[Title 45 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 2015 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

Title 45

Public Welfare


________________________

Parts 1 to 199

                         Revised as of October 1, 2015

          Containing a codification of documents of general 
          applicability and future effect

          As of October 1, 2015
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



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

  Title 45:
          SUBTITLE A--Department of Health and Human Services        3
  Finding Aids:
      Table of CFR Titles and Chapters........................    1265
      Alphabetical List of Agencies Appearing in the CFR......    1285
      List of CFR Sections Affected...........................    1295

[[Page iv]]





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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 45 CFR 2.1 refers to 
                       title 45, part 2, section 
                       1.

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

[[Page v]]



                               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, 2015), 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.

[[Page vi]]

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.

PAST PROVISIONS OF THE CODE

    Provisions of the Code that are no longer in force and effect as of 
the revision date stated on the cover of each volume are not carried. 
Code users may find the text of provisions in effect on any given date 
in the past by using the appropriate List of CFR Sections Affected 
(LSA). For the convenience of the reader, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume. For changes to 
the Code prior to the LSA listings at the end of the volume, consult 
previous annual editions of the LSA. For changes to the Code prior to 
2001, consult the List of CFR Sections Affected compilations, published 
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
editorially to indicate that a portion of the CFR was left vacant and 
not accidentally dropped due to a printing or computer error.

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.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed 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, 8601 Adelphi Road, College Park, MD 20740-6001, 
or call 202-741-6010.

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 Authorities 
and Rules. A list of CFR titles, chapters, subchapters, and parts and an 
alphabetical list of agencies publishing in the CFR are also included in 
this volume.

[[Page vii]]

    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.

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, 8601 Adelphi Road, College Park, MD 
20740-6001 or e-mail [email protected].

SALES

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ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers of the Presidents of the United 
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    The Office of the Federal Register also offers a free service on the 
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site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.archives.gov/federal-
register.
    The e-CFR is a regularly updated, unofficial editorial compilation 
of CFR material and Federal Register amendments, produced by the Office 
of the Federal Register and the Government Publishing Office. It is 
available at www.ecfr.gov.

    Oliver A. Potts,
    Director,
    Office of the Federal Register.
    October 1, 2015.







[[Page ix]]



                               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, 2015.

    For this volume, Ann Worley was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of John Hyrum 
Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                        TITLE 45--PUBLIC WELFARE




                   (This book contains parts 1 to 199)

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

SUBTITLE A--Department of Health and Human Services.........           2

[[Page 3]]



           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               

[Reserved]

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.................................          10
4               Service of process..........................          16
5               Freedom of Information regulations..........          17
5a

[Reserved]

5b              Privacy Act regulations.....................          31
6

[Reserved]

7               Employee inventions.........................          45
8

[Reserved]

9               Use of HHS research facilities by academic 
                    scientists, engineers, and students.....          47
12              Disposal and utilization of surplus real 
                    property for public health purposes.....          48
12a             Use of Federal real property to assist the 
                    homeless................................          55
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.............          73
16              Procedures of the Departmental Grant Appeals 
                    Board...................................          73
17              Release of adverse information to news media          81
18              Official symbol, logo, and seal.............          82
30              Claims collection...........................          84
31              Tax refund offset...........................         103
32              Administrative wage garnishment.............         106
33              Salary offset...............................         111

[[Page 4]]

34              Claims filed under the Military Personnel 
                    and Civilian Employees Act..............         121
35              Tort claims against the Government..........         124
36              Indemnification of HHS employees............         128
46              Protection of human subjects................         128
50              U.S. Exchange Visitor Program--request for 
                    waiver of the two-year foreign residence 
                    requirement.............................         148
51              Criteria for evaluating comprehensive plan 
                    to reduce reliance on alien physicians..         152
57              Volunteer services..........................         154
60              National Practitioner Data Bank.............         155
63              Grant programs administered by the Office of 
                    the Assistant Secretary for Planning and 
                    Evaluation..............................         175
73              Standards of conduct........................         183
73a             Standards of conduct: Food and Drug 
                    Administration supplement...............         216
73b             Debarment or suspension of former employees.         221
74

[Reserved]

75              Uniform administrative requirements, cost 
                    principles, and audit requirements for 
                    HHS awards..............................         224
77              Remedial actions applicable to letter of 
                    credit administration...................         385
78              Conditions for waiver of denial of Federal 
                    benefits................................         387
79              Program fraud civil remedies................         388
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......................         404
81              Practice and procedure for hearings under 
                    part 80 of this title...................         429
83              Regulation for the administration and 
                    enforcement of sections 799A and 845 of 
                    the Public Health Service Act...........         439
84              Nondiscrimination on the basis of handicap 
                    in programs or activities receiving 
                    Federal financial assistance............         445
85              Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    activities conducted by the Department 
                    of Health and Human Services............         486
86              Nondiscrimination on the basis of sex in 
                    education programs or activities 
                    receiving Federal financial assistance..         502
87              Equal treatment for faith-based 
                    organizations...........................         521
88              Ensuring that Department of Health and Human 
                    Services funds do not support coercive 
                    or disciminatory policies or practices 
                    in violation of Federal law.............         525

[[Page 5]]

89              Organizational integrity of entities 
                    implementing programs and activities 
                    under the Leadership Act................         525
90              Nondiscrimination on the basis of age in 
                    programs or activities receiving Federal 
                    financial assistance....................         526
91              Nondiscrimination on the basis of age in 
                    programs or activities receiving Federal 
                    financial assistance from HHS...........         535
92

[Reserved]

93              New restrictions on lobbying................         542
94              Responsible prospective contractors.........         553
95              General administration--grant programs 
                    (public assistance, medical assistance 
                    and State children's health insurance 
                    programs)...............................         562
96              Block grants................................         584
97              Consolidation of grants to the insular areas         641
98              Child care and development fund.............         642
99              Procedure for hearings for the child care 
                    and development fund....................         674
100             Intergovernmental review of Department of 
                    Health and Human Services programs and 
                    activities..............................         679
101             Describing agency needs.....................         682
        SUBCHAPTER B--REQUIREMENTS RELATING TO HEALTH CARE ACCESS
140-143

[Reserved]

144             Requirements relating to health insurance 
                    coverage................................         700
145

[Reserved]

146             Requirements for the group health insurance 
                    market..................................         708
147             Health insurance reform requirements for the 
                    group and individual health insurance 
                    markets.................................         780
148             Requirements for the individual health 
                    insurance market........................         838
149             Requirements for the early retiree 
                    reinsurance program.....................         856
150             CMS enforcement in group and individual 
                    insurance markets.......................         864
151

[Reserved]

152             Pre-existing condition insurance plan 
                    program.................................         880
153             Standards related to reinsurance, risk 
                    corridors, and risk adjustment under the 
                    Affordable Care Act.....................         887
154             Health insurance issuer rate increases: 
                    disclosure and review requirements......         913

[[Page 6]]

155             Exchange establishment standards and other 
                    related standards under the Affordable 
                    Care Act................................         919
156             Health insurance issuer standards under the 
                    Affordable Care Act, including standards 
                    related to exchanges....................        1026
157             Employer interactions with exchanges and 
                    shop participation......................        1094
158             Issuer use of premium revenue: reporting and 
                    rebate requirements.....................        1095
159             Health care reform insurance web portal.....        1124
  SUBCHAPTER C--ADMINISTRATIVE DATA STANDARDS AND RELATED REQUIREMENTS
160             General administrative requirements.........        1126
162             Administrative requirements.................        1151
163

[Reserved]

164             Security and privacy........................        1172
165-169

 [Reserved]

               SUBCHAPTER D--HEALTH INFORMATION TECHNOLOGY
170             Health information technology standards, 
                    implementation specifications, and 
                    certification criteria and certification 
                    programs for health information 
                    technology..............................        1233
171-199

 [Reserved]

[[Page 7]]



                   SUBCHAPTER A_GENERAL ADMINISTRATION



                            PART 1 [RESERVED]



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 an employee or 
former employee of the Department of Health and Human Services (``DHHS'' 
or ``Department''), 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 such 
person's official capacity with DHHS. This part also sets forth 
procedures for the handling of subpoenas duces tecum and other requests 
for any document in the possession of DHHS, other than the Food and Drug 
Administration, and for the processing of requests for certification of 
copies of documents. Separate regulations, 21 CFR part 20, govern the 
Food and Drug Administration, and those regulations are not affected by 
this part.
    (b) It is the policy of the DHHS to provide information, data, and 
records to non-federal litigants to the same extent and in the same 
manner that they are made available to the general public and, when 
subject to the jurisdiction of a court or other tribunal presiding over 
non-federal party litigation, to follow all applicable procedural and 
substantive rules relating to the production of information, data, and 
records by a non-party. The availability of Department employees to 
testify in litigation not involving federal parties is governed by the 
Department's policy to maintain strict impartiality with respect to 
private litigants and to minimize the disruption of official duties.
    (c) This part applies to state, local and tribal judicial, 
administrative, and legislative proceedings, and to federal judicial 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 5 CFR 2635.805 and 5 CFR 5501.106. (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 DHHS.)
    (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.
    (7) Any civil or criminal proceedings in State court brought on 
behalf of the Department of Health and Human Services.


[[Page 8]]


    Example (1): While on duty, an employee of the Department witnesses 
an incident in which a fellow employee trips on a loose piece of 
carpeting and sustains an injury. The injured employee brings a private 
tort action against the contractor installing the carpeting and the 
private landlord maintaining the building. The employee/witness is 
served with a subpoena to appear at a deposition to testify about the 
incident. The person seeking the testimony would not be required to 
obtain Agency head approval prior to requesting the testimony, because 
the subject of the testimony does not ``relate to'' the Department, 
within the meaning of Sec. 2.1(d)(5).
    Example (2): While on duty, an employee of the Department witnesses 
a mugging while looking out the window to check the weather, and then 
notifies the local police of what she observed. She is subsequently 
subpoenaed to testify in a criminal proceeding. The local prosecutor 
would not be required to obtain Agency head approval prior to requiring 
the employee to testify, because the subject of the testimony does not 
``relate to'' the Department, within the meaning of Sec. 2.1(d)(5).
    Example (3): A nurse on duty at an Indian Health Service hospital 
emergency room treats a child who is brought in following a report of 
domestic violence. The nurse is subsequently served with a subpoena to 
testify in a criminal proceeding against one of the child's parents 
concerning the injuries to the child which he observed. The local 
prosecutor would be required to obtain Agency head approval prior to 
requiring the nurse to testify, because the subject of the testimony 
involves ``information acquired in the course of performing official 
duties or because of the person's official capacity,'' within the 
meaning of Sec. 2.1(a).
    Example (4): A personnel specialist working for the Department is 
subpoenaed to testify concerning the meaning of entries on time and 
attendance records of an employee, which the requesting party received 
from the employee pursuant to discovery in a personal injury action 
brought by the employee. The party requesting the personnel specialist 
to appear would be required to obtain Agency head approval prior to 
compelling the personnel specialist to testify, because the testimony 
sought involves ``information acquired in the course of performing 
official duties or because of the person's official capacity,'' within 
the meaning of Sec. 2.1(a).
    Example (5): A National Institutes of Health physician is subpoenaed 
in a private medical malpractice action to provide expert testimony in 
her specialty. The party requesting her testimony would be required to 
obtain Agency head approval prior to her testifying in response to the 
subpoena, because the expert testimony sought involves ``information 
acquired in the course of performing official duties or because of the 
person's official capacity,'' within the meaning of Sec. 2.1(a).

[52 FR 37146, Oct. 5, 1987, as amended at 55 FR 4611, Feb. 9, 1990; 68 
FR 25838, May 14, 2003]



Sec. 2.2  Definitions.

    Agency head refers to the head of the relevant operating division or 
other major component of the DHHS, or his or her delegatee.
    Agency head for the purposes of this part means the following 
officials for the components indicated:
    (1) Office of the Secretary--Assistant Secretary for Administration 
and Management;
    (2) Administration on Aging--Assistant Secretary for Aging;
    (3) Administration for Children and Families--Assistant Secretary 
for Children and Families;
    (4) Agency for Healthcare Research and Quality--Administrator;
    (5) Agency for Toxic Substances and Disease Registry--Administrator;
    (6) Centers for Disease Control and Prevention--Director;
    (7) Centers for Medicare and Medicaid Services--Administrator;
    (8) Health Resources and Services Administration--Administrator;
    (9) Indian Health Service--Director;
    (10) National Institutes of Health--Director;
    (11) Substance Abuse and Mental Health Services Administration--
Administrator;
    (12) Office of Inspector General--Inspector General.
    Employee of the Department includes current and former:
    (1) Commissioned officers in the Public Health Service Commissioned 
Corps, as well as regular and special DHHS employees (except employees 
of the Food and Drug Administration), when they are performing the 
duties of their regular positions, as well as when they are performing 
duties in a temporary assignment at DHHS or another organization.
    (2) Employees of intermediaries, carriers, Medicare Administrative 
Contractors, Program Safeguard Contractors, and Recovery Audit 
Contractors, and any successor entities, that perform one or more of the 
following functions described in section 1874A or 1893 of the Social 
Security Act relating to

[[Page 9]]

the administration of the Medicare program:
    (i) Determination of payment amounts; making payments; beneficiary 
education and assistance; providing consultative services; communication 
with providers; or, provider education and technical assistance; or,
    (ii) Other such functions as are necessary to carry out the Medicare 
program, including any of the following program integrity functions 
under section 1893 of the Social Security Act:
    (A) Review of activities of providers or suppliers, including 
medical and utilization review and fraud review;
    (B) Auditing of cost reports;
    (C) Determinations as to whether payment should not be, or should 
not have been, made because Medicare is the secondary payer, and 
recovery of payments that should not have been made;
    (D) Education of providers, beneficiaries, and other persons with 
respect to payment integrity and benefit quality assurance issues; or,
    (E) Developing (and periodically updating) a list of items of 
durable medical equipment which are subject to prior authorization.
    (3) Employees of a contractor, subcontractor, or state agency 
performing survey, certification, or enforcement functions under title 
XVIII of the Social Security Act or Section 353 of the Public Health 
Service Act but only to the extent the requested information was 
acquired in the course of performing those functions and regardless of 
whether documents are also relevant to the state's activities.
    (4) Employees and qualified contractors of an entity covered under 
the Federally Supported Health Centers Assistance Act of 1992, as 
amended, 42 U.S.C. 233(g)-(n), (FSHCAA), provided that the testimony is 
requested in medical malpractice tort litigation and relates to the 
performance of medical, surgical, dental or related functions which were 
performed by the entity, its employees and qualified contractors at a 
time when the DHHS deemed the entity and its employees and qualified 
contractors to be covered by the FSHCAA.
    Certify means to authenticate under seal, pursuant to 42 U.S.C 3505, 
official documents of the Department.
    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.

[68 FR 25839, May 14, 2003, as amended at 73 FR 53150, Sept. 15, 2008]



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

    No employee or former employee of the DHHS may provide testimony or 
produce documents in any proceedings to which this part applies 
concerning information acquired in the course of performing official 
duties or because of the person's official relationship with the 
Department 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.

[68 FR 25839, May 14, 2003]



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

    (a) All requests for testimony by an employee or former employee of 
the DHHS in his or her official capacity and not subject to the 
exceptions set forth in Sec. 2.1(d) of this part must be addressed to 
the Agency head 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 interest of the DHHS 
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 be directed to 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

[[Page 10]]

copy of these regulations, and respectfully decline to testify or 
produce any documents on the basis of these regulations.

[68 FR 25840, May 14, 2003]



Sec. 2.5  Subpoenas duces tecum.

    (a) Whenever a subpoena duces tecum has been served upon a DHHS 
employee or former employee commanding the production of any record, 
such person shall refer the subpoena to the Office of the General 
Counsel (including regional chief counsels) for a determination of the 
legal sufficiency of the subpoena, whether the subpoena was properly 
served, and whether the issuing court or other tribunal has jurisdiction 
over the Department.) If the General Counsel or his designee determines 
that the subpoena is legally sufficient, the subpoena was properly 
served, and the tribunal has jurisdiction, the terms of the subpoena 
shall be complied with unless affirmative action is taken by the 
Department to modify or quash the subpoena in accordance with Fed. R. 
Civ. P. 45 (c).
    (b) If a subpoena duces tecum served upon a DHHS employee or former 
employee commanding the production of any record is determined by the 
Office of the General Counsel to be legally insufficient, improperly 
served, or from a tribunal not having jurisdiction, such subpoena 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.

[68 FR 25840, May 14, 2003]



Sec. 2.6  Certification and authentication of records.

    Upon request, DHHS agencies will certify, pursuant to 42 U.S.C. 
3505, the authenticity of copies of records that are to be disclosed. 
Fees for copying and certification are set forth in 45 CFR 5.43.

[68 FR 25840, May 14, 2003]



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.
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).

[[Page 11]]

    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.

----------------------------------------------------------------------------------------------------------------
               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.

[[Page 12]]

 
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.
                                       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.

[[Page 13]]

 
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 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;

[[Page 14]]

    (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.



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.

[[Page 15]]

    (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 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

[[Page 16]]

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.
4.7 Congressional subpoenas directed to the Department or Secretary.

    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 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 in the Office of Legal Resources, Office of the General 
Counsel, Room 700E, 200 Independence Avenue, SW., Washington, DC 20201, 
or in the absence of that staff, to any staff member of or individual 
assigned to the Immediate Office of the General Counsel, up to and 
including any Deputy General Counsel.

[48 FR 24079, May 31, 1983,as amended at 73 FR 48151, Aug. 18, 2008]



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.

[[Page 17]]



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 Sec. Sec. 4.1, 4.2, and 4.3, 
service of the Secretary's copies of petitions for compensation under 
the VICP and of related filings, by mail, shall be served upon the 
Director, Division of Vaccine Injury Compensation, Office of Special 
Programs, Health Resources and Services Administration 5600 Fishers 
Lane, Parklawn Building, Room 16C-17, Rockville, Maryland 20857, or in 
person, shall be served upon the Director, Division of Vaccine Injury 
Compensation, Office of Special Programs, Health Resources and Services 
Administration, 4350 East West Highway, 10th Floor, Bethesda, Maryland 
20814.

[67 FR 78990, Dec. 27, 2002]



Sec. 4.7  Congressional subpoenas directed to the Department or 
Secretary.

    Notwithstanding the provisions of Sec. Sec. 4.1, 4.2, and 4.3, 
service of Congressional subpoenas shall be delivered to the staff in 
the Office of the Assistant Secretary for Legislation, Department of 
Health and Human Services, 200 Independence Avenue, SW., Washington, DC 
20201.

[73 FR 48151, Aug. 18, 2008]



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.
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.

[[Page 18]]


    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 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

[[Page 19]]

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 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

[[Page 20]]

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 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

[[Page 21]]

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
    (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

[[Page 22]]

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 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.

[[Page 23]]



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.



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

[[Page 24]]

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 Sec. Sec. 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 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

[[Page 25]]

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.
    (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

[[Page 26]]

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 
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.

[[Page 27]]

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 Sec. Sec. 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 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.

[[Page 28]]



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 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

[[Page 29]]

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 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

[[Page 30]]

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.



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

[[Page 31]]

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.
    (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.

[[Page 32]]

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 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

[[Page 33]]

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.
    (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

[[Page 34]]

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 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

[[Page 35]]

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 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

[[Page 36]]

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 (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

[[Page 37]]

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 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

[[Page 38]]

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 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

[[Page 39]]

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
    (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.

[[Page 40]]

    (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 Sec. Sec. 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 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.)
    (G) Investigative materials compiled for law enforcement purposes 
for the Program Information Management System, HHS/OS/OCR.
    (H) Investigative materials compiled for law enforcement purposes 
from the CMS Fraud Investigation Database (FID), HHS/CMS.
    (I) Investigative materials compiled for law enforcement purposes 
from the Automated Survey Processing Environment (ASPEN) Complaints/ 
Incidents Tracking System (ACTS), HHS/CMS.
    (J) Investigative materials compiled for law enforcement purposes 
from the Health Insurance Portability and Accountability Act (HIPAA) 
Information Tracking System (HITS), HHS/CMS.
    (K) Investigative materials compiled for law enforcement purposes 
from the Organ Procurement Organizations System (OPOS), HHS/CMS.
    (L) Investigative materials compiled for law enforcement purposes 
for the National Practitioner Data Bank (NPDB). (See Sec. 60.21 of this 
subchapter for access and correction rights under the NPDB 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.

[[Page 41]]

    (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) FDA Records Related to Research Misconduct Proceedings, HHS/FDA/
OC, 09-10-0020.
    (D) NIH Records Related to Research Misconduct Proceedings, HHS/NIH, 
09-25-0223.
    (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 Sec. Sec. 
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; 68 FR 62751, Nov. 6, 2003; 73 FR 55775, Sept. 
26, 2008; 76 FR 72327, Nov. 23, 2011; 78 FR 39186, 39188, July 1, 2013; 
78 FR 47211, Aug. 5, 2013]



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.

[[Page 42]]

    (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.



        Sec. 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 Sec. Sec. 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;
    (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

[[Page 43]]

    (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 
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

[[Page 44]]

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.



  Sec. 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 
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]

[[Page 45]]

    (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.



     Sec. 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 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,

[[Page 46]]

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]



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

[[Page 47]]

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 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:

[[Page 48]]

    (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 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-

[[Page 49]]

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 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

[[Page 50]]

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.



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

[[Page 51]]

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 health use for which the property was leased.

With respect to any reverter of title or termination of leasehold 
resulting from noncompliance, the Government

[[Page 52]]

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 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

[[Page 53]]

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 
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

[[Page 54]]

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.



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.

[[Page 55]]



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.



Sec. Exhibit A to Part 12--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   10 to   26 to   51 to   research    services   services   program  allowance
                              allowance                                      25%     50%    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     \2\ 100   .......  .............  ........  ......  ......  ......  ..........  ..........  ........  ........    \2\ 100
 Water Systems..............
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]



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

[[Page 56]]

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 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.

[[Page 57]]

    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 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

[[Page 58]]

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.

    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.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 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

[[Page 59]]

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 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

[[Page 60]]

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
    (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

[[Page 61]]

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.
    (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

[[Page 62]]

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.
    (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

[[Page 63]]

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 applications.

    (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 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

[[Page 64]]

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.

             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: 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 or if the action is one 
to enforce compliance with a statutory or regulatory requirement and the 
Department's demand is substantially in excess of the ultimate decision 
and is unreasonable when compared with that decision. They also describe 
what proceedings constitute adversary adjudications covered by the Act, 
what

[[Page 65]]

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.

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2845, Jan. 21, 2004]



Sec. 13.2  When these rules apply.

    These rules apply to adversary adjudications before the Department.

[69 FR 2845, Jan. 21, 2004]



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.
    (b) If the agency's litigating party enters an appearance, 
Department proceedings listed in appendix A to this part are covered by 
these rules. Also covered are any other proceedings under statutes that 
incorporate by reference the procedures of sections 1128(f), 
1128A(c)(2), or 1842(j)(2) of the Social Security Act, 42 U.S.C. 1320a-
7(f), 1320a-7a(c)(2), or 1395u(j)(2). If a proceeding is not covered 
under either of the two previous sentences, a party may file a fee 
application as otherwise required by this part and may argue that the 
Act covers the proceeding. Any coverage issue shall be determined by the 
adjudicative officer and, if necessary, by the appellate authority on 
review.
    (c) 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.

[45 FR 45252, Oct. 4, 1983, as amended at 69 FR 2845, Jan. 21, 2004]



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) 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;
    (2) 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;
    (3) Individuals with a net worth of not more than $2 million;
    (4) Sole owners of unincorporated businesses if the owner has a net 
worth of not more than $7 million, including both personal and business 
interests, and if the business has not more than 500 employees;
    (5) All other partnerships, corporations, associations, local 
governmental units, and public and private organizations with a net 
worth of not more than $7 million and with not more than 500 employees; 
and
    (6) Where an award is sought on the basis stated in Sec. 13.5(c) of 
this part, small entities as defined in 5 U.S.C. 601.
    (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

[[Page 66]]

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.

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2846, Jan. 21, 2004]



Sec. 13.5  Standards for awards.

    (a) An award of fees and expenses may be made either on the basis 
that the Department's position in the proceeding was not substantially 
justified or on the basis that, in a proceeding to enforce compliance 
with a statutory or regulatory requirement, the Department's demand 
substantially exceeded the ultimate decision and was unreasonable when 
compared with that decision. These two bases are explained in greater 
detail in paragraphs (b) and (c) of this section.
    (b) Awards where the Department's position was not substantially 
justified. (1) Awards will be made on this basis only where the 
Department's position in the proceeding was not substantially justified. 
The Department's position includes, in addition to the position taken by 
the agency in the proceeding, the agency action or failure to act that 
was the basis for the proceeding. Whether the Department's position was 
substantially justified is to be determined on the basis of the 
administrative record as a whole. 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 as to 
substantial justification is on the agency's litigating party, which may 
avoid an award by showing that its position was reasonable in law and 
fact.
    (2) 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.
    (3) 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.
    (4) 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.
    (c) Awards where the Department's demand was substantially excessive 
and unreasonable. (1) Awards will be made on this basis only where the 
adversary adjudication arises from the Department's action to enforce a 
party's compliance with a statutory or regulatory requirement. An award 
may be made on this basis only if the Department's demand that led to 
the proceeding was substantially in excess of the ultimate decision in 
the proceeding, and that demand is unreasonable when compared with that 
decision, given all the facts and circumstances of the case.
    (2) Any award made on this basis shall be limited to the fees and 
expenses that are primarily related to defending against the excessive 
nature of

[[Page 67]]

the demand. An award shall not include fees and expenses that are 
primarily related to defending against the merits of charges, or fees 
and expenses that are primarily related to defending against the portion 
of the demand that was not excessive, to the extent that these fees and 
expenses are distinguishable from the fees and expenses primarily 
related to defending against the excessive nature of the demand.
    (3) Awards will be denied if the party has committed a willful 
violation of law or otherwise acted in bad faith, or if special 
circumstances make an award unjust.

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2846, Jan. 21, 2004]



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. 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 
$125.00 per hour, regardless of the actual rate charged by the attorney 
or agent. An award for the fees of an expert witness 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.

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2846, Jan. 21, 2004]



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) Where an award is sought on the basis stated in Sec. 13.5(b) of 
this part, 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. Where an award is 
sought on the basis stated in Sec. 13.5(c) of this part, an 
identification of the statutory or regulatory requirement that the 
applicant alleges the Department

[[Page 68]]

was seeking to enforce, and an identification of the Department's demand 
and of the document or documents containing that demand;
    (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. However, where an award is sought solely on the basis stated 
in Sec. 13.5(c) of this part, the applicant need not state the number 
of its employees;
    (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 the appropriate limits 
as stated in Sec. 13.4(b) of this part. 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;
    (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)); or
    (iii) It states that it is applying for an award solely on the basis 
stated in Sec. 13.5(c) of this part, and that it is a small entity as 
defined in 5 U.S.C. 601, and it describes the basis for its belief that 
it qualifies as a small entity under that section.
    (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 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)

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2846, Jan. 21, 2004]



Sec. 13.11  Net worth exhibits.

    (a) Each applicant 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. This requirement does not apply to a qualified tax-exempt 
organization or cooperative association. Nor does it apply to a party 
that states that it is applying for an award solely on the basis stated 
in Sec. 13.5(c) of this part. 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

[[Page 69]]

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)

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2846, Jan. 21, 2004]



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.
    (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.

[[Page 70]]

    (d) The adjudicative officer may require the applicant to provide 
vouchers, receipts, or other substantiation for any fees or expenses 
claimed, pursuant to Sec. 13.25 of this part.

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

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2847, Jan. 21, 2004]



            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 date on 
which a decision or order disposing of the merits of the proceeding or 
any other complete resolution of the proceeding, such as a settlement or 
voluntary dismissal, becomes final and unappealable, both within the 
agency and to the courts.
    (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, whether within 
the agency or to the courts, of a decision as to which an applicant 
believes it has prevailed, proceedings on the application shall be 
stayed pending final disposition of the underlying controversy.

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2847, Jan. 21, 2004]



Sec. 13.23  Responsive pleadings.

    (a) The agency's litigating party shall file an answer within 30 
calendar days after service of the application or, where the proceeding 
is stayed as provided in Sec. 13.22(d) of this part, within 30 calendar 
days after the final disposition of the underlying controversy. The 
answer shall either consent to the award or explain in detail any 
objections to the award requested and identify the facts relied on in 
support of the agency's 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.

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2847, Jan. 21, 2004]



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

[[Page 71]]

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. In no such further proceeding shall 
evidence be introduced from outside the administrative record in order 
to prove that the Department's position was, or was not, substantially 
justified.
    (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.

[48 FR 45252, Oct. 4, 1983, as amended at 69 FR 2847, Jan. 21, 2004]



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 appellate authority for any proceedings shall be the 
official or component that would have jurisdiction over an appeal of the 
merits.
    (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. Within another 30 days after receipt of such 
exceptions, the opposing party, if it has not done so previously, may 
file its own exceptions to the adjudicative officer's decision. The 
appellate authority shall issue a final decision on the application as 
soon as possible or remand the application to the adjudicative officer 
for further proceedings. Any party that does not file and serve 
exceptions within the stated time limit loses the opportunity to do so.

[69 FR 2847, Jan. 21, 2004]



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.

[[Page 72]]



                       Sec. Appendix A to Part 13

------------------------------------------------------------------------
                                                          Applicable
     Proceedings covered        Statutory authority       regulations
------------------------------------------------------------------------
                       Office of Inspector General
------------------------------------------------------------------------
 
1. Proceedings to impose       42 U.S.C. 1320a-       42 CFR part 1003;
 civil monetary penalties,      7a(c)(2); 1320b-       42 CFR part 1005.
 assessments, or exclusions     10(c); 1395i-
 from Medicare and State        3(b)(3)(B)(ii),
 health care programs.          (g)(2)(A)(i);
                                1395l(h)(5)(D),
                                (i)(6);
                                1395m(a)(11)(A),
                                (a)(18), (b)(5)(C),
                                (j)(2)(A)(iii);
                                1395u(j)(2), (k),
                                (l)(3), (m)(3),
                                (n)(3), (p)(3)(A);
                                1395y(b)(3)(C),
                                (b)(6)(B);
                                1395cc(g);
                                1395dd(d)(1)(A),
                                (B);
                                1395mm(i)(6)(B);
                                1395nn(g)(3), (4);
                                1395ss(d);
                                1395bbb(c)(1);
                                1396b(m)(5)(B);
                                1396r(b)(3)(B)(ii),
                                (g)(2)(A)(i);
                                1396t(i)(3);
                                11131(c);
                                11137(b)(2).
2. Appeals of exclusions from  42 U.S.C. 1320a-7(f);  42 CFR part 1001;
 Medicare and State health      1395l(h)(5)(D);        42 CFR part 1005.
 care programs and/or other     1395m(a)(11)(A),
 programs under the Social      (b)(5)(C);
 Security Act.                  1395u(j)(2), (k),
                                (l)(3), (m)(3),
                                (n)(3), (p)(3)(B).
3. Appeal of exclusions from   42 U.S.C. 1320c-       42 CFR part 1004;
 programs under the Social      5(b)(4), (5).          42 CFR part 1005.
 Security Act, for which
 services may be provided on
 the recommendation of a Peer
 Review Organization.
4. Proceedings to impose       31 U.S.C. 3803.......  45 CFR part 79.
 civil penalties and
 assessments for false claims
 and statements.
------------------------------------------------------------------------
                Centers for Medicare & Medicaid Services
------------------------------------------------------------------------
1. Proceedings to suspend or   42 U.S.C. 263a(i);     42 CFR part 493,
 revoke licenses of clinical    1395w-2.               Subpart R.
 laboratories.
2. Proceedings provided to a   42 U.S.C. 1395h(e)(1)- 42 CFR 421.114,
 fiscal intermediary before     (3).                   421.128.
 assigning or reassigning
 Medicare providers to a
 different fiscal
 intermediary.
3. Appeals of determinations   42 U.S.C. 1395cc(h);   42 CFR 489.53(d);
 that an institution or         1395dd(d)(1)(A).       42 CFR part 498.
 agency is not a Medicare
 provider of services, and
 appeals of terminations or
 nonrenewals of Medicare
 provider agreements.
4. Proceedings before the      42 U.S.C. 1395oo.....  42 CFR part 405,
 Provider Reimbursement                                Subpart R.
 Review Board when Department
 employees appear as counsel
 for the intermediary.
5. Appeals of CMS              42 U.S.C. 1396i......  42 CFR part 498.
 determinations that an
 intermediate care facility
 for the mentally retarded
 (ICFMR) no longer qualifies
 as an ICFMR for Medicaid
 purposes.
6. Proceedings to impose       42 U.S.C. 1395i-       42 CFR part 1003.
 civil monetary penalties,      3(h)(2)(B)(ii);
 assessments, or exclusions     1395l(q)(2)(B)(i);
 from Medicare and State        1395m(a)(11)(A),
 health care programs.          (c)(4)(C); 1395w-
                                2(b)(2)(A); 1395w-
                                4(g)(1), (g)(3)(B),
                                (g)(4)(B)(ii);
                                1395nn(g)(5);
                                1395ss(a)(2),
                                (p)(8), (p)(9)(C),
                                (q)(5)(C),
                                (r)(6)(A), (s)(3),
                                (t)(2);
                                1395bbb(f)(2)(A);
                                1396r(h)(3)(C)(ii);
                                1396r-8(b)(3)(B),
                                (C)(ii);
                                1396t(j)(2)(C);
                                1396u(h)(2).
7. Appeals of exclusions from  42 U.S.C.              42 CFR part 498;
 Medicare and State health      1395l(q)(2)(B)(ii);    42 CFR 1001.107.
 care programs and/or other     1395m(a)(11)(A),
 programs under the Social      (c)(5)(C); 1395w-
 Security Act.                  4(g)(1), (g)(3)(B),
                                (g)(4)(B)(ii).
------------------------------------------------------------------------
                      Food and Drug Administration
------------------------------------------------------------------------
1. Proceedings to withdraw     21 U.S.C. 355(e).....  21 CFR part 12; 21
 approval of new drug                                  CFR 314.200.
 applications.
2. Proceedings to withdraw     21 U.S.C. 360b(e),     21 CFR part 12; 21
 approval of new animal drug    (m).                   CFR part 514,
 applications and medicated                            Subpart B.
 feed applications.
3. Proceedings to withdraw     21 U.S.C. 306e(e),     21 CFR part 12.
 approval of medical device     (g).
 premarket approval
 applications.
------------------------------------------------------------------------
 

[[Page 73]]

 
                         Office for Civil Rights
------------------------------------------------------------------------
1. Proceedings to enforce      42 U.S.C. 2000d-1....  45 CFR 80.9.
 Title VI of the Civil Rights
 Act of 1964, which prohibits
 discrimination on the basis
 of race, color or national
 origin by recipients of
 Federal financial assistance.
2. Proceedings to enforce      29 U.S.C. 794a; 42     45 CFR 84.61.
 section 504 of the             U.S.C. 2000d-1.
 Rehabilitation Act of 1973,
 which prohibits
 discrimination on the basis
 of handicap by recipients of
 Federal financial assistance.
3. Proceedings to enforce the  42 U.S.C. 6104(a)....  45 CFR 91.47.
 Age Discrimination Act of
 1975, which prohibits
 discrimination on the basis
 of age by recipients of
 Federal financial assistance.
4. Proceedings to enforce      20 U.S.C. 1682.......  45 CFR 86.71.
 Title IX of the Education
 Amendments of 1972, which
 prohibits discrimination on
 the basis of sex in certain
 education programs by
 recipients of Federal
 financial assistance.
------------------------------------------------------------------------


[69 FR 2847, Jan. 21, 2004]



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

[[Page 74]]

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.
    (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

[[Page 75]]

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 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.

[[Page 76]]



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 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

[[Page 77]]

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.
    (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

[[Page 78]]

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 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.

[[Page 79]]



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 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.

[[Page 80]]

    (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 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.



       Sec. 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-

[[Page 81]]

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.
    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.

[[Page 82]]



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, 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 18_OFFICIAL SYMBOL, LOGO, AND SEAL--Table of Contents



    Authority: 42 U.S.C. 3505 and 5 U.S.C. 301.



Sec. 18.1  Description of the Symbol, Logo, and Seal.

    (a) The Departmental Symbol (Symbol) of the Department of Health and 
Human Services (HHS) is the key element in Department identification. It 
represents the American People sheltered in the wing of the American 
Eagle, suggesting the Department's concern and responsibility for the 
welfare of the people. This Symbol is the visual link which connects the 
graphic communications of all components and programs of the Department. 
It is the major design component for the Department Identifiers -- the 
Department Logo, Seal, and Signatures.
    (b) The Symbol is described as follows: The outline of an American 
Eagle, facing left, with one of its wings stretched upward and the other 
wing pointed downward, is flanked on its right side by two outlines of 
the profile of a human head, both of which are located in between the 
eagle's wings. One of the profile outlines is smaller than

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the other and is nestled in the larger outline.
[GRAPHIC] [TIFF OMITTED] TR13MR15.002

    (c) The HHS Departmental Logo (Logo) incorporates the Symbol and is 
described as follows: From the tip of the outstretched wing of the 
American Eagle in symbol to the tip of the other, downward-facing wing, 
the words, 
``DEPARTMENT OF HEALTH & HUMAN SERVICES  USA'' form a 
circular arc. The official colors of the Logo are either Black or Reflex 
Blue. Reflex Blue RGB Numbers: 0/0/153 (R0, G0, B153)
[GRAPHIC] [TIFF OMITTED] TR13MR15.003

    (d) The HHS Departmental Seal (Seal) incorporates the Symbol and is 
described as follows: Starting from the tip of the downward-facing wing 
of the American Eagle in the HHS symbol and forming a complete circle 
clockwise around the HHS symbol, the words, ``DEPARTMENT OF HEALTH & 
HUMAN SERVICES  USA '' are printed, 
surrounded by a border composed of a solid inner ring at the base of the 
text and a triangular, scalloped edge at the top of the text. The 
official colors of the Seal are Reflex Blue and Gold [Reflex Blue RGB 
Numbers: 0/0/153 (R0, G0, B153); Reflex Gold RGB Numbers: 254/252/1 
(R254, G252, B1)]. The Seal may also appear in Reflex Blue or Black.

[[Page 84]]

[GRAPHIC] [TIFF OMITTED] TR13MR15.004

    (e) The HHS Departmental symbol, logo, and seal shall each be 
referred to as an HHS emblem and shall collectively be referred to as 
HHS emblems.

[80 FR 13252, Mar. 13, 2015]



PART 30_CLAIMS COLLECTION--Table of Contents



                      Subpart A_General Provisions

Sec.
30.1 Purpose, authority, and scope.
30.2 Definitions.
30.3 Antitrust, fraud, exception in the account of an accountable 
          official, and interagency claims excluded.
30.4 Compromise, waiver, or disposition under other statutes not 
          precluded.
30.5 Other administrative remedies.
30.6 Form of payment.
30.7 Subdivision of claims.
30.8 Required administrative proceedings.
30.9 No private rights created.

     Subpart B_Standards for the Administrative Collection of Debts

30.10 Collection activities.
30.11 Demand for payment.
30.12 Administrative offset.
30.13 Debt reporting and the use of credit reporting agencies.
30.14 Contracting with private collection contractors and with entities 
          that locate and recover unclaimed assets.
30.15 Suspension or revocation of eligibility for loans and loan 
          guarantees, licenses, permits or privileges.
30.16 Liquidation of collateral.
30.17 Collection in installments.
30.18 Interest, penalties, and administrative costs.
30.19 Review of cost effectiveness of collection.
30.20 Taxpayer information.

                        Subpart C_Debt Compromise

30.21 Scope and application.
30.22 Basis for compromise.
30.23 Enforcement policy.
30.24 Joint and several liability.
30.25 Further review of compromise offers.
30.26 Consideration of tax consequences to the Government.
30.27 Mutual release of the debtor and the Government.

       Subpart D_Suspending and Terminating Collection Activities

30.28 Scope and application.
30.29 Suspension of collection activity.
30.30 Termination of collection activity.
30.31 Exception to termination.
30.32 Discharge of indebtedness; reporting requirements.

            Subpart E_Referrals to the Department of Justice

30.33 Prompt referral.
30.34 Claims Collection Litigation Report.
30.35 Preservation of evidence.
30.36 Minimum amount of referrals.

    Authority: 31 U.S.C. 3711(d).

    Source: 72 FR 10409, Mar. 8, 2007, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 30.1  Purpose, authority, and scope.

    (a) Purpose. This part prescribes the standards and procedures for 
the Department's use in the administrative collection, offset, 
compromise, and suspension or termination of collection activity for 
claims for funds or property, as defined by 31 U.S.C. 3701(b) and this 
part. Covered activities include the collection of debts in any amount;

[[Page 85]]

the compromise and suspension or termination of collection activity of 
debts that do not exceed $100,000, or such higher amount as the Attorney 
General may prescribe, exclusive of interest, penalties, and 
administrative costs; and the referral of debts to the Department of the 
Treasury (Treasury), the Treasury-designated debt collection centers, or 
the Department of Justice (Justice) for collection by further 
administrative action or litigation, as applicable.
    (b) Authority. The Secretary is issuing the regulations in this part 
under the authority contained in 31 U.S.C. 3711(d). The standards and 
procedures prescribed in this part are authorized under the Federal 
Claims Collection Act, as amended, Public Law No. 89-508, 80 Stat. 308 
(July 19, 1966), the Debt Collection Act of 1982, Public Law No. 97-365, 
96 Stat. 1749 (October 25, 1982), the Debt Collection Improvement Act of 
1996, Public Law No. 104-134, 110 Stat. 1321, 1358 (April 26, 1996) and 
the Federal Claims Collection Standards at 31 CFR parts 900 through 904.
    (c) Scope. (1) The standards and procedures prescribed in this part 
apply to all officers and employees of the Department, including 
officers and employees of the various Operating Divisions and Regional 
Offices of the Department, charged with the collection and disposition 
of debts owed to the United States.
    (2) The standards and procedures set forth in this part will be 
applied except where specifically excluded herein or where a statute, 
regulation or contract prescribes different standards or procedures.
    (3) Regulations governing the use of certain debt collection 
procedures created under the Debt Collection Improvement Act of 1996, 
including tax refund offset, administrative wage garnishment, and 
Federal salary offset, are contained in parts 31 through 33 of this 
chapter.



Sec. 30.2  Definitions.

    In this part--
    Administrative offset means withholding funds payable by the United 
States to, or held by the United States for, a person to satisfy a debt.
    Agency means a department, agency, court, court administrative 
office, or instrumentality in the executive, judicial, or legislative 
branch of the Government, including Government corporations.
    Appropriate official means the Department official who, by statute 
or delegation of authority, determines the existence and amount of debt.
    Business day means Monday through Friday. For purposes of 
computation, the last day of the period will be included unless it is a 
Federal holiday, in which case the next business day following the 
holiday will be considered the last day of the period.
    Claim see the definition for the term ``debt.'' The terms ``claim'' 
and ``debt'' are synonymous and interchangeable.
    Creditor agency means an agency to which a debt is owed, including a 
debt collection center acting on behalf of a creditor agency.
    Day means calendar day. For purposes of computation, the last day of 
the period will be included unless it is a Saturday, Sunday, or a 
Federal holiday, in which case the next business day will be considered 
the last day of the period.
    Debt or claim means an amount of funds or other property determined 
by an appropriate official of the Federal Government to be owed to the 
United States from any person, organization, or entity, except another 
Federal agency. For the purpose of administrative offset, the term 
includes an amount owed by an individual to a State, the District of 
Columbia, American Samoa, Guam, the United States Virgin Islands, the 
Commonwealth of the Northern Mariana Islands, or the Commonwealth of 
Puerto Rico. Debts include, but are not limited to, amounts owed 
pursuant to: Loans insured or guaranteed by the United States; fees; 
leases; rents; royalties; services; sales of real or personal property; 
Federal salary overpayments; overpayments to program beneficiaries, 
contractors, providers, suppliers, and grantees; audit disallowance 
determinations; civil penalties and assessments; theft or loss; 
interest; fines and forfeitures (except those arising under the Uniform 
Code of Military Justice); and all other similar sources.

[[Page 86]]

    Debt collection center means the Department of the Treasury, or 
other Federal agency, subagency, unit, or division designated by the 
Secretary of the Treasury to collect debts owed to the United States.
    Debtor means an individual, organization, association, partnership, 
corporation, or State or local government or subdivision indebted to the 
Government, 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, reimbursements, penalties or assessments owed by, any 
entity, individual, or State under the Social Security Act. Such amounts 
include amounts owed to the Medicare program under section 1862(b) 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 part.
    Delinquent debt means a debt which the debtor does not pay or 
otherwise resolve by the date specified in the initial demand for 
payment, or in an applicable written repayment agreement or other 
instrument, including a post-delinquency repayment agreement.
    Department means the Department of Health and Human Services, and 
its Operating Divisions and Regional Offices.
    Disbursing official means an officer or employee who has authority 
to disburse public money pursuant to 31 U.S.C. 3321 or another law.
    Disposable pay means that part of the debtor's current basic, 
special, incentive, retired, and retainer pay, or other authorized pay, 
remaining after deduction of amounts required by law to be withheld. For 
purposes of calculating disposable pay, legally required deductions that 
must be applied first include: Tax levies pursuant to the Internal 
Revenue Code (title 26, United States Code); properly withheld taxes, 
FICA, Medicare; health and life insurance premiums; and retirement 
contributions. Amounts deducted under garnishment orders, including 
child support garnishment orders, are not legally required deductions 
for calculating disposable pay.
    Evidence of service means information retained by the Department 
indicating the nature of the document to which it pertains, the date of 
mailing of the document, and the address and name of the debtor to whom 
it is being sent. A copy of the dated and signed written notice provided 
to the debtor pursuant to this part may be considered evidence of 
service for purposes of this part. Evidence of service may be retained 
electronically so long as the manner of retention is sufficient for 
evidentiary purposes.
    FMS means the Financial Management Service, a bureau of the 
Department of the Treasury.
    Hearing means a review of the documentary evidence to confirm the 
existence or amount of a debt or the terms of a repayment schedule. If 
the Secretary determines that the issues in dispute cannot be resolved 
by such a review, such as when the validity of the claim turns on the 
issue of credibility or veracity, the Secretary may provide an oral 
hearing. (See 45 CFR 33.6(c)(2) for oral hearing procedures that may be 
provided by the Secretary).
    IRS means the Internal Revenue Service, a bureau of the Department 
of the Treasury.
    Late charges means interest, penalties, and administrative costs 
required or permitted to be assessed on delinquent debts.
    Legally enforceable means that there has been a final agency 
determination that the debt, in the amount stated, is due and there are 
no legal bars to collection action.
    Local government means a political subdivision, instrumentality, or 
authority of any State, the District of Columbia, American Samoa, Guam, 
the United States Virgin Islands, the Commonwealth of the Northern 
Mariana Islands, or the Commonwealth of Puerto Rico, or an Indian tribe, 
band or nation.
    Operating Division means each separate component, agency, subagency, 
and unit within the Department of Health and Human Services, including, 
but not limited to, the Administration

[[Page 87]]

for Children and Families, the Administration on Aging, the Centers for 
Disease Control and Prevention, the Centers for Medicare & Medicaid 
Services, the Food and Drug Administration, the National Institutes of 
Health, Substance Abuse and Mental Health Services Administration, 
Indian Health Service, Health Resources and Services Administration, 
Agency for Toxic Substances and Disease Registry, Agency for Healthcare 
Research and Quality, and the Office of the Secretary.
    OPM means the Office of Personnel Management.
    Payment authorizing agency means an agency that transmits a voucher 
to a disbursing official for the disbursement of public money.
    Payments made under the Social Security Act means payments by this 
Department or other agencies 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 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 Services Block Grant); Title IX (Miscellaneous Provisions 
Relating to Employment Security); 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 (Grants to States for Aid to the Aged, Blind, and 
Disabled); Title XVII (Grants for Planning Comprehensive Action to 
Combat Mental Retardation); Title XVIII (Health Insurance for the Aged 
and Disabled); Title XIX (Grants to States for Medical Assistance 
Programs); Title XX (Block Grants to States for Social Services); and 
Title XXI (State Children's Health Insurance Program). Federal employee 
salaries and other payments made by the Department or other agencies 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 part.
    Private collection contractors means private debt collection under 
contract with the Department to collect a nontax debt or claim owed to 
the Department. The term includes private debt collectors, collection 
agencies, and commercial attorneys.
    Salary offset means an administrative offset to collect a debt owed 
by a Federal employee through deductions at one or more officially 
established pay intervals from the current pay account of the employee 
without his or her consent.
    Secretary means the Secretary of Health and Human Services, or the 
Secretary's designee.
    Taxpayer identification number means the identifying number 
described under section 6109 of the Internal Revenue Code of 1986 (26 
U.S.C. 6109). For an individual, the taxpayer identifying number is the 
individual's Social Security Number.
    Tax refund offset means withholding or reducing a tax refund payment 
by an amount necessary to satisfy a debt.



Sec. 30.3  Antitrust, fraud, exception in the account of an 
accountable official, and interagency claims excluded.

    (a) Claims involving antitrust violations or fraud. (1) The 
standards in this part relating to compromise, suspension, and 
termination of collection activity do not apply to any debt based in 
whole or in part on conduct in violation of antitrust laws, or to any 
debt involving fraud, presentation of a false claim, or 
misrepresentation on the part of the debtor or any party having an 
interest in the claim, unless the Department of Justice returns a 
referred claim to the Department for further handling in accordance with 
parts 31 CFR 900 through 904 and this part.
    (2) Upon identification of a debt suspected of involving an 
antitrust violation or fraud, a false claim, misrepresentation, or other 
criminal activity or misconduct, the Secretary shall refer the debt to 
the Office of the Inspector General for review.

[[Page 88]]

    (3) Upon the determination of the Office of the Inspector General 
that a claim is based in whole or in part on conduct in violation of the 
antitrust laws, or involves fraud, the presentation of a false claim, or 
misrepresentation on the part of the debtor or any party having an 
interest in the claim, the Secretary shall promptly refer the case to 
the Department of Justice for action.
    (b) Exception in the account of an accountable official. The 
standards in this part do not apply to compromise of an exception in the 
account of an accountable official.
    (c) Interagency claims. This part does not apply to claims between 
Federal agencies. The Department will attempt to resolve interagency 
claims by negotiation in accordance with EO 12146.



Sec. 30.4  Compromise, waiver, or disposition under other statutes 
not precluded.

    Nothing in this part precludes the Department from disposing of any 
claim under statutes and implementing regulations other than subchapter 
II of chapter 37 of Title 31 of the United States Code and the Federal 
Claims Collection Standards, 31 CFR parts 900 through 904. Any statute 
and implementing regulation specifically applicable to the claims 
collection activities of the Department will take precedence over this 
part.



Sec. 30.5  Other administrative remedies.

    The remedies and sanctions available under this part for collecting 
debts are not intended to be exclusive. Nothing contained in this part 
precludes using any other administrative remedy which may be available 
for collecting debts owed to the Department, such as converting the 
method of payment under a grant from an advancement to a reimbursement 
method or revoking a grantee's letter-of-credit.



Sec. 30.6  Form of payment.

    Claims may be paid in the form of money or, when a contractual basis 
exists, the Department may demand the return of specific property or the 
performance of specific services.



Sec. 30.7  Subdivision of claims.

    Debts may not be subdivided to avoid the monetary ceiling 
established by 31 U.S.C. 3711(a)(2). A debtor's liability arising from a 
particular transaction or contract shall be considered a single debt in 
determining whether the debt, exclusive of interest, penalties and 
administrative costs, does not exceed $100,000, or such higher amount as 
prescribed by the Attorney General for purposes of compromise, or 
suspension or termination of collection activity.



Sec. 30.8  Required administrative proceedings.

    This part does not supersede, or require omission or duplication of 
administrative proceedings required by contract, or other laws or 
regulations. See for example, 42 CFR part 50 (Public Health Service), 45 
CFR part 16 (Departmental Grant Appeals Board), and 48 CFR part 33 
(Federal Acquisition Regulation) and part 333 (HHS Acquisition 
Regulation).



Sec. 30.9  No private rights created.

    The standards in this part do not create any right or benefit, 
substantive or procedural, enforceable at law or in equity by a party 
against the United States, the Department, its officers, or any other 
person, nor shall the failure of the Department to comply with any of 
the provisions of this part be available to any debtor as a defense.



     Subpart B_Standards for the Administrative Collection of Debts



Sec. 30.10  Collection activities.

    (a) General rule. The Secretary shall aggressively and timely 
collect all debts arising out of activities of, or referred or 
transferred for collection actions to, the Department. Normally, an 
initial written demand for payment shall be made no later than 30 days 
after a determination by an appropriate official that a debt exists.
    (b) Cooperation with other agencies. The Department shall cooperate 
with other agencies in their debt collection activities.
    (c) Transfer of delinquent debts--(1) Mandatory transfer. The 
Department shall transfer legally enforceable debts

[[Page 89]]

180 days or more delinquent to Treasury in accordance with the 
requirements of 31 CFR 285.12. This requirement does not apply to any 
debt that:
    (i) Is in litigation or foreclosure;
    (ii) Will be disposed of under an approved asset sale program within 
one year of becoming eligible for sale;
    (iii) Has been referred to a private collection contractor for a 
period of time acceptable to the Secretary of the Treasury;
    (iv) Is at a debt collection center for a period of time acceptable 
to the Secretary of the Treasury (see paragraph (c)(2) of this section);
    (v) Will be collected under internal offset procedures within three 
years after the debt first became delinquent; or
    (vi) Is exempt from this requirement based on a determination by the 
Secretary of the Treasury that exemption for a certain class of debt is 
in the best interest of the United States.
    (2) Permissive transfer. The Secretary may refer debts less than 180 
days delinquent, including debts referred to the Department by another 
agency, to the Treasury in accordance with the requirements of 31 CFR 
285.12, or with the consent of the Treasury, to a Treasury-designated 
debt collection center to accomplish efficient, cost effective debt 
collection. Referrals to debt collection centers shall be at the 
discretion of, and for a time period acceptable to, the Secretary of the 
Treasury. Referrals may be for servicing, collection, compromise, 
suspension, or termination of collection action.



Sec. 30.11  Demand for payment.

    (a) Written demand for payment. (1) Written demand, as described in 
paragraph (b) of this section, shall be made promptly upon a debtor in 
terms that inform the debtor of the consequences of failing to cooperate 
with the Department to resolve the debt.
    (2) Normally, the demand letter will be sent no later than 30 days 
after the appropriate official determines that the debt exists. The 
demand letter shall be sent by first class mail to the debtor's last 
known address.
    (3) When necessary to protect the Government's interest, for example 
to prevent the running of a statute of limitations, the written demand 
for payment may be preceded by other appropriate action under this part, 
including immediate referral to Justice for litigation.
    (b) Demand letters. The specific content, timing, and number of 
demand letters shall depend upon the type and amount of the debt and the 
debtor's response, if any, to the Department's letters or telephone 
calls. Generally, one demand letter should suffice; however, more may be 
used.
    (1) The written demand for payment shall include the following 
information:
    (i) The nature and amount of the debt, including the basis for the 
indebtedness;
    (ii) The date by which payment should be made to avoid late charges 
and enforced collection, which generally shall be no later than 30 days 
from the date the demand letter is mailed;
    (iii) The applicable standards for imposing any interest, penalties, 
or administrative costs (see Sec. 30.18);
    (iv) The rights, if any, the debtor may have to:
    (A) Seek review of the Department's determination of the debt, and 
for purposes of administrative wage garnishment or salary offset, to 
request a hearing (see 45 CFR parts 32 and 33); and
    (B) Enter into a reasonable repayment agreement.
    (v) An explanation of how the debtor may exercise any of the rights 
described in paragraph (b)(1)(iv) of this section;
    (vi) The name, address, and phone number of a contact person or 
office within the Department to address any debt-related matters; and
    (vii) The Department's remedies to enforce payment of the debt, 
which may include:
    (A) Garnishing the debtor's wages through administrative wage 
garnishment;
    (B) Offsetting any Federal payments due the debtor, including income 
tax refunds, salary, certain benefit payments such as Social Security, 
retirement, and travel reimbursements and advances;

[[Page 90]]

    (C) Referring the debt to a private collection contractor;
    (D) Reporting the debt to a credit bureau or other automated 
database;
    (E) Referring the debt to Justice for litigation; and
    (F) Referring the debt to Treasury for any of the collection actions 
described in paragraphs (b)(1)(vii)(A) through (E) of this section, 
advising the debtor that such referral is mandatory if the debt is 180 
or more days delinquent.
    (2) The written demand for payment should also include the following 
information:
    (i) The debtor's right to inspect and copy all records of the 
Department pertaining to the debt, or if the debtor or the debtor's 
representative cannot personally inspect the records, to request and 
receive copies of such records;
    (ii) The Department's willingness to discuss with the debtor 
alternative methods of payment;
    (iii) A debtor delinquent on a debt is ineligible for Government 
loans, loan guarantees, or loan insurance until the debtor resolves the 
debt;
    (iv) When seeking to collect statutory penalties, forfeiture or 
other similar types of claim, the debtor's licenses, permits, or other 
privileges may be suspended or revoked if failure to pay the debt is 
inexcusable or willful. Such suspension or revocation shall extend to 
programs or activities administered by the States on behalf of the 
Federal Government, to the extent that they affect the Federal 
Government's ability to collect money or funds owed by debtors;
    (v) Knowingly making false statements or bringing frivolous actions 
may subject the debtor to civil or criminal penalties under 31 U.S.C. 
3729-3731, 18 U.S.C. 286, 287, 1001, and 1002, or any other applicable 
statutory authority, and, if the debtor is a Federal employee, to 
disciplinary action under 5 CFR part 752 or other applicable authority;
    (vi) Any amounts collected and ultimately found not to have been 
owed by the debtor will be refunded;
    (vii) For salary offset, up to 15% of the debtor's current 
disposable pay may be deducted every pay period until the debt is paid 
in full; and
    (viii) Dependent upon applicable statutory authority, the debtor may 
be entitled to consideration for a waiver.
    (c) The Secretary will retain evidence of service indicating the 
date of mailing of the demand letter. The evidence of service, which may 
include a certificate of service, may be retained electronically so long 
as the manner of retention is sufficient for evidentiary purposes.
    (d) Prior to, during, or after the completion of the demand process, 
if the Secretary determines to pursue, or is required to pursue offset, 
the procedures applicable to offset should be followed (see Sec. 
30.12). The availability of funds for debt satisfaction by offset and 
the Secretary's determination to pursue collection by offset shall 
release the Secretary from the necessity of further compliance with 
paragraphs (a), (b), and (c) of this section.
    (e) Finding debtors. The Secretary will use every reasonable effort 
to locate debtors, using such sources as telephone directories, city 
directories, postmasters, drivers license records, automobile title and 
license records in State and local government agencies, the IRS, 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.
    (f) Communications from debtors. The Secretary should respond 
promptly to communications from debtor, within 30 days where feasible, 
and should advise debtors who dispute debts to furnish available 
evidence to support their contentions.
    (g) 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. 30.12  Administrative offset.

