistance.
    (b) Specific rules: A recipient may not, in any program or activity 
receiving Federal financial assistance, directly or through contractual 
licensing, or other arrangements, use age distinctions or take any other 
actions which have the effect, on the basis of age, of:
    (1) Excluding individuals from, denying them the benefits of, or 
subjecting them to discrimination under, a program or activity receiving 
Federal financial assistance; or
    (2) Denying or limiting individuals in their opportunity to 
participate in any program or activity receiving Federal financial 
assistance.
    (c) The specific forms of age discrimination listed in paragraph (b) 
of this section do not necessarily constitute a complete list.



Sec. 91.12  Definitions of normal operation and statutory objective.

    For purposes of Secs. 91.13 and 91.14, the terms normal operation 
and statutory objective shall have the following meaning:
    (a) Normal operation means the operation of a program or activity 
without significant changes that would impair its ability to meet its 
objectives.
    (b) Statutory objective means any purpose of a program or activity 
expressly stated in any Federal statute, State statute, or local statute 
or ordinance adopted by an elected, general purpose legislative body.



Sec. 91.13  Exceptions to the rules against age discrimination: Normal operation or statutory objective of any program or activity.

    A recipient is permitted to take an action, otherwise prohibited by 
Sec. 91.11, if the action reasonably takes into account age as a factor 
necessary to the normal operation or the achievement of any statutory 
objective of a program or activity. An action reasonably takes into 
account age as a factor necessary to the normal operation or the 
achievement of any statutory objective of a program or activity, if:
    (a) Age is used as a measure or approximation of one or more other 
characteristics; and
    (b) The other characteristic(s) must be measured or approximated in 
order

[[Page 406]]

for the normal operation of the program or activity to continue, or to 
achieve any statutory objective of the program or activity; and
    (c) The other characteristic(s) can be reasonably measured or 
approximated by the use of age; and
    (d) The other characteristic(s) are impractical to measure directly 
on an individual basis.



Sec. 91.14  Exceptions to the rules against age discrimination: Reasonable factors other than age.

    A recipient is permitted to take an action otherwise prohibited by 
Sec. 91.11 which is based on a factor other than age, even though that 
action may have a disproportionate effect on persons of different ages. 
An action may be based on a factor other than age only if the factor 
bears a direct and substantial relationship to the normal operation of 
the program or activity or to the achievement of a statutory objective.



Sec. 91.15  Burden of proof.

    The burden of proving that an age distinction or other action falls 
within the exceptions outlined in Secs. 91.13 and 91.14 is on the 
recipient of Federal financial assistance.



Sec. 91.16  Affirmative action by recipient.

    Even in the absence of a finding of discrimination, a recipient may 
take affirmative action to overcome the effects of conditions that 
resulted in limited participation in the recipient's program or activity 
on the basis of age.



Sec. 91.17  Special benefits for children and the elderly.

    If a recipient operating a program provides special benefits to the 
elderly or to children, such use of age distinctions shall be presumed 
to be necessary to the normal operation of the program, notwithstanding 
the provisions of Sec. 91.13.



Sec. 91.18  Age distinctions contained in HHS regulations.

    Any age distinctions contained in a rule or regulation issued by HHS 
shall be presumed to be necessary to the achievement of a statutory 
objective of the program to which the rule or regulation applies, 
notwithstanding the provisions of Sec. 91.13.



                   Subpart C--Duties of HHS Recipients



Sec. 91.31  General responsibilities.

    Each HHS recipient has primary responsibility to ensure that its 
programs and activities are in compliance with the Act and these 
regulations, and shall take steps to eliminate violations of the Act. A 
recipient also has responsibility to maintain records, provide 
information, and to afford HHS access to its records to the extent HHS 
finds necessary to determine whether the recipient is in compliance with 
the Act and these regulations.



Sec. 91.32  Notice to subrecipients and beneficiaries.

    (a) Where a recipient passes on Federal financial assistance from 
HHS to subrecipients, the recipient shall provide the subrecipients 
written notice of their obligations under the Act and these regulations.
    (b) Each recipient shall make necessary information about the Act 
and these regulations available to its program beneficiaries in order to 
inform them about the protections against discrimination provided by the 
Act and these regulations.



Sec. 91.33  Assurance of compliance and recipient assessment of age distinctions.

    (a) Each recipient of Federal financial assistance from HHS shall 
sign a written assurance as specified by HHS that it will comply with 
the Act and these regulations.
    (b) Recipient assessment of age distinctions. (1) As part of a 
compliance review under Sec. 91.41 or complaint investigation under 
Sec. 91.44, HHS may require a recipient employing the equivalent of 15 
or more employees to complete a written self-evaluation, in a manner 
specified by the responsible Department official, of any age distinction 
imposed in its program or activity receiving Federal financial 
assistance from HHS to assess the recipient's compliance with the Act.

[[Page 407]]

    (2) Whenever an assessment indicates a violation of the Act and the 
HHS regulations, the recipient shall take corrective action.



Sec. 91.34  Information requirements.

    Each recipient shall:
    (a) Keep records in a form and containing information which HHS 
determines may be necessary to ascertain whether the recipient is 
complying with the Act and these regulations.
    (b) Provide to HHS, upon request, information and reports which HHS 
determines are necessary to ascertain whether the recipient is complying 
with the Act and these regulations.
    (c) Permit reasonable access by HHS to the books, records, accounts, 
and other recipient facilities and sources of information to the extent 
HHS determines is necessary to ascertain whether the recipient is 
complying with the Act and these regulations.



   Subpart D--Investigation, Conciliation, and Enforcement Procedures



Sec. 91.41  Compliance reviews.

    (a) HHS may conduct compliance reviews and pre-award reviews or use 
other similar procedures that will permit it to investigate and correct 
violations of the Act and these regulations. HHS may conduct these 
reviews even in the absence of a complaint against a recipient. The 
reviews may be as comprehensive as necessary to determine whether a 
violation of the Act and these regulations has occurred.
    (b) If a compliance review or pre-award review indicates a violation 
of the Act or these regulations, HHS will attempt to achieve voluntary 
compliance with the Act. If voluntary compliance cannot be achieved, HHS 
will arrange for enforcement as described in Sec. 91.46.



Sec. 91.42  Complaints.

    (a) Any person, individually or as a member of a class or on behalf 
of others, may file a complaint with HHS, alleging discrimination 
prohibited by the Act or these regulations based on an action occurring 
on or after July 1, 1979. A complainant shall file a complaint within 
180 days from the date the complainant first had knowledge of the 
alleged act of discrimination. However, for good cause shown, HHS may 
extend this time limit.
    (b) HHS will consider the date a complaint is filed to be the date 
upon which the complaint is sufficent to be processed.
    (c) HHS will attempt to facilitate the filing of complaints wherever 
possible, including taking the following measures:
    (1) Accepting as a sufficient complaint, any written statement which 
identifies the parties involved and the date the complainant first had 
knowledge of the alleged violation, describes generally the action or 
practice complained of, and is signed by the complainant.
    (2) Freely permitting a complainant to add information to the 
complaint to meet the requirements of a sufficient complaint.
    (3) Notifying the complainant and the recipient of their rights and 
obligations under the complaint procedure, including the right to have a 
representative at all stages of the complaint procedure.
    (4) Notifying the complainant and the recipient (or their 
representatives) of their right to contact HHS for information and 
assistance regarding the complaint resolution process.
    (d) HHS will return to the complainant any complaint outside the 
jurisdiction of these regulations, and will state the reason(s) why it 
is outside the jurisdiction of these regulations.



Sec. 91.43  Mediation.

    (a) HHS will promptly refer to a mediation agency designated by the 
Secretary all sufficient complaints that:
    (1) Fall within the jurisdiction of the Act and these regulations, 
unless the age distinction complained of is clearly within an exception; 
and,
    (2) Contain all information necessary for further processing.
    (b) Both the complainant and the recipient shall participate in the 
mediation process to the extent necessary to reach an agreement or make 
an informed judgment that an agreement is not possible.

[[Page 408]]

    (c) If the complainant and the recipient reach an agreement, the 
mediator shall prepare a written statement of the agreement and have the 
complainant and the recipient sign it. The mediator shall send a copy of 
the agreement to HHS. HHS will take no further action on the complaint 
unless the complainant or the recipient fails to comply with the 
agreement.
    (d) The mediator shall protect the confidentiality of all 
information obtained in the course of the mediation process. No mediator 
shall testify in any adjudicative proceeding, produce any document, or 
otherwise disclose any information obtained in the course of the 
mediation process without prior approval of the head of the mediation 
agency.
    (e) The mediation will proceed for a maximum of 60 days after a 
complaint is filed with HHS. Mediation ends if:
    (1) 60 days elapse from the time the complaint is filed; or
    (2) Prior to the end of that 60-day period, an agreement is reached; 
or
    (3) Prior to the end of that 60-day period, the mediator determines 
that an agreement cannot be reached.

This 60-day period may be extended by the mediator, with the concurrence 
of HHS, for not more than 30 days if the mediator determines that 
agreement will likely be reached during such extended period.
    (f) The mediator shall return unresolved complaints to HHS.



Sec. 91.44  Investigation.

    (a) Informal investigation. (1) HHS will investigate complaints that 
are unresolved after mediation or are reopened because of a violation of 
a mediation agreement.
    (2) As part of the initial investigation HHS will use informal fact 
finding methods, including joint or separate discussions with the 
complainant and recipient, to establish the fact and, if possible, 
settle the complaint on terms that are mutually agreeable to the 
parties. HHS may seek the assistance of any involved State program 
agency.
    (3) HHS will put any agreement in writing and have it signed by the 
parties and an authorized official at HHS.
    (4) The settlement shall not affect the operation of any other 
enforcement effort of HHS, including compliance reviews and 
investigation of other complaints which may involve the recipient.
    (5) The settlement is not a finding of discrimination against a 
recipient.
    (b) Formal investigation. If HHS cannot resolve the complaint 
through informal investigation, it will begin to develop formal findings 
through further investigation of the complaint. If the investigation 
indicates a violation of these regulations HHS will attempt to obtain 
voluntary compliance. If HHS cannot obtain voluntary compliance it will 
begin enforcement as described in Sec. 91.46.



Sec. 91.45  Prohibition against intimidation or retaliation.

    A recipient may not engage in acts of intimidation or retaliation 
against any person who:
    (a) Attempts to assert a right protected by the Act or these 
regulations; or
    (b) Cooperates in any mediation, investigation, hearing, or other 
part of HHS' investigation, conciliation, and enforcement process.



Sec. 91.46  Compliance procedure.

    (a) HHS may enforce the Act and these regulations through:
    (1) Termination of a recipient's Federal financial assistance from 
HHS under the program or activity involved where the recipient has 
violated the Act or these regulations. The determination of the 
recipient's violation may be made only after a recipient has had an 
opportunity for a hearing on the record before an administrative law 
judge.
    (2) Any other means authorized by law including but not limited to:
    (i) Referral to the Department of Justice for proceedings to enforce 
any rights of the United States or obligations of the recipient created 
by the Act or these regulations.
    (ii) Use of any requirement of or referral to any Federal, State, or 
local government agency that will have the effect of correcting a 
violation of the Act or these regulations.

[[Page 409]]

    (b) HHS will limit any termination under Sec. 91.46(a)(1) to the 
particular recipient and particular program or activity or part of such 
program and activity HHS finds in violation of these regulations. HHS 
will not base any part of a termination on a finding with respect to any 
program or activity of the recipient which does not receive Federal 
financial assistance from HHS.
    (c) HHS will take no action under paragraph (a) until:
    (1) The Secretary has advised the recipient of its failure to comply 
with the Act and these regulations and has determined that voluntary 
compliance cannot be obtained.
    (2) Thirty days have elapsed after the Secretary has sent a written 
report of the circumstances and grounds of the action to the committees 
of the Congress having legislative jurisdiction over the Federal program 
or activity involved. The Secretary will file a report whenever any 
action is taken under paragraph (a).
    (d) HHS also may defer granting new Federal financial assistance 
from HHS to a recipient when a hearing under Sec. 91.46(a)(1) is 
initiated.
    (1) New Federal financial assistance from HHS includes all 
assistance for which HHS requires an application or approval, including 
renewal or continuation of existing activities, or authorization of new 
activities, during the deferral period. New Federal financial assistance 
from HHS does not include increases in funding as a result of changed 
computation of formula awards or assistance approved prior to the 
beginning of a hearing under Sec. 91.46(a)(1).
    (2) HHS will not begin a deferral until the recipient has received a 
notice of an opportunity for a hearing under Sec. 91.46(a)(1). HHS will 
not continue a deferral for more than 60 days unless a hearing has begun 
within that time or the time for beginning the hearing has been extended 
by mutual consent of the recipient and the Secretary. HHS will not 
continue a deferral for more than 30 days after the close of the 
hearing, unless the hearing results in a finding against the recipient.
    (3) HHS will limit any deferral to the particular recipient and 
particular program or activity or part of such program or activity HHS 
finds in violation of these regulations. HHS will not base any part of a 
deferral on a finding with respect to any program or activity of the 
recipient which does not, and would not in connection with the new 
funds, receive Federal financial assistance from HHS.



Sec. 91.47  Hearings, decisions, post-termination proceedings.

    Certain HHS procedural provisions applicable to Title VI of the 
Civil Rights Act of 1964 apply to HHS enforcement of these regulations. 
They are found at 45 CFR 80.9 through 80.11 and 45 CFR Part 81.



Sec. 91.48  Remedial action by recipient.

    Where HHS finds a recipient has discriminated on the basis of age, 
the recipient shall take any remedial action that HHS may require to 
overcome the effects of the discrimination. If another recipient 
exercises control over the recipient that has discriminated, HHS may 
require both recipients to take remedial action.



Sec. 91.49  Alternate funds disbursal procedure.

    (a) When HHS withholds funds from a recipient under these 
regulations, the Secretary may disburse the withheld funds directly to 
an alternate recipient: any public or non-profit private organization or 
agency, or State or political subdivision of the State.
    (b) The Secretary will require any alternate recipient to 
demonstrate:
    (1) The ability to comply with these regulations; and
    (2) The ability to achieve the goals of the Federal statute 
authorizing the program or activity.



Sec. 91.50  Exhaustion of administrative remedies.

    (a) A complainant may file a civil action following the exhaustion 
of administrative remedies under the Act. Administrative remedies are 
exhausted if:
    (1) 180 days have elapsed since the complainant filed the complaint 
and HHS has made no finding with regard to the complaint; or
    (2) HHS issues any finding in favor of the recipient.

[[Page 410]]

    (b) If HHS fails to make a finding within 180 days or issues a 
finding in favor of the recipient, HHS shall:
    (1) Promptly advise the complainant of this fact; and
    (2) Advise the complainant of his or her right to bring a civil 
action for injunctive relief; and
    (3) Inform the complainant:
    (i) That the complainant may bring a civil action only in a United 
States district court for the district in which the recipient is found 
or transacts business;
    (ii) That a complainant prevailing in a civil action has the right 
to be awarded the costs of the action, including reasonable attorney's 
fees, but that the complainant must demand these costs in the complaint;
    (iii) That before commencing the action the complainant shall give 
30 days notice by registered mail to the Secretary, the Attorney General 
of the United States, and the recipient;
    (iv) That the notice must state: the alleged violation of the Act; 
the relief requested; the court in which the complainant is bringing the 
action; and, whether or not attorney's fees are demanded in the event 
the complainant prevails; and
    (v) That the complainant may not bring an action if the same alleged 
violation of the Act by the same recipient is the subject of a pending 
action in any court of the United States.



PART 92--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS--Table of Contents




                           Subpart A--General

Sec.
92.1  Purpose and scope of this part.
92.2  Scope of subpart.
92.3  Definitions.
92.4  Applicability.
92.5  Effect on other issuances.
92.6  Additions and exceptions.

                    Subpart B--Pre-Award Requirements

92.10  Forms for applying for grants.
92.11  State plans.
92.12  Special grant or subgrant conditions for ``high-risk'' grantees.

                   Subpart C--Post-Award Requirements

                        Financial Administration

92.20  Standards for financial management systems.
92.21  Payment.
92.22  Allowable costs.
92.23  Period of availability of funds.
92.24  Matching or cost sharing.
92.25  Program income.
92.26  Non-Federal audit.

                    Changes, Property, and Subawards

92.30  Changes.
92.31  Real property.
92.32  Equipment.
92.33  Supplies.
92.34  Copyrights.
92.35  Subawards to debarred and suspended parties.
92.36  Procurement.
92.37  Subgrants.

               Reports, Records Retention, and Enforcement

92.40  Monitoring and reporting program performance.
92.41  Financial reporting.
92.42  Retention and access requirements for records.
92.43  Enforcement.
92.44  Termination for convenience.

                 Subpart D--After-the-Grant Requirements

92.50  Closeout.
92.51  Later disallowances and adjustments.
92.52  Collection of amounts due.

Subpart E--Entitlement [Reserved]

    Authority: 5 U.S.C. 301.

    Source: 53 FR 8079, 8087, Mar. 11, 1988, unless otherwise noted.

    Editorial Note: For additional information, see related documents 
published at 49 FR 24958, June 18, 1984, 52 FR 20178, May 29, 1987, and 
53 FR 8028, March 11, 1988.



                           Subpart A--General



Sec. 92.1  Purpose and scope of this part.

    This part establishes uniform administrative rules for Federal 
grants and cooperative agreements and subawards to State, local and 
Indian tribal governments.



Sec. 92.2  Scope of subpart.

    This subpart contains general rules pertaining to this part and 
procedures for control of exceptions from this part.

[[Page 411]]



Sec. 92.3  Definitions.

    As used in this part:
    Accrued expenditures mean the charges incurred by the grantee during 
a given period requiring the provision of funds for: (1) Goods and other 
tangible property received; (2) services performed by employees, 
contractors, subgrantees, subcontractors, and other payees; and (3) 
other amounts becoming owed under programs for which no current services 
or performance is required, such as annuities, insurance claims, and 
other benefit payments.
    Accrued income means the sum of: (1) Earnings during a given period 
from services performed by the grantee and goods and other tangible 
property delivered to purchasers, and (2) amounts becoming owed to the 
grantee for which no current services or performance is required by the 
grantee.
    Acquisition cost of an item of purchased equipment means the net 
invoice unit price of the property including the cost of modifications, 
attachments, accessories, or auxiliary apparatus necessary to make the 
property usable for the purpose for which it was acquired. Other charges 
such as the cost of installation, transportation, taxes, duty or 
protective in-transit insurance, shall be included or excluded from the 
unit acquisition cost in accordance with the grantee's regular 
accounting practices.
    Administrative requirements mean those matters common to grants in 
general, such as financial management, kinds and frequency of reports, 
and retention of records. These are distinguished from programmatic 
requirements, which concern matters that can be treated only on a 
program-by-program or grant-by-grant basis, such as kinds of activities 
that can be supported by grants under a particular program.
    Awarding agency means (1) with respect to a grant, the Federal 
agency, and (2) with respect to a subgrant, the party that awarded the 
subgrant.
    Cash contributions means the grantee's cash outlay, including the 
outlay of money contributed to the grantee or subgrantee by other public 
agencies and institutions, and private organizations and individuals. 
When authorized by Federal legislation, Federal funds received from 
other assistance agreements may be considered as grantee or subgrantee 
cash contributions.
    Contract means (except as used in the definitions for grant and 
subgrant in this section and except where qualified by Federal) a 
procurement contract under a grant or subgrant, and means a procurement 
subcontract under a contract.
    Cost sharing or matching means the value of the third party in-kind 
contributions and the portion of the costs of a federally assisted 
project or program not borne by the Federal Government.
    Cost-type contract means a contract or subcontract under a grant in 
which the contractor or subcontractor is paid on the basis of the costs 
it incurs, with or without a fee.
    Equipment means tangible, nonexpendable, personal property having a 
useful life of more than one year and an acquisition cost of $5,000 or 
more per unit. A grantee may use its own definition of equipment 
provided that such definition would at least include all equipment 
defined above.
    Expenditure report means: (1) For nonconstruction grants, the SF-269 
``Financial Status Report'' (or other equivalent report); (2) for 
construction grants, the SF-271 ``Outlay Report and Request for 
Reimbursement'' (or other equivalent report).
    Federally recognized Indian tribal government means the governing 
body or a governmental agency of any Indian tribe, band, nation, or 
other organized group or community (including any Native village as 
defined in section 3 of the Alaska Native Claims Settlement Act, 85 Stat 
688) certified by the Secretary of the Interior as eligible for the 
special programs and services provided by him through the Bureau of 
Indian Affairs.
    Government means a State or local government or a federally 
recognized Indian tribal government.
    Grant means an award of financial assistance, including cooperative 
agreements, in the form of money, or property in lieu of money, by the 
Federal Government to an eligible grantee. The term does not include 
technical assistance which provides services instead of money, or other 
assistance in the form

[[Page 412]]

of revenue sharing, loans, loan guarantees, interest subsidies, 
insurance, or direct appropriations. Also, the term does not include 
assistance, such as a fellowship or other lump sum award, which the 
grantee is not required to account for.
    Grantee means the government to which a grant is awarded and which 
is accountable for the use of the funds provided. The grantee is the 
entire legal entity even if only a particular component of the entity is 
designated in the grant award document.
    Local government means a county, municipality, city, town, township, 
local public authority (including any public and Indian housing agency 
under the United States Housing Act of 1937) school district, special 
district, intrastate district, council of governments (whether or not 
incorporated as a nonprofit corporation under state law), any other 
regional or interstate government entity, or any agency or 
instrumentality of a local government.
    Obligations means the amounts of orders placed, contracts and 
subgrants awarded, goods and services received, and similar transactions 
during a given period that will require payment by the grantee during 
the same or a future period.
    OMB means the United States Office of Management and Budget.
    Outlays (expenditures) mean charges made to the project or program. 
They may be reported on a cash or accrual basis. For reports prepared on 
a cash basis, outlays are the sum of actual cash disbursement for direct 
charges for goods and services, the amount of indirect expense incurred, 
the value of in-kind contributions applied, and the amount of cash 
advances and payments made to contractors and subgrantees. For reports 
prepared on an accrued expenditure basis, outlays are the sum of actual 
cash disbursements, the amount of indirect expense incurred, the value 
of inkind contributions applied, and the new increase (or decrease) in 
the amounts owed by the grantee for goods and other property received, 
for services performed by employees, contractors, subgrantees, 
subcontractors, and other payees, and other amounts becoming owed under 
programs for which no current services or performance are required, such 
as annuities, insurance claims, and other benefit payments.
    Percentage of completion method refers to a system under which 
payments are made for construction work according to the percentage of 
completion of the work, rather than to the grantee's cost incurred.
    Prior approval means documentation evidencing consent prior to 
incurring specific cost.
    Real property means land, including land improvements, structures 
and appurtenances thereto, excluding movable machinery and equipment.
    Share, when referring to the awarding agency's portion of real 
property, equipment or supplies, means the same percentage as the 
awarding agency's portion of the acquiring party's total costs under the 
grant to which the acquisition costs under the grant to which the 
acquisition cost of the property was charged. Only costs are to be 
counted--not the value of third-party in-kind contributions.
    State means any of the several States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency or instrumentality of a 
State exclusive of local governments. The term does not include any 
public and Indian housing agency under United States Housing Act of 
1937.
    Subgrant means an award of financial assistance in the form of 
money, or property in lieu of money, made under a grant by a grantee to 
an eligible subgrantee. The term includes financial assistance when 
provided by contractual legal agreement, but does not include 
procurement purchases, nor does it include any form of assistance which 
is excluded from the definition of grant in this part.
    Subgrantee means the government or other legal entity to which a 
subgrant is awarded and which is accountable to the grantee for the use 
of the funds provided.
    Supplies means all tangible personal property other than equipment 
as defined in this part.
    Suspension means depending on the context, either (1) temporary 
withdrawal of the authority to obligate grant funds pending corrective 
action

[[Page 413]]

by the grantee or subgrantee or a decision to terminate the grant, or 
(2) an action taken by a suspending official in accordance with agency 
regulations implementing E.O. 12549 to immediately exclude a person from 
participating in grant transactions for a period, pending completion of 
an investigation and such legal or debarment proceedings as may ensue.
    Termination means permanent withdrawal of the authority to obligate 
previously-awarded grant funds before that authority would otherwise 
expire. It also means the voluntary relinquishment of that authority by 
the grantee or subgrantee. ``Termination'' does not include: (1) 
Withdrawal of funds awarded on the basis of the grantee's underestimate 
of the unobligated balance in a prior period; (2) Withdrawal of the 
unobligated balance as of the expiration of a grant; (3) Refusal to 
extend a grant r award additional funds, to make a competing or 
noncompeting continuation, renewal, extension, or supplemental award; or 
(4) voiding of a grant upon determination that the award was obtained 
fraudulently, or was otherwise illegal or invalid from inception.
    Terms of a grant or subgrant mean all requirements of the grant or 
subgrant, whether in statute, regulations, or the award document.
    Third party in-kind contributions mean property or services which 
benefit a federally assisted project or program and which are 
contributed by non-Federal third parties without charge to the grantee, 
or a cost-type contractor under the grant agreement.
    Unliquidated obligations for reports prepared on a cash basis mean 
the amount of obligations incurred by the grantee that has not been 
paid. For reports prepared on an accrued expenditure basis, they 
represent the amount of obligations incurred by the grantee for which an 
outlay has not been recorded.
    Unobligated balance means the portion of the funds authorized by the 
Federal agency that has not been obligated by the grantee and is 
determined by deducting the cumulative obligations from the cumulative 
funds authorized.



Sec. 92.4  Applicability.

    (a) General. Subparts A through D of this part apply to all grants 
and subgrants to governments, except where inconsistent with Federal 
statutes or with regulations authorized in accordance with the exception 
provision of Sec. 92.6, or:
    (1) Grants and subgrants to State and local institutions of higher 
education or State and local hospitals.
    (2) The block grants authorized by the Omnibus Budget Reconciliation 
Act of 1981 (Community Services; Preventive Health and Health Services; 
Alcohol, Drug Abuse, and Mental Health Services; Maternal and Child 
Health Services; Social Services; Low-Income Home Energy Assistance; 
States' Program of Community Development Block Grants for Small Cities; 
and Elementary and Secondary Education other than programs administered 
by the Secretary of Education under Title V, Subtitle D, Chapter 2, 
Section 583--the Secretary's discretionary grant program) and Titles I-
III of the Job Training Partnership Act of 1982 and under the Public 
Health Services Act (Section 1921), Alcohol and Drug Abuse Treatment and 
Rehabilitation Block Grant and Part C of Title V, Mental Health Service 
for the Homeless Block Grant).
    (3) Entitlement grants to carry out the following programs of the 
Social Security Act:
    (i) Aid to Needy Families with Dependent Children (Title IV-A of the 
Act, not including the Work Incentive Program (WIN) authorized by 
section 402(a)19(G); HHS grants for WIN are subject to this part);
    (ii) Child Support Enforcement and Establishment of Paternity (Title 
IV-D of the Act);
    (iii) Foster Care and Adoption Assistance (Title IV-E of the Act);
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act);
    (v) Medical Assistance (Medicaid) (title XIX of the Act) not 
including the State Medicaid Fraud Control program authorized by Section 
1903(a)(6)(B); and
    (vi) State Children's Health Insurance Program (title XXI of the 
Act).

[[Page 414]]

    (4) Entitlement grants under the following programs of The National 
School Lunch Act:
    (i) School Lunch (section 4 of the Act),
    (ii) Commodity Assistance (section 6 of the Act),
    (iii) Special Meal Assistance (section 11 of the Act),
    (iv) Summer Food Service for Children (section 13 of the Act), and
    (v) Child Care Food Program (section 17 of the Act).
    (5) Entitlement grants under the following programs of The Child 
Nutrition Act of 1966:
    (i) Special Milk (section 3 of the Act), and
    (ii) School Breakfast (section 4 of the Act).
    (6) Entitlement grants for State Administrative expenses under The 
Food Stamp Act of 1977 (section 16 of the Act).
    (7) A grant for an experimental, pilot, or demonstration project 
that is also supported by a grant listed in paragraph (a)(3) of this 
section;
    (8) Grant funds awarded under subsection 412(e) of the Immigration 
and Nationality Act (8 U.S.C. 1522(e)) and subsection 501(a) of the 
Refugee Education Assistance Act of 1980 (Pub. L. 96-422, 94 Stat. 
1809), for cash assistance, medical assistance, and supplemental 
security income benefits to refugees and entrants and the administrative 
costs of providing the assistance and benefits;
    (9) Grants to local education agencies under 20 U.S.C. 236 through 
241-1(a), and 242 through 244 (portions of the Impact Aid program), 
except for 20 U.S.C. 238(d)(2)(c) and 240(f) (Entitlement Increase for 
Handicapped Children); and
    (10) Payments under the Veterans Administration's State Home Per 
Diem Program (38 U.S.C. 641(a)).
    (b) Entitlement programs. Entitlement programs enumerated above in 
Sec. 92.4(a) (3) through (8) are subject to Subpart E.

[53 FR 8079, 8087, Mar. 11, 1988, as amended at 65 FR 33632, May 24, 
2000]



Sec. 92.5  Effect on other issuances.

    All other grants administration provisions of codified program 
regulations, program manuals, handbooks and other nonregulatory 
materials which are inconsistent with this part are superseded, except 
to the extent they are required by statute, or authorized in accordance 
with the exception provision in Sec. 92.6.



Sec. 92.6  Additions and exceptions.

    (a) For classes of grants and grantees subject to this part, Federal 
agencies may not impose additional administrative requirements except in 
codified regulations published in the Federal Register.
    (b) Exceptions for classes of grants or grantees may be authorized 
only by OMB.
    (c) Exceptions on a case-by-case basis and for subgrantees may be 
authorized by the affected Federal agencies.



                    Subpart B--Pre-Award Requirements



Sec. 92.10  Forms for applying for grants.

    (a) Scope. (1) This section prescribes forms and instructions to be 
used by governmental organizations (except hospitals and institutions of 
higher education operated by a government) in applying for grants. This 
section is not applicable, however, to formula grant programs which do 
not require applicants to apply for funds on a project basis.
    (2) This section applies only to applications to Federal agencies 
for grants, and is not required to be applied by grantees in dealing 
with applicants for subgrants. However, grantees are encouraged to avoid 
more detailed or burdensome application requirements for subgrants.
    (b) Authorized forms and instructions for governmental 
organizations. (1) In applying for grants, applicants shall only use 
standard application forms or those prescribed by the granting agency 
with the approval of OMB under the Paperwork Reduction Act of 1980.
    (2) Applicants are not required to submit more than the original and 
two copies of preapplications or applications.
    (3) Applicants must follow all applicable instructions that bear OMB 
clearance numbers. Federal agencies may specify and describe the 
programs, functions, or activities that will be

[[Page 415]]

used to plan, budget, and evaluate the work under a grant. Other 
supplementary instructions may be issued only with the approval of OMB 
to the extent required under the Paperwork Reduction Act of 1980. For 
any standard form, except the SF-424 facesheet, Federal agencies may 
shade out or instruct the applicant to disregard any line item that is 
not needed.
    (4) When a grantee applies for additional funding (such as a 
continuation or supplemental award) or amends a previously submitted 
application, only the affected pages need be submitted. Previously 
submitted pages with information that is still current need not be 
resubmitted.



Sec. 92.11  State plans.

    (a) Scope. The statutes for some programs require States to submit 
plans before receiving grants. Under regulations implementing Executive 
Order 12372, ``Intergovernmental Review of Federal Programs,'' States 
are allowed to simplify, consolidate and substitute plans. This section 
contains additional provisions for plans that are subject to regulations 
implementing the Executive order.
    (b) Requirements. A State need meet only Federal administrative or 
programmatic requirements for a plan that are in statutes or codified 
regulations.
    (c) Assurances. In each plan the State will include an assurance 
that the State shall comply with all applicable Federal statutes and 
regulations in effect with respect to the periods for which it receives 
grant funding. For this assurance and other assurances required in the 
plan, the State may:
    (1) Cite by number the statutory or regulatory provisions requiring 
the assurances and affirm that it gives the assurances required by those 
provisions,
    (2) Repeat the assurance language in the statutes or regulations, or
    (3) Develop its own language to the extent permitted by law.
    (d) Amendments. A State will amend a plan whenever necessary to 
reflect: (1) New or revised Federal statutes or regulations or (2) a 
material change in any State law, organization, policy, or State agency 
operation. The State will obtain approval for the amendment and its 
effective date but need submit for approval only the amended portions of 
the plan.



Sec. 92.12  Special grant or subgrant conditions for ``high-risk'' grantees.

    (a) A grantee or subgrantee may be considered ``high risk'' if an 
awarding agency determines that a grantee or subgrantee:
    (1) Has a history of unsatisfactory performance, or
    (2) Is not financially stable, or
    (3) Has a management system which does not meet the management 
standards set forth in this part, or
    (4) Has not conformed to terms and conditions of previous awards, or
    (5) Is otherwise not responsible; and if the awarding agency 
determines that an award will be made, special conditions and/or 
restrictions shall correspond to the high risk condition and shall be 
included in the award.
    (b) Special conditions or restrictions may include:
    (1) Payment on a reimbursement basis;
    (2) Withholding authority to proceed to the next phase until receipt 
of evidence of acceptable performance within a given funding period;
    (3) Requiring additional, more detailed financial reports;
    (4) Additional project monitoring;
    (5) Requiring the grantee or subgrantee to obtain technical or 
management assistance; or
    (6) Establishing additional prior approvals.
    (c) If an awarding agency decides to impose such conditions, the 
awarding official will notify the grantee or subgrantee as early as 
possible, in writing, of:
    (1) The nature of the special conditions/restrictions;
    (2) The reason(s) for imposing them;
    (3) The corrective actions which must be taken before they will be 
removed and the time allowed for completing the corrective actions and
    (4) The method of requesting reconsideration of the conditions/
restrictions imposed.

[[Page 416]]



                   Subpart C--Post-Award Requirements

                        Financial Administration



Sec. 92.20  Standards for financial management systems.

    (a) A State must expand and account for grant funds in accordance 
with State laws and procedures for expending and accounting for its own 
funds. Fiscal control and accounting procedures of the State, as well as 
its subgrantees and cost-type contractors, must be sufficient to--
    (1) Permit preparation of reports required by this part and the 
statutes authorizing the grant, and
    (2) Permit the tracing of funds to a level of expenditures adequate 
to establish that such funds have not been used in violation of the 
restrictions and prohibitions of applicable statutes.
    (b) The financial management systems of other grantees and 
subgrantees must meet the following standards:
    (1) Financial reporting. Accurate, current, and complete disclosure 
of the financial results of financially assisted activities must be made 
in accordance with the financial reporting requirements of the grant or 
subgrant.
    (2) Accounting records. Grantees and subgrantees must maintain 
records which adequately identify the source and application of funds 
provided for financially-assisted activities. These records must contain 
information pertaining to grant or subgrant awards and authorizations, 
obligations, unobligated balances, assets, liabilities, outlays or 
expenditures, and income.
    (3) Internal control. Effective control and accountability must be 
maintained for all grant and subgrant cash, real and personal property, 
and other assets. Grantees and subgrantees must adequately safeguard all 
such property and must assure that it is used solely for authorized 
purposes.
    (4) Budget control. Actual expenditures or outlays must be compared 
with budgeted amounts for each grant or subgrant. Financial information 
must be related to performance or productivity data, including the 
development of unit cost information whenever appropriate or 
specifically required in the grant or subgrant agreement. If unit cost 
data are required, estimates based on available documentation will be 
accepted whenever possible.
    (5) Allowable cost. Applicable OMB cost principles, agency program 
regulations, and the terms of grant and subgrant agreements will be 
followed in determining the reasonableness, allowability, and 
allocability of costs.
    (6) Source documentation. Accounting records must be supported by 
such source documentation as cancelled checks, paid bills, payrolls, 
time and attendance records, contract and subgrant award documents, etc.
    (7) Cash management. Procedures for minimizing the time elapsing 
between the transfer of funds from the U.S. Treasury and disbursement by 
grantees and subgrantees must be followed whenever advance payment 
procedures are used. Grantees must establish reasonable procedures to 
ensure the receipt of reports on subgrantees' cash balances and cash 
disbursements in sufficient time to enable them to prepare complete and 
accurate cash transactions reports to the awarding agency. When advances 
are made by letter-of-credit or electronic transfer of funds methods, 
the grantee must make drawdowns as close as possible to the time of 
making disbursements. Grantees must monitor cash drawdowns by their 
subgrantees to assure that they conform substantially to the same 
standards of timing and amount as apply to advances to the grantees.
    (c) An awarding agency may review the adequacy of the financial 
management system of any applicant for financial assistance as part of a 
preaward review or at any time subsequent to award.



Sec. 92.21  Payment.

    (a) Scope. This section prescribes the basic standard and the 
methods under which a Federal agency will make payments to grantees, and 
grantees will make payments to subgrantees and contractors.
    (b) Basic standard. Methods and procedures for payment shall 
minimize the time elapsing between the transfer of funds and 
disbursement by the grantee or subgrantee, in accordance

[[Page 417]]

with Treasury regulations at 31 CFR Part 205.
    (c) Advances. Grantees and subgrantees shall be paid in advance, 
provided they maintain or demonstrate the willingness and ability to 
maintain procedures to minimize the time elapsing between the transfer 
of the funds and their disbursement by the grantee or subgrantee.
    (d) Reimbursement. Reimbursement shall be the preferred method when 
the requirements in paragraph (c) of this section are not met. Grantees 
and subgrantees may also be paid by reimbursement for any construction 
grant. Except as otherwise specified in regulation, Federal agencies 
shall not use the percentage of completion method to pay construction 
grants. The grantee or subgrantee may use that method to pay its 
construction contractor, and if it does, the awarding agency's payments 
to the grantee or subgrantee will be based on the grantee's or 
subgrantee's actual rate of disbursement.
    (e) Working capital advances. If a grantee cannot meet the criteria 
for advance payments described in paragraph (c) of this section, and the 
Federal agency has determined that reimbursement is not feasible because 
the grantee lacks sufficient working capital, the awarding agency may 
provide cash or a working capital advance basis. Under this procedure 
the awarding agency shall advance cash to the grantee to cover its 
estimated disbursement needs for an initial period generally geared to 
the grantee's disbursing cycle. Thereafter, the awarding agency shall 
reimburse the grantee for its actual cash disbursements. The working 
capital advance method of payment shall not be used by grantees or 
subgrantees if the reason for using such method is the unwillingness or 
inability of the grantee to provide timely advances to the subgrantee to 
meet the subgrantee's actual cash disbursements.
    (f) Effect of program income, refunds, and audit recoveries on 
payment. (1) Grantees and subgrantees shall disburse repayments to and 
interest earned on a revolving fund before requesting additional cash 
payments for the same activity.
    (2) Except as provided in paragraph (f)(1) of this section, grantees 
and subgrantees shall disburse program income, rebates, refunds, 
contract settlements, audit recoveries and interest earned on such funds 
before requesting additional cash payments.
    (g) Withholding payments. (1) Unless otherwise required by Federal 
statute, awarding agencies shall not withhold payments for proper 
charges incurred by grantees or subgrantees unless--
    (i) The grantee or subgrantee has failed to comply with grant award 
conditions or
    (ii) The grantee or subgrantee is indebted to the United States.
    (2) Cash withheld for failure to comply with grant award condition, 
but without suspension of the grant, shall be released to the grantee 
upon subsequent compliance. When a grant is suspended, payment 
adjustments will be made in accordance with Sec. 92.43(c).
    (3) A Federal agency shall not make payment to grantees for amounts 
that are withheld by grantees or subgrantees from payment to contractors 
to assure satisfactory completion of work. Payments shall be made by the 
Federal agency when the grantees or subgrantees actually disburse the 
withheld funds to the contractors or to escrow accounts established to 
assure satisfactory completion of work.
    (h) Cash depositories. (1) Consistent with the national goal of 
expanding the opportunities for minority business enterprises, grantees 
and subgrantees are encouraged to use minority banks (a bank which is 
owned at least 50 percent by minority group members). A list of minority 
owned banks can be obtained from the Minority Business Development 
Agency, Department of Commerce, Washington, DC 20230.
    (2) A grantee or subgrantee shall maintain a separate bank account 
only when required by Federal-State agreement.
    (i) Interest earned on advances. Except for interest earned on 
advances of funds exempt under the Intergovernmental Cooperation Act (31 
U.S.C. 6501 et seq.) and the Indian Self-Determination Act (23 U.S.C. 
450), grantees and subgrantees shall promptly, but at least quarterly, 
remit interest earned on advances to the Federal agency. The

[[Page 418]]

grantee or subgrantee may keep interest amounts up to $100 per year for 
administrative expenses.



Sec. 92.22  Allowable costs.

    (a) Limitation on use of funds. Grant funds may be used only for:
    (1) The allowable costs of the grantees, subgrantees and cost-type 
contractors, including allowable costs in the form of payments to fixed-
price contractors; and
    (2) Reasonable fees or profit to cost-type contractors but not any 
fee or profit (or other increment above allowable costs) to the grantee 
or subgrantee.
    (b) Applicable cost principles. For each kind of organization, there 
is a set of Federal principles for determining allowable costs. 
Allowable costs will be determined in accordance with the cost 
principles applicable to the organization incurring the costs. The 
following chart lists the kinds of organizations and the applicable cost 
principles.

------------------------------------------------------------------------
           For the costs of a--                Use the principles in--
------------------------------------------------------------------------
State, local or Indian tribal government..  OMB Circular A-87.
Private nonprofit organization other than   OMB Circular A-122.
 an (1) institution of higher education,
 (2) hospital, or (3) organization named
 in OMB Circular A-122 as not subject to
 that circular.
Educational institutions..................  OMB Circular A-21.
For-profit organization other than a        48 CFR Part 31. Contract
 hospital and an organization named in OBM   Cost Principles and
 Circular A-122 as not subject to that       Procedures, or uniform cost
 circular.                                   accounting standards that
                                             comply with cost principles
                                             acceptable to the Federal
                                             agency.
------------------------------------------------------------------------



Sec. 92.23  Period of availability of funds.

    (a) General. Where a funding period is specified, a grantee may 
charge to the award only costs resulting from obligations of the funding 
period unless carryover of unobligated balances is permitted, in which 
case the carryover balances may be charged for costs resulting from 
obligations of the subsequent funding period.
    (b) Liquidation of obligations. A grantee must liquidate all 
obligations incurred under the award not later than 90 days after the 
end of the funding period (or as specified in a program regulation) to 
coincide with the submission of the annual Financial Status Report (SF-
269). The Federal agency may extend this deadline at the request of the 
grantee.



Sec. 92.24  Matching or cost sharing.

    (a) Basic rule: Costs and contributions acceptable. With the 
qualifications and exceptions listed in paragraph (b) of this section, a 
matching or cost sharing requirement may be satisfied by either or both 
of the following:
    (1) Allowable costs incurred by the grantee, subgrantee or a cost-
type contractor under the assistance agreement. This includes allowable 
costs borne by non-Federal grants or by others cash donations from non-
Federal third parties.
    (2) The value of third party in-kind contributions applicable to the 
period to which the cost sharing or matching requirements applies.
    (b) Qualifications and exceptions--(1) Costs borne by other Federal 
grant agreements. Except as provided by Federal statute, a cost sharing 
or matching requirement may not be met by costs borne by another Federal 
grant. This prohibition does not apply to income earned by a grantee or 
subgrantee from a contract awarded under another Federal grant.
    (2) General revenue sharing. For the purpose of this section, 
general revenue sharing funds distributed under 31 U.S.C. 6702 are not 
considered Federal grant funds.
    (3) Cost or contributions counted towards other Federal costs-
sharing requirements. Neither costs nor the values of third party in-
kind contributions may count towards satisfying a cost sharing or 
matching requirement of a grant agreement if they have been or will be 
counted towards satisfying a cost sharing or matching requirement of 
another Federal grant agreement, a Federal procurement contract, or any 
other award of Federal funds.
    (4) Costs financed by program income. Costs financed by program 
income, as defined in Sec. 92.25, shall not count towards satisfying a 
cost sharing or matching requirement unless they are expressly permitted 
in the terms of the assistance agreement. (This use of general program 
income is described in Sec. 92.25(g).)

[[Page 419]]

    (5) Services or property financed by income earned by contractors. 
Contractors under a grant may earn income from the activities carried 
out under the contract in addition to the amounts earned from the party 
awarding the contract. No costs of services or property supported by 
this income may count toward satisfying a cost sharing or matching 
requirement unless other provisions of the grant agreement expressly 
permit this kind of income to be used to meet the requirement.
    (6) Records. Costs and third party in-kind contributions counting 
towards satisfying a cost sharing or matching requirement must be 
verifiable from the records of grantees and subgrantee or cost-type 
contractors. These records must show how the value placed on third party 
in-kind contributions was derived. To the extent feasible, volunteer 
services will be supported by the same methods that the organization 
uses to support the allocability of regular personnel costs.
    (7) Special standards for third party in-kind contributions. (i) 
Third party in-kind contributions count towards satisfying a cost 
sharing or matching requirement only where, if the party receiving the 
contributions were to pay for them, the payments would be allowable 
costs.
    (ii) Some third party in-kind contributions are goods and services 
that, if the grantee, subgrantee, or contractor receiving the 
contribution had to pay for them, the payments would have been an 
indirect costs. Costs sharing or matching credit for such contributions 
shall be given only if the grantee, subgrantee, or contractor has 
established, along with its regular indirect cost rate, a special rate 
for allocating to individual projects or programs the value of the 
contributions.
    (iii) A third party in-kind contribution to a fixed-price contract 
may count towards satisfying a cost sharing or matching requirement only 
if it results in:
    (A) An increase in the services or property provided under the 
contract (without additional cost to the grantee or subgrantee) or
    (B) A cost savings to the grantee or subgrantee.
    (iv) The values placed on third party in-kind contributions for cost 
sharing or matching purposes will conform to the rules in the succeeding 
sections of this part. If a third party in-kind contribution is a type 
not treated in those sections, the value placed upon it shall be fair 
and reasonable.
    (c) Valuation of donated services--(1) Volunteer services. Unpaid 
services provided to a grantee or subgrantee by individuals will be 
valued at rates consistent with those ordinarily paid for similar work 
in the grantee's or subgrantee's organization. If the grantee or 
subgrantee does not have employees performing similar work, the rates 
will be consistent with those ordinarily paid by other employers for 
similar work in the same labor market. In either case, a reasonable 
amount for fringe benefits may be included in the valuation.
    (2) Employees of other organizations. When an employer other than a 
grantee, subgrantee, or cost-type contractor furnishes free of charge 
the services of an employee in the employee's normal line of work, the 
services will be valued at the employee's regular rate of pay exclusive 
of the employee's fringe benefits and overhead costs. If the services 
are in a different line of work, paragraph (c)(1) of this section 
applies.
    (d) Valuation of third party donated supplies and loaned equipment 
or space. (1) If a third party donates supplies, the contribution will 
be valued at the market value of the supplies at the time of donation.
    (2) If a third party donates the use of equipment or space in a 
building but retains title, the contribution will be valued at the fair 
rental rate of the equipment or space.
    (e) Valuation of third party donated equipment, buildings, and land. 
If a third party donates equipment, buildings, or land, and title passes 
to a grantee or subgrantee, the treatment of the donated property will 
depend upon the purpose of the grant or subgrant, as follows:
    (1) Awards for capital expenditures. If the purpose of the grant or 
subgrant is to assist the grantee or subgrantee in the acquisition of 
property, the market value of that property at the time of

[[Page 420]]

donation may be counted as cost sharing or matching,
    (2) Other awards. If assisting in the acquisition of property is not 
the purpose of the grant or subgrant, paragraphs (e)(2) (i) and (ii) of 
this section apply:
    (i) If approval is obtained from the awarding agency, the market 
value at the time of donation of the donated equipment or buildings and 
the fair rental rate of the donated land may be counted as cost sharing 
or matching. In the case of a subgrant, the terms of the grant agreement 
may require that the approval be obtained from the Federal agency as 
well as the grantee. In all cases, the approval may be given only if a 
purchase of the equipment or rental of the land would be approved as an 
allowable direct cost. If any part of the donated property was acquired 
with Federal funds, only the non-federal share of the property may be 
counted as cost-sharing or matching.
    (ii) If approval is not obtained under paragraph (e)(2)(i) of this 
section, no amount may be counted for donated land, and only 
depreciation or use allowances may be counted for donated equipment and 
buildings. The depreciation or use allowances for this property are not 
treated as third party in-kind contributions. Instead, they are treated 
as costs incurred by the grantee or subgrantee. They are computed and 
allocated (usually as indirect costs) in accordance with the cost 
principles specified in Sec. 92.22, in the same way as depreciation or 
use allowances for purchased equipment and buildings. The amount of 
depreciation or use allowances for donated equipment and buildings is 
based on the property's market value at the time it was donated.
    (f) Valuation of grantee or subgrantee donated real property for 
construction/acquisition. If a grantee or subgrantee donates real 
property for a construction or facilities acquisition project, the 
current market value of that property may be counted as cost sharing or 
matching. If any part of the donated property was acquired with Federal 
funds, only the non-federal share of the property may be counted as cost 
sharing or matching.
    (g) Appraisal of real property. In some cases under paragraphs (d), 
(e) and (f) of this section, it will be necessary to establish the 
market value of land or a building or the fair rental rate of land or of 
space in a building. In these cases, the Federal agency may require the 
market value or fair rental value be set by an independent appraiser, 
and that the value or rate be certified by the grantee. This requirement 
will also be imposed by the grantee on subgrantees.



Sec. 92.25  Program income.

    (a) General. Grantees are encouraged to earn income to defray 
program costs. Program income includes income from fees for services 
performed, from the use or rental of real or personal property acquired 
with grant funds, from the sale of commodities or items fabricated under 
a grant agreement, and from payments of principal and interest on loans 
made with grant funds. Except as otherwise provided in regulations of 
the Federal agency, program income does not include interest on grant 
funds, rebates, credits, discounts, refunds, etc. and interest earned on 
any of them.
    (b) Definition of program income. Program income means gross income 
received by the grantee or subgrantee directly generated by a grant 
supported activity, or earned only as a result of the grant agreement 
during the grant period. ``During the grant period'' is the time between 
the effective date of the award and the ending date of the award 
reflected in the final financial report.
    (c) Cost of generating program income. If authorized by Federal 
regulations or the grant agreement, costs incident to the generation of 
program income may be deducted from gross income to determine program 
income.
    (d) Governmental revenues. Taxes, special assessments, levies, 
fines, and other such revenues raised by a grantee or subgrantee are not 
program income unless the revenues are specifically identified in the 
grant agreement or Federal agency regulations as program income.
    (e) Royalties. Income from royalties and license fees for 
copyrighted material, patents, and inventions developed by a grantee or 
subgrantee is program income only if the revenues are specifically 
identified in the grant agreement

[[Page 421]]

or Federal agency regulations as program income. (See Sec. 92.34.)
    (f) Property. Proceeds from the sale of real property or equipment 
will be handled in accordance with the requirements of Secs. 92.31 and 
92.32.
    (g) Use of program income. Program income shall be deducted from 
outlays which may be both Federal and non-Federal as described below, 
unless the Federal agency regulations or the grant agreement specify 
another alternative (or a combination of the alternatives). In 
specifying alternatives, the Federal agency may distinguish between 
income earned by the grantee and income earned by subgrantees and 
between the sources, kinds, or amounts of income. When Federal agencies 
authorize the alternatives in paragraphs (g) (2) and (3) of this 
section, program income in excess of any limits stipulated shall also be 
deducted from outlays.
    (1) Deduction. Ordinarily program income shall be deducted from 
total allowable costs to determine the net allowable costs. Program 
income shall be used for current costs unless the Federal agency 
authorizes otherwise. Program income which the grantee did not 
anticipate at the time of the award shall be used to reduce the Federal 
agency and grantee contributions rather than to increase the funds 
committed to the project.
    (2) Addition. When authorized, program income may be added to the 
funds committed to the grant agreement by the Federal agency and the 
grantee. The program income shall be used for the purposes and under the 
conditions of the grant agreement.
    (3) Cost sharing or matching. When authorized, program income may be 
used to meet the cost sharing or matching requirement of the grant 
agreement. The amount of the Federal grant award remains the same.
    (h) Income after the award period. There are no Federal requirements 
governing the disposition of program income earned after the end of the 
award period (i.e., until the ending date of the final financial report, 
see paragraph (a) of this section), unless the terms of the agreement or 
the Federal agency regulations provide otherwise.



Sec. 92.26  Non-Federal audit.

    (a) Basic rule. Grantees and subgrantees are responsible for 
obtaining audits in accordance with the Single Audit Act Amendments of 
1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133, ``Audits of 
States, Local Governments, and Non-Profit Organizations.'' The audits 
shall be made by an independent auditor in accordance with generally 
accepted government auditing standards covering financial audits.
    (b) Subgrantees. State or local governments, as those terms are 
defined for purposes of the Single Audit Act Amendments of 1996, that 
provide Federal awards to a subgrantee, which expends $300,000 or more 
(or other amount as specified by OMB) in Federal awards in a fiscal 
year, shall:
    (1) Determine whether State or local subgrantees have met the audit 
requirements of the Act and whether subgrantees covered by OMB Circular 
A-110, ``Uniform Administrative Requirements for Grants and Agreements 
with Institutions of Higher Education, Hospitals, and Other Non-Profit 
Organizations,'' have met the audit requirements of the Act. Commercial 
contractors (private for-profit and private and governmental 
organizations) providing goods and services to State and local 
governments are not required to have a single audit performed. State and 
local governments should use their own procedures to ensure that the 
contractor has complied with laws and regulations affecting the 
expenditure of Federal funds;
    (2) Determine whether the subgrantee spent Federal assistance funds 
provided in accordance with applicable laws and regulations. This may be 
accomplished by reviewing an audit of the subgrantee made in accordance 
with the Act, Circular A-110, or through other means (e.g., program 
reviews) if the subgrantee has not had such an audit;
    (3) Ensure that appropriate corrective action is taken within six 
months after receipt of the audit report in instance of noncompliance 
with Federal laws and regulations;
    (4) Consider whether subgrantee audits necessitate adjustment of the 
grantee's own records; and

[[Page 422]]

    (5) Require each subgrantee to permit independent auditors to have 
access to the records and financial statements.
    (c) Auditor selection. In arranging for audit services, Sec. 92.36 
shall be followed.

[53 FR 8079, 8087, Mar. 11, 1988, as amended at 62 FR 45939, 45945, Aug. 
29, 1997]

                    Changes, Property, and Subawards



Sec. 92.30  Changes.

    (a) General. Grantees and subgrantees are permitted to rebudget 
within the approved direct cost budget to meet unanticipated 
requirements and may make limited program changes to the approved 
project. However, unless waived by the awarding agency, certain types of 
post-award changes in budgets and projects shall require the prior 
written approval of the awarding agency.
    (1) Approvals shall not be valid unless they are in writing, and 
signed by at least one of the following officials of the Department of 
Health and Human Services (HHS):
    (i) The responsible Grants Officer or his or her designee;
    (ii) The head of the HHS Operating or Staff Division that awarded 
the grant; or
    (iii) The head of the Regional Office of the HHS Operating or Staff 
Division that awarded the grant.
    (b) Relation to cost principles. The applicable cost principles (see 
Sec. 92.22) contain requirements for prior approval of certain types of 
costs. Except where waived, those requirements apply to all grants and 
subgrants even if paragraphs (c) through (f) of this section do not.
    (c) Budget changes--(1) Nonconstruction projects. Except as stated 
in other regulations or an award document, grantees or subgrantees shall 
obtain the prior approval of the awarding agency whenever any of the 
following changes is anticipated under a nonconstruction award:
    (i) Any revision which would result in the need for additional 
funding.
    (ii) Unless waived by the awarding agency, cumulative transfers 
among direct cost categories, or, if applicable, among separately 
budgeted programs, projects, functions, or activities which exceed or 
are expected to exceed ten percent of the current total approved budget, 
whenever the awarding agency's share exceeds $100,000.
    (iii) Transfer of funds allotted for training allowances (i.e., from 
direct payments to trainees to other expense categories).
    (2) Construction projects. Grantees and subgrantees shall obtain 
prior written approval for any budget revision which would result in the 
need for additional funds.
    (3) Combined construction and nonconstruction projects. When a grant 
or subgrant provides funding for both construction and nonconstruction 
activities, the grantee or subgrantee must obtain prior written approval 
from the awarding agency before making any fund or budget transfer from 
nonconstruction to construction or vice versa.
    (d) Programmatic changes. Grantees or subgrantees must obtain the 
prior approval of the awarding agency whenever any of the following 
actions is anticipated:
    (1) Any revision of the scope or objectives of the project 
(regardless of whether there is an associated budget revision requiring 
prior approval).
    (2) Need to extend the period of availability of funds.
    (3) Changes in key persons in cases where specified in an 
application or a grant award. In research projects, a change in the 
project director or principal investigator shall always require approval 
unless waived by the awarding agency.
    (4) Under nonconstruction projects, contracting out, subgranting (if 
authorized by law) or otherwise obtaining the services of a third party 
to perform activities which are central to the purposes of the award. 
This approval requirement is in addition to the approval requirements of 
Sec. 92.36 but does not apply to the procurement of equipment, supplies, 
and general support services.
    (5) Providing medical care to individuals under research grants.
    (e) Additional prior approval requirements. The awarding agency may 
not require prior approval for any budget revision which is not 
described in paragraph (c) of this section.

[[Page 423]]

    (f) Requesting prior approval. (1) A request for prior approval of 
any budget revision will be in the same budget formal the grantee used 
in its application and shall be accompanied by a narrative justification 
for the proposed revision.
    (2) A request for a prior approval under the applicable Federal cost 
principles (see Sec. 92.22) may be made by letter.
    (3) A request by a subgrantee for prior approval will be addressed 
in writing to the grantee. The grantee will promptly review such request 
and shall approve or disapprove the request in writing. A grantee will 
not approve any budget or project revision which is inconsistent with 
the purpose or terms and conditions of the Federal grant to the grantee. 
If the revision, requested by the subgrantee would result in a change to 
the grantee's approved project which requires Federal prior approval, 
the grantee will obtain the Federal agency's approval before approving 
the subgrantee's request.

[53 FR 8079, 8087, Mar. 11, 1988, as amended at 53 FR 8079, Mar. 11, 
1988]



Sec. 92.31  Real property.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to real property acquired under a grant or subgrant 
will vest upon acquisition in the grantee or subgrantee respectively.
    (b) Use. Except as otherwise provided by Federal statutes, real 
property will be used for the originally authorized purposes as long as 
needed for that purposes, and the grantee or subgrantee shall not 
dispose of or encumber its title or other interests.
    (c) Disposition. When real property is no longer needed for the 
originally authorized purpose, the grantee or subgrantee will request 
disposition instructions from the awarding agency. The instructions will 
provide for one of the following alternatives:
    (1) Retention of title. Retain title after compensating the awarding 
agency. The amount paid to the awarding agency will be computed by 
applying the awarding agency's percentage of participation in the cost 
of the original purchase to the fair market value of the property. 
However, in those situations where a grantee or subgrantee is disposing 
of real property acquired with grant funds and acquiring replacement 
real property under the same program, the net proceeds from the 
disposition may be used as an offset to the cost of the replacement 
property.
    (2) Sale of property. Sell the property and compensate the awarding 
agency. The amount due to the awarding agency will be calculated by 
applying the awarding agency's percentage of participation in the cost 
of the original purchase to the proceeds of the sale after deduction of 
any actual and reasonable selling and fixing-up expenses. If the grant 
is still active, the net proceeds from sale may be offset against the 
original cost of the property. When a grantee or subgrantee is directed 
to sell property, sales procedures shall be followed that provide for 
competition to the extent practicable and result in the highest possible 
return.
    (3) Transfer of title. Transfer title to the awarding agency or to a 
third-party designated/approved by the awarding agency. The grantee or 
subgrantee shall be paid an amount calculated by applying the grantee or 
subgrantee's percentage of participation in the purchase of the real 
property to the current fair market value of the property.



Sec. 92.32  Equipment.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to equipment acquired under a grant or subgrant will 
vest upon acquisition in the grantee or subgrantee respectively.
    (b) States. A State will use, manage, and dispose of equipment 
acquired under a grant by the State in accordance with State laws and 
procedures. Other grantees and subgrantees will follow paragraphs (c) 
through (e) of this section.
    (c) Use. (1) Equipment shall be used by the grantee or subgrantee in 
the program or project for which it was acquired as long as needed, 
whether or not the project or program continues to be supported by 
Federal funds. When no longer needed for the original program or 
project, the equipment may be used in other activities currently or

[[Page 424]]

previously supported by a Federal agency.
    (2) The grantee or subgrantee shall also make equipment available 
for use on other projects or programs currently or previously supported 
by the Federal Government, providing such use will not interfere with 
the work on the projects or program for which it was originally 
acquired. First preference for other use shall be given to other 
programs or projects supported by the awarding agency. User fees should 
be considered if appropriate.
    (3) Notwithstanding the encouragement in Sec. 92.25(a) to earn 
program income, the grantee or subgrantee must not use equipment 
acquired with grant funds to provide services for a fee to compete 
unfairly with private companies that provide equivalent services, unless 
specifically permitted or contemplated by Federal statute.
    (4) When acquiring replacement equipment, the grantee or subgrantee 
may use the equipment to be replaced as a trade-in or sell the property 
and use the proceeds to offset the cost of the replacement property, 
subject to the approval of the awarding agency.
    (d) Management requirements. Procedures for managing equipment 
(including replacement equipment), whether acquired in whole or in part 
with grant funds, until disposition takes place will, as a minimum, meet 
the following requirements:
    (1) Property records must be maintained that include a description 
of the property, a serial number or other identification number, the 
source of property, who holds title, the acquisition date, and cost of 
the property, percentage of Federal participation in the cost of the 
property, the location, use and condition of the property, and any 
ultimate disposition data including the date of disposal and sale price 
of the property.
    (2) A physical inventory of the property must be taken and the 
results reconciled with the property records at least once every two 
years.
    (3) A control system must be developed to ensure adequate safeguards 
to prevent loss, damage, or theft of the property. Any loss, damage, or 
theft shall be investigated.
    (4) Adequate maintenance procedures must be developed to keep the 
property in good condition.
    (5) If the grantee or subgrantee is authorized or required to sell 
the property, proper sales procedures must be established to ensure the 
highest possible return.
    (e) Disposition. When original or replacement equipment acquired 
under a grant or subgrant is no longer needed for the original project 
or program or for other activities currently or previously supported by 
a Federal agency, disposition of the equipment will be made as follows:
    (1) Items of equipment with a current per-unit fair market value of 
less than $5,000 may be retained, sold or otherwise disposed of with no 
further obligation to the awarding agency.
    (2) Items of equipment with a current per unit fair market value in 
excess of $5,000 may be retained or sold and the awarding agency shall 
have a right to an amount calculated by multiplying the current market 
value or proceeds from sale by the awarding agency's share of the 
equipment.
    (3) In cases where a grantee or subgrantee fails to take appropriate 
disposition actions, the awarding agency may direct the grantee or 
subgrantee to take excess and disposition actions.
    (f) Federal equipment. In the event a grantee or subgrantee is 
provided federally-owned equipment:
    (1) Title will remain vested in the Federal Government.
    (2) Grantees or subgrantees will manage the equipment in accordance 
with Federal agency rules and procedures, and submit an annual inventory 
listing.
    (3) When the equipment is no longer needed, the grantee or 
subgrantee will request disposition instructions from the Federal 
agency.
    (g) Right to transfer title. The Federal awarding agency may reserve 
the right to transfer title to the Federal Government or a third part 
named by the awarding agency when such a third party is otherwise 
eligible under existing statutes. Such transfers shall be subject to the 
following standards:
    (1) The property shall be identified in the grant or otherwise made 
known to the grantee in writing.

[[Page 425]]

    (2) The Federal awarding agency shall issue disposition instruction 
within 120 calendar days after the end of the Federal support of the 
project for which it was acquired. If the Federal awarding agency fails 
to issue disposition instructions within the 120 calendar-day period the 
grantee shall follow Sec. 92.32(e).
    (3) When title to equipment is transferred, the grantee shall be 
paid an amount calculated by applying the percentage of participation in 
the purchase to the current fair market value of the property.



Sec. 92.33  Supplies.

    (a) Title. Title to supplies acquired under a grant or subgrant will 
vest, upon acquisition, in the grantee or subgrantee respectively.
    (b) Disposition. If there is a residual inventory of unused supplies 
exceeding $5,000 in total aggregate fair market value upon termination 
or completion of the award, and if the supplies are not needed for any 
other federally sponsored programs or projects, the grantee or 
subgrantee shall compensate the awarding agency for its share.



Sec. 92.34  Copyrights.

    The Federal awarding agency reserves a royalty-free, nonexclusive, 
and irrevocable license to reproduce, publish or otherwise use, and to 
authorize others to use, for Federal Government purposes:
    (a) The copyright in any work developed under a grant, subgrant, or 
contract under a grant or subgrant; and
    (b) Any rights of copyright to which a grantee, subgrantee or a 
contractor purchases ownership with grant support.



Sec. 92.35  Subawards to debarred and suspended parties.

    Grantees and subgrantees must not make any award or permit any award 
(subgrant or contract) at any tier to any party which is debarred or 
suspended or is otherwise excluded from or ineligible for participation 
in Federal assistance programs under Executive Order 12549, ``Debarment 
and Suspension.''



Sec. 92.36  Procurement.

    (a) States. When procuring property and services under a grant, a 
State will follow the same policies and procedures it uses for 
procurements from its non-Federal funds. The State will ensure that 
every purchase order or other contract includes any clauses required by 
Federal statutes and executive orders and their implementing 
regulations. Other grantees and subgrantees will follow paragraphs (b) 
through (i) in this section.
    (b) Procurement standards. (1) Grantees and subgrantees will use 
their own procurement procedures which reflect applicable State and 
local laws and regulations, provided that the procurements conform to 
applicable Federal law and the standards identified in this section.
    (2) Grantees and subgrantees will maintain a contract administration 
system which ensures that contractors perform in accordance with the 
terms, conditions, and specifications of their contracts or purchase 
orders.
    (3) Grantees and subgrantees will maintain a written code of 
standards of conduct governing the performance of their employees 
engaged in the award and administration of contracts. No employee, 
officer or agent of the grantee or subgrantee shall participate in 
selection, or in the award or administration of a contract supported by 
Federal funds if a conflict of interest, real or apparent, would be 
involved. Such a conflict would arise when:
    (i) The employee, officer or agent,
    (ii) Any member of his immediate family,
    (iii) His or her partner, or
    (iv) An organization which employs, or is about to employ, any of 
the above, has a financial or other interest in the firm selected for 
award. The grantee's or subgrantee's officers, employees or agents will 
neither solicit nor accept gratuities, favors or anything of monetary 
value from contractors, potential contractors, or parties to 
subagreements. Grantee and subgrantees may set minimum rules where the 
financial interest is not substantial or the gift is an unsolicited item 
of nominal intrinsic value. To the extent permitted by State or local 
law or regulations, such standards or conduct

[[Page 426]]

will provide for penalties, sanctions, or other disciplinary actions for 
violations of such standards by the grantee's and subgrantee's officers, 
employees, or agents, or by contractors or their agents. The awarding 
agency may in regulation provide additional prohibitions relative to 
real, apparent, or potential conflicts of interest.
    (4) Grantee and subgrantee procedures will provide for a review of 
proposed procurements to avoid purchase of unnecessary or duplicative 
items. Consideration should be given to consolidating or breaking out 
procurements to obtain a more economical purchase. Where appropriate, an 
analysis will be made of lease versus purchase alternatives, and any 
other appropriate analysis to determine the most economical approach.
    (5) To foster greater economy and efficiency, grantees and 
subgrantees are encouraged to enter into State and local 
intergovernmental agreements for procurement or use of common goods and 
services.
    (6) Grantees and subgrantees are encouraged to use Federal excess 
and surplus property in lieu of purchasing new equipment and property 
whenever such use is feasible and reduces project costs.
    (7) Grantees and subgrantees are encouraged to use value engineering 
clauses in contracts for construction projects of sufficient size to 
offer reasonable opportunities for cost reductions. Value engineering is 
a systematic and creative anaylsis of each contract item or task to 
ensure that its essential function is provided at the overall lower 
cost.
    (8) Grantees and subgrantees will make awards only to responsible 
contractors possessing the ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration will be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (9) Grantees and subgrantees will maintain records sufficient to 
detail the significant history of a procurement. These records will 
include, but are not necessarily limited to the following: rationale for 
the method of procurement, selection of contract type, contractor 
selection or rejection, and the basis for the contract price.
    (10) Grantees and subgrantees will use time and material type 
contracts only--
    (i) After a determination that no other contract is suitable, and
    (ii) If the contract includes a ceiling price that the contractor 
exceeds at its own risk.
    (11) Grantees and subgrantees alone will be responsible, in 
accordance with good administrative practice and sound business 
judgment, for the settlement of all contractual and administrative 
issues arising out of procurements. These issues include, but are not 
limited to source evaluation, protests, disputes, and claims. These 
standards do not relieve the grantee or subgrantee of any contractual 
responsibilities under its contracts. Federal agencies will not 
substitute their judgment for that of the grantee or subgrantee unless 
the matter is primarily a Federal concern. Violations of law will be 
referred to the local, State, or Federal authority having proper 
jurisdiction.
    (12) Grantees and subgrantees will have protest procedures to handle 
and resolve disputes relating to their procurements and shall in all 
instances disclose information regarding the protest to the awarding 
agency. A protestor must exhaust all administrative remedies with the 
grantee and subgrantee before pursuing a protest with the Federal 
agency. Reviews of protests by the Federal agency will be limited to:
    (i) Violations of Federal law or regulations and the standards of 
this section (violations of State or local law will be under the 
jurisdiction of State or local authorities) and
    (ii) Violations of the grantee's or subgrantee's protest procedures 
for failure to review a complaint or protest. Protests received by the 
Federal agency other than those specified above will be referred to the 
grantee or subgrantee.
    (c) Competition. (1) All procurement transactions will be conducted 
in a manner providing full and open competition consistent with the 
standards of Sec. 92.36. Some of the situations considered to be 
restrictive of competition include but are not limited to:

[[Page 427]]

    (i) Placing unreasonable requirements on firms in order for them to 
qualify to do business,
    (ii) Requiring unnecessary experience and excessive bonding,
    (iii) Noncompetitive pricing practices between firms or between 
affiliated companies,
    (iv) Noncompetitive awards to consultants that are on retainer 
contracts,
    (v) Organizational conflicts of interest,
    (vi) Specifying only a ``brand name'' product instead of allowing 
``an equal'' product to be offered and describing the performance of 
other relevant requirements of the procurement, and
    (vii) Any arbitrary action in the procurement process.
    (2) Grantees and subgrantees will conduct procurements in a manner 
that prohibits the use of statutorily or administratively imposed in-
State or local geographical preferences in the evaluation of bids or 
proposals, except in those cases where applicable Federal statutes 
expressly mandate or encourage geographic preference. Nothing in this 
section preempts State licensing laws. When contracting for 
architectural and engineering (A/E) services, geographic location may be 
a selection criteria provided its application leaves an appropriate 
number of qualified firms, given the nature and size of the project, to 
compete for the contract.
    (3) Grantees will have written selection procedures for procurement 
transactions. These procedures will ensure that all solicitations:
    (i) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. Such 
description shall not, in competitive procurements, contain features 
which unduly restrict competition. The description may include a 
statement of the qualitative nature of the material, product or service 
to be procured, and when necessary, shall set forth those minimum 
essential characteristics and standards to which it must conform if it 
is to satisfy its intended use. Detailed product specifications should 
be avoided if at all possible. When it is impractical or uneconomical to 
make a clear and accurate description of the technical requirements, a 
``brand name or equal'' description may be used as a means to define the 
performance or other salient requirements of a procurement. The specific 
features of the named brand which must be met by offerors shall be 
clearly stated; and
    (ii) Identify all requirements which the offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.
    (4) Grantees and subgrantees will ensure that all prequalified lists 
of persons, firms, or products which are used in acquiring goods and 
services are current and include enough qualified sources to ensure 
maximum open and free competition. Also, grantees and subgrantees will 
not preclude potential bidders from qualifying during the solicitation 
period.
    (d) Methods of procurement to be followed--(1) Procurement by small 
purchase procedures. Small purchase procedures are those relatively 
simple and informal procurement methods for securing services, supplies, 
or other property that do not cost more than the simplified acquisition 
threshold fixed at 41 U.S.C. 403(11) (currently set at $100,000). If 
small purchase procedures are used, price or rate quotations shall be 
obtained from an adequate number of qualified sources.
    (2) Procurement by sealed bids (formal advertising). Bids are 
publicly solicited and a firm-fixed-price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is the 
lowest in price. The sealed bid method is the preferred method for 
procuring construction, if the conditions in Sec. 92.36(d)(2)(i) apply.
    (i) In order for sealed bidding to be feasible, the following 
conditions should be present:
    (A) A complete, adequate, and realistic specification or purchase 
description is available;
    (B) Two or more responsible bidders are willing and able to compete 
effectively and for the business; and
    (C) The procurement lends itself to a firm fixed price contract and 
the selection of the successful bidder can be made principally on the 
basis of price.
    (ii) If sealed bids are used, the following requirements apply:

[[Page 428]]

    (A) The invitation for bids will be publicly advertised and bids 
shall be solicited from an adequate number of known suppliers, providing 
them sufficient time prior to the date set for opening the bids;
    (B) The invitation for bids, which will include any specifications 
and pertinent attachments, shall define the items or services in order 
for the bidder to properly respond;
    (C) All bids will be publicly opened at the time and place 
prescribed in the invitation for bids;
    (D) A firm fixed-price contract award will be made in writing to the 
lowest responsive and responsible bidder. Where specified in bidding 
documents, factors such as discounts, transportation cost, and life 
cycle costs shall be considered in determining which bid is lowest. 
Payment discounts will only be used to determine the low bid when prior 
experience indicates that such discounts are usually taken advantage of; 
and
    (E) Any or all bids may be rejected if there is a sound documented 
reason.
    (3) Procurement by competitive proposals. The technique of 
competitive proposals is normally conducted with more than one source 
submitting an offer, and either a fixed-price or cost-reimbursement type 
contract is awarded. It is generally used when conditions are not 
appropriate for the use of sealed bids. If this method is used, the 
following requirements apply:
    (i) Requests for proposals will be publicized and identify all 
evaluation factors and their relative importance. Any response to 
publicized requests for proposals shall be honored to the maximum extent 
practical;
    (ii) Proposals will be solicited from an adequate number of 
qualified sources;
    (iii) Grantees and subgrantees will have a method for conducting 
technical evaluations of the proposals received and for selecting 
awardees;
    (iv) Awards will be made to the responsible firm whose proposal is 
most advantageous to the program, with price and other factors 
considered; and
    (v) Grantees and subgrantees may use competitive proposal procedures 
for qualifications-based procurement of architectural/engineering (A/E) 
professional services whereby competitors' qualifications are evaluated 
and the most qualified competitor is selected, subject to negotiation of 
fair and reasonable compensation. The method, where price is not used as 
a selection factor, can only be used in procurement of A/E professional 
services. It cannot be used to purchase other types of services though 
A/E firms are a potential source to perform the proposed effort.
    (4) Procurement by noncompetitive proposals is procurement through 
solicitation of a proposal from only one source, or after solicitation 
of a number of sources, competition is determined inadequate.
    (i) Procurement by noncompetitive proposals may be used only when 
the award of a contract is infeasible under small purchase procedures, 
sealed bids or competitive proposals and one of the following 
circumstances applies:
    (A) The item is available only from a single source;
    (B) The public exigency or emergency for the requirement will not 
permit a delay resulting from competitive solicitation;
    (C) The awarding agency authorizes noncompetitive proposals; or
    (D) After solicitation of a number of sources, competition is 
determined inadequate.
    (ii) Cost analysis, i.e., verifying the proposed cost data, the 
projections of the data, and the evaluation of the specific elements of 
costs and profits, is required.
    (iii) Grantees and subgrantees may be required to submit the 
proposed procurement to the awarding agency for pre-award review in 
accordance with paragraph (g) of this section.
    (e) Contracting with small and minority firms, women's business 
enterprise and labor surplus area firms. (1) The grantee and subgrantee 
will take all necessary affirmative steps to assure that minority firms, 
women's business enterprises, and labor surplus area firms are used when 
possible.
    (2) Affirmative steps shall include:
    (i) Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;

[[Page 429]]

    (ii) Assuring that small and minority businesses, and women's 
business enterprises are solicited whenever they are potential sources;
    (iii) Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small and 
minority business, and women's business enterprises;
    (iv) Establishing delivery schedules, where the requirement permits, 
which encourage participation by small and minority business, and 
women's business enterprises;
    (v) Using the services and assistance of the Small Business 
Administration, and the Minority Business Development Agency of the 
Department of Commerce; and
    (vi) Requiring the prime contractor, if subcontracts are to be let, 
to take the affirmative steps listed in paragraphs (e)(2) (i) through 
(v) of this section.
    (f) Contract cost and price. (1) Grantees and subgrantees must 
perform a cost or price analysis in connection with every procurement 
action including contract modifications. The method and degree of 
analysis is dependent on the facts surrounding the particular 
procurement situation, but as a starting point, grantees must make 
independent estimates before receiving bids or proposals. A cost 
analysis must be performed when the offeror is required to submit the 
elements of his estimated cost, e.g., under professional, consulting, 
and architectural engineering services contracts. A cost analysis will 
be necessary when adequate price competition is lacking, and for sole 
source procurements, including contract modifications or change orders, 
unless price resonableness can be established on the basis of a catalog 
or market price of a commercial product sold in substantial quantities 
to the general public or based on prices set by law or regulation. A 
price analysis will be used in all other instances to determine the 
reasonableness of the proposed contract price.
    (2) Grantees and subgrantees will negotiate profit as a separate 
element of the price for each contract in which there is no price 
competition and in all cases where cost analysis is performed. To 
establish a fair and reasonable profit, consideration will be given to 
the complexity of the work to be performed, the risk borne by the 
contractor, the contractor's investment, the amount of subcontracting, 
the quality of its record of past performance, and industry profit rates 
in the surrounding geographical area for similar work.
    (3) Costs or prices based on estimated costs for contracts under 
grants will be allowable only to the extent that costs incurred or cost 
estimates included in negotiated prices are consistent with Federal cost 
principles (see Sec. 92.22). Grantees may reference their own cost 
principles that comply with the applicable Federal cost principles.
    (4) The cost plus a percentage of cost and percentage of 
construction cost methods of contracting shall not be used.
    (g) Awarding agency review. (1) Grantees and subgrantees must make 
available, upon request of the awarding agency, technical specifications 
on proposed procurements where the awarding agency believes such review 
is needed to ensure that the item and/or service specified is the one 
being proposed for purchase. This review generally will take place prior 
to the time the specification is incorporated into a solicitation 
document. However, if the grantee or subgrantee desires to have the 
review accomplished after a solicitation has been developed, the 
awarding agency may still review the specifications, with such review 
usually limited to the technical aspects of the proposed purchase.
    (2) Grantees and subgrantees must on request make available for 
awarding agency pre-award review procurement documents, such as requests 
for proposals or invitations for bids, independent cost estimates, etc. 
when:
    (i) A grantee's or subgrantee's procurement procedures or operation 
fails to comply with the procurement standards in this section; or
    (ii) The procurement is expected to exceed the simplified 
acquisition threshold and is to be awarded without competition or only 
one bid or offer is received in response to a solicitation; or

[[Page 430]]

    (iii) The procurement, which is expected to exceed the simplified 
acquisition threshold, specifies a ``brand name'' product; or
    (iv) The proposed award is more than the simplified acquisition 
threshold and is to be awarded to other than the apparent low bidder 
under a sealed bid procurement; or
    (v) A proposed contract modification changes the scope of a contract 
or increases the contract amount by more than the simplified acquisition 
threshold.
    (3) A grantee or subgrantee will be exempt from the pre-award review 
in paragraph (g)(2) of this section if the awarding agency determines 
that its procurement systems comply with the standards of this section.
    (i) A grantee or subgrantee may request that its procurement system 
be reviewed by the awarding agency to determine whether its system meets 
these standards in order for its system to be certified. Generally, 
these reviews shall occur where there is a continuous high-dollar 
funding, and third-party contracts are awarded on a regular basis.
    (ii) A grantee or subgrantee may self-certify its procurement 
system. Such self-certification shall not limit the awarding agency's 
right to survey the system. Under a self-certification procedure, 
awarding agencies may wish to rely on written assurances from the 
grantee or subgrantee that it is complying with these standards. A 
grantee or subgrantee will cite specific procedures, regulations, 
standards, etc., as being in compliance with these requirements and have 
its system available for review.
    (h) Bonding requirements. For construction or facility improvement 
contracts or subcontracts exceeding the simplified acquisition 
threshold, the awarding agency may accept the bonding policy and 
requirements of the grantee or subgrantee provided the awarding agency 
has made a determination that the awarding agency's interest is 
adequately protected. If such a determination has not been made, the 
minimum requirements shall be as follows:
    (1) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' shall consist of a firm commitment 
such as a bid bond, certified check, or other negotiable instrument 
accompanying a bid as assurance that the bidder will, upon acceptance of 
his bid, execute such contractual documents as may be required within 
the time specified.
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price. A ``performance bond'' is one executed in 
connection with a contract to secure fulfillment of all the contractor's 
obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by law of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (i) Contract provisions. A grantee's and subgrantee's contracts must 
contain provisions in paragraph (i) of this section. Federal agencies 
are permitted to require changes, remedies, changed conditions, access 
and records retention, suspension of work, and other clauses approved by 
the Office of Federal Procurement Policy.
    (1) Administrative, contractual, or legal remedies in instances 
where contractors violate or breach contract terms, and provide for such 
sanctions and penalties as may be appropriate. (Contracts more than the 
simplified acquisition threshold)
    (2) Termination for cause and for convenience by the grantee or 
subgrantee including the manner by which it will be effected and the 
basis for settlement. (All contracts in excess of $10,000)
    (3) Compliance with Executive Order 11246 of September 24, 1965, 
entitled ``Equal Employment Opportunity,'' as amended by Executive Order 
11375 of October 13, 1967, and as supplemented in Department of Labor 
regulations (41 CFR chapter 60). (All construction contracts awarded in 
excess of $10,000 by grantees and their contractors or subgrantees)
    (4) Compliance with the Copeland ``Anti-Kickback'' Act (18 U.S.C. 
874) as supplemented in Department of Labor

[[Page 431]]

regulations (29 CFR Part 3). (All contracts and subgrants for 
construction or repair)
    (5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a-7) 
as supplemented by Department of Labor regulations (29 CFR Part 5). 
(Construction contracts in excess of $2000 awarded by grantees and 
subgrantees when required by Federal grant program legislation)
    (6) Compliance with Sections 103 and 107 of the Contract Work Hours 
and Safety Standards Act (40 U.S.C. 327-330) as supplemented by 
Department of Labor regulations (29 CFR Part 5). (Construction contracts 
awarded by grantees and subgrantees in excess of $2000, and in excess of 
$2500 for other contracts which involve the employment of mechanics or 
laborers)
    (7) Notice of awarding agency requirements and regulations 
pertaining to reporting.
    (8) Notice of awarding agency requirements and regulations 
pertaining to patent rights with respect to any discovery or invention 
which arises or is developed in the course of or under such contract.
    (9) Awarding agency requirements and regulations pertaining to 
copyrights and rights in data.
    (10) Access by the grantee, the subgrantee, the Federal grantor 
agency, the Comptroller General of the United States, or any of their 
duly authorized representatives to any books, documents, papers, and 
records of the contractor which are directly pertinent to that specific 
contract for the purpose of making audit, examination, excerpts, and 
transcriptions.
    (11) Retention of all required records for three years after 
grantees or subgrantees make final payments and all other pending 
matters are closed.
    (12) Compliance with all applicable standards, orders, or 
requirements issued under section 306 of the Clean Air Act (42 U.S.C. 
1857(h)), section 508 of the Clean Water Act (33 U.S.C. 1368), Executive 
Order 11738, and Environmental Protection Agency regulations (40 CFR 
part 15). (Contracts, subcontracts, and subgrants of amounts in excess 
of $100,000)
    (13) Mandatory standards and policies relating to energy efficiency 
which are contained in the state energy conservation plan issued in 
compliance with the Energy Policy and Conservation Act (Pub. L. 94-163, 
89 Stat. 871).

[53 FR 8079, 8087, Mar. 11, 1988, as amended at 60 FR 19639, 19645, Apr. 
19, 1995]



Sec. 92.37  Subgrants.

    (a) States. States shall follow state law and procedures when 
awarding and administering subgrants (whether on a cost reimbursement or 
fixed amount basis) of financial assistance to local and Indian tribal 
governments. States shall:
    (1) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing regulations;
    (2) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statute and regulation;
    (3) Ensure that a provision for compliance with Sec. 92.42 is placed 
in every cost reimbursement subgrant; and
    (4) Conform any advances of grant funds to subgrantees substantially 
to the same standards of timing and amount that apply to cash advances 
by Federal agencies.
    (b) All other grantees. All other grantees shall follow the 
provisions of this part which are applicable to awarding agencies when 
awarding and administering subgrants (whether on a cost reimbursement or 
fixed amount basis) of financial assistance to local and Indian tribal 
governments. Grantees shall:
    (1) Ensure that every subgrant includes a provision for compliance 
with this part;
    (2) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing regulations; 
and
    (3) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statutes and regulations.
    (c) Exceptions. By their own terms, certain provisions of this part 
do not apply to the award and administration of subgrants:
    (1) Section 92.10;
    (2) Section 92.11;

[[Page 432]]

    (3) The letter-of-credit procedures specified in Treasury 
Regulations at 31 CFR Part 205, cited in Sec. 92.21; and
    (4) Section 92.50.

               Reports, Records Retention, and Enforcement



Sec. 92.40  Monitoring and reporting program performance.

    (a) Monitoring by grantees. Grantees are responsible for managing 
the day-to-day operations of grant and subgrant supported activities. 
Grantees must monitor grant and subgrant supported activities to assure 
compliance with applicable Federal requirements and that performance 
goals are being achieved. Grantee monitoring must cover each program, 
function or activity.
    (b) Nonconstruction performance reports. The Federal agency may, if 
it decides that performance information available from subsequent 
applications contains sufficient information to meet its programmatic 
needs, require the grantee to submit a performance report only upon 
expiration or termination of grant support. Unless waived by the Federal 
agency this report will be due on the same date as the final Financial 
Status Report.
    (1) Grantees shall submit annual performance reports unless the 
awarding agency requires quarterly or semi-annual reports. However, 
performance reports will not be required more frequently than quarterly. 
Annual reports shall be due 90 days after the grant year, quarterly or 
semi-annual reports shall be due 30 days after the reporting period. The 
final performance report will be due 90 days after the expiration or 
termination of grant support. If a justified request is submitted by a 
grantee, the Federal agency may extend the due date for any performance 
report. Additionally, requirements for unnecessary performance reports 
may be waived by the Federal agency.
    (2) Performance reports will contain, for each grant, brief 
information on the following:
    (i) A comparison of actual accomplishments to the objectives 
established for the period. Where the output of the project can be 
quantified, a computation of the cost per unit of output may be required 
if that information will be useful.
    (ii) The reasons for slippage if established objectives were not 
met.
    (iii) Additional pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (3) Grantees will not be required to submit more than the original 
and two copies of performance reports.
    (4) Grantees will adhere to the standards in this section in 
prescribing performance reporting requirements for subgrantees.
    (c) Construction performance reports. For the most part, on-site 
technical inspections and certified percentage-of-completion data are 
relied on heavily by Federal agencies to monitor progress under 
construction grants and subgrants. The Federal agency will require 
additional formal performance reports only when considered necessary, 
and never more frequently than quarterly.
    (d) Significant developments. Events may occur between the scheduled 
performance reporting dates which have significant impact upon the grant 
or subgrant supported activity. In such cases, the grantee must inform 
the Federal agency as soon as the following types of conditions become 
known:
    (1) Problems, delays, or adverse conditions which will materially 
impair the ability to meet the objective of the award. This disclosure 
must include a statement of the action taken, or contemplated, and any 
assistance needed to resolve the situation.
    (2) Favorable developments which enable meeting time schedules and 
objectives sooner or at less cost than anticipated or producing more 
beneficial results than originally planned.
    (e) Federal agencies may make site visits as warranted by program 
needs.
    (f) Waivers, extensions. (1) Federal agencies may waive any 
performance report required by this part if not needed.
    (2) The grantee may waive any performance report from a subgrantee 
when not needed. The grantee may extend the due date for any performance 
report from a subgrantee if the grantee

[[Page 433]]

will still be able to meet its performance reporting obligations to the 
Federal agency.



Sec. 92.41  Financial reporting.

    (a) General. (1) Except as provided in paragraphs (a) (2) and (5) of 
this section, grantees will use only the forms specified in paragraphs 
(a) through (e) of this section, and such supplementary or other forms 
as may from time to time be authorized by OMB, for:
    (i) Submitting financial reports to Federal agencies, or
    (ii) Requesting advances or reimbursements when letters of credit 
are not used.
    (2) Grantees need not apply the forms prescribed in this section in 
dealing with their subgrantees. However, grantees shall not impose more 
burdensome requirements on subgrantees.
    (3) Grantees shall follow all applicable standard and supplemental 
Federal agency instructions approved by OMB to the extend required under 
the Paperwork Reduction Act of 1980 for use in connection with forms 
specified in paragraphs (b) through (e) of this section. Federal 
agencies may issue substantive supplementary instructions only with the 
approval of OMB. Federal agencies may shade out or instruct the grantee 
to disregard any line item that the Federal agency finds unnecessary for 
its decisionmaking purposes.
    (4) Grantees will not be required to submit more than the original 
and two copies of forms required under this part.
    (5) Federal agencies may provide computer outputs to grantees to 
expedite or contribute to the accuracy of reporting. Federal agencies 
may accept the required information from grantees in machine usable 
format or computer printouts instead of prescribed forms.
    (6) Federal agencies may waive any report required by this section 
if not needed.
    (7) Federal agencies may extend the due date of any financial report 
upon receiving a justified request from a grantee.
    (b) Financial Status Report--(1) Form. Grantees will use Standard 
Form 269 or 269A, Financial Status Report, to report the status of funds 
for all nonconstruction grants and for construction grants when required 
in accordance with Sec. 92.41(e)(2)(iii).
    (2) Accounting basis. Each grantee will report program outlays and 
program income on a cash or accrual basis as prescribed by the awarding 
agency. If the Federal agency requires accrual information and the 
grantee's accounting records are not normally kept on the accural basis, 
the grantee shall not be required to convert its accounting system but 
shall develop such accrual information through and analysis of the 
documentation on hand.
    (3) Frequency. The Federal agency may prescribe the frequency of the 
report for each project or program. However, the report will not be 
required more frequently than quarterly. If the Federal agency does not 
specify the frequency of the report, it will be submitted annually. A 
final report will be required upon expiration or termination of grant 
support.
    (4) Due date. When reports are required on a quarterly or semiannual 
basis, they will be due 30 days after the reporting period. When 
required on an annual basis, they will be due 90 days after the grant 
year. Final reports will be due 90 days after the expiration or 
termination of grant support.
    (c) Federal Cash Transactions Report--(1) Form. (i) For grants paid 
by letter or credit, Treasury check advances or electronic transfer of 
funds, the grantee will submit the Standard Form 272, Federal Cash 
Transactions Report, and when necessary, its continuation sheet, 
Standard Form 272a, unless the terms of the award exempt the grantee 
from this requirement.
    (ii) These reports will be used by the Federal agency to monitor 
cash advanced to grantees and to obtain disbursement or outlay 
information for each grant from grantees. The format of the report may 
be adapted as appropriate when reporting is to be accomplished with the 
assistance of automatic data processing equipment provided that the 
information to be submitted is not changed in substance.
    (2) Forecasts of Federal cash requirements. Forecasts of Federal 
cash requirements may be required in the ``Remarks'' section of the 
report.

[[Page 434]]

    (3) Cash in hands of subgrantees. When considered necessary and 
feasible by the Federal agency, grantees may be required to report the 
amount of cash advances in excess of three days' needs in the hands of 
their subgrantees or contractors and to provide short narrative 
explanations of actions taken by the grantee to reduce the excess 
balances.
    (4) Frequency and due date. Grantees must submit the report no later 
than 15 working days following the end of each quarter. However, where 
an advance either by letter of credit or electronic transfer of funds is 
authorized at an annualized rate of one million dollars or more, the 
Federal agency may require the report to be submitted within 15 working 
days following the end f each month.
    (d) Request for advance or reimbursement--(1) Advance payments. 
Requests for Treasury check advance payments will be submitted on 
Standard Form 270, Request for Advance or Reimbursement. (This form will 
not be used for drawdowns under a letter of credit, electronic funds 
transfer or when Treasury check advance payments are made to the grantee 
automatically on a predetermined basis.)
    (2) Reimbursements. Requests for reimbursement under nonconstruction 
grants will also be submitted on Standard Form 270. (For reimbursement 
requests under construction grants, see paragraph (e)(1) of this 
section.)
    (3) The frequency for submitting payment requests is treated in 
Sec. 92.41(b)(3).
    (e) Outlay report and request for reimbursement for construction 
programs--(1) Grants that support construction activities paid by 
reimbursement method. (i) Requests for reimbursement under construction 
grants will be submitted on Standard Form 271, Outlay Report and Request 
for Reimbursement for Construction Programs. Federal agencies may, 
however, prescribe the Request for Advance or Reimbursement form, 
specified in Sec. 92.41(d), instead of this form.
    (ii) The frequency for submitting reimbursement requests is treated 
in Sec. 92.41(b)(3).
    (2) Grants that support construction activities paid by letter of 
credit, electronic funds transfer or Treasury check advance. (i) When a 
construction grant is paid by letter of credit, electronic funds 
transfer or Treasury check advances, the grantee will report its outlays 
to the Federal agency using Standard Form 271, Outlay Report and Request 
for Reimbursement for Construction Programs. The Federal agency will 
provide any necessary special instruction. However, frequency and due 
date shall be governed by Sec. 92.41(b) (3) and (4).
    (ii) When a construction grant is paid by Treasury check advances 
based on periodic requests from the grantee, the advances will be 
requested on the form specified in Sec. 92.41(d).
    (iii) The Federal agency may substitute the Financial Status Report 
specified in Sec. 92.41(b) for the Outlay Report and Request for 
Reimbursement for Construction Programs.
    (3) Accounting basis. The accounting basis for the Outlay Report and 
Request for Reimbursement for Construction Programs shall be governed by 
Sec. 92.41(b)(2).



Sec. 92.42  Retention and access requirements for records.

    (a) Applicability. (1) This section applies to all financial and 
programmatic records, supporting documents, statistical records, and 
other records of grantees or subgrantees which are:
    (i) Required to be maintained by the terms of this part, program 
regulations or the grant agreement, or
    (ii) Otherwise reasonably considered as pertinent to program 
regulations or the grant agreement.
    (2) This section does not apply to records maintained by contractors 
or subcontractors. For a requirement to place a provision concerning 
records in certain kinds of contracts, see Sec. 92.36(i)(10).
    (b) Length of retention period. (1) Except as otherwise provided, 
records must be retained for three years from the starting date 
specified in paragraph (c) of this section.
    (2) If any litigation, claim, negotiation, audit or other action 
involving the records has been started before the expiration of the 3-
year period, the records must be retained until completion of the action 
and resolution of all issues which arise from it, or until the

[[Page 435]]

end of the regular 3-year period, whichever is later.
    (3) To avoid duplicate recordkeeping, awarding agencies may make 
special arrangements with grantees and subgrantees to retain any records 
which are continuously needed for joint use. The awarding agency will 
request transfer of records to its custody when it determines that the 
records possess long-term retention value. When the records are 
transferred to or maintained by the Federal agency, the 3-year retention 
requirement is not applicable to the grantee or subgrantee.
    (c) Starting date of retention period--(1) General. When grant 
support is continued or renewed at annual or other intervals, the 
retention period for the records of each funding period starts on the 
day the grantee or subgrantee submits to the awarding agency its single 
or last expenditure report for that period. However, if grant support is 
continued or renewed quarterly, the retention period for each year's 
records starts on the day the grantee submits its expenditure report for 
the last quarter of the Federal fiscal year. In all other cases, the 
retention period starts on the day the grantee submits its final 
expenditure report. If an expenditure report has been waived, the 
retention period starts on the day the report would have been due.
    (2) Real property and equipment records. The retention period for 
real property and equipment records starts from the date of the 
disposition or replacement or transfer at the direction of the awarding 
agency.
    (3) Records for income transactions after grant or subgrant support. 
In some cases grantees must report income after the period of grant 
support. Where there is such a requirement, the retention period for the 
records pertaining to the earning of the income starts from the end of 
the grantee's fiscal year in which the income is earned.
    (4) Indirect cost rate proposals, cost allocations plans, etc. This 
paragraph applies to the following types of documents, and their 
supporting records: indirect cost rate computations or proposals, cost 
allocation plans, and any similar accounting computations of the rate at 
which a particular group of costs is chargeable (such as computer usage 
chargeback rates or composite fringe benefit rates).
    (i) If submitted for negotiation. If the proposal, plan, or other 
computation is required to be submitted to the Federal Government (or to 
the grantee) to form the basis for negotiation of the rate, then the 3-
year retention period for its supporting records starts from the date of 
such submission.
    (ii) If not submitted for negotiation. If the proposal, plan, or 
other computation is not required to be submitted to the Federal 
Government (or to the grantee) for negotiation purposes, then the 3-year 
retention period for the proposal plan, or computation and its 
supporting records starts from end of the fiscal year (or other 
accounting period) covered by the proposal, plan, or other computation.
    (d) Substitution of microfilm. Copies made by microfilming, 
photocopying, or similar methods may be substituted for the original 
records.
    (e) Access to records--(1) Records of grantees and subgrantees. The 
awarding agency and the Comptroller General of the United States, or any 
of their authorized representatives, shall have the right of access to 
any pertinent books, documents, papers, or other records of grantees and 
subgrantees which are pertinent to the grant, in order to make audits, 
examinations, excerpts, and transcripts.
    (2) Expiration of right of access. The rights of access in this 
section must not be limited to the required retention period but shall 
last as long as the records are retained.
    (f) Restrictions on public access. The Federal Freedom of 
Information Act (5 U.S.C. 552) does not apply to records unless required 
by Federal, State, or local law, grantees and subgrantees are not 
required to permit public access to their records.



Sec. 92.43  Enforcement.

    (a) Remedies for noncompliance. If a grantee or subgrantee 
materially fails to comply with any term of an award, whether stated in 
a Federal statute or regulation, an assurance, in a State plan or 
application, a notice of award, or elsewhere, the awarding agency may

[[Page 436]]

take one or more of the following actions, as appropriate in the 
circumstances:
    (1) Temporarily withhold cash payments pending correction of the 
deficiency by the grantee or subgrantee or more severe enforcement 
action by the awarding agency,
    (2) Disallow (that is, deny both use of funds and matching credit 
for) all or part of the cost of the activity or action not in 
compliance,
    (3) Wholly or partly suspend or terminate the current award for the 
grantee's or subgrantee's program,
    (4) Withhold further awards for the program, or
    (5) Take other remedies that may be legally available.
    (b) Hearings, appeals. In taking an enforcement action, the awarding 
agency will provide the grantee or subgrantee an opportunity for such 
hearing, appeal, or other administrative proceeding to which the grantee 
or subgrantee is entitled under any statute or regulation applicable to 
the action involved.
    (c) Effects of suspension and termination. Costs of grantee or 
subgrantee resulting from obligations incurred by the grantee or 
subgrantee during a suspension or after termination of an award are not 
allowable unless the awarding agency expressly authorizes them in the 
notice of suspension or termination or subsequently. Other grantee or 
subgrantee costs during suspension or after termination which are 
necessary and not reasonably avoidable are allowable if:
    (1) The costs result from obligations which were properly incurred 
by the grantee or subgrantee before the effective date of suspension or 
termination, are not in anticipation of it, and, in the case of a 
termination, are noncancellable, and,
    (2) The costs would be allowable if the award were not suspended or 
expired normally at the end of the funding period in which the 
termination takes effect.
    (d) Relationship to debarment and suspension. The enforcement 
remedies identified in this section, including suspension and 
termination, do not preclude grantee or subgrantee from being subject to 
``Debarment and Suspension'' under E.O. 12549 (see Sec. 92.35).



Sec. 92.44  Termination for convenience.

    Except as provided in Sec. 92.43 awards may be terminated in whole 
or in part only as follows:
    (a) By the awarding agency with the consent of the grantee or 
subgrantee in which case the two parties shall agree upon the 
termination conditions, including the effective date and in the case of 
partial termination, the portion to be terminated, or
    (b) By the grantee or subgrantee upon written notification to the 
awarding agency, setting forth the reasons for such termination, the 
effective date, and in the case of partial termination, the portion to 
be terminated. However, if, in the case of a partial termination, the 
awarding agency determines that the remaining portion of the award will 
not accomplish the purposes for which the award was made, the awarding 
agency may terminate the award in its entirety under either Sec. 92.43 
or paragraph (a) of this section.



                 Subpart D--After-the-Grant Requirements



Sec. 92.50  Closeout.

    (a) General. The Federal agency will close out the award when it 
determines that all applicable administrative actions and all required 
work of the grant has been completed.
    (b) Reports. Within 90 days after the expiration or termination of 
the grant, the grantee must submit all financial, performance, and other 
reports required as a condition of the grant. Upon request by the 
grantee, Federal agencies may extend this timeframe. These may include 
but are not limited to:
    (1) Final performance or progress report.
    (2) Financial Status Report (SF 269) or Outlay Report and Request 
for Reimbursement for Construction Programs (SF-271) (as applicable).
    (3) Final request for payment (SF-270) (if applicable).
    (4) Invention disclosure (if applicable).
    (5) Federally-owned property report:

[[Page 437]]


In accordance with Sec. 92.32(f), a grantee must submit an inventory of 
all federally owned property (as distinct from property acquired with 
grant funds) for which it is accountable and request disposition 
instructions from the Federal agency of property no longer needed.
    (c) Cost adjustment. The Federal agency will, within 90 days after 
receipt of reports in paragraph (b) of this section, make upward or 
downward adjustments to the allowable costs.
    (d) Cash adjustments. (1) The Federal agency will make prompt 
payment to the grantee for allowable reimbursable costs.
    (2) The grantee must immediately refund to the Federal agency any 
balance of unobligated (unencumbered) cash advanced that is not 
authorized to be retained for use on other grants.



Sec. 92.51  Later disallowances and adjustments.

    The closeout of a grant does not affect:
    (a) The Federal agency's right to disallow costs and recover funds 
on the basis of a later audit or other review;
    (b) The grantee's obligation to return any funds due as a result of 
later refunds, corrections, or other transactions;
    (c) Records retention as required in Sec. 92.42;
    (d) Property management requirements in Secs. 92.31 and 92.32; and
    (e) Audit requirements in Sec. 92.26.



Sec. 92.52  Collection of amounts due.

    (a) Any funds paid to a grantee in excess of the amount to which the 
grantee is finally determined to be entitled under the terms of the 
award constitute a debt to the Federal Government. If not paid within a 
reasonable period after demand, the Federal agency may reduce the debt 
by:
    (1) Making an adminstrative offset against other requests for 
reimbursements,
    (2) Withholding advance payments otherwise due to the grantee, or
    (3) Other action permitted by law.
    (b) Except where otherwise provided by statutes or regulations, the 
Federal agency will charge interest on an overdue debt in accordance 
with the Federal Claims Collection Standards (4 CFR Ch. II). The date 
from which interest is computed is not extended by litigation or the 
filing of any form of appeal.

Subpart E--Entitlement [Reserved]



PART 93--NEW RESTRICTIONS ON LOBBYING--Table of Contents




                           Subpart A--General

Sec.
93.100  Conditions on use of funds.
93.105  Definitions.
93.110  Certification and disclosure.

                 Subpart B--Activities by Own Employees

93.200  Agency and legislative liaison.
93.205  Professional and technical services.
93.210  Reporting.

            Subpart C--Activities by Other than Own Employees

93.300  Professional and technical services.

                  Subpart D--Penalties and Enforcement

93.400  Penalties.
93.405  Penalty procedures.
93.410  Enforcement.

                          Subpart E--Exemptions

93.500  Secretary of Defense.

                        Subpart F--Agency Reports

93.600  Semi-annual compilation.
93.605  Inspector General report.

Appendix A to Part 93--Certification Regarding Lobbying
Appendix B to Part 93--Disclosure Form to Report Lobbying

    Authority: Section 319, Public Law 101-121 (31 U.S.C. 1352); (5 
U.S.C. 301).

    Cross reference: See also Office of Management and Budget notice 
published at 54 FR 52306, December 20, 1989.

    Source: 55 FR 6754, Feb. 26, 1990, unless otherwise noted.



                           Subpart A--General



Sec. 93.100  Conditions on use of funds.

    (a) No appropriated funds may be expended by the recipient of a 
Federal contract, grant, loan, or cooperative ageement to pay any person 
for influencing or attempting to influence an officer or employee of any 
agency, a

[[Page 438]]

Member of Congress, an officer or employee of Congress, or an employee 
of a Member of Congress in connection with any of the following covered 
Federal actions: the awarding of any Federal contract, the making of any 
Federal grant, the making of any Federal loan, the entering into of any 
cooperative agreement, and the extension, continuation, renewal, 
amendment, or modification of any Federal contract, grant, loan, or 
cooperative agreement.
    (b) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or cooperative agreement shall file with that 
agency a certification, set forth in Appendix A to this part, that the 
person has not made, and will not make, any payment prohibited by 
paragraph (a) of this section.
    (c) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or a cooperative agreement shall file with that 
agency a disclosure form, set forth in Appendix B to this part, if such 
person has made or has agreed to make any payment using nonappropriated 
funds (to include profits from any covered Federal action), which would 
be prohibited under paragraph (a) of this section if paid for with 
appropriated funds.
    (d) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a statement, set forth in Appendix A to this part, 
whether that person has made or has agreed to make any payment to 
influence or attempt to influence an officer or employee of any agency, 
a Member of Congress, an officer or employee of Congress, or an employee 
of a Member of Congress in connection with that loan insurance or 
guarantee.
    (e) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a disclosure form, set forth in Appendix B to this 
part, if that person has made or has agreed to make any payment to 
influence or attempt to influence an officer or employee of any agency, 
a Member of Congress, an officer or employee of Congress, or an employee 
of a Member of Congress in connection with that loan insurance or 
guarantee.



Sec. 93.105  Definitions.

    For purposes of this part:
    (a) Agency, as defined in 5 U.S.C. 552(f), includes Federal 
executive departments and agencies as well as independent regulatory 
commissions and Government corporations, as defined in 31 U.S.C. 
9101(1).
    (b) Covered Federal action means any of the following Federal 
actions:
    (1) The awarding of any Federal contract;
    (2) The making of any Federal grant;
    (3) The making of any Federal loan;
    (4) The entering into of any cooperative agreement; and,
    (5) The extension, continuation, renewal, amendment, or modification 
of any Federal contract, grant, loan, or cooperative agreement.

Covered Federal action does not include receiving from an agency a 
commitment providing for the United States to insure or guarantee a 
loan. Loan guarantees and loan insurance are addressed independently 
within this part.
    (c) Federal contract means an acquisition contract awarded by an 
agency, including those subject to the Federal Acquisition Regulation 
(FAR), and any other acquisition contract for real or personal property 
or services not subject to the FAR.
    (d) Federal cooperative agreement means a cooperative agreement 
entered into by an agency.
    (e) Federal grant means an award of financial assistance in the form 
of money, or property in lieu of money, by the Federal Government or a 
direct appropriation made by law to any person. The term does not 
include technical assistance which provides services instead of money, 
or other assistance in the form of revenue sharing, loans, loan 
guarantees, loan insurance, interest subsidies, insurance, or direct 
United States cash assistance to an individual.
    (f) Federal loan means a loan made by an agency. The term does not 
include loan guarantee or loan insurance.
    (g) Indian tribe and tribal organization have the meaning provided 
in section 4 of the Indian Self-Determination and

[[Page 439]]

Education Assistance Act (25 U.S.C. 450B). Alaskan Natives are included 
under the definitions of Indian tribes in that Act.
    (h) Influencing or attempting to influence means making, with the 
intent to influence, any communication to or appearance before an 
officer or employee or any agency, a Member of Congress, an officer or 
employee of Congress, or an employee of a Member of Congress in 
connection with any covered Federal action.
    (i) Loan guarantee and loan insurance means an agency's guarantee or 
insurance of a loan made by a person.
    (j) Local government means a unit of government in a State and, if 
chartered, established, or otherwise recognized by a State for the 
performance of a governmental duty, including a local public authority, 
a special district, an intrastate district, a council of governments, a 
sponsor group representative organization, and any other instrumentality 
of a local government.
    (k) Officer or employee of an agency includes the following 
individuals who are employed by an agency:
    (1) An individual who is appointed to a position in the Government 
under title 5, U.S. Code, including a position under a temporary 
appointment;
    (2) A member of the uniformed services as defined in section 101(3), 
title 37, U.S. Code;
    (3) A special Government employee as defined in section 202, title 
18, U.S. Code; and,
    (4) An individual who is a member of a Federal advisory committee, 
as defined by the Federal Advisory Committee Act, title 5, U.S. Code 
appendix 2.
    (l) Person means an individual, corporation, company, association, 
authority, firm, partnership, society, State, and local government, 
regardless of whether such entity is operated for profit or not for 
profit. This term excludes an Indian tribe, tribal organization, or any 
other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (m) Reasonable compensation means, with respect to a regularly 
employed officer or employee of any person, compensation that is 
consistent with the normal compensation for such officer or employee for 
work that is not furnished to, not funded by, or not furnished in 
cooperation with the Federal Government.
    (n) Reasonable payment means, with respect to professional and other 
technical services, a payment in an amount that is consistent with the 
amount normally paid for such services in the private sector.
    (o) Recipient includes all contractors, subcontractors at any tier, 
and subgrantees at any tier of the recipient of funds received in 
connection with a Federal contract, grant, loan, or cooperative 
agreement. The term excludes an Indian tribe, tribal organization, or 
any other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (p) Regularly employed means, with respect to an officer or employee 
of a person requesting or receiving a Federal contract, grant, loan, or 
cooperative agreement or a commitment providing for the United States to 
insure or guarantee a loan, an officer or employee who is employed by 
such person for at least 130 working days within one year immediately 
preceding the date of the submission that initiates agency consideration 
of such person for receipt of such contract, grant, loan, cooperative 
agreement, loan insurance commitment, or loan guarantee commitment. An 
officer or employee who is employed by such person for less than 130 
working days within one year immediately preceding the date of the 
submission that initiates agency consideration of such person shall be 
considered to be regularly employed as soon as he or she is employed by 
such person for 130 working days.
    (q) State means a State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, a territory or possession of 
the United States, an agency or instrumentality of a State, and a multi-
State, regional, or interstate entity having governmental duties and 
powers.

[[Page 440]]



Sec. 93.110  Certification and disclosure.

    (a) Each person shall file a certification, and a disclosure form, 
if required, with each submission that initiates agency consideration of 
such person for:
    (1) Award of a Federal contract, grant, or cooperative agreement 
exceeding $100,000; or
    (2) An award of a Federal loan or a commitment providing for the 
United States to insure or guarantee a loan exceeding $150,000.
    (b) Each person shall file a certification, and a disclosure form, 
if required, upon receipt by such person of:
    (1) A Federal contract, grant, or cooperative agreement exceeding 
$100,000; or
    (2) A Federal loan or a commitment providing for the United States 
to insure or guarantee a loan exceeding $150,000,

unless such person previously filed a certification, and a disclosure 
form, if required, under paragraph (a) of this section.
    (c) Each person shall file a disclosure form at the end of each 
calendar quarter in which there occurs any event that requires 
disclosure or that materially affects the accuracy of the information 
contained in any disclosure form previously filed by such person under 
paragraphs (a) or (b) of this section. An event that materially affects 
the accuracy of the information reported includes:
    (1) A cumulative increase of $25,000 or more in the amount paid or 
expected to be paid for influencing or attempting to influence a covered 
Federal action; or
    (2) A change in the person(s) or individual(s) influencing or 
attempting to influence a covered Federal action; or,
    (3) A change in the officer(s), employee(s), or Member(s) contacted 
to influence or attempt to influence a covered Federal action.
    (d) Any person who requests or receives from a person referred to in 
paragraphs (a) or (b) of this section:
    (1) A subcontract exceeding $100,000 at any tier under a Federal 
contract;
    (2) A subgrant, contract, or subcontract exceeding $100,000 at any 
tier under a Federal grant;
    (3) A contract or subcontract exceeding $100,000 at any tier under a 
Federal loan exceeding $150,000; or,
    (4) A contract or subcontract exceeding $100,000 at any tier under a 
Federal cooperative agreement,

shall file a certification, and a disclosure form, if required, to the 
next tier above.
    (e) All disclosure forms, but not certifications, shall be forwarded 
from tier to tier until received by the person referred to in paragraphs 
(a) or (b) of this section. That person shall forward all disclosure 
forms to the agency.
    (f) Any certification or disclosure form filed under paragraph (e) 
of this section shall be treated as a material representation of fact 
upon which all receiving tiers shall rely. All liability arising from an 
erroneous representation shall be borne solely by the tier filing that 
representation and shall not be shared by any tier to which the 
erroneous representation is forwarded. Submitting an erroneous 
certification or disclosure constitutes a failure to file the required 
certification or disclosure, respectively. If a person fails to file a 
required certification or disclosure, the United States may pursue all 
available remedies, including those authorized by section 1352, title 
31, U.S. Code.
    (g) For awards and commitments in process prior to December 23, 
1989, but not made before that date, certifications shall be required at 
award or commitment, covering activities occurring between December 23, 
1989, and the date of award or commitment. However, for awards and 
commitments in process prior to the December 23, 1989 effective date of 
these provisions, but not made before December 23, 1989, disclosure 
forms shall not be required at time of award or commitment but shall be 
filed within 30 days.
    (h) No reporting is required for an activity paid for with 
appropriated funds if that activity is allowable under either Subpart B 
or C.



                 Subpart B--Activities by Own Employees



Sec. 93.200  Agency and legislative liaison.

    (a) The prohibition on the use of appropriated funds, in Sec. 93.100 
(a), does

[[Page 441]]

not apply in the case of a payment of reasonable compensation made to an 
officer or employee of a person requesting or receiving a Federal 
contract, grant, loan, or cooperative agreement if the payment is for 
agency and legislative liaison activities not directly related to a 
covered Federal action.
    (b) For purposes of paragraph (a) of this section, providing any 
information specifically requested by an agency or Congress is allowable 
at any time.
    (c) For purposes of paragraph (a) of this section, the following 
agency and legislative liaison activities are allowable at any time only 
where they are not related to a specific solicitation for any covered 
Federal action:
    (1) Discussing with an agency (including individual demonstrations) 
the qualities and characteristics of the person's products or services, 
conditions or terms of sale, and service capabilities; and,
    (2) Technical discussions and other activities regarding the 
application or adaptation of the person's products or services for an 
agency's use.
    (d) For purposes of paragraph (a) of this section, the following 
agencies and legislative liaison activities are allowable only where 
they are prior to formal solicitation of any covered Federal action:
    (1) Providing any information not specifically requested but 
necessary for an agency to make an informed decision about initiation of 
a covered Federal action;
    (2) Technical discussions regarding the preparation of an 
unsolicited proposal prior to its official submission; and,
    (3) Capability presentations by persons seeking awards from an 
agency pursuant to the provisions of the Small Business Act, as amended 
by Public Law 95-507 and other subsequent amendments.
    (e) Only those activities expressly authorized by this section are 
allowable under this section.



Sec. 93.205  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in Sec. 93.100 
(a), does not apply in the case of a payment of reasonable compensation 
made to an officer or employee of a person requesting or receiving a 
Federal contract, grant, loan, or cooperative agreement or an extension, 
continuation, renewal, amendment, or modification of a Federal contract, 
grant, loan, or cooperative agreement if payment is for professional or 
technical services rendered directly in the preparation, submission, or 
negotiation of any bid, proposal, or application for that Federal 
contract, grant, loan, or cooperative agreement or for meeting 
requirements imposed by or pursuant to law as a condition for receiving 
that Federal contract, grant, loan, or cooperative agreement.
    (b) For purposes of paragraph (a) of this section, professional and 
technical services shall be limited to advice and analysis directly 
applying any professional or technical discipline. For example, drafting 
of a legal document accompanying a bid or proposal by a lawyer is 
allowable. Similarly, technical advice provided by an engineer on the 
performance or operational capability of a piece of equipment rendered 
directly in the negotiation of a contract is allowable. However, 
communications with the intent to influence made by a professional (such 
as a licensed lawyer) or a technical person (such as a licensed 
accountant) are not allowable under this section unless they provide 
advice and analysis directly applying their professional or technical 
expertise and unless the advice or analysis is rendered directly and 
solely in the preparation, submission or negotiation of a covered 
Federal action. Thus, for example, communications with the intent to 
influence made by a lawyer that do not provide legal advice or analysis 
directly and solely related to the legal aspects of his or her client's 
proposal, but generally advocate one proposal over another are not 
allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis prior 
to the preparation or submission of a bid or proposal are not allowable 
under this section since the engineer is providing technical services 
but not directly in the preparation,

[[Page 442]]

submission or negotiation of a covered Federal action.
    (c) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.
    (d) Only those services expressly authorized by this section are 
allowable under this section.



Sec. 93.210  Reporting.

    No reporting is required with respect to payments of reasonable 
compensation made to regularly employed officers or employees of a 
person.



            Subpart C--Activities by Other than Own Employees



Sec. 93.300  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in Sec. 93.100 
(a), does not apply in the case of any reasonable payment to a person, 
other than an officer or employee of a person requesting or receiving a 
covered Federal action, if the payment is for professional or technical 
services rendered directly in the preparation, submission, or 
negotiation of any bid, proposal, or application for that Federal 
contract, grant, loan, or cooperative agreement or for meeting 
requirements imposed by or pursuant to law as a condition for receiving 
that Federal contract, grant, loan, or cooperative agreement.
    (b) The reporting requirements in Sec. 93.110 (a) and (b) regarding 
filing a disclosure form by each person, if required, shall not apply 
with respect to professional or technical services rendered directly in 
the preparation, submission, or negotiation of any commitment providing 
for the United States to insure or guarantee a loan.
    (c) For purposes of paragraph (a) of this section, professional and 
technical services shall be limited to advice and analysis directly 
applying any professional or technical discipline. For example, drafting 
or a legal document accompanying a bid or proposal by a lawyer is 
allowable. Similarly, technical advice provided by an engineer on the 
performance or operational capability of a piece of equipment rendered 
directly in the negotiation of a contract is allowable. However, 
communications with the intent to influence made by a professional (such 
as a licensed lawyer) or a technical person (such as a licensed 
accountant) are not allowable under this section unless they provide 
advice and analysis directly applying their professional or technical 
expertise and unless the advice or analysis is rendered directly and 
solely in the preparation, submission or negotiation of a covered 
Federal action. Thus, for example, communications with the intent to 
influence made by a lawyer that do not provide legal advice or analysis 
directly and solely related to the legal aspects of his or her client's 
proposal, but generally advocate one proposal over another are not 
allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis prior 
to the preparation or submission of a bid or proposal are not allowable 
under this section since the engineer is providing technical services 
but not directly in the preparation, submission or negotiation of a 
covered Federal action.
    (d) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.
    (e) Persons other than officers or employees of a person requesting 
or receiving a covered Federal action include consultants and trade 
associations.
    (f) Only those services expressly authorized by this section are 
allowable under this section.



                  Subpart D--Penalties and Enforcement



Sec. 93.400  Penalties.

    (a) Any person who makes an expenditure prohibited herein shall be 
subject to a civil penalty of not less than

[[Page 443]]

$10,000 and not more than $100,000 for each such expenditure.
    (b) Any person who fails to file or amend the disclosure form (see 
Appendix B to this part) to be filed or amended if required herein, 
shall be subject to a civil penalty of not less than $10,000 and not 
more than $100,000 for each such failure.
    (c) A filing or amended filing on or after the date on which an 
administrative action for the imposition of a civil penalty is commenced 
does not prevent the imposition of such civil penalty for a failure 
occurring before that date. An administrative action is commenced with 
respect to a failure when an investigating official determines in 
writing to commence an investigation of an allegation of such failure.
    (d) In determining whether to impose a civil penalty, and the amount 
of any such penalty, by reason of a violation by any person, the agency 
shall consider the nature, circumstances, extent, and gravity of the 
violation, the effect on the ability of such person to continue in 
business, any prior violations by such person, the degree of culpability 
of such person, the ability of the person to pay the penalty, and such 
other matters as may be appropriate.
    (e) First offenders under paragraphs (a) or (b) of this section 
shall be subject to a civil penalty of $10,000, absent aggravating 
circumstances. Second and subsequent offenses by persons shall be 
subject to an appropriate civil penalty between $10,000 and $100,000, as 
determined by the agency head or his or her designee.
    (f) An imposition of a civil penalty under this section does not 
prevent the United States from seeking any other remedy that may apply 
to the same conduct that is the basis for the imposition of such civil 
penalty.



Sec. 93.405  Penalty procedures.

    Agencies shall impose and collect civil penalties pursuant to the 
provisions of the Program Fraud and Civil Remedies Act, 31 U.S.C. 
sections 3803 (except subsection (c)), 3804, 3805, 3806, 3807, 3808, and 
3812, insofar as these provisions are not inconsistent with the 
requirements herein.



Sec. 93.410  Enforcement.

    The head of each agency shall take such actions as are necessary to 
ensure that the provisions herein are vigorously implemented and 
enforced in that agency.



                          Subpart E--Exemptions



Sec. 93.500  Secretary of Defense.

    (a) The Secretary of Defense may exempt, on a case-by-case basis, a 
covered Federal action from the prohibition whenever the Secretary 
determines, in writing, that such an exemption is in the national 
interest. The Secretary shall transmit a copy of each such written 
exemption to Congress immediately after making such a determination.
    (b) The Department of Defense may issue supplemental regulations to 
implement paragraph (a) of this section.



                        Subpart F--Agency Reports



Sec. 93.600  Semi-annual compilation.

    (a) The head of each agency shall collect and compile the disclosure 
reports (see Appendix B to this part) and, on May 31 and November 30 of 
each year, submit to the Secretary of the Senate and the Clerk of the 
House of Representatives a report containing a compilation of the 
information contained in the disclosure reports received during the six-
month period ending on March 31 or September 30, respectively, of that 
year.
    (b) The report, including the compilation, shall be available for 
public inspection 30 days after receipt of the report by the Secretary 
and the Clerk.
    (c) Information that involves intelligence matters shall be reported 
only to the Select Committee on Intelligence of the Senate, the 
Permanent Select Committee on Intelligence of the House of 
Representatives, and the Committees on Appropriations of the Senate and 
the House of Representatives in accordance with procedures agreed to by 
such committees. Such information shall not be available for public 
inspection.
    (d) Information that is classified under Executive Order 12356 or 
any successor order shall be reported only to

[[Page 444]]

the Committee on Foreign Relations of the Senate and the Committee on 
Foreign Affairs of the House of Representatives or the Committees on 
Armed Services of the Senate and the House of Representatives (whichever 
such committees have jurisdiction of matters involving such information) 
and to the Committees on Appropriations of the Senate and the House of 
Representatives in accordance with procedures agreed to by such 
committees. Such information shall not be available for public 
inspection.
    (e) The first semi-annual compilation shall be submitted on May 31, 
1990, and shall contain a compilation of the disclosure reports received 
from December 23, 1989 to March 31, 1990.
    (f) Major agencies, designated by the Office of Management and 
Budget (OMB), are required to provide machine-readable compilations to 
the Secretary of the Senate and the Clerk of the House of 
Representatives no later than with the compilations due on May 31, 1991. 
OMB shall provide detailed specifications in a memorandum to these 
agencies.
    (g) Non-major agencies are requested to provide machine-readable 
compilations to the Secretary of the Senate and the Clerk of the House 
of Representatives.
    (h) Agencies shall keep the originals of all disclosure reports in 
the official files of the agency.



Sec. 93.605  Inspector General report.

    (a) The Inspector General, or other official as specified in 
paragraph (b) of this section, of each agency shall prepare and submit 
to Congress each year, commencing with submission of the President's 
Budget in 1991, an evaluation of the compliance of that agency with, and 
the effectiveness of, the requirements herein. The evaluation may 
include any recommended changes that may be necessary to strengthen or 
improve the requirements.
    (b) In the case of an agency that does not have an Inspector 
General, the agency official comparable to an Inspector General shall 
prepare and submit the annual report, or, if there is no such comparable 
official, the head of the agency shall prepare and submit the annual 
report.
    (c) The annual report shall be submitted at the same time the agency 
submits its annual budget justifications to Congress.
    (d) The annual report shall include the following: All alleged 
violations relating to the agency's covered Federal actions during the 
year covered by the report, the actions taken by the head of the agency 
in the year covered by the report with respect to those alleged 
violations and alleged violations in previous years, and the amounts of 
civil penalties imposed by the agency in the year covered by the report.

         Appendix A to Part 93--Certification Regarding Lobbying

 Certification for Contracts, Grants, Loans, and Cooperative Agreements

    The undersigned certifies, to the best of his or her knowledge and 
belief, that:
    (1) No Federal appropriated funds have been paid or will be paid, by 
or on behalf of the undersigned, to any person for influencing or 
attempting to influence an officer or employee of an agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with the awarding of any Federal contract, the 
making of any Federal grant, the making of any Federal loan, the 
entering into of any cooperative agreement, and the extension, 
continuation, renewal, amendment, or modification of any Federal 
contract, grant, loan, or cooperative agreement.
    (2) If any funds other than Federal appropriated funds have been 
paid or will be paid to any person for influencing or attempting to 
influence an officer or employee of any agency, a Member of Congress, an 
officer or employee of Congress, or an employee of a Member of Congress 
in connection with this Federal contract, grant, loan, or cooperative 
agreement, the undersigned shall complete and submit Standard Form-LLL, 
``Disclosure Form to Report Lobbying,'' in accordance with its 
instructions.
    (3) The undersigned shall require that the language of this 
certification be included in the award documents for all subawards at 
all tiers (including subcontracts, subgrants, and contracts under 
grants, loans, and cooperative agreements) and that all subrecipients 
shall certify and disclose accordingly.
    This certification is a material representation of fact upon which 
reliance was placed when this transaction was made or entered into. 
Submission of this certification is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, U.S. 
Code. Any person who fails to file the required certification shall be 
subject to a

[[Page 445]]

civil penalty of not less than $10,000 and not more than $100,000 for 
each such failure.

            Statement for Loan Guarantees and Loan Insurance

    The undersigned states, to the best of his or her knowledge and 
belief, that:
    If any funds have been paid or will be paid to any person for 
influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with this commitment 
providing for the United States to insure or guarantee a loan, the 
undersigned shall complete and submit Standard Form-LLL, ``Disclosure 
Form to Report Lobbying,'' in accordance with its instructions.
    Submission of this statement is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, U.S. 
Code. Any person who fails to file the required statement shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such failure.

[[Page 446]]

        Appendix B to Part 93--Disclosure Form to Report Lobbying
      [GRAPHIC] [TIFF OMITTED] TC01JA91.003
      

[[Page 447]]


[GRAPHIC] [TIFF OMITTED] TC01JA91.004


[[Page 448]]


[GRAPHIC] [TIFF OMITTED] TC01JA91.005



PART 94--RESPONSIBLE PROSPECTIVE CONTRACTORS--Table of Contents




Sec.
94.1  Purpose.
94.2  Applicability.
94.3  Definitions.
94.4  Institutional responsibility regarding conflicting interests of 
          investigators.
94.5  Management of conflicting interests.
94.6  Remedies.


[[Page 449]]


    Authority: 42 U.S.C. 216, 289b-1, 299c-3.

    Source: 60 FR 35817, July 11, 1995, unless otherwise noted.



Sec. 94.1  Purpose.

    This part promotes objectivity in research by establishing standards 
to ensure there is no reasonable expectation that the design, conduct, 
or reporting of research to be performed under PHS contracts will be 
biased by any conflicting financial interest of an Investigator.



Sec. 94.2  Applicability.

    This part is applicable to each Institution that seeks PHS funding 
for research and, through the implementation of this part, to each 
Investigator who participates in such research (see Sec. 94.4(a)); 
provided that this part does not apply to SBIR Program Phase I 
applications.



Sec. 94.3  Definitions.

    As used in this part:
    Contractor means an entity that provides property or services for 
the direct benefit or use of the Federal Government.
    HHS means the United States Department of Health and Human Services, 
and any components of the Department to which the authority involved may 
be delegated.
    Institution means any public or private entity or organization 
(excluding a Federal agency)
    (1) That submits a proposal for a research contract whether in 
response to a solicitation from the PHS or otherwise, or
    (2) That assumes the legal obligation to carry out the research 
required under the contract.
    Investigator means the principal investigator and any other person 
who is responsible for the design, conduct, or reporting of a research 
project funded by PHS, or proposed for such funding. For purposes of the 
requirements of this part relating to financial interests, 
``Investigator'' includes the Investigator's spouse and dependent 
children.
    PHS means the Public Health Service, an operating division of the 
U.S. Department of Health and Human Services, and any components of the 
PHS to which the authority involved may be delegated.
    PHS Awarding Component means an organizational unit of the PHS that 
funds research that is subject to this part.
    Public Health Service Act or PHS Act mean the statute codified at 42 
U.S.C. 201 et seq.
    Research means a systematic investigation designed to develop or 
contribute to generalizable knowledge relating broadly to public health, 
including behavioral and social-sciences research. The term encompasses 
basic and applied research and product development. As used in this 
part, the term includes any such activity for which funding is available 
from a PHS Awarding Component, whether authorized under the PHS Act or 
other statutory authority.
    Significant Financial Interest means anything of monetary value, 
including but not limited to, salary or other payments for services 
(e.g., consulting fees or honoraria); equity interests (e.g., stocks, 
stock options or other ownership interests); and intellectual property 
rights (e.g., patents copyrights and royalties from such rights). The 
term does not include:
    (1) Salary, royalties, or other remuneration from the applicant 
institution;
    (2) Any ownership interests in the institution, if the institution 
is an applicant under the SBIR program;
    (3) Income from seminars, lectures, or teaching engagements 
sponsored by public or nonprofit entities;
    (4) Income from service on advisory committees or review panels for 
public or nonprofit entities;
    (5) An equity interest that when aggregated for the Investigator and 
the Investigator's spouse and dependent children, meets both of the 
following tests: Does not exceed $10,000 in value as determined through 
reference to public prices or other reasonable measures of fair market 
value, and does not represent more than a five percent ownership 
interest in any single entity; or
    (6) Salary, royalties or other payments that when aggregated for the 
investigator and the investigator's spouse and dependent children over 
the

[[Page 450]]

next twelve months, are not reasonably expected to exceed $10,000.
    Small Business Innovation Research (SBIR) Program means the 
extramural research program for small business that is established by 
the awarding components of the Public Health Service and certain other 
Federal agencies under Public Law 97-219, the Small Business Innovation 
Development Act, as amended. For purposes of this part, the term SBIR 
Program includes the Small Business Technology Transfer (STTR) Program, 
which was established by Public Law 102-564.



Sec. 94.4  Institutional responsibility regarding conflicting interests of investigators.

    Each Institution must:
    (a) Maintain an appropriate written, enforced policy on conflict of 
interest that complies with this part and inform each Investigator of 
that policy, the Investigator's reporting responsibilities, and of these 
regulations. If the Institution carries out the PHS-funded research 
through subcontractors, or collaborators, the Institution must take 
reasonable steps to ensure that Investigators working for such entities 
comply with this part, either by requiring those Investigators to comply 
with the Institution's policy or by requiring the entities to provide 
assurances to the Institution that will enable the Institution to comply 
with this part.
    (b) Designate an institutional official(s) to solicit and review 
financial disclosure statements from each Investigator who is planning 
to participate in PHS-funded research.
    (c)(1) Require that by the time an application is submitted to PHS, 
each Investigator who is planning to participate in the PHS-funded 
research has submitted to the designated official(s) a listing of his/
her known Significant Financial Interests (and those of his/her spouse 
and dependent children):
    (i) that would reasonably appear to be affected by the research for 
which PHS funding is sought; and
    (ii) in entities whose financial interests would reasonably appear 
to be affected by the research.
    (2) All financial disclosures must be updated during the period of 
the award, either on an annual basis or as new reportable Significant 
Financial Interests are obtained.
    (d) Provide guidelines consistent with this part for the designated 
official(s) to identify conflicting interests and take such actions as 
necessary to ensure that such conflicting interests will be managed, 
reduced, or eliminated.
    (e) Maintain records of all financial disclosures and all actions 
taken by the Institution with respect to each conflicting interest for 
three years after final payment or, where applicable, for the other time 
periods specified in 48 CFR part 4, subpart 4.7.
    (f) Establish adequate enforcement mechanisms and provide for 
sanctions where appropriate.
    (g) Certify, in each contract proposal, that:
    (1) there is in effect at that Institution a written and enforced 
administrative process to identify and manage, reduce or eliminate 
conflicting interests with respect to all research projects for which 
funding is sought from the PHS;
    (2) prior to the Institution's expenditure of any funds under the 
award, the Institution will report to the PHS Awarding Component the 
existence of any conflicting interest (but not the nature of the 
interest or other details) found by the Institution and assure that the 
interest has been managed, reduced or eliminated in accordance with this 
part; and, for any interest that the Institution identifies as 
conflicting subsequent to the Institution's initial report under the 
award, the report will be made and the conflicting interest managed, 
reduced, or eliminated, at least on an interim basis, within sixty days 
of that identification.
    (3) the Institution agrees to make information available, upon 
request, to the HHS regarding all conflicting interests identified by 
the Institution and how those interests have been managed, reduced, or 
eliminated to protect the research from bias; and
    (4) the Institution will otherwise comply with this part.

[60 FR 35817, July 11, 1995; 60 FR 39076, July 31, 1995]

[[Page 451]]



Sec. 94.5  Management of conflicting interests.

    (a) The designated official(s) must: Review all financial 
disclosures; and determine whether a conflict of interest exists, and is 
so, what actions should be taken by the institution to manage, reduce, 
or eliminate such conflict of interest. A conflict of interest exists 
when the designated official(s) reasonably determines that a Significant 
Financial Interest could directly and significantly affect the design, 
conduct, or reporting of the PHS-funded research. Examples of conditions 
or restrictions that might be imposed to manage conflicts of interest 
include, but are not limited to:

    (1) Public disclosure of significant financial interests;
    (2) Monitoring of the research by independent reviewers;
    (3) Modification of the research plan;
    (4) Disqualification from participation in all or a portion of the 
research funded by the PHS;
    (5) Divestiture of significant financial interests, or;
    (6) Severance of relationships that create actual or potential 
conflicts.

    (b) In addition to the types of conflicting financial interests 
described in this paragraph that must be managed, reduced, or 
eliminated, an Institution may require the management of other 
conflicting financial interests, as the Institution deems appropriate.

[60 FR 35817, July 11, 1995; 60 FR 39077, July 31, 1995]



Sec. 94.6  Remedies.

    (a) If the failure of an Investigator to comply with the conflict of 
interest policy of the Institution has biased the design, conduct, or 
reporting of the PHS-funded research, the Institution must promptly 
notify the PHS Awarding Component of the corrective action taken or to 
be taken. The PHS Awarding Component will consider the situation and, as 
necessary, take appropriate action or refer the matter to the 
institution for further action, which may include directions to the 
Institution on how to maintain appropriate objectivity in the funded 
project.
    (b) The HHS may at any time inquire into the Institutional 
procedures and actions regarding conflicting financial interests in PHS-
funded research, including a review of all records pertinent to 
compliance with this part. HHS may require submission of the records or 
review them on site. To the extent permitted by law HHS will maintain 
the confidentiality of all records of financial interests. On the basis 
of its review of records and/or other information that may be available, 
the PHS Awarding Component may decide that a particular conflict of 
interest will bias the objectivity of the PHS-funded research to such an 
extent that further corrective action is needed or that the Institution 
has not managed, reduced, or eliminated the conflict of interest in 
accordance with this part. The issuance of a Stop Work Order by the 
Contracting Officer may be necessary until the matter is resolved.
    (c) In any case in which the HHS determines that a PHS-funded 
project of clinical research whose purpose is to evaluate the safety or 
effectiveness of a drug, medical device, or treatment has been designed, 
conducted, or reported by an Investigator with a conflicting interest 
that was not disclosed or managed as required by this part, the 
Institution must require disclosure of the conflicting interest in each 
public presentation of the results of the research.

[60 FR 35817, July 11, 1995; 60 FR 39077, July 31, 1995]



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




            Subpart A--Time Limits for States To File Claims

Sec.
95.1  Scope.
95.4  Definitions.
95.7  Time limit for claiming payment for expenditures made after 
          September 30, 1979.
95.10  Time limit for claiming payment for expenditures made before 
          October 1, 1979.
95.11  Payment of claims subject to appropriations restrictions.
95.13  In which quarter we consider an expenditure made.

[[Page 452]]

95.19  Exceptions to time limits.
95.22  Meaning of good cause.
95.25  When to request a waiver for good cause.
95.28  What a waiver request for good cause must include.
95.31  Where to send a waiver request for good cause.
95.34  The decision to waive the time limit for good cause.

Subparts B-D [Reserved]

                    Subpart E--Cost Allocation Plans

95.501  Purpose.
95.503  Scope.
95.505  Definitions.
95.507  Plan requirements.
95.509  Cost allocation plan amendments and certifications.
95.511  Approval of the cost allocation plan or plan amendment.
95.515  Effective date of a cost allocation plan or plan amendment.
95.517  Claims for Federal financial participation.
95.519  Cost disallowance.

Subpart F--Automatic Data Processing Equipment and Services--Conditions 
                for Federal Financial Participation (FFP)

                                 General

95.601  Scope and applicability.
95.605  Definitions.

                       Specific Conditions for FFP

95.611  Prior approval conditions.
95.612  Disallowance of Federal Financial Participation (FFP).
95.613  Procurement standards.
95.615  Access to systems and records.
95.617  Software and ownership rights.
95.619  Use of ADP systems.
95.621  ADP reviews.
95.623  Waiver of prior approval requirements.
95.624  Consideration for FFP in emergency situations.
95.625  Increased FFP for certain ADP systems.

      Federal Financial Participation in Costs of ADP Acquisitions

95.631  Cost identification for purpose of FFP claims.
95.633  Nondiscrimination requirements.

                               Exemptions

95.641  Applicability of rules for charging equipment in Subpart G of 
          this part.

     Subpart G--Equipment Acquired Under Public Assistance Programs

95.701  Purpose and scope of subpart.
95.703  Definitions.
95.705  Equipment costs--Federal financial participation.
95.707  Equipment management and disposition.

    Authority: Sec. 452(a), 83 Stat. 2351, 42 U.S.C. 652(a); sec. 1102, 
49 Stat. 647, 42 U.S.C. 1302; sec. 7(b), 68 Stat. 658, 29 U.S.C. 37(b); 
sec. 139, 84 Stat. 1323, 42 U.S.C. 2577b; sec. 144, 81 Stat. 529, 42 
U.S.C. 2678; sec. 1132, 94 Stat. 530, 42 U.S.C. 1320b-2; sec. 306(b), 94 
Stat. 530, 42 U.S.C. 1320b-2note, unless otherwise noted.



            Subpart A--Time Limits for States To File Claims

    Source: 46 FR 3529, Jan. 15, 1981, unless otherwise noted.



Sec. 95.1  Scope.

    (a) This subpart establishes a two year time limit (15 months in 
some cases) for a State to claim Federal financial participation in 
expenditures under State plans approved under the following titles of 
the Social Security Act:

    Title I--Grants to States for Old-Age Assistance and Medical 
Assistance for the Aged.
    Title IV-A--Grants to States for Aid and Services to Needy Families 
with Dependent Children (except for Section 402(a)(19)(G) of the Act).
    Title IV-B--Child Welfare Services.
    Title IV-D--Child Support and Establishment of Paternity.
    Title IV-E--Foster Care and Adoption Assistance.
    Title X--Grants to States for Aid to the Blind.
    Title XIV--Grants to States for Aid to the Permanently and Totally 
Disabled.
    Title XVI--Grants to States for Aid to the Aged, Blind, or Disabled 
(AABD), or for Such Aid and Medical Assistance for the Aged.
    Title XIX--Grants to States for Medical Assistance Programs.
    Title XX--Grants to States for Services.
    Title XXI--Grants to States for State Children's Health Insurance 
Programs.

    (b) This subpart also applies to claims for Federal financial 
participation by any State which are based on

[[Page 453]]

any provision of the Act that is enacted after issuance of these 
regulations and that provides, on an entitlement basis, for Federal 
financial participation in expenditures made under State plans or 
programs.
    (c) This subpart explains under what conditions the Secretary may 
decide to extend the time limit for filing claims when a State believes 
it has good cause for not meeting the time limit.