    (a) Scope. (1) Administrative offset is the withholding of funds 
payable by the United States to, or held by the United States for, a 
person to satisfy a debt.
    (2) This section does not apply to:
    (i) Debts arising under the Social Security Act, except as provided 
in 42 U.S.C. 404;

[[Page 91]]

    (ii) Payments made under the Social Security Act, except as provided 
for in 31 U.S.C. 3716(c), and implementing regulation at 31 CFR 285.4;
    (iii) Debts arising under, or payments made under, the Internal 
Revenue Code or the tariff laws of the United States;
    (iv) Offsets against Federal salaries to the extent these standards 
are inconsistent with regulations published to implement such offsets 
under 5 U.S.C. 5514 and 31 U.S.C. 3716 (see 5 CFR part 550, subpart K; 
31 CFR 285.7; and part 33 of this chapter);
    (v) Offsets under 31 U.S.C. 3728 against a judgment obtained by a 
debtor against the United States;
    (vi) Offsets or recoupments under common law, State law, or Federal 
statutes specifically prohibiting offsets or recoupments for particular 
types of debts; or
    (vii) Offsets in the course of judicial proceedings, including 
bankruptcy.
    (3) Unless otherwise provided for by contract or law, debts or 
payments that are not subject to administrative offset under 31 U.S.C. 
3716 may be collected by administrative offset under the common law or 
other applicable statutory authority.
    (4) Unless otherwise provided by law, collection by administrative 
offset under the authority of 31 U.S.C. 3716 may not be conducted more 
than 10 years after the Department's right to collect the debt first 
accrued, unless facts material to the Department's right to collect the 
debt were not known and could not reasonably have been known by the 
Secretary. This limitation does not apply to debts reduced to judgment.
    (5) Where there is reason to believe that a bankruptcy petition has 
been filed with respect to a debtor, the Office of the General Counsel 
should be contacted for legal advice concerning the impact of the 
Bankruptcy Code, particularly 11 U.S.C. 106, 362 and 553, on pending or 
contemplated collections by offset.
    (b) Centralized administrative offset. (1) Except as provided in the 
exceptions listed in Sec. 30.10(c)(1), legally enforceable debts which 
are 180 days delinquent shall be referred to the Secretary of the 
Treasury for collection by centralized administrative offset pursuant to 
and in accordance with 31 CFR 901.3(b). Debts which are less than 180 
days delinquent, including debts referred to the Department by another 
agency, also may be referred to the Secretary of the Treasury for 
collection by centralized administrative offset.
    (2) When referring delinquent debts to the Secretary of the Treasury 
for centralized administrative offset, the Department must certify, in a 
form acceptable to the Secretary of the Treasury, that:
    (i) The debt is past due and legally enforceable; and
    (ii) The Department has complied with all due process requirements 
under 31 U.S.C. 3716(a) and paragraph (c)(2) of this section.
    (3) Payments that are prohibited by law from being offset are exempt 
from centralized administrative offset. The Secretary of the Treasury 
shall exempt payments under means-tested programs from centralized 
administrative offset when requested in writing by the head of the 
payment certifying or authorizing agency. Also, the Secretary of the 
Treasury may exempt other classes of payments from centralized offset 
upon the written request of the head of the payment certifying or 
authorizing agency.
    (c) Non-centralized administrative offset. (1) Unless otherwise 
prohibited by law, when centralized administrative offset under 
paragraph (b) of this section is not available or appropriate, the 
Secretary may collect a delinquent debt by conducting non-centralized 
administrative offset internally or in cooperation with the agency 
certifying or authorizing payments to the debtor.
    (2) Except as provided in paragraph (c)(3) of this section, 
administrative offset may be initiated only after:
    (i) The debtor has been sent written notice of the type and amount 
of the debt, the intention of the Department to initiate administrative 
offset to collect the debt, and an explanation of the debtor's rights 
under 31 U.S.C. 3716; and
    (ii) The debtor has been given:
    (A) The opportunity to inspect and copy Department records related 
to the debt;
    (B) The opportunity for a review within the Department of the 
determination of indebtedness; and

[[Page 92]]

    (C) The opportunity to make a written agreement to repay the debt.
    (3) The due process requirements under paragraph (c)(2) of this 
section may be omitted when:
    (i) Offset is in the nature of a recoupment, i.e., the debt and the 
payment to be offset arise out of the same transaction or occurrence;
    (ii) The debt arises under a contract as set forth in Cecile 
Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and 
other procedural protections set forth in 31 U.S.C. 3716(a) do not 
supplant or restrict established procedures for contractual offsets 
covered by the Contracts Disputes Act); or
    (iii) In the case of non-centralized administrative offset conducted 
under paragraph (c)(1) of this section, the Department first learns of 
the existence of the amount owed by the debtor when there is 
insufficient time before payment would be made to the debtor/payee to 
allow for prior notice and an opportunity for review. When prior notice 
and an opportunity for review are omitted, the Secretary shall give the 
debtor such notice and an opportunity for review as soon as practical 
and shall promptly refund any money ultimately found not to have been 
owed to the Government.
    (4) When the debtor previously has been given any of the required 
notice and review opportunities with respect to a particular debt, such 
as under Sec. 30.11 of this part, the Department need not duplicate 
such notice and review opportunities before administrative offset may be 
initiated.
    (5) Before requesting that a payment authorizing agency to conduct 
non-centralized administrative offset, the Department shall:
    (i) Provide the debtor with due process as set forth in paragraph 
(c)(2) of this section; and
    (ii) Provide the payment authorizing agency written certification 
that the debtor owes the past due, legally enforceable delinquent debt 
in the amount stated, and that the Department has fully complied with 
this section.
    (6) When a creditor agency requests that the Department, as the 
payment authorizing agency, conduct non-centralized administrative 
offset, the Secretary shall comply with the request, unless the offset 
would not be in the best interest of the United States with respect to 
the program of the Department, or would otherwise be contrary to law. 
Appropriate use should be made of the cooperative efforts of other 
agencies in effecting collection by administrative offset, including 
salary offset.
    (7) When collecting multiple debts by non-centralized administrative 
offset, the Department will apply the recovered amounts to those debts 
in accordance with the best interests of the United States, as 
determined by the facts and circumstances of the particular case, 
particularly the applicable statute of limitations.
    (d) Requests to OPM to offset a debtor's anticipated or future 
benefit payments under the Civil Service Retirement and Disability Fund 
and the Federal Employee Retirement System. Upon providing OPM written 
certification that a debtor has been afforded the procedures provided in 
paragraph (c)(2) of this section, the Department may request OPM to 
offset a debtor's anticipated or future benefit payments under the Civil 
Service Retirement and Disability Fund (Fund) in accordance with 5 CFR 
part 831, subpart R, or under the Federal Employee Retirement System 
(FERS) in accordance with 5 CFR part 845, subpart D. Upon receipt of 
such a request, OPM will identify and ``flag'' a debtor's account in 
anticipation of the time when the debtor requests, or becomes eligible 
to receive, payments from the Fund or under FERS. This will satisfy any 
requirement that offset be initiated prior to the expiration of the time 
limitations referenced in 31 CFR 901.3(b)(4).
    (e) Review requirements. (1) For purposes of this section, whenever 
the Secretary is required to afford a debtor a review within the 
Department, the debtor shall be provided with a reasonable opportunity 
for an oral hearing when the debtor requests reconsideration of the debt 
and the Secretary determines that the question of the indebtedness 
cannot be resolved by review of the documentary evidence, for example, 
when the validity of the debt turns on an issue of credibility or 
veracity.

[[Page 93]]

    (2) Unless otherwise required by law, an oral hearing under this 
section is not required to be a formal evidentiary hearing, although the 
Department will carefully document all significant matters discussed at 
the hearing.
    (3) An oral hearing is not required with respect to debt collection 
systems where determinations of indebtedness rarely involve issues of 
credibility or veracity, and the Secretary has determined that a review 
of the written record is adequate to correct prior mistakes.
    (4) In those cases when an oral hearing is not required by this 
section, the Secretary shall accord the debtor a ``paper hearing,'' that 
is, a determination of the request for reconsideration based upon a 
review of the written record.



Sec. 30.13  Debt reporting and use of credit reporting agencies.

    (a) Reporting delinquent debts. (1) The Secretary will report 
delinquent debts over $100 to credit bureaus or other automated 
databases. Debts arising under the Social Security Act are excluded from 
paragraph (a).
    (2) Debts owed by individuals will be reported to consumer reporting 
agencies pursuant to 5 U.S.C. 552a(b)(12).
    (3) Once a debt has been referred to Treasury for collection, any 
subsequent reporting to or updating of a credit bureau or other 
automated database may be handled by the Treasury.
    (4) Where there is reason to believe that a bankruptcy petition has 
been filed with respect to a debtor, the Office of the General Counsel 
should be contacted for legal advice concerning the impact of the 
Bankruptcy Code, particularly with respect to the applicability of the 
automatic stay, 11 U.S.C. 362, and the procedures for obtaining relief 
from such stay prior to proceeding under paragraph (a) of this section.
    (5) If the debtor has not received prior written notice under Sec. 
30.11(b), before reporting a delinquent debt under this section, the 
Secretary shall provide the debtor at least 60 days written notice of 
the amount and nature of the debt; that the debt is delinquent and the 
Department intends to report the debt to a credit bureau (including the 
specific information that will be disclosed); that the debtor has the 
right to dispute the accuracy and validity of the information being 
disclosed; and, if a previous opportunity was not provided, that the 
debtor may request review within the Department 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.
    (b) Use of credit reporting agencies. The Secretary may also use 
credit reporting agencies to obtain credit reports to evaluate the 
financial status of loan applicants, potential contractors and grantees; 
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, and 
Social Security number and the purpose for which the information will be 
used.



Sec. 30.14  Contracting with private collection contractors and 
with entities that locate and recover unclaimed assets.

    (a) Subject to the provisions of paragraph (b) of this section, the 
Secretary may contract with private collection contractors to recover 
delinquent debts, provided that:
    (1) The Secretary retains the authority to resolve disputes, 
compromise debts, suspend or terminate collection action, and refer 
debts to Justice for litigation;
    (2) The private collection contractor is not allowed to offer the 
debtor, as an incentive for payment, the opportunity to pay the debt 
less the private collection contractor's fee unless the Secretary has 
granted such authority prior to the offer;
    (3) The contract provides that the private collection contractor is 
subject to the Privacy Act of 1974 to the extent specified in 5 U.S.C. 
552a(m), and to applicable Federal and State laws and regulations 
pertaining to debt collection practices, including but not limited to 
the Fair Debt Collection Practices Act, 15 U.S.C. 1692; and
    (4) The private collection contractor is required to account for all 
amounts collected.

[[Page 94]]

    (b) The Secretary shall use government-wide debt collection 
contracts to obtain debt collection services provided by private 
collection contractors. However, the Secretary may refer debts to 
private collection contractors pursuant to a contract between the 
Department and the private collection contractor only if such debts are 
not subject to the requirement to transfer debts to the Department of 
the Treasury for debt collection under 31 U.S.C. 3711(g) and 31 CFR 
285.12(e).
    (c) Debts arising under the Social Security Act (which can be 
collected by private collection contractors only by Treasury after the 
debt has been referred to Treasury for collection) are excluded from 
this section.
    (d) The Secretary may fund private collection contractor contracts 
in accordance with 31 U.S.C. 3718(d), or as otherwise permitted by law. 
A contract under paragraph (a) of this section may provide that the fee 
a private collection contractor charges the Department for collecting 
the debt is payable from the amounts collected.
    (e) The Department may enter into contracts for locating and 
recovering assets of the United States including unclaimed assets. 
However, before entering into a contract to recover assets of the United 
States that may be held by a State government or financial institution, 
the Department must establish procedures that are acceptable to the 
Secretary of Treasury.
    (f) The Secretary may enter into contracts for debtor asset and 
income search reports. In accordance with 31 U.S.C. 3718(d), such 
contracts may provide that the fee a contractor charges the Department 
for such services may be payable from the amounts recovered, unless 
otherwise prohibited by statute.



Sec. 30.15  Suspension or revocation of eligibility for loans and 
loan guarantees, licenses, permits, or privileges.

    (a)(1) Unless waived by the Secretary, financial assistance in the 
form of loans, loan guarantees, or loan insurance shall not be extended 
to any person delinquent on a non-tax debt owed to the United States. 
This prohibition does not apply to disaster loans. Grants, cooperative 
agreements, and contracts are not considered to be loans.
    (2) The authority to waive the application of this section may be 
delegated to the Chief Financial Officer and re-delegated only to the 
Deputy Chief Financial Officer.
    (3) States that manage Federal activities, pursuant to approval from 
the Secretary, should ensure that appropriate steps are taken to 
safeguard against issuing licenses, permits, or other privileges to 
debtors who fail to pay their debts to the Federal Government.
    (b) The Secretary will report to Treasury any surety that fails to 
honor its obligations under 31 U.S.C. 9305.
    (c) In non-bankruptcy cases, when seeking to collect statutory 
penalties, forfeitures, or other types of claims, the Secretary may 
suspend or revoke licenses, permits, or other privileges of a delinquent 
debtor if the failure to pay the debt is found to be inexcusable or 
willful. Such suspension or revocation will extend to programs or 
activities administered by the States on behalf of the Federal 
Government, to the extent that they affect the Federal Government's 
ability to collect money or funds owed by debtors.
    (d) Where there is reason to believe that a bankruptcy petition has 
been filed with respect to a debtor, before taking any action to suspend 
or revoke under paragraph (c) of this section, the Office of the General 
Counsel should be contacted for legal advice concerning the impact of 
the Bankruptcy Code, particularly 11 U.S.C. 362 and 525, which may 
restrict such action.



Sec. 30.16  Liquidation of collateral.

    (a)(1) The Secretary will liquidate security or collateral through 
the exercise of a power of sale in the security instrument or a non-
judicial foreclosure, and apply the proceeds to the applicable debt(s), 
if the debtor fails to pay the debt(s) within a reasonable time after 
demand and if such action is in the best interests of the United States.
    (2) Collection from other sources, including liquidation of security 
or collateral, is not a prerequisite to requiring payment by a surety, 
insurer, or

[[Page 95]]

guarantor unless such action is expressly required by statute or 
contract.
    (3) 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.
    (b) Where there is reason to believe that a bankruptcy petition has 
been filed with respect to a debtor, the Office of the General Counsel 
should be contacted for legal advice concerning the impact of the 
Bankruptcy Code, particularly with respect to the applicability of the 
automatic stay, 11 U.S.C. 362, and the procedures for obtaining relief 
from such stay prior to proceeding under paragraph (a) of this section.



Sec. 30.17  Collection in installments.

    (a) Whenever feasible, the total amount of a debt shall be collected 
in one lump sum payment. If a debtor is financially unable to pay a debt 
in one lump sum, either by funds or administrative offset, the Secretary 
may accept payment in regular installments. The Secretary will obtain 
financial statements from debtors who represent that they are unable to 
pay in one lump sum and independently verify such representations as 
described in Sec. 30.22(a)(1).
    (b)(1) When the Secretary agrees to accept payments in regular 
installments, a legally enforceable written agreement should be obtained 
from the debtor that specifies all the terms and conditions of the 
agreement, and that includes a provision accelerating the debt in the 
event of a default.
    (2) The size and frequency of the payments should reasonably relate 
to the size of the debt and the debtor's 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.
    (3) In appropriate cases, the agreement should include a provision 
identifying security obtained from the debtor for the deferred payments.



Sec. 30.18  Interest, penalties, and administrative costs.

    (a) Generally. Except as provided in paragraphs (g), (h), and (i) of 
this section, the Department shall charge interest, penalties, and 
administrative costs on delinquent debts owed to the United States. 
These charges shall continue to accrue until the debt is paid in full or 
otherwise resolved through compromise, termination, or waiver of the 
charges.
    (b) Interest. The Department shall charge interest on delinquent 
debts owed the United States as follows:
    (1) Interest shall accrue from the date of delinquency, or as 
otherwise provided by law. For debts not paid by the date specified in 
the written demand for payment made under Sec. 30.11, the date of 
delinquency is the date of mailing of the notice. The date of 
delinquency for an installment payment is the due date specified in the 
payment agreement.
    (2) Unless a different rate is prescribed by statute, contract, or a 
repayment agreement, the rate of interest charged shall be the rate 
established annually by the Secretary of the Treasury pursuant to 31 
U.S.C. 3717. The Department may charge a higher rate if necessary to 
protect the rights of the United States and the Secretary has determined 
and documented a higher rate for delinquent debt is required to protect 
the Government's interests. Any such higher rate of interest charged 
will be based on Treasury's quarterly rate certification to the U.S. 
Public Health Service for delinquencies in the National Research 
Services Awards and the National Health Services Corps Scholarship 
Program. The Department publishes this rate in the Federal Register 
quarterly.
    (3) Unless prescribed by statute or contract, the rate of interest, 
as initially charged, shall remain fixed for the duration of the 
indebtedness. When a debtor defaults on a repayment agreement and seeks 
to enter into a new agreement, the Department may require payment of 
interest at a new rate that reflects the Treasury rate in effect at the 
time the new agreement is executed. Interest shall not be compounded, 
that is, interest shall not be charged on interest, penalties, or 
administrative costs required by this section, unless prescribed by 
statute or contract. If, however, the debtor defaults on a previous 
repayment agreement, charges that accrued but were

[[Page 96]]

not collected under the defaulted agreement shall be added to the 
principal under the new repayment agreement.
    (c) Administrative costs. The Department shall assess administrative 
costs incurred for processing and handling delinquent debts. The 
calculation of administrative costs should be based on actual costs 
incurred or a valid estimate of the actual costs. Calculation of 
administrative costs shall include all direct (personnel, supplies, 
etc.) and indirect collection costs, including the cost of providing a 
hearing or any other form of administrative review requested by a 
debtor, and any costs charged by a collection agency under 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 
in addition to other administrative costs if collection is being made 
for another Federal agency or unit.
    (d) Penalty. Unless otherwise established by contract, repayment 
agreement, or statute, the Secretary will charge a penalty of six 
percent a year on the amount due on a debt that is delinquent for more 
than 90 days. This charge shall accrue from the date of delinquency.
    (e) Cost of living adjustment. When there is a legitimate reason to 
do so, such as when calculating interest and penalties on a debt would 
be extremely difficult because of the age of the debt, an administrative 
debt may be increased by the cost of living adjustment in lieu of 
charging interest and penalties under this section. Administrative debt 
includes, but is not limited to, a debt based on fines, penalties, and 
overpayments, but does not include a debt based on the extension of 
Government credit, such as those arising from loans and loan guaranties. 
The cost of living adjustment is the percentage by which the Consumer 
Price Index for the month of June of the calendar year preceding the 
adjustment exceeds the Consumer Price Index for the month of June of the 
calendar year in which the debt was determined or last adjusted. Such 
increases to administrative debts shall be computed annually.
    (f) Priority. When a debt is paid in partial or installment 
payments, amounts received shall be applied first to outstanding 
penalties, second to administrative charges, third to interest, and last 
to principal.
    (g) Waiver. (1) The Secretary shall waive the collection of interest 
and administrative charges imposed pursuant to this section on the 
portion of the debt that is paid within 30 days after the date on which 
interest began to accrue. The Secretary may extend this 30-day period on 
a case-by-case basis if the Secretary determines that such action is in 
the best interest of the Government, or otherwise warranted by equity 
and good conscience.
    (2) The Secretary also may waive interest, penalties, and 
administrative charges charged under this section, in whole or in part, 
without regard to the amount of the debt, based on:
    (i) The criteria set forth at Sec. 30.22(a)(1) through (4) for the 
compromise of debts; or
    (ii) A determination by the Secretary that collection of these 
charges is:
    (A) Against equity and good conscience; or
    (B) Not in the best interest of the United States.
    (h) Review. (1) Except as provided in paragraph (h)(2) of this 
section, administrative review of a debt will not suspend the assessment 
of interest, penalties, and administrative costs. While agency review of 
a debt is pending, the debtor either may pay the debt or be liable for 
interest and related charges on the uncollected debt. When agency review 
results in a final determination that any amount was properly a debt and 
the debtor chose to retain the amount in dispute, the Secretary shall 
collect from the debtor the amount determined to be due, plus interest, 
penalties and administrative costs on such debt amount, as calculated 
under this section, starting from the date the debtor was first made 
aware of the debt and ending when the debt is repaid.
    (2) Exception. Interest, penalties, and administrative cost charges 
will not be imposed on a debt for periods during which collection 
activity has been suspended under Sec. 30.29(c)(1) pending agency 
review or consideration of waiver if statute prohibits collection of the 
debt during this period.

[[Page 97]]

    (i) Common law or other statutory authority. The Department may 
impose and waive interest and related charges on debts not subject to 31 
U.S.C. 3717 in accordance with the common law or other statutory 
authority.



Sec. 30.19  Review of cost effectiveness of collection.

    Periodically, the Secretary will compare costs incurred and amounts 
collected. Data on costs and corresponding recovery rates for debts of 
different types and in various dollar ranges will be used to compare the 
cost effectiveness of alternative collection techniques, establish 
guidelines with respect to points at which costs of further collection 
efforts are likely to exceed recoveries, assist in evaluating offers in 
compromise, and establish minimum debt amounts below which collection 
efforts need not be taken.



Sec. 30.20  Taxpayer information.

    (a) When attempting to locate a debtor in order to collect or 
compromise a debt under this part or any other authority, the Secretary 
may send a request to Treasury in accordance with 31 CFR 901.11 to 
obtain a debtor's mailing address from the records of the IRS.
    (b) Mailing addresses obtained under paragraph (a) of this section 
may be used to enforce collection of a delinquent debt and may be 
disclosed to other agencies and to collection agencies for collection 
purposes.



                        Subpart C_Debt Compromise



Sec. 30.21  Scope and application.

    (a) Scope. The standards set forth in this subpart apply to the 
compromise of debts pursuant to 31 U.S.C. 3711. The Secretary may 
exercise such compromise authority for debts arising out of activities 
of, or referred or transferred for collection services to, the 
Department when the amount of the debt then due, exclusive of interest, 
penalties, and administrative costs, does not exceed $100,000, or any 
higher amount authorized by the Attorney General.
    (b) Application. Unless otherwise provided by law, when the 
principal balance of a debt, exclusive of interest, penalties, and 
administrative costs, exceeds $100,000 or any higher amount authorized 
by the Attorney General, the authority to accept a compromise rests with 
Justice. The Secretary shall evaluate the compromise offer, using the 
factors set forth in this subpart. If an offer to compromise any debt in 
excess of $100,000 is acceptable to the Department, the Secretary shall 
refer the debt to the Civil Division or other appropriate litigating 
division in Justice using a Claims Collection Litigation Report (CCLR), 
which may be obtained from Justice's National Central Intake Facility. 
The referral shall include appropriate financial information and a 
recommendation for the acceptance of the compromise offer. Justice 
approval is not required if the Secretary rejects a compromise offer.



Sec. 30.22  Bases for compromise.

    (a) Compromise. The Secretary may compromise a debt if the full 
amount cannot be collected based upon inability to pay, inability to 
collect the full debt, cost of collection, or doubt debt can be proven 
in court.
    (1) Inability to pay. The debtor is unable to pay the full amount in 
a reasonable time, as verified through credit reports or other financial 
information. In determining a debtor's inability to pay the full amount 
of the debt within a reasonable time, the Secretary will obtain and 
verify the debtor's claim of inability to pay by using credit reports or 
a current financial Statement from the debtor, executed under penalty of 
perjury, showing the debtor's assets, liabilities, income, and expenses. 
The Secretary may use a Departmental financial information form or may 
request suitable forms from Justice or the local United States 
Attorney's Office. The Secretary also may consider other relevant 
factors such as:
    (i) Age and health of the debtor;
    (ii) Present and potential income;
    (iii) Inheritance prospects;
    (iv) The possibility that assets have been concealed or improperly 
transferred by the debtor; and
    (v) The availability of assets or income that may be realized by 
enforced collection proceedings.
    (2) Inability to collect full debt. The Government is unable to 
collect the

[[Page 98]]

debt in full within a reasonable time by enforced collection 
proceedings.
    (i) In determining the Government's ability to enforce collection, 
the Secretary will consider the applicable exemptions available to the 
debtor under State and Federal law, and may also consider uncertainty as 
to the price the collateral or other property will bring at a forced 
sale.
    (ii) A compromise effected under this section should be for an 
amount that bears a reasonable relation to the amount that can be 
recovered by enforced collection procedures, with regard to the 
exemptions available to the debtor and the time that collection will 
take.
    (3) Cost of collection. The cost of collecting the debt does not 
justify the enforced collection of the full amount.
    (i) The Secretary may compromise a debt if the cost of collecting 
the debt does not justify the enforced collection of the full amount. 
The amount accepted in compromise of such cases may reflect an 
appropriate discount for the administrative and litigation costs of 
collection, with consideration given to the time it will take to effect 
collection. Collection costs may be a substantial factor in the 
settlement of small debts.
    (ii) In determining whether the costs of collection justify enforced 
collection of the full amount, the Secretary will consider whether 
continued collection of the debt, regardless of cost, is necessary to 
further an enforcement principal, such as the Government's willingness 
to pursue aggressively defaulting and uncooperative debtors.
    (4) Doubt debt can be proven in court. There is significant doubt 
concerning the Government's ability to prove its case in court.
    (i) If there is significant doubt concerning the Government's 
ability to prove its case in court for the full amount claimed, either 
because of the legal issues involved or because of a bona fide dispute 
as to the facts, then the amount accepted in compromise of such cases 
should fairly reflect the probabilities of successful prosecution to 
judgment, with due regard to the availability of witnesses and other 
evidentiary support for the Government's claim.
    (ii) In determining the litigation risks involved, the Secretary 
will consider the probable amount of court costs and attorney fees 
pursuant to the Equal Access to Justice Act, 28 U.S.C. 2412, that may be 
imposed against the Government if it is unsuccessful in litigation.
    (b) Installments. The Secretary generally will not accept 
compromises payable in installments. This is not an advantageous form of 
compromise in terms of time and administrative expense. If, however, 
payment of a compromise in installments is necessary, the Secretary 
shall, except in the case of compromises based on paragraph (a)(4) of 
this section, obtain a legally enforceable written agreement providing 
that, in the event of default, the full original principal balance of 
the debt prior to compromise, less sums paid thereon, is reinstated. The 
Office of the General Counsel should be consulted concerning the 
appropriateness of including such a requirement in the case of 
compromises based on paragraph (a)(4) of this section. Whenever 
possible, the Secretary will obtain security for repayment in the manner 
set forth in subpart B of this part.



Sec. 30.23  Enforcement policy.

    The Secretary may compromise statutory penalties, forfeitures, or 
claims established as an aid to enforcement and to compel compliance if 
the Department's enforcement policy, in terms of deterrence and securing 
compliance, present and future, will be adequately served by the 
Secretary's acceptance of the sum to be agreed upon.



Sec. 30.24  Joint and several liability.

    (a) When two or more debtors are jointly and severally liable, the 
Secretary will pursue collection against all debtors, as appropriate. 
The Secretary will not attempt to allocate the burden of payment between 
the debtors but will proceed to liquidate the indebtedness as quickly as 
possible.
    (b) The Secretary will ensure that a compromise agreement with one 
debtor does not automatically release the Department's claim against the 
remaining debtor(s). The amount of a compromise with one debtor shall 
not be considered a precedent or binding in

[[Page 99]]

determining the amount that will be required from other debtors jointly 
and severally liable on the claim.



Sec. 30.25  Further review of compromise offers.

    If the Secretary is uncertain whether to accept a firm, written, 
substantive compromise offer on a debt that is within the Secretary's 
delegated compromise authority, the Secretary may refer the offer to the 
Civil Division or other appropriate litigating division in Justice, 
using a CCLR accompanied by supporting data and particulars concerning 
the debt. Justice may act upon such an offer or return it to the 
Secretary with instructions or advice.



Sec. 30.26  Consideration of tax consequences to the Government.

    In negotiating a compromise, the Secretary will consider the tax 
consequences to the Government. In particular, the Secretary will 
consider requiring a waiver of tax-loss-carry-forward and tax-loss-
carry-back rights of the debtor. For information on discharge of 
indebtedness reporting requirements see Sec. 30.32.



Sec. 30.27  Mutual release of the debtor and the Government.

    In all appropriate instances, a compromise that is accepted by the 
Secretary will be implemented by means of a mutual release. The terms of 
such mutual release shall provide that the debtor is released from 
further non-tax liability on the compromised debt in consideration of 
payment in full of the compromise amount and the Government and its 
officials, past and present, are released and discharged from any and 
all claims and causes of action arising from the same transaction that 
the debtor may have. In the event a mutual release is not executed when 
a debt is compromised, unless prohibited by law, the debtor is still 
deemed to have waived any and all claims and causes of action against 
the Government and its officials related to the transaction giving rise 
to the compromised debt.



       Subpart D_Suspending and Terminating Collection Activities



Sec. 30.28  Scope and application.

    (a) Scope. The standards set forth in this subpart apply to the 
suspension or termination of collection activity pursuant to 31 U.S.C. 
3711 on debts that do not exceed $100,000, or such other amount as the 
Attorney General may direct, exclusive of interest, penalties, and 
administrative costs, after deducting the amount of partial payments or 
collections, if any. Prior to referring a debt to Justice for 
litigation, the Secretary may suspend or terminate collection under this 
subpart with respect to debts arising out of activities of, or referred 
or transferred for collection services to, the Department.
    (b) Application. (1) If, after deducting the amount of partial 
payments or collections, the principal amount of the debt exceeds 
$100,000, or such other amount as the Attorney General may direct, 
exclusive of interest, penalties, and administrative costs, the 
authority to suspend or terminate rests solely with Justice.
    (2) If the Secretary believes that suspension or termination of any 
debt in excess of $100,000 may be appropriate, the Secretary shall refer 
the debt to the Civil Division or other appropriate litigating division 
in Justice, using the CCLR. The referral will specify the reasons for 
the Secretary's recommendation. If, prior to referral to Justice, the 
Secretary determines that a debt is plainly erroneous or clearly without 
merit, the Secretary may terminate collection activity regardless of the 
amount involved without obtaining Justice concurrence.



Sec. 30.29  Suspension of collection activity.

    (a) Generally. The Secretary may suspend collection activity on a 
debt when:
    (1) The Department cannot locate the debtor;
    (2) The debtor's financial condition is expected to improve; or
    (3) The debtor has requested a waiver or review of the debt.
    (b) Financial condition. Based on the current financial condition of 
a debtor, the Secretary may suspend collection

[[Page 100]]

activity on a debt when the debtor's future prospects justify retention 
of the debt for periodic review and collection activity, and:
    (1) The applicable statute of limitations has not expired;
    (2) Future collection can be effected by administrative offset, 
notwithstanding the expiration of the applicable statute of limitations 
for litigation of claims, with due regard to the 10-year limitation for 
administrative offset prescribed by 31 U.S.C. 3716(e)(1); or
    (3) The debtor agrees to pay interest on the amount of the debt on 
which collection will be suspended, and such suspension is likely to 
enhance the debtor's ability to pay the full amount of the principal of 
the debt with interest at a later date.
    (c) Waiver or review. (1) The Secretary shall suspend collection 
activity during the time required for consideration of the debtor's 
request for waiver or administrative review of the debt if the statute 
under which the request is sought prohibits the Secretary from 
collecting the debt during that time.
    (2) If the statute under which the waiver or administrative review 
request is sought does not prohibit collection activity pending 
consideration of the request, the Secretary may use discretion, on a 
case-by-case basis, to suspend collection. Collection action ordinarily 
will be suspended upon a request for waiver or review if the Secretary 
is prohibited by statute or regulation from issuing a refund of amounts 
collected prior to agency consideration of the debtor's request. 
However, collection will not be suspended when the Secretary determines 
that the request for waiver or review is frivolous or was made primarily 
to delay collection.
    (d) Bankruptcy. Upon learning that a bankruptcy petition has been 
filed with respect to a debtor, in most cases the Secretary must suspend 
collection activity on the debt, pursuant to the provisions of 11 U.S.C. 
362, 1201, and 1301, unless the Secretary can clearly establish that the 
automatic stay has been lifted or is no longer in effect. The Office of 
the General Counsel should be contacted immediately for legal advice, 
and the Secretary will take the necessary legal steps to ensure that no 
funds or money are paid by the Department to the debtor until relief 
from the automatic stay is obtained.



Sec. 30.30  Termination of collection activity.

    (a) The Secretary may terminate collection activity when:
    (1) The Department is unable to collect any substantial amount 
through its own efforts or through the efforts of others;
    (2) The Department is unable to locate the debtor;
    (3) Costs of collection are anticipated to exceed the amount 
recoverable;
    (4) The debt is legally without merit or enforcement of the debt is 
barred by any applicable statute of limitations;
    (5) The debt cannot be substantiated; or
    (6) The debt against the debtor has been discharged in bankruptcy.
    (b)(1) Collection activity will not be terminated before the 
Secretary has pursued all appropriate means of collection and 
determined, based upon the results of the collection activity, that the 
debt is uncollectible.
    (2) Termination of collection activity ceases active collection of 
the debt. The termination of collection activity does not preclude the 
Secretary from retaining a record of the account for purposes of:
    (i) Selling the debt, if the Secretary of the Treasury determines 
that such sale is in the best interest of the United States;
    (ii) Pursuing collection at a subsequent date in the event there is 
a change in the debtor's status or a new collection tool becomes 
available;
    (iii) Offsetting against future income or assets not available at 
the time of termination of collection activity; or
    (iv) Screening future applicants for prior indebtedness.
    (c) Generally, the Secretary shall terminate collection activity on 
a debt that has been discharged in bankruptcy, regardless of the amount. 
The Secretary may continue collection activity, however, subject to the 
provisions of the Bankruptcy Code, for any payments provided under a 
plan of reorganization. Offset and recoupment rights may survive the 
discharge of the debtor in bankruptcy and, under some

[[Page 101]]

circumstances, claims also may survive the discharge. For example, when 
the Department is a known creditor of a debtor the claims of the 
Department may survive a discharge if the Department did not receive 
formal notice of the bankruptcy proceedings. When the Department 
believes that it has claims or offsets that may have survived the 
discharge of the debtor, the Office of the General Counsel should be 
contacted for legal advice.



Sec. 30.31  Exception to termination.

    When a significant enforcement policy is involved, or recovery of a 
judgment is a prerequisite to the imposition of administrative 
sanctions, the Secretary may refer debts to Justice for litigation even 
though termination of collection activity may otherwise be appropriate.



Sec. 30.32  Discharge of indebtedness; reporting requirements.

    (a)(1) Before discharging a delinquent debt, also referred to as 
close out of the debt, the Secretary shall take all appropriate steps to 
collect the debt in accordance with 31 U.S.C. 3711(g)(9), and parts 30 
through 33 of this chapter, including, as applicable, administrative 
offset; tax refund offset; Federal salary offset; credit bureau 
reporting; administrative wage garnishment; litigation; foreclosure; and 
referral to Treasury, Treasury-designated debt collection centers, or 
private collection contractors.
    (2) Discharge of indebtedness is distinct from termination or 
suspension of collection activity under this subpart, and is governed by 
the Internal Revenue Code. When collection action on a debt is suspended 
or terminated, the debt remains delinquent and further collection action 
may be pursued at a later date in accordance with the standards set 
forth in this part and 31 CFR parts 900 through 904.
    (3) When the Department discharges a debt in full or in part, 
further collection action is prohibited. Therefore, before discharging a 
debt, the Secretary must:
    (i) Make the determination that collection action is no longer 
warranted; and
    (ii) Terminate debt collection action.
    (b) In accordance with 31 U.S.C. 3711(i), the Secretary shall use 
competitive procedures to sell a delinquent debt upon termination of 
collection action if the Secretary of the Treasury determines such a 
sale is in the best interests of the United States. Since the discharge 
of a debt precludes any further collection action, including the sale of 
a delinquent debt, the Secretary may not discharge a debt until the 
requirements of 31 U.S.C. 3711(i) have been meet.
    (c) Upon discharge of an indebtedness, the Secretary must report the 
discharge to the IRS in accordance with the requirements of 26 U.S.C. 
6050P and 26 CFR 1.6050P-1. The Secretary may request that Treasury or 
Treasury-designated debt collection centers file such a discharge report 
to the IRS on the Department's behalf.
    (d) When discharging a debt, the Secretary must request that 
litigation counsel release any liens of record securing the debt.



            Subpart E_Referrals to the Department of Justice



Sec. 30.33  Prompt referral.

    (a)(1) The Secretary promptly shall refer to Justice for litigation 
debts on which aggressive collection activity has been taken in 
accordance with subpart B of this part, and that cannot be compromised, 
or on which collection activity cannot be suspended or terminated, in 
accordance with subpart D of this part.
    (2) The Secretary may refer to Justice for litigation those debts 
arising out of activities of, or referred or transferred for collection 
services to, the Department.
    (b)(1) Debts for which the principal amount is over $1,000,000, or 
such other amount as the Attorney General may direct, exclusive of 
interest, penalties, and administrative costs shall be referred to the 
Civil Division or other division responsible for litigating such debts 
at the Department of Justice, Washington DC.
    (2) Debts for which the principal amount is $1,000,000 or less, or 
such other amount as the Attorney General may direct, exclusive of 
interest, penalties, and administrative costs shall

[[Page 102]]

be referred to the Nationwide Central Intake Facility at Justice as 
required by the CCLR instructions.
    (c)(1) Consistent with aggressive agency collection activity and the 
standards contained in this part and 31 CFR parts 900 through 904, debts 
shall be referred to Justice as early as possible, and, in any event, 
well within the period for initiating timely lawsuits against the 
debtors.
    (2) The Secretary shall make every effort to refer delinquent debts 
to Justice for litigation within one year of the date such debts last 
became delinquent. In the case of guaranteed or insured loans, the 
Secretary will make every effort to refer these delinquent debts to 
Justice for litigation within one year from the date the loan was 
presented to the Department for payment or re-insurance.
    (d) Justice has exclusive jurisdiction over debts referred to it 
pursuant to this subpart. Upon referral of a debt to Justice, the 
Secretary shall:
    (1) Immediately terminate the use of any administrative collection 
activities to collect the debt;
    (2) Advise Justice of the collection activities utilized to date, 
and their result; and
    (3) Refrain from having any contact with the debtor and direct all 
debtor inquiries concerning the debt to Justice.
    (e) After referral of a debt under this subpart, the Secretary shall 
immediately notify the Department of Justice of any payments credited by 
the Department to the debtor's account. Pursuant to 31 CFR 904.1(b), 
after referral of the debt under this subpart, Justice shall notify the 
Secretary of any payment received from the debtor.



Sec. 30.34  Claims Collection Litigation Report.

    (a)(1) Unless excepted by Justice, the Secretary will complete the 
CCLR, accompanied by a signed Certificate of Indebtedness, to refer all 
administratively uncollectible claims to the Department of Justice for 
litigation.
    (2) The Secretary shall complete all of the sections of the CCLR 
appropriate to each debt as required by the CCLR instructions, and 
furnish such other information as may be required in specific cases.
    (b) The Secretary shall indicate clearly on the CCLR the actions 
that the Department wishes Justice to take with respect to the referred 
debt. The Secretary may indicate specifically any of a number of 
litigation activities which Justice may pursue, including enforced 
collection, judgement lien only, renew judgement lien only, renew 
judgement lien and enforced collection, program enforcement, foreclosure 
only, and foreclosure and deficiency judgment.
    (c) The Secretary also shall use the CCLR to refer a debt to Justice 
for the purpose of obtaining approval of a proposal to compromise the 
debt, or to suspend or terminate administrative collection activity of 
the debt.



Sec. 30.35  Preservation of evidence.

    The Secretary will maintain and preserve all files and records that 
may be needed by Justice to prove the Department's claim in court. When 
referring debts to Justice for litigation, certified copies of the 
documents that form the basis for the claim should be provided along 
with the CCLR. Upon its request, the original documents will be provided 
to Justice.



Sec. 30.36  Minimum amount of referrals.

    (a) Except as in paragraph (b) of this section, claims of less than 
$2,500 exclusive of interest, penalties, and administrative costs, or 
such other amount as the Attorney General may prescribe, shall not be 
referred for litigation.
    (b) The Secretary shall not refer claims of less than the minimum 
amount unless:
    (1) Litigation to collect such smaller amount is important to ensure 
compliance with the policies and programs of the Department;
    (2) The claim is being referred solely for the purpose of securing a 
judgment against the debtor, which will be filed as a lien against the 
debtor's property pursuant to 28 U.S.C. 3201 and returned to the 
Department for enforcement; or
    (3) The debtor has the clear ability to pay the claim and the 
Government effectively can enforce payment, with

[[Page 103]]

due regard for the exemptions available to the debtor under State and 
Federal law and the judicial remedies available to the Government.
    (c) The Secretary should consult with the Financial Litigation Staff 
of the Executive Office for United States Attorneys in Justice prior to 
referring claims valued at less than the minimum amount.



PART 31_TAX REFUND OFFSET--Table of Contents



Sec.
31.1 Purpose and scope.
31.2 Definitions.
31.3 General rule.
31.4 Certification and referral of debt.
31.5 Notice.
31.6 Review of Departmental records.
31.7 Review of a determination that a debt is past-due and legally 
          enforceable.

    Authority: 31 U.S.C. 3720A, 31 CFR 285.2, E.O. 12866, E.O. 13258.

    Source: 68 FR 70445, Dec. 18, 2003, unless otherwise noted.



Sec. 31.1  Purpose and scope.

    (a) Purpose. This part prescribes the Department's standards and 
procedures for submitting past-due, legally enforceable debts to the 
Department of the Treasury for collection by tax refund offset.
    (b) Authority. These standards and procedures are authorized under 
the tax refund offset provision of the Deficit Reduction Act of 1984, as 
amended by the Debt Collection Improvement Act of 1996, codified at 31 
U.S.C. 3720A, and the implementing regulations issued by the Department 
of the Treasury at 31 CFR 285.2.
    (c) Scope. (1) This part applies to all Departmental Operating 
Divisions and Regional Offices that administer a program that gives rise 
to a past-due non-tax debt owed to the United States, and to all 
officers or employees of the Department authorized to collect such debt. 
This part does not apply to any debt or claim owed to the Department of 
Health and Human Services by another Federal agency.
    (2) Nothing in this part precludes the Department from pursuing 
other debt collection procedures, including administrative wage 
garnishment under part 32 of this title, to collect a debt that has been 
submitted to the Department of the Treasury under this part. The 
Department may use such debt collection procedures separately or in 
conjunction with the offset collection procedures of this part.



Sec. 31.2  Definitions.

    In this part, unless the context otherwise requires:
    Administrative offset means withholding funds payable by the United 
States (including funds payable by the United States on behalf of a 
State government) to, or held by the United States for, a person to 
satisfy a claim.
    Day means calendar day. For purposes of computation, the last day of 
the period will be included unless it is a Saturday, Sunday, or a 
Federal legal holiday, in which case the next business day will be 
considered the last day of the period.
    Debt or claim means an amount of money, funds, or other property 
determined by an appropriate official to be owed to the United States 
from any individual, entity, organization, association, partnership, 
corporation, or State or local government or subdivision, except another 
Federal agency.
    Debtor means an individual, organization, association, partnership, 
corporation, or State or local government or subdivision indebted to the 
Government, or the person or entity with legal responsibility for 
assuming the debtor's obligation.
    Department means the Department of Health and Human Services, and 
each of its Operating Divisions and regional offices.
    Evidence of service means information retained by the Department 
indicating the nature of the document to which it pertains, the date of 
mailing of the document, and the address and name of the debtor to whom 
it is being sent. A copy of the dated and signed written notice of 
intent to offset provided to the debtor pursuant to this part may be 
considered evidence of service for purposes of this regulation. Evidence 
of service may be retained electronically so long as the manner of 
retention is sufficient for evidentiary purposes.
    FMS means the Financial Management Service, a bureau within the 
Department of the Treasury.

[[Page 104]]

    IRS means the Internal Revenue Service, a bureau of the Department 
of the Treasury.
    Legally enforceable means that there has been a final agency 
determination that the debt, in the amount stated, is due and there are 
no legal bars to collection action.
    Operating division means each separate component, within the 
Department of Health and Human Services, including, but not limited to, 
the Administration for Children and Families, Administration on Aging, 
the Centers for Disease Control and Prevention, the Centers for Medicare 
& Medicaid Services, the Food and Drug Administration, the National 
Institutes of Health, and the Office of the Secretary.
    Past-due debt means a debt which the debtor does not pay or 
otherwise resolve by the date specified in the initial demand for 
payment, or in an applicable written repayment agreement or other 
instrument, including a post-delinquency repayment agreement.
    Secretary means the Secretary of the Department of Health and Human 
Services, or the Secretary's designee within any Operating Division or 
Regional Office.
    Taxpayer identifying number means the identifying number described 
under section 6109 of the Internal Revenue Code of 1986 (26 U.S.C. 
6109). For an individual, the taxpayer identifying number is the 
individual's social security number.
    Tax refund offset means withholding or reducing a tax refund payment 
by an amount necessary to satisfy a debt owed to the United States by 
the payee(s) of a tax refund payment.
    Tax refund payment means any overpayment of Federal taxes to be 
refunded to the person making the overpayment after the IRS makes the 
appropriate credits as provided in 26 U.S.C. 6402 for any liabilities 
for any tax on the part of the person who made the overpayment.



Sec. 31.3  General rule.

    (a) Any past-due, legally enforceable debt of at least $25, or such 
other minimum amount as determined by the Secretary of the Treasury, 
shall be submitted to FMS for collection by tax refund offset.
    (b) FMS will compare tax refund payment records, as certified by the 
IRS, with records of debts submitted by the Department under this part. 
A match will occur when the taxpayer identification number and name of a 
payment certification record are the same as the taxpayer identifying 
number and name control of a debtor record. When a match occurs and all 
other requirements for tax refund offset have been met, FMS will reduce 
the amount of any tax refund payment payable to a debtor by the amount 
of any past-due legally enforceable debt. Any amounts not offset will be 
paid to the payee(s) listed in the payment certification record.



Sec. 31.4  Certification and referral of debt.

    (a) Certification. The Secretary shall certify to FMS that:
    (1) The debt is past-due and legally enforceable in the amount 
submitted and that the Department will ensure that collections are 
properly credited to the debt;
    (2) Except in the case of a judgment debt or as otherwise allowed by 
law, the debt is referred within ten (10) years after the Department's 
right of action accrues;
    (3) The Department has made reasonable efforts to obtain payment of 
the debt, and has:
    (i) Submitted the debt to FMS for collection by offset and complied 
with the administrative offset provision of 31 U.S.C. 3716(a) and 
related regulations, to the extent that collection by administrative 
offset is not prohibited by statute;
    (ii) Notified, or made a reasonable attempt to notify, the debtor 
that the debt is past-due, and unless paid within 60 days of the date of 
the notice, the debt may be referred to Treasury for tax refund offset. 
For purposes of this regulation, the Department has made a reasonable 
attempt to notify the debtor if the agency uses the current address 
information contained in the Department's records related to the debt.

[[Page 105]]

If address validation is desired or necessary, the Department may obtain 
information from the IRS pursuant to 26 U.S.C. 6103(m)(2)(4) or (5).
    (iii) Given the debtor at least 60 days to present evidence that all 
or part of the debt is not past-due or not legally enforceable, 
considered any evidence presented by the debtor, and determined that the 
debt is past-due and legally enforceable; and
    (iv) Provided the debtor with an opportunity to make a written 
agreement to repay the debt; and
    (4) The debt is at least $25.
    (b) Referral. (1) The Secretary shall submit past-due, legally 
enforceable debt information for tax refund offset in the time and 
manner prescribed by the Department of the Treasury.
    (2) For each debt referred under this part, the Secretary will 
include the following information:
    (i) The name and taxpayer identifying number, as defined in 26 
U.S.C. 6109, of the debtor responsible for the debt;
    (ii) The amount of such past-due and legally enforceable debt;
    (iii) The date on which the debt became past-due; and
    (iv) The designation of the Department referring the debt.
    (c) Correcting and updating referral. (1) After referring a debt 
under this part, the Secretary shall promptly notify the Department of 
the Treasury if:
    (i) An error was made with respect to information transmitted to the 
Department of the Treasury;
    (ii) The Department receives a payment or credits a payment to the 
account of a debtor referred for tax refund offset; or
    (iii) The debt amount is otherwise incorrect.
    (2) The Department shall provide the certification required under 
paragraph (a) of this section for any increases to amounts owed.
    (d) Rejection of certification. If the Department of Treasury 
rejects a certification because it does not comply with the requirements 
of paragraph (a) of this section, upon notification of the rejection and 
the reason(s) for rejection, the Secretary will resubmit the debt with a 
corrected certification.



Sec. 31.5  Notice.

    (a) Requirements. If not previously included in the initial demand 
letter provided under section 30.11, at least 60 days before referring a 
debt for tax refund offset, the Secretary shall mail, by first class 
mail to the debtor's last known address, written notice informing the 
debtor of:
    (1) The nature and amount of the debt;
    (2) The determination that the debt is past-due and legally 
enforceable, and unless paid within 60 days after the date of the 
notice, the Secretary intends to enforce collection by referring the 
debt the Department of the Treasury for tax refund offset; and
    (3) The debtor's rights to:
    (i) Inspect and copy Department records relating to the debt;
    (ii) Enter into written agreement to repay the amount of the debt;
    (iii) Request review and present evidence that all or part of the 
debt is not past-due or not legally enforceable.
    (b) The Secretary will retain evidence of service indicating the 
date of mailing of the notice. The notice may be retained electronically 
so long as the manner of retention is sufficient for evidentiary 
purposes



Sec. 31.6  Review of Departmental records.

    (a) To inspect or copy Departmental records relating to the debt, 
the debtor must send a written request to the address designated in the 
notice described in section 31.5. The request must be received by the 
Department within 60 days from the date of the notice.
    (b) In response to a timely request as described in paragraph (a) of 
this section, the designated Department official shall notify the debtor 
of the location and time when the debtor may inspect and copy such 
records. If the debtor is unable to personally inspect such records as 
the result of geographical or other constraints, the Department will 
arrange to send copies of the records to the debtor.



Sec. 31.7  Review of a determination that a debt is past-due and 
legally enforceable.

    (a) Requesting a review. (1) If the debtor believes that all or part 
of the debt

[[Page 106]]

is not past-due or not legally enforceable, the debtor may request a 
review by the Department by sending a written request to the address 
provided in the notice. The written request must be received by the 
Department within 60 days from the date of the notice or, if the debtor 
has requested to inspect the records, within 30 days from the debtor's 
inspection of the records or the Department's mailing of the records 
under section 31.6(b), whichever is later.
    (2) The request for review must be signed by the debtor, state the 
amount disputed, and fully identify and explain the evidence that the 
debtor believes supports the debtor's position. The debtor must submit 
with the request any documents that the debtor wishes to be considered, 
or the debtor must state in the request that additional information will 
be submitted within the above specified time period.
    (3) Failure to timely request a review will be deemed an admission 
by the debtor that the debt is past-due and legally enforceable, and 
will result in a referral of the debt to the Department of the Treasury 
without further action.
    (b) Review. Upon the timely submission of evidence by the debtor, 
the Department shall review the dispute and shall consider its records 
and any documentation and evidence submitted by the debtor. The 
Department shall make a determination based on the review of the written 
record, and shall send a written notice of its decision to the debtor. 
There is no administrative appeal of this decision.
    (c) A debt that previously has been reviewed pursuant to this part, 
or that has been reduced to a judgment, will not be reconsidered under 
this part unless the evidence presented by the debtor disputes payments 
made or events occurring subsequent to the previous review or judgment.



PART 32_ADMINISTRATIVE WAGE GARNISHMENT--Table of Contents



Sec.
32.1 Purpose and scope.
32.2 Definitions.
32.3 General rule.
32.4 Notice.
32.5 Hearing.
32.6 Withholding order.
32.7 Certification by employer.
32.8 Amounts withheld.
32.9 Financial hardship.
32.10 Refunds.
32.11 Ending garnishment.
32.12 Right of action.

    Authority: 31 U.S.C. 3720D, 5 U.S.C. 552, 553, E.O. 12866, 12988, 
13808.

    Source: 68 FR 15093, Mar. 28, 2003, unless otherwise noted.



Sec. 32.1  Purpose and scope.

    (a) Purpose. This part prescribes the standards and procedures for 
the Department to collect money from a debtor's disposable pay by means 
of administrative wage garnishment to satisfy delinquent non-tax debts 
owed to the United States.
    (b) Authority. These standards and procedures are authorized under 
the wage garnishment provisions of the Debt Collection Improvement Act 
of 1996, codified at 31 U.S.C. 3720D, and the Department of the Treasury 
Administrative Wage Garnishment Regulations at 31 CFR 285.11.
    (c) Scope. (1) This part applies to all Departmental Operating 
Divisions and Regional Offices that administer a program that gives rise 
to a delinquent non-tax debt owed to the United States and to all 
officers or employees of the Department authorized to collect such debt.
    (2) This part shall apply notwithstanding any provision of State 
law.
    (3) Nothing in this part precludes the compromise of a debt or the 
suspension or termination of collection action in accordance with part 
30 of this title, or other applicable law or regulation.
    (4) The receipt of payments pursuant to this part does not preclude 
the Department from pursuing other debt collection remedies, including 
the offset of Federal payments to satisfy delinquent non-tax debt owed 
to the United States. The Department may pursue such debt collection 
remedies separately or in conjunction with administrative wage 
garnishment.
    (5) This part does not apply to the collection of delinquent non-tax 
debts owed to the United States from the wages of Federal employees from 
their Federal employment. Federal pay is subject to the Federal salary 
offset

[[Page 107]]

procedures set forth in 5 U.S.C. 5514 and other applicable laws.
    (6) Nothing in this part requires the Department to duplicate 
notices or administrative proceedings required by contract or other laws 
or regulations.



Sec. 32.2  Definitions.

    In this part, unless the context otherwise requires:
    Business day means Monday through Friday. For purposes of 
computation, the last day of the period will be included unless it is a 
Federal legal holiday, in which case the next business day following the 
holiday will be considered the last day of the period.
    Certificate of service means a certificate signed by an employee of 
the Department indicating the nature of the document to which it 
pertains, the date of mailing of the document, and to whom it is being 
sent.
    Day means calendar day. For purposes of computation, the last day of 
the period will be included unless it is a Saturday, Sunday, or a 
Federal legal holiday, in which case the next business day will be 
considered the last day of the period.
    Debt or claim means an amount of money, funds, or property that has 
been determined by the Secretary to be owed to the United States by an 
individual, including debt administered by a third party as an agent of 
the Federal Government. A debt or claim includes, but is not limited to: 
amounts owed on account of loans made, insured or guaranteed by the 
Federal Government, including any deficiency or difference between the 
price obtained by the Federal Government upon selling the property and 
the amount owed to the Federal Government; overpayments to program 
beneficiaries; any amount the Federal Government is authorized by 
statute to collect for the benefit of any person; the unpaid share of 
any non-Federal partner in a program involving a Federal payment, 
including a matching or cost-sharing payment of the non-Federal partner; 
any fine, civil penalty or assessment; and other amounts or money or 
property owed to the Federal Government.
    Debtor means an individual who owes a delinquent non-tax debt to the 
United States.
    Delinquent debt means any non-tax debt that has not been paid by the 
date specified in the Department's initial written demand for payment, 
or applicable payment agreement or instrument, unless other satisfactory 
payment arrangements have been made. For purposes of this part, 
``delinquent'' and ``overdue'' have the same meaning.
    Department means the United States Department of I-Iealth and 1--
luman Services, including each of its Operating Divisions and Regional 
Offices.
    Disposable pay means that part of the debtor's compensation 
(including, but not limited to, salary, bonuses, commissions, and 
vacation pay) from an employer remaining after the deduction of health 
insurance premiums and any amounts required by law to be withheld. For 
purposes of this part, ``amounts required by law to be withheld'' 
include amounts for deductions such as social security taxes and 
withholding taxes, but do not include any amount withheld pursuant to a 
court order.
    Employer means a person or entity that employs the services of 
others and that pays their wages or salaries. The term employer 
includes, but is not limited to, State and local Governments, but does 
not include an agency of the Federal Government as defined by 31 CFR 
285.11(c).
    Garnishment means the process of withholding amounts from an 
employee's disposable pay and paying those amounts to a creditor in 
satisfaction of a withholding order.
    Hearing means a review of the documentary evidence concerning the 
existence or amount of a debt, or the terms of a repayment schedule, 
provided such repayment schedule is established other than by a written 
agreement entered into pursuant to this part. If the hearing official 
determines that the issues in dispute cannot be resolved solely by 
review of the written record, such as when the validity of the debt 
turns on the issue of credibility or veracity, an oral hearing may be 
provided.
    Hearing official means any qualified individual, as determined by 
the Secretary, including a Departmental Appeals Board administrative law 
judge.

[[Page 108]]

    Secretary means the Secretary of Health and Human Services, or the 
Secretary's designee within the Department.
    Withholding order for purposes of this part means ``Wage Garnishment 
Order (SF329B).'' Also for purposes of this part, the terms ``wage 
garnishment order'' and ``garnishment order'' have the same meaning as 
``withholding order.''



Sec. 32.3  General rule.

    (a) Except as provided in paragraph (b) of this section, whenever a 
delinquent debt is owed by an individual, the Secretary, or another 
federal agency collecting a debt on the Department's behalf (See 45 CFR 
part 30), may initiate proceedings administratively to garnish the wages 
of the delinquent debtor.
    (b) The Secretary may not garnish the wages of a debtor who the 
Secretary knows has been involuntarily separated from employment until 
the debtor has been re-employed continuously for at least 12 months. The 
debtor has the burden of informing the Secretary of the circumstances 
surrounding an involuntary separation from employment.



Sec. 32.4  Notice.

    (a) Notice requirements. At least 30 days before the initiation of 
garnishment proceedings, the Secretary shall mail, by first class mail, 
to the debtor's last known address a written notice informing the debtor 
of:
    (1) The nature and amount of the debt;
    (2) The intention of the Secretary to initiate proceedings to 
collect the debt through deductions from pay until the debt and all 
accumulated interest, penalties, and administrative costs are paid in 
full;
    (3) The debtor's right--
    (i) To inspect and copy Department records related to the debt;
    (ii) To enter into a written repayment agreement with the Department 
under terms agreeable to the Department;
    (iii) To a hearing, in accordance with Sec. 32.5, concerning the 
existence or the amount of the debt or the terms of the proposed 
repayment schedule under the garnishment order, except that the debtor 
is not entitled to a hearing concerning the proposed repayment schedule 
if the terms were established by written agreement pursuant to paragraph 
(a)(3)(ii) of this section; and
    (4) The time frames within which the debtor may exercise his or her 
rights.
    (b) The Secretary will keep a copy of the dated notice. The notice 
may be retained electronically so long as the manner of retention is 
sufficient for evidentiary purposes.



Sec. 32.5  Hearing.

    (a) In general. Upon timely written request of the debtor, the 
Secretary shall provide a hearing, which at the Department's option may 
be oral or written, concerning the existence or amount of the debt, or 
the terms of a repayment schedule established other than by written 
agreement under Sec. 32.4(a)(3)(ii).
    (b) Request for hearing. (1) The request for a hearing must be 
signed by the debtor, state each issue being disputed, and identify and 
explain with reasonable specificity all facts and evidence that the 
debtor believes supports the debtor's position. Supporting documentation 
identified by the debtor should be attached to the request.
    (2) Effect of timely request. Subject to paragraph (j) of this 
section, if the debtor's written request is received on or before the 
15th business day following the mailing of the written notice required 
under this part, a withholding order shall not be issued under Sec. 
32.6 until the debtor has been provided the requested hearing and a 
decision in accordance with paragraphs (g) and (h) of this section has 
been rendered.
    (3) Failure to timely request a hearing. If the debtor's written 
request is received after the 15th business day following the mailing of 
the written notice required under this part, the Secretary shall provide 
a hearing to the debtor. However, the Secretary shall not delay the 
issuance of a withholding order unless the Secretary determines that the 
delay in submitting such request was caused by factors beyond the 
control of the debtor, or the Secretary receives information that the 
Secretary determines justifies a delay or cancellation of the 
withholding order.

[[Page 109]]

    (c) Oral hearing. (1) For purposes of this section, a debtor shall 
be provided a reasonable opportunity for an oral hearing when the 
hearing official determines that the issues in dispute cannot be 
resolved by review of the documentary evidence, such as when the 
validity of the claim turns on the issue of credibility or veracity.
    (2) If the hearing official determines an oral hearing is 
appropriate, the hearing official will establish the date, time and 
location of the hearing. At the debtor's option, the oral hearing may be 
conducted in person or by telephone conference. The hearing official 
will notify the debtor of the date, time, and in the case of an in-
person hearing, the location of the hearing. All travel expenses 
incurred by the debtor in connection with an in-person hearing will be 
borne by the debtor.
    (d) Paper hearing. (1) If the hearing official determines an oral 
hearing is not required by this section, the hearing official shall 
afford the debtor a paper hearing, that is, the issues in dispute will 
be decided based upon a review of the written record.
    (2) The hearing official shall notify the debtor of the deadline for 
the submission of additional evidence if necessary for a review of the 
record.
    (e) Burden of proof. (1) The Secretary has the initial burden of 
proving the existence or amount of the debt.
    (2) Thereafter, if the debtor disputes the existence or amount of 
the debt, the debtor must present by a preponderance of the evidence 
that no debt exists or that the amount is incorrect. When challenging 
the terms of a repayment schedule, the debtor must establish by a 
preponderance of the evidence that the terms of the repayment schedule 
are unlawful, would cause financial hardship to the debtor, or that 
collection of the debt may not be pursued due to operation of law.
    (f) Record. The hearing official shall maintain a summary record of 
any hearing provided under this part. A hearing is not required to be a 
formal evidentiary-type hearing, but witnesses who testify in an oral 
hearing must do so under oath or affirmation.
    (g) Date of decision. (1) The hearing official shall issue a written 
decision, as soon as practicable, but no later than sixty (60) days 
after the date on which the request for the hearing was received by the 
Department.
    (2) If the hearing official is unable to provide the debtor with a 
hearing and render a decision within 60 days after the receipt of the 
request for such hearing:
    (i) A withholding order may not be issued until the hearing is held 
and a decision is rendered; or
    (ii) A withholding order previously issued to the debtor's employer 
must be suspended beginning on the 61st day after the receipt of the 
hearing request and continuing until a hearing is held and a decision is 
rendered.
    (h) Content of decision. The written decision shall include:
    (1) A summary of the facts presented;
    (2) The hearing official's findings, analysis, and conclusions; and
    (3) The terms of any repayment schedule, if applicable.
    (i) Final agency action. The hearing official's decision will be the 
final agency action for the purposes of judicial review under the 
Administrative Procedure Act. 5 U.S.C. 701 et seq.
    (j) Failure to appear. In the absence of good cause shown, a debtor 
who fails to appear at a hearing will be deemed as not having timely 
filed a request for a hearing.



Sec. 32.6  Withholding order.

    (a) Unless the Secretary receives information that the Secretary 
determines justifies a delay or cancellation of a withholding order, the 
Secretary shall send, by first class mail, an SF-329A ``Letter to 
Employer & Important Notice to Employer,'' an SF-329B ``Wage Garnishment 
Order,'' an SF-329C ``Wage Garnishment Worksheet,'' and an SF-329D 
``Employer Certification,'' to the debtor's employer within 30 days 
after the debtor fails to make a timely request for a hearing, i.e., 
within 15 business days after mailing the notice required under this 
part, or, if the timely request for a hearing is made by the debtor, 
within 30 days after a final decision is made by the Secretary to 
proceed with garnishment.
    (b) The Secretary shall keep a copy of the dated letter to the 
employer and a copy of the wage garnishment order.