[46 FR 3529, Jan. 15, 1981, as amended at 65 FR 33632, May 24, 2000]



Sec. 95.4  Definitions.

    In this subpart--
    Adjustment to prior year costs means an adjustment in the amount of 
a particular cost item that was previously claimed under an interim rate 
concept and for which it is later determined that the cost is greater or 
less than that originally claimed.
    Audit exception means a proposed adjustment by the responsible 
Federal agency to any expenditure claimed by a State by virtue of an 
audit.
    Claim means a request for Federal financial participation in the 
manner and format required by our program regulations, and instructions 
or directives issued thereunder.
    Court-ordered retroactive payment means either a retroactive payment 
the State makes to an assistance recipient or an individual, under a 
Federal or State court order or a retroactive payment we make to a State 
under a Federal court order. Although we may accept these claims as 
timely, this provision does not mean that we necessarily agree to be 
bound by a State or Federal decision when we were not a party to the 
action.
    Federal financial participation means the Federal government's share 
of an expenditure made by a State agency under any of the programs 
listed in Sec. 95.1.
    State means the 50 States, the District of Columbia, Guam, Puerto 
Rico, the Virgin Islands, the Commonwealth of the Northern Mariana 
Islands, American Samoa and the Trust Territories of the Pacific.
    State agency for the purposes of expenditures for financial 
assistance under title IV-A and for support enforcement services under 
title IV-D means any agency or organization of the State or local 
government which is authorized to incur matchable expenses; for purposes 
of expenditures under titles XIX and XXI, means any agency of the State, 
including the State Medicaid agency or State Child Health Agency, its 
fiscal agents, a State health agency, or any other State or local 
organization which incurs matchable expenses; for purposes of 
expenditures under all other titles, see the definitions in the 
appropriate program's regulations.
    The Act means the Social Security Act, as amended.
    We, our, and us refer to HHS'sCenters for Medicare & Medicaid 
Services, Office of Child Support Enforcement, Office of Human 
Development Services, or the Social Security Administration, depending 
on the program involved.

[46 FR 3529, Jan. 15, 1981, as amended at 65 FR 33632, May 24, 2000]



Sec. 95.7  Time limit for claiming payment for expenditures made after September 30, 1979.

    Under the programs listed in Sec. 95.1, we will pay a State for a 
State agency expenditure made after September 30, 1979, only if the 
State files a claim with us for that expenditure within 2 years after 
the calendar quarter in which the State agency made the expenditure. 
Section 95.19 lists the exceptions to this rule.



Sec. 95.10  Time limit for claiming payment for expenditures made before October 1, 1979.

    Under the programs listed in Sec. 95.1, we will pay a State for a 
State agency expenditure made before October 1, 1979, only if the State 
filed or files a claim with us for that expenditure before January 1, 
1981. Section 95.19 lists the exceptions to this rule.



Sec. 95.11  Payment of claims subject to appropriations restrictions.

    Notwithstanding any other provision of this Subpart, we will pay 
States' otherwise allowable claims for Federal financial participation 
under the programs covered by this Subpart, subject to the availability 
of funds (as provided in Acts appropriating funds to the Department in 
effect at the time in which

[[Page 454]]

such claims are being considered for payment), and subject to conditions 
or restrictions applicable to payments out of such funds, including 
provisions of the first and second continuing resolutions for FY 1981 
(Pub. L. 96-369 and Pub. L. 96-536) and the Supplemental Appropriations 
and Rescission Act, 1981 (Pub. L. 97-12) that make funds under those 
Acts available to pay for a State agency expenditure made before 
September 30, 1978, only if the State had filed a claim for that 
expenditure with us within one year of the expenditure.

(Pub. L. 96-369, 94 Stat. 1351; Pub. L. 96-536, 94 Stat. 3166; and Pub. 
L. 97-12, 95 Stat. 14)

[46 FR 46136, Sept. 17, 1981]



Sec. 95.13  In which quarter we consider an expenditure made.

    In this subpart--
    (a) We consider a State agency's expenditure for assistance payments 
under title I, IV-A, IV-E, X, XIV, or XVI (AABD) to have been made in 
the quarter in which a payment was made to the assistance recipient, his 
or her protective payee, or a vendor payee, even if the payment was for 
a month in a previous quarter.
    (b) We consider a State agency's expenditure for services under 
title I, IV-A, IV-B, IV-D, IV-E, X, XIV, XVI (AABD) , XIX, or XXI to 
have been made in the quarter in which any State agency made a payment 
to the service provider.
    (c) For purposes of title XX, the date of expenditure is governed by 
45 CFR 1396.52(d).
    (d) We consider a State agency's expenditure for administration or 
training under titles I, IV-A, IV-B, IV-D, IV-E, X, XIV, XVI (AABD), 
XIX, or XXI to have been made in the quarter payment was made by a State 
agency to a private agency or individual; or in the quarter to which the 
costs were allocated in accordance with the regulations for each 
program. We consider a State agency's expenditure under these titles for 
non-cash expenditures such as depreciation to have been made in the 
quarter the expenditure was recorded in the accounting records of any 
State agency in accordance with generally accepted accounting 
principles.

[46 FR 3529, Jan. 15, 1981, as amended at 65 FR 33632, May 24, 2000]



Sec. 95.19  Exceptions to time limits.

    The time limits in Secs. 95.7 and 95.10 do not apply to any of the 
following--
    (a) Any claim for an adjustment to prior year costs.
    (b) Any claim resulting from an audit exception.
    (c) Any claim resulting from a court-ordered retroactive payment.
    (d) Any claim for which the Secretary decides there was good cause 
for the State's not filing it within the time limit.



Sec. 95.22  Meaning of good cause.

    (a) Good cause for the late filing of a claim is lateness due to 
circumstances beyond the State's control.
    (b) Examples of circumstances beyond the State's control include:
    (1) Acts of God;
    (2) Documented action or inaction of the Federal government.
    (c) Circumstances beyond the State's control do not include neglect 
or administrative inadequacy on the part of the State, State agencies, 
the State legislature or any of their offices, officers, or employees.



Sec. 95.25  When to request a waiver for good cause.

    The State should request a waiver in writing as soon as the State 
recognizes that it will be unable to submit a claim within the 
appropriate time limit.



Sec. 95.28  What a waiver request for good cause must include.

    The State's request for waiver must include a specific explanation, 
justification or documentation of why the claim is or will be late. This 
request must establish that the lateness in filing the claim is for good 
cause as defined in Sec. 95.22 and not due to neglect or administrative 
inadequacy. If the claim has not been filed, the State must also tell us 
when the claim will be filed.

[[Page 455]]



Sec. 95.31  Where to send a waiver request for good cause.

    (a) A request which affects the program(s) of only one HHS agency 
(theCenters for Medicare & Medicaid Services, or the Office of Child 
Support Enforcement, or the Office of Human Development Services, or the 
Social Security Administration) and does not affect the programs of any 
other agency or Federal Department should be sent to the appropriate HHS 
agency.
    (b) A request which affects programs of more than one HHS agency or 
Federal Department should be sent to the Director, Division of Cost 
Allocation in the appropriate HHS Regional Office.



Sec. 95.34  The decision to waive the time limit for good cause.

    The Secretary will make a decision after reviewing the State's 
request for waiver. If the Secretary decides that good cause exists, the 
State will be notified of the extended due date. If the Secretary 
decides that good cause does not exist or that the request for waiver 
does not provide enough information to make a decision, the State will 
be so advised.

Subparts B-D [Reserved]



                    Subpart E--Cost Allocation Plans

    Source: 47 FR 17509, Apr. 23, 1982, unless otherwise noted.



Sec. 95.501  Purpose.

    This subpart establishes requirements for:
    (a) Preparation, submission, and approval of State agency cost 
allocation plans for public assistance programs; and
    (b) Adherence to approved cost allocation plans in computing claims 
for Federal financial participation.



Sec. 95.503  Scope.

    This subpart applies to all State agency costs applicable to awards 
made under titles I, IV-A, IV-B, IV-C, IV-D, IV-E, X, XIV, XVI (AABD), 
XIX, and XXI, of the Social Security Act, and under the Refugee Act of 
1980, title IV, Chapter 2 of the Immigration and Nationality Act (8 
U.S.C. 1521 et seq.), and under title V of Pub. L. 96-422, the Refugee 
Education Assistance Act of 1980.

[65 FR 33633, May 24, 2000]



Sec. 95.505  Definitions.

    As used in this subpart:
    State agency costs include all costs incurred by or allocable to the 
State agency except expenditures for financial assistance, medical 
vendor payments, and payments for services and goods provided directly 
to program recipients such as day care services, family planning 
services or household items as provided for under the approved State 
program plan.
    Cost allocation plan means a narrative description of the procedures 
that the State agency will use in identifying, measuring, and allocating 
all State agency costs incurred in support of all programs administered 
or supervised by the State agency.
    FFP or Federal financial participation means the Federal 
Government's share of expenditures made by a State agency under any of 
the programs cited in Sec. 95.503.
    Operating Divisions means the Department of Health and Human 
Services (HHS) organizational components responsible for administering 
public assistance programs. These components are the Social Security 
Administration, Office of Human Development Services, Office of Child 
Support Enforcement,Centers for Medicare & Medicaid Services, and Office 
of Refugee Resettlement.
    Public assistance programs means the programs cited in Sec. 95.503.
    State means the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, the Northern Mariana 
Islands, and Guam.
    State agency means the State agency administering or supervising the 
administration of the State plan for any program cited in Sec. 95.503. A 
State agency may be an organizational part of a larger State department 
that also contains other components and agencies. Where that occurs, the 
expression State agency refers to the specific component or agency 
within the State department that is directly responsible for the 
administration of, or supervising the administration of, one or more 
programs identified in Sec. 95.503.

[[Page 456]]

    State Plan means a comprehensive written commitment by the State 
agency to administer or supervise the administration of any of the 
public assistance programs cited in Sec. 95.503 in accordance with all 
Federal requirements.



Sec. 95.507  Plan requirements.

    (a) The State shall submit a cost allocation plan for the State 
agency as required below to the Director, Division of Cost Allocation 
(DCA), in the approporiate HHS Regional Office. The plan shall:
    (1) Describe the procedures used to identify, measure, and allocate 
all costs to each of the programs operated by the State agency;
    (2) Conform to the accounting principles and standards prescribed in 
Office of Management and Budget Circular A-87, and other pertinent 
Department regulations and instructions;
    (3) Be compatible with the State plan for public assistance programs 
described in 45 CFR Chapter II, III and XIII, and 42 CFR Chapter IV 
Subchapters C and D; and
    (4) Contain sufficient information in such detail to permit the 
Director, Division of Cost Allocation, after consulting with the 
Operating Divisions, to make an informed judgment on the correctness and 
fairness of the State's procedures for identifying, measuring, and 
allocating all costs to each of the programs operated by the State 
agency.
    (b) The cost allocation plan shall contain the following 
information:
    (1) An organizational chart showing the placement of each unit whose 
costs are charged to the programs operated by the State agency.
    (2) A listing of all Federal and all non-Federal programs performed, 
administered, or serviced by these organizational units.
    (3) A description of the activities performed by each organizational 
unit and, where not self-explanatory an explanation of the benefits 
provided to Federal programs.
    (4) The procedures used to identify, measure, and allocate all costs 
to each benefiting program and activity (including activities subject to 
different rates of FFP).
    (5) The estimated cost impact resulting from the proposed changes to 
a previously approved plan. These estimated costs are required solely to 
permit an evaluation of the procedures used for identifying, measuring, 
and allocating costs. Therefore, approval of the cost allocation plan 
shall not constitute approval of these estimated costs for use in 
calculating claims for FFP. Where it is impractical to obtain this data, 
an alternative approach should then be negotiated with the Director, 
DCA, prior to submission of the cost allocation plan.
    (6) A statement stipulating that wherever costs are claimed for 
services provided by a governmental agency outside the State agency, 
that they will be supported by a written agreement that includes, at a 
minimum (i) the specific service(s) being purchased, (ii) the basis upon 
which the billing will be made by the provider agency (e.g. time 
reports, number of homes inspected, etc.) and (iii) a stipulation that 
the billing will be based on the actual cost incurred. This statement 
would not be required if the costs involved are specifically addressed 
in a State-wide cost allocation plan, local-wide cost allocation plan, 
or an umbrella/department cost allocation plan.
    (7) If the public assistance programs are administered by local 
government agencies under a State supervised system, the overall State 
agency cost allocation plan shall also include a cost allocation plan 
for the local agencies. It shall be developed in accordance with the 
requirements set forth above. More than one local agency plan shall be 
submitted if the accounting systems or other conditions at the local 
agencies preclude an equitable allocation of costs by the submission of 
a single plan for all local agencies. Prior to submitting multiple plans 
for local agencies, the State should consult with the Director, DCA. 
Where more than one local agency plan is submitted, the State shall 
identify the specific local agencies covered by each plan.
    (8) A certification by a duly authorized official of the State 
stating:
    (i) That the information contained in the proposed cost allocation 
plan was prepared in conformance with Office of Management and Budget 
Circular A-87.

[[Page 457]]

    (ii) That the costs are accorded consistent treatment through the 
application of generally accepted accounting principles appropriate to 
the circumstances.
    (iii) That an adequate accounting and statistical system exists to 
support claims that will be made under the cost allocation plan; and
    (iv) That the information provided in support of the proposed cost 
allocation plan is accurate.
    (9) Other information as is necessary to establish the validity of 
the procedures used to identify, measure, and allocate costs to all 
programs being operated by the State agency.

[47 FR 17509, Apr. 23, 1982, as amended at 65 FR 33633, May 24, 2000]



Sec. 95.509  Cost allocation plan amendments and certifications.

    (a) The State shall promptly amend the cost allocation plan and 
submit the amended plan to the Director, DCA if any of the following 
events occur:
    (1) The procedures shown in the existing cost allocation plan become 
outdated because of organizational changes, changes in Federal law or 
regulations, or significant changes in program levels, affecting the 
validity of the approved cost allocation procedures.
    (2) A material defect is discovered in the cost allocation plan by 
the Director, DCA or the State.
    (3) The State plan for public assistance programs is amended so as 
to affect the allocation of costs.
    (4) Other changes occur which make the allocation basis or 
procedures in the approval cost allocation plan invalid.
    (b) If a State has not submitted a plan or plan amendment during a 
given State fiscal year, an annual statement shall be submitted to the 
Director, DCA certifying that its approved cost allocation plan is not 
outdated. This statement shall be submitted within 60 days after the end 
of that fiscal year.



Sec. 95.511  Approval of the cost allocation plan or plan amendment.

    (a) The Director, DCA, after consulting with the affected Operating 
Divisions, shall notify the State in writing of his/her findings. This 
notification will be made within 60 days after receipt of the proposed 
plan or amendment and shall either: (1) Advise the State that the plan 
or plan amendment is approved or disapproved, (2) advise the State of 
the changes required to make the plan or amendment acceptable, or (3) 
request the State to provide additional information needed to evaluate 
the proposed plan or amendment. If the DCA cannot make a determination 
within the 60-day period, it shall so advise the State.
    (b) For purpose of this subpart, State agency cost allocation plans 
which have been approved by an authorized official of the Department of 
HHS prior to the effective date of this regulation are considered 
approved until such time as a new plan or plan amendment is required by 
Sec. 95.509(a).



Sec. 95.515  Effective date of a cost allocation plan amendment.

    As a general rule, the effective date of a cost allocation plan 
amendment shall be the first day of the calendar quarter following the 
date of the event that required the amendment (See Sec. 95.509). 
However, the effective date of the amendment may be earlier or later 
under the following conditions:
    (a) An earlier date is needed to avoid a significant inequity to 
either the State or the Federal Government.
    (b) The information provided by the State which was used to approve 
a previous plan or plan amendment is later found to be materially 
incomplete or inaccurate, or the previously approved plan is later found 
to violate a Federal statute or regulation. In either situation, the 
effective date of any required modification to the plan will be the same 
as the effective date of the plan or plan amendment that contained the 
defect.
    (c) It is impractical for the State to implement the amendment on 
the first day of the next calendar quarter. In these instances, a later 
date may be established by agreement between the State and the DCA.

[[Page 458]]



Sec. 95.517  Claims for Federal financial participation.

    (a) A State must claim FFP for costs associated with a program only 
in accordance with its approved cost allocation plan. However, if a 
State has submitted a plan or plan amendment for a State agency, it may, 
at its option claim FFP based on the proposed plan or plan amendment, 
unless otherwise advised by the DCA. However, where a State has claimed 
costs based on a proposed plan or plan amendment the State, if 
necessary, shall retroactively adjust its claims in accordance with the 
plan or amendment as subsequently approved by the Director, DCA. The 
State may also continue to claim FFP under its existing approved cost 
allocation plan for all costs not affected by the proposed amendment.



Sec. 95.519  Cost disallowance.

    If costs under a Public Assistance program are not claimed in 
accordance with the approved cost allocation plan (except as otherwise 
provided in Sec. 95.517), or if the State failed to submit an amended 
cost allocation plan as required by Sec. 95.509, the costs improperly 
claimed will be disallowed.
    (a)(1) If the issue affects the program(s) of only one Operating 
Division and does not affect the programs of other Operating Divisions 
or Federal departments, that Operating Division will determine the 
amount of the disallowance and will also inform the State of its 
opportunity for reconsideration of the determination in accordance with 
the Operating Division's procedures. Prior to issuing the notification, 
however, the Operating Division shall consult with the DCA to ensure 
that the issue does not affect the programs of other Operating Divisions 
or Federal departments.
    (2) If the State wishes to request a reconsideration of the 
Operating Division's determination, it must submit the request in 
accordance with the Operating Division's procedures.
    (b) If the issue affects the programs of more than one Operating 
Division, or Federal department or the State, the Director, DCA, after 
consulting with the Operating Divisions, shall determine the amount 
inappropriately claimed under each program. The Director, DCA will 
notify the State of this determination, of the dollar affect of the 
determination on the claims made under each program, and will inform the 
State of its opportunity for appeal of the determination under 45 CFR 
part 16. The State will subsequently be notified by the appropriate 
Operating Division as to the disposition of the funds in question.

[47 FR 17509, Apr. 23, 1982, as amended at 62 FR 38218, July 17, 1997]



Subpart F--Automatic Data Processing Equipment and Services--Conditions 
                for Federal Financial Participation (FFP)

    Authority: Secs. 402(a)(5), 452(a)(1), 1102 and 1902(a)(4) of the 
Social Security Act, 42 U.S.C. 602(a)(5), 652(a)(1), 1302, 1396a(a)(4); 
5 U.S.C. 301 and 8 U.S.C. 1521.

    Source: 51 FR 45326, Dec. 18, 1986, unless otherwise noted.

                                 General



Sec. 95.601  Scope and applicability.

    This subpart prescribes part of the conditions under which the 
Department of Health and Human Services will approve Federal financial 
participation (FFP) at the applicable rates for the costs of automatic 
data processing incurred under an approved State plan for titles I, IV-
A, IV-B, IV-D, IV-E, X, XIV, XVI(AABD), XIX, or XXI of the Social 
Security Act and title IV chapter 2 of the Immigration and Nationality 
Act. The conditions of approval of this subpart add to the statutory and 
regulatory requirements for acquisition of ADP equipment and services 
under the specified titles of the Social Security Act.

[65 FR 33633, May 24, 2000]



Sec. 95.605  Definitions.

    As used in this part, the term:
    Acceptance documents means written evidence of satisfactory 
completion of an approved phase of work or contract, and acceptance 
thereof by the State agency.
    Acquisition means acquiring ADP equipment or services from 
commercial sources or from State or local government resources.

[[Page 459]]

    Advance Planning Document (APD), Initial advance automatic data 
processing planning document or Initial APD means a written plan of 
action to request funding approval for a project which will require the 
use of ADP services or equipment. The term APD refers to a Planning APD, 
or to a planning and/or, development and implementation action document, 
i.e., Implementation APD, or to an Advance Planning Document Update.
    (1) Planning APD means a written plan of action which requests FFP 
to determine the need for, feasibility, and cost factors of an APD 
equipment or services acquisition and to perform one or more of the 
following: Prepare a Functional Requirements Specification; assess other 
States' systems for transfer, to the maximum extent possible, of an 
existing system; prepare an Implementation APD; prepare a request for 
proposal (RFP) or develop a General Systems Design (GSD).
    A separate planning effort and Planning APD is generally applicable 
to large enhanced funded Statewide system developments and/or major 
hardware acquisitions. States with large, independent Counties 
requesting funding at the regular match rate for County systems are 
strongly encouraged to do better planning and to submit a Planning APD 
to allow for time and to provide funding for its planning activities. 
Therefore, states must consider the scope and complexity of a project to 
determine whether to submit a Planning APD as a separate document to HHS 
or whether to combine the two phases of planning and implementation into 
one APD covering both the Planning APD and the Implementation APD 
requirements.
    The Planning APD is a relatively brief document, usually not more 
than 6-10 pages, which must contain:
    (i) A statement of the problem/need in terms of deficiencies in 
existing capabilities, new or changed program requirements or 
opportunities for economies and efficiencies;
    (ii) A project management plan which addresses the planning project 
organization, planning activities/deliverables, State and contractor 
resource needs, planning project procurement activities and schedule;
    (iii) A specific budget for the planning of the project;
    (iv) An estimated total project cost and a prospective State and 
Federal cost distribution, including planning and implementation;
    (v) A commitment to conduct/prepare the needs assessment, 
feasibility study, alternatives analysis, cost benefit analysis, and to 
develop a Functional Requirements Specification and/or a General Systems 
Design (GSD); and,
    (vi) A commitment to define the State's functional requirements for 
the purpose of evaluating the transfer of an existing system, including 
the transfer of another State's General System Design, which the State 
may adapt to meet State specific requirements.

Additional Planning APD content requirements, for enhanced funding 
projects are contained in 45 CFR 205.37(a)(1)-(8) and CFR 307.15.
    (2) Implementation APD means a written plan of action to acquire the 
proposed APD services or equipment.
    The Implementation APD shall include:
    (i) The results of the activities conducted under a Planning APD, if 
any;
    (ii) A statement of needs and objectives;
    (iii) A requirements analysis, feasibility study and a statement of 
alternative considerations including, where appropriate, a transfer of 
an existing system and an explanation of why such a transfer is not 
feasible if another alternative is identified;
    (iv) A cost benefit analysis;
    (v) A personnel resource statement indicating availability of 
qualified and adequate staff, including a project director to accomplish 
the project objectives;
    (vi) A detailed description of the nature and scope of the 
activities to be undertaken and the methods to be used to accomplish the 
project;
    (vii) The proposed activity schedule for the project;
    (viii) A proposed budget (including a consideration of all possible 
Implementation APD activity costs, e.g., system conversion, computer 
capacity planning, supplies, training, and miscellaneous ADP expenses) 
for the project;

[[Page 460]]

    (ix) A statement indicating the period of time the State expects to 
use the equipment or system;
    (x) An estimate of prospective cost distribution to the various 
State and Federal funding sources and the proposed procedures for 
distributing costs; and
    (xi) A statement setting forth the security and interface 
requirements to be employed and the system failure and disaster recovery 
procedures available.

Additional requirements, for acquisitions for which the State is 
requesting enhanced funding, are contained at 45 CFR 205.37(a)(1)-(8), 
45 CFR 307.15 and 42 CFR part 433 subpart C.
    (3) Advance Planning Document Update (APDU) means a document 
submitted annually (Annual APDU) to report project status and/or post 
implementation cost-savings, or on an as needed (As Needed APDU) basis 
to request funding approval for project continuation when significant 
project changes are anticipated; for incremental funding authority and 
project continuation when approval is being granted by phase; or to 
provide detailed information on project and/or budget activities.
    (a) The Annual APDU is due 60 days from the Planning APD or 
Implementation APD approved anniversary and includes:
    (i) A reference to the approved APD and all approved changes;
    (ii) A project activity status which reports the status of the past 
year's major project tasks and milestones, addressing the degree of 
completion and tasks/milestones remaining to be completed and discusses 
past and anticipated problems or delays in meeting target dates in the 
approved APD and approved changes to it;
    (iii) A report of all project deliverables completed in the past 
year and degree of completion for unfinished products;
    (iv) A project activity schedule for the remainder of the project;
    (v) A project expenditures status which consists of a detailed 
accounting of all expenditures for project development over the past 
year and an explanation of the differences between projected expenses in 
the approved APD and actual expenditures for the past year;
    (vi) A report of any approved or anticipated changes to the 
allocation basis in the APD's approved cost methodology;
    (vii) A report which compares the estimated cost-savings from the 
State's approved APD to actual cost-benefits to date (in the development 
phase of a project, this may be reported as non-applicable). The 
proportion of costs to savings must remain as projected in the APD. Once 
the State begins operation, either on a pilot basis or under a phased 
approval, the cost-savings shall be submitted 2-5 years after statewide 
operation until the Department determines projected cost savings have 
been achieved.
    (b) The As Needed APDU is defined as a document which requests 
approval for additional funding and/or authority for project 
continuation when significant changes are anticipated; when the project 
is being funded on a phased implementation basis; to clarify project 
information requested as an approval condition of the Planning APD or 
Implementation APD. The As Needed APDU may be submitted anytime as a 
stand-alone funding or project continuation request, or may be submitted 
with the Annual APDU:
    (i) When the State anticipates incremental project expenditures 
(exceeding specified thresholds);
    (ii) When the State anticipates a schedule extension of more than 60 
days for major milestones. For Aid to Families with Dependent Children 
(AFDC) Family Assistance Management Information System (FAMIS)-type 
projects, in accordance with section 402(e)(2)(C) of the Social Security 
Act, any schedule change which affects the State's implementation date 
as specified in the approved APD requires that the Department recover 40 
percent of the amount expended. The Secretary may extend the 
implementation date, if the implementation date is not met because of 
circumstances beyond the State's control. Examples of circumstances 
beyond the State's control are:
    (1) Equipment failure due to physical damage or destruction; or,

[[Page 461]]

    (2) Change imposed by Federal judicial decisions, or by Federal 
legislation or regulations;
    (iii) When the State anticipates major changes in the scope of its 
project, e.g., a change in its procurement plan, procurement activities, 
system concept or development approach;
    (iv) When the State anticipates significant changes to its cost 
distribution methodology or distribution of costs among Federal 
programs; and/or,
    (v) When the State anticipates significant changes to its cost-
benefit projections.

The As needed APDU shall provide supporting documentation to justify the 
need for a change to the approved budget.
    Approving component means an organization within the Department that 
is authorized to approve requests for the acquisition of ADP equipment 
or ADP services. Family Support Administration (FSA) for cash assistance 
for titles I, IV-A, X, XIV, and XVI(AABD); Office of Human Development 
Services (OHDS) for social services for titles IV-B (child welfare 
services) and IV-E (foster care and adoption assistance); Family Support 
Administration (FSA) for title IV-D; andCenters for Medicare & Medicaid 
Services (CMS) for titles XIX and XXI of the Social Security Act.
    Automatic data processing or ADP means data processing performed by 
a system of electronic or electrical machines so interconnected and 
interacting as to minimize the need for human assistance or 
intervention.
    Automatic data processing equipment or ADP equipment or Hardware 
means automatic equipment that accepts and stores data, performs 
calculations and other processing steps, and produces information. This 
includes:
    (a) Electronic digital computers;
    (b) Peripheral or auxiliary equipment used in support of electronic 
computers;
    (c) Data transmission or communications equipment, and
    (d) Data input equipment.
    Automatic Data Processing Services or ADP Services means:
    (a) Services to operate ADP equipment, either by agency, or by State 
or local organizations other than the State agency; and/or
    (b) Services provided by private sources or by employees of the 
State agency or by State and local organizations other than the State 
agency to perform such tasks as feasibility studies, system studies, 
system design efforts, development of system specifications, system 
analysis, programming, system conversion and system implementation and 
include, for example, the following:
    (1) Systems Training,
    (2) Systems Development,
    (3) Site Preparation,
    (4) Data Entry, and
    (5) Personal services related to automated systems development and 
operations that are specifically identified as part of a Planning ADP or 
Implementation ADP. As an example, a personal service would be the 
service of an expert individual to provide advice on the use of ADP 
software or hardware in developing a State automated management 
information system.
    Data processing means the preparation of source media containing 
data or basic elements of information and the use of such source media 
according to precise rules or procedures to accomplish such operations 
as classifying, sorting, calculating, summarizing, recording and 
transmitting.
    Department means the Department of Health and Human Service.
    Design or system design means a combination of narrative and 
diagrams describing the structure of a new or more efficient automatic 
data processing system. This includes the use of hardware to the extent 
necessary for the design phase.
    Development means the definition of system requirements, detailing 
of system and program specifications, programming and testing. This 
includes the use of hardware to the extent necessary for the development 
phase.
    Emergency situation is defined as a situation where:
    (a) A State can demonstrate to the Department an immediate need to 
acquire ADP equipment or services in order to continue the operation of 
one or more of the Social Security Act programs covered by Subpart F, 
and

[[Page 462]]

    (b) The State can clearly document that the need could not have been 
anticipated or planned for and the State was prevented from following 
the prior approval requirements of Sec. 95.611.
    Enhanced matching rate means the higher than regular rate of FFP 
authorized by Title IV-D, IV-E, and XIX of the Social Security Act for 
acquisition of services and equipment that conform to specific 
requirements designed to improve administration of the Child Support 
Enforcement, Foster Care and Adoption Assistance, and Medicaid programs.
    Enhancement means modifications which change the functions of 
software and hardware beyond their original purposes, not just to 
correct errors or deficiencies which may have been present in the 
software or hardware, or to improve the operational performance of the 
software or hardware.
    Feasibility study means a preliminary study to determine whether it 
is sufficiently probable that effective and efficient use of ADP 
equipment or systems can be made to warrant a substantial investment of 
staff, time, and money being requested and whether the plan is capable 
of being accomplished successfully.
    FFP means Federal financial participation.
    Functional Requirements Specification is defined as an initial 
definition of the proposed system, which documents the goals, 
objectives, user or programmatic requirements, management requirements, 
the operating environment, and the proposed design methodology, e.g., 
centralized or distributed. This document details what the new system 
and or hardware should do, not how it is to do it. The Specifications 
document shall be based upon a clear and accurate description of the 
functional requirements for the project, and shall not, in competitive 
procurements, lead to requirements which unduly restrict competition. 
The Specification document is the user's definition of the requirements 
the system must meet.
    General Systems Design means a combination of narrative and graphic 
description of the generic architecture of a system as opposed to the 
detailed architecture of the system. A general systems design would 
include a systems diagram and narrative identifying overall logic flow 
and systems functions; a description of equipment needed (including 
processing data transmission and storage requirements); a description of 
other resource requirements which will be necessary to operate the 
system; a description of system performance requirements; and a 
description of the physical and organizational environment in which the 
system will operate including how the system will function within that 
environment (e.g. how workers will interface with the system).
    Project means an automated systems effort undertaken by the State to 
improve the administration and/or operation of one or more of its public 
assistance programs. For example, a State may undertake a comprehensive, 
integrated initiative in support of its AFDC and Medicaid programs' 
intake, eligibility and case management functions. A project may also be 
a less comprehensive activity such as, office automation, enhancements 
to an existing system or an upgrade of computer hardware.
    Implementation means design, development and installation and does 
not include operation.
    Medicaid Management Information System (MMIS) is a commonly accepted 
term for Mechanized Claim Processing and Information Retrieval System as 
provided by Section 1903(a)(3) and 1903(r) of the Social Security Act 
and at 42 CFR 433.110 et seq.
    Total Acquisition Cost means all anticipated expenditures (including 
State staff costs) for planning and implementation for the project. For 
purposes of this regulation total acquisition cost and project cost are 
synonymous.
    Installation means the integrated testing of programs and 
subsystems, system conversion, and turnover to operation status. This 
includes the use of hardware to the extent necessary for the 
installation phase.
    Operation means the automated processing of data used in the 
administration of State plans for titles I, IV-A, IV-B, IV-D, IV-E, X, 
XIV, XVI(AABD), XIX, and XXI of the Social Security Act. Operation 
includes the use of supplies, software, hardware, and personnel directly 
associated with the

[[Page 463]]

functioning of the mechanized system. See 45 CFR 205.38 and 307.10 for 
specific requirements for titles IV-A and IV-D, and 42 CFR 433.112 and 
42 CFR 433.113 for specific requirements for title XIX.
    Regular matching rate means the normal rate of FFP authorized by 
titles IV-A, IV-B, IV-D, IV-E, X, XIV, XVI(AABD), XIX, and XXI of the 
Social Security Act for State and local agency administration of 
programs authorized by those titles.
    Requirements Analysis means determining and documenting the 
information needs and the functional and technical requirements the 
proposed computerized system must meet.
    Service agreement means the document signed by the State or local 
agency and the State or local Central Data Processing facility whenever 
the latter provides data processing services to the former and:
    (a) Identifies those ADP services the Central Data Processing 
facility will provide;
    (b) Includes, preferably as an amendable attachment, a schedule of 
charges for each identified ADP service, and a certification that these 
charges apply equally to all users;
    (c) Includes a description of the method(s) of accounting for the 
services rendered under the agreement and computing services charges;
    (d) Includes assurances that services provided will be timely and 
satisfactory;
    (e) Includes assurances that information in the computer system as 
well as access, use and disposal of ADP data will be safeguarded in 
accordance with provisions of 45 CFR 205.50 and 303.21;
    (f) Requires the provider to obtain prior approval pursuant to 45 
CFR 95.611(a) from the Department for ADP equipment and ADP services 
that are acquired from commercial sources primarily to support the 
titles covered by this subpart and requires the provider to comply with 
45 CFR Part 74, Subpart P for procurements related to the service 
agreement. ADP equipment and services are considered to be primarily 
acquired to support the titles covered by this subpart when these titles 
may reasonably be expected to either: Be billed for more than 50 percent 
of the total charges made to all users of the ADP equipment and services 
during the time period covered by the service agreement, or directly 
charged for the total cost of the purchase or lease of ADP equipment or 
services;
    (g) Includes the beginning and ending dates of the period of time 
covered by the service agreement; and
    (h) Includes a schedule of expected total charges to the title 
covered by this subpart for the period of the service agreement.
    Software means a set of computer programs, procedures, and 
associated documentation used to operate the hardware.
    State agency means the State agency administering or supervising the 
administration of the State plan under titles I, IV, X, XIV, XVI(AABD), 
XIX or XXI of the Social Security Act.
    System specifications means information about the new ADP system--
such as workload descriptions, input data, information to be maintained 
and processed, data processing techniques, and output data--which is 
required to determine the ADP equipment and software necessary to 
implement the system design.
    System study means the examination of existing information flow and 
operational procedures within an organization. The study essentially 
consists of three basic phases: Data gathering investigation of the 
present system and new information requirements; analysis of the data 
gathered in the investigation; and synthesis, or refitting of the parts 
and relationships uncovered through the analysis into an efficient 
system.

[51 FR 45326, Dec. 18, 1986, as amended at 55 FR 4375, Feb. 7, 1990, 59 
FR 30708, June 15, 1994; 65 FR 33633, May 24, 2000]

                       Specific Conditions for FFP



Sec. 95.611  Prior approval conditions.

    (a) General acquisition requirements. (1) A State shall obtain prior 
written approval from the Department as specified in paragraph (b) of 
this section, when the State plans to acquire ADP equipment or services 
with proposed FFP at the regular matching rate that it anticipates will 
have total acquisition costs of $5,000,000 or more in Federal and State 
funds.

[[Page 464]]

    (2) A State shall obtain prior written approval from the Department 
as specified in paragraph (b) of this section, when the State plans to 
acquire ADP equipment or services with proposed FFP at the enhanced 
matching rate authorized by 45 CFR 205.35, 45 CFR part 307 or 42 CFR 
part 433, subpart C, regardless of the acquisition cost.
    (3) A State shall obtain prior written approval from the Department 
of its justification for a sole source acquisition, when it plans to 
acquire noncompetitively from a nongovernmental source ADP equipment or 
services, with proposed FFP at the regular matching rate, that has a 
total State and Federal acquisition cost of more than $1,000,000 but no 
more than $5,000,000. Noncompetitive acquisitions of more than 
$5,000,000 are subject to the provisions of paragraph (b) of this 
section.
    (4) Except as provided for in paragraph (a)(5) of this section, the 
State shall submit requests for Department approval, signed by the 
appropriate State official, to the Director, Administration for Children 
and Families, Office of State Systems. The State shall send to ACF one 
copy of the request for each HHS component, from which the State is 
requesting funding, and one for the State Systems Policy Staff, the 
coordinating staff for these requests. The State must also send one copy 
of the request directly to each Regional program component and one copy 
to the Regional Director.
    (5) States shall submit requests for approval which involve solely 
Title XIX funding (i.e., State Medicaid Systems), to CMS for action.
    (6) The Department will not approve any Planning or Implementation 
APD that does not include all information required as defined in 
Sec. 95.605.
    (b) Specific prior approval requirements. The State agency shall 
obtain written approval of the Department prior to the initiation of 
project activity.
    (1) For regular FFP requests.
    (i) For the Planning APD subject to the dollar thresholds specified 
in paragraph (a) of this section.
    (ii) For the Implementation APD subject to the dollar thresholds 
specified in paragraph (a) of this section.
    (iii) For the Request for Proposal and Contract, unless specifically 
exempted by the Department, prior to release of the RFP or prior to the 
execution of the contract when the contract is anticipated to or will 
exceed $5,000,000 for competitive procurement and $1,000,000 for 
noncompetitive acquisitions from nongovernmental sources. States will be 
required to submit RFPs and contracts under these threshold amounts on 
an exception basis or if the procurement strategy is not adequately 
described and justified in an APD.
    (iv) For contract amendments, unless specifically exempted by the 
Department, prior to execution of the contract amendment involving 
contract cost increases exceeding $1,000,000 or contract time extensions 
of more than 120 days. States will be required to submit contract 
amendments under these threshold amounts on an exception basis or if the 
contract amendment is not adequately described and justified in an APD.
    (2) For enhanced FFP requests.
    (i) For the Planning APD.
    (ii) For the Implementation APD.
    (iii) For the Request for Proposal and contract, unless specifically 
exempted by the Department, prior to release of the RFP or prior to 
execution of the contract when the contract is anticipated to or will 
exceed $100,000.
    (iv) For contract amendments, unless specifically exempted by the 
Department, prior to execution of the contract amendment, involving 
contract cost increases exceeding $100,000 or contract time extensions 
of more than 60 days.
    (3) Failure to submit any of the above to the satisfaction of the 
Department may result in disapproval or suspension of project funding.
    (c) Specific approval requirements. The State agency shall obtain 
written approval from the Department:
    (1) For regular FFP requests.
    (i) For an annual APDU for projects with a total acquisition cost of 
more than $5,000,000, when specifically required by the Department.
    (ii) For an ``As Needed APDU'' when changes cause any of the 
following:
    (A) A projected cost increase of $1,000,000 or more.

[[Page 465]]

    (B) A schedule extension of more than 60 days for major milestones;
    (C) A significant change in procurement approach, and/or scope of 
procurement activities beyond that approved in the APD;
    (D) A change in system concept, or a change to the scope of the 
project;
    (E) A change to the approved cost allocation methodology.

The State shall submit the ``As Needed APDU'' to the Department, no 
later than 60 days after the occurrence of the project changes to be 
reported in the ``As Needed APDU''.
    (2) For enhanced FFP requests.
    (i) For an Annual APDU.
    (ii) For an ``As needed'' APDU when changes cause any of the 
following:
    (A) A projected cost increase of $100,000 or 10 percent of the 
project cost, whichever is less;
    (B) A schedule extension of more than 60 days for major milestones. 
For Aid to Families with Dependent Children (AFDC) Family Assistance 
Management Information System (FAMIS)-type projects, in accordance with 
section 402(e)(2)(C) of the Social Security Act, any schedule change 
which affects the State's implementation date as specified in the 
approved APD requires that the Department recover 40 percent of the 
amount expended. The Secretary may extend the implementation date, if 
the implementation date is not met because of circumstances beyond the 
State's control. Examples of circumstances beyond the State's control 
are:
    (1) Equipment failure due to physical damage or destruction; or,
    (2) Change imposed by Federal judicial decisions, or by Federal 
legislation or regulations;
    (C) A significant change in procurement approach, and/or a scope of 
procurement activities beyond that approved in the APD;
    (D) A change in system concept or scope of the project;
    (E) A change to the approved cost methodology;
    (F) A change of more than 10% of estimated cost benefits.

The State shall submit the ``As Needed APDU'' to the Department, no 
later than 60 days after the occurrence of the project changes to be 
reported in the ``As Needed APDU''.

    (3) Failure to submit any of the above to the satisfaction of the 
Department may result in disapproval or suspension of project funding.
    (d) Prompt action on requests for prior approval. The ACF will 
promptly send to the approving components the items specified in 
paragraph (b) of this section. If the Department has not provided 
written approval, disapproval, or a request for information within 60 
days of the date of the Departmental letter acknowledging receipt of a 
State's request, the request will automatically be deemed to have 
provisionally met the prior approval conditions of paragraph (b) of this 
section.

[51 FR 45326, Dec. 18, 1986, as amended at 55 FR 4377, Feb. 7, 1990; 56 
FR 12356, Mar. 25, 1991; 59 FR 30708, June 15, 1994; 61 FR 39897, July 
31, 1996]



Sec. 95.612  Disallowance of Federal Financial Participation (FFP).

    If the Department finds that any ADP acquisition approved or 
modified under the provisions of Sec. 95.611 fails to comply with the 
criteria, requirements, and other undertakings described in the approved 
advance planning document to the detriment of the proper and efficient 
operation of the affected program, payment of FFP may be disallowed. In 
the case of a suspension of approval of an APD for enhanced funding, see 
45 CFR 205.37(c), 307.40(a) and 307.35(d).

[55 FR 4378, Feb. 7, 1990]



Sec. 95.613  Procurement standards.

    (a) Procurements of ADP equipment and services are subject to the 
procurement standards prescribed by subpart P of 45 CFR part 74 
regardless of any conditions for prior approval. Those standards include 
a requirement for maximum practical open and free competition regardless 
of whether the procurement is formally advertised or negotiated.
    (b) Those standards, as well as the requirement for prior approval, 
apply to ADP services and equipment acquired by a State or local agency, 
and the ADP services and equipment acquired

[[Page 466]]

by a State or local Central Data Processing facility primarily to 
support the Social Security Act programs covered by this subpart. 
Service agreements are exempt from these procurement standards.



Sec. 95.615  Access to systems and records.

    In accordance with 45 CFR part 74, the State agency must allow the 
Department access to the system in all of its aspects, including design 
developments, operation, and cost records of contractors and 
subcontractors at such intervals as are deemed necessary by the 
Department to determine whether the conditions for approval are being 
met and to determine the efficiency, economy and effectiveness of the 
system.

[43 FR 44853, Sept. 29, 1978, as amended at 45 FR 10794, Feb. 19, 1980]



Sec. 95.617  Software and ownership rights.

    (a) General. The State or local government must include a clause in 
all procurement instruments that provides that the State or local 
government will have all ownership rights in software or modifications 
thereof and associated documentation designed, developed or installed 
with Federal financial participation under this subpart.
    (b) Federal license. The Department reserves a royalty-free, 
nonexclusive, and irrevocable license to reproduce, publish, or 
otherwise use and to authorize others to use for Federal Government 
purposes, such software, modifications, and documentation.
    (c) Proprietary software. Proprietary operating/vendor software 
packages (e.g., ADABAS or TOTAL) which are provided at established 
catalog or market prices and sold or leased to the general public shall 
not be subject to the ownership provisions in paragraphs (a) and (b) of 
this section. FFP is not available for proprietary applications software 
developed specifically for the public assistance programs covered under 
this subpart.



Sec. 95.619  Use of ADP systems.

    ADP systems designed, developed, or installed with FFP shall be used 
for a period of time specified in the advance planning document, unless 
the Department determines that a shorter period is justified.



Sec. 95.621  ADP reviews.

    The Department will conduct periodic onsite surveys and reviews of 
State and local agency ADP methods and practices to determine the 
adequacy of such methods and practices and to assure that ADP equipment 
and services are utilized for the purposes consistent with proper and 
efficient administration under the Act. Where practical, the Department 
will develop a mutually acceptable schedule between the Department and 
State or local agencies prior to conducting such surveys or reviews, 
which may include but are not limited to:
    (a) Pre-installation readiness. A pre-installation survey including 
an onsite evaluation of the physical site and the agency's readiness to 
productively use the proposed ADP services, equipment or system when 
installed and operational.
    (b) Post-installation. A review conducted after installation of ADP 
equipment or systems to assure that the objectives for which FFP was 
approved are being accomplished.
    (c) Utilization. A continuing review of ADP facilities to determine 
whether or not the ADP equipment or services are being efficiently 
utilized in support of approved programs or projects.
    (d) Acquisitions not subject to prior approval. Reviews will be 
conducted on an audit basis to assure that system and equipment 
acquisitions costing less the $200,000 were made in accordance with 45 
CFR part 74 and the conditions of this subpart and to determine the 
efficiency, economy and effectiveness of the equipment or system.
    (e) State Agency Maintenance of Service Agreements. (1) The State 
agency will maintain a copy of each service agreement in its files for 
Federal review.
    (2) A State agency that did not obtain prior approval of a service 
agreement, as required by Sec. 95.611(b)(2) as it was in effect from 
December 28, 1978 (unless a State chose to exercise the option to make 
it effective as early as September 29, 1978) through January 19, 1987, 
is eligible for FFP claimed for

[[Page 467]]

services furnished by other State or local agencies under that agreement 
if:
    (i) The State agency has a copy of it in its files for Federal 
review;
    (ii) It meets the definition of a service agreement as it was 
defined in section 95.605 from December 28, 1978 through January 19, 
1987;
    (iii) The claim conforms to the timely claim provisions of 45 CFR 
part 95, subpart A; and
    (iv) The service agreement was not previously disapproved by HHS.
    (f) ADP System Security Requirements and Review Process--(1) ADP 
System Security Requirement. State agencies are responsible for the 
security of all ADP projects under development, and operational systems 
involved in the administration of HHS programs. State agencies shall 
determine the appropriate ADP security requirements based on recognized 
industry standards or standards governing security of Federal ADP 
systems and information processing.
    (2) ADP Security Program. State ADP Security requirements shall 
include the following components:
    (i) Determination and implementation of appropriate security 
requirements as specified in paragraph (f)(1) of this section.
    (ii) Establishment of a security plan and, as appropriate, policies 
and procedures to address the following area of ADP security:
    (A) Physical security of ADP resources;
    (B) Equipment security to protect equipment from theft and 
unauthorized use;
    (C) Software and data security;
    (D) Telecommunications security;
    (E) Personnel security;
    (F) Contingency plans to meet critical processing needs in the event 
of short or long-term interruption of service;
    (G) Emergency preparedness; and,
    (H) Designation of an Agency ADP Security Manager.
    (iii) Periodic risk analyses. State agencies must establish and 
maintain a program for conducting periodic risk analyses to ensure that 
appropriate, cost effective safeguards are incorporated into new and 
existing systems. State agencies must perform risk analyses whenever 
significant system changes occur.
    (3) ADP System Security Reviews. State agencies shall review the ADP 
system security of installations involved in the administration of HHS 
programs on a biennial basis. At a minimum, the reviews shall include an 
evaluation of physical and data security operating procedures, and 
personnel practices.
    (4) Costs incurred in complying with provisions of paragraphs 
(f)(1)-(3) of this section are considered regular administrative costs 
which are funded at the regular match rate.
    (5) The security requirements of this section apply to all ADP 
systems used by State and local governments to administer programs 
covered under 45 CFR part 95, subpart F.
    (6) The State agency shall maintain reports of their biennial ADP 
system security reviews, together with pertinent supporting 
documentation, for HHS on-site review.

[43 FR 44853, Sept. 29, 1978, as amended at 51 FR 45329, Dec. 18, 1986; 
53 FR 27, Jan. 4, 1988; 55 FR 4378, Feb. 7, 1990; 61 FR 39898, July 31, 
1996]



Sec. 95.623  Waiver of prior approval requirements.

    For ADP equipment and services acquired by a State without prior 
written approval, the Department may waive the prior approval 
requirement if prior to December 1, 1985:
    (a) The State submitted to the Department all information required 
under Sec. 95.611, satisfactorily responded to all concerns raised by 
the Department and received a final letter of approval from the 
Department; or,
    (b) The State has a request pending with the Department for 
retroactive approval, which the Department received before December 1, 
1985 and the Department determines that the request would have received 
prior approval had a timely request for such approval been made by the 
State agency.

[51 FR 3339, Jan. 27, 1986, as amended at 55 FR 4378, Feb. 7, 1990]



Sec. 95.624  Consideration for FFP in emergency situations.

    For ADP equipment and services acquired by a State after December 1,

[[Page 468]]

1985 to meet emergency situations, which preclude the State from 
following the requirements of Sec. 95.611, the Department will consider 
providing FFP upon receipt of a written request from the State. In order 
for the Department to consider providing FFP in emergency situations, 
the following conditions must be met:
    (a) The State must submit a written request to the Department, prior 
to the acquisition of any ADP equipment or services. The written request 
must be sent by registered mail and include:
    (1) A brief description of the ADP equipment and/or services to be 
acquired and an estimate of their costs;
    (2) A brief description of the circumstances which result in the 
State's need to proceed prior to obtaining approval from the Department; 
and
    (3) A description of the harm which will be caused if the State does 
not acquire immediately the ADP equipment and services.
    (b) Upon receipt of the information, the Department will within 14 
days take one of the following actions:
    (1) Inform the State in writing that the request has been 
disapproved and the reason for disapproval; or
    (2) Inform the State in writing that the Department recognizes that 
an emergency exists and that within 90 days from the date of the State's 
initial written request, the State must submit a formal request for 
approval which includes the information specified at Sec. 95.611 in 
order for the ADP equipment or services acquisition to be considered for 
the Department's approval.
    (c) If the Department approves the request submitted under paragraph 
(b) of this section, FFP will be available from the date the State 
acquires the ADP equipment and services.

[51 FR 3339, Jan. 27, 1986, as amended at 55 FR 4378, Feb. 7, 1990]



Sec. 95.625  Increased FFP for certain ADP systems.

    (a) General. FFP is available at enhanced matching rates for the 
development of individual or integrated systems and the associated 
computer equipment that support the administration of State plans for 
Titles IV-D, IV-E, and/or XIX provided the systems meet the specifically 
applicable provisions referenced in paragraph (b) of the section.
    (b) Specific reference to other regulations. The applicable 
regulations for the Title IV-D program are contained in 45 CFR Part 307. 
The applicable regulations for the Title IV-E program are contained in 
45 CFR 1355.55. The applicable regulations for the Title XIX program are 
contained in 42 CFR Part 433, Subpart C.

[59 FR 30708, June 15, 1994]

      Federal Financial Participation in Costs of ADP Acquisitions



Sec. 95.631  Cost identification for purpose of FFP claims.

    The conditions of this subpart apply notwithstanding the existence 
of an approved cost allocation plan. State agencies shall assign and 
claim the costs incurred under an approved APD in accordance with the 
following criteria:
    (a) Development costs. (1) Using its normal departmental accounting 
system, the State agency shall specifically identify what items of costs 
constitute development costs, assign these costs to specific project 
cost centers, and distribute these costs to funding sources based on the 
specific identification, assignment and distribution outlined in the 
approved APD; (2) the methods for distributing costs set forth in the 
APD should provide for assigning identifiable costs, to the extent 
practicable, directly to program/functions. The State agency shall amend 
the cost allocation plan required by Subpart E of this part to include 
the approved APD methodology for the identification, assignment and 
distribution of the development costs.
    (b) Operational costs. Costs incurred for the operation of an ADP 
system shall be identified and assigned by the State agency to funding 
sources in accordance with the approved cost allocation plan required by 
Subpart E of this part.
    (c) Service agreement costs. States that operate a central data 
processing facility shall use their approved central service cost 
allocation plan required by

[[Page 469]]

OMB Circular A-87 to identify and assign costs incurred under service 
agreements with the State agency. The State agency will then distribute 
these costs to funding sources in accordance with paragraphs (a) and (b) 
of this section.



Sec. 95.633  Nondiscrimination requirements.

    State agencies that acquire ADP equipment and services are subject 
to the nondiscrimination requirements in Parts 80, 84, and 90.

[45 FR 10794, Feb. 19, 1980]

                               Exemptions



Sec. 95.641  Applicability of rules for charging equipment in Subpart G of this part.

    ADP equipment, as well as other equipment acquired under public 
assistance programs, is subject to Subpart G of this part. Among other 
things, Subpart G provides that a State may charge only depreciation or 
use allowances for equipment with unit acquisition cost of over $25,000. 
However, for ADP equipment HHS will consider requests for waivers of 
that restriction. If the acquisition of the equipment is part of an APD 
that is subject to the prior approval requirements of Subpart F, the 
State may submit the request for a waiver as part of the APD.



     Subpart G--Equipment Acquired Under Public Assistance Programs

    Source: 47 FR 41576, Sept. 21, 1982, unless otherwise noted.



Sec. 95.701  Purpose and scope of subpart.

    (a) This subpart prescribes requirements concerning the computation 
of claims for Federal financial participation in the cost of equipment 
under public assistance programs. This subpart also prescribes 
requirements for the management and disposition of equipment whose costs 
are claimed for Federal financial participation under these programs.
    (b) This subpart applies to equipment purchased by State agencies 
(as defined in Sec. 95.703) and to equipment purchased under service 
agreements with other State agencies and under cost-type contracts.



Sec. 95.703  Definitions.

    As used in this subpart:
    Acquisition cost of an item of purchased equipment means the net 
invoice price of the equipment, including the cost of modifications, 
attachments, accessories, or auxiliary apparatus necessary to make the 
equipment usable for the purpose for which it was acquired. Other 
charges such as the cost of installation, transportation, taxes, duty or 
protective intransit insurance shall be included in or excluded from the 
unit acquisition cost in accordance with the regular accounting 
practices of the organization purchasing the equipment. If the item is 
acquired by trading in another item and paying an additional amount, 
acquisition cost means the amount received for trade-in plus the 
additional outlay.
    Equipment means an article of tangible personal property that has a 
useful life of more than two years and an acquisition cost of $500 or 
more. Any recipient may use its own definition of equipment, if its 
definition would at least include all items of equipment as defined 
here.
    Public Assistance Programs means programs authorized by titles I, 
IV-A, IV-B, IV-C, IV-D, IV-E, X, XIV, XVI (AABD), XIX and XXI of the 
Social Security Act, and programs authorized by the Immigration and 
Nationality Act as amended by the Refugee Act of 1980 (Pub. L. 96-212).
    State means the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, the Northern Mariana 
Islands and Guam.
    State Agency means the State agency administering a public 
assistance program(s). This term includes local government public 
assistance agencies which administer public assistance programs under a 
State supervised system and the State agencies which supervise the local 
agencies.

[47 FR 41576, Sept. 21, 1982, as amended at 65 FR 33633, May 24, 2000]



Sec. 95.705  Equipment costs--Federal financial participation.

    (a) General rule. In computing claims for Federal financial 
participation,

[[Page 470]]

equipment having a unit acquisition cost of $25,000 or less may be 
claimed in the period acquired or depreciated, at the option of the 
State agency. Equipment having a unit acquisition cost of more than 
$25,000 shall be depreciated. For purposes of this section, the term 
depreciate also includes use allowances computed in accordance with the 
cost principles precribed in subpart Q of 45 CFR part 74.
    (b) Exceptions. (1) Equipment purchased under service agreements 
with other State agencies and under cost-type contracts shall be 
depreciated. However, equipment having a unit acquisition cost of 
$25,000 or less may be claimed in the period acquired if (a) the State 
agency approved the specific purchase and the claiming of the cost of 
the item, and (b) the contract or service agreement requires that the 
equipment or its residual value be transferred to the State agency when 
the equipment is no longer needed to carry out the work under the 
contract or service agreement.
    (2) Reimbursement for ADP equipment having an acquisition cost in 
excess of $25,000 and subject to subpart F of this part must be 
depreciated over its useful life unless otherwise specifically provided 
for by the Department. ADP equipment not subject to subpart F is subject 
to the requirements of this subpart.



Sec. 95.707  Equipment management and disposition.

    (a) An item of equipment is subject to the property rules in subpart 
O of 45 CFR part 74 if the total cost of the item was claimed in the 
period acquired and if the item was accepted for Federal financial 
participation as a direct cost under a single program or program 
activity. These rules also apply to ADP equipment where the State agency 
was permitted under Subpart F of this part to claim the total cost of 
the equipment in the period acquired.
    (b) Other items of equipment whose costs are claimed for Federal 
financial participation (i.e., equipment that is capitalized and 
depreciated or is claimed in the period acquired and charged to more 
than one program) are not subject to the specific requirements in 
subpart O of 45 CFR part 74. However, the State agency is responsible 
for adequately managing the equipment, maintaining records on the 
equipment, and taking periodic physical inventories. Physical 
inventories may be made on the basis of statistical sampling. The 
following requirements apply to the disposition of this equipment:
    (1) If the cost of the equipment was claimed in the period acquired 
and the equipment is later sold, the proceeds of the sale shall be 
credited to current expenditures in approximate proportion to the 
distribution of the equipment's cost.
    (2) If the cost of the equipment was claimed in the period acquired 
and the equipment is later transferred to an activity which is not 
involved in the performance of programs currently or previously funded 
by the Federal Government, an amount equal to the fair market value of 
the equipment on the date of the transfer shall be credited to current 
expenditures in approximate proportion to the distribution of the 
equipment's costs.
    (3) If the cost of the equipment was claimed in the period acquired 
and the equipment is later traded in on other equipment claims for 
Federal financial participation in the costs of replacement equipment 
shall be limited to the additional outlay.
    (4) If the equipment was depreciated, any gain or loss on the 
disposition of the equipment shall be treated as a decrease or an 
increase to the depreciation expense of the period in which the 
disposition takes place. This provision does not apply to equipment 
whose costs were claimed for Federal financial participation through use 
allowances.



PART 96--BLOCK GRANTS--Table of Contents




                         Subpart A--Introduction

Sec.
96.1  Scope.
96.2  Definitions.
96.3  Information collection approval numbers.

                      Subpart B--General Procedures

96.10  Prerequisites to obtain block grant funds.

[[Page 471]]

96.11  Basis of award to the States.
96.12  Grant payment.
96.13  Reallotments.
96.14  Time period for obligation and expenditure of grant funds.
96.15  Waivers.
96.16  Applicability of title XVII of the Reconciliation Act (31 U.S.C. 
          7301-7305).
96.17  Annual reporting requirements.

                     Subpart C--Financial Management

96.30  Fiscal and administrative requirements.
96.31  Audits.
96.32  Financial settlement.
96.33  Referral of cases to the Inspector General.

   Subpart D--Direct Funding of Indian Tribes and Tribal Organizations

96.40  Scope.
96.41  General determination.
96.42  General procedures and requirements.
96.43  Procedures during FY 1982.
96.44  Community services.
96.45  Preventive health and health services.
96.46  Substance abuse prevention and treatment services.
96.47  Primary care.
96.48  Low-income home energy assistance.
96.49  Due date for receipt of all information required for completion 
          of trival applications for the low-income home energy 
          assistance block grants.

                         Subpart E--Enforcement

96.50  Complaints.
96.51  Hearings.
96.52  Appeals.
96.53  Length of withholding.

                      Subpart F--Hearing Procedure

96.60  Scope.
96.61  Initiation of hearing.
96.62  Presiding officer.
96.63  Communications to presiding officer.
96.64  Intervention.
96.65  Discovery.
96.66  Hearing procedure.
96.67  Right to counsel.
96.68  Administrative record of a hearing.

                 Subpart G--Social Services Block Grants

96.70  Scope.
96.71  Definitions.
96.72  Transferability of funds.
96.73  Sterilization.
96.74  Annual reporting requirements.

          Subpart H--Low-Income Home Energy Assistance Program

96.80  Scope.
96.81  Carryover and reallotment.
96.82  Required report on households assisted.
96.83  Increase in maximum amount that may be used for weatherization 
          and other energy-related home repair.
96.84  Miscellaneous.
96.85  Income eligibility.
96.86  Exemption from requirement for additional outreach and intake 
          services.
96.87  Leveraging incentive program.
96.88  Administrative costs.
96.89  Exemptions from standards for providing energy crisis 
          intervention assistance.

               Subpart I--Community Services Block Grants

96.90  Scope.
96.91  Audit requirement.
96.92  Termination of funding.

                  Subpart J--Primary Care Block Grants

96.100  Scope.
96.101  Review of a State decision to discontinue funding of a community 
          health center.
96.102  Carryover of unobligated funds.

                    Subpart K--Transition Provisions

96.110  Scope.
96.111  Continuation of pre-existing regulations.
96.112  Community services block grant.

     Subpart L--Substance Abuse Prevention and Treatment Block Grant

96.120  Scope.
96.121  Definitions.
96.122  Application content and procedures.
96.123  Assurances.
96.124  Certain allocations.
96.125  Primary prevention.
96.126  Capacity of treatment for intravenous substance abusers.
96.127  Requirements regarding tuberculosis.
96.128  Requirements regarding human immunodeficiency virus.
96.129  Revolving funds for establishment of homes in which recovering 
          substance abusers may reside.
96.130  State law regarding sale of tobacco products to individuals 
          under age of 18.
96.131  Treatment services for pregnant women.
96.132  Additional agreements.
96.133  Submission to Secretary of Statewide assessment of needs.
96.134  Maintenance of effort regarding State expenditures.
96.135  Restrictions on expenditure of grant.
96.136  Independent peer review.
96.137  Payment schedule.

[[Page 472]]


Appendix A to Part 96--Uniform Definitions of Services
Appendix B to Part 96--SSBG Reporting Form and Instructions

    Authority: 31 U.S.C. 1243 note, 7501-7507; 42 U.S.C. 300w et seq., 
300x et seq., 300y et seq., 701 et seq., 8621 et seq., 9901 et seq., 
1397 et seq.

    Source: 47 FR 29486, July 6, 1982, unless otherwise noted.



                         Subpart A--Introduction



Sec. 96.1  Scope.

    This part applies to the following block grant programs:
    (a) Community services (Pub. L. 97-35, sections 671-683) (42 U.S.C. 
9901-9912).
    (b) Preventive health and health services (Pub. L. 97-35, section 
901) (42 U.S.C. 300w-300w-8).
    (c) Community mental health services (Public Health Service Act, 
sections 1911-1920 and sections 1941-1954) (42 U.S.C. 300x-1-300x-9 and 
300x-51-300x-64).
    (d) Substance abuse prevention and treatment (Public Health Service 
Act, sections 1921-1935 and sections 1941-1954) (42 U.S.C. 300x-21-300x-
35 and 300x-51-300x-64).
    (e) Maternal and child health services (Social Security Act, Title 
V) (42 U.S.C. 701-709).
    (f) Social services, empowerment zones and enterprise communities 
(Pub. L. 97-35, sections 2351-55; Pub. L. 103-66, section 1371) (42 
U.S.C. 1397-1397f).
    (g) Low-income home energy assistance (Pub. L. 97-35, sections 2601-
11) (42 U.S.C. 8621-8629).

[47 FR 29486, July 6, 1982, as amended at 58 FR 60128, Nov. 15, 1993; 64 
FR 55856, Oct. 15, 1999]



Sec. 96.2  Definitions.

    (a) Secretary means the Secretary of Health and Human Services or 
his designee.
    (b) Department means the Department of Health and Human Services.
    (c) Reconciliation Act means the Omnibus Budget Reconciliation Act 
of 1981 (Pub. L. 97-35).
    (d) State includes the fifty States, the District of Columbia, and 
as appropriate with respect to each block grant, the Commonwealth of 
Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, and for purposes of the 
block grants administered by agencies of the Public Health Service, the 
Federated States of Micronesia, the Republic of the Marshall Islands, 
and the Republic of Palau.

[47 FR 29486, July 6, 1982, as amended at 52 FR 37965, Oct. 13, 1987; 64 
FR 55856, Oct. 15, 1999]



Sec. 96.3  Information collection approval numbers.

    Information collection requirements pertaining to the block grant 
programs have been approved by the Office of Management and Budget under 
the provisions of the Paperwork Reduction Act, Pub. L. 96-511 (44 U.S.C. 
Chapter 35) and have been assigned OMB numbers:

0930-0080  Alcohol and Drug Abuse and Mental Health Services Block Grant 
Reporting Requirements
0920-0106  Preventive Health and Health Services Block Grant Reporting 
Requirements
0915-0023  Primary Care Block Grant Reporting Requirements
0915-0024  Maternal and Child Health Services Block Grant Reporting 
Requirements
0980-0125  Social Services Block Grant Reporting Requirements
0980-0126  Community Services Block Grant Reporting Requirements
0960-0261  Low-Income Home Energy Assistance Block Grant Reporting 
Requirements.

[47 FR 29486, July 6, 1982; 47 FR 43062, Sept. 30, 1982]



                      Subpart B--General Procedures



Sec. 96.10  Prerequisites to obtain block grant funds.

    (a) Except where prescribed elsewhere in this rule or in authorizing 
legislation, no particular form is required for a State's application or 
the related submission required by the statute. For the maternal and 
child health block grant, the application shall be in the form specified 
by the Secretary, as provided by section 505(a) of the Social Security 
Act (42 U.S.C. 705(a)).
    (b) The certifications required by the community services, primary 
care, preventive health and health services, alcohol and drug abuse and 
mental

[[Page 473]]

health services, and low-income home energy assistance block grant 
statutes to be made by the State's chief executive officer must be made 
by that individual personally, or by an individual authorized to make 
such certifications on behalf of the chief executive officer.
    (c) Effective beginning in fiscal year 2001, submission dates for 
applications under the social service and low-income home energy 
assistance block grant programs are:
    (1) for the social services block grant, States and territories 
which operate on a Federal fiscal year basis, and make requests for 
funding from the Department, must insure that their applications (pre-
expenditure reports) for funding are submitted by September 1 of the 
preceding fiscal year unless the Department agrees to a later date. 
States and territories which operate their social services block grant 
on a July 1-June 30 basis, must insure that their applications are 
submitted by June 1 of the preceding funding period unless the 
Department agrees to a later date.
    (2) for the low-income home energy assistance program, States and 
territories which make requests for funding from the Department must 
insure that their applications for a fiscal year are submitted by 
September 1 of the preceding fiscal year unless the Department agrees to 
a later date.
    (d) Effective beginning in fiscal year 2001, for the low-income home 
energy assistance program, States and territories which make requests 
for funding from the Department must insure that all information 
necessary to complete their applications is received by December 15 of 
the fiscal year for which they are requesting funds unless the 
Department agrees to a later date.

[47 FR 29486, July 6, 1982, as amended at 64 FR 55856, Oct. 15, 1999]



Sec. 96.11  Basis of award to the States.

    The Secretary will award the block grant funds allotted to the State 
in accordance with the apportionment of funds from the Office of 
Management and Budget. Such awards will reflect amounts reserved for 
Indian Tribes and Tribal Organizations and, in FY 1982, any amounts 
awarded by the Department under transition authorities. The grant award 
constitutes the authority to carry out the program and to draw and 
expend funds.

[47 FR 29486, July 6, 1982; 47 FR 43062, Sept. 30, 1982]



Sec. 96.12  Grant payment.

    The Secretary will make payments at such times and in such amounts 
to each State from its awards in advance or by way of reimbursement in 
accordance with section 203 of the Intergovernmental Cooperation Act (42 
U.S.C. 4213) and Treasury Circular No. 1075 (31 CFR Part 205). When 
matching funds are involved, the Secretary shall take into account the 
ratio that such payment bears to such State's total expenditures under 
its awards.



Sec. 96.13  Reallotments.

    The Secretary will re-allot to eligible States those funds available 
as of September 1 of each fiscal year under the reallotment provisions 
pertaining to the alcohol and drug abuse and mental health services, 
maternal and child health services, and preventive health and health 
services block grants. The reallotment procedure for the low-income home 
energy assistance block grant is specified in section 2607 of the 
Reconciliation Act (42 U.S.C. 8626) and Sec. 96.81 of this part.



Sec. 96.14  Time period for obligation and expenditure of grant funds.

    (a) Obligations. Amounts unobligated by the State at the end of the 
fiscal year in which they were first allotted shall remain available for 
obligation during the succeeding fiscal year for all block grants 
except:
    (1) Primary care. Amounts are available only if the Secretary 
determines that the State acted in accordance with section 1926(a)(1) of 
the Public Health Service Act (42 U.S.C. 300y-5(a)(1)) and there is good 
cause for funds remaining unobligated.
    (2) Low-income home energy assistance. Regular LIHEAP block grant 
funds authorized under section 2602(b) of Public Law 97-35 (42 U.S.C. 
8621(b)) are available only in accordance with section 2607(b)(2)(B) of 
Public Law 97-35 (42 U.S.C. 8626(b)(2)(B)), as follows. From allotments 
for fiscal year 1982 through

[[Page 474]]

fiscal year 1984, a maximum of 25 percent may be held available for the 
next fiscal year. From allotments for fiscal year 1985 through fiscal 
year 1990, a maximum of 15 percent of the amount payable to a grantee 
and not transferred to another block grant according to section 2604(f) 
of Public Law 97-35 (42 U.S.C. 8623(f)) may be held available for the 
next fiscal year. From allotments for fiscal year 1991 through fiscal 
year 1993, a maximum of 10 percent of the amount payable to a grantee 
and not transferred to another block grant according to section 2604(f) 
of Public Law 97-35 (42 U.S.C. 8623(f)) may be held available for the 
next fiscal year. Beginning with allotments for fiscal year 1994, a 
maximum of 10 percent of the amount payable to a grantee may be held 
available for the next fiscal year. No funds may be obligated after the 
end of the fiscal year following the fiscal year for which they were 
allotted.
    (b) Expenditure. No limitations exist on the time for expenditure of 
block grant funds, except those imposed by statute with respect to the 
community services, maternal and child health services, and social 
services block grants.

[47 FR 29486, July 6, 1982; 47 FR 43062, Sept. 30, 1982, as amended at 
52 FR 37965, Oct. 13, 1987; 60 FR 21357, May 1, 1995]



Sec. 96.15  Waivers.

    Applications for waivers that are permitted by statute for the block 
grants should be submitted to the Director, Centers for Disease Control 
and Prevention in the case of the preventive health and health services 
block grant; to the Administrator, Substance Abuse and Mental Health 
Services Administration in the case of the community mental health 
services block grant and the substance abuse prevention and treatment 
block grant; to the Director, Maternal and Child Health Bureau in the 
case of the maternal and child health services block grant; and to the 
Director, Office of Community Services in the case of the community 
services block grant, the low-income home energy assistance program and 
the social services block grant. Beginning with fiscal year 1986, the 
Secretary's authority to waive the provisions of section 2605(b) of 
Public Law 97-35 (42 U.S.C. 8624(b)) under the low-income home energy 
assistance program is repealed.

[64 FR 55856, Oct. 15, 1999]



Sec. 96.16  Applicability of title XVII of the Reconciliation Act (31 U.S.C. 7301-7305).

    This section interprets the applicability of the general provisions 
governing block grants set forth in title XVII of the Reconciliation Act 
(31 U.S.C. 7301-7305):
    (a) Except as otherwise provided in this section or unless 
inconsistent with provisions in the individual block grant statutes, 31 
U.S.C. 7301-7305 apply to the community services, preventive health and 
health services, and alcohol and drug abuse and mental health services 
block grants.
    (b) The requirement in 31 U.S.C. 7303(b) relating to public hearings 
does not apply to any of the block grants governed by this part. 
Instead, the provisions in the individual block grant statutes apply.
    (c) The maternal and child health services block grant is not 
subject to any requirements of 31 U.S.C. 7301-7305.
    (d) The social services and low-income home energy assistance 
programs are subject only to 31 U.S.C. 7304.
    (e) The audit provisions of 31 U.S.C. 7305 have, in most cases, been 
overridden by the Single Audit Act. Pub. L. 98-502, 31 U.S.C. 75, et 
seq., and do not apply to the block grants. Pursuant to 
Sec. 96.31(b)(2), certain entities may, however, elect to conduct audits 
under the block grant audit provisions. For entities making this 
election, the provisions of 31 U.S.C. 7305 apply to the community 
services block grant.
    (f) The applicability of 31 U.S.C. 7303(a) relating to the contents 
of a report on proposed uses of funds is specified in Sec. 96.10.

[52 FR 37966, Oct. 13, 1987]



Sec. 96.17  Annual reporting requirements.

    (a) Except for the low-income home energy assistance program 
activity reports, a state must make public and submit to the Department 
each annual report required by statute:
    (1) Within six months of the end of the period covered by the 
report; or

[[Page 475]]

    (2) At the time the state submits its application for funding for 
the federal or state fiscal year, as appropriate, which begins 
subsequent to the expiration of that six-month period.
    (b) These reports are required annually for preventive health and 
health services (42 U.S.C. 300w-5(a)(1)), community mental health 
services (42 U.S.C. 300x et. seq.), the prevention and treatment of 
substance abuse block grant (42 U.S.C. 300x-21 et. seq.), maternal and 
child health services (42 U.S.C. 706(a)(1)), and the social services 
block grant (42 U.S.C. 1397e(a)). See Sec. 96.82 for requirements 
governing the submission of activity reports for the low-income home 
energy assistance program.

[58 FR 60128, Nov. 15, 1993]



                     Subpart C--Financial Management



Sec. 96.30  Fiscal and administrative requirements.

    (a) Fiscal control and accounting procedures. Except where otherwise 
required by Federal law or regulation, a State shall obligate and expend 
block grant funds in accordance with the laws and procedures applicable 
to the obligation and expenditure of its own funds. Fiscal control and 
accounting procedures must be sufficient to (a) permit preparation of 
reports required by the statute authorizing the block grant and (b) 
permit the tracing of funds to a level of expenditure adequate to 
establish that such funds have not been used in violation of the 
restrictions and prohibitions of the statute authorizing the block 
grant.
    (b) Financial summary of obligation and expenditure of block grant 
funds--(1) Block grants containing time limits on both the obligation 
and the expenditure of funds. After the close of each statutory period 
for the obligation of block grant funds and after the close of each 
statutory period for the expenditure of block grant funds, each grantee 
shall report to the Department:
    (i) Total funds obligated and total funds expended by the grantee 
during the applicable statutory periods; and
    (ii) The date of the last obligation and the date of the last 
expenditure.
    (2) Block grants containing time limits only on obligation of funds. 
After the close of each statutory period for the obligation of block 
grant funds, each grantee shall report to the Department:
    (i) Total funds obligated by the grantee during the applicable 
statutory period; and
    (ii) The date of the last obligation.
    (3) Block grants containing time limits only on expenditure of 
funds. After the close of each statutory period for the expenditure of 
block grant funds, each grantee shall report to the Department:
    (i) Total funds expended by the grantee during the statutory period; 
and
    (ii) The date of the last expenditure.
    (4) Submission of information. Grantees shall submit the information 
required by paragraph (b)(1), (2), and (3) of this section on OMB 
Standard Form 269A, Financial Status Report (short form). Grantees are 
to provide the requested information within 90 days of the close of the 
applicable statutory grant periods.

[47 FR 29486, July 6, 1982, as amended at 52 FR 37966, Oct. 13, 1987; 53 
FR 11656, Apr. 8, 1988; 64 FR 55857, Oct. 15, 1999]



Sec. 96.31  Audits.

    (a) Basic rule. Grantees and subgrantees are responsible for 
obtaining audits in accordance with the Single Audit Act Amendments of 
1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133, ``Audits of 
State, Local Governments, and Non-Profit Organizations.'' The audits 
shall be made by an independent auditor in accordance with generally 
accepted Government auditing standards covering financial audits.
    (b) Subgrantees. State or local governments, as those terms are 
defined for purposes of the Single Audit Act Amendments of 1996, that 
provide Federal awards to a subgrantee, expending $300,000 or more (or 
other amount as specified by OMB) in Federal awards in a fiscal year, 
shall:
    (1) Determine whether subgrantees have met the audit requirements of 
the Act. Commercial contractors (private for-profit and private and 
governmental organizations) providing goods

[[Page 476]]

and services to State and local governments are not required to have a 
single audit performed. State and local governments should use their own 
procedures to ensure that the contractor has complied with laws and 
regulations affecting the expenditure of Federal funds;
    (2) Determine whether the subgrantee spent Federal assistance funds 
provided in accordance with applicable laws and regulations. This may be 
accomplished by reviewing an audit of the subgrantee made in accordance 
with the Act or through other means (e.g., program reviews) if the 
subgrantee has not had such an audit;
    (3) Ensure that appropriate corrective action is taken within six 
months after receipt of the audit report in instances of noncompliance 
with Federal laws and regulations;
    (4) Consider whether subgrantee audits necessitate adjustment of the 
grantee's own records; and
    (5) Require each subgrantee to permit independent auditors to have 
access to the records and financial statements.

[62 FR 45963, Aug. 29, 1997]



Sec. 96.32  Financial settlement.

    The State must repay to the Department amounts found after audit 
resolution to have been expended improperly. In the event that repayment 
is not made voluntarily, the Department will undertake recovery.

[52 FR 37966, Oct. 13, 1987]



Sec. 96.33  Referral of cases to the Inspector General.

    State or tribal officials who have information indicating the 
commission or potential commission of fraud or other offenses against 
the United States involving block grant funds should promptly provide 
the information to the appropriate Regional Office of Investigations of 
the Department's Office of the Inspector General.

[52 FR 37966, Oct. 13, 1987]



   Subpart D--Direct Funding of Indian Tribes and Tribal Organizations



Sec. 96.40  Scope.

    This subpart applies to the community services, alcohol and drug 
abuse and mental health services, preventive health and health services, 
primary care, and low-income home energy assistance block grants.



Sec. 96.41  General determination.

    (a) The Department has determined that, with the exception of the 
circumstances addressed in paragraph (c) of this section, Indian tribes 
and tribal organizations would be better served by means of grants 
provided directly by the Department to such tribes and organizations out 
of their State's allotment of block grant funds than if the State were 
awarded its entire allotment. Accordingly, with the exception of 
situations described in paragraph (c) of this section, the Department 
will, upon request of an eligible Indian tribe or tribal organization 
and where provided for by statute, reserve a portion of the allotment of 
the State(s) in which the tribe is located, and, upon receipt of a 
complete application and related submission meeting statutory and 
regulatory requirements, grant it directly to the tribe or organization.
    (b) An Indian tribe or tribal organization may request direct 
funding under a block grant program included in this subpart regardless 
of whether the State in which it is located is receiving funds under the 
block grant program.
    (c) The Department has determined that Indian tribal members 
eligible for the funds or services provided through the block grants 
would be better served by the State(s) in which the tribe is located 
rather than by the tribe, where:
    (1) The tribe has not used its block grant allotment substantially 
in accordance with the provisions of the relevant statute(s); and
    (2) Following the procedures of 45 CFR 96.51, the Department has 
withheld tribal funds because of those deficiencies; and

[[Page 477]]

    (3) The tribe has not provided sufficient evidence that it has 
removed or corrected the reason(s) for withholding. In these cases, 
block grant funds reserved or set aside for a direct grant to the Indian 
tribe will be awarded to the State(s), and the State(s) will provide 
block grant services to the service population of the tribe. Before 
awarding these funds to the State(s), the Department will allow as much 
time as it determines to be reasonable for the tribe to correct the 
conditions that led to withholding, consistent with provision of timely 
and meaningful services to the tribe's service population during the 
fiscal year. If a State(s) is awarded funds under this paragraph, the 
State(s) will receive all remaining funds set aside for the tribe for 
the Federal fiscal year for which the award is made. Where the 
Department has withheld funds from a tribe and the tribe has not taken 
satisfactory corrective action by the first day of the following fiscal 
year, all of the funds to serve the tribe's service population for the 
following fiscal year will be awarded to the State(s). The State(s) is 
responsible for providing services to the service population of the 
tribe in these cases. This paragraph also applies when funds are 
withheld from a tribal organization.

[47 FR 29486, July 6, 1982, as amended at 64 FR 55857, Oct. 15, 1999]



Sec. 96.42  General procedures and requirements.

    (a) An Indian tribe or tribal organization applying for or receiving 
direct funding from the Secretary under a block grant program shall be 
subject to all statutory and regulatory requirements applicable to a 
State applying for or receiving block grant funds to the extent that 
such requirements are relevant to an Indian tribe or tribal organization 
except where otherwise provided by statute or in this part.
    (b) A tribal organization representing more than one Indian tribe 
will be eligible to receive block grant funds on behalf of a particular 
tribe only if the tribe has by resolution authorized the organization's 
action.
    (c) If an Indian tribe or tribal organization whose service 
population resides in more than one State applies for block grant funds 
that, by statute, are apportioned on the basis of population, the 
allotment awarded to the tribe or organization shall be taken from the 
allotments of the various States in which the service population resides 
in proportion to the number of eligible members or households to be 
served in each State. If block grant funds are required to be 
apportioned on the basis of grants during a base year, the allotment to 
the Indian tribe or tribal organization shall be taken from the 
allotment of the State whose base year grants included the relevant 
grants to the tribe or organization.
    (d) The audit required under the block grant programs shall be 
conducted by an entity that is independent of the Indian tribe or tribal 
organization receiving grant funds from the Secretary.
    (e) Beginning with fiscal year 1983, any request by an Indian tribe 
or tribal organization for direct funding by the Secretary must be 
submitted to the Secretary, together with the required application and 
related materials, by September 1 preceding the Federal fiscal year for 
which funds are sought. A separate application is required for each 
block grant. After the September 1 deadline, tribal applications will be 
accepted only with the concurrence of the State (or States) in which the 
tribe or tribal organization is located.
    (f) A State receiving block grant funds is not required to use those 
funds to provide tangible benefits (e.g., cash or goods) to Indians who 
are within the service population of an Indian tribe or tribal 
organization that received direct funding from the Department under the 
same block grant program for the same fiscal year. A State, however, may 
not deny Indians access to intangible services funded by block grant 
programs (e.g., treatment at a community health center) even if the 
Indians are members of a tribe receiving direct funding for a similar 
service. A tribe receiving direct block grant funding is not required to 
use those funds to provide tangible benefits to non-Indians living 
within the tribe's service area unless the tribe and the State(s) in

[[Page 478]]

which the tribe is located agree in writing that the tribe will do so.

[47 FR 29486, July 6, 1982, as amended at 52 FR 37966, Oct. 13, 1987; 64 
FR 55857, Oct. 15, 1999]



Sec. 96.43  Procedures during FY 1982.

    (a) This section applies to the fiscal year beginning October 1, 
1981.
    (b) A request for direct funding must be received by the Secretary 
before the Secretary has awarded all of the allotment to the State 
involved. The application and related submission may be submitted later 
but must be submitted within 75 days after the beginning of the quarter 
in which the State qualified for block grant funds, (or by August 20, 
1982 in the case of an Indian tribe located in a State that has not 
qualified for block grant funds in FY 1982) except that the application 
and related submission for the low-income home energy assistance program 
must be submitted by December 15, 1981. A separate request and 
application are required for each block grant.

[47 FR 29486, July 6, 1982; 47 FR 43062, Sept. 30, 1982]



Sec. 96.44  Community services.

    (a) This section applies to direct funding of Indian tribes and 
tribal organizations under the community services block grant.
    (b) The terms Indian tribe and tribal organization as used in the 
Reconciliation Act have the same meaning given such terms in section 
4(b) and 4(c) of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450b). The terms also include organized groups of Indians 
that the State in which they reside has determined are Indian tribes. An 
organized group of Indians is eligible for direct funding based on State 
recognition if the State has expressly determined that the group is an 
Indian tribe. In addition, the statement of the State's chief executive 
officer verifying that a tribe is recognized by that State will also be 
sufficient to verify State recognition for the purpose of direct 
funding.
    (c) For purposes of section 674(c)(2) of the Act (42 U.S.C. 
9903(c)(2)) an eligible Indian means a member of an Indian tribe whose 
income is at or below the poverty line defined in section 673(2) of the 
Act (42 U.S.C. 9902(2)). An eligible individual under section 674(c)(2) 
of the Reconciliation Act (42 U.S.C. 9903(c)(2)) means a resident of the 
State whose income is at or below the poverty line.
    (d) An Indian tribe or tribal organization will meet the 
requirements of section 675(c)(1) (42 U.S.C. 9904(c)(1)) if it certifies 
that it agrees to use the funds to provide at least one of the services 
or activities listed in that section.
    (e) An Indian tribe or tribal organization is not required to comply 
with section 675(b) (42 U.S.C. 9904(b)) or to provide the certifications 
required by the following other provisions of the Reconciliation Act.

    (1) Section 675(c)(2)(A) (42 U.S.C. 9904(c)(2)(A));
    (2) Section 675(c)(3) (42 U.S.C. 9904(c)(3)); and
    (3) Section 675(c)(4) (42 U.S.C. 9904(c)(4)).
    (4) Section 675(c)(11) (42 U.S.C. 9904(c)(11)).

    (f) In each fiscal year, Indian tribes and tribal organizations may 
expend for administrative expenses--comparable to the administrative 
expenses incurred by State at the State level--an amount not to exceed 
the greater of the amounts determined by:
    (1) Multiplying their allotment under section 674 of the 
Reconciliation Act (42 U.S.C. 9903) by five percent; or
    (2) Multiplying the allotment by the percentage represented by the 
ratio of $55,000 to the smallest State allotment (excluding territorial 
allotments) for that fiscal year.

[47 FR 29486, July 6, 1982, as amended at 52 FR 37967, Oct. 13, 1987]



Sec. 96.45  Preventive health and health services.

    (a) This section applies to direct funding of Indian tribes and 
tribal organizations under the preventive health and health services 
block grant.
    (b) For the purposes of determining eligible applicants under 
section 1902(d) of the Public Health Service Act, a grantee that 
received a grant directly from the Secretary in FY 1981 under any of the 
programs replaced by the preventive health and health services

[[Page 479]]

block grant that was specifically targeted toward serving a particular 
Indian tribe or tribal organization will be considered eligible if the 
grantee is an Indian tribe or tribal organization at the time it 
requests funds under this part. Grantees that received funds under 
formula or Statewide grants, and subgrantees that received funds from 
any program replaced by the preventive health and health services block 
grant, are not eligible.



Sec. 96.46  Substance abuse prevention and treatment services.

    (a) This section applies to direct funding of Indian tribes and 
tribal organizations under the substance abuse prevention and treatment 
Block Grant.
    (b) For the purpose of determining eligible applicants under section 
1933(d) of the Public Health Service Act (42 U.S.C. 300x-33(d)) an 
Indian tribe or tribal organization (as defined in subsections (b) and 
(c) of section 4 of the Indian Self-Determination and Education 
Assistance Act) that received a direct grant under subpart I of part B 
of title XIX of the PHS Act (as such existed prior to October 1, 1992) 
in fiscal year 1991 will be considered eligible for a grant under 
subpart 2 of part B of title XIX of the PHS Act.
    (c) For purposes of the substance abuse prevention and treatment 
Block Grant, an Indian tribe or tribal organization is not required to 
comply with the following statutory provisions of the Public Health 
Service Act: 1923 (42 U.S.C. 300x-23), 1925 (42 U.S.C. 300x-25), 1926 
(42 U.S.C. 300x-26), 1928 (42 U.S.C. 300x-28), 1929 (42 U.S.C. 300x-29), 
and 1943(a)(1) (42 U.S.C. 300x-53(a)(1)). An Indian tribe or tribal 
organization is to comply with all other statutes and regulations 
applicable to the Substance Abuse Prevention and Treatment Block Grant. 
In each case in which an Indian Tribe receives a direct grant, the State 
is also responsible for providing services to Native Americans under the 
State's Block Grant program.

[58 FR 17070, Mar. 31, 1993]



Sec. 96.47  Primary care.

    Applications for direct funding of Indian tribes and tribal 
organizations under the primary care block grant must comply with 42 CFR 
Part 51c (Grants for Community Health Services).



Sec. 96.48  Low-income home energy assistance.

    (a) This section applies to direct funding of Indian tribes under 
the low-income home energy assistance program.
    (b) The terms Indian tribe and tribal organization as used in the 
Reconciliation Act have the same meaning given such terms in section 
4(b) and 4(c) of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450b) except that the terms shall also include organized 
groups of Indians that the State in which they reside has expressly 
determined are Indian tribes or tribal organizations in accordance with 
State procedures for making such determinations.
    (c) For purposes of section 2604(d) of the Act (42 U.S.C. 8623(d)), 
an organized group of Indians is eligible for direct funding based on 
State recognition if the State has expressly determined that the group 
is an Indian tribe. A statement by the State's chief executive officer 
verifying that a tribe is recognized by that State will also be 
sufficient to verify State recognition for the purpose of direct 
funding.
    (d) The plan required by section 2604(d)(4) of the Reconciliation 
Act (42 U.S.C. 8623(d)(4)) shall contain the certification and 
information required for States under section 2605 (b) and (c) of that 
Act (42 U.S.C. 8624 (b) and (c)). An Indian tribe or tribal organization 
is not required to comply with section 2605(a)(2) of the Act (42 U.S.C. 
8624(a)(2)).
    (e) Where a tribe requests that the Secretary fund another entity to 
provide energy assistance for tribal members, as provided by section 
2604(d)(3) of the Act (42 U.S.C. 8623(d)(3)), the Secretary shall 
consider the following factors in selecting the grantee: the ability of 
the other entity to provide low-income home energy assistance, existing 
tribal-State agreements as to the size and location of the service 
population, and the history of State services to the Indian people to be 
served by the other entity.

[[Page 480]]



Sec. 96.49  Due date for receipt of all information required for completion of tribal applications for the low-income home energy assistance block grants.

    Effective beginning in FY 2001, for the low-income home energy 
assistance program, Indian tribes and tribal organizations that make 
requests for direct funding from the Department must insure that all 
information necessary to complete their application is received by 
December 15 of the fiscal year for which funds are requested, unless the 
State(s) in which the tribe is located agrees to a later date. After 
December 15, funds will revert to the State(s) in which the tribe is 
located, unless the State(s) agrees to a later date. If funds revert to 
a State, the State is responsible for providing low-income home energy 
assistance program services to the service population of the tribe.

[64 FR 55857, Oct. 15, 1999]



                         Subpart E--Enforcement



Sec. 96.50  Complaints.

    (a) This section applies to any complaint (other than a complaint 
alleging violation of the nondiscrimination provisions) that a State has 
failed to use its allotment under a block grant in accordance with the 
terms of the act establishing the block grant or the certifications and 
assurances made by the State pursuant to that act. The Secretary is not 
required to consider a complaint unless it is submitted as required by 
this section.
    (b) Complaints with respect to the health block grants must be 
submitted in writing to either the Assistant Secretary for Health or: 
For the preventive health and health services block grant, the Director, 
Centers for Disease Control; for the alcohol and drug abuse and mental 
health services block grant, the Administrator, Alcohol, Drug Abuse, and 
Mental Health Administration; for the maternal and child health services 
block grant, the Administrator, Health Resources and Services 
Administration. Complaints with respect to the social services block 
grant must be submitted in writing to the Assistant Secretary for Human 
Development Services. Complaints with respect to the low-income home 
energy assistance program and the community services block grant must be 
submitted in writing to the Director, Office of Community Services. (The 
address for the Director, Center for Disease Control is 1600 Clifton 
Road, NE., Atlanta, Georgia 30333. For each of the other officials cited 
above the address is 200 Independence Avenue SW., Washington, DC 20201.) 
The complaint must identify the provision of the act, assurance, or 
certification that was allegedly violated; must specify the basis for 
the violations it charges; and must include all relevant information 
known to the person submitting it.
    (c) The Department shall promptly furnish a copy of any complaint to 
the affected State. Any comments received from the State within 60 days 
(or such longer period as may be agreed upon between the State and the 
Department) shall be considered by the Department in responding to the 
complaint. The Department will conduct an investigation of complaints 
where appropriate.
    (d) The Department will provide a written response to complaints 
within 180 days after receipt. If a final resolution cannot be provided 
at that time, the response will state the reasons why additional time is 
necessary. Under the low-income home energy assistance program, within 
60 days after receipt of complaints, the Department will provide a 
written response to the complainant, stating the actions that it has 
taken to date and, if the complaint has not yet been fully resolved, the 
timetable for final resolution of the complaint.
    (e) The Department recognizes that under the block grant programs 
the States are primarily responsible for interpreting the governing 
statutory provisions. As a result, various States may reach different 
interpretations of the same statutory provisions. This circumstance is 
consistent with the intent of and statutory authority for the block 
grant programs. In resolving any issue raised by a complaint or a 
Federal audit the Department will defer to a State's interpretation of 
its assurances and of the provisions of the block grant statutes unless 
the interpretation is clearly erroneous. In any event,

[[Page 481]]

the Department will provide copies of complaints to the independent 
entity responsible for auditing the State's activities under the block 
grant program involved. Any determination by the Department that a 
State's interpretation is not clearly erroneous shall not preclude or 
otherwise prejudice the State auditors' consideration of the question.

[47 FR 29486, July 6, 1982; 47 FR 43062, Sept. 30, 1982, as amended at 
52 FR 37967, Oct. 13, 1987; 57 FR 1977, Jan. 16, 1992; 60 FR 21358, May 
1, 1995]



Sec. 96.51  Hearings.

    (a) The Department will order a State to repay amounts found not to 
have been expended in accordance with law of the certifications provided 
by the State only after the Department has provided the State notice of 
the order and an opportunity for a hearing. Opportunity for a hearing 
will not be provided, however, when the State, in resolving audit 
findings or at another time, has agreed that the amounts were not 
expended in accordance with law or the certifications. The hearing will 
be governed by Subpart F of this part and will be held in the State if 
required by statute.
    (b) If a State refuses to repay amounts after a final decision that 
is not subject to further review in the Department, the amounts may be 
offset against payments to the State. If a statute requires an 
opportunity for a hearing before such an offset may be made, the hearing 
will be governed by Subpart F of this part and will be held in the State 
if required by statute.
    (c) The Department will withhold funds from a State only if the 
Department has provided the State an opportunity for a hearing. The 
hearing will be governed by Subpart F of this part and will be held in 
the State if required by statute.

[47 FR 29486, July 6, 1982, as amended at 52 FR 37967, Oct. 13, 1987]



Sec. 96.52  Appeals.

    (a) Decisions resulting from repayment hearings held pursuant to 
Sec. 96.51(a) of this part may be appealed by either the State or the 
Department to the Grant Appeals Board.
    (b) Decisions resulting from offset hearings held pursuant to 
Sec. 96.51(b) of this part may not be appealed.
    (c) Decisions resulting from withholding hearings held pursuant to 
Sec. 96.51(c) of this part may be appealed to the Secretary by the State 
or the Department as follows:
    (1) An application for appeal must be received by the Secretary no 
later than 60 days after the appealing party receives a copy of the 
presiding officer's decision. The application shall clearly identify the 
questions for which review is sought and shall explain fully the party's 
position with respect to those questions. A copy shall be furnished to 
the other party.
    (2) The Secretary may permit the filing of opposing briefs, hold 
informal conferences, or take whatever other steps the Secretary finds 
appropriate to decide the appeal.
    (3) The Secretary may refer an application for appeal to the Grant 
Appeals Board. Notwithstanding Part 16 of this title, in the event of 
such a referral, the Board shall issue a recommended decision that will 
not become final until affirmed, reversed, or modified by the Secretary.
    (d) Any appeal to the Grant Appeals Board under this section shall 
be governed by Part 16 of this title except that the Board shall not 
hold a hearing. The Board shall accept any findings with respect to 
credibility of witnesses made by the presiding officer. The Board may 
otherwise review and supplement the record as provided for in Part 16 of 
this title and decide the issues raised.



Sec. 96.53  Length of withholding.

    Under the low-income home energy assistance program and community 
services block grant, the Department may withhold funds until the 
Department finds that the reason for the withholding has been removed.

[64 FR 55857, Oct. 15, 1999]



                      Subpart F--Hearing Procedure



Sec. 96.60  Scope.

    The procedures in this subpart apply when opportunity for a hearing 
is provided for by Sec. 96.51 of this part.

[[Page 482]]



Sec. 96.61  Initiation of hearing.

    (a) A hearing is initiated by a notice of opportunity for hearing 
from the Department. The notice will:
    (1) Be sent by mail, telegram, telex, personal delivery, or any 
other mode of written communication;
    (2) Specify the facts and the action that are the subject of the 
opportunity for a hearing;
    (3) State that the notice of opportunity for hearing and the hearing 
are governed by these rules; and
    (4) State the time within which a hearing may be requested, and 
state the name, address, and telephone number of the Department employee 
to whom any request for hearing is to be addressed.
    (b) A State offered an opportunity for a hearing has the amount of 
time specified in the notice, which may not be less than 10 days after 
receipt of the notice, within which to request a hearing. The request 
may be filed by mail, telegram, telex, personal delivery, or any other 
mode of written communication, addressed to the designated Department 
employee. If no response is filed within that time, the offer is deemed 
to have been refused and no hearing will be held.
    (c) If a hearing is requested, the Department will designate a 
presiding officer, and (subject to Sec. 96.51 of this part) the hearing 
will take place at a time and location agreed upon by the State 
requesting the hearing, the Department, and the presiding officer or, if 
agreement cannot be reached, at a reasonable time and location 
designated by the presiding officer.



Sec. 96.62  Presiding officer.

    (a) A Department employee to whom the Secretary delegates such 
authority, or any other agency employee designated by an employee to 
whom such authority is delegated, may serve as the presiding officer and 
conduct a hearing under this subpart.
    (b) The presiding officer is to be free from bias or prejudice and 
may not have participated in the investigation or action that is the 
subject of the hearing or be subordinate to a person, other than the 
Secretary, who has participated in such investigation or action.
    (c) The Secretary is not precluded by this section from prior 
participation in the investigation or action that is the subject of the 
hearing.
    (d) A different presiding officer may be substituted for the one 
originally designated under Sec. 96.61 of this part without notice to 
the parties.



Sec. 96.63  Communications to presiding officer.

    (a) Those persons who are directly involved in the investigation or 
presentation of the position of the Department or any party at a hearing 
that is subject to this subpart should avoid any off-the-record 
communication on the matter to the presiding officer or his advisers if 
the communication is inconsistent with the requirement of Sec. 96.68 of 
this part that the administrative record be the exclusive record for 
decision. If any communication of this type occurs, it is to be reduced 
to writing and made part of the record, and the other party provided an 
opportunity to respond.
    (b) A copy of any communications between a participant in the 
hearing and the presiding officer, e.g., a response by the presiding 
officer to a request for a change in the time of the hearing is to be 
sent to all parties by the person initiating the communication.



Sec. 96.64  Intervention.

    Participation as parties in the hearing by persons other than the 
State and the Department is not permitted.



Sec. 96.65  Discovery.

    The use of interrogatories, depositions, and other forms of 
discovery shall not be allowed.



Sec. 96.66  Hearing procedure.

    (a) A hearing is public, except when the Secretary or the presiding 
officer determines that all or part of a hearing should be closed to 
prevent a clearly unwarranted invasion of personal privacy (such as 
disclosure of information in medical records that would identify 
patients), to prevent the disclosure of a trade secret or confidential 
commercial or financial information, or to protect investigatory records 
compiled for law enforcement purposes that are not available for public 
disclosure.

[[Page 483]]

    (b) A hearing will be conducted by the presiding officer. Employees 
of the Department will first give a full and complete statement of the 
action which is the subject of the hearing, together with the 
information and reasons supporting it, and may present any oral or 
written information relevant to the hearing. The State may then present 
any oral or written information relevant to the hearing. Both parties 
may confront and conduct reasonable cross-examination of any person 
(except for the presiding officer and counsel for the parties) who makes 
any statement on the matter at the hearing.
    (c) The hearing is informal in nature, and the rules of evidence do 
not apply. No motions or objections relating to the admissibility of 
information and views will be made or considered, but either party may 
comment upon or rebut all such data, information, and views.
    (d) The presiding officer may order the hearing to be transcribed. 
The State may have the hearing transcribed, at the State's expense, in 
which case a copy of the transcript is to be furnished to the Department 
at the Department's expense.
    (e) The presiding officer may, if appropriate, allow for the 
submission of post-hearing briefs. The presiding officer shall prepare a 
written decision, which shall be based on a preponderance of the 
evidence, shall include a statement of reasons for the decision, and 
shall be final unless appealed pursuant to Sec. 96.52 of this part. If 
post-hearing briefs were not permitted, the parties to the hearing will 
be given the opportunity to review and comment on the presiding 
officer's decision prior to its being issued.
    (f) The presiding officer shall include as part of the decision a 
finding on the credibility of witnesses (other than expert witnesses) 
whenever credibility is a material issue.
    (g) The presiding officer shall furnish a copy of the decision to 
the parties.
    (h) The presiding officer has the power to take such actions and 
make such rulings as are necessary or appropriate to maintain order and 
to conduct a fair, expeditious, and impartial hearing, and to enforce 
the requirements of this subpart concerning the conduct of hearings. The 
presiding officer may direct that the hearing be conducted in any 
suitable manner permitted by law and these regulations.
    (i) The Secretary or the presiding officer has the power to suspend, 
modify, or waive any provision of this subpart.



Sec. 96.67  Right to counsel.

    Any party to a hearing under this part has the right at all times to 
be advised and accompanied by counsel.



Sec. 96.68  Administrative record of a hearing.

    (a) The exclusive administrative record of the hearing consists of 
the following:
    (1) The notice of opportunity for hearing and the response.
    (2) All written information and views submitted to the presiding 
officer at the hearing or after if specifically permitted by the 
presiding officer.
    (3) Any transcript of the hearing.
    (4) The presiding officer's decision and any briefs or comments on 
the decision under Sec. 96.66(e) of this part.
    (5) All letters or communications between participants and the 
presiding officer or the Secretary referred to in Sec. 96.63 of this 
part.
    (b) The record of the hearing is closed to the submission of 
information and views at the close of the hearing, unless the presiding 
officer specifically permits additional time for a further submission.



                 Subpart G--Social Services Block Grants



Sec. 96.70  Scope.

    This subpart applies to the social services block grant.



Sec. 96.71  Definitions.

    (a) Section 2005 (a)(2) and (a)(5) (42 U.S.C. 1397d (a)(2) and 
(a)(5)) of the Social Security Act establishes prohibitions against the 
provision of room and board and medical care unless, among other 
reasons, they are an ``integral but subordinate'' part of a State-
authorized social service. ``Integral but subordinate'' means that the 
room and

[[Page 484]]

board provided for a short term or medical care is a minor but essential 
adjunct to the service of which it is a part and is necessary to achieve 
the objective of that service. Room and board provided for a short term 
shall not be considered an integral but subordinate part of a social 
service when it is provided to an individual in a foster family home or 
other facility the primary purpose of which is to provide food, shelter, 
and care or supervision, except for temporary emergency shelter provided 
as a protective service.
    (b) As used in section 2005(a)(5) of the Social Security Act (42 
U.S.C. 1397d (a)(5)) with respect to the limitations governing the 
provision of services by employees of certain institutions, employees 
includes staff, contractors, or other individuals whose activities are 
under the professional direction or direct supervision of the 
institution.

[47 FR 29486, July 6, 1982; 47 FR 43062, Sept. 30, 1982]



Sec. 96.72  Transferability of funds.

    Under section 2002(d) of the Social Security Act (42 U.S.C. 
1397a(d)), funds may be transferred in accordance with the provisions of 
that section to the preventive health and health services, alcohol and 
drug abuse and mental health services, primary care, maternal and child 
health services, and low-income home energy assistance block grants. In 
addition, funds may be transferred to other Federal block grants for 
support of health services, health promotion and disease prevention 
activities, or low-income home energy assistance (or any combination of 
those activities).



Sec. 96.73  Sterilization.

    If a State authorizes sterilization as a family planning service, it 
must comply with the provisions of 42 CFR Part 441, Subpart F, except 
that the State plan requirement under 42 CFR 441.252 does not apply.

[47 FR 33702, Aug. 4, 1982]



Sec. 96.74  Annual reporting requirements.

    (a) Annual report. In accordance with 42 U.S.C. 1397e, each state 
must submit an annual report to the Secretary by the due dates specified 
in Sec. 96.17 of this part. The annual report must cover the most 
recently completed fiscal year and, except for the data in paragraphs 
(a) (1) through (4) of this section, may be submitted in the format of 
the state's choice. The annual report must address the requirements in 
section 2006(a) of the Act, include the specific data required by 
section 2006(c), and include other information as follows:
    (1) The number of individuals who receive services paid for in whole 
or in part with federal funds under the Social Services Block Grant, 
showing separately the number of children and the number of adults who 
received such services (section 2006(c)(1));
    (2) The amount of Social Services Block Grant funds spent in 
providing each service, showing separately for each service the average 
amount spent per child recipient and per adult recipient (section 
2006(c)(2));
    (3) The total amount of federal, state and local funds spent in 
providing each service, including Social Services Block Grant funds;
    (4) The method(s) by which each service is provided, showing 
separately the services provided by public agencies, private agencies, 
or both (section 2006(c)(4)); and
    (5) The criteria applied in determining eligibility for each service 
such as income eligibility guidelines, sliding fee scales, the effect of 
public assistance benefits, and any requirements for enrollment in 
school or training programs (section 2006(c)(3)).
    (b) Reporting requirement. (1) Each state must use the uniform 
definitions of services in appendix A of this part, categories 1-28, in 
submitting the data required in paragraph (a) of this section. Where a 
state cannot use the uniform definitions, it should report the data 
under category 29, ``Other Services.'' The state's definitions of each 
of the services listed in category 29 must be included in the annual 
report.
    (2) Each state must use the reporting form issued by the Department 
to report the data required in paragraphs (a) (1) through (4) of this 
section.
    (3) In reporting recipient and expenditure data, each state must 
report actual numbers of recipients and actual expenditures when this 
information is available. For purposes of this report,

[[Page 485]]

each state should, if possible, count only a single recipient for each 
service. States should also consider a service provided to a recipient 
for the length of the reporting period (one year) or any fraction 
thereof as a single service. Data based on sampling and/or estimates 
will be accepted when actual figures are unavailable. Each state must 
indicate for each service whether the data are based on actual figures, 
sampling, or estimates and must describe the sampling and/or estimation 
process(es) it used to obtain these data in the annual report. Each 
state must also indicate, in reporting recipient data, whether the data 
reflects an unduplicated count of recipients.
    (4) Each state must use category 30, ``Other Expenditures,'' to 
report non-service expenditures. Only total dollar amounts in this 
category are required, i.e., they need not be reported by recipient 
count or cost per adult/child. This will include carry over balances, 
carry forward balances, funds transferred to or from the SSBG program, 
and administrative costs as defined by the state.
    (5) Each state must use its own definition of the terms ``child'' 
and ``adult'' in reporting the data required in paragraphs (a) (1) 
through (5) of this section.
    (6) Each state's definition of ``child'' and ``adult'' must be 
reported as a part of the eligibility criteria for each service required 
in paragraph (a)(5) of this section. The data on eligibility criteria 
may be submitted in whatever format the state chooses as a part of its 
annual report.
    (c) Transfer of computer data. In addition to making the annual 
report available to the public and to the Department, a state may submit 
the information specified in paragraphs (a) (1) through (4) of this 
section using electronic equipment. A full description of procedures for 
electronic transmission of data, and of the availability of computer 
diskettes, is included in Appendix B to this part.

[58 FR 60129, Nov. 15, 1993]



          Subpart H--Low-income Home Energy Assistance Program



Sec. 96.80  Scope.

    This subpart applies to the low-income home energy assistance 
program.



Sec. 96.81  Carryover and reallotment.

    (a) Scope. Pursuant to section 2607(b) of Public Law 97-35 (42 
U.S.C. 8626(b)), this section concerns procedures relating to carryover 
and reallotment of regular LIHEAP block grant funds authorized under 
section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)).
    (b) Required carryover and reallotment report. Each grantee must 
submit a report to the Department by August 1 of each year, containing 
the information in paragraphs (b)(1) through (b)(4) of this section. The 
Department shall make no payment to a grantee for a fiscal year unless 
the grantee has complied with this paragraph with respect to the prior 
fiscal year.
    (1) The amount of funds that the grantee requests to hold available 
for obligation in the next (following) fiscal year, not to exceed 10 
percent of the funds payable to the grantee;
    (2) A statement of the reasons that this amount to remain available 
will not be used in the fiscal year for which it was allotted;
    (3) A description of the types of assistance to be provided with the 
amount held available; and
    (4) The amount of funds, if any, to be subject to reallotment.
    (c) Conditions for reallotment. If the total amount available for 
reallotment for a fiscal year is less than $25,000, the Department will 
not reallot such amount. If the total amount available for reallotment 
for a fiscal year is $25,000 or more, the Department will reallot such 
amount, except that the Department will not award less than $25 in 
reallotted funds to a grantee.

[64 FR 55858, Oct. 15, 1999]



Sec. 96.82  Required report on households assisted.

    (a) Each grantee which is a State or an insular area which receives 
an annual allotment of at least $200,000 shall

[[Page 486]]

submit to the Department, as part of its LIHEAP grant application, the 
data required by section 2605(c)(1)(G) of Public Law 97-35 (42 U.S.C. 
8624(c)(1)(G)) for the 12-month period corresponding to the Federal 
fiscal year (October 1-September 30) preceding the fiscal year for which 
funds are requested. The data shall be reported separately for LIHEAP 
heating, cooling, crisis, and weatherization assistance.
    (b) Each grantee which is an insular area which receives an annual 
allotment of less than $200,000 or which is an Indian tribe or tribal 
organization which receives direct funding from the Department shall 
submit to the Department, as part of its LIHEAP grant application, data 
on the number of households receiving LIHEAP assistance during the 12-
month period corresponding to the Federal fiscal year (October 1-
September 30) preceding the fiscal year for which funds are requested. 
The data shall be reported separately for LIHEAP heating, cooling, 
crisis, and weatherization assistance.
    (c) Grantees will not receive their LIHEAP grant allotment for the 
fiscal year until the Department has received the report required under 
paragraph (a) or (b) of this section.

[64 FR 55858, Oct. 15, 1999]



Sec. 96.83  Increase in maximum amount that may be used for weatherization and other energy-related home repair.

    (a) Scope. This section concerns requests for waivers increasing 
from 15 percent to up to 25 percent of LIHEAP funds allotted or 
available to a grantee for a fiscal year, the maximum amount that 
grantees may use for low-cost residential weatherization and other 
energy-related home repair for low-income households (hereafter referred 
to as ``weatherization''), pursuant to section 2605(k) of Public Law 97-
35 (42 U.S.C. 8624(k)).
    (b) Public inspection and comment. Before submitting waiver requests 
to the Department, grantees must make proposed waiver requests available 
for public inspection within their jurisdictions in a manner that will 
facilitate timely and meaningful review of, and comment upon, these 
requests. Written public comments on proposed waiver requests must be 
made available for public inspection upon their receipt by grantees, as 
must any summaries prepared of written comments, and transcripts and/or 
summaries of verbal comments made on proposed requests at public 
meetings or hearings. Proposed waiver requests, and any preliminary 
waiver requests, must be made available for public inspection and 
comment until at least March 15 of the fiscal year for which the waiver 
is to be requested. Copies of actual waiver requests must be made 
available for public inspection upon submission of the requests to the 
Department.
    (c) Waiver request. After March 31 of each fiscal year, the chief 
executive officer (or his or her designee) may request a waiver of the 
weatherization obligation limit for this fiscal year, if the grantee 
meets criteria in paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of 
this section, or can show ``good cause'' for obtaining a waiver despite 
a failure to meet one or more of these criteria. (If the request is made 
by the chief executive officer's designee and the Department does not 
have on file written evidence of the designation, the request also must 
include evidence of the appropriate delegation of authority.) Waiver 
requests must be in writing and must include the information specified 
in paragraphs (c)(1) through (c)(6) of this section. The grantee may 
submit a preliminary waiver request for a fiscal year, between February 
1 and March 31 of the fiscal year for which the waiver is requested. If 
a grantee chooses to submit a preliminary waiver request, the 
preliminary request must include the information specified in paragraphs 
(c)(1) through (c)(6) of this section; in addition, after March 31 the 
chief executive officer (or his or her designee) must submit the 
information specified in paragraphs (c)(7) through (c)(10) of this 
section, to complete the preliminary waiver request.
    (1) A statement of the total percent of its LIHEAP funds allotted or 
available in the fiscal year for which the waiver is requested, that the 
grantee desires to use for weatherization.
    (2) A statement of whether the grantee has met each of the following 
three criteria:

[[Page 487]]

    (i) In the fiscal year for which the waiver is requested, the 
combined total (aggregate) number of households in the grantee's service 
population that will receive LIHEAP heating, cooling, and crisis 
assistance benefits that are provided from Federal LIHEAP allotments 
from regular and supplemental appropriations will not be fewer than the 
combined total (aggregate) number that received such benefits in the 
preceding fiscal year;
    (ii) In the fiscal year for which the waiver is requested, the 
combined total (aggregate) amount, in dollars, of LIHEAP heating, 
cooling, and crisis assistance benefits received by the grantee's 
service population that are provided from Federal LIHEAP allotments from 
regular and supplemental appropriations will not be less than the 
combined total (aggregate) amount received in the preceding fiscal year; 
and
    (iii) All LIHEAP weatherization activities to be carried out by the 
grantee in the fiscal year for which the wavier is requested have been 
shown to produce measurable savings in energy expenditures.
    (3) With regard to criterion in paragraph (c)(2)(i) of this section, 
a statement of the grantee's best estimate of the appropriate household 
totals for the fiscal year for which the wavier is requested and for the 
preceding fiscal year.
    (4) With regard to criterion in paragraph (c)(2)(ii) of this 
section, a statement of the grantee's best estimate of the appropriate 
benefit totals, in dollars, for the fiscal year for which the waiver is 
requested and for the preceding fiscal year.
    (5) With regard to criterion in paragraph (c)(2)(iii) of this 
section, a description of the weatherization activities to be carried 
out by the grantee in the fiscal year for which the wavier is requested 
(with all LIHEAP funds proposed to be used for weatherization, not just 
with the amount over 15 percent), and an explanation of the specific 
criteria under which the grantee has determined whether these activities 
have been shown to produce measurable savings in energy expenditures.
    (6) A description of how and when the proposed wavier request was 
made available for timely and meaningful public review and comment, 
copies and/or summaries of public comments received on the request 
(including transcripts and/or summaries of any comments made on the 
request at public meetings or hearings), a statement of the method for 
reviewing public comments, and a statement of the changes, if any, that 
were made in response to these comments.
    (7) To complete a preliminary waiver request: Official confirmation 
that the grantee wishes approval of the waiver request.
    (8) To complete a preliminary waiver request: A statement of whether 
any public comments were received after preparation of the preliminary 
waiver request and, if so, copies and/or summaries of these comments 
(including transcripts and/or summaries of any comments made on the 
request at public meetings or hearings), and a statement of the changes, 
if any, that were made in response to these comments.
    (9) To complete a preliminary waiver request: A statement of whether 
any material/substantive changes of fact have occurred in information 
included in the preliminary waiver request since its submission, and, if 
so, a description of the change(s).
    (10) To complete a preliminary waiver request: A description of any 
other changes to the preliminary request.
    (d) ``Standard'' waiver. If the Department determines that a grantee 
has meet the three criteria in paragraph (c)(2) of this section, has 
provided all information required by paragraph (c) of this section, has 
shown adequate concern for timely and meaningful public review and 
comment, and has proposed weatherization that meets all relevant 
requirements of title XXVI of Public Law 97-35 (42 U.S.C. 8621 et seq.) 
and 45 CFR part 96, the Department will approve a ``standard'' waiver.
    (e) ``Good cause'' waiver. (1) If a grantee does not meet one or 
more of the three criteria in paragraph (c)(2) of this section, then the 
grantee may submit documentation that demonstrates good cause why a 
waiver should be granted despite the grantee's failure to meet this 
criterion or these criteria. ``Good cause'' waiver requests must include 
the following information, in addition

[[Page 488]]

to the information specified in paragraph (c) of this section:
    (i) For each criterion under paragraph (c)(2) of this section that 
the grantee does not meet, an explanation of the specific reasons 
demonstrating good cause why the grantee does not meet the criterion and 
yet proposes to use additional funds for weatherization, citing 
measurable, quantified data, and stating the source(s) of the data used;
    (ii) A statement of the grantee's LIHEAP heating, cooling, and 
crisis assistance eligibility standards (eligibility criteria) and 
benefits levels for the fiscal year for which the waiver is requested 
and for the preceding fiscal year; and, if eligibility standards were 
less restrictive and/or benefit levels were higher in the preceding 
fiscal year for one or more of these program components, an explanation 
of the reasons demonstrating good cause why a waiver should be granted 
in spite of this fact;
    (iii) A statement of the grantee's opening and closing dates for 
applications for LIHEAP heating, cooling, and crisis assistance in the 
fiscal year for which the waiver is requested and in the preceding 
fiscal year, and a description of the grantee's outreach efforts for 
heating, cooling, and crisis assistance in the fiscal year for which the 
waiver is requested and in the preceding fiscal year, and, if the 
grantee's application period was longer and/or outreach efforts were 
greater in the preceding fiscal year for one or more of these program 
components, an explanation of the reasons demonstrating good cause why a 
waiver should be granted in spite of this fact; and
    (iv) If the grantee took, or will take, other actions that led, or 
will lead, to a reduction in the number of applications for LIHEAP 
heating, cooling, and/or crisis assistance, from the preceding fiscal 
year to the fiscal year for which the waiver is requested, a description 
of these actions and an explanation demonstrating good cause why a 
waiver should be granted in spite of these actions.
    (2) If the Department determines that a grantee requesting a ``good 
cause'' waiver has demonstrated good cause why a waiver should be 
granted, has provided all information required by paragraphs (c) and 
(e)(1) of this section, has shown adequate concern for timely and 
meaningful public review and comment, and has proposed weatherization 
that meets all relevant requirements of title XXVI of Public Law 97-35 
(42 U.S.C. 8621 et seq.) and 45 CFR part 96, the Department will approve 
a ``good cause'' waiver.
    (f) Approvals and disapprovals. After receiving the grantee's 
complete waiver request, the Department will respond in writing within 
45 days, informing the grantee whether the request is approved on either 
a ``standard'' or ``good cause'' basis. The Department may request 
additional information and/or clarification from the grantee. If 
additional information and/or clarification is requested, the 45-day 
period for the Department's response will start when the additional 
information and/or clarification is received. No waiver will be granted 
for a previous fiscal year.
    (g) Effective period. Waivers will be effective from the date of the 
Department's written approval until the funds for which the waiver is 
granted are obligated in accordance with title XXVI of Public Law 97-35 
(42 U.S.C. 8621 et seq.) and 45 CFR part 96. Funds for which a 
weatherization waiver was granted that are carried over to the following 
fiscal year and used for weatherization shall not be considered ``funds 
allotted'' or ``funds available'' for the purposes of calculating the 
maximum amount that may be used for weatherization in the succeeding 
fiscal year.

[60 FR 21358, May 1, 1995; 60 FR 33260, June 27, 1995]



Sec. 96.84  Miscellaneous.

    (a) Rights and responsibilities of territories. Except as otherwise 
provided, a territory eligible for funds shall have the same rights and 
responsibilities as a State.
    (b) Applicability of assurances. The assurances in section 2605(b) 
of Public Law 97-35 (42 U.S.C. 8624(b)), as amended, pertain to all 
forms of assistance provided by the grantee, with the exception of 
assurance 15, which applies to heating, cooling, and energy crisis 
intervention assistance.

[[Page 489]]

    (c) Prevention of waste, fraud, and abuse. Grantees must establish 
appropriate systems and procedures to prevent, detect, and correct 
waste, fraud, and abuse in activities funded under the low-income home 
energy assistance program. The systems and procedures are to address 
possible waste, fraud, and abuse by clients, vendors, and administering 
agencies.
    (d) End of transfer authority. Beginning with funds appropriated for 
FY 1994, grantees may not transfer any funds pursuant to section 2604(f) 
of Public Law 97-35 (42 U.S.C. 8623(f)) that are payable to them under 
the LIHEAP program to the block grant programs specified in section 
2604(f).

[57 FR 1978, Jan. 16, 1992, as amended at 64 FR 55858, Oct. 15, 1999]



Sec. 96.85  Income eligibility.

    (a) Application of poverty income guidelines and State median income 
estimates. In implementing the income eligibility standards in section 
2605(b)(2) of Public Law 97-35 (42 U.S.C. 8624(b)(2)), grantees using 
the Federal government's official poverty income guidelines and State 
median income estimates for households as a basis for determining 
eligibility for assistance shall, by October 1 of each year, or by the 
beginning of the State fiscal year, whichever is later, adjust their 
income eligibility criteria so that they are in accord with the most 
recently published update of the guidelines or estimates. Grantees may 
adjust their income eligibility criteria to accord with the most 
recently published revision to the poverty income guidelines or State 
median income estimates for households at any time between the 
publication of the revision and the following October 1, or the 
beginning of the State fiscal year, whichever is later.
    (b) Adjustment of annual median income for household size. In order 
to determine the State median income for households that have other than 
four individuals, grantees shall adjust the State median income figures 
(published annually by the Secretary), by the following percentages:
    (1) One-person household, 52 percent;
    (2) Two-person household, 68 percent;
    (3) Three-person household, 84 percent;
    (4) Four-person household, 100 percent;
    (5) Five-person household, 116 percent;
    (6) Six-person household, 132 percent; and
    (7) For each additional household member above six persons, add 
three percentage points to the percentage adjustment for a six-person 
household.

[53 FR 6827, Mar. 3, 1988, as amended at 64 FR 55858, Oct. 15, 1999]



Sec. 96.86  Exemption from requirement for additional outreach and intake services.

    The requirement in section 2605(b)(15) of Public Law 97-35 (42 
U.S.C. 8624(b)(15)), as amended by section 704(a)(4) of the Augustus F. 
Hawkins Human Services Reauthorization Act of 1990 (Pub. L. 101-501)--
concerning additional outreach and intake services--does not apply to:
    (a) Indian tribes and tribal organizations; and
    (b) Territories whose annual LIHEAP allotments under section 2602(b) 
of Public Law 97-35 (42 U.S.C. 8621(b)) are $200,000 or less.

[57 FR 1978, Jan. 16, 1992]



Sec. 96.87  Leveraging incentive program.

    (a) Scope and eligible grantees. (1) This section concerns the 
leveraging incentive program authorized by section 2607A of Public Law 
97-35 (42 U.S.C. 8626a).
    (2)(i) The only entities eligible to receive leveraging incentive 
funds from the Department are States (including the District of 
Columbia), Indian tribes, tribal organizations, and territories that 
received direct Federal LIHEAP funding under section 2602(b) of Public 
Law 97-35 (42 U.S.C. 8621(b)) in both the base period for which 
leveraged resources are reported, and the award period for which 
leveraging incentive funds are sought; and tribes and tribal 
organizations described in paragraphs (a)(2)(ii) and (a)(2)(iii) of this 
section.
    (ii) Indian tribes that received LIHEAP services under section 
2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) through a directly-
funded tribal organization in the base period for which

[[Page 490]]

leveraged resources are reported, and receive direct Federal LIHEAP 
funding under section 2602(b) in the award period, will receive 
leveraging incentive funds allocable to them if they submit leveraging 
reports meeting all applicable requirements. If the tribal organization 
continues to receive direct funding under section 2602(b) in the award 
period, the tribal organization also will receive incentive funds 
allocable to it if it submits a leveraging report meeting all applicable 
requirements. In such cases, incentive funds will be allocated among the 
involved entities that submit leveraging reports, as agreed by these 
entities. If they cannot agree, HHS will allocate incentive funds based 
on the comparative role of each entity in obtaining and/or administering 
the leveraged resources, and/or their relative number of LIHEAP-eligible 
households.
    (iii) If a tribe received direct Federal LIHEAP funding under 
section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) in the base 
period for which resources leveraged by the tribe are reported, and the 
tribe receives LIHEAP services under section 2602(b) through a directly-
funded tribal organization in the award period, the tribal organization 
will receive leveraging incentive funds on behalf of the tribe for the 
resources if the tribal organization submits a leveraging report meeting 
all applicable requirements.
    (b) Definitions--(1) Award period means the fiscal year during which 
leveraging incentive funds are distributed to grantees by the 
Department, based on the countable leveraging activities they reported 
to the Department for the preceding fiscal year (the base period).
    (2) Base period means the fiscal year for which a grantee's 
leveraging activities are reported to the Department; grantees' 
countable leveraging activities during the base period or base year are 
the basis for the distribution of leveraging incentive funds during the 
succeeding fiscal year (the award period or award year). Leveraged 
resources are counted in the base period during which their benefits are 
provided to low-income households.
    (3) Countable loan fund means revolving loan funds and similar loan 
instruments in which:
    (i) The sources of both the loaned and the repaid funds meet the 
requirements of this section, including the prohibitions of paragraphs 
(f)(1), (f)(2), and (f)(3) of this section;
    (ii) Neither the loaned nor the repaid funds are Federal funds or 
payments from low-income households, and the loans are not made to low-
income households; and
    (iii) The benefits provided by the loaned funds meet the 
requirements of this section for countable leveraged resources and 
benefits.
    (4) Countable petroleum violation escrow funds means petroleum 
violation escrow (oil overcharge) funds that were distributed to a State 
or territory by the Department of Energy (DOE) after October 1, 1990, 
and interest earned in accordance with DOE policies on petroleum 
violation escrow funds that were distributed to a State or territory by 
DOE after October 1, 1990, that:
    (i) Were used to assist low-income households to meet the costs of 
home energy through (that is, within and as a part of) a State or 
territory's LIHEAP program, another Federal program, or a non-Federal 
program, in accordance with a submission for use of these petroleum 
violation escrow funds that was approved by DOE;
    (ii) Were not previously required to be allocated to low-income 
households; and
    (iii) Meet the requirements of paragraph (d)(1) of this section, and 
of paragraph (d)(2)(ii) or (d)(2)(iii) or this section.
    (5) Home energy means a source of heating or cooling in residential 
dwellings.
    (6) Low-income households means federally eligible (federally 
qualified) households meeting the standards for LIHEAP income 
eligibility and/or LIHEAP categorical eligibility as set by section 
2605(b)(2) of Public Law 97-35 (42 U.S.C. 8624(b)(2)).
    (7) Weatherization means low-cost residential weatherization and 
other energy-related home repair for low-income households. 
Weatherization must be directly related to home energy.

[[Page 491]]

    (c) LIHEAP funds used to identify, develop, and demonstrate 
leveraging programs.
    (1) Each fiscal year, States (excluding Indian tribes, tribal 
organizations, and territories) may spend up to the greater of $35,000 
or 0.08 percent of their net Federal LIHEAP allotments (funds payable) 
allocated under section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) 
specifically to identify, develop, and demonstrate leveraging programs 
under section 2607A(c)(2) of Public Law 97-35 (42 U.S.C. 8626a(c)(2)). 
Each fiscal year, Indian tribes, tribal organizations, and territories 
may spend up to the greater of two (2.0) percent or $100 of their 
Federal LIHEAP allotments allocated under section 2602(b) of Public law 
97-35 (42 U.S.C. 8621(b)) specifically to identify, develop, and 
demonstrate leveraging programs under section 2607A(c)(2) of Public Law 
97-35 (42 U.S.C. 8626a(c)(2)). For the purpose of this paragraph, 
Federal LIHEAP allotments include funds from regular and supplemental 
appropriations, with the exception of leveraging incentive funds 
provided under section 2602(d) of Public Law 97-35 (42 U.S.C. 8621(d)).
    (2) LIHEAP funds used under section 2607A(c)(2) of Public Law 97-35 
(42 U.S.C. 8626a(c)(2)) specifically to identify, develop, and 
demonstrate leveraging programs are not subject to the limitation in 
section 2605(b)(9) of Public Law 97-35 (42 U.S.C. 8624(b)(9)) on the 
maximum percent of Federal funds that may be used for costs of planning 
and administration.
    (d) Basic requirements for leveraged resources and benefits. (1) In 
order to be counted under the leveraging incentive program, leveraged 
resources and benefits must meet all of the following five criteria:
    (i) They are from non-Federal sources.
    (ii) They are provided to the grantee's low-income home energy 
assistance program, or to federally qualified low-income households as 
described in section 2605(b)(2) of Public Law 97-35 (42 U.S.C. 
8624(b)(2)).
    (iii) They are measurable and quantifiable in dollars.
    (iv) They represent a net addition to the total home energy 
resources available to low-income households in excess of the amount of 
such resources that could be acquired by these households through the 
purchase of home energy, or the purchase of items that help these 
households meet the cost of home energy, at commonly available household 
rates or costs, or that could be obtained with regular LIHEAP allotments 
provided under section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)).
    (v) They meet the requirements for countable leveraged resources and 
benefits throughout this section and section 2607A of Public Law 97-35 
(42 U.S.C. 8626a).
    (2) Also, in order to be counted under the leveraging incentive 
program, leveraged resources and benefits must meet at least one of the 
following three criteria:
    (i) The grantee's LIHEAP program had an active, substantive role in 
developing and/or acquiring the resource/benefits from home energy 
vendor(s) through negotiation, regulation, and/or competitive bid. The 
actions or efforts of one or more staff of the grantee's LIHEAP program-
-at the central and/or local level--and/or one or more staff of LIHEAP 
program subrecipient(s) acting in that capacity, were substantial and 
significant in obtaining the resource/benefits from the vendor(s).
    (ii) The grantee appropriated or mandated the resource/benefits for 
distribution to low-income households through (that is, within and as a 
part of) its LIHEAP program. The resource/benefits are provided through 
the grantee's LIHEAP program to low-income households eligible under the 
grantee's LIHEAP standards, in accordance with the LIHEAP statute and 
regulations and consistent with the grantee's LIHEAP plan and program 
policies that were in effect during the base period, as if they were 
provided from the grantee's Federal LIHEAP allotment.
    (iii) The grantee appropriated or mandated the resource/benefits for 
distribution to low-income households as described in its LIHEAP plan 
(referred to in section 2605(c)(1)(A) of Public Law 97-35) (42 U.S.C. 
8624(c)(1)(A)). The resource/benefits are provided to low-income 
households as a supplement and/or alternative to the grantee's LIHEAP 
program, outside (that is, not through,

[[Page 492]]

within, or as a part of) the LIHEAP program. The resource/benefits are 
integrated and coordinated with the grantee's LIHEAP program. Before the 
end of the base period, the plan identifies and describes the resource/
benefits, their source(s), and their integration/coordination with the 
LIHEAP program. The Department will determine resources/benefits to be 
integrated and coordinated with the LIHEAP program if they meet at least 
one of the following eight conditions. If a resource meets at least one 
of conditions A through F when the grantee's LIHEAP program is operating 
(and meets all other applicable requirements), the resource also is 
countable when the LIHEAP program is not operating.
    (A) For all households served by the resource, the assistance 
provided by the resource depends on and is determined by the assistance 
provided to these households by the grantee's LIHEAP program in the base 
period. The resource supplements LIHEAP assistance that was not 
sufficient to meet households' home energy needs, and the type and 
amount of assistance provided by the resource is directly affected by 
the LIHEAP assistance received by the households.
    (B) Receipt of LIHEAP assistance in the base period is necessary to 
receive assistance from the resource. The resource serves only 
households that received LIHEAP assistance in the base period.
    (C) Ineligibility for the grantee's LIHEAP program, or denial of 
LIHEAP assistance in the base period because of unavailability of LIHEAP 
funds, is necessary to receive assistance from the resource.
    (D) For discounts and waivers: eligibility for and/or receipt of 
assistance under the grantee's LIHEAP program in the base period, and/or 
eligibility under the Federal standards set by section 2605(b)(2) of 
Public Law 97-35 (42 U.S.C. 8624(b)(2)), is necessary to receive the 
discount or waiver.
    (E) During the period when the grantee's LIHEAP program is 
operating, staff of the grantee's LIHEAP program and/or staff assigned 
to the LIHEAP program by a local LIHEAP administering agency or 
agencies, and staff assigned to the resource communicate orally and/or 
in writing about how to meet the home energy needs of specific, 
individual households. For the duration of the LIHEAP program, this 
communication takes place before assistance is provided to each 
household to be served by the resource, unless the applicant for 
assistance from the resource presents documentation of LIHEAP 
eligibility and/or the amount of LIHEAP assistance received or to be 
received.
    (F) A written agreement between the grantee's LIHEAP program or 
local LIHEAP administering agency, and the agency administering the 
resource, specifies the following about the resource: eligibility 
criteria; benefit levels; period of operation; how the LIHEAP program 
and the resource are integrated/coordinated; and relationship between 
LIHEAP eligibility and/or benefit levels, and eligibility and/or benefit 
levels for the resource. The agreement provides for annual or more 
frequent reports to be provided to the LIHEAP program by the agency 
administering the resource.
    (G) The resource accepts referrals from the grantee's LIHEAP 
program, and as long as the resource has benefits available, it provides 
assistance to all households that are referred by the LIHEAP program and 
that meet the resource's eligibility requirements. Under this condition, 
only the benefits provided to households referred by the LIHEAP program 
are countable.
    (H) Before the grantee's LIHEAP heating, cooling, crisis, and/or 
weatherization assistance component(s) open and/or after the grantee's 
LIHEAP heating, cooling, crisis, and/or weatherization assistance 
component(s) close for the season or for the fiscal year, or before the 
entire LIHEAP program opens and/or after the entire LIHEAP program 
closes for the season or for the fiscal year, the resource is made 
available specifically to fill the gap caused by the absence of the 
LIHEAP component(s) or program. The resource is not available while the 
LIHEAP component(s) or program is operating.
    (e) Countable leveraged resources and benefits. Resources and 
benefits that are countable under the leveraging incentive program 
include but are not limited to the following, provided that

[[Page 493]]

they also meet all other applicable requirements:
    (1) Cash resources: State, tribal, territorial, and other public and 
private non-Federal funds, including countable loan funds and countable 
petroleum violation escrow funds as defined in paragraphs (b)(3) and 
(b)(4) of this section, that are used for:
    (i) Heating, cooling, and energy crisis assistance payments and cash 
benefits made in the base period to or on behalf of low-income 
households toward their home energy costs (including home energy bills, 
taxes on home energy sales/purchases and services, connection and 
reconnection fees, application fees, late payment charges, bulk fuel 
tank rental or purchase costs, and security deposits that are retained 
for six months or longer);
    (ii) Purchase of fuels that are provided to low-income households in 
the base period for home energy (such as fuel oil, liquefied petroleum 
gas, and wood);
    (iii) Purchase of weatherization materials that are installed in 
recipients' homes in the base period;
    (iv) Purchase of the following tangible items that are provided to 
low-income households and/or installed in recipients' homes in the base 
period: blankets, space heating devices, equipment, and systems; space 
cooling devices, equipment, and systems; and other tangible items that 
help low-income households meet the costs of home energy and are 
specifically approved by the Department as countable leveraged 
resources;
    (v) Installation, replacement, and repair of the following in the 
base period: weatherization materials; space heating devices, equipment, 
and systems; space cooling devices, equipment, and systems; and other 
tangible items that help low-income households meet the costs of home 
energy and are specifically approved by the Department;
    (vi) The following services, when they are an integral part of 
weatherization to help low-income households meet the costs of home 
energy in the base period: installation, replacement, and repair of 
windows, exterior doors, roofs, exterior walls, and exterior floors; 
pre-weatherization home energy audits of homes that were weatherized as 
a result of these audits; and post-weatherization inspection of homes; 
and
    (vii) The following services, when they are provided (carried out) 
in the base period: installation, replacement, and repair of smoke/fire 
alarms that are an integral part, and necessary for safe operation, of a 
home heating or cooling system installed or repaired as a weatherization 
activity; and asbestos removal and that is an integral part of, and 
necessary to carry out, weatherization to help low-income households 
meet the costs of home energy.
    (2) Home energy discounts and waivers that are provided in the base 
period to low-income households and pertain to generally applicable 
prices, rates, fees, charges, costs, and/or requirements, in the amount 
of the discount, reduction, waiver, or forgiveness, or that apply to 
certain tangible fuel and non-fuel items and to certain services, that 
are provided in the base period to low-income households and help these 
households meet the costs of home energy, in the amount of the discount 
or reduction:
    (i) Discounts or reductions in utility and bulk fuel prices, rates, 
or bills;
    (ii) Partial or full forgiveness of home energy bill arrearages;
    (iii) Partial or full waivers of utility and other home energy 
connection and reconnection fees, application fees, late payment 
charges, bulk fuel tank rental or purchase costs, and home energy 
security deposits that are retained for six months or longer;
    (iv) Reductions in and partial or full waivers of non-Federal taxes 
on home energy sales/purchases and services, and reductions in and 
partial or full waivers of other non-Federal taxes provided as tax 
``credits'' to low-income households to offset their home energy costs, 
except when Federal funds or Federal tax ``credits'' provide payment or 
reimbursement for these reductions/waivers;
    (v) Discounts or reductions in the cost of the following tangible 
items that are provided to low-income households and/or installed in 
recipients' homes: weatherization materials; blankets; space heating 
devices, equipment, and systems; space cooling devices,

[[Page 494]]

equipment, and systems; and other tangible items that are specifically 
approved by the Department;
    (vi) Discounts or reductions in the cost of installation, 
replacement, and repair of the following: weatherization materials; 
space heating devices, equipment, and systems; space cooling devices, 
equipment, and systems; and other tangible items that help low-income 
households meet the costs of home energy and are specifically approved 
by the Department;
    (vii) Discounts or reductions in the cost of the following services, 
when the services are an integral part of weatherization to help low-
income households meet the costs of home energy: installation, 
replacement, and repair of windows, exterior doors, roofs, exterior 
walls, and exterior floors; pre-weatherization home energy audits of 
homes that were weatherized as a result of these audits; and post-
weatherization inspection of homes; and
    (viii) Discounts or reductions in the cost of installation, 
replacement, and repair of smoke/fire alarms that are an integral part, 
and necessary for safe operation, of a home heating or cooling system 
installed or repaired as a weatherization activity; and discounts or 
reductions in the cost of asbestos removal that is an integral part of, 
and necessary to carry out, weatherization to help low-income households 
meet the costs of home energy.
    (3) Certain third-party in-kind contributions that are provided in 
the base period to low-income households:
    (i) Donated fuels used by recipient households for home energy (such 
as fuel oil, liquefied petroleum gas, and wood);
    (ii) Donated weatherization materials that are installed in 
recipients' homes;
    (iii) Donated blankets; donated space heating devices, equipment, 
and systems; donated space cooling devices, equipment, and systems; and 
other donated tangible items that help low-income households meet the 
costs of home energy and are specifically approved by the Department as 
countable leveraged resources;
    (iv) Unpaid volunteers' services specifically to install, replace, 
and repair the following: weatherization materials; space heating 
devices, equipment, and systems; space cooling devices, equipment, and 
systems; and other items that help low-income households meet the costs 
of home energy and are specifically approved by the Department;
    (v) Unpaid volunteers' services specifically to provide (carry out) 
the following, when these services are an integral part of 
weatherization to help low-income households meet the costs of home 
energy: installation, replacement, and repair of windows, exterior 
doors, roofs, exterior walls, and exterior floors; pre-weatherization 
home energy audits of homes that were weatherized as a result of these 
audits; and post-weatherization inspection of homes;
    (vi) Unpaid volunteers' services specifically to: install, replace, 
and repair smoke/fire alarms as an integral part, and necessary for safe 
operation, of a home heating or cooling system installed or repaired as 
a weatherization activity; and remove asbestos as an integral part of, 
and necessary to carry out, weatherization to help low-income households 
meet the costs of home energy;
    (vii) Paid staff's services that are donated by the employer 
specifically to install, replace, and repair the following: 
weatherization materials; space heating devices, equipment, and systems; 
space cooling devices, equipment, and systems; and other items that help 
low-income households meet the costs of home energy and are specifically 
approved by the Department;
    (viii) Paid staff's services that are donated by the employer 
specifically to provide (carry out) the following, when these services 
are an integral part of weatherization to help low-income households 
meet the costs of home energy: installation, replacement, and repair of 
windows, exterior doors, roofs, exterior walls, and exterior floors; 
pre-weatherization home energy audits of homes that were weatherized as 
a result of these audits; and post-weatherization inspection of homes; 
and
    (ix) Paid staff's services that are donated by the employer 
specifically to: install, replace, and repair smoke/fire alarms as an 
integral part, and necessary for safe operation, of a home

[[Page 495]]

heating or cooling system installed or repaired as a weatherization 
activity; and remove asbestos as an integral part of, and necessary to 
carry out, weatherization to help low-income households meet the costs 
of home energy.
    (f) Resources and benefits that cannot be counted. The following 
resources and benefits are not countable under the leveraging incentive 
program:
    (1) Resources (or portions of resources) obtained, arranged, 
provided, contributed, and/or paid for, by a low-income household for 
its own benefit, or which a low-income household is responsible for 
obtaining or required to provide for its own benefit or for the benefit 
of others, in order to receive a benefit of some type;
    (2) Resources (or portions of resources) provided, contributed, and/
or paid for by building owners, building managers, and/or home energy 
vendors, if the cost of rent, home energy, or other charge(s) to the 
recipient were or will be increased, or if other charge(s) to the 
recipient were or will be imposed, as a result;
    (3) Resources (or portions of resources) directly provided, 
contributed, and/or paid for by member(s) of the recipient household's 
family (parents, grandparents, great-grandparents, sons, daughters, 
grandchildren, great-grandchildren, brothers, sisters, aunts, uncles, 
first cousins, nieces, and nephews, and their spouses), regardless of 
whether the family member(s) lived with the household, unless the family 
member(s) also provided the same resource to other low-income households 
during the base period and did not limit the resource to members of 
their own family;
    (4) Deferred home energy obligations;
    (5) Projected future savings from weatherization;
    (6) Delivery, and discounts in the cost of delivery, of fuel, 
weatherization materials, and all other items;
    (7) Purchase, rental, donation, and loan, and discounts in the cost 
of purchase and rental, of: supplies and equipment used to deliver fuel, 
weatherization materials, and all other items; and supplies and 
equipment used to install and repair weatherization materials and all 
other items;
    (8) Petroleum violation escrow (oil overcharge) funds that do not 
meet the definition in paragraph (b)(4) of this section;
    (9) Interest earned/paid on petroleum violation escrow funds that 
were distributed to a State or territory by the Department of Energy on 
or before October 1, 1990;
    (10) Interest earned/paid on Federal funds;
    (11) Interest earned/paid on customers' security deposits, utility 
deposits, etc., except when forfeited by the customer and used to 
provide countable benefits;
    (12) Borrowed funds that do not meet the requirements in paragraph 
(b)(3) above (including loans made by and/or to low-income households), 
interest paid on borrowed funds, and reductions in interest paid on 
borrowed funds;
    (13) Resources (or portions of resources) for which Federal payment 
or reimbursement has been or will be provided/received;
    (14) Tax deductions and tax credits received from any unit(s) of 
government by donors/contributors of resources for these donations, and 
by vendors for providing rate reductions, discounts, waivers, credits, 
and/or arrearage forgiveness to or for low-income households, etc.;
    (15) Funds and other resources that have been or will be used as 
matching or cost sharing for any Federal program;
    (16) Leveraged resources counted under any other Federal leveraging 
incentive program;
    (17) Costs of planning and administration, space costs, and intake 
costs;
    (18) Outreach activities, budget counseling, case management, and 
energy conservation education;
    (19) Training;
    (20) Installation, replacement, and repair of lighting fixtures and 
light bulbs;
    (21) Installation, replacement, and repair of smoke/fire alarms that 
are not an integral part, and necessary for safe operation, of a home 
heating or cooling system installed or repaired as a weatherization 
activity;
    (22) Asbestos removal that is not an integral part of, and necessary 
to carry out, weatherization to help low-income

[[Page 496]]

households meet the costs of home energy;
    (23) Paid services where payment is not made from countable 
leveraged resources, unless these services are donated as a countable 
in-kind contribution by the employer;
    (24) All in-kind contributions except those described in paragraph 
(e)(3) of this section; and
    (25) All other resources that do not meet the requirements of this 
section and of section 2607A of Public Law 97-35 (42 U.S.C. 8626a).
    (g) Valuation and documentation of leveraged resources and 
offsetting costs.
    (1) Leveraged cash resources will be valued at the fair market value 
of the benefits they provided to low-income households, as follows. 
Payments to or on behalf of low-income households for heating, cooling, 
and energy crisis assistance will be valued at their actual amount or 
value at the time they were provided. Purchased fuel, weatherization 
materials, and other countable tangible items will be valued at their 
fair market value (the commonly available household rate or cost in the 
local market area) at the time they were purchased. Installation, 
replacement, and repair of weatherization materials, and other countable 
services, will be valued at rates consistent with those ordinarily paid 
for similar work, by persons of similar skill in this work, in the 
grantee's or subrecipient's organization in the local area, at the time 
these services were provided. If the grantee or subrecipient does not 
have employees performing similar work, the rates will be consistent 
with those ordinarily paid by other employers for similar work, by 
persons of similar skill in this work, in the same labor market, at the 
time these services were provided. Fringe benefits and overhead costs 
will not be counted.
    (2) Home energy discounts, waivers, and credits will be valued at 
their actual amount or value.
    (3) Donated fuel, donated weatherization materials, and other 
countable donated tangible items will be valued at their fair market 
value (the commonly available household cost in the local market area) 
at the time of donation.
    (4) Donated unpaid services, and donated third-party paid services 
that are not in the employee's normal line of work, will be valued at 
rates consistent with those ordinarily paid for similar work, by persons 
of similar skill in this work, in the grantee's or subrecipient's 
organization in the local area, at the time these services were 
provided. If the grantee or subrecipient does not have employees 
performing similar work, the rates will be consistent with those 
ordinarily paid by other employers for similar work, by persons of 
similar skill in this work, in the same labor market, at the time these 
services were provided. Fringe benefits and overhead costs will not be 
counted. Donated third-party paid services of employees in their normal 
line of work will be valued at the employee's regular rate of pay, 
excluding fringe benefits and overhead costs.
    (5) Offsetting costs and charges will be valued at their actual 
amount or value.
    (i) Funds from grantees' regular LIHEAP allotments that are used 
specifically to identify, develop, and demonstrate leveraging programs 
under section 2607A(c)(2) of Public Law 97-35 (42 U.S.C. 8626a(c)(2)) 
will be deducted as offsetting costs in the base period in which these 
funds are obligated, whether or not there are any resulting leveraged 
benefits. Costs incurred from grantees' own funds to identify, develop, 
and demonstrate leveraging programs will be deducted in the first base 
period in which resulting leveraged benefits are provided to low-income 
households. If there is no resulting leveraged benefit from the 
expenditure of the grantee's own funds, the grantee's expenditure will 
not be counted or deducted.
    (ii) Any costs assessed or charged to low-income households on a 
continuing or on-going basis, year after year, specifically to 
participate in a counted leveraging program or to receive counted 
leveraged resources/benefits will be deducted in the base period these 
costs are paid. Any one-time costs or charges to low-income households 
specifically to participate in a counted leveraging program or to 
receive counted leveraged resources/benefits will be deducted in the 
first base period the leveraging program or resource is counted. Such 
costs or

[[Page 497]]

charges will be subtracted from the gross value of a counted resource or 
benefit for low-income households whose benefits are counted, but not 
for any households whose benefits are not counted.
    (6) Only the amount of the net addition to recipient low-income 
households' home energy resources may be counted in the valuation of a 
leveraged resource.
    (7) Leveraged resources and benefits, and offsetting costs and 
charges, will be valued according to the best data available to the 
grantee.
    (8) Grantees must maintain, or have readily available, records 
sufficient to document leveraged resources and benefits, and offsetting 
costs and charges, and their valuation. These records must be retained 
for three years after the end of the base period whose leveraged 
resources and benefits they document.
    (h) Leveraging report. (1) In order to qualify for leveraging 
incentive funds, each grantee desiring such funds must submit to the 
Department a report on the leveraged resources provided to low-income 
households during the preceeding base period. These reports must contain 
the following information in a format established by the Department.
    (i) For each separate leveraged resource, the report must:
    (A) Briefly describe the specific leveraged resource and the 
specific benefit(s) provided to low-income households by this resource, 
and state the source of the resource;
    (B) State whether the resource was acquired in cash, as a discount/
waiver, or as an in-kind contribution;
    (C) Indicate the geographical area in which the benefit(s) were 
provided to recipients;
    (D) State the month(s) and year(s) when the benefit(s) were provided 
to recipients;
    (E) State the gross dollar value of the countable benefits provided 
by the resource as determined in accordance with paragraph (g) of this 
section, indicate the source(s) of the data used, and describe how the 
grantee quantified the value and calculated the total amount;
    (F) State the number of low-income households to whom the benefit(s) 
were provided, and state the eligibility standard(s) for the low-income 
households to whom the benefit(s) were provided;
    (G) Indicate the agency or agencies that administered the resource/
benefit(s); and
    (H) Indicate the criterion or criteria for leveraged resources in 
paragraph (d)(2) of this section that the resource/benefits meet, and 
for criteria in paragraphs (d)(2)(i) and (d)(2)(iii) of this section, 
explain how resources/benefits valued at $5,000 or more meet the 
criterion or criteria.
    (ii) State the total gross dollar value of the countable leveraged 
resources and benefits provided to low-income households during the base 
period (the sum of the amounts listed pursuant to paragraph (h)(1)(i)(E) 
of this section).
    (iii) State in dollars any costs incurred by the grantee to leverage 
resources, and any costs and charges imposed on low-income households to 
participate in a counted leveraging program or to receive counted 
leveraged benefits, as determined in accordance with paragraph (g)(5) of 
this section. Also state the amount of the grantee's regular LIHEAP 
allotment that the grantee used during the base period specifically to 
identify, develop, and demonstrate leveraging programs under section 
2607A(c)(2) of Public Law 97-35 (42 U.S.C. 8626a(c)(2)).
    (iv) State the net dollar value of the countable leveraged resources 
and benefits for the base period. (Subtract the amounts in paragraph 
(h)(1)(iii) of this section from the amount in paragraph (h)(1)(ii) of 
this section.)
    (2) Leveraging reports must be postmarked or hand-delivered not 
later than November 30 of the fiscal year for which leveraging incentive 
funds are requested.
    (3) The Department may require submission of additional 
documentation and/or clarification as it determines necessary to verify 
information in a grantee's leveraging report, to determine whether a 
leveraged resource is countable, and/or to determine the net valuation 
of a resource. In such cases, the Department will set a date by which it 
must receive information sufficient to document countability and/or

[[Page 498]]

valuation. In such cases, if the Department does not receive information 
that it considers sufficient to document countability and/or valuation 
by the date it has set, then the Department will not count the resource 
(or portion of resource) in question.
    (i) Determination of grantee shares of leveraging incentive funds. 
Allocation of leveraging incentive funds to grantees will be computed 
according to a formula using the following factors and weights:
    (1) Fifty (50) percent based on the final net value of countable 
leveraged resources provided to low-income households during the base 
period by a grantee relative to its net Federal allotment of funds 
allocated under section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) 
during the base period, as a proportion of the final net value of the 
countable leveraged resources provided by all grantees during the base 
period relative to their net Federal allotment of funds allocated under 
that section during the base period; and
    (2) Fifty (50) percent based on the final net value of countable 
leveraged resources provided to low-income households during the base 
period by a grantee as a proportion of the total final net value of the 
countable leveraged resources provided by all grantees during the base 
period; except that: No grantee may receive more than twelve (12.0) 
percent of the total amount of leveraging incentive funds available for 
distribution to grantees in any award period; and no grantee may receive 
more than the smaller of its net Federal allotment of funds allocated 
under section 2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)) during the 
base period, or two times (double) the final net value of its countable 
leveraged resources for the base period. The calculations will be based 
on data contained in the leveraging reports submitted by grantees under 
paragraph (h) of this section as approved by the Department, and 
allocation data developed by the Department.
    (j) Uses of leveraging incentive funds.
    (1) Funds awarded to grantees under the leveraging incentive program 
must be used to increase or maintain heating, cooling, energy crisis, 
and/or weatherization benefits through (that is, within and as a part 
of) the grantee's LIHEAP program. These funds can be used for 
weatherization without regard to the weatherization maximum in section 
2605(k) of Public Law 97-35 (42 U.S.C. 8624(k)). However, they cannot be 
counted in the base for calculation of the weatherization maximum for 
regular LIHEAP funds authorized under section 2602(b) of Public Law 97-
35 (42 U.S.C. 8621(b)). Leveraging incentive funds cannot be used for 
costs of planning and administration. However, in either the award 
period or the fiscal year following the award period, they can be 
counted in the base for calculation of maximum grantee planning and 
administrative costs under section 2605(b)(9) of Public Law 97-35 (42 
U.S.C. 8624(b)(9)). They cannot be counted in the base for calculation 
of maximum carryover of regular LIHEAP funds authorized under section 
2602(b) of Public Law 97-35 (42 U.S.C. 8621(b)).
    (2) Grantees must include the uses of leveraging incentive funds in 
their LIHEAP plans (referred to in section 2605(c)(1)(A) of Public Law 
97-35) (42 U.S.C. 8624(c)(1)(A)) for the fiscal year in which the 
grantee obligates these funds. Grantees must document uses of leveraging 
incentive funds in the same way they document uses of regular LIHEAP 
funds authorized under section 2602(b) of Public Law 97-35 (42 U.S.C. 
8621(b)). Leveraging incentive funds are subject to the same audit 
requirements as regular LIHEAP funds.
    (k) Period of obligation for leveraging incentive funds. Leveraging 
incentive funds are available for obligation during both the award 
period and the fiscal year following the award period, without regard to 
limitations on carryover of funds in section 2607(b)(2)(B) of Public Law 
97-35 (42 U.S.C. 8626(b)(2)(B)). Any leveraging incentive funds not 
obligated for allowable purposes by the end of this period must be 
returned to the Department.

[60 FR 21359, May 1, 1995; 60 FR 36334, July 14, 1995]



Sec. 96.88  Administrative costs.

    (a) Costs of planning and administration. Any expenditure for 
governmental functions normally associated with administration of a 
public assistance program must be included in determining

[[Page 499]]

administrative costs subject to the statutory limitation on 
administrative costs, regardless of whether the expenditure is incurred 
by the State, a subrecipient, a grantee, or a contractor of the State.
    (b) Administrative costs for territories and Indian tribes. For 
Indian tribes, tribal organizations and territories with allotments of 
$20,000 or less, the limitation on the cost of planning and 
administering the low-income home energy assistance program shall be 20 
percent of funds payable and not transferred for use under another block 
grant. For tribes, tribal organizations and territories with allotments 
over $20,000, the limitation on the cost of planning and administration 
shall be $4,000 plus 10% of the amount of funds payable (and not 
transferred for use under another block grant) that exceeds $20,000.

[52 FR 37967, Oct. 13, 1987]



Sec. 96.89  Exemption from standards for providing energy crisis intervention assistance.

    The performance standards in section 2604(c) of Pub. L. 97-35 (42 
U.S.C. 8623), as amended by section 502(a) of the Human Services 
Reauthorization Act of 1986 (Pub. L. 99-425)--concerning provision of 
energy crisis assistance within specified time limits, acceptance of 
applications for energy crisis benefits at geographically accessible 
sites, and provision to physically infirm low-income persons of the 
means to apply for energy crisis benefits at their residences or to 
travel to application sites--shall not apply under the conditions 
described in this section.
    (a) These standards shall not apply to a program in a geographical 
area affected by (1) a major disaster or emergency designated by the 
President under the Disaster Relief Act of 1974, or (2) a natural 
disaster identified by the chief executive officer of a State, 
territory, or direct-grant Indian tribe or tribal organization, if the 
Secretary (or his or her designee) determines that the disaster or 
emergency makes compliance with the standards impracticable.
    (b) The Secretary's determination will be made after communication 
by the chief executive officer (or his or her designee) to the Secretary 
(or his or her designee) of the following:
    (1) Information substantiating the existence of a disaster or 
emergency;
    (2) Information substantiating the impracticability of compliance 
with the standards, including a description of the specific conditions 
caused by the disaster or emergency which make compliance impracticable; 
and
    (3) Information on the expected duration of the conditions that make 
compliance impracticable.

If the communication is made by the chief executive officer's designee 
and the Department does not have on file written evidence of the 
designation, the communication must also include:
    (4) Evidence of the appropriate delegation of authority.
    (c) The initial communication by the chief executive officer may be 
oral or written. If oral, it must be followed as soon as possible by 
written communication confirming the information provided orally. The 
Secretary's exemption initially may be oral. If so, the Secretary will 
provide written confirmation of the exemption as soon as possible after 
receipt of appropriate written communication from the chief executive 
officer.
    (d) Exemption from the standards shall apply from the moment of the 
Secretary's determination, only in the geographical area affected by the 
disaster or emergency, and only for so long as the Secretary determines 
that the disaster or emergency makes compliance with the standards 
impracticable.

[53 FR 6827, Mar. 3, 1988]



               Subpart I--Community Services Block Grants



Sec. 96.90  Scope.

    This subpart applies to the community services block grant.



Sec. 96.91  Audit requirement.

    Pursuant to section 1745(b) of the Reconciliation Act (31 U.S.C. 
1243 note) an audit is required with respect to the 2-year period 
beginning on October 1, 1981, and with respect to each 2-year period 
thereafter. In its application for

[[Page 500]]

funds, a State may modify the assurance required by section 675(c)(9) of 
the Reconciliation Act (42 U.S.C. 9904(c)(9)) to conform to the 
requirements of section 1745(b).



Sec. 96.92  Termination of funding.

    Where a State determines pursuant to section 675(c)(11) of the 
Community Services Block Grant Act that it will terminate present or 
future funding of any community action agency or migrant and seasonal 
farmworker organization which received funding in the previous fiscal 
year, the State must provide the organization with notice and an 
opportunity for hearing on the record prior to terminating funding. If a 
review by the Secretary of the State's final decision to terminate 
funding is requested pursuant to section 676A, the request must be made 
in writing, within 30 days of notification by the State of its final 
decision to terminate funding. The Department will confirm or reject the 
State's finding of cause, normally within 90 days. If a request for a 
review has been made, the State may not discontinue present or future 
funding until the Department confirms the State's finding of cause. If 
no request for a review is made within the 30-day limit, the State's 
decision will be effective at the expiration of that time.

[52 FR 37968, Oct. 13, 1987]



                  Subpart J--Primary Care Block Grants



Sec. 96.100  Scope.

    This subpart applies to the primary care block grant.



Sec. 96.101  Review of a State decision to discontinue funding of a community health center.

    Where a State determines for FY 1983, pursuant to section 1926(a)(2) 
of the Public Health Service Act (42 U.S.C. 300y-5(a)(2)), that a 
community health center does not meet the criteria for continued funding 
set forth in section 330 of the Public Health Service Act (42 U.S.C. 
254c), the State must advise the Department of the decision and the 
basis upon which it was made. The Department will permit the center 30 
days to respond to the State's determination. After evaluating the 
reasons advanced by the State and the center, the Department will 
determine within 30 days after the center's response is due whether the 
center meets the requirements for receiving a grant under the Public 
Health Service Act. The State may not discontinue funding the center 
until the Department has completed its review.

[47 FR 29486, July 6, 1982; 47 FR 43062, Sept. 30, 1982]



Sec. 96.102  Carryover of unobligated funds.

    In implementing section 1925(a)(2) of the Public Health Service Act 
(42 U.S.C. 300y-4(a)(2)), the Secretary will determine that there is 
good cause for funds remaining unobligated if planned obligations could 
not be carried out because of a bona fide reason or if the State has 
determined that program objectives would be better served by deferring 
obligation of the funds to the following year.



                    Subpart K--Transition Provisions



Sec. 96.110  Scope.

    Except as otherwise stated, this subpart applies to the community 
services, preventive health and health services, alcohol and drug abuse 
and mental health services, and maternal and child health services block 
grants for the fiscal year beginning October 1, 1981. The social 
services block grant and the low-income home energy assistance program 
are not subject to the provisions of this subpart.



Sec. 96.111  Continuation of pre-existing regulations.

    The regulations previously issued by the Department and the 
Community Services Administration to govern administration of the 
programs replaced by the block grants specified in Sec. 96.1 of this 
part shall continue in effect until revised to govern administration of 
those programs by the Department in those circumstances in which States 
have not qualified for block grants.

[[Page 501]]



Sec. 96.112  Community services block grant.

    (a) For the fiscal year beginning October 1, 1981, only, a State may 
choose to operate programs under the community services block grant or, 
instead, have the Secretary operate the programs replaced by the block 
grant. If a State does not notify the Secretary in accordance with the 
statutory deadlines each quarter, it will be deemed to have requested 
the Secretary to operate the programs for the following quarter.
    (b) A State or territory that does not have any eligible entity'' as 
that term is defined in section 673(1) of the Reconciliation Act (42 
U.S.C. 9902), as amended by section 17 of Pub. L. 97-115 (December 19, 
1981), or any other entity for which funding is allowed under section 
138 of Pub. L. 97-276, may distribute its allotment for the Fiscal Year 
beginning October 1, 1982 according to section 675(c)(2)(A)(ii) of the 
Reconciliation Act.
    (c) For any quarter in which the Secretary administers the programs, 
the Department's administration costs will be deducted from the State's 
allotment. The Department's total administration costs for making grants 
during fiscal year 1982 and for any monitoring of these grants in fiscal 
year 1983 will be deducted from each State's allotment in proportion to 
the total amount of grants awarded from the allotment during the period 
of administration by the Department (but not to exceed 5 percent of the 
State's fiscal year 1982 allotment).

[47 FR 29486, July 6, 1982, as amended at 48 FR 9271, Mar. 4, 1983]



     Subpart L--Substance Abuse Prevention and Treatment Block Grant

    Authority: 42 U.S.C. 300x-21 to 300x-35 and 300x-51 to 300x-64.

    Source: 58 FR 17070, Mar. 31, 1993, unless otherwise noted.



Sec. 96.120  Scope.

    This subpart applies to the Substance Abuse Prevention and Treatment 
Block Grant administered by the Substance Abuse and Mental Health 
Services Administration. 45 C.F.R. Part 96, subparts A through F, are 
applicable to this subpart to the extent that those subparts are 
consistent with subpart L. To the extent subparts A through F are 
inconsistent with subpart L, the provisions of subpart L are applicable.



Sec. 96.121  Definitions.

    Block Grant means the Substance Abuse Prevention and Treatment Block 
Grant, 42 U.S.C. 300x-21, et seq.
    Early Intervention Services Relating to HIV means:
    (1) appropriate pretest counseling for HIV and AIDS;
    (2) testing individuals with respect to such disease, including 
tests to confirm the presence of the disease, tests to diagnose the 
extent of the deficiency in the immune system, and tests to provide 
information on appropriate therapeutic measures for preventing and 
treating the deterioration of the immune system and for preventing and 
treating conditions arising from the disease;
    (3) appropriate post-test counseling; and
    (4) providing the therapeutic measures described in Paragraph (2) of 
this definition.
    Fiscal Year, unless provided otherwise, means the Federal fiscal 
year.
    Interim Services or Interim Substance Abuse Services means services 
that are provided until an individual is admitted to a substance abuse 
treatment program. The purposes of the services are to reduce the 
adverse health effects of such abuse, promote the health of the 
individual, and reduce the risk of transmission of disease. At a 
minimum, interim services include counseling and education about HIV and 
tuberculosis (TB), about the risks of needle-sharing, the risks of 
transmission to sexual partners and infants, and about steps that can be 
taken to ensure that HIV and TB transmission does not occur, as well as 
referral for HIV or TB treatment services if necessary. For pregnant 
women, interim services also include counseling on the effects of 
alcohol and drug use on the fetus, as well as referral for prenatal 
care.
    Primary Prevention Programs are those directed at individuals who 
have not been determined to require treatment

[[Page 502]]

for substance abuse. Such programs are aimed at educating and counseling 
individuals on such abuse and providing for activities to reduce the 
risk of such abuse.
    Principal Agency is the single State agency responsible for 
planning, carrying out and evaluating activities to prevent and treat 
substance abuse and related activities.
    Rural Area The definition of a rural area within a State shall be 
the latest definition of the Bureau of the Census, Department of 
Commerce.
    Secretary is the Secretary of the United States Department of Health 
and Human Services or the Secretary's designee.
    State, unless provided otherwise, includes the 50 States, the 
District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin 
Islands, Guam, America Samoa, the Commonwealth of the Northern Mariana 
Islands, Palau, Micronesia, and the Marshall Islands.
    State Medical Director for Substance Abuse Services is a licensed 
physician with the knowledge, skill and ability to address the multiple 
physical and psychological problems associated with substance abuse, and 
who provides the principle agency with clinical consultation and 
direction regarding effective substance abuse treatment, effective 
primary medical care, effective infection control and public health and 
quality assurance.
    Substance Abuse is defined to include the abuse or illicit use of 
alcohol or other drugs.
    Tuberculosis Services means:
    (1) Counseling the individual with respect to tuberculosis;
    (2) Testing to determine whether the individual has been infected 
with mycobacteria tuberculosis to determine the appropriate form of 
treatment for the individual; and
    (3) Providing for or referring the individuals infected by 
mycobacteria tuberculosis for appropriate medical evaluation and 
treatment.



Sec. 96.122  Application content and procedures.

    (a) For each fiscal year, beginning with fiscal year 1993, the State 
shall submit an application to such address as the Secretary determines 
is appropriate.
    (b) For fiscal year 1993, applicants must submit an application 
containing information which conforms to the assurances listed under 
Sec. 96.123, the report as provided in Sec. 96.122(f), and the State 
plan as provided in Sec. 96.122(g).
    (c) Beginning fiscal year 1994, applicants shall only use standard 
application forms prescribed by the granting agency with the approval of 
the Office of Management and Budget (OMB) under the Paperwork Reduction 
Act of 1980. Applicants must follow all applicable instructions that 
bear OMB clearance numbers. The application will require the State to 
submit the assurances listed under Sec. 96.123, the report as provided 
in Sec. 96.122(f), and the State Plan as provided in Sec. 96.122(g).
    (d) The State shall submit the application for a block grant by the 
date prescribed by law. The annual report required under Sec. 96.130(e) 
is not required to be submitted as part of the application, but must be 
submitted no later than December 31 of the fiscal year for which the 
State is seeking a grant. Grant awards will not be made without the 
report required under Sec. 96.130(e).
    (e) The funding agreements and assurances in the application shall 
be made through certification by the State's chief executive officer 
personally, or by an individual authorized to make such certification on 
behalf of the chief executive officer. When a delegation has occurred, a 
copy of the current delegation of authority must be submitted with the 
application.
    (f) A report shall be submitted annually with the application and 
State Plan. Among other things, the report must contain information as 
determined by the Secretary to be necessary to determine the purposes 
and the activities of the State, for which the Block Grant was expended. 
The report shall include (but is not limited to) the following:
    (1) For the fiscal year three years prior to the fiscal year for 
which the State is applying for funds:
    (i) A statement of whether the State exercised its discretion under 
applicable law to transfer Block Grant funds from substance abuse 
services to mental health services or vice versa, and a

[[Page 503]]

description of the transfers which were made;
    (ii) A description of the progress made by the State in meeting the 
prevention and treatment goals, objectives and activities submitted in 
the application for the relevant year;
    (iii) A description of the amounts expended under the Block Grant by 
the State agency, by activity;
    (iv) A description of the amounts expended on primary prevention and 
early intervention activities (if reporting on fiscal years 1990, 1991, 
and 1992 only) and for primary prevention activities (if reporting on 
fiscal years 1993 and subsequent years);
    (v) A description of the amounts expended for activities relating to 
substance abuse such as planning, coordination, needs assessment, 
quality assurance, training of counselors, program development, research 
and development and the development of information systems;
    (vi) A description of the entities, their location, and the total 
amount the entity received from Block Grant funds with a description of 
the activities undertaken by the entity;
    (vii) A description of the use of the State's revolving funds for 
establishment of group homes for recovering substance abusers, as 
provided by Sec. 96.129, including the amount available in the fund 
throughout the fiscal year and the number and amount of loans made that 
fiscal year;
    (viii) A detailed description of the State's programs for women and, 
in particular for pregnant women and women with dependent children, if 
reporting on fiscal years 1990, 1991, or 1992; and pregnant women or 
women with dependent children for fiscal year 1993 and subsequent fiscal 
years;
    (ix) A detailed description of the State's programs for intravenous 
drug users; and
    (x) For applications for fiscal year 1996 and subsequent fiscal 
years, a description of the State's expenditures for tuberculosis 
services and, if a designated State, early intervention services for 
HIV.
    (2) For the most recent 12 month State expenditure period for which 
expenditure information is complete:
    (i) A description of the amounts expended by the principal agency 
for substance abuse prevention and treatment activities, by activity and 
source of funds;
    (ii) A description of substance abuse funding by other State 
agencies and offices, by activity and source of funds when available; 
and
    (iii) A description of the types and amounts of substance abuse 
services purchased by the principal agency.
    (3) For the fiscal year two years prior to the fiscal year for which 
the State is applying for funds:
    (i) A description of the amounts obligated under the Block Grant by 
the principal agency, by activity;
    (ii) A description of the amounts obligated for primary prevention 
and early intervention (if reporting on fiscal years 1990, 1991, and 
1992 activities only) and primary prevention activities (if reporting on 
fiscal years 1993 and subsequent year activities);
    (iii) A description of the entities to which Block Grant funds were 
obligated;
    (iv) A description of the State's policies, procedures and laws 
regarding substance abuse prevention, especially the use of alcohol and 
tobacco products by minors;
    (v) For applications for fiscal year 1995 and all subsequent fiscal 
years, a description of the State's procedures and activities undertaken 
to comply with the requirement to conduct independent peer review as 
provided by Sec. 96.136;
    (vi) For applications for fiscal year 1995 and all subsequent fiscal 
years, a description of the State's procedures and activities undertaken 
to comply with the requirement to develop capacity management and 
waiting list systems, as provided by Secs. 96.126 and 96.131, as well as 
an evaluation summary of these activities; and
    (vii) For applications for fiscal year 1995 and subsequent fiscal 
years, a description of the strategies used for monitoring program 
compliance with Sec. 96.126(f), Sec. 96.127(b), and Sec. 96.131(f), as 
well as a description of the problems identified and the corrective 
actions taken.
    (4) The aggregate State expenditures by the principle agency for 
authorized

[[Page 504]]

activities for the two State fiscal years preceding the fiscal year for 
which the State is applying for a grant, pursuant to Sec. 96.134(d).
    (5) For the previous fiscal year:
    (i) A description of the State's progress in meeting the goals, 
objectives and activities included in the previous year's application, 
and a brief description of the recipients of the Block Grant funds;
    (ii) A description of the methods used to calculate the following:
    (A) The base for services to pregnant women and women with dependent 
children as required by Sec. 96.124;
    (B) The base for tuberculosis services as required for Sec. 96.127; 
and
    (C) For designated States, the base for HIV early intervention 
services as required by Sec. 96.128;
    (iii) For applications for fiscal years 1994 and 1995 only, a 
description of the State's progress in the development of protocols for 
and the implementation of tuberculosis services, and, if a designated 
State, early intervention services for HIV; and
    (iv) For applications for fiscal year 1994 only, a description of 
the States progress in the development, implementation, and utilization 
of capacity management and waiting list systems.
    (6) For the first applicable fiscal year for which the State is 
applying for a grant, a copy of the statute enacting the law as 
described in Sec. 96.130(b) and, for subsequent fiscal years for which 
the State is applying for a grant, any amendment to the law described in 
Sec. 96.130(b).
    (7) In addition to the information above, any information that the 
Secretary may, from time to time, require, consistent with the Paperwork 
Reduction Act.
    (g) For each fiscal year, beginning fiscal year 1993, the State Plan 
shall be submitted to the Secretary and shall include the following:
    (1) For fiscal years 1993 and 1994, a statement on whether the 
Governor intends to exercise discretion under applicable law to transfer 
Block Grant funds from the Substance Abuse Prevention and Treatment 
Block Grant allotment under section 1921 of the PHS Act to the Community 
Mental Health Services Block Grant allotment under section 1911 of the 
PHS Act or vice versa and a description of the planned transfer;
    (2) A budget of expenditures which provides an estimate of the use 
and distribution of Block Grant and other funds to be spent by the 
agency administering the Block Grant during the period covered by the 
application, by activity and source of funds;
    (3) A description of how the State carries out planning, including 
how the State identifies substate areas with the greatest need, what 
process the State uses to facilitate public comment on the plan, and 
what criteria the State uses in deciding how to allocate Block Grant 
funds;
    (4) A detailed description of the State procedures to monitor 
programs that reach 90% capacity pursuant to Sec. 96.126(a);
    (5) A detailed description of the State procedures to implement the 
14/120 day requirement provided by Sec. 96.126(b) as well as the interim 
services to be provided and a description of the strategies to be used 
in monitoring program compliance in accordance with Sec. 96.126(f);
    (6) A full description of the outreach efforts States will require 
entities which receive funds to provide pursuant to Sec. 96.126(e);
    (7) A detailed description of the State procedures implementing TB 
services pursuant to Sec. 96.127, and a description of the strategies to 
be used in monitoring program compliance in accordance with 
Sec. 96.127(b);
    (8) A detailed description of the State's procedures implementing 
HIV services pursuant to Sec. 96.128, if considered a designated State;
    (9) A description of estimates of non-Federal dollars to be spent 
for early intervention services relating to HIV, if a designated State, 
and tuberculosis services for the fiscal year covered by the 
application, as well as the amounts actually spent for such services for 
the two previous fiscal years;
    (10) For fiscal year 1993, a detailed description of the State's 
revolving fund for establishment of group homes for recovering substance 
abusers pursuant to Sec. 96.129 and, for subsequent years, any revisions 
to the program;

[[Page 505]]

    (11) A detailed description of State procedures implementing 
Sec. 96.131 relating to treatment services for pregnant women;
    (12) Unless waived, a description on how the State will improve the 
process for referrals for treatment, will ensure that continuing 
education is provided, and will coordinate various activities and 
services as provided by Sec. 96.132;
    (13) Statewide assessment of needs as provided in Sec. 96.133;
    (14) The aggregate State dollar projected expenditures by the 
principal agency of a State for authorized activities for the fiscal 
year for which the Block Grant is to be expended, as well as the 
aggregate obligations or expenditures, when available, for authorized 
activities for the two years prior to such fiscal year as required by 
Sec. 96.134;
    (15) Unless waived, a description of the services and activities to 
be provided by the State with Block Grant funds consistent with 
Sec. 96.124 for allocations to be spent on services to pregnant women 
and women with dependent children, alcohol and other drug treatment and 
prevention, including primary prevention, and any other requirement;
    (16) A description of the State procedures to implement 
Sec. 96.132(e) regarding inappropriate disclosure of patient records;
    (17) A description of the amounts to be spent for primary prevention 
in accordance with Sec. 96.125;
    (18) A description of the amounts to be spent on activities relating 
to substance abuse such as planning coordination, needs assessment, 
quality assurance, training of counselors, program development, research 
and development and the development of information systems;
    (19) A description of the State plans regarding purchasing substance 
abuse services;
    (20) A description of how the State intends to monitor and evaluate 
the performance of substance abuse service providers in accordance with 
Sec. 96.136;
    (21) A description of the State's overall goals for Block Grant 
expenditures, specific objectives under each goal, and the activities 
the State will carry out to achieve these objectives; and
    (22) Such other information as the Secretary may, from time to time, 
require, consistent with the Paperwork Reduction Act.
    (h) The Secretary will approve an application which includes the 
assurances, the State plan and the report that satisfies the 
requirements of this part and the relevant sections of the PHS Act. As 
indicated above, the State is required to provide descriptions of the 
State's procedures to implement the provisions of the Act and the 
regulations. Unless provided otherwise by these regulations, the 
Secretary will approve procedures which are provided as examples in the 
regulations, or the State may submit other procedures which the 
Secretary determines to reasonably implement the requirements of the 
Act.

[58 FR 17070, Mar. 31, 1993, as amended at 61 FR 1508, Jan. 19, 1996; 65 
FR 45305, July 21, 2000; 66 FR 46226, Sept. 4, 2001]



Sec. 96.123  Assurances.

    (a) The application must include assurances that:
    (1) the State will expend the Block Grant in accordance with the 
percentage to be allocated to treatment, prevention, and other 
activities as prescribed by law and, also, for the purposes prescribed 
by law;
    (2) The activities relating to intravenous drug use pursuant to 
Sec. 96.126 will be carried out;
    (3) The TB services and referral will be carried out pursuant to 
Sec. 96.127, as well as the early intervention services for HIV provided 
for in Sec. 96.128, if a designated State;
    (4) The revolving funds to establish group homes for recovering 
substance abusers is in place consistent with the provisions of 
Sec. 96.129 and the loans will be made and used as provided for by law;
    (5) The State has a law in effect making it illegal to sell or 
distribute tobacco products to minors as provided in Sec. 96.130(b), 
will conduct annual, unannounced inspections as prescribed in 
Sec. 96.130, will enforce such law in a manner that can reasonably be 
expected to reduce the extent to which tobacco products are available to 
individuals under the age of 18, and will submit an

[[Page 506]]

annual report as required under Sec. 96.122(d) and Sec. 96.130(e);
    (6) Pregnant women are provided preference in admission to treatment 
centers as provided by Sec. 96.131, and are provided interim services as 
necessary and as required by law;
    (7) The State will improve the process in the State for referrals of 
individuals to the treatment modality that is most appropriate for the 
individuals, will ensure that continuing education is provided to 
employees of any funded entity providing prevention activities or 
treatment services, and will coordinate prevention activities and 
treatment services with the provision of other appropriate services as 
provided by Sec. 96.132;
    (8) The State will submit an assessment of need as required by 
section 96.133;
    (9) The State will for such year maintain aggregate State 
expenditures by the principal agency of a State for authorized 
activities at a level that is not less than the average level of such 
expenditures maintained by the State for the 2-year period preceding the 
fiscal year for which the State is applying for the grant as provided by 
Sec. 96.134;
    (10) The Block Grant will not be used to supplant State funding of 
alcohol and other drug prevention and treatment programs;
    (11) For purposes of maintenance of effort pursuant to 
Secs. 96.127(f), 96.128(f), and 96.134, the State will calculate the 
base using Generally Accepted Accounting Principles and the composition 
of the base will be applied consistently from year to year;
    (12) The State will for the fiscal year for which the grant is 
provided comply with the restrictions on the expenditure of Block Grant 
funds as provided by Sec. 96.135;
    (13) The State will make the State Plan public within the State in 
such manner as to facilitate comment from any person (including any 
Federal or other public agency) during the development of the State Plan 
and after the submission of the State Plan (including any revisions) to 
the Secretary as provided by Sec. 1941 of the PHS Act;
    (14) The State will for the fiscal year for which the grant is 
provided, provide for independent peer review to assess the quality, 
appropriateness, and efficacy of treatment services provided in the 
State to individuals under the program involved as required by 
Sec. 96.136;
    (15) The State has in effect a system to protect from inappropriate 
disclosure patient records maintained by the State in connection with an 
entity which is receiving amounts from the grant;
    (16) The State will comply with chapter 75 of title 31, United 
States Code, pertaining to audits; and
    (17) The State will abide by all applicable Federal laws and 
regulations, including those relating to lobbying (45 CFR Part 93), 
drug-free workplace (45 CFR 76.600), discrimination (PHS Act Sec. 1947), 
false statements or failure to disclose certain events (PHS Act Sec. 
1946), and, as to the State of Hawaii, services for Native Hawaiians 
(PHS Act Sec. 1953).

[58 FR 17070, Mar. 31, 1993, as amended at 61 FR 1508, Jan. 19, 1996; 66 
FR 46227, Sept. 4, 2001]



Sec. 96.124  Certain allocations.

    (a) States are required to expend the Block Grant on various 
activities in certain proportions. Specifically, as to treatment and 
prevention, the State shall expend the grant as follows:
    (1) not less than 35 percent for prevention and treatment activities 
regarding alcohol; and
    (2) not less than 35 percent for prevention and treatment activities 
regarding other drugs.
    (b) The States are also to expend the Block Grant on primary 
prevention programs as follows:
    (1) Consistent with Sec. 96.125, the State shall expend not less 
than 20 percent for programs for individuals who do not require 
treatment for substance abuse, which programs--
    (i) educate and counsel the individuals on such abuse; and
    (ii) provide for activities to reduce the risk of such abuse by the 
individuals;
    (2) The State shall, in carrying out paragraph (b)(1) of this 
section--
    (i) give priority to programs for populations that are at risk of 
developing a pattern of such abuse; and
    (ii) ensure that programs receiving priority under paragraph 
(b)(2)(i) of

[[Page 507]]

this section develop community-based strategies for prevention of such 
abuse, including strategies to discourage the use of alcoholic beverages 
and tobacco products by individuals to whom it is unlawful to sell or 
distribute such beverages or products.
    (c) Subject to paragraph (d) of this section, a State is required to 
expend the Block Grant on women services as follows:
    (1) The State for fiscal year 1993 shall expend not less than five 
percent of the grant to increase (relative to fiscal year 1992) the 
availability of treatment services designed for pregnant women and women 
with dependent children (either by establishing new programs or 
expanding the capacity of existing programs). The base for fiscal year 
1993 shall be an amount equal to the fiscal year 1992 alcohol and drug 
services Block Grant expenditures and State expenditures for pregnant 
women and women with dependent children as described in paragraph (e) of 
this section, and to this base shall be added at least 5 percent of the 
1993 Block Grant allotment. The base shall be calculated using Generally 
Accepted Accounting Principles and the composition of the base shall be 
applied consistently from year to year. States shall report the methods 
used to calculate their base for fiscal year 1992 expenditures on 
treatment for pregnant women and women with dependent children.
    (2) For fiscal year 1994, the State shall, consistent with paragraph 
(c)(1) of this section, expend not less than five percent of the grant 
to increase (relative to fiscal year 1993) the availability of such 
services to pregnant women and women with dependent children.
    (3) For grants beyond fiscal year 1994, the States shall expend no 
less than an amount equal to the amount expended by the State for fiscal 
year 1994.
    (d) Upon the request of a State, the Secretary may waive all or part 
of the requirement in paragraph (c) of this section if the Secretary 
determines that the State is providing an adequate level of services for 
this population. In determining whether an adequate level of services is 
being provided the Secretary will review the extent to which such 
individuals are receiving services. This determination may be supported 
by a combination of criminal justice data, the National Drug and 
Treatment Units Survey, statewide needs assessment data, waiting list 
data, welfare department data, including medicaid expenditures, or other 
State statistical data that are systematically collected. The Secretary 
will also consider the extent to which the State offers the minimum 
services required under Sec. 96.124(e). The Secretary shall approve or 
deny a request for a waiver not later than 120 days after the date on 
which the request is made. Any waiver provided by the Secretary shall be 
applicable only to the fiscal year involved.
    (e) With respect to paragraph (c) of this section, the amount set 
aside for such services shall be expended on individuals who have no 
other financial means of obtaining such services as provided in 
Sec. 96.137. All programs providing such services will treat the family 
as a unit and therefore will admit both women and their children into 
treatment services, if appropriate. The State shall ensure that, at a 
minimum, treatment programs receiving funding for such services also 
provide or arrange for the provision of the following services to 
pregnant women and women with dependent children, including women who 
are attempting to regain custody of their children:
    (1) primary medical care for women, including referral for prenatal 
care and, while the women are receiving such services, child care;
    (2) primary pediatric care, including immunization, for their 
children;
    (3) gender specific substance abuse treatment and other therapeutic 
interventions for women which may address issues of relationships, 
sexual and physical abuse and parenting, and child care while the women 
are receiving these services;
    (4) therapeutic interventions for children in custody of women in 
treatment which may, among other things, address their developmental 
needs, their issues of sexual and physical abuse, and neglect; and
    (5) sufficient case management and transportation to ensure that 
women and their children have access to services provided by paragraphs 
(e) (1) through (4) of this section.

[[Page 508]]

    (f) Procedures for the implementation of paragraphs (c) and (e) of 
this section will be developed in consultation with the State Medical 
Director for Substance Abuse Services.



Sec. 96.125  Primary prevention.

    (a) For purposes of Sec. 96.124, each State/Territory shall develop 
and implement a comprehensive prevention program which includes a broad 
array of prevention strategies directed at individuals not identified to 
be in need of treatment. The comprehensive program shall be provided 
either directly or through one or more public or nonprofit private 
entities. The comprehensive primary prevention program shall include 
activities and services provided in a variety of settings for both the 
general population, as well as targeting sub-groups who are at high risk 
for substance abuse.
    (b) In implementing the prevention program the State shall use a 
variety of strategies, as appropriate for each target group, including 
but not limited to the following:
    (1) Information Dissemination: This strategy provides awareness and 
knowledge of the nature and extent of alcohol, tobacco and drug use, 
abuse and addiction and their effects on individuals, families and 
communities. It also provides knowledge and awareness of available 
prevention programs and services. Information dissemination is 
characterized by one-way communication from the source to the audience, 
with limited contact between the two. Examples of activities conducted 
and methods used for this strategy include (but are not limited to) the 
following:

(i) Clearinghouse/information resource center(s);
(ii) Resource directories;
(iii) Media campaigns;
(iv) Brochures;
(v) Radio/TV public service announcements;
(vi) Speaking engagements;
(vii) Health fairs/health promotion; and
(viii) Information lines.

    (2) Education: This strategy involves two-way communication and is 
distinguished from the Information Dissemination strategy by the fact 
that interaction between the educator/facilitator and the participants 
is the basis of its activities. Activities under this strategy aim to 
affect critical life and social skills, including decision-making, 
refusal skills, critical analysis (e.g. of media messages) and 
systematic judgment abilities. Examples of activities conducted and 
methods used for this strategy include (but are not limited to) the 
following:

(i) Classroom and/or small group sessions (all ages);
(ii) Parenting and family management classes;
(iii) Peer leader/helper programs;
(iv) Education programs for youth groups; and
(v) Children of substance abusers groups.

    (3) Alternatives: This strategy provides for the participation of 
target populations in activities that exclude alcohol, tobacco and other 
drug use. The assumption is that constructive and healthy activities 
offset the attraction to, or otherwise meet the needs usually filled by 
alcohol, tobacco and other drugs and would, therefore, minimize or 
obviate resort to the latter. Examples of activities conducted and 
methods used for this strategy include (but are not limited to) the 
following:

(i) Drug free dances and parties;
(ii) Youth/adult leadership activities;
(iii) Community drop-in centers; and
(iv) Community service activities.

    (4) Problem Identification and Referral: This strategy aims at 
identification of those who have indulged in illegal/age-inappropriate 
use of tobacco or alcohol and those individuals who have indulged in the 
first use of illicit drugs in order to assess if their behavior can be 
reversed through education. It should be noted, however, that this 
strategy does not include any activity designed to determine if a person 
is in need of treatment. Examples of activities conducted and methods 
used for this strategy include (but are not limited to) the following:

(i) Employee assistance programs;
(ii) Student assistance programs; and
(iii) Driving while under the influence/driving while intoxicated 
    education programs.

    (5) Community-Based Process: This strategy aims to enhance the 
ability of

[[Page 509]]

the community to more effectively provide prevention and treatment 
services for alcohol, tobacco and drug abuse disorders. Activities in 
this strategy include organizing, planning, enhancing efficiency and 
effectiveness of services implementation, inter-agency collaboration, 
coalition building and networking. Examples of activities conducted and 
methods used for this strategy include (but are not limited to) the 
following:

(i) Community and volunteer training, e.g., neighborhood action 
    training, training of key people in the system, staff/officials 
    training;
(ii) Systematic planning;
(iii) Multi-agency coordination and collaboration;
(iv) Accessing services and funding; and
(v) Community team-building.

    (6) Environmental: This strategy establishes or changes written and 
unwritten community standards, codes and attitudes, thereby influencing 
incidence and prevalence of the abuse of alcohol, tobacco and other 
drugs used in the general population. This strategy is divided into two 
subcategories to permit distinction between activities which center on 
legal and regulatory initiatives and those which relate to the service 
and action-oriented initiatives. Examples of activities conducted and 
methods used for this strategy shall include (but not be limited to) the 
following:

(i) promoting the establishment and review of alcohol, tobacco and drug 
    use policies in schools;
(ii) technical assistance to communities to maximize local enforcement 
    procedures governing availability and distribution of alcohol, 
    tobacco and other drug use;
(iii) modifying alcohol and tobacco advertising practices; and
(iv) product pricing strategies.



Sec. 96.126  Capacity of treatment for intravenous substance abusers.

    (a) In order to obtain Block Grant funds, the State must require 
programs that receive funding under the grant and that treat individuals 
for intravenous substance abuse to provide to the State, upon reaching 
90 percent of its capacity to admit individuals to the program, a 
notification of that fact within seven days. In carrying out this 
section, the State shall establish a capacity management program which 
reasonably implements this section--that is, which enables any such 
program to readily report to the State when it reaches 90 percent of its 
capacity--and which ensures the maintenance of a continually updated 
record of all such reports and which makes excess capacity information 
available to such programs.
    (b) In order to obtain Block Grant funds, the State shall ensure 
that each individual who requests and is in need of treatment for 
intravenous drug abuse is admitted to a program of such treatment not 
later than--
    (1) 14 days after making the request for admission to such a 
program; or
    (2) 120 days after the date of such request, if no such program has 
the capacity to admit the individual on the date of such request and if 
interim services, including referral for prenatal care, are made 
available to the individual not later than 48 hours after such request.
    (c) In carrying out subsection (b), the State shall establish a 
waiting list management program which provides systematic reporting of 
treatment demand. The State shall require that any program receiving 
funding from the grant, for the purposes of treating injecting drug 
abusers, establish a waiting list that includes a unique patient 
identifier for each injecting drug abuser seeking treatment including 
those receiving interim services, while awaiting admission to such 
treatment. For individuals who cannot be placed in comprehensive 
treatment within 14 days, the State shall ensure that the program 
provide such individuals interim services as defined in Sec. 96.121 and 
ensure that the programs develop a mechanism for maintaining contact 
with the individuals awaiting admission. The States shall also ensure 
that the programs consult the capacity management system as provided in 
paragraph (a) of this section so that patients on waiting lists are 
admitted at the earliest possible time to a program providing such 
treatment within reasonable geographic area.
    (d) In carrying out paragraph (b)(2) of this section the State shall 
ensure that

[[Page 510]]

all individuals who request treatment and who can not be placed in 
comprehensive treatment within 14 days, are enrolled in interim services 
and those who remain active on a waiting list in accordance with 
paragraph (c) of this section, are admitted to a treatment program 
within 120 days. If a person cannot be located for admission into 
treatment or, if a person refuses treatment, such persons may be taken 
off the waiting list and need not be provided treatment within 120 days. 
For example, if such persons request treatment later, and space is not 
available, they are to be provided interim services, placed on a waiting 
list and admitted to a treatment program within 120 days from the latter 
request.
    (e) The State shall require that any entity that receives funding 
for treatment services for intravenous drug abuse carry out activities 
to encourage individuals in need of such treatment to undergo such 
treatment. The States shall require such entities to use outreach models 
that are scientifically sound, or if no such models are available which 
are applicable to the local situation, to use an approach which 
reasonably can be expected to be an effective outreach method. The model 
shall require that outreach efforts include the following:

(1) Selecting, training and supervising outreach workers;
(2) Contacting, communicating and following-up with high risk substance 
    abusers, their associates, and neighborhood residents, within the 
    constraints of Federal and State confidentiality requirements, 
    including 42 C.F.R. Part 2;
(3) Promoting awareness among injecting drug abusers about the 
    relationship between injecting drug abuse and communicable diseases 
    such as HIV;
(4) Recommend steps that can be taken to ensure that HIV transmission 
    does not occur; and
(5) Encouraging entry into treatment.

    (f) The State shall develop effective strategies for monitoring 
programs compliance with this section. States shall report under the 
requirements of Sec. 96.122(g) on the specific strategies to be used to 
identify compliance problems and corrective actions to be taken to 
address those problems.



Sec. 96.127  Requirements regarding tuberculosis.

    (a) States shall require any entity receiving amounts from the grant 
for operating a program of treatment for substance abuse to follow 
procedures developed by the principal agency of a State for substance 
abuse, in consultation with the State Medical Director for Substance 
Abuse Services, and in cooperation with the State Department of Health/
Tuberculosis Control Officer, which address how the program--
    (1) Will, directly or through arrangements with other public or 
nonprofit private entities, routinely make available tuberculosis 
services as defined in Sec. 96.121 to each individual receiving 
treatment for such abuse;
    (2) In the case of an individual in need of such treatment who is 
denied admission to the program on the basis of the lack of the capacity 
of the program to admit the individual, will refer the individual to 
another provider of tuberculosis services; and
    (3) Will implement infection control procedures established by the 
principal agency of a State for substance abuse, in cooperation with the 
State Department of Health/Tuberculosis Control Officer, which are 
designed to prevent the transmission of tuberculosis, including the 
following:

(i) Screening of patients;
(ii) Identification of those individuals who are at high risk of 
    becoming infected; and
(iii) Meeting all State reporting requirements while adhering to Federal 
    and State confidentiality requirements, including 42 CFR part 2; and

    (4) will conduct case management activities to ensure that 
individuals receive such services.
    (b) The State shall develop effective strategies for monitoring 
programs compliance with this section. States shall report under the 
requirements of Sec. 96.122(g) on the specific strategies to be used to 
identify compliance problems and corrective actions to be taken to 
address those problems. The principal agency, in cooperation with the

[[Page 511]]

State Department of Health/Tuberculosis Control Officer, shall also 
establish linkages with other health care providers to ensure that 
tuberculosis services are routinely made available. All individuals 
identified with active tuberculosis shall be reported to the appropriate 
State official as required by law and consistent with paragraph 
(a)(3)(iii) of this section.
    (c) With respect to services provided for by a State for purposes of 
compliance with this section, the State shall maintain Statewide 
expenditures of non-Federal amounts for such services at a level that is 
not less than an average level of such expenditures maintained by the 
State for the 2-year period preceding the first fiscal year for which 
the State receives such a grant. In making this determination, States 
shall establish a reasonable funding base for fiscal year 1993. The base 
shall be calculated using Generally Accepted Accounting Principles and 
the composition of the base shall be applied consistently from year to 
year.



Sec. 96.128  Requirements regarding human immunodeficiency virus.

    (a) In the case of a designated State as described in paragraph (b) 
of this section, the State shall do the following--
    (1) with respect to individuals undergoing treatment for substance 
abuse, the State shall, subject to paragraph (c) of this section, carry 
out one or more projects to make available to the individuals early 
intervention services for HIV disease as defined in Sec. 96.121 at the 
sites at which the individuals are undergoing such treatment;
    (2) for the purpose of providing such early intervention services 
through such projects, the State shall make available from the grant the 
amounts prescribed by section 1924 of the PHS Act;
    (3) the State shall, subject to paragraph (d) of this section, carry 
out such projects only in geographic areas of the State that have the 
greatest need for the projects;
    (4) the State shall require programs participating in the project to 
establish linkages with a comprehensive community resource network of 
related health and social services organizations to ensure a wide-based 
knowledge of the availability of these services; and
    (5) the State shall require any entity receiving amounts from the 
Block Grant for operating a substance abuse treatment program to follow 
procedures developed by the principal agency of a State for substance 
abuse, in consultation with the State Medical Director for Substance 
Abuse Services, and in cooperation with the State Department of Health/
Communicable Disease Officer.
    (b) For purposes of this section, a ``designated State'' is any 
State whose rate of cases of acquired immune deficiency syndrome is 10 
or more such cases per 100,000 individuals (as indicated by the number 
of such cases reported to and confirmed by the Director of the Centers 
for Disease Control for the most recent calendar year for which the data 
are available).
    (c) With respect to programs that provide treatment services for 
substance abuse, the State shall ensure that each such program 
participating in a project under paragraph (a) of this section will be a 
program that began operation prior to the fiscal year for which the 
State is applying to receive the grant. A program that so began 
operation may participate in a project under paragraph (a) of this 
section without regard to whether the program has been providing early 
intervention services for HIV disease.
    (d) If the State plans to carry out 2 or more projects under 
paragraph (a) of this section, the State shall carry out one such 
project in a rural area of the State, unless the requirement is waived. 
The Secretary shall waive the requirement if the State certifies to the 
Secretary that:
    (1) The rate of cases of acquired immune deficiency syndrome is less 
than or equal to two such cases per 100,000 individuals in any rural 
area of the State, or there are so few infected persons that 
establishing a project in the area is not reasonable; or
    (2) There are no rural areas in the State as defined in Sec. 96.121.
    (e) With respect to the provision of early intervention services for 
HIV disease to an individual, the State shall ensure that the entities 
comply with

[[Page 512]]

Sec. 96.137 regarding payment and Sec. 96.135 regarding restrictions on 
expenditure of grant. The State shall also ensure that such services 
will be undertaken voluntarily by, and with the informed consent of, the 
individual, and undergoing such services will not be required as a 
condition of receiving treatment services for substance abuse or any 
other services.
    (f) With respect to services provided for a State for purposes of 
compliance with this section, the State shall maintain Statewide 
expenditures of non-Federal amounts for such services at a level that is 
not less than the average level of such expenditures maintained by the 
State for 2-year period preceding the first fiscal year for which the 
State receives such a grant. In making this determination, States shall 
establish a reasonable base for fiscal year 1993. The base shall be 
calculated using Generally Accepted Accounting Principles and the 
composition of the base shall be applied consistently from year to year.



Sec. 96.129  Revolving funds for establishment of homes in which recovering substance abusers may reside.

    (a) The State shall establish and provide for the ongoing operation 
of a revolving fund as follows:
    (1) The purpose of the fund is to make loans for the costs of 
establishing programs for the provision of housing in which individuals 
recovering from alcohol and drug abuse may reside in groups of not less 
than six individuals;
    (2) Not less than $100,000 will be available for the revolving fund;
    (3) Loans made from the revolving fund do not exceed $4,000 and that 
each such loan is repaid to the revolving fund not later than 2 years 
after the date on which the loan is made;
    (4) Each such loan is repaid by such residents through monthly 
installments by the date specified in the loan agreement involved;
    (5) Such loans are made only to nonprofit private entities agreeing 
that, in the operation of the program established pursuant to the loan--
    (i) The use of alcohol or any illegal drug in the housing provided 
by the program will be prohibited;
    (ii) Any resident of the housing who violates such prohibition will 
be expelled from the housing;
    (iii) The costs of the housing, including fees for rent and 
utilities, will be paid by the residents of the housing; and
    (iv) The residents of the housing will, through a majority vote of 
the residents, otherwise establish policies governing residence in the 
housing, including the manner in which applications for residence in the 
housing are approved;
    (6) States shall identify and clearly define legitimate purposes for 
which the funds will be spent, such as first month's rent, necessary 
furniture (e.g., beds), facility modifications (e.g., conversion of 
basement into a game room or extra bedrooms), and purchase of amenities 
which foster healthy group living (e.g., dishwasher);
    (7) In managing the revolving fund, the State and the financial 
entity managing the fund for the State shall abide by all Federal, State 
and local laws and regulations;
    (8) If the State decides to indirectly manage the fund using a 
private nonprofit entity as the fund management group, the State shall 
establish reasonable criteria for selecting the group, such as 
qualifications, expertise, experience, and capabilities of the group, 
and the State shall require that these entities abide by all Federal, 
State and local laws and regulations;
    (9) The State may seek assistance to approve or deny applications 
from entities that meet State-established criteria;
    (10) The State shall set reasonable criteria in determining the 
eligibility of prospective borrowers such as qualifications, expertise, 
capabilities, the acceptability of a proposed plan to use the funds and 
operate the house, and an assessment of the potential borrower's ability 
to pay back the funds;
    (11) The State shall establish a procedure and process for applying 
for a loan under the program which may include completion of the 
application, personal interviews and submission of evidence to support 
eligibility requirements, as well as establish a written procedure for 
repayment which will set forth reasonable penalties for late or missed

[[Page 513]]

payments and liability and recourse for default;
    (12) The State shall provide clearly defined written instructions to 
applicants which lays out timeliness, milestones, required 
documentation, notification of reasonable penalties for late or missed 
payments and recourse for default, notification on legitimate purposes 
for which the loan may be spent, and other procedures required by the 
State; and
    (13) The State shall keep a written record of the number of loans 
and amount of loans provided, the identities of borrowers and the 
repayment history of each borrower and retain it for three years.
    (b) The requirements established in paragraph (a) of this section 
shall not apply to any territory of the United States other than the 
Commonwealth of Puerto Rico.



Sec. 96.130  State law regarding sale of tobacco products to individuals under age of 18.

    (a) For purposes of this section, the term ``first applicable fiscal 
year'' means fiscal year 1994, except in the case of any State described 
in section 1926(a)(2) of the PHS Act, in which case ``first applicable 
fiscal year'' means fiscal year 1995. The term ``outlet'' is any 
location which sells at retail or otherwise distributes tobacco products 
to consumers including (but not limited to) locations that sell such 
products over-the-counter or through vending machines.
    (b) The Secretary may make a grant to a State only if the State, for 
the first applicable fiscal year and subsequent fiscal years, has in 
effect a law providing that it is unlawful for any manufacturer, 
retailer, or distributor of tobacco products to sell or distribute any 
such product to any individual under age 18 through any sales or 
distribution outlet, including over-the-counter and vending machine 
sales.
    (c) For the first and second applicable fiscal years, the State 
shall, at a minimum, conduct annually a reasonable number of random, 
unannounced inspections of outlets to ensure compliance with the law and 
plan and begin to implement any other actions which the State believes 
are necessary to enforce the law.
    (d) For the third and subsequent fiscal years, the States shall do 
the following:
    (1) The State shall conduct annual, random, unannounced inspections 
of both over-the-counter and vending machine outlets. The random 
inspections shall cover a range of outlets (not preselected on the basis 
of prior violations) to measure overall levels of compliance as well as 
to identify violations.
    (2) Random, unannounced inspections shall be conducted annually to 
ensure compliance with the law and shall be conducted in such a way as 
to provide a probability sample of outlets. The sample must reflect the 
distribution of the population under age 18 throughout the State and the 
distribution of the outlets throughout the State accessible to youth.
    (e) As provided by Sec. 96.122(d), the State shall annually submit 
to the Secretary a report which shall include the following:
    (1) a detailed description of the State's activities to enforce the 
law required in paragraph (b) of this section during the fiscal year 
preceding the fiscal year for which that State is seeking the grant;
    (2) a detailed description regarding the overall success the State 
has achieved during the previous fiscal year in reducing the 
availability of tobacco products to individuals under the age of 18, 
including the results of the unannounced inspections as provided by 
paragraph (d) of this section for which the results of over-the-counter 
and vending machine outlet inspections shall be reported separately;
    (3) a detailed description of how the unannounced inspections were 
conducted and the methods used to identify outlets;
    (4) the strategies to be utilized by the State for enforcing such 
law during the fiscal year for which the grant is sought; and
    (5) the identity of the agency or agencies designated by the 
Governor to be responsible for the implementation of the requirements of 
section 1926 of the PHS Act.

[[Page 514]]

    (f) Beginning in the second applicable fiscal year, the annual 
report required under paragraph (e) of this section shall be made public 
within the State, along with the State plan as provided in section 1941 
of the PHS Act.
    (g) Beginning with applications for the fourth applicable fiscal 
year and all subsequent fiscal years, the Secretary will negotiate with 
the State, as part of the State's plan, the interim performance target 
the State will meet for that fiscal year and in subsequent years will 
seek evidence of progress toward achieving or surpassing a performance 
objective in which the inspection failure rate would be no more than 20% 
within several years.
    (h) Beginning with the second applicable fiscal year and all 
subsequent fiscal years, the Secretary shall make a determination, 
before making a Block Grant to a State for that fiscal year, whether the 
State reasonably enforced its law in the previous fiscal year pursuant 
to this section. In making this determination, the Secretary will 
consider the following factors:
    (1) During the first and second applicable fiscal years, the State 
must conduct the activities prescribed in paragraph (c) of this section.
    (2) During the third applicable fiscal year, the State must conduct 
random, unannounced inspections in accordance with paragraph (d) of this 
section.
    (3) During the fourth and all subsequent applicable fiscal years, 
the State must do the following:
    (i) conduct random, unannounced inspections in accordance with 
paragraph (d); and
    (ii) except as provided by paragraph (h)(4) of this section, the 
State must be in substantial compliance with the target negotiated with 
the Secretary under paragraph (g) of this section for that fiscal year.
    (4) If a State has not substantially complied with the target as 
prescribed under paragraph (h)(3)(ii) of this section for any fiscal 
year, the Secretary, in extraordinary circumstances, may consider a 
number of factors, including survey data showing that the State is 
making significant progress toward reducing use of tobacco products by 
children and youth, data showing that the State has progressively 
decreased the availability of tobacco products to minors, the 
composition of the outlets inspected as to whether they were over-the-
counter or vending machine outlets, and the State's plan for improving 
the enforcement of the law in the next fiscal year.
    (i) If, after notice to the State and an opportunity for a hearing, 
the Secretary determines under paragraph (h) of this section that the 
State has not maintained compliance, the Secretary will reduce the 
amount of the allotment in such amounts as is required by section 
1926(c) of the PHS Act.
    (j) States may not use the Block Grant to fund the enforcement of 
their statute, except that they may expend funds from the primary 
prevention setaside of their Block Grant allotment under 45 CFR 
96.124(b)(1) for carrying out the administrative aspects of the 
requirements such as the development of the sample design and the 
conducting of the inspections.

[61 FR 1508, Jan. 19, 1996, as amended at 66 FR 46227, Sept. 4, 2001]



Sec. 96.131  Treatment services for pregnant women.

    (a) The State is required to, in accordance with this section, 
ensure that each pregnant woman in the State who seeks or is referred 
for and would benefit from such services is given preference in 
admissions to treatment facilities receiving funds pursuant to the 
grant. In carrying out this section, the State shall require all 
entities that serve women and who receive such funds to provide 
preference to pregnant women. Programs which serve an injecting drug 
abuse population and who receive Block Grant funds shall give preference 
to treatment as follows:
    (1) Pregnant injecting drug users;
    (2) Pregnant substance abusers;
    (3) Injecting drug users; and
    (4) All others.
    (b) The State will, in carrying out this provision publicize the 
availability to such women of services from the facilities and the fact 
that pregnant women receive such preference. This may be done by means 
of street outreach programs, ongoing public service announcements 
(radio/television), regular advertisements in local/regional print 
media, posters placed in targeted

[[Page 515]]

areas, and frequent notification of availability of such treatment 
distributed to the network of community based organizations, health care 
providers, and social service agencies.
    (c) The State shall in carrying out paragraph (a) of this section 
require that, in the event that a treatment facility has insufficient 
capacity to provide treatment services to any such pregnant woman who 
seeks the services from the facility, the facility refer the woman to 
the State. This may be accomplished by establishing a capacity 
management program, utilizing a toll-free number, an automated reporting 
system and/or other mechanisms to ensure that pregnant women in need of 
such services are referred as appropriate. The State shall maintain a 
continually updated system to identify treatment capacity for any such 
pregnant women and will establish a mechanism for matching the women in 
need of such services with a treatment facility that has the capacity to 
treat the woman.
    (d) The State, in the case of each pregnant woman for whom a 
referral under paragraph (a) of this section is made to the State--
    (1) will refer the woman to a treatment facility that has the 
capacity to provide treatment services to the woman; or
    (2) will, if no treatment facility has the capacity to admit the 
woman, make available interim services, including a referral for 
prenatal care, available to the woman not later than 48 hours after the 
woman seeks the treatment services.
    (e) Procedures for the implementation of this section shall be 
developed in consultation with the State Medical Director for Substance 
Abuse Services.
    (f) The State shall develop effective strategies for monitoring 
programs compliance with this section. States shall report under the 
requirements of Sec. 96.122(g) on the specific strategies to be used to 
identify compliance problems and corrective actions to be taken to 
address those problems.



Sec. 96.132  Additional agreements.

    (a) With respect to individuals seeking treatment services, the 
State is required to improve (relative to fiscal year 1992) the process 
in the State for referring the individuals to treatment facilities that 
can provide to the individuals the treatment modality that is most 
appropriate for the individuals. Examples of how this may be 
accomplished include the development and implementation of a capacity 
management/waiting list management system; the utilization of a toll-
free number for programs to report available capacity and waiting list 
data; and the utilization of standardized assessment procedures that 
facilitate the referral process.
    (b) With respect to any facility for treatment services or 
prevention activities that is receiving amounts from a Block Grant, 
continuing education in such services or activities (or both, as the 
case may be) shall be made available to employees of the facility who 
provide the services or activities. The States will ensure that such 
programs include a provision for continuing education for employees of 
the facility in its funding agreement.
    (c) The State shall coordinate prevention and treatment activities 
with the provision of other appropriate services (including health, 
social, correctional and criminal justice, educational, vocational 
rehabilitation, and employment services). In evaluating compliance with 
this section, the Secretary will consider such factors as the existence 
of memoranda of understanding between various service providers/agencies 
and evidence that the State has included prevention and treatment 
services coordination in its grants and contracts.
    (d) Upon the request of a State, the Secretary may provide to a 
State a waiver of any or all of the requirements established in 
paragraphs (a), (b) and (c) of this section, if the Secretary determines 
that, with respect to services for the prevention and treatment of 
substance abuse, the requirement involved is unnecessary for maintaining 
quality in the provision of such services in the State. In evaluating 
whether to grant or deny a waiver, the Secretary will rely on 
information drawn from the independent peer review/quality assurance 
activities conducted by the State. For example, a State may be eligible 
for a waiver of the requirement

[[Page 516]]

of paragraph (a) of this section if a State already has a well developed 
process for referring individuals to treatment facilities that can 
provide to the individuals the treatment modality that is most 
appropriate for the individuals. The Secretary will approve or deny a 
request for a waiver not later than 120 days after the date on which the 
request is made. Any waiver provided by the Secretary for paragraphs 
(a), (b) and (c) of this section, will be applicable only to the fiscal 
year involved.
    (e) The State is also required to have in effect a system to protect 
from inappropriate disclosure patient records maintained by the State in 
connection with an activity funded under the program involved or by any 
entity which is receiving amounts from the grant and such system shall 
be in compliance with all applicable State and Federal laws and 
regulations, including 42 CFR part 2. This system shall include 
provisions for employee education on the confidentiality requirements 
and the fact that disciplinary action may occur upon inappropriate 
disclosures. This requirement cannot be waived.



Sec. 96.133  Submission to Secretary of Statewide assessment of needs.

    (a) The State is required to submit to the Secretary an assessment 
of the need in the State for authorized activities, both by locality and 
by the State in general. The State is to provide a broad range of 
information which includes the following:
    (1) The State is to submit data which shows the incidence and 
prevalence in the State of drug abuse and the incidence and prevalence 
in the State of alcohol abuse and alcoholism. For fiscal years 1993 
through 1996, the State shall submit its best available data on the 
incidence and prevalence of drug and alcohol abuse and alcoholism. The 
State shall also provide a summary describing the weakness and bias in 
the data and a description on how the State plans to strengthen the data 
in the future.
    (2) The State shall provide a description on current substance abuse 
prevention and treatment activities:
    (i) For fiscal year 1993, the State shall provide its best available 
data on current prevention and treatment activities in the State in such 
detail as it finds reasonably practicable given its own data collection 
activities and records.
    (ii) For fiscal year 1994 and subsequent years, the State shall 
provide a detailed description on current prevention and treatment 
activities in the State. This report shall include a detailed 
description of the intended use of the funds relating to prevention and 
treatment, as well as a description of treatment capacity. As to primary 
prevention activities, the activities must be broken down by strategies 
used, such as those provided in section 96.125, including the specific 
activities conducted. The State shall provide the following data if 
available: the specific risk factors being addressed by activity; the 
age, race/ethnicity and gender of the population being targeted by the 
prevention activity; and the community size and type where the activity 
is carried out. As to all treatment and prevention activities, including 
primary prevention, the State shall provide the identities of the 
entities that provide the services and describe the services provided. 
The State shall submit information on treatment utilization to describe 
the type of care and the utilization according to primary diagnosis of 
alcohol or drug abuse, or a dual diagnosis of drug and alcohol abuse.
    (3) The State may describe the need for technical assistance to 
carry out Block Grant activities, including activities relating to the 
collection of incidence and prevalence data identified in paragraph 
(a)(1) of this section.
    (4) The State shall establish goals and objectives for improving 
substance abuse treatment and prevention activities and shall report 
activities taken in support of these goals and objectives in its 
application.
    (5) The State shall submit a detailed description on the extent to 
which the availability of prevention and treatment activities is 
insufficient to meet the need for the activities, the interim services 
to be made available under sections 96.126 and 96.131, and the manner in 
which such services are to be so available. Special attention should be 
provided to the following groups:

[[Page 517]]

    (i) Pregnant addicts;
    (ii) Women who are addicted and who have dependent children;
    (iii) Injecting drug addicts; and
    (iv) Substance abusers infected with HIV or who have tuberculosis.
    (6) Documentation describing the results of the State's management 
information system pertaining to capacity and waiting lists shall also 
be submitted, as well as a summary of such information for admissions 
and, when available, discharges. As to prevention activities, the report 
shall include a description of the populations at risk of becoming 
substance abusers.



Sec. 96.134  Maintenance of effort regarding State expenditures.

    (a) With respect to the principal agency of a State for carrying out 
authorized activities, the agency shall for each fiscal year maintain 
aggregate State expenditures by the principal agency for authorized 
activities at a level that is not less than the average level of such 
expenditures maintained by the State for the two year period preceding 
the fiscal year for which the State is applying for the grant. The Block 
Grant shall not be used to supplant State funding of alcohol and other 
drug prevention and treatment programs.
    (b) Upon the request of a State, the Secretary may waive all or part 
of the requirement established in paragraph (a) of this section if the 
Secretary determines that extraordinary economic conditions in the State 
justify the waiver. The State involved must submit information 
sufficient for the Secretary to make the determination, including the 
nature of the extraordinary economic circumstances, documented evidence 
and appropriate data to support the claim, and documentation on the year 
for which the State seeks the waiver. The Secretary will approve or deny 
a request for a waiver not later than 120 days after the date on which 
the request is made. Any waiver provided by the Secretary shall be 
applicable only to the fiscal year involved. ``Extraordinary economic 
conditions'' mean a financial crisis in which the total tax revenue 
declines at least one and one-half percent, and either unemployment 
increases by at least one percentage point, or employment declines by at 
least one and one-half percent.
    (c) In making a Block Grant to a State for a fiscal year, the 
Secretary shall make a determination of whether, for the previous fiscal 
year or years, the State maintained material compliance with any 
agreement made under paragraph (a) of this section. If the Secretary 
determines that a State has failed to maintain such compliance, the 
Secretary shall reduce the amount of the allotment for the State for the 
fiscal year for which the grant is being made by an amount equal to the 
amount constituting such failure for the previous fiscal year.
    (d) The Secretary may make a Block Grant for a fiscal year only if 
the State involved submits to the Secretary information sufficient for 
the Secretary to make the determination required in paragraph (a) of 
this section, which includes the dollar amount reflecting the aggregate 
State expenditures by the principal agency for authorized activities for 
the two State fiscal years preceding the fiscal year for which the State 
is applying for the grant. The base shall be calculated using Generally 
Accepted Accounting Principles and the composition of the base shall be 
applied consistently from year to year.



Sec. 96.135  Restrictions on expenditure of grant.

    (a) The State shall not expend the Block Grant on the following 
activities:
    (1) To provide inpatient hospital services, except as provided in 
paragraph (c) of this section;
    (2) To make cash payments to intended recipients of health services;
    (3) To purchase or improve land, purchase, construct, or permanently 
improve (other than minor remodeling) any building or other facility, or 
purchase major medical equipment;
    (4) To satisfy any requirement for the expenditure of non-Federal 
funds as a condition for the receipt of Federal funds;
    (5) To provide financial assistance to any entity other than a 
public or nonprofit private entity; or
    (6) To provide individuals with hypodermic needles or syringes so 
that such

[[Page 518]]

individuals may use illegal drugs, unless the Surgeon General of the 
Public Health Service determines that a demonstration needle exchange 
program would be effective in reducing drug abuse and the risk that the 
public will become infected with the etiologic agent for AIDS.
    (b) The State shall limit expenditures on the following:
    (1) The State involved will not expend more than 5 percent of the 
grant to pay the costs of administering the grant; and
    (2) The State will not, in expending the grant for the purpose of 
providing treatment services in penal or correctional institutions of 
the State, expend more than an amount prescribed by section 1931(a)(3) 
of the PHS Act.
    (c) Exception regarding inpatient hospital services.
    (1) With respect to compliance with the agreement made under 
paragraph (a) of this section, a State (acting through the Director of 
the principal agency) may expend a grant for inpatient hospital-based 
substance abuse programs subject to the limitations of paragraph (c)(2) 
of this section only when it has been determined by a physician that:
    (i) The primary diagnosis of the individual is substance abuse, and 
the physician certifies this fact;
    (ii) The individual cannot be safely treated in a community-based, 
nonhospital, residential treatment program;
    (iii) The Service can reasonably be expected to improve an 
individual's condition or level of functioning;
    (iv) The hospital-based substance abuse program follows national 
standards of substance abuse professional practice; and
    (2) In the case of an individual for whom a grant is expended to 
provide inpatient hospital services described above, the allowable 
expenditure shall conform to the following:
    (i) The daily rate of payment provided to the hospital for providing 
the services to the individual will not exceed the comparable daily rate 
provided for community-based, nonhospital, residential programs of 
treatment for substance abuse; and
    (ii) The grant may be expended for such services only to the extent 
that it is medically necessary, i.e., only for those days that the 
patient cannot be safely treated in a residential, community-based 
program.
    (d) The Secretary may approve a waiver for construction under 
paragraph (a)(3) of this section within 120 days after the date of a 
request only if:
    (1) The State demonstrates to the Secretary that adequate treatment 
cannot be provided through the use of existing facilities and that 
alternative facilities in existing suitable buildings are not available;
    (2) The State has carefully designed a plan that minimizes the costs 
of renovation or construction;
    (3) The State agrees, with respect to the costs to be incurred by 
the State in carrying out the purpose of the waiver, to make available 
non-Federal contributions in cash toward such costs in an amount equal 
to not less than $1 for each $1 of Federal funds provided under the 
Block Grant; and
    (4) The State submits the following to support paragraphs (b)(1), 
(2) and (3), of this section:
    (i) Documentation to support paragraph (d)(1) of this section, such 
as local needs assessments, waiting lists, survey data and other related 
information;
    (ii) A brief description of the project to be funded, including the 
type(s) of services to be provided and the projected number of 
residential and/or outpatient clients to be served;
    (iii) The specific amount of Block Grant funds to be used for this 
project;
    (iv) The number of outpatient treatment slots planned or the number 
of residential beds planned, if applicable;
    (v) The estimate of the total cost of the construction or 
rehabilitation (and a description of how these estimates were 
determined), based on an independent estimate of said cost, using 
standardized measures as determined by an appropriate State construction 
certifying authority;
    (vi) An assurance by the State that all applicable National (e.g., 
National Fire Protection Association, Building Officials and Codes 
Administrators International), Federal (National Environmental Policy 
Act), State, and local

[[Page 519]]

standards for construction or rehabilitation of health care facilities 
will be complied with;
    (vii) Documentation of the State's commitment to obligate these 
funds by the end of the first year in which the funds are available, and 
that such funds must be expended by the end of the second year (section 
1914(a)(2) of the PHS Act);
    (viii) A certification that there is public support for a waiver, as 
well as a description of the procedure used (and the results therein) to 
ensure adequate comment from the general public and the appropriate 
State and local health planning organizations, local governmental 
entities and public and private-sector service providers that may be 
impacted by the waiver request;
    (ix) Evidence that a State is committed to using the proposed new or 
rehabilitated substance abuse facility for the purposes stated in the 
request for at least 20 years for new construction and at least 10 years 
for rehabilitated facilities;
    (x) An assurance that, if the facility ceases to be used for such 
services, or if the facility is sold or transferred for a purpose 
inconsistent with the State's waiver request, monies will be returned to 
the Federal Government in an amount proportionate to the Federal 
assistance provided, as it relates to the value of the facility at the 
time services cease or the facility sold or transferred;
    (xi) A description of the methods used to minimize the costs of the 
construction or rehabilitation, including documentation of the costs of 
the residential facilities in the local area or other appropriate 
equivalent sites in the State;
    (xii) An assurance that the State shall comply with the matching 
requirements of paragraph (d)(3) of this section; and
    (xiii) Any other information the Secretary may determine to be 
appropriate.



Sec. 96.136  Independent peer review.

    (a) The State shall for the fiscal year for which the grant is 
provided, provide for independent peer review to assess the quality, 
appropriateness, and efficacy of treatment services provided in the 
State to individuals under the program involved, and ensure that at 
least 5 percent of the entities providing services in the State under 
such program are reviewed. The programs reviewed shall be representative 
of the total population of such entities.
    (b) The purpose of independent peer review is to review the quality 
and appropriateness of treatment services. The review will focus on 
treatment programs and the substance abuse service system rather than on 
the individual practitioners. The intent of the independent peer review 
process is to continuously improve the treatment services to alcohol and 
drug abusers within the State system. ``Quality,'' for purposes of this 
section, is the provision of treatment services which, within the 
constraints of technology, resources, and patient/client circumstances, 
will meet accepted standards and practices which will improve patient/
client health and safety status in the context of recovery. 
``Appropriateness,'' for purposes of this section, means the provision 
of treatment services consistent with the individual's identified 
clinical needs and level of functioning.
    (c) The independent peer reviewers shall be individuals with 
expertise in the field of alcohol and drug abuse treatment. Because 
treatment services may be provided by multiple disciplines, States will 
make every effort to ensure that individual peer reviewers are 
representative of the various disciplines utilized by the program under 
review. Individual peer reviewers must also be knowledgeable about the 
modality being reviewed and its underlying theoretical approach to 
addictions treatment, and must be sensitive to the cultural and 
environmental issues that may influence the quality of the services 
provided.
    (d) As part of the independent peer review, the reviewers shall 
review a representative sample of patient/client records to determine 
quality and appropriateness of treatment services, while adhering to all 
Federal and State confidentiality requirements, including 42 CFR Part 2. 
The reviewers shall examine the following:
    (1) Admission criteria/intake process;

[[Page 520]]

    (2) Assessments;
    (3) Treatment planning, including appropriate referral, e.g., 
prenatal care and tuberculosis and HIV services;
    (4) Documentation of implementation of treatment services;
    (5) Discharge and continuing care planning; and
    (6) Indications of treatment outcomes.
    (e) The State shall ensure that the independent peer review will not 
involve practitioners/providers reviewing their own programs, or 
programs in which they have administrative oversight, and that there be 
a separation of peer review personnel from funding decisionmakers. In 
addition, the State shall ensure that independent peer review is not 
conducted as part of the licensing/certification process.
    (f) The States shall develop procedures for the implementation of 
this section and such procedures shall be developed in consultation with 
the State Medical Director for Substance Abuse Services.



Sec. 96.137  Payment schedule.

    (a) The Block Grant money that may be spent for Secs. 96.124(c) and 
(e), 96.127 and 96.128 is governed by this section which ensures that 
the grant will be the ``payment of last resort.'' The entities that 
receive funding under the Block Grant and provides services required by 
the above-referenced sections shall make every reasonable effort, 
including the establishment of systems for eligibility determination, 
billing, and collection, to:
    (1) Collect reimbursement for the costs of providing such services 
to persons who are entitled to insurance benefits under the Social 
Security Act, including programs under title XVIII and title XIX, any 
State compensation program, any other public assistance program for 
medical expenses, any grant program, any private health insurance, or 
any other benefit program; and
    (2) Secure from patients or clients payments for services in 
accordance with their ability to pay.

         Appendix A to Part 96--Uniform Definitions of Services

1. Adoption Services
2. Case Management Services
3. Congregate Meals
4. Counseling Services
5. Day Care Services--Adults
6. Day Care Services--Children
7. Education and Training Services
8. Employment Services
9. Family Planning Services
10. Foster Care Services for Adults
11. Foster Care Services for Children
12. Health Related and Home Health Services
13. Home Based Services
14. Home Delivered Meals
15. Housing Services
16. Independent and Transitional Living Services
17. Information and Referral Services
18. Legal Services
19. Pregnancy and Parenting Services for Young Parents
20. Prevention and Intervention Services
21. Protective Services for Adults
22. Protective Services for Children
23. Recreational Services
24. Residential Treatment Services
25. Special Services for Persons with Developmental or Physical 
Disabilities, or Persons with Visual or Auditory Impairments
26. Special Services for Youth Involved in or At Risk of Involvement in 
Criminal Activity
27. Substance Abuse Services
28. Transportation Services
29. Other Services

                     Uniform Definitions of Services

                          1. Adoption Services

    Adoption services are those services or activities provided to 
assist in bringing about the adoption of a child. Component services and 
activities may include, but are not limited to, counseling the 
biological parent(s), recruitment of adoptive homes, and pre- and post-
placement training and/or counseling.

                       2. Case Management Services

    Case management services are services or activities for the 
arrangement, coordination, and monitoring of services to meet the needs 
of individuals and families. Component services and activities may 
include individual service plan development; counseling; monitoring, 
developing, securing, and coordinating services; monitoring and 
evaluating client progress; and assuring that clients' rights are 
protected.

                           3. Congregate Meals

    Congregate meals are those services or activities designed to 
prepare and serve one or more meals a day to individuals in central 
dining areas in order to prevent institutionalization, malnutrition, and 
feelings of isolation. Component services or activities may include the 
cost of personnel, equipment, and food; assessment of nutritional

[[Page 521]]

and dietary needs; nutritional education and counseling; socialization; 
and other services such as transportation and information and referral.

                         4. Counseling Services

    Counseling services are those services or activities that apply 
therapeutic processes to personal, family, situational, or occupational 
problems in order to bring about a positive resolution of the problem or 
improved individual or family functioning or circumstances. Problem 
areas may include family and marital relationships, parent-child 
problems, or drug abuse.

                      5. Day Care Services--Adults

    Day care services for adults are those services or activities 
provided to adults who require care and supervision in a protective 
setting for a portion of a 24-hour day. Component services or activities 
may include opportunity for social interaction, companionship and self-
education; health support or assistance in obtaining health services; 
counseling; recreation and general leisure time activities; meals; 
personal care services; plan development; and transportation.

                     6. Day Care Services--Children

    Day care services for children (including infants, pre-schoolers, 
and school age children) are services or activities provided in a 
setting that meets applicable standards of state and local law, in a 
center or in a home, for a portion of a 24-hour day. Component services 
or activities may include a comprehensive and coordinated set of 
appropriate developmental activities for children, recreation, meals and 
snacks, transportation, health support services, social service 
counseling for parents, plan development, and licensing and monitoring 
of child care homes and facilities.

                   7. Education and Training Services

    Education and training services are those services provided to 
improve knowledge or daily living skills and to enhance cultural 
opportunities. Services may include instruction or training in, but are 
not limited to, such issues as consumer education, health education, 
community protection and safety education, literacy education, English 
as a second language, and General Educational Development (G.E.D.). 
Component services or activities may include screening, assessment and 
testing; individual or group instruction; tutoring; provision of books, 
supplies and instructional material; counseling; transportation; and 
referral to community resources.

                         8. Employment Services

    Employment services are those services or activities provided to 
assist individuals in securing employment or acquiring or learning 
skills that promote opportunities for employment. Component services or 
activities may include employment screening, assessment, or testing; 
structured job skills and job seeking skills; specialized therapy 
(occupational, speech, physical); special training and tutoring, 
including literacy training and pre-vocational training; provision of 
books, supplies and instructional material; counseling, transportation; 
and referral to community resources.

                       9. Family Planning Services

    Family planning services are those educational, comprehensive 
medical or social services or activities which enable individuals, 
including minors, to determine freely the number and spacing of their 
children and to select the means by which this may be achieved. These 
services and activities include a broad range of acceptable and 
effective methods and services to limit or enhance fertility, including 
contraceptive methods (including natural family planning and 
abstinence), and the management of infertility (including referral to 
adoption). Specific component services and activities may include 
preconceptional counseling, education, and general reproductive health 
care, including diagnosis and treatment of infections which threaten 
reproductive capability. Family planning services do not include 
pregnancy care (including obstetric or prenatal care).

                   10. Foster Care Services for Adults

    Foster care services for adults are those services or activities 
that assess the need and arrange for the substitute care and alternate 
living situation of adults in a setting suitable to the individual's 
needs. Individuals may need such services because of social, physical or 
mental disabilities, or as a consequence of abuse or neglect. Care may 
be provided in a community-based setting, or such services may arrange 
for institutionalization when necessary. Component services or 
activities include assessment of the individual's needs; case planning 
and case management to assure that the individual receives proper care 
in the placement; counseling to help with personal problems and 
adjusting to new situations; assistance in obtaining other necessary 
supportive services; determining, through periodic reviews, the 
continued appropriateness of and need for placement; and recruitment and 
licensing of foster care homes and facilities.

                  11. Foster Care Services for Children

    Foster care services for children are those services or activities 
associated with the provision of an alternative family life experience 
for abused, neglected or dependent children, between birth and the age 
of majority,

[[Page 522]]

on the basis of a court commitment or a voluntary placement agreement 
signed by the parent or guardian. Services may be provided to children 
in foster family homes, foster homes of relatives, group homes, 
emergency shelters, residential facilities, child care institutions, 
pre-adoptive homes or supervised independent living situation. Component 
services or activities may include assessment of the child's needs; case 
planning and case management to assure that the child receives proper 
care in the placement; medical care as an integral but subordinate part 
of the service; counseling of the child, the child's parents, and the 
foster parents; referral and assistance in obtaining other necessary 
supportive services; periodical reviews to determine the continued 
appropriateness and need for placement; and recruitment and licensing of 
foster homes and child care institutions.

               12. Health Related and Home Health Services

    Health related and home health services are those in-home or out-of-
home services or activities designed to assist individuals and families 
to attain and maintain a favorable condition of health. Component 
services and activities may include providing an analysis or assessment 
of an individual's health problems and the development of a treatment 
plan; assisting individuals to identify and understand their health 
needs; assisting individuals to locate, provide or secure, and utilize 
appropriate medical treatment, preventive medical care, and health 
maintenance services, including in-home health services and emergency 
medical services; and providing follow-up services as needed.

                         13. Home Based Services

    Home based services are those in-home services or activities 
provided to individuals or families to assist with household or personal 
care activities that improve or maintain adequate family well-being. 
These services may be provided for reasons of illness, incapacity, 
frailty, absence of a caretaker relative, or to prevent abuse and 
neglect of a child or adult. Major service components include homemaker 
services, chore services, home maintenance services, and household 
management services. Component services or activities may include 
protective supervision of adults and/or children to help prevent abuse, 
temporary non-medical personal care, house-cleaning, essential shopping, 
simple household repairs, yard maintenance, teaching of homemaking 
skills, training in self-help and self-care skills, assistance with meal 
planning and preparation, sanitation, budgeting, and general household 
management.

                        14. Home Delivered Meals

    Home-delivered meals are those services or activities designed to 
prepare and deliver one or more meals a day to an individual's residence 
in order to prevent institutionalization, malnutrition, and feelings of 
isolation. Component services or activities may include the cost of 
personnel, equipment, and food; assessment of nutritional and dietary 
needs; nutritional education and counseling; socialization services; and 
information and referral.

                          15. Housing Services

    Housing services are those services or activities designed to assist 
individuals or families in locating, obtaining, or retaining suitable 
housing. Component services or activities may include tenant counseling; 
helping individuals and families to identify and correct substandard 
housing conditions on behalf of individuals and families who are unable 
to protect their own interests; and assisting individuals and families 
to understand leases, secure utilities, make moving arrangements and 
minor renovations.

            16. Independent and Transitional Living Services

    Independent and transitional living services are those services and 
activities designed to help older youth in foster care or homeless youth 
make the transition to independent living, or to help adults make the 
transition from an institution, or from homelessness, to independent 
living. Component services or activities may include educational and 
employment assistance, training in daily living skills, and housing 
assistance. Specific component services and activities may include 
supervised practice living and post-foster care services.

                  17. Information and Referral Services

    Information and referral services are those services or activities 
designed to provide information about services provided by public and 
private service providers and a brief assessment of client needs (but 
not diagnosis and evaluation) to facilitate appropriate referral to 
these community resources.

                           18. Legal Services

    Legal services are those services or activities provided by a lawyer 
or other person(s) under the supervision of a lawyer to assist 
individuals in seeking or obtaining legal help in civil matters such as 
housing, divorce, child support, guardianship, paternity, and legal 
separation. Component services or activities may include receiving and 
preparing cases for trial, provision of legal advice, representation at 
hearings, and counseling.

[[Page 523]]

         19. Pregnancy and Parenting Services for Young Parents

    Pregnancy and parenting services are those services or activities 
for married or unmarried adolescent parents and their families designed 
to assist young parents in coping with the social, emotional, and 
economic problems related to pregnancy and in planning for the future. 
Component services or activities may include securing necessary health 
care and living arrangements; obtaining legal services; and providing 
counseling, child care education, and training in and development of 
parenting skills.

                20. Prevention and Intervention Services

    Prevention and intervention services are those services or 
activities designed to provide early identification and/or timely 
intervention to support families and prevent or ameliorate the 
consequences of, abuse, neglect, or family violence, or to assist in 
making arrangement for alternate placements or living arrangements where 
necessary. Such services may also be provided to prevent the removal of 
a child or adult from the home. Component services and activities may 
include investigation; assessment and/or evaluation of the extent of the 
problem; counseling, including mental health counseling or therapy as 
needed; developmental and parenting skills training; respite care; and 
other services including supervision, case management, and 
transportation.

                   21. Protective Services for Adults

    Protective services for adults are those services or activities 
designed to prevent or remedy abuse, neglect or exploitation of adults 
who are unable to protect their own interests. Examples of situations 
that may require protective services are injury due to maltreatment or 
family violence; lack of adequate food, clothing or shelter; lack of 
essential medical treatment or rehabilitation services; and lack of 
necessary financial or other resources. Component services or activities 
may include investigation; immediate intervention; emergency medical 
services; emergency shelter; developing case plans; initiation of legal 
action (if needed); counseling for the individual and the family; 
assessment/evaluation of family circumstances; arranging alternative or 
improved living arrangements; preparing for foster placement, if needed; 
and case management and referral to service providers.

                  22. Protective Services for Children

    Protective services for children are those services or activities 
designed to prevent or remedy abuse, neglect, or exploitation of 
children who may be harmed through physical or mental injury, sexual 
abuse or exploitation, and negligent treatment or maltreatment, 
including failure to be provided with adequate food, clothing, shelter, 
or medical care. Component services or activities may include immediate 
investigation and intervention; emergency medical services; emergency 
shelter; developing case plans; initiation of legal action (if needed); 
counseling for the child and the family; assessment/evaluation of family 
circumstances; arranging alternative living arrangement; preparing for 
foster placement, if needed; and case management and referral to service 
providers.

                        23. Recreational Services

    Recreational services are those services or activities designed to 
provide, or assist individuals to take advantage of, individual or group 
activities directed towards promoting physical, cultural, and/or social 
development.

                   24. Residential Treatment Services

    Residential treatment services provide short-term residential care 
and comprehensive treatment and services for children or adults whose 
problems are so severe or are such that they cannot be cared for at home 
or in foster care and need the specialized services provided by 
specialized facilities. Component services and activities may include 
diagnosis and psychological evaluation; alcohol and drug detoxification 
services; individual, family, and group therapy and counseling; remedial 
education and GED preparation; vocational or pre-vocational training; 
training in activities of daily living; supervised recreational and 
social activities; case management; transportation; and referral to and 
utilization of other services.

    25. Special Services for Persons With Developmental or Physical 
      Disabilities, or Persons With Visual or Auditory Impairments

    Special services for persons with developmental or physical 
disabilities, or persons with visual or auditory impairments, are 
services or activities to maximize the potential of persons with 
disabilities, help alleviate the effects of physical, mental or 
emotional disabilities, and to enable these persons to live in the least 
restrictive environment possible. Component services or activities may 
include personal and family counseling; respite care; family support; 
recreation; transportation; aid to assist with independent functioning 
in the community; and training in mobility, communication skills, the 
use of special aids and appliances, and self-sufficiency skills. 
Residential and medical services may be included only as an integral, 
but subordinate, part of the services.

[[Page 524]]

  26. Special Services for Youth Involved in or at Risk of Involvement 
                         With Criminal Activity

    Special services for youth involved in or at risk of involvement 
with criminal activity are those services or activities for youth who 
are, or who may become, involved with the juvenile justice system and 
their families. Components services or activities are designed to 
enhance family functioning and/or modify the youth's behavior with the 
goal of developing socially appropriate behavior and may include 
counseling, intervention therapy, and residential and medical services 
if included as an integral but subordinate part of the service.

                      27. Substance Abuse Services

    Substance abuse services are those services or activities that are 
primarily designed to deter, reduce, or eliminate substance abuse or 
chemical dependence. Except for initial detoxification services, medical 
and residential services may be included but only as an integral but 
subordinate part of the service. Component substance abuse services or 
activities may include a comprehensive range of personal and family 
counseling methods, methadone treatment for opiate abusers, or 
detoxification treatment for alcohol abusers. Services may be provided 
in alternative living arrangements such as institutional settings and 
community-based halfway houses.

                       28. Transportation Services

    Transportation services are those services or activities that 
provide or arrange for the travel, including travel costs, of 
individuals in order to access services, or obtain medical care or 
employment. Component services or activities may include special travel 
arrangements such as special modes of transportation and personnel to 
accompany or assist individuals or families to utilize transportation.

                           29. Other Services

    Other Services are services that do not fall within the definitions 
of the preceding 28 services. The definition used by the State for each 
of these services should appear elsewhere in the annual report.

[58 FR 60128, Nov. 15, 1993]

       Appendix B to Part 96--SSBG Reporting Form and Instructions

                              Instructions

    This form must be used by states as the reporting instrument to 
satisfy the requirements of 45 CFR 96.74(a) (1) through (4). Following 
are instructions on how to complete the form:

                                 General

    1. Enter the name of the state submitting the form.
    2. Enter the fiscal year for which the form is being submitted. 
Either the state or federal fiscal year may be used.
    3. Enter the month and year of the beginning and end of the fiscal 
year--e.g., 07/91 to 06/92.

                                Services

    4. The ``service'' column contains a list of services that are to be 
used for national reporting. This list in no way mandates how a state is 
to design its program of services under the SSBG, but rather is to be 
used only to obtain nationally comparable statistics. If the services 
that your state provides reasonably fit the uniform service definitions 
in appendix A, use them. In cases where no fit is possible between the 
state services and the services on the form, use item number 29--the 
other services category. Please list all services reported under item 
29, using a separate sheet if necessary. The state's definition of these 
services must appear in the state's annual report.

                             Recipient Data

    In reporting the following data:
     Each state should use its own definitions of the terms 
``adult'' and ``child.'' These definitions should be described elsewhere 
in the annual report. If the definitions of adult and child vary by 
services, all such definitions must be included.
     States should, if possible, consider as the ``recipient'' 
of the service the individual to whom the service is provided. This 
means that the child would be considered the recipient of child day care 
services, even if such services are provided to allow the child's adult 
caretaker to pursue employment. Similarly, an adult who receives 
counseling services should be considered as the recipient of that 
service, even if the service is provided as part of a child's protective 
services plan. In cases where each member of a family, for example, 
receives an individual service such as counseling, each family member 
should be considered as a separate recipient.
     States should, if possible, consider as a service, i.e., a 
count of one, any service provided to a single recipient for the 
duration of the reporting period (one year), or any fraction thereof. In 
cases where an individual received a service during the reporting 
period, then discontinued the service, and then received the service 
again, the individual should only be counted once, if possible.
     The criteria applied in determining eligibility for each 
service--such as income eligibility guidelines, sliding fee scales, the 
effect

[[Page 525]]

of public assistance benefits, and any requirements for enrollment in 
school or training programs--should be described elsewhere in the annual 
report.
    5. Under ``Number of Recipients--Adults'' enter the number of adults 
who have received each service funded in whole or part under the SSBG.
    6. Under ``Number of Recipients--Children'' enter the number of 
children who have received each service funded in whole or part under 
the SSBG.
    7. Under ``Number of Recipients--Total'' enter the total number of 
recipients of each service. This should be the sum of the adults and 
children reported in the preceding ``adult'' and ``children'' columns.

                            Expenditure Data

    8. Under ``Expenditures--Total $'' enter all funds that the state 
expends on each service. This should include SSBG funds as well as funds 
from other federal sources, state funds, and local funds. A listing of 
the sources of these funds, and the amounts allocated, should appear 
elsewhere in the annual report.
    9. Under ``Expenditures--SSBG $'' enter the total SSBG funds 
expended for each service. This column should be totaled, and the sum 
placed at the bottom of the column in the ``Totals'' box.
    10. Under ``Expenditures--Per Adult'' enter the average amount of 
SSBG funds expended on each adult recipient of each service.
    11. Under ``Expenditures--Per Child'' enter the average amount of 
SSBG funds expended on each child recipient of each service.
    12. Item 30 in the ``Total SSBG $'' column should contain other 
expenditures and income as follows:
    a. ``Transfers In'' should contain funds transferred from other 
federal block grants to the SSBG program. A listing of the source(s) of 
block grant funds and their amounts should appear elsewhere in the 
annual report.
    b. ``Transfers Out'' should show funds transferred from the SSBG 
program to other federal block grants. A listing of the program(s) to 
which SSBG funds were transferred, and the amounts, should appear 
elsewhere in the annual report.
    c. ``Carry Forward'' should show funds the state intends to carry 
over from the reporting fiscal year to the following fiscal year. The 
SSBG statute permits states two years to expend SSBG funds.
    d. ``Carry Over'' should show funds carried from a previous fiscal 
year into the current reporting year.
    e. ``Administrative Costs'' should show all other non-service use of 
SSBG funds--e.g., funds expended for training, licensing activities, or 
overhead costs.
    f. This column should be totaled, and the sum placed at the bottom 
of the column in the ``Totals'' box.
    13. Under ``Provisions Method--Public/Private'' enter a check mark 
on ``X'' in the appropriate column(s) to indicate whether a service was 
provided by public agencies or private agencies. In some cases, a given 
service may have been provided by both methods, in which case both 
columns would be checked for that service.
    14. Enter the name, title, and telephone number of a contact person 
who can answer questions about the data.
    15. Code Column:
    Six of the columns on this form have a ``C'' column to the right of 
them. These are ``Code'' columns to permit a state to indicate, for 
expenditure data, whether each cell of data is A (actual), E 
(estimated), or S (sampled), and for recipient data, whether the data is 
based on an unduplicated (U) or duplicated (D) count of recipients. 
These codes will permit the Department to determine the relative degree 
of statistical validity of the data. Actual recipient counts and 
expenditure amounts must be used when available. If actual counts are 
not available, sampling and/or estimating may be used to derive the 
numbers in this report. A description of the sampling and/or estimation 
methods used to derive any data must appear elsewhere in the annual 
report.

                  Report Submission Using PC Diskettes

    States with personal computer (PC) equipment may submit this data 
using PC diskettes in addition to the hardcopy form which will be 
included in the complete annual report. Diskettes may be either 5\1/
4\Prime; or 3\1/2\Prime;; data may be submitted using Lotus 1-2-3, 
Quattro Pro, DBase III or IV, Wordstar, Word Perfect, or ASCII formats. 
Use of Lotus 1-2-3 is preferred, but any of the other formats listed may 
be used. If a state wishes to use a format other than one listed here, 
please call Bryant Tudor on (202) 401-5535 or Frank Burns on (202) 401-
5536, or write to the Office of Community Services, Administration for 
Children and Families, Fourth Floor--East Wing, 370 L'Enfant Promenade, 
SW., Washington, DC 10447. Use of diskettes can greatly reduce 
transcription errors and also facilitate processing of the data once 
received. We anticipate that many states will want to avail themselves 
of this method of reporting.

[[Page 526]]

[GRAPHIC] [TIFF OMITTED] TC01JA91.006


[58 FR 60128, Nov. 15, 1993]



PART 97--CONSOLIDATION OF GRANTS TO THE INSULAR AREAS--Table of Contents




Sec.
97.10  What is a consolidated grant?

[[Page 527]]

97.11  Which jurisdictions may apply for a consolidated grant?
97.12  Which grants may be consolidated?
97.13  How does an insular area apply for a consolidated grant?
97.14  How will grant awards be made?
97.15  For what purposes can grant funds be used?
97.16  What fiscal, matching and administrative requirements apply to 
          grantees?

    Authority: Sec. 501, Pub. L. 95-134, as amended, 48 U.S.C. 1469a.

    Source: 47 FR 56468, Dec. 16, 1982, unless otherwise noted.



Sec. 97.10  What is a consolidated grant?

    As used in this part, a consolidated grant means a grant award to an 
insular area, the funds of which are derived from the allocations under 
two or more of the programs specified in Sec. 97.12.



Sec. 97.11  Which jurisdictions may apply for a consolidated grant?

    The following jurisdictions (insular areas), as appropriate with 
respect to each block and formula grant program, may apply for a 
consolidated grant under this Part: the Virgin Islands; Guam; American 
Samoa, the Commonwealth of the Northern Mariana Islands; and the Trust 
Territory of the Pacific Islands (the Republic of Palau). In addition, 
the Federated States of Micronesia and the Republic of the Marshall 
Islands may apply for a consolidated grant for certain PHS programs as 
indicated in Sec. 97.12.

[56 FR 38346, Aug. 13, 1991]



Sec. 97.12  Which grants may be consolidated?

    (a) These regulations apply to the consolidation of grants under the 
programs listed in paragraphs (b) and (c) of this section and to any 
additional program(s) as determined by the Secretary. The list of 
programs will be periodically updated in the Code of Federal Regulations 
through publication in the Federal Register.
    (b) Block Grants.
    (1) Preventive Health and Health Services, 42 U.S.C. 300w-300w-
10.\1\
---------------------------------------------------------------------------

    \1\ Certain Public Health Service programs for which the Federated 
States of Micronesia and the Republic of the Marshall Islands may apply 
for a consolidated grant.
---------------------------------------------------------------------------

    (2) Alcohol and Drug Abuse and Mental Health Services, 42 U.S.C. 
300x-300x-9.\2\
---------------------------------------------------------------------------

    \2\ See footnote 1 in Sec. 97.12(a)(1).
---------------------------------------------------------------------------

    (3) Maternal and Child Health Services, 42 U.S.C. 701-709.\3\
---------------------------------------------------------------------------

    \3\ See footnote 1 in Sec. 97.12(a)(1).
---------------------------------------------------------------------------

    (4) Social Services, 42 U.S.C. 1397-1397f.
    (5) Community Services, 42 U.S.C. 9901-9912.
    (6) Low-Income Home Energy Assistance, 42 U.S.C. 8621-8629.
    (7) Community Youth Activity, 42 U.S.C. 11841.\4\
---------------------------------------------------------------------------

    \4\ See footnote 1 in Sec. 97.12(a)(1).
---------------------------------------------------------------------------

    (c) Other Grants.
    (1) Child Welfare Services, 42 U.S.C. 620, et seq.
    (2) Developmental Disabilities, 42 U.S.C. 6021-6030.
    (3) Aging Supportive Services and Senior Centers, 42 U.S.C. 3030d.
    (4) Congregate Meals for the Elderly, 42 U.S.C. 3030e.
    (5) Home Delivered Meals for the Elderly, 42 U.S.C. 3030f.
    (6) Child Abuse and Neglect State Grants, 42 U.S.C. 5103(b).
    (7) Dependent Care Planning and Development State Grants, 42 U.S.C. 
9871, et. seq.
    (8) Family Violence Prevention and Services, 42 U.S.C. 10401, et 
seq.
    (9) Children's Justice Act, 42 U.S.C. 5101, et seq.
    (10) Child Development Associate Scholarship Assistance Act, 42 
U.S.C. 10901, et seq.
    (11) Emergency Community Services Homeless, 42 U.S.C. 11301.
    (12) Community Food and Nutrition, 42 U.S.C. 9910a.
    (13) Protection and Advocacy for Mentally Ill Individuals, 42 U.S.C. 
9501.
    (14) Projects for Assistance in Transition from Homelessness, 42 
U.S.C. 290 (cc-21) et seq.

[56 FR 38346, Aug. 13, 1991]



Sec. 97.13  How does an insular area apply for a consolidated grant?

    (a) An insular area may apply for a consolidated grant in lieu of 
filing an individual application for any of the programs listed in 
Sec. 97.12 for which the insular area is eligible.

[[Page 528]]

    (b) The chief executive officer or his designee may submit a 
consolidated grant application at any time prior to expenditure of the 
funds proposed for consolidation. The application must specify the 
amount of funds proposed for consolidation, the titles of the programs 
that are the sources of funds that are to be consolidated and the titles 
of the programs under whose statutory authority the funds are to be 
expended.
    (c) The application must contain the assurances, certifications, and 
other information required by the statutes and regulations applicable to 
those programs under which funds will be expended. If any of the 
requirements for these latter programs are substantially the same, they 
may be met by a single assurance, certification, or narrative, as 
appropriate. The application need not meet the application or other 
requirements for programs which are sources of funds for the 
consolidated grant but under whose authority no funds will be expended.
    (d) If after receiving a consolidated grant, an insular area wishes 
to use funds for a purpose authorized by an eligible program that is not 
included in the consolidated grant, or by an eligible program that was 
included in the grant but was not intended as a program under which 
funds would be expended, the insular area must submit an amended 
application indicating the proposed change and containing the 
assurances, certifications and other information applicable to that 
program.



Sec. 97.14  How will grant awards be made?

    The Secretary, or his designee, will award a consolidated grant to 
each insular area that applies for a consolidated grant and meets the 
requirements of this Part and of the statutes and regulations applicable 
to the programs under whose authority the consolidated grant funds will 
be expended. As long as the amount requested does not exceed the amount 
for which the insular area is eligible under the programs that are being 
consolidated, the amount of the award will equal the amount requested in 
the application.



Sec. 97.15  For what purposes can grant funds be used?

    Funds awarded under a consolidated grant must be used for purposes 
authorized by the statutes and regulations of the programs included in 
the consolidated grant. In its application for a consolidated grant the 
insular area is to indicate the amount of funds that will be allocated 
to the eligible programs.



Sec. 97.16  What fiscal, matching and administrative requirements apply to grantees?

    (a) An insular area receiving a consolidated grant must comply with 
the statutes and regulations applicable to the programs under which the 
funds are to be used, except as otherwise provided in this part.
    (b) In regard to programs included in a consolidated grant, an 
insular area need not comply with any of the statutory or regulatory 
provisions requiring recipients to match federal funds with their own or 
other funds.
    (c) A single report may be submitted in lieu of any individual 
reports that may be required under the programs included in a 
consolidated grant.



PART 98--CHILD CARE AND DEVELOPMENT FUND--Table of Contents




               Subpart A--Goals, Purposes and Definitions

Sec.
98.1  Goals and purposes.
98.2  Definitions.
98.3  Effect on State law.

                Subpart B--General Application Procedures

98.10  Lead Agency responsibilities.
98.11  Administration under contracts and agreements.
98.12  Coordination and consultation.
98.13  Applying for Funds.
98.14  Plan process.
98.15  Assurances and certifications.
98.16  Plan provisions.
98.17  Period covered by Plan.
98.18  Approval and disapproval of Plans and Plan amendments.

[[Page 529]]

                   Subpart C--Eligibility for Services

98.20  A child's eligibility for child care services.

Subpart D--Program Operations (Child Care Services)--Parental Rights and 
                            Responsibilities

98.30  Parental choice.
98.31  Parental access.
98.32  Parental complaints.
98.33  Consumer education.
98.34  Parental rights and responsibilities.

  Subpart E--Program Operations (Child Care Services)--Lead Agency and 
                          Provider Requirements

98.40  Compliance with applicable State and local regulatory 
          requirements.
98.41  Health and safety requirements.
98.42  Sliding fee scales.
98.43  Equal access.
98.44  Priority for child care services.
98.45  List of providers.
98.46  Nondiscrimination in admissions on the basis of religion.
98.47  Nondiscrimination in employment on the basis of religion.

           Subpart F--Use of Child Care and Development Funds

98.50  Child care services.
98.51  Activities to improve the quality of child care.
98.52  Administrative costs.
98.53  Matching fund requirements.
98.54  Restrictions on the use of funds.
98.55  Cost allocation.

                     Subpart G--Financial Management

98.60  Availability of funds.
98.61  Allotments from the Discretionary Fund.
98.62  Allotments from the Mandatory Fund.
98.63  Allotments from the Matching Fund.
98.64  Reallotment and redistribution of funds.
98.65  Audits and financial reporting.
98.66  Disallowance procedures.
98.67  Fiscal requirements.

                Subpart H--Program Reporting Requirements

98.70  Reporting requirements.
98.71  Content of reports.

                        Subpart I--Indian Tribes

98.80  General procedures and requirements.
98.81  Application and Plan procedures.
98.82  Coordination.
98.83  Requirements for tribal programs.
98.84  Construction and renovation of child care facilities.

          Subpart J--Monitoring, Non-Compliance and Complaints

98.90  Monitoring.
98.91  Non-compliance.
98.92  Penalties and sanctions.
98.93  Complaints.

    Authority: 42 U.S.C. 618, 9858.

    Source: 63 FR 39981, July 24, 1998, unless otherwise noted.



               Subpart A--Goals, Purposes and Definitions



Sec. 98.1  Goals and purposes.

    (a) The goals of the CCDF are to:
    (1) Allow each State maximum flexibility in developing child care 
programs and policies that best suit the needs of children and parents 
within the State;
    (2) Promote parental choice to empower working parents to make their 
own decisions on the child care that best suits their family's needs;
    (3) Encourage States to provide consumer education information to 
help parents make informed choices about child care;
    (4) Assist States to provide child care to parents trying to achieve 
independence from public assistance; and
    (5) Assist States in implementing the health, safety, licensing, and 
registration standards established in State regulations.
    (b) The purpose of the CCDF is to increase the availability, 
affordability, and quality of child care services. The program offers 
Federal funding to States, Territories, Indian Tribes, and tribal 
organizations in order to:
    (1) Provide low-income families with the financial resources to find 
and afford quality child care for their children;
    (2) Enhance the quality and increase the supply of child care for 
all families, including those who receive no direct assistance under the 
CCDF;
    (3) Provide parents with a broad range of options in addressing 
their child care needs;
    (4) Strengthen the role of the family;
    (5) Improve the quality of, and coordination among, child care 
programs

[[Page 530]]

and early childhood development programs; and
    (6) Increase the availability of early childhood development and 
before- and after-school care services.
    (c) The purpose of these regulations is to provide the basis for 
administration of the Fund. These regulations provide that Lead 
Agencies:
    (1) Maximize parental choice through the use of certificates and 
through grants and contracts;
    (2) Include in their programs a broad range of child care providers, 
including center-based care, family child care, in-home care, care 
provided by relatives and sectarian child care providers;
    (3) Provide quality child care that meets applicable requirements;
    (4) Coordinate planning and delivery of services at all levels;
    (5) Design flexible programs that provide for the changing needs of 
recipient families;
    (6) Administer the CCDF responsibly to ensure that statutory 
requirements are met and that adequate information regarding the use of 
public funds is provided; and
    (7) Design programs that provide uninterrupted service to families 
and providers, to the extent statutorily possible.



Sec. 98.2  Definitions.

    For the purpose of this part and part 99:
    The Act refers to the Child Care and Development Block Grant Act of 
1990, section 5082 of the Omnibus Budget Reconciliation Act of 1990, 
Pub. L. 101-508, as amended and codified at 42 U.S.C. 9858 et seq.
    ACF means the Administration for Children and Families;
    Application is a request for funding that includes the information 
required at Sec. 98.13;
    Assistant Secretary means the Assistant Secretary for Children and 
Families, Department of Health and Human Services;
    Caregiver means an individual who provides child care services 
directly to an eligible child on a person-to-person basis;
    Categories of care means center-based child care, group home child 
care, family child care and in-home care;
    Center-based child care provider means a provider licensed or 
otherwise authorized to provide child care services for fewer than 24 
hours per day per child in a non-residential setting, unless care in 
excess of 24 hours is due to the nature of the parent(s)' work;
    Child care certificate means a certificate (that may be a check, or 
other disbursement) that is issued by a grantee directly to a parent who 
may use such certificate only as payment for child care services or as a 
deposit for child care services if such a deposit is required of other 
children being cared for by the provider, pursuant to Sec. 98.30. 
Nothing in this part shall preclude the use of such certificate for 
sectarian child care services if freely chosen by the parent. For the 
purposes of this part, a child care certificate is assistance to the 
parent, not assistance to the provider;
    Child Care and Development Fund (CCDF) means the child care programs 
conducted under the provisions of the Child Care and Development Block 
Grant Act, as amended. The Fund consists of Discretionary Funds 
authorized under section 658B of the amended Act, and Mandatory and 
Matching Funds appropriated under section 418 of the Social Security 
Act;
    Child care provider that receives assistance means a child care 
provider that receives Federal funds under the CCDF pursuant to grants, 
contracts, or loans, but does not include a child care provider to whom 
Federal funds under the CCDF are directed only through the operation of 
a certificate program;
    Child care services, for the purposes of Sec. 98.50, means the care 
given to an eligible child by an eligible child care provider;
    Construction means the erection of a facility that does not 
currently exist;
    The Department means the Department of Health and Human Services;
    Discretionary funds means the funds authorized under section 658B of 
the Child Care and Development Block Grant Act. The Discretionary funds 
were formerly referred to as the Child Care and Development Block Grant;

[[Page 531]]

    Eligible child means an individual who meets the requirements of 
Sec. 98.20;
    Eligible child care provider means:
    (1) A center-based child care provider, a group home child care 
provider, a family child care provider, an in-home child care provider, 
or other provider of child care services for compensation that--
    (i) Is licensed, regulated, or registered under applicable State or 
local law as described in Sec. 98.40; and
    (ii) Satisfies State and local requirements, including those 
referred to in Sec. 98.41 applicable to the child care services it 
provides; or
    (2) A child care provider who is 18 years of age or older who 
provides child care services only to eligible children who are, by 
marriage, blood relationship, or court decree, the grandchild, great 
grandchild, sibling (if such provider lives in separate residence), 
niece, or nephew of such provider, and complies with any applicable 
requirements that govern child care provided by the relative involved;
    Facility means real property or modular unit appropriate for use by 
a grantee to carry out a child care program;
    Family child care provider means one individual who provides child 
care services for fewer than 24 hours per day per child, as the sole 
caregiver, in a private residence other than the child's residence, 
unless care in excess of 24 hours is due to the nature of the parent(s)' 
work;
    Group home child care provider means two or more individuals who 
provide child care services for fewer than 24 hours per day per child, 
in a private residence other than the child's residence, unless care in 
excess of 24 hours is due to the nature of the parent(s)' work;
    Indian Tribe means any Indian Tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant to 
the Alaska Native Claims Settlement Act (43 U.S.C. Sec. 1601 et seq.) 
that is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians;
    In-home child care provider means an individual who provides child 
care services in the child's own home;
    Lead Agency means the State, territorial or tribal entity designated 
under Secs. 98.10 and 98.16(a) to which a grant is awarded and that is 
accountable for the use of the funds provided. The Lead Agency is the 
entire legal entity even if only a particular component of the entity is 
designated in the grant award document.
    Licensing or regulatory requirements means requirements necessary 
for a provider to legally provide child care services in a State or 
locality, including registration requirements established under State, 
local or tribal law;
    Liquidation period means the applicable time period during which a 
fiscal year's grant shall be liquidated pursuant to the requirements at 
Sec. 98.60.;
    Major renovation means: (1) structural changes to the foundation, 
roof, floor, exterior or load-bearing walls of a facility, or the 
extension of a facility to increase its floor area; or (2) extensive 
alteration of a facility such as to significantly change its function 
and purpose, even if such renovation does not include any structural 
change;
    Mandatory funds means the general entitlement child care funds 
described at section 418(a)(1) of the Social Security Act;
    Matching funds means the remainder of the general entitlement child 
care funds that are described at section 418(a)(2) of the Social 
Security Act;
    Modular unit means a portable structure made at another location and 
moved to a site for use by a grantee to carry out a child care program;
    Obligation period means the applicable time period during which a 
fiscal year's grant shall be obligated pursuant to Sec. 98.60;
    Parent means a parent by blood, marriage or adoption and also means 
a legal guardian, or other person standing in loco parentis;
    The Plan means the Plan for the implementation of programs under the 
CCDF;
    Program period means the time period for using a fiscal year's grant 
and does not extend beyond the last day to liquidate funds;

[[Page 532]]

    Programs refers generically to all activities under the CCDF, 
including child care services and other activities pursuant to 
Sec. 98.50 as well as quality and availability activities pursuant to 
Sec. 98.51;
    Provider means the entity providing child care services;
    The regulation refers to the actual regulatory text contained in 
parts 98 and 99 of this chapter;
    Real property means land, including land improvements, structures 
and appurtenances thereto, excluding movable machinery and equipment;
    Secretary means the Secretary of the Department of Health and Human 
Services;
    Sectarian organization or sectarian child care provider means 
religious organizations or religious providers generally. The terms 
embrace any organization or provider that engages in religious conduct 
or activity or that seeks to maintain a religious identity in some or 
all of its functions. There is no requirement that a sectarian 
organization or provider be managed by clergy or have any particular 
degree of religious management, control, or content;
    Sectarian purposes and activities means any religious purpose or 
activity, including but not limited to religious worship or instruction;
    Services for which assistance is provided means all child care 
services funded under the CCDF, either as assistance directly to child 
care providers through grants, contracts, or loans, or indirectly as 
assistance to parents through child care certificates;
    Sliding fee scale means a system of cost sharing by a family based 
on income and size of the family, in accordance with Sec. 98.42;
    State means any of the States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands of the United States, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
and includes Tribes unless otherwise specified;
    Tribal mandatory funds means the child care funds set aside at 
section 418(a)(4) of the Social Security Act. The funds consist of 
between one and two percent of the aggregate Mandatory and Matching 
child care funds reserved by the Secretary in each fiscal year for 
payments to Indian Tribes and tribal organizations;
    Tribal organization means the recognized governing body of any 
Indian Tribe, or any legally established organization of Indians, 
including a consortium, which is controlled, sanctioned, or chartered by 
such governing body or which is democratically elected by the adult 
members of the Indian community to be served by such organization and 
which includes the maximum participation of Indians in all phases of its 
activities: Provided, that in any case where a contract is let or grant 
is made to an organization to perform services benefiting more than one 
Indian Tribe, the approval of each such Indian Tribe shall be a 
prerequisite to the letting or making of such contract or grant; and
    Types of providers means the different classes of providers under 
each category of care. For the purposes of the CCDF, types of providers 
include non-profit providers, for-profit providers, sectarian providers 
and relatives who provide care.



Sec. 98.3  Effect on State law.

    (a) Nothing in the Act or this part shall be construed to supersede 
or modify any provision of a State constitution or State law that 
prohibits the expenditure of public funds in or by sectarian 
organizations, except that no provision of a State constitution or State 
law shall be construed to prohibit the expenditure in or by sectarian 
institutions of any Federal funds provided under this part.
    (b) If a State law or constitution would prevent CCDF funds from 
being expended for the purposes provided in the Act, without limitation, 
then States shall segregate State and Federal funds.



                Subpart B--General Application Procedures



Sec. 98.10  Lead Agency responsibilities.

    The Lead Agency, as designated by the chief executive officer of the 
State (or by the appropriate Tribal leader or applicant), shall:

[[Page 533]]

    (a) Administer the CCDF program, directly or through other 
governmental or non-governmental agencies, in accordance with 
Sec. 98.11;
    (b) Apply for funding under this part, pursuant to Sec. 98.13;
    (c) Consult with appropriate representatives of local government in 
developing a Plan to be submitted to the Secretary pursuant to 
Sec. 98.14(b);
    (d) Hold at least one public hearing in accordance with 
Sec. 98.14(c); and
    (e) Coordinate CCDF services pursuant to Sec. 98.12.



Sec. 98.11  Administration under contracts and agreements.

    (a) The Lead Agency has broad authority to administer the program 
through other governmental or non-governmental agencies. In addition, 
the Lead Agency can use other public or private local agencies to 
implement the program; however:
    (1) The Lead Agency shall retain overall responsibility for the 
administration of the program, as defined in paragraph (b) of this 
section;
    (2) The Lead Agency shall serve as the single point of contact for 
issues involving the administration of the grantee's CCDF program; and
    (3) Administrative and implementation responsibilities undertaken by 
agencies other than the Lead Agency shall be governed by written 
agreements that specify the mutual roles and responsibilities of the 
Lead Agency and the other agencies in meeting the requirements of this 
part.
    (b) In retaining overall responsibility for the administration of 
the program, the Lead Agency shall:
    (1) Determine the basic usage and priorities for the expenditure of 
CCDF funds;
    (2) Promulgate all rules and regulations governing overall 
administration of the Plan;
    (3) Submit all reports required by the Secretary;
    (4) Ensure that the program complies with the approved Plan and all 
Federal requirements;
    (5) Oversee the expenditure of funds by subgrantees and contractors;
    (6) Monitor programs and services;
    (7) Fulfill the responsibilities of any subgrantee in any: 
disallowance under subpart G; complaint or compliance action under 
subpart J; or hearing or appeal action under part 99 of this chapter; 
and
    (8) Ensure that all State and local or non-governmental agencies 
through which the State administers the program, including agencies and 
contractors that determine individual eligibility, operate according to 
the rules established for the program.



Sec. 98.12  Coordination and consultation.

    The Lead Agency shall:
    (a) Coordinate the provision of services for which assistance is 
provided under this part with the agencies listed in Sec. 98.14(a).
    (b) Consult, in accordance with Sec. 98.14(b), with representatives 
of general purpose local government during the development of the Plan; 
and
    (c) Coordinate, to the maximum extent feasible, with any Indian 
Tribes in the State receiving CCDF funds in accordance with subpart I of 
this part.



Sec. 98.13  Applying for Funds.

    The Lead Agency of a State or Territory shall apply for Child Care 
and Development funds by providing the following:
    (a) The amount of funds requested at such time and in such manner as 
prescribed by the Secretary.
    (b) The following assurances or certifications:
    (1) An assurance that the Lead Agency will comply with the 
requirements of the Act and this part;
    (2) A lobbying certification that assures that the funds will not be 
used for the purpose of influencing pursuant to 45 CFR part 93, and, if 
necessary, a Standard Form LLL (SF-LLL) that discloses lobbying 
payments;
    (3) An assurance that the Lead Agency provides a drug-free workplace 
pursuant to 45 CFR 76.600, or a statement that such an assurance has 
already been submitted for all HHS grants;
    (4) A certification that no principals have been debarred pursuant 
to 45 CFR 76.500;
    (5) Assurances that the Lead Agency will comply with the applicable 
provisions regarding nondiscrimination at 45 CFR part 80 (implementing 
title VI of

[[Page 534]]

the Civil Rights Act of 1964, as amended), 45 CFR part 84 (implementing 
section 504 of the Rehabilitation Act of 1973, as amended), 45 CFR part 
86 (implementing title IX of the Education Amendments of 1972, as 
amended) and 45 CFR part 91 (implementing the Age Discrimination Act of 
1975, as amended), and;
    (6) Assurances that the Lead Agency will comply with the applicable 
provisions of Public Law 103-277, Part C--Environmental Tobacco Smoke, 
also known as the Pro-Children Act of 1994, regarding prohibitions on 
smoking.
    (c) The Child Care and Development Fund Plan, at times and in such 
manner as required in Sec. 98.17; and
    (d) Such other information as specified by the Secretary.



Sec. 98.14  Plan process.

    In the development of each Plan, as required pursuant to Sec. 98.17, 
the Lead Agency shall:
    (a)(1) Coordinate the provision of services funded under this Part 
with other Federal, State, and local child care and early childhood 
development programs, including such programs for the benefit of Indian 
children. The Lead Agency shall also coordinate with the State, and if 
applicable, tribal agencies responsible for:
    (A) Public health, including the agency responsible for 
immunizations;
    (B) Employment services/workforce development;
    (C) Public education; and
    (D) Providing Temporary Assistance for Needy Families.
    (2) Provide a description of the results of the coordination with 
each of these agencies in the CCDF Plan.
    (b) Consult with appropriate representatives of local governments;
    (c)(1) Hold at least one hearing in the State, after at least 20 
days of statewide public notice, to provide to the public an opportunity 
to comment on the provision of child care services under the Plan.
    (2) The hearing required by paragraph (c)(1) shall be held before 
the Plan is submitted to ACF, but no earlier than nine months before the 
Plan becomes effective.
    (3) In advance of the hearing required by this section, the Lead 
Agency shall make available to the public the content of the Plan as 
described in Sec. 98.16 that it proposes to submit to the Secretary.



Sec. 98.15  Assurances and certifications.

    (a) The Lead Agency shall include the following assurances in its 
CCDF Plan:
    (1) Upon approval, it will have in effect a program that complies 
with the provisions of the CCDF Plan, and that is administered in 
accordance with the Child Care and Development Block Grant Act of 1990, 
as amended, section 418 of the Social Security Act, and all other 
applicable Federal laws and regulations;
    (2) The parent(s) of each eligible child within the area served by 
the Lead Agency who receives or is offered child care services for which 
financial assistance is provided is given the option either:
    (i) To enroll such child with a child care provider that has a grant 
or contract for the provision of the service; or
    (ii) To receive a child care certificate as defined in Sec. 98.2;
    (3) In cases in which the parent(s), pursuant to Sec. 98.30, elects 
to enroll their child with a provider that has a grant or contract with 
the Lead Agency, the child will be enrolled with the eligible provider 
selected by the parent to the maximum extent practicable;
    (4) In accordance with Sec. 98.30, the child care certificate 
offered to parents shall be of a value commensurate with the subsidy 
value of child care services provided under a grant or contract;
    (5) With respect to State and local regulatory requirements (or 
tribal regulatory requirements), health and safety requirements, payment 
rates, and registration requirements, State or local (or tribal) rules, 
procedures or other requirements promulgated for the purpose of the CCDF 
will not significantly restrict parental choice from among categories of 
care or types of providers, pursuant to Sec. 98.30(f).
    (6) That if expenditures for pre-Kindergarten services are used to 
meet the maintenance-of-effort requirement, the State has not reduced 
its level of effort in full-day/full-year child care services, pursuant 
to Sec. 98.53(h)(1).

[[Page 535]]

    (b) The Lead Agency shall include the following certifications in 
its CCDF Plan:
    (1) In accordance with Sec. 98.31, it has procedures in place to 
ensure that providers of child care services for which assistance is 
provided under the CCDF, afford parents unlimited access to their 
children and to the providers caring for their children, during the 
normal hours of operations and whenever such children are in the care of 
such providers;
    (2) As required by Sec. 98.32, the State maintains a record of 
substantiated parental complaints and makes information regarding such 
complaints available to the public on request;
    (3) It will collect and disseminate to parents of eligible children 
and the general public, consumer education information that will promote 
informed child care choices, as required by Sec. 98.33;
    (4) There are in effect licensing requirements applicable to child 
care services provided within the State (or area served by Tribal Lead 
Agency), pursuant to Sec. 98.40;
    (5) There are in effect within the State (or other area served by 
the Lead Agency), under State or local (or tribal) law, requirements 
designed to protect the health and safety of children that are 
applicable to child care providers that provide services for which 
assistance is made available under the CCDF, pursuant to Sec. 98.41;
    (6) In accordance with Sec. 98.41, procedures are in effect to 
ensure that child care providers of services for which assistance is 
provided under the CCDF comply with all applicable State or local (or 
tribal) health and safety requirements; and
    (7) Payment rates for the provision of child care services, in 
accordance with Sec. 98.43, are sufficient to ensure equal access for 
eligible children to comparable child care services in the State or sub-
State area that are provided to children whose parents are not eligible 
to receive assistance under this program or under any other Federal or 
State child care assistance programs.



Sec. 98.16  Plan provisions.

    A CCDF Plan shall contain the following:
    (a) Specification of the Lead Agency whose duties and 
responsibilities are delineated in Sec. 98.10;
    (b) The assurances and certifications listed under Sec. 98.15;
    (c)(1) A description of how the CCDF program will be administered 
and implemented, if the Lead Agency does not directly administer and 
implement the program;
    (2) Identification of the entity designated to receive private 
donated funds and the purposes for which such funds will be expended, 
pursuant to Sec. 98.53(f);
    (d) A description of the coordination and consultation processes 
involved in the development of the Plan, including a description of 
public-private partnership activities that promote business involvement 
in meeting child care needs pursuant to Sec. 98.14(a) and (b);
    (e) A description of the public hearing process, pursuant to 
Sec. 98.14(c);
    (f) Definitions of the following terms for purposes of determining 
eligibility, pursuant to Secs. 98.20(a) and 98.44:
    (1) Special needs child;
    (2) Physical or mental incapacity (if applicable);
    (3) Attending (a job training or educational program);
    (4) Job training and educational program;
    (5) Residing with;
    (6) Working;
    (7) Protective services (if applicable), including whether children 
in foster care are considered in protective services for purposes of 
child care eligibility; and whether respite care is provided to 
custodial parents of children in protective services.
    (8) Very low income; and
    (9) in loco parentis.
    (g) For child care services pursuant to Sec. 98.50:
    (1) A description of such services and activities;
    (2) Any limits established for the provision of in-home care and the 
reasons for such limits pursuant to Sec. 98.30(e)(1)(iv);
    (3) A list of political subdivisions in which such services and 
activities are offered, if such services and activities are not 
available throughout the entire service area;

[[Page 536]]

    (4) A description of how the Lead Agency will meet the needs of 
certain families specified at Sec. 98.50(e).
    (5) Any additional eligibility criteria, priority rules and 
definitions established pursuant to Sec. 98.20(b);
    (h) A description of the activities to provide comprehensive 
consumer education, to increase parental choice, and to improve the 
quality and availability of child care, pursuant to Sec. 98.51;
    (i) A description of the sliding fee scale(s) (including any factors 
other than income and family size used in establishing the fee scale(s)) 
that provide(s) for cost sharing by the families that receive child care 
services for which assistance is provided under the CCDF, pursuant to 
Sec. 98.42;
    (j) A description of the health and safety requirements, applicable 
to all providers of child care services for which assistance is provided 
under the CCDF, in effect pursuant to Sec. 98.41;
    (k) A description of the child care certificate payment system(s), 
including the form or forms of the child care certificate, pursuant to 
Sec. 98.30(c);
    (l) Payment rates and a summary of the facts, including a biennial 
local market rate survey, relied upon to determine that the rates 
provided are sufficient to ensure equal access pursuant to Sec. 98.43;
    (m) A detailed description of how the State maintains a record of 
substantiated parental complaints and how it makes information regarding 
those complaints available to the public on request, pursuant to 
Sec. 98.32;
    (n) A detailed description of the procedures in effect for affording 
parents unlimited access to their children whenever their children are 
in the care of the provider, pursuant to Sec. 98.31;
    (o) A detailed description of the licensing requirements applicable 
to child care services provided, and a description of how such licensing 
requirements are effectively enforced, pursuant to Sec. 98.40;
    (p) Pursuant to Sec. 98.33(b), the definitions or criteria used to 
implement the exception, provided in section 407(e)(2) of the Social 
Security Act, to individual penalties in the TANF work requirement 
applicable to a single custodial parent caring for a child under age 
six;
    (q)(1) When any Matching funds under Sec. 98.53(b) are claimed, a 
description of the efforts to ensure that pre-Kindergarten programs meet 
the needs of working parents;
    (2) When State pre-Kindergarten expenditures are used to meet more 
than 10% of the amount required at Sec. 98.53(c)(1), or for more than 
10% of the funds available at Sec. 98.53(b), or both, a description of 
how the State will coordinate its pre-Kindergarten and child care 
services to expand the availability of child care; and
    (r) Such other information as specified by the Secretary.



Sec. 98.17  Period covered by Plan.

    (a) For States, Territories, and Indian Tribes the Plan shall cover 
a period of two years.
    (b) The Lead Agency shall submit a new Plan prior to the expiration 
of the time period specified in paragraph (a) of this section, at such 
time as required by the Secretary in written instructions.



Sec. 98.18  Approval and disapproval of Plans and Plan amendments.

    (a) Plan approval. The Assistant Secretary will approve a Plan that 
satisfies the requirements of the Act and this part. Plans will be 
approved not later than the 90th day following the date on which the 
Plan submittal is received, unless a written agreement to extend that 
period has been secured.
    (b) Plan amendments. Approved Plans shall be amended whenever a 
substantial change in the program occurs. A Plan amendment shall be 
submitted within 60 days of the effective date of the change. Plan 
amendments will be approved not later than the 90th day following the 
date on which the amendment is received, unless a written agreement to 
extend that period has been secured.
    (c) Appeal of disapproval of a Plan or Plan amendment. (1) An 
applicant or Lead Agency dissatisfied with a determination of the 
Assistant Secretary pursuant to paragraphs (a) or (b) of this section 
with respect to any Plan or amendment may, within 60 days after the date 
of receipt of notification of such determination, file a petition with 
the Assistant Secretary asking

[[Page 537]]

for reconsideration of the issue of whether such Plan or amendment 
conforms to the requirements for approval under the Act and pertinent 
Federal regulations.
    (2) Within 30 days after receipt of such petition, the Assistant 
Secretary shall notify the applicant or Lead Agency of the time and 
place at which the hearing for the purpose of reconsidering such issue 
will be held.
    (3) Such hearing shall be held not less than 30 days, nor more than 
90 days, after the notification is furnished to the applicant or Lead 
Agency, unless the Assistant Secretary and the applicant or Lead Agency 
agree in writing on another time.
    (4) Action pursuant to an initial determination by the Assistant 
Secretary described in paragraphs (a) and (b) of this section that a 
Plan or amendment is not approvable shall not be stayed pending the 
reconsideration, but in the event that the Assistant Secretary 
subsequently determines that the original decision was incorrect, the 
Assistant Secretary shall certify restitution forthwith in a lump sum of 
any funds incorrectly withheld or otherwise denied. The hearing 
procedures are described in part 99 of this chapter.



                   Subpart C--Eligibility for Services



Sec. 98.20  A child's eligibility for child care services.

    (a) In order to be eligible for services under Sec. 98.50, a child 
shall:
    (1)(i) Be under 13 years of age; or,
    (ii) At the option of the Lead Agency, be under age 19 and 
physically or mentally incapable of caring for himself or herself, or 
under court supervision;
    (2) Reside with a family whose income does not exceed 85 percent of 
the State's median income for a family of the same size; and
    (3)(i) Reside with a parent or parents (as defined in Sec. 98.2) who 
are working or attending a job training or educational program; or
    (ii) Receive, or need to receive, protective services and reside 
with a parent or parents (as defined in Sec. 98.2) other than the 
parent(s) described in paragraph (a)(3)(i) of this section.
    (A) At grantee option, the requirements in paragraph (a)(2) of this 
section and in Sec. 98.42 may be waived for families eligible for child 
care pursuant to this paragraph, if determined to be necessary on a 
case-by-case basis by, or in consultation with, an appropriate 
protective services worker.
    (B) At grantee option, the provisions in (A) apply to children in 
foster care when defined in the Plan, pursuant to Sec. 98.16(f)(7).
    (b) Pursuant to Sec. 98.16(g)(5), a grantee or other administering 
agency may establish eligibility conditions or priority rules in 
addition to those specified in this section and Sec. 98.44 so long as 
they do not:
    (1) Discriminate against children on the basis of race, national 
origin, ethnic background, sex, religious affiliation, or disability;
    (2) Limit parental rights provided under Subpart D; or
    (3) Violate the provisions of this section, Sec. 98.44, or the Plan. 
In particular, such conditions or priority rules may not be based on a 
parent's preference for a category of care or type of provider. In 
addition, such additional conditions or rules may not be based on a 
parent's choice of a child care certificate.



Subpart D--Program Operations (Child Care Services)--Parental Rights and 
                            Responsibilities



Sec. 98.30  Parental choice.

    (a) The parent or parents of an eligible child who receives or is 
offered child care services shall be offered a choice:
    (1) To enroll the child with an eligible child care provider that 
has a grant or contract for the provision of such services, if such 
services are available; or
    (2) To receive a child care certificate as defined in Sec. 98.2. 
Such choice shall be offered any time that child care services are made 
available to a parent.
    (b) When a parent elects to enroll the child with a provider that 
has a grant or contract for the provision of child care services, the 
child will be enrolled with the provider selected by the parent to the 
maximum extent practicable.

[[Page 538]]

    (c) In cases in which a parent elects to use a child care 
certificate, such certificate:
    (1) Will be issued directly to the parent;
    (2) Shall be of a value commensurate with the subsidy value of the 
child care services provided under paragraph (a)(1) of this section;
    (3) May be used as a deposit for child care services if such a 
deposit is required of other children being cared for by the provider;
    (4) May be used for child care services provided by a sectarian 
organization or agency, including those that engage in religious 
activities, if those services are chosen by the parent;
    (5) May be expended by providers for any sectarian purpose or 
activity that is part of the child care services, including sectarian 
worship or instruction;
    (6) Shall not be considered a grant or contract to a provider but 
shall be considered assistance to the parent.
    (d) Child care certificates shall be made available to any parents 
offered child care services.
    (e)(1) For child care services, certificates under paragraph (a)(2) 
of this section shall permit parents to choose from a variety of child 
care categories, including:
    (i) Center-based child care;
    (ii) Group home child care;
    (iii) Family child care; and
    (iv) In-home child care, with limitations, if any, imposed by the 
Lead Agency and described in its Plan at Sec. 98.16(g)(2). Under each of 
the above categories, care by a sectarian provider may not be limited or 
excluded.
    (2) Lead Agencies shall provide information regarding the range of 
provider options under paragraph (e)(1) of this section, including care 
by sectarian providers and relatives, to families offered child care 
services.
    (f) With respect to State and local regulatory requirements under 
Sec. 98.40, health and safety requirements under Sec. 98.41, and payment 
rates under Sec. 98.43, CCDF funds will not be available to a Lead 
Agency if State or local rules, procedures or other requirements 
promulgated for purposes of the CCDF significantly restrict parental 
choice by:
    (1) Expressly or effectively excluding:
    (i) Any category of care or type of provider, as defined in 
Sec. 98.2; or
    (ii) Any type of provider within a category of care; or
    (2) Having the effect of limiting parental access to or choice from 
among such categories of care or types of providers, as defined in 
Sec. 98.2; or
    (3) Excluding a significant number of providers in any category of 
care or of any type as defined in Sec. 98.2.