[[Page 110]]

The certificate of service may be retained electronically so long as the 
manner of retention is sufficient for evidentiary purposes.



Sec. 32.7  Certification by employer.

    The employer must complete and return the SF-329D, ``Employer 
Certification'' to the Department within 20 days of receipt.



Sec. 32.8  Amounts withheld.

    (a) After receipt of a withholding order issued under this part, the 
employer shall deduct from all disposable pay paid to the debtor during 
each pay period the amount of garnishment described in paragraph (b) of 
this section. The employer may use the SF-329C ``Wage Garnishment 
Worksheet'' to calculate the amount to be deducted from the debtor's 
disposable pay.
    (b) Subject to paragraphs (c) and (d) of this section, the amount of 
garnishment shall be the lesser of:
    (1) The amount indicated on the garnishment order up to 15% of the 
debtor's disposable pay; or
    (2) The amount set forth in 15 U.S.C. 1673(a)(2) (Maximum allowable 
garnishment). The amount set forth at 15 U.S.C. 1673(a)(2) is the amount 
by which a debtor's disposable pay exceeds an amount equivalent to 
thirty times the minimum wage. See 29 CFR 870.10.
    (c)(1) Except as provided in paragraph (c)(2) of this section, when 
a debtor's pay is subject to multiple withholding orders, unless 
otherwise provided by Federal law, withholding orders issued pursuant to 
this part shall have priority over other withholding orders that are 
served later in time.
    (2) Notwithstanding the foregoing, withholding orders for family 
support shall have priority over withholding orders issued under this 
part.
    (3) If amounts are being withheld from a debtor's pay pursuant to a 
withholding order served on an employer before a withholding order 
issued pursuant to this part, or if a withholding order for family 
support is served on an employer at any time, the amounts withheld 
pursuant to a withholding order issued under this part shall be the 
lesser of:
    (i) The amount calculated under paragraph (b) of this section, or
    (ii) An amount equal to 25% of the debtor's disposable pay less the 
amount(s) withheld under the withholding order(s) with priority.
    (d) If the debtor owes more than one debt to the Department, the 
Secretary may issue multiple withholding orders provided that the total 
amount garnished from the debtor's pay for such orders does not exceed 
the amount set forth in paragraph (b) of this section.
    (e) An amount greater than that set forth in paragraphs (b) or (c) 
of this section may be withheld upon the written consent of the debtor.
    (f) The employer shall promptly pay to the Department all amounts 
withheld in accordance with the withholding order issued pursuant to 
this part.
    (g) The employer is not required to vary its normal pay and 
disbursement cycles in order to comply with the withholding order.
    (h) Any assignment or allotment by an employee shall be void to the 
extent it interferes with or prohibits execution of the withholding 
order issued under this part, except for any assignment or allotment 
made pursuant to a family support judgment or order.
    (i) The employer shall withhold the appropriate amount from the 
debtor's wages for each pay period until the employer receives 
notification from the Secretary to discontinue wage withholding.
    (j) The withholding order, SF-329B ``Wage Garnishment Order,'' sent 
to the employer under Sec. 32.6, requires the employer to commence wage 
withholding on the first pay day after the employer receives the order. 
However, if the first pay day is within 10 days after receipt of the 
order, the employer may begin deductions on the second pay day.
    (k) An employer may not discharge, refuse to employ, or take 
disciplinary action against any debtor as a result of the issuance of a 
withholding order under this part.

[68 FR 15093, Mar. 28, 2003; 68 FR 24052, May 6, 2003]



Sec. 32.9  Financial hardship.

    (a) A debtor whose wages are subject to a withholding order may, at 
any

[[Page 111]]

time, request a review by the Department of the amount garnished, based 
on materially changed circumstances such as disability, divorce, or 
catastrophic illness which result in financial hardship.
    (b) A debtor requesting such a review under paragraph (a) of this 
section shall submit the basis for claiming that the current amount of 
garnishment results in a financial hardship to the debtor, along with 
supporting documentation. The Secretary shall consider any information 
submitted in accordance with this part.
    (c) If a financial hardship is found, the Secretary shall downwardly 
adjust, by an amount and for a period of time established by the 
Secretary, the amount garnished to reflect the debtor's financial 
condition. The Secretary will notify the employer of any adjustments to 
the amount to be withheld.



Sec. 32.10  Refunds.

    (a) If the hearing official, pursuant to a hearing under this part, 
determines that a debt is not legally due and owing to the United 
States, the Secretary shall promptly refund any amount collected by 
means of administrative wage garnishment.
    (b) Unless required by Federal law or contract, refunds under this 
part shall not bear interest.



Sec. 32.11  Ending garnishment.

    (a) Once the Department has fully recovered the amounts owed by the 
debtor, including interest, penalties, and administrative costs assessed 
pursuant to and in accordance with part 30 of this title, the Secretary 
shall send the debtor's employer notification to discontinue wage 
withholding.
    (b) At least annually, the Secretary shall review its debtors' 
accounts to ensure that garnishment has been terminated for accounts 
that have been paid in full.



Sec. 32.12  Right of action.

    (a) The employer of a debtor subject to wage withholding pursuant to 
this part shall pay to the Department as directed in a withholding order 
issued under this part.
    (b) The Secretary may bring suit against an employer for any amount 
that the employer fails to withhold from wages owed and payable to a 
debtor in accordance with Sec. Sec. 32.6 and 32.8, plus attorney's 
fees, costs, and, if applicable, punitive damages.
    (c) A suit under this section may not be filed before the 
termination of the collection action involving a particular debtor, 
unless earlier filing is necessary to avoid expiration of any applicable 
statute of limitations period. For purposes of this section, 
``termination of collection action'' occurs when the Secretary has 
terminated collection action in accordance with part 30 of this title, 
or other applicable law or regulation.
    (d) Notwithstanding deemed to occur if from a debtor whose paragraph 
(c) of this section, termination of the collection action will be a 
period of one (1) year the Department does not receive any payments 
wages were subject to a garnishment order issued under this part.



PART 33_SALARY OFFSET--Table of Contents



Sec.
33.1 Purpose, authority, and scope.
33.2 Definitions.
33.3 General rule.
33.4 Notice requirements before offset.
33.5 Review of department records relating to the debt.
33.6 Hearings.
33.7 Obtaining the services of a hearing official.
33.8 Voluntary repayment agreement in lieu of salary offset.
33.9 Special review.
33.10 Procedures for salary offset.
33.11 Salary offset when the Department is the creditor agency but not 
          the paying agency.
33.12 Salary offset when the Department is the paying agency but not the 
          creditor agency.
33.13 Interest, penalties, and administrative costs.
33.14 Non-waiver of rights.
33.15 Refunds.
33.16 Additional administrative collection.

    Authority: 5 U.S.C. 5514; 5 CFR Part 550, Subpart K.

    Source: 72 FR 10421, Mar. 8, 2007, unless otherwise noted.



Sec. 33.1  Purpose, authority, and scope.

    (a) Purpose. This part prescribes the Department's standards and 
procedures

[[Page 112]]

for the collection of debts owed by Federal employees to the United 
States through involuntary salary offset.
    (b) Authority. 5 U.S.C. 5514; 5 CFR part 550, subpart K.
    (c) Scope. (1) This part applies to internal and Government-wide 
collections of debts owed by Federal employees by administrative offset 
from the current pay account of the debtor without his or her consent.
    (2) The procedures contained in this part do not apply to any case 
where an employee consents to collection through deduction(s) from the 
employee's pay account, or to debts arising under the Internal Revenue 
Code or the tariff laws of the United States, or where another statute 
explicitly provides for, or prohibits, collection of a debt by salary 
offset (e.g., travel advances in 5 U.S.C. 5705 and employee training 
expenses in 5 U.S.C. 4108).
    (3) This part does not preclude an employee from requesting waiver 
of an erroneous payment under 5 U.S.C. 5584, 10 U.S.C. 2774, or 32 
U.S.C. 716, or in any way questioning the amount or validity of a debt, 
in the manner prescribed by the Secretary. Similarly, this part does not 
preclude an employee from requesting waiver of the collection of a debt 
under any other applicable statutory authority.
    (4) Nothing in this part precludes the compromise of the debt, or 
the suspension or termination of collection actions, in accordance with 
part 30 of this title.



Sec. 33.2  Definitions.

    In this part--
    Administrative offset means withholding funds payable by the United 
States to, or held by the United States for, a person to satisfy a debt 
owed by the payee.
    Agency means an executive department or agency; a military 
department; the United States Postal Service; the Postal Rate 
Commission; the United States Senate; the United States House of 
Representatives; and court, court administrative office, or 
instrumentality in the judicial or legislative branches of the 
Government; or a Government Corporation.
    Creditor agency means the agency to which the debt is owed, 
including a debt collection center when acting on behalf of a creditor 
agency in matters pertaining to the collection of a debt.
    Day means calendar day. For purposes of computation, the last day of 
the period will be included unless it is a Saturday, Sunday, or a 
Federal holiday, in which case the next business day will be considered 
the last day of the period.
    Debt means an amount determined by an appropriate official to be 
owed to the United States from sources which include loans insured or 
guaranteed by the United States and all other amounts due the United 
States from fees, leases, rents, royalties, services, sales of real or 
personal property, overpayments, penalties, damages, interest, fines and 
forfeitures (except those arising under the Uniform Code of Military 
Justice), and all other similar sources.
    Debt collection center means the Department of the Treasury or other 
Government agency or division designated by the Secretary of the 
Treasury with authority to collect debts on behalf of creditor agencies 
in accordance with 31 U.S.C. 3711(g).
    Debtor means a Federal employee who owes a debt to the United 
States.
    Delinquent debt means a debt which the debtor does not pay or 
otherwise resolve by the date specified in the initial demand for 
payment, or in an applicable written repayment agreement or other 
instrument, including a post-delinquency repayment agreement.
    Department means the Department of Health and Human Services, its 
Staff Divisions, Operating Divisions, and Regional Offices.
    Disposable pay means that part of the debtor's current basic, 
special, incentive, retired, and retainer pay, or other authorized pay, 
remaining after deduction of amounts required by law to be withheld. For 
purposes of calculating disposable pay, legally required deductions that 
must be applied first include: Tax levies pursuant to the Internal 
Revenue Code (title 26, United States Code); properly withheld taxes, 
FICA, Medicare; health and life insurance premiums; and retirement 
contributions. Amounts deducted under garnishment orders, including 
child

[[Page 113]]

support garnishment orders, are not legally required deductions for 
calculating disposable pay.
    Employee means any individual currently employed by an agency, as 
defined in this section, including seasonal and temporary employees and 
current members of the Armed Forces or a Reserve of the Armed Forces 
(Reserves).
    Evidence of service means information retained by the Department 
indicating the nature of the document to which it pertains, the date of 
mailing the document, and the address and name of the debtor to whom it 
is being sent. A copy of the dated and signed written notice of intent 
to offset provided to the debtor pursuant to this part may be considered 
evidence of service for purposes of this part. Evidence of service may 
be retained electronically so long as the manner of retention is 
sufficient for evidentiary purposes.
    Hearing means a review of the documentary evidence to confirm the 
existence or amount of a debt or the terms of a repayment schedule. If 
the Secretary determines that the issues in dispute cannot be resolved 
by such a review, such as when the validity of the claim turns on the 
issue of credibility or veracity, the Secretary may provide an oral 
hearing.
    Hearing official means a Departmental Appeals Board administrative 
law judge or appropriate alternate as outlined in Sec. 33.7(a)(2).
    Paying agency means the agency employing the individual and 
authorizing the payment of his or her current pay.
    Salary offset means an administrative offset to collect a debt under 
5 U.S.C. 5514 owed by a federal employee through deductions at one or 
more officially established pay intervals from the current pay account 
of the employee without his or her consent.
    Secretary means the Secretary of Health and Human Services, or the 
Secretary's designee within any Staff Division, Operating Division or 
Regional Office.
    Waiver means the cancellation, remission, forgiveness, or non-
recovery of a debt owed by an employee to this Department or another 
agency as required or permitted by 5 U.S.C. 5584, 8346(b), 10 U.S.C. 
2774, 32 U.S.C. 716, or any other law.



Sec. 33.3  General rule.

    (a) Whenever a delinquent debt is owed to the Department by an 
employee, the Secretary may, subject to paragraphs (b) through (d) of 
this section, involuntarily offset the amount of the debt from the 
employee's disposable pay.
    (b) Unless provided by another statute pertaining to a particular 
type of debt (e.g., 42 U.S.C. 292r, Health professionals education, 42 
U.S.C. 297b, Nurse education), the Department may not initiate salary 
offset to collect a debt 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 official or officials of the 
Government who were charged with the responsibility to discover and 
collect such debts.
    (c) Except as provided in paragraph (d) of this section, prior to 
initiating collection through salary offset under this part, the 
Secretary must first provide the employee with the following:
    (1) Written notice of intent to offset as described in Sec. 33.4; 
and
    (2) An opportunity to petition for a hearing, and, if a hearing is 
provided, to receive a written decision from the hearing official within 
60 days on the following issues:
    (i) The determination of the Department concerning the existence or 
amount of the debt; and
    (ii) The repayment schedule, unless it was established by written 
agreement between the employee and Department.
    (d) The provisions of paragraph (c) of this section do not apply to:
    (1) Any adjustment to pay arising out of an employee's election of 
coverage or a change in coverage under a federal benefits program 
requiring periodic deduction from pay, if the amount to be recovered was 
accumulated over four pay periods or less;
    (2) A routine intra-agency adjustment of pay that is made to correct 
an overpayment of pay attributable to clerical or administrative errors 
or delays in processing pay documents, if the overpayment occurred 
within the

[[Page 114]]

four pay periods preceding the adjustment and, at the time of such 
adjustment, or as soon thereafter as practical, the individual is 
provided written notice of the nature and the amount of the adjustment 
and point of contact for contesting such adjustment; or
    (3) Any adjustment to collect a debt amounting to $50 or less, if, 
at the time of such adjustment, or as soon thereafter as practical, the 
individual is provided written notice of the nature and the amount of 
the adjustment and a point of contact for contesting such adjustment.



Sec. 33.4  Notice requirements before offset.

    (a) At least 30 days before the initiation of salary offset under 
this part, the Secretary shall mail, by first class mail, to the 
employee's last known address, a written notice informing the debtor of 
the following:
    (1) The Secretary has reviewed the records relating to the debt and 
has determined that a debt is owed, the amount of the debt, and the 
facts giving rise to the debt;
    (2) The Secretary's intention to collect the debt by means of 
deduction from the employee's current disposable pay account until the 
debt and all accumulated interest, penalties, and administrative costs 
are paid in full;
    (3) The amount, stated either as a fixed dollar amount or as a 
percentage of pay not to exceed 15 percent of disposable pay, the 
frequency, the commencement date, and the duration of the intended 
deductions;
    (4) An explanation of the Department's policies concerning the 
assessment of interest, penalties, and administrative costs, stating 
that such assessments must be made unless waived in accordance with 31 
CFR 901.9 and Sec. 30.18 of this title;
    (5) The employee's right to inspect and copy all records of the 
Department pertaining to the debt or, if the employee or the employee's 
representative cannot personally inspect the records, to request and 
receive copies of such records;
    (6) If not previously provided, the opportunity to establish a 
schedule for the voluntary repayment of the debt through offset, or to 
enter into an agreement to establish a schedule for repayment of the 
debt in lieu of offset, provided the agreement is in writing, signed by 
both the employee and the Department, and documented in the Department's 
files;
    (7) The right to a hearing conducted by an impartial hearing 
official with respect to the existence and amount of the debt, or the 
repayment schedule, so long as a petition is filed by the employee as 
prescribed in Sec. 33.6;
    (8) Time limitations and other procedures or conditions for 
inspecting Department records pertaining to the debt, establishing an 
alternative repayment agreement, and requesting a hearing;
    (9) The name, address, and telephone number of the person or office 
within the Department who may be contacted concerning the procedures for 
inspecting Department records, establishing an alternative repayment 
agreement, and requesting a hearing;
    (10) The name and address of the office within the Department to 
which the petition for a hearing should be sent, which generally will be 
the Operating Division or Staff Division responsible for collecting the 
debt;
    (11) A timely and properly filed petition for a hearing will stay 
the commencement of the collection proceeding;
    (12) The Department will initiate action to effect salary offset not 
less than 30 days from the date of mailing the notice of intent, unless 
the employee properly files a timely petition for a hearing,
    (13) A final decision on a hearing, if one is requested, will be 
issued at the earliest practical date, but not later than 60 days after 
the filing of the petition requesting the hearing unless the employee 
requests and the hearing official grants a delay in the proceeding;
    (14) Knowingly false or frivolous statements, representations or 
evidence may subject the employee to:
    (i) Disciplinary procedures appropriate under chapter 75 of title 5, 
United States Code; part 752 of title 5, Code of Federal Regulations; or 
any other applicable statutes or regulations;
    (ii) Penalties under the False Claims Act, 31 U.S.C. 3729-3731, or 
under any

[[Page 115]]

other applicable statutory authority; and
    (iii) Criminal penalties under 18 U.S.C. 286, 287, 1001, and 1002, 
or under any other applicable statutory authority;
    (15) Any other rights and remedies available to the employee under 
statutes or regulations governing the program for which the collection 
is being made;
    (16) Unless there are applicable contractual or statutory provisions 
to the contrary, amounts paid on or deducted for the debt, which are 
later waived or found not owed to the United States, will be promptly 
refunded to the employee; and
    (17) Proceedings with respect to such debt are governed by 5 U.S.C. 
5514.
    (b) The Secretary will retain evidence of service indicating the 
date of mailing of the notice.



Sec. 33.5  Review of department records relating to the debt.

    (a) To inspect or copy Department records relating to the debt, the 
employee must send a written request to the Department official or 
office designated in the notice of intent to offset stating his or her 
intention. The written request must be received by the Department within 
15 days from the employee's receipt of the notice.
    (b) In response to a timely request as described in paragraph (a) of 
this section, the designated Department official shall notify the 
employee of the location and time when the employee may inspect and copy 
such records. If the employee or employee's representative is unable to 
personally inspect such records as the result of geographical or other 
constraints, the Department shall arrange to send copies of such records 
to the employee.



Sec. 33.6  Hearings.

    (a) Petitions for hearing. (1) To request a hearing concerning the 
existence or amount of the debt or the offset schedule established by 
the Department, the employee must send a written petition to the office 
designated in the notice of intent to offset, see Sec. 33.4(a)(10), 
within 15 days of receipt of the notice.
    (2) The petition must:
    (i) Be signed by the employee;
    (ii) Fully identify and explain with reasonable specificity all the 
facts, evidence, and witnesses, if any, that the employee believes 
support his or her position; and
    (iii) Specify whether an oral or paper hearing is requested. If an 
oral hearing is requested, the request should explain why the matter 
cannot be resolved by review of the documentary evidence alone.
    (3) The timely filing of a petition for hearing shall stay any 
further collection proceedings.
    (b) Failure to timely request. (1) If the petition for hearing is 
filed after the 15-day period provided for in paragraph (a)(1) of this 
section, the Secretary may grant the request if the employee can 
establish that the delay was the result of circumstances beyond the 
employee's control, or that the employee failed to receive actual notice 
of the filing deadline.
    (2) An employee waives the right to a hearing, and will have his or 
her disposable pay offset in accordance with the offset schedule 
established by the Department, if the employee:
    (i) Fails to file a timely request for a hearing, unless such 
failure is excused; or
    (ii) Fails to appear at an oral hearing, of which the employee was 
notified, unless the hearing official determines that the failure to 
appear was due to circumstances beyond the employee's control.
    (c) Form of hearings. (1) General. After the employee requests a 
hearing, the hearing official shall notify the employee of the form of 
the hearing to be provided. If the hearing will be oral, the notice 
shall set forth the date, time, and location of the hearing. If the 
hearing will be a review of the written record, the employee shall be 
notified that he or she should submit evidence and arguments in writing 
to the hearing official by a specified date, after which the record 
shall be closed. The date specified shall give the employee reasonable 
time to submit documentation.

[[Page 116]]

    (2) Oral hearing. An employee who requests an oral hearing shall be 
provided an oral hearing if the hearing official determines that the 
matter cannot be resolved by review of documentary evidence alone 
because an issue of credibility or veracity is involved. Where an oral 
hearing is appropriate, the hearing is not an adversarial adjudication 
and need not take the form of an evidentiary hearing, i.e., the rules of 
evidence need not apply. Oral hearings may take the form of, but are not 
limited to:
    (i) Informal conferences with the hearing official in which the 
employee and agency representative will be given full opportunity to 
present evidence, witnesses, and arguments;
    (ii) Informal meetings in which the hearing official interviews the 
employee; or
    (iii) Formal written submissions with an opportunity for oral 
presentations.
    (3) Paper hearing. If the hearing official determines that an oral 
hearing is not necessary, the hearing official will make the 
determination based upon a review of the available written record.
    (4) Record. The hearing official shall maintain a summary record of 
any hearing conducted under this part. Witnesses who testify in oral 
hearings will do so under oath or affirmation.
    (d) Written decision. (1) Date of decision. The hearing officer 
shall issue a written opinion stating his or her decision, based upon 
documentary evidence and information developed at the hearing, as soon 
as practicable after the hearing, but not later than sixty (60) days 
after the date on which the hearing petition was received by the 
creditor agency, unless the employee requested a delay in the 
proceedings, in which case the 60-day decision period shall be extended 
by the number of days by which the hearing was postponed. The recipient 
of an employee's request for a hearing must forward the request 
expeditiously to the Departmental Appeals Board so as to not jeopardize 
the Boards's ability to issue a decision within this 60-day period.
    (2) Content of decision. The written decision shall include:
    (i) A statement of the facts presented to support the origin, 
nature, and amount of the debt;
    (ii) The hearing official's findings, analysis, and conclusions, 
including a determination whether the employee's petition for hearing 
was baseless and resulted from an intent to delay creditor agency 
collection activity; and
    (iii) The terms of any repayment schedule, if applicable.
    (e) Failure to appear. In the absence of good cause shown, an 
employee who fails to appear at a hearing shall be deemed, for the 
purpose of this part, to admit the existence and amount of the debt as 
described in the notice of intent. If the representative of the creditor 
agency fails to appear, the hearing official shall proceed with the 
hearing as scheduled and make a determination based upon oral testimony 
presented and the documentary evidence submitted by both parties. With 
the agreement of both parties, the hearing official shall schedule a new 
hearing date, and both parties shall be given reasonable notice of the 
time and place of the new hearing.



Sec. 33.7  Obtaining the services of a hearing official.

    (a)(1) When the Department is the creditor agency, the office 
designated in Sec. 33.4(a)(10) shall schedule a hearing, if one is 
requested by an employee, before a hearing official.
    (2) When the Department cannot provide a prompt and appropriate 
hearing before an administrative law judge or a hearing official 
furnished pursuant to another lawful arrangement, the office designated 
in Sec. 33.4(a)(10) may:
    (i) When the debtor is not an employee of the Department, contact an 
agent of the employee's paying agency designated in 5 CFR part 581, 
appendix A, to arrange for a hearing official; or
    (ii) When the debtor is an employee of the Department, contact an 
agent of any agency designated in 5 CFR part 581, appendix A, to arrange 
for a hearing official.
    (b)(1) When another agency is the creditor agency, it is the 
responsibility of that agency to arrange for a hearing if one is 
requested. The Department will provide a hearing official upon the 
request of a creditor agency when the debtor is employed by the 
Department and the creditor agency cannot provide

[[Page 117]]

a prompt and appropriate hearing before a hearing official furnished 
pursuant to another lawful arrangement.
    (2) Services rendered to a creditor agency under paragraph (b)(1) of 
this section will be provided on a fully reimbursable basis pursuant to 
the Economy Act of 1932, as amended, 31 U.S.C. 1535.
    (c) The determination of a hearing official designated under this 
section is considered to be an official certification regarding the 
existence and amount of the debt for purposes of executing salary offset 
under 5 U.S.C. 5514 and this part. A creditor agency may make a 
certification to the Secretary of the Treasury under 5 CFR 550.1108 or a 
paying agency under 5 CFR 550.1109 regarding the existence and amount of 
the debt based on the certification of a hearing official. If a hearing 
official determines that a debt may not be collected via salary offset, 
but the creditor agency finds that the debt is still valid, the creditor 
agency may still seek collection of the debt through other means, such 
as offset of other Federal payments or litigation.



Sec. 33.8  Voluntary repayment agreement in lieu of salary offset.

    (a)(1) In response to the notice of intent to offset, the employee 
may propose to establish an alternative schedule for the voluntary 
repayment of the debt by submitting a written request to the Department 
official designated in the notice of intent to offset. An employee who 
wishes to repay the debt without salary offset shall also submit a 
proposed written repayment agreement. The proposal shall admit the 
existence of the debt, and the agreement must be in such form that it is 
legally enforceable. The agreement must:
    (i) Be in writing;
    (ii) Be signed by both the employee and the Department;
    (iii) Specify all the terms of the arrangement for payment; and
    (iv) Contain a provision accelerating the debt in the event of 
default by the employee, but such an increase may not result in a 
deduction that exceeds 15 percent of the employee's disposable pay 
unless the employee has agreed in writing to deduction of a greater 
amount.
    (2) Any proposal under paragraph (a)(1) of this section must be 
received by the Department within 30 days of the date of the notice of 
intent to offset.
    (b) In response to a timely request as described in paragraph (a) of 
this section, the designated Department official shall notify the 
employee whether the proposed repayment schedule is acceptable. It is 
within the Secretary's discretion to accept a proposed alternative 
repayment schedule, and to set the necessary terms of a voluntary 
repayment agreement.
    (c) No voluntary repayment agreement will be binding on the 
Secretary unless it is in writing and signed by both the Secretary and 
the employee.



Sec. 33.9  Special review.

    (a) A Department employee subject to salary offset or a voluntary 
repayment agreement may, at any time, request a special review by the 
Secretary of the amount of the salary offset or voluntary repayment 
installments, based on materially changed circumstances, such as, but 
not limited to, catastrophic illness, divorce, death, or disability.
    (b)(1) In determining whether an offset would prevent the employee 
from meeting essential subsistence expenses, e.g., food, housing, 
clothing, transportation, and medical care, the employee shall submit a 
detailed statement and supporting documents for the employee, his or her 
spouse, and dependents indicating:
    (i) Income from all sources;
    (ii) Assets and liabilities;
    (iii) Number of dependents;
    (iv) Food, housing, clothing, transportation, and medical expenses; 
and
    (v) Exceptional and unusual expenses, if any.
    (2) When requesting a special review under this section, the 
employee shall file an alternative proposed offset or payment schedule 
and a statement, with supporting documents as described in paragraph 
(b)(1) of this section, stating why the current salary offset or 
payments result in an extreme financial hardship to the employee.
    (c)(1) The Secretary shall evaluate the statement and supporting 
documents, and determine whether the

[[Page 118]]

original offset or repayment schedule imposes extreme financial hardship 
on the employee.
    (2) Within 30 calendar days of the receipt of the request and 
supporting documents, the Secretary shall notify the employee in writing 
of such determination, including, if appropriate, a revised offset or 
repayment schedule.
    (d) If the special review results in a revised offset or repayment 
schedule, the Secretary shall provide a new certification to the paying 
agency.



Sec. 33.10  Procedures for salary offset.

    (a) Method and source of deductions. Unless the employee and the 
Secretary have agreed to an alternative repayment arrangement under 
Sec. 33.8, a debt shall be collected in lump sum or by installment 
deductions at officially established pay intervals from an employee's 
current pay account.
    (b) Limitation on amount of deduction. Ordinarily, the size of 
installment deductions must bear a reasonable relationship to the size 
of the debt and the employee's ability to pay. However, the amount 
deducted for any pay period must not exceed 15 percent of the disposable 
pay from which the deduction is made, unless the employee has agreed in 
writing to the deduction of a greater amount, as outlined in Sec. 33.8.
    (c) Duration of deductions. (1) Lump sum. If the amount of the debt 
is equal to or less than 15 percent of the employee's disposable pay for 
an officially established pay interval, the debt generally will be 
collected in one lump-sum deduction.
    (2) If the employee is deemed financially unable to pay in one lump-
sum or the amount of the debt exceeds 15 percent of the employee's 
disposable pay for an officially established pay interval, the debt 
shall be collected in installments. Except as provided in paragraphs (e) 
and (f) of this section, installment deductions must be made over a 
period not greater than the anticipated period of active duty or 
employment.
    (d) When deductions may begin. (1) Deductions will begin on the date 
stated in the notice of intent, unless an alternative repayment 
agreement under Sec. 33.8 has been accepted or the employee has filed a 
timely request for a hearing.
    (2) If the employee files a timely petition for hearing as provided 
in Sec. 33.6, deductions will begin after the hearing official has 
provided the employee with a hearing and a final written decision has 
been rendered in favor of the Department.
    (e) Liquidation from final check. If an employee retires, resigns, 
or the period of employment ends before collection of the debt is 
completed, the remainder of the debt will be offset under 31 U.S.C. 3716 
from subsequent payments of any nature (e.g., final salary payment or 
lump-sum leave) due the employee from the paying agency as of the date 
of separation.
    (f) Recovery from other payments due a separated employee. If the 
debt cannot be satisfied by offset from any final payment due the 
employee on the date of separation, the Secretary will liquidate the 
debt, where appropriate, by administrative offset under 31 U.S.C. 3716 
from later payments of any kind due the former employee (e.g., lump sum 
leave payment).



Sec. 33.11  Salary offset when the Department is the creditor agency 
but not the paying agency.

    (a) Centralized administrative offset. (1) Under 31 U.S.C. 3716, the 
Department shall notify the Secretary of the Treasury of all past-due, 
legally enforceable debts which are 180 days delinquent for purposes of 
collection by centralized administrative offset. This includes debts 
which the Department seeks to recover from the pay account of an 
employee of another agency via salary offset. The Secretary of the 
Treasury and other Federal disbursing officials will match payments, 
including Federal salary payments, against these debts. Where a match 
occurs, and all the requirements for offset have been met, the payments 
will be offset to collect the debt.
    (2) Prior to offset of the pay account of an employee, the 
Department must comply with the requirements of 5 U.S.C. 5514; 5 CFR 
part 550, subpart K, and this part. Specific procedures for notifying 
the Secretary of the Treasury of a debt for purposes of collection

[[Page 119]]

by administrative offset, including salary offset, are contained in 31 
CFR parts 285 and 901 and part 30 of this title.
    (b) Non-centralized administrative offset. When salary offset 
through centralized administrative offset under paragraph (a) of this 
section is not possible, the Department may attempt to collect a debt 
through non-centralized administrative offset in accordance with part 30 
of this title.
    (1) Format of the request. Upon completion of the procedures 
established in this part and pursuant to 5 U.S.C. 5514, the Department 
shall:
    (i) Certify in writing to the paying agency that the employee owes 
the debt, the amount and basis of the debt, the date on which payment(s) 
is due, the date the Government's right to collect the debt first 
accrued, and that the Departmental regulations implementing 5 U.S.C. 
5514 have been approved by the Office of Personnel Management.
    (ii) If the collection is to be made in installments, advise the 
paying agency of the number of installments to be collected, the amount 
or percentage of disposable pay to be collected in each installment, and 
the commencement date of the installments, if a date other than the next 
officially established pay period is required.
    (iii) Unless the employee has consented in writing to the salary 
deductions or signed a statement acknowledging receipt of the required 
procedures and this written consent or statement is forwarded to the 
paying agency, advise the paying agency of the action(s) taken under 5 
U.S.C. 5514 and this part, and give the date(s) the action(s) was taken.
    (2) Requesting recovery from current paying agency. (i) Except as 
otherwise provided in this paragraph, the Department shall submit a 
certified debt claim containing the information specified in paragraph 
(a) of this section, and an installment agreement, or other instruction 
on the payment schedule, if applicable, to the employee's paying agency.
    (ii) If the employee is in the process of separating from the 
Federal Government, the Department shall submit the certified debt claim 
to the employee's paying agency for collection as provided in Sec. 
33.10(e). The paying agency must certify the total amount of its 
collection on the debt and send a copy of the certification to the 
employee and another copy to the Department. If the paying agency's 
collection does not fully satisfy the debt, and the paying agency is 
aware that the employee is entitled to payments from the Civil Service 
Retirement and Disability Fund, or other similar payments that may be 
due the employee from other Federal Government sources, the paying 
agency will provide written notification of the outstanding debt to the 
agency responsible for making such payments to the employee, stating the 
employee owes a debt, the amount of the debt, and that the provisions of 
this section have been fully complied with. The Department must submit a 
properly certified claim to the agency responsible for making such 
payments before the collection can be made.
    (iii) If the employee is already separated and all payments due from 
the employee's former paying agency have been paid, the Department may 
request, unless otherwise prohibited, that money due and payable to the 
employee from the Civil Service Retirement and Disability Fund (5 CFR 
831.1801 or 5 CFR 845.401) or other similar funds, be administratively 
offset to collect the debt. See 31 U.S.C. 3716 and 31 CFR 901.3.
    (iv) If the employee transfers to another paying agency, the 
Department must submit a properly certified debt claim to the new paying 
agency before collection can be resumed; however, the Department need 
not repeat the due process procedures described in 5 U.S.C. 5514 and 
this part. The Department shall review the debt to ensure that 
collection is resumed by the new paying agency.



Sec. 33.12  Salary offset when the Department is the paying agency 
but not the creditor agency.

    (a) Format of the request. (1) When the Department is the paying 
agency and another agency is the creditor agency, the creditor agency 
must certify, in writing, to the Department that the employee owes the 
debt, the amount and basis of the debt, the date on which

[[Page 120]]

payment(s) is due, the date the Government's right to collect the debt 
first accrued, and that the creditor agency's regulations implementing 5 
U.S.C. 5514 have been approved by the Office of Personnel Management.
    (2) If the collection is to be made in installments, the creditor 
agency must also advise the Department of the number of installments to 
be collected, the amount or percentage of disposable pay to be collected 
in each installment, and the commencement date of the installments, if a 
date other than the next officially established pay period is required.
    (3) Unless the employee has consented in writing to the salary 
deductions or signed a statement acknowledging receipt of the required 
procedures and the written consent or statement is forwarded to the 
Department, the creditor agency must advise the Department of the 
action(s) taken under 5 U.S.C. Sec. 5514, and give the date(s) the 
action(s) was taken.
    (b) Requests for recovery. (1) Complete claim. When the Department 
receives a properly certified debt claim from a creditor agency, 
deductions should be scheduled to begin prospectively at the next 
officially established pay interval. The employee must receive written 
notice as described in Sec. 33.10 that the Department has received a 
certified debt claim from the creditor agency, including the amount, and 
written notice of the date deductions from salary will commence and the 
amount of such deductions.
    (2) Incomplete claim. When the Department receives an incomplete 
debt claim from a creditor agency, the Secretary shall return the debt 
claim with a notice that procedures under 5 U.S.C. 5514 and 5 CFR part 
550, subpart K, must be provided and a properly certified debt claim 
received before action will be taken to collect from the employee's 
current pay account.
    (c) Review. The Secretary is not required or authorized to review 
the merits of the determination with respect to the amount or validity 
of the debt certified by the creditor agency.
    (d) Employees separating. If an employee begins separation action 
before the Department collects the total debt due the creditor agency, 
the following actions will be taken:
    (1) To the extent possible, the balance owed the creditor agency 
will be liquidated from a final salary check, or other final payments of 
any nature due the employee from the Department;
    (2) The Secretary will certify the total amount of the Department's 
collection on the debt and send a copy of the certification to the 
employee and another copy to the creditor agency; and
    (3) If the Department's collection does not fully satisfy the debt, 
and the Secretary is aware that the employee is entitled to payments 
from the Civil Service Retirement and Disability Fund, or other similar 
payments that may be due the employee from other Federal Government 
sources, the Secretary will provide written notification of the 
outstanding debt to the agency responsible for making such payments to 
the employee. The written notification shall state that the employee 
owes a debt, the amount of the debt, and that the provisions of this 
section have been fully complied with. The Department shall furnish a 
copy of this written notification to the creditor agency so that it can 
file a properly certified debt claim with the agency responsible for 
making such payments.
    (e) Employees who transfer to another paying agency. If, after the 
creditor agency has submitted a debt claim to the Department, the 
employee transfers from the Department to a different paying agency 
before the debt is collected in full, the Secretary shall:
    (1) Certify the total amount of the collection made on the debt; and
    (2) Furnish a copy of the certification to the employee and another 
copy to the creditor agency along with notice of the employee's 
transfer.



Sec. 33.13  Interest, penalties, and administrative costs.

    Debts owed to the Department shall be assessed interest, penalties 
and administrative costs in accordance with 45 CFR 30.18.



Sec. 33.14  Non-waiver of rights.

    An employee's involuntary payment of all or any portion of a debt 
collected under this part shall not be construed

[[Page 121]]

as a waiver of any rights which the employee may have under 5 U.S.C. 
5514 or any other provision of law or contract, unless there are 
statutory or contractual provisions to the contrary.



Sec. 33.15  Refunds.

    (a) The Secretary shall promptly refund any amounts paid or deducted 
under this part when:
    (1) A debt is waived or otherwise found not owing to the United 
States; or
    (2) The employee's paying agency is directed by administrative or 
judicial order to refund amount deducted from the employee's current 
pay.
    (b) Unless required or permitted by law or contract, refunds shall 
not bear interest.



Sec. 33.16  Additional administrative collection action.

    Nothing contained in this part is intended to preclude the use of 
any other appropriate administrative remedy.



PART 34_CLAIMS FILED UNDER THE MILITARY PERSONNEL AND CIVILIAN 
EMPLOYEES ACT--Table of Contents



Sec.
34.1 Purpose and scope.
34.2 Definitions.
34.3 Filing procedures and time limits.
34.4 Allowable claims.
34.5 Unallowable claims.
34.6 Reconsideration or appeal.
34.7 Payment procedures.
34.8 Computation of award and settlement.
34.9 Claims involving carriers or insurers.

    Authority: 31 U.S.C. 3721.

    Source: 69 FR 13257, Mar. 22, 2004, unless otherwise noted.



Sec. 34.1  Purpose and scope.

    (a) Purpose. This part prescribes polices and procedures for 
handling claims not in excess of $40,000.00 filed by employees against 
the Department of Health and Human Services under the Military Personnel 
and Civilian Employees Claims (MPCE) Act of 1964, 31 U.S.C. 3721, for 
damage to, or loss of, property against the Department. Under the MPCE 
Act, the Secretary may approve claims made against the Government by a 
federal government employee for damage to or loss of personal property 
that is incident to employment when the loss or damage is not due to any 
negligence on the part of employee.
    (b) Scope. This part applies to all Departmental Operating Divisions 
and Regional Offices that process and review claims under the MPCE Act. 
Nothing in this part shall be construed to bar other types of claims 
that are payable under other statutory authority such as, but not 
limited to, the Federal Tort Claims Act (28 U.S.C. 2671-2680).



Sec. 34.2  Definitions.

    In this part, unless the context otherwise requires:
    Claim means any claim filed by or on behalf of an employee for 
damage to, or loss of, property that is incident to the claimant's 
employment. This definition includes claims where the claimant is not 
the legal owner of the property in question, but has obtained 
authorization from the legal owner to posses or control the property.
    Claimant means an employee who has filed a claim with the Department 
under the MPCE Act.
    Damage or loss means total or partial destruction or loss of the 
item claimed.
    Department means the Department of Health and Human Services.
    Employee means an officer or employee of the Department.
    Quarters means a house, apartment or other residence assigned by the 
government to an employee of the Department.



Sec. 34.3  Filing procedures and time limits.

    (a) Who may file a claim. A claim may be filed by the following 
individuals:
    (1) An employee;
    (2) An authorized agent or representative of an employee or 
employee's estate, regardless of whether the claim arose before or 
concurrent with an employee's death; and
    (3) A former employee or his authorized agent or representative if 
damage or loss occurred prior to the separation from the Department.
    (b) Requirements. A claim submitted under this part must be 
presented in writing to the Claims Officer (See paragraph (c) of this 
section). Claims may

[[Page 122]]

be submitted on a HHS-481 form, Employee Claim for Loss or Damage to 
Personal Property. All claims must be signed by the claimant or his 
authorized agent or representative. The HHS-Form can be obtained from 
the Claims Officer or downloaded from the Program Support Center's 
webpage at www.psc.gov. All claims must include the following:
    (1) Name and address of the claimant;
    (2) The office in which the claimant was employed at the time of 
loss, current office, if different, and telephone number;
    (3) Date of loss or damage;
    (4) Amount of claim;
    (5) Description of the property, including but not limited to type, 
design, model number, date acquired, value when acquired, value when 
lost, and estimation of repair or replacement cost;
    (6) Description of incident; and
    (7) If property was insured when loss or damage occurred, a 
statement indicating whether a claim was filed with an insurance 
carrier.
    (c) Where to file your claim. (1) Claimants employed with the 
Regional Offices should submit claims to the Chief Regional Counsel, 
Office of the General Counsel, within the claimant's Region.
    (2) All other claimants must submit claims to the Office of the 
General Counsel, General Law Division, Claims and Employment Law Branch, 
330 Independence Ave., SW., Room 4760, Cohen Building, Washington, DC 
20201.
    (d) Evidence required. You must submit the following:
    (1) Not less than two itemized signed estimates for the cost of 
repairs, or an itemized bill of repair for the damaged property;
    (2) In the event the property is not economically repairable or is 
totally lost or destroyed, proof of this fact, its market value before 
or after loss, purchase price, and date of acquisition of the property;
    (3) Proof of ownership or right to recover for the damage such as a 
receipt;
    (4) Police/incident report;
    (5) If property is insured, insurance information, such as insurance 
carrier, type of coverage, deductible, and whether claim has been filed 
and/or paid;
    (6) Travel orders, if applicable;
    (7) Any citations or traffic tickets, if applicable; and
    (8) Any other evidence required by the claims officer not specified 
above.
    (e) Time limit. (1) A claim filed under this section must be filed 
in writing with the Department within two years from the date of the 
incident.
    (2) If the claim accrues in the time of war or in the time of armed 
conflict in which any armed forces of the United States are engaged or 
if such a war or armed conflict occurs within two years after the claim 
accrues, and if good cause is shown, the claim shall be presented no 
more than two years after that cause ceases to exist, or two years after 
the war or armed conflict is terminated, whichever is earlier.
    (3) All required evidence in support of a claim submitted under this 
section must be forwarded to the claims officer within sixty days after 
request. Failure to do so will be deemed as an abandonment of the claim 
and the claim will be disallowed.



Sec. 34.4  Allowable claims.

    (a) What you can claim. (1) Claims for damage or loss may be allowed 
where possession of the property was lawful and reasonable under 
circumstances.
    (2) Claims for property damage or loss by fire, flood, hurricane, 
theft, or other serious occurrence may be allowed when the property is 
located inside:
    (i) Quarters that have been assigned or provided by the government; 
or
    (ii) Quarters outside the United States whether assigned by the 
government or not, except when a civilian employee outside the U.S. is a 
local inhabitant.
    (3) Claims for damage to, or loss of, property may be allowed when 
caused by:
    (i) Marine, air disaster, enemy action or threat thereof, or other 
extraordinary risks incurred incident to the performance of official 
duties by the claimant; and
    (ii) Efforts by the claimant to save human life or government 
property.
    (4) Property used for the benefit of the government. Claims may be 
allowed for damage to, or loss of, property used for the benefit of the 
government at the request, or with the

[[Page 123]]

knowledge and consent of, superior authority.
    (5) Claims for clothing and accessories may be allowed when loss or 
damage was caused by faulty or defective equipment or furnishings owned 
or managed by the Department.
    (6) Claims for stolen property, only if it is determined that the 
claimant exercised due care in protecting his property and there is 
clear evidence that a burglary or theft occurred.
    (7) Claims for automobiles, only when required to perform official 
business or parked on a government-owned or operated parking lot or 
garage incident to employment. This subsection does not include claims 
for damage or loss when traveling between place of residence and duty 
station, or when the loss or damage was caused by the negligence of a 
third party. If the automobile is a total loss, the maximum amount 
allowed is the value of the vehicle at the time of loss as determined by 
the National Automobile Dealer Association Appraisal Guide or similar 
publications.
    (8) Claims for any other meritorious claims in exceptional cases may 
be allowed by the Claims Officer.
    (9) Transportation or travel losses. Damage or loss of personal 
property, including baggage and household items, while being transported 
by a carrier, agent or agency of the government, or private conveyance, 
may be allowed only if the property is shipped under orders or in 
connection with travel orders.



Sec. 34.5  Unallowable claims.

    (a) What you cannot claim. (1) Claims for money or currency, such as 
intangible property (i.e. bankbooks, check, money orders, promissory 
notes, stock certificates, etc.).
    (2) Worn-out or unserviceable property.
    (3) Easily pilferable articles, such as jewelry, cameras, watches, 
and binoculars when they are shipped with household goods by a moving 
company or unaccompanied baggage. This does not apply to checked 
property or property in personal custody of the claimant or his agent 
provided proper security measures have been taken.
    (4) Government property.
    (5) Appraisal or estimate fees.
    (6) Automobiles, except when required to perform official business 
or parked on a government-owned or operated parking lot or garage 
incident to employment.
    (7) Loss or damage caused in whole or in part by the negligent or 
wrongful act of the claimant or his agent or employee.
    (8) Claims under $30.00.
    (9) Stolen property when it's determined that claimant failed to 
exercise due care in protecting his or her property.
    (10) Sales Tax. Reimbursements for the payment of sales tax incurred 
in connection with repairs or replacing an item will not be allowed.



Sec. 34.6  Reconsideration or appeal.

    (a) Requests for reconsideration or appeal shall be forwarded to the 
Associate General Counsel, General Law Division, Office of the General 
Counsel, within sixty days from the date of the Claims Officer's 
decision along with any new evidence supporting the claim.
    (b) A voucher or a supplemental voucher will be prepared by the 
Claims Officer if it is determined that the claimant's request for 
reconsideration should be allowed.



Sec. 34.7  Payment procedures.

    (a) For all claims that are approved in whole or part, the claims 
officer shall prepare and mail a payment voucher to the claimant.
    (b) This voucher shall be mailed to the claimant with appropriate 
instructions.
    (c) Upon receipt of the signed payment voucher, the claims officer 
shall sign and forward the signed voucher to the office where the 
claimant is or was employed for processing.
    (d) Upon receipt of the signed payment voucher, the office in which 
the claimant is or was employed will submit the voucher for transmission 
to the Treasury Department for issuance of a check in the sum allowed.
    (e) Funds paid for settlement of allowed claims shall be made from 
appropriations of the office in which the claimant is or was employed.

[[Page 124]]



Sec. 34.8  Computation of award and settlement.

    (a) The amount awarded on any item of property shall not exceed the 
adjusted cost of the item based on the cost of replacing it with a 
similar one of the same quality minus the appropriate depreciation rate. 
The amount normally payable on property damaged beyond economical repair 
shall not exceed its depreciated value. If the cost of repairs is less 
than the depreciated value it shall be considered economically 
repairable and the costs of repairs shall be the amount payable.
    (b) Depreciation in value of an item shall be determined by 
considering the type of article involved, its replacement cost, 
condition when lost or damaged beyond economical repair, and the time 
elapsed between the date of acquisition and the date of accrual of the 
claim.
    (c) Notwithstanding any other provision of law, settlements of 
claims under the MPCE Act are final and conclusive. The acceptance of a 
settlement constitutes a complete release of any claim against the 
United States and any employee of the government whose act or omission 
gave rise to the claim by reason of the same claim.



Sec. 34.9  Claims involving carriers or insurers.

    (a) Carriers. (1) If property is damaged, lost or destroyed while 
being shipped pursuant to authorized travel orders, the owner shall file 
a written claim for reimbursement against the carrier no later than nine 
months from the date of delivery or should have been made according to 
the terms of the contract. It shall be filed before or concurrent with 
submitting a claim against the government under this part.
    (2) The demand shall be made against the responsible carrier if more 
than one contract was issued, a separate demand shall be made against 
the last carrier on each such document, unless claimant knows which 
carrier was in possession of the property when the damage or loss 
occurred.
    (b) Insurers. (1) If property which is damaged, lost, or destroyed 
incident to the claimant's service is insured in whole or in part, the 
claimant shall inform the Claims Officer whether a claim was made with 
the insurance carrier.
    (2) The claimant shall inform the claims officer if he or she 
received a reimbursement from the insurance carrier for the item that 
was damaged or lost. The exact amount of the reimbursement must be 
reported.
    (3) If the claimant receives a reimbursement for the lost or damaged 
property from an insurance carrier, the maximum amount that can be 
recovered from the Department is the difference between an appropriate 
award under this regulation and the amount recovered from the insurance 
carrier. The claimant is responsible for submitting to the Department 
documentation that identifies the exact amount of the reimbursement.



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

[[Page 125]]

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.
    (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

[[Page 126]]

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.
    (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.

[[Page 127]]



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.



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:

[[Page 128]]

    (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 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.

[[Page 129]]

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.
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.

          Subpart E_Registration of Institutional Review Boards

46.501 What IRBs must be registered?
46.502 What information must be provided when registering an IRB?
46.503 When must an IRB be registered?
46.504 How must an IRB be registered?
46.505 When must IRB registration information be renewed or updated?

    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.

[[Page 130]]



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.
    (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.

[[Page 131]]

    (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 Human Research 
Protections, Department of Health and Human Services (HHS), or any 
successor office, 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, subpart 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, as 
amended at 70 FR 36328, June 23, 2005]



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

[[Page 132]]

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.



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 Human Research Protections, HHS, or any successor office, 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 
Human Research Protections, HHS, or any successor office.
    (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

[[Page 133]]

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 Human Research Protections, HHS, or 
any successor office.
    (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 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

[[Page 134]]

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 
0990-0260)

[56 FR 28012, 28022, June 18, 1991; 56 FR 29756, June 28, 1991, as 
amended at 70 FR 36328, June 23, 2005]



Sec. Sec. 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.
    (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

[[Page 135]]

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 
0990-0260)

[56 FR 28012, 28022, June 18, 1991, as amended at 70 FR 36328, June 23, 
2005]



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 
Human Research Protections, HHS, or any successor office.
    (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.

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.

[56 FR 28012, 28022, June 18, 1991, as amended at 70 FR 36328, June 23, 
2005]

[[Page 136]]



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, appropriate institutional officials, and 
the department or agency head.

(Approved by the Office of Management and Budget under Control Number 
0990-0260)

[56 FR 28012, 28022, June 18, 1991, as amended at 70 FR 36328, June 23, 
2005]



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.

[[Page 137]]



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 
0990-0260)

[56 FR 28012, 28022, June 18, 1991, as amended at 70 FR 36328, June 23, 
2005]



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;
    (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

[[Page 138]]

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 
0990-0260)

[56 FR 28012, 28022, June 18, 1991, as amended at 70 FR 36328, June 23, 
2005]



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

[[Page 139]]

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 
0990-0260)

[56 FR 28012, 28022, June 18, 1991, as amended at 70 FR 36328, June 23, 
2005]



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.



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

[[Page 140]]

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:
    (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

[[Page 141]]

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;
    (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

[[Page 142]]

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.
    (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:

[[Page 143]]

    (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, 1978, 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.



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.

[[Page 144]]

    (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 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

[[Page 145]]

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.



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

[[Page 146]]

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.



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

[[Page 147]]

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 Sec. Sec. 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, the investigator(s), 
or the guardian organization.



          Subpart E_Registration of Institutional Review Boards

    Source: 74 FR 2405, Jan. 15, 2009, unless otherwise noted.



Sec. 46.501  What IRBs must be registered?

    Each IRB that is designated by an institution under an assurance of 
compliance approved for federalwide use by the Office for Human Research 
Protections (OHRP) under Sec. 46.103(a) and that

[[Page 148]]

reviews research involving human subjects conducted or supported by the 
Department of Health and Human Services (HHS) must be registered with 
HHS. An individual authorized to act on behalf of the institution or 
organization operating the IRB must submit the registration information.



Sec. 46.502  What information must be provided when registering an IRB?

    The following information must be provided to HHS when registering 
an IRB:
    (a) The name, mailing address, and street address (if different from 
the mailing address) of the institution or organization operating the 
IRB(s); and the name, mailing address, phone number, facsimile number, 
and electronic mail address of the senior officer or head official of 
that institution or organization who is responsible for overseeing 
activities performed by the IRB.
    (b) The name, mailing address, phone number, facsimile number, and 
electronic mail address of the contact person providing the registration 
information.
    (c) The name, if any, assigned to the IRB by the institution or 
organization, and the IRB's mailing address, street address (if 
different from the mailing address), phone number, facsimile number, and 
electronic mail address.
    (d) The name, phone number, and electronic mail address of the IRB 
chairperson.
    (e)(1) The approximate numbers of:
    (i) All active protocols; and
    (ii) Active protocols conducted or supported by HHS.
    (2) For purpose of this regulation, an ``active protocol'' is any 
protocol for which the IRB conducted an initial review or a continuing 
review at a convened meeting or under an expedited review procedure 
during the preceding twelve months.
    (f) The approximate number of full-time equivalent positions devoted 
to the IRB's administrative activities.



Sec. 46.503  When must an IRB be registered?

    An IRB must be registered before it can be designated under an 
assurance approved for federalwide use by OHRP under Sec. 46.103(a). 
IRB registration becomes effective when reviewed and accepted by OHRP. 
The registration will be effective for 3 years.



Sec. 46.504  How must an IRB be registered?

    Each IRB must be registered electronically through http://
ohrp.cit.nih.gov/efile unless an institution or organization lacks the 
ability to register its IRB(s) electronically. If an institution or 
organization lacks the ability to register an IRB electronically, it 
must send its IRB registration information in writing to OHRP.



Sec. 46.505  When must IRB registration information be renewed or 
updated?

    (a) Each IRB must renew its registration every 3 years.
    (b) The registration information for an IRB must be updated within 
90 days after changes occur regarding the contact person who provided 
the IRB registration information or the IRB chairperson. The updated 
registration information must be submitted in accordance with Sec. 
46.504.
    (c) Any renewal or update that is submitted to, and accepted by, 
OHRP begins a new 3-year effective period.
    (d) An institution's or organization's decision to disband a 
registered IRB which it is operating also must be reported to OHRP in 
writing within 30 days after permanent cessation of the IRB's review of 
HHS-conducted or -supported research.



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 Waivers for research.
50.5 Waivers for the delivery of health care service.
50.6 Procedures for submission of application to HHS.
50.7 Personal hardship, persecution and visa extension considerations.
50.8 Compliance.

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

[[Page 149]]


    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 Department of State 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. HHS 
eligibility requirement criteria for waivers are in addition to and 
independent of the existing waiver and visa criteria established by the 
Immigration and Naturalization Service (INS), the Department of State, 
and the Department of Labor. The waiver regulations described in this 
part do not relieve alien physicians seeking a waiver of the 2-year 
foreign residence requirement from complying with the terms and 
conditions imposed on their admission to the United States.

[67 FR 77695, Dec. 19, 2002]



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 HHS for a favorable recommendation to the Department of 
State that the two-year foreign residence requirement for Exchange 
Visitors under the Exchange 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 will consider any particular application. The Director of the 
Office of Global Health 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. The 
Assistant Secretary for Health appoints two regularly assigned members 
and two alternates 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. The Board may obtain expert advisory opinions from other 
sources. The Board may establish a workgroup from the operating 
divisions of the Department to consider applications for waivers based 
on the need for the delivery of health care services to underserved 
populations.

[49 FR 9900, Mar. 16, 1984, as amended at 67 FR 77695, Dec. 19, 2002]



Sec. 50.3  Policy.

    (a) Policy for waivers. The Department of Health and Human Services 
endorses the philosophy 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 ensure that Exchange Visitors make available 
to their home countries their new knowledge and skills obtained in the 
United States. The Department will request waivers for the delivery of 
health care service to carry out the Department's mission to increase 
access to care for the nation's most medically underserved individuals. 
However, in keeping with the philosophy of the Program, the Exchange 
Visitor Waiver Review Board may determine the appropriate numbers and 
geographic areas for waivers for the delivery of health care service.
    (b) Criteria for waivers. The Exchange Visitor Waiver Review Board 
carefully applies stringent and restrictive criteria to its 
consideration of requests that it support waivers for Exchange Visitors. 
Each application is evaluated individually based on the facts available.
    (c) Waiver for members of Exchange Visitor's family. Where a 
decision is

[[Page 150]]

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.

[67 FR 77696, Dec. 19, 2002]



Sec. 50.4  Waivers for research.

    In determining whether to request a waiver for an Exchange Visitor 
engaged in the conduct of research, the Board considers the following 
key factors:
    (a) 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.
    (b) 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 on 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.
    (c) 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.

[67 FR 77696, Dec. 19, 2002]



Sec. 50.5  Waivers for the delivery of health care service.

    In determining whether to request a waiver for an Exchange Visitor 
to deliver health care service, the Board will consider information from 
and coordinate with State Departments of Public Health (or the 
equivalent), other ``interested government agencies'' which request 
waivers, and other relevant agencies. The Board requires the following 
criteria for requests for waivers for the delivery of health care 
service:
    (a) The Exchange Visitor must submit a statement that he or she does 
not have pending and will not submit any other ``interested government 
agency'' waiver request while HHS processes the waiver request being 
submitted.
    (b) Waivers are limited to primary care physicians and general 
psychiatrists who have completed their primary care or psychiatric 
residency training programs no more than12 months before the date of 
commencement of employment under the contract described in subparagraph 
(d). This 12-month eligibility limitation is to ensure that the 
physicians' primary care training is current and they are not engaged in 
subspecialty training. This HHS eligibility requirement relates only to 
eligibility for an HHS waiver request and does not relieve physicians of 
the responsibility to maintain lawful status. Alien physicians are 
strongly encouraged to begin the waiver process as early as they 
possibly can while still in the residency training program. Early filing 
of the waiver request by the alien physician, coupled with timely 
processing of the request by the relevant government agencies, will 
facilitate the timely completion of the waiver process before the 
authorized J-1 admission expires, and the physician's subsequent 
application for change of nonimmigrant status from J-1 to H-1B.
    (c) Primary care physicians are defined as: physicians practicing 
general internal medicine, pediatrics, family

[[Page 151]]

practice or obstetrics/gynecology willing to work in a primary care 
Health Professional Shortage Area (HPSA) or Medically Underserved Area 
or Population (MUA/P); and general psychiatrists who are willing to work 
in a Mental Health HPSA. Note: these HHS eligibility criteria for 
waivers are in addition to and independent of the existing waiver and 
visa criteria established by the Immigration and Naturalization Service 
(INS), the Department of State, and the Department of Labor.
    (d) The Exchange Visitor must have entered a contract with the 
applicant employer. This contract must:
    (1) Require the Exchange Visitor to provide primary medical care in 
a facility physically located in an HHS-designated primary care HPSA or 
MUA/P, or general psychiatric care in a Mental Health HPSA.
    (2) Require the Exchange Visitor to complete a term of employment of 
not less than three years providing primary care health services for not 
less than 40 hours per week.
    (3) Require the Exchange Visitor to:
    (i) Be licensed by the State where he or she will practice;
    (ii) Have completed a residency in one of the following specialties: 
family practice, general pediatrics, obstetrics/gynecology, general 
internal medicine, or general psychiatry; and
    (iii) Be either board certified or board eligible in the relevant 
primary care discipline.
    (4) Be terminable only for cause until completion of the three-year 
commitment, except that, with the agreement of the alien physician, the 
employer may assign the contract to another eligible employer with the 
prior approval of HHS and compliance with all applicable INS and 
Department of Labor requirements. Prior to approving an assignment of 
the contract, HHS will review and consider the health care needs of the 
alien physician's current and proposed new locations, as well as the 
reasons for the request.
    (5) Not contain a restrictive covenant or non-compete clause which 
prevents or discourages the physician from continuing to practice in any 
HHS-designated primary care HPSA or MUA/P or Mental Health HPSA after 
the period of obligation under the contract has expired.
    (6) Provide that any amendment to the contract complies with all 
applicable Federal statutes, regulations and HHS policy.
    (7) Be consistent with all applicable Federal statutes, regulations 
and HHS policy.
    (e) The facility or practice sponsoring the physician:
    (1) Must provide health services to individuals without 
discriminating against them because either they are unable to pay for 
those services or payment for those health services will be made under 
Medicare or Medicaid.
    (2) May charge no more than the usual and customary rate prevailing 
in the geographic area in which the services are provided.
    (3) Must provide care on a sliding fee scale for persons at or below 
200 percent of poverty income level. Persons with third-party insurance 
may be charged the full fee for service.
    (4) Must post a notice in a conspicuous location in the patient 
waiting area at the practice site to notify patients of the charges for 
service as required in this paragraph.
    (5) Must provide evidence that the applicant facility made 
unsuccessful efforts to recruit a physician who is a United States 
physician for the position to be filled by the Exchange Visitor.
    (6) Must provide a statement by the head of the facility to confirm 
the facility is located in a specific, designated HPSA or MUA/P, and 
that it provides medical care to Medicaid and Medicare eligible patients 
and to the uninsured indigent.
    (f) The employer and the alien physician must submit information to 
the Secretary at the times and in the manner that the Secretary may 
reasonably require.

[67 FR 77696, Dec. 19, 2002]



Sec. 50.6  Procedures for submission of application to HHS.