Sec. 98.31  Parental access.

    The Lead Agency shall have in effect procedures to ensure that 
providers of child care services for which assistance is provided afford 
parents unlimited access to their children, and to the providers caring 
for their children, during normal hours of provider operation and 
whenever the children are in the care of the provider. The Lead Agency 
shall provide a detailed description of such procedures.



Sec. 98.32  Parental complaints.

    The State shall:
    (a) Maintain a record of substantiated parental complaints;
    (b) Make information regarding such parental complaints available to 
the public on request; and
    (c) The Lead Agency shall provide a detailed description of how such 
record is maintained and is made available.



Sec. 98.33  Consumer education.

    The Lead Agency shall:
    (a) Certify that it will collect and disseminate to parents and the 
general public consumer education information that will promote informed 
child care choices including, at a minimum, information about
    (1) The full range of providers available, and
    (2) Health and safety requirements;
    (b) Inform parents who receive TANF benefits about the requirement 
at section 407(e)(2) of the Social Security Act that the TANF agency 
make an exception to the individual penalties associated with the work 
requirement for any single custodial parent who has a demonstrated 
inability to obtain needed child care for a child under six years of 
age. The information may be provided directly by the Lead Agency, or,

[[Page 539]]

pursuant to Sec. 98.11, other entities, and shall include:
    (1) The procedures the TANF agency uses to determine if the parent 
has a demonstrated inability to obtain needed child care;
    (2) The criteria or definitions applied by the TANF agency to 
determine whether the parent has a demonstrated inability to obtain 
needed child care, including:
    (i) ``Appropriate child care'';
    (ii) ``Reasonable distance'';
    (iii) ``Unsuitability of informal child care'';
    (iv) ``Affordable child care arrangements'';
    (3) The clarification that assistance received during the time an 
eligible parent receives the exception referred to in paragraph (b) of 
this section will count toward the time limit on Federal benefits 
required at section 408(a)(7) of the Social Security Act.
    (c) Include in the biennial Plan the definitions or criteria the 
TANF agency uses in implementing the exception to the work requirement 
specified in paragraph (b) of this section.



Sec. 98.34  Parental rights and responsibilities.

    Nothing under this part shall be construed or applied in any manner 
to infringe on or usurp the moral and legal rights and responsibilities 
of parents or legal guardians.



  Subpart E--Program Operations (Child Care Services)--Lead Agency and 
                          Provider Requirements



Sec. 98.40  Compliance with applicable State and local regulatory requirements.

    (a) Lead Agencies shall:
    (1) Certify that they have in effect licensing requirements 
applicable to child care services provided within the area served by the 
Lead Agency;
    (2) Provide a detailed description of the requirements under 
paragraph (a)(1) of this section and of how they are effectively 
enforced.
    (b)(1) This section does not prohibit a Lead Agency from imposing 
more stringent standards and licensing or regulatory requirements on 
child care providers of services for which assistance is provided under 
the CCDF than the standards or requirements imposed on other child care 
providers.
    (2) Any such additional requirements shall be consistent with the 
safeguards for parental choice in Sec. 98.30(f).



Sec. 98.41  Health and safety requirements.

    (a) Although the Act specifically states it does not require the 
establishment of any new or additional requirements if existing 
requirements comply with the requirements of the statute, each Lead 
Agency shall certify that there are in effect, within the State (or 
other area served by the Lead Agency), under State, local or tribal law, 
requirements designed to protect the health and safety of children that 
are applicable to child care providers of services for which assistance 
is provided under this part. Such requirements shall include:
    (1) The prevention and control of infectious diseases (including 
immunizations). With respect to immunizations, the following provisions 
apply:
    (i) As part of their health and safety provisions in this area, 
States and Territories shall assure that children receiving services 
under the CCDF are age-appropriately immunized. Those health and safety 
provisions shall incorporate (by reference or otherwise) the latest 
recommendation for childhood immunizations of the respective State or 
territorial public health agency.
    (ii) Notwithstanding paragraph (a)(1)(i) of this section, Lead 
Agencies may exempt:
    (A) Children who are cared for by relatives (defined as 
grandparents, great grandparents, siblings (if living in a separate 
residence), aunts, and uncles);
    (B) Children who receive care in their own homes;
    (C) Children whose parents object to immunization on religious 
grounds; and
    (D) Children whose medical condition contraindicates immunization;
    (iii) Lead Agencies shall establish a grace period in which children 
can receive services while families are taking the necessary actions to 
comply with the immunization requirements;

[[Page 540]]

    (2) Building and physical premises safety; and
    (3) Minimum health and safety training appropriate to the provider 
setting.
    (b) Lead Agencies may not set health and safety standards and 
requirements under paragraph (a) of this section that are inconsistent 
with the parental choice safeguards in Sec. 98.30(f).
    (c) The requirements in paragraph (a) of this section shall apply to 
all providers of child care services for which assistance is provided 
under this part, within the area served by the Lead Agency, except the 
relatives specified in paragraph (e) of this section.
    (d) Each Lead Agency shall certify that procedures are in effect to 
ensure that child care providers of services for which assistance is 
provided under this part, within the area served by the Lead Agency, 
comply with all applicable State, local, or tribal health and safety 
requirements described in paragraph (a) of this section.
    (e) For the purposes of this section, the term ``child care 
providers'' does not include grandparents, great grandparents, siblings 
(if such providers live in a separate residence), aunts, or uncles, 
pursuant to Sec. 98.2.



Sec. 98.42  Sliding fee scales.

    (a) Lead Agencies shall establish, and periodically revise, by rule, 
a sliding fee scale(s) that provides for cost sharing by families that 
receive CCDF child care services.
    (b) A sliding fee scale(s) shall be based on income and the size of 
the family and may be based on other factors as appropriate.
    (c) Lead Agencies may waive contributions from families whose 
incomes are at or below the poverty level for a family of the same size.



Sec. 98.43  Equal access.

    (a) The Lead Agency shall certify that the payment rates for the 
provision of child care services under this part are sufficient to 
ensure equal access, for eligible families in the area served by the 
Lead Agency, to child care services comparable to those provided to 
families not eligible to receive CCDF assistance or child care 
assistance under any other Federal, State, or tribal programs.
    (b) The Lead Agency shall provide a summary of the facts relied on 
to determine that its payment rates ensure equal access. At a minimum, 
the summary shall include facts showing:
    (1) How a choice of the full range of providers, e.g., center, 
group, family, and in-home care, is made available;
    (2) How payment rates are adequate based on a local market rate 
survey conducted no earlier than two years prior to the effective date 
of the currently approved Plan;
    (3) How copayments based on a sliding fee scale are affordable, as 
stipulated at Sec. 98.42.
    (c) A Lead Agency may not establish different payment rates based on 
a family's eligibility status or circumstances.
    (d) Payment rates under paragraph (a) of this section shall be 
consistent with the parental choice requirements in Sec. 98.30.
    (e) Nothing in this section shall be construed to create a private 
right of action.



Sec. 98.44  Priority for child care services.

    Lead Agencies shall give priority for services provided under 
Sec. 98.50(a) to:
    (a) Children of families with very low family income (considering 
family size); and
    (b) Children with special needs.



Sec. 98.45  List of providers.

    If a Lead Agency does not have a registration process for child care 
providers who are unlicensed or unregulated under State, local, or 
tribal law, it is required to maintain a list of the names and addresses 
of unlicensed or unregulated providers of child care services for which 
assistance is provided under this part.



Sec. 98.46  Nondiscrimination in admissions on the basis of religion.

    (a) Child care providers (other than family child care providers, as 
defined in Sec. 98.2) that receive assistance through grants and 
contracts under the CCDF shall not discriminate in admissions against 
any child on the basis of religion.
    (b) Paragraph (a) of this section does not prohibit a child care 
provider from selecting children for child care slots

[[Page 541]]

that are not funded directly (i.e., through grants or contracts to 
providers) with assistance provided under the CCDF because such children 
or their family members participate on a regular basis in other 
activities of the organization that owns or operates such provider.
    (c) Notwithstanding paragraph (b) of this section, if 80 percent or 
more of the operating budget of a child care provider comes from Federal 
or State funds, including direct or indirect assistance under the CCDF, 
the Lead Agency shall assure that before any further CCDF assistance is 
given to the provider,
    (1) The grant or contract relating to the assistance, or
    (2) The admission policies of the provider specifically provide that 
no person with responsibilities in the operation of the child care 
program, project, or activity will discriminate, on the basis of 
religion, in the admission of any child.



Sec. 98.47  Nondiscrimination in employment on the basis of religion.

    (a) In general, except as provided in paragraph (b) of this section, 
nothing in this part modifies or affects the provision of any other 
applicable Federal law and regulation relating to discrimination in 
employment on the basis of religion.
    (1) Child care providers that receive assistance through grants or 
contracts under the CCDF shall not discriminate, on the basis of 
religion, in the employment of caregivers as defined in Sec. 98.2.
    (2) If two or more prospective employees are qualified for any 
position with a child care provider, this section shall not prohibit the 
provider from employing a prospective employee who is already 
participating on a regular basis in other activities of the organization 
that owns or operates the provider.
    (3) Paragraphs (a)(1) and (2) of this section shall not apply to 
employees of child care providers if such employees were employed with 
the provider on November 5, 1990.
    (b) Notwithstanding paragraph (a) of this section, a sectarian 
organization may require that employees adhere to the religious tenets 
and teachings of such organization and to rules forbidding the use of 
drugs or alcohol.
    (c) Notwithstanding paragraph (b) of this section, if 80 percent or 
more of the operating budget of a child care provider comes from Federal 
and State funds, including direct and indirect assistance under the 
CCDF, the Lead Agency shall assure that, before any further CCDF 
assistance is given to the provider,
    (1) The grant or contract relating to the assistance, or
    (2) The employment policies of the provider specifically provide 
that no person with responsibilities in the operation of the child care 
program will discriminate, on the basis of religion, in the employment 
of any individual as a caregiver, as defined in Sec. 98.2.



           Subpart F--Use of Child Care and Development Funds



Sec. 98.50  Child care services.

    (a) Of the funds remaining after applying the provisions of 
paragraphs (c), (d) and (e) of this section the Lead Agency shall spend 
a substantial portion to provide child care services to low-income 
working families.
    (b) Child care services shall be provided:
    (1) To eligible children, as described in Sec. 98.20;
    (2) Using a sliding fee scale, as described in Sec. 98.42;
    (3) Using funding methods provided for in Sec. 98.30; and
    (4) Based on the priorities in Sec. 98.44.
    (c) Of the aggregate amount of funds expended (i.e., Discretionary, 
Mandatory, and Federal and State share of Matching Funds), no less than 
four percent shall be used for activities to improve the quality of 
child care as described at Sec. 98.51.
    (d) Of the aggregate amount of funds expended (i.e., Discretionary, 
Mandatory, and Federal and State share of Matching Funds), no more than 
five percent may be used for administrative activities as described at 
Sec. 98.52.
    (e) Not less than 70 percent of the Mandatory and Matching Funds 
shall be used to meet the child care needs of families who:

[[Page 542]]

    (1) Are receiving assistance under a State program under Part A of 
title IV of the Social Security Act,
    (2) Are attempting through work activities to transition off such 
assistance program, and
    (3) Are at risk of becoming dependent on such assistance program.
    (f) Pursuant to Sec. 98.16(g)(4), the Plan shall specify how the 
State will meet the child care needs of families described in paragraph 
(e) of this section.



Sec. 98.51  Activities to improve the quality of child care.

    (a) No less than four percent of the aggregate funds expended by the 
Lead Agency for a fiscal year, and including the amounts expended in the 
State pursuant to Sec. 98.53(b), shall be expended for quality 
activities.
    (1) These activities may include but are not limited to:
    (i) Activities designed to provide comprehensive consumer education 
to parents and the public;
    (ii) Activities that increase parental choice; and
    (iii) Activities designed to improve the quality and availability of 
child care, including, but not limited to those described in paragraph 
(2) of this section.
    (2) Activities to improve the quality of child care services may 
include, but are not limited to:
    (i) Operating directly or providing financial assistance to 
organizations (including private non-profit organizations, public 
organizations, and units of general purpose local government) for the 
development, establishment, expansion, operation, and coordination of 
resource and referral programs specifically related to child care;
    (ii) Making grants or providing loans to child care providers to 
assist such providers in meeting applicable State, local, and tribal 
child care standards, including applicable health and safety 
requirements, pursuant to Secs. 98.40 and 98.41;
    (iii) Improving the monitoring of compliance with, and enforcement 
of, applicable State, local, and tribal requirements pursuant to 
Secs. 98.40 and 98.41;
    (iv) Providing training and technical assistance in areas 
appropriate to the provision of child care services, such as training in 
health and safety, nutrition, first aid, the recognition of communicable 
diseases, child abuse detection and prevention, and care of children 
with special needs;
    (v) Improving salaries and other compensation (such as fringe 
benefits) for full-and part-time staff who provide child care services 
for which assistance is provided under this part; and
    (vi) Any other activities that are consistent with the intent of 
this section.
    (b) Pursuant to Sec. 98.16(h), the Lead Agency shall describe in its 
Plan the activities it will fund under this section.
    (c) Non-Federal expenditures required by Sec. 98.53(c) (i.e., the 
maintenance-of-effort amount) are not subject to the requirement at 
paragraph (a) of this section.



Sec. 98.52  Administrative costs.

    (a) Not more than five percent of the aggregate funds expended by 
the Lead Agency from each fiscal year's allotment, including the amounts 
expended in the State pursuant to Sec. 98.53(b), shall be expended for 
administrative activities. These activities may include but are not 
limited to:
    (1) Salaries and related costs of the staff of the Lead Agency or 
other agencies engaged in the administration and implementation of the 
program pursuant to Sec. 98.11. Program administration and 
implementation include the following types of activities:
    (i) Planning, developing, and designing the Child Care and 
Development Fund program;
    (ii) Providing local officials and the public with information about 
the program, including the conduct of public hearings;
    (iii) Preparing the application and Plan;
    (iv) Developing agreements with administering agencies in order to 
carry out program activities;
    (v) Monitoring program activities for compliance with program 
requirements;
    (vi) Preparing reports and other documents related to the program 
for submission to the Secretary;

[[Page 543]]

    (vii) Maintaining substantiated complaint files in accordance with 
the requirements of Sec. 98.32;
    (viii) Coordinating the provision of Child Care and Development Fund 
services with other Federal, State, and local child care, early 
childhood development programs, and before-and after-school care 
programs;
    (ix) Coordinating the resolution of audit and monitoring findings;
    (x) Evaluating program results; and
    (xi) Managing or supervising persons with responsibilities described 
in paragraphs (a)(1)(i) through (x) of this section;
    (2) Travel costs incurred for official business in carrying out the 
program;
    (3) Administrative services, including such services as accounting 
services, performed by grantees or subgrantees or under agreements with 
third parties;
    (4) Audit services as required at Sec. 98.65;
    (5) Other costs for goods and services required for the 
administration of the program, including rental or purchase of 
equipment, utilities, and office supplies; and
    (6) Indirect costs as determined by an indirect cost agreement or 
cost allocation plan pursuant to Sec. 98.55.
    (b) The five percent limitation at paragraph (a) of this section 
applies only to the States and Territories. The amount of the limitation 
at paragraph (a) of this section does not apply to Tribes or tribal 
organizations.
    (c) Non-Federal expenditures required by Sec. 98.53(c) (i.e., the 
maintenance-of-effort amount) are not subject to the five percent 
limitation at paragraph (a) of this section.



Sec. 98.53  Matching fund requirements.

    (a) Federal matching funds are available for expenditures in a State 
based upon the formula specified at Sec. 98.63(a).
    (b) Expenditures in a State under paragraph (a) of this section will 
be matched at the Federal medical assistance rate for the applicable 
fiscal year for allowable activities, as described in the approved State 
Plan, that meet the goals and purposes of the Act.
    (c) In order to receive Federal matching funds for a fiscal year 
under paragraph (a) of this section:
    (1) States shall also expend an amount of non-Federal funds for 
child care activities in the State that is at least equal to the State's 
share of expenditures for fiscal year 1994 or 1995 (whichever is 
greater) under sections 402(g) and (i) of the Social Security Act as 
these sections were in effect before October 1, 1995; and
    (2) The expenditures shall be for allowable services or activities, 
as described in the approved State Plan if appropriate, that meet the 
goals and purposes of the Act.
    (3) All Mandatory Funds are obligated in accordance with 
Sec. 98.60(d)(2)(i).
    (d) The same expenditure may not be used to meet the requirements 
under both paragraphs (b) and (c) of this section in a fiscal year.
    (e) An expenditure in the State for purposes of this subpart may be:
    (1) Public funds when the funds are:
    (i) Appropriated directly to the Lead Agency specified at 
Sec. 98.10, or transferred from another public agency to that Lead 
Agency and under its administrative control, or certified by the 
contributing public agency as representing expenditures eligible for 
Federal match;
    (ii) Not used to match other Federal funds; and
    (iii) Not Federal funds, or are Federal funds authorized by Federal 
law to be used to match other Federal funds; or
    (2) Donated from private sources when the donated funds:
    (i) Are donated without any restriction that would require their use 
for a specific individual, organization, facility or institution;
    (ii) Do not revert to the donor's facility or use; and
    (iii) Are not used to match other Federal funds;
    (iv) Shall be certified both by the donor and by the Lead Agency as 
available and representing expenditures eligible for Federal match; and
    (v) Shall be subject to the audit requirements in Sec. 98.65 of 
these regulations.
    (f) Donated funds need not be transferred to or under the 
administrative control of the Lead Agency in order to

[[Page 544]]

qualify as an expenditure eligible to receive Federal match under this 
subsection. They may be given to the entity designated by the State to 
receive donated funds pursuant to Sec. 98.16(c)(2).
    (g) The following are not counted as an eligible State expenditure 
under this Part:
    (1) In-kind contributions; and
    (2) Family contributions to the cost of care as required by 
Sec. 98.42.
    (h) Public pre-kindergarten (pre-K) expenditures:
    (1) May be used to meet the maintenance-of-effort requirement only 
if the State has not reduced its expenditures for full-day/full-year 
child care services; and
    (2) May be eligible for Federal match if the State includes in its 
Plan, as provided in Sec. 98.16(q), a description of the efforts it will 
undertake to ensure that pre-K programs meet the needs of working 
parents.
    (3) In any fiscal year, a State may use public pre-K funds for up to 
20% of the funds serving as maintenance-of-effort under this subsection. 
In any fiscal year, a State may use other public pre-K funds for up to 
20% of the expenditures serving as the State's matching funds under this 
subsection.
    (4) If applicable, the CCDF Plan shall reflect the State's intent to 
use public pre-K funds in excess of 10%, but not for more than 20%, of 
either its maintenance-of-effort or State matching funds in a fiscal 
year. Also, the Plan shall describe how the State will coordinate its 
pre-K and child care services to expand the availability of child care.
    (i) Matching funds are subject to the obligation and liquidation 
requirements at Sec. 98.60(d)(3).



Sec. 98.54  Restrictions on the use of funds.

    (a) General. (1) Funds authorized under section 418 of the Social 
Security Act and section 658B of the Child Care and Development Block 
Grant Act, and all funds transferred to the Lead Agency pursuant to 
section 404(d) of the Social Security Act, shall be expended consistent 
with these regulations. Funds transferred pursuant to section 404(d) of 
the Social Security Act shall be treated as Discretionary Funds;
    (2) Funds shall be expended in accordance with applicable State and 
local laws, except as superseded by Sec. 98.3.
    (b) Construction. (1) For State and local agencies and nonsectarian 
agencies or organizations, no funds shall be expended for the purchase 
or improvement of land, or for the purchase, construction, or permanent 
improvement of any building or facility. However, funds may be expended 
for minor remodeling, and for upgrading child care facilities to assure 
that providers meet State and local child care standards, including 
applicable health and safety requirements.
    (2) For sectarian agencies or organizations, the prohibitions in 
paragraph (b)(1) of this section apply; however, funds may be expended 
for minor remodeling only if necessary to bring the facility into 
compliance with the health and safety requirements established pursuant 
to Sec. 8.41.
    (3) Tribes and tribal organizations are subject to the requirements 
at Sec. 98.84 regarding construction and renovation.
    (c) Tuition. Funds may not be expended for students enrolled in 
grades 1 through 12 for:
    (1) Any service provided to such students during the regular school 
day;
    (2) Any service for which such students receive academic credit 
toward graduation; or
    (3) Any instructional services that supplant or duplicate the 
academic program of any public or private school.
    (d) Sectarian purposes and activities. Funds provided under grants 
or contracts to providers may not be expended for any sectarian purpose 
or activity, including sectarian worship or instruction. Pursuant to 
Sec. 98.2, assistance provided to parents through certificates is not a 
grant or contract. Funds provided through child care certificates may be 
expended for sectarian purposes or activities, including sectarian 
worship or instruction when provided as part of the child care services.
    (e) The CCDF may not be used as the non-Federal share for other 
Federal grant programs.

[[Page 545]]



Sec. 98.55  Cost allocation.

    (a) The Lead Agency and subgrantees shall keep on file cost 
allocation plans or indirect cost agreements, as appropriate, that have 
been amended to include costs allocated to the CCDF.
    (b) Subgrantees that do not already have a negotiated indirect rate 
with the Federal government should prepare and keep on file cost 
allocation plans or indirect cost agreements, as appropriate.
    (c) Approval of the cost allocation plans or indirect cost 
agreements is not specifically required by these regulations, but these 
plans and agreements are subject to review.



                     Subpart G--Financial Management



Sec. 98.60  Availability of funds.

    (a) The CCDF is available, subject to the availability of 
appropriations, in accordance with the apportionment of funds from the 
Office of Management and Budget as follows:
    (1) Discretionary Funds are available to States, Territories, and 
Tribes,
    (2) Mandatory and Matching Funds are available to States;
    (3) Tribal Mandatory Funds are available to Tribes.
    (b) Subject to the availability of appropriations, in accordance 
with the apportionment of funds from the Office of Management and 
Budget, the Secretary:
    (1) May withhold no more than one-quarter of one percent of the CCDF 
funds made available for a fiscal year for the provision of technical 
assistance; and
    (2) Will award the remaining CCDF funds to grantees that have an 
approved application and Plan.
    (c) The Secretary may make payments in installments, and in advance 
or by way of reimbursement, with necessary adjustments due to 
overpayments or underpayments.
    (d) The following obligation and liquidation provisions apply to 
States and Territories:
    (1) Discretionary Fund allotments shall be obligated in the fiscal 
year in which funds are awarded or in the succeeding fiscal year. 
Unliquidated obligations as of the end of the succeeding fiscal year 
shall be liquidated within one year.
    (2)(i) Mandatory Funds for States requesting Matching Funds per 
Sec. 98.53 shall be obligated in the fiscal year in which the funds are 
granted and are available until expended.
    (ii) Mandatory Funds for States that do not request Matching Funds 
are available until expended.
    (3) Both the Federal and non-Federal share of the Matching Fund 
shall be obligated in the fiscal year in which the funds are granted and 
liquidated no later than the end of the succeeding fiscal year.
    (4) Except for paragraph (d)(5) of this section, determination of 
whether funds have been obligated and liquidated will be based on:
    (i) State or local law; or,
    (ii) If there is no applicable State or local law, the regulation at 
45 CFR 92.3, Obligations and Outlays (expenditures).
    (5) Obligations may include subgrants or contracts that require the 
payment of funds to a third party (e.g., subgrantee or contractor). 
However, the following are not considered third party subgrantees or 
contractors:
    (i) A local office of the Lead Agency;
    (ii) Another entity at the same level of government as the Lead 
Agency; or
    (iii) A local office of another entity at the same level of 
government as the Lead Agency.
    (6) For purposes of the CCDF, funds for child care services provided 
through a child care certificate will be considered obligated when a 
child care certificate is issued to a family in writing that indicates:
    (i) The amount of funds that will be paid to a child care provider 
or family, and
    (ii) The specific length of time covered by the certificate, which 
is limited to the date established for redetermination of the family's 
eligibility, but shall be no later than the end of the liquidation 
period.
    (7) Any funds not obligated during the obligation period specified 
in paragraph (d) of this section will revert to the Federal government. 
Any funds not liquidated by the end of the applicable

[[Page 546]]

liquidation period specified in paragraph (d) of this section will also 
revert to the Federal government.
    (e) The following obligation and liquidation provisions apply to 
Tribal Discretionary and Tribal Mandatory Funds:
    (1) Tribal grantees shall obligate all funds by the end of the 
fiscal year following the fiscal year for which the grant is awarded. 
Any funds not obligated during this period will revert to the Federal 
government.
    (2) Obligations that remain unliquidated at the end of the 
succeeding fiscal year shall be liquidated within the next fiscal year. 
Any tribal funds that remain unliquidated by the end of this period will 
also revert to the Federal government.
    (f) Cash advances shall be limited to the minimum amounts needed and 
shall be timed to be in accord with the actual, immediate cash 
requirements of the State Lead Agency, its subgrantee or contractor in 
carrying out the purpose of the program in accordance with 31 CFR part 
205.
    (g) Funds that are returned (e.g., loan repayments, funds 
deobligated by cancellation of a child care certificate, unused 
subgrantee funds) as well as program income (e.g., contributions made by 
families directly to the Lead Agency or subgrantee for the cost of care 
where the Lead Agency or subgrantee has made a full payment to the child 
care provider) shall,
    (1) if received by the Lead Agency during the applicable obligation 
period, described in paragraphs (d) and (e) of this section, be used for 
activities specified in the Lead Agency's approved plan and must be 
obligated by the end of the obligation period; or
    (2) if received after the end of the applicable obligation period 
described at paragraphs (d) and (e) of this section, be returned to the 
Federal government.
    (h) Repayment of loans, pursuant to Sec. 98.51(a)(2)(ii), may be 
made in cash or in services provided in-kind. Payment provided in-kind 
shall be based on fair market value. All loans shall be fully repaid.
    (i) Lead Agencies shall recover child care payments that are the 
result of fraud. These payments shall be recovered from the party 
responsible for committing the fraud.



Sec. 98.61  Allotments from the Discretionary Fund.

    (a) To the 50 States, the District of Columbia, and the Commonwealth 
of Puerto Rico an amount equal to the funds appropriated for the Child 
Care and Development Block Grant, less amounts reserved for technical 
assistance and amounts reserved for the Territories and Tribes, pursuant 
to Sec. 98.60(b) and paragraphs (b) and (c) of this section, shall be 
allotted based upon the formula specified in section 658O(b) of the Act.
    (b) For the U.S. Territories of Guam, American Samoa, the Virgin 
Islands of the United States, and the Commonwealth of the Northern 
Mariana Islands an amount up to one-half of one percent of the amount 
appropriated for the Child Care and Development Block Grant shall be 
reserved.
    (1) Funds shall be allotted to these Territories based upon the 
following factors:
    (i) A Young Child factor--the ratio of the number of children in the 
Territory under five years of age to the number of such children in all 
Territories; and
    (ii) An Allotment Proportion factor--determined by dividing the per 
capita income of all individuals in all the Territories by the per 
capita income of all individuals in the Territory.
    (A) Per capita income shall be:
    (1) Equal to the average of the annual per capita incomes for the 
most recent period of three consecutive years for which satisfactory 
data are available at the time such determination is made; and
    (2) Determined every two years.
    (B) Per capita income determined, pursuant to paragraph 
(b)(1)(ii)(A) of this section, will be applied in establishing the 
allotment for the fiscal year for which it is determined and for the 
following fiscal year.
    (C) If the Allotment Proportion factor determined at paragraph 
(b)(1)(ii) of this section:
    (1) Exceeds 1.2, then the Allotment Proportion factor of the 
Territory shall be considered to be 1.2; or

[[Page 547]]

    (2) Is less than 0.8, then the Allotment Proportion factor of the 
Territory shall be considered to be 0.8.
    (2)(i) The formula used in calculating a Territory's allotment is as 
follows:
[GRAPHIC] [TIFF OMITTED] TR24JY98.000

    (ii) For purposes of the formula specified at paragraph (b)(2)(i) of 
this section, the term ``YCFt'' means the Territory's Young 
Child factor as defined at paragraph (b)(1)(i) of this section.
    (iii) For purposes of the formula specified at paragraph (b)(2)(i) 
of this section, the term ``APFt'' means the Territory's 
Allotment Proportion factor as defined at paragraph (b)(1)(ii) of this 
section.
    (c) For Indian Tribes and tribal organizations, including any 
Alaskan Native Village or regional or village corporation as defined in 
or established pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C. 1601 et seq) an amount up to two percent of the amount 
appropriated for the Child Care and Development Block Grant shall be 
reserved.
    (1) Except as specified in paragraph (c)(2) of this section, grants 
to individual tribal grantees will be equal to the sum of:
    (i) A base amount as set by the Secretary; and
    (ii) An additional amount per Indian child under age 13 (or such 
similar age as determined by the Secretary from the best available 
data), which is determined by dividing the amount of funds available, 
less amounts set aside for eligible Tribes, pursuant to paragraph 
(c)(1)(i) of this section, by the number of all Indian children living 
on or near tribal reservations or other appropriate area served by the 
tribal grantee, pursuant to Sec. 98.80(e).
    (2) Grants to Tribes with fewer than 50 Indian children that apply 
as part of a consortium, pursuant to Sec. 98.80(b)(1), are equal to the 
sum of:
    (i) A portion of the base amount, pursuant to paragraph (c)(1)(i) of 
this section, that bears the same ratio as the number of Indian children 
in the Tribe living on or near the reservation, or other appropriate 
area served by the tribal grantee, pursuant to Sec. 98.80(e), does to 
50; and
    (ii) An additional amount per Indian child, pursuant to paragraph 
(c)(1)(ii) of this section.
    (3) Tribal consortia will receive grants that are equal to the sum 
of the individual grants of their members.
    (d) All funds reserved for Territories at paragraph (b) of this 
section will be allotted to Territories, and all funds reserved for 
Tribes at paragraph (c) of this section will be allotted to tribal 
grantees. Any funds that are returned by the Territories after they have 
been allotted will revert to the Federal government.
    (e) For other organizations, up to $2,000,000 may be reserved from 
the tribal funds reserved at paragraph (c) of this section. From this 
amount the Secretary may award a grant to a Native Hawaiian 
Organization, as defined in section 4009(4) of the Augustus F. Hawkins-
Robert T. Stafford Elementary and Secondary School Improvement 
Amendments of 1988 (20 U.S.C. 4909(4)) and to a private non-profit 
organization established for the purpose of serving youth who are 
Indians or Native Hawaiians. The Secretary will establish selection 
criteria and procedures for the award of grants under this subsection by 
notice in the Federal Register.



Sec. 98.62  Allotments from the Mandatory Fund.

    (a) Each of the 50 States and the District of Columbia will be 
allocated from the funds appropriated under section 418(a)(3) of the 
Social Security Act, less the amounts reserved for technical assistance 
pursuant to Sec. 98.60(b)(1) and the amount reserved for Tribes pursuant 
to paragraph (b) of this section, an amount of funds equal to the 
greater of:
    (1) the Federal share of its child care expenditures under 
subsections (g) and (i) of section 402 of the Social Security Act (as in 
effect before October 1, 1995) for fiscal year 1994 or 1995 (whichever 
is greater); or
    (2) the average of the Federal share of its child care expenditures 
under the subsections referred to in subparagraph (a)(1) of this section 
for fiscal years 1992 through 1994.

[[Page 548]]

    (b) For Indian Tribes and tribal organizations up to 2 percent of 
the amount appropriated under section 418(a)(3) of the Social Security 
Act shall be allocated according to the formula at paragraph (c) of this 
section. In Alaska, only the following 13 entities shall receive 
allocations under this subpart, in accordance with the formula at 
paragraph (c) of this section:
    (1) The Metlakatla Indian Community of the Annette Islands Reserve:
    (2) Arctic Slope Native Association;
    (3) Kawerak, Inc.;
    (4) Maniilaq Association;
    (5) Association of Village Council Presidents;
    (6) Tanana Chiefs Conference;
    (7) Cook Inlet Tribal Council;
    (8) Bristol Bay Native Association;
    (9) Aleutian and Pribilof Islands Association;
    (10) Chugachmuit;
    (11) Tlingit and Haida Central Council;
    (12) Kodiak Area Native Association; and
    (13) Copper River Native Association.
    (c)(1) Grants to individual Tribes with 50 or more Indian children, 
and to Tribes with fewer than 50 Indian children that apply as part of a 
consortium pursuant to Sec. 98.80(b)(1), will be equal to an amount per 
Indian child under age 13 (or such similar age as determined by the 
Secretary from the best available data), which is determined by dividing 
the amount of funds available, by the number of Indian children in each 
Tribe's service area pursuant to Sec. 98.80(e).
    (2) Tribal consortia will receive grants that are equal to the sum 
of the individual grants of their members.



Sec. 98.63  Allotments from the Matching Fund.

    (a) To each of the 50 States and the District of Columbia there is 
allocated an amount equal to its share of the total available under 
section 418(a)(3) of the Social Security Act. That amount is based on 
the same ratio as the number of children under age 13 residing in the 
State bears to the national total of children under age 13. The number 
of children under 13 is derived from the best data available to the 
Secretary for the second preceding fiscal year.
    (b) For purposes of this subsection, the amounts available under 
section 418(a)(3) of the Social Security Act excludes the amounts 
reserved and allocated under Sec. 98.60(b)(1) for technical assistance 
and under Sec. 98.62(a) and (b) for the Mandatory Fund.
    (c) Amounts under this subsection are available pursuant to the 
requirements at Sec. 98.53(c).



Sec. 98.64  Reallotment and redistribution of funds.

    (a) According to the provisions of this section State and Tribal 
Discretionary Funds are subject to reallotment, and State Matching Funds 
are subject to redistribution. State funds are reallotted or 
redistributed only to States as defined for the original allocation. 
Tribal funds are reallotted only to Tribes. Funds granted to the 
Territories are not subject to reallotment. Any funds granted to the 
Territories that are returned after they have been allotted will revert 
to the Federal government.
    (b) Any portion of a State's Discretionary Fund allotment that is 
not required to carry out its Plan, in the period for which the 
allotment is made available, shall be reallotted to other States in 
proportion to the original allotments. For purposes of this paragraph 
the term ``State'' means the 50 States, the District of Columbia, and 
the Commonwealth of Puerto Rico. The other Territories and the Tribes 
may not receive reallotted State Discretionary Funds.
    (1) Each year, the State shall report to the Secretary either the 
dollar amount from the previous year's grant that it will be unable to 
obligate by the end of the obligation period or that all funds will be 
obligated during such time. Such report shall be postmarked by April 
1st.
    (2) Based upon the reallotment reports submitted by States, the 
Secretary will reallot funds.
    (i) If the total amount available for reallotment is $25,000 or 
more, funds will be reallotted to States in proportion to each State's 
allotment for the applicable fiscal year's funds, pursuant to 
Sec. 98.61(a).

[[Page 549]]

    (ii) If the amount available for reallotment is less than $25,000, 
the Secretary will not reallot any funds, and such funds will revert to 
the Federal government.
    (iii) If an individual reallotment amount to a State is less than 
$500, the Secretary will not issue the award, and such funds will revert 
to the Federal government.
    (3) If a State does not submit a reallotment report by the deadline 
for report submittal, either:
    (i) The Secretary will determine that the State does not have any 
funds available for reallotment; or
    (ii) In the case of a report postmarked after April 1st, any funds 
reported to be available for reallotment shall revert to the Federal 
government.
    (4) States receiving reallotted funds shall obligate and expend 
these funds in accordance with Sec. 98.60. The reallotment of funds does 
not extend the obligation period or the program period for expenditure 
of such funds.
    (c)(1) Any portion of the Matching Fund granted to a State that is 
not obligated in the period for which the grant is made shall be 
redistributed. Funds, if any, will be redistributed on the request of, 
and only to, those other States that have met the requirements of 
Sec. 98.53(c) in the period for which the grant was first made. For 
purposes of this paragraph the term ``State'' means the 50 States and 
the District of Columbia. Territorial and tribal grantees may not 
receive redistributed Matching Funds.
    (2) Matching Funds allotted to a State under Sec. 98.63(a), but not 
granted, shall also be redistributed in the manner described in 
paragraph (1) of this section.
    (3) The amount of Matching Funds granted to a State that will be 
made available for redistribution will be based on the State's financial 
report to ACF for the Child Care and Development Fund (ACF-696) and is 
subject to the monetary limits at paragraph (b)(2) of this section.
    (4) A State eligible to receive redistributed Matching Funds shall 
also use the ACF-696 to request its share of the redistributed funds, if 
any.
    (5) A State's share of redistributed Matching Funds is based on the 
same ratio as the number of children under 13 residing in the State to 
the number of children residing in all States eligible to receive and 
that request the redistributed Matching Funds.
    (6) Redistributed funds are considered part of the grant for the 
fiscal year in which the redistribution occurs.
    (d) Any portion of a Tribe's allotment of Discretionary Funds that 
is not required to carry out its Plan, in the period for which the 
allotment is made available, shall be reallotted to other tribal 
grantees in proportion to their original allotments. States and 
Territories may not receive reallotted tribal funds.
    (1) Each year, the Tribe shall report to the Secretary either the 
dollar amount from the previous year's grant that it will be unable to 
obligate by the end of the obligation period or that all funds will be 
obligated during such time. Such report shall be postmarked by a 
deadline established by the Secretary.
    (2) Based upon the reallotment reports submitted by Tribes, the 
Secretary will reallot Tribal Discretionary Funds among the other 
Tribes.
    (i) If the total amount available for reallotment is $25,000 or 
more, funds will be reallotted to other tribal grantees in proportion to 
each Tribe's original allotment for the applicable fiscal year pursuant 
to Sec. 98.62(c).
    (ii) If the total amount available for reallotment is less than 
$25,000, the Secretary will not reallot any funds, and such funds will 
revert to the Federal government.
    (iii) If an individual reallotment amount to an applicant Tribe is 
less than $500, the Secretary will not issue the award, and such funds 
will revert to the Federal government.
    (3) If a Tribe does not submit a reallotment report by the deadline 
for report submittal, either:
    (i) The Secretary will determine that Tribe does not have any funds 
available for reallotment; or
    (ii) In the case of a report received after the deadline established 
by the Secretary, any funds reported to be available for reallotment 
shall revert to the Federal government.
    (4) Tribes receiving reallotted funds shall obligate and expend 
these funds

[[Page 550]]

in accordance with Sec. 98.60. The reallotment of funds does not extend 
the obligation period or the program period for expenditure of such 
funds.



Sec. 98.65  Audits and financial reporting.

    (a) Each Lead Agency shall have an audit conducted after the close 
of each program period in accordance with OMB Circular A-133 and the 
Single Audit Act Amendments of 1996.
    (b) Lead Agencies are responsible for ensuring that subgrantees are 
audited in accordance with appropriate audit requirements.
    (c) Not later than 30 days after the completion of the audit, Lead 
Agencies shall submit a copy of their audit report to the legislature of 
the State or, if applicable, to the Tribal Council(s). Lead Agencies 
shall also submit a copy of their audit report to the HHS Inspector 
General for Audit Services, as well as to their cognizant agency, if 
applicable.
    (d) Any amounts determined through an audit not to have been 
expended in accordance with these statutory or regulatory provisions, or 
with the Plan, and that are subsequently disallowed by the Department 
shall be repaid to the Federal government, or the Secretary will offset 
such amounts against any other CCDF funds to which the Lead Agency is or 
may be entitled.
    (e) Lead Agencies shall provide access to appropriate books, 
documents, papers and records to allow the Secretary to verify that CCDF 
funds have been expended in accordance with the statutory and regulatory 
requirements of the program, and with the Plan.
    (f) The audit required in paragraph (a) of this section shall be 
conducted by an agency that is independent of the State, Territory or 
Tribe as defined by generally accepted government auditing standards 
issued by the Comptroller General, or a public accountant who meets such 
independent standards.
    (g) The Secretary shall require financial reports as necessary.



Sec. 98.66  Disallowance procedures.

    (a) Any expenditures not made in accordance with the Act, the 
implementing regulations, or the approved Plan, will be subject to 
disallowance.
    (b) If the Department, as the result of an audit or a review, finds 
that expenditures should be disallowed, the Department will notify the 
Lead Agency of this decision in writing.
    (c)(1) If the Lead Agency agrees with the finding that amounts were 
not expended in accordance with the Act, these regulations, or the Plan, 
the Lead Agency shall fulfill the provisions of the disallowance notice 
and repay any amounts improperly expended; or
    (2) The Lead Agency may appeal the finding:
    (i) By requesting reconsideration from the Assistant Secretary, 
pursuant to paragraph (f) of this section; or
    (ii) By following the procedure in paragraph (d) of this section.
    (d) A Lead Agency may appeal the disallowance decision to the 
Departmental Appeals Board in accordance with 45 CFR part 16.
    (e) The Lead Agency may appeal a disallowance of costs that the 
Department has determined to be unallowable under an award. A grantee 
may not appeal the determination of award amounts or disposition of 
unobligated balances.
    (f) The Lead Agency's request for reconsideration in (c)(2)(i) of 
this section shall be postmarked no later than 30 days after the receipt 
of the disallowance notice. A Lead Agency may request an extension 
within the 30-day time frame. The request for reconsideration, pursuant 
to (c)(2)(i) of this section, need not follow any prescribed form, but 
it shall contain:
    (1) The amount of the disallowance;
    (2) The Lead Agency's reasons for believing that the disallowance 
was improper; and
    (3) A copy of the disallowance decision issued pursuant to paragraph 
(b) of this section.
    (g)(1) Upon receipt of a request for reconsideration, pursuant to 
(c)(2)(i) of this section, the Assistant Secretary or the Assistant 
Secretary's designee will inform the Lead Agency that the request is 
under review.
    (2) The Assistant Secretary or the designee will review any material 
submitted by the Lead Agency and any other necessary materials.
    (3) If the reconsideration decision is adverse to the Lead Agency's 
position,

[[Page 551]]

the response will include a notification of the Lead Agency's right to 
appeal to the Departmental Appeals Board, pursuant to paragraph (d) of 
this section.
    (h) If a Lead Agency refuses to repay amounts after a final decision 
has been made, the amounts will be offset against future payments to the 
Lead Agency.
    (i) The appeals process in this section is not applicable if the 
disallowance is part of a compliance review, pursuant to Sec. 98.90, the 
findings of which have been appealed by the Lead Agency.
    (j) Disallowances under the CCDF program are subject to interest 
regulations at 45 CFR part 30. Interest will begin to accrue from the 
date of notification.



Sec. 98.67  Fiscal requirements.

    (a) Lead Agencies shall expend and account for CCDF funds in 
accordance with their own laws and procedures for expending and 
accounting for their own funds.
    (b) Unless otherwise specified in this part, contracts that entail 
the expenditure of CCDF funds shall comply with the laws and procedures 
generally applicable to expenditures by the contracting agency of its 
own funds.
    (c) Fiscal control and accounting procedures shall be sufficient to 
permit:
    (1) Preparation of reports required by the Secretary under this 
subpart and under subpart H; and
    (2) The tracing of funds to a level of expenditure adequate to 
establish that such funds have not been used in violation of the 
provisions of this part.



                Subpart H--Program Reporting Requirements



Sec. 98.70  Reporting requirements.

    (a) Quarterly Case-level Report--
    (1) State and territorial Lead Agencies that receive assistance 
under the CCDF shall prepare and submit to the Department, in a manner 
specified by the Secretary, a quarterly case-level report of monthly 
family case-level data. Data shall be collected monthly and submitted 
quarterly. States may submit the data monthly if they choose to do so.
    (2) The information shall be reported for the three-month federal 
fiscal period preceding the required report. The first report shall be 
submitted no later than August 31, 1998, and quarterly thereafter. The 
first report shall include data from the third quarter of FFY 1998 
(April 1998 through June 1998). States and Territorial Lead Agencies 
which choose to submit case-level data monthly must submit their report 
for April 1998 no later than July 30, 1998. Following reports must be 
submitted every thirty days thereafter.
    (3) State and territorial Lead Agencies choosing to submit data 
based on a sample shall submit a sampling plan to ACF for approval 60 
days prior to the submission of the first quarterly report. States are 
not prohibited from submitting case-level data for the entire population 
receiving CCDF services.
    (4) Quarterly family case-level reports to the Secretary shall 
include the information listed in Sec. 98.71(a).
    (b) Annual Report--
    (1) State and territorial Lead Agencies that receive assistance 
under CCDF shall prepare and submit to the Secretary an annual report. 
The report shall be submitted, in a manner specified by the Secretary, 
by December 31 of each year and shall cover the most recent federal 
fiscal year (October through September).
    (2) The first annual aggregate report shall be submitted no later 
than December 31, 1997, and every twelve months thereafter.
    (3) Biennial reports to Congress by the Secretary shall include the 
information listed in Sec. 98.71(b).
    (c) Tribal Annual Report--
    (1) Tribal Lead Agencies that receive assistance under CCDF shall 
prepare and submit to the Secretary an annual aggregate report.
    (2) The report shall be submitted in the manner specified by the 
Secretary by December 31 of each year and shall cover services for 
children and families served with CCDF funds during the preceding 
Federal Fiscal Year.
    (3) Biennial reports to Congress by the Secretary shall include the 
information listed in Sec. 98.71(c).



Sec. 98.71  Content of reports.

    (a) At a minimum, a State or territorial Lead Agency's quarterly 
case-

[[Page 552]]

level report to the Secretary, as required in Sec. 98.70, shall include 
the following information on services provided under CCDF grant funds, 
including Federal Discretionary (which includes any funds transferred 
from the TANF Block Grant), Mandatory, and Matching Funds; and State 
Matching and Maintenance-of-Effort (MOE) Funds:
    (1) The total monthly family income for determining eligibility;
    (2) County of residence;
    (3) Gender and month/year of birth of children;
    (4) Ethnicity and race of children;
    (5) Whether the head of the family is a single parent;
    (6) The sources of family income, from employment (including self-
employment), cash or other assistance under the Temporary Assistance for 
Needy Families program under Part A of title IV of the Social Security 
Act, cash or other assistance under a State program for which State 
spending is counted toward the maintenance of effort requirement under 
section 409(a)(7) of the Social Security Act, housing assistance, 
assistance under the Food Stamp Act of 1977; and other assistance 
programs;
    (7) The month/year child care assistance to the family started;
    (8) The type(s) of child care in which the child was enrolled (such 
as family child care, in-home care, or center-based child care);
    (9) Whether the child care provider involved was a relative;
    (10) The total monthly child care copayment by the family;
    (11) The total expected dollar amount per month to be received by 
the provider for each child;
    (12) The total hours per month of such care;
    (13) Social Security Number of the head of the family unit receiving 
child care assistance;
    (14) Reasons for receiving care; and
    (15) Any additional information that the Secretary shall require.
    (b) At a minimum, a State or territorial Lead Agency's annual 
aggregate report to the Secretary, as required in Sec. 98.70(b), shall 
include the following information on services provided through all CCDF 
grant funds, including Federal Discretionary (which includes any funds 
transferred from the TANF Block Grant), Mandatory, and Matching Funds; 
and State Matching and MOE Funds:
    (1) The number of child care providers that received funding under 
CCDF as separately identified based on the types of providers listed in 
section 658P(5) of the amended Child Care and Development Block Grant 
Act;
    (2) The number of children served by payments through certificates 
or vouchers, contracts or grants, and cash under public benefit 
programs, listed by the primary type of child care services provided 
during the last month of the report period (or the last month of service 
for those children leaving the program before the end of the report 
period);
    (3) The manner in which consumer education information was provided 
to parents and the number of parents to whom such information was 
provided;
    (4) The total number (without duplication) of children and families 
served under CCDF; and
    (5) Any additional information that the Secretary shall require.
    (c) At a minimum, a Tribal Lead Agency's annual report to the 
Secretary, as required in Sec. 98.70(c), shall include the following 
information on services provided through all CCDF tribal grant awards:
    (1) Unduplicated number of families and children receiving services;
    (2) Children served by age;
    (3) Children served by reason for care;
    (4) Children served by payment method (certificate/voucher or 
contract/grants);
    (5) Average number of hours of care provided per week;
    (6) Average hourly amount paid for care;
    (7) Children served by level of family income; and
    (8) Children served by type of child care providers.



                        Subpart I--Indian Tribes



Sec. 98.80  General procedures and requirements.

    An Indian Tribe or tribal organization (as described in Subpart G of 
these regulations) may be awarded grants to

[[Page 553]]

plan and carry out programs for the purpose of increasing the 
availability, affordability, and quality of child care and childhood 
development programs subject to the following conditions:
    (a) An Indian Tribe applying for or receiving CCDF funds shall be 
subject to all the requirements under this part, unless otherwise 
indicated.
    (b) An Indian Tribe applying for or receiving CCDF funds shall:
    (1) Have at least 50 children under 13 years of age (or such similar 
age, as determined by the Secretary from the best available data) in 
order to be eligible to operate a CCDF program. This limitation does not 
preclude an Indian Tribe with fewer than 50 children under 13 years of 
age from participating in a consortium that receives CCDF funds; and
    (2) Demonstrate its current service delivery capability, including 
skills, personnel, resources, community support, and other necessary 
components to satisfactorily carry out the proposed program.
    (c) A consortium representing more than one Indian Tribe may be 
eligible to receive CCDF funds on behalf of a particular Tribe if:
    (1) The consortium adequately demonstrates that each participating 
Tribe authorizes the consortium to receive CCDF funds on behalf of each 
Tribe or tribal organization in the consortium; and
    (2) The consortium consists of Tribes that each meet the eligibility 
requirements for the CCDF program as defined in this part, or that would 
otherwise meet the eligibility requirements if the Tribe or tribal 
organization had at least 50 children under 13 years of age; and
    (3) All the participating consortium members are in geographic 
proximity to one another (including operation in a multi-State area) or 
have an existing consortium arrangement; and
    (4) The consortium demonstrates that it has the managerial, 
technical and administrative staff with the ability to administer 
government funds, manage a CCDF program and comply with the provisions 
of the Act and of this part.
    (d) The awarding of a grant under this section shall not affect the 
eligibility of any Indian child to receive CCDF services provided by the 
State or States in which the Indian Tribe is located.
    (e) For purposes of the CCDF, the determination of the number of 
children in the Tribe, pursuant to paragraph (b)(1) of this section, 
shall include Indian children living on or near reservations, with the 
exception of Tribes in Alaska, California and Oklahoma.
    (f) In determining eligibility for services pursuant to 
Sec. 98.20(a)(2), a tribal program may use either:
    (1) 85 percent of the State median income for a family of the same 
size; or
    (2) 85 percent of the median income for a family of the same size 
residing in the area served by the Tribal Lead Agency.



Sec. 98.81  Application and Plan procedures.

    (a) In order to receive CCDF funds, a Tribal Lead Agency shall apply 
for funds pursuant to Sec. 98.13, except that the requirement at 
Sec. 98.13(b)(2) does not apply.
    (b) A Tribal Lead Agency shall submit a CCDF Plan, as described at 
Sec. 98.16, with the following additions and exceptions:
    (1) The Plan shall include the basis for determining family 
eligibility pursuant to Sec. 98.80(f).
    (2) For purposes of determining eligibility, the following terms 
shall also be defined:
    (i) Indian child; and
    (ii) Indian reservation or tribal service area.
    (3) The Tribal Lead Agency shall also assure that:
    (i) The applicant shall coordinate, to the maximum extent feasible, 
with the Lead Agency in the State in which the applicant shall carry out 
CCDF programs or activities, pursuant to Sec. 98.82; and
    (ii) In the case of an applicant located in a State other than 
Alaska, California, or Oklahoma, CCDF programs and activities shall be 
carried out on an Indian reservation for the benefit of Indian children, 
pursuant to Sec. 98.83(b).
    (4) The Plan shall include any information, as prescribed by the 
Secretary, necessary for determining the number

[[Page 554]]

of children in accordance with Secs. 98.61(c), 98.62(c), and 
98.80(b)(1).
    (5) Plans for those Tribes specified at Sec. 98.83(f) (i.e., Tribes 
with small grants) are not subject to the requirements in 
Sec. 98.16(g)(2) or Sec. 98.16(k) unless the Tribe chooses to include 
such services, and, therefore, the associated requirements, in its 
program.
    (6) The Plan is not subject to requirements in Sec. 98.16(f)(8) or 
Sec. 98.16(g)(4).
    (7) In its initial Plan, an Indian Tribe shall describe its current 
service delivery capability pursuant to Sec. 98.80(b)(2).
    (8) A consortium shall also provide the following:
    (i) A list of participating or constituent members, including 
demonstrations from these members pursuant to Sec. 98.80(c)(1);
    (ii) A description of how the consortium is coordinating services on 
behalf of its members, pursuant to Sec. 98.83(c)(1); and
    (iii) As part of its initial Plan, the additional information 
required at Sec. 98.80(c)(4).
    (c) When initially applying under paragraph (a) of this section, a 
Tribal Lead Agency shall include a Plan that meets the provisions of 
this part and shall be for a two-year period, pursuant to Sec. 98.17(a).



Sec. 98.82  Coordination.

    Tribal applicants shall coordinate as required by Secs. 98.12 and 
98.14 and:
    (a) To the maximum extent feasible, with the Lead Agency in the 
State or States in which the applicant will carry out the CCDF program; 
and
    (b) With other Federal, State, local, and tribal child care and 
childhood development programs.



Sec. 98.83  Requirements for tribal programs.

    (a) The grantee shall designate an agency, department, or unit to 
act as the Tribal Lead Agency to administer the CCDF program.
    (b) With the exception of Alaska, California, and Oklahoma, programs 
and activities shall be carried out on an Indian reservation for the 
benefit of Indian children.
    (c) In the case of a tribal grantee that is a consortium:
    (1) A brief description of the direct child care services funded by 
CCDF for each of their participating Tribes shall be provided by the 
consortium in their two-year CCDF Plan; and
    (2) Variations in CCDF programs or requirements and in child care 
licensing, regulatory and health and safety requirements shall be 
specified in written agreements between the consortium and the Tribe.
    (3) If a Tribe elects to participate in a consortium arrangement to 
receive one part of the CCDF (e.g., Discretionary Funds), it may not 
join another consortium or apply as a direct grantee to receive the 
other part of the CCDF (e.g. Tribal Mandatory Funds).
    (4) If a Tribe relinquishes its membership in a consortium at any 
time during the fiscal year, CCDF funds awarded on behalf of the member 
Tribe will remain with the tribal consortium to provide direct child 
care services to other consortium members for that fiscal year.
    (d) Tribal Lead Agencies shall not be subject to the requirements at 
Secs. 98.41(a)(1)(i), 98.44(a), 98.50(e), 98.52(a), 98.53 and 98.63.
    (e) The base amount of any tribal grant is not subject to the 
administrative cost limitation at paragraph (g) of this section or the 
quality expenditure requirement at Sec. 98.51(a). The base amount may be 
expended for any costs consistent with the purposes and requirements of 
the CCDF.
    (f) Tribal Lead Agencies whose total CCDF allotment pursuant to 
Secs. 98.61(c) and 98.62(b) is less than an amount established by the 
Secretary shall not be subject to the following requirements:
    (1) The assurance at Sec. 98.15(a)(2);
    (2) The requirement for certificates at Sec. 98.30(a) and (d); and
    (3) The requirements for quality expenditures at Sec. 98.51(a).
    (g) Not more than 15 percent of the aggregate CCDF funds expended by 
the Tribal Lead Agency from each fiscal year's (including amounts used 
for construction and renovation in accordance with Sec. 98.84, but not 
including the base amount provided under Sec. 98.83(e)) shall be 
expended for administrative activities. Amounts used for construction 
and major renovation in accordance

[[Page 555]]

with Sec. 98.84 are not considered administrative costs.
    (h)(1) CCDF funds are available for costs incurred by the Tribal 
Lead Agency only after the funds are made available by Congress for 
Federal obligation unless costs are incurred for planning activities 
related to the submission of an initial CCDF Plan.
    (2) Federal obligation of funds for planning costs, pursuant to 
paragraph (h)(1) of this section is subject to the actual availability 
of the appropriation.



Sec. 98.84  Construction and renovation of child care facilities.

    (a) Upon requesting and receiving approval from the Secretary, 
Tribal Lead Agencies may use amounts provided under Secs. 98.61(c) and 
98.62(b) to make payments for construction or major renovation of child 
care facilities (including paying the cost of amortizing the principal 
and paying interest on loans).
    (b) To be approved by the Secretary, a request shall be made in 
accordance with uniform procedures established by program instruction 
and, in addition, shall demonstrate that:
    (1) Adequate facilities are not otherwise available to enable the 
Tribal Lead Agency to carry out child care programs;
    (2) The lack of such facilities will inhibit the operation of child 
care programs in the future; and
    (3) The use of funds for construction or major renovation will not 
result in a decrease in the level of child care services provided by the 
Tribal Lead Agency as compared to the level of services provided by the 
Tribal Lead Agency in the preceding fiscal year.
    (c)(1) Tribal Lead Agency may use CCDF funds for reasonable and 
necessary planning costs associated with assessing the need for 
construction or renovation or for preparing a request, in accordance 
with the uniform procedures established by program instruction, to spend 
CCDF funds on construction or major renovation.
    (2) A Tribal Lead Agency may only use CCDF funds to pay for the 
costs of an architect, engineer, or other consultant for a project that 
is subsequently approved by the Secretary. If the project later fails to 
gain the Secretary's approval, the Tribal Lead Agency must pay for the 
architectural, engineering or consultant costs using non-CCDF funds.
    (d) Tribal Lead Agencies that receive approval from the Secretary to 
use CCDF funds for construction or major renovation shall comply with 
the following:
    (1) Federal share requirements and use of property requirements at 
45 CFR 92.31;
    (2) Transfer and disposition of property requirements at 45 CFR 
92.31(c);
    (3) Title requirements at 45 CFR 92.31(a);
    (4) Cost principles and allowable cost requirements at 45 CFR 92.22;
    (5) Program income requirements at 45 CFR 92.25;
    (6) Procurement procedures at 45 CFR 92.36; and;
    (7) Any additional requirements established by program instruction, 
including requirements concerning:
    (i) The recording of a Notice of Federal Interest in the property;
    (ii) Rights and responsibilities in the event of a grantee's default 
on a mortgage;
    (iii) Insurance and maintenance;
    (iv) Submission of plans, specifications, inspection reports, and 
other legal documents; and
    (v) Modular units.
    (e) In lieu of obligation and liquidation requirements at 
Sec. 98.60(e), Tribal Lead Agencies shall liquidate CCDF funds used for 
construction or major renovation by the end of the second fiscal year 
following the fiscal year for which the grant is awarded.
    (f) Tribal Lead Agencies may expend funds, without requesting 
approval pursuant to paragraph (a) of this section, for minor 
renovation.
    (g) A new tribal grantee (i.e., one that did not receive CCDF funds 
the preceding fiscal year) may spend no more than an amount equivalent 
to its Tribal Mandatory allocation on construction and renovation. A new 
tribal grantee must spend an amount equivalent to its Discretionary 
allocation on activities other than construction or renovation (i.e., 
direct services, quality activities, or administrative costs).

[[Page 556]]

    (h) A construction or renovation project that requires and receives 
approval by the Secretary must include as part of the construction and 
renovation costs:
    (1) planning costs as allowed at Sec. 98.84(c);
    (2) labor, materials and services necessary for the functioning of 
the facility; and
    (3) initial equipment for the facility. Equipment means items which 
are tangible, nonexpendable personal property having a useful life of 
more than five years.



          Subpart J--Monitoring, Non-compliance and Complaints



Sec. 98.90  Monitoring.

    (a) The Secretary will monitor programs funded under the CCDF for 
compliance with:
    (1) The Act;
    (2) The provisions of this part; and
    (3) The provisions and requirements set forth in the CCDF Plan 
approved under Sec. 98.18;
    (b) If a review or investigation reveals evidence that the Lead 
Agency, or an entity providing services under contract or agreement with 
the Lead Agency, has failed to substantially comply with the Plan or 
with one or more provisions of the Act or implementing regulations, the 
Secretary will issue a preliminary notice to the Lead Agency of possible 
non-compliance. The Secretary shall consider comments received from the 
Lead Agency within 60 days (or such longer period as may be agreed upon 
between the Lead Agency and the Secretary).
    (c) Pursuant to an investigation conducted under paragraph (a) of 
this section, a Lead Agency shall make appropriate books, documents, 
papers, manuals, instructions, and records available to the Secretary, 
or any duly authorized representatives, for examination or copying on or 
off the premises of the appropriate entity, including subgrantees and 
contractors, upon reasonable request.
    (d)(1) Lead Agencies and subgrantees shall retain all CCDF records, 
as specified in paragraph (c) of this section, and any other records of 
Lead Agencies and subgrantees that are needed to substantiate compliance 
with CCDF requirements, for the period of time specified in paragraph 
(e) of this section.
    (2) Lead Agencies and subgrantees shall provide through an 
appropriate provision in their contracts that their contractors will 
retain and permit access to any books, documents, papers, and records of 
the contractor that are directly pertinent to that specific contract.
    (e) Length of retention period. (1) Except as provided in paragraph 
(e)(2) of this section, records specified in paragraph (c) of this 
section shall be retained for three years from the day the Lead Agency 
or subgrantee submits the Financial Reports required by the Secretary, 
pursuant to Sec. 98.65(g), for the program period.
    (2) If any litigation, claim, negotiation, audit, disallowance 
action, or other action involving the records has been started before 
the expiration of the three-year retention period, the records shall be 
retained until completion of the action and resolution of all issues 
that arise from it, or until the end of the regular three-year period, 
whichever is later.



Sec. 98.91  Non-compliance.

    (a) If after reasonable notice to a Lead Agency, pursuant to 
Sec. 98.90 or Sec. 98.93, a final determination is made that:
    (1) There has been a failure by the Lead Agency, or by an entity 
providing services under contract or agreement with the Lead Agency, to 
comply substantially with any provision or requirement set forth in the 
Plan approved under Sec. 98.16; or
    (2) If in the operation of any program for which funding is provided 
under the CCDF, there is a failure by the Lead Agency, or by an entity 
providing services under contract or agreement with the Lead Agency, to 
comply substantially with any provision of the Act or this part, the 
Secretary will provide to the Lead Agency a written notice of a finding 
of non-compliance. This notice will be issued within 60 days of the 
preliminary notification in Sec. 98.90(b), or within 60 days of the 
receipt of additional comments from the Lead Agency, whichever is later, 
and will provide

[[Page 557]]

the opportunity for a hearing, pursuant to part 99.
    (b) The notice in paragraph (a) of this section will include all 
relevant findings, as well as any penalties or sanctions to be applied, 
pursuant to Sec. 98.92.
    (c) Issues subject to review at the hearing include the finding of 
non-compliance, as well as any penalties or sanctions to be imposed 
pursuant to Sec. 98.92.



Sec. 98.92  Penalties and sanctions.

    (a) Upon a final determination that the Lead Agency has failed to 
substantially comply with the Act, the implementing regulations, or the 
Plan, one of the following penalties will be applied:
    (1) The Secretary will disallow the improperly expended funds;
    (2) An amount equal to or less than the improperly expended funds 
will be deducted from the administrative portion of the State allotment 
for the following fiscal year; or
    (3) A combination of the above options will be applied.
    (b) In addition to imposing the penalties described in paragraph (a) 
of this section, the Secretary may impose other appropriate sanctions, 
including:
    (1) Disqualification of the Lead Agency from the receipt of further 
funding under the CCDF; or
    (2)(i) A penalty of not more than four percent of the funds allotted 
under Sec. 98.61 (i.e., the Discretionary Funds) for a Fiscal Year shall 
be withheld if the Secretary determines that the Lead Agency has failed 
to implement a provision of the Act, these regulations, or the Plan 
required under Sec. 98.16;
    (ii) This penalty will be withheld no earlier than the second full 
quarter following the quarter in which the Lead Agency was notified of 
the proposed penalty;
    (iii) This penalty will not be applied if the Lead Agency corrects 
the failure or violation before the penalty is to be applied or if it 
submits a plan for corrective action that is acceptable to the 
Secretary; or
    (iv) The Lead Agency may show cause to the Secretary why the amount 
of the penalty, if applied, should be reduced.
    (c) If a Lead Agency is subject to additional sanctions as provided 
under paragraph (b) of this section, specific identification of any 
additional sanctions being imposed will be provided in the notice 
provided pursuant to Sec. 98.91.
    (d) Nothing in this section, or in Sec. 98.90 or Sec. 98.91, will 
preclude the Lead Agency and the Department from informally resolving a 
possible compliance issue without following all of the steps described 
in Secs. 98.90, 98.91 and 98.92. Penalties and/or sanctions, as 
described in paragraphs (a) and (b) of this section, may nevertheless be 
applied, even though the issue is resolved informally.
    (e) It is at the Secretary's sole discretion to choose the penalty 
to be imposed under paragraphs (a) and (b) of this section.



Sec. 98.93  Complaints.

    (a) This section applies to any complaint (other than a complaint 
alleging violation of the nondiscrimination provisions) that a Lead 
Agency has failed to use its allotment in accordance with the terms of 
the Act, the implementing regulations, or the Plan. The Secretary is not 
required to consider a complaint unless it is submitted as required by 
this section. Complaints with respect to discrimination should be 
referred to the Office of Civil Rights of the Department.
    (b) Complaints with respect to the CCDF shall be submitted in 
writing to the Assistant Secretary for Children and Families, 370 
L'Enfant Promenade, SW., Washington, DC 20447. The complaint shall 
identify the provision of the Plan, the Act, or this part that was 
allegedly violated, specify the basis for alleging the violation(s), and 
include all relevant information known to the person submitting it.
    (c) The Department shall promptly furnish a copy of any complaint to 
the affected Lead Agency. Any comments received from the Lead Agency 
within 60 days (or such longer period as may be agreed upon between the 
Lead Agency and Department) shall be considered by the Department in 
responding to the complaint. The Department will conduct an 
investigation of complaints, where appropriate.

[[Page 558]]

    (d) The Department will provide a written response to complaints 
within 180 days after receipt. If a final resolution cannot be provided 
at that time, the response will state the reasons why additional time is 
necessary.
    (e) Complaints that are not satisfactorily resolved through 
communication with the Lead Agency will be pursued through the process 
described in Sec. 98.90.



PART 99--PROCEDURE FOR HEARINGS FOR THE CHILD CARE AND DEVELOPMENT FUND--Table of Contents




                           Subpart A--General

Sec.
99.1  Scope of rules.
99.2  Presiding officer.
99.3  Records to be public.
99.4  Suspension of rules.
99.5  Filing and service of papers.

           Subpart B--Preliminary Matters--Notice and Parties

99.11  Notice of hearing or opportunity for hearing.
99.12  Time of hearing.
99.13  Place.
99.14  Issues at hearing.
99.15  Request to participate in hearing.

                      Subpart C--Hearing Procedures

99.21  Authority of presiding officer.
99.22  Rights of parties.
99.23  Discovery.
99.24  Evidentiary purpose.
99.25  Evidence.
99.26  Unsponsored written material.
99.27  Official transcript.
99.28  Record for decision.

              Subpart D--Posthearing Procedures, Decisions

99.31  Posthearing briefs.
99.32  Decisions following hearing.
99.33  Effective date of Assistant Secretary's decision.

    Authority: 42 U.S.C. 618, 9858.

    Source: 57 FR 34428, Aug. 4, 1992, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 99 appear at 63 FR 
39998, July 24, 1998.



                           Subpart A--General



Sec. 99.1  Scope of rules.

    (a) The rules of procedure in this section govern the practice for 
hearings afforded by the Department to Lead Agencies pursuant to 
Secs. 98.18(c) or 98.91, and the practice relating to the decisions of 
such hearings.
    (b) Nothing in this part is intended to preclude or limit 
negotiations between the Department and the Lead Agency, whether before, 
during, or after the hearing, to resolve the issues which are, or 
otherwise would be, considered at the hearing. Such negotiations and 
resolution of issues are not part of the hearing and are not governed by 
the rules in this part, except as expressly provided herein.



Sec. 99.2  Presiding officer.

    (a) (1) The presiding officer at a hearing shall be the Assistant 
Secretary or the Assistant Secretary's designee.
    (2) The designation of the presiding officer shall be in writing. A 
copy of the designation shall be served on all parties.
    (b) The presiding officer, for all hearings, shall be bound by all 
applicable laws and regulations.



Sec. 99.3  Records to be public.

    All pleadings, correspondence, exhibits, transcripts of testimony, 
exceptions, briefs, decisions, and other documents filed in the docket 
in any proceeding may be inspected and copied in the office of the 
Assistant Secretary. Inquiries may be made at the Administration for 
Children and Families, 370 L'Enfant Promenade SW., Washington, DC 20447.



Sec. 99.4  Suspension of rules.

    With notice to all parties, the Assistant Secretary for Children and 
Families or the presiding officer, with respect to pending matters, may 
modify or waive any rule in this part upon determination that no party 
will be unduly prejudiced and the ends of justice will thereby be 
served.



Sec. 99.5  Filing and service of papers.

    (a) An original and two copies of all papers in the proceedings 
shall be filed with the presiding officer. For exhibits and transcripts 
of testimony, only the originals need be filed.
    (b) All papers in the proceedings shall be served on all parties by 
personal delivery or by certified mail. Service on

[[Page 559]]

the party's designated attorney will be deemed service on the party.



           Subpart B--Preliminary Matters--Notice and Parties



Sec. 99.11  Notice of hearing or opportunity for hearing.

    Proceedings commence when the Assistant Secretary mails a notice of 
hearing or opportunity for hearing to the Lead Agency. The notice shall 
state the time and place for the hearing, and the issues which will be 
considered. A copy of the notice shall be published in the Federal 
Register.



Sec. 99.12  Time of hearing.

    The hearing shall be scheduled not less than 30 days nor more than 
90 days after the date of the notice of the hearing furnished to the 
applicant or Lead Agency, unless otherwise agreed to, in writing, by the 
parties.



Sec. 99.13  Place.

    The hearing shall be held in the city in which the regional office 
of the Department responsible for oversight of the Lead Agency is 
located or in such other place as the Assistant Secretary determines, 
considering both the circumstances of the case and the convenience and 
necessity of the parties or their representatives.



Sec. 99.14  Issues at hearing.

    (a) The Assistant Secretary may, prior to a hearing under Sec. 98.91 
of this part, notify the Lead Agency in writing of additional issues 
which will be considered at the hearing. Such notice shall be published 
in the Federal Register. If such notice is received by the Lead Agency 
less than 20 days before the date of the hearing, a postponement of the 
hearing shall be granted at the request of the Lead Agency or any other 
party. The hearing shall be held on a date 20 days after such notice was 
received, or on such later date as agreed to by the Assistant Secretary.
    (b) If, as a result of negotiations between the Department and the 
Lead Agency, the submittal of a Plan amendment, a change in the Lead 
Agency program, or other action by the Lead Agency, any issue is 
resolved in whole or in part, but new or modified issues are presented, 
as specified by the Assistant Secretary, the hearing shall proceed on 
such new or modified issues. A notice of such new or modified issues 
shall be published in the Federal Register. If such notice is received 
by the Lead Agency less than 20 days before the date of the hearing, a 
postponement of the hearing shall be granted at the request of the Lead 
Agency or any other party. The hearing shall be held on a date 20 days 
after such notice was received, or on such later date as agreed to by 
the Assistant Secretary.
    (c)(1) If, at any time, the Assistant Secretary finds that the Lead 
Agency has come into compliance with Federal statutes and regulations on 
any issue, in whole or in part, the Assistant Secretary shall remove 
such issue from the proceedings, in whole or in part, as may be 
appropriate. If all issues are removed, the Assistant Secretary shall 
terminate the hearing.
    (2) Prior to the removal of any issue from the hearing, in whole or 
in part, the Assistant Secretary shall provide all parties other than 
the Department and the Lead Agency (see Sec. 99.15(b)) with written 
notice of the intention, and the reasons for it. Such notice shall 
include a copy of the proposed CCDF Plan provision on which the Lead 
Agency and Assistant Secretary have settled. The parties shall have 15 
days from the receipt of such notice to file their views or any 
information on the merits of the proposed Plan provision and the merits 
of the Assistant Secretary's reasons for removing the issue from the 
hearing.
    (d) The issues considered at the hearing shall be limited to those 
issues of which the Lead Agency is notified, as provided in paragraph 
(a) of this section, and new or modified issues described in paragraph 
(b) of this section; they shall not include issues or parts of issues 
removed from the proceedings pursuant to paragraph (c) of this section.



Sec. 99.15  Request to participate in hearing.

    (a) The Department and the Lead Agency are parties to the hearing 
without making a specific request to participate.

[[Page 560]]

    (b)(1) Other individuals or groups may be recognized as parties, if 
the issues to be considered at the hearing have directly caused them 
injury and their interest is immediately within the zone of interests to 
be protected by the governing Federal statute and regulations.
    (2) Any individual or group wishing to participate as a party shall 
file a petition with the presiding officer within 15 days after notice 
of the hearing has been published in the Federal Register and shall 
serve a copy on each party of record at that time, in accordance with 
Sec. 99.5(b). Such petition shall concisely state:
    (i) Petitioner's interest in the proceeding;
    (ii) Who will appear for petitioner;
    (iii) The issues on which petitioner wishes to participate; and
    (iv) Whether petitioner intends to present witnesses.
    (3) Any party may, within 5 days of receipt of such petition, file 
comments on it.
    (4) The presiding officer shall promptly determine whether each 
petitioner has the requisite interest in the proceedings and shall 
permit or deny participation accordingly. Where petitions to participate 
as parties are made by individuals or groups with common interests, at 
the presiding officer's discretion, the presiding officer may request 
that all such petitioners designate a single representative or may 
recognize one or more of such petitioners to represent all such 
petitioners. The presiding officer shall give each petitioner written 
notice of the decision on the petition, and if the petition is denied, 
the presiding officer shall briefly state the grounds for denial. If the 
petition is denied, the presiding officer may recognize the petitioner 
as an amicus curiae.
    (c)(1) Any interested person or organization wishing to participate 
as an amicus curiae shall file a petition with the presiding officer 
before the commencement of the hearing. Such petition shall concisely 
state:
    (i) The petitioner's interest in the hearing;
    (ii) Who will represent the petitioner; and
    (iii) The issues on which petitioner intends to present argument.
    An amicus curiae is not a party but may participate as provided in 
this paragraph.
    (2) The presiding officer may grant the petition upon finding that 
the petitioner has a legitimate interest in the proceedings, that such 
participation will not unduly delay the outcome, and it may contribute 
materially to the proper disposition of the issues.
    (3) An amicus curiae may present a brief oral statement at the 
hearing, at the point in the proceedings specified by the presiding 
officer. The amicus curiae may submit a written statement of position to 
the presiding officer prior to the beginning of a hearing and shall 
serve a copy on each party. The amicus curiae may also submit a brief or 
written statement at such time as the parties submit briefs and shall 
serve a copy on each party.



                      Subpart C--Hearing Procedures



Sec. 99.21  Authority of presiding officer.

    (a) The presiding officer shall have the duty to conduct a fair 
hearing, to avoid delay, maintain order, and make a record of the 
proceedings. The presiding officer shall have all powers necessary to 
accomplish these ends, including, but not limited to, the power to:
    (1) Change the date, time, and place of the hearing, upon due notice 
to the parties. This authority includes the power to continue the 
hearing in whole or in part;
    (2) Hold conferences to settle or simplify the issues in a 
proceeding, or to consider other matters that may aid in the expeditious 
disposition of the proceeding;
    (3) Regulate participation of parties and amici curiae and require 
parties and amici curiae to state their position with respect to the 
various issues in the proceeding;
    (4) Administer oaths and affirmations;
    (5) Rule on all pending motions and other procedural items including 
issuance of protective orders or other relief to a party against whom 
discovery is sought;

[[Page 561]]

    (6) Regulate the course of the hearing and conduct of counsel 
therein;
    (7) Examine witnesses;
    (8) Receive, rule on, exclude or limit evidence or discovery;
    (9) Fix the time for filing motions, petitions, briefs, or other 
items in matters pending;
    (10) If the presiding officer is the Assistant Secretary, make a 
final decision;
    (11) If the presiding officer is not the Assistant Secretary, 
certify the entire record including the recommended findings and 
proposed decision to the Assistant Secretary; and
    (12) Take any action authorized by the rules in this part or in 
conformance with the provisions of 5 U.S.C. 551 through 559.
    (b) The presiding officer does not have authority to compel by 
subpoena the production of witnesses, papers, or other evidence.



Sec. 99.22  Rights of parties.

    All parties may:
    (a) Appear by counsel or other authorized representative, in all 
hearing proceedings;
    (b) Participate in any prehearing conference held by the presiding 
officer;
    (c) Agree to stipulations as to facts which will be made a part of 
the record;
    (d) Make opening statements at the hearing;
    (e) Present relevant evidence on the issues at the hearing;
    (f) Present witnesses who then must be available for cross-
examination by all other parties;
    (g) Present oral arguments at the hearing; and
    (h) Submit written briefs, proposed findings of fact, and proposed 
conclusions of law, after the hearing.



Sec. 99.23  Discovery.

    The Department, the Lead Agency, and any individuals or groups 
recognized as parties shall have the right to conduct discovery 
(including depositions) against opposing parties. Rules 26-37 of the 
Federal Rules of Civil Procedure shall apply to such proceedings; there 
will be no fixed rule on priority of discovery. Upon written motion, the 
presiding officer shall promptly rule upon any objection to such 
discovery action initiated pursuant to this section. The presiding 
officer shall also have the power to grant a protective order or relief 
to any party against whom discovery is sought and to restrict or control 
discovery so as to prevent undue delay in the conduct of the hearing. 
Upon the failure of any party to make discovery, the presiding officer 
may, at the presiding officer's discretion, issue any order and impose 
any sanction (other than contempt orders) authorized by rule 37 of the 
Federal Rules of Civil Procedure.



Sec. 99.24  Evidentiary purpose.

    The purpose of the hearing is to receive factual evidence and expert 
opinion testimony related to the issues in the proceeding. Argument will 
not be received in evidence; rather, it should be presented in 
statements, memoranda, or briefs, as determined by the presiding 
officer. Brief opening statements, which shall be limited to statement 
of the party's position and what the party intends to prove, may be made 
at hearings.



Sec. 99.25  Evidence.

    (a) Testimony. Testimony shall be given orally under oath or 
affirmation by witnesses at the hearing. Witnesses shall be available at 
the hearing for cross-examination by all parties.
    (b) Stipulations and exhibits. Two or more parties may agree to 
stipulations of fact. Such stipulations, or any exhibit proposed by any 
party, shall be exchanged at the prehearing conference or otherwise 
prior to the hearing if the presiding officer so requires.
    (c) Rules of evidence. Technical rules of evidence shall not apply 
to hearings conducted pursuant to this part, but rules or principles 
designed to assure production of the most credible evidence available 
and to subject testimony to test by cross-examination shall be applied 
where reasonably necessary by the presiding officer. A witness may be 
cross-examined on any matter material to the proceeding without regard 
to the scope of direct examination. The presiding officer may

[[Page 562]]

exclude irrelevant, immaterial, or unduly repetitious evidence. All 
documents and other evidence offered or taken for the record shall be 
open to examination by the parties, and opportunity shall be given to 
refute facts and arguments advanced on either side of the issues.



Sec. 99.26  Unsponsored written material.

    Letters expressing views or urging action and other unsponsored 
written material regarding matters at issue in a hearing will be placed 
in the correspondence section of the docket of the proceeding. These 
data are not deemed part of the evidence or record in the hearing.



Sec. 99.27  Official transcript.

    The Department will designate the official reporter for all 
hearings. The official transcripts of testimony taken, together with any 
stipulations, exhibits, briefs, or memoranda of law filed therewith 
shall be filed with the Department. Transcripts of testimony in hearings 
may be obtained from the official reporter by the parties and the public 
at rates not to exceed the maximum rates fixed by the contract between 
the Department and the reporter. Upon notice to all parties, the 
presiding officer may authorize corrections to the transcript which 
involve matters of substance.



Sec. 99.28  Record for decision.

    The transcript of testimony, exhibits, and all papers and requests 
filed in the proceedings, except the correspondence section of the 
docket, including rulings and any recommended or initial decision, shall 
constitute the exclusive record for decision.



              Subpart D--Posthearing Procedures, Decisions



Sec. 99.31  Posthearing briefs.

    The presiding officer shall fix the time for filing posthearing 
briefs, which may contain proposed findings of fact and conclusions of 
law. The presiding officer shall also fix the time for reply briefs, if 
permitted.



Sec. 99.32  Decisions following hearing.

    (a) If the Assistant Secretary is the presiding officer, the 
Assistant Secretary shall issue the decision within 60 days after the 
time for submission of posthearing briefs has expired.
    (b)(1) If the presiding officer is not the Assistant Secretary, the 
presiding officer shall certify the entire record, including the 
recommended findings and proposed decision, to the Assistant Secretary 
within 60 days after the time for submission of posthearing briefs has 
expired. The Assistant Secretary shall serve a copy of the recommended 
findings and proposed decision upon all parties, and amici, if any.
    (2) Any party may, within 20 days of receipt of the recommended 
findings and proposed decision, file exceptions and a supporting brief 
or statement with the Assistant Secretary.
    (3) The Assistant Secretary shall thereupon review the recommended 
decision and, within 45 days after the receipt of the exceptions to the 
recommended findings and proposed decision, issue the decision.
    (c) The decision of the Assistant Secretary under this section shall 
be the final decision of the Secretary and shall constitute ``final 
agency action'' within the meaning of 5 U.S.C. 704. The Assistant 
Secretary's decision shall be promptly served on all parties, and amici, 
if any.



Sec. 99.33  Effective date of Assistant Secretary's decision.

    If, in the case of a hearing pursuant to Sec. 98.18(b) of this 
chapter, the Assistant Secretary concludes that a Plan amendment does 
not comply with the Federal statutes and regulations, the decision that 
further payments will not be made to the Lead Agency, or payments will 
be limited to categories under other parts of the CCDF Plan not 
affected, shall specify the effective date for the withholding of 
Federal funds.

[[Page 563]]



PART 100--INTERGOVERNMENTAL REVIEW OF DEPARTMENT OF HEALTH AND HUMAN SERVICES PROGRAMS AND ACTIVITIES--Table of Contents




Sec.
100.1  What is the purpose of these regulations?
100.2  What definitions apply to these regulations?
100.3  What programs and activities of the Department are subject to 
          these regulations?
100.4  [Reserved]
100.5  What is the Secretary's obligation with respect to Federal 
          interagency coordination?
100.6  What procedures apply to the selection of programs and activities 
          under these regulations?
100.7  How does the Secretary communicate with state and local officials 
          concerning the Department's programs and activities?
100.8  How does the Secretary provide states an opportunity to comment 
          on proposed Federal financial assistance and direct Federal 
          development?
100.9  How does the Secretary receive and respond to comments?
100.10  How does the Secretary make efforts to accommodate 
          intergovernmental concerns?
100.11  What are the Secretary's obligations in interstate situations?
100.12  How may a state simplify, consolidate, or substitute federally 
          required state plans?
100.13  May the Secretary waive any provision of these regulations?

    Authority: Executive Order 12372, July 14, 1982 (47 FR 30959), as 
amended April 8, 1983 (48 FR 15887): sec. 401, Intergovernmental 
Cooperation Act of 1968, as amended (31 U.S.C. 6506); sec. 204, 
Demonstration Cities and Metropolitan Development Act of 1966, as 
amended (42 U.S.C. 3334).

    Source: 48 FR 29200, June 24, 1983, unless otherwise noted.



Sec. 100.1  What is the purpose of these regulations?

    (a) The regulations in this part implement Executive Order 12372, 
``Intergovernmental Review of Federal Programs,'' issued July 14, 1982 
and amended on April 8, 1983. These regulations also implement 
applicable provisions of section 401 of the Intergovernmental 
Cooperation Act of 1968 and section 204 of the Demonstration Cities and 
Metropolitan Development Act of 1966.
    (b) These regulations are intended to foster an intergovernmental 
partnership and a strengthened Federalism by relying on state processes 
and on state, areawide, regional and local coordination for review of 
proposed Federal financial assistance and direct Federal development.
    (c) These regulations are intended to aid the internal management of 
the Department, and are not intended to create any right or benefit 
enforceable at law by a party against the Department or its officers.



Sec. 100.2  What definitions apply to these regulations?

    Department means the U.S. Department of Health and Human Services 
(HHS).
    Order means Executive Order 12372, issued July 14, 1982, and amended 
April 8, 1983 and titled ``Intergovernmental Review of Federal 
Programs.''
    Secretary means the Secretary of HHS or an official or employee of 
the Department acting for the Secretary under a delegation of authority.
    State means any of the 50 states, the District of Columbia, the 
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana 
Islands, Guam, American Samoa, the U.S. Virgin Islands, or the Trust 
Territory of the Pacific Islands.



Sec. 100.3  What programs and activities of the Department are subject to these regulations?

    The Secretary publishes in the Federal Register a list of the 
Department's programs and activities that are subject to these 
regulations and identifies which of these are subject to the 
requirements of section 204 of the Demonstration Cities and Metropolitan 
Development Act.



Sec. 100.4  [Reserved]



Sec. 100.5  What is the Secretary's obligation with respect to Federal interagency coordination?

    The Secretary, to the extent practicable, consults with and seeks 
advice from all other substantially affected Federal departments and 
agencies in

[[Page 564]]

an effort to assure full coordination between such agencies and the 
Department regarding programs and activities covered under these 
regulations.



Sec. 100.6  What procedures apply to the selection of programs and activities under these regulations?

    (a) A state may select any program or activity published in the 
Federal Register in accordance with Sec. 100.3 of this part for 
intergovernmental review under these regulations. Each state, before 
selecting programs and activities, shall consult with local elected 
officials.
    (b) Each state that adopts a process shall notify the Secretary of 
the Department's programs and activities selected for that process.
    (c) A state may notify the Secretary of changes in its selections at 
any time. For each change, the state shall submit to the Secretary an 
assurance that the state has consulted with local elected officials 
regarding the change. The Department may establish deadlines by which 
states are required to inform the Secretary of changes in their program 
selections.
    (d) The Secretary uses a state's process as soon as feasible, 
depending on individual programs and activities, after the Secretary is 
notified of its selections.



Sec. 100.7  How does the Secretary communicate with state and local officials concerning the Department's programs and activities?

    (a) For those programs and activities selected by a state process 
under Sec. 100.6, the Secretary, to the extent permitted by law:
    (1) Uses the state process to detemine views of state and local 
elected officials; and,
    (2) Communicates with state and local elected officials, through the 
state process, as early in a program planning cycle as is reasonably 
feasible to explain specific plans and actions.
    (b) The Secretary provides notice to directly affected state, 
areawide, regional, and local entities in a state of proposed Federal 
finanical assistance or direct Federal development if:
    (1) The state has not adopted a process under the Order; or
    (2) The assistance or development invovles a program or activity not 
selected for the state process.

This notice may be made by publication in the Federal Register or other 
appropriate means, which the Department in its discretion deems 
appropriate.



Sec. 100.8  How does the Secretary provide states an opportunity to comment on proposed Federal financial assistance and direct Federal development?

    (a) Except in unusal circumstances, the Secretary gives state 
processes or directly affected state, areawide, regional and local 
officials and entities:
    (1) At least 30 days from the date established by the Secretary to 
comment on proposed direct Federal development or Federal financial 
assistance in the form of noncompeting continuation awards; and
    (2) At least 60 days from the date established by the Secretary to 
comment on proposed direct Federal development or Federal financial 
assistance other than noncompeting continuation awards.
    (b) This section also applies to comments in cases in which the 
review, coordination, and communication with the Department have been 
delegated.
    (c) Applicants for programs and activities subject to section 204 of 
the Demonstration Cities and Metropolitan Act shall allow areawide 
agencies a 60-day opportunity for review and comment.



Sec. 100.9  How does the Secretary receive and respond to comments?

    (a) The Secretary follows the procedures in Sec. 100.10 if:
    (1) A state office or official is designated to act as a single 
point of contact between a state process and all Federal agencies, and
    (2) That office or official transmits a state process recommendation 
for a program selected under Sec. 100.6.
    (b)(1) The single point of contract is not obligated to transmit 
comments from state, areawide, regional or local officials and entities 
where there is no state process recommendation.

[[Page 565]]

    (2) If a state process recommendation is transmitted by a single 
point of contact, all comments from state, areawide, regional, and local 
officials and entities that differ from it must also be transmitted.
    (c) If a state has not established a process, or is unable to submit 
a state process recommendation, state, areawide, regional and local 
officials and entities may submit comments either to the applicant or to 
the Department.
    (d) If a program or activity is not selected for review under a 
state process, state, areawide, regional and local officials and 
entities may submit comments either to the applicant or to the 
Department. In addition, if a state process recommendation for a 
nonselected program or activity is transmitted to the Department by the 
single point of contact, the Secretary follows the procedures of 
Sec. 100.10 of this part.
    (e) The Secretary considers comments which do not constitute a state 
process recommendation submitted under these regulations and for which 
the Secretary is not required to apply the procedures of Sec. 100.10 of 
this part, when such comments are provided by a single point of contact, 
by the applicant, or directly to the Department by a commenting party.
    (f) If an applicant receives comments under Sec. 100.9(a)(2), (c) or 
(d) of this part, it must forward such comments to the Department with 
its application materials.



Sec. 100.10  How does the Secretary make efforts to accommodate intergovernmental concerns?

    (a) If a state process provides a state process recommendation to 
the Department through its single point of contact, the Secretary 
either:
    (1) Accepts the recommendation;
    (2) Reaches a mutually agreeable solution with the state process; or
    (3) Provides the single point of contact with such written 
explanation of the decision as the Secretary in this or her discretion 
deems appropriate. The Secretary may also supplement the written 
explanation by providing the explanation to the single point of contact 
by telephone, other telecommunication, or other means.
    (b) In any explanation under paragraph (a)(3) of this section, the 
Secretary informs the single point of contact that:
    (1) The Department will not implement its decision for at least ten 
days after the single point of contact receives the explanation; or
    (2) The Secretary has reviewed the decision and determined that, 
because of unsual circumstances, the waiting period of at least ten days 
is not feasible.
    (c) For purposes of computing the waiting period under paragraph 
(b)(1) of this section, a single point of contact is presumed to have 
received written explanation 5 days after the date such notification is 
dated.



Sec. 100.11  What are the Secretary's obligations in interstate situations?

    (a) The Secretary is responsible for:
    (1) Identifying proposed Federal financial assistance and direct 
Federal development that have an impact on interstate areas;
    (2) Notifying appropriate officials and entities in states which 
have adopted a process and which select the Department's program or 
activity.
    (3) Making efforts to identify and notify the affected state, 
areawide, regional, and local officials and entities in those states 
that have not adopted a process under the Order or do not select the 
Department's program or activity;
    (4) Responding pursuant to Sec. 100.10 of this part if the Secretary 
receives a recommendation from a designated areawide agency transmitted 
by a single point of contact, in cases in which the review, 
coordination, and communication with the Department have been delegated.
    (b) The Secretary uses the procedures in Sec. 100.10 if a state 
process provides a state process recommendation to the Department 
through a single point of contact.



Sec. 100.12  How may a state simplify, consolidate, or substitute federally required state plans?

    (a) As used in this section:
    (1) Simplify means that a state may develop its own format, choose 
its own

[[Page 566]]

submission date, and select the planning period for a state plan.
    (2) Consolidate means that a state may meet statutory and regulatory 
requirements by combining two or more plans into one document and that 
the state can select the format, submission date, and planning period 
for the consolidated plan.
    (3) Substitute means that a state may use a plan or other document 
that it has developed for its own purposes to meet Federal requirements.
    (b) If not inconsistent with law, a state may decide to try to 
simplify, consolidate, or substitute federally required state plans 
without prior approval by the Secretary.
    (c) The Secretary reviews each state plan that a state has 
simplified, consolidated, or substituted and accepts the plan only if 
its contents meet Federal requirements.



Sec. 100.13  May the Secretary waive any provision of these regulations?

    In an emergency, the Secretary may waive any provision of these 
regulations.

[[Page 567]]



        SUBCHAPTER B--REQUIREMENTS RELATING TO HEALTH CARE ACCESS



                        PARTS 140-143 [RESERVED]



PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE--Table of Contents




                      Subpart A--General Provisions

Sec.
144.101  Basis and purpose.
144.102  Scope and applicability.
144.103  Definitions.

Subpart B [Reserved]

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92.

    Source: 62 FR 16955, Apr. 8, 1997, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 144.101  Basis and purpose.

    (a) Part 146 of this subchapter implements sections 2701 through 
2723 of the Public Health Service Act (PHS Act, 42 U.S.C. 300gg, et 
seq.). Its purpose is to improve access to group health insurance 
coverage, guarantee the renewability of all coverage in the group 
market, provide certain protections for mothers and newborns with 
respect to coverage for hospital stays in connection with childbirth, 
and provide parity between the application of annual and lifetime dollar 
limits to mental health benefits and those limits for other health 
benefits and to provide certain protections for patients who elect 
breast reconstruction in connection with a mastectomy.
    (b) Part 148 of this subchapter implements sections 2741 through 
2763 of the PHS Act. Its purpose is to improve access to individual 
health insurance coverage for certain individuals who previously had 
group coverage, guarantee the renewability of all health insurance 
coverage in the individual market, and provide certain protections for 
mothers and newborns with respect to coverage for hospital stays in 
connection with childbirth, and to provide certain protections for 
patients who elect breast reconstruction in connection with a 
mastectomy.
    (c) Part 150 of this subchapter implements the enforcement 
provisions of sections 2722 and 2761 of the PHS Act with respect to the 
following:
    (1) States that fail to substantially enforce one or more provisions 
of part 146 concerning group health insurance or the requirements of 
part 148 of this subchapter concerning individual health insurance.
    (2) Insurance issuers in States described in paragraph (c)(1) of 
this section.
    (3) Group health plans that are non-Federal governmental plans.
    (d) Sections 2791 and 2792 of the PHS Act define terms used in the 
regulations in this subchapter and provide the basis for issuing these 
regulations.

[64 FR 45795, Aug. 20, 1999]



Sec. 144.102   Scope and applicability.

    (a) For purposes of 45 CFR parts 144 through 148, all health 
insurance coverage is generally divided into two markets--the group 
market (set forth in 45 CFR part 146) and the individual market (set 
forth in 45 CFR part 148). 45 CFR part 146 limits the group market to 
insurance sold to employment-related group health plans and further 
divides the group market into the large group market and the small group 
market. Federal law further defines the small group market as insurance 
sold to employer plans with 2 to 50 employees. State law, however, may 
expand the definition of the small group market to include certain 
coverage that would otherwise, under the Federal law, be considered 
coverage in the large group market or the individual market.
    (b) The protections afforded under 45 CFR parts 144 through 148 to 
individuals and employers (and other sponsors of health insurance 
offered in connection with a group health plan) are determined by 
whether the coverage involved is obtained in the small group market, the 
large group market, or the

[[Page 568]]

individual market. Small employers, and individuals who are eligible to 
enroll under the employer's plan, are guaranteed availability of 
insurance coverage sold in the small group market. Small and large 
employers are guaranteed the right to renew their group coverage, 
subject to certain exceptions. Eligible individuals are guaranteed 
availability of coverage sold in the individual market, and all coverage 
in the individual market must be guaranteed renewable. All coverage 
issued in the small or large group market, and in the individual market, 
must provide certain protections for mothers and newborns with respect 
to coverage for hospital stays in connection with childbirth.
    (c) Coverage that is provided to associations, but is not related to 
employment, is not considered group coverage under 45 CFR parts 144 
through 148. The coverage is considered coverage in the individual 
market, regardless of whether it is considered group coverage under 
State law.
    (d) Provisions relating to CMS enforcement of one or more provisions 
of part 146 or the requirements of part 148, or both, are contained in 
part 150 of this subchapter.

[62 FR 16955, Apr. 8, 1997, as amended at 63 FR 57558, Oct. 27, 1998; 64 
FR 45795, Aug. 20, 1999]



Sec. 144.103  Definitions.

    For purposes of parts 146 (group market), 148 (individual market), 
and 150 (enforcement) of this subchapter, the following definitions 
apply unless otherwise provided:
    Affiliation period means a period of time that must expire before 
health insurance coverage provided by an HMO becomes effective, and 
during which the HMO is not required to provide benefits.
    Applicable State authority means, with respect to a health insurance 
issuer in a State, the State insurance commissioner or official or 
officials designated by the State to enforce the requirements of 45 CFR 
parts 146 and 148 for the State involved with respect to the issuer.
    Beneficiary has the meaning given the term under section 3(8) of the 
Employee Retirement Income Security Act of 1974 (ERISA), which states, 
``a person designated by a participant, or by the terms of an employee 
benefit plan, who is or may become entitled to a benefit'' under the 
plan.
    Bona fide association means, with respect to health insurance 
coverage offered in a State, an association that meets the following 
conditions:
    (1) Has been actively in existence for at least 5 years.
    (2) Has been formed and maintained in good faith for purposes other 
than obtaining insurance.
    (3) Does not condition membership in the association on any health 
status-related factor relating to an individual (including an employee 
of an employer or a dependent of any employee).
    (4) Makes health insurance coverage offered through the association 
available to all members regardless of any health status-related factor 
relating to the members (or individuals eligible for coverage through a 
member).
    (5) Does not make health insurance coverage offered through the 
association available other than in connection with a member of the 
association.
    (6) Meets any additional requirements that may be imposed under 
State law.
    Church plan means a Church plan within the meaning of section 3(33) 
of ERISA.
    COBRA definitions:
    (1) COBRA means Title X of the Consolidated Omnibus Budget 
Reconciliation Act of 1985, as amended.
    (2) COBRA continuation coverage means coverage, under a group health 
plan, that satisfies an applicable COBRA continuation provision.
    (3) COBRA continuation provision means sections 601 through 608 of 
the Employee Retirement Income Security Act of 1974, section 4980B of 
the Internal Revenue Code of 1986 (other than paragraph (f)(1) of 
section 4980B insofar as it relates to pediatric vaccines), and Title 
XXII of the PHS Act.
    (4) Continuation coverage means coverage under a COBRA continuation 
provision or a similar State program. Coverage provided by a plan that 
is subject to a COBRA continuation provision or similar State program, 
but that does not satisfy all the requirements of that provision or 
program,

[[Page 569]]

 will be deemed to be continuation coverage if it allows an individual 
to elect to continue coverage for a period of at least 18 months. 
Continuation coverage does not include coverage under a conversion 
policy required to be offered to an individual upon exhaustion of 
continuation coverage, nor does it include continuation coverage under 
the Federal Employees Health Benefits Program.
    (5) Exhaustion of COBRA continuation coverage means that an 
individual's COBRA continuation coverage ceases for any reason other 
than either failure of the individual to pay premiums on a timely basis, 
or for cause (such as making a fraudulent claim or an intentional 
misrepresentation of a material fact in connection with the plan). An 
individual is considered to have exhausted COBRA continuation coverage 
if such coverage ceases--
    (i) Due to the failure of the employer or other responsible entity 
to remit premiums on a timely basis; or
    (ii) When the individual no longer resides, lives, or works in a 
service area of an HMO or similar program (whether or not within the 
choice of the individual) and there is no other COBRA continuation 
coverage available to the individual.
    (6) Exhaustion of continuation coverage means that an individual's 
continuation coverage ceases for any reason other than either failure of 
the individual to pay premiums on a timely basis, or for cause (such as 
making a fraudulent claim or an intentional misrepresentation of a 
material fact in connection with the plan). An individual is considered 
to have exhausted continuation coverage if--
    (i) Coverage ceases due to the failure of the employer or other 
responsible entity to remit premiums on a timely basis; or
    (ii) When the individual no longer resides, lives, or works in a 
service area of an HMO or similar program (whether or not within the 
choice of the individual) and there is no other continuation coverage 
available to the individual.
    Condition means a medical condition.
    Creditable coverage has the meaning given the term under 45 CFR 
146.113(a).
    Eligible individual, for purposes of--
    (1) The group market provisions in 45 CFR part 146, subpart E, the 
term is defined in 45 CFR 146.150(b); and
    (2) The individual market provisions in 45 CFR part 148, the term is 
defined in 45 CFR 148.103.
    Employee has the meaning given the term under section 3(6) of ERISA, 
which states, ``any individual employed by an employer.''
    Employer has the meaning given the term under section 3(5) of ERISA, 
which states, ``any person acting directly as an employer, or indirectly 
in the interest of an employer, in relation to an employee benefit plan; 
and includes a group or association of employers acting for an employer 
in such capacity.''
    Enroll means to become covered for benefits under a group health 
plan (that is, when coverage becomes effective), without regard to when 
the individual may have completed or filed any forms that are required 
in order to enroll in the plan. For this purpose, an individual who has 
health insurance coverage under a group health plan is enrolled in the 
plan regardless of whether the individual elects coverage, the 
individual is a dependent who becomes covered as a result of an election 
by a participant, or the individual becomes covered without an election.
    Enrollment date definitions (enrollment date and first day of 
coverage) are set forth in 45 CFR 146.111(a)(2)(i) and (a)(2)(ii).
    ERISA stands for the Employee Retirement Income Security Act of 
1974, as amended (29 U.S.C. 1001 et seq.).
    Excepted benefits, for purposes of the--
    (1) Group market provisions in 45 CFR part 146 subpart D, the term 
is defined in 45 CFR 146.145(b); and
    (2) Individual market provisions in 45 CFR part 148, the term is 
defined in 45 CFR 148.220.
    Federal governmental plan means a governmental plan established or 
maintained for its employees by the Government of the United States or 
by any agency or instrumentality of such Government.
    Genetic information means information about genes, gene products, 
and inherited characteristics that may derive from the individual or a 
family

[[Page 570]]

member. This includes information regarding carrier status and 
information derived from laboratory tests that identify mutations in 
specific genes or chromosomes, physical medical examinations, family 
histories, and direct analysis of genes or chromosomes.
    Governmental plan means a governmental plan within the meaning of 
section 3(32) of ERISA.
    Group health insurance coverage means health insurance coverage 
offered in connection with a group health plan.
    Group health plan means an employee welfare benefit plan (as defined 
in section 3(1) of ERISA) to the extent that the plan provides medical 
care (as defined in section 2791(a)(2) of the PHS Act and including 
items and services paid for as medical care) to employees or their 
dependents (as defined under the terms of the plan) directly or through 
insurance, reimbursement, or otherwise.
    Group market means the market for health insurance coverage offered 
in connection with a group health plan. (However, unless otherwise 
provided under State law, certain very small plans may be treated as 
being in the individual market, rather than the group market; see the 
definition of ``individual market'' in this section.)
    CMS means theCenters for Medicare & Medicaid Services.
    Health insurance coverage means benefits consisting of medical care 
(provided directly, through insurance or reimbursement, or otherwise) 
under any hospital or medical service policy or certificate, hospital or 
medical service plan contract, or HMO contract offered by a health 
insurance issuer.
    Health insurance issuer or issuer means an insurance company, 
insurance service, or insurance organization (including an HMO) that is 
required to be licensed to engage in the business of insurance in a 
State and that is subject to State law that regulates insurance (within 
the meaning of section 514(b)(2) of ERISA). This term does not include a 
group health plan.
    Health maintenance organization or HMO means--
    (1) A Federally qualified health maintenance organization (as 
defined in section 1301(a) of the PHS Act);
    (2) An organization recognized under State law as a health 
maintenance organization; or
    (3) A similar organization regulated under State law for solvency in 
the same manner and to the same extent as such a health maintenance 
organization.
    Health status-related factor means health status, medical condition 
(including both physical and mental illnesses), claims experience, 
receipt of health care, medical history, genetic information, evidence 
of insurability (including conditions arising out of acts of domestic 
violence) and disability.
    Individual health insurance coverage means health insurance coverage 
offered to individuals in the individual market, but does not include 
short-term, limited-duration insurance. Individual health insurance 
coverage can include dependent coverage.
    Individual market means the market for health insurance coverage 
offered to individuals other than in connection with a group health 
plan. Unless a State elects otherwise in accordance with section 
2791(e)(1)(B)(ii) of the PHS Act, such term also includes coverage 
offered in connection with a group health plan that has fewer than two 
participants as current employees on the first day of the plan year.
    Internal Revenue Code (Code) means the Internal Revenue Code of 
1986, as amended (Title 26, United States Code).
    Issuer means a health insurance issuer.
    Large employer means, in connection with a group health plan with 
respect to a calendar year and a plan year, an employer who employed an 
average of at least 51 employees on business days during the preceding 
calendar year and who employs at least 2 employees on the first day of 
the plan year, unless otherwise provided under State law.
    Large group market means the health insurance market under which 
individuals obtain health insurance coverage (directly or through any 
arrangement) on behalf of themselves (and their dependents) through a 
group health plan maintained by a large employer, unless otherwise 
provided under State law.
    Late enrollment definitions (late enrollee and late enrollment) are 
set forth

[[Page 571]]

in 45 CFR 146.111 (a)(2)(iii) and (a)(2)(iv).
    Medical care means amounts paid for any of the following:
    (1) The diagnosis, cure, mitigation, or prevention of disease, or 
amounts paid for the purpose of affecting any structure or function of 
the body.
    (2) Transportation primarily for and essential to medical care 
referred to in paragraph (1) of this definition.
    (3) Insurance covering medical care referred to in paragraphs (1) 
and (2) of this definition.
    Medical condition or condition means any condition, whether physical 
or mental, including, but not limited to, any condition resulting from 
illness, injury (whether or not the injury is accidental), pregnancy, or 
congenital malformation. However, genetic information is not a 
condition.
    NAIC stands for the National Association of Insurance Commissioners.
    Network plan means health insurance coverage of a health insurance 
issuer under which the financing and delivery of medical care (including 
items and services paid for as medical care) are provided, in whole or 
in part, through a defined set of providers under contract with the 
issuer.
    Non-Federal governmental plan means a governmental plan established 
or maintained for its employees by the government of any State or 
political subdivision thereof, or by any agency or instrumentality of 
either.
    Participant has the meaning given the term under section 3(7) of 
ERISA, which states, ``any employee or former employee of an employer, 
or any member or former member of an employee organization, who is or 
may become eligible to receive a benefit of any type from an employee 
benefit plan which covers employees of such employer or members of such 
organization, or whose beneficiaries may be eligible to receive any such 
benefit.''
    PHS Act stands for the Public Health Service Act (42 U.S.C. 201 et 
seq.).
    Placement, or being placed, for adoption means the assumption and 
retention of a legal obligation for total or partial support of a child 
by a person with whom the child has been placed in anticipation of the 
child's adoption. The child's placement for adoption with the person 
terminates upon the termination of the legal obligation.
    Plan sponsor has the meaning given the term under section 3(16)(B) 
of ERISA, which states ``(i) the employer in the case of an employee 
benefit plan established or maintained by a single employer, (ii) the 
employee organization in the case of a plan established or maintained by 
an employee organization, or (iii) in the case of a plan established or 
maintained by two or more employers or jointly by one or more employers 
and one or more employee organizations, the association, committee, 
joint board of trustees, or other similar group of representatives of 
the parties who establish or maintain the plan.''
    Plan year means the year that is designated as the plan year in the 
plan document of a group health plan, except that if the plan document 
does not designate a plan year or if there is no plan document, the plan 
year is:
    (1) The deductible/limit year used under the plan.
    (2) If the plan does not impose deductibles or limits on a yearly 
basis, the plan year is the policy year.
    (3) If the plan does not impose deductibles or limits on a yearly 
basis, and either the plan is not insured or the insurance policy is not 
renewed on an annual basis, the plan year is the employer's taxable 
year.
    (4) In any other case, the plan year is the calendar year.
    Preexisting condition exclusion means a limitation or exclusion of 
benefits relating to a condition based on the fact that the condition 
was present before the first day of coverage, whether or not any medical 
advice, diagnosis, care, or treatment was recommended or received before 
that day. A preexisting condition exclusion includes any exclusion 
applicable to an individual as a result of information that is obtained 
relating to an individual's health status before the individual's first 
day of coverage, such as a condition identified as a result of a pre-
enrollment questionnaire or physical examination given to the 
individual, or review of medical records relating to the pre-enrollment 
period.

[[Page 572]]

    Public health plan has the meaning given the term under 45 CFR 
146.113(a)(1)(ix).
    Short-term limited duration insurance means health insurance 
coverage provided under a contract with an issuer that has an expiration 
date specified in the contract (taking into account any extensions that 
may be elected by the policyholder without the issuer's consent) that is 
within 12 months of the date the contract becomes effective.
    Significant break in coverage has the meaning given the term in 45 
CFR 146.113(b)(2)(iii).
    Small employer means, in connection with a group health plan with 
respect to a calendar year and a plan year, an employer who employed an 
average of at least 2 but not more than 50 employees on business days 
during the preceding calendar year and who employs at least 2 employees 
on the first day of the plan year, unless otherwise provided under State 
law.
    Small group market means the health insurance market under which 
individuals obtain health insurance coverage (directly or through any 
arrangement) on behalf of themselves (and their dependents) through a 
group health plan maintained by a small employer.
    Special enrollment date has the meaning given the term in 45 CFR 
146.117(d).
    State means each of the several States, the District of Columbia, 
Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern 
Mariana Islands.
    State health benefits risk pool has the meaning given the term under 
45 CFR 146.113(a)(1)(vii).
    Waiting period means the period that must pass before an employee or 
dependent is eligible to enroll under the terms of a group health plan. 
If an employee or dependent enrolls as a late enrollee or on a special 
enrollment date, any period before such late or special enrollment is 
not a waiting period. If an individual seeks and obtains coverage in the 
individual market, any period after the date the individual files a 
substantially complete application for coverage and before the first day 
of coverage is a waiting period.

[62 FR 16955, Apr. 8, 1997; 62 FR 31670, 31693, June 10, 1997; 64 FR 
45795, Aug. 20, 1999]

Subpart B [Reserved]

                           PART 145 [RESERVED]



PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET--Table of Contents




                      Subpart A--General Provisions

Sec.
146.101  Basis and scope.

Subpart B--Requirements Relating to Access and Renewability of Coverage, 
       and Limitations on Preexisting Condition Exclusion Periods

146.111  Limitations on preexisting condition exclusion periods.
146.113  Rules relating to creditable coverage.
146.115  Certification and disclosure of previous coverage.
146.117  Special enrollment periods.
146.119  HMO affiliation period as alternative to preexisting condition 
          exclusion.
146.121  Prohibiting discrimination against participants and 
          beneficiaries based on a health factor.
146.125  Applicability dates.

               Subpart C--Requirements Related to Benefits

146.130  Standards relating to benefits for mothers and newborns.
146.136  Parity in the application of certain limits to mental health 
          benefits.

                 Subpart D--Preemption and Special Rules

146.143  Preemption; State flexibility; construction.
146.145  Special rules relating to group health plans.

    Subpart E--Provisions Applicable to Only Health Insurance Issuers

146.150  Guaranteed availability of coverage for employers in the small 
          group market.
146.152  Guaranteed renewability of coverage for employers in the group 
          market.
146.160  Disclosure of information.

              Subpart F--Exclusion of Plans and Enforcement

146.180  Treatment of non-Federal governmental plans.

    Authority: Secs. 2701 through 2723, 2791 and 2792 of the PHS Act (42 
U.S.C. 300gg through 300gg-23, 300gg-91, and 300gg-92.

[[Page 573]]


    Source: 62 FR 16958, Apr. 8, 1997, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 146.101  Basis and scope.

    (a) Statutory basis. This part implements sections 2701 through 2723 
of the PHS Act. Its purpose is to improve access to group health 
insurance coverage, to guarantee the renewability of all coverage in the 
group market, and to provide certain protections for mothers and 
newborns with respect to coverage for hospital stays in connection with 
childbirth. Sections 2791 and 2792 of the PHS Act define terms used in 
the regulations in this subchapter and provide the basis for issuing 
these regulations, respectively.
    (b) Scope. A group health plan or health insurance issuer offering 
group health insurance coverage may provide greater rights to 
participants and beneficiaries than those set forth in this part.
    (1) Subpart B. Subpart B of this part sets forth minimum 
requirements for group health plans and health insurance issuers 
offering group health insurance coverage concerning:
    (i) Limitations on a preexisting condition exclusion period.
    (ii) Certificates and disclosure of previous coverage.
    (iii) Methods of counting creditable coverage.
    (iv) Special enrollment periods.
    (v) Use of an affiliation period by an HMO as an alternative to a 
preexisting condition exclusion.
    (2) Subpart C. Subpart C of this part sets forth the requirements 
that apply to plans and issuers with respect to coverage for hospital 
stays in connection with childbirth. It also sets forth the regulations 
governing parity between medical/surgical benefits and mental health 
benefits in group health plans and health insurance coverage offered by 
issuers in connection with a group health plan.
    (3) Subpart D. Subpart D of this part sets forth exceptions to the 
requirements of Subpart B for certain plans and certain types of 
benefits.
    (4) Subpart E. Subpart E of this part implements sections 2711 
through 2713 of the PHS Act, which set forth requirements that apply 
only to health insurance issuers offering health insurance coverage in 
connection with a group health plan.
    (5) Subpart F. Subpart F of this part addresses the treatment of 
non-Federal governmental plans, and sets forth enforcement procedures.

[62 FR 16958, Apr. 8, 1997, as amended at 63 FR 57559, Oct. 27, 1998]



Subpart B--Requirements Relating to Access and Renewability of Coverage, 
       and Limitations on Preexisting Condition Exclusion Periods



Sec. 146.111  Limitations on preexisting condition exclusion periods.

    (a) Preexisting condition exclusion--(1) General. Subject to 
paragraph (b) of this section, a group health plan, and a health 
insurance issuer offering group health insurance coverage, may impose, 
with respect to a participant or beneficiary, a preexisting condition 
exclusion only if the requirements of this paragraph (a) are satisfied.
    (1)(i) 6-month look-back rule. A preexisting condition exclusion 
must relate to a condition (whether physical or mental), regardless of 
the cause of the condition, for which medical advice, diagnosis, care, 
or treatment was recommended or received within the 6-month period 
ending on the enrollment date.
    (A) For purposes of this paragraph (a)(1)(i), medical advice, 
diagnosis, care, or treatment is taken into account only if it is 
recommended by, or received from, an individual licensed or similarly 
authorized to provide such services under State law and operating within 
the scope of practice authorized by State law.
    (B) For purposes of this paragraph (a)(1)(i), the 6-month period 
ending on the enrollment date begins on the 6-month anniversary date 
preceding the enrollment date. For example, for an enrollment date of 
August 1, 1998, the 6-month period preceding the enrollment date is the 
period commencing on February 1, 1998 and continuing through July 31, 
1998. As another example, for an enrollment date of August 30, 1998, the 
6-month period preceding

[[Page 574]]

the enrollment date is the period commencing on February 28, 1998 and 
continuing through August 29, 1998.
    (C) The following examples illustrate the requirements of this 
paragraph (a)(1)(i):

    Example 1: (i) Individual A is treated for a medical condition 7 
months before the enrollment date in Employer R's group health plan. As 
part of such treatment, A's physician recommends that a follow-up 
examination be given 2 months later. Despite this recommendation, A does 
not receive a follow-up examination and no other medical advice, 
diagnosis, care, or treatment for that condition is recommended to A or 
received by A during the 6-month period ending on A's enrollment date in 
Employer R's plan.
    (ii) In this Example, Employer R's plan may not impose a preexisting 
condition exclusion period with respect to the condition for which A 
received treatment 7 months prior to the enrollment date.
    Example 2: (i) Same facts as Example 1 except that Employer R's plan 
learns of the condition and attaches a rider to A's policy excluding 
coverage for the condition. Three months after enrollment, A's condition 
recurs, and Employer R's plan denies payment under the rider.
    (ii) In this Example, the rider is a preexisting condition exclusion 
and Employer R's plan may not impose a preexisting condition exclusion 
with respect to the condition for which A received treatment 7 months 
prior to the enrollment date.
    Example 3: (i) Individual B has asthma and is treated for that 
condition several times during the 6-month period before B's enrollment 
date in Employer S's plan. The plan imposes a 12-month preexisting 
condition exclusion. B has no prior creditable coverage to reduce the 
exclusion period. Three months after the enrollment date, B begins 
coverage under Employer S's plan. B is hospitalized for asthma.
    (ii) In this Example, Employer S's plan may exclude payment for the 
hospital stay and the physician services associated with this illness 
because the care is related to a medical condition for which treatment 
was received by B during the 6-month period before the enrollment date.
    Example 4: (i) Individual D, who is subject to a preexisting 
condition exclusion imposed by Employer U's plan, has diabetes, as well 
as a foot condition caused by poor circulation and retinal degeneration 
(both of which are conditions that may be directly attributed to 
diabetes). After enrolling in the plan, D stumbles and breaks a leg.
    (ii) In this Example, the leg fracture is not a condition related to 
D's diabetes, even though poor circulation in D's extremities and poor 
vision may have contributed towards the accident. However, any 
additional medical services that may be needed because of D's 
preexisting diabetic condition that would not be needed by another 
patient with a broken leg who does not have diabetes may be subject to 
the preexisting condition exclusion imposed under Employer U's plan.

    (ii) Maximum length of preexisting condition exclusion (the look-
forward rule). A preexisting condition exclusion is not permitted to 
extend for more than 12 months (18 months in the case of a late 
enrollee) after the enrollment date. For purposes of this paragraph 
(a)(1)(ii), the 12-month and 18-month periods after the enrollment date 
are determined by reference to the anniversary of the enrollment date. 
For example, for an enrollment date of August 1, 1998, the 12-month 
period after the enrollment date is the period commencing on August 1, 
1998 and continuing through July 31, 1999.
    (iii) Reducing a preexisting condition exclusion period by 
creditable coverage. The period of any preexisting condition exclusion 
that would otherwise apply to an individual under a group health plan is 
reduced by the number of days of creditable coverage the individual has 
as of the enrollment date, as counted under Sec. 146.113. For purposes 
of this part, the phrase ``days of creditable coverage'' has the same 
meaning as the phrase ``the aggregate of the periods of creditable 
coverage'' as such phrase is used in section 2701(a)(3) of the PHS Act.
    (iv) Other standards. See Sec. 146.121 for other standards that may 
apply with respect to certain benefit limitations or restrictions under 
a group health plan.
    (2) Enrollment definitions--(i) Enrollment date means the first day 
of coverage or, if there is a waiting period, the first day of the 
waiting period.
    (ii) (A) First day of coverage means, in the case of an individual 
covered for benefits under a group health plan in the group market, the 
first day of coverage under the plan and, in the case of an individual 
covered by health insurance coverage in the individual market, the first 
day of coverage under the policy.
    (B) Example. The following example illustrates the requirements of 
paragraph (a)(2)(ii)(A) of this section:


[[Page 575]]


    Example: (i) Employer V's group health plan provides for coverage to 
begin on the first day of the first payroll period following the date an 
employee is hired and completes the applicable enrollment forms, or on 
any subsequent January 1 after completion of the applicable enrollment 
forms. Employer V's plan imposes a preexisting condition exclusion for 
12 months (reduced by the individual's creditable coverage) following an 
individual's enrollment date. Employee E is hired by Employer V on 
October 13, 1998 and then on October 14, 1998 completes and files all 
the forms necessary to enroll in the plan. E's coverage under the plan 
becomes effective on October 25, 1998 (which is the beginning of the 
first payroll period after E's date of hire).
    (ii) In this Example, E's enrollment date is October 13, 1998 (which 
is the first day of the waiting period for E's enrollment and is also 
E's date of hire). Accordingly, with respect to E, the 6-month period in 
paragraph (a)(1)(i) would be the period from April 13, 1998 through 
October 12, 1998, the maximum permissible period during which Employer 
V's plan could apply a preexisting condition exclusion under paragraph 
(a)(1)(ii) would be the period from October 13, 1998 through October 12, 
1999, and this period would be reduced under paragraph (a)(1)(iii) by 
E's days of creditable coverage as of October 13, 1998.

    (iii) Late enrollee means an individual whose enrollment in a plan 
is a late enrollment.
    (iv) Late enrollment means enrollment under a group health plan 
other than on--
    (A) The earliest date on which coverage can become effective under 
the terms of the plan; or
    (B) A special enrollment date for the individual. If an individual 
ceases to be eligible for coverage under the plan by terminating 
employment, and subsequently becomes eligible for coverage under the 
plan by resuming employment, only eligibility during the individual's 
most recent period of employment is taken into account in determining 
whether the individual is a late enrollee under the plan with respect to 
the most recent period of coverage. Similar rules apply if an individual 
again becomes eligible for coverage following a suspension of coverage 
that applied generally under the plan.
    (v) Examples. The following examples illustrate the requirements of 
this paragraph (a)(2):

    Example 1: (i) Employee F first becomes eligible to be covered by 
Employer W's group health plan on January 1, 1999, but elects not to 
enroll in the plan until April 1, 1999. April 1, 1999 is not a special 
enrollment date for F.
    (ii) In this Example, F would be a late enrollee with respect to F's 
coverage that became effective under the plan on April 1, 1999.
    Example 2: (i) Same as Example 1, except that F does not enroll in 
the plan on April 1, 1999 and terminates employment with Employer W on 
July 1, 1999, without having had any health insurance coverage under the 
plan. F is rehired by Employer W on January 1, 2000 and is eligible for 
and elects coverage under Employer W's plan effective on January 1, 
2000.
    (ii) In this Example, F would not be a late enrollee with respect to 
F's coverage that became effective on January 1, 2000.

    (b) Exceptions pertaining to preexisting condition exclusions--(1) 
Newborns--(i) General rule. Subject to paragraph (b)(3) of this section, 
a group health plan, and a health insurance issuer offering group health 
insurance coverage, may not impose any preexisting condition exclusion 
with regard to a child who, as of the last day of the 30-day period 
beginning with the date of birth, is covered under any creditable 
coverage. Accordingly, if a newborn is enrolled in a group health plan 
(or other creditable coverage) within 30 days after birth and 
subsequently enrolls in another group health plan without a significant 
break in coverage, the other plan may not impose any preexisting 
condition exclusion with regard to the child.
    (ii) Example. The following example illustrates the requirements of 
this paragraph (b)(1):

    Example: (i) Seven months after enrollment in Employer W's group 
health plan, Individual E has a child born with a birth defect. Because 
the child is enrolled in Employer W's plan within 30 days of birth, no 
preexisting condition exclusion may be imposed with respect to the child 
under Employer W's plan. Three months after the child's birth, E 
commences employment with Employer X and enrolls with the child in 
Employer X's plan within 45 days of leaving Employer W's plan. Employer 
X's plan imposes a 12-month exclusion for any preexisting condition.
    (ii) In this Example, Employer X's plan may not impose any 
preexisting condition exclusion with respect to E's child because the 
child was covered within 30 days of birth and had no significant break 
in coverage. This result applies regardless of whether E's child is 
included in the certificate of creditable

[[Page 576]]

coverage provided to E by Employer W indicating 300 days of dependent 
coverage or receives a separate certificate indicating 90 days of 
coverage. Employer X's plan may impose a preexisting condition exclusion 
with respect to E for up to 65 days for any preexisting condition of E 
for which medical advice, diagnosis, care, or treatment was recommended 
or received by E within the 6-month period ending on E's enrollment date 
in Employer X's plan.

    (2) Adopted children. Subject to paragraph (b)(3) of this section, a 
group health plan, and a health insurance issuer offering group health 
insurance coverage, may not impose any preexisting condition exclusion 
in the case of a child who is adopted or placed for adoption before 
attaining 18 years of age and who, as of the last day of the 30-day 
period beginning on the date of the adoption or placement for adoption, 
is covered under creditable coverage. This rule does not apply to 
coverage before the date of such adoption or placement for adoption.
    (3) Break in coverage. Paragraphs (b)(1) and (b)(2) of this section 
no longer apply to a child after a significant break in coverage.
    (4) Pregnancy. A group health plan, and a health insurance issuer 
offering group health insurance coverage, may not impose a preexisting 
condition exclusion relating to pregnancy as a preexisting condition.
    (5) Special enrollment dates. For special enrollment dates relating 
to new dependents, see Sec. 146.117(b).
    (c) Notice of plan's preexisting condition exclusion. A group health 
plan, and a health insurance issuer offering group health insurance 
under the plan, may not impose a preexisting condition exclusion with 
respect to a participant or dependent of the participant before 
notifying the participant, in writing, of the existence and terms of any 
preexisting condition exclusion under the plan and of the rights of 
individuals to demonstrate creditable coverage (and any applicable 
waiting periods) as required by Sec. 146.115. The description of the 
rights of individuals to demonstrate creditable coverage includes a 
description of the right of the individual to request a certificate from 
a prior plan or issuer, if necessary, and a statement that the current 
plan or issuer will assist in obtaining a certificate from any prior 
plan or issuer, if necessary.

(Approved by the Office of Management and Budget under control number 
0938-0702.)

[62 FR 16958, Apr. 8, 1997; 62 FR 31670, 31693, June 10, 1997, as 
amended at 62 FR 35906, July 2, 1997]



Sec. 146.113  Rules relating to creditable coverage.

    (a) General rules--(1) Creditable coverage. For purposes of this 
section, except as provided in paragraph (a)(2), the term creditable 
coverage means coverage of an individual under any of the following:
    (i) A group health plan as defined in Sec. 144.103.
    (ii) Health insurance coverage as defined in Sec. 144.103 (whether 
or not the entity offering the coverage is subject to the requirements 
of this part and 45 CFR part 148, and without regard to whether the 
coverage is offered in the group market, the individual market, or 
otherwise).
    (iii) Part A or part B of title XVIII of the Social Security Act 
(Medicare).
    (iv) Title XIX of the Social Security Act (Medicaid), other than 
coverage consisting solely of benefits under section 1928 of the Social 
Security Act (the program for distribution of pediatric vaccines).
    (v) Title 10 U.S.C. Chapter 55 (medical and dental care for members 
and certain former members of the uniformed services, and for their 
dependents; for purposes of title 10 U.S.C. chapter 55, uniformed 
services means the armed forces and the Commissioned Corps of the 
National Oceanic and Atmospheric Administration and of the Public Health 
Service).
    (vi) A medical care program of the Indian Health Service or of a 
tribal organization.
    (vii) A State health benefits risk pool. For purposes of this 
section, a State health benefits risk pool means--
    (A) An organization qualifying under section 501(c)(26) of the Code;
    (B) A qualified high risk pool described in section 2744(c)(2) of 
the PHS Act; or
    (C) Any other arrangement sponsored by a State, the membership 
composition of which is specified by the State

[[Page 577]]

and which is established and maintained primarily to provide health 
insurance coverage for individuals who are residents of such State and 
who, by reason of the existence or history of a medical condition--
    (1) Are unable to acquire medical care coverage for such condition 
through insurance or from an HMO; or
    (2) Are able to acquire such coverage only at a rate which is 
substantially in excess of the rate for such coverage through the 
membership organization.
    (viii) A health plan offered under title 5 U.S.C. chapter 89 (the 
Federal Employees Health Benefits Program).
    (ix) A public health plan. For purposes of this section, a public 
health plan means any plan established or maintained by a State, county, 
or other political subdivision of a State that provides health insurance 
coverage to individuals who are enrolled in the plan.
    (x) A health benefit plan under section 5(e) of the Peace Corps Act 
(22 U.S.C. 2504(e)).
    (2) Excluded coverage. Creditable coverage does not include coverage 
consisting solely of coverage of excepted benefits (described in 
Sec. 146.145).
    (3) Methods of counting creditable coverage. For purposes of 
reducing any preexisting condition exclusion period, as provided under 
Sec. 146.111(a)(1)(iii), a group health plan, and a health insurance 
issuer offering group health insurance coverage, determines the amount 
of an individual's creditable coverage by using the standard method 
described in paragraph (b), except that the plan, or issuer, may use the 
alternative method under paragraph (c) with respect to any or all of the 
categories of benefits described under paragraph (c)(3).
    (b) Standard method--(1) Specific benefits not considered. Under the 
standard method, a group health plan, and a health insurance issuer 
offering group health insurance coverage, determines the amount of 
creditable coverage without regard to the specific benefits included in 
the coverage.
    (2) Counting creditable coverage--(i) Based on days. For purposes of 
reducing the preexisting condition exclusion period, a group health 
plan, and a health insurance issuer offering group health insurance 
coverage, determines the amount of creditable coverage by counting all 
the days that the individual has under one or more types of creditable 
coverage. Accordingly, if on a particular day, an individual has 
creditable coverage from more than one source, all the creditable 
coverage on that day is counted as one day. Further, any days in a 
waiting period for a plan or policy are not creditable coverage under 
the plan or policy.
    (ii) Days not counted before significant break in coverage. Days of 
creditable coverage that occur before a significant break in coverage 
are not required to be counted.
    (iii) Definition of significant break in coverage. A significant 
break in coverage means a period of 63 consecutive days during all of 
which the individual does not have any creditable coverage, except that 
neither a waiting period nor an affiliation period is taken into account 
in determining a significant break in coverage. (See section 
731(b)(2)(iii) of ERISA and section 2723(b)(2)(iii) of the PHS Act, 
which exclude from preemption State insurance laws that require a break 
of more than 63 days before an individual has a significant break in 
coverage for purposes of State law.)
    (iv) Examples. The following examples illustrate how creditable 
coverage is counted in reducing preexisting condition exclusion periods:

    Example 1: (i) Individual A works for Employer P and has creditable 
coverage under Employer P's plan for 18 months before A's employment 
terminates. A is hired by Employer O, and enrolls in Employer O's group 
health plan, 64 days after the last date of coverage under Employer P's 
plan. Employer O's plan has a 12-month preexisting condition exclusion 
period.
    (ii) In this Example, because A had a break in coverage of 63 days, 
Employer O's plan may disregard A's prior coverage and A may be subject 
to a 12-month preexisting condition exclusion period.
    Example 2: (i) Same facts as Example 1, except that A is hired by 
Employer O, and enrolls in Employer O's plan, on the 63rd day after the 
last date of coverage under Employer P's plan.
    (ii) In this Example, A has a break in coverage of 62 days. Because 
A's break in coverage is not a significant break in coverage, Employer 
O's plan must count A's prior creditable coverage for purposes of 
reducing the

[[Page 578]]

plan's preexisting condition exclusion period as it applies to A.
    Example 3: (i) Same facts as Example 1, except that Employer O's 
plan provides benefits through an insurance policy that, as required by 
applicable State insurance laws, defines a significant break in coverage 
as 90 days.
    (ii) In this Example, the issuer that provides group health 
insurance to Employer O's plan must count A's period of creditable 
coverage prior to the 63-day break.
    Example 4: (i) Same facts as Example 3, except that Employer O's 
plan is a self-insured plan, and thus is not subject to State insurance 
laws.
    (ii) In this Example, the plan is not governed by the longer break 
rules under State insurance law and A's previous coverage may be 
disregarded.
    Example 5: (i) Individual B begins employment with Employer R 45 
days after terminating coverage under a prior group health plan. 
Employer R's group health plan has a 30-day waiting period before 
coverage begins. B enrolls in Employer R's plan when first eligible.
    (ii) In this Example, B does not have a significant break in 
coverage for purposes of determining whether B's prior coverage must be 
counted by Employer R's plan. B has only a 44-day break in coverage 
because the 30-day waiting period is not taken into account in 
determining a significant break in coverage.
    Example 6: (i) Individual C works for Employer S and has creditable 
coverage under Employer S's plan for 200 days before C's employment is 
terminated and coverage ceases. C is then unemployed and does not have 
any creditable coverage for 51 days before being hired by Employer T. 
Employer T's plan has a 3-month waiting period. C works for Employer T 
for 2 months and then terminates employment. Eleven days after 
terminating employment with Employer T, C begins working for Employer U. 
Employer U's plan has no waiting period, but has a 6-month preexisting 
condition exclusion period.
    (ii) In this Example, C does not have a significant break in 
coverage because, after disregarding the waiting period under Employer 
T's plan, C had only a 62-day break in coverage (51 days plus 11 days). 
Accordingly, C has 200 days of creditable coverage and Employer U's plan 
may not apply its 6-month preexisting condition exclusion period with 
respect to C.
    Example 7: (i) Individual D terminates employment with Employer V on 
January 13, 1998 after being covered for 24 months under Employer V's 
group health plan. On March 17, the 63rd day without coverage, D applies 
for a health insurance policy in the individual market. D's application 
is accepted and the coverage is made effective May 1.
    (ii) In this Example, because D applied for the policy before the 
end of the 63rd day, and coverage under the policy ultimately became 
effective, the period between the date of application and the first day 
of coverage is a waiting period, and no significant break in coverage 
occurred even though the actual period without coverage was 107 days.
    Example 8: (i) Same facts as Example 7, except that D's application 
for a policy in the individual market is denied.

    (ii) In this Example, because D did not obtain coverage following 
application, D incurred a significant break in coverage on the 64th day.

    (v) Other permissible counting methods--(A) General rule. 
Notwithstanding any other provisions of this paragraph (b)(2), for 
purposes of reducing a preexisting condition exclusion period (but not 
for purposes of issuing a certificate under Sec. 146.115), a group 
health plan, and a health insurance issuer offering group health 
insurance coverage, may determine the amount of creditable coverage in 
any other manner that is at least as favorable to the individual as the 
method set forth in this paragraph (b)(2), subject to the requirements 
of other applicable law.
    (B) Example. The following example illustrates the requirements of 
this paragraph (b)(2)(v):

    Example: (i) Individual F has coverage under Group Health Plan Y 
from January 3, 1997 through March 25, 1997. F then becomes covered by 
Group Health Plan Z. F's enrollment date in Plan Z is May 1, 1997. Plan 
Z has a 12-month preexisting condition exclusion period.
    (ii) In this Example, Plan Z may determine, in accordance with the 
rules prescribed in paragraph (b)(2) (i), (ii), and (iii), that F has 82 
days of creditable coverage (29 days in January, 28 days in February, 
and 25 days in March). Thus, the preexisting condition exclusion period 
will no longer apply to F on February 8, 1998 (82 days before the 12-
month anniversary of F's enrollment (May 1)). For administrative 
convenience, however, Plan Z may consider that the preexisting condition 
exclusion period will no longer apply to F on the first day of the month 
(February 1).

    (c) Alternative method--(1) Specific benefits considered. Under the 
alternative method, a group health plan, or a

[[Page 579]]

health insurance issuer offering group health insurance coverage, 
determines the amount of creditable coverage based on coverage within 
any category of benefits described in paragraph (c)(3) and not based on 
coverage for any other benefits. The plan or issuer may use the 
alternative method for any or all of the categories. The plan may apply 
a different preexisting condition exclusion period with respect to each 
category (and may apply a different preexisting condition exclusion 
period for benefits that are not within any category). The creditable 
coverage determined for a category of benefits applies only for purposes 
of reducing the preexisting condition exclusion period with respect to 
that category. An individual's creditable coverage for benefits that are 
not within any category for which the alternative method is being used 
is determined under the standard method of paragraph (b) of this 
section.
    (2) Uniform application. A plan or issuer using the alternative 
method is required to apply it uniformly to all participants and 
beneficiaries under the plan or policy. The use of the alternative 
method is set forth in the plan.
    (3) Categories of benefits. The alternative method for counting 
creditable coverage may be used for coverage for any of the following 
categories of benefits:
    (i) Mental health.
    (ii) Substance abuse treatment.
    (iii) Prescription drugs.
    (iv) Dental care.
    (v) Vision care.
    (4) Plan notice. If the alternative method is used, the plan is 
required to--
    (i) State prominently that the plan is using the alternative method 
of counting creditable coverage in disclosure statements concerning the 
plan, and state this to each enrollee at the time of enrollment under 
the plan; and
    (ii) Include in these statements a description of the effect of 
using the alternative method, including an identification of the 
categories used.
    (5) Issuer notice. With respect to health insurance coverage offered 
by an issuer in the small or large group market, if the insurance 
coverage uses the alternative method, the issuer states prominently in 
any disclosure statement concerning the coverage, and to each employer 
at the time of the offer or sale of the coverage, that the issuer is 
using the alternative method, and includes in such statements a 
description of the effect of using the alternative method. This applies 
separately to each type of coverage offered by the health insurance 
issuer.
    (6) Disclosure of information on previous benefits. See 
Sec. 146.115(b) for special rules concerning disclosure of coverage to a 
plan, or issuer, using the alternative method of counting creditable 
coverage under this paragraph (c).
    (7) Counting creditable coverage--(i) General. Under the alternative 
method, the group health plan or issuer counts creditable coverage 
within a category if any level of benefits is provided within the 
category. Coverage under a reimbursement account or arrangement, such as 
a flexible spending arrangement (as defined in section 106(c)(2) of the 
Internal Revenue Code), does not constitute coverage within any 
category.
    (ii) Special rules. In counting an individual's creditable coverage 
under the alternative method, the group health plan, or issuer, first 
determines the amount of the individual's creditable coverage that may 
be counted under paragraph (b) of this section, up to a total of 365 
days of the most recent creditable coverage (546 days for a late 
enrollee). The period over which this creditable coverage is determined 
is referred to as the ``determination period.'' Then, for the category 
specified under the alternative method, the plan or issuer counts within 
the category all days of coverage that occurred during the determination 
period (whether or not a significant break in coverage for that category 
occurs), and reduces the individual's preexisting condition exclusion 
period for that category by that number of days. The plan or issuer may 
determine the amount of creditable coverage in any other reasonable 
manner, uniformly applied, that is at least as favorable to the 
individual.
    (iii) Example. The following example illustrates the requirements of 
this paragraph (c)(7):


[[Page 580]]


    Example: (i) Individual D enrolls in Employer V's plan on January 1, 
2001. Coverage under the plan includes prescription drug benefits. On 
April 1, 2001, the plan ceases providing prescription drug benefits. D's 
employment with Employer V ends on January 1, 2002, after D was covered 
under Employer V's group health plan for 365 days. D enrolls in Employer 
Y's plan on February 1, 2001 (D's enrollment date). Employer Y's plan 
uses the alternative method of counting creditable coverage and imposes 
a 12-month preexisting condition exclusion on prescription drug 
benefits.
    (ii) In this Example, Employer Y's plan may impose a 275-day 
preexisting condition exclusion with respect to D for prescription drug 
benefits because D had 90 days of creditable coverage relating to 
prescription drug benefits within D's determination period.

[62 FR 16958, Apr. 8, 1997; 62 FR 31670, 31693, June 10, 1997]



Sec. 146.115  Certification and disclosure of previous coverage.

    (a) Certificate of creditable coverage--(1) Entities required to 
provide certificate--(i) General. A group health plan, and each health 
insurance issuer offering group health insurance coverage under a group 
health plan, is required to furnish certificates of creditable coverage 
in accordance with this paragraph (a).
    (ii) Duplicate certificates not required. An entity required to 
provide a certificate under this paragraph (a)(1) for an individual is 
deemed to have satisfied the certification requirements for that 
individual if another party provides the certificate, but only to the 
extent that information relating to the individual's creditable coverage 
and waiting or affiliation period is provided by the other party. For 
example, in the case of a group health plan funded through an insurance 
policy, the issuer is deemed to have satisfied the certification 
requirement with respect to a participant or beneficiary if the plan 
actually provides a certificate that includes the information required 
under paragraph (a)(3) of this section with respect to the participant 
or beneficiary.
    (iii) Special rule for group health plans. To the extent coverage 
under a plan consists of group health insurance coverage, the plan is 
deemed to have satisfied the certification requirements under this 
paragraph (a)(1) if any issuer offering the coverage is required to 
provide the certificates pursuant to an agreement between the plan and 
the issuer. For example, if there is an agreement between an issuer and 
the plan sponsor under which the issuer agrees to provide certificates 
for individuals covered under the plan, and the issuer fails to provide 
a certificate to an individual when the plan would have been required to 
provide one under this paragraph (a), then the issuer, but not the plan, 
violates the certification requirements of this paragraph (a).
    (iv) Special rules for issuers--(A) Responsibility of issuer for 
coverage period--(1) General rule. An issuer is not required to provide 
information regarding coverage provided to an individual by another 
party.
    (2) Example. The following example illustrates the requirements of 
this paragraph (a)(1)(iv)(A):

    Example. (i) A plan offers coverage with an HMO option from one 
issuer and an indemnity option from a different issuer. The HMO has not 
entered into an agreement with the plan to provide certificates as 
permitted under paragraph (a)(1)(iii) of this section.
    (ii) In this Example, if an employee switches from the indemnity 
option to the HMO option and later ceases to be covered under the plan, 
any certificate provided by the HMO is not required to provide 
information regarding the employee's coverage under the indemnity 
option.

    (B) Cessation of issuer coverage prior to cessation of coverage 
under a plan--(1) General rule. If an individual's coverage under an 
issuer's policy ceases before the individual's coverage under the plan 
ceases, the issuer is required to provide sufficient information to the 
plan (or to another party designated by the plan) to enable a 
certificate to be provided by the plan (or other party), after cessation 
of the individual's coverage under the plan, that reflects the period of 
coverage under the policy. The provision of that information to the plan 
will satisfy the issuer's obligation to provide an automatic certificate 
for that period of creditable coverage for the individual under 
paragraphs (a)(2)(ii) and (a)(3) of this section. In addition, an issuer 
providing that information is required to cooperate with the plan in 
responding to any request made under paragraph (b)(1) of this section 
(relating to the alternative

[[Page 581]]

method of counting creditable coverage). If the individual's coverage 
under the plan ceases at the time the individual's coverage under the 
issuer's policy ceases, the issuer must provide an automatic certificate 
under paragraph (a)(2)(ii) of this section. An issuer may presume that 
an individual whose coverage ceases at a time other than the effective 
date for changing enrollment options has ceased to be covered under the 
plan.
    (2) Example. The following example illustrates the requirements of 
this paragraph (a)(1)(iv)(B):

    Example: (i) A group health plan provides coverage under an HMO 
option and an indemnity option with a different issuer, and only allows 
employees to switch on each January 1. Neither the HMO nor the indemnity 
issuer has entered into an agreement with the plan to provide 
certificates as permitted under paragraph (a)(1)(iii) of this section.
    (ii) In this Example, if an employee switches from the indemnity 
option to the HMO option on January 1, the issuer must provide the plan 
(or a person designated by the plan) with appropriate information with 
respect to the individual's coverage with the indemnity issuer. However, 
if the individual's coverage with the indemnity issuer ceases at a date 
other than January 1, the issuer is instead required to provide the 
individual with an automatic certificate.

    (2) Individuals for whom a certificate must be provided; timing of 
issuance--(i) Individuals. A certificate must be provided, without 
charge, for participants or dependents who are or were covered under a 
group health plan upon the occurrence of any of the events described in 
paragraph (a)(2)(ii) or (a)(2)(iii) of this section.
    (ii) Issuance of automatic certificates. The certificates described 
in this paragraph (a)(2)(ii) are referred to as ``automatic 
certificates.''
    (A) Qualified beneficiaries upon a qualifying event. In the case of 
an individual who is a qualified beneficiary (as defined in section 
607(3) of ERISA, section 4980B(g)(1) of the Code, or section 2208 of the 
PHS Act) entitled to elect COBRA continuation coverage, an automatic 
certificate is required to be provided at the time the individual would 
lose coverage under the plan in the absence of COBRA continuation 
coverage or alternative coverage elected instead of COBRA continuation 
coverage. A plan or issuer satisfies this requirement if it provides the 
automatic certificate no later than the time a notice is required to be 
furnished for a qualifying event under section 606 of ERISA, section 
4980B(f)(6) of the Code and section 2206 of the PHS Act (relating to 
notices required under COBRA).
    (B) Other individuals when coverage ceases. In the case of an 
individual who is not a qualified beneficiary entitled to elect COBRA 
continuation coverage, an automatic certificate is required to be 
provided at the time the individual ceases to be covered under the plan. 
A plan or issuer satisfies this requirement if it provides the automatic 
certificate within a reasonable time period thereafter. In the case of 
an individual who is entitled to elect to continue coverage under a 
State program similar to COBRA and who receives the automatic 
certificate not later than the time a notice is required to be furnished 
under the State program, the certificate is deemed to be provided within 
a reasonable time period after the cessation of coverage under the plan.
    (C) Qualified beneficiaries when COBRA ceases. In the case of an 
individual who is a qualified beneficiary and has elected COBRA 
continuation coverage (or whose coverage has continued after the 
individual became entitled to elect COBRA continuation coverage), an 
automatic certificate is to be provided at the time the individual's 
coverage under the plan ceases. A plan, or issuer, satisfies this 
requirement if it provides the automatic certificate within a reasonable 
time after coverage ceases (or after the expiration of any grace period 
for nonpayment of premiums). An automatic certificate is required to be 
provided to such an individual regardless of whether the individual has 
previously received an automatic certificate under paragraph 
(a)(2)(ii)(A) of this section.
    (iii) Any individual upon request. Requests for certificates are 
permitted to be made by, or on behalf of, an individual within 24 months 
after coverage ceases. Thus, for example, a plan in which an individual 
enrolls may, if authorized by the individual, request a

[[Page 582]]

certificate of the individual's creditable coverage on behalf of the 
individual from a plan in which the individual was formerly enrolled. 
After the request is received, a plan or issuer is required to provide 
the certificate by the earliest date that the plan or issuer, acting in 
a reasonable and prompt fashion, can provide the certificate. A 
certificate is to be provided under this paragraph (a)(2)(iii) even if 
the individual has previously received a certificate under this 
paragraph (a)(2)(iii) or an automatic certificate under paragraph 
(a)(2)(ii) of this section.
    (iv) Examples. The following examples illustrate the requirements of 
this paragraph (a)(2):

    Example 1: (i) Individual A terminates employment with Employer O. A 
is a qualified beneficiary entitled to elect COBRA continuation coverage 
under Employer O's group health plan. A notice of the rights provided 
under COBRA is typically furnished to qualified beneficiaries under the 
plan within 10 days after a covered employee terminates employment.
    (ii) In this Example, the automatic certificate may be provided at 
the same time that A is provided the COBRA notice.
    Example 2: (i) Same facts as Example 1, except that the automatic 
certificate for A is not completed by the time the COBRA notice is 
furnished to A.
    (ii) In this Example, the automatic certificate may be provided 
within the period permitted by law for the delivery of notices under 
COBRA.
    Example 3: (i) Employer R maintains an insured group health plan. R 
has never had 20 employees and thus R's plan is not subject to the COBRA 
continuation coverage provisions. However, R is in a State that has a 
State program similar to COBRA. B terminates employment with R and loses 
coverage under R's plan.
    (ii) In this Example, the automatic certificate may be provided not 
later than the time a notice is required to be furnished under the State 
program.
    Example 4: (i) Individual C terminates employment with Employer S 
and receives both a notice of C's rights under COBRA and an automatic 
certificate. C elects COBRA continuation coverage under Employer S's 
group health plan. After four months of COBRA continuation coverage and 
the expiration of a 30-day grace period, Employer S's group health plan 
determines that C's COBRA continuation coverage has ceased due to 
failure to make a timely payment for continuation coverage.
    (ii) In this Example, the plan must provide an updated automatic 
certificate to C within a reasonable time after the end of the grace 
period.
    Example 5: (i) Individual D is currently covered under the group 
health plan of Employer T. D requests a certificate, as permitted under 
paragraph (a)(2)(iii) of this section. Under the procedure for Employer 
T's plan, certificates are mailed (by first class mail) 7 business days 
following receipt of the request. This date reflects the earliest date 
that the plan, acting in a reasonable and prompt fashion, can provide 
certificates.
    (ii) In this Example, the plan's procedure satisfies paragraph 
(a)(2)(iii) of this section.

    (3) Form and content of certificate--(i) Written certificate--(A) 
General. Except as provided in paragraph (a)(3)(i)(B) of this section, 
the certificate must be provided in writing (including any form approved 
by CMS as a writing).
    (B) Other permissible forms. No written certificate is required to 
be provided under this paragraph (a) with respect to a particular event 
described in paragraphs (a)(2)(ii) and (a)(2)(iii) of this section if 
all the following conditions are met:
    (1) An individual is entitled to receive a certificate.
    (2) The individual requests that the certificate be sent to another 
plan or issuer instead of to the individual.
    (3) The plan or issuer that would otherwise receive the certificate 
agrees to accept the information in this paragraph (a)(3) through means 
other than a written certificate (for example, by telephone).
    (4) The receiving plan or issuer receives the information from the 
sending plan or issuer in such form within the time periods required 
under paragraph (a)(2) of this section.
    (ii) Required information. The certificate must include all of the 
following:
    (A) The date the certificate is issued.
    (B) The name of the group health plan that provided the coverage 
described in the certificate.
    (C) The name of the participant or dependent with respect to whom 
the certificate applies, and any other information necessary for the 
plan providing the coverage specified in the certificate to identify the 
individual, such as the individual's identification number under the 
plan and the name of the participant if the certificate is for (or 
includes) a dependent.

[[Page 583]]

    (D) The name, address, and telephone number of the plan 
administrator or issuer required to provide the certificate.
    (E) The telephone number to call for further information regarding 
the certificate (if different from paragraph (a)(3)(ii)(D)).
    (F) Either--
    (1) A statement that an individual has at least 18 months (for this 
purpose, 546 days is deemed to be 18 months) of creditable coverage, 
disregarding days of creditable coverage before a significant break in 
coverage, or
    (2) The date any waiting period (and affiliation period, if 
applicable) began and the date creditable coverage began.
    (G) The date creditable coverage ended, unless the certificate 
indicates that creditable coverage is continuing as of the date of the 
certificate.
    (iii) Periods of coverage under certificate. If an automatic 
certificate is provided under paragraph (a)(2)(ii) of this section, the 
period that must be included on the certificate is the last period of 
continuous coverage ending on the date coverage ceased. If an individual 
requests a certificate under paragraph (a)(2)(iii) of this section, a 
certificate must be provided for each period of continuous coverage 
ending within the 24-month period ending on the date of the request (or 
continuing on the date of the request). A separate certificate may be 
provided for each such period of continuous coverage.
    (iv) Combining information for families. A certificate may provide 
information with respect to both a participant and the participant's 
dependents if the information is identical for each individual or, if 
the information is not identical, certificates may be provided on one 
form if the form provides all the required information for each 
individual and separately states the information that is not identical.
    (v) Model certificate. The requirements of paragraph (a)(3)(ii) of 
this section are satisfied if the plan or issuer provides a certificate 
in accordance with a model certificate authorized by CMS.
    (vi) Excepted benefits; categories of benefits. No certificate is 
required to be furnished with respect to excepted benefits described in 
Sec. 146.145. In addition, the information in the certificate regarding 
coverage is not required to specify categories of benefits described in 
Sec. 146.113(c) (relating to the alternative method of counting 
creditable coverage). However, if excepted benefits are provided 
concurrently with other creditable coverage (so that the coverage does 
not consist solely of excepted benefits), information concerning the 
benefits may be required to be disclosed under paragraph (b) of this 
section.
    (4) Procedures--(i) Method of delivery. The certificate is required 
to be provided to each individual described in paragraph (a)(2) of this 
section or an entity requesting the certificate on behalf of the 
individual. The certificate may be provided by first-class mail. If the 
certificate or certificates are provided to the participant and the 
participant's spouse at the participant's last known address, then the 
requirements of this paragraph (a)(4) are satisfied with respect to all 
individuals residing at that address. If a dependent's last known 
address is different than the participant's last known address, a 
separate certificate is required to be provided to the dependent at the 
dependent's last known address. If separate certificates are being 
provided by mail to individuals who reside at the same address, separate 
mailings of each certificate are not required.
    (ii) Procedure for requesting certificates. A plan or issuer must 
establish a procedure for individuals to request and receive 
certificates under paragraph (a)(2)(iii) of this section.
    (iii) Designated recipients. If an automatic certificate is required 
to be provided under paragraph (a)(2)(ii) of this section, and the 
individual entitled to receive the certificate designates another 
individual or entity to receive the certificate, the plan or issuer 
responsible for providing the certificate is permitted to provide the 
certificate to the designated party. If a certificate is required to be 
provided upon request under paragraph (a)(2)(iii) of this section and 
the individual entitled to receive the certificate designates another 
individual or entity to receive the certificate, the plan or issuer 
responsible for providing the certificate is required

[[Page 584]]

to provide the certificate to the designated party.
    (5) Special rules concerning dependent coverage--(i) Reasonable 
efforts--(A) General rule. A plan or issuer is required to use 
reasonable efforts to determine any information needed for a certificate 
relating to dependent coverage. In any case in which an automatic 
certificate is required to be furnished with respect to a dependent 
under paragraph (a)(2)(ii) of this section, no individual certificate is 
required to be furnished until the plan or issuer knows (or making 
reasonable efforts should know) of the dependent's cessation of coverage 
under the plan.
    (B) Example. The following example illustrates the requirements of 
this paragraph (a)(5)(i):

    Example: (i) A group health plan covers employees and their 
dependents. The plan annually requests all employees to provide updated 
information regarding dependents, including the specific date on which 
an employee has a new dependent or on which a person ceases to be a 
dependent of the employee.
    (ii) In this Example, the plan has satisfied the standard in this 
paragraph (a)(5)(i) that it make reasonable efforts to determine the 
cessation of dependents' coverage and the related dependent coverage 
information.

    (ii) Special rules for demonstrating coverage. If a certificate 
furnished by a plan or issuer does not provide the name of any dependent 
of an individual covered by the certificate, the individual may, if 
necessary, use the procedures described in paragraph (c)(4) of this 
section for demonstrating dependent status. In addition, an individual 
may, if necessary, use these procedures to demonstrate that a child was 
enrolled within 30 days of birth, adoption, or placement for adoption. 
See Sec. 146.111(b), under which such a child would not be subject to a 
preexisting condition exclusion.
    (iii) Transition rule for dependent coverage through June 30, 1998--
(A) General. A group health plan or health insurance issuer that cannot 
provide the names of dependents (or related coverage information) for 
purposes of providing a certificate of coverage for a dependent may 
satisfy the requirements of paragraph (a)(3)(ii)(C) of this section by 
providing the name of the participant covered by the group health plan 
or health insurance issuer and specifying that the type of coverage 
described in the certificate is for dependent coverage (for example, 
family coverage or employee-plus-spouse coverage).
    (B) Certificates provided on request. For purposes of certificates 
provided on the request of, or on behalf of, an individual under 
paragraph (a)(2)(iii) of this section, a plan or issuer must make 
reasonable efforts to obtain and provide the names of any dependent 
covered by the certificate where such information is requested to be 
provided. If a certificate does not include the name of any dependent of 
an individual covered by the certificate, the individual may, if 
necessary, use the procedures described in paragraph (c) of this section 
for submitting documentation to establish that the creditable coverage 
in the certificate applies to the dependent.
    (C) Demonstrating a dependent's creditable coverage. See paragraph 
(c)(4) of this section for special rules to demonstrate dependent 
status.
    (D) Duration. This paragraph (a)(5)(iii) is only effective for 
certifications provided with respect to events occurring through June 
30, 1998.
    (6) Special certification rules--(i) Issuers. Issuers of group and 
individual health insurance are required to provide certificates of any 
creditable coverage they provide in the group or individual health 
insurance market, even if the coverage is provided in connection with an 
entity or program that is not itself required to provide a certificate 
because it is not subject to the group market provisions of this part, 
part 7 of subtitle B of title I of ERISA, or chapter 100 of subtitle K 
of the Internal Revenue Code. This would include coverage provided in 
connection with any of the following:
    (A) Creditable coverage described in sections 2701 (c)(1)(G) through 
(c)(1)(J) of the PHS Act (coverage under a State health benefits risk 
pool, the Federal Employees Health Benefits Program, a public health 
plan, and a health benefit plan under section 5(e) of the Peace Corps 
Act).
    (B) Coverage subject to section 2721(b)(1)(B) of the PHS Act 
(requiring certificates by issuers offering health

[[Page 585]]

insurance coverage in connection with any group health plan, including a 
church plan or a governmental plan (including the Federal Employees 
Health Benefits Program (FEHBP)).
    (C) Coverage subject to section 2743 of the PHS Act applicable to 
health insurance issuers in the individual market. (However, this 
section does not require a certificate to be provided with respect to 
short-term, limited duration insurance, which is excluded from the 
definition of ``individual health insurance coverage'' in 45 CFR 144.103 
that is not provided in connection with a group health plan, as 
described in paragraph (a)(6)(i)(B) of this section.)
    (ii) Other entities. For special rules requiring that certain other 
entities, not subject to this part, provide certificates consistent with 
the rules in this section, see section 2791(a)(3) of the PHS Act 
applicable to entities described in sections 2701(c)(1)(C), (D), (E), 
and (F) of the PHS Act (relating to Medicare, Medicaid, CHAMPUS, and 
Indian Health Service), section 2721(b)(1)(A) of the PHS Act applicable 
to non-Federal governmental plans generally, section 2721(b)(2)(C)(ii) 
of the PHS Act applicable to non-Federal governmental plans that elect 
to be excluded from the requirements of subparts 1 through 3 of part A 
of title XXVII of the PHS Act, and section 9805(a) of the Internal 
Revenue Code applicable to group health plans, which includes church 
plans (as defined in section 414(e) of the Internal Revenue Code).
    (b) Disclosure of coverage to a plan, or issuer, using the 
alternative method of counting creditable coverage--(1) General. If an 
individual enrolls in a group health plan with respect to which the 
plan, or issuer, uses the alternative method of counting creditable 
coverage described in section 2701(c)(3)(B) of the PHS Act and 
Sec. 146.113(c), the individual provides a certificate of coverage under 
paragraph (a) of this section, and the plan or issuer in which the 
individual enrolls so requests, the entity that issued the certificate 
(the ``prior entity'') is required to disclose promptly to a requesting 
plan or issuer (the ``requesting entity'') the information set forth in 
paragraph (b)(2) of this section.
    (2) Information to be disclosed. The prior entity is required to 
identify to the requesting entity the categories of benefits with 
respect to which the requesting entity is using the alternative method 
of counting creditable coverage, and the requesting entity may identify 
specific information that the requesting entity reasonably needs in 
order to determine the individual's creditable coverage with respect to 
any such category. The prior entity is required to disclose promptly to 
the requesting entity the creditable coverage information so requested.
    (3) Charge for providing information. The prior entity furnishing 
the information under paragraph (b) of this section may charge the 
requesting entity for the reasonable cost of disclosing such 
information.
    (c) Ability of an individual to demonstrate creditable coverage and 
waiting period information--(1) General. The rules in this paragraph (c) 
implement section 2701(c)(4) of the PHS Act, which permits individuals 
to establish creditable coverage through means other than certificates, 
and section 2701(e)(3) of the PHS Act, which requires the Secretary to 
establish rules designed to prevent an individual's subsequent coverage 
under a group health plan or health insurance coverage from being 
adversely affected by an entity's failure to provide a certificate with 
respect to that individual. If the accuracy of a certificate is 
contested or a certificate is unavailable when needed by the individual, 
the individual has the right to demonstrate creditable coverage (and 
waiting or affiliation periods) through the presentation of documents or 
other means. For example, the individual may make such a demonstration 
when--
    (i) An entity has failed to provide a certificate within the 
required time period;
    (ii) The individual has creditable coverage but an entity may not be 
required to provide a certificate of the coverage under paragraph (a) of 
this section;
    (iii) The coverage is for a period before July 1, 1996;
    (iv) The individual has an urgent medical condition that 
necessitates a

[[Page 586]]

determination before the individual can deliver a certificate to the 
plan; or
    (v) The individual lost a certificate that the individual had 
previously received and is unable to obtain another certificate.
    (2)Evidence of creditable coverage--(i) Consideration of evidence. A 
plan or issuer is required to take into account all information that it 
obtains or that is presented on behalf of an individual to make a 
determination, based on the relevant facts and circumstances, whether an 
individual has creditable coverage and is entitled to offset all or a 
portion of any preexisting condition exclusion period. A plan or issuer 
shall treat the individual as having furnished a certificate under 
paragraph (a) of this section if the individual attests to the period of 
creditable coverage, the individual also presents relevant corroborating 
evidence of some creditable coverage during the period, and the 
individual cooperates with the plan's or issuer's efforts to verify the 
individual's coverage. For this purpose, cooperation includes providing 
(upon the plan's or issuer's request) a written authorization for the 
plan or issuer to request a certificate on behalf of the individual, and 
cooperating in efforts to determine the validity of the corroborating 
evidence and the dates of creditable coverage. While a plan or issuer 
may refuse to credit coverage where the individual fails to cooperate 
with the plan's or issuer's efforts to verify coverage, the plan or 
issuer may not consider an individual's inability to obtain a 
certificate to be evidence of the absence of creditable coverage.
    (ii) Documents. Documents that may establish creditable coverage 
(and waiting periods or affiliation periods) in the absence of a 
certificate include explanations of benefit claims (EOBs) or other 
correspondence from a plan or issuer indicating coverage, pay stubs 
showing a payroll deduction for health coverage, a health insurance 
identification card, a certificate of coverage under a group health 
policy, records from medical care providers indicating health coverage, 
third party statements verifying periods of coverage, and any other 
relevant documents that evidence periods of health coverage.
    (iii) Other evidence. Creditable coverage (and waiting period or 
affiliation period information) may also be established through means 
other than documentation, such as by a telephone call from the plan or 
provider to a third party verifying creditable coverage.
    (iv) Example. The following example illustrates the requirements of 
this paragraph (c)(2):

    Example: (i) Individual F terminates employment with Employer W and, 
a month later, is hired by Employer X. Employer X's group health plan 
imposes a preexisting condition exclusion of 12 months on new enrollees 
under the plan and uses the standard method of determining creditable 
coverage. F fails to receive a certificate of prior coverage from the 
self-insured group health plan maintained by F's prior employer, 
Employer W, and requests a certificate. However, F (and Employer X's 
plan, on F's behalf) is unable to obtain a certificate from Employer W's 
plan. F attests that, to the best of F's knowledge, F had at least 12 
months of continuous coverage under Employer W's plan, and that the 
coverage ended no earlier than F's termination of employment from 
Employer W. In addition, F presents evidence of coverage, such as an 
explanation of benefits for a claim that was made during the relevant 
period.
    (ii) In this Example, based solely on these facts, F has 
demonstrated creditable coverage for the 12 months of coverage under 
Employer W's plan in the same manner as if F had presented a written 
certificate of creditable coverage.

    (3) Demonstrating categories of creditable coverage. Procedures 
similar to those described in this paragraph (c) apply in order to 
determine an individual's creditable coverage with respect to any 
category under paragraph (b) of this section (relating to determining 
creditable coverage under the alternative method).
    (4) Demonstrating dependent status. If, in the course of providing 
evidence (including a certificate) of creditable coverage, an individual 
is required to demonstrate dependent status, the group health plan or 
issuer is required to treat the individual as having furnished a 
certificate showing the dependent status if the individual attests to 
such dependency and the period of such status and the individual 
cooperates with the plan's or issuer's efforts to verify the dependent 
status.

[[Page 587]]

    (d) Determination and notification of creditable coverage--(1) 
Reasonable time period. In the event that a group health plan or health 
insurance issuer offering group health insurance coverage receives 
information in this section under paragraph (a) (certifications), 
paragraph (b) (disclosure of information relating to the alternative 
method), or paragraph (c) (other evidence of creditable coverage), the 
entity is required, within a reasonable time period following receipt of 
the information, to make a determination regarding the individual's 
period of creditable coverage and notify the individual of the 
determination in accordance with paragraph (d)(2) of this section. 
Whether a determination and notification regarding an individual's 
creditable coverage is made within a reasonable time period is 
determined based on the relevant facts and circumstances. Relevant facts 
and circumstances include whether a plan's application of a preexisting 
condition exclusion would prevent an individual from having access to 
urgent medical services.
    (2) Notification to individual of period of preexisting condition 
exclusion. A plan r issuer seeking to impose a preexisting condition 
exclusion is required to disclose to the individual, in writing, its 
determination of any preexisting condition exclusion period that applies 
to the individual, and the basis for such determination, including the 
source and substance of any information on which the plan or issuer 
relied. In addition, the plan or issuer is required to provide the 
individual with a written explanation of any appeal procedures 
established by the plan or issuer, and with a reasonable opportunity to 
submit additional evidence of creditable coverage. However, nothing in 
this paragraph (d) or paragraph (c) of this section prevents a plan or 
issuer from modifying an initial determination of creditable coverage if 
it determines that the individual did not have the claimed creditable 
coverage, provided that--
    (i) A notice of the reconsideration is provided to the individual; 
and
    (ii) Until the final determination is made, the plan or issuer, for 
purposes of approving access to medical services (such as a pre-surgery 
authorization), acts in a manner consistent with the initial 
determination.
    (3) Examples. The following examples illustrate this paragraph (d):

    Example 1: (i) Individual F terminates employment with Employer W 
and, a month later, is hired by Employer X. Example 1: Individual G is 
hired by Employer Y. Employer Y's group health plan imposes a 
preexisting condition exclusion for 12 months with respect to new 
enrollees and uses the standard method of determining creditable 
coverage. Employer Y's plan determines that G is subject to a 4-month 
preexisting condition exclusion, based on a certificate of creditable 
coverage that is provided by G to Employer Y's plan indicating 8 months 
of coverage under G's prior group health plan.
    (ii) In this Example, Employer Y's plan must notify G within a 
reasonable period of time following receipt of the certificate that G is 
subject to a 4-month preexisting condition exclusion beginning on G's 
enrollment date in Y's plan.
    Example 2: (i) Same facts as in Example 1, except that Employer Y's 
plan determines that G has 14 months of creditable coverage based on G's 
certificate indicating 14 months of creditable coverage under G's prior 
plan.
    (ii) In this Example, Employer Y's plan is not required to notify G 
that G will not be subject to a preexisting condition exclusion.
    Example 3: (i) Individual H is hired by Employer Z. Employer Z's 
group health plan imposes a preexisting condition exclusion for 12 
months with respect to new enrollees and uses the standard method of 
determining creditable coverage. H develops an urgent health condition 
before receiving a certificate of prior coverage. H attests to the 
period of prior coverage, presents corroborating documentation of the 
coverage period, and authorizes the plan to request a certificate on H's 
behalf.
    (ii) In this Example, Employer Z's plan must review the evidence 
presented by H. In addition, the plan must make a determination and 
notify H regarding any preexisting condition exclusion period that 
applies to H (and the basis of such determination) within a reasonable 
time period following receipt of the evidence that is consistent with 
the urgency of H's health condition, (This determination may be modified 
as permitted under paragraph (d)(2)).

(Approved by the Office of Management and Budget under control number 
0938-0702.)

[62 FR 16958, Apr. 8, 1997; 62 FR 31693, 31694, June 10, 1997, as 
amended at 62 FR 35906, July 2, 1997]



Sec. 146.117  Special enrollment periods.

    (a) Special enrollment for certain individuals who lose coverage--
(1) General. A

[[Page 588]]

group health plan, and a health insurance issuer offering group health 
insurance coverage in connection with a group health plan, is required 
to permit employees and dependents described in this section in 
paragraph (a)(2), (a)(3), or (a)(4) to enroll for coverage under the 
terms of the plan if the conditions in paragraph (a)(5) are satisfied 
and the enrollment is requested within the period described in paragraph 
(a)(6). The enrollment is effective at the time described in paragraph 
(a)(7). The special enrollment rights under this paragraph (a) apply 
without regard to the dates on which an individual would otherwise be 
able to enroll under the plan.
    (2) Special enrollment of an employee only. An employee is described 
in this paragraph (a)(2) if the employee is eligible, but not enrolled, 
for coverage under the terms of the plan and, when enrollment was 
previously offered to the employee under the plan and was declined by 
the employee, the employee was covered under another group health plan 
or had other health insurance coverage.
    (3) Special enrollment of dependents only. A dependent is described 
in this paragraph (a)(3) if the dependent is a dependent of an employee 
participating in the plan, the dependent is eligible, but not enrolled, 
for coverage under the terms of the plan, and, when enrollment was 
previously offered under the plan and was declined, the dependent was 
covered under another group health plan or had other health insurance 
coverage.
    (4) Special enrollment of both employee and dependent. An employee 
and any dependent of the employee are described in this paragraph (a)(4) 
if they are eligible, but not enrolled, for coverage under the terms of 
the plan and, when enrollment was previously offered to the employee or 
dependent under the plan and was declined, the employee or dependent was 
covered under another group health plan or had other health insurance 
coverage.
    (5) Conditions for special enrollment. An employee or dependent is 
eligible to enroll during a special enrollment period if each of the 
following applicable conditions is met:
    (i) When the employee declined enrollment for the employee or the 
dependent, the employee stated in writing that coverage under another 
group health plan or other health insurance coverage was the reason for 
declining enrollment. This paragraph (a)(5)(i) applies only if--
    (A) The plan required such a statement when the employee declined 
enrollment; and
    (B) The employee is provided with notice of the requirement to 
provide the statement in paragraph (a)(5)(i) (and the consequences of 
the employee's failure to provide the statement) at the time the 
employee declined enrollment.
    (ii)(A) When the employee declined enrollment for the employee or 
dependent under the plan, the employee or dependent had COBRA 
continuation coverage under another plan and COBRA continuation coverage 
under that other plan has since been exhausted; or
    (B) If the other coverage that applied to the employee or dependent 
when enrollment was declined was not under a COBRA continuation 
provision, either the other coverage has been terminated as a result of 
loss of eligibility for the coverage or employer contributions towards 
the other coverage have been terminated. For this purpose, loss of 
eligibility for coverage includes a loss of coverage as a result of 
legal separation, divorce, death, termination of employment, reduction 
in the number of hours of employment, and any loss of eligibility after 
a period that is measured by reference to any of the foregoing. Thus, 
for example, if an employee's coverage ceases following a termination of 
employment and the employee is eligible for but fails to elect COBRA 
continuation coverage, this is treated as a loss of eligibility under 
this paragraph (a)(5)(ii)(B). However, loss of eligibility does not 
include a loss due to failure of the individual or the participant to 
pay premiums on a timely basis or termination of coverage for cause 
(such as making a fraudulent claim or an intentional misrepresentation 
of a material fact in connection with the plan). In addition, for 
purposes of this paragraph (a)(5)(ii)(B), employer contributions include 
contributions by any current or

[[Page 589]]

former employer (of the individual or another person) that was 
contributing to coverage for the individual.
    (6) Length of special enrollment period. The employee is required to 
request enrollment (for the employee or the employee's dependent, as 
described in this section in paragraph (a)(2), paragraph (a)(3), or 
paragraph (a)(4)) not later than 30 days after the exhaustion of the 
other coverage described in paragraph (a)(5)(ii)(A) or termination of 
the other coverage as a result of the loss of eligibility for the other 
coverage for items described in paragraph (a)(5)(ii)(B) or following the 
termination of employer contributions toward that other coverage. The 
plan may impose the same requirements that apply to employees who are 
otherwise eligible under the plan to immediately request enrollment for 
coverage (for example, that the request be made in writing).
    (7) Effective date of enrollment. Enrollment is effective not later 
than the first day of the first calendar month beginning after the date 
the completed request for enrollment is received.
    (b) Special enrollment with respect to certain dependent 
beneficiaries--(1) General. A group health plan that makes coverage 
available with respect to dependents of a participant is required to 
provide a special enrollment period to permit individuals described in 
this section in paragraph (b)(2), (b)(3), (b)(4), (b)(5), or (b)(6) to 
be enrolled for coverage under the terms of the plan if the enrollment 
is requested within the time period described in paragraph (b)(7). The 
enrollment is effective at the time described in paragraph (b)(8). The 
special enrollment rights under this paragraph (b) apply without regard 
to the dates on which an individual would otherwise be able to enroll 
under the plan.
    (2) Special enrollment of an employee who is eligible but not 
enrolled. An individual is described in this paragraph (b)(2) if the 
individual is an employee who is eligible, but not enrolled, for 
coverage under the terms of the plan, the individual would be a 
participant but for a prior election by the individual not to enroll in 
the plan during a previous enrollment period, and a person becomes a 
dependent of the individual through marriage, birth, or adoption or 
placement for adoption.
    (3) Special enrollment of a spouse of a participant. An individual 
is described in this paragraph (b)(3) if either--
    (i) The individual becomes the spouse of a participant; or
    (ii) The individual is a spouse of the participant and a child 
becomes a dependent of the participant through birth, adoption, or 
placement for adoption.
    (4) Special enrollment of an employee who is eligible, but not 
enrolled, for coverage under the terms of the spouse of such employee. 
An employee who is eligible, but not enrolled, in the plan, and an 
individual who is a dependent of such employee, are described in this 
paragraph (b)(4) if the employee would be a participant but for a prior 
election by the employee not to enroll in the plan during a previous 
enrollment period, and either--
    (i) The employee and the individual become married; or
    (ii) The employee and individual are married and a child becomes a 
dependent of the employee through birth, adoption or placement for 
adoption.
    (5) Special enrollment of a dependent of a participant. An 
individual is described in this paragraph (b)(5) if the individual is a 
dependent of a participant and the individual becomes a dependent of 
such participant through marriage, birth, or adoption or placement for 
adoption.
    (6) Special enrollment of an employee who is eligible but not 
enrolled and a new dependent. An employee who is eligible, but not 
enrolled, for coverage under the terms of the plan, and an individual 
who is a dependent of the employee, are described in this paragraph 
(b)(6) if the employee would be a participant but for a prior election 
by the employee not to enroll in the plan during a previous enrollment 
period, and the dependent becomes a dependent of the employee through 
marriage, birth, or adoption or placement for adoption.
    (7) Length of special enrollment period. The special enrollment 
period under paragraph (b)(1) of this section is a period of not less 
than 30 days and begins on the date of the marriage, birth, or adoption 
or placement for adoption (except that such period does not begin

[[Page 590]]

earlier than the date the plan makes dependent coverage generally 
available).
    (8) Effective date of enrollment. Enrollment is effective--
    (i) In the case of marriage, not later than the first day of the 
first calendar month beginning after the date the completed request for 
enrollment is received by the plan;
    (ii) In the case of a dependent's birth, the date of such birth; and
    (iii) In the case of a dependent's adoption or placement for 
adoption, the date of such adoption or placement for adoption.
    (9) Example. The following example illustrates the requirements of 
this paragraph (b):

    Example: (i) Employee A is hired on September 3, 1998 by Employer X, 
which has a group health plan in which A can elect to enroll either for 
employee-only coverage, for employee-plus-spouse coverage, or for family 
coverage, effective on the first day of any calendar quarter thereafter. 
A is married and has no children. A does not elect to join Employer X's 
plan (for employee-only coverage, employee-plus-spouse coverage, or 
family coverage) on October 1, 1998 or January 1, 1999. On February 15, 
1999, a child is placed for adoption with A and A's spouse.
    (ii) In this Example, the conditions for special enrollment of an 
employee with a new dependent under paragraph (b)(2) are satisfied, the 
conditions for special enrollment of an employee and a spouse with a new 
dependent under paragraph (b)(4) are satisfied, and the conditions for 
special enrollment of an employee and a new dependent under paragraph 
(b)(6) are satisfied. Accordingly, Employer X's plan will satisfy this 
paragraph (b) if and only if it allows A to elect, by filing the 
required forms by March 16, 1999, to enroll in Employer X's plan either 
with employee-only coverage, with employee-plus-spouse coverage, or with 
family coverage, effective as of February 15, 1999.

    (c) Notice of enrollment rights. On or before the time an employee 
is offered the opportunity to enroll in a group health plan, the plan is 
required to provide the employee with a description of the plan's 
special enrollment rules under this section. For this purpose, the plan 
may use the following model description of the special enrollment rules 
under this section:

    If you are declining enrollment for yourself or your dependents 
(including your spouse) because of other health insurance coverage, you 
may in the future be able to enroll yourself or your dependents in this 
plan, provided that you request enrollment within 30 days after your 
other coverage ends. In addition, if you have a new dependent as a 
result of marriage, birth, adoption or placement for adoption, you may 
be able to enroll yourself and your dependents, provided that you 
request enrollment within 30 days after the marriage, birth, adoption, 
or placement for adoption.

    (d) Special enrollment date definition. (1) General rule. A special 
enrollment date for an individual means any date in paragraph (a)(7) or 
paragraph (b)(8) of this section on which the individual has a right to 
have enrollment in a group health plan become effective under this 
section.
    (2) Examples. The following examples illustrate the requirements of 
this paragraph (d):

    Example 1: (i) Employer Y maintains a group health plan that allows 
employees to enroll in the plan either (a) effective on the first day of 
employment by an election filed within three days thereafter, (b) 
effective on any subsequent January 1 by an election made during the 
preceding months of November or December, or (c) effective as of any 
special enrollment date described in this section. Employee B is hired 
by Employer Y on March 15, 1998 and does not elect to enroll in Employer 
Y's plan until January 31, 1999 when B loses coverage under another 
plan. B elects to enroll in Employer Y's plan effective on February 1, 
1999 by filing the completed request form by January 31, 1999, in 
accordance with the special rule set forth in paragraph (a).
    (ii) In this Example, B has enrolled on a special enrollment date 
because the enrollment is effective at a date described in paragraph 
(a)(7).
    Example 2: (i) Same facts as Example 1, except that B's loss of 
coverage under the other plan occurs on December 31, 1998 and B elects 
to enroll in Employer Y's plan effective on January 1, 1999 by filing 
the completed request form by December 31, 1998, in accordance with the 
special rule set forth in paragraph (a).

[[Page 591]]

    (ii) In this Example, B has enrolled on a special enrollment date 
because the enrollment is effective at a date described in paragraph 
(a)(7) (even though this date is also a regular enrollment date under 
the plan).

(Approved by the Office of Management and Budget under control number 
0938-0702.)

[62 FR 16958, Apr. 8, 1997; 62 FR 31694, June 10, 1997, as amended at 62 
FR 35906, July 2, 1997]



Sec. 146.119  HMO affiliation period as alternative to preexisting condition exclusion.

    (a) General. A group health plan offering health insurance coverage 
through an HMO, or an HMO that offers health insurance coverage in 
connection with a group health plan, may impose an affiliation period 
only if each of the requirements in paragraph (b) of this section is 
satisfied.
    (b) Requirements for affiliation period. (1) No preexisting 
condition exclusion is imposed with respect to any coverage offered by 
the HMO in connection with the particular group health plan.
    (2) No premium is charged to a participant or beneficiary for the 
affiliation period.
    (3) The affiliation period for the HMO coverage is applied uniformly 
without regard to any health status-related factors.
    (4) The affiliation period does not exceed 2 months (or 3 months in 
the case of a late enrollee).
    (5) The affiliation period begins on the enrollment date.
    (6) The affiliation period for enrollment in the HMO under a plan 
runs concurrently with any waiting period.
    (c) Alternatives to affiliation period. An HMO may use alternative 
methods in lieu of an affiliation period to address adverse selection, 
as approved by the State insurance commissioner or other official 
designated to regulate HMOs. Nothing in this section requires a State to 
receive proposals for or approve alternatives to affiliation periods.



Sec. 146.121  Prohibiting discrimination against participants and beneficiaries based on a health factor.

    (a) Health factors. (1) The term health factor means, in relation to 
an individual, any of the following health status-related factors:
    (i) Health status;
    (ii) Medical condition (including both physical and mental 
illnesses), as defined in Sec. 144.103;
    (iii) Claims experience;
    (iv) Receipt of health care;
    (v) Medical history;
    (vi) Genetic information, as defined in 45 CFR 144.103;
    (vii) Evidence of insurability; or
    (viii) Disability.
    (2) Evidence of insurability includes--
    (i) Conditions arising out of acts of domestic violence; and
    (ii) Participation in activities such as motorcycling, snowmobiling, 
all-terrain vehicle riding, horseback riding, skiing, and other similar 
activities.
    (3) The decision whether health coverage is elected for an 
individual (including the time chosen to enroll, such as under special 
enrollment or late enrollment) is not, itself, within the scope of any 
health factor. (However, under Sec. 146.117, a plan or issuer must treat 
special enrollees the same as similarly situated individuals who are 
enrolled when first eligible.)
    (b) Prohibited discrimination in rules for eligibility--(1) In 
general--(i) A group health plan, and a health insurance issuer offering 
health insurance coverage in connection with a group health plan, may 
not establish any rule for eligibility (including continued eligibility) 
of any individual to enroll for benefits under the terms of the plan or 
group health insurance coverage that discriminates based on any health 
factor that relates to that individual or a dependent of that 
individual. This rule is subject to the provisions of paragraph (b)(2) 
of this section (explaining how this rule applies to benefits), 
paragraph (b)(3) of this section (allowing plans to impose certain 
preexisting condition exclusions), paragraph (d) of this section 
(containing rules for establishing groups of similarly situated 
individuals), paragraph (e) of this section (relating to nonconfinement, 
actively-at-work, and other service requirements), paragraph (f) of this 
section (relating to bona fide wellness programs), and paragraph (g) of 
this section (permitting favorable treatment of individuals with adverse 
health factors).

[[Page 592]]

    (ii) For purposes of this section, rules for eligibility include, 
but are not limited to, rules relating to--
    (A) Enrollment;
    (B) The effective date of coverage;
    (C) Waiting (or affiliation) periods;
    (D) Late and special enrollment;
    (E) Eligibility for benefit packages (including rules for 
individuals to change their selection among benefit packages);
    (F) Benefits (including rules relating to covered benefits, benefit 
restrictions, and cost-sharing mechanisms such as coinsurance, 
copayments, and deductibles), as described in paragraphs (b) (2) and (3) 
of this section;
    (G) Continued eligibility; and
    (H) Terminating coverage (including disenrollment) of any individual 
under the plan.
    (iii) The rules of this paragraph (b)(1) are illustrated by the 
following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan that 
is available to all employees who enroll within the first 30 days of 
their employment. However, employees who do not enroll within the first 
30 days cannot enroll later unless they pass a physical examination.
    (ii) Conclusion. In this Example 1, the requirement to pass a 
physical examination in order to enroll in the plan is a rule for 
eligibility that discriminates based on one or more health factors and 
thus violates this paragraph (b)(1).
    Example 2. (i) Facts. Under an employer's group health plan, 
employees who enroll during the first 30 days of employment (and during 
special enrollment periods) may choose between two benefit packages: an 
indemnity option and an HMO option. However, employees who enroll during 
late enrollment are permitted to enroll only in the HMO option and only 
if they provide evidence of good health.
    (ii) Conclusion. In this Example 2, the requirement to provide 
evidence of good health in order to be eligible for late enrollment in 
the HMO option is a rule for eligibility that discriminates based on one 
or more health factors and thus violates this paragraph (b)(1). However, 
if the plan did not require evidence of good health but limited late 
enrollees to the HMO option, the plan's rules for eligibility would not 
discriminate based on any health factor, and thus would not violate this 
paragraph (b)(1), because the time an individual chooses to enroll is 
not, itself, within the scope of any health factor.
    Example 3. (i) Facts. Under an employer's group health plan, all 
employees generally may enroll within the first 30 days of employment. 
However, individuals who participate in certain recreational activities, 
including motorcycling, are excluded from coverage.
    (ii) Conclusion. In this Example 3, excluding from the plan 
individuals who participate in recreational activities, such as 
motorcycling, is a rule for eligibility that discriminates based on one 
more health factors and thus violates this paragraph (b)(1).
    Example 4. (i) Facts. A group health plan applies for a group health 
policy offered by an issuer. As part of the application, the issuer 
receives health information about individuals to be covered under the 
plan. Individual A is an employee of the employer maintaining the plan. 
A and A's dependents have a history of high health claims. Based on the 
information about A and A's dependents, the issuer excludes A and A's 
dependents from the group policy it offers to the employer.
    (ii) Conclusion. In this Example 4, the issuer's exclusion of A and 
A's dependents from coverage is a rule for eligibility that 
discriminates based on one or more health factors, and thus violates 
this paragraph (b)(1). (If the employer is a small employer under 45 CFR 
144.103 (generally, an employer with 50 or fewer employees), the issuer 
also may violate 45 CFR 146.150, which requires issuers to offer all the 
policies they sell in the small group market on a guaranteed available 
basis to all small employers and to accept every eligible individual in 
every small employer group.) If the plan provides coverage through this 
policy and does not provide equivalent coverage for A and A's dependents 
through other means, the plan will also violate this paragraph (b)(1).

    (2) Application to benefits--(i) General rule. (A) Under this 
section, a group health plan or group health insurance issuer is not 
required to provide coverage for any particular benefit to any group of 
similarly situated individuals.
    (B) However, benefits provided under a plan or through group health 
insurance coverage must be uniformly available to all similarly situated 
individuals (as described in paragraph (d) of this section). Likewise, 
any restriction on a benefit or benefits must apply uniformly to all 
similarly situated individuals and must not be directed at individual 
participants or beneficiaries based on any health factor of the 
participants or beneficiaries (determined based on all the relevant 
facts and circumstances). Thus, for example, a plan or issuer may limit 
or exclude benefits

[[Page 593]]

in relation to a specific disease or condition, limit or exclude 
benefits for certain types of treatments or drugs, or limit or exclude 
benefits based on a determination of whether the benefits are 
experimental or not medically necessary, but only if the benefit 
limitation or exclusion applies uniformly to all similarly situated 
individuals and is not directed at individual participants or 
beneficiaries based on any health factor of the participants or 
beneficiaries. In addition, a plan or issuer may impose annual, 
lifetime, or other limits on benefits and may require the satisfaction 
of a deductible, copayment, coinsurance, or other cost-sharing 
requirement in order to obtain a benefit if the limit or cost-sharing 
requirement applies uniformly to all similarly situated individuals and 
is not directed at individual participants or beneficiaries based on any 
health factor of the participants or beneficiaries. In the case of a 
cost-sharing requirement, see also paragraph (b)(2)(ii) of this section, 
which permits variances in the application of a cost-sharing mechanism 
made available under a bona fide wellness program. (Whether any plan 
provision or practice with respect to benefits complies with this 
paragraph (b)(2)(i) does not affect whether the provision or practice is 
permitted under any other provision of ERISA, the Americans with 
Disabilities Act, or any other law, whether State or federal.)
    (C) For purposes of this paragraph (b)(2)(i), a plan amendment 
applicable to all individuals in one or more groups of similarly 
situated individuals under the plan and made effective no earlier than 
the first day of the first plan year after the amendment is adopted is 
not considered to be directed at any individual participants or 
beneficiaries.
    (D) The rules of this paragraph (b)(2)(i) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan applies a $500,000 
lifetime limit on all benefits to each participant or beneficiary 
covered under the plan. The limit is not directed at individual 
participants or beneficiaries.
    (ii) Conclusion. In this Example 1, the limit does not violate this 
paragraph (b)(2)(i) because $500,000 of benefits are available uniformly 
to each participant and beneficiary under the plan and because the limit 
is applied uniformly to all participants and beneficiaries and is not 
directed at individual participants or beneficiaries.
    Example 2. (i) Facts. A group health plan has a $2 million lifetime 
limit on all benefits (and no other lifetime limits) for participants 
covered under the plan. Participant B files a claim for the treatment of 
AIDS. At the next corporate board meeting of the plan sponsor, the claim 
is discussed. Shortly thereafter, the plan is modified to impose a 
$10,000 lifetime limit on benefits for the treatment of AIDS, effective 
before the beginning of the next plan year.
    (ii) Conclusion. Under the facts of this Example 2, the plan 
violates this paragraph (b)(2)(i) because the plan modification is 
directed at B based on B's claim.
    Example 3. (i) A group health plan applies for a group health policy 
offered by an issuer. Individual C is covered under the plan and has an 
adverse health condition. As part of the application, the issuer 
receives health information about the individuals to be covered, 
including information about C's adverse health condition. The policy 
form offered by the issuer generally provides benefits for the adverse 
health condition that C has, but in this case the issuer offers the plan 
a policy modified by a rider that excludes benefits for C for that 
condition. The exclusionary rider is made effective the first day of the 
next plan year.
    (ii) Conclusion. In this Example 3, the issuer violates this 
paragraph (b)(2)(i) because benefits for C's condition are available to 
other individuals in the group of similarly situated individuals that 
includes C but are not available to C. Thus, the benefits are not 
uniformly available to all similarly situated individuals. Even though 
the exclusionary rider is made effective the first day of the next plan 
year, because the rider does not apply to all similarly situated 
individuals, the issuer violates this paragraph (b)(2)(i).
    Example 4. (i) Facts. A group health plan has a $2,000 lifetime 
limit for the treatment of temporomandibular joint syndrome (TMJ). The 
limit is applied uniformly to all similarly situated individuals and is 
not directed at individual participants or beneficiaries.
    (ii) Conclusion. In this Example 4, the limit does not violate this 
paragraph (b)(2)(i) because $2,000 of benefits for the treatment of TMJ 
are available uniformly to all similarly situated individuals and a plan 
may limit benefits covered in relation to a specific disease or 
condition if the limit applies uniformly to all similarly situated 
individuals and is not directed at individual participants or 
beneficiaries.
    Example 5. (i) Facts. A group health plan applies a $2 million 
lifetime limit on all benefits. However, the $2 million lifetime limit 
is reduced to $10,000 for any participant or

[[Page 594]]

beneficiary covered under the plan who has a congenital heart defect.
    (ii) Conclusion. In this Example 5, the lower lifetime limit for 
participants and beneficiaries with a congenital heart defect violates 
this paragraph (b)(2)(i) because benefits under the plan are not 
uniformly available to all similarly situated individuals and the plan's 
lifetime limit on benefits does not apply uniformly to all similarly 
situated individuals.
    Example 6. (i) Facts. A group health plan limits benefits for 
prescription drugs to those listed on a drug formulary. The limit is 
applied uniformly to all similarly situated individuals and is not 
directed at individual participants or beneficiaries.
    (ii) Conclusion. In this Example 6, the exclusion from coverage of 
drugs not listed on the drug formulary does not violate this paragraph 
(b)(2)(i) because benefits for prescription drugs listed on the 
formulary are uniformly available to all similarly situated individuals 
and because the exclusion of drugs not listed on the formulary applies 
uniformly to all similarly situated individuals and is not directed at 
individual participants or beneficiaries.
    Example 7. (i) Facts. Under a group health plan, doctor visits are 
generally subject to a $250 annual deductible and 20 percent coinsurance 
requirement. However, prenatal doctor visits are not subject to any 
deductible or coinsurance requirement. These rules are applied uniformly 
to all similarly situated individuals and are not directed at individual 
participants or beneficiaries.
    (ii) Conclusion. In this Example 7, imposing different deductible 
and coinsurance requirements for prenatal doctor visits and other visits 
does not violate this paragraph (b)(2)(i) because a plan may establish 
different deductibles or coinsurance requirements for different services 
if the deductible or coinsurance requirement is applied uniformly to all 
similarly situated individuals and is not directed at individual 
participants or beneficiaries.

    (ii) Cost-sharing mechanisms and wellness programs. A group health 
plan or group health insurance coverage with a cost-sharing mechanism 
(such as a deductible, copayment, or coinsurance) that requires a higher 
payment from an individual, based on a health factor of that individual 
or a dependent of that individual, than for a similarly situated 
individual under the plan (and thus does not apply uniformly to all 
similarly situated individuals) does not violate the requirements of 
this paragraph (b)(2) if the payment differential is based on whether an 
individual has complied with the requirements of a bona fide wellness 
program.
    (iii) Specific rule relating to source-of-injury exclusions. (A) If 
a group health plan or group health insurance coverage generally 
provides benefits for a type of injury, the plan or issuer may not deny 
benefits otherwise provided for treatment of the injury if the injury 
results from an act of domestic violence or a medical condition 
(including both physical and mental health conditions).
    (B) The rules of this paragraph (b)(2)(iii) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan generally provides 
medical/surgical benefits, including benefits for hospital stays, that 
are medically necessary. However, the plan excludes benefits for self-
inflicted injuries or injuries sustained in connection with attempted 
suicide. Individual D suffers from depression and attempts suicide. As a 
result, D sustains injuries and is hospitalized for treatment of the 
injuries. Pursuant to the exclusion, the plan denies D benefits for 
treatment of the injuries.
    (ii) Conclusion. In this Example 1, the suicide attempt is the 
result of a medical condition (depression). Accordingly, the denial of 
benefits for the treatments of D's injuries violates the requirements of 
this paragraph (b)(2)(iii) because the plan provision excludes benefits 
for treatment of an injury resulting from a medical condition.
    Example 2. (i) Facts. A group health plan provides benefits for head 
injuries generally. The plan also has a general exclusion for any injury 
sustained while participating in any of a number of recreational 
activities, including bungee jumping. However, this exclusion does not 
apply to any injury that results from a medical condition (nor from 
domestic violence). Participant E sustains a head injury while bungee 
jumping. The injury did not result from a medical condition (nor from 
domestic violence). Accordingly, the plan denies benefits for E 's head 
injury.
    (ii) Conclusion. In this Example 2, the plan provision that denies 
benefits based on the source of an injury does not restrict benefits 
based on an act of domestic violence or any medical condition. 
Therefore, the provision is permissible under this paragraph (b)(2)(iii) 
and does not violate this section. (However, if the plan did not allow E 
to enroll in the plan (or applied different rules for eligibility to E) 
because E frequently participates in bungee jumping, the plan would 
violate paragraph (b)(1) of this section.)


[[Page 595]]


    (3) Relationship to Sec. 146.111. (i) A preexisting condition 
exclusion is permitted under this section if it--
    (A) Complies with Sec. 146.111;
    (B) Applies uniformly to all similarly situated individuals (as 
described in paragraph (d) of this section); and
    (C) Is not directed at individual participants or beneficiaries 
based on any health factor of the participants or beneficiaries. For 
purposes of this paragraph (b)(3)(i)(C), a plan amendment relating to a 
preexisting condition exclusion applicable to all individuals in one or 
more groups of similarly situated individuals under the plan and made 
effective no earlier than the first day of the first plan year after the 
amendment is adopted is not considered to be directed at any individual 
participants or beneficiaries.
    (ii) The rules of this paragraph (b)(3) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan imposes a preexisting 
condition exclusion on all individuals enrolled in the plan. The 
exclusion applies to conditions for which medical advice, diagnosis, 
care, or treatment was recommended or received within the six-month 
period ending on an individual's enrollment date. In addition, the 
exclusion generally extends for 12 months after an individual's 
enrollment date, but this 12-month period is offset by the number of 
days of an individual's creditable coverage in accordance with 
Sec. 146.111. There is nothing to indicate that the exclusion is 
directed at individual participants or beneficiaries.
    (ii) Conclusion. In this Example 1, even though the plan's 
preexisting condition exclusion discriminates against individuals based 
on one or more health factors, the preexisting condition exclusion does 
not violate this section because it applies uniformly to all similarly 
situated individuals, is not directed at individual participants or 
beneficiaries, and complies with Sec. 146.111 (that is, the requirements 
relating to the six-month look-back period, the 12-month (or 18-month) 
maximum exclusion period, and the creditable coverage offset).
    Example 2. (i) Facts. A group health plan excludes coverage for 
conditions with respect to which medical advice, diagnosis, care, or 
treatment was recommended or received within the six-month period ending 
on an individual's enrollment date. Under the plan, the preexisting 
condition exclusion generally extends for 12 months, offset by 
creditable coverage. However, if an individual has no claims in the 
first six months following enrollment, the remainder of the exclusion 
period is waived.
    (ii) Conclusion. In this Example 2, the plan's preexisting condition 
exclusions violate this section because they do not meet the 
requirements of this paragraph (b)(3); specifically, they do not apply 
uniformly to all similarly situated individuals. The plan provisions do 
not apply uniformly to all similarly situated individuals because 
individuals who have medical claims during the first six months 
following enrollment are not treated the same as similarly situated 
individuals with no claims during that period. (Under paragraph (d) of 
this section, the groups cannot be treated as two separate groups of 
similarly situated individuals because the distinction is based on a 
health factor.)

    (c) Prohibited discrimination in premiums or contributions--(1) In 
general. (i) A group health plan, and a health insurance issuer offering 
health insurance coverage in connection with a group health plan, may 
not require an individual, as a condition of enrollment or continued 
enrollment under the plan or group health insurance coverage, to pay a 
premium or contribution that is greater than the premium or contribution 
for a similarly situated individual (described in paragraph (d) of this 
section) enrolled in the plan or group health insurance coverage based 
on any health factor that relates to the individual or a dependent of 
the individual.
    (ii) Discounts, rebates, payments in kind, and any other premium 
differential mechanisms are taken into account in determining an 
individual's premium or contribution rate. (For rules relating to cost-
sharing mechanisms, see paragraph (b)(2) of this section (addressing 
benefits).)
    (2) Rules relating to premium rates--(i) Group rating based on 
health factors not restricted under this section. Nothing in this 
section restricts the aggregate amount that an employer may be charged 
for coverage under a group health plan.
    (ii) List billing based on a health factor prohibited. However, a 
group health insurance issuer, or a group health plan, may not quote or 
charge an employer (or an individual) a different premium for an 
individual in a group of similarly situated individuals based on a 
health factor. (But see paragraph (g) of

[[Page 596]]

this section permitting favorable treatment of individuals with adverse 
health factors.)
    (iii) Examples. The rules of this paragraph (c)(2) are illustrated 
by the following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan and 
purchases coverage from a health insurance issuer. In order to determine 
the premium rate for the upcoming plan year, the issuer reviews the 
claims experience of individuals covered under the plan. The issuer 
finds that Individual F had significantly higher claims experience than 
similarly situated individuals in the plan. The issuer quotes the plan a 
higher per-participant rate because of F 's claims experience.
    (ii) Conclusion. In this Example 1, the issuer does not violate the 
provisions of this paragraph (c)(2) because the issuer blends the rate 
so that the employer is not quoted a higher rate for F than for a 
similarly situated individual based on F 's claims experience.
    Example 2. (i) Facts. Same facts as Example 1, except that the 
issuer quotes the employer a higher premium rate for F, because of F 's 
claims experience, than for a similarly situated individual.
    (ii) Conclusion. In this Example 2, the issuer violates this 
paragraph (c)(2). Moreover, even if the plan purchased the policy based 
on the quote but did not require a higher participant contribution for F 
than for a similarly situated individual, the issuer would still violate 
this paragraph (c)(2) (but in such a case the plan would not violate 
this paragraph (c)(2)).

    (3) Exception for bona fide wellness programs. Notwithstanding 
paragraphs (c)(1) and (2) of this section, a plan may establish a 
premium or contribution differential based on whether an individual has 
complied with the requirements of a bona fide wellness program.
    (d) Similarly situated individuals. The requirements of this section 
apply only within a group of individuals who are treated as similarly 
situated individuals. A plan or issuer may treat participants as a group 
of similarly situated individuals separate from beneficiaries. In 
addition, participants may be treated as two or more distinct groups of 
similarly situated individuals and beneficiaries may be treated as two 
or more distinct groups of similarly situated individuals in accordance 
with the rules of this paragraph (d). Moreover, if individuals have a 
choice of two or more benefit packages, individuals choosing one benefit 
package may be treated as one or more groups of similarly situated 
individuals distinct from individuals choosing another benefit package.
    (1) Participants. Subject to paragraph (d)(3) of this section, a 
plan or issuer may treat participants as two or more distinct groups of 
similarly situated individuals if the distinction between or among the 
groups of participants is based on a bona fide employment-based 
classification consistent with the employer's usual business practice. 
Whether an employment-based classification is bona fide is determined on 
the basis of all the relevant facts and circumstances. Relevant facts 
and circumstances include whether the employer uses the classification 
for purposes independent of qualification for health coverage (for 
example, determining eligibility for other employee benefits or 
determining other terms of employment). Subject to paragraph (d)(3) of 
this section, examples of classifications that, based on all the 
relevant facts and circumstances, may be bona fide include full-time 
versus part-time status, different geographic location, membership in a 
collective bargaining unit, date of hire, length of service, current 
employee versus former employee status, and different occupations. 
However, a classification based on any health factor is not a bona fide 
employment-based classification, unless the requirements of paragraph 
(g) of this section are satisfied (permitting favorable treatment of 
individuals with adverse health factors).
    (2) Beneficiaries--(i) Subject to paragraph (d)(3) of this section, 
a plan or issuer may treat beneficiaries as two or more distinct groups 
of similarly situated individuals if the distinction between or among 
the groups of beneficiaries is based on any of the following factors:
    (A) A bona fide employment-based classification of the participant 
through whom the beneficiary is receiving coverage;
    (B) Relationship to the participant (e.g., as a spouse or as a 
dependent child);
    (C) Marital status;
    (D) With respect to children of a participant, age or student 
status; or

[[Page 597]]

    (E) Any other factor if the factor is not a health factor.
    (ii) Paragraph (d)(2)(i) of this section does not prevent more 
favorable treatment of individuals with adverse health factors in 
accordance with paragraph (g) of this section.
    (3) Discrimination directed at individuals. Notwithstanding 
paragraphs (d)(1) and (2) of this section, if the creation or 
modification of an employment or coverage classification is directed at 
individual participants or beneficiaries based on any health factor of 
the participants or beneficiaries, the classification is not permitted 
under this paragraph (d), unless it is permitted under paragraph (g) of 
this section (permitting favorable treatment of individuals with adverse 
health factors). Thus, if an employer modified an employment-based 
classification to single out, based on a health factor, individual 
participants and beneficiaries and deny them health coverage, the new 
classification would not be permitted under this section.
    (4) Examples. The rules of this paragraph (d) are illustrated by the 
following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan for 
full-time employees only. Under the plan (consistent with the employer's 
ususal business practice), employees who normally work at least 30 hours 
per week are considered to be working full-time. Other employees are 
considered to be working part-time. There is no evidence to suggest that 
the classification is directed at individual participants or 
beneficiaries.
    (ii) Conclusion. In this Example 1, treating the full-time and part-
time employees as two separate groups of similarly situated individuals 
is permitted under this paragraph (d) because the classification is bona 
fide and is not directed at individual participants or beneficiaries.
    Example 2. (i) Facts. Under a group health plan, coverage is made 
available to employees, their spouses, and their dependent children. 
However, coverage is made available to a dependent child only if the 
dependent child is under age 19 (or under age 25 if the child is 
continuously enrolled full-time in an institution of higher learning 
(full-time students)). There is no evidence to suggest that these 
classifications are directed at individual participants or 
beneficiaries.
    (ii) Conclusion. In this Example 2, treating spouses and dependent 
children differently by imposing an age limitation on dependent 
children, but not on spouses, is permitted under this paragraph (d). 
Specifically, the distinction between spouses and dependent children is 
permitted under paragraph (d)(2) of this section and is not prohibited 
under paragraph (d)(3) of this section because it is not directed at 
individual participants or beneficiaries. It is also permissible to 
treat dependent children who are under age 19 (or full-time students 
under age 25) as a group of similarly situated individuals separate from 
those who are age 25 or older (or age 19 or older if they are not full-
time students) because the classification is permitted under paragraph 
(d)(2) of this section and is not directed at individual participants or 
beneficiaries.
    Example 3. (i) Facts. A university sponsors a group health plan that 
provides one health benefit package to faculty and another health 
benefit package to other staff. Faculty and staff are treated 
differently with respect to other employee benefits such as retirement 
benefits and leaves of absence. There is no evidence to suggest that the 
distinction is directed at individual participants or beneficiaries.
    (ii) Conclusion. In this Example 3, the classification is permitted 
under this paragraph (d) because there is a distinction based on a bona 
fide employment-based classification consistent with the employer's 
usual business practice and the distinction is not directed at 
individual participants and beneficiaries.
    Example 4. (i) Facts. An employer sponsors a group health plan that 
is available to all current employees. Former employees may also be 
eligible, but only if they complete a specified number of years of 
service, are enrolled under the plan at the time of termination of 
employment, and are continuously enrolled from that date. There is no 
evidence to suggest that these distinctions are directed at individual 
participants or beneficiaries.
    (ii) Conclusion. In this Example 4, imposing additional eligibility 
requirements on former employees is permitted because a classification 
that distinguishes between current and former employees is a bona fide 
employment-based classification that is permitted under this paragraph 
(d), provided that it is not directed at individual participants or 
beneficiaries. In addition, it is permissible to distinguish between 
former employees who satisfy the service requirement and those who do 
not, provided that the distinction is not directed at individual 
participants or beneficiaries. (However, former employees who do not 
satisfy the eligibility criteria may, nonetheless, be eligible for 
continued coverage pursuant to a COBRA continuation provision or similar 
State law.)
    Example 5. (i) Facts. An employer sponsors a group health plan that 
provides the same benefit package to all seven employees of the 
employer. Six of the seven employees have

[[Page 598]]

the same job title and responsibilities, but Employee G has a different 
job title and different responsibilities. After G files an expensive 
claim for benefits under the plan, coverage under the plan is modified 
so that employees with G's job title receive a different benefit package 
that includes a lower lifetime dollar limit than in the benefit package 
made available to the other six employees.
    (ii) Conclusion. Under the facts of this Example 5, changing the 
coverage classification for G based on the existing employment 
classification for G is not permitted under this paragraph (d) because 
the creation of the new coverage classification for G is directed at G 
based on one or more health factors.

    (e) Nonconfinement and actively-at-work provisions--(1) 
Nonconfinement provisions--(i) General rule. Under the rules of 
paragraphs (b) and (c) of this section, a plan or issuer may not 
establish a rule for eligibility (as described in paragraph (b)(1)(ii) 
of this section) or set any individual's premium or contribution rate 
based on whether an individual is confined to a hospital or other health 
care institution. In addition, under the rules of paragraphs (b) and (c) 
of this section, a plan or issuer may not establish a rule for 
eligibility or set any individual's premium or contribution rate based 
on an individual's ability to engage in normal life activities, except 
to the extent permitted under paragraphs (e)(2)(ii) and (3) of this 
section (permitting plans and issuers, under certain circumstances, to 
distinguish among employees based on the performance of services).
    (ii) Examples. The rules of this paragraph (e)(1) are illustrated by 
the following examples:

    Example 1. (i) Facts. Under a group health plan, coverage for 
employees and their dependents generally becomes effective on the first 
day of employment. However, coverage for a dependent who is confined to 
a hospital or other health care institution does not become effective 
until the confinement ends.
    (ii) Conclusion. In this Example 1, the plan violates this paragraph 
(e)(1) because the plan delays the effective date of coverage for 
dependents based on confinement to a hospital or other health care 
institution.
    Example 2. (i) Facts. In previous years, a group health plan has 
provided coverage through a group health insurance policy offered by 
Issuer M. However, for the current year, the plan provides coverage 
through a group health insurance policy offered by Issuer N. Under 
Issuer N's policy, items and services provided in connection with the 
confinement of a dependent to a hospital or other health care 
institution are not covered if the confinement is covered under an 
extension of benefits clause from a previous health insurance issuer.
    (ii) Conclusion. In this Example 2, Issuer N violates this paragraph 
(e)(1) because the group health insurance coverage restricts benefits (a 
rule for eligibility under paragraph (b)(1)) based on whether a 
dependent is confined to a hospital or other health care institution 
that is covered under an extension of benefits clause from a previous 
issuer. This section does not affect any obligation Issuer M may have 
under applicable State law to provide any extension of benefits and does 
not affect any State law governing coordination of benefits.

    (2) Actively-at-work and continuous service provisions--(i) General 
rule--(A) Under the rules of paragraphs (b) and (c) of this section and 
subject to the exception for the first day of work described in 
paragraph (e)(2)(ii) of this section, a plan or issuer may not establish 
a rule for eligibility (as described in paragraph (b)(1)(ii) of this 
section) or set any individual's premium or contribution rate based on 
whether an individual is actively at work (including whether an 
individual is continuously employed), unless absence from work due to 
any health factor (such as being absent from work on sick leave) is 
treated, for purposes of the plan or health insurance coverage, as being 
actively at work.
    (B) The rules of this paragraph (e)(2)(i) are illustrated by the 
following examples:

    Example 1. (i) Facts. Under a group health plan, an employee 
generally becomes eligible to enroll 30 days after the first day of 
employment. However, if the employee is not actively at work on the 
first day after the end of the 30-day period, then eligibility for 
enrollment is delayed until the first day the employee is actively at 
work.
    (ii) Conclusion. In this Example 1, the plan violates this paragraph 
(e)(2) (and thus also violates paragraph (b) of this section). However, 
the plan would not violate paragraph (e)(2) or (b) of this section if, 
under the plan, an absence due to any health factor is considered being 
actively at work.
    Example 2. (i) Facts. Under a group health plan, coverage for an 
employee becomes effective after 90 days of continuous service; that is, 
if an employee is absent from work (for any reason) before completing 90 
days of service, the beginning of the 90-day period is measured from the 
day the employee returns

[[Page 599]]

to work (without any credit for service before the absence).
    (ii) Conclusion. In this Example 2, the plan violates this paragraph 
(e)(2) (and thus also paragraph (b) of this section) because the 90-day 
continuous service requirement is a rule for eligibility based on 
whether an individual is actively at work. However, the plan would not 
violate this paragraph (e)(2) or paragraph (b) of this section if, under 
the plan, an absence due to any health factor is not considered an 
absence for purposes of measuring 90 days of continuous service.

    (ii) Exception for the first day of work--(A) Notwithstanding the 
general rule in paragraph (e)(2)(i) of this section, a plan or issuer 
may establish a rule for eligibility that requires an individual to 
begin work for the employer sponsoring the plan (or, in the case of a 
multiemployer plan, to begin a job in covered employment) before 
coverage becomes effective, provided that such a rule for eligibility 
applies regardless of the reason for the absence.
    (B) The rules of this paragraph (e)(2)(ii) are illustrated by the 
following examples:

    Example 1. (i) Facts. Under the eligibility provision of a group 
health plan, coverage for new employees becomes effective on the first 
day that the employee reports to work. Individual H is scheduled to 
begin work on August 3. However, H is unable to begin work on that day 
because of illness. H begins working on August 4, and H's coverage is 
effective on August 4.
    (ii) Conclusion. In this Example 1, the plan provision does not 
violate this section. However, if coverage for individuals who do not 
report to work on the first day they were scheduled to work for a reason 
unrelated to a health factor (such as vacation or bereavement) becomes 
effective on the first day they were scheduled to work, then the plan 
would violate this section.
    Example 2. (i) Facts. Under a group health plan, coverage for new 
employees becomes effective on the first day of the month following the 
employee's first day of work, regardless of whether the employee is 
actively at work on the first day of the month. Individual J is 
scheduled to begin work on March 24. However, J is unable to begin work 
on March 24 because of illness. J begins working on April 7 and J's 
coverage is effective May 1.
    (ii) Conclusion. In this Example 2, the plan provision does not 
violate this section. However, as in Example 1, if coverage for 
individuals absent from work for reasons unrelated to a health factor 
became effective despite their absence, then the plan would violate this 
section.

    (3) Relationship to plan provisions defining similarly situated 
individuals--(i) Notwithstanding the rules of paragraphs (e)(1) and (2) 
of this section, a plan or issuer may establish rules for eligibility or 
set any individual's premium or contribution rate in accordance with the 
rules relating to similarly situated individuals in paragraph (d) of 
this section. Accordingly, a plan or issuer may distinguish in rules for 
eligibility under the plan between full-time and part-time employees, 
between permanent and temporary or seasonal employees, between current 
and former employees, and between employees currently performing 
services and employees no longer performing services for the employer, 
subject to paragraph (d) of this section. However, other federal or 
State laws (including the COBRA continuation provisions and the Family 
and Medical Leave Act of 1993) may require an employee or the employee's 
dependents to be offered coverage and set limits on the premium or 
contribution rate even though the employee is not performing services.
    (ii) The rules of this paragraph (e)(3) are illustrated by the 
following examples:

    Example 1. (i) Facts. Under a group health plan, employees are 
eligible for coverage if they perform services for the employer for 30 
or more hours per week or if they are on paid leave (such as vacation, 
sick, or bereavement leave). Employees on unpaid leave are treated as a 
separate group of similarly situated individuals in accordance with the 
rules of paragraph (d) of this section.
    (ii) Conclusion. In this Example 1, the plan provisions do not 
violate this section. However, if the plan treated individuals 
performing services for the employer for 30 or more hours per week, 
individuals on vacation leave, and individuals on bereavement leave as a 
group of similarly situated individuals separate from individuals on 
sick leave, the plan would violate this paragraph (e) (and thus also 
would violate paragraph (b) of this section) because groups of similarly 
situated individuals cannot be established based on a health factor 
(including the taking of sick leave) under paragraph (d) of this 
section.
    Example 2. (i) Facts. To be eligible for coverage under a bona fide 
collectively bargained group health plan in the current calendar 
quarter, the plan requires an individual to have worked 250 hours in 
covered

[[Page 600]]

employment during the three-month period that ends one month before the 
beginning of the current calendar quarter. The distinction between 
employees working at least 250 hours and those working less than 250 
hours in the earlier three-month period is not directed at individual 
participants or beneficiaries based on any health factor of the 
participants or beneficiaries.
    (ii) Conclusion. In this Example 2, the plan provision does not 
violate this section because, under the rules for similarly situated 
individuals allowing full-time employees to be treated differently than 
part-time employees, employees who work at least 250 hours in a three-
month period can be treated differently than employees who fail to work 
250 hours in that period. The result would be the same if the plan 
permitted individuals to apply excess hours from previous periods to 
satisfy the requirement for the current quarter.
    Example 3. (i) Facts. Under a group health plan, coverage of an 
employee is terminated when the individual's employment is terminated, 
in accordance with the rules of paragraph (d) of this section. Employee 
B has been covered under the plan. B experiences a disabling illness 
that prevents B from working. B takes a leave of absence under the 
Family and Medical Leave Act of 1993. At the end of such leave, B 
terminates employment and consequently loses coverage under the plan. 
(This termination of coverage is without regard to whatever rights the 
employee (or members of the employee's family) may have for COBRA 
continuation coverage.)
    (ii) Conclusion. In this Example 3, the plan provision terminating 
B's coverage upon B's termination of employment does not violate this 
section.
    Example 4. (i) Facts. Under a group health plan, coverage of an 
employee is terminated when the employee ceases to perform services for 
the employer sponsoring the plan, in accordance with the rules of 
paragraph (d) of this section. Employee C is laid off for three months. 
When the layoff begins, C's coverage under the plan is terminated. (This 
termination of coverage is without regard to whatever rights the 
employee (or members of the employee's family) may have for COBRA 
continuation coverage.)
    (ii) Conclusion. In this Example 4, the plan provision terminating 
C's coverage upon the cessation of C's performance of services does not 
violate this section.

    (f) Bona fide wellness programs. [Reserved]
    (g) More favorable treatment of individuals with adverse health 
factors permitted--(1) In rules for eligibility. (i) Nothing in this 
section prevents a group health plan or group health insurance issuer 
from establishing more favorable rules for eligibility (described in 
paragraph (b)(1) of this section) for individuals with an adverse health 
factor, such as disability, than for individuals without the adverse 
health factor. Moreover, nothing in this section prevents a plan or 
issuer from charging a higher premium or contribution with respect to 
individuals with an adverse health factor if they would not be eligible 
for the coverage were it not for the adverse health factor. (However, 
other laws, including State insurance laws, may set or limit premium 
rates; these laws are not affected by this section.)
    (ii) The rules of this paragraph (g)(1) are illustrated by the 
following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan that 
generally is available to employees, spouses of employees, and dependent 
children until age 23. However, dependent children who are disabled are 
eligible for coverage beyond age 23.
    (ii) Conclusion. In this Example 1, the plan provision allowing 
coverage for disabled dependent children beyond age 23 satisfies this 
paragraph (g)(1) (and thus does not violate this section).
    Example 2. (i) Facts. An employer sponsors a group health plan, 
which is generally available to employees (and members of the employee's 
family) until the last day of the month in which the employee ceases to 
perform services for the employer. The plan generally charges employees 
$50 per month for employee-only coverage and $125 per month for family 
coverage. However, an employee who ceases to perform services for the 
employer by reason of disability may remain covered under the plan until 
the last day of the month that is 12 months after the month in which the 
employee ceased to perform services for the employer. During this 
extended period of coverage, the plan charges the employee $100 per 
month for employee-only coverage and $250 per month for family coverage. 
(This extended period of coverage is without regard to whatever rights 
the employee (or members of the employee's family) may have for COBRA 
continuation coverage.)
    (ii) Conclusion. In this Example 2, the plan provision allowing 
extended coverage for disabled employees and their families satisfies 
this paragraph (g)(1) (and thus does not violate this section). In 
addition, the plan is permitted, under this paragraph (g)(1), to charge 
the disabled employees a higher premium during the extended period of 
coverage.

[[Page 601]]

    Example 3. (i) Facts. To comply with the requirements of a COBRA 
continuation provision, a group health plan generally makes COBRA 
continuation coverage available for a maximum period of 18 months in 
connection with a termination of employment but makes the coverage 
available for a maximum period of 29 months to certain disabled 
individuals and certain members of the disabled individual's family. 
Although the plan generally requires payment of 102 percent of the 
applicable premium for the first 18 months of COBRA continuation 
coverage, the plan requires payment of 150 percent of the applicable 
premium for the disabled individual's COBRA continuation coverage during 
the disability extension if the disabled individual would not be 
entitled to COBRA continuation coverage but for the disability.
    (ii) Conclusion. In this Example 3, the plan provision allowing 
extended COBRA continuation coverage for disabled individuals satisfies 
this paragraph (g)(1) (and thus does not violate this section). In 
addition, the plan is permitted, under this paragraph (g)(1), to charge 
the disabled individuals a higher premium for the extended coverage if 
the individuals would not be eligible for COBRA continuation coverage 
were it not for the disability. (Similarly, if the plan provided an 
extended period of coverage for disabled individuals pursuant to State 
law or plan provision rather than pursuant to a COBRA continuation 
coverage provision, the plan could likewise charge the disabled 
individuals a higher premium for the extended coverage.)

    (2) In premiums or contributions--(i) Nothing in this section 
prevents a group health plan or group health insurance issuer from 
charging individuals a premium or contribution that is less than the 
premium (or contribution) for similarly situated individuals if the 
lower charge is based on an adverse health factor, such as disability.
    (ii) The rules of this paragraph (g)(2) are illustrated by the 
following example:

    Example. (i) Facts. Under a group health plan, employees are 
generally required to pay $50 per month for employee-only coverage and 
$125 per month for family coverage under the plan. However, employees 
who are disabled receive coverage (whether employee-only or family 
coverage) under the plan free of charge.
    (ii) Conclusion. In this Example, the plan provision waiving premium 
payment for disabled employees is permitted under this paragraph (g)(2) 
(and thus does not violate this section).

    (h) No effect on other laws. Compliance with this section is not 
determinative of compliance with any other provision of the PHS Act 
(including the COBRA continuation provisions) or any other State or 
federal law, such as the Americans with Disabilities Act. Therefore, 
although the rules of this section would not prohibit a plan or issuer 
from treating one group of similarly situated individuals differently 
from another (such as providing different benefit packages to current 
and former employees), other federal or State laws may require that two 
separate groups of similarly situated individuals be treated the same 
for certain purposes (such as making the same benefit package available 
to COBRA qualified beneficiaries as is made available to active 
employees). In addition, although this section generally does not impose 
new disclosure obligations on plans and issuers, this section does not 
affect any other laws, including those that require accurate disclosures 
and prohibit intentional misrepresentation.
    (i) Applicability dates--(1) Paragraphs applicable May 8, 2001. 
Paragraphs (a)(1), (a)(2)(i), (b)(1)(i), (b)(1)(iii) Example 1, 
(b)(2)(i)(A), (b)(2)(ii), (c)(1)(i), (c)(2)(i), and (c)(3) of this 
section and this paragraph (i)(1) apply to group health plans and health 
insurance issuers offering group health insurance coverage May 8, 2001.
    (2) Paragraphs applicable for plan years beginning on or after July 
1, 2001. Except as provided in paragraph (i)(3) or (i)(4) of this 
section, the provisions of this section not listed in paragraph (i)(1) 
of this section apply to group health plans and health insurance issuers 
offering group health insurance coverage for plan years beginning on or 
after July 1, 2001. Except as provided in paragraph (i)(3) or (i)(4) of 
this section, with respect to efforts to comply with section 2702 of the 
PHS Act before the first plan year beginning on or after July 1, 2001, 
the Secretary will not take any enforcement action against an issuer or 
plan that has sought to comply in good faith with section 2702 of the 
PHS Act.
    (3) Transitional rules for individuals previously denied coverage 
based on a health factor. This paragraph (i)(3) provides rules relating 
to individuals previously denied coverage under a group health plan or 
group health insurance

[[Page 602]]

coverage based on a health factor of the individual. Paragraph (i)(3)(i) 
clarifies what constitutes a denial of coverage under this paragraph 
(i)(3). Paragraph (i)(3)(ii) of this section applies with respect to any 
individual who was denied coverage if the denial was not based on a good 
faith interpretation of section 2702 of the PHS Act or the Secretary's 
published guidance. Under that paragraph, such an individual must be 
allowed to enroll retroactively to the effective date of section 2702 of 
the PHS Act, or, if later, the date the individual meets eligibility 
criteria under the plan that do not discriminate based on any health 
factor. Paragraph (i)(3)(iii) of this section applies with respect to 
any individual who was denied coverage based on a good faith 
interpretation of section 2702 of the PHS Act or the Secretary's 
published guidance. Under that paragraph, such an individual must be 
given an opportunity to enroll effective July 1, 2001. In either event, 
whether under paragraph (i)(3)(ii) or (iii) of this section, the 
Secretary will not take any enforcement action with respect to denials 
of coverage addressed in this paragraph (i)(3) if the issuer or plan has 
complied with the transitional rules of this paragraph (i)(3).
    (i) Denial of coverage clarified. For purposes of this paragraph 
(i)(3), an individual is considered to have been denied coverage if the 
individual--
    (A) Failed to apply for coverage because it was reasonable to 
believe that an application for coverage would have been futile due to a 
plan provision that discriminated based on a health factor; or
    (B) Was not offered an opportunity to enroll in the plan and the 
failure to give such an opportunity violates this section.
    (ii) Individuals denied coverage without a good faith interpretation 
of the law--(A) Opportunity to enroll required. If a plan or issuer has 
denied coverage to any individual based on a health factor and that 
denial was not based on a good faith interpretation of section 2702 of 
the PHS Act or any guidance published by the Secretary, the plan or 
issuer is required to give the individual an opportunity to enroll 
(including notice of an opportunity to enroll) that continues for at 
least 30 days. This opportunity must be presented not later than May 8, 
2001.
    (1) If this enrollment opportunity was presented before or within 
the first plan year beginning on or after July 1, 1997 (or in the case 
of a collectively bargained plan, before or within the first plan year 
beginning on the effective date for the plan described in section 102(c) 
(3) of the Health Insurance Portability and Accountability Act of 1996), 
the coverage must be effective within that first plan year.
    (2) If this enrollment opportunity is presented after such plan 
year, the individual must be given the choice of having the coverage 
effective on either of the following two dates--
    (i) The date the plan receives a request for enrollment in 
connection with the enrollment opportunity; or
    (ii) Retroactively to the first day of the first plan year beginning 
on the effective date for the plan described in sections 102(c)(1) and 
(3) of the Health Insurance Portability and Accountability Act of 1996 
(or, if the individual otherwise first became eligible to enroll for 
coverage after that date, on the date the individual was otherwise 
eligible to enroll in the plan). If an individual elects retroactive 
coverage, the plan or issuer is required to provide the benefits it 
would have provided if the individual had been enrolled for coverage 
during that period (irrespective of any otherwise applicable plan 
provisions governing timing for the submission of claims). The plan or 
issuer may require the individual to pay whatever additional amount the 
individual would have been required to pay for the coverage (but the 
plan or issuer cannot charge interest on that amount).
    (B) Relation to preexisting condition rules. For purposes of section 
2701 of the PHS Act, the individual may not be treated as a late 
enrollee or as a special enrollee. Moreover, the individual's enrollment 
date is the effective date for the plan described in sections 102(c)(1) 
and (3) of the Health Insurance Portability and Accountability Act (or, 
if the individual otherwise first became eligible to enroll for coverage 
after that date, on the date the individual was otherwise eligible to 
enroll in the plan), even if the individual chooses

[[Page 603]]

under paragraph (i)(3)(ii)(A) of this section to have coverage effective 
only prospectively. In addition, any period between the individual's 
enrollment date and the effective date of coverage is treated as a 
waiting period.
    (C) Examples. The rules of this paragraph (i)(3)(ii) are illustrated 
by the following examples:

    Example 1. (i) Facts. Employer X maintains a group health plan with 
a plan year beginning October 1 and ending September 30. Individual F 
was hired by Employer X before the effective date of section 2702 of the 
PHS Act. Before the effective date of section 2702 of the PHS Act for 
this plan (October 1, 1997), the terms of the plan allowed employees and 
their dependents to enroll when the employee was first hired, and on 
each January 1 thereafter, but in either case, only if the individual 
could pass a physical examination. F's application to enroll when first 
hired was denied because F had diabetes and could not pass a physical 
examination. Upon the effective date of section 2702 of the PHS Act for 
this plan (October 1, 1997), the plan is amended to delete the 
requirement to pass a physical examination. In November of 1997, the 
plan gives F an opportunity to enroll in the plan (including notice of 
the opportunity to enroll) without passing a physical examination, with 
coverage effective January 1, 1998.
    (ii) Conclusion. In this Example 1, the plan complies with the 
requirements of this paragraph (i)(3)(ii).
    Example 2. (i) Facts. The plan year of a group health plan begins 
January 1 and ends December 31. Under the plan, a dependent who is 
unable to engage in normal life activities on the date coverage would 
otherwise become effective is not enrolled until the dependent is able 
to engage in normal life activities. Individual G is a dependent who is 
otherwise eligible for coverage, but is unable to engage in normal life 
activities. The plan has not allowed G to enroll for coverage.
    (ii) Conclusion. In this Example 2, beginning on the effective date 
of section 2702 of the PHS Act for the plan (January 1, 1998), the plan 
provision is not permitted under any good faith interpretation of 
section 2702 of the PHS Act or any guidance published by the Secretary. 
Therefore, the plan is required, not later than May 8, 2001, to give G 
an opportunity to enroll (including notice of the opportunity to 
enroll), with coverage effective, at G's option, either retroactively 
from January 1, 1998 or prospectively from the date G's request for 
enrollment is received by the plan. If G elects coverage to be effective 
beginning January 1, 1998, the plan can require G to pay any required 
employee premiums for the retroactive coverage.

    (iii) Individuals denied coverage based on a good faith 
interpretation of the law--(A) Opportunity to enroll required. If a plan 
or issuer has denied coverage to any individual before the first day of 
the first plan year beginning on or after July 1, 2001 based in part on 
a health factor and that denial was based on a good faith interpretation 
of section 2702 of the PHS Act or guidance published by the Secretary, 
the plan or issuer is required to give the individual an opportunity to 
enroll (including notice of an opportunity to enroll) that continues for 
at least 30 days, with coverage effective no later than July 1, 2001. 
Individuals required to be offered an opportunity to enroll include 
individuals previously offered enrollment without regard to a health 
factor but subsequently denied enrollment due to a health factor.
    (B) Relation to preexisting condition rules. For purposes of section 
2701 of the PHS Act, the individual may not be treated as a late 
enrollee or as a special enrollee. Moreover, the individual's enrollment 
date is the effective date for the plan described in sections 102(c)(1) 
and (3) of the Health Insurance Portability and Accountability Act (or, 
if the individual otherwise first became eligible to enroll for coverage 
after that date, on the date the individual was otherwise eligible to 
enroll in the plan). In addition, any period between the individual's 
enrollment date and the effective date of coverage is treated as a 
waiting period.
    (C) Example. The rules of this paragraph (i)(3)(iii) are illustrated 
by the following example:

    Example. (i) Facts. Individual H was hired by Employer Y on May 3, 
1995. Y maintains a group health plan with a plan year beginning on 
February 1. Under the terms of the plan, employees and their dependents 
are allowed to enroll when the employee is first hired (without a 
requirement to pass a physical examination), and on each February 1 
thereafter if the individual can pass a physical examination. H chose 
not to enroll for coverage when hired in May of 1995. On February 1, 
1997, H tried to enroll for coverage under the plan. However, H was 
denied coverage for failure to pass a physical examination. Shortly 
thereafter, Y's plan eliminated late enrollment, and H was not given 
another opportunity to enroll in the plan. There is no evidence to 
suggest that Y's plan was acting in bad faith in denying coverage

[[Page 604]]

under the plan beginning on the effective date of section 2702 of the 
PHS Act (February 1, 1998).
    (ii) Conclusion. In this Example, because coverage previously had 
been made available with respect to H without regard to any health 
factor of H and because Y's plan was acting in accordance with a good 
faith interpretation of section 2702 of the PHS Act (and guidance 
published by the Secretary), the failure of Y's plan to allow H to 
enroll effective February 1, 1998 was permissible on that date. However, 
under the transitional rules of this paragraph (i)(3)(iii), Y's plan 
must give H an opportunity to enroll that continues for at least 30 
days, with coverage effective no later than July 1, 2001. (In addition, 
February 1, 1998 is H's enrollment date under the plan and the period 
between February 1, 1998 and July 1, 2001 is treated as a waiting 
period. Accordingly, any preexisting condition exclusion period 
permitted under Sec. 146.111 will have expired before July 1, 2001.)

    (4) Special transitional rule for self-funded non-Federal 
governmental plans exempted under 45 CFR 146.180--(i) If coverage has 
been denied to any individual because the sponsor of a self-funded non-
Federal governmental plan has elected under Sec. 146.180 to exempt the 
plan from the requirements of this section, and the plan sponsor 
subsequently chooses to bring the plan into compliance with the 
requirements of this section, the plan--
    (A) Must notify the individual that the plan will be coming into 
compliance with the requirements of this section, specify the effective 
date of compliance, and inform the individual regarding any enrollment 
restrictions that may apply under the terms of the plan once the plan is 
in compliance with this section (as a matter of administrative 
convenience, the notice may be disseminated to all employees);
    (B) Must give the individual an opportunity to enroll that continues 
for at least 30 days;
    (C) Must permit coverage to be effective as of the first day of plan 
coverage for which an exemption election under Sec. 146.180 (with regard 
to this section) is no longer in effect (or July 1, 2001, if later, and 
the plan was acting in accordance with a good faith interpretation of 
section 2702 of the PHS Act and guidance published by CMS); and
    (D) May not treat the individual as a late enrollee or a special 
enrollee.
    (ii) For purposes of this paragraph (i)(4), an individual is 
considered to have been denied coverage if the individual failed to 
apply for coverage because, given an exemption election under 
Sec. 146.180, it was reasonable to believe that an application for 
coverage would have been denied based on a health factor.
    (iii) The rules of this paragraph (i)(4) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual D was hired by a non-Federal 
governmental employer in June 1996. The employer maintains a self-funded 
group health plan with a plan year beginning on October 1. Under the 
terms of the plan, employees and their dependents are allowed to enroll 
when the employee is first hired without regard to any health factor. If 
an individual declines to enroll when first eligible, the individual may 
enroll effective October 1 of any plan year if the individual can pass a 
physical examination. The plan sponsor elected under Sec. 146.180 of 
this part to exempt the plan from the requirements of this section for 
the plan year beginning October 1, 1997, and renewed the exemption 
election for the plan year beginning October 1, 1998. That is, the plan 
sponsor elected to retain the evidence of good health requirement for 
late enrollees which, absent an exemption election under Sec. 146.180 of 
this part, would have been in violation of this section as of October 1, 
1997. D chose not to enroll for coverage when first hired. In February 
of 1998, D was treated for skin cancer but did not apply for coverage 
under the plan for the plan year beginning October 1, 1998, because D 
assumed D could not meet the evidence of good health requirement. With 
the plan year beginning October 1, 1999, the plan sponsor chose not to 
renew its exemption election and brought the plan into compliance with 
this section. However, the terms of the plan, effective October 1, 1999, 
were amended to permit enrollment only during the initial 30-day period 
of employment. The plan no longer permits late enrollment under any 
circumstances, including with respect to current employees not enrolled 
in the plan. Therefore, D was not given another opportunity to enroll in 
the plan. There is no evidence to suggest that the plan was acting in 
bad faith in denying D coverage under the plan beginning on the 
effective date of Sec. 146.121 for the plan (October 1, 1999).
    (ii) Conclusion. In this Example 1, because the plan under 
Sec. 146.180 was previously excluded from the requirements of 
Sec. 146.121 and thereafter was acting in accordance with a good faith 
interpretation of Sec. 146.121 and guidance published by CMS, the 
failure of the plan to give D an opportunity to enroll effective October 
1, 1999 was permissible on

[[Page 605]]

that date. However, under the transitional rules of this paragraph 
(i)(4), the plan must give D an opportunity to enroll that continues for 
at least 30 days, with coverage effective no later than July 1, 2001. 
(Additionally, October 1, 1999 is D's enrollment date under the plan and 
the period between October 1, 1999 and July 1, 2001 is treated as a 
waiting period. Furthermore, if the plan sponsor has not elected to 
exempt the plan from limitations on preexisting condition exclusion 
periods, any preexisting condition exclusion period must be administered 
in accordance with Sec. 146.111. Accordingly, any preexisting condition 
exclusion period permitted under Sec. 146.111 will have expired before 
July 1, 2001.)
    Example 2. (i) Facts. Individual E was hired by a non-Federal 
governmental employer in February 1995. The employer maintains a self-
funded group health plan with a plan year beginning on September 1. 
Under the terms of the plan, employees and their dependents are allowed 
to enroll when the employee is first hired without regard to any health 
factor. If an individual declines to enroll when first eligible, the 
individual may enroll effective September 1 of any plan year if the 
individual can pass a physical examination. All enrollees are subject to 
a 12-month preexisting condition exclusion period. The plan sponsor 
elected under Sec. 146.180 of this part to exempt the plan from the 
requirements of this section and Sec. 146.111 (limitations on 
preexisting condition exclusion periods) for the plan year beginning 
September 1, 1997, and renews the exemption election for the plan years 
beginning September 1, 1998, September 1, 1999, and September 1, 2000. E 
chose not to enroll for coverage when first hired. In June of 2001, E is 
diagnosed as having multiple sclerosis (MS). With the plan year 
beginning September 1, 2001, the plan sponsor chooses to bring the plan 
into compliance with this section, but renews its exemption election 
with regard to limitations on preexisting condition exclusion periods. 
The plan affords E an opportunity to enroll, without a physical 
examination, effective September 1, 2001. E is subject to a 12-month 
preexisting condition exclusion period with respect to any treatment E 
receives that is related to E's MS, without regard to any prior 
creditable coverage E may have. Beginning September 1, 2002, the plan 
will cover treatment of E's MS.
    (ii) Conclusion. In this Example 2, the plan complies with the 
requirements of this section. (The plan is not required to comply with 
the requirements of Sec. 146.111 because the plan continues to be 
exempted from those requirements in accordance with the plan sponsor's 
election under Sec. 146.180.)

[66 FR 1412, Jan. 8, 2001, as amended at 66 FR 14078, Mar. 9, 2001]



Sec. 146.125  Applicability dates.

    (a) General applicability dates--(1) Non-collectively bargained 
plans. Part A of title XXVII of the PHS Act and Secs. 146.101 through 
146.119, Sec. 146.143, Sec. 146.145, 45 CFR part 150, and this section 
apply with respect to group health plans, and health insurance coverage 
offered in connection with group health plans, for plan years beginning 
after June 30, 1997, except as otherwise provided in this section.
    (2) Collectively-bargained plans. Except as otherwise provided in 
this section (other than paragraph (a)(1) of this section), in the case 
of a group health plan maintained pursuant to one or more collective 
bargaining agreements between employee representatives and one or more 
employers ratified before August 21, 1996, Part A of Title XXVII of the 
PHS Act and Secs. 146.101 through 146.119, Sec. 146.143, Sec. 146.145, 
45 CFR part 150, and this section do not apply to plan years beginning 
before the later of July 1, 1997, or the date on which the last of the 
collective bargaining agreements relating to the plan terminates 
(determined without regard to any extension thereof agreed to after 
August 21, 1996). For these purposes, any plan amendment made under a 
collective bargaining agreement relating to the plan, that amends the 
plan solely to conform to any requirement of such part, is not treated 
as a termination of the collective bargaining agreement.
    (3) Preexisting condition exclusion periods for current employees. 
(i) General rule. Any preexisting condition exclusion period permitted 
under Sec. 146.111 is measured from the individual's enrollment date in 
the plan. This exclusion period, as limited under Sec. 146.111, may be 
completed before the effective date of the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA) for his or her plan. Therefore, 
on the date the individual's plan becomes subject to part A of title 
XXVII of the PHS Act, no preexisting condition exclusion may be imposed 
with respect to an individual beyond the limitation in Sec. 146.111. For 
an individual who has not completed the permitted exclusion period under 
HIPAA, upon the effective date for his or her plan, the individual may 
use creditable coverage that the person had as of the enrollment date to

[[Page 606]]

reduce the remaining preexisting condition exclusion period applicable 
to the individual.
    (ii) Examples. The following examples illustrate the requirements of 
this paragraph (a)(3):

    Example 1: (i) Individual A has been working for Employer X and has 
been covered under Employer X's plan since March 1, 1997. Under Employer 
X's plan, as in effect before January 1, 1998, there is no coverage for 
any preexisting condition. Employer X's plan year begins on January 1, 
1998. A's enrollment date in the plan is March 1, 1997, and A has no 
creditable coverage before this date.
    (ii) In this Example, Employer X may continue to impose the 
preexisting condition exclusion under the plan through February 28, 1998 
(the end of the 12-month period using anniversary dates).
    Example 2: (i) Same facts as in Example 1, except that A's 
enrollment date was August 1, 1996, instead of March 1, 1997.
    (ii) In this Example, on January 1, 1998, Employer X's plan may no 
longer exclude treatment for any preexisting condition that A may have; 
however, because Employer X's plan is not subject to HIPAA until January 
1, 1998, A is not entitled to claim reimbursement for expenses under the 
plan for treatments for any preexisting condition received before 
January 1, 1998.

    (b) Effective date for certification requirement--(1) General. 
Subject to the transitional rule in Sec. 146.115(a)(5)(iii), the 
certification rules of Sec. 146.115 apply to events occurring on or 
after July 1, 1996.
    (2) Period covered by certificate. A certificate is not required to 
reflect coverage before July 1, 1996.
    (3) No certificate before June 1, 1997. Notwithstanding any other 
provision of this part, in no case is a certificate required to be 
provided before June 1, 1997.
    (c) Limitation on actions. No enforcement action is to be taken, 
under, against a group health plan or health insurance issuer with 
respect to a violation of a requirement imposed by part A of title XXVII 
of the PHS Act before January 1, 1998, if the plan or issuer has sought 
to comply in good faith with such requirements. Compliance with this 
part is deemed to be good faith compliance with the requirements of part 
A of title XXVII of the PHS Act.
    (d) Transition rules for counting creditable coverage. An individual 
who seeks to establish creditable coverage for periods before July 1, 
1996 is entitled to establish such coverage through the presentation of 
documents or other means in accordance with the provisions of 
Sec. 146.115(c). For coverage relating to an event occurring before July 
1, 1996, a group health plan and a health insurance issuer are not 
subject to any penalty or enforcement action with respect to the plan's 
or issuer's counting (or not counting) such coverage if the plan or 
issuer has sought to comply in good faith with the applicable 
requirements under Sec. 146.115(c).
    (e) Transition rules for certification of creditable coverage--(1) 
Certificates only upon request. For events occurring on or after July 1, 
1996 but before October 1, 1996, a certificate is required to be 
provided only upon a written request by or on behalf of the individual 
to whom the certificate applies.
    (2) Certificates before June 1, 1997. For events occurring on or 
after October 1, 1996 and before June 1, 1997, a certificate must be 
furnished no later than June 1, 1997, or any later date permitted under 
Sec. 146.115(a)(2) (ii) and (iii).
    (3) Optional notice--(i) General. This paragraph (e)(3) applies with 
respect to events described in Sec. 146.115(a)(2)(ii), that occur on or 
after October 1, 1996 but before June 1, 1997. A group health plan or 
health insurance issuer offering group health coverage is deemed to 
satisfy Secs. 146.115 (a)(2) and (a)(3) if a notice is provided in 
accordance with the provisions of paragraphs (e)(3)(i) through 
(e)(3)(iv) of this section.
    (ii) Time of notice. The notice must be provided no later than June 
1, 1997.
    (iii) Form and content of notice. A notice provided under this 
paragraph (e)(3) must be in writing and must include information 
substantially similar to the information included in a model notice 
authorized by CMS. Copies of the model notice are available at the 
following website--www.cms.gov (or call (410) 786-1565).
    (iv) Providing certificate after request. If an individual requests 
a certificate following receipt of the notice, the certificate must be 
provided at the time of the request as set forth in 
Sec. 146.115(a)(2)(iii).

[[Page 607]]

    (v) Other certification rules apply. The rules set forth in 
Sec. 146.115(a)(4)(i) (method of delivery) and (a)(1) (entities required 
to provide a certificate) apply with respect to the provision of the 
notice.

[62 FR 16958, Apr. 8, 1997; 62 FR 31694, June 10, 1997, as amended at 66 
FR 1420, Jan. 8, 2001; 66 FR 14078, Mar. 9, 2001]



               Subpart C--Requirements Related to Benefits



Sec. 146.130  Standards relating to benefits for mothers and newborns.

    (a) Hospital length of stay--(1) General rule. Except as provided in 
paragraph (a)(5) of this section, a group health plan, or a health 
insurance issuer offering group health insurance coverage, that provides 
benefits for a hospital length of stay in connection with childbirth for 
a mother or her newborn may not restrict benefits for the stay to less 
than--
    (i) 48 hours following a vaginal delivery; or
    (ii) 96 hours following a delivery by cesarean section.
    (2) When stay begins--(i) Delivery in a hospital. If delivery occurs 
in a hospital, the hospital length of stay for the mother or newborn 
child begins at the time of delivery (or in the case of multiple births, 
at the time of the last delivery).
    (ii) Delivery outside a hospital. If delivery occurs outside a 
hospital, the hospital length of stay begins at the time the mother or 
newborn is admitted as a hospital inpatient in connection with 
childbirth. The determination of whether an admission is in connection 
with childbirth is a medical decision to be made by the attending 
provider.
    (3) Examples. The rules of paragraphs (a)(1) and (a)(2) of this 
section are illustrated by the following examples. In each example, the 
group health plan provides benefits for hospital lengths of stay in 
connection with childbirth and is subject to the requirements of this 
section, as follows:

    Example 1. (i) A pregnant woman covered under a group health plan 
goes into labor and is admitted to the hospital at 10 p.m. on June 11. 
She gives birth by vaginal delivery at 6 a.m. on June 12.
    (ii) In this Example 1, the 48-hour period described in paragraph 
(a)(1)(i) of this section ends at 6 a.m. on June 14.
    Example 2. (i) A woman covered under a group health plan gives birth 
at home by vaginal delivery. After the delivery, the woman begins 
bleeding excessively in connection with the childbirth and is admitted 
to the hospital for treatment of the excessive bleeding at 7 p.m. on 
October 1.
    (ii) In this Example 2, the 48-hour period described in paragraph 
(a)(1)(i) of this section ends at 7 p.m. on October 3.
    Example 3. (i) A woman covered under a group health plan gives birth 
by vaginal delivery at home. The child later develops pneumonia and is 
admitted to the hospital. The attending provider determines that the 
admission is not in connection with childbirth.
    (ii) In this Example 3, the hospital length-of-stay requirements of 
this section do not apply to the child's admission to the hospital 
because the admission is not in connection with childbirth.

    (4) Authorization not required--(i) In general. A plan or issuer may 
not require that a physician or other health care provider obtain 
authorization from the plan or issuer for prescribing the hospital 
length of stay required under paragraph (a)(1) of this section. (See 
also paragraphs (b)(2) and (c)(3) of this section for rules and examples 
regarding other authorization and certain notice requirements.)
    (ii) Example. The rule of this paragraph (a)(4) is illustrated by 
the following example:

    Example. (i) In the case of a delivery by cesarean section, a group 
health plan subject to the requirements of this section automatically 
provides benefits for any hospital length of stay of up to 72 hours. For 
any longer stay, the plan requires an attending provider to complete a 
certificate of medical necessity. The plan then makes a determination, 
based on the certificate of medical necessity, whether a longer stay is 
medically necessary.
    (ii) In this Example, the requirement that an attending provider 
complete a certificate of medical necessity to obtain authorization for 
the period between 72 hours and 96 hours following a delivery by 
cesarean section is prohibited by this paragraph (a)(4).

    (5) Exceptions--(i) Discharge of mother. If a decision to discharge 
a mother earlier than the period specified in paragraph (a)(1) of this 
section is made by an attending provider, in consultation with the 
mother, the requirements of paragraph (a)(1) of this section do not

[[Page 608]]

apply for any period after the discharge.
    (ii) Discharge of newborn. If a decision to discharge a newborn 
child earlier than the period specified in paragraph (a)(1) of this 
section is made by an attending provider, in consultation with the 
mother (or the newborn's authorized representative), the requirements of 
paragraph (a)(1) of this section do not apply for any period after the 
discharge.
    (iii) Attending provider defined. For purposes of this section, 
attending provider means an individual who is licensed under applicable 
State law to provide maternity or pediatric care and who is directly 
responsible for providing maternity or pediatric care to a mother or 
newborn child.
    (iv) Example. The rules of this paragraph (a)(5) are illustrated by 
the following example:

    Example. (i) A pregnant woman covered under a group health plan 
subject to the requirements of this section goes into labor and is 
admitted to a hospital. She gives birth by cesarean section. On the 
third day after the delivery, the attending provider for the mother 
consults with the mother, and the attending provider for the newborn 
consults with the mother regarding the newborn. The attending providers 
authorize the early discharge of both the mother and the newborn. Both 
are discharged approximately 72 hours after the delivery. The plan pays 
for the 72-hour hospital stays.
    (ii) In this Example, the requirements of this paragraph (a) have 
been satisfied with respect to the mother and the newborn. If either is 
readmitted, the hospital stay for the readmission is not subject to this 
section.

    (b) Prohibitions--(1) With respect to mothers--(i) In general. A 
group health plan, and a health insurance issuer offering group health 
insurance coverage, may not--
    (A) Deny a mother or her newborn child eligibility or continued 
eligibility to enroll or renew coverage under the terms of the plan 
solely to avoid the requirements of this section; or
    (B) Provide payments (including payments-in-kind) or rebates to a 
mother to encourage her to accept less than the minimum protections 
available under this section.
    (ii) Examples. The rules of this paragraph (b)(1) are illustrated by 
the following examples. In each example, the group health plan is 
subject to the requirements of this section, as follows:

    Example 1. (i) A group health plan provides benefits for at least a 
48-hour hospital length of stay following a vaginal delivery. If a 
mother and newborn covered under the plan are discharged within 24 hours 
after the delivery, the plan will waive the copayment and deductible.
    (ii) In this Example 1, because waiver of the copayment and 
deductible is in the nature of a rebate that the mother would not 
receive if she and her newborn remained in the hospital, it is 
prohibited by this paragraph (b)(1). (In addition, the plan violates 
paragraph (b)(2) of this section because, in effect, no copayment or 
deductible is required for the first portion of the stay and a double 
copayment and a deductible are required for the second portion of the 
stay.)
    Example 2. (i) A group health plan provides benefits for at least a 
48-hour hospital length of stay following a vaginal delivery. In the 
event that a mother and her newborn are discharged earlier than 48 hours 
and the discharges occur after consultation with the mother in 
accordance with the requirements of paragraph (a)(5) of this section, 
the plan provides for a follow-up visit by a nurse within 48 hours after 
the discharges to provide certain services that the mother and her 
newborn would otherwise receive in the hospital.
    (ii) In this Example 2, because the follow-up visit does not provide 
any services beyond what the mother and her newborn would receive in the 
hospital, coverage for the follow-up visit is not prohibited by this 
paragraph (b)(1).

    (2) With respect to benefit restrictions--(i) In general. Subject to 
paragraph (c)(3) of this section, a group health plan, and a health 
insurance issuer offering group health insurance coverage, may not 
restrict the benefits for any portion of a hospital length of stay 
required under paragraph (a) of this section in a manner that is less 
favorable than the benefits provided for any preceding portion of the 
stay.
    (ii) Example. The rules of this paragraph (b)(2) are illustrated by 
the following example:

    Example. (i) A group health plan subject to the requirements of this 
section provides benefits for hospital lengths of stay in connection 
with childbirth. In the case of a delivery by cesarean section, the plan 
automatically pays for the first 48 hours. With respect to each 
succeeding 24-hour period, the participant or beneficiary must call the

[[Page 609]]

plan to obtain precertification from a utilization reviewer, who 
determines if an additional 24-hour period is medically necessary. If 
this approval is not obtained, the plan will not provide benefits for 
any succeeding 24-hour period.
    (ii) In this Example, the requirement to obtain precertification for 
the two 24-hour periods immediately following the initial 48-hour stay 
is prohibited by this paragraph (b)(2) because benefits for the latter 
part of the stay are restricted in a manner that is less favorable than 
benefits for a preceding portion of the stay. (However, this section 
does not prohibit a plan from requiring precertification for any period 
after the first 96 hours.) In addition, if the plan's utilization 
reviewer denied any mother or her newborn benefits within the 96-hour 
stay, the plan would also violate paragraph (a) of this section.

    (3) With respect to attending providers. A group health plan, and a 
health insurance issuer offering group health insurance coverage, may 
not directly or indirectly--
    (i) Penalize (for example, take disciplinary action against or 
retaliate against), or otherwise reduce or limit the compensation of, an 
attending provider because the provider furnished care to a participant 
or beneficiary in accordance with this section; or
    (ii) Provide monetary or other incentives to an attending provider 
to induce the provider to furnish care to a participant or beneficiary 
in a manner inconsistent with this section, including providing any 
incentive that could induce an attending provider to discharge a mother 
or newborn earlier than 48 hours (or 96 hours) after delivery.
    (c) Construction. With respect to this section, the following rules 
of construction apply:
    (1) Hospital stays not mandatory. This section does not require a 
mother to--
    (i) Give birth in a hospital; or
    (ii) Stay in the hospital for a fixed period of time following the 
birth of her child.
    (2) Hospital stay benefits not mandated. This section does not apply 
to any group health plan, or any group health insurance coverage, that 
does not provide benefits for hospital lengths of stay in connection 
with childbirth for a mother or her newborn child.
    (3) Cost-sharing rules--(i) In general. This section does not 
prevent a group health plan or a health insurance issuer offering group 
health insurance coverage from imposing deductibles, coinsurance, or 
other cost-sharing in relation to benefits for hospital lengths of stay 
in connection with childbirth for a mother or a newborn under the plan 
or coverage, except that the coinsurance or other cost-sharing for any 
portion of the hospital length of stay required under paragraph (a) of 
this section may not be greater than that for any preceding portion of 
the stay.
    (ii) Examples. The rules of this paragraph (c)(3) are illustrated by 
the following examples. In each example, the group health plan is 
subject to the requirements of this section, as follows:

    Example 1. (i) A group health plan provides benefits for at least a 
48-hour hospital length of stay in connection with vaginal deliveries. 
The plan covers 80 percent of the cost of the stay for the first 24-hour 
period and 50 percent of the cost of the stay for the second 24-hour 
period. Thus, the coinsurance paid by the patient increases from 20 
percent to 50 percent after 24 hours.
    (ii) In this Example 1, the plan violates the rules of this 
paragraph (c)(3) because coinsurance for the second 24-hour period of 
the 48-hour stay is greater than that for the preceding portion of the 
stay. (In addition, the plan also violates the similar rule in paragraph 
(b)(2) of this section.)
    Example 2. (i) A group health plan generally covers 70 percent of 
the cost of a hospital length of stay in connection with childbirth. 
However, the plan will cover 80 percent of the cost of the stay if the 
participant or beneficiary notifies the plan of the pregnancy in advance 
of admission and uses whatever hospital the plan may designate.
    (ii) In this Example 2, the plan does not violate the rules of this 
paragraph (c)(3) because the level of benefits provided (70 percent or 
80 percent) is consistent throughout the 48-hour (or 96-hour) hospital 
length of stay required under paragraph (a) of this section. (In 
addition, the plan does not violate the rules in paragraph (a)(4) or 
paragraph (b)(2) of this section.)

    (4) Compensation of attending provider. This section does not 
prevent a group health plan or a health insurance issuer offering group 
health insurance coverage from negotiating with an attending provider 
the level and type of compensation for care furnished in accordance with 
this section (including paragraph (b) of this section).
    (d) Notice requirement. Except as provided in paragraph (d)(4)of 
this section,

[[Page 610]]

a group health plan that provides benefits for hospital lengths of stay 
in connection with childbirth must meet the following requirements:
    (1) Required statement. The plan document that provides a 
description of plan benefits to participants and beneficiaries must 
disclose information that notifies participants and beneficiaries of 
their rights under this section.
    (2) Disclosure notice. To meet the disclosure requirement set forth 
in paragraph (d)(1) of this section, the following disclosure notice 
must be used:

 Statement of Rights Under the Newborns' and Mothers' Health Protection 
                                   Act

    Under federal law, group health plans and health insurance issuers 
offering group health insurance coverage generally may not restrict 
benefits for any hospital length of stay in connection with childbirth 
for the mother or newborn child to less than 48 hours following a 
vaginal delivery, or less than 96 hours following a delivery by cesarean 
section. However, the plan or issuer may pay for a shorter stay if the 
attending provider (e.g., your physician, nurse midwife, or physician 
assistant), after consultation with the mother, discharges the mother or 
newborn earlier.
    Also, under federal law, plans and issuers may not set the level of 
benefits or out-of-pocket costs so that any later portion of the 48-hour 
(or 96-hour) stay is treated in a manner less favorable to the mother or 
newborn than any earlier portion of the stay.
    In addition, a plan or issuer may not, under federal law, require 
that a physician or other health care provider obtain authorization for 
prescribing a length of stay of up to 48 hours (or 96 hours). However, 
to use certain providers or facilities, or to reduce your out-of-pocket 
costs, you may be required to obtain precertification. For information 
on precertification, contact your plan administrator.

    (3) Timing of disclosure. The disclosure notice in paragraph (d)(2) 
of this section shall be furnished to each participant covered under a 
group health plan, and each beneficiary receiving benefits under a group 
health plan, not later than 60 days after the first day of the first 
plan year beginning on or after January 1, 1999.
    (4) Exceptions. The requirements of this paragraph (d) do not apply 
in the following situations:
    (i) Self-insured plans. The benefits for hospital lengths of stay in 
connection with childbirth are not provided through health insurance 
coverage, and the group health plan has made the election described in 
Sec. 146.180 to be exempted from the requirements of this section.
    (ii) Insured plans. The benefits for hospital lengths of stay in 
connection with childbirth are provided through health insurance 
coverage, and the coverage is regulated under a State law described in 
paragraph (e) of this section.
    (e) Applicability in certain States--(1) Health insurance coverage. 
The requirements of section 2704 of the PHS Act and this section do not 
apply with respect to health insurance coverage offered in connection 
with a group health plan if there is a State law regulating the coverage 
that meets any of the following criteria:
    (i) The State law requires the coverage to provide for at least a 
48-hour hospital length of stay following a vaginal delivery and at 
least a 96-hour hospital length of stay following a delivery by cesarean 
section.
    (ii) The State law requires the coverage to provide for maternity 
and pediatric care in accordance with guidelines established by the 
American College of Obstetricians and Gynecologists, the American 
Academy of Pediatrics, or any other established professional medical 
association.
    (iii) The State law requires, in connection with the coverage for 
maternity care, that the hospital length of stay for such care is left 
to the decision of (or is required to be made by) the attending provider 
in consultation with the mother. State laws that require the decision to 
be made by the attending provider with the consent of the mother satisfy 
the criterion of this paragraph (e)(1)(iii).
    (2) Group health plans--(i) Fully-insured plans. For a group health 
plan that provides benefits solely through health insurance coverage, if 
the State law regulating the health insurance coverage meets any of the 
criteria in paragraph (e)(1) of this section, then the requirements of 
section 2704 of the PHS Act and this section do not apply.
    (ii) Self-insured plans. For a group health plan that provides all 
benefits

[[Page 611]]

for hospital lengths of stay in connection with childbirth other than 
through health insurance coverage, the requirements of section 2704 of 
the PHS Act and this section apply.
    (iii) Partially-insured plans. For a group health plan that provides 
some benefits through health insurance coverage, if the State law 
regulating the health insurance coverage meets any of the criteria in 
paragraph (e)(1) of this section, then the requirements of section 2704 
of the PHS Act and this section apply only to the extent the plan 
provides benefits for hospital lengths of stay in connection with 
childbirth other than through health insurance coverage.
    (3) Relation to section 2723(a) of the PHS Act. The preemption 
provisions contained in section 2723(a)(1) of the PHS Act and 
Sec. 146.143(a) do not supersede a State law described in paragraph 
(e)(1) of this section.
    (4) Examples. The rules of this paragraph (e) are illustrated by the 
following examples:

    Example 1. (i) A group health plan buys group health insurance 
coverage in a State that requires that the coverage provide for at least 
a 48-hour hospital length of stay following a vaginal delivery and at 
least a 96-hour hospital length of stay following a delivery by cesarean 
section.
    (ii) In this Example 1, the coverage is subject to State law, and 
the requirements of section 2704 of the PHS Act and this section do not 
apply.
    Example 2. (i) A self-insured group health plan covers hospital 
lengths of stay in connection with childbirth in a State that requires 
health insurance coverage to provide for maternity care in accordance 
with guidelines established by the American College of Obstetricians and 
Gynecologists and to provide for pediatric care in accordance with 
guidelines established by the American Academy of Pediatrics.
    (ii) In this Example 2, even though the State law satisfies the 
criterion of paragraph (e)(1)(ii) of this section, because the plan 
provides benefits for hospital lengths of stay in connection with 
childbirth other than through health insurance coverage, the plan is 
subject to the requirements of section 2704 of the PHS Act and this 
section.

    (f) Effective date. Section 2704 of the PHS Act applies to group 
health plans, and health insurance issuers offering group health 
insurance coverage, for plan years beginning on or after January 1, 
1998. This section applies to group health plans, and health insurance 
issuers offering group health insurance coverage, for plan years 
beginning on or after January 1, 1999.

[63 FR 57559, Oct. 27, 1998]



Sec. 146.136  Parity in the application of certain limits to mental health benefits.

    (a) Definitions. For purposes of this section, except where the 
context clearly indicates otherwise, the following definitions apply:
    Aggregate lifetime limit means a dollar limitation on the total 
amount of specified benefits that may be paid under a group health plan 
(or group health insurance coverage offered in connection with such 
plan) for an individual (or for a group of individuals considered a 
single unit in applying this dollar limitation, such as a family or an 
employee plus spouse).
    Annual limit means a dollar limitation on the total amount of 
specified benefits that may be paid in a 12-month period under a plan 
(or group health insurance coverage offered in connection with such 
plan) for an individual (or for a group of individuals considered a 
single unit in applying this dollar limitation, such as a family or an 
employee plus spouse).
    Medical/surgical benefits means benefits for medical or surgical 
services, as defined under the terms of the plan or group health 
insurance coverage, but does not include mental health benefits.
    Mental health benefits means benefits for mental health services, as 
defined under the terms of the plan or group health insurance coverage, 
but does not include benefits for treatment of substance abuse or 
chemical dependency.
    (b) Requirements regarding limits on benefits--(1) In general--(i) 
General parity requirement. A group health plan (or health insurance 
coverage offered by an issuer in connection with a group health plan) 
that provides both medical/surgical benefits and mental health benefits 
must comply with paragraph (b)(2), paragraph (b)(3), or paragraph (b)(6) 
of this section.
    (ii) Exception. The rule in paragraph (b)(1)(i) of this section does 
not apply if

[[Page 612]]

a plan, or coverage, satisfies the requirements of paragraph (e) or 
paragraph (f) of this section.
    (2) Plan with no limit or limits on less than one-third of all 
medical/surgical benefits. If a plan (or group health insurance 
coverage) does not include an aggregate lifetime or annual limit on any 
medical/surgical benefits or includes aggregate lifetime or annual 
limits that apply to less than one-third of all medical/surgical 
benefits, it may not impose an aggregate lifetime or annual limit, 
respectively, on mental health benefits.
    (3) Plan with a limit on at least two-thirds of all medical/surgical 
benefits. If a plan (or group health insurance coverage) includes an 
aggregate lifetime or annual limit on at least two-thirds of all 
medical/surgical benefits, it must either--
    (i) Apply the aggregate lifetime or annual limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health benefits in a manner that does not distinguish between 
the medical/surgical and mental health benefits; or
    (ii) Not include an aggregate lifetime or annual limit on mental 
health benefits that is less than the aggregate lifetime or annual 
limit, respectively, on the medical/surgical benefits.
    (4) Examples. The rules of paragraphs (b) (2) and (3) of this 
section are illustrated by the following examples:

    Example 1. (i) Prior to the effective date of the mental health 
parity provisions, a group health plan had no annual limit on medical/
surgical benefits and had a $10,000 annual limit on mental health 
benefits. To comply with the parity requirements of this paragraph (b), 
the plan sponsor is considering each of the following options:
    (A) Eliminating the plan's annual limit on mental health benefits;
    (B) Replacing the plan's previous annual limit on mental health 
benefits with a $500,000 annual limit on all benefits (including 
medical/surgical and mental health benefits); and
    (C) Replacing the plan's previous annual limit on mental health 
benefits with a $250,000 annual limit on medical/surgical benefits and a 
$250,000 annual limit on mental health benefits.
    (ii) In this Example 1, each of the three options being considered 
by the plan sponsor would comply with the requirements of this section 
because they offer parity in the dollar limits placed on medical/
surgical and mental health benefits.
    Example 2. (i) Prior to the effective date of the mental health 
parity provisions, a group health plan had a $100,000 annual limit on 
medical/surgical inpatient benefits, a $50,000 annual limit on medical/
surgical outpatient benefits, and a $100,000 annual limit on all mental 
health benefits. To comply with the parity requirements of this 
paragraph (b), the plan sponsor is considering each of the following 
options:
    (A) Replacing the plan's previous annual limit on mental health 
benefits with a $150,000 annual limit on mental health benefits; and
    (B) Replacing the plan's previous annual limit on mental health 
benefits with a $100,000 annual limit on mental health inpatient 
benefits and a $50,000 annual limit on mental health outpatient 
benefits.
    (ii) In this Example 2, each option under consideration by the plan 
sponsor would comply with the requirements of this section because they 
offer parity in the dollar limits placed on medical/surgical and mental 
health benefits.
    Example 3. (i) A group health plan that is subject to the 
requirements of this section has no aggregate lifetime or annual limit 
for either medical/surgical benefits or mental health benefits. While 
the plan provides medical/surgical benefits with respect to both network 
and out-of-network providers, it does not provide mental health benefits 
with respect to out-of-network providers.
    (ii) In this Example 3, the plan complies with the requirements of 
this section because they offer parity in the dollar limits placed on 
medical/surgical and mental health benefits.
    Example 4. (i) Prior to the effective date of the mental health 
parity provisions, a group health plan had an annual limit on medical/
surgical benefits and a separate but identical annual limit on mental 
health benefits. The plan included benefits for treatment of substance 
abuse and chemical dependency in its definition of mental health 
benefits. Accordingly, claims paid for treatment of substance abuse and 
chemical dependency were counted in applying the annual limit on mental 
health benefits. To comply with the parity requirements of this 
paragraph (b), the plan sponsor is considering each of the following 
options:
    (A) Making no change in the plan so that claims paid for treatment 
of substance abuse and chemical dependency continue to count in applying 
the annual limit on mental health benefits;
    (B) Amending the plan to count claims paid for treatment of 
substance abuse and chemical dependency in applying the annual limit on 
medical/surgical benefits (rather than counting those claims in applying 
the annual limit on mental health benefits);

[[Page 613]]

    (C) Amending the plan to provide a new category of benefits for 
treatment of chemical dependency and substance abuse that is subject to 
a separate, lower limit and under which claims paid for treatment of 
substance abuse and chemical dependency are counted only in applying the 
annual limit on this separate category; and
    (D) Amending the plan to eliminate distinctions between medical/
surgical benefits and mental health benefits and establishing an overall 
limit on benefits offered under the plan under which claims paid for 
treatment of substance abuse and chemical dependency are counted with 
medical/surgical benefits and mental health benefits in applying the 
overall limit.
    (ii) In this Example 4, the group health plan is described in 
paragraph (b)(3) of this section. Because mental health benefits are 
defined in paragraph (a) of this section as excluding benefits for 
treatment of substance abuse and chemical dependency, the inclusion of 
benefits for treatment of substance abuse and chemical dependency in 
applying an aggregate lifetime limit or annual limit on mental health 
benefits under option (A) of this Example 4 would not comply with the 
requirements of paragraph (b)(3) of this section. However, options (B), 
(C), and (D) of this Example 4 would comply with the requirements of 
paragraph (b)(3) of this section because they offer parity in the dollar 
limits placed on medical/surgical and mental health benefits.

    (5) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this paragraph (b), the determination of 
whether the portion of medical/surgical benefits subject to a limit 
represents one-third or two-thirds of all medical/surgical benefits is 
based on the dollar amount of all plan payments for medical/surgical 
benefits expected to be paid under the plan for the plan year (or for 
the portion of the plan year after a change in plan benefits that 
affects the applicability of the aggregate lifetime or annual limits). 
Any reasonable method may be used to determine whether the dollar 
amounts expected to be paid under the plan will constitute one-third or 
two-thirds of the dollar amount of all plan payments for medical/
surgical benefits.
    (6) Plan not described in paragraph (b)(2) or paragraph (b)(3) of 
this section--(i) In general. A group health plan (or group health 
insurance coverage) that is not described in paragraph (b)(2) or 
paragraph (b)(3) of this section, must either impose--
    (A) No aggregate lifetime or annual limit, as appropriate, on mental 
health benefits; or
    (B) An aggregate lifetime or annual limit on mental health benefits 
that is no less than an average limit for medical/surgical benefits 
calculated in the following manner. The average limit is calculated by 
taking into account the weighted average of the aggregate lifetime or 
annual limits, as appropriate, that are applicable to the categories of 
medical/surgical benefits. Limits based on delivery systems, such as 
inpatient/outpatient treatment, or normal treatment of common, low-cost 
conditions (such as treatment of normal births), do not constitute 
categories for purposes of this paragraph (b)(6)(i)(B). In addition, for 
purposes of determining weighted averages, any benefits that are not 
within a category that is subject to a separately-designated limit under 
the plan are taken into account as a single separate category by using 
an estimate of the upper limit on the dollar amount that a plan may 
reasonably be expected to incur with respect to such benefits, taking 
into account any other applicable restrictions under the plan.
    (ii) Weighting. For purposes of this paragraph (b)(6), the weighting 
applicable to any category of medical/surgical benefits is determined in 
the manner set forth in paragraph (b)(5) of this section for determining 
one-third or two-thirds of all medical/surgical benefits.
    (iii) Examples. The rules of this paragraph (b)(6) are illustrated 
by the following example:

    Example. (i) A group health plan that is subject to the requirements 
of this section includes a $100,000 annual limit on medical/surgical 
benefits related to cardio-pulmonary diseases. The plan does not include 
an annual limit on any other category of medical/surgical benefits. The 
plan determines that 40% of the dollar amount of plan payments for 
medical/surgical benefits are related to cardio-pulmonary diseases. The 
plan determines that $1,000,000 is a reasonable estimate of the upper 
limit on the dollar amount that the plan may incur with respect to the 
other 60% of payments for medical/surgical benefits.

[[Page 614]]

    (ii) In this Example, the plan is not described in paragraph (b)(3) 
of this section because there is not one annual limit that applies to at 
least two-thirds of all medical/surgical benefits. Further, the plan is 
not described in paragraph (b)(2) of this section because more than one-
third of all medical/surgical benefits are subject to an annual limit. 
Under this paragraph (b)(6), the plan sponsor can choose either to 
include no annual limit on mental health benefits, or to include an 
annual limit on mental health benefits that is not less than the 
weighted average of the annual limits applicable to each category of 
medical/surgical benefits. In this example, the minimum weighted average 
annual limit that can be applied to mental health benefits is $640,000 
(40% `` $100,000 + 60% `` $1,000,000 = $640,000).

    (c) Rule in the case of separate benefit packages. If a group health 
plan offers two or more benefit packages, the requirements of this 
section, including the exemption provisions in paragraph (f) of this 
section, apply separately to each benefit package. Examples of a group 
health plan that offers two or more benefit packages include a group 
health plan that offers employees a choice between indemnity coverage or 
HMO coverage, and a group health plan that provides one benefit package 
for retirees and a different benefit package for current employees.
    (d) Applicability--(1) Group health plans. The requirements of this 
section apply to a group health plan offering both medical/surgical 
benefits and mental health benefits regardless of whether the mental 
health benefits are administered separately under the plan.
    (2) Health insurance issuers. The requirements of this section apply 
to a health insurance issuer offering health insurance coverage for both 
medical/surgical benefits and mental health benefits in connection with 
a group health plan.
    (3) Scope. This section does not--
    (i) Require a group health plan (or health insurance issuer offering 
coverage in connection with a group health plan) to provide any mental 
health benefits; or
    (ii) Affect the terms and conditions (including cost sharing, limits 
on the number of visits or days of coverage, requirements relating to 
medical necessity, requiring prior authorization for treatment, or 
requiring primary care physicians' referrals for treatment) relating to 
the amount, duration, or scope of the mental health benefits under the 
plan (or coverage) except as specifically provided in paragraph (b) of 
this section.
    (e) Small employer exemption--(1) In general. The requirements of 
this section do not apply to a group health plan (or health insurance 
issuer offering coverage in connection with a group health plan) for a 
plan year of a small employer. For purposes of this paragraph (e), the 
term small employer means, in connection with a group health plan with 
respect to a calendar year and a plan year, an employer who employed an 
average of at least two but not more than 50 employees on business days 
during the preceding calendar year and who employs at least two 
employees on the first day of the plan year. See regulations at 
Sec. 146.145(a), which provide that this section (and certain other 
sections) does not apply to any group health plan (and health insurance 
issuer offering coverage in connection with a group health plan) for any 
plan year if, on the first day of the plan year, the plan has fewer than 
two participants who are current employees.
    (2) Rules in determining employer size. For purposes of paragraph 
(e)(1) of this section--
    (i) All persons treated as a single employer under subsections (b), 
(c), (m), and (o) of section 414 of the Internal Revenue Code of 1986 
(26 U.S.C. 414) are treated as one employer;
    (ii) If an employer was not in existence throughout the preceding 
calendar year, whether it is a small employer is determined based on the 
average number of employees the employer reasonably expects to employ on 
business days during the current calendar year; and
    (iii) Any reference to an employer for purposes of the small 
employer exemption includes a reference to a predecessor of the 
employer.
    (f) Increased cost exemption--(1) In general. A group health plan 
(or health insurance coverage offered in connection with a group health 
plan) is not subject to the requirements of this section if the 
requirements of this paragraph (f) are satisfied. If a plan offers more 
than

[[Page 615]]

one benefit package, this paragraph (f) applies separately to each 
benefit package. Except as provided in paragraph (h) of this section, a 
plan must comply with the requirements of paragraph (b)(1)(i) of this 
section for the first plan year beginning on or after January 1, 1998, 
and must continue to comply with the requirements of paragraph (b)(1)(i) 
of this section until the plan satisfies the requirements in this 
paragraph (f). In no event is the exemption of this paragraph (f) 
effective until 30 days after the notice requirements in paragraph 
(f)(3) of this section are satisfied. If the requirements of this 
paragraph (f) are satisfied with respect to a plan, the exemption 
continues in effect (at the plan's discretion) until September 30, 2001, 
even if the plan subsequently purchases a different policy from the same 
or a different issuer and regardless of any other changes to the plan's 
benefit structure.
    (2) Calculation of the one-percent increase--(i) Ratio. A group 
health plan (or group health insurance coverage) satisfies the 
requirements of this paragraph (f)(2) if the application of paragraph 
(b)(1)(i) of this section to the plan (or to such coverage) results in 
an increase in the cost under the plan (or for such coverage) of at 
least one percent. The application of paragraph (b)(1)(i) of this 
section results in an increased cost of at least one percent under a 
group health plan (or for such coverage) only if the ratio below equals 
or exceeds 1.01000. The ratio is determined as follows:
    (A) The incurred expenditures during the base period, divided by,
    (B) The incurred expenditures during the base period, reduced by--
    (1) The claims incurred during the base period that would have been 
denied under the terms of the plan absent plan amendments required to 
comply with this section, and
    (2) Administrative expenses attributable to complying with the 
requirements of this section.
    (ii) Formula. The ratio of paragraph (f)(2)(i) is expressed 
mathematically as follows:
[GRAPHIC] [TIFF OMITTED] TR22DE97.004

    (A) IE means the incurred expenditures during the base period.
    (B) CE means the claims incurred during the base period that would 
have been denied under the terms of the plan absent plan amendments 
required to comply with this section.
    (C) AE means administrative costs related to claims in CE and other 
administrative costs attributable to complying with the requirements of 
this section.
    (iii) Incurred expenditures. Incurred expenditures means actual 
claims incurred during the base period and reported within two months 
following the base period, and administrative costs for all benefits 
under the group health plan, including mental health benefits and 
medical/surgical benefits, during the base period. Incurred expenditures 
do not include premiums.
    (iv) Base period. Base period means the period used to calculate 
whether the plan may claim the one-percent increased cost exemption in 
this paragraph (f). The base period must begin on the first day in any 
plan year that the plan complies with the requirements of paragraph 
(b)(1)(i) of this section and must extend for a period of at least six 
consecutive calendar months. However, in no event may the base period 
begin prior to September 26, 1996 (the date of enactment of the Mental 
Health Parity Act (Pub. L. 104-204, 110 Stat. 2944)).
    (v) Rating pools. For plans that are combined in a pool for rating 
purposes, the calculation under this paragraph (f)(2) for each plan in 
the pool for the base period is based on the incurred expenditures of 
the pool, whether or not all the plans in the pool have participated in 
the pool for the entire base period. (However, only the plans that have 
complied with paragraph (b)(1)(i) of this section for at least six 
months

[[Page 616]]

as a member of the pool satisfy the requirements of this paragraph 
(f)(2).) Otherwise, the calculation under this paragraph (f)(2) for each 
plan is calculated by the plan administrator (or issuer) based on the 
incurred expenditures of the plan.
    (vi) Examples. The rules of this paragraph (f)(2) are illustrated by 
the following examples:

    Example 1. (i) A group health plan has a plan year that is the 
calendar year. The plan satisfies the requirements of paragraph 
(b)(1)(i) of this section as of January 1, 1998. On September 15, 1998, 
the plan determines that $1,000,000 in claims have been incurred during 
the period between January 1, 1998 and June 30, 1998 and reported by 
August 30, 1998. The plan also determines that $100,000 in 
administrative costs have been incurred for all benefits under the group 
health plan, including mental health benefits. Thus, the plan determines 
that its incurred expenditures for the base period are $1,100,000. The 
plan also determines that the claims incurred during the base period 
that would have been denied under the terms of the plan absent plan 
amendments required to comply with this section are $40,000 and that 
administrative expenses attributable to complying with the requirements 
of this section are $10,000. Thus, the total amount of expenditures for 
the base period had the plan not been amended to comply with the 
requirements of paragraph (b)(1)(i) of this section are $1,050,000 
($1,100,000--($40,000 + $10,000) = $1,050,000).
    (ii) In this Example 1, the plan satisfies the requirements of this 
paragraph (f)(2) because the application of this section results in an 
increased cost of at least one percent under the terms of the plan 
($1,100,000/$1,050,000 = 1.04762).
    Example 2. (i) A health insurance issuer sells a group health 
insurance policy that is rated on a pooled-basis and is sold to 30 group 
health plans. One of the group health plans inquires whether it 
qualifies for the one percent increased cost exemption. The issuer 
performs the calculation for the pool as a whole and determines that the 
application of this section results in an increased cost of 0.500 
percent (for a ratio under this paragraph (f)(2) of 1.00500) for the 
pool. The issuer informs the requesting plan and the other plans in the 
pool of the calculation.
    (ii) In this Example 2, none of the plans satisfy the requirements 
of this paragraph (f)(2) and a plan that purchases a policy not 
complying with the requirements of paragraph (b)(1)(i) of this section 
violates the requirements of this section. In addition, an issuer that 
issues to any of the plans in the pool a policy not complying with the 
requirements of paragraph (b)(1)(i) of this section violates the 
requirements of this section.
    Example 3. (i) A partially-insured plan is collecting the 
information to determine whether it qualifies for the exemption. The 
plan administrator determines the incurred expenses for the base period 
for the self-funded portion of the plan to be $2,000,000 and the 
administrative expenses for the base period for the self-funded portion 
to be $200,000. For the insured portion of the plan, the plan 
administrator requests data from the insurer. For the insured portion of 
the plan, the plan's own incurred expenses for the base period are 
$1,000,000 and the administrative expenses for the base period are 
$100,000. The plan administrator determines that under the self-funded 
portion of the plan, the claims incurred for the base period that would 
have been denied under the terms of the plan absent the amendment are $0 
because the self-funded portion does not cover mental health benefits 
and the plan's administrative costs attributable to complying with the 
requirements of this section are $1,000. The issuer determines that 
under the insured portion of the plan, the claims incurred for the base 
period that would have been denied under the terms of the plan absent 
the amendment are $25,000 and the administrative costs attributable to 
complying with the requirements of this section are $1,000. Thus, the 
total incurred expenditures for the plan for the base period are 
$3,300,000 ($2,000,000 + $200,000 + $1,000,000 + $100,000 = $3,300,000) 
and the total amount of expenditures for the base period had the plan 
not been amended to comply with the requirements of paragraph (b)(1)(i) 
of this section are $3,273,000 ($3,300,000 - ($0 + $1,000 + $25,000 + 
$1,000) = $3,273,000).
    (ii) In this Example 3, the plan does not satisfy the requirements 
of this paragraph (f)(2) because the application of this section does 
not result in an increased cost of at least one percent under the terms 
of the plan ($3,300,000/$3,273,000 = 1.00825).

    (3) Notice of exemption--(i) Participants and beneficiaries--(A) In 
general. A group health plan must notify participants and beneficiaries 
of the plan's decision to claim the one percent increased cost 
exemption. The notice must include the following information:
    (1) A statement that the plan is exempt from the requirements of 
this section and a description of the basis for the exemption.
    (2) The name and telephone number of the individual to contact for 
further information.
    (3) The plan name and plan number (PN).

[[Page 617]]

    (4) The plan administrator's name, address, and telephone number.
    (5) For single-employer plans, the plan sponsor's name, address, and 
telephone number (if different from paragraph (f)(3)(i)(A)(3) of this 
section) and the plan sponsor's employer identification number (EIN).
    (6) The effective date of such exemption.
    (7) The ability of participants and beneficiaries to contact the 
plan administrator to see how benefits may be affected as a result of 
the plan's election of the exemption.
    (8) The availability, upon request and free of charge, of a summary 
of the information required under paragraph (f)(4) of this section.
    (B) Use of summary of material reductions in covered services or 
benefits. A plan may satisfy the requirements of paragraph (f)(3)(i)(A) 
by providing participants and beneficiaries (in accordance with 
paragraph (f)(3)(i)(C)) with a summary of material reductions in covered 
services or benefits consistent with Department of Labor regulations at 
29 CFR 2520.104b-3(d) that also includes the information of this 
paragraph (f)(3)(i). However, in all cases, the exemption is not 
effective until 30 days after notice has been sent.
    (C) Delivery. The notice described in this paragraph (f)(3)(i) is 
required to be provided to all participants and beneficiaries. The 
notice may be furnished by any method of delivery that satisfies the 
requirements of section 104(b)(1) of ERISA (29 U.S.C. 1024(b)(1)) (e.g., 
first-class mail). If the notice is provided to the participant at the 
participant's last known address, then the requirements of this 
paragraph (f)(3)(i) are satisfied with respect to the participant and 
all beneficiaries residing at that address. If a beneficiary's last 
known address is different from the participant's last known address, a 
separate notice is required to be provided to the beneficiary at the 
beneficiary's last known address.
    (D) Example. The rules of this paragraph (f)(3)(i) are illustrated 
by the following example:

    Example. (i) A group health plan has a plan year that is the 
calendar year and has an open enrollment period every November 1 through 
November 30. The plan determines on September 15 that it satisfies the 
requirements of paragraph (f)(2) of this section. As part of its open 
enrollment materials, the plan mails, on October 15, to all participants 
and beneficiaries a notice satisfying the requirements of this paragraph 
(f)(3)(i).
    (ii) In this Example, the plan has sent the notice in a manner that 
complies with this paragraph (f)(3)(i).