    (a) The Exchange Visitor Waiver Review Board will review 
applications submitted by private or non-federal institutions, 
organizations, or agencies or by a component agency of HHS. The

[[Page 152]]

Board will not accept applications submitted by Exchange Visitors or, 
unless under extenuating and exceptional circumstances, other U.S. 
Government Agencies.
    (b) Applications, instruction sheets and information are available 
from the Executive Secretary, Exchange Visitor Waiver Review Board. An 
authorized official of the applicant institution (educational 
institution, hospital, laboratory, corporation, etc.) must sign the 
completed application. The applicant institution must send the completed 
application to the address indicated on the instruction sheet.

[67 FR 77697, Dec. 19, 2002]



Sec. 50.7  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.

[49 FR 9900, Mar. 16, 1984. Redesignated at 67 FR 77696, Dec. 19, 2002]



Sec. 50.8  Compliance.

    If an alien physician acquires H-1B nonimmigrant status following 
approval by the INS of a request for waiver, then he or she becomes 
subject not only to the terms and conditions of the waiver, but also the 
terms and conditions of the H-1B nonimmigrant status. Failure to comply 
with those conditions will make that physician subject to removal from 
the United States by the INS.

[67 FR 77697, Dec. 19, 2002]



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).

[[Page 153]]



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.
    (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.

[[Page 154]]

    (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 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.

[[Page 155]]



PART 60_NATIONAL PRACTITIONER DATA BANK--Table of Contents



                      Subpart A_General Provisions

Sec.
60.1 The National Practitioner Data Bank.
60.2 Applicability.
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, revisions, or whether an action is on 
          appeal.
60.7 Reporting medical malpractice payments.
60.8 Reporting licensure actions taken by Boards of Medical Examiners.
60.9 Reporting licensure and certification actions taken by states.
60.10 Reporting Federal licensure and certification actions.
60.11 Reporting negative actions or findings taken by peer review 
          organizations or private accreditation entities.
60.12 Reporting adverse actions taken against clinical privileges.
60.13 Reporting Federal or state criminal convictions related to the 
          delivery of a health care item or service.
60.14 Reporting civil judgments related to the delivery of a health care 
          item or service.
60.15 Reporting exclusions from participation in Federal or state health 
          care programs.
60.16 Reporting other adjudicated actions or decisions.

 Subpart C_Disclosure of Information by the National Practitioner Data 
                                  Bank

60.17 Information which hospitals must request from the National 
          Practitioner Data Bank.
60.18 Requesting information from the National Practitioner Data Bank.
60.19 Fees applicable to requests for information.
60.20 Confidentiality of National Practitioner Data Bank information.
60.21 How to dispute the accuracy of National Practitioner Data Bank 
          information.
60.22 Immunity.

    Authority: 42 U.S.C. 11101-11152; 42 U.S.C. 1396r-2; 42 U.S.C. 
1320a-7e

    Source: 78 FR 20484, Apr. 5, 2013, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 60.1  The National Practitioner Data Bank.

    The Health Care Quality Improvement Act of 1986 (HCQIA), as amended, 
title IV of Public Law 99-660 (42 U.S.C. 11101 et seq.) (hereinafter 
referred to as ``title IV''), authorizes the Secretary to establish 
(either directly or by contract) a National Practitioner Data Bank 
(NPDB) to collect and release certain information relating to the 
professional competence and conduct of physicians, dentists, and other 
health care practitioners. Section 1921 of the Social Security Act 
(hereinafter referred to as ``section 1921''), as amended, (42 U.S.C. 
1396r-2) expanded the requirements under the NPDB and requires each 
state to adopt a system of reporting to the Secretary adverse licensure 
or certification actions taken against health care practitioners, health 
care entities, providers, and suppliers, as well as certain final 
adverse actions taken by state law and fraud enforcement agencies 
against health care practitioners, providers, and suppliers. Section 
1128E of the Social Security Act (hereinafter referred to as ``section 
1128E''), as amended, (42 U.S.C. 1320a-7e) authorizes the Secretary to 
implement a national healthcare fraud and abuse data collection program 
for the reporting and disclosing of certain final adverse actions taken 
by Federal Government agencies and health plans against health care 
practitioners, providers, and suppliers. Information from section 1921 
and section 1128E is to be reported and distributed through the NPDB. 
The regulations in this part set forth the reporting and disclosure 
requirements for the NPDB, as well as procedures to dispute the accuracy 
of information contained in the NPDB.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



Sec. 60.2  Applicability.

    The regulations in this part establish reporting requirements 
applicable to hospitals, health care entities, Boards of Medical 
Examiners, and professional societies of health care practitioners which 
take adverse licensure or professional review actions; state licensing

[[Page 156]]

or certification authorities, peer review organizations, and private 
accreditation entities that take licensure or certification actions or 
negative actions or findings against health care practitioners, health 
care entities, providers, or suppliers; entities (including insurance 
companies) making payments as a result of medical malpractice actions or 
claims; and Federal government agencies, state law and fraud enforcement 
agencies and health plans that take final adverse actions against health 
care practitioners, providers, and suppliers. They also establish 
procedures to enable individuals or entities to obtain information from 
the NPDB or to dispute the accuracy of NPDB information.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



Sec. 60.3  Definitions.

    Adversely affecting means reducing, restricting, suspending, 
revoking, or denying clinical privileges or membership in a health care 
entity.
    Affiliated or associated refers to health care entities with which a 
subject of a final adverse action has a business or professional 
relationship. This includes, but is not limited to, organizations, 
associations, corporations, or partnerships. This also includes a 
professional corporation or other business entity composed of a single 
individual.
    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 HCQIA 
(42 U.S.C. 11112(c)), has designated an alternate entity to carry out 
the reporting activities of Sec. 60.12 of this part due to a Board's 
failure to comply with Sec. 60.8 of this part, the term Board of 
Medical Examiners or Board refers to this alternate entity.
    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.
    Clinical privileges means the authorization by a health care entity 
to a health care practitioner for the provision of health care services, 
including privileges and membership on the medical staff.
    Criminal conviction means a conviction as described in section 
1128(i) of the Social Security Act.
    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).
    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.
    Federal 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) Federal law enforcement agencies, including law enforcement 
investigators;
    (4) 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; and
    (5) Federal agencies responsible for the licensing and certification 
of health care practitioners, providers, and suppliers.
    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.
    Formal proceeding means a proceeding held before a state licensing 
or certification authority, peer review organization, or private 
accreditation entity that maintains defined rules, policies, or 
procedures for such a proceeding.
    Health care entity means, for purposes of this part:

[[Page 157]]

    (1) A hospital;
    (2) 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
    (3) A professional society or a committee or agent thereof, 
including those at the national, state, or local level, of health care 
practitioners that engages in professional review activity through a 
formal peer review process, for the purpose of furthering quality health 
care.
    (4) For purposes of paragraph (2) 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 (2).
    Health care practitioner, licensed health care practitioner, 
licensed practitioner, or practitioner means an individual who is 
licensed or otherwise authorized by a state to provide health care 
services (or any individual who, without authority, holds himself or 
herself out to be so licensed or authorized).
    Health care provider means, for purposes of this part, a provider of 
services as defined in section 1861(u) of the Social Security Act; any 
organization (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 organization that, 
directly or through contracts, provides health care services.
    Health care supplier means, for purposes of this part, a provider of 
medical and other health care services as described in section 1861(s) 
of the Social Security Act; or any individual or entity, other than a 
provider, who furnishes, 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, for purposes of this part, 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 health care practitioner, provider, or 
supplier group, third-party administrator, integrated health care 
delivery system, employee welfare association, public service group or 
organization or professional association;
    (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; and
    (6) An organization that provides benefit plans whose coverage is 
limited to outpatient prescription drugs.
    Hospital means, for purposes of this part, 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 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 158]]

    Negative action or finding by a Federal or State licensing or 
certification authority, peer review organization, or private 
accreditation entity means:
    (1) A final determination of denial or termination of an 
accreditation status from a private accreditation entity that indicates 
a risk to the safety of a patient(s) or quality of health care services;
    (2) Any recommendation by a peer review organization to sanction a 
health care practitioner; or
    (3) Any negative action or finding that, under the state's law, is 
publicly available information and is 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 administrative fines or citations and 
corrective action plans and other personnel actions, unless they are:
    (i) Connected to the delivery of health care services; or
    (ii) Taken in conjunction with other adverse licensure or 
certification actions such as revocation, suspension, censure, 
reprimand, probation, or surrender.
    Organization name means the subject's business or employer at the 
time the underlying acts occurred. If more than one business or employer 
is applicable, the one most closely related to the underlying acts 
should be reported as the ``organization name,'' with the others being 
reported as ``affiliated or associated health care entities.''
    Organization type means a 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 practitioner, provider, or 
supplier by a Federal governmental agency, a state law or fraud 
enforcement 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 governmental agency, a state law or fraud enforcement 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 Government 
agencies or state law and fraud enforcement 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 Federal Government agencies, 
state law or fraud enforcement agencies, or health plans. This 
definition also does not include business or administrative decisions 
taken by health plans that result in contract terminations unrelated to 
health care fraud or abuse or quality of care (e.g., when a 
practitioner's contract is terminated because the practitioner no longer 
practices at a facility in the health plan's network, or a health plan 
terminates all provider contracts in a certain geographic area because 
it ceases business operations in that area). 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 159]]

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.
    Peer review organization means, for purposes of this part, an 
organization with the primary purpose of evaluating the quality of 
patient care practices or services ordered or performed by health care 
practitioners measured against objective criteria which define 
acceptable and adequate practice through an evaluation by a sufficient 
number of health care practitioners in such an area to ensure adequate 
peer review. The organization has due process mechanisms available to 
health care practitioners. This definition excludes utilization and 
quality control peer review organizations described in Part B of Title 
XI of the Social Security Act (referred to as QIOs) and other 
organizations funded by the Centers for Medicare & Medicaid Services 
(CMS) to support the QIO program.
    Physician means, for purposes of this part, 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).
    Private accreditation entity means an entity or organization that:
    (1) Evaluates and seeks to improve the quality of health care 
provided by a health care entity, provider, or supplier;
    (2) Measures a health care entity's, provider's, or supplier's 
performance based on a set of standards and assigns a level of 
accreditation;
    (3) Conducts ongoing assessments and periodic reviews of the quality 
of health care provided by a health care entity, provider, or supplier; 
and
    (4) Has due process mechanisms available to health care entities, 
providers, or suppliers.
    Professional review action means an action or recommendation of a 
health care entity:
    (1) Taken in the course of professional review activity;
    (2) Based on the professional competence or professional conduct of 
an individual health care practitioner which affects or could affect 
adversely the health or welfare of a patient or patients; and
    (3) Which adversely affects or may adversely affect the clinical 
privileges or membership in a professional society of the health care 
practitioner.
    (4) This term excludes actions which are primarily based on:
    (i) The health care practitioner's association, or lack of 
association, with a professional society or association;
    (ii) The health care practitioner's fees or the health care 
practitioner's advertising or engaging in other competitive acts 
intended to solicit or retain business;
    (iii) The 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;
    (iv) A 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
    (v) Any other matter that does not relate to the competence or 
professional conduct of a health care practitioner.
    Professional review activity means an activity of a health care 
entity with respect to an individual health care practitioner:
    (1) To determine whether the health care practitioner may have 
clinical privileges with respect to, or membership in, the entity;
    (2) To determine the scope or conditions of such privileges or 
membership; or
    (3) To change or modify such privileges or membership.
    Quality Improvement Organization means a utilization and quality 
control peer review organization (as defined in part B of title XI of 
the Social Security Act) that:
    (1)(i) Is composed of a substantial number of the licensed doctors 
of medicine and osteopathy engaged in the practice of medicine or 
surgery in the area and who are representative of the practicing 
physicians in the area, designated by the Secretary under section 1153, 
with respect to which the entity shall perform services under this part, 
or

[[Page 160]]

    (ii) Has available to it, by arrangement or otherwise, the services 
of a sufficient number of licensed doctors of medicine or osteopathy 
engaged in the practice of medicine or surgery in such area to assure 
that adequate peer review of the services provided by the various 
medical specialties and subspecialties can be assured;
    (2) Is able, in the judgment of the Secretary, to perform review 
functions required under section 1154 in a manner consistent with the 
efficient and effective administration of this part and to perform 
reviews of the pattern of quality of care in an area of medical practice 
where actual performance is measured against objective criteria which 
define acceptable and adequate practice; and
    (3) Has at least one individual who is a representative of consumers 
on its governing body.
    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.
    State law or fraud enforcement agency includes, but is not limited 
to:
    (1) A state law enforcement agency;
    (2) A state Medicaid fraud control unit (as defined in section 
1903(q) of the Social Security Act); and
    (3) A state agency administering (including those providing payment 
for services) or supervising the administration of a state health care 
program (as defined in section 1128(h) of the Social Security Act).
    State licensing or certification agency includes, but is not limited 
to, any authority of a state (or of a political subdivision thereof) 
responsible for the licensing or certification of health care 
practitioners (or any peer review organization or private accreditation 
entity reviewing the services provided by health care practitioners), 
health care entities, providers, or suppliers. 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.
    Voluntary surrender of license or certification 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 practitioner, health care entity, provider, or supplier 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 practitioner, health care entity, provider, or supplier 
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.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



                   Subpart B_Reporting of Information



Sec. 60.4  How information must be reported.

    Information must be reported to the NPDB as required under 
Sec. Sec. 60.7, 60.8, 60.9, 60.10, 60.11, 60.12, 60.13, 60.14, 60.15 
and 60.16 in such form and manner as the Secretary may prescribe.



Sec. 60.5  When information must be reported.

    Information required under Sec. Sec. 60.7, 60.8, and 60.12 must be 
submitted to the NPDB within 30 days following the action to be 
reported, beginning with actions occurring on or after September 1, 
1990; information required under Sec. 60.11 must be submitted to the 
NPDB within 30 days following the action to be reported, beginning with 
actions occurring on or after January 1, 1992; and information required 
under Sec. Sec. 60.9, 60.10, 60.13, 60.14, 60.15, and 60.16 must be 
submitted to the NPDB within 30

[[Page 161]]

days following the action to be reported, beginning with actions 
occurring on or after August 21, 1996. Persons or entities responsible 
for submitting reports of malpractice payments (Sec. 60.7), negative 
actions or findings (Sec. 60.11), or adverse actions (Sec. 60.12) must 
additionally provide to their respective state authorities a copy of the 
report they submit to the NPDB. Following is the list of reportable 
actions:
    (a) Malpractice payments (Sec. 60.7);
    (b) Licensure and certification actions (Sec. Sec. 60.8, 60.9, and 
60.10);
    (c) Negative actions or findings (Sec. 60.11);
    (d) Adverse actions (Sec. 60.12);
    (e) Health Care-related Criminal Convictions (Sec. 60.13);
    (f) Health Care-related Civil Judgments (Sec. 60.14);
    (g) Exclusions from Federal or state health care programs (Sec. 
60.15); and
    (h) Other adjudicated actions of decisions (Sec. 60.16).

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



Sec. 60.6  Reporting errors, omissions, revisions or whether an 
action is on appeal.

    (a) Persons and entities are responsible for the accuracy of 
information which they report to the NPDB. 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 NPDB and, in the 
case of reports made under Sec. 60.12 of this part, also to the Board 
of Medical Examiners, as soon as possible. The NPDB will not accept 
requests for readjudication of the case by the NPDB, and will not 
examine the underlying merits of a reportable action.
    (b) An individual or entity which reports information on licensure 
or certification, negative actions or findings, clinical privileges, 
criminal convictions, civil or administrative judgments, exclusions, or 
adjudicated actions or decisions under Sec. 60.8, Sec. 60.9, Sec. 
60.10, Sec. 60.11, Sec. 60.12, Sec. 60.13, Sec. 60.14, Sec. 60.15, 
or Sec. 60.16 must also report any revision of the action originally 
reported. Revisions include, but are not limited to, reversal of a 
professional review action or reinstatement of a license. In the case of 
actions reported under Sec. 60.9, Sec. 60.10, Sec. 60.13, Sec. 
60.14, Sec. 60.15 or Sec. 60.16, revisions also include whether an 
action is on appeal. Revisions are subject to the same time constraints 
and procedures of Sec. 60.5, Sec. 60.8, Sec. 60.9, Sec. 60.10, Sec. 
60.11, Sec. 60.12, Sec. 60.13, Sec. 60.14, Sec. 60.15, or Sec. 
60.16 as applicable to the original action which was reported.
    (c) The subject will be sent 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 NPDB that will be permanently 
appended to the report, either directly or through a designated 
representative; (The NPDB will distribute the statement to queriers, 
where identifiable, and to the reporting entity and the subject of the 
report. Only the subject can, upon request, make changes to the 
statement. The NPDB will not edit the statement; however the NPDB 
reserves the right to redact personal identifying and offensive language 
that does not change the factual nature of the statement.); or
    (3) May follow the dispute process in accordance with Sec. 60.21.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



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 health care practitioner in settlement 
of or in satisfaction in whole or in part of a claim or a judgment 
against such health care practitioner for medical malpractice, must 
report information as set forth in paragraph (b) of this section to the 
NPDB 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) of this section must report the following information:

[[Page 162]]

    (1) With respect to the 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 (5 U.S.C. 552a note),
    (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, and
    (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 to the 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,
    (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 not to exceed the amount specified at 42 CFR 1003.103(c).
    (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.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



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 NPDB 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 or 
Individual Tax Identification Number (ITIN), if known, and if obtained 
in accordance with section 7 of the Privacy Act of 1974 (5 U.S.C. 552a 
note),
    (5) National Provider Identifier (NPI),
    (6) The physician's or dentist's date of birth,
    (7) Name of each professional school attended by the physician or 
dentist and year of graduation,
    (8) 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,

[[Page 163]]

    (9) The physician's or dentist's Drug Enforcement Administration 
registration number, if known,
    (10) A description of the acts or omissions or other reasons for the 
action taken,
    (11) A description of the Board action, the date the action was 
taken, its effective date and duration,
    (12) Classification of the action in accordance with a reporting 
code adopted by the Secretary, and
    (13) 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. 60.12 of this part.



Sec. 60.9  Reporting licensure and certification actions taken by 
states.

    (a) What actions must be reported. Each state is required to adopt a 
system of reporting to the NPDB actions, as listed below, which are 
taken against a health care practitioner, health care entity, provider, 
or supplier (all as defined in Sec. 60.3 of this part). The actions 
taken must be as a result of formal proceedings (as defined in Sec. 
60.3). The actions which must be reported are:
    (1) Any adverse action taken by the licensing or certification 
authority of the state as a result of a formal proceeding, including 
revocation or suspension of a license, or certification agreement or 
contract for participation in a government health care program (and the 
length of any such suspension), reprimand, censure, or probation;
    (2) Any dismissal or closure of the formal proceeding by reason of 
the health care practitioner, health care entity, provider, or supplier 
surrendering the license or certification agreement or contract for 
participation in a government health care program, or leaving the state 
or jurisdiction;
    (3) Any other loss of license or loss of the certification agreement 
or contract for participation in a government health care program, or 
the right to apply for, or renew, a license or certification agreement 
or contract of the health care practitioner, health care entity, 
provider or supplier, whether by operation of law, voluntary surrender, 
nonrenewal (excluding non-renewals due to nonpayment of fees, 
retirement, or change to inactive status), or otherwise;
    (4) Any negative action or finding by such authority, organization, 
or entity regarding the health care practitioner, health care entity, 
provider, or supplier.
    (b) What information must be reported. Each state must report the 
following information (not otherwise reported under Sec. 60.8 of this 
part):
    (1) If the subject is an individual, personal identifiers, 
including:
    (i) Name,
    (ii) Social Security Number or ITIN, if known, and if obtained in 
accordance with section 7 of the Privacy Act of 1974 (5 U.S.C. 552a 
note),
    (iii) Home address or address of record,
    (iv) Sex, and
    (v) Date of birth.
    (2) If the subject is an individual, employment or professional 
identifiers, including:
    (i) Organization name and type,
    (ii) Occupation and specialty, if applicable,
    (iii) National Provider Identifier (NPI),
    (iv) Name of each professional school attended and year of 
graduation, and
    (v) With respect to the 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,

[[Page 164]]

    (v) Type of organization, and
    (vi) With respect to the 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) Name of the agency taking the action,
    (vi) Name and address of the reporting entity, and
    (vii) The name, title and telephone number of the responsible 
official submitting the report on behalf of the reporting entity.
    (c) What information may be reported, if known. Reporting entities 
described in paragraph (a) of this section may voluntarily 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, employment or professional 
identifiers, including:
    (i) Other state professional license 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, including, 
but not limited to 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, including, 
but not limited to 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) Whether the subject will be automatically reinstated.
    (ii) The date of appeal, if any.
    (d) Access to documents. Each state must provide the Secretary (or 
an entity designated by the Secretary) with access to the documents 
underlying the actions described in paragraphs (a)(1) through (4) of 
this section, as may be necessary for the Secretary to determine the 
facts and circumstances concerning the actions and determinations for 
the purpose of carrying out section 1921.
    (e) Sanctions for failure to report. The Secretary will provide for 
a publication of a public report that identifies failures to report 
information on adverse actions as required to be reported under this 
section.



Sec. 60.10  Reporting Federal licensure and certification actions.

    (a) What actions must be reported. Federal licensing and 
certification agencies must report to the NPDB the following final 
adverse actions that are taken against a health care practitioner, 
physician, dentist, provider, or

[[Page 165]]

supplier (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 
government health care programs (and the length of any such suspension), 
reprimand, censure or probation,
    (2) Any dismissal or closure of the proceedings by reason of the 
health care practitioner, provider, or supplier surrendering their 
license or certification agreement or contract for participation in 
government health care programs, or leaving the state or jurisdiction,
    (3) Any other loss of the license or loss of the certification 
agreement or contract for participation in government health care 
programs, or the right to apply for, or renew, a license or 
certification agreement or contract of the health care practitioner, 
provider, or supplier, whether by operation of law, voluntary surrender, 
nonrenewal (excluding non-renewals due to nonpayment of fees, 
retirement, or change to inactive status), or otherwise, and
    (4) Any other negative action or finding by such Federal agency that 
is publicly available information.
    (b) What information must be reported. Each Federal agency 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 or ITIN,
    (iii) Home address or address of record,
    (iv) Sex, and
    (v) Date of birth.
    (2) If the subject is an individual, employment or professional 
identifiers, including:
    (i) Organization name and type,
    (ii) Occupation and specialty, if applicable,
    (iii) National Provider Identifier (NPI),
    (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 (or ITIN) when used by the subject as a Taxpayer 
Identification Number (TIN),
    (iv) The NPI,
    (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) Name of the agency taking the action,
    (vi) Name and address of the reporting entity, and
    (vii) The name, title, and telephone number of the responsible 
official submitting the report on behalf of the reporting entity.
    (c) What information may be reported, if known. Reporting entities 
described in paragraph (a) of this section may voluntarily 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, employment or professional 
identifiers, including:

[[Page 166]]

    (i) Other state professional license 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, including, 
but not limited to 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, including, 
but not limited to 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) Whether the subject will be automatically reinstated.
    (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 agencies that 
have failed to report information on adverse actions as required to be 
reported under this section.



Sec. 60.11  Reporting negative actions or findings taken by peer 
review organizations or private accreditation entities.

    (a) What actions must be reported. Peer review organizations and 
private accreditation entities are required to report any negative 
actions or findings (as defined in Sec. 60.3 of this part) which are 
taken against a health care practitioner, health care entity, provider, 
or supplier to the NPDB and provide a copy to the appropriate state 
licensing or certification agency. The health care practitioner, health 
care entity, provider, or supplier must be licensed or otherwise 
authorized by the state to provide health care services. The actions 
taken must be as a result of formal proceedings (as defined in Sec. 
60.3).
    (b) What information must be reported. Each peer review organization 
and private accreditation entity must report the information as required 
in Sec. 60.9(b) of this part.
    (c) What information may be reported, if known. Each peer review 
organization and private accreditation entity should report, if known, 
the information as described in Sec. 60.9(c).
    (d) Access to documents. Each peer review organization and private 
accreditation entity must provide the Secretary (or an entity designated 
by the Secretary) with access to the documents underlying the actions 
described in this section as may be necessary for the Secretary to 
determine the facts and circumstances concerning the actions and 
determinations for the purpose of carrying out section 1921.



Sec. 60.12  Reporting adverse actions taken against clinical privileges.

    (a) Reporting by health care entities to the NPDB. (1) Actions that 
must be reported and to whom the report must be made. Each health care 
entity must report to the NPDB and provide a copy of the 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

[[Page 167]]

entity relating to possible incompetence or improper professional 
conduct, or
    (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 NPDB 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 a 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) DEA 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 NPDB. Each 
Board must report 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 of Medical Examiners 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 of Medical Examiners 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 this section, the Secretary will conduct 
an investigation. If the investigation shows that the health care entity 
has not complied with this section, 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 
HCQIA 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 of Medical Examiners has

[[Page 168]]

failed to report information in accordance with paragraph (b) of this 
section, the Secretary will designate another qualified entity for the 
reporting of this information.



Sec. 60.13  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 practitioners, providers, and 
suppliers related to the delivery of a health care item or service 
(regardless of whether the conviction is the subject of a pending 
appeal).
    (b) What information must be reported. 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 (or ITIN) (states must report this 
information, if known, and if obtained in accordance with section 7 of 
the Privacy Act of 1974),
    (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).
    (3) If the subject is an organization, identifiers, including:
    (i) Name,
    (ii) Business address,
    (iii) Federal Employer Number (FEIN), or Social Security Number (or 
ITIN) when used by the subject as a Taxpayer Identification Number 
(TIN),
    (iv) The NPI, 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,
    (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) What information may be reported, if known. Entities described 
in paragraph (a) of this section and each state 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(es), 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, including, 
but not limited to 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 169]]

    (ii) Other address(es) used,
    (iii) Other FEIN(s) or Social Security Numbers(s) (or ITINs) 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, including, 
but not limited to 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 or file number(s), and
    (iv) The date of appeal, if any.
    (d) Access to documents. Each state must provide the Secretary (or 
an entity designated by the Secretary) with access to the documents 
underlying the actions described in paragraphs (a)(1) through (4) of 
this section, as may be necessary for the Secretary to determine the 
facts and circumstances concerning the actions and determinations for 
the purpose of carrying out section 1921.
    (e) Sanctions for failure to report. The Secretary will provide for 
publication of a public report that identifies those agencies that have 
failed to report information on criminal convictions as required to be 
reported under this section.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



Sec. 60.14  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 practitioners, 
providers, or suppliers 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) What information must be reported. Entities described in 
paragraph (a) of this section must report the information as required in 
Sec. 60.13(b) of this part.
    (c) What information may be reported, if known. Entities described 
in paragraph (a) of this section should report, if known the information 
as described in Sec. 60.13(c) of this part.
    (d) Access to documents. Each state must provide the Secretary (or 
an entity designated by the Secretary) with access to the documents 
underlying the actions described in paragraphs (a)(1) through (4) of 
this section, as may be necessary for the Secretary to determine the 
facts and circumstances concerning the actions and determinations for 
the purpose of carrying out section 1921.
    (e) 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 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 Social Security 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. 60.15  Reporting exclusions from participation in Federal or 
state health care programs.

    (a) Who must report. Federal Government agencies and state law and 
fraud enforcement agencies must report

[[Page 170]]

health care practitioners, providers, or suppliers 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) What information must be reported. 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 (or ITIN) (state law and fraud 
enforcement agencies must report this information if known, and if 
obtained in accordance with section 7 of the Privacy Act of 1974),
    (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).
    (3) If the subject is an organization, identifiers, including:
    (i) Name,
    (ii) Business address,
    (iii) Federal Employer Identification Number (FEIN) or Social 
Security Number (or ITIN) when used by the subject as a Taxpayer 
Identification Number (TIN),
    (iv) The NPI, 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) What information may be reported, if known. 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(es),
    (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, including, 
but not limited to 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 Numbers(s) (or ITINs) 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, including, 
but

[[Page 171]]

not limited to 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) Access to documents. Each state must provide the Secretary (or 
an entity designated by the Secretary) with access to the documents 
underlying the actions described in paragraphs (a)(1) through (4) of 
this section, as may be necessary for the Secretary to determine the 
facts and circumstances concerning the actions and determinations for 
the purpose of carrying out section 1921.
    (e) 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.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



Sec. 60.16  Reporting other adjudicated actions or decisions.

    (a) Who must report. Federal Government agencies, state law or fraud 
enforcement agencies, and health plans must report other adjudicated 
actions or decisions as defined in Sec. 60.3 of this part related to 
the delivery, payment or provision of a health care item or service 
against health care practitioners, providers, and suppliers (regardless 
of whether the other adjudicated action or decision is subject to a 
pending appeal).
    (b) What information must be reported. Entities described in 
paragraph (a) of this section must report the information as required in 
Sec. 60.15(b) of this part.
    (c) What information may be reported, if known. Entities described 
in paragraph (a) of this section should report, if known, the 
information as described in Sec. 60.15(c) of this part.
    (d) Access to documents. Each state must provide the Secretary (or 
an entity designated by the Secretary) with access to the documents 
underlying the actions described in paragraphs (a)(1) through (4) of 
this section, as may be necessary for the Secretary to determine the 
facts and circumstances concerning the actions and determinations for 
the purpose of carrying out section 1921.
    (e) Sanctions for failure to report. Any health plan that fails to 
report information on another 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 Social Security 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 National Practitioner Data 
                                  Bank



Sec. 60.17  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 NPDB concerning a health care practitioner, as follows:
    (1) At the time a 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 for any 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

[[Page 172]]

knowledge of any information reported to the NPDB concerning this health 
care practitioner.
    (c) Reliance on the obtained information. Each hospital may rely 
upon the information provided by the NPDB to the hospital. A hospital 
shall not be held liable for this reliance unless the hospital has 
knowledge that the information provided was false.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



Sec. 60.18  Requesting information from the National Practitioner 
Data Bank.

    (a) Who may request information and what information may be 
available. Information in the NPDB will be available, upon request, to 
the persons or entities, or their authorized agents, as described below:
    (1) Information reported under Sec. Sec. 60.7, 60.8, and 60.12 of 
this part is available to:
    (i) A hospital that requests information concerning a health care 
practitioner who is on its medical staff (courtesy or otherwise) or has 
clinical privileges at the hospital,
    (ii) A health care practitioner who requests information concerning 
himself or herself,
    (iii) A State Medical Board of Examiners or other state authority 
that licenses health care practitioners,
    (iv) A health care entity which has entered or may be entering into 
an employment or affiliation relationship with a health care 
practitioner, or to which the health care practitioner has applied for 
clinical privileges or appointment to the medical staff,
    (v) 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 health care practitioner who is also 
named in the action or claim. This information will be disclosed only 
upon the submission of evidence that the hospital failed to request 
information from the NPDB, as required by Sec. 60.17(a) of this part, 
and may be used solely with respect to litigation resulting from the 
action or claim against the hospital,
    (vi) A health care entity with respect to professional review 
activity, and
    (vii) A person or entity requesting statistical information, in a 
form which does not permit the identification of any individual or 
entity.
    (2) Information reported under Sec. Sec. 60.9, 60.10, 60.11, 60.13, 
60.14, 60.15, and 60.16 of this part is available to the agencies, 
authorities, and officials listed below that request information on 
licensure or certification actions, any other negative actions or 
findings, or final adverse actions concerning an individual 
practitioner, health care entity, provider, or supplier. These agencies, 
authorities, and officials may obtain data for the purposes of 
determining the fitness of individuals to provide health care services, 
protecting the health and safety of individuals receiving health care 
through programs administered by the requesting agency, and protecting 
the fiscal integrity of these programs.
    (i) Agencies administering (including those providing payment for 
services) Federal health care programs, including private entities 
administering such programs under contract,
    (ii) State licensing or certification agencies and Federal agencies 
responsible for the licensing and certification of health care 
practitioners, providers, or suppliers,
    (iii) State agencies administering or supervising the administration 
of state health care programs (as defined in 42 U.S.C. 1128(h)),
    (iv) State law or fraud enforcement agencies,
    (v) Law enforcement officials and agencies such as:
    (A) United States Attorney General,
    (B) United States Chief Postal Inspector,
    (C) United States Inspectors General;
    (D) United States Attorneys,
    (E) United States Comptroller General,
    (F) United States Drug Enforcement Administration,
    (G) United States Nuclear Regulatory Commission, or
    (H) Federal Bureau of Investigation,
    (vi) Utilization and quality control peer review organizations 
described in part B of title XI and to appropriate entities with 
contracts under section 1154(a)(4)(C) of the Social Security Act

[[Page 173]]

with respect to eligible organizations reviewed under the contracts, but 
only with respect to information provided pursuant to Sec. Sec. 60.9, 
60.10, and 60.11 of this part, as well as information provided pursuant 
to Sec. Sec. 60.13, 60.14, 60.15, and 60.16 of this part by Federal 
agencies and health plans,
    (vii) Hospitals and other health care entities (as defined in 
section 431 of the Health Care Quality Improvement Act of 1986), with 
respect to health care practitioners who have entered (or may be 
entering) into employment or affiliation relationships with, or have 
applied for clinical privileges or appointments to the medical staff of 
such hospitals or other health care entities, but only with respect to 
information provided pursuant to Sec. Sec. 60.9, 60.10, and 60.11, as 
well as information provided pursuant to Sec. Sec. 60.13, 60.14, 60.15, 
and 60.16 by Federal agencies and health plans,
    (viii) Health plans,
    (ix) A health care practitioner, health care entity, provider, or 
supplier who requests information concerning himself, herself, or 
itself, and
    (x) A person or entity requesting statistical information, in a form 
which does not permit the identification of any individual or entity. 
(For example, researchers may use statistical information to identify 
the total number of nurses with adverse licensure actions in a specific 
state. Similarly, researchers may use statistical information to 
identify the total number of health care entities denied accreditation.)
    (b) Procedures for obtaining NPDB information. Persons and entities 
may obtain information from the NPDB by submitting a request in such 
form and manner as the Secretary may prescribe. These requests are 
subject to fees as described in Sec. 60.19 of this part.

[78 FR 20484, Apr. 5, 2013, 78 FR 25860, May 6, 2013]



Sec. 60.19  Fees applicable to requests for information.

    (a) Policy on fees. The fees described in this section apply to all 
requests for information from the NPDB. The amount of such fees will be 
sufficient to recover the full costs of operating the NPDB. The actual 
fees will be announced by the Secretary in periodic notices in the 
Federal Register. However, for purposes of verification and dispute 
resolution at the time the report is accepted, the NPDB will provide a 
copy--at the time a report has been submitted, automatically, without a 
request and free of charge, of the record to the health care 
practitioner, entity, provider, or supplier who is the subject of the 
report and to the reporter.
    (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, including salaries and 
fringe benefits such as medical insurance and retirement,
    (2) Physical overhead, consulting, and other indirect costs 
(including materials and supplies, utilities, insurance, travel, and 
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 notice in the Federal Register from time to time the methods of 
payment of NPDB fees. In determining these methods, the Secretary will 
consider efficiency, effectiveness, and convenience for the NPDB users 
and the Department. Methods may include: credit card, electronic fund 
transfer, and other methods of electronic payment.



Sec. 60.20  Confidentiality of National Practitioner Data Bank 
information.

    (a) Limitations on disclosure. Information reported to the NPDB is 
considered confidential and shall not be disclosed outside the 
Department of Health and Human Services, except as specified in 
Sec. Sec. 60.17, 60.18, and 60.21 of this part. Persons and entities 
receiving information from the NPDB, either directly or from another 
party, must

[[Page 174]]

use it solely with respect to the purpose for which it was provided. The 
Data Bank report may not be disclosed, but 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.
    (b) Penalty for violations. Any person who violates paragraph (a) of 
this section shall be subject to a civil money penalty of up to $11,000 
for each violation. This penalty will be imposed pursuant to procedures 
at 42 CFR part 1003.



Sec. 60.21  How to dispute the accuracy of National Practitioner Data 
Bank information.

    (a) Who may dispute the NPDB information. The NPDB will routinely 
mail or transmit electronically to the subject a copy of the report 
filed in the NPDB. In addition, as indicated in Sec. 60.18, 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. (1) 
If the subject disagrees with the reported information, the subject must 
request in the format as determined by the Secretary that the NPDB enter 
the report into ``disputed status.''
    (2) The NPDB will send the report, with a notation that the report 
has been placed in ``disputed status,'' to 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 NPDB, the NPDB 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 NPDB, 
either directly or through a designated representative that will 
permanently append the report.
    (c) Procedures for requesting a review of a disputed report. (1) The 
subject must request, in the format as determined by the Secretary, that 
the Secretary review the report for accuracy. The subject must return 
this request to the NPDB 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 
NPDB, the Secretary will inform the subject and the NPDB 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 NPDB 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 NPDB or the reporting entity to revise the report. The 
Secretary will include a brief statement (Secretarial Statement) in the 
report describing the findings. The NPDB 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 
NPDB 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 NPDB will

[[Page 175]]

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 NPDB, the Secretary will inform the 
subject and direct the NPDB to void the report. The NPDB will distribute 
a notice to previous queriers (where identifiable), the reporting entity 
and the subject of the report that the report has been voided.



Sec. 60.22  Immunity.

    Individuals, entities or their authorized agents, and the NPDB 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.
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

[[Page 176]]

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 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

[[Page 177]]

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.



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:

[[Page 178]]

    (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 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.)

[[Page 179]]

 
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.
    (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.

[[Page 180]]

    (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.
    (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

[[Page 181]]

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).
    (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

[[Page 182]]

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 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.

[[Page 183]]



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.

               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.

[[Page 184]]

                     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 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.

[[Page 185]]



                       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.



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.

[[Page 186]]

    (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 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

[[Page 187]]

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.
    (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

[[Page 188]]

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.



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,

[[Page 189]]

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 
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 Sec. Sec. 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

[[Page 190]]

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.

    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

[[Page 191]]

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 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

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    (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;
    (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.

[[Page 193]]

    (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 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.

[[Page 194]]



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;
    (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).

[[Page 195]]

    (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 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

[[Page 196]]

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 Sec. 
73.735-704, Sec. 73.735-705, or Sec. 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.
    (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).

[[Page 197]]



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 
Sec. Sec. 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.
    (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.

[[Page 198]]

    (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, 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

[[Page 199]]

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 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

[[Page 200]]

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 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.

[[Page 201]]



                      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 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

[[Page 202]]

$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.

    (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

[[Page 203]]

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.



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

[[Page 204]]

    (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 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

[[Page 205]]

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,
    (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

[[Page 206]]

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, 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

[[Page 207]]

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 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

[[Page 208]]

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 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

[[Page 209]]

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 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.

[[Page 210]]


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.
    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.

[[Page 211]]

    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 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.

[[Page 212]]



                      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, 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 Sec. Sec. 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.

[[Page 213]]

    (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 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.



Sec. 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,

[[Page 214]]

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.
    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.

[[Page 215]]

    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.''
    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

[[Page 216]]

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]



    Sec. 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.

                   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.

[[Page 217]]

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 Sec. Sec. 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 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]

[[Page 218]]



                      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 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

[[Page 219]]

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 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:

[[Page 220]]

    (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: ___.
    (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

[[Page 221]]

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.



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 otherwise 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

[[Page 222]]

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 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

[[Page 223]]

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 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 [RESERVED]

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PART 75_UNIFORM ADMINISTRATIVE REQUIREMENTS, COST PRINCIPLES, AND AUDIT 
REQUIREMENTS FOR HHS AWARDS--Table of Contents



                   Subpart A_Acronyms and Definitions

Sec.
75.1 Acronyms.
75.2 Definitions.

                      Subpart B_General Provisions

75.100 Purpose.
75.101 Applicability.
75.102 Exceptions.
75.103 Authorities.
75.104 Supersession.
75.105 Effects on other issuances.
75.106 Agency implementation.
75.107 OMB responsibilities.
75.108 Inquiries.
75.109 Review date.
75.110 Effective/Applicability date.
75.111 English language.
75.112 Conflict of interest.
75.113 Mandatory disclosures.

 Subpart C_Pre-Federal Award Requirements and Contents of Federal Awards

75.200 Purpose.
75.201 Use of grant agreements (including fixed amount awards), 
          cooperative agreements, and contracts.
75.202 Requirement to provide public notice of Federal financial 
          assistance programs.
75.203 Notices of funding opportunities.
75.204 HHS funding agency review of merit of proposals.
75.205 HHS awarding agency review of risk posed by applicants.
75.206 Standard application requirements, including forms for applying 
          for HHS financial assistance, and state plans.
75.207 Specific award conditions.
75.208 Certifications and representations.
75.209 Pre-award costs.
75.210 Information contained in a Federal award.
75.211 Public access to Federal award information.
75.212 Suspension and debarment.
75.213 Metric system of measurement.
75.214 Disclosure of lobbying activities.
75.215 Special provisions for awards to commercial organizations.
75.216 Special provisions for awards to Federal agencies.
75.217 Participation by faith-based organizations.

                Subpart D_Post Federal Award Requirements

             Standards for Financial and Program Management

75.300 Statutory and national policy requirements.
75.301 Performance measurement.
75.302 Financial management and standards for financial management 
          systems.
75.303 Internal controls.
75.304 Bonds.
75.305 Payment.
75.306 Cost sharing or matching.
75.307 Program income.
75.308 Revision of budget and program plans.
75.309 Period of performance and availability of funds.
75.310-75.315 [Reserved]

                           Property Standards

75.316 Purpose of property standards.
75.317 Insurance coverage.
75.318 Real property.
75.319 Federally-owned and exempt property.
75.320 Equipment.
75.321 Supplies.
75.322 Intangible property and copyrights.
75.323 Property trust relationship.
75.324-75.325 [Reserved]

                          Procurement Standards

75.326 Procurements by states.
75.327 General procurement standards.
75.328 Competition.
75.329 Procurement procedures.
75.330 Contracting with small and minority businesses, women's business 
          enterprises, and labor surplus area firms.
75.331 Procurement of recovered materials.
75.332 Contract cost and price.
75.333 HHS awarding agency or pass-through entity review.
75.334 Bonding requirements.
75.335 Contract provisions.
75.336-75.340 [Reserved]

           Performance and Financial Monitoring and Reporting

75.341 Financial reporting.
75.342 Monitoring and reporting program performance.
75.343 Reporting on real property.
75.344-75.350 [Reserved]

                 Subrecipient Monitoring and Management

75.351 Subrecipient and contractor determinations.
75.352 Requirements for pass-through entities.
75.353 Fixed amount subawards.
75.354-75.360 [Reserved]

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                       Record Retention and Access

75.361 Retention requirements for records.
75.362 Requests for transfer or records.
75.363 Methods for collection, transmission and storage of information.
75.364 Access to records.
75.365 Restrictions on public access to records.
75.366-75.370 [Reserved]

                       Remedies for Noncompliance

75.371 Remedies for noncompliance.
75.372 Termination.
75.373 Notification of termination requirement.
75.374 Opportunities to object, hearings, and appeals.
75.375 Effects of suspension and termination.
75.376-75.380 [Reserved]

                                Closeout

75.381 Closeout.
75.382-75.385 [Reserved]

        Post-Closeout Adjustments and Continuing Responsibilities

75.386 Post-closeout adjustments and continuing responsibilities.
75.387-75.390 [Reserved]

                        Collection of Amounts Due

75.391 Collection of amounts due.

                        Subpart E_Cost Principles

                           General Provisions

75.400 Policy guide.
75.401 Application.

                          Basic Considerations

75.402 Composition of costs.
75.403 Factors affecting allowability of costs.
75.404 Reasonable costs.
75.405 Allocable costs.
75.406 Applicable credits.
75.407 Prior written approval (prior approval).
75.408 Limitation on allowance of costs.
75.409 Special considerations.
75.410 Collection of unallowable costs.
75.411 Adjustment of previously negotiated indirect (F&A) cost rates 
          containing unallowable costs.

                     Direct and Indirect (F&A) Costs

75.412 Classification of costs.
75.413 Direct costs.
75.414 Indirect (F&A) costs.
75.415 Required certifications.

 Special Considerations for States, Local Governments and Indian Tribes

75.416 Cost allocation plans and indirect cost proposals.
75.417 Interagency service.

       Special Considerations for Institutions of Higher Education

75.418 Costs incurred by states and local governments.
75.419 Cost accounting standards and disclosure statement.

              General Provisions for Selected Items of Cost

75.420 Considerations for selected items of cost.
75.421 Advertising and public relations.
75.422 Advisory councils.
75.423 Alcoholic beverages.
75.424 Alumni/ae activities.
75.425 Audit services.
75.426 Bad debts.
75.427 Bonding costs.
75.428 Collections of improper payments.
75.429 Commencement and convocation costs.
75.430 Compensation--personal services.
75.431 Compensation--fringe benefits.
75.432 Conferences.
75.433 Contingency provisions.
75.434 Contributions and donations.
75.435 Defense and prosecution of criminal and civil proceedings, 
          claims, appeals, and patent infringements.
75.436 Depreciation.
75.437 Employee health and welfare costs.
75.438 Entertainment costs.
75.439 Equipment and other capital expenditures.
75.440 Exchange rates.
75.441 Fines, penalties, damages and other settlements.
75.442 Fund raising and investment management costs.
75.443 Gains and losses on disposition of depreciable assets.
75.444 General costs of government.
75.445 Goods or services for personal use.
75.446 Idle facilities and idle capacity.
75.447 Insurance and indemnification.
75.448 Intellectual property.
75.449 Interest.
75.450 Lobbying.
75.451 Losses on other awards or contracts.
75.452 Maintenance and repair costs.
75.453 Materials and supplies costs, including costs of computing 
          devices.
75.454 Memberships, subscriptions, and professional activity costs.
75.455 Organization costs.
75.456 Participant support costs.
75.457 Plant and security costs.
75.458 Pre-award costs.
75.459 Professional services costs.
75.460 Proposal costs.

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75.461 Publication and printing costs.
75.462 Rearrangement and reconversion costs.
75.463 Recruiting costs.
75.464 Relocation costs of employees.
75.465 Rental costs of real property and equipment.
75.466 Scholarships and student aid costs.
75.467 Selling and marketing costs.
75.468 Specialized service facilities.
75.469 Student activity costs.
75.470 Taxes (including Value Added Tax).
75.471 Termination costs.
75.472 Training and education costs.
75.473 Transportation costs.
75.474 Travel costs.
75.475 Trustees.

                   HHS Specific Selected Items of Cost

75.476 Independent research and development costs.

                      Subpart F_Audit Requirements

                                 General

75.500 Purpose.

                                 Audits

75.501 Audit requirements.
75.502 Basis for determining Federal awards expended.
75.503 Relation to other audit requirements.
75.504 Frequency of audits.
75.505 Sanctions.
75.506 Audit costs.
75.507 Program-specific audits.

                                Auditees

75.508 Auditee responsibilities.
75.509 Auditor selection.
75.510 Financial statements.
75.511 Audit findings follow-up.
75.512 Report submission.

                            Federal Agencies

75.513 Responsibilities.

                                Auditors

75.514 Scope of audit.
75.515 Audit reporting.
75.516 Audit findings.
75.517 Audit documentation.
75.518 Major program determination.
75.519 Criteria for Federal program risk.
75.520 Criteria for a low-risk auditee.

                          Management Decisions

75.521 Management decision.

Appendix I to Part 75--Full Text of Notice of Funding Opportunity
Appendix II to Part 75--Contract Provisions for Non-Federal Entity 
          Contracts Under Federal Awards
Appendix III to Part 75--Indirect (F&A) Costs Identification and 
          Assignment, and Rate Determination for Institutions of Higher 
          Education
Appendix IV to Part 75--Indirect (F&A) Costs Identification and 
          Assignment, and Rate Determination for Nonprofit Organizations
Appendix V to Part 75--State/Local Governmentwide Central Service Cost 
          Allocation Plans
Appendix VI to Part 75--Public Assistance Cost Allocation Plans
Appendix VII to Part 75--States and Local Government and Indian Tribe 
          Indirect Cost Proposals
Appendix VIII to Part 75--Nonprofit Organizations Exempted from Subpart 
          E of Part 75
Appendix IX to Part 75--Principles for Determining Costs Applicable to 
          Research and Development Under Grants and Contracts with 
          Hospitals
Appendix X to Part 75--Data Collection Form (SF-SAC)
Appendix XI to Part 75--Compliance Supplement

    Authority: 5 U.S.C. 301.

    Source: 79 FR 75889, Dec. 19, 2014, unless otherwise noted.



                   Subpart A_Acronyms and Definitions



Sec. 75.1  Acronyms.

    The following acronyms apply to this part:

CAS Cost Accounting Standards
CFDA Catalog of Federal Domestic Assistance
CFR Code of Federal Regulations
CMIA Cash Management Improvement Act
COG Councils of Governments
COSO Committee of Sponsoring Organizations of the Treadway Commission
EPA Environmental Protection Agency
ERISA Employee Retirement Income Security Act of 1974 (29 U.S.C. 1301-
1461)
EUI Energy Usage Index
F&A Facilities and Administration
FAC Federal Audit Clearinghouse
FAIN Federal Award Identification Number
FAR Federal Acquisition Regulation
FFATA Federal Funding Accountability and Transparency Act of 2006 or 
Transparency Act--Public Law 109-282, as amended by Sec. 6202(a) of 
Public Law 110-252 (31 U.S.C. 6101)
FICA Federal Insurance Contributions Act
FOIA Freedom of Information Act
FR Federal Register
FTE Full-time equivalent
GAAP Generally Accepted Accounting Principles
GAGAS Generally Accepted Government Auditing Standards

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GAO Government Accountability Office
GOCO Government owned, contractor operated
GSA General Services Administration
HHS U.S. Department of Health and Human Services
IBS Institutional Base Salary
IHE Institutions of Higher Education
IRC Internal Revenue Code
ISDEAA Indian Self-Determination and Education and Assistance Act
MTC Modified Total Cost
MTDC Modified Total Direct Cost
OMB Office of Management and Budget
PII Personally Identifiable Information
PMS Payment Management System
PRHP Post-retirement Health Plans
PTE Pass-through Entity
REUI Relative Energy Usage Index
SAM System for Award Management
SF 424 Standard Form 424 series and Form Families Application for 
Federal Assistance
SFA Student Financial Aid
SNAP Supplemental Nutrition Assistance Program
SPOC Single Point of Contact
TANF Temporary Assistance for Needy Families
TFM Treasury Financial Manual
U.S.C. United States Code
VAT Value Added Tax



Sec. 75.2  Definitions.

    These are the definitions for terms used in this part. Different 
definitions may be found in Federal statutes or regulations that apply 
more specifically to particular program or activities. These definitions 
could be supplemented by additional instructional information provided 
in in governmentwide standard information collections.
    Acquisition cost means the cost of the asset including the cost to 
ready the asset for its intended use. Acquisition cost for equipment, 
for example, means the net invoice price of the equipment, including the 
cost of any modifications, attachments, accessories, or auxiliary 
apparatus necessary to make it usable for the purpose for which it is 
acquired. Acquisition costs for software includes those development 
costs capitalized in accordance with generally accepted accounting 
principles (GAAP). Ancillary charges, such as taxes, duty, protective in 
transit insurance, freight, and installation may be included in or 
excluded from the acquisition cost in accordance with the non-Federal 
entity's regular accounting practices.
    Advance payment means a payment that a Federal awarding agency or 
pass-through entity makes by any appropriate payment mechanism, 
including a predetermined payment schedule, before the non-Federal 
entity disburses the funds for program purposes.
    Allocation means the process of assigning a cost, or a group of 
costs, to one or more cost objective(s), in reasonable proportion to the 
benefit provided or other equitable relationship. The process may entail 
assigning a cost(s) directly to a final cost objective or through one or 
more intermediate cost objectives.
    Audit finding means deficiencies which the auditor is required by 
Sec. 75.516(a) to report in the schedule of findings and questioned 
costs.
    Auditee means any non-Federal entity that expends Federal awards 
which must be audited under subpart F-of this part.
    Auditor means an auditor who is a public accountant, or a Federal, 
state, local government, or Indian Tribe audit organization, which meets 
the general standards specified for external auditors in generally 
accepted government auditing standards (GAGAS). The term auditor does 
not include internal auditors of nonprofit organizations.
    Awardee (see Non-Federal entity).
    Budget means the financial plan for the project or program that the 
Federal awarding agency or pass-through entity approves during the 
Federal award process or in subsequent amendments to the Federal award. 
It may include the Federal and non-Federal share or only the Federal 
share, as determined by the Federal awarding agency or pass-through 
entity.
    Capital assets means tangible or intangible assets used in 
operations having a useful life of more than one year which are 
capitalized in accordance with GAAP. Capital assets include:
    (1) Land, buildings (facilities), equipment, and intellectual 
property (including software) whether acquired by purchase, 
construction, manufacture, lease-purchase, exchange, or through capital 
leases; and
    (2) Additions, improvements, modifications, replacements, 
rearrangements, reinstallations, renovations or

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alterations to capital assets that materially increase their value or 
useful life (not ordinary repairs and maintenance).
    Capital expenditures means expenditures to acquire capital assets or 
expenditures to make additions, improvements, modifications, 
replacements, rearrangements, reinstallations, renovations, or 
alterations to capital assets that materially increase their value or 
useful life.
    Catalog of Federal Domestic Assistance (CFDA) number means the 
number assigned to a Federal program in the CFDA.
    CFDA program title means the title of the program under which the 
Federal award was funded in the CFDA.
    Central service cost allocation plan means the documentation 
identifying, accumulating, and allocating or developing billing rates 
based on the allowable costs of services provided by a state, local 
government, or Indian tribe on a centralized basis to its departments 
and agencies. The costs of these services may be allocated or billed to 
users.
    Claim means, depending on the context, either:
    (1) A written demand or written assertion by one of the parties to a 
Federal award seeking as a matter of right:
    (i) The payment of money in a sum certain;
    (ii) The adjustment or interpretation of the terms and conditions of 
the Federal award; or
    (iii) Other relief arising under or relating to a Federal award.
    (2) A request for payment that is not in dispute when submitted.
    Class of Federal awards means a group of Federal awards either 
awarded under a specific program or group of programs or to a specific 
type of non-Federal entity or group of non-Federal entities to which 
specific provisions or exceptions may apply.
    Closeout means the process by which the Federal awarding agency or 
pass-through entity determines that all applicable administrative 
actions and all required work of the Federal award have been completed 
and takes actions as described in Sec. 75.381.
    Cluster of programs means a grouping of closely related programs 
that share common compliance requirements. The types of clusters of 
programs are research and development (R&D), student financial aid 
(SFA), and other clusters. ``Other clusters'' are as defined by OMB in 
the compliance supplement or as designated by a state for Federal awards 
the state provides to its subrecipients that meet the definition of a 
cluster of programs. When designating an ``other cluster,'' a state must 
identify the Federal awards included in the cluster and advise the 
subrecipients of compliance requirements applicable to the cluster, 
consistent with Sec. 75.352(a). A cluster of programs must be 
considered as one program for determining major programs, as described 
in Sec. 75.518, and, with the exception of R&D as described in Sec. 
75.501(c), whether a program-specific audit may be elected.
    Cognizant agency for audit means the Federal agency designated to 
carry out the responsibilities described in Sec. 75.513(a). The 
cognizant agency for audit is not necessarily the same as the cognizant 
agency for indirect costs. A list of cognizant agencies for audit may be 
found at the FAC Web site.
    Cognizant agency for indirect costs means the Federal agency 
responsible for reviewing, negotiating, and approving cost allocation 
plans or indirect cost proposals developed under this part on behalf of 
all Federal agencies. The cognizant agency for indirect cost is not 
necessarily the same as the cognizant agency for audit. For assignments 
of cognizant agencies see the following:
    (1) For IHEs: Appendix III to part 75 C.11.
    (2) For nonprofit organizations: Appendix IV to part 75 C.1.
    (3) For state and local governments: Appendix V to part 75 F.1.
    (4) For Indian tribes: Appendix VII to part 75 D.1.
    Commercial organization means an organization, institution, 
corporation, or other legal entity, including, but not limited to, 
partnerships, sole proprietorships, and limited liability companies, 
that is organized or operated for the profit or benefit of its 
shareholders or other owners. The term includes small and large 
businesses and is used

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interchangeably with ``for-profit organization.''
    Compliance supplement means appendix XI to part 75 (previously known 
as the Circular A-133 Compliance Supplement).
    Computing devices means machines used to acquire, store, analyze, 
process, and publish data and other information electronically, 
including accessories (or ``peripherals'') for printing, transmitting 
and receiving, or storing electronic information. See also Supplies and 
Information technology systems.
    Contract means a legal instrument by which a non-Federal entity 
purchases property or services needed to carry out the project or 
program under a Federal award. The term as used in this part does not 
include a legal instrument, even if the non-Federal entity considers it 
a contract, when the substance of the transaction meets the definition 
of a Federal award or subaward (see Subaward).
    Contractor means an entity that receives a contract as defined in 
Contract.
    Cooperative agreement means a legal instrument of financial 
assistance between a Federal awarding agency or pass-through entity and 
a non-Federal entity that, consistent with 31 U.S.C. 6302-6305:
    (1) Is used to enter into a relationship the principal purpose of 
which is to transfer anything of value from the Federal awarding agency 
or pass-through entity to the non-Federal entity to carry out a public 
purpose authorized by a law of the United States (see 31 U.S.C. 
6101(3)); and not to acquire property or services for the Federal 
Government or pass-through entity's direct benefit or use;
    (2) Is distinguished from a grant in that it provides for 
substantial involvement between the Federal awarding agency or pass-
through entity and the non-Federal entity in carrying out the activity 
contemplated by the Federal award.
    (3) The term does not include:
    (i) A cooperative research and development agreement as defined in 
15 U.S.C. 3710a; or
    (ii) An agreement that provides only:
    (A) Direct United States Government cash assistance to an 
individual;
    (B) A subsidy;
    (C) A loan;
    (D) A loan guarantee; or
    (E) Insurance
    Cooperative audit resolution means the use of audit follow-up 
techniques which promote prompt corrective action by improving 
communication, fostering collaboration, promoting trust, and developing 
an understanding between the Federal agency and the non-Federal entity. 
This approach is based upon:
    (1) A strong commitment by Federal agency and non-Federal entity 
leadership to program integrity;
    (2) Federal agencies strengthening partnerships and working 
cooperatively with non-Federal entities and their auditors; and non-
Federal entities and their auditors working cooperatively with Federal 
agencies;
    (3) A focus on current conditions and corrective action going 
forward;
    (4) Federal agencies offering appropriate relief for past 
noncompliance when audits show prompt corrective action has occurred; 
and
    (5) Federal agency leadership sending a clear message that continued 
failure to correct conditions identified by audits which are likely to 
cause improper payments, fraud, waste, or abuse is unacceptable and will 
result in sanctions.
    Corrective action means action taken by the auditee that:
    (1) Corrects identified deficiencies;
    (2) Produces recommended improvements; or
    (3) Demonstrates that audit findings are either invalid or do not 
warrant auditee action.
    Cost allocation plan means central service cost allocation plan or 
public assistance cost allocation plan.
    Cost objective means a program, function, activity, award, 
organizational subdivision, contract, or work unit for which cost data 
are desired and for which provision is made to accumulate and measure 
the cost of processes, products, jobs, capital projects, etc. A cost 
objective may be a major function of the non-Federal entity, a 
particular service or project, a Federal award, or an indirect 
(Facilities & Administrative (F&A)) cost activity, as described in 
subpart E of this part. See also Final cost objective and Intermediate 
cost objective.

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    Cost sharing or matching means the portion of project costs not paid 
by Federal funds (unless otherwise authorized by Federal statute). This 
may include the value of allowable third party in-kind contributions, as 
well as expenditures by the recipient. See also Sec. 75.306.
    Cross-cutting audit finding means an audit finding where the same 
underlying condition or issue affects Federal awards of more than one 
Federal awarding agency or pass-through entity.
    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 means those charges to a Federal award that the 
Federal awarding agency or pass-through entity determines to be 
unallowable, in accordance with the applicable Federal statutes, 
regulations, or the terms and conditions of the Federal award.
    Equipment means tangible personal property (including information 
technology systems) having a useful life of more than one year and a 
per-unit acquisition cost which equals or exceeds the lesser of the 
capitalization level established by the non-Federal entity for financial 
statement purposes, or $5,000. See also Capital assets, Computing 
devices, General purpose equipment, Information technology systems, 
Special purpose equipment, and Supplies.
    Excess property means property acquired in whole or in part under 
the control of any Federal 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.
    Expenditure report means:
    (1) For non-construction awards, the SF-425 Federal Financial Report 
(FFR) (or other OMB-approved equivalent report);
    (2) For construction awards, the SF-271 ``Outlay Report and Request 
for Reimbursement'' (or other OMB-approved equivalent report).
    Expenditures means charges made by a non-Federal entity to a project 
or program for which a Federal award was received.
    (1) The charges may be reported on a cash or accrual basis, as long 
as the methodology is disclosed and is consistently applied.
    (2) For reports prepared on a cash basis, expenditures are the sum 
of:
    (i) Cash disbursements for direct charges for property and services;
    (ii) The amount of indirect expense charged;
    (iii) The value of third-party in-kind contributions applied; and
    (iv) The amount of cash advance payments and payments made to 
subrecipients.
    (3) For reports prepared on an accrual basis, expenditures are the 
sum of:
    (i) Cash disbursements for direct charges for property and services;
    (ii) The amount of indirect expense incurred;
    (iii) The value of third-party in-kind contributions applied; and
    (iv) The net increase or decrease in the amounts owed by the non-
Federal entity for:
    (A) Goods and other property received;
    (B) Services performed by employees, contractors, subrecipients, and 
other payees;
    (C) Programs for which no current services or performance are 
required such as annuities, insurance claims, or other benefit payments.
    Federal agency means an ``agency'' as defined at 5 U.S.C. 551(1) and 
further clarified by 5 U.S.C. 552(f).
    Federal Audit Clearinghouse FAC means the clearinghouse designated 
by OMB as the repository of record where non-Federal entities are 
required to transmit the reporting packages required by subpart F of 
this part. The mailing address of the FAC is Federal Audit 
Clearinghouse, Bureau of the Census, 1201 E. 10th Street, 
Jeffersonville, IN 47132 and the web address is: http://
harvester.census.gov/sac/. Any future updates to the location of the FAC 
may be found at the OMB Web site.