    (ii) Federal agencies--(A) Church plans. A church plan (as defined 
in section 414(e) of the Internal Revenue Code) claiming the exemption 
of this paragraph (f) for any benefit package must provide notice to the 
Department of the Treasury. This requirement is satisfied if the plan 
sends a copy, to the address designated by the Secretary in generally 
applicable guidance, of the notice described in paragraph (f)(3)(i) of 
this section identifying the benefit package to which the exemption 
applies.
    (B) Group health plans subject to Part 7 of Subtitle B of Title I of 
ERISA. A group health plan subject to Part 7 of Subtitle B of Title I of 
ERISA, and claiming the exemption of this paragraph (f) for any benefit 
package, must provide notice to the Department of Labor. This 
requirement is satisfied if the plan sends a copy, to the address 
designated by the Secretary in generally applicable guidance, of the 
notice described in paragraph (f)(3)(i) of this section identifying the 
benefit package to which the exemption applies.
    (C) Non-Federal governmental plans. A group health plan that is a 
non-Federal governmental plan claiming the exemption of this paragraph 
(f) for any benefit package must provide notice to the Department of 
Health and Human Services (HHS). This requirement is satisfied if the 
plan sends a copy, to the address designated by the Secretary in 
generally applicable guidance, of the notice described in paragraph 
(f)(3)(i) of this section identifying the benefit package to which the 
exemption applies.
    (4) Availability of documentation. The plan (or issuer) must make 
available to participants and beneficiaries (or their representatives), 
on request and at no charge, a summary of the information on which the 
exemption was based. An individual who is not a participant or 
beneficiary and who presents a notice

[[Page 618]]

described in paragraph (f)(3)(i) of this section is considered to be a 
representative. A representative may request the summary of information 
by providing the plan a copy of the notice provided to the participant 
under paragraph (f)(3)(i) of this section with any individually 
identifiable information redacted. The summary of information must 
include the incurred expenditures, the base period, the dollar amount of 
claims incurred during the base period that would have been denied under 
the terms of the plan absent amendments required to comply with 
paragraph (b)(1)(i) of this section, the administrative costs related to 
those claims, and other administrative costs attributable to complying 
with the requirements for the exemption. In no event should the summary 
of information include any individually identifiable information.
    (g) Special rules for group health insurance coverage--(1) Sale of 
nonparity policies. An issuer may sell a policy without parity (as 
described in paragraph (b) of this section) only to a plan that meets 
the requirements of paragraph (e) or paragraph (f) of this section.
    (2) Duration of exemption. After a plan meets the requirements of 
paragraph (f) of this section, the plan may change issuers without 
having to meet the requirements of paragraph (f) of this section again 
before September 30, 2001.
    (h) Effective dates--(1) In general. The requirements of this 
section are applicable for plan years beginning on or after January 1, 
1998.
    (2) Limitation on actions. (i) Except as provided in paragraph 
(h)(3) of this section, no enforcement action is to be taken by the 
Secretary against a group health plan that has sought to comply in good 
faith with the requirements of section 2705 of the PHS Act, with respect 
to a violation that occurs before the earlier of--
    (A) The first day of the first plan year beginning on or after April 
1, 1998; or
    (B) January 1, 1999.
    (ii) Compliance with the requirements of this section is deemed to 
be good faith compliance with the requirements of section 2705 of the 
PHS Act.
    (iii) The rules of this paragraph (h)(2) are illustrated by the 
following examples:

    Example 1. (i) A group health plan has a plan year that is the 
calendar year. The plan complies with section 2705 of the PHS Act in 
good faith using assumptions inconsistent with paragraph (b)(6) of this 
section relating to weighted averages for categories of benefits.
    (ii) In this Example 1, no enforcement action may be taken against 
the plan with respect to a violation resulting solely from those 
assumptions and occurring before January 1, 1999.
    Example 2. (i) A group health plan has a plan year that is the 
calendar year. For the entire 1998 plan year, the plan applies a 
$1,000,000 annual limit on medical/surgical benefits and a $100,000 
annual limit on mental health benefits.
    (ii) In this Example 2, the plan has not sought to comply with the 
requirements of section 2705 of the PHS Act in good faith and this 
paragraph (h)(2) does not apply.

    (3) Transition period for increased cost exemption--(i) In general. 
No enforcement action will be taken against a group health plan that is 
subject to the requirements of this section based on a violation of this 
section that occurs before April 1, 1998 solely because the plan claims 
the increased cost exemption under section 2705(c)(2) of the PHS Act 
based on assumptions inconsistent with the rules under paragraph (f) of 
this section, provided that a plan amendment that complies with the 
requirements of paragraph (b)(1)(i) of this section is adopted and 
effective no later than March 31, 1998 and the plan complies with the 
notice requirements in paragraph (h)(3)(ii) of this section.
    (ii) Notice of plan's use of transition period. (A) A group health 
plan satisfies the requirements of this paragraph (h)(3)(ii) only if the 
plan provides notice to the applicable federal agency and posts the 
notice at the location(s) where documents must be made available for 
examination by participants and beneficiaries under section 104(b)(2) of 
ERISA and the regulations thereunder (29 CFR 2520.104b-1(b)(3)). The 
notice must indicate the plan's decision to use the transition period in 
paragraph (h)(3)(i) of this section by 30 days after the first day of 
the plan year beginning on or after January 1, 1998, but in no event 
later than March 31, 1998. For a group health plan that is a

[[Page 619]]

church plan, the applicable federal agency is the Department of the 
Treasury. For a group health plan that is subject to Part 7 of Subtitle 
B of Title I of ERISA, the applicable federal agency is the Department 
of Labor. For a group health plan that is a nonfederal governmental 
plan, the applicable federal agency is the Department of Health and 
Human Services. The notice must include--
    (1) The name of the plan and the plan number (PN);
    (2) The name, address, and telephone number of the plan 
administrator;
    (3) For single-employer plans, the name, address, and telephone 
number of the plan sponsor (if different from the plan administrator) 
and the plan sponsor's employer identification number (EIN);
    (4) The name and telephone number of the individual to contact for 
further information; and
    (5) The signature of the plan administrator and the date of the 
signature.
    (B) The notice must be provided at no charge to participants or 
their representative within 15 days after receipt of a written or oral 
request for such notification, but in no event before the notice has 
been sent to the applicable federal agency.
    (i) Sunset. This section does not apply to benefits for services 
furnished on or after September 30, 2001.

[62 FR 66961, Dec. 22, 1997]



                 Subpart D--Preemption and Special Rules



Sec. 146.143  Preemption; State flexibility; construction.

    (a) Continued applicability of State law with respect to health 
insurance issuers. Subject to paragraph (b) of this section and except 
as provided in paragraph (c) of this section, part A of title XXVII of 
the PHS Act is not to be construed to supersede any provision of State 
law which establishes, implements, or continues in effect any standard 
or requirement solely relating to health insurance issuers in connection 
with group health insurance coverage except to the extent that such 
standard or requirement prevents the application of a requirement of 
part A of title XXVII of the PHS Act.
    (b) Continued preemption with respect to group health plans. Nothing 
in part A of title XXVII of the PHS Act affects or modifies the 
provisions of section 514 of ERISA with respect to group health plans.
    (c) Special rules--(1) General. Subject to paragraph (c)(2) of this 
section, the provisions of part A of title XXVII of the PHS Act relating 
to health insurance coverage offered by a health insurance issuer 
supersede any provision of State law which establishes, implements, or 
continues in effect a standard or requirement applicable to imposition 
of a preexisting condition exclusion specifically governed by section 
2701 of the PHS Act, which differs from the standards or requirements 
specified in such section.
    (2) Exceptions. Only in relation to health insurance coverage 
offered by a health insurance issuer, the provisions of this part do not 
supersede any provision of State law to the extent that such provision--
    (i) Shortens the period of time from the ``6-month period'' 
described in section 2701(a)(1) of the PHS Act and Sec. 146.111(a)(1)(i) 
(for purposes of identifying a preexisting condition);
    (ii) Shortens the period of time from the ``12 months'' and ``18 
months'' described in section 2701(a)(2) of the PHS Act and 
Sec. 146.111(a)(1)(ii) (for purposes of applying a preexisting condition 
exclusion period);
    (iii) Provides for a greater number of days than the ``63-day 
period'' described in sections 2701 (c)(2)(A) and (d)(4)(A) of the PHS 
Act and Secs. 146.111(a)(1)(iii) and 146.113 (for purposes of applying 
the break in coverage rules);
    (iv) Provides for a greater number of days than the ``30-day 
period'' described in sections 2701 (b)(2) and (d)(1) of the PHS Act and 
Sec. 146.111(b) (for purposes of the enrollment period and preexisting 
condition exclusion periods for certain newborns and children that are 
adopted or placed for adoption);
    (v) Prohibits the imposition of any preexisting condition exclusion 
in cases not described in section 2701(d) of the PHS Act or expands the 
exceptions described in that section;

[[Page 620]]

    (vi) Requires special enrollment periods in addition to those 
required under section 2701(f) of the PHS Act; or
    (vii) Reduces the maximum period permitted in an affiliation period 
under section 701(g)(1)(B).
    (d) Definitions--(1) State law. For purposes of this section the 
term ``State law'' includes all laws, decisions, rules, regulations, or 
other State action having the effect of law, of any State. A law of the 
United States applicable only to the District of Columbia is treated as 
a State law rather than a law of the United States.
    (2) State. For purposes of this section the term ``State'' includes 
a State, the Northern Mariana Islands, any political subdivisions of a 
State or such Islands, or any agency or instrumentality of either.



Sec. 146.145  Special rules relating to group health plans.

    (a) General exception for certain small group health plans. The 
requirements of this part do not apply to any group health plan (and 
group health insurance coverage offered in connection with a group 
health plan) for any plan year if, on the first day of the plan year, 
the plan has fewer than 2 participants who are current employees.
    (b) Excepted benefits--(1) General. The requirements of subpart B of 
this part do not apply to any group health plan (or any group health 
insurance coverage offered in connection with a group health plan) in 
relation to its provision of the benefits described in paragraph (b)(2), 
(3), (4), or (5) of this section (or any combination of these benefits).
    (2) Benefits excepted in all circumstances. The following benefits 
are excepted in all circumstances:
    (i) Coverage only for accident (including accidental death and 
dismemberment).
    (ii) Disability income insurance.
    (iii) Liability insurance, including general liability insurance and 
automobile liability insurance.
    (iv) Coverage issued as a supplement to liability insurance.
    (v) Workers' compensation or similar insurance.
    (vi) Automobile medical payment insurance.
    (vii) Credit-only insurance (for example, mortgage insurance).
    (viii) Coverage for on-site medical clinics.
    (3) Limited excepted benefits--(1) General. Limited-scope dental 
benefits, limited-scope vision benefits, or long-term care benefits are 
excepted if they are provided under a separate policy, certificate, or 
contract of insurance, or are otherwise not an integral part of the 
plan, as defined in paragraph (b)(3)(ii) of this section.
    (ii) Integral. For purposes of paragraph (b)(3)(i) of this section, 
benefits are deemed to be an integral part of a plan unless a 
participant has the right to elect not to receive coverage for the 
benefits and, if the participant elects to receive coverage for the 
benefits, the participant pays an additional premium or contribution for 
that coverage.
    (iii) Limited scope. Limited scope dental or vision benefits are 
dental or vision benefits that are sold under a separate policy or rider 
and that are limited in scope to a narrow range or type of benefits that 
are generally excluded from hospital/medical/surgical benefits packages.
    (iv) Long-term care. Long-term care benefits are benefits that are 
either--
    (A) Subject to State long-term care insurance laws;
    (B) For qualified long-term care insurance services, as defined in 
section 7702B(c)(1) of the Internal Revenue Code, or provided under a 
qualified long-term care insurance contract, as defined in section 
7702B(b) of the Internal Revenue Code; or
    (C) based on cognitive impairment or a loss of functional capacity 
that is expected to be chronic.
    (4) Noncoordinated benefits--(i) Excepted benefits that are not 
coordinated. Coverage for only a specified disease or illness (for 
example, cancer-only policies) or hospital indemnity or other fixed 
dollar indemnity insurance (for example, $100/day) is excepted only if 
it meets each of the conditions specified in paragraph (b)(4)(ii) of 
this section.
    (ii) Conditions. Benefits are described in paragraph (b)(4)(i) of 
this section only if--

[[Page 621]]

    (A) The benefits are provided under a separate policy, certificate, 
or contract of insurance;
    (B) There is no coordination between the provision of the benefits 
and an exclusion of benefits under any group health plan maintained by 
the same plan sponsor; and
    (C) The benefits are paid with respect to an event without regard to 
whether benefits are provided with respect to the event under any group 
health plan maintained by the same plan sponsor.
    (5) Supplemental benefits. The following benefits are excepted only 
if they are provided under a separate policy, certificate, or contract 
of insurance:
    (i) Medicare supplemental health insurance (as defined under section 
1882(g)(1) of the Social Security Act; also known as Medigap or MedSupp 
insurance);
    (ii) Coverage supplemental to the coverage provided under Chapter 
55, Title 10 of the United States Code (also known as CHAMPUS 
supplemental programs); and
    (iii) Similar supplemental coverage provided to coverage under a 
group health plan.

[62 FR 16958, Apr. 8, 1997; 62 FR 31670, June 10, 1997]



    Subpart E--Provisions Applicable to Only Health Insurance Issuers



Sec. 146.150  Guaranteed availability of coverage for employers in the small group market.

    (a) Issuance of coverage in the small group market. Subject to 
paragraphs (c) through (f) of this section, each health insurance issuer 
that offers health insurance coverage in the small group market in a 
State must--
    (1) Offer, to any small employer in the State, all products that are 
approved for sale in the small group market and that the issuer is 
actively marketing, and must accept any employer that applies for any of 
those products; and
    (2) Accept for enrollment under the coverage every eligible 
individual (as defined in paragraph (b) of this section) who applies for 
enrollment during the period in which the individual first becomes 
eligible to enroll under the terms of the group health plan, or during a 
special enrollment period, and may not impose any restriction on an 
eligible individual's being a participant or beneficiary, which is 
inconsistent with the nondiscrimination provisions of Sec. 146.121.
    (b) Eligible individual defined. For purposes of this section, the 
term ``eligible individual'' means an individual who is eligible--
    (1) To enroll in group health insurance coverage offered to a group 
health plan maintained by a small employer, in accordance with the terms 
of the group health plan;
    (2) For coverage under the rules of the health insurance issuer 
which are uniformly applicable in the State to small employers in the 
small group market; and
    (3) For coverage in accordance with all applicable State laws 
governing the issuer and the small group market.
    (c) Special rules for network plans. (1) In the case of a health 
insurance issuer that offers health insurance coverage in the small 
group market through a network plan, the issuer may--
    (i) Limit the employers that may apply for the coverage to those 
with eligible individuals who live, work, or reside in the service area 
for the network plan; and
    (ii) Within the service area of the plan, deny coverage to employers 
if the issuer has demonstrated to the applicable State authority (if 
required by the State authority) that--
    (A) It will not have the capacity to deliver services adequately to 
enrollees of any additional groups because of its obligations to 
existing group contract holders and enrollees; and
    (B) It is applying this paragraph (c)(1) uniformly to all employers 
without regard to the claims experience of those employers and their 
employees (and their dependents) or any health status-related factor 
relating to those employees and dependents.
    (2) An issuer that denies health insurance coverage to an employer 
in any service area, in accordance with paragraph (c)(1)(ii) of this 
section, may not offer coverage in the small group market within the 
service area to any employer for a period of 180 days after the date the 
coverage is denied. This

[[Page 622]]

paragraph (c)(2) does not limit the issuer's ability to renew coverage 
already in force or relieve the issuer of the responsibility to renew 
that coverage.
    (3) Coverage offered within a service area after the 180-day period 
specified in paragraph (c)(2) of this section is subject to the 
requirements of this section.
    (d) Application of financial capacity limits. (1) A health insurance 
issuer may deny health insurance coverage in the small group market if 
the issuer has demonstrated to the applicable State authority (if 
required by the State authority) that it--
    (i) Does not have the financial reserves necessary to underwrite 
additional coverage; and
    (ii) Is applying this paragraph (d)(1) uniformly to all employers in 
the small group market in the State consistent with applicable State law 
and without regard to the claims experience of those employers and their 
employees (and their dependents) or any health status-related factor 
relating to those employees and dependents.
    (2) An issuer that denies group health insurance coverage to any 
small employer in a State under paragraph (d)(1) of this section may not 
offer coverage in connection with group health plans in the small group 
market in the State before the later of the following dates:
    (i) The 181st day after the date the issuer denies coverage.
    (ii) The date the issuer demonstrates to the applicable State 
authority, if required under applicable State law, that the issuer has 
sufficient financial reserves to underwrite additional coverage.
    (3) Paragraph (d)(2) of this section does not limit the issuer's 
ability to renew coverage already in force or relieve the issuer of the 
responsibility to renew that coverage.
    (4) Coverage offered after the 180-day period specified in paragraph 
(d)(2) of this section is subject to the requirements of this section.
    (5) An applicable State authority may provide for the application of 
this paragraph (d) on a service-area-specific basis.
    (e) Exception to requirement for failure to meet certain minimum 
participation or contribution rules.
    (1) Paragraph (a) of this section does not preclude a health 
insurance issuer from establishing employer contribution rules or group 
participation rules for the offering of health insurance coverage in 
connection with a group health plan in the small group market, as 
allowed under applicable State law.
    (2) For purposes of paragraph (e)(1) of this section--
    (i) The term ``employer contribution rule'' means a requirement 
relating to the minimum level or amount of employer contribution toward 
the premium for enrollment of participants and beneficiaries; and
    (ii) The term ``group participation rule'' means a requirement 
relating to the minimum number of participants or beneficiaries that 
must be enrolled in relation to a specified percentage or number of 
eligible individuals or employees of an employer.
    (f) Exception for coverage offered only to bona fide association 
members. Paragraph (a) of this section does not apply to health 
insurance coverage offered by a health insurance issuer if that coverage 
is made available in the small group market only through one or more 
bona fide associations (as defined in 45 CFR 144.103).

(Approved by the Office of Management and Budget under control number 
0938-0702.)

[62 FR 16958, Apr. 8, 1997; 62 FR 31694, June 10, 1997, as amended at 62 
FR 35906, July 2, 1997; 67 FR 48811, July 26, 2002]



Sec. 146.152  Guaranteed renewability of coverage for employers in the group market.

    (a) General rule. Subject to paragraphs (b) through (d) of this 
section, a health insurance issuer offering health insurance coverage in 
the small or large group market is required to renew or continue in 
force the coverage at the option of the plan sponsor.
    (b) Exceptions. An issuer may nonrenew or discontinue group health 
insurance coverage offered in the small or large group market based only 
on one or more of the following:
    (1) Nonpayment of premiums. The plan sponsor has failed to pay 
premiums or contributions in accordance with the

[[Page 623]]

terms of the health insurance coverage, including any timeliness 
requirements.
    (2) Fraud. The plan sponsor has performed an act or practice that 
constitutes fraud or made an intentional misrepresentation of material 
fact in connection with the coverage.
    (3) Violation of participation or contribution rules. The plan 
sponsor has failed to comply with a material plan provision relating to 
any employer contribution or group participation rules permitted under 
Sec. 146.150(e) in the case of the small group market or under 
applicable State law in the case of the large group market.
    (4) Termination of plan. The issuer is ceasing to offer coverage in 
the market in accordance with paragraphs (c) and (d) of this section and 
applicable State law.
    (5) Enrollees' movement outside service area. For network plans, 
there is no longer any enrollee under the group health plan who lives, 
resides, or works in the service area of the issuer (or in the area for 
which the issuer is authorized to do business); and in the case of the 
small group market, the issuer applies the same criteria it would apply 
in denying enrollment in the plan under Sec. 146.150(c).
    (6) Association membership ceases. For coverage made available in 
the small or large group market only through one or more bona fide 
associations, if the employer's membership in the association ceases, 
but only if the coverage is terminated uniformly without regard to any 
health status-related factor relating to any covered individual.
    (c) Discontinuing a particular product. In any case in which an 
issuer decides to discontinue offering a particular product offered in 
the small or large group market, that product may be discontinued by the 
issuer in accordance with applicable State law in the particular market 
only if--
    (1) The issuer provides notice in writing to each plan sponsor 
provided that particular product in that market (and to all participants 
and beneficiaries covered under such coverage) of the discontinuation at 
least 90 days before the date the coverage will be discontinued;
    (2) The issuer offers to each plan sponsor provided that particular 
product the option, on a guaranteed issue basis, to purchase all (or, in 
the case of the large group market, any) other health insurance coverage 
currently being offered by the issuer to a group health plan in that 
market; and
    (3) In exercising the option to discontinue that product and in 
offering the option of coverage under paragraph (c)(2) of this section, 
the issuer acts uniformly without regard to the claims experience of 
those sponsors or any health status-related factor relating to any 
participants or beneficiaries covered or new participants or 
beneficiaries who may become eligible for such coverage.
    (d) Discontinuing all coverage. An issuer may elect to discontinue 
offering all health insurance coverage in the small or large group 
market or both markets in a State in accordance with applicable State 
law only if--
    (1) The issuer provides notice in writing to the applicable State 
authority and to each plan sponsor (and all participants and 
beneficiaries covered under the coverage) of the discontinuation at 
least 180 days prior to the date the coverage will be discontinued; and
    (2) All health insurance policies issued or delivered for issuance 
in the State in the market (or markets) are discontinued and not 
renewed.
    (e) Prohibition on market reentry. An issuer who elects to 
discontinue offering all health insurance coverage in a market (or 
markets) in a State as described in paragraph (d) of this section may 
not issue coverage in the market (or markets) and State involved during 
the 5-year period beginning on the date of discontinuation of the last 
coverage not renewed.
    (f) Exception for uniform modification of coverage. Only at the time 
of coverage renewal may issuers modify the health insurance coverage for 
a product offered to a group health plan in the--
    (1) Large group market; and
    (2) Small group market if, for coverage available in this market 
(other than only through one or more bona fide associations), the 
modification is consistent with State law and is effective uniformly 
among group health plans with that product.

[[Page 624]]

    (g) Application to coverage offered only through associations. In 
the case of health insurance coverage that is made available by a health 
insurance issuer in the small or large group market to employers only 
through one or more associations, the reference to ``plan sponsor'' is 
deemed, with respect to coverage provided to an employer member of the 
association, to include a reference to such employer.

(Approved by the Office of Management and Budget under control number 
0938-0702.)

[62 FR 16958, Apr. 8, 1997; 62 FR 31670, June 10, 1997, as amended at 62 
FR 35906, July 2, 1997]



Sec. 146.160  Disclosure of information.

    (a) General rule. In connection with the offering of any health 
insurance coverage to a small employer, a health insurance issuer is 
required to--
    (1) Make a reasonable disclosure to the employer, as part of its 
solicitation and sales materials, of the availability of information 
described in paragraph (b) of this section; and
    (2) Upon request of the employer, provide that information to the 
employer.
    (b) Information described. Subject to paragraph (d) of this section, 
information that must be provided under paragraph (a)(2) of this section 
is information concerning the following:
    (1) Provisions of coverage relating to the following:
    (i) The issuer's right to change premium rates and the factors that 
may affect changes in premium rates.
    (ii) Renewability of coverage.
    (iii) Any preexisting condition exclusion, including use of the 
alternative method of counting creditable coverage.
    (iv) Any affiliation periods applied by HMOs.
    (v) The geographic areas served by HMOs.
    (2) The benefits and premiums available under all health insurance 
coverage for which the employer is qualified, under applicable State 
law. See Sec. 146.150(b) through (f) for allowable limitations on 
product availability.
    (c) Form of information. The information must be described in 
language that is understandable by the average small employer, with a 
level of detail that is sufficient to reasonably inform small employers 
of their rights and obligations under the health insurance coverage. 
This requirement is satisfied if the issuer provides each of the 
following with respect to each product offered:
    (1) An outline of coverage. For purposes of this section, outline of 
coverage means a description of benefits in summary form.
    (2) The rate or rating schedule that applies to the product (with 
and without the preexisting condition exclusion or affiliation period).
    (3) The minimum employer contribution and group participation rules 
that apply to any particular type of coverage.
    (4) In the case of a network plan, a map or listing of counties 
served.
    (5) Any other information required by the State.
    (d) Exception. An issuer is not required to disclose any information 
that is proprietary and trade secret information under applicable law.

(Approved by the Office of Management and Budget under control number 
0938-0702.)

[62 FR 16958, Apr. 8, 1997, as amended at 62 FR 35906, July 2, 1997]



              Subpart F--Exclusion of Plans and Enforcement



Sec. 146.180  Treatment of non-Federal governmental plans.

    (a) Requirements subject to exemption--(1) Basic rule. A sponsor of 
a non-Federal governmental plan may elect to exempt its plan, to the 
extent that the plan is not provided through health insurance coverage, 
(that is, it is self-funded), from any or all of the following 
requirements:
    (i) Limitations on preexisting condition exclusion periods described 
in Sec. 146.111.
    (ii) Special enrollment periods for individuals and dependents 
described in Sec. 146.117.
    (iii) Prohibitions against discriminating against individual 
participants and beneficiaries based on health status described in 
Sec. 146.121.
    (iv) Standards relating to benefits for mothers and newborns 
described in Sec. 146.130.

[[Page 625]]

    (v) Parity in the application of certain limits to mental health 
benefits described in Sec. 146.136.
    (vi) Required coverage for reconstructive surgery and certain other 
services following a mastectomy under section 2706 of the PHS Act.
    (2) Limitations. (i) An election under this section cannot 
circumvent a requirement of this part to the extent the requirement 
applied to the plan before the effective date of the election.

    (A) Example 1. A plan is subject to requirements of section 2706 of 
the PHS Act, under which a plan that covers medical and surgical 
benefits with respect to a mastectomy must cover reconstructive surgery 
and certain other services following a mastectomy. An enrollee who has 
had a mastectomy receives reconstructive surgery on August 24. Claims 
with respect to the surgery are submitted to and processed by the plan 
in September. The group health plan commences a new plan year each 
September 1. Effective September 1, the plan sponsor elects to exempt 
its plan from section 2706 of the PHS Act. The plan cannot, on the basis 
of its exemption election, decline to pay for the claims incurred on 
August 24.
    (B) Example 2. An individual is hired by a non-Federal governmental 
employer and reports to work on August 6. The individual has diabetes. 
Under the terms of the plan in effect on August 6, if an individual 
files an enrollment application within the first 30 days of employment, 
enrollment in the plan is effective as of the first day of employment. 
The individual timely files an enrollment application. The application 
is processed on September 10. The group health plan commences a new plan 
year each September 1. Effective September 1, the plan sponsor elects to 
exempt its plan from Sec. 146.121, which prohibits enrollment 
discrimination based on health status-related factors, by requiring new 
enrollees to pass medical underwriting. The plan cannot decline to 
enroll the individual effective August 6, even if he would not pass 
medical underwriting under the terms of the plan in effect on September 
1.

    (ii) If a group health plan is co-sponsored by two or more 
employers, then only plan enrollees of the non-Federal governmental 
employer(s) with a valid election under this section are affected by the 
election.
    (3) Stop-loss or excess risk coverage. For purposes of this section. 
(i) Subject to paragraph (a)(3)(ii), the purchase of stop-loss or excess 
risk coverage by a self-funded non-Federal governmental plan does not 
prevent an election under this section.
    (ii) Regardless of whether coverage offered by an issuer is 
designated as ``stop-loss'' coverage or ``excess risk'' coverage, if it 
is regulated as group health insurance under an applicable State law, 
then for purposes of this section, a non-Federal governmental plan that 
purchases the coverage is considered to be fully insured. In that event, 
a plan may not be exempted under this section from the requirements of 
this part.
    (4) Construction. Nothing in this part should be construed as 
imposing collective bargaining obligations on any party to the 
collective bargaining process.
    (b) Form and manner of election--(1) Election requirements. The 
election must meet the following requirements:
    (i) Be made in writing.
    (ii) Be made in conformance with all of the plan sponsor's rules, 
including any public hearing requirements.
    (iii) Specify the beginning and ending dates of the period to which 
the election is to apply. This period can be either of the following 
periods:
    (A) A single specified plan year, as defined in Sec. 144.103 of this 
subchapter.
    (B) The ``term of the agreement,'' as specified in paragraph (b)(2) 
of this section, in the case of a plan governed by collective 
bargaining.
    (iv) Specify the name of the plan and the name and address of the 
plan administrator, and include the name and telephone number of a 
person CMS may contact regarding the election.
    (v) State that the plan does not include health insurance coverage, 
or identify which portion of the plan is not funded through health 
insurance coverage.
    (vi) Specify each requirement described in paragraph (a) of this 
section from which the plan sponsor elects to exempt the plan.
    (vii) Certify that the person signing the election document, 
including (if applicable) a third party plan administrator, is legally 
authorized to do so by the plan sponsor.
    (viii) Include, as an attachment, a copy of the notice described in 
paragraph (f) of this section.

[[Page 626]]

    (2) ``Term of the agreement'' defined. Except as provided in 
paragraphs (b)(2)(i) and (b)(2)(ii), for purposes of this section ``term 
of the agreement'' means all group health plan years governed by a 
single collective bargaining agreement.
    (i) In the case of a group health plan for which the last plan year 
governed by a prior collective bargaining agreement expires during the 
bargaining process for a new agreement, the term of the prior agreement 
includes all plan years governed by the agreement plus the period of 
time that precedes the latest of the following dates, as applicable, 
with respect to the new agreement:
    (A) The date of an agreement between the governmental employer and 
union officials.
    (B) The date of ratification of an agreement between the 
governmental employer and the union.
    (C) The date impasse resolution, arbitration or other closure of the 
collective bargaining process is finalized when agreement is not 
reached.
    (ii) In the case of a group health plan governed by a collective 
bargaining agreement for which closure is not reached before the last 
plan year under the immediately preceding agreement expires, the term of 
the new agreement includes all plan years governed by the agreement 
excluding the period that precedes the latest applicable date specified 
in paragraph (b)(2)(i) of this section.
    (3) Construction--(i) Dispute resolution. Nothing in paragraph 
(b)(1)(ii) of this section should be construed to mean that CMS 
arbitrates disputes between plan sponsors, participants, beneficiaries, 
or their representatives regarding whether an election complies with all 
of a plan sponsor's rules.
    (ii) Future elections not preempted. If a plan must comply with one 
or more requirements of this part for a given plan year or period of 
plan coverage, nothing in this section should be construed as preventing 
a plan sponsor from submitting an election in accordance with this 
section for a subsequent plan year or period of plan coverage.
    (c) Mailing address. The plan sponsor should mail the election to: 
Centers for Medicare & Medicaid Services, Private Health Insurance 
Group, CMSO, 7500 Security Boulevard, S3-16-16, Baltimore, MD 21244-
1850.
    (d) Filing a timely election. (1) Plan not governed by collective 
bargaining. Subject to paragraph (d)(4) of this section, if a plan is 
not governed by a collective bargaining agreement, a plan sponsor or 
entity acting on behalf of a plan sponsor must file an election with CMS 
before the first day of the plan year.
    (2) Plan governed by a collective bargaining agreement. Subject to 
paragraph (d)(4) of this section, if a plan is governed by a collective 
bargaining agreement, a plan sponsor or entity acting on behalf of a 
plan sponsor must file an election with CMS before the first day of the 
first plan year governed by a collective bargaining agreement, or by the 
45th day after the latest applicable date specified in paragraph 
(b)(2)(i) of this section, if the 45th day falls on or after the first 
day of the plan year.
    (3) Verifying timely filing. CMS uses the postmark on the envelope 
in which the election is submitted to determine that the election is 
timely filed as specified under paragraphs (d)(1) or (d)(2) of this 
section, as applicable. If the latest filing date falls on a Saturday, 
Sunday, or a State or Federal holiday, CMS accepts a postmark on the 
next business day.
    (4) Filing extension based on good cause. CMS may extend the 
deadlines specified in paragraphs (d)(1) and (d)(2) of this section for 
good cause if the plan substantially complies with the requirements of 
paragraph (f) of this section.
    (5) Failure to file a timely election. Absent an extension under 
paragraph (d)(4) of this section, a plan sponsor's failure to file a 
timely election under paragraph (d)(1) or (d)(2) of this section makes 
the plan subject to all requirements of this part for the entire plan 
year to which the election would have applied, or, in the case of a plan 
governed by a collective bargaining agreement, for any plan years under 
the agreement for which the election is not timely filed.
    (e) Additional information required--(1) Written notification. If an 
election is timely filed, but CMS determines that the election document 
(or the notice to plan enrollees) does not meet all of the

[[Page 627]]

requirements of this section, CMS may notify the plan sponsor, or other 
entity that filed the election, that it must submit any additional 
information that CMS has determined is necessary to meet those 
requirements. The additional information must be filed with CMS by the 
later of the following dates:
    (i) The last day of the plan year.
    (ii) The 45th day after the date of CMS's written notification 
requesting additional information.
    (2) Timely response. CMS uses the postmark on the envelope in which 
the additional information is submitted to determine that the 
information is timely filed as specified under paragraph (e)(1) of this 
section. If the latest filing date falls on a Saturday, Sunday, or a 
State or Federal holiday, CMS accepts a postmark on the next business 
day.
    (3) Failure to respond timely. CMS may invalidate an election if the 
plan sponsor, or other entity that filed the election, fails to timely 
submit the additional information as specified under paragraph (e)(1) of 
this section.
    (f) Notice to enrollees--(1) Mandatory notification. (i) A plan that 
makes the election described in this section must notify each affected 
enrollee of the election, and explain the consequences of the election. 
For purposes of this paragraph (f), if the dependent(s) of a participant 
reside(s) with the participant, a plan need only provide notice to the 
participant.
    (ii) The notice must be in writing and, except as provided in 
paragraph (f)(2) of this section with regard to initial notices, must be 
provided to each enrollee at the time of enrollment under the plan, and 
on an annual basis no later than the last day of each plan year (as 
defined in Sec. 144.103 of this subchapter) for which there is an 
election.
    (iii) A plan may meet the notification requirements of this 
paragraph (f) by prominently printing the notice in a summary plan 
description, or equivalent description, that it provides to each 
enrollee at the time of enrollment, and annually. Also, when a plan 
provides a notice to an enrollee at the time of enrollment, that notice 
may serve as the initial annual notice for that enrollee.
    (2) Initial notices. (i) If a plan is not governed by a collective 
bargaining agreement, with regard to the initial plan year to which an 
election under this section applies, the plan must provide the initial 
annual notice of the election to all enrollees before the first day of 
that plan year, and notice at the time of enrollment to all individuals 
who enroll during that plan year.
    (ii) In the case of a collectively bargained plan (including a self-
funded non-Federal governmental plan that has been exempted from 
requirements of this part under Sec. 146.125(a)(2)), with regard to the 
initial plan year to which an election under this section applies, the 
plan must provide the initial annual notice of the election to all 
enrollees before the first day of the plan year, or within 30 days after 
the latest applicable date specified in paragraph (b)(2)(i) of this 
section if the 30th day falls on or after the first day of the plan 
year. Also, the plan must provide a notice at the time of enrollment to 
individuals who--
    (A) Enroll on or after the first day of the plan year, when closure 
of the collective bargaining process is reached before the plan year 
begins; or
    (B) Enroll on or after the latest applicable date specified in 
paragraph (b)(2)(i) of this section if that date falls on or after the 
first day of the plan year.
    (3) Notice content. The notice must include at least the following 
information:
    (i) The specific requirements described in paragraph (a)(1) of this 
section from which the plan sponsor is electing to exempt the plan, and 
a statement that, in general, Federal law imposes these requirements 
upon group health plans.
    (ii) A statement that Federal law gives the plan sponsor of a self-
funded non-Federal governmental plan the right to exempt the plan in 
whole, or in part, from the listed requirements, and that the plan 
sponsor has elected to do so.
    (iii) A statement identifying which parts of the plan are subject to 
the election.
    (iv) A statement identifying which of the listed requirements, if 
any, apply

[[Page 628]]

under the terms of the plan, or as required by State law, without regard 
to an exemption under this section.
    (v) A statement informing plan enrollees that the plan provides for 
certification and disclosure of creditable coverage for covered 
employees and their dependents who lose coverage under the plan.
    (g) Subsequent elections--(1) Election renewal. A plan sponsor may 
renew an election under this section through subsequent elections. The 
timeliness standards described in paragraph (d) apply to election 
renewals under this paragraph (g).
    (2) Form and manner of renewal. Except for the requirement to 
forward to CMS a copy of the notice to enrollees under paragraph 
(b)(1)(viii) of this section, the plan sponsor must comply with the 
election requirements of paragraph (b)(1) of this section. In lieu of 
providing a copy of the notice under (b)(1)(viii), the plan sponsor may 
include a statement that the notice has been, or will be, provided to 
enrollees as specified under paragraph (f) of this section.
    (3) Election renewal includes provisions from which plan not 
previously exempted. If an election renewal includes a requirement 
described in paragraph (a) of this section from which the plan sponsor 
did not elect to exempt the plan for the preceding plan year, the 
advance notification requirements of paragraph (f)(2) of this section 
apply with respect to the additional requirement(s) of paragraph (a) 
from which the plan sponsor is electing to exempt the plan.
    (4) Special rules regarding renewal of an election under a 
collective bargaining agreement. (i) If protracted negotiations with 
respect to a new agreement result in an extension of the term of the 
prior agreement (as provided under paragraph (b)(2)(i)) under which an 
election under this section was in effect, the plan must comply with the 
enrollee notification requirements of paragraph (f)(1), and, following 
closure of the collective bargaining process, must file an election 
renewal with CMS as provided under paragraph (d)(2) of this section.
    (ii) If a single plan applies to more than one bargaining unit, and 
the plan is governed by collective bargaining agreements of varying 
lengths, paragraph (d)(2) of this section, with respect to an election 
renewal, applies to the plan as governed by the agreement that results 
in the earliest filing date.
    (h) Certification and disclosure of creditable coverage. Without 
regard to an election under this section, a non-Federal governmental 
plan must provide for certification and disclosure of creditable 
coverage under the plan with respect to participants and their 
dependents as specified under Sec. 146.115. CMS enforces this 
requirement as provided under paragraph (k) of this section.
    (i) Effect of failure to comply with certification and notification 
requirements--(1) Substantial failure. (i) General rule. Except as 
provided in paragraph (i)(1)(iii) of this section, a substantial failure 
to comply with paragraphs (f) or (h) of this section results in the 
invalidation of an election under this section with respect to all plan 
enrollees for the entire plan year. That is, the plan is subject to all 
requirements of this part for the entire plan year to which the election 
otherwise would have applied.
    (ii) Determination of substantial failure. CMS determines whether a 
plan has substantially failed to comply with a requirement of paragraph 
(f) or paragraph (h) of this section based on all relevant facts and 
circumstances, including previous record of compliance, gravity of the 
violation and whether a plan corrects the failure, as warranted, within 
30 days of learning of the violation. However, in general, a plan's 
failure to provide a notice of the fact and consequences of an election 
under this section to an individual at the time of enrollment, or on an 
annual basis before a given plan year expires, constitutes a substantial 
failure.
    (iii) Exceptions--(A) Multiple employers. If the plan is sponsored 
by multiple employers, and only certain employers substantially fail to 
comply with the requirements of paragraphs (f) or (h) of this section, 
then the election is invalidated with respect to those employers only, 
and not with respect to other employers that complied with those 
requirements, unless the plan chooses to cancel its election entirely.
    (B) Limited failure to provide notice. If a substantial failure to 
notify enrollees

[[Page 629]]

of the fact and consequences of an election is limited to certain 
individuals, the election under this section is valid only if, for the 
plan year with respect to which the failure has occurred, the plan 
agrees not to apply the election with respect to the individuals who 
were not notified and so informs those individuals in writing.

    (2) Examples. (i) Example 1: A self-funded non-Federal group health 
plan is co-sponsored by 10 school districts. Nine of the school 
districts have fully complied with the requirements of paragraph (f) of 
this section, including providing notice to new employees at the time of 
their enrollment in the plan, regarding the group health plan's 
exemption under this section from requirements of this part. One school 
district, which hired 10 new teachers during the summer for the upcoming 
school year, neglected to notify three of the new hires about the group 
health plan's exemption election at the time they enrolled in the plan. 
The school district has substantially failed to comply with a 
requirement of paragraph (f) with respect to these individuals.
    The school district learned of the oversight six weeks into the 
school year, and promptly (within 30 days of learning of the oversight) 
provided notice to the three teachers regarding the plan's exemption 
under this section and that the exemption does not apply to them, or 
their dependents, during the plan year of their enrollment because of 
the plan's failure to timely notify them of its exemption. The plan 
complies with the requirements of this part for these individuals for 
the plan year of their enrollment. CMS would not require the plan to 
come into compliance with the requirements of this part for other 
enrollees.

    (ii) Example 2: Same facts as in Example 1, except the noncompliant 
school district failed to notify any enrollees regarding an election 
under this section. That is, the school district failed to provide the 
annual notice to current plan enrollees as well as the notice at the 
time of enrollment to new enrollees. The school district has 
substantially failed to comply with the requirements of paragraph (f) of 
this section. At a minimum, the election is invalidated with respect to 
all enrollees of the noncompliant school district for the plan year for 
which the substantial failure has occurred. In this example, the plan 
decides not to cancel its election entirely. The election with regard to 
the other nine school districts remains in effect.

    (iii) Example 3. Two non-Federal governmental employers cosponsor a 
self-funded group health plan. One employer substantially fails to 
comply with the requirements of paragraph (f) of this section. While the 
plan may limit the invalidation of the election to enrollees of the plan 
sponsor that is responsible for the substantial failure, the plan 
sponsors determine that administering the plan in that manner would be 
too burdensome. Accordingly, in this example, the plan sponsors choose 
to cancel the election entirely. Both plan sponsors come into compliance 
with the requirements of this part with respect to all enrollees for the 
plan year for which the substantial failure has occurred.

    (iv) Example 4: A non-Federal governmental employer has elected to 
exempt its collectively bargained self-funded plan from certain 
requirements of this part. The collective bargaining agreement applies 
to five plan years, 2001 through 2005. For the first three plan years, 
enrollees are notified annually and at the time of enrollment of the 
election under this section. The notice specifies that the election 
applies to the period January 1, 2001 through December 31, 2005. Prior 
to the dissemination of the annual notice for the 2004 plan year, the 
individual responsible for disseminating the notice terminates 
employment. His replacement, who is unaware of the requirement that plan 
enrollees be notified annually, continues to notify new enrollees at the 
time of enrollment but fails to disseminate the annual notice. CMS does 
not consider that failure to be a substantial failure because enrollees 
previously had actual notice that the election under this section 
applies for the period January 1, 2001 through December 31, 2005. 
Accordingly, CMS would not invalidate the election for the 2004 plan 
year.

    (v) Example 5: A non-Federal governmental employer has elected to 
exempt its self-funded plan from certain requirements of this part. An 
individual terminates employment with the governmental employer, which 
fails to automatically provide a certificate of creditable coverage 
within the period specified in Sec. 146.115(a)(2)(ii)(A). (The 
governmental employer generally provides certificates to terminated 
employees on an automatic basis, but neglected to do so in this case.) 
The oversight is brought to the employer's attention when the individual 
inquires as to why he has not received his certificate of creditable 
coverage. The governmental employer promptly (within 30 days) forwards a 
certificate to the individual. CMS would not view that situation as 
constituting a substantial failure and would not invalidate the election 
under this section.
    (j) Election invalidated. If CMS finds cause to invalidate an 
election under this section, the following rules apply:
    (1) CMS notifies the plan sponsor (and the plan administrator if 
other

[[Page 630]]

than the plan sponsor and the administrator's address is known to CMS) 
in writing that CMS has made a preliminary determination that an 
election is invalid, and states the basis for that determination.
    (2) CMS's notice informs the plan sponsor that it has 45 days after 
the date of CMS's notice to explain in writing why it believes its 
election is valid. The plan sponsor should provide applicable statutory 
and regulatory citations to support its position.
    (3) CMS verifies that the plan sponsor's response is timely filed as 
provided under paragraph (d)(3) of this section. CMS will not consider a 
response that is not timely filed.
    (4) If CMS's preliminary determination that an election is invalid 
remains unchanged after CMS considers the plan sponsor's timely response 
(or in the event that the plan sponsor fails to respond timely), CMS 
provides written notice to the plan sponsor (and the plan administrator 
if other than the plan sponsor and the administrator's address is known 
to CMS) of CMS's final determination that the election is invalid. Also, 
CMS informs the plan sponsor that, within 45 days of the date of the 
notice of final determination, the plan, subject to paragraph 
(i)(1)(iii) of this section, must comply with all requirements of this 
part for the specified period for which CMS has determined the election 
to be invalid.
    (k) Enforcement. To the extent that an election under this section 
has not been filed or a non-Federal governmental plan otherwise is 
subject to one or more requirements of this part, CMS enforces those 
requirements under part 150 of this subchapter. This may include 
imposing a civil money penalty against the plan or the plan sponsor, as 
determined under Sec. 150.305.
    (l) Construction. Nothing in this section should be construed to 
prevent a State from taking the following actions:
    (1) Establishing, and enforcing compliance with, the requirements of 
State law (as defined in Sec. 146.143(d)(1)), including requirements 
that parallel provisions of title XXVII of the PHS Act, that apply to 
non-Federal governmental plans or sponsors.
    (2) Prohibiting a sponsor of a non-Federal governmental plan within 
the State from making an election under this section.

[67 FR 48811, July 26, 2002]

                           PART 147 [RESERVED]



PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET--Table of Contents




                      Subpart A--General Provisions

Sec.
148.101  Basis and purpose.
148.102  Scope, applicability, and effective dates.
148.103  Definitions.

 Subpart B--Requirements Relating to Access and Renewability of Coverage

148.120  Guaranteed availability of individual health insurance coverage 
          to certain individuals with prior group coverage.
148.122  Guaranteed renewability of individual health insurance 
          coverage.
148.124  Certification and disclosure of coverage.
148.126  Determination of an eligible individual.
148.128  State flexibility in individual market reforms--alternative 
          mechanisms.

               Subpart C--Requirements Related to Benefits

148.170  Standards relating to benefits for mothers and newborns.

              Subpart D--Enforcement; Penalties; Preemption

148.210  Preemption.
148.220  Excepted benefits.

    Authority: Secs. 2741 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 U.S.C. 300gg-41 through 300gg-63, 300gg-91, and 
300gg-92).

    Source: 62 FR 16995, Apr. 8, 1997, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 148.101  Basis and purpose.

    This part implements sections 2741 through 2763 and 2791 and 2792 of 
the PHS Act. Its purpose is to improve access to individual health 
insurance coverage for certain eligible individuals

[[Page 631]]

who previously had group coverage, and to guarantee the renewability of 
all coverage in the individual market. It also provides certain 
protections for mothers and newborns with respect to coverage for 
hospital stays in connection with childbirth.

[63 FR 57561, Oct. 27, 1998]



Sec. 148.102  Scope, applicability, and effective dates.

    (a) Scope and applicability. (1) Individual health insurance 
coverage includes all health insurance coverage (as defined in 
Sec. 144.103) that is neither health insurance coverage sold in 
connection with an employment-related group health plan, nor short-term, 
limited-duration coverage as defined in Sec. 144.103 of this subchapter. 
In some cases, coverage that may be considered group coverage under 
State law (such as coverage sold through certain associations) is 
considered individual coverage.
    (2) The requirements of this part that pertain to guaranteed 
availability of individual health insurance coverage for certain 
eligible individuals apply to all issuers of individual health insurance 
coverage in a State, unless the State implements an acceptable 
alternative mechanism as described in Sec. 148.128. The requirements 
that pertain to guaranteed renewability for all individuals, and to 
protections for mothers and newborns with respect to hospital stays in 
connection with childbirth, apply to all issuers of individual health 
insurance coverage in the State, regardless of whether a State 
implements an alternative mechanism.
    (b) Effective date. Except as provided in Secs. 148.124 (certificate 
of coverage), 148.128 (alternative State mechanisms), and 148.170 
(standards relating to benefits for mothers and newborns), the 
requirements of this part apply to health insurance coverage offered, 
sold, issued, renewed, in effect, or operated in the individual market 
after June 30, 1997, regardless of when a period of creditable coverage 
occurs.

[62 FR 16995, Apr. 8, 1997; 62 FR 31695, June 10, 1997, as amended at 63 
FR 57562, Oct. 27, 1998]



Sec. 148.103  Definitions.

    Unless otherwise provided, the following definition applies:
    Eligible individual means an individual who meets the following 
conditions:
    (1) The individual has at least 18 months of creditable coverage (as 
determined under Sec. 146.113 of this subchapter) as of the date on 
which the individual seeks coverage under this part.
    (2) The individual's most recent prior creditable coverage was under 
a group health plan, governmental plan, or church plan (or health 
insurance coverage offered in connection with any of these plans).
    (3) The individual is not eligible for coverage under any of the 
following:
    (i) A group health plan.
    (ii) Part A or Part B of Title XVIII (Medicare) of the Social 
Security Act.
    (iii) A State plan under Title XIX (Medicaid) of the Social Security 
Act (or any successor program).
    (4) The individual does not have other health insurance coverage.
    (5) The individual's most recent coverage was not terminated because 
of nonpayment of premiums or fraud. (For more information about 
nonpayment of premiums or fraud, see Sec. 146.152(b)(1) and (b)(2) of 
this subchapter.)
    (6) If the individual has been offered the option of continuing 
coverage under a COBRA continuation provision or a similar State 
program, the individual has both elected and exhausted the continuation 
coverage.



 Subpart B--Requirements Relating to Access and Renewability of Coverage



Sec. 148.120  Guaranteed availability of individual health insurance coverage to certain individuals with prior group coverage.

    (a) General rule. Except as provided for in paragraph (c) of this 
section, an issuer that furnishes health insurance coverage in the 
individual market must meet the following requirements with respect to 
any eligible individual who requests coverage:
    (1) May not decline to offer coverage or deny enrollment under any 
policy

[[Page 632]]

forms that it actively markets in the individual market, except as 
permitted in paragraph (c) of this section concerning alternative 
coverage when no State mechanism exists. An issuer is deemed to meet 
this requirement if, upon the request of an eligible individual, it acts 
promptly to do the following:
    (i) Provide information about all available coverage options.
    (ii) Enroll the individual in any coverage option the individual 
selects.
    (2) May not impose any preexisting condition exclusion on the 
individual.
    (b) Exception. The requirements of paragraph (a) of this section do 
not apply to health insurance coverage offered in the individual market 
in a State that chooses to implement an acceptable alternative mechanism 
described in Sec. 148.128.
    (c) Alternative coverage permitted where no State mechanism exists. 
(1) General rule. If the State does not implement an acceptable 
alternative mechanism under Sec. 148.128, an issuer may elect to limit 
the coverage required under paragraph (a) of this section if it offers 
eligible individuals at least two policy forms that meet the following 
requirements:
    (i) Each policy form must be designed for, made generally available 
to, and actively marketed to, and enroll, both eligible and other 
individuals.
    (ii) The policy forms must be either the issuer's two most popular 
policy forms (as described in paragraph (c)(2) of this section) or 
representative samples of individual health insurance offered by the 
issuer in the State (as described in paragraph (c)(3) of this section).
    (2) Most popular policies. The two most popular policy forms means 
the policy forms with the largest, and the second largest, premium 
volume for the last reporting year, for policies offered in that State. 
In the absence of applicable State standards, premium volume means 
earned premiums for the last reporting year. In the absence of 
applicable State standards, the last reporting year is the period from 
October 1 through September 30 of the preceding year. Blocks of business 
closed under applicable State law are not included in calculating 
premium volume.
    (3) Representative policy forms--(i) Definition of weighted average. 
Weighted average means the average actuarial value of the benefits 
provided by all the health insurance coverage issued by one of the 
following:
    (A) An issuer in the individual market in a State during the 
previous calendar year, weighted by enrollment for each policy form, but 
not including coverage issued to eligible individuals.
    (B) All issuers in the individual market in a State if the data are 
available for the previous calendar year, weighted by enrollment for 
each policy form.
    (ii) Requirements. The two representative policy forms must meet the 
following requirements:
    (A) Include a lower-level coverage policy form under which the 
actuarial value of benefits under the coverage is at least 85 percent 
but not greater than 100 percent of the weighted average.
    (B) Include a higher-level coverage policy form under which the 
actuarial value of the benefits under the coverage is at least 15 
percent greater than the actuarial value of the lower-level coverage 
policy form offered by an issuer in that State and at least 100 percent, 
but not greater than 120 percent, of the weighted average.
    (C) Include benefits substantially similar to other individual 
health insurance coverage offered by the issuer in the State.
    (D) Provide for risk adjustment, risk spreading, or a risk spreading 
mechanism, or otherwise provide some financial subsidization for 
eligible individuals.
    (E) Meet all applicable State requirements.
    (iii) Actuarial value of benefits. The actuarial value of benefits 
provided under individual health insurance coverage must be calculated 
based on a standardized population, and a set of standardized 
utilization and cost factors under applicable State law.
    (4) Election. All issuer elections must be applied uniformly to all 
eligible individuals in the State and must be effective for all policies 
offered during a period of at least 2 years.
    (5) Documentation. The issuer must document the actuarial 
calculations it makes as follows:

[[Page 633]]

    (i) Enforcement by State. In a State that elects to enforce the 
provisions of this section in lieu of an alternative mechanism under 
Sec. 148.128, the issuer must provide the appropriate State authorities 
with the documentation required by the State.
    (ii) Enforcement by CMS. If CMS acts to enforce the provisions of 
this section under Sec. 148.200, the issuer must provide to CMS, within 
the following time frames, any documentation CMS requests:
    (A) For policy forms already being marketed as of July 1, 1997--no 
later than September 1, 1997.
    (B) For other policy forms--90 days before the beginning of the 
calendar year in which the issuer wants to market the policy form.
    (d) Special rules for network plans. (1) An issuer that offers 
coverage in the individual market through a network plan may take the 
following actions:
    (i) Specify that an eligible individual may only enroll if he or she 
lives, resides, or works within the service area for the network plan.
    (ii) Deny coverage to an eligible individual if the issuer has 
demonstrated the following to the applicable State authority (if 
required by the State):
    (A) It does not have the capacity to deliver services adequately to 
additional individual enrollees because of its obligations to provide 
services to current group contract holders and enrollees, and to current 
individual enrollees.
    (B) It uniformly denies coverage to individuals without regard to 
any health status-related factor, and without regard to whether the 
individuals are eligible individuals.
    (iii) Not offer any coverage in the individual market, within the 
service area identified for purposes of paragraph (d)(1)(ii) of this 
section, for a period of 180 days after the coverage is denied.
    (2) In those States in which CMS is enforcing the individual market 
provisions of this part in accordance with Sec. 148.200, the issuer must 
make the demonstration described in paragraph (d)(1)(ii) of this section 
to CMS rather than to the State, and the issuer may not deny coverage to 
any eligible individual until 30 days after CMS receives and approves 
the information.
    (e) Application of financial capacity limits. (1) An issuer may deny 
coverage to an eligible individual if the issuer has demonstrated the 
following to the applicable State authority (if required by the State):
    (i) It does not have the financial reserves necessary to underwrite 
additional coverage.
    (ii) It uniformly denies coverage to all individuals in the 
individual market, consistent with applicable State law, without regard 
to any health status-related factor of the individuals, and without 
regard to whether the individuals are eligible individuals.
    (2) In those States in which CMS is enforcing the individual market 
provisions of this part in accordance with Sec. 148.200, the issuer must 
make the demonstration described in paragraph (e)(1) of this section to 
CMS rather than to the State, and the issuer may not deny coverage to 
any eligible individual until 30 days after CMS receives and approves 
the information.
    (3) An issuer that denies coverage in any service area according to 
paragraph (e)(1) of this section is prohibited from offering that 
coverage in the individual market for a period of 180 days after the 
later of the date--
    (i) The coverage is denied; or
    (ii) The issuer demonstrates to the applicable State authority (if 
required under applicable State law) that the issuer has sufficient 
financial reserves to underwrite additional coverage.
    (4) A State may apply the 180-day suspension described in paragraph 
(e)(3) of this section on a service-area-specific basis.
    (f) Rules for dependents--(1) General rule. If an eligible 
individual elects to enroll in individual health insurance coverage that 
provides coverage for dependents, the issuer may apply a preexisting 
condition exclusion on any dependent who is not an eligible individual.
    (2) Exception for certain children. A child is deemed to be an 
eligible individual if the following conditions are met:
    (i) The child was covered under any creditable coverage within 30 
days of

[[Page 634]]

birth, adoption, or placement for adoption (or longer if the State 
provides for a longer special enrollment period than required under 
Sec. 146.117(a)(6) of this subchapter).
    (ii) The child has not had a significant break in coverage.
    (3) Examples. The following examples illustrate the requirements of 
this paragraph (f) for certain children:

    Example 1: Individual A had self-only coverage under his employer's 
group health plan for five years. A has two children, ages 11 and 15, 
but never enrolled in family coverage. A leaves his job to become self-
employed, and qualifies as an eligible individual because he is not 
entitled to any continuation coverage, Medicare or Medicaid, and has no 
other health insurance coverage. He applies to Issuer R for coverage in 
the individual market under a policy with family coverage that R makes 
available to eligible individuals. R must sell A the policy, but he may 
refuse coverage to A's children, or may apply a preexisting condition 
exclusion to them if allowed under applicable State law, because they 
did not have prior creditable coverage, and therefore do not qualify as 
eligible individuals.
    Example 2: Individual B was also covered under a group health plan 
for 5 years before losing his job. He originally had coverage only for 
himself and his wife, but 3 months before his employment ended, his wife 
had a baby. B took advantage of the special enrollment period that 
applied, changed to family coverage, and enrolled the baby in the group 
health plan within 20 days. Immediately after losing his job, B applied 
to Issuer R for family coverage. B and his wife qualify as eligible 
individuals, and the baby is deemed to be an eligible individual even 
though she has less than 3 months of creditable coverage. Therefore R 
must make the policy available to all three members of the family, and 
cannot impose any preexisting condition exclusions.

    (g) Clarification of applicability. (1) An issuer in the individual 
market is not required to offer a family coverage option with any policy 
form.
    (2) An issuer offering health insurance coverage only in connection 
with group health plans, or only through one or more bona fide 
associations, or both, is not required to offer that type of coverage in 
the individual market.
    (3) An issuer offering health insurance coverage in connection with 
a group health plan is not deemed to be a health insurance issuer 
offering individual health insurance coverage solely because the issuer 
offers a conversion policy.
    (4) This section does not restrict the amount of the premium rates 
that an issuer may charge an individual under State law for health 
insurance coverage provided in the individual market.
    (5) This section does not prevent an issuer offering health 
insurance coverage in the individual market from establishing premium 
discounts or rebates, or modifying otherwise applicable copayments or 
deductibles, in return for adherence to programs of health promotion and 
disease prevention.
    (6) This section does not require issuers to reopen blocks of 
business closed under applicable State law.

(Approved by the Office of Management and Budget under control number 
0938-0703.)

[62 FR 16996, Apr. 8, 1997; 62 FR 31696, June 10, 1997, as amended at 62 
FR 35906, July 2, 1997]



Sec. 148.122  Guaranteed renewability of individual health insurance coverage.

    (a) Applicability. This section applies to all health insurance 
coverage in the individual market.
    (b) General rules. (1) Except as provided in paragraph (c) of this 
section, an issuer must renew or continue in force the coverage at the 
option of the individual.
    (2) Medicare eligibility or entitlement is not a basis for 
nonrenewal or termination of an individual's health insurance coverage 
in the individual market.
    (c) Exceptions to renewing coverage. An issuer may nonrenew or 
discontinue health insurance coverage of an individual in the individual 
market based only on one or more of the following:
    (1) Nonpayment of premiums. The individual has failed to pay 
premiums or contributions in accordance with the terms of the health 
insurance coverage, including any timeliness requirements.
    (2) Fraud. The individual has performed an act or practice that 
constitutes fraud or made an intentional misrepresentation of material 
fact under the terms of the coverage.

[[Page 635]]

    (3) Termination of plan. The issuer is ceasing to offer coverage in 
the individual market in accordance with paragraphs (d) and (e) of this 
section and applicable State law.
    (4) Movement outside the service area. For network plans, the 
individual no longer resides, lives, or works in the service area of the 
issuer, or area for which the issuer is authorized to do business, but 
only if coverage is terminated uniformly without regard to any health 
status-related factor of covered individuals.
    (5) Association membership ceases. For coverage made available in 
the individual market only through one or more bona fide associations, 
the individual's membership in the association ceases, but only if the 
coverage is terminated uniformly without regard to any health status-
related factor of covered individuals.
    (d) Discontinuing a particular type of coverage. An issuer may 
discontinue offering a particular type of health insurance coverage 
offered in the individual market only if it meets the following 
requirements:
    (1) Provides notice in writing to each individual provided coverage 
of that type of health insurance at least 90 days before the date the 
coverage will be discontinued.
    (2) Offers to each covered individual, on a guaranteed issue basis, 
the option to purchase any other individual health insurance coverage 
currently being offered by the issuer for individuals in that market.
    (3) Acts uniformly without regard to any health status-related 
factor of covered individuals or dependents of covered individuals who 
may become eligible for coverage.
    (e) Discontinuing all coverage. An issuer may discontinue offering 
all health insurance coverage in the individual market in a State only 
if it meets the following requirements.
    (1) Provides notice in writing to the applicable State authority and 
to each individual of the discontinuation at least 180 days before the 
date the coverage will expire.
    (2) Discontinues and does not renew all health insurance policies it 
issues or delivers for issuance in the State in the individual market.
    (3) Acts uniformly without regard to any health status-related 
factor of covered individuals or dependents of covered individuals who 
may become eligible for coverage.
    (f) Prohibition on market reentry. An issuer who elects to 
discontinue offering all health insurance coverage under paragraph (e) 
of this section may not issue coverage in the market and State involved 
during the 5-year period beginning on the date of discontinuation of the 
last coverage not renewed.
    (g) Exception for uniform modification of coverage. An issuer may, 
only at the time of coverage renewal, modify the health insurance 
coverage for a policy form offered in the individual market if the 
modification is consistent with State law and is effective uniformly for 
all individuals with that policy form.
    (h) Application to coverage offered only through associations. In 
the case of health insurance coverage that is made available by a health 
insurance issuer in the individual market only through one or more 
associations, any reference in this section to an ``individual'' is 
deemed to include a reference to the association of which the individual 
is a member.

(Approved by the Office of Management and Budget under control number 
0938-0703.)

[62 FR 16998, Apr. 8, 1997; 62 FR 31696, June 10, 1997, as amended at 62 
FR 35906, July 2, 1997]



Sec. 148.124  Certification and disclosure of coverage.

    (a) Applicability--(1) General rule. Except as provided in paragraph 
(a)(2) of this section, this section applies to all issuers of health 
insurance coverage.
    (2) Exception. The provisions of this section do not apply to 
issuers of the following types of coverage:
    (i) Health insurance coverage furnished in connection with a group 
health plan defined in Sec. 144.103 of this subchapter. (These issuers 
are required under Sec. 146.115 of this subchapter to provide a 
certificate of coverage.)
    (ii) Excepted benefits described in Sec. 148.220.
    (iii) Short-term, limited duration coverage defined in Sec. 144.103 
of this subchapter.
    (b) General rules--(1) Individuals for whom a certificate must be 
provided; timing of issuance. A certificate must be

[[Page 636]]

provided, without charge, for individuals and dependents who are or were 
covered under an individual health insurance policy as follows:
    (i) Issuance of automatic certificates. An automatic certificate 
must be provided within a reasonable time period consistent with State 
law after the individual ceases to be covered under the policy.
    (ii) Any individual upon request. Requests for certificates may be 
made by, or on behalf of, an individual within 24 months after coverage 
ends. For example, an entity that provides coverage to an individual in 
the future may, if authorized by the individual, request a certificate 
of the individual's creditable coverage on behalf of the individual from 
the issuer of the individual's prior coverage. After the request is 
received, an issuer must provide the certificate by the earliest date 
the issuer, acting in a reasonable and prompt fashion, can provide the 
certificate. A certificate must be provided under this paragraph even if 
the individual has previously received a certificate under this 
paragraph (b)(1)(ii) or an automatic certificate under paragraph 
(a)(l)(i) of this section.
    (2) Form and content of certificate--(i) Written certificate--(A) 
General rule. Except as provided in paragraph (b)(2)(i)(B) of this 
section, the issuer must provide the certificate in writing (including 
any form approved by CMS).
    (B) Other permissible forms. No written certificate must be provided 
if all of the following occur:
    (1) An individual is entitled to receive a certificate.
    (2) The individual requests that the certificate be sent to another 
plan or issuer instead of to the individual.
    (3) The plan or issuer that would otherwise receive the certificate 
agrees to accept the information in paragraph (a)(3) of this section 
through means other than a written certificate (for example, by 
telephone).
    (4) The receiving plan or issuer receives the information from the 
sending issuer in the prescribed form within the time periods required 
under paragraph (b)(1) of this section.
    (ii) Required information. The certificate must include the 
following:
    (A) The date the certificate is issued.
    (B) The name of the individual or dependent for whom the certificate 
applies, and any other information necessary for the issuer providing 
the coverage specified in the certificate to identify the individual, 
such as the individual's identification number under the policy and the 
name of the policyholder if the certificate is for (or includes) a 
dependent.
    (C) The name, address, and telephone number of the issuer required 
to provide the certificate.
    (D) The telephone number to call for further information regarding 
the certificate (if different from paragraph (b)(2)(ii)(C) of this 
section).
    (E) Either one of the following:
    (1) A statement that the individual has at least 18 months (for this 
purpose, 546 days is deemed to be 18 months) of creditable coverage, 
disregarding days of creditable coverage before a significant break in 
coverage as defined in Sec. 146.113(b)(2)(iii) of this subchapter.
    (2) Both the date the individual first sought coverage, as evidenced 
by a substantially complete application, and the date creditable 
coverage began.
    (F) The date creditable coverage ended, unless the certificate 
indicates that creditable coverage is continuing as of the date of the 
certificate.
    (iii) Periods of coverage under a certificate. If an automatic 
certificate is provided under paragraph (b)(1)(i) of this section, the 
period that must be included on the certificate is the last period of 
continuous coverage ending on the date coverage ceased. If an individual 
requests a certificate under paragraph (b)(1)(ii) of this section, a 
certificate must be provided for each period of continuous coverage 
ending within the 24-month period ending on the date of the request (or 
continuing on the date of the request). A separate certificate may be 
provided for each period of continuous coverage.
    (iv) Single certificate permitted for families. An issuer may 
provide a single certificate for both an individual and the individual's 
dependents if it provides all the required information for each 
individual and dependent, and separately states the information that is 
not identical.

[[Page 637]]

    (v) Model certificate. The requirements of paragraph (b)(2)(ii) of 
this section are satisfied if the issuer provides a certificate in 
accordance with a model certificate as provided by CMS.
    (vi) Excepted benefits; categories of benefits. No certificate is 
required to be furnished with respect to excepted benefits described in 
Sec. 148.220. If excepted benefits are provided concurrently with other 
creditable coverage (so that the coverage does not consist solely of 
excepted benefits), information concerning the benefits may be required 
to be disclosed under paragraph (c) of this section.
    (3) Procedures--(i) Method of delivery. The certificate is required 
to be provided, without charge, to each individual described in 
paragraph (b)(1) of this section or an entity requesting the certificate 
on behalf of the individual. The certificate may be provided by first-
class mail. If the certificate or certificates are provided to the 
individual and the individual's spouse at the individual's last known 
address, the requirements of this paragraph (b)(3) are satisfied with 
respect to all individuals and dependents residing at that address. If a 
dependent's last known address is different than the individual's last 
known address, a separate certificate must be provided to the dependent 
at the dependent's last known address. If separate certificates are 
provided by mail to individuals and dependents who reside at the same 
address, separate mailings of each certificate are not required.
    (ii) Procedure for requesting certificates. An issuer must establish 
a procedure for individuals and dependents to request and receive 
certificates under paragraph (b)(1)(ii) of this section.
    (iii) Designated recipients. If an automatic certificate is required 
to be provided under paragraph (b)(1)(i) of this section, and the 
individual or dependent entitled to receive the certificate designates 
another individual or entity to receive the certificate, the issuer 
responsible for providing the certificate may provide the certificate to 
the designated party. If a certificate must be provided upon request 
under paragraph (b)(1)(ii) of this section, and the individual entitled 
to receive the certificate designates another individual or entity to 
receive the certificate, the issuer responsible for providing the 
certificates must provide the certificate to the designated party.
    (4) Special rules concerning dependent coverage--(i) Reasonable 
efforts. An issuer must use reasonable efforts to determine any 
information needed for a certificate relating to dependent coverage. If 
an automatic certificate must be furnished with respect to a dependent 
under paragraph (b)(1)(i) of this section, no individual certificate 
must be furnished until the issuer knows (or making reasonable efforts 
should know) of the dependent's cessation of coverage under the policy.
    (ii) Special rules for demonstrating coverage. If a certificate 
furnished by an issuer does not provide the name of any dependent of an 
individual covered by the certificate, the individual may, if necessary, 
use the procedures described in paragraph (d)(3) of this section for 
demonstrating dependent status. An individual may, if necessary, use 
these procedures to demonstrate that a child was enrolled within 30 days 
of birth, adoption, or placement for adoption, in which case the child 
would not be subject to a preexisting condition exclusion under 
Sec. 148.120(f)(2).
    (iii) Transition rule for dependent coverage through June 30, 1998--
(A) General rule. An issuer that cannot provide the names of dependents 
(or related coverage information) for purposes of providing a 
certificate of coverage for a dependent may satisfy the requirements of 
paragraph (b)(2)(ii)(C) of this section by providing the name of the 
policyholder and specifying that the type of coverage described in the 
certificate is for dependent coverage (for example, family coverage or 
individual-plus-spouse coverage).
    (B) Certificates provided on request. For purposes of certificates 
provided on the request of, or on behalf of, an individual under 
paragraph (b)(1)(ii) of this section, an issuer must make reasonable 
efforts to obtain and provide the names of any dependent covered by the 
certificate if the information is requested. If a certificate does not 
include the name of any dependent of an individual covered by the 
certificate, the individual may, if necessary, use the procedures 
described in paragraph

[[Page 638]]

(d)(3) of this section for submitting documentation to establish that 
the creditable coverage in the certificate applies to the dependent.
    (C) Demonstrating a dependent's creditable coverage. See paragraph 
(d)(3) of this section for special rules to demonstrate dependent 
status.
    (D) Duration. The transitional rules of this paragraph (b)(4)(iii) 
are effective for certifications provided with respect to an event 
occurring before July 1, 1998.
    (5) Optional notice. This paragraph applies to events described in 
paragraph (b)(1)(i) of this section, that occur after September 30, 
1996, but before June 30, 1997. An issuer offering individual health 
insurance coverage is deemed to satisfy paragraphs (b)(1) and (b)(2) of 
this section if a notice is provided in accordance with the provisions 
of Sec. 146.125(e)(3)(ii) through (e)(3)(iv) of this subchapter.
    (c) Disclosure of coverage to a plan, or issuer, electing the 
alternative method of creating coverage--(1) General rule. If an 
individual enrolls in a group health plan and the plan or issuer uses 
the alternative method of determining creditable coverage described in 
Sec. 146.113(c) of this subchapter, the individual provides a 
certificate of coverage under paragraph (b) of this section or 
demonstrates creditable coverage under paragraph (d) of this section, 
and the plan or coverage in which the individual enrolls requests from 
the prior entity, the prior entity must disclose promptly to the 
requesting plan or issuer (``requesting entity'') the information set 
forth in paragraph (c)(2) of this section.
    (2) Information to be disclosed. The prior entity must identify to 
the requesting entity the categories of benefits under which the 
individual was covered and with respect to which the requesting entity 
is using the alternative method of counting creditable coverage, and the 
requesting entity may identify specific information that the requesting 
entity reasonably needs to determine the individual's creditable 
coverage with respect to any of those categories. The prior entity must 
promptly disclose to the requesting entity the creditable coverage 
information that was requested.
    (3) Charge for providing information. The prior entity furnishing 
the information under paragraph (c)(2) of this section may charge the 
requesting entity for the reasonable cost of disclosing the information.
    (d) Ability of an individual to demonstrate creditable coverage and 
waiting period information--(1) General rule. Individuals may establish 
creditable coverage through means other than certificates. If the 
accuracy of a certificate is contested or a certificate is unavailable 
when needed by the individual, the individual has the right to 
demonstrate creditable coverage (and waiting or affiliation periods) 
through the presentation of documents or other means. For example, the 
individual may make a demonstration if one of the following occurs:
    (i) An entity has failed to provide a certificate within the 
required time period.
    (ii) The individual has creditable coverage but an entity may not be 
required to provide a certificate of the coverage.
    (iii) The coverage is for a period before July 1, 1996.
    (iv) The individual has an urgent medical condition that 
necessitates a determination before the individual can deliver a 
certificate to the plan.
    (v) The individual lost a certificate that the individual had 
previously received and is unable to obtain another certificate.
    (2) Evidence of creditable coverage--(i) Consideration of evidence. 
An issuer must take into account all information that it obtains or that 
is presented on behalf of an individual to make a determination, based 
on the relevant facts and circumstances, whether or not an individual 
has 18 months of creditable coverage. An issuer must treat the 
individual as having furnished a certificate if the individual attests 
to the period of creditable coverage, the individual presents relevant 
corroborating evidence of some creditable coverage during the period, 
and the individual cooperates with the issuer's efforts to verify the 
individual's coverage. For this purpose, cooperation includes providing 
(upon the

[[Page 639]]

issuer's request) a written authorization for the issuer to request a 
certificate on behalf of the individual, and cooperating in efforts to 
determine the validity of the corroborating evidence and the dates of 
creditable coverage. While an issuer may refuse to credit coverage if 
the individual fails to cooperate with the issuer's efforts to verify 
coverage, the issuer may not consider an individual's inability to 
obtain a certificate to be evidence of the absence of creditable 
coverage.
    (ii) Documents. Documents that may establish creditable coverage 
(and waiting periods or affiliation periods) in the absence of a 
certificate include explanations of benefit claims (EOB) or other 
correspondence from a plan or issuer indicating coverage, pay stubs 
showing a payroll deduction for health coverage, a health insurance 
identification card, a certificate of coverage under a group health 
policy, records from medical care providers indicating health coverage, 
third party statements verifying periods of coverage, and any other 
relevant documents that evidence periods of health coverage.
    (iii) Other evidence. Creditable coverage (and waiting period or 
affiliation period information) may be established through means other 
than documentation, such as by a telephone call from the issuer to a 
third party verifying creditable coverage.
    (3) Demonstrating dependent status. If, in the course of providing 
evidence (including a certificate) of creditable coverage, an individual 
is required to demonstrate dependent status, the issuer must treat the 
individual as having furnished a certificate showing the dependent 
status if the individual attests to the dependency and the period of the 
status and the individual cooperates with the issuer's efforts to verify 
the dependent status.

(Approved by the Office of Management and Budget under control number 
0938-0703.)

[62 FR 16998, Apr. 8, 1997; 62 FR 31696, June 10, 1997, as amended at 62 
FR 35906, July 2, 1997]



Sec. 148.126  Determination of an eligible individual.

    (a) General rule. Each issuer offering health insurance coverage in 
the individual market is responsible for determining whether an 
applicant for coverage is an eligible individual as defined in 
Sec. 148.103.
    (b) Specific requirements. (1) The issuer must exercise reasonable 
diligence in making this determination.
    (2) The issuer must promptly determine whether an applicant is an 
eligible individual.
    (3) If an issuer determines that an individual is an eligible 
individual, the issuer must promptly issue a policy to that individual.
    (c) Insufficient information--(1) General rule. If the information 
presented in or with an application is substantially insufficient for 
the issuer to make the determination described in paragraph (b)(2) of 
this section, the issuer may immediately request additional information 
from the individual, and must act promptly to make its determination 
after receipt of the requested information
    (2) Failure to provide a certification of creditable coverage. If an 
entity fails to provide the certificate that is required under this part 
or part 146 of this subchapter to the applicant, the issuer is subject 
to the procedures set forth in Sec. 148.124(d)(1) concerning an 
individual's right to demonstrate creditable coverage.

[62 FR 17000, Apr. 8, 1997]

    Effective Date Note: At 62 FR 17000, Apr. 8, 1997, Sec. 148.126 was 
added. This section contains information collection and recordkeeping 
requirements and will not become effective until approval has been given 
by the Office of Management and Budget.



Sec. 148.128  State flexibility in individual market reforms--alternative mechanisms.

    (a) Waiver of requirements. The requirements of Sec. 148.120, which 
set forth Federal requirements for guaranteed availability in the 
individual market, do not apply in a State that implements an acceptable 
alternative mechanism in accordance with the following criteria:
    (1) The alternative mechanism meets the following conditions:
    (i) Offers health insurance coverage to all eligible individuals.
    (ii) Prohibits imposing preexisting condition exclusions and 
affiliation periods for coverage of an eligible individual.

[[Page 640]]

    (iii) Offers an eligible individual a choice of coverage that 
includes at least one policy form of coverage that is comparable to 
either one of the following:
    (A) Comprehensive coverage offered in the individual market in the 
State.
    (B) A standard option of coverage available under the group or 
individual health insurance laws of the State.
    (2) The State is implementing one of the following provisions 
relating to risk:
    (i) One of the following model acts, as adopted by the NAIC on June 
3, 1996, but only if the model has been revised in State regulations to 
meet all of the requirements of this part and title 27 of the PHS Act.
    (A) The Small Employer and Individual Health Insurance Availability 
Model Act to the extent it applies to individual health insurance 
coverage.
    (B) The Individual Health Insurance Portability Model Act.
    (ii) A qualified high risk pool, which, for purposes of this 
section, is a high risk pool that meets the following conditions:
    (A) Provides to all eligible individuals health insurance coverage 
(or comparable coverage) that does not impose any preexisting condition 
exclusion or affiliation periods for coverage of an eligible individual.
    (B) Provides for premium rates and covered benefits for the coverage 
consistent with standards included in the NAIC Model Health Plan for 
Uninsurable Individuals Act (as in effect as of August 21, 1996), but 
only if the model has been revised in State regulations to meet all of 
the requirements of this part and title 27 of the PHS Act.
    (iii) One of the following mechanisms:
    (A) Any other mechanism that provides for risk adjustment, risk 
spreading, or a risk-spreading mechanism (among issuers or policies of 
an issuer) or otherwise provides for some financial subsidization for 
eligible individuals, including through assistance to participating 
issuers.
    (B) A mechanism that provides a choice for each eligible individual 
of all individual health insurance coverage otherwise available.
    (b) Permissible forms of mechanisms. A private or public individual 
health insurance mechanism (such as a health insurance coverage pool or 
program, a mandatory group conversion policy, guaranteed issue of one or 
more plans of individual health insurance coverage, or open enrollment 
by one or more health insurance issuers), or combination of these 
mechanisms, that is designed to provide access to health benefits for 
individuals in the individual market in the State, in accordance with 
this section, may constitute an acceptable alternative mechanism.
    (c) Establishing an acceptable alternative mechanism--transition 
rules. CMS presumes a State to be implementing an acceptable alternative 
mechanism as of July 1, 1997 if the following conditions are met:
    (1) By not later than April 1, 1997, as evidenced by a postmark 
date, or other such date, the chief executive officer of the State takes 
the following actions:
    (i) Notifies CMS that the State has enacted or intends to enact by 
not later than January 1, 1998 (unless it is a State described in 
paragraph (d) of this section), any legislation necessary to provide for 
the implementation of a mechanism reasonably designed to be an 
acceptable alternative mechanism as of January 1, 1998.
    (ii) Provides CMS with the information necessary to review the 
mechanism and its implementation (or proposed implementation).
    (2) CMS has not made a determination, in accordance with the 
procedure in paragraph (e)(4) of this section, that the State will not 
be implementing a mechanism reasonably designed to be an acceptable 
alternative mechanism as of January 1, 1998.
    (d) Delay permitted for certain States. If a State notifies CMS that 
its legislature is not meeting in a regular session between August 21, 
1996 and August 20, 1997, CMS continues to presume until July 1, 1998 
that the State is implementing an acceptable alternative mechanism, if 
the chief executive officer of the State takes the following actions:
    (1) Notifies CMS by April 1, 1997, that the State intends to submit 
an alternative mechanism and intends to enact any necessary legislation 
to provide for

[[Page 641]]

the implementation of an acceptable alternative mechanism as of July 1, 
1998.
    (2) Notifies CMS by April 1, 1998, that the State has enacted any 
necessary legislation to provide for the implementation of an acceptable 
alternative mechanism as of July 1, 1998.
    (3) Provides CMS with the information necessary to review the 
mechanism and its implementation (or proposed implementation).
    (e) Submitting an alternative mechanism after April 1, 1997--(1) 
Notice with information. A State that wishes to implement an acceptable 
alternative mechanism must take the following actions:
    (i) Notify CMS that it has enacted legislation necessary to provide 
for the implementation of a mechanism reasonably designed to be an 
acceptable alternative mechanism, and
    (ii) Provide CMS with the information necessary for CMS to review 
the mechanism and its implementation (or proposed implementation).
    (2) An acceptable alternative mechanism. If the State takes the 
actions described in paragraph (e)(1) of this section, the mechanism is 
considered to be an acceptable alternative mechanism unless CMS makes a 
preliminary determination (under paragraph (e)(4)(i) of this section), 
within the review period (defined in paragraph (e)(3) of this section), 
that the mechanism is not an acceptable alternative mechanism.
    (3) Review period--(i) General. The review period begins on the date 
the State's notice and information are received by CMS, and ends 90 days 
later, not counting any days during which the review period is suspended 
under paragraph (e)(3)(ii) of this section.
    (ii) Suspension of review period. During any review period, if CMS 
notifies the State of the need for additional information or further 
discussion on its submission, CMS suspends the review period until the 
State provides the necessary information.
    (4) Determination by CMS--(i) Preliminary determination. If CMS 
finds after reviewing the submitted information, and after consultation 
with the chief executive officer of the State and the chief insurance 
regulatory official of the State, that the mechanism is not an 
acceptable alternative mechanism, CMS takes the following actions:
    (A) Notifies the State, in writing, of the preliminary 
determination.
    (B) Informs the State that if it fails to implement an acceptable 
alternative mechanism, the Federal guaranteed availability provisions of 
Sec. 148.120 will take effect.
    (C) Permits the State a reasonable opportunity to modify the 
mechanism (or to adopt another mechanism).
    (ii) Final determination. If, after providing notice and a 
reasonable opportunity for the State to modify its mechanism, CMS makes 
a final determination that the design of the State's alternative 
mechanism is not acceptable or that the State is not substantially 
enforcing an acceptable alternative mechanism, CMS notifies the State in 
writing of the following:
    (A) CMS's final determination.
    (B) That the requirements of Sec. 148.120 concerning guaranteed 
availability apply to health insurance coverage offered in the 
individual market in the State as of a date specified in the notice from 
CMS.
    (iii) State request for early notice. A State may request that CMS 
notify the State before the end of the review period if CMS is not 
making a preliminary determination.
    (5) Effective date. If CMS does not make a preliminary determination 
within the review period, the acceptable alternative mechanism is 
effective 90 days after the end of the 90-day review period described in 
paragraph (e)(3)(i) of this section.
    (f) Continued application. A State alternative mechanism may 
continue to be presumed to be acceptable, if the State provides 
information to CMS that meets the following requirements:
    (1) If the State makes a significant change to its alternative 
mechanism, it provides the information before making a change.
    (2) Every 3 years from the later of implementing the alternative 
mechanism or implementing a significant change, it provides CMS with 
information.
    (g) Review criteria. CMS reviews each State's submission to 
determine whether it addresses all of the following requirements:

[[Page 642]]

    (1) Is the mechanism reasonably designed to provide all eligible 
individuals with a choice of health insurance coverage?
    (2) Does the choice offered to eligible individuals include at least 
one policy form that meets one of the following requirements?
    (i) Is the policy form comparable to comprehensive health insurance 
coverage offered in the individual market in the State?
    (ii) Is the policy form comparable to a standard option of coverage 
available under the group or individual health insurance laws of the 
State?
    (3) Does the mechanism prohibit preexisting condition exclusions for 
all eligible individuals?
    (4) Is the State implementing one of the following:
    (i) The NAIC Small Employer and Individual Health Insurance 
Availability Model Act (Availability Model), adopted on June 3, 1996, 
revised to reflect HIPAA requirements.
    (ii) The Individual Health Insurance Portability Model Act 
(Portability Model), adopted on June 3, 1996, revised to reflect HIPAA 
requirements.
    (iii) A qualified high-risk pool that provides eligible individuals 
health insurance or comparable coverage without a preexisting condition 
exclusion, and with premiums and benefits consistent with the NAIC Model 
Health Plan for Uninsurable Individuals Act (as in effect August 21, 
1996), revised to reflect HIPAA requirements.
    (iv) A mechanism that provides for risk spreading or provides 
eligible individuals with a choice of all available individual health 
insurance coverage.
    (5) Has the State enacted all legislation necessary for implementing 
the alternative mechanism?
    (6) If the State has not enacted all legislation necessary for 
implementing the alternative mechanism, will the necessary legislation 
be enacted by January 1, 1998?
    (h) Limitation of CMS's authority. CMS does not make a preliminary 
or final determination on any basis other than that a mechanism is not 
considered an acceptable alternative mechanism or is not being 
implemented.

(Approved by the Office of Management and Budget under control number 
0938-0703.)

[62 FR 16995, Apr. 8, 1997; 62 FR 17005, Apr. 8, 1997; 62 FR 31696, June 
10, 1997, as amended at 62 FR 35906, July 2, 1997]



               Subpart C--Requirements Related to Benefits



Sec. 148.170  Standards relating to benefits for mothers and newborns.

    (a) Hospital length of stay--(1) General rule. Except as provided in 
paragraph (a)(5) of this section, an issuer offering health insurance 
coverage in the individual market that provides benefits for a hospital 
length of stay in connection with childbirth for a mother or her newborn 
may not restrict benefits for the stay to less than--
    (i) 48 hours following a vaginal delivery; or
    (ii) 96 hours following a delivery by cesarean section.
    (2) When stay begins--(i) Delivery in a hospital. If delivery occurs 
in a hospital, the hospital length of stay for the mother or newborn 
child begins at the time of delivery (or in the case of multiple births, 
at the time of the last delivery).
    (ii) Delivery outside a hospital. If delivery occurs outside a 
hospital, the hospital length of stay begins at the time the mother or 
newborn is admitted as a hospital inpatient in connection with 
childbirth. The determination of whether an admission is in connection 
with childbirth is a medical decision to be made by the attending 
provider.
    (3) Examples. The rules of paragraphs (a)(1) and (a)(2) of this 
section are illustrated by the following examples. In each example, the 
issuer provides benefits for hospital lengths of stay in connection with 
childbirth and is subject to the requirements of this section, as 
follows:

    Example 1. (i) A pregnant woman covered under a policy issued in the 
individual market goes into labor and is admitted to the hospital at 10 
p.m. on June 11. She gives birth by vaginal delivery at 6 a.m. on June 
12.
    (ii) In this Example 1, the 48-hour period described in paragraph 
(a)(1)(i) of this section ends at 6 a.m. on June 14.

[[Page 643]]

    Example 2. (i) A woman covered under a policy issued in the 
individual market gives birth at home by vaginal delivery. After the 
delivery, the woman begins bleeding excessively in connection with the 
childbirth and is admitted to the hospital for treatment of the 
excessive bleeding at 7 p.m. on October 1.
    (ii) In this Example 2, the 48-hour period described in paragraph 
(a)(1)(i) of this section ends at 7 p.m. on October 3.
    Example 3. (i) A woman covered under a policy issued in the 
individual market gives birth by vaginal delivery at home. The child 
later develops pneumonia and is admitted to the hospital. The attending 
provider determines that the admission is not in connection with 
childbirth.
    (ii) In this Example 3, the hospital length-of-stay requirements of 
this section do not apply to the child's admission to the hospital 
because the admission is not in connection with childbirth.

    (4) Authorization not required--(i) In general. An issuer may not 
require that a physician or other health care provider obtain 
authorization from the issuer for prescribing the hospital length of 
stay required under paragraph (a)(1) of this section. (See also 
paragraphs (b)(2) and (c)(3) of this section for rules and examples 
regarding other authorization and certain notice requirements.)
    (ii) Example. The rule of this paragraph (a)(4) is illustrated by 
the following example:

    Example. (i) In the case of a delivery by cesarean section, an 
issuer subject to the requirements of this section automatically 
provides benefits for any hospital length of stay of up to 72 hours. For 
any longer stay, the issuer requires an attending provider to complete a 
certificate of medical necessity. The issuer then makes a determination, 
based on the certificate of medical necessity, whether a longer stay is 
medically necessary.
    (ii) In this Example, the requirement that an attending provider 
complete a certificate of medical necessity to obtain authorization for 
the period between 72 hours and 96 hours following a delivery by 
cesarean section is prohibited by this paragraph (a)(4).

    (5) Exceptions--(i) Discharge of mother. If a decision to discharge 
a mother earlier than the period specified in paragraph (a)(1) of this 
section is made by an attending provider, in consultation with the 
mother, the requirements of paragraph (a)(1) of this section do not 
apply for any period after the discharge.
    (ii) Discharge of newborn. If a decision to discharge a newborn 
child earlier than the period specified in paragraph (a)(1) of this 
section is made by an attending provider, in consultation with the 
mother (or the newborn's authorized representative), the requirements of 
paragraph (a)(1) of this section do not apply for any period after the 
discharge.
    (iii) Attending provider defined. For purposes of this section, 
attending provider means an individual who is licensed under applicable 
State law to provide maternity or pediatric care and who is directly 
responsible for providing maternity or pediatric care to a mother or 
newborn child.
    (iv) Example. The rules of this paragraph (a)(5) are illustrated by 
the following example:

    Example. (i) A pregnant woman covered under a policy offered by an 
issuer subject to the requirements of this section goes into labor and 
is admitted to a hospital. She gives birth by cesarean section. On the 
third day after the delivery, the attending provider for the mother 
consults with the mother, and the attending provider for the newborn 
consults with the mother regarding the newborn. The attending providers 
authorize the early discharge of both the mother and the newborn. Both 
are discharged approximately 72 hours after the delivery. The issuer 
pays for the 72-hour hospital stays.
    (ii) In this Example, the requirements of this paragraph (a) have 
been satisfied with respect to the mother and the newborn. If either is 
readmitted, the hospital stay for the readmission is not subject to this 
section.

    (b) Prohibitions--(1) With respect to mothers--(i) In general. An 
issuer may not--
    (A) Deny a mother or her newborn child eligibility or continued 
eligibility to enroll in or renew coverage solely to avoid the 
requirements of this section; or
    (B) Provide payments (including payments-in-kind) or rebates to a 
mother to encourage her to accept less than the minimum protections 
available under this section.
    (ii) Examples. The rules of this paragraph (b)(1) are illustrated by 
the following examples. In each example, the issuer is subject to the 
requirements of this section, as follows:

    Example 1. (i) An issuer provides benefits for at least a 48-hour 
hospital length of stay

[[Page 644]]

following a vaginal delivery. If a mother and newborn covered under a 
policy issued in the individual market are discharged within 24 hours 
after the delivery, the issuer will waive the copayment and deductible.
    (ii) In this Example 1, because waiver of the copayment and 
deductible is in the nature of a rebate that the mother would not 
receive if she and her newborn remained in the hospital, it is 
prohibited by this paragraph (b)(1). (In addition, the issuer violates 
paragraph (b)(2) of this section because, in effect, no copayment or 
deductible is required for the first portion of the stay and a double 
copayment and a deductible are required for the second portion of the 
stay.)
    Example 2. (i) An issuer provides benefits for at least a 48-hour 
hospital length of stay following a vaginal delivery. In the event that 
a mother and her newborn are discharged earlier than 48 hours and the 
discharges occur after consultation with the mother in accordance with 
the requirements of paragraph (a)(5) of this section, the issuer 
provides for a follow-up visit by a nurse within 48 hours after the 
discharges to provide certain services that the mother and her newborn 
would otherwise receive in the hospital.
    (ii) In this Example 2, because the follow-up visit does not provide 
any services beyond what the mother and her newborn would receive in the 
hospital, coverage for the follow-up visit is not prohibited by this 
paragraph (b)(1).

    (2) With respect to benefit restrictions--(i) In general. Subject to 
paragraph (c)(3) of this section, an issuer may not restrict the 
benefits for any portion of a hospital length of stay required under 
paragraph (a) of this section in a manner that is less favorable than 
the benefits provided for any preceding portion of the stay.
    (ii) Example. The rules of this paragraph (b)(2) are illustrated by 
the following example:

    Example. (i) An issuer subject to the requirements of this section 
provides benefits for hospital lengths of stay in connection with 
childbirth. In the case of a delivery by cesarean section, the issuer 
automatically pays for the first 48 hours. With respect to each 
succeeding 24-hour period, the covered individual must call the issuer 
to obtain precertification from a utilization reviewer, who determines 
if an additional 24-hour period is medically necessary. If this approval 
is not obtained, the issuer will not provide benefits for any succeeding 
24-hour period.
    (ii) In this Example, the requirement to obtain precertification for 
the two 24-hour periods immediately following the initial 48-hour stay 
is prohibited by this paragraph (b)(2) because benefits for the latter 
part of the stay are restricted in a manner that is less favorable than 
benefits for a preceding portion of the stay. (However, this section 
does not prohibit an issuer from requiring precertification for any 
period after the first 96 hours.) In addition, if the issuer's 
utilization reviewer denied any mother or her newborn benefits within 
the 96-hour stay, the issuer would also violate paragraph (a) of this 
section.

    (3) With respect to attending providers. An issuer may not directly 
or indirectly--
    (i) Penalize (for example, take disciplinary action against or 
retaliate against), or otherwise reduce or limit the compensation of, an 
attending provider because the provider furnished care to a covered 
individual in accordance with this section; or
    (ii) Provide monetary or other incentives to an attending provider 
to induce the provider to furnish care to a covered individual in a 
manner inconsistent with this section, including providing any incentive 
that could induce an attending provider to discharge a mother or newborn 
earlier than 48 hours (or 96 hours) after delivery.
    (c) Construction. With respect to this section, the following rules 
of construction apply:
    (1) Hospital stays not mandatory. This section does not require a 
mother to--
    (i) Give birth in a hospital; or
    (ii) Stay in the hospital for a fixed period of time following the 
birth of her child.
    (2) Hospital stay benefits not mandated. This section does not apply 
to any issuer that does not provide benefits for hospital lengths of 
stay in connection with childbirth for a mother or her newborn child.
    (3) Cost-sharing rules--(i) In general. This section does not 
prevent an issuer from imposing deductibles, coinsurance, or other cost-
sharing in relation to benefits for hospital lengths of stay in 
connection with childbirth for a mother or a newborn under the coverage, 
except that the coinsurance or other cost-sharing for any portion of the 
hospital length of stay required under paragraph (a) of this section may 
not be greater than that for any preceding portion of the stay.

[[Page 645]]

    (ii) Examples. The rules of this paragraph (c)(3) are illustrated by 
the following examples. In each example, the issuer is subject to the 
requirements of this section, as follows:

    Example 1. (i) An issuer provides benefits for at least a 48-hour 
hospital length of stay in connection with vaginal deliveries. The 
issuer covers 80 percent of the cost of the stay for the first 24-hour 
period and 50 percent of the cost of the stay for the second 24-hour 
period. Thus, the coinsurance paid by the patient increases from 20 
percent to 50 percent after 24 hours.
    (ii) In this Example 1, the issuer violates the rules of this 
paragraph (c)(3) because coinsurance for the second 24-hour period of 
the 48-hour stay is greater than that for the preceding portion of the 
stay. (In addition, the issuer also violates the similar rule in 
paragraph (b)(2) of this section.)
    Example 2. (i) An issuer generally covers 70 percent of the cost of 
a hospital length of stay in connection with childbirth. However, the 
issuer will cover 80 percent of the cost of the stay if the covered 
individual notifies the issuer of the pregnancy in advance of admission 
and uses whatever hospital the issuer may designate.
    (ii) In this Example 2, the issuer does not violate the rules of 
this paragraph (c)(3) because the level of benefits provided (70 percent 
or 80 percent) is consistent throughout the 48-hour (or 96-hour) 
hospital length of stay required under paragraph (a) of this section. 
(In addition, the issuer does not violate the rules in paragraph (a)(4) 
or paragraph (b)(2) of this section.)

    (4) Compensation of attending provider. This section does not 
prevent an issuer from negotiating with an attending provider the level 
and type of compensation for care furnished in accordance with this 
section (including paragraph (b) of this section).
    (5) Applicability. This section applies to all health insurance 
coverage issued in the individual market, and is not limited in its 
application to coverage that is provided to eligible individuals as 
defined in section 2741(b) of the PHS Act.
    (d) Notice requirement. Except as provided in paragraph (d)(4) of 
this section, an issuer offering health insurance in the individual 
market must meet the following requirements with respect to benefits for 
hospital lengths of stay in connection with childbirth:
    (1) Required statement. The insurance contract must disclose 
information that notifies covered individuals of their rights under this 
section.
    (2) Disclosure notice. To meet the disclosure requirement set forth 
in paragraph (d)(1) of this section, the following disclosure notice 
must be used:

 Statement of Rights Under the Newborns' and Mothers' Health Protection 
                                   Act

    Under federal law, health insurance issuers generally may not 
restrict benefits for any hospital length of stay in connection with 
childbirth for the mother or newborn child to less than 48 hours 
following a vaginal delivery, or less than 96 hours following a delivery 
by cesarean section. However, the issuer may pay for a shorter stay if 
the attending provider (e.g., your physician, nurse midwife, or 
physician assistant), after consultation with the mother, discharges the 
mother or newborn earlier.
    Also, under federal law, issuers may not set the level of benefits 
or out-of-pocket costs so that any later portion of the 48-hour (or 96-
hour) stay is treated in a manner less favorable to the mother or 
newborn than any earlier portion of the stay.
    In addition, an issuer may not, under federal law, require that a 
physician or other health care provider obtain authorization for 
prescribing a length of stay of up to 48 hours (or 96 hours). However, 
to use certain providers or facilities, or to reduce your out-of-pocket 
costs, you may be required to obtain precertification. For information 
on precertification, contact your issuer.

    (3) Timing of disclosure. The disclosure notice in paragraph (d)(2) 
of this section shall be furnished to the covered individuals in the 
form of a copy of the contract, or a rider (or equivalent amendment to 
the contract), not later than March 1, 1999.
    (4) Exception. The requirements of this paragraph (d) do not apply 
with respect to coverage regulated under a State law described in 
paragraph (e) of this section.
    (e) Applicability in certain States--(1) Health insurance coverage. 
The requirements of section 2751 of the PHS Act and this section do not 
apply with respect to health insurance coverage in the individual market 
if there is a State law regulating the coverage that meets any of the 
following criteria:
    (i) The State law requires the coverage to provide for at least a 
48-hour hospital length of stay following a vaginal delivery and at 
least a 96-hour hospital length of stay following a delivery by cesarean 
section.

[[Page 646]]

    (ii) The State law requires the coverage to provide for maternity 
and pediatric care in accordance with guidelines established by the 
American College of Obstetricians and Gynecologists, the American 
Academy of Pediatrics, or any other established professional medical 
association.
    (iii) The State law requires, in connection with the coverage for 
maternity care, that the hospital length of stay for such care is left 
to the decision of (or is required to be made by) the attending provider 
in consultation with the mother. State laws that require the decision to 
be made by the attending provider with the consent of the mother satisfy 
the criterion of this paragraph (e)(1)(iii).
    (2) Relation to section 2762(a) of the PHS Act. The preemption 
provisions contained in section 2762(a) of the PHS Act and 
Sec. 148.210(b) do not supersede a State law described in paragraph 
(e)(1) of this section.
    (f) Effective date. Section 2751 of the PHS Act applies to health 
insurance coverage offered, sold, issued, renewed, in effect, or 
operated in the individual market on or after January 1, 1998. This 
section applies to health insurance coverage offered, sold, issued, 
renewed, in effect, or operated in the individual market on or after 
January 1, 1999.

[63 FR 57562, Oct. 27, 1998]



              Subpart D--Enforcement; Penalties; Preemption



Sec. 148.210  Preemption.

    (a) Scope. (1) This section describes the effect of sections 2741 
through 2763 and 2791 of the PHS Act on a State's authority to regulate 
health insurance issuers in the individual market. This section makes 
clear that States remain subject to section 514 of ERISA, which 
generally preempts State law that relates to ERISA-covered plans.
    (2) Sections 2741 through 2763 and 2791 of the PHS Act cannot be 
construed to affect or modify the provisions of section 514 of ERISA.
    (b) Regulation of insurance issuers. The individual market rules of 
this part do not prevent a State law from establishing, implementing, or 
continuing in effect standards or requirements unless the standards or 
requirements prevent the application of a requirement of this part.



Sec. 148.220  Excepted benefits.

    The requirements of this part do not apply to individual health 
insurance coverage in relation to its provision of the benefits 
described in paragraphs (a) and (b) of this section (or any combination 
of the benefits).
    (a) Benefits excepted in all circumstances. The following benefits 
are excepted in all circumstances:
    (1) Coverage only for accident (including accidental death and 
dismemberment).
    (2) Disability income insurance.
    (3) Liability insurance, including general liability insurance and 
automobile liability insurance.
    (4) Coverage issued as a supplement to liability insurance.
    (5) Workers' compensation or similar insurance.
    (6) Automobile medical payment insurance.
    (7) Credit-only insurance (for example, mortgage insurance).
    (8) Coverage for on-site medical clinics.
    (b) Other excepted benefits. The requirements of this part do not 
apply to individual health insurance coverage described in paragraphs 
(b)(1) through (b)(6) of this section if the benefits are provided under 
a separate policy, certificate, or contract of insurance. These benefits 
include the following:
    (1) Limited scope dental or vision benefits. These benefits are 
dental or vision benefits that are limited in scope to a narrow range or 
type of benefits that are generally excluded from benefit packages that 
combine hospital, medical, and surgical benefits.
    (2) Long-term care benefits. These benefits are benefits that are 
either--
    (i) Subject to State long-term care insurance laws;
    (ii) For qualified long-term care insurance services, as defined in 
section 7702B(c)(1) of the Code, or provided under a qualified long-term 
care insurance contract, as defined in section 7702B(b) of the Code; or

[[Page 647]]

    (iii) Based on cognitive impairment or a loss of functional capacity 
that is expected to be chronic.
    (3) Coverage only for a specified disease or illness (for example, 
cancer policies), or hospital indemnity or other fixed indemnity 
insurance (for example, $100/day) if the policies meet the requirements 
of Sec. 146.145(b)(4)(ii)(B) and (b)(4)(ii)(C) of this subchapter 
regarding noncoordination of benefits.
    (4) Medicare supplemental health insurance (as defined under section 
1882(g)(1) of the Social Security Act. 42 U.S.C. 1395ss, also known as 
Medigap or MedSupp insurance).
    (5) Coverage supplemental to the coverage provided under Chapter 55, 
Title 10 of the United States Code (also known as CHAMPUS supplemental 
programs).
    (6) Similar supplemental coverage provided to coverage under a group 
health plan.

[62 FR 16995, Apr. 8, 1997; 62 FR 31696, June 10, 1997]

                           PART 149 [RESERVED]



PART 150--CMS ENFORCEMENT IN GROUP AND INDIVIDUAL INSURANCE MARKETS--Table of Contents




                      Subpart A--General Provisions

Sec.
150.101  Basis and scope.
150.103  Definitions.

Subpart B--CMS Enforcement Processes For Determining Whether States Are 
           Failing to Substantially Enforce HIPAA Requirements

150.201  State enforcement.
150.203  Circumstances requiring CMS enforcement.
150.205  Sources of information triggering an investigation of State 
          enforcement.
150.207  Procedure for determining that a State fails to substantially 
          enforce HIPAA requirements.
150.209  Verification of exhaustion of remedies and contact with State 
          officials.
150.211  Notice to the State.
150.213  Form and content of notice.
150.215  Extension for good cause.
150.217  Preliminary determination.
150.219  Final determination.
150.221  Transition to State enforcement.

   Subpart C--CMS Enforcement With Respect to Issuers and Non-Federal 
                Governmental Plans--Civil Money Penalties

150.301  General rule regarding the imposition of civil money penalties.
150.303  Basis for initiating an investigation of a potential violation.
150.305  Determination of entity liable for civil money penalty.
150.307  Notice to responsible entities.
150.309  Request for extension.
150.311  Responses to allegations of noncompliance.
150.313  Market conduct examinations.
150.315  Amount of penalty--General.
150.317  Factors CMS uses to determine the amount of penalty.
150.319  Determining the amount of the penalty--mitigating 
          circumstances.
150.321  Determining the amount of penalty--aggravating circumstances.
150.323  Determining the amount of penalty--other matters as justice may 
          require.
150.325  Settlement authority.
150.341  Limitations on penalties.
150.343  Notice of proposed penalty.
150.345  Appeal of proposed penalty.
150.347  Failure to request a hearing.

Appendix A to Subpart C of Part 150--Examples of Violations

                   Subpart D--Administrative Hearings

150.401  Definitions.
150.403  Scope of ALJ's authority.
150.405  Filing of request for hearing.
150.407  Form and content of request for hearing.
150.409  Amendment of notice of assessment or request for hearing.
150.411  Dismissal of request for hearing.
150.413  Settlement.
150.415  Intervention.
150.417  Issues to be heard and decided by ALJ.
150.419  Forms of hearing.
150.421  Appearance of counsel.
150.423  Communications with the ALJ.
150.425  Motions.
150.427  Form and service of submissions.
150.429  Computation of time and extensions of time.
150.431  Acknowledgment of request for hearing.
150.435  Discovery.
150.437  Submission of briefs and proposed hearing exhibits.
150.439  Effect of submission of proposed hearing exhibits.
150.441  Prehearing conferences.
150.443  Standard of proof.
150.445  Evidence.
150.447  The record.

[[Page 648]]

150.449  Cost of transcripts.
150.451  Posthearing briefs.
150.453  ALJ decision.
150.455  Sanctions.
150.457  Review by Administrator.
150.459  Judicial review.
150.461  Failure to pay assessment.
150.463  Final order not subject to review.
150.465  Collection and use of penalty funds.

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the PHS Act 
(42 U.S.C. 300gg through 300gg-63, 300gg-91, and 300gg-92).

    Source: 64 FR 45795, Aug. 20, 1999, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 150.101  Basis and scope.

    (a) Basis. CMS's enforcement authority under sections 2722 and 2761 
of the PHS Act and its rulemaking authority under section 2792 of the 
PHS Act provide the basis for issuing regulations under this part 150.
    (b) Scope--(1) Enforcement with respect to group heath plans. The 
provisions of title XXVII of the PHS Act that apply to group health 
plans that are non-Federal governmental plans are enforced by CMS using 
the procedures described in Sec. 150.301 et seq.
    (2) Enforcement with respect to health insurance issuers. The States 
have primary enforcement authority with respect to the requirements of 
title XXVII of the PHS Act that apply to health insurance issuers 
offering coverage in the group or individual health insurance market. If 
CMS determines under subpart B of this part that a State is not 
substantially enforcing title XXVII of the PHS Act, including the 
implementing regulations in part 146 and part 148 of this subchapter, 
CMS enforces them under subpart C of this part.



Sec. 150.103  Definitions.

    The definitions that appear in part 144 of this subchapter apply to 
this part 150, unless stated otherwise. As used in this part:
    Amendment, endorsement, or rider means a document that modifies or 
changes the terms or benefits of an individual policy, group policy, or 
certificate of insurance.
    Application means a signed statement of facts by a potential insured 
that an issuer uses as a basis for its decision whether, and on what 
basis to insure an individual, or to issue a certificate of insurance, 
or that a non-Federal governmental health plan uses as a basis for a 
decision whether to enroll an individual under the plan.
    Certificate of insurance means the document issued to a person or 
entity covered under an insurance policy issued to a group health plan 
or an association or trust that summarizes the benefits and principal 
provisions of the policy.
    Complaint means any expression, written or oral, indicating a 
potential denial of any right or protection contained in HIPAA 
requirements (whether ultimately justified or not) by an individual, a 
personal representative or other entity acting on behalf of an 
individual, or any entity that believes such a right is being or has 
been denied an individual.
    Group health insurance policy or group policy means the legal 
document or contract issued by an issuer to a plan sponsor with respect 
to a group health plan (including a plan that is a non-Federal 
governmental plan) that contains the conditions and terms of the 
insurance that covers the group.
    HIPAA requirements means the requirements of title XXVII of the PHS 
Act and its implementing regulations in parts 146 and 148 of this 
subchapter.
    Individual health insurance policy or individual policy means the 
legal document or contract issued by the issuer to an individual that 
contains the conditions and terms of the insurance. Any association or 
trust arrangement that is not a group health plan as defined in 
Sec. 144.103 of this subchapter or does not provide coverage in 
connection with one or more group health plans is individual coverage 
subject to the requirements of part 148 of this subchapter. The term 
``individual health insurance policy'' includes a policy that is----
    (1) Issued to an association that makes coverage available to 
individuals other than in connection with one or more group health 
plans; or
    (2) Administered, or placed in a trust, and is not sold in 
connection with a group health plan subject to the provisions of part 
146 of this subchapter.

[[Page 649]]

    Plan document means the legal document that provides the terms of 
the plan to individuals covered under a group health plan, such as a 
non-Federal governmental health plan.
    State law means all laws, decisions, rules, regulations, or other 
State action having the effect of law, of any State as defined in 
Sec. 144.103 of this subchapter. A law of the United States applicable 
to the District of Columbia is treated as a State law rather than a law 
of the United States.



Subpart B--CMS Enforcement Processes for Determining Whether States Are 
           Failing to Substantially Enforce HIPAA Requirements



Sec. 150.201  State enforcement.

    Except as provided in subpart C of this part, each State enforces 
HIPAA requirements with respect to health insurance issuers that issue, 
sell, renew, or offer health insurance coverage in the State.



Sec. 150.203  Circumstances requiring CMS enforcement.

    CMS enforces HIPAA requirements to the extent warranted (as 
determined by CMS) in any of the following circumstances:
    (a) Notification by State. A State notifies CMS that it has not 
enacted legislation to enforce or that it is not otherwise enforcing 
HIPAA requirements.
    (b) Determination by CMS. If CMS receives or obtains information 
that a State may not be substantially enforcing HIPAA requirements, it 
may initiate the process described in this subchapter to determine 
whether the State is failing to substantially enforce these 
requirements.
    (c) Special rule for guaranteed availability in the individual 
market. If a State has notified CMS that it is implementing an 
acceptable alternative mechanism in accordance with Sec. 148.128 of this 
subchapter instead of complying with the guaranteed availability 
requirements of Sec. 148.120, CMS's determination focuses on the 
following:
    (1) Whether the State's mechanism meets the requirements for an 
acceptable alternative mechanism.
    (2) Whether the State is implementing the acceptable alternative 
mechanism.
    (d) Consequence of a State not implementing an alternative 
mechanism. If a State is not implementing an acceptable alternative 
mechanism, CMS determines whether the State is substantially enforcing 
the requirements of Secs. 148.101 through 148.126 and Sec. 148.170 of 
this subchapter.



Sec. 150.205  Sources of information triggering an investigation of State enforcement.

    Information that may trigger an investigation of State enforcement 
includes, but is not limited to, any of the following:
    (a) A complaint received by CMS.
    (b) Information learned during informal contact between CMS and 
State officials.
    (c) A report in the news media.
    (d) Information from the governors and commissioners of insurance of 
the various States regarding the status of their enforcement of HIPAA 
requirements.
    (e) Information obtained during periodic review of State health care 
legislation. CMS may review State health care and insurance legislation 
and regulations to determine whether they are:
    (1) Consistent with HIPAA requirements.
    (2) Not pre-empted as provided in Sec. 146.143 (relating to group 
market provisions) and Sec. 148.120 (relating to individual market 
requirements) on the basis that they prevent the application of a HIPAA 
requirement.
    (f) Any other information that indicates a possible failure to 
substantially enforce.



Sec. 150.207  Procedure for determining that a State fails to substantially enforce HIPAA requirements.

    Sections 150.209 through 150.219 describe the procedures CMS follows 
to determine whether a State is substantially enforcing HIPAA 
requirements.



Sec. 150.209  Verification of exhaustion of remedies and contact with State officials.

    If CMS receives a complaint or other information indicating that a 
State is

[[Page 650]]

failing to enforce HIPAA requirements, CMS assesses whether the affected 
individual or entity has made reasonable efforts to exhaust available 
State remedies. As part of its assessment, CMS may contact State 
officials regarding the questions raised.



Sec. 150.211  Notice to the State.

    If CMS is satisfied that there is a reasonable question whether 
there has been a failure to substantially enforce HIPAA requirements, 
CMS sends, in writing, the notice described in Sec. 150.213 of this 
part, to the following State officials:
    (a) The governor or chief executive officer of the State.
    (b) The insurance commissioner or chief insurance regulatory 
official.
    (c) If the alleged failure involves HMOs, the official responsible 
for regulating HMOs if different from the official listed in paragraph 
(b) of this section.



Sec. 150.213  Form and content of notice.

    The notice provided to the State is in writing and does the 
following:
    (a) Identifies the HIPAA requirement or requirements that have 
allegedly not been substantially enforced.
    (b) Describes the factual basis for the allegation of a failure or 
failures to enforce HIPAA requirements.
    (c) Explains that the consequence of a State's failure to 
substantially enforce HIPAA requirements is that CMS enforces them.
    (d) Advises the State that it has 30 days from the date of the 
notice to respond, unless the time for response is extended as described 
in Sec. 150.215 of this subpart. The State's response should include any 
information that the State wishes CMS to consider in making the 
preliminary determination described in Sec. 150.217.



Sec. 150.215  Extension for good cause.

    CMS may extend, for good cause, the time the State has for 
responding to the notice described in Sec. 150.213 of this subpart. 
Examples of good cause include an agreement between CMS and the State 
that there should be a public hearing on the State's enforcement, or 
evidence that the State is undertaking expedited enforcement activities.



Sec. 150.217  Preliminary determination.

    If, at the end of the 30-day period (and any extension), the State 
has not established to CMS's satisfaction that it is substantially 
enforcing the HIPAA requirements described in the notice, CMS takes the 
following actions:
    (a) Consults with the appropriate State officials identified in 
Sec. 150.211 (or their designees).
    (b) Notifies the State of CMS's preliminary determination that the 
State has failed to substantially enforce the requirements and that the 
failure is continuing.
    (c) Permits the State a reasonable opportunity to show evidence of 
substantial enforcement.



Sec. 150.219  Final determination.

    If, after providing notice and a reasonable opportunity for the 
State to show that it has corrected any failure to substantially 
enforce, CMS finds that the failure to substantially enforce has not 
been corrected, it will send the State a written notice of its final 
determination. The notice includes the following:
    (a) Identification of the HIPAA requirements that CMS is enforcing.
    (b) The effective date of CMS's enforcement.



Sec. 150.221  Transition to State enforcement.

    (a) If CMS determines that a State for which it has assumed 
enforcement authority has enacted and implemented legislation to enforce 
HIPAA requirements and also determines that it is appropriate to return 
enforcement authority to the State, CMS will enter into discussions with 
State officials to ensure that a transition is effected with respect to 
the following:
    (1) Consumer complaints and inquiries.
    (2) Instructions to issuers.
    (3) Any other pertinent aspect of operations.
    (b) CMS may also negotiate a process to ensure that, to the extent 
practicable, and as permitted by law, its records documenting issuer 
compliance and other relevant areas of CMS's enforcement operations are 
made available for incorporation into the records of the State 
regulatory authority that

[[Page 651]]

will assume enforcement responsibility.



   Subpart C--CMS Enforcement With Respect to Issuers and Non-Federal 
                Governmental Plans--Civil Money Penalties



Sec. 150.301  General rule regarding the imposition of civil money penalties.

    If any health insurance issuer that is subject to CMS's enforcement 
authority under Sec. 150.101(b)(2), or any non-Federal governmental plan 
(or employer that sponsors a non-Federal governmental plan) that is 
subject to CMS's enforcement authority under Sec. 150.101(b)(1), fails 
to comply with HIPAA requirements, it may be subject to a civil money 
penalty as described in this subpart.



Sec. 150.303  Basis for initiating an investigation of a potential violation.

    (a) Information. Any information that indicates that any issuer may 
be failing to meet the HIPAA requirements or that any non-Federal 
governmental plan that is a group health plan as defined in section 
2791(a)(1) of the PHS Act and 45 CFR Sec. 144.103 may be failing to meet 
an applicable HIPAA requirement, may warrant an investigation. CMS may 
consider, but is not limited to, the following sources or types of 
information:
    (1) Complaints.
    (2) Reports from State insurance departments, the National 
Association of Insurance Commissioners, and other Federal and State 
agencies.
    (3) Any other information that indicates potential noncompliance 
with HIPAA requirements.
    (b) Who may file a complaint. Any entity or individual, or any 
entity or personal representative acting on that individual's behalf, 
may file a complaint with CMS if he or she believes that a right to 
which the aggrieved person is entitled under HIPAA requirements is 
being, or has been, denied or abridged as a result of any action or 
failure to act on the part of an issuer or other responsible entity as 
defined in Sec. 150.305.
    (c) Where a complaint should be directed. A complaint may be 
directed to any CMS regional office.



Sec. 150.305  Determination of entity liable for civil money penalty.

    If a failure to comply is established under this Part, the 
responsible entity, as determined under this section, is liable for any 
civil money penalty imposed.
    (a) Health insurance issuer is responsible entity--(1) Group health 
insurance policy. To the extent a group health insurance policy issued, 
sold, renewed, or offered to a private plan sponsor or a non-Federal 
governmental plan sponsor is subject to applicable HIPAA requirements, a 
health insurance issuer is subject to a civil money penalty, 
irrespective of whether a civil money penalty is imposed under 
paragraphs (b) or (c) of this section, if the policy itself or the 
manner in which the policy is marketed or administered fails to comply 
with an applicable HIPAA requirement.
    (2) Individual health insurance policy. To the extent an individual 
health insurance policy is subject to an applicable HIPAA requirement, a 
health insurance issuer is subject to a civil money penalty if the 
policy itself, or the manner in which the policy is marketed or 
administered, violates any applicable HIPAA requirement.
    (b) Non-Federal governmental plan is responsible entity. (1) Basic 
rule. If a non-Federal governmental plan is sponsored by two or more 
employers and fails to comply with an applicable HIPAA requirement, the 
plan is subject to a civil money penalty, irrespective of whether a 
civil money penalty is imposed under paragraph (a) of this section. The 
plan is the responsible entity irrespective of whether the plan is 
administered by a health insurance issuer, an employer sponsoring the 
plan, or a third-party administrator.
    (2) Exception. In the case of a non-Federal governmental plan that 
is not provided through health insurance coverage, this paragraph (b) 
does not apply to the extent that the non-Federal governmental employers 
have elected under Sec. 146.180 to exempt the plan from applicable HIPAA 
requirements.
    (c) Employer is responsible entity. (1) Basic rule. If a non-Federal 
governmental plan is sponsored by a single employer and fails to comply 
with an applicable HIPAA requirement, the employer is subject to a civil 
money

[[Page 652]]

penalty, irrespective of whether a civil money penalty is imposed under 
paragraph (a) of this section. The employer is the responsible entity 
irrespective of whether the plan is administered by a health insurance 
issuer, the employer, or a third-party administrator.
    (2) Exception. In the case of a non-Federal governmental plan that 
is not provided through health insurance coverage, this paragraph (c) 
does not apply to the extent the non-Federal governmental employer has 
elected under Sec. 146.180 to exempt the plan from applicable HIPAA 
requirements.
    (d) Actions or inactions of agent. A principal is liable for 
penalties assessed for the actions or inactions of its agent.



Sec. 150.307  Notice to responsible entities.

    If an investigation under Sec. 150.303 indicates a potential 
violation, CMS provides written notice to the responsible entity or 
entities identified under Sec. 150.305. The notice does the following:
    (a) Describes the substance of any complaint or other information. 
(See Appendix A to this subpart for examples of violations.)
    (b) Provides 30 days from the date of the notice for the responsible 
entity or entities to respond with additional information, including 
documentation of compliance as described in Sec. 150.311.
    (c) States that a civil money penalty may be assessed.



Sec. 150.309  Request for extension.

    In circumstances in which an entity cannot prepare a response to CMS 
within the 30 days provided in the notice, the entity may make a written 
request for an extension from CMS detailing the reason for the extension 
request and showing good cause. If CMS grants the extension, the 
responsible entity must respond to the notice within the time frame 
specified in CMS's letter granting the extension of time. Failure to 
respond within 30 days, or within the extended time frame, may result in 
CMS's imposition of a civil money penalty based upon the complaint or 
other information alleging or indicating a violation of HIPAA 
requirements.



Sec. 150.311  Responses to allegations of noncompliance.

    In determining whether to impose a civil money penalty, CMS reviews 
and considers documentation provided in any complaint or other 
information, as well as any additional information provided by the 
responsible entity to demonstrate that it has complied with HIPAA 
requirements. The following are examples of documentation that a 
potential responsible entity may submit for CMS's consideration in 
determining whether a civil money penalty should be assessed and the 
amount of any civil money penalty:
    (a) Any individual policy, group policy, certificate of insurance, 
application, rider, amendment, endorsement, certificate of creditable 
coverage, advertising material, or any other documents if those 
documents form the basis of a complaint or allegation of noncompliance, 
or the basis for the responsible entity to refute the complaint or 
allegation.
    (b) Any other evidence that refutes an alleged noncompliance.
    (c) Evidence that the entity did not know, and exercising due 
diligence could not have known, of the violation.
    (d) Documentation that the policies, certificates of insurance, or 
non-Federal governmental plan documents have been amended to comply with 
HIPAA requirements either by revision of the contracts or by the 
development of riders, amendments, or endorsements.
    (e) Documentation of the entity's issuance of conforming policies, 
certificates of insurance, plan documents, or amendments to 
policyholders or certificate holders before the issuance of the notice 
of intent to assess a penalty described in Sec. 150.307.
    (f) Evidence documenting the development and implementation of 
internal policies and procedures by an issuer, or non-Federal 
governmental health plan or employer, to ensure compliance with HIPAA 
requirements. Those policies and procedures may include or consist of a 
voluntary compliance program. Any such program should do the following:
    (1) Effectively articulate and demonstrate the fundamental mission 
of compliance and the issuer's, or non-

[[Page 653]]

Federal governmental health plan's or employer's, commitment to the 
compliance process.
    (2) Include the name of the individual in the organization 
responsible for compliance.
    (3) Include an effective monitoring system to identify practices 
that do not comply with HIPAA requirements and to provide reasonable 
assurance that fraud, abuse, and systemic errors are detected in a 
timely manner.
    (4) Address procedures to improve internal policies when 
noncompliant practices are identified.
    (g) Evidence documenting the entity's record of previous compliance 
with HIPAA requirements.



Sec. 150.313  Market conduct examinations.

    (a) Definition. A market conduct examination means the examination 
of health insurance operations of an issuer, or the operation of a non-
Federal governmental plan, involving the review of one or more (or a 
combination) of a responsible entity's business or operational affairs, 
or both, to verify compliance with HIPAA requirements.
    (b) General. If, based on the information described in Sec. 150.303, 
CMS finds evidence that a specific entity may be in violation of a HIPAA 
requirement, CMS may initiate a market conduct examination to determine 
whether the entity is out of compliance. CMS may conduct the 
examinations either at the site of the issuer or other responsible 
entity or a site CMS selects. When CMS selects a site, it may direct the 
issuer or other responsible entity to forward any documentation CMS 
considers relevant for purposes of the examination to that site.
    (c) Appointment of examiners. When CMS identifies an issue that 
warrants investigation, CMS will appoint one or more examiners to 
perform the examination and instruct them as to the scope of the 
examination.
    (d) Appointment of professionals and specialists. When conducting an 
examination under this part, CMS may retain attorneys, independent 
actuaries, independent market conduct examiners, or other professionals 
and specialists as examiners.
    (e) Report of market conduct examination. (1) CMS review. When CMS 
receives a report, it will review the report, together with the 
examination work papers and any other relevant information, and prepare 
a final report. The final examination report will be provided to the 
issuer or other responsible entity.
    (2) Response from issuer or other responsible entity. With respect 
to each examination issue identified in the report, the issuer or other 
responsible entity may:
    (i) Concur with CMS's position(s) as outlined in the report, 
explaining the plan of correction to be implemented.
    (ii) Dispute CMS's position(s), clearly outlining the basis for its 
dispute and submitting illustrative examples where appropriate.
    (3) CMS's reply to a response from an issuer or other responsible 
entity. Upon receipt of a response from the issuer or other responsible 
entity, CMS will provide a letter containing its reply to each 
examination issue. CMS's reply will consist of one of the following:
    (i) Concurrence with the issuer's or non-Federal governmental plan's 
position.
    (ii) Approval of the issuer's or non-Federal governmental plan's 
proposed plan of correction.
    (iii) Conditional approval of the issuer's or non-Federal 
governmental plan's proposed plan of correction, which will include any 
modifications CMS requires.
    (iv) Notice to the issuer or non-Federal governmental plan that 
there exists a potential violation of HIPAA requirements.



Sec. 150.315  Amount of penalty--General.

    A civil money penalty for each violation of 42 U.S.C. 300gg et seq. 
may not exceed $100 for each day, for each responsible entity, for each 
individual affected by the violation. Penalties imposed under this part 
are in addition to any other penalties prescribed or allowed by law.



Sec. 150.317  Factors CMS uses to determine the amount of penalty.

    In determining the amount of any penalty, CMS takes into account the 
following:

[[Page 654]]

    (a) The entity's previous record of compliance. This may include any 
of the following:
    (1) Any history of prior violations by the responsible entity, 
including whether, at any time before determination of the current 
violation or violations, CMS or any State found the responsible entity 
liable for civil or administrative sanctions in connection with a 
violation of HIPAA requirements.
    (2) Documentation that the responsible entity has submitted its 
policy forms to CMS for compliance review.
    (3) Evidence that the responsible entity has never had a complaint 
for noncompliance with HIPAA requirements filed with a State or CMS.
    (4) Such other factors as justice may require.
    (b) The gravity of the violation. This may include any of the 
following:
    (1) The frequency of the violation, taking into consideration 
whether any violation is an isolated occurrence, represents a pattern, 
or is widespread.
    (2) The level of financial and other impacts on affected 
individuals.
    (3) Other factors as justice may require.



Sec. 150.319  Determining the amount of the penalty--mitigating circumstances.

    For every violation subject to a civil money penalty, if there are 
substantial or several mitigating circumstances, the aggregate amount of 
the penalty is set at an amount sufficiently below the maximum permitted 
by Sec. 150.315 to reflect that fact. As guidelines for taking into 
account the factors listed in Sec. 150.317, CMS considers the following:
    (a) Record of prior compliance. It should be considered a mitigating 
circumstance if the responsible entity has done any of the following:
    (1) Before receipt of the notice issued under Sec. 150.307, 
implemented and followed a compliance plan as described in 
Sec. 150.311(f).
    (2) Had no previous complaints against it for noncompliance.
    (b) Gravity of the violation(s). It should be considered a 
mitigating circumstance if the responsible entity has done any of the 
following:
    (1) Made adjustments to its business practices to come into 
compliance with HIPAA requirements so that the following occur:
    (i) All employers, employees, individuals and non-Federal 
governmental entities are identified that are or were issued any policy, 
certificate of insurance or plan document, or any form used in 
connection therewith that failed to comply.
    (ii) All employers, employees, individuals, and non-Federal 
governmental plans are identified that were denied coverage or were 
denied a right provided under HIPAA requirements.
    (iii) Each employer, employee, individual, or non-Federal 
governmental plan adversely affected by the violation has been, for 
example, offered coverage or provided a certificate of creditable 
coverage in a manner that complies with HIPAA requirements that were 
violated so that, to the extent practicable, that employer, employee, 
individual, or non-Federal governmental entity is in the same position 
that he, she, or it would have been in had the violation not occurred.
    (iv) The adjustments are completed in a timely manner.
    (2) Discovered areas of noncompliance without notice from CMS and 
voluntarily reported that noncompliance, provided that the responsible 
entity submits the following:
    (i) Documentation verifying that the rights and protections of all 
individuals adversely affected by the noncompliance have been restored; 
and
    (ii) A plan of correction to prevent future similar violations.
    (3) Demonstrated that the violation is an isolated occurrence.
    (4) Demonstrated that the financial and other impacts on affected 
individuals is negligible or nonexistent.
    (5) Demonstrated that the noncompliance is correctable and that a 
high percentage of the violations were corrected.



Sec. 150.321  Determining the amount of penalty--aggravating circumstances.

    For every violation subject to a civil money penalty, if there are 
substantial or several aggravating circumstances, CMS sets the aggregate 
amount of the

[[Page 655]]

penalty at an amount sufficiently close to or at the maximum permitted 
by Sec. 150.315 to reflect that fact. CMS considers the following 
circumstances to be aggravating circumstances:
    (a) The frequency of violation indicates a pattern of widespread 
occurrence.
    (b) The violation(s) resulted in significant financial and other 
impacts on the average affected individual.
    (c) The entity does not provide documentation showing that 
substantially all of the violations were corrected.



Sec. 150.323  Determining the amount of penalty--other matters as justice may require.

    CMS may take into account other circumstances of an aggravating or 
mitigating nature if, in the interests of justice, they require either a 
reduction or an increase of the penalty in order to assure the 
achievement of the purposes of this part, and if those circumstances 
relate to the entity's previous record of compliance or the gravity of 
the violation.



Sec. 150.325  Settlement authority.

    Nothing in Secs. 150.315 through 150.323 limits the authority of CMS 
to settle any issue or case described in the notice furnished in 
accordance with Sec. 150.307 or to compromise on any penalty provided 
for in Secs. 150.315 through 150.323.



Sec. 150.341  Limitations on penalties.

    (a) Circumstances under which a civil money penalty is not imposed. 
CMS does not impose any civil money penalty on any failure for the 
period of time during which none of the responsible entities knew, or 
exercising reasonable diligence would have known, of the failure. CMS 
also does not impose a civil money penalty for the period of time after 
any of the responsible entities knew, or exercising reasonable diligence 
would have known of the failure, if the failure was due to reasonable 
cause and not due to willful neglect and the failure was corrected 
within 30 days of the first day that any of the entities against whom 
the penalty would be imposed knew, or exercising reasonable diligence 
would have known, that the failure existed.
    (b) Burden of establishing knowledge. The burden is on the 
responsible entity or entities to establish to CMS's satisfaction that 
no responsible entity knew, or exercising reasonable diligence would 
have known, that the failure existed.



Sec. 150.343  Notice of proposed penalty.

    If CMS proposes to assess a penalty in accordance with this part, it 
delivers to the responsible entity, or sends to that entity by certified 
mail, return receipt requested, written notice of its intent to assess a 
penalty. The notice includes the following:
    (a) A description of the HIPAA requirements that CMS has determined 
that the responsible entity violated.
    (b) A description of any complaint or other information upon which 
CMS based its determination, including the basis for determining the 
number of affected individuals and the number of days for which the 
violations occurred.
    (c) The amount of the proposed penalty as of the date of the notice.
    (d) Any circumstances described in Secs. 150.317 through 150.323 
that were considered when determining the amount of the proposed 
penalty.
    (e) A specific statement of the responsible entity's right to a 
hearing.
    (f) A statement that failure to request a hearing within 30 days 
permits the assessment of the proposed penalty without right of appeal 
in accordance with Sec. 150.347.



Sec. 150.345  Appeal of proposed penalty.

    Any entity against which CMS has assessed a penalty may appeal that 
penalty in accordance with Sec. 150.401 et seq.



Sec. 150.347  Failure to request a hearing.

    If the responsible entity does not request a hearing within 30 days 
of the issuance of the notice described in Sec. 150.343, CMS may assess 
the proposed civil money penalty, a less severe penalty, or a more 
severe penalty. CMS notifies the responsible entity in writing of any 
penalty that has been assessed and of the means by which the responsible 
entity may satisfy the judgment. The responsible entity has no right to 
appeal a penalty with respect to which it has not requested a

[[Page 656]]

hearing in accordance with Sec. 150.405 unless the responsible entity 
can show good cause, as determined under Sec. 150.405(b), for failing to 
timely exercise its right to a hearing.

       Appendix A to Subpart C of Part 150--Examples of Violations

    This appendix lists actions in the group and individual markets for 
which CMS may impose civil money penalties. This list is not all-
inclusive.

    Note 1: All cross-references to sections of the Code of Federal 
Regulations are cross-references to sections in parts 144, 146, or 148 
of this subchapter.
    Note 2: Except as otherwise expressly noted, all references to non-
Federal governmental plans refer to non-Federal governmental plans that 
are not exempt from HIPAA requirements (as defined in Sec. 150.103) 
under section 2721(b)(2) of the PHS Act and Sec. 146.180.

 I. Basis for Imposition of Civil Money Penalties--Actions in the Group 
                                 Market

    a. Failure to comply with the limitations on pre-existing condition 
exclusions (Sec. 146.111).
    Violations of the limitations on preexisting condition exclusions, 
set forth in Sec. 146.111, includes those circumstances in which a non-
Federal governmental plan or health insurance issuer offering group 
health insurance coverage does the following:
    (1) Imposes a preexisting condition exclusion period that exceeds 12 
months or, in the case of a late enrollee, 18 months, from the 
enrollment date (the first day of coverage or the first day of the 
waiting period, if any).
    (2) Fails to reduce a pre-existing condition exclusion period by 
creditable coverage as provided in Secs. 146.111(a)(1)(iii) and 146.113.
    (3) Imposes a pre-existing condition exclusion period without first 
giving the two written notices required in Secs. 146.111(c) and 
146.115(d). The first notice is a general notice to all plan 
participants of the existence and terms of any pre-existing condition 
exclusion under the plan, and the rights of individuals to demonstrate 
creditable coverage. The notice should explain the right of an 
individual to request a certificate from a previous plan or issuer, if 
necessary, and include a statement that the current plan or issuer will 
assist in obtaining a certificate from a previous plan or issuer, if 
necessary. The second notice is required to be sent to any individual 
who has presented evidence of creditable coverage, and to whom a pre-
existing condition exclusion period will be applied. This second notice 
informs the individual of the plan's determination of any pre-existing 
condition exclusion period, the basis for such determination, a written 
explanation of any appeals procedures established by the plan or issuer, 
and a reasonable opportunity to submit additional evidence of creditable 
coverage.
    (4) Treats pregnancy as a pre-existing condition, as prohibited by 
Sec. 146.111(b)(4). For example, an issuer may not refuse to pay for 
prenatal care and delivery effective with the date maternity coverage 
began because the individual did not have maternity coverage at the time 
the pregnancy began.
    (5) Imposes a pre-existing condition exclusion with regard to a 
child who enrolls in a group health plan within 30 days of birth, 
adoption, or placement for adoption.
    (6) Imposes a pre-existing condition exclusion with regard to a 
child who was enrolled in another group health plan within 30 days of 
birth, adoption, or placement for adoption and who does not experience 
significant break in coverage.
    (7) Uses a pre-existing condition look-back period that exceeds the 
six-month period ending on the enrollment date in violation of 
Sec. 146.111(a)(1) of this chapter.
    (8) Determines whether a pre-existing condition exclusion applies by 
using a standard other than whether medical advice, diagnosis, care, or 
treatment was actually recommended or received during the look-back 
period. A determination that a reasonably prudent person would or should 
have sought medical care for the condition is an unacceptable standard 
by which to determine whether a pre-existing condition exclusion 
applies.
    (9) Uses genetic information as part of the definition of pre-
existing condition in the absence of a diagnosis of the condition 
related to the genetic information.
    (10) Otherwise fails to comply with Sec. 146.111.
    b. Failure to comply with the provisions relating to creditable 
coverage (Sec. 146.113).
    Failure to comply with the Sec. 146.113 rules relating to creditable 
coverage includes those circumstances in which a non-Federal 
governmental plan or issuer offering group health insurance coverage 
does the following:
    (1) Fails to treat all forms of coverage listed in Sec. 146.113(a) 
as creditable coverage.
    (2) Counts creditable coverage in a manner inconsistent with the 
standard method described in Sec. 146.113(b) or the alternative method 
described in Sec. 146.113(c), if it elects to use the alternative 
method.
    (3) Treats an individual with fewer than 63 consecutive days without 
creditable coverage as having a significant break in coverage in 
violation of Sec. 146.113(b)(2)(iii).
    (4) Takes either a waiting period or an affiliation period into 
account when calculating a significant break in coverage, as prohibited 
by Sec. 146.113(b)(2)(iii).
    (5) Otherwise fails to comply with Sec. 146.113.

[[Page 657]]

    c. Failure to comply with the provisions regarding certification and 
disclosure of previous coverage (Sec. 146.115).
    Except as provided in paragraph (c)(b), the plan sponsor of a self-
funded non-Federal governmental plan may not elect to exempt its plan 
from the requirements of this paragraph.
    Failure to comply with the requirements in Sec. 146.115 regarding 
certification and disclosure of previous coverage includes those 
circumstances in which a non-Federal governmental plan or issuer 
offering group health insurance coverage does the following:
    (1) Fails to ensure that individuals who request certification 
receive it.
    (2) Fails to automatically provide certificates of creditable 
coverage promptly, either--
    (i) When the individual ceases to be covered under the plan (whether 
or not COBRA continuation coverage is offered or elected); or
    (ii) When the COBRA continuation coverage is exhausted or is 
terminated by the individual, if COBRA continuation coverage was offered 
and was elected.
    (3) Fails to provide certificates of creditable coverage promptly 
upon request.
    (4) Fails to provide the required information in certificates of 
creditable coverage.
    (5) Fails to provide certificates of creditable coverage to 
dependents.
    (6) Fails to accept other evidence of creditable coverage as 
provided in Sec. 146.115(c). (The plan sponsor of a self-funded non-
Federal governmental plan may elect to exempt its plan from the 
requirements of this paragraph (6)).
    (7) Otherwise fails to comply with Sec. 146.115.
    d. Failure to comply with the provisions regarding special 
enrollment periods (Sec. 146.117).
    Failure to comply with the Sec. 146.117 requirements regarding 
special enrollment periods includes those circumstances in which an 
issuer or a non-Federal governmental plan does the following:
    (1) Fails to permit employees and dependents to enroll for coverage 
if they satisfy the conditions of Sec. 146.117(a) or (b).
    (2) Fails to provide coverage on a timely basis to individuals 
protected by a special enrollment period as provided in Sec. 146.117.
    (3) Fails to provide the employee with a description of the plan's 
or issuer's special enrollment rules on or before the time the employee 
is offered the opportunity to enroll as provided in Sec. 146.117(c).
    (4) Otherwise fails to comply with Sec. 146.117.
    e. Failure to comply with the HMO affiliation period provisions 
(Sec. 146.119).
    Failure to comply with the Sec. 146.119 affiliation period 
requirements includes those circumstances in which an HMO that offers 
group health insurance coverage does the following:
    (1) Imposes a pre-existing condition exclusion period.
    (2) Charges a premium for months in an affiliation period.
    (3) Fails to impose an affiliation period uniformly without regard 
to any health status-related factor.
    (4) Imposes an affiliation period that is longer than 2 months (or 3 
months for late enrollees), or one that begins later than the enrollment 
date or does not run concurrently with any waiting period.
    (5) Otherwise fails to comply with Sec. 146.119.
    f. Failure to comply with the provisions regarding nondiscrimination 
(Sec. 146.121).
    Failure to comply with the Sec. 146.121 prohibitions regarding 
nondiscrimination includes those circumstances in which an issuer or a 
non-Federal governmental plan does the following:
    (1) Applies rules of eligibility (including continued eligibility) 
to enroll under the terms of the plan based any of the health-status 
related factors described in Sec. 146.121(a).
    (2) Requires an individual as a condition of enrollment or re-
enrollment to pay a higher premium than others similarly situated by 
reason of a health-status related factor of the individual or the 
individual's dependent.
    (3) Otherwise fails to comply with Sec. 146.121.
    g. Failure to comply with the provisions relating to benefits for 
mothers and newborns (Sec. 146.130) in States where the Sec. 146.130 
standards are applicable.
    Failure of an issuer or a non-Federal governmental plan to comply 
with the standards in Sec. 146.130 relating to benefits for mothers and 
newborns includes the following:
    (1) Restricts benefits for a mother or her newborn to less than 48 
hours following a vaginal delivery or less than 96 hours following a 
delivery by cesarean section, unless the attending provider decides, in 
consultation with the mother, to discharge the mother or newborn 
earlier.
    (2) Fails to calculate the length of stay from the time of delivery 
when delivery occurs in a hospital, or from the time of admission when 
delivery occurs outside the hospital.
    (3) Penalizes an attending provider for complying with the law.
    (4) Offers incentives to an attending provider to provide care in a 
manner inconsistent with the provisions of Sec. 146.130.
    (5) Denies the mother or newborn eligibility or continued 
eligibility to enroll under the plan to avoid complying with 
Sec. 146.130.
    (6) Provides payments or rebates to mothers to encourage them to 
accept less than the minimum stay required.
    (7) Requires an attending provider to obtain authorization to 
prescribe a hospital length of stay of up to 48 hours (or 96 hours) 
after delivery.

[[Page 658]]

    (8) Imposes deductibles, coinsurance, or other cost-sharing measures 
for any portion of a 48-hour (or 96-hour) hospital stay that are less 
favorable than those imposed on any preceding portion of the stay.
    (9) In the case of a non-Federal governmental plan, fails to provide 
participants and beneficiaries with a statement describing the 
requirements of the Newborns' and Mothers' Health Protection Act of 
1996, using the language provided at Sec. 146.130(d)(2), not later than 
60 days after the first day of the first plan year beginning on or after 
January 1, 1999.
    (10) Otherwise fails to comply with Sec. 146.130.
    h. Failure to comply with the provisions pertaining to parity in the 
application of certain limits to mental health benefits in the large 
group market (Sec. 146.136).
    Failure of a non-Federal governmental plan offered by a large 
employer or health insurance issuer offering health insurance coverage 
to large employers to comply with the Sec. 146.136 provisions pertaining 
to parity in the application of certain limits to mental health benefits 
(with respect to a plan that must comply with such provisions) includes 
the following:
    (1) Sale of a product by a health insurance issuer that fails to 
comply with the mental health parity provisions of Sec. 146.136.
    (2) Failure of a non-Federal governmental plan to comply with the 
annual and lifetime dollar limits provisions concerning mental health 
parity.
    i. Failure to comply with the Women's Health and Cancer Rights Act 
of 1998 (section 2706 of the PHS Act, 42 U.S.C. 300gg-06).
    j. Failure to comply with the provisions regarding guaranteed 
availability of coverage in the small group market (Sec. 146.150).
    Failure to provide guaranteed availability in the small group market 
as provided in Sec. 146.150 includes those circumstances in which a 
health insurance issuer offering any health insurance coverage to group 
health plans in the small group market does the following:
    (1) Fails to offer all products on a guaranteed availability basis 
to all small employers.
    (2) Fails to define a small employer using the definition at 
Sec. 144.103, unless otherwise provided under State law; that is, 
generally an employer with between 2 and 50 employees.
    (3) Fails to count as employees all individual employees that an 
employer wants to include in the group by applying a more restrictive 
definition of ``employee'' than is permitted by Sec. 144.103.
    (4) Fails to accept all employee dependents who are qualified under 
the terms of the employer's group health plan.
    (5) Sets agent commissions for sales to small employers so low as to 
discourage agents from marketing policies to, or enrolling, these groups 
so that a failure to offer coverage results.
    (6) Unreasonably delays the processing of applications submitted by 
small employers, so that a break in coverage of more than 63 days 
results.
    (7) Fails to offer to any small employer on a guaranteed 
availability basis any product that the issuer sells to small employers 
through one or more associations that are not bona fide associations, as 
defined in Sec. 144.103. The requirement to guarantee availability of 
such products to all small employers applies whether or not the small 
employer is a member of, or could qualify for membership in, that 
association.
    (8) Otherwise fails to comply with Sec. 146.150.
    k. Failure to comply with the requirements regarding guaranteed 
renewability in either the large or small group market (Sec. 146.152).
    Failure to provide guaranteed renewability of coverage as provided 
in Sec. 146.152 includes those circumstances in which a health insurance 
issuer offering health insurance coverage to a group health plan in the 
small or large group market does the following:
    (1) Fails to renew or continue in force coverage at the option of 
the plan sponsor unless one of the specific exceptions in 
Sec. 146.152(b) is met.
    (2) Fails to follow the requirements as described in 
Sec. 146.152(c)-(e) relating to the discontinuance of a particular 
product or withdrawal from the market of a particular product.
    (3) Fails to renew coverage of an individual employer who has been a 
member of an association when the individual employer ceases to be a 
member of the association, unless it is a bona fide association as 
defined in Sec. 144.103, and the issuer terminates coverage for all 
former members on a uniform basis.
    (4) Fails to act uniformly if the issuer cancels coverage.
    (5) Otherwise fails to comply with Sec. 146.152.
    l. Failure to comply with the requirements relating to disclosure of 
information (Sec. 146.160).
    Failure to make reasonable disclosure as provided in Sec. 146.160 
includes those circumstances in which an issuer offering group health 
insurance coverage to a small employer, as defined in Sec. 144.103, does 
the following:
    (1) Fails to disclose all information concerning all products 
available from the issuer in the small group market as defined in 
Sec. 144.103.
    (2) Otherwise fails to comply with Sec. 146.160.

   II. Basis for Imposition of Civil Money Penalties--Actions in the 
                            Individual Market

    a. Failure to comply with the requirements regarding guaranteed 
availability of coverage (Sec. 148.120).

[[Page 659]]

    In States that are not implementing an acceptable alternative 
mechanism described in Sec. 148.128, failure to provide guaranteed 
availability with no preexisting condition exclusion period as provided 
in Sec. 148.120 includes those circumstances in which an issuer does the 
following:
    (1) Fails to provide to eligible individuals, on a guaranteed 
availability basis, at least one of the following:
    (i) Enrollment in all individual market policies it actually 
markets.
    (ii) The two most popular policies described in Sec. 148.120(c)(2).
    (iii) Two representative policy forms as described in 
Sec. 148.120(c)(3).
    (2) Imposes any preexisting condition exclusion or affiliation 
period on eligible individuals under any policy that it sells on a 
guaranteed availability basis.
    (3) Sets agent commissions for sales to eligible individuals so low 
as to discourage agents from marketing policies to, or enrolling, these 
individuals so that a failure to offer coverage results.
    (4) Unreasonably delays the processing of applications submitted by 
eligible individuals.
    (5) Fails to offer to any eligible individual as defined in 
Sec. 148.103 (on a guaranteed availability basis with no preexisting 
condition exclusions) any product the issuer sells to individuals 
through one or more associations that are not bona fide associations, as 
defined in Sec. 144.103, unless the issuer has designated at least two 
other products (as its two most popular or its two representative 
policies) that it will sell to eligible individuals.
    (6) Denies an eligible individual a policy on the basis that the 
individual has had a significant break in coverage even though a 
substantially complete application was filed on or before the 63rd day 
after the prior group coverage ended.
    (7) Otherwise fails to comply with Sec. 148.120.
    b. Failure to comply with the requirements regarding guaranteed 
renewability of coverage (Sec. 148.122).
    Failure to provide guaranteed renewability as provided in 
Sec. 148.122 includes those circumstances in which an issuer does the 
following:
    (1) Fails to renew or continue in force coverage at the option of 
the individual, unless one of the specific exceptions in Sec. 148.122 is 
met.
    (2) Fails to follow the requirements relating to the discontinuance 
of a particular product or withdrawal from the market of a particular 
product as described in Sec. 148.122(d).
    (3) Fails to continue coverage at the option of the individual after 
the individual becomes eligible for Medicare.
    (4) Fails to renew coverage for an individual who has been a member 
of an association when the individual ceases to be a member of the 
association, unless the association is a bona fide association as 
defined in Sec. 144.103 and the issuer uniformly terminates coverage for 
all former members.
    (5) Otherwise fails to comply with Sec. 148.122.
    c. Failure to comply with the requirements regarding certification 
and disclosure of coverage (Sec. 148.124).
    Failure to comply with the requirements of Sec. 148.124 regarding 
certification and disclosure of previous coverage includes those 
circumstances in which an issuer does any of the following:
    (1) Fails to provide automatic certificates of creditable coverage 
promptly.
    (2) Fails to disclose the required information in certificates of 
creditable coverage as provided in Sec. 148.124(b).
    (3) Fails to provide certificates of creditable coverage to 
dependents who are insured in the individual market and whose coverage 
ceases under an individual policy.
    (4) Fails to credit coverage or establish eligibility as provided in 
Sec. 148.124 solely because the individual is unable to obtain a 
certificate. This includes failing to accept, acknowledge, consider, or 
otherwise use other evidence of creditable coverage described in 
Sec. 146.115(c) submitted by, or on behalf of, an individual to 
establish that person is an eligible individual.
    (5) Otherwise fails to comply with Sec. 148.124.
    d. Failure to comply with the requirements regarding determination 
of an eligible individual (Sec. 148.126).
    Failure to determine, as provided in Sec. 148.126, that an applicant 
for health insurance is an eligible individual includes those 
circumstances in which an issuer does the following:
    (1) Fails to identify eligible individuals, to provide information 
regarding all coverage options, and to issue policies promptly.
    (2) Requires eligible individuals to specify their desire to invoke 
the requirements of part 148 or to explicitly request their rights under 
the law in order to obtain information about products available to them.
    (3) Otherwise fails to comply with Sec. 148.126.
    e. Failure to comply with the standards relating to benefits for 
mothers and newborns (Sec. 148.170).
    In States where the Sec. 148.170 standards are applicable (see 
Sec. 148.170(e)), failure to comply with the Sec. 148.170 standards 
relating to benefits for mothers and newborns includes those 
circumstances in which a health insurance issuer does the following:
    (1) Restricts benefits for a mother or her newborn to fewer than 48 
hours following a vaginal delivery or fewer than 96 hours following a 
delivery by cesarean section, unless the attending provider decides, in 
consultation with the mother, to discharge the mother or newborn 
earlier.

[[Page 660]]

    (2) Fails to calculate the length of stay from the time of delivery 
when delivery occurs in a hospital, or from the time of admission when 
delivery occurs outside the hospital.
    (3) Requires an attending provider to obtain authorization to 
prescribe a hospital length of stay of up to 48 hours (or 96 hours, if 
applicable) after delivery.
    (4) Imposes deductibles, coinsurance, or other cost-sharing measures 
for any portion of a 48-hour (or 96-hour, if applicable) hospital stay 
that are less favorable than those imposed on any preceding portion of 
the stay.
    (5) [Reserved]
    (6) Penalizes a provider for complying with the law.
    (7) Offers incentives to a provider to provide care in a manner 
inconsistent with the provisions of Sec. 148.170 to avoid complying with 
Sec. 148.170.
    (8) Denies the mother or newborn eligibility or continued 
eligibility solely to avoid the requirements of Sec. 148.170.
    (9) Provides incentives to mothers to encourage them to accept less 
than the minimum stay requirement.
    (10) Fails to provide participants and beneficiaries with a 
statement describing the requirements of the Newborns' and Mothers' 
Health Protection Act of 1996, using the language provided at 
Sec. 148.170 (d)(2), not later than March 1, 1999.
    (11) Otherwise fails to comply with Sec. 148.170.
    f. Failure to comply with the Women's Health and Cancer Rights Act 
of 1998 (section 2752 of the PHS Act, 42 U.S.C. 300gg-52) and any 
additional implementing regulations.



                   Subpart D--Administrative Hearings



Sec. 150.401  Definitions.

    In this subpart, unless the context indicates otherwise:
    ALJ means administrative law judge of the Departmental Appeals Board 
of the Department of Health and Human Services.
    Filing date means the date postmarked by the U.S. Postal Service, 
deposited with a carrier for commercial delivery, or hand delivered.
    Hearing includes a hearing on a written record as well as an in-
person or telephone hearing.
    Party means CMS or the respondent.
    Receipt date means five days after the date of a document, unless 
there is a showing that it was in fact received later.
    Respondent means an entity that received a notice of proposed 
assessment of a civil money penalty issued pursuant to Sec. 150.343.



Sec. 150.403  Scope of ALJ's authority.

    (a) The ALJ has the authority, including all of the authority 
conferred by the Administrative Procedure Act, to adopt whatever 
procedures may be necessary or proper to carry out in an efficient and 
effective manner the ALJ's duty to provide a fair and impartial hearing 
on the record and to issue an initial decision concerning the imposition 
of a civil money penalty.
    (b) The ALJ's authority includes the authority to modify, consistent 
with the Administrative Procedure Act (5 U.S.C. 552a), any hearing 
procedures set out in this subpart.
    (c) The ALJ does not have the authority to find invalid or refuse to 
follow Federal statutes or regulations.



Sec. 150.405  Filing of request for hearing.

    (a) A respondent has a right to a hearing before an ALJ if it files 
a request for hearing that complies with Sec. 150.407(a), within 30 days 
after the date of issuance of either CMS's notice of proposed assessment 
under Sec. 150.343 or notice that an alternative dispute resolution 
process has terminated. The request for hearing should be addressed as 
instructed in the notice of proposed determination. ``Date of issuance'' 
is five (5) days after the filing date, unless there is a showing that 
the document was received earlier.
    (b) The ALJ may extend the time for filing a request for hearing 
only if the ALJ finds that the respondent was prevented by events or 
circumstances beyond its control from filing its request within the time 
specified above. Any request for an extension of time must be made 
promptly by written motion.



Sec. 150.407  Form and content of request for hearing.

    (a) The request for hearing must do the following:
    (1) Identify any factual or legal bases for the assessment with 
which the respondent disagrees.

[[Page 661]]

    (2) Describe with reasonable specificity the basis for the 
disagreement, including any affirmative facts or legal arguments on 
which the respondent is relying.
    (b) The request for hearing must identify the relevant notice of 
assessment by date and attach a copy of the notice.



Sec. 150.409  Amendment of notice of assessment or request for hearing.

    The ALJ may permit CMS to amend its notice of assessment, or permit 
the respondent to amend a request for hearing that complies with 
Sec. 150.407(a), if the ALJ finds that no undue prejudice to either 
party will result.



Sec. 150.411  Dismissal of request for hearing.

    An ALJ will order a request for hearing dismissed if the ALJ 
determines that:
    (a) The request for hearing was not filed within 30 days as 
specified by Sec. 150.405(a) or any extension of time granted by the ALJ 
pursuant to Sec. 150.405(b).
    (b) The request for hearing fails to meet the requirements of 
Sec. 150.407.
    (c) The entity that filed the request for hearing is not a 
respondent under Sec. 150.401.
    (d) The respondent has abandoned its request.
    (e) The respondent withdraws its request for hearing.



Sec. 150.413  Settlement.

    CMS has exclusive authority to settle any issue or any case, without 
the consent of the administrative law judge at any time before or after 
the administrative law judge's decision.



Sec. 150.415  Intervention.

    (a) The ALJ may grant the request of an entity, other than the 
respondent, to intervene if all of the following occur:
    (1) The entity has a significant interest relating to the subject 
matter of the case.
    (2) Disposition of the case will, as a practical matter, likely 
impair or impede the entity's ability to protect that interest.
    (3) The entity's interest is not adequately represented by the 
existing parties.
    (4) The intervention will not unduly delay or prejudice the 
adjudication of the rights of the existing parties.
    (b) A request for intervention must specify the grounds for 
intervention and the manner in which the entity seeks to participate in 
the proceedings. Any participation by an intervenor must be in the 
manner and by any deadline set by the ALJ.
    (c) The Department of Labor or the IRS may intervene without regard 
to paragraphs (a)(1) through (a)(3) of this section.



Sec. 150.417  Issues to be heard and decided by ALJ.

    (a) The ALJ has the authority to hear and decide the following 
issues:
    (1) Whether a basis exists to assess a civil money penalty against 
the respondent.
    (2) Whether the amount of the assessed civil money penalty is 
reasonable.
    (b) In deciding whether the amount of a civil money penalty is 
reasonable, the ALJ--
    (1) Applies the factors that are identified in Sec. 150.317.
    (2) May consider evidence of record relating to any factor that CMS 
did not apply in making its initial determination, so long as that 
factor is identified in this subpart.
    (c) If the ALJ finds that a basis exists to assess a civil money 
penalty, the ALJ may sustain, reduce, or increase the penalty that CMS 
assessed.



Sec. 150.419  Forms of hearing.

    (a) All hearings before an ALJ are on the record. The ALJ may 
receive argument or testimony in writing, in person, or by telephone. 
The ALJ may receive testimony by telephone only if the ALJ determines 
that doing so is in the interest of justice and economy and that no 
party will be unduly prejudiced. The ALJ may require submission of a 
witness' direct testimony in writing only if the witness is available 
for cross-examination.
    (b) The ALJ may decide a case based solely on the written record 
where there is no disputed issue of material

[[Page 662]]

fact the resolution of which requires the receipt of oral testimony.



Sec. 150.421  Appearance of counsel.

    Any attorney who is to appear on behalf of a party must promptly 
file, with the ALJ, a notice of appearance.



Sec. 150.423  Communications with the ALJ.

    No party or person (except employees of the ALJ's office) may 
communicate in any way with the ALJ on any matter at issue in a case, 
unless on notice and opportunity for both parties to participate. This 
provision does not prohibit a party or person from inquiring about the 
status of a case or asking routine questions concerning administrative 
functions or procedures.



Sec. 150.425  Motions.

    (a) Any request to the ALJ for an order or ruling must be by motion, 
stating the relief sought, the authority relied upon, and the facts 
alleged. All motions must be in writing, with a copy served on the 
opposing party, except in either of the following situations:
    (1) The motion is presented during an oral proceeding before an ALJ 
at which both parties have the opportunity to be present.
    (2) An extension of time is being requested by agreement of the 
parties or with waiver of objections by the opposing party.
    (b) Unless otherwise specified in this subpart, any response or 
opposition to a motion must be filed within 20 days of the party's 
receipt of the motion. The ALJ does not rule on a motion before the time 
for filing a response to the motion has expired except where the 
response is filed at an earlier date, where the opposing party consents 
to the motion being granted, or where the ALJ determines that the motion 
should be denied.



Sec. 150.427  Form and service of submissions.

    (a) Every submission filed with the ALJ must be filed in triplicate, 
including one original of any signed documents, and include:
    (1) A caption on the first page, setting forth the title of the 
case, the docket number (if known), and a description of the submission 
(such as ``Motion for Discovery'').
    (2) The signatory's name, address, and telephone number.
    (3) A signed certificate of service, specifying each address to 
which a copy of the submission is sent, the date on which it is sent, 
and the method of service.
    (b) A party filing a submission with the ALJ must, at the time of 
filing, serve a copy of such submission on the opposing party. An 
intervenor filing a submission with the ALJ must, at the time of filing, 
serve a copy of the submission on all parties. Service must be made by 
mailing or hand delivering a copy of the submission to the opposing 
party. If a party is represented by an attorney, service must be made on 
the attorney.



Sec. 150.429  Computation of time and extensions of time.

    (a) For purposes of this subpart, in computing any period of time, 
the time begins with the day following the act, event, or default and 
includes the last day of the period unless it is a Saturday, Sunday, or 
legal holiday observed by the Federal government, in which event it 
includes the next business day. When the period of time allowed is less 
than seven days, intermediate Saturdays, Sundays, and legal holidays 
observed by the Federal government are excluded from the computation.
    (b) The period of time for filing any responsive pleading or papers 
is determined by the date of receipt (as defined in Sec. 150.401) of the 
submission to which a response is being made.
    (c) The ALJ may grant extensions of the filing deadlines specified 
in these regulations or set by the ALJ for good cause shown (except that 
requests for extensions of time to file a request for hearing may be 
granted only on the grounds specified in section Sec. 150.405(b)).



Sec. 150.431  Acknowledgment of request for hearing.

    After receipt of the request for hearing, the ALJ assigned to the 
case or someone acting on behalf of the ALJ will send a letter to the 
parties that acknowledges receipt of the request for

[[Page 663]]

hearing, identifies the docket number assigned to the case, provides 
instructions for filing submissions and other general information 
concerning procedures, and sets out the next steps in the case.



Sec. 150.435  Discovery.

    (a) The parties must identify any need for discovery from the 
opposing party as soon as possible, but no later than the time for the 
reply specified in Sec. 150.437(c). Upon request of a party, the ALJ may 
stay proceedings for a reasonable period pending completion of discovery 
if the ALJ determines that a party would not be able to make the 
submissions required by Sec. 150.437 without discovery. The parties 
should attempt to resolve any discovery issues informally before seeking 
an order from the ALJ.
    (b) Discovery devices may include requests for production of 
documents, requests for admission, interrogatories, depositions, and 
stipulations. The ALJ orders interrogatories or depositions only if 
these are the only means to develop the record adequately on an issue 
that the ALJ must resolve to decide the case.
    (c) Each discovery request must be responded to within 30 days of 
receipt, unless that period of time is extended for good cause by the 
ALJ.
    (d) A party to whom a discovery request is directed may object in 
writing for any of the following reasons:
    (1) Compliance with the request is unduly burdensome or expensive.
    (2) Compliance with the request will unduly delay the proceedings.
    (3) The request seeks information that is wholly outside of any 
matter in dispute.
    (4) The request seeks privileged information. Any party asserting a 
claim of privilege must sufficiently describe the information or 
document being withheld to show that the privilege applies. If an 
asserted privilege applies to only part of a document, a party 
withholding the entire document must state why the nonprivileged part is 
not segregable.
    (e) Any motion to compel discovery must be filed within 10 days 
after receipt of objections to the party's discovery request, within 10 
days after the time for response to the discovery request has elapsed if 
no response is received, or within 10 days after receipt of an 
incomplete response to the discovery request. The motion must be 
reasonably specific as to the information or document sought and must 
state its relevance to the issues in the case.



Sec. 150.437  Submission of briefs and proposed hearing exhibits.

    (a) Within 60 days of its receipt of the acknowledgment provided for 
in Sec. 150.431, the respondent must file the following with the ALJ:
    (1) A statement of its arguments concerning CMS's notice of 
assessment (respondent's brief), including citations to the respondent's 
hearing exhibits provided in accordance with paragraph (a)(2) of this 
section. The brief may not address factual or legal bases for the 
assessment that the respondent did not identify as disputed in its 
request for hearing or in an amendment to that request permitted by the 
ALJ.
    (2) All documents (including any affidavits) supporting its 
arguments, tabbed and organized chronologically and accompanied by an 
indexed list identifying each document (respondent's proposed hearing 
exhibits).
    (3) A statement regarding whether there is a need for an in-person 
hearing and, if so, a list of proposed witnesses and a summary of their 
expected testimony that refers to any factual dispute to which the 
testimony will relate.
    (4) Any stipulations or admissions.
    (b) Within 30 days of its receipt of the respondent's submission 
required by paragraph (a) of this section, CMS will file the following 
with the ALJ:
    (1) A statement responding to the respondent's brief, including the 
respondent's proposed hearing exhibits, if appropriate. The statement 
may include citations to CMS's proposed hearing exhibits submitted in 
accordance with paragraph (b)(2) of this section.
    (2) Any documents supporting CMS's response not already submitted as 
part of the respondent's proposed hearing exhibits, organized and 
indexed as indicated in paragraph (a)(2) of this section (CMS's proposed 
hearing exhibits).
    (3) A statement regarding whether there is a need for an in-person 
hearing

[[Page 664]]

and, if so, a list of proposed witnesses and a summary of their expected 
testimony that refers to any factual dispute to which the testimony will 
relate.
    (4) Any admissions or stipulations.
    (c) Within 15 days of its receipt of CMS's submission required by 
paragraph (b) of this section, the respondent may file with the ALJ a 
reply to CMS's submission.



Sec. 150.439  Effect of submission of proposed hearing exhibits.

    (a) Any proposed hearing exhibit submitted by a party in accordance 
with Sec. 150.437 is deemed part of the record unless the opposing party 
raises an objection to that exhibit and the ALJ rules to exclude it from 
the record. An objection must be raised either in writing prior to the 
prehearing conference provided for in Sec. 150.441 or at the prehearing 
conference. The ALJ may require a party to submit the original hearing 
exhibit on his or her own motion or in response to a challenge to the 
authenticity of a proposed hearing exhibit.
    (b) A party may introduce a proposed hearing exhibit following the 
times for submission specified in Sec. 150.437 only if the party 
establishes to the satisfaction of the ALJ that it could not have 
produced the exhibit earlier and that the opposing party will not be 
prejudiced.



Sec. 150.441  Prehearing conferences.

    An ALJ may schedule one or more prehearing conferences (generally 
conducted by telephone) on the ALJ's own motion or at the request of 
either party for the purpose of any of the following:
    (a) Hearing argument on any outstanding discovery request.
    (b) Establishing a schedule for any supplements to the submissions 
required by Sec. 150.437 because of information obtained through 
discovery.
    (c) Hearing argument on a motion.
    (d) Discussing whether the parties can agree to submission of the 
case on a stipulated record.
    (e) Establishing a schedule for an in-person hearing, including 
setting deadlines for the submission of written direct testimony or for 
the written reports of experts.
    (f) Discussing whether the issues for a hearing can be simplified or 
narrowed.
    (g) Discussing potential settlement of the case.
    (h) Discussing any other procedural or substantive issues.



Sec. 150.443  Standard of proof.

    (a) In all cases before an ALJ--
    (1) CMS has the burden of coming forward with evidence sufficient to 
establish a prima facie case;
    (2) The respondent has the burden of coming forward with evidence in 
response, once CMS has established a prima facie case; and
    (3) CMS has the burden of persuasion regarding facts material to the 
assessment; and
    (4) The respondent has the burden of persuasion regarding facts 
relating to an affirmative defense.
    (b) The preponderance of the evidence standard applies to all cases 
before the ALJ.



Sec. 150.445  Evidence.

    (a) The ALJ will determine the admissibility of evidence.
    (b) Except as provided in this part, the ALJ will not be bound by 
the Federal Rules of Evidence. However, the ALJ may apply the Federal 
Rules of Evidence where appropriate; for example, to exclude unreliable 
evidence.
    (c) The ALJ excludes irrelevant or immaterial evidence.
    (d) Although relevant, evidence may be excluded if its probative 
value is substantially outweighed by the danger of unfair prejudice, 
confusion of the issues, or by considerations of undue delay or needless 
presentation of cumulative evidence.
    (e) Although relevant, evidence is excluded if it is privileged 
under Federal law.
    (f) Evidence concerning offers of compromise or settlement made in 
this action will be inadmissible to the extent provided in the Federal 
Rules of Evidence.
    (g) Evidence of acts other than those at issue in the instant case 
is admissible in determining the amount of any civil money penalty if 
those acts are used under Secs. 150.317 and 150.323 of this part to 
consider the entity's prior

[[Page 665]]

record of compliance, or to show motive, opportunity, intent, knowledge, 
preparation, identity, or lack of mistake. This evidence is admissible 
regardless of whether the acts occurred during the statute of 
limitations period applicable to the acts that constitute the basis for 
liability in the case and regardless of whether CMS's notice sent in 
accordance with Secs. 150.307 and 150.343 referred to them.
    (h) The ALJ will permit the parties to introduce rebuttal witnesses 
and evidence.
    (i) All documents and other evidence offered or taken for the record 
will be open to examination by all parties, unless the ALJ orders 
otherwise for good cause shown.
    (j) The ALJ may not consider evidence regarding the willingness and 
ability to enter into and successfully complete a corrective action plan 
when that evidence pertains to matters occurring after CMS's notice 
under Sec. 150.307.



Sec. 150.447  The record.

    (a) Any testimony that is taken in-person or by telephone is 
recorded and transcribed. The ALJ may order that other proceedings in a 
case, such as a prehearing conference or oral argument of a motion, be 
recorded and transcribed.
    (b) The transcript of any testimony, exhibits and other evidence 
that is admitted, and all pleadings and other documents that are filed 
in the case constitute the record for purposes of an ALJ decision.
    (c) For good cause, the ALJ may order appropriate redactions made to 
the record.



Sec. 150.449  Cost of transcripts.

    Generally, each party is responsible for 50 percent of the 
transcript cost. Where there is an intervenor, the ALJ determines what 
percentage of the transcript cost is to be paid for by the intervenor.



Sec. 150.451  Posthearing briefs.

    Each party is entitled to file proposed findings and conclusions, 
and supporting reasons, in a posthearing brief. The ALJ will establish 
the schedule by which such briefs must be filed. The ALJ may direct the 
parties to brief specific questions in a case and may impose page limits 
on posthearing briefs. Additionally, the ALJ may allow the parties to 
file posthearing reply briefs.



Sec. 150.453  ALJ decision.

    The ALJ will issue an initial agency decision based only on the 
record and on applicable law; the decision will contain findings of fact 
and conclusions of law. The ALJ's decision is final and appealable after 
30 days unless it is modified or vacated under Sec. 150.457.



Sec. 150.455  Sanctions.

    (a) The ALJ may sanction a party or an attorney for failing to 
comply with an order or other directive or with a requirement of a 
regulation, for abandonment of a case, or for other actions that 
interfere with the speedy, orderly or fair conduct of the hearing. Any 
sanction that is imposed will relate reasonably to the severity and 
nature of the failure or action.
    (b) A sanction may include any of the following actions:
    (1) In the case of failure or refusal to provide or permit 
discovery, drawing negative fact inferences or treating such failure or 
refusal as an admission by deeming the matter, or certain facts, to be 
established.
    (2) Prohibiting a party from introducing certain evidence or 
otherwise advocating a particular claim or defense.
    (3) Striking pleadings, in whole or in part.
    (4) Staying the case.
    (5) Dismissing the case.
    (6) Entering a decision by default.
    (7) Refusing to consider any motion or other document that is not 
filed in a timely manner.
    (8) Taking other appropriate action.



Sec. 150.457  Review by Administrator.

    (a) The Administrator of CMS (which for purposes of this subsection 
may include his or her delegate), at his or her discretion, may review 
in whole or in part any initial agency decision issued under 
Sec. 150.453.
    (b) The Administrator may decide to review an initial agency 
decision if it appears from a preliminary review of

[[Page 666]]

the decision (or from a preliminary review of the record on which the 
initial agency decision was based, if available at the time) that:
    (1) The ALJ made an erroneous interpretation of law or regulation.
    (2) The initial agency decision is not supported by substantial 
evidence.
    (3) The ALJ has incorrectly assumed or denied jurisdiction or 
extended his or her authority to a degree not provided for by statute or 
regulation.
    (4) The ALJ decision requires clarification, amplification, or an 
alternative legal basis for the decision.
    (5) The ALJ decision otherwise requires modification, reversal, or 
remand.
    (c) Within 30 days of the date of the initial agency decision, the 
Administrator will mail a notice advising the respondent of any intent 
to review the decision in whole or in part.
    (d) Within 30 days of receipt of a notice that the Administrator 
intends to review an initial agency decision, the respondent may submit, 
in writing, to the Administrator any arguments in support of, or 
exceptions to, the initial agency decision.
    (e) This submission of the information indicated in paragraph (d) of 
this section must be limited to issues the Administrator has identified 
in his or her notice of intent to review, if the Administrator has given 
notice of an intent to review the initial agency decision only in part. 
A copy of this submission must be sent to the other party.
    (f) After receipt of any submissions made pursuant to paragraph (d) 
of this section and any additional submissions for which the 
Administrator may provide, the Administrator will affirm, reverse, 
modify, or remand the initial agency decision. The Administrator will 
mail a copy of his or her decision to the respondent.
    (g) The Administrator's decision will be based on the record on 
which the initial agency decision was based (as forwarded by the ALJ to 
the Administrator) and any materials submitted pursuant to paragraphs 
(b), (d), and (f) of this section.
    (h) The Administrator's decision may rely on decisions of any courts 
and other applicable law, whether or not cited in the initial agency 
decision.



Sec. 150.459  Judicial review.

    (a) Filing of an action for review. Any responsible entity against 
whom a final order imposing a civil money penalty is entered may obtain 
review in the United States District Court for any district in which the 
entity is located or in the United States District Court for the 
District of Columbia by doing the following:
    (1) Filing a notice of appeal in that court within 30 days from the 
date of a final order.
    (2) Simultaneously sending a copy of the notice of appeal by 
registered mail to CMS.
    (b) Certification of administrative record. CMS promptly certifies 
and files with the court the record upon which the penalty was assessed.
    (c) Standard of review. The findings of CMS and the ALJ may not be 
set aside unless they are found to be unsupported by substantial 
evidence, as provided by 5 U.S.C. 706(2)(E).



Sec. 150.461  Failure to pay assessment.

    If any entity fails to pay an assessment after it becomes a final 
order, or after the court has entered final judgment in favor of CMS, 
CMS refers the matter to the Attorney General, who brings an action 
against the entity in the appropriate United States district court to 
recover the amount assessed.



Sec. 150.463  Final order not subject to review.

    In an action brought under Sec. 150.461, the validity and 
appropriateness of the final order described in Sec. 150.459 is not 
subject to review.



Sec. 150.465  Collection and use of penalty funds.

    (a) Any funds collected under Sec. 150.461 are paid to CMS.
    (b) The funds are available without appropriation until expended.
    (c) The funds may be used only for the purpose of enforcing the 
HIPAA requirements for which the penalty was assessed.

                        PARTS 151-159 [RESERVED]

[[Page 667]]



  SUBCHAPTER C--ADMINISTRATIVE DATA STANDARDS AND RELATED REQUIREMENTS





PART 160--GENERAL ADMINISTRATIVE REQUIREMENTS--Table of Contents




                      Subpart A--General Provisions

Sec.
160.101  Statutory basis and purpose.
160.102  Applicability.
160.103  Definitions.
160.104  Modifications.

                   Subpart B--Preemption of State Law

160.201  Applicability.
160.202  Definitions.
160.203  General rule and exceptions.
160.204  Process for requesting exception determinations.
160.205  Duration of effectiveness of exception determinations.

                  Subpart C--Compliance and Enforcement

160.300  Applicability.
160.302  Definitions.
160.304  Principles for achieving compliance.
160.306  Complaints to the Secretary.
160.308  Compliance reviews.
160.310  Responsibilities of covered entities.
160.312  Secretarial action regarding complaints and compliance reviews.

    Authority: Sec. 1171 through 1179 of the Social Security Act, (42 
U.S.C. 1320d-1329d-8) as added by sec. 262 of Pub. L. 104-191, 110 Stat. 
2021-2031 and sec. 264 of Pub. L. 104-191 (42 U.S.C. 1320d-2(note)).

    Source: 65 FR 82798, Dec. 28, 2000, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 160.101  Statutory basis and purpose.

    The requirements of this subchapter implement sections 1171 through 
1179 of the Social Security Act (the Act), as added by section 262 of 
Public Law 104-191, and section 264 of Public Law 104-191.



Sec. 160.102  Applicability.

    (a) Except as otherwise provided, the standards, requirements, and 
implementation specifications adopted under this subchapter apply to the 
following entities:
    (1) A health plan.
    (2) A health care clearinghouse.
    (3) A health care provider who transmits any health information in 
electronic form in connection with a transaction covered by this 
subchapter.
    (b) To the extent required under section 201(a)(5) of the Health 
Insurance Portability Act of 1996, (Pub. L. 104-191), nothing in this 
subchapter shall be construed to diminish the authority of any Inspector 
General, including such authority as provided in the Inspector General 
Act of 1978, as amended (5 U.S.C. App.).

    Effective Date Note: At 67 FR 53266, Aug. 14, 2002, in Sec. 160.102, 
paragraph (b) was amended by removing the phrase ``section 201(a)(5) of 
the Health Insurance Portability Act of 1996, (Pub. L. No. 104-191)'' 
and adding in its place the phrase ``the Social Security Act, 42 U.S.C. 
1320a-7c(a)(5)'', effective Oct. 15, 2002.



Sec. 160.103  Definitions.

    Except as otherwise provided, the following definitions apply to 
this subchapter:
    Act means the Social Security Act.
    ANSI stands for the American National Standards Institute.
    Business associate: (1) Except as provided in paragraph (2) of this 
definition, business associate means, with respect to a covered entity, 
a person who:
    (i) On behalf of such covered entity or of an organized health care 
arrangement (as defined in Sec. 164.501 of this subchapter) in which the 
covered entity participates, but other than in the capacity of a member 
of the workforce of such covered entity or arrangement, performs, or 
assists in the performance of:
    (A) A function or activity involving the use or disclosure of 
individually identifiable health information, including claims 
processing or administration, data analysis, processing or 
administration, utilization review, quality assurance, billing, benefit 
management, practice management, and repricing; or
    (B) Any other function or activity regulated by this subchapter; or
    (ii) Provides, other than in the capacity of a member of the 
workforce of such covered entity, legal, actuarial,

[[Page 668]]

accounting, consulting, data aggregation (as defined in Sec. 164.501 of 
this subchapter), management, administrative, accreditation, or 
financial services to or for such covered entity, or to or for an 
organized health care arrangement in which the covered entity 
participates, where the provision of the service involves the disclosure 
of individually identifiable health information from such covered entity 
or arrangement, or from another business associate of such covered 
entity or arrangement, to the person.
    (2) A covered entity participating in an organized health care 
arrangement that performs a function or activity as described by 
paragraph (1)(i) of this definition for or on behalf of such organized 
health care arrangement, or that provides a service as described in 
paragraph (1)(ii) of this definition to or for such organized health 
care arrangement, does not, simply through the performance of such 
function or activity or the provision of such service, become a business 
associate of other covered entities participating in such organized 
health care arrangement.
    (3) A covered entity may be a business associate of another covered 
entity.
    CMS stands for Centers for Medicare & Medicaid Services within the 
Department of Health and Human Services.
    Compliance date means the date by which a covered entity must comply 
with a standard, implementation specification, requirement, or 
modification adopted under this subchapter.
    Covered entity means:
    (1) A health plan.
    (2) A health care clearinghouse.
    (3) A health care provider who transmits any health information in 
electronic form in connection with a transaction covered by this 
subchapter.
    EIN stands for the employer identification number assigned by the 
Internal Revenue Service, U.S. Department of the Treasury. The EIN is 
the taxpayer identifying number of an individual or other entity 
(whether or not an employer) assigned under one of the following:
    (1) 26 U.S.C. 6011(b), which is the portion of the Internal Revenue 
Code dealing with identifying the taxpayer in tax returns and 
statements, or corresponding provisions of prior law.
    (2) 26 U.S.C. 6109, which is the portion of the Internal Revenue 
Code dealing with identifying numbers in tax returns, statements, and 
other required documents.
    Employer is defined as it is in 26 U.S.C. 3401(d).
    Group health plan (also see definition of health plan in this 
section) means an employee welfare benefit plan (as defined in section 
3(1) of the Employee Retirement Income and Security Act of 1974 (ERISA), 
29 U.S.C. 1002(1)), including insured and self-insured plans, to the 
extent that the plan provides medical care (as defined in section 
2791(a)(2) of the Public Health Service Act (PHS Act), 42 U.S.C. 300gg-
91(a)(2)), including items and services paid for as medical care, to 
employees or their dependents directly or through insurance, 
reimbursement, or otherwise, that:
    (1) Has 50 or more participants (as defined in section 3(7) of 
ERISA, 29 U.S.C. 1002(7)); or
    (2) Is administered by an entity other than the employer that 
established and maintains the plan.
    HHS stands for the Department of Health and Human Services.
    Health care means care, services, or supplies related to the health 
of an individual. Health care includes, but is not limited to, the 
following:
    (1) Preventive, diagnostic, therapeutic, rehabilitative, 
maintenance, or palliative care, and counseling, service, assessment, or 
procedure with respect to the physical or mental condition, or 
functional status, of an individual or that affects the structure or 
function of the body; and
    (2) Sale or dispensing of a drug, device, equipment, or other item 
in accordance with a prescription.
    Health care clearinghouse means a public or private entity, 
including a billing service, repricing company, community health 
management information system or community health information system, 
and ``value-added'' networks and switches, that does either of the 
following functions:
    (1) Processes or facilitates the processing of health information 
received from another entity in a nonstandard

[[Page 669]]

format or containing nonstandard data content into standard data 
elements or a standard transaction.
    (2) Receives a standard transaction from another entity and 
processes or facilitates the processing of health information into 
nonstandard format or nonstandard data content for the receiving entity.
    Health care provider means a provider of services (as defined in 
section 1861(u) of the Act, 42 U.S.C. 1395x(u)), a provider of medical 
or health services (as defined in section 1861(s) of the Act, 42 U.S.C. 
1395x(s)), and any other person or organization who furnishes, bills, or 
is paid for health care in the normal course of business.
    Health information means any information, whether oral or recorded 
in any form or medium, that:
    (1) Is created or received by a health care provider, health plan, 
public health authority, employer, life insurer, school or university, 
or health care clearinghouse; and
    (2) Relates to the past, present, or future physical or mental 
health or condition of an individual; the provision of health care to an 
individual; or the past, present, or future payment for the provision of 
health care to an individual.
    Health insurance issuer (as defined in section 2791(b)(2) of the PHS 
Act, 42 U.S.C. 300gg-91(b)(2) and used in the definition of health plan 
in this section) means an insurance company, insurance service, or 
insurance organization (including an HMO) that is licensed to engage in 
the business of insurance in a State and is subject to State law that 
regulates insurance. Such term does not include a group health plan.
    Health maintenance organization (HMO) (as defined in section 
2791(b)(3) of the PHS Act, 42 U.S.C. 300gg-91(b)(3) and used in the 
definition of health plan in this section) means a federally qualified 
HMO, an organization recognized as an HMO under State law, or a similar 
organization regulated for solvency under State law in the same manner 
and to the same extent as such an HMO.
    Health plan means an individual or group plan that provides, or pays 
the cost of, medical care (as defined in section 2791(a)(2) of the PHS 
Act, 42 U.S.C. 300gg-91(a)(2)).
    (1) Health plan includes the following, singly or in combination:
    (i) A group health plan, as defined in this section.
    (ii) A health insurance issuer, as defined in this section.
    (iii) An HMO, as defined in this section.
    (iv) Part A or Part B of the Medicare program under title XVIII of 
the Act.
    (v) The Medicaid program under title XIX of the Act, 42 U.S.C. 1396, 
et seq.
    (vi) An issuer of a Medicare supplemental policy (as defined in 
section 1882(g)(1) of the Act, 42 U.S.C. 1395ss(g)(1)).
    (vii) An issuer of a long-term care policy, excluding a nursing home 
fixed-indemnity policy.
    (viii) An employee welfare benefit plan or any other arrangement 
that is established or maintained for the purpose of offering or 
providing health benefits to the employees of two or more employers.
    (ix) The health care program for active military personnel under 
title 10 of the United States Code.
    (x) The veterans health care program under 38 U.S.C. chapter 17.
    (xi) The Civilian Health and Medical Program of the Uniformed 
Services (CHAMPUS) (as defined in 10 U.S.C. 1072(4)).
    (xii) The Indian Health Service program under the Indian Health Care 
Improvement Act, 25 U.S.C. 1601, et seq.
    (xiii) The Federal Employees Health Benefits Program under 5 U.S.C. 
8902, et seq.
    (xiv) An approved State child health plan under title XXI of the 
Act, providing benefits for child health assistance that meet the 
requirements of section 2103 of the Act, 42 U.S.C. 1397, et seq.
    (xv) The Medicare+Choice program under Part C of title XVIII of the 
Act, 42 U.S.C. 1395w-21 through 1395w-28.
    (xvi) A high risk pool that is a mechanism established under State 
law to provide health insurance coverage or comparable coverage to 
eligible individuals.
    (xvii) Any other individual or group plan, or combination of 
individual or group plans, that provides or pays for

[[Page 670]]

the cost of medical care (as defined in section 2791(a)(2) of the PHS 
Act, 42 U.S.C. 300gg-91(a)(2)).
    (2) Health plan excludes:
    (i) Any policy, plan, or program to the extent that it provides, or 
pays for the cost of, excepted benefits that are listed in section 
2791(c)(1) of the PHS Act, 42 U.S.C. 300gg-91(c)(1); and
    (ii) A government-funded program (other than one listed in paragraph 
(1)(i)-(xvi) of this definition):
    (A) Whose principal purpose is other than providing, or paying the 
cost of, health care; or
    (B) Whose principal activity is:
    (1) The direct provision of health care to persons; or
    (2) The making of grants to fund the direct provision of health care 
to persons.
    Implementation specification means specific requirements or 
instructions for implementing a standard.
    Modify or modification refers to a change adopted by the Secretary, 
through regulation, to a standard or an implementation specification.
    Secretary means the Secretary of Health and Human Services or any 
other officer or employee of HHS to whom the authority involved has been 
delegated.
    Small health plan means a health plan with annual receipts of $5 
million or less.
    Standard means a rule, condition, or requirement:
    (1) Describing the following information for products, systems, 
services or practices:
    (i) Classification of components.
    (ii) Specification of materials, performance, or operations; or
    (iii) Delineation of procedures; or
    (2) With respect to the privacy of individually identifiable health 
information.
    Standard setting organization (SSO) means an organization accredited 
by the American National Standards Institute that develops and maintains 
standards for information transactions or data elements, or any other 
standard that is necessary for, or will facilitate the implementation 
of, this part.
    State refers to one of the following:
    (1) For a health plan established or regulated by Federal law, State 
has the meaning set forth in the applicable section of the United States 
Code for such health plan.
    (2) For all other purposes, State means any of the several States, 
the District of Columbia, the Commonwealth of Puerto Rico, the Virgin 
Islands, and Guam.
    Trading partner agreement means an agreement related to the exchange 
of information in electronic transactions, whether the agreement is 
distinct or part of a larger agreement, between each party to the 
agreement. (For example, a trading partner agreement may specify, among 
other things, the duties and responsibilities of each party to the 
agreement in conducting a standard transaction.)
    Transaction means the transmission of information between two 
parties to carry out financial or administrative activities related to 
health care. It includes the following types of information 
transmissions:
    (1) Health care claims or equivalent encounter information.
    (2) Health care payment and remittance advice.
    (3) Coordination of benefits.
    (4) Health care claim status.
    (5) Enrollment and disenrollment in a health plan.
    (6) Eligibility for a health plan.
    (7) Health plan premium payments.
    (8) Referral certification and authorization.
    (9) First report of injury.
    (10) Health claims attachments.
    (11) Other transactions that the Secretary may prescribe by 
regulation.
    Workforce means employees, volunteers, trainees, and other persons 
whose conduct, in the performance of work for a covered entity, is under 
the direct control of such entity, whether or not they are paid by the 
covered entity.

[65 FR 82798, Dec. 28, 2000, as amended at 67 FR 38019, May 31, 2002]

    Effective Date Note: At 67 FR 53266, Aug. 14, 2002, in Sec. 160.103, 
add the definition of ``individually identifiable health information'', 
effective Oct. 15, 2002. For the convenience of the user, the added text 
is set forth as follows:

[[Page 671]]

Sec. 160.103  Definitions.

                                * * * * *

    Individually identifiable health information is information that is 
a subset of health information, including demographic information 
collected from an individual, and:
    (1) Is created or received by a health care provider, health plan, 
employer, or health care clearinghouse; and
    (2) Relates to the past, present, or future physical or mental 
health or condition of an individual; the provision of health care to an 
individual; or the past, present, or future payment for the provision of 
health care to an individual; and
    (i) That identifies the individual; or
    (ii) With respect to which there is a reasonable basis to believe 
the information can be used to identify the individual.

                                * * * * *



Sec. 160.104  Modifications.

    (a) Except as provided in paragraph (b) of this section, the 
Secretary may adopt a modification to a standard or implementation 
specification adopted under this subchapter no more frequently than once 
every 12 months.
    (b) The Secretary may adopt a modification at any time during the 
first year after the standard or implementation specification is 
initially adopted, if the Secretary determines that the modification is 
necessary to permit compliance with the standard or implementation 
specification.
    (c) The Secretary will establish the compliance date for any 
standard or implementation specification modified under this section.
    (1) The compliance date for a modification is no earlier than 180 
days after the effective date of the final rule in which the Secretary 
adopts the modification.
    (2) The Secretary may consider the extent of the modification and 
the time needed to comply with the modification in determining the 
compliance date for the modification.
    (3) The Secretary may extend the compliance date for small health 
plans, as the Secretary determines is appropriate.

[65 FR 82798, Dec. 28, 2000, as amended at 67 FR 38019, May 31, 2002]



                   Subpart B--Preemption of State Law



Sec. 160.201  Applicability.

    The provisions of this subpart implement section 1178 of the Act, as 
added by section 262 of Public Law 104-191.



Sec. 160.202  Definitions.

    For purposes of this subpart, the following terms have the following 
meanings:
    Contrary, when used to compare a provision of State law to a 
standard, requirement, or implementation specification adopted under 
this subchapter, means:
    (1) A covered entity would find it impossible to comply with both 
the State and federal requirements; or
    (2) The provision of State law stands as an obstacle to the 
accomplishment and execution of the full purposes and objectives of part 
C of title XI of the Act or section 264 of Pub. L. 104-191, as 
applicable.
    More stringent means, in the context of a comparison of a provision 
of State law and a standard, requirement, or implementation 
specification adopted under subpart E of part 164 of this subchapter, a 
State law that meets one or more of the following criteria:
    (1) With respect to a use or disclosure, the law prohibits or 
restricts a use or disclosure in circumstances under which such use or 
disclosure otherwise would be permitted under this subchapter, except if 
the disclosure is:
    (i) Required by the Secretary in connection with determining whether 
a covered entity is in compliance with this subchapter; or
    (ii) To the individual who is the subject of the individually 
identifiable health information.
    (2) With respect to the rights of an individual who is the subject 
of the individually identifiable health information of access to or 
amendment of individually identifiable health information, permits 
greater rights of access or amendment, as applicable; provided that, 
nothing in this subchapter may be construed to preempt any State law to 
the extent that it authorizes or prohibits disclosure of protected 
health information about a minor to a parent,

[[Page 672]]

guardian, or person acting in loco parentis of such minor.
    (3) With respect to information to be provided to an individual who 
is the subject of the individually identifiable health information about 
a use, a disclosure, rights, and remedies, provides the greater amount 
of information.
    (4) With respect to the form or substance of an authorization or 
consent for use or disclosure of individually identifiable health 
information, provides requirements that narrow the scope or duration, 
increase the privacy protections afforded (such as by expanding the 
criteria for), or reduce the coercive effect of the circumstances 
surrounding the authorization or consent, as applicable.
    (5) With respect to recordkeeping or requirements relating to 
accounting of disclosures, provides for the retention or reporting of 
more detailed information or for a longer duration.
    (6) With respect to any other matter, provides greater privacy 
protection for the individual who is the subject of the individually 
identifiable health information.
    Relates to the privacy of individually identifiable health 
information means, with respect to a State law, that the State law has 
the specific purpose of protecting the privacy of health information or 
affects the privacy of health information in a direct, clear, and 
substantial way.
    State law means a constitution, statute, regulation, rule, common 
law, or other State action having the force and effect of law.

    Effective Date Note: At 67 FR 53266, Aug. 14, 2002, in Sec. 160.202, 
revise paragraphs (2) and (4) of the definition of ``more stringent'', 
effective Oct. 15, 2002. For the convenience of the user, the revised 
text is set forth as follows:

Sec. 160.202  Definitions.

                                * * * * *

    More stringent means * * *
    (2) With respect to the rights of an individual, who is the subject 
of the individually identifiable health information, regarding access to 
or amendment of individually identifiable health information, permits 
greater rights of access or amendment, as applicable.

                                * * * * *

    (4) With respect to the form, substance, or the need for express 
legal permission from an individual, who is the subject of the 
individually identifiable health information, for use or disclosure of 
individually identifiable health information, provides requirements that 
narrow the scope or duration, increase the privacy protections afforded 
(such as by expanding the criteria for), or reduce the coercive effect 
of the circumstances surrounding the express legal permission, as 
applicable.

                                * * * * *



Sec. 160.203  General rule and exceptions.

    A standard, requirement, or implementation specification adopted 
under this subchapter that is contrary to a provision of State law 
preempts the provision of State law. This general rule applies, except 
if one or more of the following conditions is met:
    (a) A determination is made by the Secretary under Sec. 160.204 that 
the provision of State law:
    (1) Is necessary:
    (i) To prevent fraud and abuse related to the provision of or 
payment for health care;
    (ii) To ensure appropriate State regulation of insurance and health 
plans to the extent expressly authorized by statute or regulation;
    (iii) For State reporting on health care delivery or costs; or
    (iv) For purposes of serving a compelling need related to public 
health, safety, or welfare, and, if a standard, requirement, or 
implementation specification under part 164 of this subchapter is at 
issue, if the Secretary determines that the intrusion into privacy is 
warranted when balanced against the need to be served; or
    (2) Has as its principal purpose the regulation of the manufacture, 
registration, distribution, dispensing, or other control of any 
controlled substances (as defined in 21 U.S.C. 802), or that is deemed a 
controlled substance by State law.
    (b) The provision of State law relates to the privacy of health 
information and is more stringent than a standard, requirement, or 
implementation specification adopted under subpart E of part 164 of this 
subchapter.
    (c) The provision of State law, including State procedures 
established

[[Page 673]]

under such law, as applicable, provides for the reporting of disease or 
injury, child abuse, birth, or death, or for the conduct of public 
health surveillance, investigation, or intervention.
    (d) The provision of State law requires a health plan to report, or 
to provide access to, information for the purpose of management audits, 
financial audits, program monitoring and evaluation, or the licensure or 
certification of facilities or individuals.

    Effective Date Note: At 67 FR 53266, Aug. 14, 2002, in Sec. 160.203, 
paragraph (b) was amended by adding the words ``individually 
identifiable'' before ``health'', effective Oct. 15, 2002.



Sec. 160.204  Process for requesting exception determinations.

    (a) A request to except a provision of State law from preemption 
under Sec. 160.203(a) may be submitted to the Secretary. A request by a 
State must be submitted through its chief elected official, or his or 
her designee. The request must be in writing and include the following 
information:
    (1) The State law for which the exception is requested;
    (2) The particular standard, requirement, or implementation 
specification for which the exception is requested;
    (3) The part of the standard or other provision that will not be 
implemented based on the exception or the additional data to be 
collected based on the exception, as appropriate;
    (4) How health care providers, health plans, and other entities 
would be affected by the exception;
    (5) The reasons why the State law should not be preempted by the 
federal standard, requirement, or implementation specification, 
including how the State law meets one or more of the criteria at 
Sec. 160.203(a); and
    (6) Any other information the Secretary may request in order to make 
the determination.
    (b) Requests for exception under this section must be submitted to 
the Secretary at an address that will be published in the Federal 
Register. Until the Secretary's determination is made, the standard, 
requirement, or implementation specification under this subchapter 
remains in effect.
    (c) The Secretary's determination under this section will be made on 
the basis of the extent to which the information provided and other 
factors demonstrate that one or more of the criteria at Sec. 160.203(a) 
has been met.



Sec. 160.205  Duration of effectiveness of exception determinations.

    An exception granted under this subpart remains in effect until:
    (a) Either the State law or the federal standard, requirement, or 
implementation specification that provided the basis for the exception 
is materially changed such that the ground for the exception no longer 
exists; or
    (b) The Secretary revokes the exception, based on a determination 
that the ground supporting the need for the exception no longer exists.



                  Subpart C--Compliance and Enforcement



Sec. 160.300  Applicability.

    This subpart applies to actions by the Secretary, covered entities, 
and others with respect to ascertaining the compliance by covered 
entities with and the enforcement of the applicable requirements of this 
part 160 and the applicable standards, requirements, and implementation 
specifications of subpart E of part 164 of this subchapter.



Sec. 160.302  Definitions.

    As used in this subpart, terms defined in Sec. 164.501 of this 
subchapter have the same meanings given to them in that section.



Sec. 160.304  Principles for achieving compliance.

    (a) Cooperation. The Secretary will, to the extent practicable, seek 
the cooperation of covered entities in obtaining compliance with the 
applicable requirements of this part 160 and the applicable standards, 
requirements, and implementation specifications of subpart E of part 164 
of this subchapter.
    (b) Assistance. The Secretary may provide technical assistance to 
covered entities to help them comply voluntarily with the applicable 
requirements

[[Page 674]]

of this part 160 or the applicable standards, requirements, and 
implementation specifications of subpart E of part 164 of this 
subchapter.



Sec. 160.306  Complaints to the Secretary.

    (a) Right to file a complaint. A person who believes a covered 
entity is not complying with the applicable requirements of this part 
160 or the applicable standards, requirements, and implementation 
specifications of subpart E of part 164 of this subchapter may file a 
complaint with the Secretary.
    (b) Requirements for filing complaints. Complaints under this 
section must meet the following requirements:
    (1) A complaint must be filed in writing, either on paper or 
electronically.
    (2) A complaint must name the entity that is the subject of the 
complaint and describe the acts or omissions believed to be in violation 
of the applicable requirements of this part 160 or the applicable 
standards, requirements, and implementation specifications of subpart E 
of part 164 of this subchapter.
    (3) A complaint must be filed within 180 days of when the 
complainant knew or should have known that the act or omission 
complained of occurred, unless this time limit is waived by the 
Secretary for good cause shown.
    (4) The Secretary may prescribe additional procedures for the filing 
of complaints, as well as the place and manner of filing, by notice in 
the Federal Register.
    (c) Investigation. The Secretary may investigate complaints filed 
under this section. Such investigation may include a review of the 
pertinent policies, procedures, or practices of the covered entity and 
of the circumstances regarding any alleged acts or omissions concerning 
compliance.



Sec. 160.308  Compliance reviews.

    The Secretary may conduct compliance reviews to determine whether 
covered entities are complying with the applicable requirements of this 
part 160 and the applicable standards, requirements, and implementation 
specifications of subpart E of part 164 of this subchapter.



Sec. 160.310  Responsibilities of covered entities.

    (a) Provide records and compliance reports. A covered entity must 
keep such records and submit such compliance reports, in such time and 
manner and containing such information, as the Secretary may determine 
to be necessary to enable the Secretary to ascertain whether the covered 
entity has complied or is complying with the applicable requirements of 
this part 160 and the applicable standards, requirements, and 
implementation specifications of subpart E of part 164 of this 
subchapter.
    (b) Cooperate with complaint investigations and compliance reviews. 
A covered entity must cooperate with the Secretary, if the Secretary 
undertakes an investigation or compliance review of the policies, 
procedures, or practices of a covered entity to determine whether it is 
complying with the applicable requirements of this part 160 and the 
standards, requirements, and implementation specifications of subpart E 
of part 164 of this subchapter.
    (c) Permit access to information. (1) A covered entity must permit 
access by the Secretary during normal business hours to its facilities, 
books, records, accounts, and other sources of information, including 
protected health information, that are pertinent to ascertaining 
compliance with the applicable requirements of this part 160 and the 
applicable standards, requirements, and implementation specifications of 
subpart E of part 164 of this subchapter. If the Secretary determines 
that exigent circumstances exist, such as when documents may be hidden 
or destroyed, a covered entity must permit access by the Secretary at 
any time and without notice.
    (2) If any information required of a covered entity under this 
section is in the exclusive possession of any other agency, institution, 
or person and the other agency, institution, or person fails or refuses 
to furnish the information, the covered entity must so certify and set 
forth what efforts it has made to obtain the information.
    (3) Protected health information obtained by the Secretary in 
connection

[[Page 675]]

with an investigation or compliance review under this subpart will not 
be disclosed by the Secretary, except if necessary for ascertaining or 
enforcing compliance with the applicable requirements of this part 160 
and the applicable standards, requirements, and implementation 
specifications of subpart E of part 164 of this subchapter, or if 
otherwise required by law.



Sec. 160.312  Secretarial action regarding complaints and compliance reviews.

    (a) Resolution where noncompliance is indicated. (1) If an 
investigation pursuant to Sec. 160.306 or a compliance review pursuant 
to Sec. 160.308 indicates a failure to comply, the Secretary will so 
inform the covered entity and, if the matter arose from a complaint, the 
complainant, in writing and attempt to resolve the matter by informal 
means whenever possible.
    (2) If the Secretary finds the covered entity is not in compliance 
and determines that the matter cannot be resolved by informal means, the 
Secretary may issue to the covered entity and, if the matter arose from 
a complaint, to the complainant written findings documenting the non-
compliance.
    (b) Resolution when no violation is found. If, after an 
investigation or compliance review, the Secretary determines that 
further action is not warranted, the Secretary will so inform the 
covered entity and, if the matter arose from a complaint, the 
complainant in writing.



PART 162--ADMINISTRATIVE REQUIREMENTS--Table of Contents




                      Subpart A--General Provisions

Sec.
162.100  Applicability.
162.103  Definitions.

Subparts B-E [Reserved]

             Subpart F--Standard Unique Employer Identifier

162.600  Compliance dates of the implementation of the standard unique 
          employer identifier.
162.605  Standard unique employer identifier.
162.610  Implementation specifications for covered entities.

Subparts G-H [Reserved]

             Subpart I--General Provisions for Transactions

162.900  Compliance dates of the initial implementation of the code sets 
          and transaction standards.
162.910  Maintenance of standards and adoption of modifications and new 
          standards.
162.915  Trading partner agreements.
162.920  Availability of implementation specifications.
162.923  Requirements for covered entities.
162.925  Additional requirements for health plans.
162.930  Additional rules for health care clearinghouses.
162.940  Exceptions from standards to permit testing of proposed 
          modifications.

                          Subpart J--Code Sets

162.1000  General requirements.
162.1002  Medical data code sets.
162.1011  Valid code sets.

    Subpart K--Health Care Claims or Equivalent Encounter Information

162.1101  Health care claims or equivalent encounter information 
          transaction.
162.1102  Standards for health care claims or equivalent encounter 
          information.

                Subpart L--Eligibility for a Health Plan

162.1201  Eligibility for a health plan transaction.
162.1202  Standards for eligibility for a health plan.

           Subpart M--Referral Certification and Authorization

162.1301  Referral certification and authorization transaction.
162.1302  Standard for referral certification and authorization.

                   Subpart N--Health Care Claim Status

162.1401  Health care claim status transaction.
162.1402  Standard for health care claim status.

        Subpart O--Enrollment and Disenrollment in a Health Plan

162.1501  Enrollment and disenrollment in a health plan transaction.
162.1502  Standard for enrollment and disenrollment in a health plan.

[[Page 676]]

          Subpart P--Health Care Payment and Remittance Advice

162.1601  Health care payment and remittance advice transaction.
162.1602  Standards for health care payment and remittance advice.

                 Subpart Q--Health Plan Premium Payments

162.1701  Health plan premium payments transaction.
162.1702  Standard for health plan premium payments.

                   Subpart R--Coordination of Benefits

162.1801  Coordination of benefits transaction.
162.1802  Standards for coordination of benefits.

    Authority: Secs. 1171 through 1179 of the Social Security Act (42 
U.S.C. 1320d--1320d-8), as added by sec. 262 of Pub. L. 104-191, 110 
Stat. 2021-2031, and sec. 264 of Pub. L. 104-191, 110 Stat. 2033-2034 
(42 U.S.C. 1320d-2 (note)).

    Source: 65 FR 50367, Aug. 17, 2000, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 162.100  Applicability.

    Covered entities (as defined in Sec. 160.103 of this subchapter) 
must comply with the applicable requirements of this part.



Sec. 162.103  Definitions.

    For purposes of this part, the following definitions apply:
    Code set means any set of codes used to encode data elements, such 
as tables of terms, medical concepts, medical diagnostic codes, or 
medical procedure codes. A code set includes the codes and the 
descriptors of the codes.
    Code set maintaining organization means an organization that creates 
and maintains the code sets adopted by the Secretary for use in the 
transactions for which standards are adopted in this part.
    Data condition means the rule that describes the circumstances under 
which a covered entity must use a particular data element or segment.
    Data content means all the data elements and code sets inherent to a 
transaction, and not related to the format of the transaction. Data 
elements that are related to the format are not data content.
    Data element means the smallest named unit of information in a 
transaction.
    Data set means a semantically meaningful unit of information 
exchanged between two parties to a transaction.
    Descriptor means the text defining a code.
    Designated standard maintenance organization (DSMO) means an 
organization designated by the Secretary under Sec. 162.910(a).
    Direct data entry means the direct entry of data (for example, using 
dumb terminals or web browsers) that is immediately transmitted into a 
health plan's computer.
    Electronic media means the mode of electronic transmission. It 
includes the Internet (wide-open), Extranet (using Internet technology 
to link a business with information only accessible to collaborating 
parties), leased lines, dial-up lines, private networks, and those 
transmissions that are physically moved from one location to another 
using magnetic tape, disk, or compact disk media.
    Format refers to those data elements that provide or control the 
enveloping or hierarchical structure, or assist in identifying data 
content of, a transaction.
    HCPCS stands for the Health [Care Financing Administration] Common 
Procedure Coding System.
    Maintain or maintenance refers to activities necessary to support 
the use of a standard adopted by the Secretary, including technical 
corrections to an implementation specification, and enhancements or 
expansion of a code set. This term excludes the activities related to 
the adoption of a new standard or implementation specification, or 
modification to an adopted standard or implementation specification.
    Maximum defined data set means all of the required data elements for 
a particular standard based on a specific implementation specification.
    Segment means a group of related data elements in a transaction.
    Standard transaction means a transaction that complies with the 
applicable standard adopted under this part.

[[Page 677]]

Subparts B-E [Reserved]



             Subpart F--Standard Unique Employer Identifier

    Source: 67 FR 38020, May 31, 2002, unless otherwise noted.



Sec. 162.600  Compliance dates of the implementation of the standard unique employer identifier.

    (a) Health care providers. Health care providers must comply with 
the requirements of this subpart no later than July 30, 2004.
    (b) Health plans. A health plan must comply with the requirements of 
this subpart no later than one of the following dates:
    (1) Health plans other than small health plans-- July 30, 2004.
    (2) Small health plans-- August 1, 2005.
    (c) Health care clearinghouses. Health care clearinghouses must 
comply with the requirements of this subpart no later than July 30, 
2004.



Sec. 162.605  Standard unique employer identifier.

    The Secretary adopts the EIN as the standard unique employer 
identifier provided for by 42 U.S.C. 1320d-2(b).



Sec. 162.610  Implementation specifications for covered entities.

    (a) The standard unique employer identifier of an employer of a 
particular employee is the EIN that appears on that employee's IRS Form 
W-2, Wage and Tax Statement, from the employer.
    (b) A covered entity must use the standard unique employer 
identifier (EIN) of the appropriate employer in standard transactions 
that require an employer identifier to identify a person or entity as an 
employer, including where situationally required.

Subparts G-H [Reserved]



             Subpart I--General Provisions for Transactions



Sec. 162.900  Compliance dates of the initial implementation of the code sets and transaction standards.

    (a) Health care providers. A covered health care provider must 
comply with the applicable requirements of subparts I through N of this 
part no later than October 16, 2002.
    (b) Health plans. A health plan must comply with the applicable 
requirements of subparts I through R of this part no later than one of 
the following dates:
    (1) Health plans other than small health plans--October 16, 2002.
    (2) Small health plans--October 16, 2003.
    (c) Health care clearinghouses. A health care clearinghouse must 
comply with the applicable requirements of subparts I through R of this 
part no later than October 16, 2002.



Sec. 162.910  Maintenance of standards and adoption of modifications and new standards.

    (a) Designation of DSMOs. (1) The Secretary may designate as a DSMO 
an organization that agrees to conduct, to the satisfaction of the 
Secretary, the following functions:
    (i) Maintain standards adopted under this subchapter.
    (ii) Receive and process requests for adopting a new standard or 
modifying an adopted standard.
    (2) The Secretary designates a DSMO by notice in the Federal 
Register.
    (b) Maintenance of standards. Maintenance of a standard by the 
appropriate DSMO constitutes maintenance of the standard for purposes of 
this part, if done in accordance with the processes the Secretary may 
require.
    (c) Process for modification of existing standards and adoption of 
new standards. The Secretary considers a recommendation for a proposed 
modification to an existing standard, or a proposed new standard, only 
if the recommendation is developed through a process that provides for 
the following:
    (1) Open public access.
    (2) Coordination with other DSMOs.

[[Page 678]]

    (3) An appeals process for each of the following, if dissatisfied 
with the decision on the request:
    (i) The requestor of the proposed modification.
    (ii) A DSMO that participated in the review and analysis of the 
request for the proposed modification, or the proposed new standard.
    (4) Expedited process to address content needs identified within the 
industry, if appropriate.
    (5) Submission of the recommendation to the National Committee on 
Vital and Health Statistics (NCVHS).



Sec. 162.915  Trading partner agreements.

    A covered entity must not enter into a trading partner agreement 
that would do any of the following:
    (a) Change the definition, data condition, or use of a data element 
or segment in a standard.
    (b) Add any data elements or segments to the maximum defined data 
set.
    (c) Use any code or data elements that are either marked ``not 
used'' in the standard's implementation specification or are not in the 
standard's implementation specification(s).
    (d) Change the meaning or intent of the standard's implementation 
specification(s).



Sec. 162.920  Availability of implementation specifications.

    (a) Access to implementation specifications. A person or 
organization may request copies (or access for inspection) of the 
implementation specifications for a standard described in subparts K 
through R of this part by identifying the standard by name, number, and 
version. The implementation specifications are available as follows:
    (1) ASC X12N specifications. The implementation specifications for 
ASC X12N standards may be obtained from the Washington Publishing 
Company, PMB 161, 5284 Randolph Road, Rockville, MD, 20852-2116; 
telephone 301-949-9740; and FAX: 301-949-9742. They are also available 
through the Washington Publishing Company on the Internet at http://
www.wpc-edi.com. The implementation specifications are as follows:
    (i) The ASC X12N 837--Health Care Claim: Dental, Version 4010, May 
2000, Washington Publishing Company, 004010X097, as referenced in 
Secs. 162.1102 and 162.1802.
    (ii) The ASC X12N 837--Health Care Claim: Professional, Volumes 1 
and 2, Version 4010, May 2000, Washington Publishing Company, 
004010X098, as referenced in Secs. 162.1102 and 162.1802.
    (iii) The ASC X12N 837--Health Care Claim: Institutional, Volumes 1 
and 2, Version 4010, May 2000, Washington Publishing Company, 
004010X096, as referenced in Secs. 162.1102 and 162.1802.
    (iv) The ASC X12N 270/271--Health Care Eligibility Benefit Inquiry 
and Response, Version 4010, May 2000, Washington Publishing Company, 
004010X092, as referenced in Sec. 162.1202.
    (v) The ASC X12N 278--Health Care Services Review--Request for 
Review and Response, Version 4010, May 2000, Washington Publishing 
Company, 004010X094, as referenced in Sec. 162.1302.
    (vi) The ASC X12N 276/277 Health Care Claim Status Request and 
Response, Version 4010, May 2000, Washington Publishing Company, 
004010X093, as referenced in Sec. 162.1402.
    (vii) The ASC X12N 834--Benefit Enrollment and Maintenance, Version 
4010, May 2000, Washington Publishing Company, 004010X095, as referenced 
in Sec. 162.1502.
    (viii) The ASC X12N 835--Health Care Claim Payment/Advice, Version 
4010, May 2000, Washington Publishing Company, 004010X091, as referenced 
in Sec. 162.1602.
    (ix) The ASC X12N 820--Payroll Deducted and Other Group Premium 
Payment for Insurance Products, Version 4010, May 2000, Washington 
Publishing Company, 004010X061, as referenced in Sec. 162.1702.
    (2) Retail pharmacy specifications. The implementation 
specifications for all retail pharmacy standards may be obtained from 
the National Council for Prescription Drug Programs (NCPDP), 4201 North 
24th Street, Suite 365, Phoenix, AZ, 85016; telephone 602-957-9105; and 
FAX 602-955-0749. It may also be obtained through the Internet at http:/
/www.ncpdp.org. The implementation specifications are as follows:

[[Page 679]]

    (i) The Telecommunication Standard Implementation Guide, Version 5 
Release 1, September 1999, National Council for Prescription Drug 
Programs, as referenced in Secs. 162.1102, 162.1202, 162.1602, and 
162.1802.
    (ii) The Batch Standard Batch Implementation Guide, Version 1 
Release 0, February 1, 1996, National Council for Prescription Drug 
Programs, as referenced in Secs. 162.1102, 162.1202, 162.1602, and 
162.1802.
    (b) Incorporations by reference. The Director of the Office of the 
Federal Register approves the implementation specifications described in 
paragraph (a) of this section for incorporation by reference in subparts 
K through R of this part in accordance with 5 U.S.C. 552(a) and 1 CFR 
part 51. A copy of the implementation specifications may be inspected at 
the Office of the Federal Register, 800 North Capitol Street, NW, Suite 
700, Washington, DC.



Sec. 162.923  Requirements for covered entities.

    (a) General rule. Except as otherwise provided in this part, if a 
covered entity conducts with another covered entity (or within the same 
covered entity), using electronic media, a transaction for which the 
Secretary has adopted a standard under this part, the covered entity 
must conduct the transaction as a standard transaction.
    (b) Exception for direct data entry transactions. A health care 
provider electing to use direct data entry offered by a health plan to 
conduct a transaction for which a standard has been adopted under this 
part must use the applicable data content and data condition 
requirements of the standard when conducting the transaction. The health 
care provider is not required to use the format requirements of the 
standard.
    (c) Use of a business associate. A covered entity may use a business 
associate, including a health care clearinghouse, to conduct a 
transaction covered by this part. If a covered entity chooses to use a 
business associate to conduct all or part of a transaction on behalf of 
the covered entity, the covered entity must require the business 
associate to do the following:
    (1) Comply with all applicable requirements of this part.
    (2) Require any agent or subcontractor to comply with all applicable 
requirements of this part.



Sec. 162.925  Additional requirements for health plans.

    (a) General rules. (1) If an entity requests a health plan to 
conduct a transaction as a standard transaction, the health plan must do 
so.
    (2) A health plan may not delay or reject a transaction, or attempt 
to adversely affect the other entity or the transaction, because the 
transaction is a standard transaction.
    (3) A health plan may not reject a standard transaction on the basis 
that it contains data elements not needed or used by the health plan 
(for example, coordination of benefits information).
    (4) A health plan may not offer an incentive for a health care 
provider to conduct a transaction covered by this part as a transaction 
described under the exception provided for in Sec. 162.923(b).
    (5) A health plan that operates as a health care clearinghouse, or 
requires an entity to use a health care clearinghouse to receive, 
process, or transmit a standard transaction may not charge fees or costs 
in excess of the fees or costs for normal telecommunications that the 
entity incurs when it directly transmits, or receives, a standard 
transaction to, or from, a health plan.
    (b) Coordination of benefits. If a health plan receives a standard 
transaction and coordinates benefits with another health plan (or 
another payer), it must store the coordination of benefits data it needs 
to forward the standard transaction to the other health plan (or other 
payer).
    (c) Code sets. A health plan must meet each of the following 
requirements:
    (1) Accept and promptly process any standard transaction that 
contains codes that are valid, as provided in subpart J of this part.
    (2) Keep code sets for the current billing period and appeals 
periods still open to processing under the terms of the health plan's 
coverage.

[[Page 680]]



Sec. 162.930  Additional rules for health care clearinghouses.

    When acting as a business associate for another covered entity, a 
health care clearinghouse may perform the following functions:
    (a) Receive a standard transaction on behalf of the covered entity 
and translate it into a nonstandard transaction (for example, 
nonstandard format and/or nonstandard data content) for transmission to 
the covered entity.
    (b) Receive a nonstandard transaction (for example, nonstandard 
format and/or nonstandard data content) from the covered entity and 
translate it into a standard transaction for transmission on behalf of 
the covered entity.



Sec. 162.940  Exceptions from standards to permit testing of proposed modifications.

    (a) Requests for an exception. An organization may request an 
exception from the use of a standard from the Secretary to test a 
proposed modification to that standard. For each proposed modification, 
the organization must meet the following requirements:
    (1) Comparison to a current standard. Provide a detailed 
explanation, no more than 10 pages in length, of how the proposed 
modification would be a significant improvement to the current standard 
in terms of the following principles:
    (i) Improve the efficiency and effectiveness of the health care 
system by leading to cost reductions for, or improvements in benefits 
from, electronic health care transactions.
    (ii) Meet the needs of the health data standards user community, 
particularly health care providers, health plans, and health care 
clearinghouses.
    (iii) Be uniform and consistent with the other standards adopted 
under this part and, as appropriate, with other private and public 
sector health data standards.
    (iv) Have low additional development and implementation costs 
relative to the benefits of using the standard.
    (v) Be supported by an ANSI-accredited SSO or other private or 
public organization that would maintain the standard over time.
    (vi) Have timely development, testing, implementation, and updating 
procedures to achieve administrative simplification benefits faster.
    (vii) Be technologically independent of the computer platforms and 
transmission protocols used in electronic health transactions, unless 
they are explicitly part of the standard.
    (viii) Be precise, unambiguous, and as simple as possible.
    (ix) Result in minimum data collection and paperwork burdens on 
users.
    (x) Incorporate flexibility to adapt more easily to changes in the 
health care infrastructure (such as new services, organizations, and 
provider types) and information technology.
    (2) Specifications for the proposed modification. Provide 
specifications for the proposed modification, including any additional 
system requirements.
    (3) Testing of the proposed modification. Provide an explanation, no 
more than 5 pages in length, of how the organization intends to test the 
standard, including the number and types of health plans and health care 
providers expected to be involved in the test, geographical areas, and 
beginning and ending dates of the test.
    (4) Trading partner concurrences. Provide written concurrences from 
trading partners who would agree to participate in the test.
    (b) Basis for granting an exception. The Secretary may grant an 
initial exception, for a period not to exceed 3 years, based on, but not 
limited to, the following criteria:
    (1) An assessment of whether the proposed modification demonstrates 
a significant improvement to the current standard.
    (2) The extent and length of time of the exception.
    (3) Consultations with DSMOs.
    (c) Secretary's decision on exception. The Secretary makes a 
decision and notifies the organization requesting the exception whether 
the request is granted or denied.
    (1) Exception granted. If the Secretary grants an exception, the 
notification includes the following information:
    (i) The length of time for which the exception applies.

[[Page 681]]

    (ii) The trading partners and geographical areas the Secretary 
approves for testing.
    (iii) Any other conditions for approving the exception.
    (2) Exception denied. If the Secretary does not grant an exception, 
the notification explains the reasons the Secretary considers the 
proposed modification would not be a significant improvement to the 
current standard and any other rationale for the denial.
    (d) Organization's report on test results. Within 90 days after the 
test is completed, an organization that receives an exception must 
submit a report on the results of the test, including a cost-benefit 
analysis, to a location specified by the Secretary by notice in the 
Federal Register.
    (e) Extension allowed. If the report submitted in accordance with 
paragraph (d) of this section recommends a modification to the standard, 
the Secretary, on request, may grant an extension to the period granted 
for the exception.



                          Subpart J--Code Sets



Sec. 162.1000  General requirements.

    When conducting a transaction covered by this part, a covered entity 
must meet the following requirements:
    (a) Medical data code sets. Use the applicable medical data code 
sets described in Sec. 162.1002 as specified in the implementation 
specification adopted under this part that are valid at the time the 
health care is furnished.
    (b) Nonmedical data code sets. Use the nonmedical data code sets as 
described in the implementation specifications adopted under this part 
that are valid at the time the transaction is initiated.



Sec. 162.1002  Medical data code sets.

    The Secretary adopts the following code set maintaining 
organization's code sets as the standard medical data code sets:
    (a) International Classification of Diseases, 9th Edition, Clinical 
Modification, (ICD-9-CM), Volumes 1 and 2 (including The Official ICD-9-
CM Guidelines for Coding and Reporting), as maintained and distributed 
by HHS, for the following conditions:
    (1) Diseases.
    (2) Injuries.
    (3) Impairments.
    (4) Other health problems and their manifestations.
    (5) Causes of injury, disease, impairment, or other health problems.
    (b) International Classification of Diseases, 9th Edition, Clinical 
Modification, Volume 3 Procedures (including The Official ICD-9-CM 
Guidelines for Coding and Reporting), as maintained and distributed by 
HHS, for the following procedures or other actions taken for diseases, 
injuries, and impairments on hospital inpatients reported by hospitals:
    (1) Prevention.
    (2) Diagnosis.
    (3) Treatment.
    (4) Management.
    (c) National Drug Codes (NDC), as maintained and distributed by HHS, 
in collaboration with drug manufacturers, for the following:
    (1) Drugs
    (2) Biologics.
    (d) Code on Dental Procedures and Nomenclature, as maintained and 
distributed by the American Dental Association, for dental services.
    (e) The combination of Health Care Financing Administration Common 
Procedure Coding System (HCPCS), as maintained and distributed by HHS, 
and Current Procedural Terminology, Fourth Edition (CPT-4), as 
maintained and distributed by the American Medical Association, for 
physician services and other health care services. These services 
include, but are not limited to, the following:
    (1) Physician services.
    (2) Physical and occupational therapy services.
    (3) Radiologic procedures.
    (4) Clinical laboratory tests.
    (5) Other medical diagnostic procedures.
    (6) Hearing and vision services.
    (7) Transportation services including ambulance.
    (f) The Health Care Financing Administration Common Procedure Coding 
System (HCPCS), as maintained and distributed by HHS, for all other 
substances, equipment, supplies, or other items used in health care 
services. These

[[Page 682]]

items include, but are not limited to, the following:
    (1) Medical supplies.
    (2) Orthotic and prosthetic devices.
    (3) Durable medical equipment.



Sec. 162.1011  Valid code sets.

    Each code set is valid within the dates specified by the 
organization responsible for maintaining that code set.



    Subpart K--Health Care Claims or Equivalent Encounter Information



Sec. 162.1101  Health care claims or equivalent encounter information transaction.

    The health care claims or equivalent encounter information 
transaction is the transmission of either of the following:
    (a) A request to obtain payment, and the necessary accompanying 
information from a health care provider to a health plan, for health 
care.
    (b) If there is no direct claim, because the reimbursement contract 
is based on a mechanism other than charges or reimbursement rates for 
specific services, the transaction is the transmission of encounter 
information for the purpose of reporting health care.



Sec. 162.1102  Standards for health care claims or equivalent encounter information.

    The Secretary adopts the following standards for the health care 
claims or equivalent encounter information transaction:
    (a) Retail pharmacy drug claims. The National Council for 
Prescription Drug Programs (NCPDP) Telecommunication Standard 
Implementation Guide, Version 5 Release 1, September 1999, and 
equivalent NCPDP Batch Standard Batch Implementation Guide, Version 1 
Release 0, February 1, 1996. The implementation specifications are 
available at the addresses specified in Sec. 162.920(a)(2).
    (b) Dental Health Care Claims. The ASC X12N 837--Health Care Claim: 
Dental, Version 4010, May 2000, Washington Publishing Company, 
004010X097. The implementation specification is available at the 
addresses specified in Sec. 162.920(a)(1).
    (c) Professional Health Care Claims. The ASC X12N 837--Health Care 
Claim: Professional, Volumes 1 and 2, Version 4010, May 2000, Washington 
Publishing Company, 004010X098. The implementation specification is 
available at the addresses specified in Sec. 162.920(a)(1).
    (d) Institutional Health Care Claims. The ASC X12N 837--Health Care 
Claim: Institutional, Volumes 1 and 2, Version 4010, May 2000, 
Washington Publishing Company, 004010X096. The implementation 
specification is available at the addresses specified in 
Sec. 162.920(a)(1).



                Subpart L--Eligibility for a Health Plan



Sec. 162.1201  Eligibility for a health plan transaction.

    The eligibility for a health plan transaction is the transmission of 
either of the following:
    (a) An inquiry from a health care provider to a health plan, or from 
one health plan to another health plan, to obtain any of the following 
information about a benefit plan for an enrollee:
    (1) Eligibility to receive health care under the health plan.
    (2) Coverage of health care under the health plan.
    (3) Benefits associated with the benefit plan.
    (b) A response from a health plan to a health care provider's (or 
another health plan's) inquiry described in paragraph (a) of this 
section.



Sec. 162.1202  Standards for eligibility for a health plan.

    The Secretary adopts the following standards for the eligibility for 
a health plan transaction:
    (a) Retail pharmacy drugs. The NCPDP Telecommunication Standard 
Implementation Guide, Version 5 Release 1, September 1999, and 
equivalent NCPDP Batch Standard Batch Implementation Guide, Version 1 
Release 0, February 1, 1996. The implementation specifications are 
available at the addresses specified in Sec. 162.920(a)(2).
    (b) Dental, professional, and institutional. The ASC X12N 270/271-
Health Care Eligibility Benefit Inquiry and

[[Page 683]]

Response, Version 4010, May 2000, Washington Publishing Company, 
004010X092. The implementation specification is available at the 
addresses specified in Sec. 162.920(a)(1).



           Subpart M--Referral Certification and Authorization



Sec. 162.1301  Referral certification and authorization transaction.

    The referral certification and authorization transaction is any of 
the following transmissions:
    (a) A request for the review of health care to obtain an 
authorization for the health care.
    (b) A request to obtain authorization for referring an individual to 
another health care provider.
    (c) A response to a request described in paragraph (a) or paragraph 
(b) of this section.



Sec. 162.1302  Standard for referral certification and authorization.

    The Secretary adopts the ASC X12N 278--Health Care Services Review--
Request for Review and Response, Version 4010, May 2000, Washington 
Publishing Company, 004010X094 as the standard for the referral 
certification and authorization transaction. The implementation 
specification is available at the addresses specified in 
Sec. 162.920(a)(1).



                   Subpart N--Health Care Claim Status



Sec. 162.1401  Health care claim status transaction.

    A health care claim status transaction is the transmission of either 
of the following:
    (a) An inquiry to determine the status of a health care claim.
    (b) A response about the status of a health care claim.



Sec. 162.1402  Standard for health care claim status.

    The Secretary adopts the ASC X12N 276/277 Health Care Claim Status 
Request and Response, Version 4010, May 2000, Washington Publishing 
Company, 004010X093 as the standard for the health care claim status 
transaction. The implementation specification is available at the 
addresses specified in Sec. 162.920(a)(1).



        Subpart O--Enrollment and Disenrollment in a Health Plan



Sec. 162.1501  Enrollment and disenrollment in a health plan transaction.

    The enrollment and disenrollment in a health plan transaction is the 
transmission of subscriber enrollment information to a health plan to 
establish or terminate insurance coverage.



Sec. 162.1502  Standard for enrollment and disenrollment in a health plan.

    The Secretary adopts the ASC X12N 834--Benefit Enrollment and 
Maintenance, Version 4010, May 2000, Washington Publishing Company, 
004010X095 as the standard for the enrollment and disenrollment in a 
health plan transaction. The implementation specification is available 
at the addresses specified in Sec. 162.920(a)(1).



          Subpart P--Health Care Payment and Remittance Advice



Sec. 162.1601  Health care payment and remittance advice transaction.

    The health care payment and remittance advice transaction is the 
transmission of either of the following for health care:
    (a) The transmission of any of the following from a health plan to a 
health care provider's financial institution:
    (1) Payment.
    (2) Information about the transfer of funds.
    (3) Payment processing information.
    (b) The transmission of either of the following from a health plan 
to a health care provider:
    (1) Explanation of benefits.
    (2) Remittance advice.



Sec. 162.1602  Standards for health care payment and remittance advice.

    The Secretary adopts the following standards for the health care 
payment and remittance advice transaction:

[[Page 684]]

    (a) Retail pharmacy drug claims and remittance advice. The NCPDP 
Telecommunication Standard Implementation Guide, Version 5 Release 1, 
September 1999, and equivalent NCPDP Batch Standard Batch Implementation 
Guide, Version 1 Release 0, February 1, 1996. The implementation 
specifications are available at the addresses specified in 
Sec. 162.920(a)(2).
    (b) Dental, professional, and institutional health care claims and 
remittance advice. The ASC X12N 835--Health Care Claim Payment/Advice, 
Version 4010, May 2000, Washington Publishing Company, 004010X091. The 
implementation specification is available at the addresses specified in 
Sec. 162.920(a)(1).



                 Subpart Q--Health Plan Premium Payments



Sec. 162.1701  Health plan premium payments transaction.

    The health plan premium payment transaction is the transmission of 
any of the following from the entity that is arranging for the provision 
of health care or is providing health care coverage payments for an 
individual to a health plan:
    (a) Payment.
    (b) Information about the transfer of funds.
    (c) Detailed remittance information about individuals for whom 
premiums are being paid.
    (d) Payment processing information to transmit health care premium 
payments including any of the following:
    (1) Payroll deductions.
    (2) Other group premium payments.
    (3) Associated group premium payment information.



Sec. 162.1702  Standard for health plan premium payments.

    The Secretary adopts the ASC X12N 820--Payroll Deducted and Other 
Group Premium Payment for Insurance Products, Version 4010, May 2000, 
Washington Publishing Company, 004010X061 as the standard for the health 
plan premium payments transaction. The implementation specification is 
available at the addresses specified in Sec. 162.920(a)(1).



                   Subpart R--Coordination of Benefits



Sec. 162.1801  Coordination of benefits transaction.

    The coordination of benefits transaction is the transmission from 
any entity to a health plan for the purpose of determining the relative 
payment responsibilities of the health plan, of either of the following 
for health care:
    (a) Claims.
    (b) Payment information.



Sec. 162.1802  Standards for coordination of benefits.

    The Secretary adopts the following standards for the coordination of 
benefits information transaction:
    (a) Retail pharmacy drug claims. The NCPDP Telecommunication 
Standard Implementation Guide, Version 5 Release 1, September 1999, and 
equivalent NCPDP Batch Standard Batch Implementation Guide, Version 1 
Release 0, February 1, 1996. The implementation specifications are 
available at the addresses specified in Sec. 162.920(a)(2).
    (b) Dental claims. The ASC X12N 837--Health Care Claim: Dental, 
Version 4010, May 2000, Washington Publishing Company, 004010X097. The 
implementation specification is available at the addresses specified in 
Sec. 162.920(a)(1).
    (c) Professional health care claims. The ASC X12N 837--Health Care 
Claim: Professional, Volumes 1 and 2, Version 4010, May 2000, Washington 
Publishing Company, 004010X098. The implementation specification is 
available at the addresses specified in Sec. 162.920(a)(1).
    (d) Institutional health care claims. The ASC X12N 837--Health Care 
Claim: Institutional, Volumes 1 and 2, Version 4010, May 2000, 
Washington Publishing Company, 004010X096. The implementation 
specification is available at the addresses specified in 
Sec. 162.920(a)(1).

                           PART 163 [RESERVED]



PART 164--SECURITY AND PRIVACY--Table of Contents




                      Subpart A--General Provisions

Sec.
164.102  Statutory basis.
164.104  Applicability.
164.106  Relationship to other parts.

[[Page 685]]

Subparts B-D [Reserved]

   Subpart E--Privacy of Individually Identifiable Health Information

164.500  Applicability.
164.501  Definitions.
164.502  Uses and disclosures of protected health information: General 
          rules.
164.504  Uses and disclosures: Organizational requirements.
164.506  Consent for uses or disclosures to carry out treatment, 
          payment, and health care operations.
164.508  Uses and disclosures for which an authorization is required.
164.510  Uses and disclosures requiring an opportunity for the 
          individual to agree or to object.
164.512  Uses and disclosures for which consent, an authorization, or 
          opportunity to agree or object is not required.
164.514  Other requirements relating to uses and disclosures of 
          protected health information.
164.520  Notice of privacy practices for protected health information.
164.522  Rights to request privacy protection for protected health 
          information.
164.524  Access of individuals to protected health information.
164.526  Amendment of protected health information.
164.528  Accounting of disclosures of protected health information.
164.530  Administrative requirements.
164.532  Transition requirements.
164.534  Compliance dates for initial implementation of the privacy 
          standards.

    Authority: 42 U.S.C. 1320d-2 and 1320d-4, sec. 264 of Pub. L. 104-
191, 110 Stat. 2033-2034 (42 U.S.C. 1320(d-2(note)).

    Source: 65 FR 82802, Dec. 28, 2000, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 164.102  Statutory basis.

    The provisions of this part are adopted pursuant to the Secretary's 
authority to prescribe standards, requirements, and implementation 
standards under part C of title XI of the Act and section 264 of Public 
Law 104-191.

    Effective Date Note: At 67 FR 53266, Aug. 14, 2002, Sec. 164.102 was 
amended by removing the words ``implementation standards'' and adding in 
its place the words ``implementation specifications'', effective Oct. 
15, 2002.



Sec. 164.104  Applicability.

    Except as otherwise provided, the provisions of this part apply to 
covered entities: health plans, health care clearinghouses, and health 
care providers who transmit health information in electronic form in 
connection with any transaction referred to in section 1173(a)(1) of the 
Act.



Sec. 164.106  Relationship to other parts.

    In complying with the requirements of this part, covered entities 
are required to comply with the applicable provisions of parts 160 and 
162 of this subchapter.

Subpart B-D [Reserved]



   Subpart E--Privacy of Individually Identifiable Health Information

    Authority: 42 U.S.C. 1320d-2 and 1320d-4, sec. 264 of Pub. L. 104-
191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-2(note)).



Sec. 164.500  Applicability.

    (a) Except as otherwise provided herein, the standards, 
requirements, and implementation specifications of this subpart apply to 
covered entities with respect to protected health information.
    (b) Health care clearinghouses must comply with the standards, 
requirements, and implementation specifications as follows:
    (1) When a health care clearinghouse creates or receives protected 
health information as a business associate of another covered entity, 
the clearinghouse must comply with:
    (i) Section 164.500 relating to applicability;
    (ii) Section 164.501 relating to definitions;
    (iii) Section 164.502 relating to uses and disclosures of protected 
health information, except that a clearinghouse is prohibited from using 
or disclosing protected health information other than as permitted in 
the business associate contract under which it created or received the 
protected health information;
    (iv) Section 164.504 relating to the organizational requirements for 
covered entities, including the designation of health care components of 
a covered entity;

[[Page 686]]

    (v) Section 164.512 relating to uses and disclosures for which 
consent, individual authorization or an opportunity to agree or object 
is not required, except that a clearinghouse is prohibited from using or 
disclosing protected health information other than as permitted in the 
business associate contract under which it created or received the 
protected health information;
    (vi) Section 164.532 relating to transition requirements; and
    (vii) Section 164.534 relating to compliance dates for initial 
implementation of the privacy standards.
    (2) When a health care clearinghouse creates or receives protected 
health information other than as a business associate of a covered 
entity, the clearinghouse must comply with all of the standards, 
requirements, and implementation specifications of this subpart.
    (c) The standards, requirements, and implementation specifications 
of this subpart do not apply to the Department of Defense or to any 
other federal agency, or non-governmental organization acting on its 
behalf, when providing health care to overseas foreign national 
beneficiaries.

    Effective Date Note: At 67 FR 53266, Aug. 14, 2002, in Sec. 164.500, 
remove ``consent,'' from paragraph (b)(1)(v), effective Oct. 15, 2002.



Sec. 164.501  Definitions.

    As used in this subpart, the following terms have the following 
meanings:
    Correctional institution means any penal or correctional facility, 
jail, reformatory, detention center, work farm, halfway house, or 
residential community program center operated by, or under contract to, 
the United States, a State, a territory, a political subdivision of a 
State or territory, or an Indian tribe, for the confinement or 
rehabilitation of persons charged with or convicted of a criminal 
offense or other persons held in lawful custody. Other persons held in 
lawful custody includes juvenile offenders adjudicated delinquent, 
aliens detained awaiting deportation, persons committed to mental 
institutions through the criminal justice system, witnesses, or others 
awaiting charges or trial.
    Covered functions means those functions of a covered entity the 
performance of which makes the entity a health plan, health care 
provider, or health care clearinghouse.
    Data aggregation means, with respect to protected health information 
created or received by a business associate in its capacity as the 
business associate of a covered entity, the combining of such protected 
health information by the business associate with the protected health 
information received by the business associate in its capacity as a 
business associate of another covered entity, to permit data analyses 
that relate to the health care operations of the respective covered 
entities.
    Designated record set means:
    (1) A group of records maintained by or for a covered entity that 
is:
    (i) The medical records and billing records about individuals 
maintained by or for a covered health care provider;
    (ii) The enrollment, payment, claims adjudication, and case or 
medical management record systems maintained by or for a health plan; or
    (iii) Used, in whole or in part, by or for the covered entity to 
make decisions about individuals.
    (2) For purposes of this paragraph, the term record means any item, 
collection, or grouping of information that includes protected health 
information and is maintained, collected, used, or disseminated by or 
for a covered entity.
    Direct treatment relationship means a treatment relationship between 
an individual and a health care provider that is not an indirect 
treatment relationship.
    Disclosure means the release, transfer, provision of access to, or 
divulging in any other manner of information outside the entity holding 
the information.
    Health care operations means any of the following activities of the 
covered entity to the extent that the activities are related to covered 
functions, and any of the following activities of an organized health 
care arrangement in which the covered entity participates:
    (1) Conducting quality assessment and improvement activities, 
including

[[Page 687]]

outcomes evaluation and development of clinical guidelines, provided 
that the obtaining of generalizable knowledge is not the primary purpose 
of any studies resulting from such activities; population-based 
activities relating to improving health or reducing health care costs, 
protocol development, case management and care coordination, contacting 
of health care providers and patients with information about treatment 
alternatives; and related functions that do not include treatment;
    (2) Reviewing the competence or qualifications of health care 
professionals, evaluating practitioner and provider performance, health 
plan performance, conducting training programs in which students, 
trainees, or practitioners in areas of health care learn under 
supervision to practice or improve their skills as health care 
providers, training of non-health care professionals, accreditation, 
certification, licensing, or credentialing activities;
    (3) Underwriting, premium rating, and other activities relating to 
the creation, renewal or replacement of a contract of health insurance 
or health benefits, and ceding, securing, or placing a contract for 
reinsurance of risk relating to claims for health care (including stop-
loss insurance and excess of loss insurance), provided that the 
requirements of Sec. 164.514(g) are met, if applicable;
    (4) Conducting or arranging for medical review, legal services, and 
auditing functions, including fraud and abuse detection and compliance 
programs;
    (5) Business planning and development, such as conducting cost-
management and planning-related analyses related to managing and 
operating the entity, including formulary development and 
administration, development or improvement of methods of payment or 
coverage policies; and
    (6) Business management and general administrative activities of the 
entity, including, but not limited to:
    (i) Management activities relating to implementation of and 
compliance with the requirements of this subchapter;
    (ii) Customer service, including the provision of data analyses for 
policy holders, plan sponsors, or other customers, provided that 
protected health information is not disclosed to such policy holder, 
plan sponsor, or customer.
    (iii) Resolution of internal grievances;
    (iv) Due diligence in connection with the sale or transfer of assets 
to a potential successor in interest, if the potential successor in 
interest is a covered entity or, following completion of the sale or 
transfer, will become a covered entity; and
    (v) Consistent with the applicable requirements of Sec. 164.514, 
creating de-identified health information, fundraising for the benefit 
of the covered entity, and marketing for which an individual 
authorization is not required as described in Sec. 164.514(e)(2).
    Health oversight agency means an agency or authority of the United 
States, a State, a territory, a political subdivision of a State or 
territory, or an Indian tribe, or a person or entity acting under a 
grant of authority from or contract with such public agency, including 
the employees or agents of such public agency or its contractors or 
persons or entities to whom it has granted authority, that is authorized 
by law to oversee the health care system (whether public or private) or 
government programs in which health information is necessary to 
determine eligibility or compliance, or to enforce civil rights laws for 
which health information is relevant.
    Indirect treatment relationship means a relationship between an 
individual and a health care provider in which:
    (1) The health care provider delivers health care to the individual 
based on the orders of another health care provider; and
    (2) The health care provider typically provides services or 
products, or reports the diagnosis or results associated with the health 
care, directly to another health care provider, who provides the 
services or products or reports to the individual.
    Individual means the person who is the subject of protected health 
information.
    Individually identifiable health information is information that is 
a subset of health information, including demographic information 
collected from an individual, and:

[[Page 688]]

    (1) Is created or received by a health care provider, health plan, 
employer, or health care clearinghouse; and
    (2) Relates to the past, present, or future physical or mental 
health or condition of an individual; the provision of health care to an 
individual; or the past, present, or future payment for the provision of 
health care to an individual; and
    (i) That identifies the individual; or
    (ii) With respect to which there is a reasonable basis to believe 
the information can be used to identify the individual.
    Inmate means a person incarcerated in or otherwise confined to a 
correctional institution.
    Law enforcement official means an officer or employee of any agency 
or authority of the United States, a State, a territory, a political 
subdivision of a State or territory, or an Indian tribe, who is 
empowered by law to:
    (1) Investigate or conduct an official inquiry into a potential 
violation of law; or
    (2) Prosecute or otherwise conduct a criminal, civil, or 
administrative proceeding arising from an alleged violation of law.
    Marketing means to make a communication about a product or service a 
purpose of which is to encourage recipients of the communication to 
purchase or use the product or service.
    (1) Marketing does not include communications that meet the 
requirements of paragraph (2) of this definition and that are made by a 
covered entity:
    (i) For the purpose of describing the entities participating in a 
health care provider network or health plan network, or for the purpose 
of describing if and the extent to which a product or service (or 
payment for such product or service) is provided by a covered entity or 
included in a plan of benefits; or
    (ii) That are tailored to the circumstances of a particular 
individual and the communications are:
    (A) Made by a health care provider to an individual as part of the 
treatment of the individual, and for the purpose of furthering the 
treatment of that individual; or
    (B) Made by a health care provider or health plan to an individual 
in the course of managing the treatment of that individual, or for the 
purpose of directing or recommending to that individual alternative 
treatments, therapies, health care providers, or settings of care.
    (2) A communication described in paragraph (1) of this definition is 
not included in marketing if:
    (i) The communication is made orally; or
    (ii) The communication is in writing and the covered entity does not 
receive direct or indirect remuneration from a third party for making 
the communication.
    Organized health care arrangement means:
    (1) A clinically integrated care setting in which individuals 
typically receive health care from more than one health care provider;
    (2) An organized system of health care in which more than one 
covered entity participates, and in which the participating covered 
entities:
    (i) Hold themselves out to the public as participating in a joint 
arrangement; and
    (ii) Participate in joint activities that include at least one of 
the following:
    (A) Utilization review, in which health care decisions by 
participating covered entities are reviewed by other participating 
covered entities or by a third party on their behalf;
    (B) Quality assessment and improvement activities, in which 
treatment provided by participating covered entities is assessed by 
other participating covered entities or by a third party on their 
behalf; or
    (C) Payment activities, if the financial risk for delivering health 
care is shared, in part or in whole, by participating covered entities 
through the joint arrangement and if protected health information 
created or received by a covered entity is reviewed by other 
participating covered entities or by a third party on their behalf for 
the purpose of administering the sharing of financial risk.
    (3) A group health plan and a health insurance issuer or HMO with 
respect to such group health plan, but only with respect to protected 
health information created or received by such

[[Page 689]]

health insurance issuer or HMO that relates to individuals who are or 
who have been participants or beneficiaries in such group health plan;
    (4) A group health plan and one or more other group health plans 
each of which are maintained by the same plan sponsor; or
    (5) The group health plans described in paragraph (4) of this 
definition and health insurance issuers or HMOs with respect to such 
group health plans, but only with respect to protected health 
information created or received by such health insurance issuers or HMOs 
that relates to individuals who are or have been participants or 
beneficiaries in any of such group health plans.
    Payment means:
    (1) The activities undertaken by:
    (i) A health plan to obtain premiums or to determine or fulfill its 
responsibility for coverage and provision of benefits under the health 
plan; or
    (ii) A covered health care provider or health plan to obtain or 
provide reimbursement for the provision of health care; and
    (2) The activities in paragraph (1) of this definition relate to the 
individual to whom health care is provided and include, but are not 
limited to:
    (i) Determinations of eligibility or coverage (including 
coordination of benefits or the determination of cost sharing amounts), 
and adjudication or subrogation of health benefit claims;
    (ii) Risk adjusting amounts due based on enrollee health status and 
demographic characteristics;
    (iii) Billing, claims management, collection activities, obtaining 
payment under a contract for reinsurance (including stop-loss insurance 
and excess of loss insurance), and related health care data processing;
    (iv) Review of health care services with respect to medical 
necessity, coverage under a health plan, appropriateness of care, or 
justification of charges;
    (v) Utilization review activities, including precertification and 
preauthorization of services, concurrent and retrospective review of 
services; and
    (vi) Disclosure to consumer reporting agencies of any of the 
following protected health information relating to collection of 
premiums or reimbursement:
    (A) Name and address;
    (B) Date of birth;
    (C) Social security number;
    (D) Payment history;
    (E) Account number; and
    (F) Name and address of the health care provider and/or health plan.
    Plan sponsor is defined as defined at section 3(16)(B) of ERISA, 29 
U.S.C. 1002(16)(B).
    Protected health information means individually identifiable health 
information:
    (1) Except as provided in paragraph (2) of this definition, that is:
    (i) Transmitted by electronic media;
    (ii) Maintained in any medium described in the definition of 
electronic media at Sec. 162.103 of this subchapter; or
    (iii) Transmitted or maintained in any other form or medium.
    (2) Protected health information excludes individually identifiable 
health information in:
    (i) Education records covered by the Family Educational Right and 
Privacy Act, as amended, 20 U.S.C. 1232g; and
    (ii) Records described at 20 U.S.C. 1232g(a)(4)(B)(iv).
    Psychotherapy notes means notes recorded (in any medium) by a health 
care provider who is a mental health professional documenting or 
analyzing the contents of conversation during a private counseling 
session or a group, joint, or family counseling session and that are 
separated from the rest of the individual's medical record. 
Psychotherapy notes excludes medication prescription and monitoring, 
counseling session start and stop times, the modalities and frequencies 
of treatment furnished, results of clinical tests, and any summary of 
the following items: Diagnosis, functional status, the treatment plan, 
symptoms, prognosis, and progress to date.
    Public health authority means an agency or authority of the United 
States, a State, a territory, a political subdivision of a State or 
territory, or an Indian tribe, or a person or entity acting under a 
grant of authority from or contract with such public agency, including 
the employees or agents of such public agency or its contractors or 
persons or entities to whom it has

[[Page 690]]

granted authority, that is responsible for public health matters as part 
of its official mandate.
    Required by law means a mandate contained in law that compels a 
covered entity to make a use or disclosure of protected health 
information and that is enforceable in a court of law. Required by law 
includes, but is not limited to, court orders and court-ordered 
warrants; subpoenas or summons issued by a court, grand jury, a 
governmental or tribal inspector general, or an administrative body 
authorized to require the production of information; a civil or an 
authorized investigative demand; Medicare conditions of participation 
with respect to health care providers participating in the program; and 
statutes or regulations that require the production of information, 
including statutes or regulations that require such information if 
payment is sought under a government program providing public benefits.
    Research means a systematic investigation, including research 
development, testing, and evaluation, designed to develop or contribute 
to generalizable knowledge.
    Treatment means the provision, coordination, or management of health 
care and related services by one or more health care providers, 
including the coordination or management of health care by a health care 
provider with a third party; consultation between health care providers 
relating to a patient; or the referral of a patient for health care from 
one health care provider to another.
    Use means, with respect to individually identifiable health 
information, the sharing, employment, application, utilization, 
examination, or analysis of such information within an entity that 
maintains such information.

    Effective Date Note: At 67 FR 53266, Aug. 14, 2002, amend 
Sec. 164.501 in the definition of ``health care operations'' by removing 
from the introductory text of the definition ``, and any of the 
following activities of an organized health care arrangement in which 
the covered entity participates'' and revising paragraphs (6)(iv) and 
(v); by removing the definition of ``individually identifiable health 
information''; by revising the definition of ``marketing''; in paragraph 
(1)(ii) of the definition of ``payment,'' by removing the word 
``covered''; by revising paragraph (2) of the definition of ``protected 
health information''; by removing the words ``a covered'' and replace 
them with ``an'' in the definition of ``required by law'', effective 
Oct. 15, 2002. For the convenience of the user, the revised text is set 
forth as follows:

Sec. 164.501  Definitions.

                                * * * * *

    Health care operations means * * *
    (6) * * *
    (iv) The sale, transfer, merger, or consolidation of all or part of 
the covered entity with another covered entity, or an entity that 
following such activity will become a covered entity and due diligence 
related to such activity; and
    (v) Consistent with the applicable requirements of Sec. 164.514, 
creating de-identified health information or a limited data set, and 
fundraising for the benefit of the covered entity.

                                * * * * *

    Marketing means:
    (1) To make a communication about a product or service that 
encourages recipients of the communication to purchase or use the 
product or service, unless the communication is made:
    (i) To describe a health-related product or service (or payment for 
such product or service) that is provided by, or included in a plan of 
benefits of, the covered entity making the communication, including 
communications about: the entities participating in a health care 
provider network or health plan network; replacement of, or enhancements 
to, a health plan; and health-related products or services available 
only to a health plan enrollee that add value to, but are not part of, a 
plan of benefits.
    (ii) For treatment of the individual; or
    (iii) For case management or care coordination for the individual, 
or to direct or recommend alternative treatments, therapies, health care 
providers, or settings of care to the individual.
    (2) An arrangement between a covered entity and any other entity 
whereby the covered entity discloses protected health information to the 
other entity, in exchange for direct or indirect remuneration, for the 
other entity or its affiliate to make a communication about its own 
product or service that encourages recipients of the communication to 
purchase or use that product or service.

                                * * * * *

    Protected health information means * * *
    (2) Protected health information excludes individually identifiable 
health information in:

[[Page 691]]

    (i) Education records covered by the Family Educational Rights and 
Privacy Act, as amended, 20 U.S.C. 1232g;
    (ii) Records described at 20 U.S.C. 1232g(a)(4)(B)(iv); and
    (iii) Employment records held by a covered entity in its role as 
employer.

                                * * * * *



Sec. 164.502  Uses and disclosures of protected health information: general rules.

    (a) Standard. A covered entity may not use or disclose protected 
health information, except as permitted or required by this subpart or 
by subpart C of part 160 of this subchapter.
    (1) Permitted uses and disclosures. A covered entity is permitted to 
use or disclose protected health information as follows:
    (i) To the individual;
    (ii) Pursuant to and in compliance with a consent that complies with 
Sec. 164.506, to carry out treatment, payment, or health care 
operations;
    (iii) Without consent, if consent is not required under 
Sec. 164.506(a) and has not been sought under Sec. 164.506(a)(4), to 
carry out treatment, payment, or health care operations, except with 
respect to psychotherapy notes;
    (iv) Pursuant to and in compliance with a valid authorization under 
Sec. 164.508;
    (v) Pursuant to an agreement under, or as otherwise permitted by, 
Sec. 164.510; and
    (vi) As permitted by and in compliance with this section, 
Sec. 164.512, or Sec. 164.514(e), (f), and (g).
    (2) Required disclosures. A covered entity is required to disclose 
protected health information:
    (i) To an individual, when requested under, and required by 
Sec. 164.524 or Sec. 164.528; and
    (ii) When required by the Secretary under subpart C of part 160 of 
this subchapter to investigate or determine the covered entity's 
compliance with this subpart.
    (b) Standard: Minimum necessary. (1) Minimum necessary applies. When 
using or disclosing protected health information or when requesting 
protected health information from another covered entity, a covered 
entity must make reasonable efforts to limit protected health 
information to the minimum necessary to accomplish the intended purpose 
of the use, disclosure, or request.
    (2) Minimum necessary does not apply. This requirement does not 
apply to:
    (i) Disclosures to or requests by a health care provider for 
treatment;
    (ii) Uses or disclosures made to the individual, as permitted under 
paragraph (a)(1)(i) of this section, as required by paragraph (a)(2)(i) 
of this section, or pursuant to an authorization under Sec. 164.508, 
except for authorizations requested by the covered entity under 
Sec. 164.508(d), (e), or (f);
    (iii) Disclosures made to the Secretary in accordance with subpart C 
of part 160 of this subchapter;
    (iv) Uses or disclosures that are required by law, as described by 
Sec. 164.512(a); and
    (v) Uses or disclosures that are required for compliance with 
applicable requirements of this subchapter.
    (c) Standard: Uses and disclosures of protected health information 
subject to an agreed upon restriction. A covered entity that has agreed 
to a restriction pursuant to Sec. 164.522(a)(1) may not use or disclose 
the protected health information covered by the restriction in violation 
of such restriction, except as otherwise provided in Sec. 164.522(a).
    (d) Standard: Uses and disclosures of de-identified protected health 
information.(1) Uses and disclosures to create de-identified 
information. A covered entity may use protected health information to 
create information that is not individually identifiable health 
information or disclose protected health information only to a business 
associate for such purpose, whether or not the de-identified information 
is to be used by the covered entity.
    (2) Uses and disclosures of de-identified information. Health 
information that meets the standard and implementation specifications 
for de-identification under Sec. 164.514(a) and (b) is considered not to 
be individually identifiable health information, i.e., de-identified. 
The requirements of this subpart do not apply to information that has 
been de-identified in accordance with the applicable requirements of 
Sec. 164.514, provided that:

[[Page 692]]

    (i) Disclosure of a code or other means of record identification 
designed to enable coded or otherwise de-identified information to be 
re-identified constitutes disclosure of protected health information; 
and
    (ii) If de-identified information is re-identified, a covered entity 
may use or disclose such re-identified information only as permitted or 
required by this subpart.
    (e)(1) Standard: Disclosures to business associates. (i) A covered 
entity may disclose protected health information to a business associate 
and may allow a business associate to create or receive protected health 
information on its behalf, if the covered entity obtains satisfactory 
assurance that the business associate will appropriately safeguard the 
information.
    (ii) This standard does not apply:
    (A) With respect to disclosures by a covered entity to a health care 
provider concerning the treatment of the individual;
    (B) With respect to disclosures by a group health plan or a health 
insurance issuer or HMO with respect to a group health plan to the plan 
sponsor, to the extent that the requirements of Sec. 164.504(f) apply 
and are met; or
    (C) With respect to uses or disclosures by a health plan that is a 
government program providing public benefits, if eligibility for, or 
enrollment in, the health plan is determined by an agency other than the 
agency administering the health plan, or if the protected health 
information used to determine enrollment or eligibility in the health 
plan is collected by an agency other than the agency administering the 
health plan, and such activity is authorized by law, with respect to the 
collection and sharing of individually identifiable health information 
for the performance of such functions by the health plan and the agency 
other than the agency administering the health plan.
    (iii) A covered entity that violates the satisfactory assurances it 
provided as a business associate of another covered entity will be in 
noncompliance with the standards, implementation specifications, and 
requirements of this paragraph and Sec. 164.504(e).
    (2) Implementation specification: documentation. A covered entity 
must document the satisfactory assurances required by paragraph (e)(1) 
of this section through a written contract or other written agreement or 
arrangement with the business associate that meets the applicable 
requirements of Sec. 164.504(e).
    (f) Standard: Deceased individuals. A covered entity must comply 
with the requirements of this subpart with respect to the protected 
health information of a deceased individual.
    (g)(1) Standard: Personal representatives. As specified in this 
paragraph, a covered entity must, except as provided in paragraphs 
(g)(3) and (g)(5) of this section, treat a personal representative as 
the individual for purposes of this subchapter.
    (2) Implementation specification: adults and emancipated minors. If 
under applicable law a person has authority to act on behalf of an 
individual who is an adult or an emancipated minor in making decisions 
related to health care, a covered entity must treat such person as a 
personal representative under this subchapter, with respect to protected 
health information relevant to such personal representation.
    (3) Implementation specification: unemancipated minors. If under 
applicable law a parent, guardian, or other person acting in loco 
parentis has authority to act on behalf of an individual who is an 
unemancipated minor in making decisions related to health care, a 
covered entity must treat such person as a personal representative under 
this subchapter, with respect to protected health information relevant 
to such personal representation, except that such person may not be a 
personal representative of an unemancipated minor, and the minor has the 
authority to act as an individual, with respect to protected health 
information pertaining to a health care service, if:
    (i) The minor consents to such health care service; no other consent 
to such health care service is required by law, regardless of whether 
the consent of another person has also been obtained; and the minor has 
not requested that such person be treated as the personal 
representative;

[[Page 693]]

    (ii) The minor may lawfully obtain such health care service without 
the consent of a parent, guardian, or other person acting in loco 
parentis, and the minor, a court, or another person authorized by law 
consents to such health care service; or
    (iii) A parent, guardian, or other person acting in loco parentis 
assents to an agreement of confidentiality between a covered health care 
provider and the minor with respect to such health care service.
    (4) Implementation specification: Deceased individuals. If under 
applicable law an executor, administrator, or other person has authority 
to act on behalf of a deceased individual or of the individual's estate, 
a covered entity must treat such person as a personal representative 
under this subchapter, with respect to protected health information 
relevant to such personal representation.
    (5) Implementation specification: Abuse, neglect, endangerment 
situations. Notwithstanding a State law or any requirement of this 
paragraph to the contrary, a covered entity may elect not to treat a 
person as the personal representative of an individual if:
    (i) The covered entity has a reasonable belief that:
    (A) The individual has been or may be subjected to domestic 
violence, abuse, or neglect by such person; or
    (B) Treating such person as the personal representative could 
endanger the individual; and
    (ii) The covered entity, in the exercise of professional judgment, 
decides that it is not in the best interest of the individual to treat 
the person as the individual's personal representative.
    (h) Standard: Confidential communications. A covered health care 
provider or health plan must comply with the applicable requirements of 
Sec. 164.522(b) in communicating protected health information.
    (i) Standard: Uses and disclosures consistent with notice. A covered 
entity that is required by Sec. 164.520 to have a notice may not use or 
disclose protected health information in a manner inconsistent with such 
notice. A covered entity that is required by Sec. 164.520(b)(1)(iii) to 
include a specific statement in its notice if it intends to engage in an 
activity listed in Sec. 164.520(b)(1)(iii)(A)-(C), may not use or 
disclose protected health information for such activities, unless the 
required statement is included in the notice.
    (j) Standard: Disclosures by whistleblowers and workforce member 
crime victims. (1) Disclosures by whistleblowers. A covered entity is 
not considered to have violated the requirements of this subpart if a 
member of its workforce or a business associate discloses protected 
health information, provided that:
    (i) The workforce member or business associate believes in good 
faith that the covered entity has engaged in conduct that is unlawful or 
otherwise violates professional or clinical standards, or that the care, 
services, or conditions provided by the covered entity potentially 
endangers one or more patients, workers, or the public; and
    (ii) The disclosure is to:
    (A) A health oversight agency or public health authority authorized 
by law to investigate or otherwise oversee the relevant conduct or 
conditions of the covered entity or to an appropriate health care 
accreditation organization for the purpose of reporting the allegation 
of failure to meet professional standards or misconduct by the covered 
entity; or
    (B) An attorney retained by or on behalf of the workforce member or 
business associate for the purpose of determining the legal options of 
the workforce member or business associate with regard to the conduct 
described in paragraph (j)(1)(i) of this section.
    (2) Disclosures by workforce members who are victims of a crime. A 
covered entity is not considered to have violated the requirements of 
this subpart if a member of its workforce who is the victim of a 
criminal act discloses protected health information to a law enforcement 
official, provided that:
    (i) The protected health information disclosed is about the 
suspected perpetrator of the criminal act; and
    (ii) The protected health information disclosed is limited to the 
information listed in Sec. 164.512(f)(2)(i).

    Effective Date Note: At 67 FR 53267, Aug. 14, 2002, Sec. 164.502 was 
amended by revising paragraphs (a)(1)(ii), (iii), and (vi) and 
(b)(2)(ii); redesignating paragraphs (b)(2)(iii) through (v) as 
paragraphs (b)(2)(iv) through

[[Page 694]]

(vi); adding a new paragraph (b)(2)(iii); redesignating paragraphs 
(g)(3)(i) through (iii) as (g)(3)(i)(A) through (C) and redesignate 
paragraph (g)(3) as (g)(3)(i); and by adding a new paragraph (g)(3)(ii). 
For the convenience of the user, the added and revised text is set forth 
as follows:

Sec. 164.502  Uses and disclosures of protected health information: 
          general rules.

    (a) Standard. * * *
    (1) Permitted uses and disclosures. * * *
    (ii) For treatment, payment, or health care operations, as permitted 
by and in compliance with Sec. 164.506;
    (iii) Incident to a use or disclosure otherwise permitted or 
required by this subpart, provided that the covered entity has complied 
with the applicable requirements of Sec. 164.502(b), Sec. 164.514(d), 
and Sec. 164.530(c) with respect to such otherwise permitted or required 
use or disclosure;

                                * * * * *

    (vi) As permitted by and in compliance with this section, 
Sec. 164.512, or Sec. 164.514(e), (f), or (g).

                                * * * * *

    (b) Standard: Minimum necessary. * * *
    (2) Minimum necessary does not apply. * * *
    (ii) Uses or disclosures made to the individual, as permitted under 
paragraph (a)(1)(i) of this section or as required by paragraph 
(a)(2)(i) of this section;
    (iii) Uses or disclosures made pursuant to an authorization under 
Sec. 164.508;

                                * * * * *

    (g)(1) Standard: Personal representatives. * * *
    (3) Implementation specification: unemancipated minors. * * *
    (i) * * *
    (ii) Notwithstanding the provisions of paragraph (g)(3)(i) of this 
section:
    (A) If, and to the extent, permitted or required by an applicable 
provision of State or other law, including applicable case law, a 
covered entity may disclose, or provide access in accordance with 
Sec. 164.524 to, protected health information about an unemancipated 
minor to a parent, guardian, or other person acting in loco parentis;
    (B) If, and to the extent, prohibited by an applicable provision of 
State or other law, including applicable case law, a covered entity may 
not disclose, or provide access in accordance with Sec. 164.524 to, 
protected health information about an unemancipated minor to a parent, 
guardian, or other person acting in loco parentis; and
    (C) Where the parent, guardian, or other person acting in loco 
parentis, is not the personal representative under paragraphs 
(g)(3)(i)(A), (B), or (C) of this section and where there is no 
applicable access provision under State or other law, including case 
law, a covered entity may provide or deny access under Sec. 164.524 to a 
parent, guardian, or other person acting in loco parentis, if such 
action is consistent with State or other applicable law, provided that 
such decision must be made by a licensed health care professional, in 
the exercise of professional judgment.

                                * * * * *



Sec. 164.504  Uses and disclosures: Organizational requirements.

    (a) Definitions. As used in this section:
    Common control exists if an entity has the power, directly or 
indirectly, significantly to influence or direct the actions or policies 
of another entity.
    Common ownership exists if an entity or entities possess an 
ownership or equity interest of 5 percent or more in another entity.
    Health care component has the following meaning:
    (1) Components of a covered entity that perform covered functions 
are part of the health care component.
    (2) Another component of the covered entity is part of the entity's 
health care component to the extent that:
    (i) It performs, with respect to a component that performs covered 
functions, activities that would make such other component a business 
associate of the component that performs covered functions if the two 
components were separate legal entities; and
    (ii) The activities involve the use or disclosure of protected 
health information that such other component creates or receives from or 
on behalf of the component that performs covered functions.
    Hybrid entity means a single legal entity that is a covered entity 
and whose covered functions are not its primary functions.
    Plan administration functions means administration functions 
performed by the plan sponsor of a group health plan on behalf of the 
group health plan and excludes functions performed by the plan sponsor 
in connection with any other benefit or benefit plan of the plan 
sponsor.

[[Page 695]]

    Summary health information means information, that may be 
individually identifiable health information, and:
    (1) That summarizes the claims history, claims expenses, or type of 
claims experienced by individuals for whom a plan sponsor has provided 
health benefits under a group health plan; and
    (2) From which the information described at Sec. 164.514(b)(2)(i) 
has been deleted, except that the geographic information described in 
Sec. 164.514(b)(2)(i)(B) need only be aggregated to the level of a five 
digit zip code.
    (b) Standard: Health care component. If a covered entity is a hybrid 
entity, the requirements of this subpart, other than the requirements of 
this section, apply only to the health care component(s) of the entity, 
as specified in this section.
    (c)(1) Implementation specification: Application of other 
provisions. In applying a provision of this subpart, other than this 
section, to a hybrid entity:
    (i) A reference in such provision to a ``covered entity'' refers to 
a health care component of the covered entity;
    (ii) A reference in such provision to a ``health plan,'' ``covered 
health care provider,'' or ``health care clearinghouse'' refers to a 
health care component of the covered entity if such health care 
component performs the functions of a health plan, covered health care 
provider, or health care clearinghouse, as applicable; and
    (iii) A reference in such provision to ``protected health 
information'' refers to protected health information that is created or 
received by or on behalf of the health care component of the covered 
entity.
    (2) Implementation specifications: Safeguard requirements. The 
covered entity that is a hybrid entity must ensure that a health care 
component of the entity complies with the applicable requirements of 
this subpart. In particular, and without limiting this requirement, such 
covered entity must ensure that:
    (i) Its health care component does not disclose protected health 
information to another component of the covered entity in circumstances 
in which this subpart would prohibit such disclosure if the health care 
component and the other component were separate and distinct legal 
entities;
    (ii) A component that is described by paragraph (2)(i) of the 
definition of health care component in this section does not use or 
disclose protected health information that is within paragraph (2)(ii) 
of such definition for purposes of its activities other than those 
described by paragraph (2)(i) of such definition in a way prohibited by 
this subpart; and
    (iii) If a person performs duties for both the health care component 
in the capacity of a member of the workforce of such component and for 
another component of the entity in the same capacity with respect to 
that component, such workforce member must not use or disclose protected 
health information created or received in the course of or incident to 
the member's work for the health care component in a way prohibited by 
this subpart.
    (3) Implementation specifications: Responsibilities of the covered 
entity. A covered entity that is a hybrid entity has the following 
responsibilities:
    (i) For purposes of subpart C of part 160 of this subchapter, 
pertaining to compliance and enforcement, the covered entity has the 
responsibility to comply with this subpart.
    (ii) The covered entity has the responsibility for complying with 
Sec. 164.530(i), pertaining to the implementation of policies and 
procedures to ensure compliance with this subpart, including the 
safeguard requirements in paragraph (c)(2) of this section.
    (iii) The covered entity is responsible for designating the 
components that are part of one or more health care components of the 
covered entity and documenting the designation as required by 
Sec. 164.530(j).
    (d)(1) Standard: Affiliated covered entities. Legally separate 
covered entities that are affiliated may designate themselves as a 
single covered entity for purposes of this subpart.
    (2) Implementation specifications: Requirements for designation of 
an affiliated covered entity. (i) Legally separate covered entities may 
designate themselves (including any health care component of such 
covered entity) as a single affiliated covered entity, for purposes of

[[Page 696]]

this subpart, if all of the covered entities designated are under common 
ownership or control.
    (ii) The designation of an affiliated covered entity must be 
documented and the documentation maintained as required by 
Sec. 164.530(j).
    (3) Implementation specifications: Safeguard requirements. An 
affiliated covered entity must ensure that:
    (i) The affiliated covered entity's use and disclosure of protected 
health information comply with the applicable requirements of this 
subpart; and
    (ii) If the affiliated covered entity combines the functions of a 
health plan, health care provider, or health care clearinghouse, the 
affiliated covered entity complies with paragraph (g) of this section.
    (e)(1) Standard: Business associate contracts. (i) The contract or 
other arrangement between the covered entity and the business associate 
required by Sec. 164.502(e)(2) must meet the requirements of paragraph 
(e)(2) or (e)(3) of this section, as applicable.
    (ii) A covered entity is not in compliance with the standards in 
Sec. 164.502(e) and paragraph (e) of this section, if the covered entity 
knew of a pattern of activity or practice of the business associate that 
constituted a material breach or violation of the business associate's 
obligation under the contract or other arrangement, unless the covered 
entity took reasonable steps to cure the breach or end the violation, as 
applicable, and, if such steps were unsuccessful:
    (A) Terminated the contract or arrangement, if feasible; or
    (B) If termination is not feasible, reported the problem to the 
Secretary.
    (2) Implementation specifications: Business associate contracts. A 
contract between the covered entity and a business associate must:
    (i) Establish the permitted and required uses and disclosures of 
such information by the business associate. The contract may not 
authorize the business associate to use or further disclose the 
information in a manner that would violate the requirements of this 
subpart, if done by the covered entity, except that:
    (A) The contract may permit the business associate to use and 
disclose protected health information for the proper management and 
administration of the business associate, as provided in paragraph 
(e)(4) of this section; and
    (B) The contract may permit the business associate to provide data 
aggregation services relating to the health care operations of the 
covered entity.
    (ii) Provide that the business associate will:
    (A) Not use or further disclose the information other than as 
permitted or required by the contract or as required by law;
    (B) Use appropriate safeguards to prevent use or disclosure of the 
information other than as provided for by its contract;
    (C) Report to the covered entity any use or disclosure of the 
information not provided for by its contract of which it becomes aware;
    (D) Ensure that any agents, including a subcontractor, to whom it 
provides protected health information received from, or created or 
received by the business associate on behalf of, the covered entity 
agrees to the same restrictions and conditions that apply to the 
business associate with respect to such information;
    (E) Make available protected health information in accordance with 
Sec. 164.524;
    (F) Make available protected health information for amendment and 
incorporate any amendments to protected health information in accordance 
with Sec. 164.526;
    (G) Make available the information required to provide an accounting 
of disclosures in accordance with Sec. 164.528;
    (H) Make its internal practices, books, and records relating to the 
use and disclosure of protected health information received from, or 
created or received by the business associate on behalf of, the covered 
entity available to the Secretary for purposes of determining the 
covered entity's compliance with this subpart; and
    (I) At termination of the contract, if feasible, return or destroy 
all protected health information received from, or created or received 
by the business associate on behalf of, the covered entity

[[Page 697]]

that the business associate still maintains in any form and retain no 
copies of such information or, if such return or destruction is not 
feasible, extend the protections of the contract to the information and 
limit further uses and disclosures to those purposes that make the 
return or destruction of the information infeasible.
    (iii) Authorize termination of the contract by the covered entity, 
if the covered entity determines that the business associate has 
violated a material term of the contract.
    (3) Implementation specifications: Other arrangements. (i) If a 
covered entity and its business associate are both governmental 
entities:
    (A) The covered entity may comply with paragraph (e) of this section 
by entering into a memorandum of understanding with the business 
associate that contains terms that accomplish the objectives of 
paragraph (e)(2) of this section.
    (B) The covered entity may comply with paragraph (e) of this 
section, if other law (including regulations adopted by the covered 
entity or its business associate) contains requirements applicable to 
the business associate that accomplish the objectives of paragraph 
(e)(2) of this section.
    (ii) If a business associate is required by law to perform a 
function or activity on behalf of a covered entity or to provide a 
service described in the definition of business associate in 
Sec. 160.103 of this subchapter to a covered entity, such covered entity 
may disclose protected health information to the business associate to 
the extent necessary to comply with the legal mandate without meeting 
the requirements of this paragraph (e), provided that the covered entity 
attempts in good faith to obtain satisfactory assurances as required by 
paragraph (e)(3)(i) of this section, and, if such attempt fails, 
documents the attempt and the reasons that such assurances cannot be 
obtained.
    (iii) The covered entity may omit from its other arrangements the 
termination authorization required by paragraph (e)(2)(iii) of this 
section, if such authorization is inconsistent with the statutory 
obligations of the covered entity or its business associate.
    (4) Implementation specifications: Other requirements for contracts 
and other arrangements. (i) The contract or other arrangement between 
the covered entity and the business associate may permit the business 
associate to use the information received by the business associate in 
its capacity as a business associate to the covered entity, if 
necessary:
    (A) For the proper management and administration of the business 
associate; or
    (B) To carry out the legal responsibilities of the business 
associate.
    (ii) The contract or other arrangement between the covered entity 
and the business associate may permit the business associate to disclose 
the information received by the business associate in its capacity as a 
business associate for the purposes described in paragraph (e)(4)(i) of 
this section, if:
    (A) The disclosure is required by law; or
    (B)(1) The business associate obtains reasonable assurances from the 
person to whom the information is disclosed that it will be held 
confidentially and used or further disclosed only as required by law or 
for the purpose for which it was disclosed to the person; and
    (2) The person notifies the business associate of any instances of 
which it is aware in which the confidentiality of the information has 
been breached.
    (f)(1) Standard: Requirements for group health plans. (i) Except as 
provided under paragraph (f)(1)(ii) of this section or as otherwise 
authorized under Sec. 164.508, a group health plan, in order to disclose 
protected health information to the plan sponsor or to provide for or 
permit the disclosure of protected health information to the plan 
sponsor by a health insurance issuer or HMO with respect to the group 
health plan, must ensure that the plan documents restrict uses and 
discloses of such information by the plan sponsor consistent with the 
requirements of this subpart.
    (ii) The group health plan, or a health insurance issuer or HMO with 
respect to the group health plan, may disclose summary health 
information to the plan sponsor, if the plan sponsor

[[Page 698]]

requests the summary health information for the purpose of :
    (A) Obtaining premium bids from health plans for providing health 
insurance coverage under the group health plan; or
    (B) Modifying, amending, or terminating the group health plan.
    (2) Implementation specifications: Requirements for plan documents. 
The plan documents of the group health plan must be amended to 
incorporate provisions to:
    (i) Establish the permitted and required uses and disclosures of 
such information by the plan sponsor, provided that such permitted and 
required uses and disclosures may not be inconsistent with this subpart.
    (ii) Provide that the group health plan will disclose protected 
health information to the plan sponsor only upon receipt of a 
certification by the plan sponsor that the plan documents have been 
amended to incorporate the following provisions and that the plan 
sponsor agrees to:
    (A) Not use or further disclose the information other than as 
permitted or required by the plan documents or as required by law;
    (B) Ensure that any agents, including a subcontractor, to whom it 
provides protected health information received from the group health 
plan agree to the same restrictions and conditions that apply to the 
plan sponsor with respect to such information;
    (C) Not use or disclose the information for employment-related 
actions and decisions or in connection with any other benefit or 
employee benefit plan of the plan sponsor;
    (D) Report to the group health plan any use or disclosure of the 
information that is inconsistent with the uses or disclosures provided 
for of which it becomes aware;
    (E) Make available protected health information in accordance with 
Sec. 164.524;
    (F) Make available protected health information for amendment and 
incorporate any amendments to protected health information in accordance 
with Sec. 164.526;
    (G) Make available the information required to provide an accounting 
of disclosures in accordance with Sec. 164.528;
    (H) Make its internal practices, books, and records relating to the 
use and disclosure of protected health information received from the 
group health plan available to the Secretary for purposes of determining 
compliance by the group health plan with this subpart;
    (I) If feasible, return or destroy all protected health information 
received from the group health plan that the sponsor still maintains in 
any form and retain no copies of such information when no longer needed 
for the purpose for which disclosure was made, except that, if such 
return or destruction is not feasible, limit further uses and 
disclosures to those purposes that make the return or destruction of the 
information infeasible; and
    (J) Ensure that the adequate separation required in paragraph 
(f)(2)(iii) of this section is established.
    (iii) Provide for adequate separation between the group health plan 
and the plan sponsor. The plan documents must:
    (A) Describe those employees or classes of employees or other 
persons under the control of the plan sponsor to be given access to the 
protected health information to be disclosed, provided that any employee 
or person who receives protected health information relating to payment 
under, health care operations of, or other matters pertaining to the 
group health plan in the ordinary course of business must be included in 
such description;
    (B) Restrict the access to and use by such employees and other 
persons described in paragraph (f)(2)(iii)(A) of this section to the 
plan administration functions that the plan sponsor performs for the 
group health plan; and
    (C) Provide an effective mechanism for resolving any issues of 
noncompliance by persons described in paragraph (f)(2)(iii)(A) of this 
section with the plan document provisions required by this paragraph.
    (3) Implementation specifications: Uses and disclosures. A group 
health plan may:
    (i) Disclose protected health information to a plan sponsor to carry 
out plan administration functions that the plan sponsor performs only 
consistent with

[[Page 699]]

the provisions of paragraph (f)(2) of this section;
    (ii) Not permit a health insurance issuer or HMO with respect to the 
group health plan to disclose protected health information to the plan 
sponsor except as permitted by this paragraph;
    (iii) Not disclose and may not permit a health insurance issuer or 
HMO to disclose protected health information to a plan sponsor as 
otherwise permitted by this paragraph unless a statement required by 
Sec. 164.520(b)(1)(iii)(C) is included in the appropriate notice; and 
(iv) Not disclose protected health information to the plan sponsor for 
the purpose of employment-related actions or decisions or in connection 
with any other benefit or employee benefit plan of the plan sponsor.
    (g) Standard: Requirements for a covered entity with multiple 
covered functions. (1) A covered entity that performs multiple covered 
functions that would make the entity any combination of a health plan, a 
covered health care provider, and a health care clearinghouse, must 
comply with the standards, requirements, and implementation 
specifications of this subpart, as applicable to the health plan, health 
care provider, or health care clearinghouse covered functions performed.
    (2) A covered entity that performs multiple covered functions may 
use or disclose the protected health information of individuals who 
receive the covered entity's health plan or health care provider 
services, but not both, only for purposes related to the appropriate 
function being performed.

    Effective Date Note: At 67 FR 53267, Aug. 14, 2002, Sec. 164.504 was 
amended in paragraph (a), by revising the definitions of ``health care 
component'' and ``hybrid entity''; revising paragraphs (c)(1)(ii), 
(c)(2)(ii), (c)(3)(iii), (f)(1)(i), and adding paragraph (f)(1)(iii), 
effective Oct. 15, 2002. For the convenience of the user, the revised 
and added text is set forth as follows:

Sec. 164.504  Uses and disclosures: Organizational requirements.

    (a) Definitions. * * *
    Health care component means a component or combination of components 
of a hybrid entity designated by the hybrid entity in accordance with 
paragraph (c)(3)(iii) of this section.
    Hybrid entity means a single legal entity:
    (1) That is a covered entity;
    (2) Whose business activities include both covered and non-covered 
functions; and
    (3) That designates health care components in accordance with 
paragraph (c)(3)(iii) of this section.

                                * * * * *

    (c)(1) Implementation specification: Application of other 
provisions. * * *
    (ii) A reference in such provision to a ``health plan,'' ``covered 
health care provider,'' or ``health care clearinghouse'' refers to a 
health care component of the covered entity if such health care 
component performs the functions of a health plan, health care provider, 
or health care clearinghouse, as applicable; and

                                * * * * *

    (2) Implementation specifications: Safeguard requirements. * * *
    (ii) A component that is described by paragraph (c)(3)(iii)(B) of 
this section does not use or disclose protected health information that 
it creates or receives from or on behalf of the health care component in 
a way prohibited by this subpart; and

                                * * * * *

    (3) Implementation specifications: Responsibilities of the covered 
entity. * * *
    (iii) The covered entity is responsible for designating the 
components that are part of one or more health care components of the 
covered entity and documenting the designation as required by 
Sec. 164.530(j), provided that, if the covered entity designates a 
health care component or components, it must include any component that 
would meet the definition of covered entity if it were a separate legal 
entity. Health care component(s) also may include a component only to 
the extent that it performs:
    (A) Covered functions; or
    (B) Activities that would make such component a business associate 
of a component that performs covered functions if the two components 
were separate legal entities.

                                * * * * *

    (f)(1) Standard: Requirements for group health plans. (i) Except as 
provided under paragraph (f)(1)(ii) or (iii) of this section or as 
otherwise authorized under Sec. 164.508, a group health plan, in order 
to disclose protected health information to the plan sponsor or to 
provide for or permit the disclosure of protected health information to 
the plan sponsor by a health insurance issuer or HMO with respect to the 
group health plan, must ensure that the plan documents restrict uses and 
disclosures of such information by the

[[Page 700]]

plan sponsor consistent with the requirements of this subpart.

                                * * * * *

    (iii) The group health plan, or a health insurance issuer or HMO 
with respect to the group health plan, may disclose to the plan sponsor 
information on whether the individual is participating in the group 
health plan, or is enrolled in or has disenrolled from a health 
insurance issuer or HMO offered by the plan.

                                * * * * *



Sec. 164.506  Consent for uses or disclosures to carry out treatment, payment, or health care operations.

    (a) Standard: Consent requirement. (1) Except as provided in 
paragraph (a)(2) or (a)(3) of this section, a covered health care 
provider must obtain the individual's consent, in accordance with this 
section, prior to using or disclosing protected health information to 
carry out treatment, payment, or health care operations.
    (2) A covered health care provider may, without consent, use or 
disclose protected health information to carry out treatment, payment, 
or health care operations, if:
    (i) The covered health care provider has an indirect treatment 
relationship with the individual; or
    (ii) The covered health care provider created or received the 
protected health information in the course of providing health care to 
an individual who is an inmate.
    (3)(i) A covered health care provider may, without prior consent, 
use or disclose protected health information created or received under 
paragraph (a)(3)(i)(A)-(C) of this section to carry out treatment, 
payment, or health care operations:
    (A) In emergency treatment situations, if the covered health care 
provider attempts to obtain such consent as soon as reasonably 
practicable after the delivery of such treatment;
    (B) If the covered health care provider is required by law to treat 
the individual, and the covered health care provider attempts to obtain 
such consent but is unable to obtain such consent; or
    (C) If a covered health care provider attempts to obtain such 
consent from the individual but is unable to obtain such consent due to 
substantial barriers to communicating with the individual, and the 
covered health care provider determines, in the exercise of professional 
judgment, that the individual's consent to receive treatment is clearly 
inferred from the circumstances.
    (ii) A covered health care provider that fails to obtain such 
consent in accordance with paragraph (a)(3)(i) of this section must 
document its attempt to obtain consent and the reason why consent was 
not obtained.
    (4) If a covered entity is not required to obtain consent by 
paragraph (a)(1) of this section, it may obtain an individual's consent 
for the covered entity's own use or disclosure of protected health 
information to carry out treatment, payment, or health care operations, 
provided that such consent meets the requirements of this section.
    (5) Except as provided in paragraph (f)(1) of this section, a 
consent obtained by a covered entity under this section is not effective 
to permit another covered entity to use or disclose protected health 
information.
    (b) Implementation specifications: General requirements. (1) A 
covered health care provider may condition treatment on the provision by 
the individual of a consent under this section.
    (2) A health plan may condition enrollment in the health plan on the 
provision by the individual of a consent under this section sought in 
conjunction with such enrollment.
    (3) A consent under this section may not be combined in a single 
document with the notice required by Sec. 164.520.
    (4)(i) A consent for use or disclosure may be combined with other 
types of written legal permission from the individual (e.g., an informed 
consent for treatment or a consent to assignment of benefits), if the 
consent under this section:
    (A) Is visually and organizationally separate from such other 
written legal permission; and
    (B) Is separately signed by the individual and dated.
    (ii) A consent for use or disclosure may be combined with a research 
authorization under Sec. 164.508(f).