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    Federal award has the meaning, depending on the context, in either 
paragraph (1) or (2) of this definition:
    (1)(i) The Federal financial assistance that a non-Federal entity 
receives directly from a Federal awarding agency or indirectly from a 
pass-through entity, as described in Sec. 75.101; or
    (ii) The cost-reimbursement contract under the Federal Acquisition 
Regulations that a non-Federal entity receives directly from a Federal 
awarding agency or indirectly from a pass-through entity, as described 
in Sec. 75.101.
    (2) The instrument setting forth the terms and conditions. The 
instrument is the grant agreement, cooperative agreement, other 
agreement for assistance covered in paragraph (2) of Federal financial 
assistance, or the cost-reimbursement contract awarded under the Federal 
Acquisition Regulations.
    (3) Federal award does not include other contracts that a Federal 
agency uses to buy goods or services from a contractor or a contract to 
operate Federal Government owned, contractor operated facilities 
(GOCOs).
    (4) See also definitions of Federal financial assistance, grant 
agreement, and cooperative agreement.
    Federal award date means the date when the Federal award is signed 
by the authorized official of the Federal awarding agency.
    Federal awarding agency means the Federal agency that provides a 
Federal award directly to a non-Federal entity.
    Federal financial assistance:
    (1) For grants and cooperative agreements, Federal financial 
assistance means assistance that non-Federal entities receive or 
administer in the form of:
    (i) Grants;
    (ii) Cooperative agreements;
    (iii) Non-cash contributions or donations of property (including 
donated surplus property);
    (iv) Direct appropriations;
    (v) Food commodities; and
    (vi) Other financial assistance (except assistance listed in 
paragraph (b) of this section).
    (2) For subpart F of this part, Federal financial assistance also 
includes assistance that non-Federal entities receive or administer in 
the form of:
    (i) Loans;
    (ii) Loan Guarantees;
    (iii) Interest subsidies; and
    (iv) Insurance.
    (c) Federal financial assistance does not include amounts received 
as reimbursement for services rendered to individuals as described in 
Sec. 75.502(h) and (i).
    Federal interest means, for purposes of Sec. 75.343 or when used in 
connection with the acquisition or improvement of real property, 
equipment, or supplies under a Federal award, the dollar amount that is 
the product of the:
    (1) Federal share of total project costs; and
    (2) Current fair market value of the property, improvements, or 
both, to the extent the costs of acquiring or improving the property 
were included as project costs.
    Federal program means:
    (1) All Federal awards which are assigned a single number in the 
CFDA.
    (2) When no CFDA number is assigned, all Federal awards to non-
Federal entities from the same agency made for the same purpose must be 
combined and considered one program.
    (3) Notwithstanding paragraphs (1) and (2) of this definition, a 
cluster of programs. The types of clusters of programs are:
    (i) Research and development (R&D);
    (ii) Student financial aid (SFA); and
    (iii) ``Other clusters,'' as described in the definition of Cluster 
of Programs
    Federal share means the portion of total project costs that are paid 
by Federal funds.
    Final cost objective means a cost objective which has allocated to 
it both direct and indirect costs and, in the non-Federal entity's 
accumulation system, is one of the final accumulation points, such as a 
particular award, internal project, or other direct activity of a non-
Federal entity. See also Cost objective and Intermediate cost objective.
    Fixed amount awards means a type of grant agreement under which the 
Federal awarding agency or pass-through entity provides a specific level 
of support without regard to actual costs incurred under the Federal 
award. This type of Federal award reduces some of the administrative 
burden and record-keeping requirements for both the non-Federal entity 
and Federal awarding

[[Page 232]]

agency or pass-through entity. Accountability is based primarily on 
performance and results. See Sec. Sec. 75.201(b) and 75.353.
    Foreign organization means an entity that is:
    (1) A public or private organization located in a country other than 
the United States and its territories that is subject to the laws of the 
country in which it is located, irrespective of the citizenship of 
project staff or place of performance;
    (2) A private nongovernmental organization located in a country 
other than the United States that solicits and receives cash 
contributions from the general public;
    (3) A charitable organization located in a country other than the 
United States that is nonprofit and tax exempt under the laws of its 
country of domicile and operation, and is not a university, college, 
accredited degree-granting institution of education, private foundation, 
hospital, organization engaged exclusively in research or scientific 
activities, church, synagogue, mosque or other similar entities 
organized primarily for religious purposes; or
    (4) An organization located in a country other than the United 
States not recognized as a Foreign Public Entity.
    Foreign public entity means:
    (1) A foreign government or foreign governmental entity;
    (2) A public international organization, which is an organization 
entitled to enjoy privileges, exemptions, and immunities as an 
international organization under the International Organizations 
Immunities Act (22 U.S.C. 288-288f);
    (3) An entity owned (in whole or in part) or controlled by a foreign 
government; or
    (4) Any other entity consisting wholly or partially of one or more 
foreign governments or foreign governmental entities.
    GAAP has the meaning specified in accounting standards issued by the 
Government Accounting Standards Board (GASB) and the Financial 
Accounting Standards Board (FASB).
    GAGAS, also known as the Yellow Book, means generally accepted 
government auditing standards issued by the Comptroller General of the 
United States, which are applicable to financial audits.
    General purpose equipment means equipment which is not limited to 
research, medical, scientific or other technical activities. Examples 
include office equipment and furnishings, modular offices, telephone 
networks, information technology equipment and systems, air conditioning 
equipment, reproduction and printing equipment, and motor vehicles. See 
also Equipment and Special Purpose Equipment.
    Grant agreement means a legal instrument of financial assistance 
between a Federal awarding agency or pass-through entity and a non-
Federal entity that, consistent with 31 U.S.C. 6302, 6304:
    (1) Is used to enter into a relationship the principal purpose of 
which is to transfer anything of value from the Federal awarding agency 
or pass-through entity to the non-Federal entity to carry out a public 
purpose authorized by a law of the United States (see 31 U.S.C. 
6101(3)); and not to acquire property or services for the Federal 
awarding agency or pass-through entity's direct benefit or use;
    (2) Is distinguished from a cooperative agreement in that it does 
not provide for substantial involvement between the Federal awarding 
agency or pass-through entity and the non-Federal entity in carrying out 
the activity contemplated by the Federal award.
    (3) Does not include an agreement that provides only:
    (i) Direct United States Government cash assistance to an 
individual;
    (ii) A subsidy;
    (iii) A loan;
    (iv) A loan guarantee; or
    (v) Insurance.
    Grantee (see Recipient)
    HHS awarding agency means any organization component of HHS that is 
authorized to make and administer awards.
    Hospital means a facility licensed as a hospital under the law of 
any state or a facility operated as a hospital by the United States, a 
state, or a subdivision of a state.
    Improper payment:
    (1) Means any payment that should not have been made or that was 
made

[[Page 233]]

in an incorrect amount (including overpayments and underpayments) under 
statutory, contractual, administrative, or other legally applicable 
requirements; and
    (2) [Reserved]
    (a) [Reserved]
    (b) Includes any payment to an ineligible party, any payment for an 
ineligible good or service, any duplicate payment, any payment for a 
good or service not received (except for such payments where authorized 
by law), any payment that does not account for credit for applicable 
discounts, and any payment where insufficient or lack of documentation 
prevents a reviewer from discerning whether a payment was proper.
    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. Chapter 33), which is 
recognized as eligible for the special programs and services provided by 
the United States to Indians because of their status as Indians (25 
U.S.C. 450b(e)). See annually published Bureau of Indian Affairs list of 
Indian Entities Recognized and Eligible to Receive Services.
    Indirect cost rate proposal means the documentation prepared by a 
non-Federal entity to substantiate its request for the establishment of 
an indirect cost rate as described in appendix III through appendix VII, 
and appendix IX of this part.
    Indirect (Facilities and Administration or F&A) costs means costs 
incurred for a common or joint purpose benefitting more than one cost 
objective, and not readily assignable to the cost objectives 
specifically benefitted, without effort disproportionate to the results 
achieved. To facilitate equitable distribution of indirect expenses to 
the cost objectives served, it may be necessary to establish a number of 
pools of indirect (F&A) costs. Indirect (F&A) cost pools must be 
distributed to benefitted cost objectives on bases that will produce an 
equitable result in consideration of relative benefits derived.
    Information technology systems means computing devices, ancillary 
equipment, software, firmware, and similar procedures, services 
(including support services), and related resources. See also Computing 
devices and Equipment.
    Institution of Higher Education (IHE) is defined at 20 U.S.C. 1001.
    Intangible property means property having no physical existence, 
such as trademarks, copyrights, patents and patent applications and 
property, such as loans, notes and other debt instruments, lease 
agreements, stock and other instruments of property ownership (whether 
the property is tangible or intangible).
    Intermediate cost objective means a cost objective that is used to 
accumulate indirect costs or service center costs that are subsequently 
allocated to one or more indirect cost pools or final cost objectives. 
See also Cost objective and Final cost objective.
    Internal control over compliance requirements for Federal awards 
means a process implemented by a non-Federal entity designed to provide 
reasonable assurance regarding the achievement of the following 
objectives for Federal awards:
    (1) Transactions are properly recorded and accounted for, in order 
to:
    (i) Permit the preparation of reliable financial statements and 
Federal reports;
    (ii) Maintain accountability over assets; and
    (iii) Demonstrate compliance with Federal statutes, regulations, and 
the terms and conditions of the Federal award;
    (2) Transactions are executed in compliance with:
    (i) Federal statutes, regulations, and the terms and conditions of 
the Federal award that could have a direct and material effect on a 
Federal program; and
    (ii) Any other Federal statutes and regulations that are identified 
in the Compliance Supplement; and
    (3) Funds, property, and other assets are safeguarded against loss 
from unauthorized use or disposition.
    Internal controls means a process, implemented by a non-Federal 
entity, designed to provide reasonable assurance regarding the 
achievement of objectives in the following categories:
    (1) Effectiveness and efficiency of operations;

[[Page 234]]

    (2) Reliability of reporting for internal and external use; and
    (3) Compliance with applicable laws and regulations.
    Loan means a Federal loan or loan guarantee received or administered 
by a non-Federal entity, except as used in the definition of Program 
income.
    (1) The term ``direct loan'' means a disbursement of funds by the 
Federal Government to a non-Federal borrower under a contract that 
requires the repayment of such funds with or without interest. The term 
includes the purchase of, or participation in, a loan made by another 
lender and financing arrangements that defer payment for more than 90 
days, including the sale of a Federal Government asset on credit terms. 
The term does not include the acquisition of a federally guaranteed loan 
in satisfaction of default claims or the price support loans of the 
Commodity Credit Corporation.
    (2) The term ``direct loan obligation'' means a binding agreement by 
a Federal awarding agency to make a direct loan when specified 
conditions are fulfilled by the borrower.
    (3) The term ``loan guarantee'' means any Federal Government 
guarantee, insurance, or other pledge with respect to the payment of all 
or a part of the principal or interest on any debt obligation of a non-
Federal borrower to a non-Federal lender, but does not include the 
insurance of deposits, shares, or other withdrawable accounts in 
financial institutions.
    (4) The term ``loan guarantee commitment'' means a binding agreement 
by a Federal awarding agency to make a loan guarantee when specified 
conditions are fulfilled by the borrower, the lender, or any other party 
to the guarantee agreement.
    Local government means any unit of government within a state, 
including a:
    (1) County;
    (2) Borough;
    (3) Municipality;
    (4) City;
    (5) Town;
    (6) Township;
    (7) Parish;
    (8) Local public authority, including any public housing agency 
under the United States Housing Act of 1937;
    (9) Special district;
    (10) School district;
    (11) Intrastate district;
    (12) Council of governments, whether or not incorporated as a 
nonprofit corporation under state law; and
    (13) Any other agency or instrumentality of a multi-, regional, or 
intra-state or local government.
    Major program means a Federal program determined by the auditor to 
be a major program in accordance with Sec. 75.518 or a program 
identified as a major program by a Federal awarding agency or pass-
through entity in accordance with Sec. 75.503(e).
    Management decision means the evaluation by the Federal awarding 
agency or pass-through entity of the audit findings and corrective 
action plan and the issuance of a written decision to the auditee as to 
what corrective action is necessary.
    Micro-purchase means a purchase of supplies or services using 
simplified acquisition procedures, the aggregate amount of which does 
not exceed the micro-purchase threshold. Micro-purchase procedures 
comprise a subset of a non-Federal entity's small purchase procedures. 
The non-Federal entity uses such procedures in order to expedite the 
completion of its lowest-dollar small purchase transactions and minimize 
the associated administrative burden and cost. The micro-purchase 
threshold is set by the Federal Acquisition Regulation at 48 CFR Subpart 
2.1 (Definitions). It is $3,000 except as otherwise discussed in subpart 
2.1 of that regulation, but this threshold is periodically adjusted for 
inflation.
    Modified Total Direct Cost (MTDC) means all direct salaries and 
wages, applicable fringe benefits, materials and supplies, services, 
travel, and up to the first $25,000 of each subaward (regardless of the 
period of performance of the subawards under the award). MTDC excludes 
equipment, capital expenditures, charges for patient care, rental costs, 
tuition remission, scholarships and fellowships, participant support 
costs and the portion of each subaward in excess of $25,000. Other items 
may only be excluded when necessary to avoid a serious inequity in the 
distribution of indirect costs, and with the approval of the cognizant 
agency for indirect costs.

[[Page 235]]

    Non-Federal entity means a state, local government, Indian tribe, 
institution of higher education (IHE), or nonprofit organization that 
carries out a Federal award as a recipient or subrecipient.
    Nonprofit organization means any corporation, trust, association, 
cooperative, or other organization, not including IHEs, that:
    (1) Is operated primarily for scientific, educational, service, 
charitable, or similar purposes in the public interest;
    (2) Is not organized primarily for profit; and
    (3) Uses net proceeds to maintain, improve, or expand the operations 
of the organization.
    Obligations means orders placed for property and services, contracts 
and subawards made, and similar transactions during a given period that 
require payment by the non-Federal entity during the same or a future 
period.
    Office of Management and Budget (OMB) means the Executive Office of 
the President, Office of Management and Budget.
    Oversight agency for audit means the Federal awarding agency that 
provides the predominant amount of funding directly to a non-Federal 
entity not assigned a cognizant agency for audit. When there is no 
direct funding, the Federal awarding agency which is the predominant 
source of pass-through funding must assume the oversight 
responsibilities. The duties of the oversight agency for audit and the 
process for any reassignments are described in Sec. 75.513(b).
    Participant support costs means direct costs for items such as 
stipends or subsistence allowances, travel allowances, and registration 
fees paid to or on behalf of participants or trainees (but not 
employees) in connection with conferences, or training projects.
    Pass-through entity means a non-Federal entity that provides a 
subaward to a subrecipient to carry out part of a Federal program.
    Performance goal means a target level of performance expressed as a 
tangible, measurable objective, against which actual achievement can be 
compared, including a goal expressed as a quantitative standard, value, 
or rate. In some instances (e.g., discretionary research awards), this 
may be limited to the requirement to submit technical performance 
reports (to be evaluated in accordance with agency policy).
    Period of performance means the time during which the non-Federal 
entity may incur new obligations to carry out the work authorized under 
the Federal award. The Federal awarding agency or pass-through entity 
must include start and end dates of the period of performance in the 
Federal award (see Sec. Sec. 75.210(a)(5) and 75.352(a)(1)(v)).
    Personal property means property of any kind except real property. 
It may be tangible, having physical existence, or intangible, such as 
copyrights, patents, or securities.
    Personally Identifiable Information (PII) means information that can 
be used to distinguish or trace an individual's identity, either alone 
or when combined with other personal or identifying information that is 
linked or linkable to a specific individual. Some information that is 
considered to be PII is available in public sources such as telephone 
books, public Web sites, and university listings. This type of 
information is considered to be Public PII and includes, for example, 
first and last name, address, work telephone number, email address, home 
telephone number, and general educational credentials. The definition of 
PII is not anchored to any single category of information or technology. 
Rather, it requires a case-by-case assessment of the specific risk that 
an individual can be identified. Non-PII can become PII whenever 
additional information is made publicly available, in any medium and 
from any source, that, when combined with other available information, 
could be used to identify an individual.
    Principal Investigator/Program Director (PI/PD) means the individual 
(s) designated by the recipient to direct the project or program being 
supported by the grant. The PI/PD is responsible and accountable to 
officials of the recipient organization for the proper conduct of the 
project, program, or activity.
    Prior approval means written approval by an authorized HHS official

[[Page 236]]

evidencing prior consent before a recipient undertakes certain 
activities or incurs specific costs.
    Program income means gross income earned by the non-Federal entity 
that is directly generated by a supported activity or earned as a result 
of the Federal award during the period of performance except as provided 
in Sec. 75.307(f). (See Period of performance.) Program income includes 
but is not limited to income from fees for services performed, the use 
or rental or real or personal property acquired under Federal awards, 
the sale of commodities or items fabricated under a Federal award, 
license fees and royalties on patents and copyrights, and principal and 
interest on loans made with Federal award funds. Interest earned on 
advances of Federal funds is not program income. Except as otherwise 
provided in Federal statutes, regulations, or the terms and conditions 
of the Federal award, program income does not include rebates, credits, 
discounts, and interest earned on any of them. See also Sec. Sec. 
75.307, 75.407 and 35 U.S.C. 200-212 (applies to inventions made under 
Federal awards).
    Project costs means total allowable costs incurred under a Federal 
award and all required cost sharing and voluntary committed cost 
sharing, including third-party contributions.
    Project period (see Period of performance).
    Property means real property or personal property.
    Protected Personally Identifiable Information (Protected PII) 
Protected PII means an individual's first name or first initial and last 
name in combination with any one or more of types of information, 
including, but not limited to, social security number, passport number, 
credit card numbers, clearances, bank numbers, biometrics, date and 
place of birth, mother's maiden name, criminal, medical and financial 
records, educational transcripts. This does not include PII that is 
required by law to be disclosed. (See also Personally Identifiable 
Information (PII)).
    Questioned cost means a cost that is questioned by the auditor 
because of an audit finding:
    (1) Which resulted from a violation or possible violation of a 
statute, regulation, or the terms and conditions of a Federal award, 
including for funds used to match Federal funds;
    (2) Where the costs, at the time of the audit, are not supported by 
adequate documentation; or
    (3) Where the costs incurred appear unreasonable and do not reflect 
the actions a prudent person would take in the circumstances.
    Real property means land, including land improvements, structures 
and appurtenances thereto, but excludes moveable machinery and 
equipment.
    Recipient means an entity, usually but not limited to non-Federal 
entities, that receives a Federal award directly from a Federal awarding 
agency to carry out an activity under a Federal program. The term 
recipient does not include subrecipients. See also Non-Federal entity.
    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.
    Research and Development (R&D) means all research activities, both 
basic and applied, and all development activities that are performed by 
HHS award recipients. 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.
    Simplified acquisition threshold means the dollar amount below which 
a non-Federal entity may purchase property or services using small 
purchase methods. Non-Federal entities adopt small purchase procedures 
in order to expedite the purchase of items costing less than the 
simplified acquisition threshold. The simplified acquisition threshold 
is set by the Federal Acquisition Regulation at 48 CFR subpart 2.1 and 
in accordance with 41 U.S.C. 1908. See also Micro-purchase

[[Page 237]]

    Special purpose equipment means equipment which is used only for 
research, medical, scientific, or other technical activities. Examples 
of special purpose equipment include microscopes, x-ray machines, 
surgical instruments, and spectrometers. See also Equipment and General 
purpose equipment.
    State means any state of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
and any agency or instrumentality thereof exclusive of local 
governments.
    Student Financial Aid (SFA) means Federal awards under those 
programs of general student assistance, such as those authorized by 
Title IV of the Higher Education Act of 1965, as amended, (20 U.S.C. 
1070-1099d), which are administered by the U.S. Department of Education, 
and similar programs provided by other Federal agencies. It does not 
include Federal awards under programs that provide fellowships or 
similar Federal awards to students on a competitive basis, or for 
specified studies or research.
    Subaward means an award provided by a pass-through entity to a 
subrecipient for the subrecipient to carry out part of a Federal award 
received by the pass-through entity. It does not include payments to a 
contractor or payments to an individual that is a beneficiary of a 
Federal program. A subaward may be provided through any form of legal 
agreement, including an agreement that the pass-through entity considers 
a contract.
    Subrecipient means a non-Federal entity that receives a subaward 
from a pass-through entity to carry out part of a Federal program; but 
does not include an individual that is a beneficiary of such program. A 
subrecipient may also be a recipient of other Federal awards directly 
from a Federal awarding agency.
    Supplies means all tangible personal property other than those 
described in Equipment. A computing device is a supply if the 
acquisition cost is less than the lesser of the capitalization level 
established by the non-Federal entity for financial statement purposes 
or $5,000, regardless of the length of its useful life. See also 
Computing devices and Equipment.
    Surplus property (see Excess property)
    Suspension of award activities means an action by the HHS awarding 
agency requiring the recipient to cease all activities on the award 
pending corrective action by the recipient. It is a separate action from 
suspension under HHS regulations (2 CFR part 376) implementing Executive 
Orders 12549 and 12689.
    Termination means the ending of a Federal award, in whole or in part 
at any time prior to the planned end of period of performance.
    Third-party in-kind contributions means the value of non-cash 
contributions (i.e., property or services) that:
    (1) Benefit a federally assisted project or program; and
    (2) Are contributed by non-Federal third parties, without charge, to 
a non-Federal entity under a Federal award.
    Total Costs (see Sec. 75.402).
    Unliquidated obligations means, for financial reports prepared on a 
cash basis, obligations incurred by the non-Federal entity that have not 
been paid (liquidated). For reports prepared on an accrual expenditure 
basis, these are obligations incurred by the non-Federal entity for 
which an expenditure has not been recorded.
    Unobligated balance means the amount of funds authorized under a 
Federal award that the non-Federal entity has not obligated. The amount 
is computed by subtracting the cumulative amount of the non-Federal 
entity's unliquidated obligations and expenditures of funds under the 
Federal award from the cumulative amount of the funds that the Federal 
awarding agency or pass-through entity authorized the non-Federal entity 
to obligate.
    Voluntary committed cost sharing means cost sharing specifically 
pledged on a voluntary basis in the proposal's budget or the Federal 
award on the part of the non-Federal entity and that becomes a binding 
requirement of Federal award.

[[Page 238]]



                      Subpart B_General Provisions



Sec. 75.100  Purpose.

    (a)(1) This part establishes uniform administrative requirements, 
cost principles, and audit requirements for Federal awards to non-
Federal entities, as described in Sec. 75.101. HHS awarding agencies 
must not impose additional or inconsistent requirements, except as 
provided in Sec. Sec. 75.102 and 75.210, or unless specifically 
required by Federal statute, regulation, or Executive Order.
    (2) This part provides the basis for a systematic and periodic 
collection and uniform submission by Federal agencies of information on 
all Federal financial assistance programs to the Office of Management 
and Budget (OMB). It also establishes Federal policies related to the 
delivery of this information to the public, including through the use of 
electronic media. It prescribes the manner in which General Services 
Administration (GSA), OMB, and Federal agencies that administer Federal 
financial assistance programs are to carry out their statutory 
responsibilities under the Federal Program Information Act (31 U.S.C. 
6101-6106).
    (b) Administrative requirements. Subparts B through D of this part 
set forth the uniform administrative requirements for grant and 
cooperative agreements, including the requirements for HHS awarding 
agency management of Federal grant programs before the Federal award has 
been made, and the requirements HHS awarding agencies may impose on non-
Federal entities in the Federal award.
    (c) Cost principles. Subpart E of this part establishes principles 
for determining the allowable costs incurred by non-Federal entities 
under Federal awards. The principles are for the purpose of cost 
determination and are not intended to identify the circumstances or 
dictate the extent of Federal Government participation in the financing 
of a particular program or project. The principles are designed to 
provide that Federal awards bear their fair share of cost recognized 
under these principles except where restricted or prohibited by statute.
    (d) Single audit requirements and audit follow-up. Subpart F of this 
part is issued pursuant to the Single Audit Act Amendments of 1996, (31 
U.S.C. 7501-7507). It sets forth standards for obtaining consistency and 
uniformity among Federal agencies for the audit of non-Federal entities 
expending Federal awards. These provisions also provide the policies and 
procedures for HHS awarding agencies and pass-through entities when 
using the results of these audits.
    (e) For OMB guidance to Federal awarding agencies on Challenges and 
Prizes, please see M-10-11 Guidance on the Use of Challenges and Prizes 
to Promote Open Government, issued March 8, 2010, or its successor.



Sec. 75.101  Applicability.

    (a) General applicability to Federal agencies. The requirements 
established in this part apply to Federal agencies that make Federal 
awards to non-Federal entities. These requirements are applicable to all 
costs related to Federal awards.
    (b)(1) Applicability to different types of Federal awards. The 
following table describes what portions of this part apply to which 
types of Federal awards. The terms and conditions of Federal-awards 
(including this part) flow down to subawards to subrecipients unless a 
particular section of this part or the terms and conditions of the 
Federal award specifically indicate otherwise. This means that non-
Federal entities must comply with requirements in this part regardless 
of whether the non-Federal entity is a recipient or subrecipient of a 
Federal award. Pass-through entities must comply with the requirements 
described in subpart D of this part, Sec. Sec. 75.351 through 75.353, 
but not any requirements in this part directed towards Federal awarding 
agencies unless the requirements of this part or the terms and 
conditions of the Federal award indicate otherwise. This table must be 
read along with the other provisions in this section

[[Page 239]]



------------------------------------------------------------------------
                                Are applicable to
                               the following types   Are NOT applicable
  The following portions of     of Federal Awards     to the following
          the part:            (except as noted in    types of Federal
                               paragraphs (d) and          Awards:
                                   (e)) below:
------------------------------------------------------------------------
Subpart A--Acronyms and       --All...............
 Definitions.
Subpart B--General            --All...............
 Provisions, except for Sec.
  Sec. 75.111, 75.112. and
 75.113..
Sections 75.111, 75.112, and  --Grant agreements    --Agreements for:
 75.113.                       and cooperative       loans, loan
                               agreements.           guarantees,
                                                     interest subsidies
                                                     and insurance
                                                    --Cost-reimbursement
                                                     contracts awarded
                                                     under the Federal
                                                     Acquisition
                                                     Regulations and
                                                     cost-reimbursement
                                                     and subcontracts
                                                     under these
                                                     contracts
                                                    --Fixed-price
                                                     contracts and
                                                     subcontracts
                                                     awarded under the
                                                     Federal Acquisition
                                                     Regulation whenever
                                                     cost analysis is
                                                     performed or the
                                                     contract requires
                                                     the determination
                                                     or negotiation of
                                                     costs
Subparts C-D, except for      --Grant agreements    --Agreements for:
 Subrecipient Monitoring and   and cooperative       loans, loan
 Management.                   agreements.           guarantees,
                                                     interest subsidies
                                                     and insurance
                                                    --Cost-reimbursement
                                                     contracts awarded
                                                     under the Federal
                                                     Acquisition
                                                     Regulations and
                                                     cost-reimbursement
                                                     and subcontracts
                                                     under these
                                                     contracts
                                                    --Fixed-price
                                                     contracts and
                                                     subcontracts
                                                     awarded under the
                                                     Federal Acquisition
                                                     Regulation whenever
                                                     cost analysis is
                                                     performed or the
                                                     contract requires
                                                     the determination
                                                     or negotiation of
                                                     costs
Subpart D--Post Federal       --All...............
 Award Requirements,
 Subrecipient Monitoring and
 Management.
Subpart E--Cost Principles..  --Grant agreements    --Grant agreements
                               and cooperative       and cooperative
                               agreements, except    agreements
                               those providing       providing food
                               food commodities.     commodities
                              --Cost-reimbursement  --Fixed amount
                               contracts awarded     awards
                               under the Federal    --Agreements for:
                               Acquisition           loans, loan
                               Regulations and       guarantees,
                               cost-reimbursement    interest subsidies
                               and subcontracts      and insurance
                               under these          --Federal awards to
                               contracts in          hospitals (See
                               accordance with the   appendix IX)
                               FAR.
                              --Fixed-price
                               contracts and
                               subcontracts
                               awarded under the
                               Federal Acquisition
                               Regulation whenever
                               cost analysis is
                               performed or the
                               contract requires
                               the determination
                               or negotiation of
                               costs.
Subpart F--Audit              --All...............  ....................
 Requirements.
------------------------------------------------------------------------

    (2) Federal award of cost-reimbursement contract under the FAR to a 
non-Federal entity. When a non-Federal entity is awarded a cost-
reimbursement contract, only subpart D of this part, Sec. Sec. 75.351 
through 75.353 (in addition to any FAR related requirements for 
monitoring subpart E of this part and subpart F of this part are 
incorporated by reference into the contract. However, when the Cost 
Accounting Standards (CAS) are applicable to the contract, they take 
precedence over the requirements of this part except for subpart F of 
this part when they are in conflict. In addition, costs that are made 
unallowable under 10 U.S.C. 2324(e) and 41 U.S.C. 4304(a) as described 
in the FAR subpart 31.2 and subpart 31.603 are always unallowable. For 
requirements other than those covered in subpart D of this part, 
Sec. Sec. 75.351 through 75.353, subpart E of this part-and subpart F 
of this part, the terms of the contract and the FAR apply.
    (3) With the exception of subpart F of this part, which is required 
by the Single Audit Act, in any circumstances where the provisions of 
Federal statutes or regulations differ from the provisions of this part, 
the provision of the Federal statutes or regulations govern. This 
includes, for agreements with Indian tribes, the provisions of

[[Page 240]]

the Indian Self-Determination and Education and Assistance Act (ISDEAA), 
as amended, 25 U.S.C. 450-458ddd-2.
    (c) HHS awarding agencies may apply subparts A through E of this 
part to Federal agencies (see Sec. 75.215), for-profit entities, 
foreign public entities, or foreign organizations, except where the HHS 
awarding agency determines that the application of these subparts would 
be inconsistent with the international obligations of the United States 
or the statutes or regulations of a foreign government.
    (d) Except for Sec. 75.202 and Sec. Sec. 75.351 through 75.353 of 
subpart D of this part, the requirements in subpart C of this part, 
subpart D of this part, and subpart E of this part do not apply to the 
following programs:
    (1) The block grant awards authorized by the Omnibus Budget 
Reconciliation Act of 1981 (including Community Services, except to the 
extent that the cost and accounting standards of OMB apply to 
subrecipients of Community Services Block Grant funds pursuant to 42 
U.S.C. 9916(a)(1)(B); 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 Grant Awards 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 award program) and both the 
Alcohol and Drug Abuse Treatment and Rehabilitation Block Grant Award 
(42 U.S.C. 300x-21 to 300x-35 and 42 U.S.C. 300x-51 to 300x64) and the 
Mental Health Service for the Homeless Block Grant Award (42 U.S.C. 300x 
to 300x-9) under the Public Health Service Act.
    (2) Federal awards to local education agencies under 20 U.S.C. 7702-
7703b, (portions of the Impact Aid program);
    (3) Payments under the Department of Veterans Affairs' State Home 
Per Diem Program (38 U.S.C. 1741); and
    (4) Federal awards authorized under the Child Care and Development 
Block Grant Act of 1990, as amended:
    (i) Child Care and Development Block Grant (42 U.S.C. 9858)
    (ii) Child Care Mandatory and Matching Funds of the Child Care and 
Development Fund (42 U.S.C. 9858)
    (e) Except for Sec. 75.202, the guidance in subpart C of this part 
does not apply to the following programs:
    (1) Federal awards to carry out the following programs of the Social 
Security Act:
    (i) Temporary Assistance for Needy Families (title IV-A of the 
Social Security Act, 42 U.S.C. 601-619);
    (ii) Child Support Enforcement and Establishment of Paternity (title 
IV-D of the Social Security Act, 42 U.S.C. 651-669b);
    (iii) Foster Care and Adoption Assistance (title IV-E of the Act, 42 
U.S.C. 670-679c);
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act, as amended);
    (v) Medical Assistance (Medicaid) (title XIX of the Act, 42 U.S.C. 
1396-1396w-5) not including the State Medicaid Fraud Control program 
authorized by Sec. 1903(a)(6)(B) of the Social Security Act (42 U.S.C. 
1396b(a)(6)(B)); and
    (vi) Children's Health Insurance Program (title XXI of the Act, 42 
U.S.C. 1397aa-1397mm).
    (2) A Federal award for an experimental, pilot, or demonstration 
project that is also supported by a Federal award listed in paragraph 
(e)(1) of this section;
    (3) Federal awards under subsection 412(e) of the Immigration and 
Nationality Act 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 (8 U.S.C. 1522(e));
    (4) Entitlement awards under the following programs of The National 
School Lunch Act:
    (i) National School Lunch Program (section 4 of the Act, 42 U.S.C. 
1753),
    (ii) Commodity Assistance (section 6 of the Act, 42 U.S.C. 1755),
    (iii) Special Meal Assistance (section 11 of the Act, 42 U.S.C. 
1759a),

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    (iv) Summer Food Service Program for Children (section 13 of the 
Act, 42 U.S.C. 1761), and
    (v) Child and Adult Care Food Program (section 17 of the Act, 42 
U.S.C. 1766).
    (5) Entitlement awards under the following programs of The Child 
Nutrition Act of 1966:
    (i) Special Milk Program (section 3 of the Act, 42 U.S.C. 1772),
    (ii) School Breakfast Program (section 4 of the Act, 42 U.S.C. 
1773), and
    (iii) State Administrative Expenses (section 7 of the Act, 42 U.S.C. 
1776).
    (6) Entitlement awards for State Administrative Expenses under The 
Food and Nutrition Act of 2008 (section 16 of the Act, 7 U.S.C. 2025).
    (7) Non-discretionary Federal awards under the following non-
entitlement programs:
    (i) Special Supplemental Nutrition Program for Women, Infants and 
Children (section 17 of the Child Nutrition Act of 1966) 42 U.S.C. 1786;
    (ii) The Emergency Food Assistance Programs (Emergency Food 
Assistance Act of 1983) 7 U.S.C. 7501 note; and
    (iii) Commodity Supplemental Food Program (section 5 of the 
Agriculture and Consumer Protection Act of 1973) 7 U.S.C. 612c note.



Sec. 75.102  Exceptions.

    (a) With the exception of subpart F of this part, OMB may allow 
exceptions for classes of Federal awards or non-Federal entities 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 will be permitted only in unusual 
circumstances. Exceptions for classes of Federal awards or non-Federal 
entities will be published on the OMB Web site at www.whitehouse.gov/
omb.
    (b) Exceptions on a case-by-case basis for individual non-Federal 
entities may be authorized by the HHS awarding agency or cognizant 
agency for indirect costs except where otherwise required by law or 
where OMB or other approval is expressly required by this part. No case-
by-case exceptions may be granted to the provisions of subpart F of this 
part.
    (c) The HHS awarding agency may apply more restrictive requirements 
to a class of Federal awards or non-Federal entities when approved by 
OMB, or when required by Federal statutes or regulations, except for the 
requirements in subpart F of this part. An HHS awarding agency may apply 
less restrictive requirements when making fixed amount awards as defined 
in subpart A of this part, except for those requirements imposed by 
statute or in subpart F of this part.
    (d) On a case-by-case basis, OMB will approve new strategies for 
Federal awards when proposed by the HHS awarding agency in accordance 
with OMB guidance (such as M-13-17) to develop additional evidence 
relevant to addressing important policy challenges or to promote cost-
effectiveness in and across Federal programs. Proposals may draw on the 
innovative program designs discussed in M-13-17 to expand or improve the 
use of effective practices in delivering Federal financial assistance 
while also encouraging innovation in service delivery. Proposals 
submitted to OMB in accordance with M-13-17 may include requests to 
waive requirements other than those in subpart F of this part.



Sec. 75.103  Authorities.

    This part is issued under the following authorities.
    (a) Subpart B of this part through subpart D of this part are 
authorized under 31 U.S.C. 503 (the Chief Financial Officers Act, 
Functions of the Deputy Director for Management), 31 U.S.C. 1111 
(Improving Economy and Efficiency of the United States Government), 41 
U.S.C. 1101-1131 (the Office of Federal Procurement Policy Act), 
Reorganization Plan No. 2 of 1970, and Executive Order 11541, the Single 
Audit Act Amendments of 1996, (31 U.S.C. 7501-7507), as well as The 
Federal Program Information Act (Public Law 95-220 and Public Law 98-
169, as amended, codified at 31 U.S.C. 6101-6106).
    (b) Subpart E of this part is authorized under the Budget and 
Accounting Act of 1921, as amended; the Budget and Accounting Procedures 
Act of 1950, as amended (31 U.S.C. 1101-1125); the Chief Financial 
Officers Act of 1990 (31 U.S.C. 503-504); Reorganization Plan

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No. 2 of 1970; and Executive Order No. 11541.
    (c) Subpart F of this part is authorized under the Single Audit Act 
Amendments of 1996, (31 U.S.C. 7501-7507).



Sec. 75.104  Supersession.

    As described in Sec. 75.110, this part supersedes:
    (a) The following OMB guidance documents and regulations under Title 
2 of the Code of Federal Regulations:
    (1) A-21, ``Cost Principles for Educational Institutions'' (2 CFR 
part 220);
    (2) A-87, ``Cost Principles for State, Local and Indian Tribal 
Governments'' (2 CFR part 225) and also Federal Register notice 51 FR 
552 (January 6, 1986);
    (3) A-89, ``Federal Domestic Assistance Program Information'';
    (4) A-102, ``Grant Awards and Cooperative Agreements with State and 
Local Governments'';
    (5) A-110, ``Uniform Administrative Requirements for Awards and 
Other Agreements with Institutions of Higher Education, Hospitals, and 
Other Nonprofit Organizations'' (codified at 2 CFR 215);
    (6) A-122, ``Cost Principles for Non-Profit Organizations'' (2 CFR 
part 230);
    (7) A-133, ``Audits of States, Local Governments and Non-Profit 
Organizations, and
    (8) Those sections of A-50 related to audits performed under subpart 
F of this part.
    (b) This part also supersedes HHS' regulations at 45 CFR parts 74 
and 92.



Sec. 75.105  Effect on other issuances.

    For Federal awards subject to this part, all administrative 
requirements, program manuals, handbooks and other non-regulatory 
materials that are inconsistent with the requirements of this part are 
superseded upon implementation of this part by the HHS awarding agency, 
except to the extent they are required by statute or authorized in 
accordance with the provisions in Sec. 75.102.



Sec. 75.106  Agency implementation.

    HHS is implementing the language in 2 CFR part 200 in these codified 
regulations.



Sec. 75.107  OMB responsibilities.

    OMB will review HHS agency regulations and implementation of 2 CFR 
part 200, and will provide interpretations of policy requirements and 
assistance to ensure effective and efficient implementation. Any 
exceptions will be subject to approval by OMB. Exceptions will only be 
made in particular cases where adequate justification is presented.



Sec. 75.108  Inquiries.

    Inquiries concerning 2 CFR part 200 may be directed to the Office of 
Federal Financial Management, Office of Management and Budget, in 
Washington, DC. Inquiries concerning 45 CFR part 75 should be addressed 
to the HHS awarding agency, cognizant agency for indirect costs, 
cognizant or oversight agency for audit, or pass-through entity as 
appropriate.



Sec. 75.109  Review date.

    OMB will review 2 CFR part 200 and HHS will review 45 part 75 at 
least every five years after December 26, 2013.



Sec. 75.110  Effective/Applicability date.

    (a) The standards set forth in this part which affect administration 
of Federal awards issued by Federal agencies become effective December 
26, 2014. For the procurement standards in 2 CFR 200.317-200.326, non-
Federal entities previously subject to OMB Circular A-110 may continue 
to comply with the procurement standards in previous OMB guidance 
(superseded by this part as described in 2 CFR 200.104) for one 
additional fiscal year after this part goes into effect. If an entity 
chooses to remain with the previous procurement standards for an 
additional fiscal year before adopting the procurement standards in this 
part, they must document this decision in their internal procurement 
policies, in accordance with the guidance in appendix XI to this part.
    (b) The standards set forth in subpart F of this part and any other 
standards which apply directly to HHS agencies will be effective 
December 26, 2013, and will apply to audits of fiscal years beginning on 
or after December 26, 2014.

[[Page 243]]



Sec. 75.111  English language.

    (a) All Federal financial assistance announcements and Federal award 
information must be in the English language. Applications must be 
submitted in the English language and must be in the terms of U.S. 
dollars. If the HHS awarding agency receives applications in another 
currency, the HHS awarding agency will evaluate the application by 
converting the foreign currency to United States currency using the date 
specified for receipt of the application.
    (b) Non-Federal entities may translate the Federal award and other 
documents into another language. In the event of inconsistency between 
any terms and conditions of the Federal award and any translation into 
another language, the English language meaning will control. Where a 
significant portion of the non-Federal entity's employees who are 
working on the Federal award are not fluent in English, the non-Federal 
entity must provide the Federal award in English and the language(s) 
with which employees are more familiar.



Sec. 75.112  Conflict of interest.

    (a) HHS awarding agencies must establish conflict of interest 
policies for Federal awards. The non-Federal entity must disclose in 
writing any potential conflict of interest to the respective HHS 
awarding agency or pass-through entity in accordance with applicable HHS 
awarding agency's policy. As a general matter, HHS awarding agencies' 
conflict of interest policies must:
    (1) Address conditions under which outside activities, 
relationships, or financial interests are proper or improper;
    (2) Provide for advance notification of outside activities, 
relationships, or financial interests, and a process of review as 
appropriate; and
    (3) Outline how financial conflicts of interest may be addressed.
    (b) Agencies with Public Health Service (PHS) funded research will 
ensure that any conflict of interest policies are aligned with the 
requirements of 42 CFR part 50, subpart F.



Sec. 75.113  Mandatory disclosures.

    The non-Federal entity or applicant for a Federal award must 
disclose, in a timely manner, in writing to the HHS awarding agency or 
pass-through entity all violations of Federal criminal law involving 
fraud, bribery, or gratuity violations potentially affecting the Federal 
award. Failure to make required disclosures can result in any of the 
remedies described in Sec. 75.371, including suspension or debarment. 
(See also 2 CFR parts 180 and 376, and 31 U.S.C. 3321).



 Subpart C_Pre-Federal Award Requirements and Contents of Federal Awards



Sec. 75.200  Purpose.

    (a) Sections 75.201 through 75.208 prescribe instructions and other 
pre-award matters to be used in the announcement and application 
process.
    (b) Use of Sec. Sec. 75.203, 75.204, 75.205, and 75.207, is 
required only for competitive Federal awards, but may also be used by 
the HHS awarding agency for non-competitive awards where appropriate or 
where required by Federal statute.



Sec. 75.201  Use of grant agreements (including fixed amount awards), 
cooperative agreements, and contracts.

    (a) The HHS awarding agency or pass-through entity must decide on 
the appropriate instrument for the Federal award (i.e., grant agreement, 
cooperative agreement, or contract) in accordance with the Federal Grant 
and Cooperative Agreement Act (31 U.S.C. 6301-08).
    (b) Fixed Amount Awards. In addition to the options described in 
paragraph (a) of this section, HHS awarding agencies, or pass-through 
entities as permitted in Sec. 75.353, may use fixed amount awards (see 
Sec. 75.2 Fixed amount awards) to which the following conditions apply:
    (1) The Federal award amount is negotiated using the cost principles 
(or other pricing information) as a guide. The HHS awarding agency or 
pass-through entity may use fixed amount awards if the project scope is 
specific and if adequate cost, historical, or unit

[[Page 244]]

pricing data is available to establish a fixed amount award based on a 
reasonable estimate of actual cost. Payments are based on meeting 
specific requirements of the Federal award. Accountability is based on 
performance and results. Except in the case of termination before 
completion of the Federal award, there is no governmental review of the 
actual costs incurred by the non-Federal entity in performance of the 
award. Some of the ways in which the Federal award may be paid include, 
but are not limited to:
    (i) In several partial payments, the amount of each agreed upon in 
advance, and the ``milestone'' or event triggering the payment also 
agreed upon in advance, and set forth in the Federal award;
    (ii) On a unit price basis, for a defined unit or units, at a 
defined price or prices, agreed to in advance of performance of the 
Federal award and set forth in the Federal award; or,
    (iii) In one payment at Federal award completion.
    (2) A fixed amount award cannot be used in programs which require 
mandatory cost sharing or match.
    (3) The non-Federal entity must certify in writing to the HHS 
awarding agency or pass-through entity at the end of the Federal award 
that the project or activity was completed or the level of effort was 
expended. If the required level of activity or effort was not carried 
out, the amount of the Federal award must be adjusted.
    (4) Periodic reports may be established for each Federal award.
    (5) Changes in principal investigator, project leader, project 
partner, or scope of effort must receive the prior written approval of 
the HHS awarding agency or pass-through entity.



Sec. 75.202  Requirement to provide public notice of Federal 
financial assistance programs.

    (a) The HHS awarding agency must notify the public of Federal 
programs in the Catalog of Federal Domestic Assistance (CFDA), 
maintained by the General Services Administration (GSA).
    (1) The CFDA, or any OMB-designated replacement, is the single, 
authoritative, government-wide comprehensive source of Federal financial 
assistance program information produced by the executive branch of the 
Federal Government.
    (2) The information that the HHS awarding agency must submit to GSA 
for approval by OMB is listed in paragraph (b) of this section. GSA must 
prescribe the format for the submission.
    (3) The HHS awarding agency may not award Federal financial 
assistance without assigning it to a program that has been included in 
the CFDA as required in this section unless there are exigent 
circumstances requiring otherwise, such as timing requirements imposed 
by statute.
    (b) For each program that awards discretionary Federal awards, non-
discretionary Federal awards, loans, insurance, or any other type of 
Federal financial assistance, the HHS awarding agency must submit the 
following information to GSA:
    (1) Program Description, Purpose, Goals and Measurement. A brief 
summary of the statutory or regulatory requirements of the program and 
its intended outcome. Where appropriate, the Program Description, 
Purpose, Goals, and Measurement should align with the strategic goals 
and objectives within the HHS awarding agency's performance plan and 
should support the HHS awarding agency's performance measurement, 
management, and reporting as required by Part 6 of OMB Circular A-11;
    (2) Identification of whether the program makes Federal awards on a 
discretionary basis or the Federal awards are prescribed by Federal 
statute, such as in the case of formula grants.
    (3) Projected total amount of funds available for the program. 
Estimates based on previous year funding are acceptable if current 
appropriations are not available at the time of the submission;
    (4) Anticipated Source of Available Funds: The statutory authority 
for funding the program and, to the extent possible, agency, sub-agency, 
or, if known, the specific program unit that will issue the Federal 
awards, and associated funding identifier (e.g., Treasury Account 
Symbol(s));

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    (5) General Eligibility Requirements: The statutory, regulatory or 
other eligibility factors or considerations that determine the 
applicant's qualification for Federal awards under the program (e.g., 
type of non-Federal entity); and
    (6) Applicability of Single Audit Requirements as required by 
subpart F of this part.



Sec. 75.203  Notices of funding opportunities.

    For competitive grants and cooperative agreements, the HHS awarding 
agency must announce specific funding opportunities by providing the 
following information in a public notice:
    (a) Summary Information in Notices of Funding Opportunities. The HHS 
awarding agency must display the following information posted on the 
OMB-designated government-wide Web site for finding and applying for 
Federal financial assistance, in a location preceding the full text of 
the announcement:
    (1) HHS Awarding Agency Name;
    (2) Funding Opportunity Title;
    (3) Announcement Type (whether the funding opportunity is the 
initial announcement of this funding opportunity or a modification of a 
previously announced opportunity);
    (4) Funding Opportunity Number (required, if applicable). If the HHS 
awarding agency has assigned or will assign a number to the funding 
opportunity announcement, this number must be provided;
    (5) Catalog of Federal Domestic Assistance (CFDA) Number(s);
    (6) Key Dates. Key dates include due dates for applications or 
Executive Order 12372 submissions, as well as for any letters of intent 
or pre-applications. For any announcement issued before a program's 
application materials are available, key dates also include the date on 
which those materials will be released; and any other additional 
information, as deemed applicable by the relevant HHS awarding agency.
    (b) The HHS awarding agency must generally make all funding 
opportunities available for application for at least 60 calendar days. 
The HHS awarding agency may make a determination to have a less than 60 
calendar day availability period but no funding opportunity should be 
available for less than 30 calendar days unless exigent circumstances 
require as determined by the HHS awarding agency head or delegate.
    (c) Full Text of Funding Opportunities. The HHS awarding agency must 
include the following information in the full text of each funding 
opportunity. For specific instructions on the content required in this 
section, refer to appendix I of this part.
    (1) Full programmatic description of the funding opportunity.
    (2) Federal award information, including sufficient information to 
help an applicant make an informed decision about whether to submit an 
application. (See also Sec. 75.414(c)(4)).
    (3) Specific eligibility information, including any factors or 
priorities that affect an applicant's or its application's eligibility 
for selection.
    (4) Application Preparation and Submission Information, including 
the applicable submission dates and time.
    (5) Application Review Information including the criteria and 
process to be used to evaluate applications. See also Sec. Sec. 75.204 
and 75.205. See also 2 CFR part 27 (forthcoming at time of publication).
    (6) Federal Award Administration Information. See also Sec. 75.210.



Sec. 75.204  HHS funding agency review of merit of proposals.

    For competitive grants or cooperative agreements, unless prohibited 
by Federal statute, the HHS awarding agency must design and execute a 
merit review process for applications. This process must be described or 
incorporated by reference in the applicable funding opportunity (see 
appendix I to this part.) See also Sec. 75.203.



Sec. 75.205  HHS awarding agency review of risk posed by applicants.

    (a) Prior to making a Federal award, the HHS awarding agency is 
required by 31 U.S.C. 3321 and 41 U.S.C. 2313 note to review information 
available through any OMB-designated repositories of government-wide 
eligibility qualification or financial integrity information, such as 
SAM Exclusions, and ``Do Not Pay.'' See also suspension and debarment 
requirements at 2 CFR part 180 as well as HHS suspension and

[[Page 246]]

debarment regulations at 2 CFR part 376.
    (b) In addition, for competitive grants or cooperative agreements, 
the HHS awarding agency must have in place a framework for evaluating 
the risks posed by applicants before they receive Federal awards. This 
evaluation may incorporate results of the evaluation of the applicant's 
eligibility or the quality of its application. If the HHS awarding 
agency determines that a Federal award will be made, special conditions 
that correspond to the degree of risk assessed may be applied to the 
Federal award. Criteria to be evaluated must be described in the 
announcement of funding opportunity described in Sec. 75.203.
    (c) In evaluating risks posed by applicants, the HHS awarding agency 
may use a risk-based approach and may consider any items such as the 
following:
    (1) Financial stability;
    (2) Quality of management systems and ability to meet the management 
standards prescribed in this part;
    (3) History of performance. The applicant's record in managing 
Federal awards, if it is a prior recipient of Federal awards, including 
timeliness of compliance with applicable reporting requirements, 
conformance to the terms and conditions of previous Federal awards, and 
if applicable, the extent to which any previously awarded amounts will 
be expended prior to future awards;
    (4) Reports and findings from audits performed under subpart F of 
this part or the reports and findings of any other available audits; and
    (5) The applicant's ability to effectively implement statutory, 
regulatory, or other requirements imposed on non-Federal entities.
    (d) In addition to this review, the HHS awarding agency must comply 
with the guidelines on government-wide suspension and debarment in 2 CFR 
part 180, and must require non-Federal entities to comply with these 
provisions. These provisions restrict Federal awards, subawards and 
contracts with certain parties that are debarred, suspended or otherwise 
excluded from or ineligible for participation in Federal programs or 
activities.



Sec. 75.206  Standard application requirements, including forms 
for applying for HHS financial assistance, and state plans.

    (a) Paperwork clearances. The HHS awarding agency may only use 
application information collections approved by OMB under the Paperwork 
Reduction Act of 1995 and OMB's implementing regulations in 5 CFR part 
1320. Consistent with these requirements, OMB will authorize additional 
information collections only on a limited basis.
    (b) If applicable, the HHS awarding agency may inform applicants and 
recipients that they do not need to provide certain information 
otherwise required by the relevant information collection.
    (c) Forms for applying for HHS financial assistance. HHS awarding 
agencies should use the Standard Form 424 (SF-424 Application for 
Federal Assistance) series (or its successor) and its program narrative 
whenever possible. Alternative mechanisms may be used for formula grant 
programs which do not require applicants to apply for funds on a project 
basis.
    (1) Applicants shall use the SF-424 series or those forms and 
instructions prescribed by the HHS awarding agency.
    (2) For Federal programs covered by Executive Order 12372, as 
amended by Executive Order 12416, the applicant shall complete the 
appropriate sections of the SF-424 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.)
    (3) HHS awarding agencies that do not use the SF-424 series will 
indicate on the application form they prescribe whether the application 
is subject to review by the State under Executive Order 12372.
    (4) This section does not apply to applications for subawards.

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    (5) Except where otherwise noted, or granted by HHS deviation, HHS 
awarding agencies shall direct applicants to apply for HHS financial 
assistance through Grants.gov, an OMB-designated Web site for Find and 
Apply.
    (d) State plans. The statutes for some programs require States to 
submit plans before receiving grants. Under regulations implementing 
Executive Order 12372, States are allowed to simplify, consolidate and 
substitute plans. This section contains additional provisions for plans 
that are subject to regulations implementing Executive Order 12372.
    (1) Requirements. A State need meet only Federal administrative or 
programmatic requirements for a plan that are in statutes or codified 
regulations.
    (2) Assurances. In each plan, the State will include an assurance 
that the State will 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 this 
plan, the State may:
    (i) Cite by number the statutory or regulatory provisions requiring 
the assurances and affirm that it gives the assurances required by those 
provisions,
    (ii) Repeat the assurance language in the statutes or regulations, 
or
    (iii) Develop its own language to the extent permitted by law.
    (3) Amendments. A State will amend a plan whenever necessary to 
reflect:
    (i) New or revised Federal statutes or regulations, or
    (ii) 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. 75.207  Specific award conditions.

    (a) The HHS awarding agency or pass-through entity may impose 
additional specific award conditions as needed in accordance with 
paragraphs (b) and (c) of this section, under the following 
circumstances:
    (1) Based on the criteria set forth in Sec. 75.205;
    (2) When an applicant or recipient has a history of failure to 
comply with the general or specific terms and conditions of a Federal 
award;
    (3) When an applicant or recipient fails to meet expected 
performance goals as described in Sec. 75.210, or;
    (4) When the applicant or recipient is not otherwise responsible.
    (b) These additional Federal award conditions may include items such 
as the following:
    (1) Requiring payments as reimbursements rather than advance 
payments;
    (2) Withholding authority to proceed to the next phase until receipt 
of evidence of acceptable performance within a given period of 
performance;
    (3) Requiring additional, more detailed financial reports;
    (4) Requiring additional project monitoring;
    (5) Requiring the non-Federal entity to obtain technical or 
management assistance; or
    (6) Establishing additional prior approvals.
    (c) The HHS awarding agency or pass-through entity must notify the 
applicant or non-Federal entity as to:
    (1) The nature of the additional requirements;
    (2) The reason why the additional requirements are being imposed;
    (3) The nature of the action needed to remove the additional 
requirement, if applicable;
    (4) The time allowed for completing the actions if applicable, and
    (5) The method for requesting reconsideration of the additional 
requirements imposed.
    (d) Any specific conditions must be promptly removed once the 
conditions that prompted them have been corrected.



Sec. 75.208  Certifications and representations.

    Unless prohibited by Federal statutes or regulations, each HHS 
awarding agency or pass-through entity is authorized to require the non-
Federal entity to submit certifications and representations required by 
Federal statutes, or regulations on an annual basis. Submission may be 
required more frequently if the non-Federal entity fails

[[Page 248]]

to meet a requirement of a Federal award.
    (a) The funds governed under this part shall be administered in 
compliance with the standards set forth in 45 CFR part 87.
    (b) For assurances under State plans, see Sec. 75.206(d)(2).



Sec. 75.209  Pre-award costs.

    For requirements on costs incurred by the applicant prior to the 
start date of the period of performance of the Federal award, see Sec. 
75.458.



Sec. 75.210  Information contained in a Federal award.

    A Federal award must include the following information:
    (a) General Federal award information. The HHS awarding agency must 
include the following general Federal award information in each Federal 
award:
    (1) Recipient name (which must match the name associated with their 
unique entity identifier as defined in 2 CFR 25.315);
    (2) Recipient's unique entity identifier;
    (3) Unique Federal Award Identification Number (FAIN);
    (4) Federal Award Date (see Sec. 75.2 Federal award date);
    (5) Period of Performance Start and End Date;
    (6) Amount of Federal Funds Obligated by this action,
    (7) Total Amount of Federal Funds Obligated;
    (8) Total Amount of the Federal Award;
    (9) Budget Approved by the HHS Awarding Agency;
    (10) Total Approved Cost Sharing or Matching, where applicable;
    (11) Federal award project description (to comply with statutory 
requirements (e.g., FFATA));
    (12) Name of HHS awarding agency and contact information for 
awarding official,
    (13) CFDA Number and Program Name;
    (14) Identification of whether the award is R&D and
    (15) Indirect cost rate for the Federal award (including if the de 
minimis rate is charged per Sec. 75.414).
    (b) General terms and conditions. (1) HHS awarding agencies must 
incorporate the following general terms and conditions either in the 
Federal award or by reference, as applicable:
    (i) Administrative requirements implemented by the HHS awarding 
agency as specified in this part.
    (ii) National policy requirements. These include statutory, 
executive order, other Presidential directive, or regulatory 
requirements that apply by specific reference and are not program-
specific. See Sec. 75.300.
    (2) The Federal award must include wording to incorporate, by 
reference, the applicable set of general terms and conditions, The 
reference must be to the Web site at which the HHS awarding agency 
maintains the general terms and conditions.
    (3) If a non-Federal entity requests a copy of the full text of the 
general terms and conditions, the HHS awarding agency must provide it.
    (4) Wherever the general terms and conditions are publicly 
available, the HHS awarding agency must maintain an archive of previous 
versions of the general terms and conditions, with effective dates, for 
use by the non-Federal entity, auditors, or others.
    (c) HHS awarding agency, program, or Federal award specific terms 
and conditions. The HHS awarding agency may include with each Federal 
award any terms and conditions necessary to communicate requirements 
that are in addition to the requirements outlined in the HHS awarding 
agency's general terms and conditions. Whenever practicable, these 
specific terms and conditions also should be shared on a public Web site 
and in notices of funding opportunities (as outlined in Sec. 75.203) in 
addition to being included in a Federal award. See also Sec. 75.206.
    (d) Federal award performance goals. The HHS awarding agency must 
include in the Federal award an indication of the timing and scope of 
expected performance by the non-Federal entity as related to the 
outcomes intended to be achieved by the program. In some instances 
(e.g., discretionary research awards), this may be limited to the 
requirement to submit technical performance reports (to be evaluated in 
accordance with HHS awarding agency

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policy). Where appropriate, the Federal award may include specific 
performance goals, indicators, milestones, or expected outcomes (such as 
outputs, or services performed or public impacts of any of these) with 
an expected timeline for accomplishment. Reporting requirements must be 
clearly articulated such that, where appropriate, performance during the 
execution of the Federal award has a standard against which non-Federal 
entity performance can be measured. The HHS awarding agency may include 
program-specific requirements, as applicable. These requirements should 
be aligned with agency strategic goals, strategic objectives or 
performance goals that are relevant to the program. See also OMB 
Circular A-11, Part 6 for definitions of strategic objectives and 
performance goals.
    (e) Any other information required by the HHS awarding agency.



Sec. 75.211  Public access to Federal award information.

    (a) In accordance with statutory requirements for Federal spending 
transparency (e.g., FFATA), except as noted in this section, for 
applicable Federal awards the HHS awarding agency must announce all 
Federal awards publicly and publish the required information on a 
publicly available OMB-designated government-wide Web site (at time of 
publication, www.USAspending.gov).
    (b) Nothing in this section may be construed as requiring the 
publication of information otherwise exempt under the Freedom of 
Information Act (5 U.S.C. 552), or controlled unclassified information 
pursuant to Executive Order 13556.



Sec. 75.212  Suspension and debarment.

    Non-federal entities and contractors are subject to the non-
procurement debarment and suspension regulations implementing Executive 
Orders 12549 and 12689, 2 CFR parts 180 and 376. These regulations 
restrict awards, 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. 75.213  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 United States trade and commerce. 
HHS awarding agencies will follow the provisions of Executive Order 
12770.



Sec. 75.214  Disclosure of lobbying activities.

    Recipients are subject to the restrictions on lobbying as set forth 
in 45 CFR part 93.



Sec. 75.215  Special provisions for awards to commercial 
organizations as recipients.

    (a) This section 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.
    (b) 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.
    (c) Program Income. Except for grants for research, program income 
earned by a commercial organization may not be used to further eligible 
project or program objectives except in the SBIR and STTR programs.
    (d)(1) Commercial organizations that receive awards (including for-
profit hospitals) have two options regarding audits:
    (i) A financial related audit of a particular award in accordance 
with Generally Accepted Government Auditing Standards issued by the 
Comptroller General of the United States, in those cases where the 
commercial organization receives awards under only one HHS program; or, 
if awards are received under multiple HHS programs, a financial related 
audit of all awards in accordance with Generally Accepted Government 
Auditing Standards issued

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by the Comptroller General of the United States; or
    (ii) An audit that meets the requirements contained in subpart F.
    (2) Commercial organizations that receive annual awards totaling 
less than the audit requirement threshold in subpart F are exempt from 
HHS audit requirements for that year, but records must be available for 
review by appropriate officials of Federal agencies or the Government 
Accountability Office. (See Sec. 75.501).



Sec. 75.216  Special provisions for awards to Federal agencies.

    (a) In order for an HHS awarding agency to make a Federal award to a 
Federal agency, the HHS awarding agency must have statutory authority 
that makes such Federal agency explicitly eligible for a Federal award.
    (b) All provisions of this part and other HHS regulations apply to 
Federal entities receiving Federal awards, except for the following:
    (1) Except for grants for research, any program income earned by a 
Federal institution must be used under the deduction alternative. Any 
program income earned after the end of grant support should be returned 
to the United States Treasury.
    (2) No salary or fringe benefit payments may be made from HHS 
awarding agency grant funds to support career, career-conditional, or 
other Federal employees (civilian or uniformed services) without 
permanent appointments at a Federal institution receiving a grant. While 
the level of effort required for the project must be allowed by the 
recipient as part of each individual's official duties, salary costs 
associated with an individual participating in an official capacity as a 
Federal employee under a grant to that Federal institution are not 
allowable costs under an HHS awarding agency grant.
    (3) Federal agencies may not be reimbursed for indirect costs under 
Federal awards.



Sec. 75.217  Participation by faith-based organizations.

    The funds provided under this part must be administered in 
compliance with the standards set forth in 45 CFR part 87.



                Subpart D_Post Federal Award Requirements

             Standards for Financial and Program Management



Sec. 75.300  Statutory and national policy requirements.

    (a) The Federal awarding agency must manage and administer the 
Federal award in a manner so as to ensure that Federal funding is 
expended and associated programs are implemented in full accordance with 
U.S. statutory and public policy requirements: Including, but not 
limited to, those protecting public welfare, the environment, and 
prohibiting discrimination. The Federal awarding agency must communicate 
to the non-Federal entity all relevant public policy requirements, 
including those in general appropriations provisions, and incorporate 
them either directly or by reference in the terms and conditions of the 
Federal award.
    (b) The non-Federal entity is responsible for complying with all 
requirements of the Federal award. For all Federal awards, this includes 
the provisions of FFATA, which includes requirements on executive 
compensation, and also requirements implementing the Act for the non-
Federal entity at 2 CFR part 25 and 2 CFR part 170. See also statutory 
requirements for whistleblower protections at 10 U.S.C. 2324 and 2409, 
and 41 U.S.C. 4304, 4310, and 4712.



Sec. 75.301  Performance measurement.

    The HHS awarding agency must require the recipient to use OMB 
approved standard information collections when providing financial and 
performance information. As appropriate and in accordance with above 
mentioned information collections, the HHS awarding agency must require 
the recipient to relate financial data to performance accomplishments of 
the Federal award. Also, in accordance with above mentioned standard 
information collections, and when applicable, recipients must also 
provide cost information to demonstrate cost effective practices (e.g., 
through unit cost data). The recipient's performance should be measured 
in a way that will

[[Page 251]]

help the HHS awarding agency and other non-Federal entities to improve 
program outcomes, share lessons learned, and spread the adoption of 
promising practices. The HHS awarding agency should provide recipients 
with clear performance goals, indicators, and milestones as described in 
Sec. 75.210. Performance reporting frequency and content should be 
established to not only allow the HHS awarding agency to understand the 
recipient progress but also to facilitate identification of promising 
practices among recipients and build the evidence upon which the HHS 
awarding agency's program and performance decisions are made.



Sec. 75.302  Financial management and standards for financial 
management systems.

    (a) Each state must expend and account for the Federal award in 
accordance with state laws and procedures for expending and accounting 
for the state's own funds. In addition, the state's and the other non- 
Federal entity's financial management systems, including records 
documenting compliance with Federal statutes, regulations, and the terms 
and conditions of the Federal award, must be sufficient to permit the 
preparation of reports required by general and program-specific terms 
and conditions; and the tracing of funds to a level of expenditures 
adequate to establish that such funds have been used according to the 
Federal statutes, regulations, and the terms and conditions of the 
Federal award. See also Sec. 75.450.
    (b) The financial management system of each non-Federal entity must 
provide for the following (see also Sec. Sec. 75.361, 75.362, 75.363, 
75.364, and 75.365):
    (1) Identification, in its accounts, of all Federal awards received 
and expended and the Federal programs under which they were received. 
Federal program and Federal award identification must include, as 
applicable, the CFDA title and number, Federal award identification 
number and year, name of the HHS awarding agency, and name of the pass-
through entity, if any.
    (2) Accurate, current, and complete disclosure of the financial 
results of each Federal award or program in accordance with the 
reporting requirements set forth in Sec. Sec. 75.341 and 75.342. If an 
HHS awarding agency requires reporting on an accrual basis from a 
recipient that maintains its records on other than an accrual basis, the 
recipient must not be required to establish an accrual accounting 
system. This recipient may develop accrual data for its reports on the 
basis of an analysis of the documentation on hand. Similarly, a pass-
through entity must not require a subrecipient to establish an accrual 
accounting system and must allow the subrecipient to develop accrual 
data for its reports on the basis of an analysis of the documentation on 
hand.
    (3) Records that identify adequately the source and application of 
funds for federally-funded activities. These records must contain 
information pertaining to Federal awards, authorizations, obligations, 
unobligated balances, assets, expenditures, income and interest and be 
supported by source documentation.
    (4) Effective control over, and accountability for, all funds, 
property, and other assets. The non-Federal entity must adequately 
safeguard all assets and assure that they are used solely for authorized 
purposes. See Sec. 75.303.
    (5) Comparison of expenditures with budget amounts for each Federal 
award.
    (6) Written procedures to implement the requirements of Sec. 
75.305.
    (7) Written procedures for determining the allowability of costs in 
accordance with subpart E of this part and the terms and conditions of 
the Federal award.



Sec. 75.303  Internal controls.

    The non-Federal entity must:
    (a) Establish and maintain effective internal control over the 
Federal award that provides reasonable assurance that the non-Federal 
entity is managing the Federal award in compliance with Federal 
statutes, regulations, and the terms and conditions of the Federal 
award. These internal controls should be in compliance with guidance in 
``Standards for Internal Control in the Federal Government,'' issued by 
the Comptroller General of

[[Page 252]]

the United States or the ``Internal Control Integrated Framework,'' 
issued by the Committee of Sponsoring Organizations of the Treadway 
Commission (COSO).
    (b) Comply with Federal statutes, regulations, and the terms and 
conditions of the Federal awards.
    (c) Evaluate and monitor the non-Federal entity's compliance with 
statutes, regulations and the terms and conditions of Federal awards.
    (d) Take prompt action when instances of noncompliance are 
identified including noncompliance identified in audit findings.
    (e) Take reasonable measures to safeguard protected personally 
identifiable information and other information the HHS awarding agency 
or pass-through entity designates as sensitive or the non-Federal entity 
considers sensitive consistent with applicable Federal, state, local, 
and tribal laws regarding privacy and obligations of confidentiality.



Sec. 75.304  Bonds.

    The HHS awarding agency may include a provision on bonding, 
insurance, or both in the following circumstances:
    (a) 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 non-Federal entity are not deemed 
adequate to protect the interest of the Federal Government.
    (b) The HHS awarding agency may require adequate fidelity bond 
coverage where the non-Federal entity lacks sufficient coverage to 
protect the Federal Government's interest.
    (c) Where bonds are required in the situations described above, the 
bonds must be obtained from companies holding certificates of authority 
as acceptable sureties, as prescribed in 31 CFR part 223.



Sec. 75.305  Payment.

    (a) For states, payments are governed by Treasury-State CMIA 
agreements and default procedures codified at 31 CFR part 205 and TFM 
4A-2000 Overall Disbursing Rules for All Federal Agencies.
    (b) For non-Federal entities other than states, payments methods 
must minimize the time elapsing between the transfer of funds from the 
United States Treasury or the pass-through entity and the disbursement 
by the non-Federal entity whether the payment is made by electronic 
funds transfer, or issuance or redemption of checks, warrants, or 
payment by other means. See also Sec. 75.302(b)(6). Except as noted 
elsewhere in these part, Federal agencies must require recipients to use 
only OMB-approved standard government-wide information collection 
requests to request payment.
    (1) The non-Federal entity must be paid in advance, provided it 
maintains or demonstrates the willingness to maintain both written 
procedures that minimize the time elapsing between the transfer of funds 
and disbursement by the non-Federal entity, and financial management 
systems that meet the standards for fund control and accountability as 
established in this part. Advance payments to a non-Federal entity must 
be limited to the minimum amounts needed and be timed to be in 
accordance with the actual, immediate cash requirements of the non-
Federal entity in carrying out the purpose of the approved program or 
project. The timing and amount of advance payments must be as close as 
is administratively feasible to the actual disbursements by the non-
Federal entity for direct program or project costs and the proportionate 
share of any allowable indirect costs. The non-Federal entity must make 
timely payment to contractors in accordance with the contract 
provisions.
    (2) Whenever possible, advance payments must be consolidated to 
cover anticipated cash needs for all Federal awards made by the HHS 
awarding agency to the recipient.
    (i) Advance payment mechanisms include, but are not limited to, 
Treasury check and electronic funds transfer and must comply with 
applicable guidance in 31 CFR part 208.
    (ii) Non-Federal entities must be authorized to submit requests for 
advance payments and reimbursements at least monthly when electronic 
fund transfers

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are not used, and as often as they like when electronic transfers are 
used, in accordance with the provisions of the Electronic Fund Transfer 
Act (15 U.S.C. 1693-1693r).
    (3) Reimbursement is the preferred method when the requirements in 
paragraph (b) cannot be met, when the HHS awarding agency sets a 
specific condition per Sec. 75.207, or when the non-Federal entity 
requests payment by reimbursement. This method may be used on any 
Federal award for construction, or if the major portion of the 
construction project is accomplished through private market financing or 
Federal loans, and the Federal award constitutes a minor portion of the 
project. When the reimbursement method is used, the HHS awarding agency 
or pass-through entity must make payment within 30 calendar days after 
receipt of the billing, unless the HHS awarding agency or pass-through 
entity reasonably believes the request to be improper.
    (4) If the non-Federal entity cannot meet the criteria for advance 
payments and the HHS awarding agency or pass-through entity has 
determined that reimbursement is not feasible because the non-Federal 
entity lacks sufficient working capital, the HHS awarding agency or 
pass-through entity may provide cash on a working capital advance basis. 
Under this procedure, the HHS awarding agency or pass-through entity 
must advance cash payments to the non-Federal entity to cover its 
estimated disbursement needs for an initial period generally geared to 
the non-Federal entity's disbursing cycle. Thereafter, the HHS awarding 
agency or pass-through entity must reimburse the non-Federal entity for 
its actual cash disbursements. Use of the working capital advance method 
of payment requires that the pass-through entity provide timely advance 
payments to any subrecipients in order to meet the subrecipient's actual 
cash disbursements. The working capital advance method of payment must 
not be used by the pass-through entity if the reason for using this 
method is the unwillingness or inability of the pass-through entity to 
provide timely advance payments to the subrecipient to meet the 
subrecipient's actual cash disbursements.
    (5) Use of resources before requesting cash advance payments. To the 
extent available, the non-Federal entity must disburse funds available 
from program income (including repayments to a revolving fund), rebates, 
refunds, contract settlements, audit recoveries, and interest earned on 
such funds before requesting additional cash payments.
    (6) Unless otherwise required by Federal statutes, payments for 
allowable costs by non-Federal entities must not be withheld at any time 
during the period of performance unless the conditions of Sec. Sec. 
75.207, subpart D of this part, 75.371, or one or more of the following 
applies:
    (i) The non-Federal entity has failed to comply with the project 
objectives, Federal statutes, regulations, or the terms and conditions 
of the Federal award.
    (ii) The non-Federal entity is delinquent in a debt to the United 
States as defined in OMB Guidance A-129. Under such conditions, the HHS 
awarding agency or pass-through entity may, upon reasonable notice, 
inform the non-Federal entity that payments must 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).
    (iii) A payment withheld for failure to comply with Federal award 
conditions, but without suspension of the Federal award, must be 
released to the non-Federal entity upon subsequent compliance. When a 
Federal award is suspended, payment adjustments will be made in 
accordance with Sec. 75.375.
    (iv) A payment must not be made to a non-Federal entity for amounts 
that are withheld by the non-Federal entity from payment to contractors 
to assure satisfactory completion of work. A payment must be made when 
the non-Federal entity actually disburses the withheld funds to the 
contractors or to escrow accounts established to assure satisfactory 
completion of work.
    (7) Standards governing the use of banks and other institutions as 
depositories of advance payments under Federal awards are as follows:

[[Page 254]]

    (i) The HHS awarding agency and pass-through entity must not require 
separate depository accounts for funds provided to a non-Federal entity 
or establish any eligibility requirements for depositories for funds 
provided to the non-Federal entity. However, the non-Federal entity must 
be able to account for the receipt, obligation and expenditure of funds.
    (ii) Advance payments of Federal funds must be deposited and 
maintained in insured accounts whenever possible.
    (8) The non-Federal entity must maintain advance payments of Federal 
awards in interest-bearing accounts, unless the following apply:
    (i) The non-Federal entity receives less than $120,000 in Federal 
awards per year.
    (ii) The best reasonably available interest-bearing account would 
not be expected to earn interest in excess of $500 per year on Federal 
cash balances.
    (iii) 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.
    (iv) A foreign government or banking system prohibits or precludes 
interest bearing accounts.
    (9) Interest earned amounts up to $500 per year may be retained by 
the non-Federal entity for administrative expense. Any additional 
interest earned on Federal advance payments deposited in interest-
bearing accounts must be remitted annually to the Department of Health 
and Human Services Payment Management System through an electronic 
medium using either Automated Clearing House (ACH) network or a Fedwire 
Funds Service payment. Remittances must include pertinent information of 
the payee and nature of payment in the memo area (often referred to as 
``addenda records'' by Financial Institutions) as that will assist in 
the timely posting of interest earned on federal funds. Pertinent 
details include the Payee Account Number (PAN) if the payment originated 
from PMS, or Agency information if the payment originated from ASAP, NSF 
or another federal agency payment system. The remittance must be 
submitted as follows:

For ACH Returns:
Routing Number: 051036706
Account number: 303000
Bank Name and Location: Credit Gateway--ACH Receiver St. Paul, MN

For Fedwire Returns*:
Routing Number: 021030004
Account number: 75010501
Bank Name and Location: Federal Reserve Bank Treas NYC/Funds Transfer 
Division New York, NY
(* Please note organization initiating payment is likely to incur a 
charge from your Financial Institution for this type of payment)

For International ACH Returns:
Beneficiary Account: Federal Reserve Bank of New York/ITS (FRBNY/ITS)
Bank: Citibank N.A. (New York)
Swift Code: CITIUS33
Account Number: 36838868
Bank Address: 388 Greenwich Street, New York, NY 10013 USA
Payment Details (Line 70): Agency Name (abbreviated when possible) and 
ALC Agency POC: Michelle Haney, (301) 492-5065

    For recipients that do not have electronic remittance capability, 
please make check** payable to:

``The Department of Health and Human Services''

Mail Check to Treasury approved lockbox:
HHS Program Support Center
P.O. Box 530231
Atlanta, GA 30353-0231
(** Please allow 4-6 weeks for processing of a payment by check to be 
applied to the appropriate PMS account)
Any additional information/instructions may be found on the PMS Web site 
at http://www.dpm.psc.gov/.



Sec. 75.306  Cost sharing or matching.

    (a) Under Federal research proposals, voluntary committed cost 
sharing is not expected. It cannot be used as a factor during the merit 
review of applications or proposals, but may be considered if it is both 
in accordance with HHS awarding agency regulations and specified in a 
notice of funding opportunity. Criteria for considering voluntary 
committed cost sharing and any other program policy factors that may be 
used to determine who may receive a Federal award must be explicitly 
described in the notice of funding opportunity. Furthermore, only 
mandatory cost sharing or cost sharing specifically committed in the 
project budget must be included in the organized research base for 
computing the indirect (F&A) cost rate or reflected in

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any allocation of indirect costs. See also Sec. Sec. 75.414, 75.203, 
and appendix I to this part.
    (b) For all Federal awards, any shared costs or matching funds and 
all contributions, including cash and third party in-kind contributions, 
must be accepted as part of the non-Federal entity's cost sharing or 
matching when such contributions meet all of the following criteria:
    (1) Are verifiable from the non-Federal entity's records;
    (2) Are not included as contributions for any other Federal award;
    (3) Are necessary and reasonable for accomplishment of project or 
program objectives;
    (4) Are allowable under subpart E of this part;
    (5) Are not paid by the Federal Government under another Federal 
award, except where the Federal statute authorizing a program 
specifically provides that Federal funds made available for such program 
can be applied to matching or cost sharing requirements of other Federal 
programs;
    (6) Are provided for in the approved budget when required by the HHS 
awarding agency; and
    (7) Conform to other provisions of this part, as applicable.
    (c) Unrecovered indirect costs, including indirect costs on cost 
sharing or matching may be included as part of cost sharing or matching. 
Unrecovered indirect cost means the difference between the amount 
charged to the Federal award and the amount which could have been 
charged to the Federal award under the non-Federal entity's approved 
negotiated indirect cost rate.
    (d) Values for non-Federal entity contributions of services and 
property must be established in accordance with the cost principles in 
subpart E. If an HHS awarding agency authorizes the non-Federal entity 
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 must be the lesser of paragraphs (d)(1) or (2) of 
this section.
    (1) The value of the remaining life of the property recorded in the 
non-Federal entity's accounting records at the time of donation.
    (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 value described in paragraph (1) of this section at the time of 
donation.
    (e) Volunteer services furnished by third-party 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 third-
party volunteer services must be consistent with those paid for similar 
work by the non-Federal entity. In those instances in which the required 
skills are not found in the non-Federal entity, rates must be consistent 
with those paid for similar work in the labor market in which the non-
Federal entity competes for the kind of services involved. In either 
case, paid fringe benefits that are reasonable, necessary, allocable, 
and otherwise allowable may be included in the valuation.
    (f) When a third-party organization furnishes the services of an 
employee, these services must be valued at the employee's regular rate 
of pay plus an amount of fringe benefits that is reasonable, necessary, 
allocable, and otherwise allowable, and indirect costs at either the 
third-party organization's approved federally negotiated indirect cost 
rate or, a rate in accordance with Sec. 75.414(f), provided these 
services employ the same skill(s) for which the employee is normally 
paid. Where donated services are treated as indirect costs, indirect 
cost rates will separate the value of the donated services so that 
reimbursement for the donated services will not be made.
    (g) Donated property from third parties may include such items as 
equipment, office supplies, laboratory supplies, or workshop and 
classroom supplies. Value assessed to donated property included in the 
cost sharing or matching share must not exceed the fair market value of 
the property at the time of the donation.
    (h) The method used for determining cost sharing or matching for 
third-party-donated equipment, buildings

[[Page 256]]

and land for which title passes to the non-Federal entity may differ 
according to the purpose of the Federal award, if paragraph (h)(1) or 
(2) of this section applies.
    (1) If the purpose of the Federal award is to assist the non-Federal 
entity in the acquisition of equipment, buildings or land, the aggregate 
value of the donated property may be claimed as cost sharing or 
matching.
    (2) If the purpose of the Federal award is to support activities 
that require the use of equipment, buildings or land, normally only 
depreciation charges for equipment and buildings may be made. However, 
the fair market 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. See also Sec. 75.420.
    (i) The value of donated property must be determined in accordance 
with the usual accounting policies of the non-Federal entity, with the 
following qualifications:
    (1) The value of donated land and buildings must not exceed its fair 
market value at the time of donation to the non-Federal entity 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 non-Federal entity as 
required by the Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970, as amended, (42 U.S.C. 4601-4655) 
(Uniform Act) except as provided in the implementing regulations at 49 
CFR part 24.
    (2) The value of donated equipment must 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 must 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 must not exceed its fair rental 
value.
    (j) For third-party in-kind contributions, the fair market value of 
goods and services must be documented and to the extent feasible 
supported by the same methods used internally by the non-Federal entity.
    (k) For IHEs, see also OMB memorandum M-01-06, dated January 5, 
2001, Clarification of OMB A-21 Treatment of Voluntary Uncommitted Cost 
Sharing and Tuition Remission Costs.



Sec. 75.307  Program income.

    (a) General. Non-Federal entities are encouraged to earn income to 
defray program costs where appropriate.
    (b) Cost of generating program income. If authorized by Federal 
regulations or the Federal award, costs incidental 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 Federal award.
    (c) Governmental revenues. Taxes, special assessments, levies, 
fines, and other such revenues raised by a non-Federal entity are not 
program income unless the revenues are specifically identified in the 
Federal award or HHS awarding agency regulations as program income.
    (1) The Patent and Trademark Laws Amendments, 34 U.S.C. 200-212, 
apply to inventions made under an award for performance of experimental, 
developmental, or research work.
    (2) Unless the terms and conditions for the Federal 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 a Federal 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 HHS awarding 
agency rights to inventions made by the recipient.
    (d) Property. Proceeds from the sale of real property, equipment, or 
supplies, are not program income; such proceeds will be handled in 
accordance with the requirements of subpart D of this part, Sec. Sec. 
75.318, 75.320, and 75.321, or as specifically identified in Federal 
statutes, regulations, or the terms and conditions of the Federal award.
    (e) Use of program income. If the HHS awarding agency does not 
specify in its

[[Page 257]]

regulations or the terms and conditions of the Federal award, or give 
prior approval for how program income is to be used, paragraph (e)(1) of 
this section must apply. For Federal awards made to IHEs and nonprofit 
research institutions, if the HHS awarding agency does not specify in 
its regulations or the terms and conditions of the Federal award how 
program income is to be used, paragraph (e)(2) of this section must 
apply unless the recipient is subject to conditions under Sec. 75.207 
or Sec. 75.215. In specifying alternatives to paragraphs (e)(1) and (2) 
of this section, the HHS awarding agency may distinguish between income 
earned by the recipient and income earned by subrecipients and between 
the sources, kinds, or amounts of income. When the HHS awarding agency 
authorizes the approaches in paragraphs (e)(2) and (3) of this section, 
program income in excess of any amounts specified must also be deducted 
from expenditures.
    (1) Deduction. Ordinarily program income must be deducted from total 
allowable costs to determine the net allowable costs. Program income 
must be used for current costs unless the HHS awarding agency authorizes 
otherwise. Program income that the non-Federal entity did not anticipate 
at the time of the Federal award must be used to reduce the Federal 
award and non-Federal entity contributions rather than to increase the 
funds committed to the project.
    (2) Addition. With prior approval of the HHS awarding agency (except 
for IHEs and nonprofit research institutions, as described in paragraph 
(e) of this section), program income may be added to the Federal award 
by the Federal agency and the non-Federal entity. The program income 
must be used for the purposes and under the conditions of the Federal 
award.
    (3) Cost sharing or matching. With prior approval of the HHS 
awarding agency, program income may be used to meet the cost sharing or 
matching requirement of the Federal award. The amount of the Federal 
award remains the same.
    (f) Income after the period of performance. There are no Federal 
requirements governing the disposition of income earned after the end of 
the period of performance for the Federal award, unless the HHS awarding 
agency regulations or the terms and conditions of the award provide 
otherwise. The HHS awarding agency may negotiate agreements with 
recipients regarding appropriate uses of income earned after the period 
of performance as part of the grant closeout process. See also Sec. 
75.381.
    (g) Unless the Federal statute, regulations, or terms and conditions 
for the Federal award provide otherwise, the non-Federal entity has no 
obligation to the HHS awarding agency with respect to program income 
earned from license fees and royalties for copyrighted material, 
patents, patent applications, trademarks, and inventions made under a 
Federal award to which 37 CFR part 401, ``Rights to Inventions Made by 
Nonprofit Organizations and Small Business Firms under Government 
Awards, Contracts and Cooperative Agreements'' is applicable.



Sec. 75.308  Revision of budget and program plans.

    (a) The approved budget for the Federal award summarizes the 
financial aspects of the project or program as approved during the 
Federal award process. It may include either the Federal and non-Federal 
share (see Sec. 75.2 Federal share) or only the Federal share, 
depending upon HHS awarding agency requirements. It must be related to 
performance for program evaluation purposes whenever appropriate.
    (b) Recipients are required to report deviations from budget or 
project scope or objective, and request prior approvals from HHS 
awarding agencies for budget and program plan revisions, in accordance 
with this section.
    (c) For non-construction Federal awards, recipients must request 
prior approvals from HHS awarding agencies 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 a key person specified in the application or the 
Federal award.
    (3) The disengagement from the project for more than three months, 
or a 25 percent reduction in time devoted

[[Page 258]]

to the project, by the approved project director or principal 
investigator.
    (4) The inclusion, unless waived by the HHS awarding agency, of 
costs that require prior approval in accordance with subpart E of this 
part or appendix IX of this part, or 48 CFR part 31, as applicable.
    (5) The transfer of funds budgeted for participant support costs as 
defined in Sec. 75.2 Participant support costs to other categories of 
expense.
    (6) Unless described in the application and funded in the approved 
Federal awards, the subawarding, transferring or contracting out of any 
work under a Federal award. This provision does not apply to the 
acquisition of supplies, material, equipment or general support 
services.
    (7) Changes in the approved cost-sharing or matching provided by the 
non-Federal entity. No other prior approval requirements for specific 
items may be imposed unless an exception has been approved by OMB. See 
also Sec. Sec. 75.102 and 75.407.
    (8) A fixed amount subaward as described in Sec. 75.353.
    (9) The inclusion of research patient care costs in research awards 
made for the performance of research work.
    (10) The provision of subawards by a pass-through entity on fixed 
amounts up to the Simplified Acquisition Threshold, provided that the 
subawards meet the requirements for fixed amount awards in Sec. 75.201. 
See Sec. 75.353.
    (11) The recipient wishes to dispose of, replace, or encumber title 
to real property, equipment, or intangible property that are acquired or 
improved with a Federal award. See Sec. Sec. 75.318, 75.320, 75.322, 
and 75.323.
    (12) The need arises for additional Federal funds to complete the 
project.
    (d) Except for requirements listed in paragraph (c)(1) of this 
section, the HHS awarding agencies are authorized, at their option, to 
waive prior written approvals required by paragraph (c) this section. 
Such waivers may include authorizing recipients to do any one or more of 
the following:
    (1) Incur project costs 90 calendar days before the HHS awarding 
agency makes the Federal award. Expenses more than 90 calendar days pre-
award require prior approval of the HHS awarding agency. All costs 
incurred before the HHS awarding agency makes the Federal award are at 
the recipient's risk (i.e., the HHS awarding agency is under no 
obligation to reimburse such costs if for any reason the recipient does 
not receive a Federal award or if the Federal award is less than 
anticipated and inadequate to cover such costs). See also Sec. 75.458.
    (2) Initiate a one-time extension of the period of performance by up 
to 12 months unless one or more of the conditions outlined in paragraphs 
(d)(2)(i) through (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 period of performance at least 10 
calendar days before the end of the period of performance specified in 
the Federal award. This one-time extension may not be exercised merely 
for the purpose of using unobligated balances. Extensions require 
explicit prior HHS awarding agency approval when:
    (i) The terms and conditions of the Federal award prohibit the 
extension.
    (ii) The extension requires additional Federal funds.
    (iii) The extension involves any change in the approved objectives 
or scope of the project.
    (3) Carry forward unobligated balances to subsequent periods of 
performance.
    (4) For Federal awards that support research, unless the HHS 
awarding agency provides otherwise in the Federal award or in the HHS 
awarding agency's regulations, the prior approval requirements described 
in paragraph (d) are automatically waived (i.e., recipients need not 
obtain such prior approvals) unless one of the conditions included in 
paragraph (d)(2) applies.
    (e) The HHS awarding agency may, at its option, restrict the 
transfer of funds among direct cost categories or programs, functions 
and activities for Federal awards in which the Federal share of the 
project exceeds the Simplified Acquisition Threshold and the cumulative 
amount of such transfers exceeds or is expected to exceed 10 percent of 
the total budget as last approved by the HHS awarding agency.

[[Page 259]]

The HHS awarding agency cannot permit a transfer that would cause any 
Federal appropriation to be used for purposes other than those 
consistent with the appropriation.
    (f) All other changes to non-construction budgets, except for the 
changes described in paragraph (c) of this section, do not require prior 
approval (see also Sec. 75.407).
    (g) For construction Federal awards, the recipient must request 
prior written approval promptly from the HHS awarding agency for budget 
revisions whenever paragraph (g)(1), (2), or (3) of this section 
applies.
    (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.
    (3) A revision is desired which involves specific costs for which 
prior written approval requirements may be imposed consistent with 
applicable OMB cost principles listed in subpart E of this part.
    (4) No other prior approval requirements for budget revisions may be 
imposed unless an exception has been approved by OMB.
    (5) When an HHS awarding agency makes a Federal award that provides 
support for construction and non-construction work, the HHS awarding 
agency may require the recipient to obtain prior approval from the HHS 
awarding agency before making any fund or budget transfers between the 
two types of work supported.
    (h) When requesting approval for budget revisions, the recipient 
must use the same format for budget information that was used in the 
application, unless the HHS awarding agency indicates a letter of 
request suffices.
    (i) Within 30 calendar days from the date of receipt of the request 
for budget revisions, the HHS awarding agency must review the request 
and notify the recipient whether the budget revisions have been 
approved. If the 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 the decision.
    (j) 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 awarding agency that made the award or 
subordinate official with proper delegated authority from the Head, 
including the Head of the Regional Office of the HHS awarding agency 
that made the award; or
    (2) The responsible Grants Officer of the HHS awarding agency that 
made the award or an individual duly authorized by the Grants Officer.



Sec. 75.309  Period of performance and availability of funds.

    (a) A non-Federal entity may charge to the Federal award only 
allowable costs incurred during the period of performance (except as 
described in Sec. 75.461) and any costs incurred before the HHS 
awarding agency or pass-through entity made the Federal award that were 
authorized by the Federal awarding agency or pass-through entity. Funds 
available to pay allowable costs during the period of performance 
include both Federal funds awarded and carryover balances.
    (b) A non-Federal entity 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 final Federal Financial Report (FFR). This deadline 
may be extended with prior written approval from the HHS awarding 
agency.



Sec. Sec. 75.310-75.315  [Reserved]

                           Property Standards



Sec. 75.316  Purpose of property standards.

    Sections 75.317 through 75.323 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 these sections.

[[Page 260]]



Sec. 75.317  Insurance coverage.

    The non-Federal entity must, at a minimum, provide the equivalent 
insurance coverage for real property and equipment acquired or improved 
with Federal funds as provided to other property owned by the non-
Federal entity. Federally-owned property need not be insured unless 
required by the terms and conditions of the Federal award.



Sec. 75.318  Real property.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to real property acquired or improved under a 
Federal award will vest upon acquisition in the non-Federal entity.
    (b) Use. (1) Except as otherwise provided by Federal statutes or by 
the HHS awarding agency, real property will be used for the originally 
authorized purpose as long as needed for that purpose, during which time 
the non-Federal entity must not dispose of or encumber its title or 
other interests.
    (2) The non-Federal entity 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 purpose consistent with those 
authorized for support by the HHS awarding agency.
    (c) Disposition. When real property is no longer needed as provided 
in subsection (b), the non-Federal entity must obtain disposition 
instructions from the HHS awarding agency or pass-through entity. The 
instructions must provide for one of the following alternatives:
    (1) Retain title after compensating the HHS awarding agency. The 
amount paid to the HHS awarding agency will be computed by applying the 
HHS awarding agency's percentage of participation in the cost of the 
original purchase (and costs of any improvements) to the fair market 
value of the property. However, in those situations where the non-
Federal entity is disposing of real property acquired or improved with a 
Federal award and acquiring replacement real property under the same 
Federal award, the net proceeds from the disposition may be used as an 
offset to the cost of the replacement property.
    (2) Sell the property and compensate the HHS awarding agency. The 
amount due to the HHS awarding agency will be calculated by applying the 
HHS awarding agency's percentage of participation in the cost of the 
original purchase (and cost of any improvements) to the proceeds of the 
sale after deduction of any actual and reasonable selling and fixing-up 
expenses. If the Federal award has not been closed out, the net proceeds 
from sale may be offset against the original cost of the property. When 
the non-Federal entity is directed to sell property, sales procedures 
must be followed that provide for competition to the extent practicable 
and result in the highest possible return.
    (3) Transfer title to the HHS awarding agency or to a third party 
designated/approved by the HHS awarding agency. The non-Federal entity 
is entitled to be paid an amount calculated by applying the non-Federal 
entity's percentage of participation in the purchase of the real 
property (and cost of any improvements) to the current fair market value 
of the property.



Sec. 75.319  Federally-owned and exempt property.

    (a) Title to Federally-owned property remains vested in the Federal 
Government. The non-Federal entity must submit annually an inventory 
listing of Federally-owned property in its custody to the HHS awarding 
agency. Upon completion of the Federal award or when the property is no 
longer needed, the non-Federal entity must report the property to the 
HHS awarding agency for further Federal agency utilization.
    (b) If the HHS awarding agency has no further need for the property, 
it must declare the property excess and report it for disposal to the 
appropriate Federal disposal authority, 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

[[Page 261]]

Transfer Act (15 U.S.C. 3710 (i)) to donate research equipment to 
educational and non-profit organizations in accordance with Executive 
Order 12999). The HHS awarding agency must issue appropriate 
instructions to the non-Federal entity.
    (c) Exempt Federally-owned property means property acquired under a 
Federal award where the HHS awarding agency has chosen to vest title to 
the property to the non-Federal entity without further obligation to the 
Federal Government, based upon the explicit terms and conditions of the 
Federal award. The HHS awarding agency may exercise this option when 
statutory authority exists. Absent statutory authority and specific 
terms and conditions of the Federal award, title to exempt Federally-
owned property acquired under the Federal award remains with the Federal 
Government.



Sec. 75.320  Equipment.

    See also Sec. 75.439.
    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to equipment acquired under a Federal award will 
vest upon acquisition in the non-Federal entity. Unless a statute 
specifically authorizes the Federal agency to vest title in the non-
Federal entity without further obligation to the Federal Government, and 
the Federal agency elects to do so, the title must be a conditional 
title. Title must vest in the non-Federal entity subject to the 
following conditions:
    (1) Use the equipment for the authorized purposes of the project 
during the period of performance, or until the property is no longer 
needed for the purposes of the project.
    (2) Not encumber the property without approval of the HHS awarding 
agency or pass-through entity.
    (3) Use and dispose of the property in accordance with paragraphs 
(b), (c) and (e) of this section.
    (b) A state must use, manage and dispose of equipment acquired under 
a Federal award by the state in accordance with state laws and 
procedures. Other non-Federal entities must follow paragraphs (c) 
through (e) of this section.
    (c) Use. (1) Equipment must be used by the non-Federal entity 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 the Federal 
award, and the non-Federal entity must not encumber the property without 
prior approval of the HHS awarding agency. When no longer needed for the 
original program or project, the equipment may be used in other 
activities supported by the HHS awarding agency, in the following order 
of priority:
    (i) Activities under a Federal award from the HHS awarding agency 
which funded the original program or project, then
    (ii) Activities under Federal awards from other HHS awarding 
agencies. This includes consolidated equipment for information 
technology systems.
    (2) During the time that equipment is used on the project or program 
for which it was acquired, the non-Federal entity must also make the 
equipment available for use on other projects or programs currently or 
previously supported by the Federal Government, provided that such use 
will not interfere with the work on the projects or program for which it 
was originally acquired. First preference for other use must be given to 
other programs or projects supported by the HHS awarding agency that 
financed the equipment and second preference must be given to programs 
or projects under Federal awards from other Federal awarding agencies. 
Use for non-federally-funded programs or projects is also permissible. 
User fees should be considered if appropriate.
    (3) Notwithstanding the encouragement in Sec. 75.307 to earn 
program income, the non-Federal entity must not use equipment acquired 
with the Federal award to provide services for a fee that is less than 
private companies charge for equivalent services unless specifically 
authorized by Federal statute for as long as the Federal Government 
retains an interest in the equipment.
    (4) When acquiring replacement equipment, the non-Federal entity 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 HHS awarding agency.

[[Page 262]]

    (d) Management requirements. Procedures for managing equipment 
(including replacement equipment), whether acquired in whole or in part 
under a Federal award, 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 funding for the property (including the FAIN), who holds 
title, the acquisition date, and cost of the property, percentage of 
Federal participation in the project costs for the Federal award under 
which the property was acquired, 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 must be investigated.
    (4) Adequate maintenance procedures must be developed to keep the 
property in good condition.
    (5) If the non-Federal entity 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 Federal award is no longer needed for the original project or 
program or for other activities currently or previously supported by a 
HHS awarding agency, except as otherwise provided in Federal statutes, 
regulations, or HHS awarding agency disposition instructions, the non-
Federal entity must request disposition instructions from the HHS 
awarding agency if required by the terms and conditions of the Federal 
award. Disposition of the equipment will be made as follows, in 
accordance with HHS awarding agency disposition instructions:
    (1) Items of equipment with a current per unit fair market value of 
$5,000 or less may be retained, sold or otherwise disposed of with no 
further obligation to the HHS awarding agency.
    (2) Except as provided in Sec. 75.319(b), or if the HHS awarding 
agency fails to provide requested disposition instructions within 120 
days, items of equipment with a current per-unit fair-market value in 
excess of $5,000 may be retained by the non-Federal entity or sold. The 
HHS awarding agency is entitled to an amount calculated by multiplying 
the current market value or proceeds from sale by the HHS awarding 
agency's percentage of participation in the cost of the original 
purchase. If the equipment is sold, the HHS awarding agency may permit 
the non-Federal entity to deduct and retain from the Federal share $500 
or ten percent of the proceeds, whichever is less, for its selling and 
handling expenses.
    (3) The non-Federal entity may transfer title to the property to the 
Federal Government or to an eligible third party provided that, in such 
cases, the non-Federal entity must be entitled to compensation for its 
attributable percentage of the current fair market value of the 
property.
    (4) In cases where a non-Federal entity fails to take appropriate 
disposition actions, the HHS awarding agency may direct the non-Federal 
entity to take disposition actions.



Sec. 75.321  Supplies.

    See also Sec. 75.453.
    (a) Title to supplies will vest in the non-Federal entity upon 
acquisition. If there is a residual inventory of unused supplies 
exceeding $5,000 in total aggregate value upon termination or completion 
of the project or program and the supplies are not needed for any other 
Federal award, the non-Federal entity must retain the supplies for use 
on other activities or sell them, but must, in either case, compensate 
the Federal Government for its share. The amount of compensation must be 
computed in the same manner as for equipment. See Sec. 75.320(e)(2) for 
the calculation methodology.
    (b) As long as the Federal Government retains an interest in the 
supplies, the non-Federal entity must not use supplies acquired under a 
Federal

[[Page 263]]

award to provide services to other organizations for a fee that is less 
than private companies charge for equivalent services, unless 
specifically authorized by Federal statute.



Sec. 75.322  Intangible property and copyrights.

    (a) Title to intangible property (see Sec. 75.2 Intangible 
property) acquired under a Federal award vests upon acquisition in the 
non-Federal entity. The non-Federal entity must use that property for 
the originally-authorized purpose, and must 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 must occur in accordance with the provisions in Sec. 
75.320(e).
    (b) The non-Federal entity may copyright any work that is subject to 
copyright and was developed, or for which ownership was acquired, under 
a Federal 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.
    (c) The non-Federal entity is subject to applicable regulations 
governing patents and inventions, including government-wide regulations 
issued by the Department of Commerce at 37 CFR part 401.
    (d) The Federal Government has the right to:
    (1) Obtain, reproduce, publish, or otherwise use the data produced 
under a Federal award; and
    (2) Authorize others to receive, reproduce, publish, or otherwise 
use such data
    (e) Freedom of Information Act (FOIA). (1) In response to a Freedom 
of Information Act (FOIA) request for research data relating to 
published research findings produced under a Federal 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 must request, and 
the non-Federal entity must 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 HHS 
awarding agency may charge the requester a reasonable fee equaling the 
full incremental cost of obtaining the research data. This fee should 
reflect costs incurred by the Federal agency and the non-Federal entity. 
This fee is in addition to any fees the HHS awarding agency may assess 
under the FOIA (5 U.S.C. 552(a)(4)(A)).
    (2) Published research findings means when:
    (i) Research findings are published in a peer-reviewed scientific or 
technical journal; or
    (ii) A Federal agency publicly and officially cites the research 
findings in support of an agency action that has the force and effect of 
law. ``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) Research data means 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:
    (i) 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
    (ii) 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.
    (f) The requirements set forth in paragraph (e)(1) of this section 
do not apply to commercial organizations



Sec. 75.323  Property trust relationship.

    Real property, equipment, and intangible property, that are acquired 
or improved with a Federal award must be

[[Page 264]]

held in trust by the non-Federal entity as trustee for the beneficiaries 
of the project or program under which the property was acquired or 
improved. The HHS awarding agency may require the non-Federal entity to 
record liens or other appropriate notices of record to indicate that 
personal or real property has been acquired or improved with a Federal 
award and that use and disposition conditions apply to the property.



Sec. Sec. 75.324-75.325  [Reserved]

                          Procurement Standards



Sec. 75.326  Procurements by states.

    When procuring property and services under a Federal award, a state 
must follow the same policies and procedures it uses for procurements 
from its non-Federal funds. The state will comply with Sec. 75.331 and 
ensure that every purchase order or other contract includes any clauses 
required by Sec. 75.335. All other non-Federal entities, including 
subrecipients of a state, will follow Sec. Sec. 75.327 through 75.335.



Sec. 75.327  General procurement standards.

    (a) The non-Federal entity must use its own documented procurement 
procedures which reflect applicable State, local, and tribal laws and 
regulations, provided that the procurements conform to applicable 
Federal law and the standards identified in this part.
    (b) Non-Federal entities must maintain oversight to ensure that 
contractors perform in accordance with the terms, conditions, and 
specifications of their contracts or purchase orders.
    (c)(1) The non-Federal entity must maintain written standards of 
conduct covering conflicts of interest and governing the actions of its 
employees engaged in the selection, award and administration of 
contracts. No employee, officer, or agent may participate in the 
selection, award, or administration of a contract supported by a Federal 
award if he or she has a real or apparent conflict of interest. Such a 
conflict of interest would arise when the employee, officer, or agent, 
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 or a tangible 
personal benefit from a firm considered for a contract. The officers, 
employees, and agents of the non-Federal entity may neither solicit nor 
accept gratuities, favors, or anything of monetary value from 
contractors or parties to subcontracts. However, non-Federal entities 
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 must provide for disciplinary actions to be applied 
for violations of such standards by officers, employees, or agents of 
the non-Federal entity.
    (2) If the non-Federal entity has a parent, affiliate, or subsidiary 
organization that is not a state, local government, or Indian tribe, the 
non-Federal entity must also maintain written standards of conduct 
covering organizational conflicts of interest. Organizational conflicts 
of interest means that because of relationships with a parent company, 
affiliate, or subsidiary organization, the non-Federal entity is unable 
or appears to be unable to be impartial in conducting a procurement 
action involving a related organization.
    (d) The non-Federal entity's procedures must avoid acquisition 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.
    (e) To foster greater economy and efficiency, and in accordance with 
efforts to promote cost-effective use of shared services across the 
Federal Government, the non-Federal entity is encouraged to enter into 
state and local intergovernmental agreements or inter-entity agreements 
where appropriate for procurement or use of common or shared goods and 
services.
    (f) The non-Federal entity is encouraged to use Federal excess and 
surplus property in lieu of purchasing new equipment and property 
whenever such

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use is feasible and reduces project costs.
    (g) The non-Federal entity is 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 analysis of each contract item or task to 
ensure that its essential function is provided at the overall lower 
cost.
    (h) The non-Federal entity must award contracts 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. In certain circumstances, contracts with certain parties are 
restricted by agencies' implementation of Executive Orders 12549 and 
12689. (See 2 CFR part 376.)
    (i) The non-Federal entity must maintain records sufficient to 
detail the history of 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.
    (j)(1) The non-Federal entity may use a time and materials type 
contract only after a determination that no other contract is suitable 
and if the contract includes a ceiling price that the contractor exceeds 
at its own risk. Time and materials type contract means a contract whose 
cost to a non-Federal entity is the sum of:
    (i) The actual cost of materials; and
    (ii) Direct labor hours charged at fixed hourly rates that reflect 
wages, general and administrative expenses, and profit.
    (2) Since this formula generates an open-ended contract price, a 
time-and-materials contract provides no positive profit incentive to the 
contractor for cost control or labor efficiency. Therefore, each 
contract must set a ceiling price that the contractor exceeds at its own 
risk. Further, the non-Federal entity awarding such a contract must 
assert a high degree of oversight in order to obtain reasonable 
assurance that the contractor is using efficient methods and effective 
cost controls.
    (k) The non-Federal entity alone must 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 non-Federal entity of any contractual responsibilities under 
its contracts. The HHS awarding agency will not substitute its judgment 
for that of the non-Federal entity unless the matter is primarily a 
Federal concern. Violations of law will be referred to the local, 
tribal, state, or Federal authority having proper jurisdiction.
    (l) The type of procuring instruments used must 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.



Sec. 75.328  Competition.

    (a) All procurement transactions must be conducted in a manner 
providing full and open competition consistent with the standards of 
this section. In order to ensure objective contractor performance and 
eliminate unfair competitive advantage, contractors that develop or 
draft specifications, requirements, statements of work, or invitations 
for bids or requests for proposals must be excluded from competing for 
such procurements. Some of the situations considered to be restrictive 
of competition include but are not limited to:
    (1) Placing unreasonable requirements on firms in order for them to 
qualify to do business;
    (2) Requiring unnecessary experience and excessive bonding;
    (3) Noncompetitive pricing practices between firms or between 
affiliated companies;
    (4) Noncompetitive contracts to consultants that are on retainer 
contracts;
    (5) Organizational conflicts of interest;
    (6) Specifying only a ``brand name'' product instead of allowing 
``an equal''

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product to be offered and describing the performance or other relevant 
requirements of the procurement; and
    (7) Any arbitrary action in the procurement process.
    (b) The non-Federal entity must conduct procurements in a manner 
that prohibits the use of statutorily or administratively imposed state, 
local, or tribal 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 criterion provided its application leaves an appropriate 
number of qualified firms, given the nature and size of the project, to 
compete for the contract.
    (c) The non-Federal entity must have written procedures for 
procurement transactions. These procedures must ensure that all 
solicitations:
    (1) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. Such 
description must 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, must 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 equivalent'' description may be used as a means to 
define the performance or other salient requirements of procurement. The 
specific features of the named brand which must be met by offers must be 
clearly stated; and
    (2) Identify all requirements which the offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.
    (d) The non-Federal entity must 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, the non-Federal entity must not 
preclude potential bidders from qualifying during the solicitation 
period.



Sec. 75.329  Procurement procedures.

    The non-Federal entity must use one of the following methods of 
procurement.
    (a) Procurement by micro-purchases. Procurement by micro-purchase is 
the acquisition of supplies or services, the aggregate dollar amount of 
which does not exceed the micro-purchase threshold (See micro-purchase). 
To the extent practicable, the non-Federal entity must distribute micro-
purchases equitably among qualified suppliers. Micro-purchases may be 
awarded without soliciting competitive quotations if the non-Federal 
entity considers the price to be reasonable.
    (b) 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. If small purchase procedures 
are used, price or rate quotations must be obtained from an adequate 
number of qualified sources.
    (c) 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 paragraph (c)(1) of this 
section apply.
    (1) In order for sealed bidding to be feasible, the following 
conditions should be present:
    (i) A complete, adequate, and realistic specification or purchase 
description is available;
    (ii) Two or more responsible bidders are willing and able to compete 
effectively for the business; and

[[Page 267]]

    (iii) 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.
    (2) If sealed bids are used, the following requirements apply:
    (i) Bids must be solicited from an adequate number of known 
suppliers, providing them sufficient response time prior to the date set 
for opening the bids, for state, local, and tribal governments, the 
invitation for bids must be publically advertised;
    (ii) The invitation for bids, which will include any specifications 
and pertinent attachments, must define the items or services in order 
for the bidder to properly respond;
    (iii) All bids will be opened at the time and place prescribed in 
the invitation for bids, for state, local, and tribal governments, the 
bids must be opened publically;
    (iv) 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 must 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
    (v) Any or all bids may be rejected if there is a sound documented 
reason.
    (d) 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:
    (1) Requests for proposals must be publicized and identify all 
evaluation factors and their relative importance. Any response to 
publicized requests for proposals must be considered to the maximum 
extent practical;
    (2) Proposals must be solicited from an adequate number of qualified 
sources;
    (3) The non-Federal entity must have a written method for conducting 
technical evaluations of the proposals received and for selecting 
recipients;
    (4) Contracts must be awarded to the responsible firm whose proposal 
is most advantageous to the program, with price and other factors 
considered; and
    (5) The non-Federal entity 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.
    (e) [Reserved]
    (f) Procurement by noncompetitive proposals. Procurement by 
noncompetitive proposals is procurement through solicitation of a 
proposal from only one source and may be used only when one or more of 
the following circumstances apply:
    (1) The item is available only from a single source;
    (2) The public exigency or emergency for the requirement will not 
permit a delay resulting from competitive solicitation;
    (3) The HHS awarding agency or pass-through entity expressly 
authorizes noncompetitive proposals in response to a written request 
from the non-Federal entity; or
    (4) After solicitation of a number of sources, competition is 
determined inadequate.



Sec. 75.330  Contracting with small and minority businesses, women's 
business enterprises, and labor surplus area firms.

    (a) The non-Federal entity must take all necessary affirmative steps 
to assure that minority businesses, women's business enterprises, and 
labor surplus area firms are used when possible.
    (b) Affirmative steps must include:
    (1) Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;

[[Page 268]]

    (2) Assuring that small and minority businesses, and women's 
business enterprises are solicited whenever they are potential sources;
    (3) Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small and 
minority businesses, and women's business enterprises;
    (4) Establishing delivery schedules, where the requirement permits, 
which encourage participation by small and minority businesses, and 
women's business enterprises;
    (5) Using the services and assistance, as appropriate, of such 
organizations as the Small Business Administration and the Minority 
Business Development Agency of the Department of Commerce; and
    (6) Requiring the prime contractor, if subcontracts are to be let, 
to take the affirmative steps listed in paragraphs (b)(1) through (5) of 
this section.



Sec. 75.331  Procurement of recovered materials.

    A non-Federal entity that is a state agency or agency of a political 
subdivision of a state and its contractors must comply with section 6002 
of the Solid Waste Disposal Act, as amended by the Resource Conservation 
and Recovery Act. The requirements of Section 6002 include procuring 
only items designated in guidelines of the Environmental Protection 
Agency (EPA) at 40 CFR part 247 that contain the highest percentage of 
recovered materials practicable, consistent with maintaining a 
satisfactory level of competition, where the purchase price of the item 
exceeds $10,000 or the value of the quantity acquired during the 
preceding fiscal year exceeded $10,000; procuring solid waste management 
services in a manner that maximizes energy and resource recovery; and 
establishing an affirmative procurement program for procurement of 
recovered materials identified in the EPA guidelines.



Sec. 75.332  Contract cost and price.

    (a) The non-Federal entity must perform a cost or price analysis in 
connection with every procurement action in excess of the Simplified 
Acquisition Threshold including contract modifications. The method and 
degree of analysis is dependent on the facts surrounding the particular 
procurement situation, but as a starting point, the non-Federal entity 
must make independent estimates before receiving bids or proposals.
    (b) The non-Federal entity must 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 must 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.
    (c) Costs or prices based on estimated costs for contracts under the 
Federal award are allowable only to the extent that costs incurred or 
cost estimates included in negotiated prices would be allowable for the 
non-Federal entity under subpart E of this part. The non-Federal entity 
may reference its own cost principles that comply with the Federal cost 
principles.
    (d) The cost plus a percentage of cost and percentage of 
construction cost methods of contracting must not be used.



Sec. 75.333  HHS awarding agency or pass-through entity review.

    (a) The non-Federal entity must make available, upon request of the 
HHS awarding agency or pass-through entity, technical specifications on 
proposed procurements where the HHS awarding agency or pass-through 
entity believes such review is needed to ensure that the item or service 
specified is the one being proposed for acquisition. This review 
generally will take place prior to the time the specification is 
incorporated into a solicitation document. However, if the non-Federal 
entity desires to have the review accomplished after a solicitation has 
been developed, the HHS awarding agency or pass-through entity may still 
review the specifications, with such review usually limited to the

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technical aspects of the proposed purchase.
    (b) The non-Federal entity must make available upon request, for the 
HHS awarding agency or pass-through entity pre-procurement review, 
procurement documents, such as requests for proposals or invitations for 
bids, or independent cost estimates, when:
    (1) The non-Federal entity'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 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 contract 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
    (5) A proposed contract modification changes the scope of a contract 
or increases the contract amount by more than the Simplified Acquisition 
Threshold.
    (c) The non-Federal entity is exempt from the pre-procurement review 
in paragraph (b) of this section if the HHS awarding agency or pass-
through entity determines that its procurement systems comply with the 
standards of this part.
    (1) The non-Federal entity may request that its procurement system 
be reviewed by the HHS awarding agency or pass-through entity to 
determine whether its system meets these standards in order for its 
system to be certified. Generally, these reviews must occur where there 
is continuous high-dollar funding, and third party contracts are awarded 
on a regular basis;
    (2) The non-Federal entity may self-certify its procurement system. 
Such self-certification must not limit the HHS awarding agency's right 
to survey the system. Under a self-certification procedure, the HHS 
awarding agency may rely on written assurances from the non-Federal 
entity that it is complying with these standards. The non-Federal entity 
must cite specific policies, procedures, regulations, or standards as 
being in compliance with these requirements and have its system 
available for review.



Sec. 75.334  Bonding requirements.

    For construction or facility improvement contracts or subcontracts 
exceeding the Simplified Acquisition Threshold, the HHS awarding agency 
or pass-through entity may accept the bonding policy and requirements of 
the non-Federal entity provided that the HHS awarding agency or pass-
through entity has made a determination that the Federal interest is 
adequately protected. If such a determination has not been made, the 
minimum requirements must be as follows:
    (a) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' must 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 
the bid, execute such contractual documents as may be required within 
the time specified.
    (b) 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.
    (c) 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.
    (d) 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.



Sec. 75.335  Contract provisions.

    The non-Federal entity's contracts must contain the applicable 
provisions described in appendix II to this part.

[[Page 270]]



Sec. Sec. 75.336-75.340  [Reserved]

           Performance and Financial Monitoring and Reporting



Sec. 75.341  Financial reporting.

    Unless otherwise approved by OMB, the HHS awarding agency may 
solicit only the standard, OMB-approved government-wide data elements 
for collection of financial information (at time of publication the 
Federal Financial Report or such future collections as may be approved 
by OMB and listed on the OMB Web site). This information must be 
collected with the frequency required by the terms and conditions of the 
Federal award, but no less frequently than annually nor more frequently 
than quarterly except in unusual circumstances, for example where more 
frequent reporting is necessary for the effective monitoring of the 
Federal award or could significantly affect program outcomes, and 
preferably in coordination with performance reporting.



Sec. 75.342  Monitoring and reporting program performance.

    (a) Monitoring by the non-Federal entity. The non-Federal entity is 
responsible for oversight of the operations of the Federal award 
supported activities. The non-Federal entity must monitor its activities 
under Federal awards to assure compliance with applicable Federal 
requirements and performance expectations are being achieved. Monitoring 
by the non-Federal entity must cover each program, function or activity. 
See also Sec. 75.352.
    (b) Non-construction performance reports. The HHS awarding agency 
must use standard, OMB-approved data elements for collection of 
performance information (including performance progress reports, 
Research Performance Progress Report, or such future collections as may 
be approved by OMB and listed on the OMB Web site).
    (1) The non-Federal entity must submit performance reports at the 
interval required by the HHS awarding agency or pass-through entity to 
best inform improvements in program outcomes and productivity. Intervals 
must be no less frequent than annually nor more frequent than quarterly 
except in unusual circumstances, for example where more frequent 
reporting is necessary for the effective monitoring of the Federal award 
or could significantly affect program outcomes. Annual reports must be 
due 90 calendar days after the reporting period; quarterly or semiannual 
reports must be due 30 calendar days after the reporting period. 
Alternatively, the HHS awarding agency or pass-through entity may 
require annual reports before the anniversary dates of multiple year 
Federal awards. The final performance report will be due 90 calendar 
days after the period of performance end date. If a justified request is 
submitted by a non-Federal entity, the HHS awarding agency may extend 
the due date for any performance report.
    (2) The non-Federal entity must submit performance reports using 
OMB-approved government-wide standard information collections when 
providing performance information. As appropriate in accordance with the 
above-mentioned information collections, these reports will contain, for 
each Federal award, brief information on the following unless other 
collections are approved by OMB:
    (i) A comparison of actual accomplishments to the objectives of the 
Federal award established for the period. Where the accomplishments of 
the Federal award can be quantified, a computation of the cost (for 
example, related to units of accomplishment) may be required if that 
information will be useful. Where performance trend data and analysis 
would be informative to the HHS awarding agency program, the HHS 
awarding agency should include this as a performance reporting 
requirement.
    (ii) The reasons why established goals were not met, if appropriate.
    (iii) Additional pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (c) Construction performance reports. For the most part, onsite 
technical inspections and certified percentage of completion data are 
relied on heavily by HHS awarding agencies and pass-through entities to 
monitor progress under Federal awards and subawards for construction. 
The HHS awarding

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agency may require additional performance reports only when considered 
necessary.
    (d) Significant developments. Events may occur between the scheduled 
performance reporting dates that have significant impact upon the 
supported activity. In such cases, the non-Federal entity must inform 
the HHS awarding agency or pass-through entity 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 Federal 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 or 
different beneficial results than originally planned.
    (e) The HHS awarding agency may make site visits as warranted by 
program needs.
    (f) The HHS awarding agency may waive any performance report 
required by this part if not needed.



Sec. 75.343  Reporting on real property.

    The HHS awarding agency or pass-through entity must require a non-
Federal entity to submit reports at least annually on the status of real 
property in which the Federal Government retains an interest, unless the 
Federal interest in the real property extends 15 years or longer. In 
those instances where the Federal interest attached is for a period of 
15 years or more, the HHS awarding agency or pass-through entity, at its 
option, may require the non-Federal entity to report at various multi-
year frequencies (e.g., every two years or every three years, not to 
exceed a five-year reporting period; or an HHS awarding agency or pass-
through entity may require annual reporting for the first three years of 
a Federal award and thereafter require reporting every five years).



Sec. Sec. 75.344-75.350  [Reserved]

                 Subrecipient Monitoring and Management



Sec. 75.351  Subrecipient and contractor determinations.

    The non-Federal entity may concurrently receive Federal awards as a 
recipient, a subrecipient, and a contractor, depending on the substance 
of its agreements with HHS awarding agencies and pass-through entities. 
Therefore, a pass-through entity must make case-by-case determinations 
whether each agreement it makes for the disbursement of Federal program 
funds casts the party receiving the funds in the role of a subrecipient 
or a contractor. The HHS awarding agency may supply and require 
recipients to comply with additional guidance to support these 
determinations provided such guidance does not conflict with this 
section.
    (a) Subrecipients. A subaward is for the purpose of carrying out a 
portion of a Federal award and creates a Federal assistance relationship 
with the subrecipient. See Sec. 75.2 Subaward. Characteristics which 
support the classification of the non-Federal entity as a subrecipient 
include when the non-Federal entity:
    (1) Determines who is eligible to receive what Federal assistance;
    (2) Has its performance measured in relation to whether objectives 
of a Federal program were met;
    (3) Has responsibility for programmatic decision making;
    (4) Is responsible for adherence to applicable Federal program 
requirements specified in the Federal award; and
    (5) In accordance with its agreement, uses the Federal funds to 
carry out a program for a public purpose specified in authorizing 
statute, as opposed to providing goods or services for the benefit of 
the pass-through entity.
    (b) Contractors. A contract is for the purpose of obtaining goods 
and services for the non-Federal entity's own use and creates a 
procurement relationship with the contractor. See Sec. 75.2 Contract. 
Characteristics indicative of a procurement relationship between the 
non-Federal entity and a contractor are

[[Page 272]]

when the non-Federal entity receiving the Federal funds:
    (1) Provides the goods and services within normal business 
operations;
    (2) Provides similar goods or services to many different purchasers;
    (3) Normally operates in a competitive environment;
    (4) Provides goods or services that are ancillary to the operation 
of the Federal program; and
    (5) Is not subject to compliance requirements of the Federal program 
as a result of the agreement, though similar requirements may apply for 
other reasons.
    (c) Use of judgment in making determination. In determining whether 
an agreement between a pass-through entity and another non-Federal 
entity casts the latter as a subrecipient or a contractor, the substance 
of the relationship is more important than the form of the agreement. 
All of the characteristics listed above may not be present in all cases, 
and the pass-through entity must use judgment in classifying each 
agreement as a subaward or a procurement contract.