[[Page 701]]

    (5) An individual may revoke a consent under this section at any 
time, except to the extent that the covered entity has taken action in 
reliance thereon. Such revocation must be in writing.
    (6) A covered entity must document and retain any signed consent 
under this section as required by Sec. 164.530(j).
    (c) Implementation specifications: Content requirements. A consent 
under this section must be in plain language and:
    (1) Inform the individual that protected health information may be 
used and disclosed to carry out treatment, payment, or health care 
operations;
    (2) Refer the individual to the notice required by Sec. 164.520 for 
a more complete description of such uses and disclosures and state that 
the individual has the right to review the notice prior to signing the 
consent;
    (3) If the covered entity has reserved the right to change its 
privacy practices that are described in the notice in accordance with 
Sec. 164.520(b)(1)(v)(C), state that the terms of its notice may change 
and describe how the individual may obtain a revised notice;
    (4) State that:
    (i) The individual has the right to request that the covered entity 
restrict how protected health information is used or disclosed to carry 
out treatment, payment, or health care operations;
    (ii) The covered entity is not required to agree to requested 
restrictions; and
    (iii) If the covered entity agrees to a requested restriction, the 
restriction is binding on the covered entity;
    (5) State that the individual has the right to revoke the consent in 
writing, except to the extent that the covered entity has taken action 
in reliance thereon; and
    (6) Be signed by the individual and dated.
    (d) Implementation specifications: Defective consents. There is no 
consent under this section, if the document submitted has any of the 
following defects:
    (1) The consent lacks an element required by paragraph (c) of this 
section, as applicable; or
    (2) The consent has been revoked in accordance with paragraph (b)(5) 
of this section.
    (e) Standard: Resolving conflicting consents and authorizations. (1) 
If a covered entity has obtained a consent under this section and 
receives any other authorization or written legal permission from the 
individual for a disclosure of protected health information to carry out 
treatment, payment, or health care operations, the covered entity may 
disclose such protected health information only in accordance with the 
more restrictive consent, authorization, or other written legal 
permission from the individual.
    (2) A covered entity may attempt to resolve a conflict between a 
consent and an authorization or other written legal permission from the 
individual described in paragraph (e)(1) of this section by:
    (i) Obtaining a new consent from the individual under this section 
for the disclosure to carry out treatment, payment, or health care 
operations; or
    (ii) Communicating orally or in writing with the individual in order 
to determine the individual's preference in resolving the conflict. The 
covered entity must document the individual's preference and may only 
disclose protected health information in accordance with the 
individual's preference.
    (f)(1) Standard: Joint consents. Covered entities that participate 
in an organized health care arrangement and that have a joint notice 
under Sec. 164.520(d) may comply with this section by a joint consent.
    (2) Implementation specifications: Requirements for joint consents. 
(i) A joint consent must:
    (A) Include the name or other specific identification of the covered 
entities, or classes of covered entities, to which the joint consent 
applies; and
    (B) Meet the requirements of this section, except that the 
statements required by this section may be altered to reflect the fact 
that the consent covers more than one covered entity.
    (ii) If an individual revokes a joint consent, the covered entity 
that receives the revocation must inform the other entities covered by 
the joint consent of the revocation as soon as practicable.

    Effective Date Note: At 67 FR 53268, Aug. 14, 2002, Sec. 164.506 was 
revised, effective Oct. 15,

[[Page 702]]

2002. For the convenience of the user, the revised text is set forth as 
follows:

Sec. 164.506  Uses and disclosures to carry out treatment, payment, or 
          health care operations.

    (a) Standard: Permitted uses and disclosures. Except with respect to 
uses or disclosures that require an authorization under 
Sec. 164.508(a)(2) and (3), a covered entity may use or disclose 
protected health information for treatment, payment, or health care 
operations as set forth in paragraph (c) of this section, provided that 
such use or disclosure is consistent with other applicable requirements 
of this subpart.
    (b) Standard: Consent for uses and disclosures permitted. (1) A 
covered entity may obtain consent of the individual to use or disclose 
protected health information to carry out treatment, payment, or health 
care operations.
    (2) Consent, under paragraph (b) of this section, shall not be 
effective to permit a use or disclosure of protected health information 
when an authorization, under Sec. 164.508, is required or when another 
condition must be met for such use or disclosure to be permissible under 
this subpart.
    (c) Implementation specifications: Treatment, payment, or health 
care operations.
    (1) A covered entity may use or disclose protected health 
information for its own treatment, payment, or health care operations.
    (2) A covered entity may disclose protected health information for 
treatment activities of a health care provider.
    (3) A covered entity may disclose protected health information to 
another covered entity or a health care provider for the payment 
activities of the entity that receives the information.
    (4) A covered entity may disclose protected health information to 
another covered entity for health care operations activities of the 
entity that receives the information, if each entity either has or had a 
relationship with the individual who is the subject of the protected 
health information being requested, the protected health information 
pertains to such relationship, and the disclosure is:
    (i) For a purpose listed in paragraph (1) or (2) of the definition 
of health care operations; or
    (ii) For the purpose of health care fraud and abuse detection or 
compliance.
    (5) A covered entity that participates in an organized health care 
arrangement may disclose protected health information about an 
individual to another covered entity that participates in the organized 
health care arrangement for any health care operations activities of the 
organized health care arrangement.



Sec. 164.508  Uses and disclosures for which an authorization is required.

    (a) Standard: Authorizations for uses and disclosures. (1) 
Authorization required: General rule. Except as otherwise permitted or 
required by this subchapter, a covered entity may not use or disclose 
protected health information without an authorization that is valid 
under this section. When a covered entity obtains or receives a valid 
authorization for its use or disclosure of protected health information, 
such use or disclosure must be consistent with such authorization.
    (2) Authorization required: psychotherapy notes. Notwithstanding any 
other provision of this subpart, other than transition provisions 
provided for in Sec. 164.532, a covered entity must obtain an 
authorization for any use or disclosure of psychotherapy notes, except:
    (i) To carry out the following treatment, payment, or health care 
operations, consistent with consent requirements in Sec. 164.506:
    (A) Use by originator of the psychotherapy notes for treatment;
    (B) Use or disclosure by the covered entity in training programs in 
which students, trainees, or practitioners in mental health learn under 
supervision to practice or improve their skills in group, joint, family, 
or individual counseling; or
    (C) Use or disclosure by the covered entity to defend a legal action 
or other proceeding brought by the individual; and
    (ii) A use or disclosure that is required by Sec. 164.502(a)(2)(ii) 
or permitted by Sec. 164.512(a); Sec. 164.512(d) with respect to the 
oversight of the originator of the psychotherapy notes; 
Sec. 164.512(g)(1); or Sec. 164.512(j)(1)(i).
    (b) Implementation specifications: General requirements--(1) Valid 
authorizations.
    (i) A valid authorization is a document that contains the elements 
listed in paragraph (c) and, as applicable, paragraph (d), (e), or (f) 
of this section.
    (ii) A valid authorization may contain elements or information in 
addition to the elements required by this section, provided that such 
additional

[[Page 703]]

elements or information are not be inconsistent with the elements 
required by this section.
    (2) Defective authorizations. An authorization is not valid, if the 
document submitted has any of the following defects:
    (i) The expiration date has passed or the expiration event is known 
by the covered entity to have occurred;
    (ii) The authorization has not been filled out completely, with 
respect to an element described by paragraph (c), (d), (e), or (f) of 
this section, if applicable;
    (iii) The authorization is known by the covered entity to have been 
revoked;
    (iv) The authorization lacks an element required by paragraph (c), 
(d), (e), or (f) of this section, if applicable;
    (v) The authorization violates paragraph (b)(3) of this section, if 
applicable;
    (vi) Any material information in the authorization is known by the 
covered entity to be false.
    (3) Compound authorizations. An authorization for use or disclosure 
of protected health information may not be combined with any other 
document to create a compound authorization, except as follows:
    (i) An authorization for the use or disclosure of protected health 
information created for research that includes treatment of the 
individual may be combined as permitted by Sec. 164.506(b)(4)(ii) or 
paragraph (f) of this section;
    (ii) An authorization for a use or disclosure of psychotherapy notes 
may only be combined with another authorization for a use or disclosure 
of psychotherapy notes;
    (iii) An authorization under this section, other than an 
authorization for a use or disclosure of psychotherapy notes may be 
combined with any other such authorization under this section, except 
when a covered entity has conditioned the provision of treatment, 
payment, enrollment in the health plan, or eligibility for benefits 
under paragraph (b)(4) of this section on the provision of one of the 
authorizations.
    (4) Prohibition on conditioning of authorizations. A covered entity 
may not condition the provision to an individual of treatment, payment, 
enrollment in the health plan, or eligibility for benefits on the 
provision of an authorization, except:
    (i) A covered health care provider may condition the provision of 
research-related treatment on provision of an authorization under 
paragraph (f) of this section;
    (ii) A health plan may condition enrollment in the health plan or 
eligibility for benefits on provision of an authorization requested by 
the health plan prior to an individual's enrollment in the health plan, 
if:
    (A) The authorization sought is for the health plan's eligibility or 
enrollment determinations relating to the individual or for its 
underwriting or risk rating determinations; and
    (B) The authorization is not for a use or disclosure of 
psychotherapy notes under paragraph (a)(2) of this section;
    (iii) A health plan may condition payment of a claim for specified 
benefits on provision of an authorization under paragraph (e) of this 
section, if:
    (A) The disclosure is necessary to determine payment of such claim; 
and
    (B) The authorization is not for a use or disclosure of 
psychotherapy notes under paragraph (a)(2) of this section; and
    (iv) A covered entity may condition the provision of health care 
that is solely for the purpose of creating protected health information 
for disclosure to a third party on provision of an authorization for the 
disclosure of the protected health information to such third party.
    (5) Revocation of authorizations. An individual may revoke an 
authorization provided under this section at any time, provided that the 
revocation is in writing, except to the extent that:
    (i) The covered entity has taken action in reliance thereon; or
    (ii) If the authorization was obtained as a condition of obtaining 
insurance coverage, other law provides the insurer with the right to 
contest a claim under the policy.
    (6) Documentation. A covered entity must document and retain any 
signed authorization under this section as required by Sec. 164.530(j).

[[Page 704]]

    (c) Implementation specifications: Core elements and requirements. 
(1) Core elements. A valid authorization under this section must contain 
at least the following elements:
    (i) A description of the information to be used or disclosed that 
identifies the information in a specific and meaningful fashion;
    (ii) The name or other specific identification of the person(s), or 
class of persons, authorized to make the requested use or disclosure;
    (iii) The name or other specific identification of the person(s), or 
class of persons, to whom the covered entity may make the requested use 
or disclosure;
    (iv) An expiration date or an expiration event that relates to the 
individual or the purpose of the use or disclosure;
    (v) A statement of the individual's right to revoke the 
authorization in writing and the exceptions to the right to revoke, 
together with a description of how the individual may revoke the 
authorization;
    (vi) A statement that information used or disclosed pursuant to the 
authorization may be subject to redisclosure by the recipient and no 
longer be protected by this rule;
    (vii) Signature of the individual and date; and
    (viii) If the authorization is signed by a personal representative 
of the individual, a description of such representative's authority to 
act for the individual.
    (2) Plain language requirement. The authorization must be written in 
plain language.
    (d) Implementation specifications: Authorizations requested by a 
covered entity for its own uses and disclosures. If an authorization is 
requested by a covered entity for its own use or disclosure of protected 
health information that it maintains, the covered entity must comply 
with the following requirements.
    (1) Required elements. The authorization for the uses or disclosures 
described in this paragraph must, in addition to meeting the 
requirements of paragraph (c) of this section, contain the following 
elements:
    (i) For any authorization to which the prohibition on conditioning 
in paragraph (b)(4) of this section applies, a statement that the 
covered entity will not condition treatment, payment, enrollment in the 
health plan, or eligibility for benefits on the individual's providing 
authorization for the requested use or disclosure;
    (ii) A description of each purpose of the requested use or 
disclosure;
    (iii) A statement that the individual may:
    (A) Inspect or copy the protected health information to be used or 
disclosed as provided in Sec. 164.524; and
    (B) Refuse to sign the authorization; and
    (iv) If use or disclosure of the requested information will result 
in direct or indirect remuneration to the covered entity from a third 
party, a statement that such remuneration will result.
    (2) Copy to the individual. A covered entity must provide the 
individual with a copy of the signed authorization.
    (e) Implementation specifications: Authorizations requested by a 
covered entity for disclosures by others. If an authorization is 
requested by a covered entity for another covered entity to disclose 
protected health information to the covered entity requesting the 
authorization to carry out treatment, payment, or health care 
operations, the covered entity requesting the authorization must comply 
with the following requirements.
    (1) Required elements. The authorization for the disclosures 
described in this paragraph must, in addition to meeting the 
requirements of paragraph (c) of this section, contain the following 
elements:
    (i) A description of each purpose of the requested disclosure;
    (ii) Except for an authorization on which payment may be conditioned 
under paragraph (b)(4)(iii) of this section, a statement that the 
covered entity will not condition treatment, payment, enrollment in the 
health plan, or eligibility for benefits on the individual's providing 
authorization for the requested use or disclosure; and
    (iii) A statement that the individual may refuse to sign the 
authorization.

[[Page 705]]

    (2) Copy to the individual. A covered entity must provide the 
individual with a copy of the signed authorization.
    (f) Implementation specifications: Authorizations for uses and 
disclosures of protected health information created for research that 
includes treatment of the individual--(1) Required elements. Except as 
otherwise permitted by Sec. 164.512(i), a covered entity that creates 
protected health information for the purpose, in whole or in part, of 
research that includes treatment of individuals must obtain an 
authorization for the use or disclosure of such information. Such 
authorization must:
    (i) For uses and disclosures not otherwise permitted or required 
under this subpart, meet the requirements of paragraphs (c) and (d) of 
this section; and
    (ii) Contain:
    (A) A description of the extent to which such protected health 
information will be used or disclosed to carry out treatment, payment, 
or health care operations;
    (B) A description of any protected health information that will not 
be used or disclosed for purposes permitted in accordance with 
Secs. 164.510 and 164.512, provided that the covered entity may not 
include a limitation affecting its right to make a use or disclosure 
that is required by law or permitted by Sec. 164.512(j)(1)(i); and
    (C) If the covered entity has obtained or intends to obtain the 
individual's consent under Sec. 164.506, or has provided or intends to 
provide the individual with a notice under Sec. 164.520, the 
authorization must refer to that consent or notice, as applicable, and 
state that the statements made pursuant to this section are binding.
    (2) Optional procedure. An authorization under this paragraph may be 
in the same document as:
    (i) A consent to participate in the research;
    (ii) A consent to use or disclose protected health information to 
carry out treatment, payment, or health care operations under 
Sec. 164.506; or
    (iii) A notice of privacy practices under Sec. 164.520.

    Effective Date Note: At 67 FR 53268, Aug. 14, 2002, Sec. 164.508 was 
revised, effective Oct. 15, 2002. For the convenience of the user, the 
revised text is set forth as follows:

Sec. 164.508  Uses and disclosures for which an authorization is 
          required.

    (a) Standard: authorizations for uses and disclosures.--(1) 
Authorization required: general rule. Except as otherwise permitted or 
required by this subchapter, a covered entity may not use or disclose 
protected health information without an authorization that is valid 
under this section. When a covered entity obtains or receives a valid 
authorization for its use or disclosure of protected health information, 
such use or disclosure must be consistent with such authorization.
    (2) Authorization required: psychotherapy notes. Notwithstanding any 
provision of this subpart, other than the transition provisions in 
Sec. 164.532, a covered entity must obtain an authorization for any use 
or disclosure of psychotherapy notes, except:
    (i) To carry out the following treatment, payment, or health care 
operations:
    (A) Use by the originator of the psychotherapy notes for treatment;
    (B) Use or disclosure by the covered entity for its own training 
programs in which students, trainees, or practitioners in mental health 
learn under supervision to practice or improve their skills in group, 
joint, family, or individual counseling; or
    (C) Use or disclosure by the covered entity to defend itself in a 
legal action or other proceeding brought by the individual; and
    (ii) A use or disclosure that is required by Sec. 164.502(a)(2)(ii) 
or permitted by Sec. 164.512(a); Sec. 164.512(d) with respect to the 
oversight of the originator of the psychotherapy notes; 
Sec. 164.512(g)(1); or Sec. 164.512(j)(1)(i).
    (3) Authorization required: Marketing. (i) Notwithstanding any 
provision of this subpart, other than the transition provisions in 
Sec. 164.532, a covered entity must obtain an authorization for any use 
or disclosure of protected health information for marketing, except if 
the communication is in the form of:
    (A) A face-to-face communication made by a covered entity to an 
individual; or
    (B) A promotional gift of nominal value provided by the covered 
entity.
    (ii) If the marketing involves direct or indirect remuneration to 
the covered entity from a third party, the authorization must state that 
such remuneration is involved.
    (b) Implementation specifications: general requirements.--(1) Valid 
authorizations. (i) A valid authorization is a document that meets the 
requirements in paragraphs (a)(3)(ii), (c)(1), and (c)(2) of this 
section, as applicable.
    (ii) A valid authorization may contain elements or information in 
addition to the elements required by this section, provided that such 
additional elements or information are not inconsistent with the 
elements required by this section.

[[Page 706]]

    (2) Defective authorizations. An authorization is not valid, if the 
document submitted has any of the following defects:
    (i) The expiration date has passed or the expiration event is known 
by the covered entity to have occurred;
    (ii) The authorization has not been filled out completely, with 
respect to an element described by paragraph (c) of this section, if 
applicable;
    (iii) The authorization is known by the covered entity to have been 
revoked;
    (iv) The authorization violates paragraph (b)(3) or (4) of this 
section, if applicable;
    (v) Any material information in the authorization is known by the 
covered entity to be false.
    (3) Compound authorizations. An authorization for use or disclosure 
of protected health information may not be combined with any other 
document to create a compound authorization, except as follows:
    (i) An authorization for the use or disclosure of protected health 
information for a research study may be combined with any other type of 
written permission for the same research study, including another 
authorization for the use or disclosure of protected health information 
for such research or a consent to participate in such research;
    (ii) An authorization for a use or disclosure of psychotherapy notes 
may only be combined with another authorization for a use or disclosure 
of psychotherapy notes;
    (iii) An authorization under this section, other than an 
authorization for a use or disclosure of psychotherapy notes, may be 
combined with any other such authorization under this section, except 
when a covered entity has conditioned the provision of treatment, 
payment, enrollment in the health plan, or eligibility for benefits 
under paragraph (b)(4) of this section on the provision of one of the 
authorizations.
    (4) Prohibition on conditioning of authorizations. A covered entity 
may not condition the provision to an individual of treatment, payment, 
enrollment in the health plan, or eligibility for benefits on the 
provision of an authorization, except:
    (i) A covered health care provider may condition the provision of 
research-related treatment on provision of an authorization for the use 
or disclosure of protected health information for such research under 
this section;
    (ii) A health plan may condition enrollment in the health plan or 
eligibility for benefits on provision of an authorization requested by 
the health plan prior to an individual's enrollment in the health plan, 
if:
    (A) The authorization sought is for the health plan's eligibility or 
enrollment determinations relating to the individual or for its 
underwriting or risk rating determinations; and
    (B) The authorization is not for a use or disclosure of 
psychotherapy notes under paragraph (a)(2) of this section; and
    (iii) A covered entity may condition the provision of health care 
that is solely for the purpose of creating protected health information 
for disclosure to a third party on provision of an authorization for the 
disclosure of the protected health information to such third party.
    (5) Revocation of authorizations. An individual may revoke an 
authorization provided under this section at any time, provided that the 
revocation is in writing, except to the extent that:
    (i) The covered entity has taken action in reliance thereon; or
    (ii) If the authorization was obtained as a condition of obtaining 
insurance coverage, other law provides the insurer with the right to 
contest a claim under the policy or the policy itself.
    (6) Documentation. A covered entity must document and retain any 
signed authorization under this section as required by Sec. 164.530(j).
    (c) Implementation specifications: Core elements and requirements.--
(1) Core elements. A valid authorization under this section must contain 
at least the following elements:
    (i) A description of the information to be used or disclosed that 
identifies the information in a specific and meaningful fashion.
    (ii) The name or other specific identification of the person(s), or 
class of persons, authorized to make the requested use or disclosure.
    (iii) The name or other specific identification of the person(s), or 
class of persons, to whom the covered entity may make the requested use 
or disclosure.
    (iv) A description of each purpose of the requested use or 
disclosure. The statement ``at the request of the individual'' is a 
sufficient description of the purpose when an individual initiates the 
authorization and does not, or elects not to, provide a statement of the 
purpose.
    (v) An expiration date or an expiration event that relates to the 
individual or the purpose of the use or disclosure. The statement ``end 
of the research study,'' ``none,'' or similar language is sufficient if 
the authorization is for a use or disclosure of protected health 
information for research, including for the creation and maintenance of 
a research database or research repository.
    (vi) Signature of the individual and date. If the authorization is 
signed by a personal representative of the individual, a description of 
such representative's authority to act for the individual must also be 
provided.
    (2) Required statements. In addition to the core elements, the 
authorization must contain statements adequate to place the individual 
on notice of all of the following:

[[Page 707]]

    (i) The individual's right to revoke the authorization in writing, 
and either:
    (A) The exceptions to the right to revoke and a description of how 
the individual may revoke the authorization; or
    (B) To the extent that the information in paragraph (c)(2)(i)(A) of 
this section is included in the notice required by Sec. 164.520, a 
reference to the covered entity's notice.
    (ii) The ability or inability to condition treatment, payment, 
enrollment or eligibility for benefits on the authorization, by stating 
either:
    (A) The covered entity may not condition treatment, payment, 
enrollment or eligibility for benefits on whether the individual signs 
the authorization when the prohibition on conditioning of authorizations 
in paragraph (b)(4) of this section applies; or
    (B) The consequences to the individual of a refusal to sign the 
authorization when, in accordance with paragraph (b)(4) of this section, 
the covered entity can condition treatment, enrollment in the health 
plan, or eligibility for benefits on failure to obtain such 
authorization.
    (iii) The potential for information disclosed pursuant to the 
authorization to be subject to redisclosure by the recipient and no 
longer be protected by this subpart.
    (3) Plain language requirement. The authorization must be written in 
plain language.
    (4) Copy to the individual. If a covered entity seeks an 
authorization from an individual for a use or disclosure of protected 
health information, the covered entity must provide the individual with 
a copy of the signed authorization.



Sec. 164.510  Uses and disclosures requiring an opportunity for the individual to agree or to object.

    A covered entity may use or disclose protected health information 
without the written consent or authorization of the individual as 
described by Secs. 164.506 and 164.508, respectively, provided that the 
individual is informed in advance of the use or disclosure and has the 
opportunity to agree to or prohibit or restrict the disclosure in 
accordance with the applicable requirements of this section. The covered 
entity may orally inform the individual of and obtain the individual's 
oral agreement or objection to a use or disclosure permitted by this 
section.
    (a) Standard: use and disclosure for facility directories. (1) 
Permitted uses and disclosure. Except when an objection is expressed in 
accordance with paragraphs (a)(2) or (3) of this section, a covered 
health care provider may:
    (i) Use the following protected health information to maintain a 
directory of individuals in its facility:
    (A) The individual's name;
    (B) The individual's location in the covered health care provider's 
facility;
    (C) The individual's condition described in general terms that does 
not communicate specific medical information about the individual; and
    (D) The individual's religious affiliation; and
    (ii) Disclose for directory purposes such information:
    (A) To members of the clergy; or
    (B) Except for religious affiliation, to other persons who ask for 
the individual by name.
    (2) Opportunity to object. A covered health care provider must 
inform an individual of the protected health information that it may 
include in a directory and the persons to whom it may disclose such 
information (including disclosures to clergy of information regarding 
religious affiliation) and provide the individual with the opportunity 
to restrict or prohibit some or all of the uses or disclosures permitted 
by paragraph (a)(1) of this section.
    (3) Emergency circumstances. (i) If the opportunity to object to 
uses or disclosures required by paragraph (a)(2) of this section cannot 
practicably be provided because of the individual's incapacity or an 
emergency treatment circumstance, a covered health care provider may use 
or disclose some or all of the protected health information permitted by 
paragraph (a)(1) of this section for the facility's directory, if such 
disclosure is:
    (A) Consistent with a prior expressed preference of the individual, 
if any, that is known to the covered health care provider; and
    (B) In the individual's best interest as determined by the covered 
health care provider, in the exercise of professional judgment.
    (ii) The covered health care provider must inform the individual and 
provide an opportunity to object to uses or disclosures for directory 
purposes as required by paragraph (a)(2) of this section when it becomes 
practicable to do so.
    (b) Standard: uses and disclosures for involvement in the 
individual's care and

[[Page 708]]

notification purposes. (1) Permitted uses and disclosures. (i) A covered 
entity may, in accordance with paragraphs (b)(2) or (3) of this section, 
disclose to a family member, other relative, or a close personal friend 
of the individual, or any other person identified by the individual, the 
protected health information directly relevant to such person's 
involvement with the individual's care or payment related to the 
individual's health care.
    (ii) A covered entity may use or disclose protected health 
information to notify, or assist in the notification of (including 
identifying or locating), a family member, a personal representative of 
the individual, or another person responsible for the care of the 
individual of the individual's location, general condition, or death. 
Any such use or disclosure of protected health information for such 
notification purposes must be in accordance with paragraphs (b)(2), (3), 
or (4) of this section, as applicable.
    (2) Uses and disclosures with the individual present. If the 
individual is present for, or otherwise available prior to, a use or 
disclosure permitted by paragraph (b)(1) of this section and has the 
capacity to make health care decisions, the covered entity may use or 
disclose the protected health information if it:
    (i) Obtains the individual's agreement;
    (ii) Provides the individual with the opportunity to object to the 
disclosure, and the individual does not express an objection; or
    (iii) Reasonably infers from the circumstances, based the exercise 
of professional judgment, that the individual does not object to the 
disclosure.
    (3) Limited uses and disclosures when the individual is not present. 
If the individual is not present for, or the opportunity to agree or 
object to the use or disclosure cannot practicably be provided because 
of the individual's incapacity or an emergency circumstance, the covered 
entity may, in the exercise of professional judgment, determine whether 
the disclosure is in the best interests of the individual and, if so, 
disclose only the protected health information that is directly relevant 
to the person's involvement with the individual's health care. A covered 
entity may use professional judgment and its experience with common 
practice to make reasonable inferences of the individual's best interest 
in allowing a person to act on behalf of the individual to pick up 
filled prescriptions, medical supplies, X-rays, or other similar forms 
of protected health information.
    (4) Use and disclosures for disaster relief purposes. A covered 
entity may use or disclose protected health information to a public or 
private entity authorized by law or by its charter to assist in disaster 
relief efforts, for the purpose of coordinating with such entities the 
uses or disclosures permitted by paragraph (b)(1)(ii) of this section. 
The requirements in paragraphs (b)(2) and (3) of this section apply to 
such uses and disclosure to the extent that the covered entity, in the 
exercise of professional judgment, determines that the requirements do 
not interfere with the ability to respond to the emergency 
circumstances.

    Effective Date Note: At 67 FR 53270, Aug. 14, 2002, in Sec. 164.510 
revise the first sentence of the introductory text, and remove the word 
``for'' from paragraph (b)(3), effective Oct. 15, 2002. For the 
convenience of the user, the revised text is set forth as follows:

Sec. 164.510  Uses and disclosures requiring an opportunity for the 
          individual to agree or to object.

    A covered entity may use or disclose protected health information, 
provided that the individual is informed in advance of the use or 
disclosure and has the opportunity to agree to or prohibit or restrict 
the use or disclosure, in accordance with the applicable requirements of 
this section. * * *

                                * * * * *



Sec. 164.512  Uses and disclosures for which consent, an authorization, or opportunity to agree or object is not required.

    A covered entity may use or disclose protected health information 
without the written consent or authorization of the individual as 
described in Secs. 164.506 and 164.508, respectively, or the opportunity 
for the individual to agree or object as described in Sec. 164.510, in 
the situations covered by this section, subject to the applicable 
requirements of this section. When the covered entity is required by 
this section to inform

[[Page 709]]

the individual of, or when the individual may agree to, a use or 
disclosure permitted by this section, the covered entity's information 
and the individual's agreement may be given orally.
    (a) Standard: Uses and disclosures required by law. (1) A covered 
entity may use or disclose protected health information to the extent 
that such use or disclosure is required by law and the use or disclosure 
complies with and is limited to the relevant requirements of such law.
    (2) A covered entity must meet the requirements described in 
paragraph (c), (e), or (f) of this section for uses or disclosures 
required by law.
    (b) Standard: uses and disclosures for public health activities. (1) 
Permitted disclosures. A covered entity may disclose protected health 
information for the public health activities and purposes described in 
this paragraph to:
    (i) A public health authority that is authorized by law to collect 
or receive such information for the purpose of preventing or controlling 
disease, injury, or disability, including, but not limited to, the 
reporting of disease, injury, vital events such as birth or death, and 
the conduct of public health surveillance, public health investigations, 
and public health interventions; or, at the direction of a public health 
authority, to an official of a foreign government agency that is acting 
in collaboration with a public health authority;
    (ii) A public health authority or other appropriate government 
authority authorized by law to receive reports of child abuse or 
neglect;
    (iii) A person subject to the jurisdiction of the Food and Drug 
Administration:
    (A) To report adverse events (or similar reports with respect to 
food or dietary supplements), product defects or problems (including 
problems with the use or labeling of a product), or biological product 
deviations if the disclosure is made to the person required or directed 
to report such information to the Food and Drug Administration;
    (B) To track products if the disclosure is made to a person required 
or directed by the Food and Drug Administration to track the product;
    (C) To enable product recalls, repairs, or replacement (including 
locating and notifying individuals who have received products of product 
recalls, withdrawals, or other problems); or
    (D) To conduct post marketing surveillance to comply with 
requirements or at the direction of the Food and Drug Administration;
    (iv) A person who may have been exposed to a communicable disease or 
may otherwise be at risk of contracting or spreading a disease or 
condition, if the covered entity or public health authority is 
authorized by law to notify such person as necessary in the conduct of a 
public health intervention or investigation; or
    (v) An employer, about an individual who is a member of the 
workforce of the employer, if:
    (A) The covered entity is a covered health care provider who is a 
member of the workforce of such employer or who provides a health care 
to the individual at the request of the employer:
    (1) To conduct an evaluation relating to medical surveillance of the 
workplace; or
    (2) To evaluate whether the individual has a work-related illness or 
injury;
    (B) The protected health information that is disclosed consists of 
findings concerning a work-related illness or injury or a workplace-
related medical surveillance;
    (C) The employer needs such findings in order to comply with its 
obligations, under 29 CFR parts 1904 through 1928, 30 CFR parts 50 
through 90, or under state law having a similar purpose, to record such 
illness or injury or to carry out responsibilities for workplace medical 
surveillance;
    (D) The covered health care provider provides written notice to the 
individual that protected health information relating to the medical 
surveillance of the workplace and work-related illnesses and injuries is 
disclosed to the employer:
    (1) By giving a copy of the notice to the individual at the time the 
health care is provided; or
    (2) If the health care is provided on the work site of the employer, 
by posting the notice in a prominent place at

[[Page 710]]

the location where the health care is provided.
    (2) Permitted uses. If the covered entity also is a public health 
authority, the covered entity is permitted to use protected health 
information in all cases in which it is permitted to disclose such 
information for public health activities under paragraph (b)(1) of this 
section.
    (c) Standard: Disclosures about victims of abuse, neglect or 
domestic violence. (1) Permitted disclosures. Except for reports of 
child abuse or neglect permitted by paragraph (b)(1)(ii) of this 
section, a covered entity may disclose protected health information 
about an individual whom the covered entity reasonably believes to be a 
victim of abuse, neglect, or domestic violence to a government 
authority, including a social service or protective services agency, 
authorized by law to receive reports of such abuse, neglect, or domestic 
violence:
    (i) To the extent the disclosure is required by law and the 
disclosure complies with and is limited to the relevant requirements of 
such law;
    (ii) If the individual agrees to the disclosure; or
    (iii) To the extent the disclosure is expressly authorized by 
statute or regulation and:
    (A) The covered entity, in the exercise of professional judgment, 
believes the disclosure is necessary to prevent serious harm to the 
individual or other potential victims; or
    (B) If the individual is unable to agree because of incapacity, a 
law enforcement or other public official authorized to receive the 
report represents that the protected health information for which 
disclosure is sought is not intended to be used against the individual 
and that an immediate enforcement activity that depends upon the 
disclosure would be materially and adversely affected by waiting until 
the individual is able to agree to the disclosure.
    (2) Informing the individual. A covered entity that makes a 
disclosure permitted by paragraph (c)(1) of this section must promptly 
inform the individual that such a report has been or will be made, 
except if:
    (i) The covered entity, in the exercise of professional judgment, 
believes informing the individual would place the individual at risk of 
serious harm; or
    (ii) The covered entity would be informing a personal 
representative, and the covered entity reasonably believes the personal 
representative is responsible for the abuse, neglect, or other injury, 
and that informing such person would not be in the best interests of the 
individual as determined by the covered entity, in the exercise of 
professional judgment.
    (d) Standard: Uses and disclosures for health oversight activities. 
(1) Permitted disclosures. A covered entity may disclose protected 
health information to a health oversight agency for oversight activities 
authorized by law, including audits; civil, administrative, or criminal 
investigations; inspections; licensure or disciplinary actions; civil, 
administrative, or criminal proceedings or actions; or other activities 
necessary for appropriate oversight of:
    (i) The health care system;
    (ii) Government benefit programs for which health information is 
relevant to beneficiary eligibility;
    (iii) Entities subject to government regulatory programs for which 
health information is necessary for determining compliance with program 
standards; or
    (iv) Entities subject to civil rights laws for which health 
information is necessary for determining compliance.
    (2) Exception to health oversight activities. For the purpose of the 
disclosures permitted by paragraph (d)(1) of this section, a health 
oversight activity does not include an investigation or other activity 
in which the individual is the subject of the investigation or activity 
and such investigation or other activity does not arise out of and is 
not directly related to:
    (i) The receipt of health care;
    (ii) A claim for public benefits related to health; or
    (iii) Qualification for, or receipt of, public benefits or services 
when a patient's health is integral to the claim for public benefits or 
services.
    (3) Joint activities or investigations. Nothwithstanding paragraph 
(d)(2) of this section, if a health oversight activity or investigation 
is conducted in

[[Page 711]]

conjunction with an oversight activity or investigation relating to a 
claim for public benefits not related to health, the joint activity or 
investigation is considered a health oversight activity for purposes of 
paragraph (d) of this section.
    (4) Permitted uses. If a covered entity also is a health oversight 
agency, the covered entity may use protected health information for 
health oversight activities as permitted by paragraph (d) of this 
section.
    (e) Standard: Disclosures for judicial and administrative 
proceedings.
    (1) Permitted disclosures. A covered entity may disclose protected 
health information in the course of any judicial or administrative 
proceeding:
    (i) In response to an order of a court or administrative tribunal, 
provided that the covered entity discloses only the protected health 
information expressly authorized by such order; or
    (ii) In response to a subpoena, discovery request, or other lawful 
process, that is not accompanied by an order of a court or 
administrative tribunal, if:
    (A) The covered entity receives satisfactory assurance, as described 
in paragraph (e)(1)(iii) of this section, from the party seeking the 
information that reasonable efforts have been made by such party to 
ensure that the individual who is the subject of the protected health 
information that has been requested has been given notice of the 
request; or
    (B) The covered entity receives satisfactory assurance, as described 
in paragraph (e)(1)(iv) of this section, from the party seeking the 
information that reasonable efforts have been made by such party to 
secure a qualified protective order that meets the requirements of 
paragraph (e)(1)(v) of this section.
    (iii) For the purposes of paragraph (e)(1)(ii)(A) of this section, a 
covered entity receives satisfactory assurances from a party seeking 
protecting health information if the covered entity receives from such 
party a written statement and accompanying documentation demonstrating 
that:
    (A) The party requesting such information has made a good faith 
attempt to provide written notice to the individual (or, if the 
individual's location is unknown, to mail a notice to the individual's 
last known address);
    (B) The notice included sufficient information about the litigation 
or proceeding in which the protected health information is requested to 
permit the individual to raise an objection to the court or 
administrative tribunal; and
    (C) The time for the individual to raise objections to the court or 
administrative tribunal has elapsed, and:
    (1) No objections were filed; or
    (2) All objections filed by the individual have been resolved by the 
court or the administrative tribunal and the disclosures being sought 
are consistent with such resolution.
    (iv) For the purposes of paragraph (e)(1)(ii)(B) of this section, a 
covered entity receives satisfactory assurances from a party seeking 
protected health information, if the covered entity receives from such 
party a written statement and accompanying documentation demonstrating 
that:
    (A) The parties to the dispute giving rise to the request for 
information have agreed to a qualified protective order and have 
presented it to the court or administrative tribunal with jurisdiction 
over the dispute; or
    (B) The party seeking the protected health information has requested 
a qualified protective order from such court or administrative tribunal.
    (v) For purposes of paragraph (e)(1) of this section, a qualified 
protective order means, with respect to protected health information 
requested under paragraph (e)(1)(ii) of this section, an order of a 
court or of an administrative tribunal or a stipulation by the parties 
to the litigation or administrative proceeding that:
    (A) Prohibits the parties from using or disclosing the protected 
health information for any purpose other than the litigation or 
proceeding for which such information was requested; and
    (B) Requires the return to the covered entity or destruction of the 
protected health information (including all copies made) at the end of 
the litigation or proceeding.
    (vi) Nothwithstanding paragraph (e)(1)(ii) of this section, a 
covered entity may disclose protected health information in response to 
lawful process described in paragraph (e)(1)(ii) of this

[[Page 712]]

section without receiving satisfactory assurance under paragraph 
(e)(1)(ii)(A) or (B) of this section, if the covered entity makes 
reasonable efforts to provide notice to the individual sufficient to 
meet the requirements of paragraph (e)(1)(iii) of this section or to 
seek a qualified protective order sufficient to meet the requirements of 
paragraph (e)(1)(iv) of this section.
    (2) Other uses and disclosures under this section. The provisions of 
this paragraph do not supersede other provisions of this section that 
otherwise permit or restrict uses or disclosures of protected health 
information.
    (f) Standard: Disclosures for law enforcement purposes. A covered 
entity may disclose protected health information for a law enforcement 
purpose to a law enforcement official if the conditions in paragraphs 
(f)(1) through (f)(6) of this section are met, as applicable.
    (1) Permitted disclosures: Pursuant to process and as otherwise 
required by law. A covered entity may disclose protected health 
information:
    (i) As required by law including laws that require the reporting of 
certain types of wounds or other physical injuries, except for laws 
subject to paragraph (b)(1)(ii) or (c)(1)(i) of this section; or
    (ii) In compliance with and as limited by the relevant requirements 
of:
    (A) A court order or court-ordered warrant, or a subpoena or summons 
issued by a judicial officer;
    (B) A grand jury subpoena; or
    (C) An administrative request, including an administrative subpoena 
or summons, a civil or an authorized investigative demand, or similar 
process authorized under law, provided that:
    (1) The information sought is relevant and material to a legitimate 
law enforcement inquiry;
    (2) The request is specific and limited in scope to the extent 
reasonably practicable in light of the purpose for which the information 
is sought; and
    (3) De-identified information could not reasonably be used.
    (2) Permitted disclosures: Limited information for identification 
and location purposes. Except for disclosures required by law as 
permitted by paragraph (f)(1) of this section, a covered entity may 
disclose protected health information in response to a law enforcement 
official's request for such information for the purpose of identifying 
or locating a suspect, fugitive, material witness, or missing person, 
provided that:
    (i) The covered entity may disclose only the following information:
    (A) Name and address;
    (B) Date and place of birth;
    (C) Social security number;
    (D) ABO blood type and rh factor;
    (E) Type of injury;
    (F) Date and time of treatment;
    (G) Date and time of death, if applicable; and
    (H) A description of distinguishing physical characteristics, 
including height, weight, gender, race, hair and eye color, presence or 
absence of facial hair (beard or moustache), scars, and tattoos.
    (ii) Except as permitted by paragraph (f)(2)(i) of this section, the 
covered entity may not disclose for the purposes of identification or 
location under paragraph (f)(2) of this section any protected health 
information related to the individual's DNA or DNA analysis, dental 
records, or typing, samples or analysis of body fluids or tissue.
    (3) Permitted disclosure: Victims of a crime. Except for disclosures 
required by law as permitted by paragraph (f)(1) of this section, a 
covered entity may disclose protected health information in response to 
a law enforcement official's request for such information about an 
individual who is or is suspected to be a victim of a crime, other than 
disclosures that are subject to paragraph (b) or (c) of this section, 
if:
    (ii) The individual agrees to the disclosure; or
    (iii) The covered entity is unable to obtain the individual's 
agreement because of incapacity or other emergency circumstance, 
provided that:
    (A) The law enforcement official represents that such information is 
needed to determine whether a violation of law by a person other than 
the victim has occurred, and such information is not intended to be used 
against the victim;
    (B) The law enforcement official represents that immediate law 
enforcement activity that depends upon the

[[Page 713]]

disclosure would be materially and adversely affected by waiting until 
the individual is able to agree to the disclosure; and
    (C) The disclosure is in the best interests of the individual as 
determined by the covered entity, in the exercise of professional 
judgment.
    (4) Permitted disclosure: Decedents. A covered entity may disclose 
protected health information about an individual who has died to a law 
enforcement official for the purpose of alerting law enforcement of the 
death of the individual if the covered entity has a suspicion that such 
death may have resulted from criminal conduct.
    (5) Permitted disclosure: Crime on premises. A covered entity may 
disclose to a law enforcement official protected health information that 
the covered entity believes in good faith constitutes evidence of 
criminal conduct that occurred on the premises of the covered entity.
    (6) Permitted disclosure: Reporting crime in emergencies. (i) A 
covered health care provider providing emergency health care in response 
to a medical emergency, other than such emergency on the premises of the 
covered health care provider, may disclose protected health information 
to a law enforcement official if such disclosure appears necessary to 
alert law enforcement to:
    (A) The commission and nature of a crime;
    (B) The location of such crime or of the victim(s) of such crime; 
and
    (C) The identity, description, and location of the perpetrator of 
such crime.
    (ii) If a covered health care provider believes that the medical 
emergency described in paragraph (f)(6)(i) of this section is the result 
of abuse, neglect, or domestic violence of the individual in need of 
emergency health care, paragraph (f)(6)(i) of this section does not 
apply and any disclosure to a law enforcement official for law 
enforcement purposes is subject to paragraph (c) of this section.
    (g) Standard: Uses and disclosures about decedents. (1) Coroners and 
medical examiners. A covered entity may disclose protected health 
information to a coroner or medical examiner for the purpose of 
identifying a deceased person, determining a cause of death, or other 
duties as authorized by law. A covered entity that also performs the 
duties of a coroner or medical examiner may use protected health 
information for the purposes described in this paragraph.
    (2) Funeral directors. A covered entity may disclose protected 
health information to funeral directors, consistent with applicable law, 
as necessary to carry out their duties with respect to the decedent. If 
necessary for funeral directors carry out their duties, the covered 
entity may disclose the protected health information prior to, and in 
reasonable anticipation of, the individual's death.
    (h) Standard: Uses and disclosures for cadaveric organ, eye or 
tissue donation purposes. A covered entity may use or disclose protected 
health information to organ procurement organizations or other entities 
engaged in the procurement, banking, or transplantation of cadaveric 
organs, eyes, or tissue for the purpose of facilitating organ, eye or 
tissue donation and transplantation.
    (i) Standard: Uses and disclosures for research purposes. (1) 
Permitted uses and disclosures. A covered entity may use or disclose 
protected health information for research, regardless of the source of 
funding of the research, provided that:
    (i) Board approval of a waiver of authorization. The covered entity 
obtains documentation that an alteration to or waiver, in whole or in 
part, of the individual authorization required by Sec. 164.508 for use 
or disclosure of protected health information has been approved by 
either:
    (A) An Institutional Review Board (IRB), established in accordance 
with 7 CFR lc.107, 10 CFR 745.107, 14 CFR 1230.107, 15 CFR 27.107, 16 
CFR 1028.107, 21 CFR 56.107, 22 CFR 225.107, 24 CFR 60.107, 28 CFR 
46.107, 32 CFR 219.107, 34 CFR 97.107, 38 CFR 16.107, 40 CFR 26.107, 45 
CFR 46.107, 45 CFR 690.107, or 49 CFR 11.107; or
    (B) A privacy board that:
    (1) Has members with varying backgrounds and appropriate 
professional competency as necessary to review the effect of the 
research protocol on the individual's privacy rights and related 
interests;

[[Page 714]]

    (2) Includes at least one member who is not affiliated with the 
covered entity, not affiliated with any entity conducting or sponsoring 
the research, and not related to any person who is affiliated with any 
of such entities; and
    (3) Does not have any member participating in a review of any 
project in which the member has a conflict of interest.
    (ii) Reviews preparatory to research. The covered entity obtains 
from the researcher representations that:
    (A) Use or disclosure is sought solely to review protected health 
information as necessary to prepare a research protocol or for similar 
purposes preparatory to research;
    (B) No protected health information is to be removed from the 
covered entity by the researcher in the course of the review; and
    (C) The protected health information for which use or access is 
sought is necessary for the research purposes.
    (iii) Research on decedent's information. The covered entity obtains 
from the researcher:
    (A) Representation that the use or disclosure is sought is solely 
for research on the protected health information of decedents;
    (B) Documentation, at the request of the covered entity, of the 
death of such individuals; and
    (C) Representation that the protected health information for which 
use or disclosure is sought is necessary for the research purposes.
    (2) Documentation of waiver approval. For a use or disclosure to be 
permitted based on documentation of approval of an alteration or waiver, 
under paragraph (i)(1)(i) of this section, the documentation must 
include all of the following:
    (i) Identification and date of action. A statement identifying the 
IRB or privacy board and the date on which the alteration or waiver of 
authorization was approved;
    (ii) Waiver criteria. A statement that the IRB or privacy board has 
determined that the alteration or waiver, in whole or in part, of 
authorization satisfies the following criteria:
    (A) The use or disclosure of protected health information involves 
no more than minimal risk to the individuals;
    (B) The alteration or waiver will not adversely affect the privacy 
rights and the welfare of the individuals;
    (C) The research could not practicably be conducted without the 
alteration or waiver;
    (D) The research could not practicably be conducted without access 
to and use of the protected health information;
    (E) The privacy risks to individuals whose protected health 
information is to be used or disclosed are reasonable in relation to the 
anticipated benefits if any to the individuals, and the importance of 
the knowledge that may reasonably be expected to result from the 
research;
    (F) There is an adequate plan to protect the identifiers from 
improper use and disclosure;
    (G) There is an adequate plan to destroy the identifiers at the 
earliest opportunity consistent with conduct of the research, unless 
there is a health or research justification for retaining the 
identifiers, or such retention is otherwise required by law; and
    (H) There are adequate written assurances that the protected health 
information will not be reused or disclosed to any other person or 
entity, except as required by law, for authorized oversight of the 
research project, or for other research for which the use or disclosure 
of protected health information would be permitted by this subpart.
    (iii) Protected health information needed. A brief description of 
the protected health information for which use or access has been 
determined to be necessary by the IRB or privacy board has determined, 
pursuant to paragraph (i)(2)(ii)(D) of this section;
    (iv) Review and approval procedures. A statement that the alteration 
or waiver of authorization has been reviewed and approved under either 
normal or expedited review procedures, as follows:
    (A) An IRB must follow the requirements of the Common Rule, 
including the normal review procedures (7 CFR 1c.108(b), 10 CFR 
745.108(b), 14 CFR 1230.108(b), 15 CFR 27.108(b), 16 CFR 1028.108(b), 21 
CFR 56.108(b), 22 CFR 225.108(b), 24 CFR 60.108(b), 28 CFR 46.108(b), 32 
CFR 219.108(b), 34 CFR 97.108(b), 38 CFR 16.108(b), 40 CFR

[[Page 715]]

26.108(b), 45 CFR 46.108(b), 45 CFR 690.108(b), or 49 CFR 11.108(b)) or 
the expedited review procedures (7 CFR 1c.110, 10 CFR 745.110, 14 CFR 
1230.110, 15 CFR 27.110, 16 CFR 1028.110, 21 CFR 56.110, 22 CFR 225.110, 
24 CFR 60.110, 28 CFR 46.110, 32 CFR 219.110, 34 CFR 97.110, 38 CFR 
16.110, 40 CFR 26.110, 45 CFR 46.110, 45 CFR 690.110, or 49 CFR 11.110);
    (B) A privacy board must review the proposed research at convened 
meetings at which a majority of the privacy board members are present, 
including at least one member who satisfies the criterion stated in 
paragraph (i)(1)(i)(B)(2) of this section, and the alteration or waiver 
of authorization must be approved by the majority of the privacy board 
members present at the meeting, unless the privacy board elects to use 
an expedited review procedure in accordance with paragraph (i)(2)(iv)(C) 
of this section;
    (C) A privacy board may use an expedited review procedure if the 
research involves no more than minimal risk to the privacy of the 
individuals who are the subject of the protected health information for 
which use or disclosure is being sought. If the privacy board elects to 
use an expedited review procedure, the review and approval of the 
alteration or waiver of authorization may be carried out by the chair of 
the privacy board, or by one or more members of the privacy board as 
designated by the chair; and
    (v) Required signature. The documentation of the alteration or 
waiver of authorization must be signed by the chair or other member, as 
designated by the chair, of the IRB or the privacy board, as applicable.
    (j) Standard: Uses and disclosures to avert a serious threat to 
health or safety. (1) Permitted disclosures. A covered entity may, 
consistent with applicable law and standards of ethical conduct, use or 
disclose protected health information, if the covered entity, in good 
faith, believes the use or disclosure:
    (i)(A) Is necessary to prevent or lessen a serious and imminent 
threat to the health or safety of a person or the public; and
    (B) Is to a person or persons reasonably able to prevent or lessen 
the threat, including the target of the threat; or
    (ii) Is necessary for law enforcement authorities to identify or 
apprehend an individual:
    (A) Because of a statement by an individual admitting participation 
in a violent crime that the covered entity reasonably believes may have 
caused serious physical harm to the victim; or
    (B) Where it appears from all the circumstances that the individual 
has escaped from a correctional institution or from lawful custody, as 
those terms are defined in Sec. 164.501.
    (2) Use or disclosure not permitted. A use or disclosure pursuant to 
paragraph (j)(1)(ii)(A) of this section may not be made if the 
information described in paragraph (j)(1)(ii)(A) of this section is 
learned by the covered entity:
    (i) In the course of treatment to affect the propensity to commit 
the criminal conduct that is the basis for the disclosure under 
paragraph (j)(1)(ii)(A) of this section, or counseling or therapy; or
    (ii) Through a request by the individual to initiate or to be 
referred for the treatment, counseling, or therapy described in 
paragraph (j)(2)(i) of this section.
    (3) Limit on information that may be disclosed. A disclosure made 
pursuant to paragraph (j)(1)(ii)(A) of this section shall contain only 
the statement described in paragraph (j)(1)(ii)(A) of this section and 
the protected health information described in paragraph (f)(2)(i) of 
this section.
    (4) Presumption of good faith belief. A covered entity that uses or 
discloses protected health information pursuant to paragraph (j)(1) of 
this section is presumed to have acted in good faith with regard to a 
belief described in paragraph (j)(1)(i) or (ii) of this section, if the 
belief is based upon the covered entity's actual knowledge or in 
reliance on a credible representation by a person with apparent 
knowledge or authority.
    (k) Standard: Uses and disclosures for specialized government 
functions. (1) Military and veterans activities. (i) Armed Forces 
personnel. A covered entity may use and disclose the protected health 
information of individuals who are

[[Page 716]]

Armed Forces personnel for activities deemed necessary by appropriate 
military command authorities to assure the proper execution of the 
military mission, if the appropriate military authority has published by 
notice in the Federal Register the following information:
    (A) Appropriate military command authorities; and
    (B) The purposes for which the protected health information may be 
used or disclosed.
    (ii) Separation or discharge from military service. A covered entity 
that is a component of the Departments of Defense or Transportation may 
disclose to the Department of Veterans Affairs (DVA) the protected 
health information of an individual who is a member of the Armed Forces 
upon the separation or discharge of the individual from military service 
for the purpose of a determination by DVA of the individual's 
eligibility for or entitlement to benefits under laws administered by 
the Secretary of Veterans Affairs.
    (iii) Veterans. A covered entity that is a component of the 
Department of Veterans Affairs may use and disclose protected health 
information to components of the Department that determine eligibility 
for or entitlement to, or that provide, benefits under the laws 
administered by the Secretary of Veterans Affairs.
    (iv) Foreign military personnel. A covered entity may use and 
disclose the protected health information of individuals who are foreign 
military personnel to their appropriate foreign military authority for 
the same purposes for which uses and disclosures are permitted for Armed 
Forces personnel under the notice published in the Federal Register 
pursuant to paragraph (k)(1)(i) of this section.
    (2) National security and intelligence activities. A covered entity 
may disclose protected health information to authorized federal 
officials for the conduct of lawful intelligence, counter-intelligence, 
and other national security activities authorized by the National 
Security Act (50 U.S.C. 401, et seq.) and implementing authority (e.g., 
Executive Order 12333).
    (3) Protective services for the President and others. A covered 
entity may disclose protected health information to authorized federal 
officials for the provision of protective services to the President or 
other persons authorized by 18 U.S.C. 3056, or to foreign heads of state 
or other persons authorized by 22 U.S.C. 2709(a)(3), or to for the 
conduct of investigations authorized by 18 U.S.C. 871 and 879.
    (4) Medical suitability determinations. A covered entity that is a 
component of the Department of State may use protected health 
information to make medical suitability determinations and may disclose 
whether or not the individual was determined to be medically suitable to 
the officials in the Department of State who need access to such 
information for the following purposes:
    (i) For the purpose of a required security clearance conducted 
pursuant to Executive Orders 10450 and 12698;
    (ii) As necessary to determine worldwide availability or 
availability for mandatory service abroad under sections 101(a)(4) and 
504 of the Foreign Service Act; or
    (iii) For a family to accompany a Foreign Service member abroad, 
consistent with section 101(b)(5) and 904 of the Foreign Service Act.
    (5) Correctional institutions and other law enforcement custodial 
situations. (i) Permitted disclosures. A covered entity may disclose to 
a correctional institution or a law enforcement official having lawful 
custody of an inmate or other individual protected health information 
about such inmate or individual, if the correctional institution or such 
law enforcement official represents that such protected health 
information is necessary for:
    (A) The provision of health care to such individuals;
    (B) The health and safety of such individual or other inmates;
    (C) The health and safety of the officers or employees of or others 
at the correctional institution;
    (D) The health and safety of such individuals and officers or other 
persons responsible for the transporting of inmates or their transfer 
from one institution, facility, or setting to another;
    (E) Law enforcement on the premises of the correctional institution; 
and

[[Page 717]]

    (F) The administration and maintenance of the safety, security, and 
good order of the correctional institution.
    (ii) Permitted uses. A covered entity that is a correctional 
institution may use protected health information of individuals who are 
inmates for any purpose for which such protected health information may 
be disclosed.
    (iii) No application after release. For the purposes of this 
provision, an individual is no longer an inmate when released on parole, 
probation, supervised release, or otherwise is no longer in lawful 
custody.
    (6) Covered entities that are government programs providing public 
benefits. (i) A health plan that is a government program providing 
public benefits may disclose protected health information relating to 
eligibility for or enrollment in the health plan to another agency 
administering a government program providing public benefits if the 
sharing of eligibility or enrollment information among such government 
agencies or the maintenance of such information in a single or combined 
data system accessible to all such government agencies is required or 
expressly authorized by statute or regulation.
    (ii) A covered entity that is a government agency administering a 
government program providing public benefits may disclose protected 
health information relating to the program to another covered entity 
that is a government agency administering a government program providing 
public benefits if the programs serve the same or similar populations 
and the disclosure of protected health information is necessary to 
coordinate the covered functions of such programs or to improve 
administration and management relating to the covered functions of such 
programs.
    (l) Standard: Disclosures for workers' compensation. A covered 
entity may disclose protected health information as authorized by and to 
the extent necessary to comply with laws relating to workers' 
compensation or other similar programs, established by law, that provide 
benefits for work-related injuries or illness without regard to fault.

    Effective Date Note: At 67 FR 53270, Aug. 14, 2002, Sec. 164.512 was 
amended by revising the section heading and the first sentence of the 
introductory text; revising paragraph (b)(1)(iii); in paragraph 
(b)(1)(v)(A) removing the word ``a'' before the word ``health''; adding 
the word ``and'' after the semicolon at the end of paragraph 
(b)(1)(v)(C); redesignating paragraphs (f)(3)(ii) and (iii) as (f)(3)(i) 
and (ii); in the second sentence of paragraph (g)(2) add the word ``to'' 
after the word ``directors''; in paragraph (i)(1)(iii)(A) removing the 
word ``is'' after the word ``disclosure''; revising paragraph 
(i)(2)(ii); in paragraph (i)(2)(iii) remove ``(i)(2)(ii)(D)'' and add in 
its place ``(i)(2)(ii)(C)'', effective Oct. 15, 2002. For the 
convenience of the user, the revised text is set forth as follows:

Sec. 164.512  Uses and disclosures for which an authorization or 
          opportunity to agree or object is not required.

    A covered entity may use or disclose protected health information 
without the written authorization of the individual, as described in 
Sec. 164.508, or the opportunity for the individual to agree or object 
as described in Sec. 164.510, in the situations covered by this section, 
subject to the applicable requirements of this section. * * *

                                * * * * *

    (b) Standard: uses and disclosures for public health activities.
    (1) Permitted disclosures. * * *
    (iii) A person subject to the jurisdiction of the Food and Drug 
Administration (FDA) with respect to an FDA-regulated product or 
activity for which that person has responsibility, for the purpose of 
activities related to the quality, safety or effectiveness of such FDA-
regulated product or activity. Such purposes include:
    (A) To collect or report adverse events (or similar activities with 
respect to food or dietary supplements), product defects or problems 
(including problems with the use or labeling of a product), or 
biological product deviations;
    (B) To track FDA-regulated products;
    (C) To enable product recalls, repairs, or replacement, or lookback 
(including locating and notifying individuals who have received products 
that have been recalled, withdrawn, or are the subject of lookback); or
    (D) To conduct post marketing surveillance;

                                * * * * *

    (i) Standard: Uses and disclosures for research purposes. * * *
    (2) Documentation of waiver approval. * * *
    (ii) Waiver criteria. A statement that the IRB or privacy board has 
determined that the alteration or waiver, in whole or in part, of 
authorization satisfies the following criteria:

[[Page 718]]

    (A) The use or disclosure of protected health information involves 
no more than a minimal risk to the privacy of individuals, based on, at 
least, the presence of the following elements;
    (1) An adequate plan to protect the identifiers from improper use 
and disclosure;
    (2) An adequate plan to destroy the identifiers at the earliest 
opportunity consistent with conduct of the research, unless there is a 
health or research justification for retaining the identifiers or such 
retention is otherwise required by law; and
    (3) Adequate written assurances that the protected health 
information will not be reused or disclosed to any other person or 
entity, except as required by law, for authorized oversight of the 
research study, or for other research for which the use or disclosure of 
protected health information would be permitted by this subpart;
    (B) The research could not practicably be conducted without the 
waiver or alteration; and
    (C) The research could not practicably be conducted without access 
to and use of the protected health information.

                                * * * * *



Sec. 164.514  Other requirements relating to uses and disclosures of protected health information.

    (a) Standard: de-identification of protected health information. 
Health information that does not identify an individual and with respect 
to which there is no reasonable basis to believe that the information 
can be used to identify an individual is not individually identifiable 
health information.
    (b) Implementation specifications: requirements for de-
identification of protected health information. A covered entity may 
determine that health information is not individually identifiable 
health information only if:
    (1) A person with appropriate knowledge of and experience with 
generally accepted statistical and scientific principles and methods for 
rendering information not individually identifiable:
    (i) Applying such principles and methods, determines that the risk 
is very small that the information could be used, alone or in 
combination with other reasonably available information, by an 
anticipated recipient to identify an individual who is a subject of the 
information; and
    (ii) Documents the methods and results of the analysis that justify 
such determination; or
    (2)(i) The following identifiers of the individual or of relatives, 
employers, or household members of the individual, are removed:
    (A) Names;
    (B) All geographic subdivisions smaller than a State, including 
street address, city, county, precinct, zip code, and their equivalent 
geocodes, except for the initial three digits of a zip code if, 
according to the current publicly available data from the Bureau of the 
Census:
    (1) The geographic unit formed by combining all zip codes with the 
same three initial digits contains more than 20,000 people; and
    (2) The initial three digits of a zip code for all such geographic 
units containing 20,000 or fewer people is changed to 000.
    (C) All elements of dates (except year) for dates directly related 
to an individual, including birth date, admission date, discharge date, 
date of death; and all ages over 89 and all elements of dates (including 
year) indicative of such age, except that such ages and elements may be 
aggregated into a single category of age 90 or older;
    (D) Telephone numbers;
    (E) Fax numbers;
    (F) Electronic mail addresses;
    (G) Social security numbers;
    (H) Medical record numbers;
    (I) Health plan beneficiary numbers;
    (J) Account numbers;
    (K) Certificate/license numbers;
    (L) Vehicle identifiers and serial numbers, including license plate 
numbers;
    (M) Device identifiers and serial numbers;
    (N) Web Universal Resource Locators (URLs);
    (O) Internet Protocol (IP) address numbers;
    (P) Biometric identifiers, including finger and voice prints;
    (Q) Full face photographic images and any comparable images; and
    (R) Any other unique identifying number, characteristic, or code; 
and
    (ii) The covered entity does not have actual knowledge that the 
information could be used alone or in combination

[[Page 719]]

with other information to identify an individual who is a subject of the 
information.
    (c) Implementation specifications: re-identification. A covered 
entity may assign a code or other means of record identification to 
allow information de-identified under this section to be re-identified 
by the covered entity, provided that:
    (1) Derivation. The code or other means of record identification is 
not derived from or related to information about the individual and is 
not otherwise capable of being translated so as to identify the 
individual; and
    (2) Security. The covered entity does not use or disclose the code 
or other means of record identification for any other purpose, and does 
not disclose the mechanism for re-identification.
    (d)(1) Standard: minimum necessary requirements. A covered entity 
must reasonably ensure that the standards, requirements, and 
implementation specifications of Sec. 164.502(b) and this section 
relating to a request for or the use and disclosure of the minimum 
necessary protected health information are met.
    (2) Implementation specifications: minimum necessary uses of 
protected health information. (i) A covered entity must identify:
    (A) Those persons or classes of persons, as appropriate, in its 
workforce who need access to protected health information to carry out 
their duties; and
    (B) For each such person or class of persons, the category or 
categories of protected health information to which access is needed and 
any conditions appropriate to such access.
    (ii) A covered entity must make reasonable efforts to limit the 
access of such persons or classes identified in paragraph (d)(2)(i)(A) 
of this section to protected health information consistent with 
paragraph (d)(2)(i)(B) of this section.
    (3) Implementation specification: Minimum necessary disclosures of 
protected health information. (i) For any type of disclosure that it 
makes on a routine and recurring basis, a covered entity must implement 
policies and procedures (which may be standard protocols) that limit the 
protected health information disclosed to the amount reasonably 
necessary to achieve the purpose of the disclosure.
    (ii) For all other disclosures, a covered entity must:
    (A) Develop criteria designed to limit the protected health 
information disclosed to the information reasonably necessary to 
accomplish the purpose for which disclosure is sought; and
    (B) Review requests for disclosure on an individual basis in 
accordance with such criteria.
    (iii) A covered entity may rely, if such reliance is reasonable 
under the circumstances, on a requested disclosure as the minimum 
necessary for the stated purpose when:
    (A) Making disclosures to public officials that are permitted under 
Sec. 164.512, if the public official represents that the information 
requested is the minimum necessary for the stated purpose(s);
    (B) The information is requested by another covered entity;
    (C) The information is requested by a professional who is a member 
of its workforce or is a business associate of the covered entity for 
the purpose of providing professional services to the covered entity, if 
the professional represents that the information requested is the 
minimum necessary for the stated purpose(s); or
    (D) Documentation or representations that comply with the applicable 
requirements of Sec. 164.512(i) have been provided by a person 
requesting the information for research purposes.
    (4) Implementation specifications: Minimum necessary requests for 
protected health information. (i) A covered entity must limit any 
request for protected health information to that which is reasonably 
necessary to accomplish the purpose for which the request is made, when 
requesting such information from other covered entities.
    (ii) For a request that is made on a routine and recurring basis, a 
covered entity must implement policies and procedures (which may be 
standard protocols) that limit the protected health information 
requested to the amount reasonably necessary to accomplish the purpose 
for which the request is made.
    (iii) For all other requests, a covered entity must review the 
request on an

[[Page 720]]

individual basis to determine that the protected health information 
sought is limited to the information reasonably necessary to accomplish 
the purpose for which the request is made.
    (5) Implementation specification: Other content requirement. For all 
uses, disclosures, or requests to which the requirements in paragraph 
(d) of this section apply, a covered entity may not use, discloses or 
request an entire medical record, except when the entire medical record 
is specifically justified as the amount that is reasonably necessary to 
accomplish the purpose of the use, disclosure, or request.
    (e)(1) Standard: Uses and disclosures of protected health 
information for marketing. A covered entity may not use or disclose 
protected health information for marketing without an authorization that 
meets the applicable requirements of Sec. 164.508, except as provided 
for by paragraph (e)(2) of this section.
    (2) Implementation specifications: Requirements relating to 
marketing. (i) A covered entity is not required to obtain an 
authorization under Sec. 164.508 when it uses or discloses protected 
health information to make a marketing communication to an individual 
that:
    (A) Occurs in a face-to-face encounter with the individual;
    (B) Concerns products or services of nominal value; or
    (C) Concerns the health-related products and services of the covered 
entity or of a third party and the communication meets the applicable 
conditions in paragraph (e)(3) of this section.
    (ii) A covered entity may disclose protected health information for 
purposes of such communications only to a business associate that 
assists the covered entity with such communications.
    (3) Implementation specifications: Requirements for certain 
marketing communications. For a marketing communication to qualify under 
paragraph (e)(2)(i) of this section, the following conditions must be 
met:
    (i) The communication must:
    (A) Identify the covered entity as the party making the 
communication;
    (B) If the covered entity has received or will receive direct or 
indirect remuneration for making the communication, prominently state 
that fact; and
    (C) Except when the communication is contained in a newsletter or 
similar type of general communication device that the covered entity 
distributes to a broad cross-section of patients, enrollees, or other 
broad groups of individuals, contain instructions describing how the 
individual may opt out of receiving future such communications.
    (ii) If the covered entity uses or discloses protected health 
information to target the communication to individuals based on their 
health status or condition:
    (A) The covered entity must make a determination prior to making the 
communication that the product or service being marketed may be 
beneficial to the health of the type or class of individual targeted; 
and
    (B) The communication must explain why the individual has been 
targeted and how the product or service relates to the health of the 
individual.
    (iii) The covered entity must make reasonable efforts to ensure that 
individuals who decide to opt out of receiving future marketing 
communications, under paragraph (e)(3)(i)(C) of this section, are not 
sent such communications.
    (f)(1) Standard: Uses and disclosures for fundraising. A covered 
entity may use, or disclose to a business associate or to an 
institutionally related foundation, the following protected health 
information for the purpose of raising funds for its own benefit, 
without an authorization meeting the requirements of Sec. 164.508:
    (i) Demographic information relating to an individual; and
    (ii) Dates of health care provided to an individual.
    (2) Implementation specifications: Fundraising requirements. (i) The 
covered entity may not use or disclose protected health information for 
fundraising purposes as otherwise permitted by paragraph (f)(1) of this 
section unless a statement required by Sec. 164.520(b)(1)(iii)(B) is 
included in the covered entity's notice;
    (ii) The covered entity must include in any fundraising materials it 
sends to an individual under this paragraph a description of how the 
individual may opt out of receiving any further fundraising 
communications.

[[Page 721]]

    (iii) The covered entity must make reasonable efforts to ensure that 
individuals who decide to opt out of receiving future fundraising 
communications are not sent such communications.
    (g) Standard: Uses and disclosures for underwriting and related 
purposes. If a health plan receives protected heath information for the 
purpose of underwriting, premium rating, or other activities relating to 
the creation, renewal, or replacement of a contract of health insurance 
or health benefits, and if such health insurance or health benefits are 
not placed with the health plan, such health plan may not use or 
disclose such protected health information for any other purpose, except 
as may be required by law.
    (h)(1) Standard: Verification requirements. Prior to any disclosure 
permitted by this subpart, a covered entity must:
    (i) Except with respect to disclosures under Sec. 164.510, verify 
the identity of a person requesting protected health information and the 
authority of any such person to have access to protected health 
information under this subpart, if the identity or any such authority of 
such person is not known to the covered entity; and
    (ii) Obtain any documentation, statements, or representations, 
whether oral or written, from the person requesting the protected health 
information when such documentation, statement, or representation is a 
condition of the disclosure under this subpart.
    (2) Implementation specifications: Verification. (i) Conditions on 
disclosures. If a disclosure is conditioned by this subpart on 
particular documentation, statements, or representations from the person 
requesting the protected health information, a covered entity may rely, 
if such reliance is reasonable under the circumstances, on 
documentation, statements, or representations that, on their face, meet 
the applicable requirements.
    (A) The conditions in Sec. 164.512(f)(1)(ii)(C) may be satisfied by 
the administrative subpoena or similar process or by a separate written 
statement that, on its face, demonstrates that the applicable 
requirements have been met.
    (B) The documentation required by Sec. 164.512(i)(2) may be 
satisfied by one or more written statements, provided that each is 
appropriately dated and signed in accordance with Sec. 164.512(i)(2)(i) 
and (v).
    (ii) Identity of public officials. A covered entity may rely, if 
such reliance is reasonable under the circumstances, on any of the 
following to verify identity when the disclosure of protected health 
information is to a public official or a person acting on behalf of the 
public official:
    (A) If the request is made in person, presentation of an agency 
identification badge, other official credentials, or other proof of 
government status;
    (B) If the request is in writing, the request is on the appropriate 
government letterhead; or
    (C) If the disclosure is to a person acting on behalf of a public 
official, a written statement on appropriate government letterhead that 
the person is acting under the government's authority or other evidence 
or documentation of agency, such as a contract for services, memorandum 
of understanding, or purchase order, that establishes that the person is 
acting on behalf of the public official.
    (iii) Authority of public officials. A covered entity may rely, if 
such reliance is reasonable under the circumstances, on any of the 
following to verify authority when the disclosure of protected health 
information is to a public official or a person acting on behalf of the 
public official:
    (A) A written statement of the legal authority under which the 
information is requested, or, if a written statement would be 
impracticable, an oral statement of such legal authority;
    (B) If a request is made pursuant to legal process, warrant, 
subpoena, order, or other legal process issued by a grand jury or a 
judicial or administrative tribunal is presumed to constitute legal 
authority.
    (iv) Exercise of professional judgment. The verification 
requirements of this paragraph are met if the covered entity relies on 
the exercise of professional judgment in making a use or disclosure in 
accordance with Sec. 164.510 or acts on a good faith belief in making a 
disclosure in accordance with Sec. 164.512(j).

[[Page 722]]


    Effective Date Note: At 67 FR 53270, Aug. 14, 2002, Sec. 164.514 was 
amended by revising paragraphs (b)(2)(i)(R), (d)(1), (d)(4)(iii), and 
(e); and in paragraph (d)(5), removing the word ``discloses'' and adding 
in its place the word ``disclose'', effective Oct. 15, 2002. For the 
convenience of the user, the revised text is set forth as follows:

Sec. 164.514  Other requirements relating to uses and disclosures of 
          protected health information.

                                * * * * *

    (b) Implementation specifications: Requirements for de-
identification of protected health information. * * *
    (2)(i) * * *
    (R) Any other unique identifying number, characteristic, or code, 
except as permitted by paragraph (c) of this section; and

                                * * * * *

    (d)(1) Standard: minimum necessary requirements. In order to comply 
with Sec. 164.502(b) and this section, a covered entity must meet the 
requirements of paragraphs (d)(2) through (d)(5) of this section with 
respect to a request for, or the use and disclosure of, protected health 
information.

                                * * * * *

    (4) Implementation specifications: Minimum necessary requests for 
protected health information. * * *
    (iii) For all other requests, a covered entity must:
    (A) Develop criteria designed to limit the request for protected 
health information to the information reasonably necessary to accomplish 
the purpose for which the request is made; and
    (B) Review requests for disclosure on an individual basis in 
accordance with such criteria.

                                * * * * *

    (e) (1) Standard: Limited data set. A covered entity may use or 
disclose a limited data set that meets the requirements of paragraphs 
(e)(2) and (e)(3) of this section, if the covered entity enters into a 
data use agreement with the limited data set recipient, in accordance 
with paragraph (e)(4) of this section.
    (2) Implementation specification: Limited data set: A limited data 
set is protected health information that excludes the following direct 
identifiers of the individual or of relatives, employers, or household 
members of the individual:
    (i) Names;
    (ii) Postal address information, other than town or city, State, and 
zip code;
    (iii) Telephone numbers;
    (iv) Fax numbers;
    (v) Electronic mail addresses;
    (vi) Social security numbers;
    (vii) Medical record numbers;
    (viii) Health plan beneficiary numbers;
    (ix) Account numbers;
    (x) Certificate/license numbers;
    (xi) Vehicle identifiers and serial numbers, including license plate 
numbers;
    (xii) Device identifiers and serial numbers;
    (xiii) Web Universal Resource Locators (URLs);
    (xiv) Internet Protocol (IP) address numbers;
    (xv) Biometric identifiers, including finger and voice prints; and
    (xvi) Full face photographic images and any comparable images.
    (3) Implementation specification: Permitted purposes for uses and 
disclosures. (i) A covered entity may use or disclose a limited data set 
under paragraph (e)(1) of this section only for the purposes of 
research, public health, or health care operations.
    (ii) A covered entity may use protected health information to create 
a limited data set that meets the requirements of paragraph (e)(2) of 
this section, or disclose protected health information only to a 
business associate for such purpose, whether or not the limited data set 
is to be used by the covered entity.
    (4) Implementation specifications: Data use agreement.--(i) 
Agreement required. A covered entity may use or disclose a limited data 
set under paragraph (e)(1) of this section only if the covered entity 
obtains satisfactory assurance, in the form of a data use agreement that 
meets the requirements of this section, that the limited data set 
recipient will only use or disclose the protected health information for 
limited purposes.
    (ii) Contents. A data use agreement between the covered entity and 
the limited data set recipient must:
    (A) Establish the permitted uses and disclosures of such information 
by the limited data set recipient, consistent with paragraph (e)(3) of 
this section. The data use agreement may not authorize the limited data 
set recipient to use or further disclose the information in a manner 
that would violate the requirements of this subpart, if done by the 
covered entity;
    (B) Establish who is permitted to use or receive the limited data 
set; and
    (C) Provide that the limited data set recipient will:
    (1) Not use or further disclose the information other than as 
permitted by the data use agreement or as otherwise required by law;
    (2) Use appropriate safeguards to prevent use or disclosure of the 
information other than as provided for by the data use agreement;

[[Page 723]]

    (3) Report to the covered entity any use or disclosure of the 
information not provided for by its data use agreement of which it 
becomes aware;
    (4) Ensure that any agents, including a subcontractor, to whom it 
provides the limited data set agrees to the same restrictions and 
conditions that apply to the limited data set recipient with respect to 
such information; and
    (5) Not identify the information or contact the individuals.
    (iii) Compliance. (A) A covered entity is not in compliance with the 
standards in paragraph (e) of this section if the covered entity knew of 
a pattern of activity or practice of the limited data set recipient that 
constituted a material breach or violation of the data use agreement, 
unless the covered entity took reasonable steps to cure the breach or 
end the violation, as applicable, and, if such steps were unsuccessful:
    (1) Discontinued disclosure of protected health information to the 
recipient; and
    (2) Reported the problem to the Secretary.
    (B) A covered entity that is a limited data set recipient and 
violates a data use agreement will be in noncompliance with the 
standards, implementation specifications, and requirements of paragraph 
(e) of this section.

                                * * * * *



Sec. 164.520  Notice of privacy practices for protected health information.

    (a) Standard: notice of privacy practices--(1) Right to notice. 
Except as provided by paragraph (a)(2) or (3) of this section, an 
individual has a right to adequate notice of the uses and disclosures of 
protected health information that may be made by the covered entity, and 
of the individual's rights and the covered entity's legal duties with 
respect to protected health information.
    (2) Exception for group health plans. (i) An individual enrolled in 
a group health plan has a right to notice:
    (A) From the group health plan, if, and to the extent that, such an 
individual does not receive health benefits under the group health plan 
through an insurance contract with a health insurance issuer or HMO; or
    (B) From the health insurance issuer or HMO with respect to the 
group health plan through which such individuals receive their health 
benefits under the group health plan.
    (ii) A group health plan that provides health benefits solely 
through an insurance contract with a health insurance issuer or HMO, and 
that creates or receives protected health information in addition to 
summary health information as defined in Sec. 164.504(a) or information 
on whether the individual is participating in the group health plan, or 
is enrolled in or has disenrolled from a health insurance issuer or HMO 
offered by the plan, must:
    (A) Maintain a notice under this section; and
    (B) Provide such notice upon request to any person. The provisions 
of paragraph (c)(1) of this section do not apply to such group health 
plan.
    (iii) A group health plan that provides health benefits solely 
through an insurance contract with a health insurance issuer or HMO, and 
does not create or receive protected health information other than 
summary health information as defined in Sec. 164.504(a) or information 
on whether an individual is participating in the group health plan, or 
is enrolled in or has disenrolled from a health insurance issuer or HMO 
offered by the plan, is not required to maintain or provide a notice 
under this section.
    (3) Exception for inmates. An inmate does not have a right to notice 
under this section, and the requirements of this section do not apply to 
a correctional institution that is a covered entity.
    (b) Implementation specifications: content of notice--(1) Required 
elements. The covered entity must provide a notice that is written in 
plain language and that contains the elements required by this 
paragraph.
    (i) Header. The notice must contain the following statement as a 
header or otherwise prominently displayed: ``THIS NOTICE DESCRIBES HOW 
MEDICAL INFORMATION ABOUT YOU MAY BE USED AND DISCLOSED AND HOW YOU CAN 
GET ACCESS TO THIS INFORMATION. PLEASE REVIEW IT CAREFULLY.''
    (ii) Uses and disclosures. The notice must contain:
    (A) A description, including at least one example, of the types of 
uses and disclosures that the covered entity is permitted by this 
subpart to make for

[[Page 724]]

each of the following purposes: treatment, payment, and health care 
operations.
    (B) A description of each of the other purposes for which the 
covered entity is permitted or required by this subpart to use or 
disclose protected health information without the individual's written 
consent or authorization.
    (C) If a use or disclosure for any purpose described in paragraphs 
(b)(1)(ii)(A) or (B) of this section is prohibited or materially limited 
by other applicable law, the description of such use or disclosure must 
reflect the more stringent law as defined in Sec. 160.202 of this 
subchapter.
    (D) For each purpose described in paragraph (b)(1)(ii)(A) or (B) of 
this section, the description must include sufficient detail to place 
the individual on notice of the uses and disclosures that are permitted 
or required by this subpart and other applicable law.
    (E) A statement that other uses and disclosures will be made only 
with the individual's written authorization and that the individual may 
revoke such authorization as provided by Sec. 164.508(b)(5).
    (iii) Separate statements for certain uses or disclosures. If the 
covered entity intends to engage in any of the following activities, the 
description required by paragraph (b)(1)(ii)(A) of this section must 
include a separate statement, as applicable, that:
    (A) The covered entity may contact the individual to provide 
appointment reminders or information about treatment alternatives or 
other health-related benefits and services that may be of interest to 
the individual;
    (B) The covered entity may contact the individual to raise funds for 
the covered entity; or
    (C) A group health plan, or a health insurance issuer or HMO with 
respect to a group health plan, may disclose protected health 
information to the sponsor of the plan.
    (iv) Individual rights. The notice must contain a statement of the 
individual's rights with respect to protected health information and a 
brief description of how the individual may exercise these rights, as 
follows:
    (A) The right to request restrictions on certain uses and 
disclosures of protected health information as provided by 
Sec. 164.522(a), including a statement that the covered entity is not 
required to agree to a requested restriction;
    (B) The right to receive confidential communications of protected 
health information as provided by Sec. 164.522(b), as applicable;
    (C) The right to inspect and copy protected health information as 
provided by Sec. 164.524;
    (D) The right to amend protected health information as provided by 
Sec. 164.526;
    (E) The right to receive an accounting of disclosures of protected 
health information as provided by Sec. 164.528; and
    (F) The right of an individual, including an individual who has 
agreed to receive the notice electronically in accordance with paragraph 
(c)(3) of this section, to obtain a paper copy of the notice from the 
covered entity upon request.
    (v) Covered entity's duties. The notice must contain:
    (A) A statement that the covered entity is required by law to 
maintain the privacy of protected health information and to provide 
individuals with notice of its legal duties and privacy practices with 
respect to protected health information;
    (B) A statement that the covered entity is required to abide by the 
terms of the notice currently in effect; and
    (C) For the covered entity to apply a change in a privacy practice 
that is described in the notice to protected health information that the 
covered entity created or received prior to issuing a revised notice, in 
accordance with Sec. 164.530(i)(2)(ii), a statement that it reserves the 
right to change the terms of its notice and to make the new notice 
provisions effective for all protected health information that it 
maintains. The statement must also describe how it will provide 
individuals with a revised notice.
    (vi) Complaints. The notice must contain a statement that 
individuals may complain to the covered entity and to the Secretary if 
they believe their privacy rights have been violated, a brief 
description of how the individual may file a complaint with the covered 
entity, and a statement that the individual

[[Page 725]]

will not be retaliated against for filing a complaint.
    (vii) Contact. The notice must contain the name, or title, and 
telephone number of a person or office to contact for further 
information as required by Sec. 164.530(a)(1)(ii).
    (viii) Effective date. The notice must contain the date on which the 
notice is first in effect, which may not be earlier than the date on 
which the notice is printed or otherwise published.
    (2) Optional elements. (i) In addition to the information required 
by paragraph (b)(1) of this section, if a covered entity elects to limit 
the uses or disclosures that it is permitted to make under this subpart, 
the covered entity may describe its more limited uses or disclosures in 
its notice, provided that the covered entity may not include in its 
notice a limitation affecting its right to make a use or disclosure that 
is required by law or permitted by Sec. 164.512(j)(1)(i).
    (ii) For the covered entity to apply a change in its more limited 
uses and disclosures to protected health information created or received 
prior to issuing a revised notice, in accordance with 
Sec. 164.530(i)(2)(ii), the notice must include the statements required 
by paragraph (b)(1)(v)(C) of this section.
    (3) Revisions to the notice. The covered entity must promptly revise 
and distribute its notice whenever there is a material change to the 
uses or disclosures, the individual's rights, the covered entity's legal 
duties, or other privacy practices stated in the notice. Except when 
required by law, a material change to any term of the notice may not be 
implemented prior to the effective date of the notice in which such 
material change is reflected.
    (c) Implementation specifications: Provision of notice. A covered 
entity must make the notice required by this section available on 
request to any person and to individuals as specified in paragraphs 
(c)(1) through (c)(4) of this section, as applicable.
    (1) Specific requirements for health plans. (i) A health plan must 
provide notice:
    (A) No later than the compliance date for the health plan, to 
individuals then covered by the plan;
    (B) Thereafter, at the time of enrollment, to individuals who are 
new enrollees; and
    (C) Within 60 days of a material revision to the notice, to 
individuals then covered by the plan.
    (ii) No less frequently than once every three years, the health plan 
must notify individuals then covered by the plan of the availability of 
the notice and how to obtain the notice.
    (iii) The health plan satisfies the requirements of paragraph (c)(1) 
of this section if notice is provided to the named insured of a policy 
under which coverage is provided to the named insured and one or more 
dependents.
    (iv) If a health plan has more than one notice, it satisfies the 
requirements of paragraph (c)(1) of this section by providing the notice 
that is relevant to the individual or other person requesting the 
notice.
    (2) Specific requirements for certain covered health care providers. 
A covered health care provider that has a direct treatment relationship 
with an individual must:
    (i) Provide the notice no later than the date of the first service 
delivery, including service delivered electronically, to such individual 
after the compliance date for the covered health care provider;
    (ii) If the covered health care provider maintains a physical 
service delivery site:
    (A) Have the notice available at the service delivery site for 
individuals to request to take with them; and
    (B) Post the notice in a clear and prominent location where it is 
reasonable to expect individuals seeking service from the covered health 
care provider to be able to read the notice; and
    (iii) Whenever the notice is revised, make the notice available upon 
request on or after the effective date of the revision and promptly 
comply with the requirements of paragraph (c)(2)(ii) of this section, if 
applicable.
    (3) Specific requirements for electronic notice. (i) A covered 
entity that maintains a web site that provides information about the 
covered entity's customer services or benefits must prominently post its 
notice on the web site and make the notice available electronically 
through the web site.

[[Page 726]]

    (ii) A covered entity may provide the notice required by this 
section to an individual by e-mail, if the individual agrees to 
electronic notice and such agreement has not been withdrawn. If the 
covered entity knows that the e-mail transmission has failed, a paper 
copy of the notice must be provided to the individual. Provision of 
electronic notice by the covered entity will satisfy the provision 
requirements of paragraph (c) of this section when timely made in 
accordance with paragraph (c)(1) or (2) of this section.
    (iii) For purposes of paragraph (c)(2)(i) of this section, if the 
first service delivery to an individual is delivered electronically, the 
covered health care provider must provide electronic notice 
automatically and contemporaneously in response to the individual's 
first request for service.
    (iv) The individual who is the recipient of electronic notice 
retains the right to obtain a paper copy of the notice from a covered 
entity upon request.
    (d) Implementation specifications: Joint notice by separate covered 
entities. Covered entities that participate in organized health care 
arrangements may comply with this section by a joint notice, provided 
that:
    (1) The covered entities participating in the organized health care 
arrangement agree to abide by the terms of the notice with respect to 
protected health information created or received by the covered entity 
as part of its participation in the organized health care arrangement;
    (2) The joint notice meets the implementation specifications in 
paragraph (b) of this section, except that the statements required by 
this section may be altered to reflect the fact that the notice covers 
more than one covered entity; and
    (i) Describes with reasonable specificity the covered entities, or 
class of entities, to which the joint notice applies;
    (ii) Describes with reasonable specificity the service delivery 
sites, or classes of service delivery sites, to which the joint notice 
applies; and
    (iii) If applicable, states that the covered entities participating 
in the organized health care arrangement will share protected health 
information with each other, as necessary to carry out treatment, 
payment, or health care operations relating to the organized health care 
arrangement.
    (3) The covered entities included in the joint notice must provide 
the notice to individuals in accordance with the applicable 
implementation specifications of paragraph (c) of this section. 
Provision of the joint notice to an individual by any one of the covered 
entities included in the joint notice will satisfy the provision 
requirement of paragraph (c) of this section with respect to all others 
covered by the joint notice.
    (e) Implementation specifications: Documentation. A covered entity 
must document compliance with the notice requirements by retaining 
copies of the notices issued by the covered entity as required by 
Sec. 164.530(j).

    Effective Date Note: At 67 FR 53271, Aug. 14, 2002, Sec. 164.520, 
was amended by removing the words ``consent or'' from paragraph 
(b)(1)(ii)(B); in paragraph (c), introductory text, remove ``(c)(4)'' 
and add in its place ``(c)(3)''; revising paragraph (c)(2)(i); 
redesignating paragraphs (c)(2)(ii) and (iii) as (c)(2)(iii) and (iv); 
adding new paragraph (c)(2)(ii); amend redesignated paragraph (c)(2)(iv) 
by removing ``(c)(2)(ii)'' and adding in its place ``(c)(2)(iii)''; 
amend paragraph (c)(3)(iii) by adding a sentence at the end; revising 
paragraph (e), effective Oct. 15, 2002. For the convenience of the user, 
the added and revised text is set forth as follows:

Sec. 164.520  Notice of privacy practices for protected health 
          information.

                                * * * * *

    (c) Implementation specifications: provision of notice. * * *
    (2) Specific requirements for certain covered health care providers. 
* * *
    (i) Provide the notice:
    (A) No later than the date of the first service delivery, including 
service delivered electronically, to such individual after the 
compliance date for the covered health care provider; or
    (B) In an emergency treatment situation, as soon as reasonably 
practicable after the emergency treatment situation.
    (ii) Except in an emergency treatment situation, make a good faith 
effort to obtain a written acknowledgment of receipt of the notice 
provided in accordance with paragraph (c)(2)(i) of this section, and if 
not obtained, document its good faith efforts to obtain

[[Page 727]]

such acknowledgment and the reason why the acknowledgment was not 
obtained;

                                * * * * *

    (3) Specific requirements for electronic notice. * * *
    (iii) * * * The requirements in paragraph (c)(2)(ii) of this section 
apply to electronic notice.

                                * * * * *

    (e) Implementation specifications: Documentation. A covered entity 
must document compliance with the notice requirements, as required by 
Sec. 164.530(j), by retaining copies of the notices issued by the 
covered entity and, if applicable, any written acknowledgments of 
receipt of the notice or documentation of good faith efforts to obtain 
such written acknowledgment, in accordance with paragraph (c)(2)(ii) of 
this section.



Sec. 164.522  Rights to request privacy protection for protected health information.

    (a)(1) Standard: Right of an individual to request restriction of 
uses and disclosures. (i) A covered entity must permit an individual to 
request that the covered entity restrict:
    (A) Uses or disclosures of protected health information about the 
individual to carry out treatment, payment, or health care operations; 
and
    (B) Disclosures permitted under Sec. 164.510(b).
    (ii) A covered entity is not required to agree to a restriction.
    (iii) A covered entity that agrees to a restriction under paragraph 
(a)(1)(i) of this section may not use or disclose protected health 
information in violation of such restriction, except that, if the 
individual who requested the restriction is in need of emergency 
treatment and the restricted protected health information is needed to 
provide the emergency treatment, the covered entity may use the 
restricted protected health information, or may disclose such 
information to a health care provider, to provide such treatment to the 
individual.
    (iv) If restricted protected health information is disclosed to a 
health care provider for emergency treatment under paragraph (a)(1)(iii) 
of this section, the covered entity must request that such health care 
provider not further use or disclose the information.
    (v) A restriction agreed to by a covered entity under paragraph (a) 
of this section, is not effective under this subpart to prevent uses or 
disclosures permitted or required under Secs. 164.502(a)(2)(i), 
164.510(a) or 164.512.
    (2) Implementation specifications: Terminating a restriction. A 
covered entity may terminate its agreement to a restriction, if :
    (i) The individual agrees to or requests the termination in writing;
    (ii) The individual orally agrees to the termination and the oral 
agreement is documented; or
    (iii) The covered entity informs the individual that it is 
terminating its agreement to a restriction, except that such termination 
is only effective with respect to protected health information created 
or received after it has so informed the individual.
    (3) Implementation specification: Documentation. A covered entity 
that agrees to a restriction must document the restriction in accordance 
with Sec. 164.530(j).
    (b)(1) Standard: Confidential communications requirements. (i) A 
covered health care provider must permit individuals to request and must 
accommodate reasonable requests by individuals to receive communications 
of protected health information from the covered health care provider by 
alternative means or at alternative locations.
    (ii) A health plan must permit individuals to request and must 
accommodate reasonable requests by individuals to receive communications 
of protected health information from the health plan by alternative 
means or at alternative locations, if the individual clearly states that 
the disclosure of all or part of that information could endanger the 
individual.
    (2) Implementation specifications: Conditions on providing 
confidential communications.
    (i) A covered entity may require the individual to make a request 
for a confidential communication described in paragraph (b)(1) of this 
section in writing.
    (ii) A covered entity may condition the provision of a reasonable 
accommodation on:

[[Page 728]]

    (A) When appropriate, information as to how payment, if any, will be 
handled; and
    (B) Specification of an alternative address or other method of 
contact.
    (iii) A covered health care provider may not require an explanation 
from the individual as to the basis for the request as a condition of 
providing communications on a confidential basis.
    (iv) A health plan may require that a request contain a statement 
that disclosure of all or part of the information to which the request 
pertains could endanger the individual.

    Effective Date Note: At 67 FR 53271, Aug. 14, 2002, Sec. 164.522, 
was amended by removing the reference to ``164.502(a)(2)(i)'' in 
paragraph (a)(1)(v), and adding in its place ``164.502(a)(2)(ii)'', 
effective Oct. 15, 2002.



Sec. 164.524  Access of individuals to protected health information.

    (a) Standard: Access to protected health information. (1) Right of 
access. Except as otherwise provided in paragraph (a)(2) or (a)(3) of 
this section, an individual has a right of access to inspect and obtain 
a copy of protected health information about the individual in a 
designated record set, for as long as the protected health information 
is maintained in the designated record set, except for:
    (i) Psychotherapy notes;
    (ii) Information compiled in reasonable anticipation of, or for use 
in, a civil, criminal, or administrative action or proceeding; and
    (iii) Protected health information maintained by a covered entity 
that is:
    (A) Subject to the Clinical Laboratory Improvements Amendments of 
1988, 42 U.S.C. 263a, to the extent the provision of access to the 
individual would be prohibited by law; or
    (B) Exempt from the Clinical Laboratory Improvements Amendments of 
1988, pursuant to 42 CFR 493.3(a)(2).
    (2) Unreviewable grounds for denial. A covered entity may deny an 
individual access without providing the individual an opportunity for 
review, in the following circumstances.
    (i) The protected health information is excepted from the right of 
access by paragraph (a)(1) of this section.
    (ii) A covered entity that is a correctional institution or a 
covered health care provider acting under the direction of the 
correctional institution may deny, in whole or in part, an inmate's 
request to obtain a copy of protected health information, if obtaining 
such copy would jeopardize the health, safety, security, custody, or 
rehabilitation of the individual or of other inmates, or the safety of 
any officer, employee, or other person at the correctional institution 
or responsible for the transporting of the inmate.
    (iii) An individual's access to protected health information created 
or obtained by a covered health care provider in the course of research 
that includes treatment may be temporarily suspended for as long as the 
research is in progress, provided that the individual has agreed to the 
denial of access when consenting to participate in the research that 
includes treatment, and the covered health care provider has informed 
the individual that the right of access will be reinstated upon 
completion of the research.
    (iv) An individual's access to protected health information that is 
contained in records that are subject to the Privacy Act, 5 U.S.C. 552a, 
may be denied, if the denial of access under the Privacy Act would meet 
the requirements of that law.
    (v) An individual's access may be denied if the protected health 
information was obtained from someone other than a health care provider 
under a promise of confidentiality and the access requested would be 
reasonably likely to reveal the source of the information.
    (3) Reviewable grounds for denial. A covered entity may deny an 
individual access, provided that the individual is given a right to have 
such denials reviewed, as required by paragraph (a)(4) of this section, 
in the following circumstances:
    (i) A licensed health care professional has determined, in the 
exercise of professional judgment, that the access requested is 
reasonably likely to endanger the life or physical safety of the 
individual or another person;
    (ii) The protected health information makes reference to another 
person (unless such other person is a health care

[[Page 729]]

provider) and a licensed health care professional has determined, in the 
exercise of professional judgment, that the access requested is 
reasonably likely to cause substantial harm to such other person; or
    (iii) The request for access is made by the individual's personal 
representative and a licensed health care professional has determined, 
in the exercise of professional judgment, that the provision of access 
to such personal representative is reasonably likely to cause 
substantial harm to the individual or another person.
    (4) Review of a denial of access. If access is denied on a ground 
permitted under paragraph (a)(3) of this section, the individual has the 
right to have the denial reviewed by a licensed health care professional 
who is designated by the covered entity to act as a reviewing official 
and who did not participate in the original decision to deny. The 
covered entity must provide or deny access in accordance with the 
determination of the reviewing official under paragraph (d)(4) of this 
section.
    (b) Implementation specifications: requests for access and timely 
action. (1) Individual's request for access. The covered entity must 
permit an individual to request access to inspect or to obtain a copy of 
the protected health information about the individual that is maintained 
in a designated record set. The covered entity may require individuals 
to make requests for access in writing, provided that it informs 
individuals of such a requirement.
    (2) Timely action by the covered entity. (i) Except as provided in 
paragraph (b)(2)(ii) of this section, the covered entity must act on a 
request for access no later than 30 days after receipt of the request as 
follows.
    (A) If the covered entity grants the request, in whole or in part, 
it must inform the individual of the acceptance of the request and 
provide the access requested, in accordance with paragraph (c) of this 
section.
    (B) If the covered entity denies the request, in whole or in part, 
it must provide the individual with a written denial, in accordance with 
paragraph (d) of this section.
    (ii) If the request for access is for protected health information 
that is not maintained or accessible to the covered entity on-site, the 
covered entity must take an action required by paragraph (b)(2)(i) of 
this section by no later than 60 days from the receipt of such a 
request.
    (iii) If the covered entity is unable to take an action required by 
paragraph (b)(2)(i)(A) or (B) of this section within the time required 
by paragraph (b)(2)(i) or (ii) of this section, as applicable, the 
covered entity may extend the time for such actions by no more than 30 
days, provided that:
    (A) The covered entity, within the time limit set by paragraph 
(b)(2)(i) or (ii) of this section, as applicable, provides the 
individual with a written statement of the reasons for the delay and the 
date by which the covered entity will complete its action on the 
request; and
    (B) The covered entity may have only one such extension of time for 
action on a request for access.
    (c) Implementation specifications: Provision of access. If the 
covered entity provides an individual with access, in whole or in part, 
to protected health information, the covered entity must comply with the 
following requirements.
    (1) Providing the access requested. The covered entity must provide 
the access requested by individuals, including inspection or obtaining a 
copy, or both, of the protected health information about them in 
designated record sets. If the same protected health information that is 
the subject of a request for access is maintained in more than one 
designated record set or at more than one location, the covered entity 
need only produce the protected health information once in response to a 
request for access.
    (2) Form of access requested. (i) The covered entity must provide 
the individual with access to the protected health information in the 
form or format requested by the individual, if it is readily producible 
in such form or format; or, if not, in a readable hard copy form or such 
other form or format as agreed to by the covered entity and the 
individual.
    (ii) The covered entity may provide the individual with a summary of 
the

[[Page 730]]

protected health information requested, in lieu of providing access to 
the protected health information or may provide an explanation of the 
protected health information to which access has been provided, if:
    (A) The individual agrees in advance to such a summary or 
explanation; and
    (B) The individual agrees in advance to the fees imposed, if any, by 
the covered entity for such summary or explanation.
    (3) Time and manner of access. The covered entity must provide the 
access as requested by the individual in a timely manner as required by 
paragraph (b)(2) of this section, including arranging with the 
individual for a convenient time and place to inspect or obtain a copy 
of the protected health information, or mailing the copy of the 
protected health information at the individual's request. The covered 
entity may discuss the scope, format, and other aspects of the request 
for access with the individual as necessary to facilitate the timely 
provision of access.
    (4) Fees. If the individual requests a copy of the protected health 
information or agrees to a summary or explanation of such information, 
the covered entity may impose a reasonable, cost-based fee, provided 
that the fee includes only the cost of:
    (i) Copying, including the cost of supplies for and labor of 
copying, the protected health information requested by the individual;
    (ii) Postage, when the individual has requested the copy, or the 
summary or explanation, be mailed; and
    (iii) Preparing an explanation or summary of the protected health 
information, if agreed to by the individual as required by paragraph 
(c)(2)(ii) of this section.
    (d) Implementation specifications: Denial of access. If the covered 
entity denies access, in whole or in part, to protected health 
information, the covered entity must comply with the following 
requirements.
    (1) Making other information accessible. The covered entity must, to 
the extent possible, give the individual access to any other protected 
health information requested, after excluding the protected health 
information as to which the covered entity has a ground to deny access.
    (2) Denial. The covered entity must provide a timely, written denial 
to the individual, in accordance with paragraph (b)(2) of this section. 
The denial must be in plain language and contain:
    (i) The basis for the denial;
    (ii) If applicable, a statement of the individual's review rights 
under paragraph (a)(4) of this section, including a description of how 
the individual may exercise such review rights; and
    (iii) A description of how the individual may complain to the 
covered entity pursuant to the complaint procedures in Sec. 164.530(d) 
or to the Secretary pursuant to the procedures in Sec. 160.306. The 
description must include the name, or title, and telephone number of the 
contact person or office designated in Sec. 164.530(a)(1)(ii).
    (3) Other responsibility. If the covered entity does not maintain 
the protected health information that is the subject of the individual's 
request for access, and the covered entity knows where the requested 
information is maintained, the covered entity must inform the individual 
where to direct the request for access.
    (4) Review of denial requested. If the individual has requested a 
review of a denial under paragraph (a)(4) of this section, the covered 
entity must designate a licensed health care professional, who was not 
directly involved in the denial to review the decision to deny access. 
The covered entity must promptly refer a request for review to such 
designated reviewing official. The designated reviewing official must 
determine, within a reasonable period of time, whether or not to deny 
the access requested based on the standards in paragraph (a)(3) of this 
section. The covered entity must promptly provide written notice to the 
individual of the determination of the designated reviewing official and 
take other action as required by this section to carry out the 
designated reviewing official's determination.
    (e) Implementation specification: Documentation. A covered entity 
must document the following and retain the documentation as required by 
Sec. 164.530(j):

[[Page 731]]

    (1) The designated record sets that are subject to access by 
individuals; and
    (2) The titles of the persons or offices responsible for receiving 
and processing requests for access by individuals.



Sec. 164.526  Amendment of protected health information.

    (a) Standard: Right to amend. (1) Right to amend. An individual has 
the right to have a covered entity amend protected health information or 
a record about the individual in a designated record set for as long as 
the protected health information is maintained in the designated record 
set.
    (2) Denial of amendment. A covered entity may deny an individual's 
request for amendment, if it determines that the protected health 
information or record that is the subject of the request:
    (i) Was not created by the covered entity, unless the individual 
provides a reasonable basis to believe that the originator of protected 
health information is no longer available to act on the requested 
amendment;
    (ii) Is not part of the designated record set;
    (iii) Would not be available for inspection under Sec. 164.524; or
    (iv) Is accurate and complete.
    (b) Implementation specifications: requests for amendment and timely 
action. (1) Individual's request for amendment. The covered entity must 
permit an individual to request that the covered entity amend the 
protected health information maintained in the designated record set. 
The covered entity may require individuals to make requests for 
amendment in writing and to provide a reason to support a requested 
amendment, provided that it informs individuals in advance of such 
requirements.
    (2) Timely action by the covered entity. (i) The covered entity must 
act on the individual's request for an amendment no later than 60 days 
after receipt of such a request, as follows.
    (A) If the covered entity grants the requested amendment, in whole 
or in part, it must take the actions required by paragraphs (c)(1) and 
(2) of this section.
    (B) If the covered entity denies the requested amendment, in whole 
or in part, it must provide the individual with a written denial, in 
accordance with paragraph (d)(1) of this section.
    (ii) If the covered entity is unable to act on the amendment within 
the time required by paragraph (b)(2)(i) of this section, the covered 
entity may extend the time for such action by no more than 30 days, 
provided that:
    (A) The covered entity, within the time limit set by paragraph 
(b)(2)(i) of this section, provides the individual with a written 
statement of the reasons for the delay and the date by which the covered 
entity will complete its action on the request; and
    (B) The covered entity may have only one such extension of time for 
action on a request for an amendment.
    (c) Implementation specifications: Accepting the amendment. If the 
covered entity accepts the requested amendment, in whole or in part, the 
covered entity must comply with the following requirements.
    (1) Making the amendment. The covered entity must make the 
appropriate amendment to the protected health information or record that 
is the subject of the request for amendment by, at a minimum, 
identifying the records in the designated record set that are affected 
by the amendment and appending or otherwise providing a link to the 
location of the amendment.
    (2) Informing the individual. In accordance with paragraph (b) of 
this section, the covered entity must timely inform the individual that 
the amendment is accepted and obtain the individual's identification of 
and agreement to have the covered entity notify the relevant persons 
with which the amendment needs to be shared in accordance with paragraph 
(c)(3) of this section.
    (3) Informing others. The covered entity must make reasonable 
efforts to inform and provide the amendment within a reasonable time to:
    (i) Persons identified by the individual as having received 
protected health information about the individual and needing the 
amendment; and
    (ii) Persons, including business associates, that the covered entity 
knows have the protected health information

[[Page 732]]

that is the subject of the amendment and that may have relied, or could 
foreseeably rely, on such information to the detriment of the 
individual.
    (d) Implementation specifications: Denying the amendment. If the 
covered entity denies the requested amendment, in whole or in part, the 
covered entity must comply with the following requirements.
    (1) Denial. The covered entity must provide the individual with a 
timely, written denial, in accordance with paragraph (b)(2) of this 
section. The denial must use plain language and contain:
    (i) The basis for the denial, in accordance with paragraph (a)(2) of 
this section;
    (ii) The individual's right to submit a written statement 
disagreeing with the denial and how the individual may file such a 
statement;
    (iii) A statement that, if the individual does not submit a 
statement of disagreement, the individual may request that the covered 
entity provide the individual's request for amendment and the denial 
with any future disclosures of the protected health information that is 
the subject of the amendment; and
    (iv) A description of how the individual may complain to the covered 
entity pursuant to the complaint procedures established in 
Sec. 164.530(d) or to the Secretary pursuant to the procedures 
established in Sec. 160.306. The description must include the name, or 
title, and telephone number of the contact person or office designated 
in Sec. 164.530(a)(1)(ii).
    (2) Statement of disagreement. The covered entity must permit the 
individual to submit to the covered entity a written statement 
disagreeing with the denial of all or part of a requested amendment and 
the basis of such disagreement. The covered entity may reasonably limit 
the length of a statement of disagreement.
    (3) Rebuttal statement. The covered entity may prepare a written 
rebuttal to the individual's statement of disagreement. Whenever such a 
rebuttal is prepared, the covered entity must provide a copy to the 
individual who submitted the statement of disagreement.
    (4) Recordkeeping. The covered entity must, as appropriate, identify 
the record or protected health information in the designated record set 
that is the subject of the disputed amendment and append or otherwise 
link the individual's request for an amendment, the covered entity's 
denial of the request, the individual's statement of disagreement, if 
any, and the covered entity's rebuttal, if any, to the designated record 
set.
    (5) Future disclosures. (i) If a statement of disagreement has been 
submitted by the individual, the covered entity must include the 
material appended in accordance with paragraph (d)(4) of this section, 
or, at the election of the covered entity, an accurate summary of any 
such information, with any subsequent disclosure of the protected health 
information to which the disagreement relates.
    (ii) If the individual has not submitted a written statement of 
disagreement, the covered entity must include the individual's request 
for amendment and its denial, or an accurate summary of such 
information, with any subsequent disclosure of the protected health 
information only if the individual has requested such action in 
accordance with paragraph (d)(1)(iii) of this section.
    (iii) When a subsequent disclosure described in paragraph (d)(5)(i) 
or (ii) of this section is made using a standard transaction under part 
162 of this subchapter that does not permit the additional material to 
be included with the disclosure, the covered entity may separately 
transmit the material required by paragraph (d)(5)(i) or (ii) of this 
section, as applicable, to the recipient of the standard transaction.
    (e) Implementation specification: Actions on notices of amendment. A 
covered entity that is informed by another covered entity of an 
amendment to an individual's protected health information, in accordance 
with paragraph (c)(3) of this section, must amend the protected health 
information in designated record sets as provided by paragraph (c)(1) of 
this section.
    (f) Implementation specification: Documentation. A covered entity 
must document the titles of the persons or offices

[[Page 733]]

responsible for receiving and processing requests for amendments by 
individuals and retain the documentation as required by Sec. 164.530(j).



Sec. 164.528  Accounting of disclosures of protected health information.

    (a) Standard: Right to an accounting of disclosures of protected 
health information. (1) An individual has a right to receive an 
accounting of disclosures of protected health information made by a 
covered entity in the six years prior to the date on which the 
accounting is requested, except for disclosures:
    (i) To carry out treatment, payment and health care operations as 
provided in Sec. 164.502;
    (ii) To individuals of protected health information about them as 
provided in Sec. 164.502;
    (iii) For the facility's directory or to persons involved in the 
individual's care or other notification purposes as provided in 
Sec. 164.510;
    (iv) For national security or intelligence purposes as provided in 
Sec. 164.512(k)(2);
    (v) To correctional institutions or law enforcement officials as 
provided in Sec. 164.512(k)(5); or
    (vi) That occurred prior to the compliance date for the covered 
entity.
    (2)(i) The covered entity must temporarily suspend an individual's 
right to receive an accounting of disclosures to a health oversight 
agency or law enforcement official, as provided in Sec. 164.512(d) or 
(f), respectively, for the time specified by such agency or official, if 
such agency or official provides the covered entity with a written 
statement that such an accounting to the individual would be reasonably 
likely to impede the agency's activities and specifying the time for 
which such a suspension is required.
    (ii) If the agency or official statement in paragraph (a)(2)(i) of 
this section is made orally, the covered entity must:
    (A) Document the statement, including the identity of the agency or 
official making the statement;
    (B) Temporarily suspend the individual's right to an accounting of 
disclosures subject to the statement; and
    (C) Limit the temporary suspension to no longer than 30 days from 
the date of the oral statement, unless a written statement pursuant to 
paragraph (a)(2)(i) of this section is submitted during that time.
    (3) An individual may request an accounting of disclosures for a 
period of time less than six years from the date of the request.
    (b) Implementation specifications: Content of the accounting. The 
covered entity must provide the individual with a written accounting 
that meets the following requirements.
    (1) Except as otherwise provided by paragraph (a) of this section, 
the accounting must include disclosures of protected health information 
that occurred during the six years (or such shorter time period at the 
request of the individual as provided in paragraph (a)(3) of this 
section) prior to the date of the request for an accounting, including 
disclosures to or by business associates of the covered entity.
    (2) The accounting must include for each disclosure:
    (i) The date of the disclosure;
    (ii) The name of the entity or person who received the protected 
health information and, if known, the address of such entity or person;
    (iii) A brief description of the protected health information 
disclosed; and
    (iv) A brief statement of the purpose of the disclosure that 
reasonably informs the individual of the basis for the disclosure; or, 
in lieu of such statement:
    (A) A copy of the individual's written authorization pursuant to 
Sec. 164.508; or
    (B) A copy of a written request for a disclosure under 
Secs. 164.502(a)(2)(ii) or 164.512, if any.
    (3) If, during the period covered by the accounting, the covered 
entity has made multiple disclosures of protected health information to 
the same person or entity for a single purpose under 
Secs. 164.502(a)(2)(ii) or 164.512, or pursuant to a single 
authorization under Sec. 164.508, the accounting may, with respect to 
such multiple disclosures, provide:
    (i) The information required by paragraph (b)(2) of this section for 
the first disclosure during the accounting period;

[[Page 734]]

    (ii) The frequency, periodicity, or number of the disclosures made 
during the accounting period; and
    (iii) The date of the last such disclosure during the accounting 
period.
    (c) Implementation specifications: Provision of the accounting. (1) 
The covered entity must act on the individual's request for an 
accounting, no later than 60 days after receipt of such a request, as 
follows.
    (i) The covered entity must provide the individual with the 
accounting requested; or
    (ii) If the covered entity is unable to provide the accounting 
within the time required by paragraph (c)(1) of this section, the 
covered entity may extend the time to provide the accounting by no more 
than 30 days, provided that:
    (A) The covered entity, within the time limit set by paragraph 
(c)(1) of this section, provides the individual with a written statement 
of the reasons for the delay and the date by which the covered entity 
will provide the accounting; and
    (B) The covered entity may have only one such extension of time for 
action on a request for an accounting.
    (2) The covered entity must provide the first accounting to an 
individual in any 12 month period without charge. The covered entity may 
impose a reasonable, cost-based fee for each subsequent request for an 
accounting by the same individual within the 12 month period, provided 
that the covered entity informs the individual in advance of the fee and 
provides the individual with an opportunity to withdraw or modify the 
request for a subsequent accounting in order to avoid or reduce the fee.
    (d) Implementation specification: Documentation. A covered entity 
must document the following and retain the documentation as required by 
Sec. 164.530(j):
    (1) The information required to be included in an accounting under 
paragraph (b) of this section for disclosures of protected health 
information that are subject to an accounting under paragraph (a) of 
this section;
    (2) The written accounting that is provided to the individual under 
this section; and
    (3) The titles of the persons or offices responsible for receiving 
and processing requests for an accounting by individuals.

    Effective Date Note: At 67 FR 53271, Aug. 14, 2002, Sec. 164.528, 
was amended in paragraph (a)(1)(i), by removing ``Sec. 164.502'' and 
adding in its place ``Sec. 164.506''; removing the word ``or'' from 
paragraph (a)(1)(v); redesignating paragraph (a)(1)(vi) as (a)(1)(ix) 
and redesignating paragraphs (a)(1)(iii) through (v) as (a)(1)(v) 
through (vii); adding paragraphs (a)(1)(iii), (iv), and (a)(1)(viii); 
revising paragraphs (b)(2), introductory text and (b)(2)(iv); removing 
``or pursuant to a single authorization under Sec. 164.508,'' from 
paragraph (b)(3), introductory text; and adding paragraph (b)(4), 
effective Oct. 15, 2002. For the convenience of the user, the added and 
revised text is set forth as follows:

Sec. 164.528  Accounting of disclosures of protected health information.

    (a) Standard: Right to an accounting of disclosures of protected 
health information.
    (1) * * *
    (iii) Incident to a use or disclosure otherwise permitted or 
required by this subpart, as provided in Sec. 164.502;
    (iv) Pursuant to an authorization as provided in Sec. 164.508;

                                * * * * *

    (viii) As part of a limited data set in accordance with 
Sec. 164.514(e); or

                                * * * * *

    (b) Implementation specifications: Content of the accounting. * * *
    (2) Except as otherwise provided by paragraphs (b)(3) or (b)(4) of 
this section, the accounting must include for each disclosure:

                                * * * * *

    (iv) A brief statement of the purpose of the disclosure that 
reasonably informs the individual of the basis for the disclosure or, in 
lieu of such statement, a copy of a written request for a disclosure 
under Secs. 164.502(a)(2)(ii) or 164.512, if any.

                                * * * * *

    (4)(i) If, during the period covered by the accounting, the covered 
entity has made disclosures of protected health information for a 
particular research purpose in accordance with Sec. 164.512(i) for 50 or 
more individuals, the accounting may, with respect to such disclosures 
for which the protected health information about the individual may have 
been included, provide:
    (A) The name of the protocol or other research activity;

[[Page 735]]

    (B) A description, in plain language, of the research protocol or 
other research activity, including the purpose of the research and the 
criteria for selecting particular records;
    (C) A brief description of the type of protected health information 
that was disclosed;
    (D) The date or period of time during which such disclosures 
occurred, or may have occurred, including the date of the last such 
disclosure during the accounting period;
    (E) The name, address, and telephone number of the entity that 
sponsored the research and of the researcher to whom the information was 
disclosed; and
    (F) A statement that the protected health information of the 
individual may or may not have been disclosed for a particular protocol 
or other research activity.
    (ii) If the covered entity provides an accounting for research 
disclosures, in accordance with paragraph (b)(4) of this section, and if 
it is reasonably likely that the protected health information of the 
individual was disclosed for such research protocol or activity, the 
covered entity shall, at the request of the individual, assist in 
contacting the entity that sponsored the research and the researcher.

                                * * * * *



Sec. 164.530  Administrative requirements.

    (a)(1) Standard: Personnel designations. (i) A covered entity must 
designate a privacy official who is responsible for the development and 
implementation of the policies and procedures of the entity.
    (ii) A covered entity must designate a contact person or office who 
is responsible for receiving complaints under this section and who is 
able to provide further information about matters covered by the notice 
required by Sec. 164.520.
    (2) Implementation specification: Personnel designations. A covered 
entity must document the personnel designations in paragraph (a)(1) of 
this section as required by paragraph (j) of this section.
    (b)(1) Standard: Training. A covered entity must train all members 
of its workforce on the policies and procedures with respect to 
protected health information required by this subpart, as necessary and 
appropriate for the members of the workforce to carry out their function 
within the covered entity.
    (2) Implementation specifications: Training. (i) A covered entity 
must provide training that meets the requirements of paragraph (b)(1) of 
this section, as follows:
    (A) To each member of the covered entity's workforce by no later 
than the compliance date for the covered entity;
    (B) Thereafter, to each new member of the workforce within a 
reasonable period of time after the person joins the covered entity's 
workforce; and
    (C) To each member of the covered entity's workforce whose functions 
are affected by a material change in the policies or procedures required 
by this subpart, within a reasonable period of time after the material 
change becomes effective in accordance with paragraph (i) of this 
section.
    (ii) A covered entity must document that the training as described 
in paragraph (b)(2)(i) of this section has been provided, as required by 
paragraph (j) of this section.
    (c)(1) Standard: Safeguards. A covered entity must have in place 
appropriate administrative, technical, and physical safeguards to 
protect the privacy of protected health information.
    (2) Implementation specification: Safeguards. A covered entity must 
reasonably safeguard protected health information from any intentional 
or unintentional use or disclosure that is in violation of the 
standards, implementation specifications or other requirements of this 
subpart.
    (d)(1) Standard: Complaints to the covered entity. A covered entity 
must provide a process for individuals to make complaints concerning the 
covered entity's policies and procedures required by this subpart or its 
compliance with such policies and procedures or the requirements of this 
subpart.
    (2) Implementation specification: Documentation of complaints. As 
required by paragraph (j) of this section, a covered entity must 
document all complaints received, and their disposition, if any.
    (e)(1) Standard: Sanctions. A covered entity must have and apply 
appropriate sanctions against members of its workforce who fail to 
comply with the privacy policies and procedures of the covered entity or 
the requirements of this subpart. This standard does not

[[Page 736]]

apply to a member of the covered entity's workforce with respect to 
actions that are covered by and that meet the conditions of 
Sec. 164.502(j) or paragraph (g)(2) of this section.
    (2) Implementation specification: Documentation. As required by 
paragraph (j) of this section, a covered entity must document the 
sanctions that are applied, if any.
    (f) Standard: Mitigation. A covered entity must mitigate, to the 
extent practicable, any harmful effect that is known to the covered 
entity of a use or disclosure of protected health information in 
violation of its policies and procedures or the requirements of this 
subpart by the covered entity or its business associate.
    (g) Standard: Refraining from intimidating or retaliatory acts. A 
covered entity may not intimidate, threaten, coerce, discriminate 
against, or take other retaliatory action against:
    (1) Individuals. Any individual for the exercise by the individual 
of any right under, or for participation by the individual in any 
process established by this subpart, including the filing of a complaint 
under this section;
    (2) Individuals and others. Any individual or other person for:
    (i) Filing of a complaint with the Secretary under subpart C of part 
160 of this subchapter;
    (ii) Testifying, assisting, or participating in an investigation, 
compliance review, proceeding, or hearing under Part C of Title XI; or
    (iii) Opposing any act or practice made unlawful by this subpart, 
provided the individual or person has a good faith belief that the 
practice opposed is unlawful, and the manner of the opposition is 
reasonable and does not involve a disclosure of protected health 
information in violation of this subpart.
    (h) Standard: Waiver of rights. A covered entity may not require 
individuals to waive their rights under Sec. 160.306 of this subchapter 
or this subpart as a condition of the provision of treatment, payment, 
enrollment in a health plan, or eligibility for benefits.
    (i)(1) Standard: Policies and procedures. A covered entity must 
implement policies and procedures with respect to protected health 
information that are designed to comply with the standards, 
implementation specifications, or other requirements of this subpart. 
The policies and procedures must be reasonably designed, taking into 
account the size of and the type of activities that relate to protected 
health information undertaken by the covered entity, to ensure such 
compliance. This standard is not to be construed to permit or excuse an 
action that violates any other standard, implementation specification, 
or other requirement of this subpart.
    (2) Standard: Changes to policies or procedures. (i) A covered 
entity must change its policies and procedures as necessary and 
appropriate to comply with changes in the law, including the standards, 
requirements, and implementation specifications of this subpart;
    (ii) When a covered entity changes a privacy practice that is stated 
in the notice described in Sec. 164.520, and makes corresponding changes 
to its policies and procedures, it may make the changes effective for 
protected health information that it created or received prior to the 
effective date of the notice revision, if the covered entity has, in 
accordance with Sec. 164.520(b)(1)(v)(C), included in the notice a 
statement reserving its right to make such a change in its privacy 
practices; or
    (iii) A covered entity may make any other changes to policies and 
procedures at any time, provided that the changes are documented and 
implemented in accordance with paragraph (i)(5) of this section.
    (3) Implementation specification: Changes in law. Whenever there is 
a change in law that necessitates a change to the covered entity's 
policies or procedures, the covered entity must promptly document and 
implement the revised policy or procedure. If the change in law 
materially affects the content of the notice required by Sec. 164.520, 
the covered entity must promptly make the appropriate revisions to the 
notice in accordance with Sec. 164.520(b)(3). Nothing in this paragraph 
may be used by a covered entity to excuse a failure to comply with the 
law.
    (4) Implementation specifications: Changes to privacy practices 
stated in the

[[Page 737]]

notice. (i) To implement a change as provided by paragraph (i)(2)(ii) of 
this section, a covered entity must:
    (A) Ensure that the policy or procedure, as revised to reflect a 
change in the covered entity's privacy practice as stated in its notice, 
complies with the standards, requirements, and implementation 
specifications of this subpart;
    (B) Document the policy or procedure, as revised, as required by 
paragraph (j) of this section; and
    (C) Revise the notice as required by Sec. 164.520(b)(3) to state the 
changed practice and make the revised notice available as required by 
Sec. 164.520(c). The covered entity may not implement a change to a 
policy or procedure prior to the effective date of the revised notice.
    (ii) If a covered entity has not reserved its right under 
Sec. 164.520(b)(1)(v)(C) to change a privacy practice that is stated in 
the notice, the covered entity is bound by the privacy practices as 
stated in the notice with respect to protected health information 
created or received while such notice is in effect. A covered entity may 
change a privacy practice that is stated in the notice, and the related 
policies and procedures, without having reserved the right to do so, 
provided that:
    (A) Such change meets the implementation the requirements in 
paragraphs (i)(4)(i)(A)-(C) of this section; and
    (B) Such change is effective only with respect to protected health 
information created or received after the effective date of the notice.
    (5) Implementation specification: Changes to other policies or 
procedures. A covered entity may change, at any time, a policy or 
procedure that does not materially affect the content of the notice 
required by Sec. 164.520, provided that:
    (i) The policy or procedure, as revised, complies with the 
standards, requirements, and implementation specifications of this 
subpart; and
    (ii) Prior to the effective date of the change, the policy or 
procedure, as revised, is documented as required by paragraph (j) of 
this section.
    (j)(1) Standard: Documentation. A covered entity must:
    (i) Maintain the policies and procedures provided for in paragraph 
(i) of this section in written or electronic form;
    (ii) If a communication is required by this subpart to be in 
writing, maintain such writing, or an electronic copy, as documentation; 
and
    (iii) If an action, activity, or designation is required by this 
subpart to be documented, maintain a written or electronic record of 
such action, activity, or designation.
    (2) Implementation specification: Retention period. A covered entity 
must retain the documentation required by paragraph (j)(1) of this 
section for six years from the date of its creation or the date when it 
last was in effect, whichever is later.
    (k) Standard: Group health plans. (1) A group health plan is not 
subject to the standards or implementation specifications in paragraphs 
(a) through (f) and (i) of this section, to the extent that:
    (i) The group health plan provides health benefits solely through an 
insurance contract with a health insurance issuer or an HMO; and
    (ii) The group health plan does not create or receive protected 
health information, except for:
    (A) Summary health information as defined in Sec. 164.504(a); or
    (B) Information on whether the individual is participating in the 
group health plan, or is enrolled in or has disenrolled from a health 
insurance issuer or HMO offered by the plan.
    (2) A group health plan described in paragraph (k)(1) of this 
section is subject to the standard and implementation specification in 
paragraph (j) of this section only with respect to plan documents 
amended in accordance with Sec. 164.504(f).

    Effective Date Note: At 67 FR 53272, Aug. 14, 2002, Sec. 164.530, 
was amended by redesignating paragraph (c)(2) as (c)(2)(i); adding 
paragraph (c)(2)(ii); removing the words ``the requirements'' from 
paragraph (i)(4)(ii)(A) and adding in their place the word 
``specifications'', effective Oct. 15, 2002. For the convenience of the 
user, the added text is set forth as follows:

[[Page 738]]

Sec. 164.530  Administrative requirements.

                                * * * * *

    (c) Standard: Safeguards. * * *
    (2) Implementation specifications: Safeguards. (i) * * *
    (ii) A covered entity must reasonably safeguard protected health 
information to limit incidental uses or disclosures made pursuant to an 
otherwise permitted or required use or disclosure.

                                * * * * *



Sec. 164.532  Transition provisions.

    (a) Standard: Effect of prior consents and authorizations. 
Notwithstanding other sections of this subpart, a covered entity may 
continue to use or disclose protected health information pursuant to a 
consent, authorization, or other express legal permission obtained from 
an individual permitting the use or disclosure of protected health 
information that does not comply with Secs. 164.506 or 164.508 of this 
subpart consistent with paragraph (b) of this section.
    (b) Implementation specification: Requirements for retaining 
effectiveness of prior consents and authorizations. Notwithstanding 
other sections of this subpart, the following provisions apply to use or 
disclosure by a covered entity of protected health information pursuant 
to a consent, authorization, or other express legal permission obtained 
from an individual permitting the use or disclosure of protected health 
information, if the consent, authorization, or other express legal 
permission was obtained from an individual before the applicable 
compliance date of this subpart and does not comply with Secs. 164.506 
or 164.508 of this subpart.
    (1) If the consent, authorization, or other express legal permission 
obtained from an individual permits a use or disclosure for purposes of 
carrying out treatment, payment, or health care operations, the covered 
entity may, with respect to protected health information that it created 
or received before the applicable compliance date of this subpart and to 
which the consent, authorization, or other express legal permission 
obtained from an individual applies, use or disclose such information 
for purposes of carrying out treatment, payment, or health care 
operations, provided that:
    (i) The covered entity does not make any use or disclosure that is 
expressly excluded from the a consent, authorization, or other express 
legal permission obtained from an individual; and
    (ii) The covered entity complies with all limitations placed by the 
consent, authorization, or other express legal permission obtained from 
an individual.
    (2) If the consent, authorization, or other express legal permission 
obtained from an individual specifically permits a use or disclosure for 
a purpose other than to carry out treatment, payment, or health care 
operations, the covered entity may, with respect to protected health 
information that it created or received before the applicable compliance 
date of this subpart and to which the consent, authorization, or other 
express legal permission obtained from an individual applies, make such 
use or disclosure, provided that:
    (i) The covered entity does not make any use or disclosure that is 
expressly excluded from the consent, authorization, or other express 
legal permission obtained from an individual; and
    (ii) The covered entity complies with all limitations placed by the 
consent, authorization, or other express legal permission obtained from 
an individual.
    (3) In the case of a consent, authorization, or other express legal 
permission obtained from an individual that identifies a specific 
research project that includes treatment of individuals:
    (i) If the consent, authorization, or other express legal permission 
obtained from an individual specifically permits a use or disclosure for 
purposes of the project, the covered entity may, with respect to 
protected health information that it created or received either before 
or after the applicable compliance date of this subpart and to which the 
consent or authorization applies, make such use or disclosure for 
purposes of that project, provided that the covered entity complies with 
all limitations placed by the consent, authorization, or other express 
legal permission obtained from an individual.
    (ii) If the consent, authorization, or other express legal 
permission obtained

[[Page 739]]

from an individual is a general consent to participate in the project, 
and a covered entity is conducting or participating in the research, 
such covered entity may, with respect to protected health information 
that it created or received as part of the project before or after the 
applicable compliance date of this subpart, make a use or disclosure for 
purposes of that project, provided that the covered entity complies with 
all limitations placed by the consent, authorization, or other express 
legal permission obtained from an individual.
    (4) If, after the applicable compliance date of this subpart, a 
covered entity agrees to a restriction requested by an individual under 
Sec. 164.522(a), a subsequent use or disclosure of protected health 
information that is subject to the restriction based on a consent, 
authorization, or other express legal permission obtained from an 
individual as given effect by paragraph (b) of this section, must comply 
with such restriction.

    Effective Date Note: At 67 FR 53272, Aug. 14, 2002, Sec. 164.532 was 
revised, effective Oct. 15, 2002. For the convenience of the user, the 
revised text is set forth as follows:

Sec. 164.532  Transition provisions.

    (a) Standard: Effect of prior authorizations. Notwithstanding 
Secs. 164.508 and 164.512(i), a covered entity may use or disclose 
protected health information, consistent with paragraphs (b) and (c) of 
this section, pursuant to an authorization or other express legal 
permission obtained from an individual permitting the use or disclosure 
of protected health information, informed consent of the individual to 
participate in research, or a waiver of informed consent by an IRB.
    (b) Implementation specification: Effect of prior authorization for 
purposes other than research. Notwithstanding any provisions in 
Sec. 164.508, a covered entity may use or disclose protected health 
information that it created or received prior to the applicable 
compliance date of this subpart pursuant to an authorization or other 
express legal permission obtained from an individual prior to the 
applicable compliance date of this subpart, provided that the 
authorization or other express legal permission specifically permits 
such use or disclosure and there is no agreed-to restriction in 
accordance with Sec. 164.522(a).
    (c) Implementation specification: Effect of prior permission for 
research. Notwithstanding any provisions in Secs. 164.508 and 
164.512(i), a covered entity may, to the extent allowed by one of the 
following permissions, use or disclose, for research, protected health 
information that it created or received either before or after the 
applicable compliance date of this subpart, provided that there is no 
agreed-to restriction in accordance with Sec. 164.522(a), and the 
covered entity has obtained, prior to the applicable compliance date, 
either:
    (1) An authorization or other express legal permission from an 
individual to use or disclose protected health information for the 
research;
    (2) The informed consent of the individual to participate in the 
research; or
    (3) A waiver, by an IRB, of informed consent for the research, in 
accordance with 7 CFR 1c.116(d), 10 CFR 745.116(d), 14 CFR 1230.116(d), 
15 CFR 27.116(d), 16 CFR 1028.116(d), 21 CFR 50.24, 22 CFR 225.116(d), 
24 CFR 60.116(d), 28 CFR 46.116(d), 32 CFR 219.116(d), 34 CFR 97.116(d), 
38 CFR 16.116(d), 40 CFR 26.116(d), 45 CFR 46.116(d), 45 CFR 690.116(d), 
or 49 CFR 11.116(d), provided that a covered entity must obtain 
authorization in accordance with Sec. 164.508 if, after the compliance 
date, informed consent is sought from an individual participating in the 
research.
    (d) Standard: Effect of prior contracts or other arrangements with 
business associates. Notwithstanding any other provisions of this 
subpart, a covered entity, other than a small health plan, may disclose 
protected health information to a business associate and may allow a 
business associate to create, receive, or use protected health 
information on its behalf pursuant to a written contract or other 
written arrangement with such business associate that does not comply 
with Secs. 164.502(e) and 164.504(e) consistent with the requirements, 
and only for such time, set forth in paragraph (e) of this section.
    (e) Implementation specification: Deemed compliance--(1) 
Qualification. Notwithstanding other sections of this subpart, a covered 
entity, other than a small health plan, is deemed to be in compliance 
with the documentation and contract requirements of Secs. 164.502(e) and 
164.504(e), with respect to a particular business associate 
relationship, for the time period set forth in paragraph (e)(2) of this 
section, if:
    (i) Prior to October 15, 2002, such covered entity has entered into 
and is operating pursuant to a written contract or other written 
arrangement with a business associate for such business associate to 
perform functions or activities or provide services that make the entity 
a business associate; and
    (ii) The contract or other arrangement is not renewed or modified 
from October 15, 2002, until the compliance date set forth in 
Sec. 164.534.
    (2) Limited deemed compliance period. A prior contract or other 
arrangement that meets the qualification requirements in paragraph (e) 
of this section, shall be deemed compliant until the earlier of:

[[Page 740]]

    (i) The date such contract or other arrangement is renewed or 
modified on or after the compliance date set forth in Sec. 164.534; or
    (ii) April 14, 2004.
    (3) Covered entity responsibilities. Nothing in this section shall 
alter the requirements of a covered entity to comply with part 160, 
subpart C of this subchapter and Secs. 164.524, 164.526, 164.528, and 
164.530(f) with respect to protected health information held by a 
business associate.



Sec. 164.534  Compliance dates for initial implementation of the privacy standards.

    (a) Health care providers. A covered health care provider must 
comply with the applicable requirements of this subpart no later than 
April 14, 2003.
    (b) Health plans. A health plan must comply with the applicable 
requirements of this subpart no later than the following as applicable:
    (1) Health plans other han small health plans. April 14, 2003.
    (2) Small health plans. April 14, 2004.
    (c) Health clearinghouses. A health care clearinghouse must comply 
with the applicable requirements of this subpart no later than April 14, 
2003.

[66 FR 12434, Feb. 26, 2001]

                        PARTS 165-199 [RESERVED]


[[Page 741]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation By Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 743]]

            Material Approved for Incorporation by Reference

                     (Revised as of October 1, 2002)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


45 CFR (PARTS 1-199)

DEPARTMENT OF HEALTH AND HUMAN SERVICES
                                                                  45 CFR


National Council for Prescription Drug Programs

  4201 North 24th Street, Suite 365, Phoenix, 
  Arizona 85016
Telecommunication Standard Implementation Guide,     162.920; 162.1102; 
  Version 5, Release 1, September 1999 Edition.     162.1202; 162.1602; 
                                                                162.1802
Batch Standard Batch Implementation Guide, Version   162.920; 162.1102; 
  1 Release 0, February 1, 1996 edition.            162.1202; 162.1602; 
                                                                162.1802


Washington Publishing Company

  PMB 161, 5284 Randolph Road, Rockville, Maryland 
  20852-2116
ASC X12N 270/271--Health Care Eligibility Benefit      162.920; 162.1202
  Inquiry and Response, May 2000, (004010X092).
ASC X12N 276/277--Health Care Claim Status Request     162.920; 162.1402
  and Response, May 2000, (004010X093).
ASC X12N 278--Health Care Services Review--Request     162.920; 162.1302
  for Review and Response, May 2000, (004010X094).
ASC X12N 820--Payroll Deducted and Other Group         162.920; 162.1702
  Premium Payment for Insurance Products, May 2000 
  (004010X061).
ASC X12N 834--Benefit Enrollment and Maintenance,      162.920; 162.1502
  May 2000 (004010X095).
ASC X12N 835--Health Care Claim Payment/Advice,        162.920; 162.1602
  May 2000 (004010X091).
ASC X12N 837--Health Care Claim: Dental, May 2000    162.920; 162.1102; 
  (004010X097).                                                 162.1802
ASC X12N 837--Health Care Claim: Professional,       162.920; 162.1102; 
  Volumes 1 and 2, May 2000 (004010X098).                       162.1802
ASC X12N 837--Health Care Claim: Institutional,      162.920; 162.1102; 
  Volumes 1 and 2, May 2000 (004010X096).                       162.1802



[[Page 745]]



                    Table of CFR Titles and Chapters




                     (Revised as of October 1, 2002)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2  [Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 746]]

    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                          Title 6  [Reserved]

              

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)

[[Page 747]]

        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)

[[Page 748]]

      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Immigration and Naturalization Service, Department of 
                Justice (Parts 1--599)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 1000-
                -1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)

[[Page 749]]

         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)

[[Page 750]]

       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 751]]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 800-
                -899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 1600-
                -1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 752]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 753]]

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Bureau of Alcohol, Tobacco and Firearms, Department of 
                the Treasury (Parts 1--299)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--199)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 0-
                -99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)

[[Page 754]]

        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Pension and Welfare Benefits Administration, 
                Department of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 200-
                -399)
        IV  Secret Service, Department of the Treasury (Parts 400-
                -499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

[[Page 755]]

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Corps of Engineers, Department of the Army (Parts 200-
                -399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

[[Page 756]]

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 300-
                -399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)

[[Page 757]]

       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       304  Payment from a Non-Federal Source for Travel Expenses 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

[[Page 758]]

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)

[[Page 759]]

     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Transportation (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 300-
                -399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)

[[Page 760]]

        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Part 
                5452)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)

[[Page 761]]

        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Transportation (Parts 1500--1599)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 763]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of October 1, 2002)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Alcohol, Tobacco and Firearms, Bureau of          27, I
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII

[[Page 764]]

Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII

[[Page 765]]

  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II

[[Page 766]]

Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulation          41, 101
  Federal Travel Regulation System                41, Subtitle F

[[Page 767]]

  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Naturalization Service            8, I
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V

[[Page 768]]

  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration and Naturalization Service          8, I
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Pension and Welfare Benefits Administration     29, XXV
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II

[[Page 769]]

Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
   Certain Employees
[[Page 770]]

Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension and Welfare Benefits Administration       29, XXV
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II

[[Page 771]]

  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Security Administration          49, XII
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol, Tobacco and Firearms, Bureau of        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 773]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000'' published in 
11 separate volumes.

                                  2001

45 CFR
                                                                   66 FR
                                                                    Page
Subtitle A
Subtitle  A Nomenclature change....................................39452
46  Authority citation revised...............................3882, 56778
46.201--46.207 (Subpart B)  Revised.................................3882
    Regulation at 66 FR 3882 eff. date delayed.....................15352
    Regulation at 66 FR 3882 delayed to 11-14-01...................27599
    Revised........................................................56778
96.122  (d) and (f)(6) revised; (g)(21) removed; (g)(22) and (23) 
        redesignated as new (g)(21) and (22); interim..............46226
96.123  (a)(5) revised; interim....................................46227
96.130  (e) introductory text revised; interim.....................46227
146  Authority citation revised.....................................1412
146.121  Revised; interim...........................................1412
    (i)(1), (3)(ii)(A) introductory text and (C) Example 2 
amended; interim...................................................14078
146.125  Heading and (a)(1) revised; (a)(2) amended; interim........1420
160  Regulation at 65 FR 82798 eff. date delayed...................12434
    Comment request................................................12738
164  Regulation at 65 FR 82802 eff. date delayed...................12434
    Comment request................................................12738
164.500--164.534 (Subpart E)  Authority citation revised...........12434
164.534  Revised...................................................12434

                                  2002

  (Regulations published from January 1, 2002, through October 1, 2002)

45 CFR
                                                                   67 FR
                                                                    Page
Subtitle A
146  Authority citation corrected..................................48811
146.150  (d)(2) revised; interim...................................48811
146.180  Revised; interim..........................................48811
160.102  (b) amended; eff. 10-15-02................................53266
160.103  Amended...................................................38019
    Amended; eff. 10-15-02.........................................53266
160.202  Amended; eff. 10-15-02....................................53266
160.203  (b) added; eff. 10-15-02..................................53266
162.600--162.610 (Subpart F)  Added................................38020
164.102  Amended; eff. 10-15-02....................................53266
164.500  (b)(1)(v) amended; eff. 10-15-02..........................53266
164.501  Amended; eff. 10-15-02....................................53266
164.502  (a)(1)(ii), (iii), (vi) and (b)(2)(ii) revised; 
        (b)(2)(iii), (iv), (v), (g)(3), (i), (ii), (iii) 
        redesignated as (b)(2)(iv), (v), (vi), (g)(3)(i), (A), (B) 
        and (C); new (b)(2)(iii) and (g)(3)(ii) added; eff. 10-15-
        02.........................................................53267
164.504  (a) amended; (c)(1)(ii), (2)(ii), (3)(iii) and (f)(1)(i) 
        revised; (f)(1)(iii) added; eff. 10-15-02..................53267
164.506  Revised; eff. 10-15-02....................................53268
164.508  Revised; eff. 10-15-02....................................53268
164.510  introductory text and (b)(3) amended; eff. 10-15-02.......53270

[[Page 774]]

164.512  Heading, (b)(1)(iii) and (i)(2)(ii) revised; introductory 
        text, (b)(1)(v)(A), C, (g)(2), (i)(1)(iii)(A) and (2)(ii) 
        amended; (f)(3)(ii) and (iii) redesignated as (f)(3)(i) 
        and (ii); eff. 10-15-02....................................53270
164.514  (b)(2)(i)(R), (d)(1), (4)(iii) and (e) revised; (d)(5) 
        amended; eff. 10-15-02.....................................53270
164.520  (c)(2)(ii) and (iii) redesignated as (c)(2)(iii) and 
        (iv); (b)(1)(ii)(B), (c) introductory text, new (c)(2)(iv) 
        and (3)(iii) amended; (c)(2)(i) and (e) revised; eff. 10-
        15-02......................................................53271
164.522  (a)(1)(v) amended; eff. 10-15-02..........................53271
164.528  (a)(1)(i), (v) and (b)(3) introductory text amended; 
        (a)(1)(iii), (iv), (v), and (vi) redesignated as 
        (a)(1)(v), (vi), (vii) and (ix); (a)(1)(iii), (iv), (viii) 
        and (b)(4) added; (b)(2) and (iv) revised; eff. 10-15-15-
        02.........................................................53271
164.530  (c)(2) redesignated as (c)(2)(i); (c)(2)(ii) added; 
        (i)(4)(ii)(A) amended; eff. 10-15-05.......................53272
164.532  Revised; eff. 10-15-02....................................53272


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