Sec. 75.352  Requirements for pass-through entities.

    All pass-through entities must:
    (a) Ensure that every subaward is clearly identified to the 
subrecipient as a subaward and includes the following information at the 
time of the subaward and if any of these data elements change, include 
the changes in subsequent subaward modification. When some of this 
information is not available, the pass-through entity must provide the 
best information available to describe the Federal award and subaward. 
Required information includes:
    (1) Federal Award Identification.
    (i) Subrecipient name (which must match the name associated with 
their unique entity identifier);
    (ii) Subrecipient's unique entity identifier;
    (iii) Federal Award Identification Number (FAIN);
    (iv) Federal Award Date (see Sec. 75.2 Federal award date);
    (v) Subaward Period of Performance Start and End Date;
    (vi) Amount of Federal Funds Obligated by this action;
    (vii) Total Amount of Federal Funds Obligated to the subrecipient;
    (viii) Total Amount of the Federal Award;
    (ix) Federal award project description, as required to be responsive 
to the Federal Funding Accountability and Transparency Act (FFATA);
    (x) Name of HHS awarding agency, pass-through entity, and contact 
information for awarding official,
    (xi) CFDA Number and Name; the pass-through entity must identify the 
dollar amount made available under each Federal award and the CFDA 
number at time of disbursement;
    (xii) Identification of whether the award is R&D and
    (xiii) Indirect cost rate for the Federal award (including if the de 
minimis rate is charged per Sec. 75.414).
    (2) All requirements imposed by the pass-through entity on the 
subrecipient so that the Federal award is used in accordance with 
Federal statutes, regulations and the terms and conditions of the 
Federal award.
    (3) Any additional requirements that the pass-through entity imposes 
on the subrecipient in order for the pass-through entity to meet its own 
responsibility to the HHS awarding agency including identification of 
any required financial and performance reports;
    (4) An approved federally recognized indirect cost rate negotiated 
between the subrecipient and the Federal Government or, if no such rate 
exists, either a rate negotiated between the pass-through entity and the 
subrecipient (in compliance with this part), or a de minimis indirect 
cost rate as defined in Sec. 75.414(f).
    (5) A requirement that the subrecipient permit the pass-through 
entity and auditors to have access to the subrecipient's records and 
financial statements as necessary for the pass-through entity to meet 
the requirements of this part; and
    (6) Appropriate terms and conditions concerning closeout of the 
subaward.
    (b) Evaluate each subrecipient's risk of noncompliance with Federal 
statutes, regulations, and the terms and conditions of the subaward for 
purposes

[[Page 273]]

of determining the appropriate subrecipient monitoring described in 
paragraphs (d) and (e) of this section, which may include consideration 
of such factors as:
    (1) The subrecipient's prior experience with the same or similar 
subawards;
    (2) The results of previous audits including whether or not the 
subrecipient receives a Single Audit in accordance with subpart F, and 
the extent to which the same or similar subaward has been audited as a 
major program;
    (3) Whether the subrecipient has new personnel or new or 
substantially changed systems; and
    (4) The extent and results of HHS awarding agency monitoring (e.g., 
if the subrecipient also receives Federal awards directly from a HHS 
awarding agency).
    (c) Consider imposing specific subaward conditions upon a 
subrecipient if appropriate as described in Sec. 75.207.
    (d) Monitor the activities of the subrecipient as necessary to 
ensure that the subaward is used for authorized purposes, in compliance 
with Federal statutes, regulations, and the terms and conditions of the 
subaward; and that subaward performance goals are achieved. Pass-through 
entity monitoring of the subrecipient must include:
    (1) Reviewing financial and performance reports required by the 
pass-through entity.
    (2) Following-up and ensuring that the subrecipient takes timely and 
appropriate action on all deficiencies pertaining to the Federal award 
provided to the subrecipient from the pass-through entity detected 
through audits, on-site reviews, and other means.
    (3) Issuing a management decision for audit findings pertaining to 
the Federal award provided to the subrecipient from the pass-through 
entity as required by Sec. 75.521.
    (e) Depending upon the pass-through entity's assessment of risk 
posed by the subrecipient (as described in paragraph (b) of this 
section), the following monitoring tools may be useful for the pass-
through entity to ensure proper accountability and compliance with 
program requirements and achievement of performance goals:
    (1) Providing subrecipients with training and technical assistance 
on program-related matters; and
    (2) Performing on-site reviews of the subrecipient's program 
operations;
    (3) Arranging for agreed-upon-procedures engagements as described in 
Sec. 75.425.
    (f) Verify that every subrecipient is audited as required by subpart 
F of this part when it is expected that the subrecipient's Federal 
awards expended during the respective fiscal year equaled or exceeded 
the threshold set forth in Sec. 75.501.
    (g) Consider whether the results of the subrecipient's audits, on-
site reviews, or other monitoring indicate conditions that necessitate 
adjustments to the pass-through entity's own records.
    (h) Consider taking enforcement action against noncompliant 
subrecipients as described in Sec. 75.371 and in program regulations.



Sec. 75.353  Fixed amount subawards.

    With prior written approval from the HHS awarding agency, a pass-
through entity may provide subawards based on fixed amounts up to the 
Simplified Acquisition Threshold, provided that the subawards meet the 
requirements for fixed amount awards in Sec. 75.201.



Sec. Sec. 75.354-75.360  [Reserved]

                       Record Retention and Access



Sec. 75.361  Retention requirements for records.

    Financial records, supporting documents, statistical records, and 
all other non-Federal entity records pertinent to a Federal award must 
be retained for a period of three years from the date of submission of 
the final expenditure report or, for Federal awards that are renewed 
quarterly or annually, from the date of the submission of the quarterly 
or annual financial report, respectively, as reported to the HHS 
awarding agency or pass-through entity in the case of a subrecipient. 
HHS awarding agencies and pass-through entities must not impose any 
other record retention requirements

[[Page 274]]

upon non-Federal entities. The only exceptions are the following:
    (a) If any litigation, claim, or audit is started before the 
expiration of the 3-year period, the records must be retained until all 
litigation, claims, or audit findings involving the records have been 
resolved and final action taken.
    (b) When the non-Federal entity is notified in writing by the HHS 
awarding agency, cognizant agency for audit, oversight agency for audit, 
cognizant agency for indirect costs, or pass-through entity to extend 
the retention period.
    (c) Records for real property and equipment acquired with Federal 
funds must be retained for 3 years after final disposition.
    (d) When records are transferred to or maintained by the HHS 
awarding agency or pass-through entity, the 3-year retention requirement 
is not applicable to the non-Federal entity.
    (e) Records for program income transactions after the period of 
performance. In some cases, recipients must report program income after 
the period of performance. Where there is such a requirement, the 
retention period for the records pertaining to the earning of the 
program income starts from the end of the non-Federal entity's fiscal 
year in which the program income is earned.
    (f) Indirect cost rate proposals and cost allocations plans. 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).
    (1) If submitted for negotiation. If the proposal, plan, or other 
computation is required to be submitted to the Federal Government (or to 
the pass-through entity) 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.
    (2) 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 pass-through entity) for negotiation purposes, 
then the 3-year retention period for the proposal, plan, or computation 
and its supporting records starts from the end of the fiscal year (or 
other accounting period) covered by the proposal, plan, or other 
computation.



Sec. 75.362  Requests for transfer or records.

    The HHS awarding agency must request transfer of certain records to 
its custody from the non-Federal entity 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 the non-Federal entity to retain any records that are continuously 
needed for joint use.



Sec. 75.363  Methods for collection, transmission and storage of 
information.

    In accordance with Executive Order 13642, the HHS awarding agency 
and the non-Federal entity should, whenever practicable, collect, 
transmit, and store Federal award-related information in open and 
machine readable formats rather than in closed formats or on paper. The 
HHS awarding agency or pass-through entity must always provide or accept 
paper versions of Federal award-related information to and from the non-
Federal entity upon request. If paper copies are submitted, the HHS 
awarding agency or pass-through entity must not require more than an 
original and two copies. When original records are electronic and cannot 
be altered, there is no need to create and retain paper copies. When 
original records are paper, electronic versions may be substituted 
through the use of duplication or other forms of electronic media 
provided that they are subject to periodic quality control reviews, 
provide reasonable safeguards against alteration, and remain readable.



Sec. 75.364  Access to records.

    (a) Records of non-Federal entities. The HHS awarding agency, 
Inspectors General, the Comptroller General of the United States, and 
the pass-through

[[Page 275]]

entity, or any of their authorized representatives, must have the right 
of access to any documents, papers, or other records of the non-Federal 
entity which are pertinent to the Federal award, in order to make 
audits, examinations, excerpts, and transcripts. The right also includes 
timely and reasonable access to the non-Federal entity's personnel for 
the purpose of interview and discussion related to such documents.
    (b) Only under extraordinary and rare circumstances would such 
access include review of the true name of victims of a crime. Routine 
monitoring cannot be considered extraordinary and rare circumstances 
that would necessitate access to this information. When access to the 
true name of victims of a crime is necessary, appropriate steps to 
protect this sensitive information must be taken by both the non-Federal 
entity and the HHS awarding agency. Any such access, other than under a 
court order or subpoena pursuant to a bona fide confidential 
investigation, must be approved by the head of the HHS awarding agency 
or delegate.
    (c) Expiration of right of access. The rights of access in this 
section are not limited to the required retention period but last as 
long as the records are retained. HHS awarding agencies and pass-through 
entities must not impose any other access requirements upon non-Federal 
entities.



Sec. 75.365  Restrictions on public access to records.

    No HHS awarding agency may place restrictions on the non-Federal 
entity that limit public access to the records of the non-Federal entity 
pertinent to a Federal award, except for protected personally 
identifiable information (PII) or when the HHS awarding agency can 
demonstrate that such records will be kept confidential and would have 
been exempted from disclosure pursuant to the Freedom of Information Act 
(5 U.S.C. 552) or controlled unclassified information pursuant to 
Executive Order 13556 if the records had belonged to the HHS awarding 
agency. The Freedom of Information Act (5 U.S.C. 552) (FOIA) does not 
apply to those records that remain under a non-Federal entity's control 
except as required under Sec. 75.322. Unless required by Federal, 
state, local, or tribal statute, non-Federal entities are not required 
to permit public access to their records. The non-Federal entity's 
records provided to a Federal agency generally will be subject to FOIA 
and applicable exemptions.



Sec. Sec. 75.366-75.370  [Reserved]

                       Remedies for Noncompliance



Sec. 75.371  Remedies for noncompliance.

    If a non-Federal entity fails to comply with Federal statutes, 
regulations, or the terms and conditions of a Federal award, the HHS 
awarding agency or pass-through entity may impose additional conditions, 
as described in Sec. 75.207. If the HHS awarding agency or pass-through 
entity determines that noncompliance cannot be remedied by imposing 
additional conditions, the HHS awarding agency or pass-through entity 
may take one or more of the following actions, as appropriate in the 
circumstances:
    (a) Temporarily withhold cash payments pending correction of the 
deficiency by the non-Federal entity or more severe enforcement action 
by the HHS awarding agency or pass-through entity.
    (b) 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.
    (c) Wholly or partly suspend (suspension of award activities) or 
terminate the Federal award.
    (d) Initiate suspension or debarment proceedings as authorized under 
2 CFR part 180 and HHS awarding agency regulations at 2 CFR part 376 (or 
in the case of a pass-through entity, recommend such a proceeding be 
initiated by a HHS awarding agency).
    (e) Withhold further Federal awards for the project or program.
    (f) Take other remedies that may be legally available.



Sec. 75.372  Termination.

    (a) The Federal award may be terminated in whole or in part as 
follows:
    (1) By the HHS awarding agency or pass-through entity, if a non-
Federal

[[Page 276]]

entity fails to comply with terms and conditions of a Federal award;
    (2) By the HHS awarding agency or pass-through entity for cause;
    (3) By the HHS awarding agency or pass-through entity with the 
consent of the non-Federal entity, in which case the two parties must 
agree upon the termination conditions, including the effective date and, 
in the case of partial termination, the portion to be terminated; or
    (4) By the non-Federal entity upon sending to the HHS awarding 
agency or pass-through entity 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, if the HHS 
awarding agency or pass-through entity determines in the case of partial 
termination that the reduced or modified portion of the Federal award or 
subaward will not accomplish the purposes for which the Federal award 
was made, the HHS awarding agency or pass-through entity may terminate 
the Federal award in its entirety.
    (b) When a Federal award is terminated or partially terminated, both 
the HHS awarding agency or pass-through entity and the non-Federal 
entity remain responsible for compliance with the requirements in 
Sec. Sec. 75.381 and 75.386.



Sec. 75.373  Notification of termination requirement.

    (a) The HHS awarding agency or pass-through entity must provide to 
the non-Federal entity a notice of termination.
    (b) If the Federal award is terminated for the non-Federal entity's 
failure to comply with the Federal statutes, regulations, or terms and 
conditions of the Federal award, the notification must state that the 
termination decision may be considered in evaluating future applications 
received from the non-Federal entity.
    (c) Upon termination of a Federal award, the HHS awarding agency 
must provide the information required under FFATA to the Federal Web 
site established to fulfill the requirements of FFATA, and update or 
notify any other relevant government-wide systems or entities of any 
indications of poor performance as required by 41 U.S.C. 417b and 31 
U.S.C. 3321 and implementing guidance at 2 CFR part 77 (forthcoming at 
time of publication). See also the requirements for Suspension and 
Debarment at 2 CFR part 180.



Sec. 75.374  Opportunities to object, hearings, and appeals.

    (a) Upon taking any remedy for non-compliance, the HHS awarding 
agency must provide the non-Federal entity an opportunity to object and 
provide information and documentation challenging the suspension or 
termination action, in accordance with written processes and procedures 
published by the HHS awarding agency. The HHS awarding agency or pass-
through entity must comply with any requirements for hearings, appeals 
or other administrative proceedings to which the non-Federal entity is 
entitled under any statute or regulation applicable to the action 
involved.
    (b) See also:
    (1) 42 CFR part 50, subpart D for the Public Health Service Appeals 
Procedures,
    (2) 45 CFR part 16 for the Procedures of the Departmental Appeals 
Board, and
    (3) 45 CFR part 95, subpart A for the time limits for states to file 
claims.
    (4) 45 CFR part 95, subpart E for the State cost allocation plan 
disapprovals.



Sec. 75.375  Effects of suspension and termination.

    Costs to the non-Federal entity resulting from obligations incurred 
by the non-Federal entity during a suspension or after termination of a 
Federal award or subaward are not allowable unless the HHS awarding 
agency or pass-through entity expressly authorizes them in the notice of 
suspension or termination or subsequently. However, costs during 
suspension or after termination are allowable if:
    (a) The costs result from obligations which were properly incurred 
by the non-Federal entity before the effective date of suspension or 
termination, are not in anticipation of it; and
    (b) The costs would be allowable if the Federal award was not 
suspended or expired normally at the end of the

[[Page 277]]

period of performance in which the termination takes effect.



Sec. Sec. 75.376-75.380  [Reserved]

                                Closeout



Sec. 75.381  Closeout.

    The HHS awarding agency or pass-through entity will close-out the 
Federal award when it determines that all applicable administrative 
actions and all required work of the Federal award have been completed 
by the non-Federal entity. This section specifies the actions the non-
Federal entity and HHS awarding agency or pass-through entity must take 
to complete this process at the end of the period of performance.
    (a) The non-Federal entity must submit, no later than 90 calendar 
days after the end date of the period of performance, all financial, 
performance, and other reports as required by the terms and conditions 
of the Federal award. The HHS awarding agency or pass-through entity may 
approve extensions when requested by the non-Federal entity.
    (b) Unless the HHS awarding agency or pass-through entity authorizes 
an extension, a non-Federal entity must liquidate all obligations 
incurred under the Federal award not later than 90 calendar days after 
the end date of the period of performance as specified in the terms and 
conditions of the Federal award.
    (c) The HHS awarding agency or pass-through entity must make prompt 
payments to the non-Federal entity for allowable reimbursable costs 
under the Federal award being closed out.
    (d) The non-Federal entity must promptly refund any balances of 
unobligated cash that the HHS awarding agency or pass-through entity 
paid in advance or paid and that are not authorized to be retained by 
the non-Federal entity for use in other projects. See OMB Circular A-129 
and see Sec. 75.391 for requirements regarding unreturned amounts that 
become delinquent debts.
    (e) Consistent with the terms and conditions of the Federal award, 
the HHS awarding agency or pass-through entity must make a settlement 
for any upward or downward adjustments to the Federal share of costs 
after closeout reports are received.
    (f) The non-Federal entity must account for any real and personal 
property acquired with Federal funds or received from the Federal 
Government in accordance with Sec. Sec. 75.317 through 75.323 and 
75.343.
    (g) The HHS awarding agency or pass-through entity should complete 
all closeout actions for Federal awards no later than 180 calendar days 
after receipt and acceptance of all required final reports.



Sec. Sec. 75.382-75.385  [Reserved]

        Post-Closeout Adjustments and Continuing Responsibilities



Sec. 75.386  Post-closeout adjustments and continuing responsibilities.

    (a) The closeout of a Federal award does not affect any of the 
following:
    (1) The right of the HHS awarding agency or pass-through entity to 
disallow costs and recover funds on the basis of a later audit or other 
review. The HHS awarding agency or pass-through entity must make any 
cost disallowance determination and notify the non-Federal entity within 
the record retention period.
    (2) The obligation of the non-Federal entity to return any funds due 
as a result of later refunds, corrections, or other transactions 
including final indirect cost rate adjustments.
    (3) Audit requirements in subpart F of this part.
    (4) Property management and disposition requirements in Sec. Sec. 
75.317 through 75.323.
    (5) Records retention as required in Sec. Sec. 75.361 through 
75.365.
    (b) After closeout of the Federal award, a relationship created 
under the Federal award may be modified or ended in whole or in part 
with the consent of the HHS awarding agency or pass-through entity and 
the non-Federal entity, provided the responsibilities of the non-Federal 
entity referred to in paragraph (a) of this section, including those for 
property management as applicable, are considered and provisions made 
for continuing responsibilities of the non-Federal entity, as 
appropriate.

[[Page 278]]



Sec. Sec. 75.387-75.390  [Reserved]

                        Collection of Amounts Due



Sec. 75.391  Collection of amounts due.

    (a) Any funds paid to the non-Federal entity in excess of the amount 
to which the non-Federal entity is finally determined to be entitled 
under the terms of the Federal award constitute a debt to the Federal 
Government. If not paid within 90 calendar days after demand, the HHS 
awarding agency may reduce the debt by:
    (1) Making an administrative offset against other requests for 
reimbursements;
    (2) Withholding advance payments otherwise due to the non-Federal 
entity; or
    (3) Other action permitted by Federal statute.
    (b) Except where otherwise provided by statutes or regulations, the 
HHS awarding agency will charge interest on an overdue debt in 
accordance with the Federal Claims Collection Standards (31 CFR parts 
900 through 999). The date from which interest is computed is not 
extended by litigation or the filing of any form of appeal. (See also 
HHS Claims Collection regulations at 45 CFR part 30.)



                        Subpart E_Cost Principles

                           General Provisions



Sec. 75.400  Policy guide.

    The application of these cost principles is based on the fundamental 
premises that:
    (a) The non-Federal entity is responsible for the efficient and 
effective administration of the Federal award through the application of 
sound management practices.
    (b) The non-Federal entity assumes responsibility for administering 
Federal funds in a manner consistent with underlying agreements, program 
objectives, and the terms and conditions of the Federal award.
    (c) The non-Federal entity, in recognition of its own unique 
combination of staff, facilities, and experience, has the primary 
responsibility for employing whatever form of sound organization and 
management techniques may be necessary in order to assure proper and 
efficient administration of the Federal-award.
    (d) The application of these cost principles should require no 
significant changes in the internal accounting policies and practices of 
the non-Federal entity. However, the accounting practices of the non-
Federal entity must be consistent with these cost principles and support 
the accumulation of costs as required by the principles, and must 
provide for adequate documentation to support costs charged to the 
Federal award.
    (e) In reviewing, negotiating and approving cost allocation plans or 
indirect cost proposals, the cognizant agency for indirect costs should 
generally assure that the non-Federal entity is applying these cost 
accounting principles on a consistent basis during their review and 
negotiation of indirect cost proposals. Where wide variations exist in 
the treatment of a given cost item by the non-Federal entity, the 
reasonableness and equity of such treatments should be fully considered. 
See Sec. 75.2 Indirect (facilities & administrative (F&A)) costs.
    (f) For non-Federal entities that educate and engage students in 
research, the dual role of students as both trainees and employees 
(including pre- and post-doctoral staff) contributing to the completion 
of Federal awards for research must be recognized in the application of 
these principles.
    (g) The non-Federal entity may not earn or keep any profit resulting 
from Federal financial assistance, unless explicitly authorized by the 
terms and conditions of the Federal award. See also Sec. 75.307.



Sec. 75.401  Application.

    (a) General. These principles must be used in determining the 
allowable costs of work performed by the non-Federal entity under 
Federal awards. These principles also must be used by the non-Federal 
entity as a guide in the pricing of fixed-price contracts and 
subcontracts where costs are used in determining the appropriate price. 
The principles do not apply to:
    (1) Arrangements under which Federal financing is in the form of 
loans, scholarships, fellowships, traineeships,

[[Page 279]]

or other fixed amounts based on such items as education allowance or 
published tuition rates and fees.
    (2) For IHEs, capitation awards, which are awards based on case 
counts or number of beneficiaries according to the terms and conditions 
of the Federal award.
    (3) Fixed amount awards. See also Sec. Sec. 75.2 Fixed amount 
awards and 75.201.
    (4) Federal awards to hospitals (see appendix IX to part 75).
    (5) Other awards under which the non-Federal entity is not required 
to account to the Federal Government for actual costs incurred.
    (b) Federal Contract. Where a Federal contract awarded to a non-
Federal entity is subject to the Cost Accounting Standards (CAS), it 
incorporates the applicable CAS clauses, Standards, and CAS 
administration requirements per the 48 CFR Chapter 99 and 48 CFR part 30 
(FAR part 30). CAS applies directly to the CAS-covered contract and the 
Cost Accounting Standards at 48 CFR parts 9904 or 9905 takes precedence 
over the cost principles in this subpart E with respect to the 
allocation of costs. When a contract with a non-Federal entity is 
subject to full CAS coverage, the allowability of certain costs under 
the cost principles will be affected by the allocation provisions of the 
Cost Accounting Standards (e.g., CAS 414-48 CFR 9904.414, and CAS 417-48 
CFR 9904.417), apply rather the allowability provisions of Sec. 75.449. 
In complying with those requirements, the non-Federal entity's 
application of cost accounting practices for estimating, accumulating, 
and reporting costs for other Federal awards and other cost objectives 
under the CAS-covered contract still must be consistent with its cost 
accounting practices for the CAS-covered contracts. In all cases, only 
one set of accounting records needs to be maintained for the allocation 
of costs by the non-Federal entity.
    (c) Exemptions. Some nonprofit organizations, because of their size 
and nature of operations, can be considered to be similar to for-profit 
entities for purpose of applicability of cost principles. Such nonprofit 
organizations must operate under Federal cost principles applicable to 
for-profit entities located at 48 CFR 31.2. A listing of these 
organizations is contained in appendix VIII to part 75. Other 
organizations, as approved by the cognizant agency for indirect costs, 
may be added from time to time.

                          Basic Considerations



Sec. 75.402  Composition of costs.

    Total cost. The total cost of a Federal award is the sum of the 
allowable direct and allocable indirect costs less any applicable 
credits.



Sec. 75.403  Factors affecting allowability of costs.

    Except where otherwise authorized by statute, costs must meet the 
following general criteria in order to be allowable under Federal 
awards:
    (a) Be necessary and reasonable for the performance of the Federal 
award and be allocable thereto under these principles.
    (b) Conform to any limitations or exclusions set forth in these 
principles or in the Federal award as to types or amount of cost items.
    (c) Be consistent with policies and procedures that apply uniformly 
to both federally-financed and other activities of the non-Federal 
entity.
    (d) Be accorded consistent treatment. A cost may not be assigned to 
a Federal award as a direct cost if any other cost incurred for the same 
purpose in like circumstances has been allocated to the Federal award as 
an indirect cost.
    (e) Be determined in accordance with generally accepted accounting 
principles (GAAP), except, for state and local governments and Indian 
tribes only, as otherwise provided for in this part.
    (f) Not be included as a cost or used to meet cost sharing or 
matching requirements of any other federally-financed program in either 
the current or a prior period. See also Sec. 75.306(b).
    (g) Be adequately documented. See also Sec. Sec. 75.300 through 
75.309.



Sec. 75.404  Reasonable costs.

    A cost is reasonable if, in its nature and amount, it does not 
exceed that which would be incurred by a prudent person under the 
circumstances prevailing at the time the decision was

[[Page 280]]

made to incur the cost. The question of reasonableness is particularly 
important when the non-Federal entity is predominantly federally-funded. 
In determining reasonableness of a given cost, consideration must be 
given to:
    (a) Whether the cost is of a type generally recognized as ordinary 
and necessary for the operation of the non-Federal entity or the proper 
and efficient performance of the Federal award.
    (b) The restraints or requirements imposed by such factors as: Sound 
business practices; arm's-length bargaining; Federal, state, local, 
tribal, and other laws and regulations; and terms and conditions of the 
Federal award.
    (c) Market prices for comparable goods or services for the 
geographic area.
    (d) Whether the individuals concerned acted with prudence in the 
circumstances considering their responsibilities to the non-Federal 
entity, its employees, where applicable its students or membership, the 
public at large, and the Federal Government.
    (e) Whether the non-Federal entity significantly deviates from its 
established practices and policies regarding the incurrence of costs, 
which may unjustifiably increase the Federal award's cost.



Sec. 75.405  Allocable costs.

    (a) A cost is allocable to a particular Federal award or other cost 
objective if the goods or services involved are chargeable or assignable 
to that Federal award or cost objective in accordance with relative 
benefits received. This standard is met if the cost:
    (1) Is incurred specifically for the Federal award;
    (2) Benefits both the Federal award and other work of the non-
Federal entity and can be distributed in proportions that may be 
approximated using reasonable methods; and
    (3) Is necessary to the overall operation of the non-Federal entity 
and is assignable in part to the Federal award in accordance with the 
principles in this subpart.
    (b) All activities which benefit from the non-Federal entity's 
indirect (F&A) cost, including unallowable activities and donated 
services by the non-Federal entity or third parties, will receive an 
appropriate allocation of indirect costs.
    (c) Any cost allocable to a particular Federal award under the 
principles provided for in this part may not be charged to other Federal 
awards to overcome fund deficiencies, to avoid restrictions imposed by 
Federal statutes, regulations, or terms and conditions of the Federal 
awards, or for other reasons. However, this prohibition would not 
preclude the non-Federal entity from shifting costs that are allowable 
under two or more Federal awards in accordance with existing Federal 
statutes, regulations, or the terms and conditions of the Federal 
awards.
    (d) Direct cost allocation principles. If a cost benefits two or 
more projects or activities in proportions that can be determined 
without undue effort or cost, the cost must be allocated to the projects 
based on the proportional benefit. If a cost benefits two or more 
projects or activities in proportions that cannot be determined because 
of the interrelationship of the work involved, then, notwithstanding 
paragraph (c) of this section, the costs may be allocated or transferred 
to benefitted projects on any reasonable documented basis. Where the 
purchase of equipment or other capital asset is specifically authorized 
under a Federal award, the costs are assignable to the Federal award 
regardless of the use that may be made of the equipment or other capital 
asset involved when no longer needed for the purpose for which it was 
originally required. See also Sec. Sec. 75.317 through 75.323 and 
75.439.
    (e) If the contract is subject to CAS, costs must be allocated to 
the contract pursuant to the Cost Accounting Standards. To the extent 
that CAS is applicable, the allocation of costs in accordance with CAS 
takes precedence over the allocation provisions in this part.



Sec. 75.406  Applicable credits.

    (a) Applicable credits refer to those receipts or reduction-of-
expenditure-type transactions that offset or reduce expense items 
allocable to the Federal award as direct or indirect (F&A) costs. 
Examples of such transactions are:

[[Page 281]]

Purchase discounts, rebates or allowances, recoveries or indemnities on 
losses, insurance refunds or rebates, and adjustments of overpayments or 
erroneous charges. To the extent that such credits accruing to or 
received by the non-Federal entity relate to allowable costs, they must 
be credited to the Federal award either as a cost reduction or cash 
refund, as appropriate.
    (b) In some instances, the amounts received from the Federal 
Government to finance activities or service operations of the non-
Federal entity should be treated as applicable credits. Specifically, 
the concept of netting such credit items (including any amounts used to 
meet cost sharing or matching requirements) must be recognized in 
determining the rates or amounts to be charged to the Federal award. 
(See Sec. Sec. 75.436 and 75.468, for areas of potential application in 
the matter of Federal financing of activities.)



Sec. 75.407  Prior written approval (prior approval).

    (a) Under any given Federal award, the reasonableness and 
allocability of certain items of costs may be difficult to determine. In 
order to avoid subsequent disallowance or dispute based on 
unreasonableness or non-allocability, the non-Federal entity may seek 
the prior written approval of the cognizant agency for indirect costs or 
the HHS awarding agency in advance of the incurrence of special or 
unusual costs. Prior written approval should include the timeframe or 
scope of the agreement. The absence of prior written approval on any 
element of cost will not, in itself, affect the reasonableness or 
allocability of that element, unless prior approval is specifically 
required for allowability as described under certain circumstances in 
the following sections of this part:
    (1) Sec. 75.201 Use of grant agreements (including fixed amount 
awards), cooperative agreements, and contracts, paragraph (b)(5);
    (2) Sec. 75.306 Cost sharing or matching;
    (3) Sec. 75.307 Program income;
    (4) Sec. 75.308 Revision of budget and program plans;
    (5) Sec. 75.309 Period of performance and availability of funds;
    (6) Sec. 75.318 Real property;
    (7) Sec. 75.320 Equipment;
    (8) Sec. 75.353 Fixed amount subawards;
    (9) Sec. 75.413 Direct costs, paragraph (c);
    (10) Sec. 75.430 Compensation--personal services, paragraph (h);
    (11) Sec. 75.431 Compensation--fringe benefits;
    (12) Sec. 75.438 Entertainment costs;
    (13) Sec. 75.439 Equipment and other capital expenditures;
    (14) Sec. 75.440 Exchange rates;
    (15) Sec. 75.441 Fines, penalties, damages and other settlements;
    (16) Sec. 75.442 Fund raising and investment management costs;
    (17) Sec. 75.445 Goods or services for personal use;
    (18) Sec. 75.447 Insurance and indemnification;
    (19) Sec. 75.454 Memberships, subscriptions, and professional 
activity costs, paragraph (c);
    (20) Sec. 75.455 Organization costs;
    (21) Sec. 75.456 Participant support costs;
    (22) Sec. 75.458 Pre-award costs;
    (23) Sec. 75.462 Rearrangement and reconversion costs;
    (24) Sec. 75.467 Selling and marketing costs;
    (25) Sec. 75.470 Taxes (including Value Added Tax) paragraph (c); 
and
    (26) Sec. 75.474 Travel costs.
    (b) A request by a subrecipient for prior approval will be addressed 
in writing to the recipient. The recipient will promptly review such 
request and shall approve or disapprove the request in writing. A 
recipient will not approve any budget or project revision which is 
inconsistent with the purpose or terms and conditions of the Federal-
award to the recipient. If the revision, requested by the subrecipient 
would result in a change to the recipient's approved project which 
requires Federal prior approval, the recipient will obtain the HHS 
awarding agency's approval before approving the subrecipient's request.
    (c) For cost-reimbursement contracts under the FAR, the recipient 
shall obtain prior written approval in accordance with FAR 52.244-2.



Sec. 75.408  Limitation on allowance of costs.

    The Federal award may be subject to statutory requirements that 
limit the

[[Page 282]]

allowability of costs. When the maximum amount allowable under a 
limitation is less than the total amount determined in accordance with 
the principles in this part, the amount not recoverable under the 
Federal award may not be charged to the Federal award.



Sec. 75.409  Special considerations.

    In addition to the basic considerations regarding the allowability 
of costs highlighted in this subpart, certain sections in this subpart 
describe special considerations and requirements applicable to states, 
local governments, Indian tribes, and IHEs. In addition, certain 
provisions among the items of cost in this subpart are only applicable 
to certain types of non-Federal entities, as specified in the following 
sections:
    (a) Direct and Indirect (F&A) Costs (Sec. Sec. 75.412 through 
75.415);
    (b) Special Considerations for States, Local Governments and Indian 
Tribes (Sec. Sec. 75.416 and 75.417); and
    (c) Special Considerations for Institutions of Higher Education 
(Sec. Sec. 75.418 and 75.419).



Sec. 75.410  Collection of unallowable costs.

    Payments made for costs determined to be unallowable by either the 
HHS awarding agency, cognizant agency for indirect costs, or pass-
through entity, either as direct or indirect costs, must be refunded 
(including interest) to the Federal Government in accordance with 
instructions from the Federal agency that determined the costs are 
unallowable unless Federal statute or regulation directs otherwise. See 
also subpart D of this part, Sec. Sec. 75.300 through 75.309.



Sec. 75.411  Adjustment of previously negotiated indirect (F&A) 
cost rates containing unallowable costs.

    (a) Negotiated indirect (F&A) cost rates based on a proposal later 
found to have included costs that:
    (1) Are unallowable as specified by Federal statutes, regulations or 
the terms and conditions of a Federal award; or
    (2) Are unallowable because they are not allocable to the Federal 
award(s), must be adjusted, or a refund must be made, in accordance with 
the requirements of this section. These adjustments or refunds are 
designed to correct the proposals used to establish the rates and do not 
constitute a reopening of the rate negotiation. The adjustments or 
refunds will be made regardless of the type of rate negotiated 
(predetermined, final, fixed, or provisional).
    (b) For rates covering a future fiscal year of the non-Federal 
entity, the unallowable costs will be removed from the indirect (F&A) 
cost pools and the rates appropriately adjusted.
    (c) For rates covering a past period, the Federal share of the 
unallowable costs will be computed for each year involved and a cash 
refund (including interest chargeable in accordance with applicable 
regulations) will be made to the Federal Government. If cash refunds are 
made for past periods covered by provisional or fixed rates, appropriate 
adjustments will be made when the rates are finalized to avoid duplicate 
recovery of the unallowable costs by the Federal Government.
    (d) For rates covering the current period, either a rate adjustment 
or a refund, as described in paragraphs (b) and (c) of this section, 
must be required by the cognizant agency for indirect costs. The choice 
of method must be at the discretion of the cognizant agency for indirect 
costs, based on its judgment as to which method would be most practical.
    (e) The amount or proportion of unallowable costs included in each 
year's rate will be assumed to be the same as the amount or proportion 
of unallowable costs included in the base year proposal used to 
establish the rate.

                     Direct and Indirect (F&A) Costs



Sec. 75.412  Classification of costs.

    There is no universal rule for classifying certain costs as either 
direct or indirect (F&A) under every accounting system. A cost may be 
direct with respect to some specific service or function, but indirect 
with respect to the Federal award or other final cost objective. 
Therefore, it is essential that each item of cost incurred for the same 
purpose be treated consistently in like circumstances either as a direct

[[Page 283]]

or an indirect (F&A) cost in order to avoid possible double-charging of 
Federal awards. Guidelines for determining direct and indirect (F&A) 
costs charged to Federal awards are provided in this subpart.



Sec. 75.413  Direct costs.

    (a) General. Direct costs are those costs that can be identified 
specifically with a particular final cost objective, such as a Federal 
award, or other internally or externally funded activity, or that can be 
directly assigned to such activities relatively easily with a high 
degree of accuracy. Costs incurred for the same purpose in like 
circumstances must be treated consistently as either direct or indirect 
(F&A) costs. See also Sec. 75.405.
    (b) Application to Federal awards. Identification with the Federal 
award rather than the nature of the goods and services involved is the 
determining factor in distinguishing direct from indirect (F&A) costs of 
Federal awards. Typical costs charged directly to a Federal award are 
the compensation of employees who work on that award, their related 
fringe benefit costs, the costs of materials and other items of expense 
incurred for the Federal award. If directly related to a specific award, 
certain costs that otherwise would be treated as indirect costs may also 
include extraordinary utility consumption, the cost of materials 
supplied from stock or services rendered by specialized facilities or 
other institutional service operations.
    (c) The salaries of administrative and clerical staff should 
normally be treated as indirect (F&A) costs. Direct charging of these 
costs may be appropriate only if all of the following conditions are 
met:
    (1) Administrative or clerical services are integral to a project or 
activity;
    (2) Individuals involved can be specifically identified with the 
project or activity;
    (3) Such costs are explicitly included in the budget or have the 
prior written approval of the Federal awarding agency; and
    (4) The costs are not also recovered as indirect costs.
    (d) Minor items. Any direct cost of minor amount may be treated as 
an indirect (F&A) cost for reasons of practicality where such accounting 
treatment for that item of cost is consistently applied to all Federal 
and non-Federal cost objectives.
    (e) The costs of certain activities are not allowable as charges to 
Federal awards. However, even though these costs are unallowable for 
purposes of computing charges to Federal awards, they nonetheless must 
be treated as direct costs for purposes of determining indirect (F&A) 
cost rates and be allocated their equitable share of the non-Federal 
entity's indirect costs if they represent activities which:
    (1) Include the salaries of personnel,
    (2) Occupy space, and
    (3) Benefit from the non-Federal entity's indirect (F&A) costs.
    (f) For nonprofit organizations, the costs of activities performed 
by the non-Federal entity primarily as a service to members, clients, or 
the general public when significant and necessary to the non-Federal 
entity's mission must be treated as direct costs whether or not 
allowable, and be allocated an equitable share of indirect (F&A) costs. 
Some examples of these types of activities include:
    (1) Maintenance of membership rolls, subscriptions, publications, 
and related functions. See also Sec. 75.454.
    (2) Providing services and information to members, legislative or 
administrative bodies, or the public. See also Sec. Sec. 75.454 and 
75.450.
    (3) Promotion, lobbying, and other forms of public relations. See 
also Sec. Sec. 75.421 and 75.450.
    (4) Conferences except those held to conduct the general 
administration of the non-Federal entity. See also Sec. 75.432.
    (5) Maintenance, protection, and investment of special funds not 
used in operation of the non-Federal entity. See also Sec. 75.442.
    (6) Administration of group benefits on behalf of members or 
clients, including life and hospital insurance, annuity or retirement 
plans, and financial aid. See also Sec. 75.431.

[[Page 284]]



Sec. 75.414  Indirect (F&A) costs.

    (a) Facilities and Administration Classification. For major IHEs and 
major nonprofit organizations, indirect (F&A) costs must be classified 
within two broad categories: ``Facilities'' and ``Administration.'' 
``Facilities'' is defined as depreciation on buildings, equipment and 
capital improvement, interest on debt associated with certain buildings, 
equipment and capital improvements, and operations and maintenance 
expenses. ``Administration'' is defined as general administration and 
general expenses such as the director's office, accounting, personnel 
and all other types of expenditures not listed specifically under one of 
the subcategories of ``Facilities'' (including cross allocations from 
other pools, where applicable). For nonprofit organizations, library 
expenses are included in the ``Administration'' category; for 
institutions of higher education, they are included in the 
``Facilities'' category. Major IHEs are defined as those required to use 
the Standard Format for Submission as noted in appendix III to part 
75.C. 11. Major nonprofit organizations are those which receive more 
than $10 million dollars in direct Federal funding.
    (b) Diversity of nonprofit organizations. Because of the diverse 
characteristics and accounting practices of nonprofit organizations, it 
is not possible to specify the types of cost which may be classified as 
indirect (F&A) cost in all situations. Identification with a Federal 
award rather than the nature of the goods and services involved is the 
determining factor in distinguishing direct from indirect (F&A) costs of 
Federal awards. However, typical examples of indirect (F&A) cost for 
many nonprofit organizations may include depreciation on buildings and 
equipment, the costs of operating and maintaining facilities, and 
general administration and general expenses, such as the salaries and 
expenses of executive officers, personnel administration, and 
accounting.
    (c) Federal Agency Acceptance of Negotiated Indirect Cost Rates. 
(See also Sec. 75.306.)
    (1) The negotiated rates must be accepted by all Federal awarding 
agencies. An HHS awarding agency may use a rate different from the 
negotiated rate for a class of Federal awards or a single Federal award 
only when required by Federal statute or regulation, or when approved by 
a Federal awarding agency head or delegate based on documented 
justification as described in paragraph (c)(3) of this section.
    (2) The HHS awarding agency head or delegate must notify OMB of any 
approved deviations.
    (3) The HHS awarding agency must implement, and make publicly 
available, the policies, procedures and general decision making criteria 
that their programs will follow to seek and justify deviations from 
negotiated rates.
    (4) As required under Sec. 75.203(c), the HHS awarding agency must 
include in the notice of funding opportunity the policies relating to 
indirect cost rate reimbursement, matching, or cost share as approved. 
See also appendix I.C.2 and D.6 of this part. As appropriate, the HHS 
agency should incorporate discussion of these policies into their 
outreach activities with non-Federal entities prior to the posting of a 
notice of funding opportunity.
    (d) Pass-through entities are subject to the requirements in Sec. 
75.352(a)(4).
    (e) Requirements for development and submission of indirect (F&A) 
cost rate proposals and cost allocation plans are contained in 
appendices III-VII, and appendix IX as follows:
    (1) Appendix III to Part 75--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Institutions of Higher Education 
(IHEs);
    (2) Appendix IV to Part 75--Indirect (F&A) Costs Identification and 
Assignment, and Rate Determination for Nonprofit Organizations;
    (3) Appendix V to Part 75--State/Local Government and Indian Tribe-
Wide Central Service Cost Allocation Plans;
    (4) Appendix VI to Part 75--Public Assistance Cost Allocation Plans;
    (5) Appendix VII to Part 75--States and Local Government and Indian 
Tribe Indirect Cost Proposals; and
    (6) Appendix IX to Part 75--Principles for Determining Costs 
Applicable to Research and Development

[[Page 285]]

Under Grants and Contracts with Hospitals.
    (f) In addition to the procedures outlined in the appendices in 
paragraph (e) of this section, any non-Federal entity that has never 
received a negotiated indirect cost rate, except for those non-Federal 
entities described in appendix VII to part 75 (D)(1)(b) may elect to 
charge a de minimis rate of 10% of modified total direct costs (MTDC) 
which may be used indefinitely. As described in Sec. 75.403, costs must 
be consistently charged as either indirect or direct costs, but may not 
be double charged or inconsistently charged as both. If chosen, this 
methodology once elected must be used consistently for all Federal 
awards until such time as a non-Federal entity chooses to negotiate for 
a rate, which the non-Federal entity may apply to do at any time.
    (g) Any non-Federal entity that has a current federally negotiated 
indirect cost rate may apply for a one-time extension of the rates in 
that agreement for a period of up to four years. This extension will be 
subject to the review and approval of the cognizant agency for indirect 
costs. If an extension is granted the non-Federal entity may not request 
a rate review until the extension period ends. At the end of the 4-year 
extension, the non-Federal entity must re-apply to negotiate a rate. 
Subsequent one-time extensions (up to four years) are permitted if a 
renegotiation is completed between each extension request.



Sec. 75.415  Required certifications.

    Required certifications include:
    (a) To assure that expenditures are proper and in accordance with 
the terms and conditions of the Federal award and approved project 
budgets, the annual and final fiscal reports or vouchers requesting 
payment under the agreements must include a certification, signed by an 
official who is authorized to legally bind the non-Federal entity, which 
reads as follows: ``By signing this report, I certify to the best of my 
knowledge and belief that the report is true, complete, and accurate, 
and the expenditures, disbursements and cash receipts are for the 
purposes and objectives set forth in the terms and conditions of the 
Federal award. I am aware that any false, fictitious, or fraudulent 
information, or the omission of any material fact, may subject me to 
criminal, civil or administrative penalties for fraud, false statements, 
false claims or otherwise. (U.S. Code Title 18, Section 1001 and Title 
31, Sections 3729-3730 and 3801-3812).''
    (b) Certification of cost allocation plan or indirect (F&A) cost 
rate proposal. Each cost allocation plan or indirect (F&A) cost rate 
proposal must comply with the following:
    (1) A proposal to establish a cost allocation plan or an indirect 
(F&A) cost rate, whether submitted to a Federal cognizant agency for 
indirect costs or maintained on file by the non-Federal entity, must be 
certified by the non-Federal entity using the Certificate of Cost 
Allocation Plan or Certificate of Indirect Costs as set forth in 
appendices III through VII, and appendix IX. The certificate must be 
signed on behalf of the non-Federal entity by an individual at a level 
no lower than vice president or chief financial officer of the non-
Federal entity that submits the proposal.
    (2) Unless the non-Federal entity has elected the option under Sec. 
75.414(f), the Federal Government may either disallow all indirect (F&A) 
costs or unilaterally establish such a plan or rate when the non-Federal 
entity fails to submit a certified proposal for establishing such a plan 
or rate in accordance with the requirements. Such a plan or rate may be 
based upon audited historical data or such other data that have been 
furnished to the cognizant agency for indirect costs and for which it 
can be demonstrated that all unallowable costs have been excluded. When 
a cost allocation plan or indirect cost rate is unilaterally established 
by the Federal Government because the non-Federal entity failed to 
submit a certified proposal, the plan or rate established will be set to 
ensure that potentially unallowable costs will not be reimbursed.
    (c) Certifications by non-profit organizations as appropriate that 
they did not meet the definition of a major non-profit organization as 
defined in Sec. 75.414(a).
    (d) See also Sec. 75.450 for another required certification.

[[Page 286]]

 Special Considerations for States, Local Governments and Indian Tribes



Sec. 75.416  Cost allocation plans and indirect cost proposals.

    (a) For states, local governments and Indian tribes, certain 
services, such as motor pools, computer centers, purchasing, accounting, 
etc., are provided to operating agencies on a centralized basis. Since 
Federal awards are performed within the individual operating agencies, 
there needs to be a process whereby these central service costs can be 
identified and assigned to benefitted activities on a reasonable and 
consistent basis. The central service cost allocation plan provides that 
process.
    (b) Individual operating agencies (governmental department or 
agency), normally charge Federal awards for indirect costs through an 
indirect cost rate. A separate indirect cost rate(s) proposal for each 
operating agency is usually necessary to claim indirect costs under 
Federal-awards. Indirect costs include:
    (1) The indirect costs originating in each department or agency of 
the governmental unit carrying out Federal awards; and
    (2) The costs of central governmental services distributed through 
the central service cost allocation plan and not otherwise treated as 
direct costs.
    (c) The requirements for development and submission of cost 
allocation plans (for central service costs and public assistance 
programs) and indirect cost rate proposals are contained in appendices 
IV, V and VI to this part.



Sec. 75.417  Interagency service.

    The cost of services provided by one agency to another within the 
governmental unit may include allowable direct costs of the service plus 
a pro-rated share of indirect costs. A standard indirect cost allowance 
equal to ten percent of the direct salary and wage cost of providing the 
service (excluding overtime, shift premiums, and fringe benefits) may be 
used in lieu of determining the actual indirect costs of the service. 
These services do not include centralized services included in central 
service cost allocation plans as described in appendix V to this part.

       Special Considerations for Institutions of Higher Education



Sec. 75.418  Costs incurred by states and local governments.

    Costs incurred or paid by a state or local government on behalf of 
its IHEs for fringe benefit programs, such as pension costs and FICA and 
any other costs specifically incurred on behalf of, and in direct 
benefit to, the IHEs, are allowable costs of such IHEs whether or not 
these costs are recorded in the accounting records of the institutions, 
subject to the following:
    (a) The costs meet the requirements of Sec. Sec. 75.402 through 
75.411;
    (b) The costs are properly supported by approved cost allocation 
plans in accordance with applicable Federal cost accounting principles 
in this part; and
    (c) The costs are not otherwise borne directly or indirectly by the 
Federal Government.



Sec. 75.419  Cost accounting standards and disclosure statement.

    (a) An IHE that receives aggregate Federal awards totaling $50 
million or more in Federal awards subject to this part in its most 
recently completed fiscal year must comply with the Cost Accounting 
Standards Board's cost accounting standards located at 48 CFR 9905.501, 
9905.502, 9905.505, and 9905.506. CAS-covered contracts awarded to the 
IHEs are subject to the CAS requirements at 48 CFR parts 9900 through 
9999 and 48 CFR part 30 (FAR part 30).
    (b) Disclosure statement. An IHE that receives aggregate Federal 
awards totaling $50 million or more subject to this part during its most 
recently completed fiscal year must disclose its cost accounting 
practices by filing a Disclosure Statement (DS-2), which is reproduced 
in appendix III to part 75. With the approval of the cognizant agency 
for indirect costs, an IHE may meet the DS-2 submission by submitting 
the DS-2 for each business unit that received $50 million or more in 
Federal awards.
    (1) The DS-2 must be submitted to the cognizant agency for indirect 
costs with a copy to the IHE's cognizant agency for audit.

[[Page 287]]

    (2) An IHE is responsible for maintaining an accurate DS-2 and 
complying with disclosed cost accounting practices. An IHE must file 
amendments to the DS-2 to the cognizant agency for indirect costs six 
months in advance of a disclosed practice being changed to comply with a 
new or modified standard, or when a practice is changed for other 
reasons. An IHE may proceed with implementing the change only if it has 
not been notified by the Federal cognizant agency for indirect costs 
that either a longer period will be needed for review or there are 
concerns with the potential change within the six months period. 
Amendments of a DS-2 may be submitted at any time. Resubmission of a 
complete, updated DS-2 is discouraged except when there are extensive 
changes to disclosed practices.
    (3) Cost and funding adjustments. Cost adjustments must be made by 
the cognizant agency for indirect costs if an IHE fails to comply with 
the cost policies in this part or fails to consistently follow its 
established or disclosed cost accounting practices when estimating, 
accumulating or reporting the costs of Federal awards, and the aggregate 
cost impact on Federal awards is material. The cost adjustment must 
normally be made on an aggregate basis for all affected Federal awards 
through an adjustment of the IHE's future F&A costs rates or other means 
considered appropriate by the cognizant agency for indirect costs. Under 
the terms of CAS covered contracts, adjustments in the amount of funding 
provided may also be required when the estimated proposal costs were not 
determined in accordance with established cost accounting practices.
    (4) Overpayments. Excess amounts paid in the aggregate by the 
Federal Government under Federal awards due to a noncompliant cost 
accounting practice used to estimate, accumulate, or report costs must 
be credited or refunded, as deemed appropriate by the cognizant agency 
for indirect costs. Interest applicable to the excess amounts paid in 
the aggregate during the period of noncompliance must also be determined 
and collected in accordance with applicable HHS agency regulations.
    (5) Compliant cost accounting practice changes. Changes from one 
compliant cost accounting practice to another compliant practice that 
are approved by the cognizant agency for indirect costs may require cost 
adjustments if the change has a material effect on Federal awards and 
the changes are deemed appropriate by the cognizant agency for indirect 
costs.
    (6) Responsibilities. The cognizant agency for indirect cost must:
    (i) Determine cost adjustments for all Federal awards in the 
aggregate on behalf of the Federal Government. Actions of the cognizant 
agency for indirect cost in making cost adjustment determinations must 
be coordinated with all affected HHS awarding agencies to the extent 
necessary.
    (ii) Prescribe guidelines and establish internal procedures to 
promptly determine on behalf of the Federal Government that a DS-2 
adequately discloses the IHE's cost accounting practices and that the 
disclosed practices are compliant with applicable CAS and the 
requirements of this part.
    (iii) Distribute to all affected Federal awarding agencies any DS-2 
determination of adequacy or noncompliance.

              General Provisions for Selected Items of Cost



Sec. 75.420  Considerations for selected items of cost.

    This section provides principles to be applied in establishing the 
allowability of certain items involved in determining cost, in addition 
to the requirements of Sec. Sec. 75.402 through 75.411. These 
principles apply whether or not a particular item of cost is properly 
treated as direct cost or indirect (F&A) cost. Failure to mention a 
particular item of cost 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 provided for similar or 
related items of cost, and based on the principles described in 
Sec. Sec. 75.402 through 75.411. In case of a discrepancy between the 
provisions of a specific Federal award and the provisions below, the

[[Page 288]]

Federal award governs. Criteria outlined in Sec. 75.403 must be applied 
in determining allowability. See also Sec. 75.102.



Sec. 75.421  Advertising and public relations.

    (a) The term advertising costs means the costs of advertising media 
and corollary administrative costs. Advertising media include magazines, 
newspapers, radio and television, direct mail, exhibits, electronic or 
computer transmittals, and the like.
    (b) The only allowable advertising costs are those which are solely 
for:
    (1) The recruitment of personnel required by the non-Federal entity 
for performance of a Federal award (See also Sec. 75.463);
    (2) The procurement of goods and services for the performance of a 
Federal award;
    (3) The disposal of scrap or surplus materials acquired in the 
performance of a Federal award except when non-Federal entities are 
reimbursed for disposal costs at a predetermined amount; or
    (4) Program outreach and other specific purposes necessary to meet 
the requirements of the Federal award.
    (c) The term ``public relations'' includes community relations and 
means those activities dedicated to maintaining the image of the non-
Federal entity or maintaining or promoting understanding and favorable 
relations with the community or public at large or any segment of the 
public.
    (d) The only allowable public relations costs are:
    (1) Costs specifically required by the Federal award;
    (2) Costs of communicating with the public and press pertaining to 
specific activities or accomplishments which result from performance of 
the Federal award (these costs are considered necessary as part of the 
outreach effort for the Federal award); or
    (3) Costs of conducting general liaison with news media and 
government public relations officers, to the extent that such activities 
are limited to communication and liaison necessary to keep the public 
informed on matters of public concern, such as notices of funding 
opportunities, financial matters, etc.
    (e) Unallowable advertising and public relations costs include the 
following:
    (1) All advertising and public relations costs other than as 
specified in paragraphs (b) and (d) of this section;
    (2) Costs of meetings, conventions, convocations, or other events 
related to other activities of the entity (see also Sec. 75.432), 
including:
    (i) Costs of displays, demonstrations, and exhibits;
    (ii) Costs of meeting rooms, hospitality suites, and other special 
facilities used in conjunction with shows and other special events; and
    (iii) Salaries and wages of employees engaged in setting up and 
displaying exhibits, making demonstrations, and providing briefings;
    (3) Costs of promotional items and memorabilia, including models, 
gifts, and souvenirs;
    (4) Costs of advertising and public relations designed solely to 
promote the non-Federal entity.



Sec. 75.422  Advisory councils.

    Costs incurred by advisory councils or committees are unallowable 
unless authorized by statute, the HHS awarding agency or as an indirect 
cost where allocable to Federal awards. See Sec. 75.444, applicable to 
states, local governments and Indian tribes.



Sec. 75.423  Alcoholic beverages.

    Costs of alcoholic beverages are unallowable.



Sec. 75.424  Alumni/ae activities.

    Costs incurred by IHEs for, or in support of, alumni/ae activities 
are unallowable.



Sec. 75.425  Audit services.

    (a) A reasonably proportionate share of the costs of audits required 
by, and performed in accordance with, the Single Audit Act Amendments of 
1996 (31 U.S.C. 7501-7507), as implemented by requirements of this part, 
are allowable. However, the following audit costs are unallowable:
    (1) Any costs when audits required by the Single Audit Act and 
subpart F of this part--have not been conducted or

[[Page 289]]

have been conducted but not in accordance therewith; and
    (2) Any costs of auditing a non-Federal entity that is exempted from 
having an audit conducted under the Single Audit Act and subpart F of 
this part because its expenditures under Federal awards are less than 
$750,000 during the non-Federal entity's fiscal year.
    (b) The costs of a financial statement audit of a non-Federal entity 
that does not currently have a Federal award may be included in the 
indirect cost pool for a cost allocation plan or indirect cost proposal.
    (c) Pass-through entities may charge Federal awards for the cost of 
agreed-upon-procedures engagements to monitor subrecipients (in 
accordance with subpart D of this part, Sec. Sec. 75.351 through 
75.353) which are exempted from the requirements of the Single Audit Act 
and subpart F of this part. This cost is allowable only if the agreed-
upon-procedures engagements are:
    (1) Conducted in accordance with GAGAS attestation standards;
    (2) Paid for and arranged by the pass-through entity; and
    (3) Limited in scope to one or more of the following types of 
compliance requirements: activities allowed or unallowed; allowable 
costs/cost principles; eligibility; and reporting.



Sec. 75.426  Bad debts.

    Bad debts (debts which have been determined to be uncollectable), 
including losses (whether actual or estimated) arising from 
uncollectable accounts and other claims, are unallowable. Related 
collection costs, and related legal costs, arising from such debts after 
they have been determined to be uncollectable are also unallowable. See 
also Sec. 75.428.



Sec. 75.427  Bonding costs.

    (a) Bonding costs arise when the HHS awarding agency requires 
assurance against financial loss to itself or others by reason of the 
act or default of the non-Federal entity. They arise also in instances 
where the non-Federal entity requires similar assurance, including: 
Bonds as bid, performance, payment, advance payment, infringement, and 
fidelity bonds for employees and officials.
    (b) Costs of bonding required pursuant to the terms and conditions 
of the Federal award are allowable.
    (c) Costs of bonding required by the non-Federal entity in the 
general conduct of its operations are allowable as an indirect cost to 
the extent that such bonding is in accordance with sound business 
practice and the rates and premiums are reasonable under the 
circumstances.



Sec. 75.428  Collections of improper payments.

    The costs incurred by a non-Federal entity to recover improper 
payments are allowable as either direct or indirect costs, as 
appropriate. Amounts collected may be used by the non-Federal entity in 
accordance with cash management standards set forth in Sec. 75.305.



Sec. 75.429  Commencement and convocation costs.

    For IHEs, costs incurred for commencements and convocations are 
unallowable, except as provided for in appendix III.B.9, as student 
activity costs.



Sec. 75.430  Compensation--personal services.

    (a) General. Compensation for personal services includes all 
remuneration, paid currently or accrued, for services of employees 
rendered during the period of performance under the Federal award, 
including but not necessarily limited to wages and salaries. 
Compensation for personal services may also include fringe benefits 
which are addressed in Sec. 75.431. Costs of compensation are allowable 
to the extent that they satisfy the specific requirements of this part, 
and that the total compensation for individual employees:
    (1) Is reasonable for the services rendered and conforms to the 
established written policy of the non-Federal entity consistently 
applied to both Federal and non-Federal activities;
    (2) Follows an appointment made in accordance with a non-Federal 
entity's laws and/or rules or written policies

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and meets the requirements of Federal statute, where applicable; and
    (3) Is determined and supported as provided in paragraph (i) of this 
section, when applicable.
    (b) Reasonableness. Compensation for employees engaged in work on 
Federal awards will be considered reasonable to the extent that it is 
consistent with that paid for similar work in other activities of the 
non-Federal entity. In cases where the kinds of employees required for 
Federal awards are not found in the other activities of the non-Federal 
entity, compensation will be considered reasonable to the extent that it 
is comparable to that paid for similar work in the labor market in which 
the non-Federal entity competes for the kind of employees involved.
    (c) Professional activities outside the non-Federal entity. Unless 
an arrangement is specifically authorized by an HHS awarding agency, a 
non-Federal entity must follow its written non-Federal entity-wide 
policies and practices concerning the permissible extent of professional 
services that can be provided outside the non-Federal entity for non-
organizational compensation. Where such non-Federal entity-wide written 
policies do not exist or do not adequately define the permissible extent 
of consulting or other non-organizational activities undertaken for 
extra outside pay, the Federal Government may require that the effort of 
professional staff working on Federal awards be allocated between:
    (1) Non-Federal entity activities, and
    (2) Non-organizational professional activities. If the HHS awarding 
agency considers the extent of non-organizational professional effort 
excessive or inconsistent with the conflicts-of-interest terms and 
conditions of the Federal award, appropriate arrangements governing 
compensation will be negotiated on a case-by-case basis.
    (d) Unallowable costs. (1) Costs which are unallowable under other 
sections of these principles must not be allowable under this section 
solely on the basis that they constitute personnel compensation.
    (2) The allowable compensation for certain employees is subject to a 
ceiling in accordance with statute. For the amount of the ceiling for 
cost-reimbursement contracts, the covered compensation subject to the 
ceiling, the covered employees, and other relevant provisions, see 10 
U.S.C. 2324(e)(1)(P), and 41 U.S.C. 1127 and 4304(a)(16). For other 
types of Federal awards, other statutory ceilings may apply.
    (e) Special considerations. Special considerations in determining 
allowability of compensation will be given to any change in a non-
Federal entity's compensation policy resulting in a substantial increase 
in its employees' level of compensation (particularly when the change 
was concurrent with an increase in the ratio of Federal awards to other 
activities) or any change in the treatment of allowability of specific 
types of compensation due to changes in Federal policy.
    (f) Incentive compensation. Incentive compensation to employees 
based on cost reduction, or efficient performance, suggestion awards, 
safety awards, etc., is allowable to the extent that the overall 
compensation is determined to be reasonable and such costs are paid or 
accrued pursuant to an agreement entered into in good faith between the 
non-Federal entity and the employees before the services were rendered, 
or pursuant to an established plan followed by the non-Federal entity so 
consistently as to imply, in effect, an agreement to make such payment.
    (g) Nonprofit organizations. For compensation to members of 
nonprofit organizations, trustees, directors, associates, officers, or 
the immediate families thereof, determination must be made that such 
compensation is reasonable for the actual personal services rendered 
rather than a distribution of earnings in excess of costs. This may 
include director's and executive committee member's fees, incentive 
awards, allowances for off-site pay, incentive pay, location allowances, 
hardship pay, and cost-of-living differentials.
    (h) Institutions of higher education (IHEs). (1) Certain conditions 
require special consideration and possible limitations in determining 
allowable personnel compensation costs under Federal awards. Among such 
conditions are the following:
    (i) Allowable activities. Charges to Federal awards may include 
reasonable

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amounts for activities contributing and directly related to work under 
an agreement, such as delivering special lectures about specific aspects 
of the ongoing activity, writing reports and articles, developing and 
maintaining protocols (human, animals, etc.), managing substances/
chemicals, managing and securing project-specific data, coordinating 
research subjects, participating in appropriate seminars, consulting 
with colleagues and graduate students, and attending meetings and 
conferences.
    (ii) Incidental activities. Incidental activities for which 
supplemental compensation is allowable under written institutional 
policy (at a rate not to exceed institutional base salary) need not be 
included in the records described in paragraph (i) of this section to 
directly charge payments of incidental activities, such activities must 
either be specifically provided for in the Federal award budget or 
receive prior written approval by the HHS awarding agency.
    (2) Salary basis. Charges for work performed on Federal awards by 
faculty members during the academic year are allowable at the IBS rate. 
Except as noted in paragraph (h)(1)(ii) of this section, in no event 
will charges to Federal awards, irrespective of the basis of 
computation, exceed the proportionate share of the IBS for that period. 
This principle applies to all members of faculty at an institution. IBS 
is defined as the annual compensation paid by an IHE for an individual's 
appointment, whether that individual's time is spent on research, 
instruction, administration, or other activities. IBS excludes any 
income that an individual earns outside of duties performed for the IHE. 
Unless there is prior approval by the HHS awarding agency, charges of a 
faculty member's salary to a Federal award must not exceed the 
proportionate share of the IBS for the period during which the faculty 
member worked on the award.
    (3) Intra-Institution of Higher Education (IHE) consulting. Intra-
IHE consulting by faculty is assumed to be undertaken as an IHE 
obligation requiring no compensation in addition to IBS. However, in 
unusual cases where consultation is across departmental lines or 
involves a separate or remote operation, and the work performed by the 
faculty member is in addition to his or her regular responsibilities, 
any charges for such work representing additional compensation above IBS 
are allowable provided that such consulting arrangements are 
specifically provided for in the Federal award or approved in writing by 
the HHS awarding agency.
    (4) Extra Service Pay normally represents overload compensation, 
subject to institutional compensation policies for services above and 
beyond IBS. Where extra service pay is a result of Intra-IHE consulting, 
it is subject to the same requirements of paragraph (b) above. It is 
allowable if all of the following conditions are met:
    (i) The non-Federal entity establishes consistent written policies 
which apply uniformly to all faculty members, not just those working on 
Federal awards.
    (ii) The non-Federal entity establishes a consistent written 
definition of work covered by IBS which is specific enough to determine 
conclusively when work beyond that level has occurred. This may be 
described in appointment letters or other documentations.
    (iii) The supplementation amount paid is commensurate with the IBS 
rate of pay and the amount of additional work performed. See paragraph 
(h)(2) of this section.
    (iv) The salaries, as supplemented, fall within the salary structure 
and pay ranges established by and documented in writing or otherwise 
applicable to the non-Federal entity.
    (v) The total salaries charged to Federal awards including extra 
service pay are subject to the Standards of Documentation as described 
in paragraph (i) of this section.
    (5) Periods outside the academic year. (i) Except as specified for 
teaching activity in paragraph (h)(5)(ii) of this section, charges for 
work performed by faculty members on Federal awards during periods not 
included in the base salary period will be at a rate not in excess of 
the IBS.
    (ii) Charges for teaching activities performed by faculty members on 
Federal awards during periods not included

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in IBS period will be based on the normal written policy of the IHE 
governing compensation to faculty members for teaching assignments 
during such periods.
    (6) Part-time faculty. Charges for work performed on Federal awards 
by faculty members having only part-time appointments will be determined 
at a rate not in excess of that regularly paid for part-time 
assignments.
    (7) Sabbatical leave costs. Rules for sabbatical leave are as 
follow:
    (i) Costs of leaves of absence by employees for performance of 
graduate work or sabbatical study, travel, or research are allowable 
provided the IHE has a uniform written policy on sabbatical leave for 
persons engaged in instruction and persons engaged in research. Such 
costs will be allocated on an equitable basis among all related 
activities of the IHE.
    (ii) Where sabbatical leave is included in fringe benefits for which 
a cost is determined for assessment as a direct charge, the aggregate 
amount of such assessments applicable to all work of the institution 
during the base period must be reasonable in relation to the IHE's 
actual experience under its sabbatical leave policy.
    (8) Salary rates for non-faculty members. Non-faculty full-time 
professional personnel may also earn ``extra service pay'' in accordance 
with the non-Federal entity's written policy and consistent with 
paragraph (h)(1)(i) of this section.
    (i) Standards for documentation of personnel expenses. (1) Charges 
to Federal awards for salaries and wages must be based on records that 
accurately reflect the work performed. These records must:
    (i) Be supported by a system of internal control which provides 
reasonable assurance that the charges are accurate, allowable, and 
properly allocated;
    (ii) Be incorporated into the official records of the non-Federal 
entity;
    (iii) Reasonably reflect the total activity for which the employee 
is compensated by the non-Federal entity, not exceeding 100% of 
compensated activities (for IHE, this per the IHE's definition of IBS);
    (iv) Encompass both federally assisted and all other activities 
compensated by the non-Federal entity on an integrated basis, but may 
include the use of subsidiary records as defined in the non-Federal 
entity's written policy;
    (v) Comply with the established accounting policies and practices of 
the non-Federal entity (See paragraph (h)(1)(ii) of this section for 
treatment of incidental work for IHEs.); and
    (vi) [Reserved]
    (vii) Support the distribution of the employee's salary or wages 
among specific activities or cost objectives if the employee works on 
more than one Federal award; a Federal award and non-Federal award; an 
indirect cost activity and a direct cost activity; two or more indirect 
activities which are allocated using different allocation bases; or an 
unallowable activity and a direct or indirect cost activity.
    (viii) Budget estimates (i.e., estimates determined before the 
services are performed) alone do not qualify as support for charges to 
Federal awards, but may be used for interim accounting purposes, 
provided that:
    (A) The system for establishing the estimates produces reasonable 
approximations of the activity actually performed;
    (B) Significant changes in the corresponding work activity (as 
defined by the non-Federal entity's written policies) are identified and 
entered into the records in a timely manner. Short term (such as one or 
two months) fluctuation between workload categories need not be 
considered as long as the distribution of salaries and wages is 
reasonable over the longer term; and
    (C) The non-Federal entity's system of internal controls includes 
processes to review after-the-fact interim charges made to a Federal 
awards based on budget estimates. All necessary adjustment must be made 
such that the final amount charged to the Federal award is accurate, 
allowable, and properly allocated.
    (ix) Because practices vary as to the activity constituting a full 
workload (for IHEs, IBS), records may reflect categories of activities 
expressed as a percentage distribution of total activities.
    (x) It is recognized that teaching, research, service, and 
administration are

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often inextricably intermingled in an academic setting. When recording 
salaries and wages charged to Federal awards for IHEs, a precise 
assessment of factors that contribute to costs is therefore not always 
feasible, nor is it expected.
    (2) For records which meet the standards required in paragraph 
(i)(1) of this section, the non-Federal entity will not be required to 
provide additional support or documentation for the work performed, 
other than that referenced in paragraph (i)(3) of this section.
    (3) In accordance with Department of Labor regulations implementing 
the Fair Labor Standards Act (FLSA) (29 CFR part 516), charges for the 
salaries and wages of nonexempt employees, in addition to the supporting 
documentation described in this section, must also be supported by 
records indicating the total number of hours worked each day.
    (4) Salaries and wages of employees used in meeting cost sharing or 
matching requirements on Federal awards must be supported in the same 
manner as salaries and wages claimed for reimbursement from Federal 
awards.
    (5) For states, local governments and Indian tribes, substitute 
processes or systems for allocating salaries and wages to Federal awards 
may be used in place of or in addition to the records described in 
paragraph (i)(1) of this section if approved by the cognizant agency for 
indirect cost. Such systems may include, but are not limited to, random 
moment sampling, ``rolling'' time studies, case counts, or other 
quantifiable measures of work performed.
    (i) Substitute systems which use sampling methods (primarily for 
Temporary Assistance for Needy Families (TANF), the Supplemental 
Nutrition Assistance Program (SNAP), Medicaid, and other public 
assistance programs) must meet acceptable statistical sampling standards 
including:
    (A) The sampling universe must include all of the employees whose 
salaries and wages are to be allocated based on sample results except as 
provided in paragraph (i)(5)(iii) of this section;
    (B) The entire time period involved must be covered by the sample; 
and
    (C) The results must be statistically valid and applied to the 
period being sampled.
    (ii) Allocating charges for the sampled employees' supervisors, 
clerical and support staffs, based on the results of the sampled 
employees, will be acceptable.
    (iii) Less than full compliance with the statistical sampling 
standards noted in paragraph (i)(5)(i) of this section may be accepted 
by the cognizant agency for indirect costs if it concludes that the 
amounts to be allocated to Federal awards will be minimal, or if it 
concludes that the system proposed by the non-Federal entity will result 
in lower costs to Federal awards than a system which complies with the 
standards.
    (6) Cognizant agencies for indirect costs are encouraged to approve 
alternative proposals based on outcomes and milestones for program 
performance where these are clearly documented. Where approved by the 
Federal cognizant agency for indirect costs, these plans are acceptable 
as an alternative to the requirements of paragraph (i)(1) of this 
section.
    (7) For Federal awards of similar purpose activity or instances of 
approved blended funding, a non-Federal entity may submit performance 
plans that incorporate funds from multiple Federal awards and account 
for their combined use based on performance-oriented metrics, provided 
that such plans are approved in advance by all involved HHS awarding 
agencies. In these instances, the non-Federal entity must submit a 
request for waiver of the requirements based on documentation that 
describes the method of charging costs, relates the charging of costs to 
the specific activity that is applicable to all fund sources, and is 
based on quantifiable measures of the activity in relation to time 
charged.
    (8) For a non-Federal entity where the records do not meet the 
standards described in this section, the Federal Government may require 
personnel activity reports, including prescribed certifications, or 
equivalent documentation that support the records as required in this 
section.

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Sec. 75.431  Compensation--fringe benefits.

    (a) Fringe benefits are allowances and services provided by 
employers to their employees as compensation in addition to regular 
salaries and wages. Fringe benefits include, but are not limited to, the 
costs of leave (vacation, family-related, sick or military), employee 
insurance, pensions, and unemployment benefit plans. Except as provided 
elsewhere in these principles, the costs of fringe benefits are 
allowable provided that the benefits are reasonable and are required by 
law, non-Federal entity-employee agreement, or an established policy of 
the non-Federal entity.
    (b) Leave. The cost of fringe benefits in the form of regular 
compensation paid to employees during periods of authorized absences 
from the job, such as for annual leave, family-related leave, sick 
leave, holidays, court leave, military leave, administrative leave, and 
other similar benefits, are allowable if all of the following criteria 
are met:
    (1) They are provided under established written leave policies;
    (2) The costs are equitably allocated to all related activities, 
including Federal awards; and,
    (3) The accounting basis (cash or accrual) selected for costing each 
type of leave is consistently followed by the non-Federal entity or 
specified grouping of employees.
    (i) When a non-Federal entity uses the cash basis of accounting, the 
cost of leave is recognized in the period that the leave is taken and 
paid for. Payments for unused leave when an employee retires or 
terminates employment are allowable in the year of payment.
    (ii) The accrual basis may be only used for those types of leave for 
which a liability as defined by GAAP exists when the leave is earned. 
When a non-Federal entity uses the accrual basis of accounting, 
allowable leave costs are the lesser of the amount accrued or funded.
    (c) The cost of fringe benefits in the form of employer 
contributions or expenses for social security; employee life, health, 
unemployment, and worker's compensation insurance (except as indicated 
in Sec. 75.447); pension plan costs (see paragraph (i) of this 
section); and other similar benefits are allowable, provided such 
benefits are granted under established written policies. Such benefits, 
must be allocated to Federal awards and all other activities in a manner 
consistent with the pattern of benefits attributable to the individuals 
or group(s) of employees whose salaries and wages are chargeable to such 
Federal awards and other activities, and charged as direct or indirect 
costs in accordance with the non-Federal entity's accounting practices.
    (d) Fringe benefits may be assigned to cost objectives by 
identifying specific benefits to specific individual employees or by 
allocating on the basis of entity-wide salaries and wages of the 
employees receiving the benefits. When the allocation method is used, 
separate allocations must be made to selective groupings of employees, 
unless the non-Federal entity demonstrates that costs in relationship to 
salaries and wages do not differ significantly for different groups of 
employees.
    (e) Insurance. See also Sec. 75.447(d)(1) and (2).
    (1) Provisions for a reserve under a self-insurance program for 
unemployment compensation or workers' compensation are allowable to the 
extent that the provisions represent reasonable estimates of the 
liabilities for such compensation, and the types of coverage, extent of 
coverage, and rates and premiums would have been allowable had insurance 
been purchased to cover the risks. However, provisions for self-insured 
liabilities which do not become payable for more than one year after the 
provision is made must not exceed the present value of the liability.
    (2) Costs of insurance on the lives of trustees, officers, or other 
employees holding positions of similar responsibility are allowable only 
to the extent that the insurance represents additional compensation. The 
costs of such insurance when the non-Federal entity is named as 
beneficiary are unallowable.
    (3) Actual claims paid to or on behalf of employees or former 
employees for workers' compensation, unemployment

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compensation, severance pay, and similar employee benefits (e.g., post-
retirement health benefits), are allowable in the year of payment 
provided that the non-Federal entity follows a consistent costing 
policy.
    (f) Automobiles. That portion of automobile costs furnished by the 
entity that relates to personal use by employees (including 
transportation to and from work) is unallowable as fringe benefit or 
indirect (F&A) costs regardless of whether the cost is reported as 
taxable income to the employees.
    (g) Pension plan costs. Pension plan costs which are incurred in 
accordance with the established policies of the non-Federal entity are 
allowable, provided that:
    (1) Such policies meet the test of reasonableness.
    (2) The methods of cost allocation are not discriminatory.
    (3) For entities using accrual based accounting, the cost assigned 
to each fiscal year is determined in accordance with GAAP.
    (4) The costs assigned to a given fiscal year are funded for all 
plan participants within six months after the end of that year. However, 
increases to normal and past service pension costs caused by a delay in 
funding the actuarial liability beyond 30 calendar days after each 
quarter of the year to which such costs are assignable are unallowable. 
Non-Federal entity may elect to follow the ``Cost Accounting Standard 
for Composition and Measurement of Pension Costs'' (48 CFR 9904.412).
    (5) Pension plan termination insurance premiums paid pursuant to the 
Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. 1301-
1461) are allowable. Late payment charges on such premiums are 
unallowable. Excise taxes on accumulated funding deficiencies and other 
penalties imposed under ERISA are unallowable.
    (6) Pension plan costs may be computed using a pay-as-you-go method 
or an acceptable actuarial cost method in accordance with established 
written policies of the non-Federal entity.
    (i) For pension plans financed on a pay-as-you-go method, allowable 
costs will be limited to those representing actual payments to retirees 
or their beneficiaries.
    (ii) Pension costs calculated using an actuarial cost-based method 
recognized by GAAP are allowable for a given fiscal year if they are 
funded for that year within six months after the end of that year. Costs 
funded after the six month period (or a later period agreed to by the 
cognizant agency for indirect costs) are allowable in the year funded. 
The cognizant agency for indirect costs may agree to an extension of the 
six month period if an appropriate adjustment is made to compensate for 
the timing of the charges to the Federal Government and related Federal 
reimbursement and the non-Federal entity's contribution to the pension 
fund. Adjustments may be made by cash refund or other equitable 
procedures to compensate the Federal Government for the time value of 
Federal reimbursements in excess of contributions to the pension fund.
    (iii) Amounts funded by the non-Federal entity in excess of the 
actuarially determined amount for a fiscal year may be used as the non-
Federal entity's contribution in future periods.
    (iv) When a non-Federal entity converts to an acceptable actuarial 
cost method, as defined by GAAP, and funds pension costs in accordance 
with this method, the unfunded liability at the time of conversion is 
allowable if amortized over a period of years in accordance with GAAP.
    (v) The Federal Government must receive an equitable share of any 
previously allowed pension costs (including earnings thereon) which 
revert or inure to the non-Federal entity in the form of a refund, 
withdrawal, or other credit.
    (h) Post-retirement health. Post-retirement health plans (PRHP) 
refers to costs of health insurance or health services not included in a 
pension plan covered by paragraph (g) of this section for retirees and 
their spouses, dependents, and survivors. PRHP costs may be computed 
using a pay-as-you-go method or an acceptable actuarial cost method in 
accordance with established written policies of the non-Federal entity.
    (1) For PRHP financed on a pay-as-you-go method, allowable costs 
will be limited to those representing actual

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payments to retirees or their beneficiaries.
    (2) PRHP costs calculated using an actuarial cost method recognized 
by GAAP are allowable if they are funded for that year within six months 
after the end of that year. Costs funded after the six month period (or 
a later period agreed to by the cognizant agency) are allowable in the 
year funded. The Federal cognizant agency for indirect costs may agree 
to an extension of the six month period if an appropriate adjustment is 
made to compensate for the timing of the charges to the Federal 
Government and related Federal reimbursements and the non-Federal 
entity's contributions to the PRHP fund. Adjustments may be made by cash 
refund, reduction in current year's PRHP costs, or other equitable 
procedures to compensate the Federal Government for the time value of 
Federal reimbursements in excess of contributions to the PRHP fund.
    (3) Amounts funded in excess of the actuarially determined amount 
for a fiscal year may be used as the Federal Government's contribution 
in a future period.
    (4) When a non-Federal entity converts to an acceptable actuarial 
cost method and funds PRHP costs in accordance with this method, the 
initial unfunded liability attributable to prior years is allowable if 
amortized over a period of years in accordance with GAAP, or, if no such 
GAAP period exists, over a period negotiated with the cognizant agency 
for indirect costs.
    (5) To be allowable in the current year, the PRHP costs must be paid 
either to:
    (i) An insurer or other benefit provider as current year costs or 
premiums, or
    (ii) An insurer or trustee to maintain a trust fund or reserve for 
the sole purpose of providing post-retirement benefits to retirees and 
other beneficiaries.
    (6) The Federal Government must receive an equitable share of any 
amounts of previously allowed post-retirement benefit costs (including 
earnings thereon) which revert or inure to the non-Federal entity in the 
form of a refund, withdrawal, or other credit.
    (i) Severance pay. (1) Severance pay, also commonly referred to as 
dismissal wages, is a payment in addition to regular salaries and wages, 
by non-Federal entities to workers whose employment is being terminated. 
Costs of severance pay are allowable only to the extent that in each 
case, it is required by law, employer-employee agreement, established 
policy that constitutes, in effect, an implied agreement on the non-
Federal entity's part, or circumstances of the particular employment.
    (2) Costs of severance payments are divided into two categories as 
follows:
    (i) Actual normal turnover severance payments must be allocated to 
all activities; or, where the non-Federal entity provides for a reserve 
for normal severances, such method will be acceptable if the charge to 
current operations is reasonable in light of payments actually made for 
normal severances over a representative past period, and if amounts 
charged are allocated to all activities of the non-Federal entity.
    (ii) Measurement of costs of abnormal or mass severance pay by means 
of an accrual will not achieve equity to both parties. Thus, accruals 
for this purpose are not allowable. However, the Federal Government 
recognizes its obligation to participate, to the extent of its fair 
share, in any specific payment. Prior approval by the Federal awarding 
agency or cognizant agency for indirect cost, as appropriate, is 
required.
    (3) Costs incurred in certain severance pay packages which are in an 
amount in excess of the normal severance pay paid by the non-Federal 
entity to an employee upon termination of employment and are paid to the 
employee contingent upon a change in management control over, or 
ownership of, the non-Federal entity's assets, are unallowable.
    (4) Severance payments to foreign nationals employed by the non-
Federal entity outside the United States, to the extent that the amount 
exceeds the customary or prevailing practices for the non-Federal entity 
in the United States, are unallowable, unless they are necessary for the 
performance of Federal programs and approved by the HHS awarding agency.
    (5) Severance payments to foreign nationals employed by the non-
Federal

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entity outside the United States due to the termination of the foreign 
national as a result of the closing of, or curtailment of activities by, 
the non-Federal entity in that country, are unallowable, unless they are 
necessary for the performance of Federal programs and approved by the 
HHS awarding agency.
    (j)(1) For IHEs only. Fringe benefits in the form of tuition or 
remission of tuition for individual employees are allowable, provided 
such benefits are granted in accordance with established non-Federal 
entity policies, and are distributed to all non-Federal entity 
activities on an equitable basis. Tuition benefits for family members 
other than the employee are unallowable.
    (2) Fringe benefits in the form of tuition or remission of tuition 
for individual employees not employed by IHEs are limited to the tax-
free amount allowed per section 127 of the Internal Revenue Code as 
amended.
    (3) IHEs may offer employees tuition waivers or tuition reductions 
for undergraduate education under IRC Section 117(d) as amended, 
provided that the benefit does not discriminate in favor of highly 
compensated employees. Federal reimbursement of tuition or remission of 
tuition is also limited to the institution for which the employee works. 
See Sec. 75.466, for treatment of tuition remission provided to 
students.
    (k) For IHEs whose costs are paid by state or local governments, 
fringe benefit programs (such as pension costs and FICA) and any other 
benefits costs specifically incurred on behalf of, and in direct benefit 
to, the non-Federal entity, are allowable costs of such non-Federal 
entities whether or not these costs are recorded in the accounting 
records of the non-Federal entities, subject to the following:
    (1) The costs meet the requirements of Basic Considerations in 
Sec. Sec. 75.402 through 75.411;
    (2) The costs are properly supported by approved cost allocation 
plans in accordance with applicable Federal cost accounting principles; 
and
    (3) The costs are not otherwise borne directly or indirectly by the 
Federal Government.



Sec. 75.432  Conferences.

    A conference is defined as a meeting, retreat, seminar, symposium, 
workshop or event whose primary purpose is the dissemination of 
technical information beyond the non-Federal entity and is necessary and 
reasonable for successful performance under the Federal award. Allowable 
conference costs paid by the non-Federal entity as a sponsor or host of 
the conference may include rental of facilities, speakers' fees, costs 
of meals and refreshments, local transportation, and other items 
incidental to such conferences unless further restricted by the terms 
and conditions of the Federal award. As needed, the costs of 
identifying, but not providing, locally available dependent-care 
resources are allowable. Conference hosts/sponsors must exercise 
discretion and judgment in ensuring that conference costs are 
appropriate, necessary and managed in a manner that minimizes costs to 
the Federal award. The HHS awarding agency may authorize exceptions 
where appropriate for programs including Indian tribes, children, and 
the elderly. See also Sec. Sec. 75.438, 75.456, 75.474, and 75.475.



Sec. 75.433  Contingency provisions.

    (a) Contingency is that part of a budget estimate of future costs 
(typically of large construction projects, IT systems, or other items as 
approved by the HHS awarding agency) which is associated with possible 
events or conditions arising from causes the precise outcome of which is 
indeterminable at the time of estimate, and that experience shows will 
likely result, in aggregate, in additional costs for the approved 
activity or project. Amounts for major project scope changes, unforeseen 
risks, or extraordinary events may not be included.
    (b) It is permissible for contingency amounts other than those 
excluded in paragraph (a) of this section to be explicitly included in 
budget estimates, to the extent they are necessary to improve the 
precision of those estimates. Amounts must be estimated using broadly-
accepted cost estimating methodologies, specified in the budget 
documentation of the Federal award, and accepted by the HHS awarding 
agency. As such, contingency amounts

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are to be included in the Federal award. In order for actual costs 
incurred to be allowable, they must comply with the cost principles and 
other requirements in this part (see also Sec. Sec. 75.300 through 
75.309 of subpart D of this part and 75.403); be necessary and 
reasonable for proper and efficient accomplishment of project or program 
objectives, and be verifiable from the non-Federal entity's records.
    (c) Payments made by the HHS awarding agency to the non-Federal 
entity's ``contingency reserve'' or any similar payment made for events 
the occurrence of which cannot be foretold with certainty as to the time 
or intensity, or with an assurance of their happening, are unallowable, 
except as noted in Sec. Sec. 75.431 and 75.447.



Sec. 75.434  Contributions and donations.

    (a) Costs of contributions and donations, including cash, property, 
and services, from the non-Federal entity to other entities, are 
unallowable.
    (b) The value of services and property donated to the non-Federal 
entity may not be charged to the Federal award either as a direct or 
indirect (F&A) cost. The value of donated services and property may be 
used to meet cost sharing or matching requirements (see Sec. 75.306). 
Depreciation on donated assets is permitted in accordance with Sec. 
75.436, as long as the donated property is not counted towards cost 
sharing or matching requirements.
    (c) Services donated or volunteered to the non-Federal entity may be 
furnished to a non-Federal entity by professional and technical 
personnel, consultants, and other skilled and unskilled labor. The value 
of these services may not be charged to the Federal award either as a 
direct or indirect cost. However, the value of donated services may be 
used to meet cost sharing or matching requirements in accordance with 
the provisions of Sec. 75.306.
    (d) To the extent feasible, services donated to the non-Federal 
entity will be supported by the same methods used to support the 
allocability of regular personnel services.
    (e) The following provisions apply to nonprofit organizations. The 
value of services donated to the nonprofit organization utilized in the 
performance of a direct cost activity must be considered in the 
determination of the non-Federal entity's indirect cost rate(s) and, 
accordingly, must be allocated a proportionate share of applicable 
indirect costs when the following circumstances exist:
    (1) The aggregate value of the services is material;
    (2) The services are supported by a significant amount of the 
indirect costs incurred by the non-Federal entity;
    (i) In those instances where there is no basis for determining the 
fair market value of the services rendered, the non-Federal entity and 
the cognizant agency for indirect costs must negotiate an appropriate 
allocation of indirect cost to the services.
    (ii) Where donated services directly benefit a project supported by 
the Federal award, the indirect costs allocated to the services will be 
considered as a part of the total costs of the project. Such indirect 
costs may be reimbursed under the Federal award or used to meet cost 
sharing or matching requirements.
    (f) Fair market value of donated services must be computed as 
described in Sec. 75.306.
    (g) Personal property and use of space. (1) Donated personal 
property and use of space may be furnished to a non-Federal entity. The 
value of the personal property and space may not be charged to the 
Federal award either as a direct or indirect cost.
    (2) The value of the donations may be used to meet cost sharing or 
matching share requirements under the conditions described in Sec. Sec. 
75.300 through 75.309 of subpart D of this part. The value of the 
donations must be determined in accordance with Sec. Sec. 75.300 
through 75.309. Where donations are treated as indirect costs, indirect 
cost rates will separate the value of the donations so that 
reimbursement will not be made.



Sec. 75.435  Defense and prosecution of criminal and civil proceedings, claims, appeals, and patent infringements.

    (a) Definitions for the purposes of this section. (1) Conviction 
means a judgment or conviction of a criminal offense by

[[Page 299]]

any court of competent jurisdiction, whether entered upon verdict or a 
plea, including a conviction due to a plea of nolo contendere.
    (2) Costs include the services of in-house or private counsel, 
accountants, consultants, or others engaged to assist the non-Federal 
entity before, during, and after commencement of a judicial or 
administrative proceeding, that bear a direct relationship to the 
proceeding.
    (3) Fraud means:
    (i) Acts of fraud or corruption or attempts to defraud the Federal 
Government or to corrupt its agents,
    (ii) Acts that constitute a cause for debarment or suspension (as 
specified in agency regulations), and
    (iii) Acts which violate the False Claims Act (31 U.S.C. 3729-3732) 
or the Anti-kickback Act (41 U.S.C. 1320a-7b(b)).
    (4) Penalty does not include restitution, reimbursement, or 
compensatory damages.
    (5) Proceeding includes an investigation.
    (b) Costs. (1) Except as otherwise described herein, costs incurred 
in connection with any criminal, civil or administrative proceeding 
(including filing of a false certification) commenced by the Federal 
Government, a state, local government, or foreign government, or joined 
by the Federal Government (including a proceeding under the False Claims 
Act), against the non-Federal entity, (or commenced by third parties or 
a current or former employee of the non-Federal entity who submits a 
whistleblower complaint of reprisal in accordance with 10 U.S.C. 2409 or 
41 U.S.C. 4712), are not allowable if the proceeding:
    (i) Relates to a violation of, or failure to comply with, a Federal, 
state, local or foreign statute, regulation or the terms and conditions 
of the Federal award, by the non-Federal entity (including its agents 
and employees); and
    (ii) Results in any of the following dispositions:
    (A) In a criminal proceeding, a conviction.
    (B) In a civil or administrative proceeding involving an allegation 
of fraud or similar misconduct, a determination of non-Federal entity 
liability.
    (C) In the case of any civil or administrative proceeding, the 
disallowance of costs or the imposition of a monetary penalty, or an 
order issued by the HHS awarding agency head or delegate to the non-
Federal entity to take corrective action under 10 U.S.C. 2409 or 41 
U.S.C. 4712.
    (D) A final decision by an appropriate Federal official to debar or 
suspend the non-Federal entity, to rescind or void a Federal award, or 
to terminate a Federal award by reason of a violation or failure to 
comply with a statute, regulation, or the terms and conditions of the 
Federal award.
    (E) A disposition by consent or compromise, if the action could have 
resulted in any of the dispositions described in paragraphs 
(b)(1)(ii)(A) through (D) of this section.
    (2) If more than one proceeding involves the same alleged 
misconduct, the costs of all such proceedings are unallowable if any 
results in one of the dispositions shown in paragraph (b) of this 
section.
    (c) If a proceeding referred to in paragraph (b) of this section is 
commenced by the Federal Government and is resolved by consent or 
compromise pursuant to an agreement by the non-Federal entity and the 
Federal Government, then the costs incurred may be allowed to the extent 
specifically provided in such agreement.
    (d) If a proceeding referred to in paragraph (b) of this section is 
commenced by a state, local or foreign government, the authorized 
Federal official may allow the costs incurred if such authorized 
official determines that the costs were incurred as a result of:
    (1) A specific term or condition of the Federal award, or
    (2) Specific written direction of an authorized official of the HHS 
awarding agency.
    (e) Costs incurred in connection with proceedings described in 
paragraph (b) of this section, which are not made unallowable by that 
subsection, may be allowed but only to the extent that:

[[Page 300]]

    (1) The costs are reasonable and necessary in relation to the 
administration of the Federal award and activities required to deal with 
the proceeding and the underlying cause of action;
    (2) Payment of the reasonable, necessary, allocable and otherwise 
allowable costs incurred is not prohibited by any other provision(s) of 
the Federal award;
    (3) The costs are not recovered from the Federal Government or a 
third party, either directly as a result of the proceeding or otherwise; 
and,
    (4) An authorized Federal official must determine the percentage of 
costs allowed considering the complexity of litigation, generally 
accepted principles governing the award of legal fees in civil actions 
involving the United States, and such other factors as may be 
appropriate. Such percentage must not exceed 80 percent. However, if an 
agreement reached under paragraph (c) of this section has explicitly 
considered this 80 percent limitation and permitted a higher percentage, 
then the full amount of costs resulting from that agreement are 
allowable.
    (f) Costs incurred by the non-Federal entity in connection with the 
defense of suits brought by its employees or ex-employees under section 
2 of the Major Fraud Act of 1988 (18 U.S.C. 1031), including the cost of 
all relief necessary to make such employee whole, where the non-Federal 
entity was found liable or settled, are unallowable.
    (g) Costs of prosecution of claims against the Federal Government, 
including appeals of final HHS agency decisions, are unallowable.
    (h) Costs of legal, accounting, and consultant services, and related 
costs, incurred in connection with patent infringement litigation, are 
unallowable unless otherwise provided for in the Federal award.
    (i) Costs which may be unallowable under this section, including 
directly associated costs, must be segregated and accounted for 
separately. During the pendency of any proceeding covered by paragraphs 
(b) and (f) of this section, the Federal Government must generally 
withhold payment of such costs. However, if in its best interests, the 
Federal Government may provide for conditional payment upon provision of 
adequate security, or other adequate assurance, and agreement to repay 
all unallowable costs, plus interest, if the costs are subsequently 
determined to be unallowable.



Sec. 75.436  Depreciation.

    (a) Depreciation is the method for allocating the cost of fixed 
assets to periods benefitting from asset use. The non-Federal entity may 
be compensated for the use of its buildings, capital improvements, 
equipment, and software projects capitalized in accordance with GAAP, 
provided that they are used, needed in the non-Federal entity's 
activities, and properly allocated to Federal awards. Such compensation 
must be made by computing depreciation.
    (b) The allocation for depreciation must be made in accordance with 
appendices III through IX.
    (c) Depreciation is computed applying the following rules. The 
computation of depreciation must be based on the acquisition cost of the 
assets involved. For an asset donated to the non-Federal entity by a 
third party, its fair market value at the time of the donation must be 
considered as the acquisition cost. Such assets may be depreciated or 
claimed as matching but not both. For the purpose of computing 
depreciation, the acquisition cost will exclude:
    (1) The cost of land;
    (2) Any portion of the cost of buildings and equipment borne by or 
donated by the Federal Government, irrespective of where title was 
originally vested or where it is presently located;
    (3) Any portion of the cost of buildings and equipment contributed 
by or for the non-Federal entity, where law or agreement prohibits 
recovery; and
    (4) Any asset acquired solely for the performance of a non-Federal 
award.
    (d) When computing depreciation charges, the following must be 
observed:
    (1) The period of useful service or useful life established in each 
case for usable capital assets must take into consideration such factors 
as type of construction, nature of the equipment, technological 
developments in the particular area, historical data, and the

[[Page 301]]

renewal and replacement policies followed for the individual items or 
classes of assets involved.
    (2) The depreciation method used to charge the cost of an asset (or 
group of assets) to accounting periods must reflect the pattern of 
consumption of the asset during its useful life. In the absence of clear 
evidence indicating that the expected consumption of the asset will be 
significantly greater in the early portions than in the later portions 
of its useful life, the straight-line method must be presumed to be the 
appropriate method. Depreciation methods once used may not be changed 
unless approved in advance by the cognizant agency. The depreciation 
methods used to calculate the depreciation amounts for indirect (F&A) 
rate purposes must be the same methods used by the non-Federal entity 
for its financial statements.
    (3) The entire building, including the shell and all components, may 
be treated as a single asset and depreciated over a single useful life. 
A building may also be divided into multiple components. Each component 
item may then be depreciated over its estimated useful life. The 
building components must be grouped into three general components of a 
building: building shell (including construction and design costs), 
building services systems (e.g., elevators, HVAC, plumbing system and 
heating and air-conditioning system) and fixed equipment (e.g., 
sterilizers, casework, fume hoods, cold rooms and glassware/washers). In 
exceptional cases, a cognizant agency may authorize a non-Federal entity 
to use more than these three groupings. When a non-Federal entity elects 
to depreciate its buildings by its components, the same depreciation 
methods must be used for indirect (F&A) purposes and financial 
statements purposes, as described in paragraphs (d)(1) and (2) of this 
section.
    (4) No depreciation may be allowed on any assets that have outlived 
their depreciable lives.
    (5) Where the depreciation method is introduced to replace the use 
allowance method, depreciation must be computed as if the asset had been 
depreciated over its entire life (i.e., from the date the asset was 
acquired and ready for use to the date of disposal or withdrawal from 
service). The total amount of use allowance and depreciation for an 
asset (including imputed depreciation applicable to periods prior to the 
conversion from the use allowance method as well as depreciation after 
the conversion) may not exceed the total acquisition cost of the asset.
    (e) Charges for depreciation must be supported by adequate property 
records, and physical inventories must be taken at least once every two 
years to ensure that the assets exist and are usable, used, and needed. 
Statistical sampling techniques may be used in taking these inventories. 
In addition, adequate depreciation records showing the amount of 
depreciation taken each period must also be maintained.



Sec. 75.437  Employee health and welfare costs.

    (a) Costs incurred in accordance with the non-Federal entity's 
documented policies for the improvement of working conditions, employer-
employee relations, employee health, and employee performance are 
allowable.
    (b) Such costs will be equitably apportioned to all activities of 
the non-Federal entity. Income generated from any of these activities 
will be credited to the cost thereof unless such income has been 
irrevocably sent to employee welfare organizations.
    (c) Losses resulting from operating food services are allowable only 
if the non-Federal entity's objective is to operate such services on a 
break-even basis. Losses sustained because of operating objectives other 
than the above are allowable only:
    (1) Where the non-Federal entity can demonstrate unusual 
circumstances; and
    (2) With the approval of the cognizant agency for indirect costs.



Sec. 75.438  Entertainment costs.

    Costs of entertainment, including amusement, diversion, and social 
activities and any associated costs are unallowable, except where 
specific costs that might otherwise be considered entertainment have a 
programmatic purpose and are authorized either in the approved budget 
for the

[[Page 302]]

Federal award or with prior written approval of the HHS awarding agency.



Sec. 75.439  Equipment and other capital expenditures.

    (a) See Sec. 75.2 for the definitions of Capital expenditures, 
Equipment, Special purpose equipment, General purpose equipment, 
Acquisition cost, and Capital assets.
    (b) The following rules of allowability must apply to equipment and 
other capital expenditures:
    (1) Capital expenditures for general purpose equipment, buildings, 
and land are unallowable as direct charges, except with the prior 
written approval of the HHS awarding agency or pass-through entity.
    (2) Capital expenditures for special purpose equipment are allowable 
as direct costs, provided that items with a unit cost of $5,000 or more 
have the prior written approval of the HHS awarding agency or pass-
through entity.
    (3) Capital expenditures for improvements to land, buildings, or 
equipment which materially increase their value or useful life are 
unallowable as a direct cost except with the prior written approval of 
the HHS awarding agency, or pass-through entity. See Sec. 75.436 for 
rules on the allowability of depreciation on buildings, capital 
improvements, and equipment. See also Sec. 75.465.
    (4) When approved as a direct charge pursuant to paragraphs (b)(1) 
through (3) of this section, capital expenditures will be charged in the 
period in which the expenditure is incurred, or as otherwise determined 
appropriate and negotiated with the HHS awarding agency.
    (5) The unamortized portion of any equipment written off as a result 
of a change in capitalization levels may be recovered by continuing to 
claim the otherwise allowable depreciation on the equipment, or by 
amortizing the amount to be written off over a period of years 
negotiated with the Federal cognizant agency for indirect cost.
    (6) Cost of equipment disposal. If the non-Federal entity is 
instructed by the HHS awarding agency to otherwise dispose of or 
transfer the equipment the costs of such disposal or transfer are 
allowable.



Sec. 75.440  Exchange rates.

    (a) Cost increases for fluctuations in exchange rates are allowable 
costs subject to the availability of funding. Prior approval of exchange 
rate fluctuations is required only when the change results in the need 
for additional Federal funding, or the increased costs result in the 
need to significantly reduce the scope of the project. The HHS awarding 
agency must however ensure that adequate funds are available to cover 
currency fluctuations in order to avoid a violation of the Anti-
Deficiency Act.
    (b) The non-Federal entity is required to make reviews of local 
currency gains to determine the need for additional federal funding 
before the expiration date of the Federal award. Subsequent adjustments 
for currency increases may be allowable only when the non-Federal entity 
provides the HHS awarding agency with adequate source documentation from 
a commonly used source in effect at the time the expense was made, and 
to the extent that sufficient Federal funds are available.



Sec. 75.441  Fines, penalties, damages and other settlements.

    Costs resulting from non-Federal entity violations of, alleged 
violations of, or failure to comply with, Federal, state, tribal, local 
or foreign laws and regulations are unallowable, except when incurred as 
a result of compliance with specific provisions of the Federal award, or 
with prior written approval of the HHS awarding agency. See also Sec. 
75.435.



Sec. 75.442  Fund raising and investment management costs.

    (a) Costs of organized fund raising, including financial campaigns, 
endowment drives, solicitation of gifts and bequests, and similar 
expenses incurred to raise capital or obtain contributions are 
unallowable. Fund raising costs for the purposes of meeting the Federal 
program objectives are allowable with prior written approval from the 
Federal awarding agency. Proposal costs are covered in Sec. 75.460.
    (b) Costs of investment counsel and staff and similar expenses 
incurred to enhance income from investments are

[[Page 303]]

unallowable except when associated with investments covering pension, 
self-insurance, or other funds which include Federal participation 
allowed by this part.
    (c) Costs related to the physical custody and control of monies and 
securities are allowable.
    (d) Both allowable and unallowable fund raising and investment 
activities must be allocated an appropriate share of indirect costs 
under the conditions described in Sec. 75.413.



Sec. 75.443  Gains and losses on disposition of depreciable assets.

    (a) Gains and losses on the sale, retirement, or other disposition 
of depreciable property must be included in the year in which they occur 
as credits or charges to the asset cost grouping(s) in which the 
property was included. The amount of the gain or loss to be included as 
a credit or charge to the appropriate asset cost grouping(s) is the 
difference between the amount realized on the property and the 
undepreciated basis of the property.
    (b) Gains and losses from the disposition of depreciable property 
must not be recognized as a separate credit or charge under the 
following conditions:
    (1) The gain or loss is processed through a depreciation account and 
is reflected in the depreciation allowable under Sec. Sec. 75.436 and 
75.439.
    (2) The property is given in exchange as part of the purchase price 
of a similar item and the gain or loss is taken into account in 
determining the depreciation cost basis of the new item.
    (3) A loss results from the failure to maintain permissible 
insurance, except as otherwise provided in Sec. 75.447.
    (4) Compensation for the use of the property was provided through 
use allowances in lieu of depreciation.
    (5) Gains and losses arising from mass or extraordinary sales, 
retirements, or other dispositions must be considered on a case-by-case 
basis.
    (c) Gains or losses of any nature arising from the sale or exchange 
of property other than the property covered in paragraph (a) of this 
section, e.g., land, must be excluded in computing Federal award costs.
    (d) When assets acquired with Federal funds, in part or wholly, are 
disposed of, the distribution of the proceeds must be made in accordance 
with Sec. Sec. 75.317 through 75.323.



Sec. 75.444  General costs of government.

    (a) For states, local governments, and Indian Tribes, the general 
costs of government are unallowable (except as provided in Sec. 
75.474). Unallowable costs include:
    (1) Salaries and expenses of the Office of the Governor of a state 
or the chief executive of a local government or the chief executive of 
an Indian tribe;
    (2) Salaries and other expenses of a state legislature, tribal 
council, or similar local governmental body, such as a county 
supervisor, city council, school board, etc., whether incurred for 
purposes of legislation or executive direction;
    (3) Costs of the judicial branch of a government;
    (4) Costs of prosecutorial activities unless treated as a direct 
cost to a specific program if authorized by statute or regulation 
(however, this does not preclude the allowability of other legal 
activities of the Attorney General as described in Sec. 75.435); and
    (5) Costs of other general types of government services normally 
provided to the general public, such as fire and police, unless provided 
for as a direct cost under a program statute or regulation.
    (b) For Indian tribes and Councils of Governments (COGs) (see Sec. 
75.2 Local government), up to 50% of salaries and expenses directly 
attributable to managing and operating Federal programs by the chief 
executive and his or her staff can be included in the indirect cost 
calculation without documentation.



Sec. 75.445  Goods or services for personal use.

    (a) Costs of goods or services for personal use of the non-Federal 
entity's employees are unallowable regardless of whether the cost is 
reported as taxable income to the employees.
    (b) Costs of housing (e.g., depreciation, maintenance, utilities, 
furnishings, rent), housing allowances and personal living expenses are 
only allowable as direct costs regardless of whether reported as taxable 
income to

[[Page 304]]

the employees. In addition, to be allowable direct costs must be 
approved in advance by an HHS awarding agency.



Sec. 75.446  Idle facilities and idle capacity.

    (a) As used in this section the following terms have the meanings 
set forth in this section:
    (1) Facilities means land and buildings or any portion thereof, 
equipment individually or collectively, or any other tangible capital 
asset, wherever located, and whether owned or leased by the non-Federal 
entity.
    (2) Idle facilities means completely unused facilities that are 
excess to the non-Federal entity's current needs.
    (3) Idle capacity means the unused capacity of partially used 
facilities. It is the difference between:
    (i) That which a facility could achieve under 100 percent operating 
time on a one-shift basis less operating interruptions resulting from 
time lost for repairs, setups, unsatisfactory materials, and other 
normal delays and;
    (ii) The extent to which the facility was actually used to meet 
demands during the accounting period. A multi-shift basis should be used 
if it can be shown that this amount of usage would normally be expected 
for the type of facility involved.
    (4) Cost of idle facilities or idle capacity means costs such as 
maintenance, repair, housing, rent, and other related costs, e.g., 
insurance, interest, and depreciation. These costs could include the 
costs of idle public safety emergency facilities, telecommunications, or 
information technology system capacity that is built to withstand major 
fluctuations in load, e.g., consolidated data centers.
    (b) The costs of idle facilities are unallowable except to the 
extent that:
    (1) They are necessary to meet workload requirements which may 
fluctuate and are allocated appropriately to all benefiting programs; or
    (2) Although not necessary to meet fluctuations in workload, they 
were necessary when acquired and are now idle because of changes in 
program requirements, efforts to achieve more economical operations, 
reorganization, termination, or other causes which could not have been 
reasonably foreseen. Under the exception stated in this subsection, 
costs of idle facilities are allowable for a reasonable period of time, 
ordinarily not to exceed one year, depending on the initiative taken to 
use, lease, or dispose of such facilities.
    (c) The costs of idle capacity are normal costs of doing business 
and are a factor in the normal fluctuations of usage or indirect cost 
rates from period to period. Such costs are allowable, provided that the 
capacity is reasonably anticipated to be necessary to carry out the 
purpose of the Federal award or was originally reasonable and is not 
subject to reduction or elimination by use on other Federal awards, 
subletting, renting, or sale, in accordance with sound business, 
economic, or security practices. Widespread idle capacity throughout an 
entire facility or among a group of assets having substantially the same 
function may be considered idle facilities.



Sec. 75.447  Insurance and indemnification.

    (a) Costs of insurance required or approved and maintained, pursuant 
to the Federal award, are allowable.
    (b) Costs of other insurance in connection with the general conduct 
of activities are allowable subject to the following limitations:
    (1) Types and extent and cost of coverage are in accordance with the 
non-Federal entity's policy and sound business practice.
    (2) Costs of insurance or of contributions to any reserve covering 
the risk of loss of, or damage to, Federal Government property are 
unallowable except to the extent that the HHS awarding agency has 
specifically required or approved such costs.
    (3) Costs allowed for business interruption or other similar 
insurance must exclude coverage of management fees.
    (4) Costs of insurance on the lives of trustees, officers, or other 
employees holding positions of similar responsibilities are allowable 
only to the extent that the insurance represents additional compensation 
(see Sec. 75.431). The cost of such insurance when the non-Federal 
entity is identified as the beneficiary is unallowable.

[[Page 305]]

    (5) Insurance against defects. Costs of insurance with respect to 
any costs incurred to correct defects in the non-Federal entity's 
materials or workmanship are unallowable.
    (6) Medical liability (malpractice) insurance. Medical liability 
insurance is an allowable cost of Federal research programs only to the 
extent that the Federal research programs involve human subjects or 
training of participants in research techniques. Medical liability 
insurance costs must be treated as a direct cost and must be assigned to 
individual projects based on the manner in which the insurer allocates 
the risk to the population covered by the insurance.
    (c) Actual losses which could have been covered by permissible 
insurance (through a self-insurance program or otherwise) are 
unallowable, unless expressly provided for in the Federal award. 
However, costs incurred because of losses not covered under nominal 
deductible insurance coverage provided in keeping with sound management 
practice, and 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.
    (d) Contributions to a reserve for certain self-insurance programs 
including workers' compensation, unemployment compensation, and 
severance pay are allowable subject to the following provisions:
    (1) The type of coverage and the extent of coverage and the rates 
and premiums would have been allowed had insurance (including 
reinsurance) been purchased to cover the risks. However, provision for 
known or reasonably estimated self-insured liabilities, which do not 
become payable for more than one year after the provision is made, must 
not exceed the discounted present value of the liability. The rate used 
for discounting the liability must be determined by giving consideration 
to such factors as the non-Federal entity's settlement rate for those 
liabilities and its investment rate of return.
    (2) Earnings or investment income on reserves must be credited to 
those reserves.
    (3)(i) Contributions to reserves must be based on sound actuarial 
principles using historical experience and reasonable assumptions. 
Reserve levels must be analyzed and updated at least biennially for each 
major risk being insured and take into account any reinsurance, 
coinsurance, etc. Reserve levels related to employee-related coverages 
will normally be limited to the value of claims:
    (A) Submitted and adjudicated but not paid;
    (B) Submitted but not adjudicated; and
    (C) Incurred but not submitted.
    (ii) Reserve levels in excess of the amounts based on the above must 
be identified and justified in the cost allocation plan or indirect cost 
rate proposal.
    (4) Accounting records, actuarial studies, and cost allocations (or 
billings) must recognize any significant differences due to types of 
insured risk and losses generated by the various insured activities or 
agencies of the non-Federal entity. If individual departments or 
agencies of the non-Federal entity experience significantly different 
levels of claims for a particular risk, those differences are to be 
recognized by the use of separate allocations or other techniques 
resulting in an equitable allocation.
    (5) Whenever funds are transferred from a self-insurance reserve to 
other accounts (e.g., general fund or unrestricted account), refunds 
must be made to the Federal Government for its share of funds 
transferred, including earned or imputed interest from the date of 
transfer and debt interest, if applicable, chargeable in accordance with 
applicable Federal cognizant agency for indirect cost, claims collection 
regulations.
    (e) Insurance refunds must be credited against insurance costs in 
the year the refund is received.
    (f) Indemnification includes securing the non-Federal entity against 
liabilities to third persons and other losses not compensated by 
insurance or otherwise. The Federal Government is obligated to indemnify 
the non-Federal entity only to the extent expressly provided for in the 
Federal award, except as provided in paragraph (c) of this section.

[[Page 306]]



Sec. 75.448  Intellectual property.

    (a) Patent costs. (1) The following costs related to securing 
patents and copyrights are allowable:
    (i) Costs of preparing disclosures, reports, and other documents 
required by the Federal award, and of searching the art to the extent 
necessary to make such disclosures;
    (ii) Costs of preparing documents and any other patent costs in 
connection with the filing and prosecution of a United States patent 
application where title or royalty-free license is required by the 
Federal Government to be conveyed to the Federal Government; and
    (iii) General counseling services relating to patent and copyright 
matters, such as advice on patent and copyright laws, regulations, 
clauses, and employee intellectual property agreements (See also Sec. 
75.459).
    (2) The following costs related to securing patents and copyrights 
are unallowable:
    (i) Costs of preparing disclosures, reports, and other documents, 
and of searching the art to make disclosures not required by the Federal 
award;
    (ii) Costs in connection with filing and prosecuting any foreign 
patent application, or any United States patent application, where the 
Federal award does not require conveying title or a royalty-free license 
to the Federal Government.
    (b) Royalties and other costs for use of patents and copyrights. (1) 
Royalties on a patent or copyright or amortization of the cost of 
acquiring by purchase a copyright, patent, or rights thereto, necessary 
for the proper performance of the Federal award are allowable unless:
    (i) The Federal Government already has a license or the right to 
free use of the patent or copyright.
    (ii) The patent or copyright has been adjudicated to be invalid, or 
has been administratively determined to be invalid.
    (iii) The patent or copyright is considered to be unenforceable.
    (iv) The patent or copyright is expired.
    (2) Special care should be exercised in determining reasonableness 
where the royalties may have been arrived at as a result of less-than-
arm's-length bargaining, such as:
    (i) Royalties paid to persons, including corporations, affiliated 
with the non-Federal entity.
    (ii) Royalties paid to unaffiliated parties, including corporations, 
under an agreement entered into in contemplation that a Federal award 
would be made.
    (iii) Royalties paid under an agreement entered into after a Federal 
award is made to a non-Federal entity.
    (3) In any case involving a patent or copyright formerly owned by 
the non-Federal entity, the amount of royalty allowed must not exceed 
the cost which would have been allowed had the non-Federal entity 
retained title there.



Sec. 75.449  Interest.

    (a) General. Costs incurred for interest on borrowed capital, 
temporary use of endowment funds, or the use of the non-Federal entity's 
own funds, however represented, are unallowable. Financing costs 
(including interest) to acquire, construct, or replace capital assets 
are allowable, subject to the conditions in this section.
    (b)(1) Capital assets are defined in Sec. 75.2 Capital assets. An 
asset cost includes (as applicable) acquisition costs, construction 
costs, and other costs capitalized in accordance with GAAP.
    (2) For non-Federal entity fiscal years beginning on or after 
January 1, 2016, intangible assets include patents and computer 
software. For software development projects, only interest attributable 
to the portion of the project costs capitalized in accordance with GAAP 
is allowable.
    (c) Conditions for all non-Federal entities. (1) The non-Federal 
entity uses the capital assets in support of Federal awards;
    (2) The allowable asset costs to acquire facilities and equipment 
are limited to a fair market value available to the non-Federal entity 
from an unrelated (arm's length) third party.
    (3) The non-Federal entity obtains the financing via an arm's-length 
transaction (that is, a transaction with an unrelated third party); or 
claims reimbursement of actual interest cost at a rate available via 
such a transaction.

[[Page 307]]

    (4) The non-Federal entity limits claims for Federal reimbursement 
of interest costs to the least expensive alternative. For example, a 
capital lease may be determined less costly than purchasing through debt 
financing, in which case reimbursement must be limited to the amount of 
interest determined if leasing had been used.
    (5) The non-Federal entity expenses or capitalizes allowable 
interest cost in accordance with GAAP.
    (6) Earnings generated by the investment of borrowed funds pending 
their disbursement for the asset costs are used to offset the current 
period's allowable interest cost, whether that cost is expensed or 
capitalized. Earnings subject to being reported to the Federal Internal 
Revenue Service under arbitrage requirements are excludable.
    (7) The following conditions must apply to debt arrangements over $1 
million to purchase or construct facilities, unless the non-Federal 
entity makes an initial equity contribution to the purchase of 25 
percent or more. For this purpose, ``initial equity contribution'' means 
the amount or value of contributions made by the non-Federal entity for 
the acquisition of facilities prior to occupancy.
    (i) The non-Federal entity must reduce claims for reimbursement of 
interest cost by an amount equal to imputed interest earnings on excess 
cash flow attributable to the portion of the facility used for Federal 
awards.
    (ii) The non-Federal entity must impute interest on excess cash flow 
as follows:
    (A) Annually, the non-Federal entity must prepare a cumulative (from 
the inception of the project) report of monthly cash inflows and 
outflows, regardless of the funding source. For this purpose, inflows 
consist of Federal reimbursement for depreciation, amortization of 
capitalized construction interest, and annual interest cost. Outflows 
consist of initial equity contributions, debt principal payments (less 
the pro-rata share attributable to the cost of land), and interest 
payments.
    (B) To compute monthly cash inflows and outflows, the non-Federal 
entity must divide the annual amounts determined in step (i) by the 
number of months in the year (usually 12) that the building is in 
service.
    (C) For any month in which cumulative cash inflows exceed cumulative 
outflows, interest must be calculated on the excess inflows for that 
month and be treated as a reduction to allowable interest cost. The rate 
of interest to be used must be the three-month Treasury bill closing 
rate as of the last business day of that month.
    (8) Interest attributable to a fully depreciated asset is 
unallowable.
    (d) Additional conditions for states, local governments and Indian 
tribes. For costs to be allowable, the non-Federal entity must have 
incurred the interest costs for buildings after October 1, 1980, or for 
land and equipment after September 1, 1995.
    (1) The requirement to offset interest earned on borrowed funds 
against current allowable interest cost (paragraph (c)(5) of this 
section) also applies to earnings on debt service reserve funds.
    (2) The non-Federal entity will negotiate the amount of allowable 
interest cost related to the acquisition of facilities with asset costs 
of $1 million or more, as outlined in paragraph (c)(7) of this section. 
For this purpose, a non-Federal entity must consider only cash inflows 
and outflows attributable to that portion of the real property used for 
Federal awards.
    (e) Additional conditions for IHEs. For costs to be allowable, the 
IHE must have incurred the interest costs after September 23, 1982, in 
connection with acquisitions of capital assets that occurred after that 
date.
    (f) Additional condition for nonprofit organizations. For costs to 
be allowable, the nonprofit organization incurred the interest costs 
after September 29, 1995, in connection with acquisitions of capital 
assets that occurred after that date.
    (g) The interest allowability provisions of this section do not 
apply to a nonprofit organization subject to ``full coverage'' under the 
Cost Accounting Standards (CAS), as defined at 48 CFR 9903.201-2(a). The 
non-Federal entity's Federal awards are instead subject to CAS 414 (48 
CFR 9904.414), and CAS 417 (48 CFR 9904.417).

[[Page 308]]



Sec. 75.450  Lobbying.

    (a) The cost of certain influencing activities associated with 
obtaining grants, contracts, cooperative agreements, or loans is an 
unallowable cost. Lobbying with respect to certain grants, contracts, 
cooperative agreements, and loans is governed by relevant statutes, 
including among others, the provisions of 31 U.S.C. 1352, as well as the 
common rule, ``New Restrictions on Lobbying'' published at 55 FR 6736 
(February 26, 1990), including definitions, and the Office of Management 
and Budget ``Government-wide Guidance for New Restrictions on Lobbying'' 
and notices published at 54 FR 52306 (December 20, 1989), 55 FR 24540 
(June 15, 1990), 57 FR 1772 (January 15, 1992), and 61 FR 1412 (January 
19, 1996).
    (b) Executive lobbying costs. Costs incurred in attempting to 
improperly influence either directly or indirectly, an employee or 
officer of the executive branch of the Federal Government to give 
consideration or to act regarding a Federal award or a regulatory matter 
are unallowable. Improper influence means any influence that induces or 
tends to induce a Federal employee or officer to give consideration or 
to act regarding a Federal award or regulatory matter on any basis other 
than the merits of the matter.
    (c) In addition to the above, the following restrictions are 
applicable to nonprofit organizations and IHEs:
    (1) Costs associated with the following activities are unallowable:
    (i) Attempts to influence the outcomes of any Federal, state, or 
local election, referendum, initiative, or similar procedure, through 
in-kind or cash contributions, endorsements, publicity, or similar 
activity;
    (ii) Establishing, administering, contributing to, or paying the 
expenses of a political party, campaign, political action committee, or 
other organization established for the purpose of influencing the 
outcomes of elections in the United States;
    (iii) Any attempt to influence:
    (A) The introduction of Federal or state legislation;
    (B) The enactment or modification of any pending Federal or state 
legislation through communication with any member or employee of the 
Congress or state legislature (including efforts to influence state or 
local officials to engage in similar lobbying activity);
    (C) The enactment or modification of any pending Federal or state 
legislation by preparing, distributing, or using publicity or 
propaganda, or by urging members of the general public, or any segment 
thereof, to contribute to or participate in any mass demonstration, 
march, rally, fund raising drive, lobbying campaign or letter writing or 
telephone campaign; or
    (D) Any government official or employee in connection with a 
decision to sign or veto enrolled legislation;
    (iv) Legislative liaison activities, including attendance at 
legislative sessions or committee hearings, gathering information 
regarding legislation, and analyzing the effect of legislation, when 
such activities are carried on in support of or in knowing preparation 
for an effort to engage in unallowable lobbying.
    (2) The following activities are excepted from the coverage of 
paragraph (c)(1) of this section:
    (i) Technical and factual presentations on topics directly related 
to the performance of a grant, contract, or other agreement (through 
hearing testimony, statements, or letters to the Congress or a state 
legislature, or subdivision, member, or cognizant staff member thereof), 
in response to a documented request (including a Congressional Record 
notice requesting testimony or statements for the record at a regularly 
scheduled hearing) made by the non-Federal entity's member of congress, 
legislative body or a subdivision, or a cognizant staff member thereof, 
provided such information is readily obtainable and can be readily put 
in deliverable form, and further provided that costs under this section 
for travel, lodging or meals are unallowable unless incurred to offer 
testimony at a regularly scheduled Congressional hearing pursuant to a 
written request for such presentation made by the Chairman or Ranking 
Minority Member of the Committee or Subcommittee conducting such 
hearings;
    (ii) Any lobbying made unallowable by paragraph (c)(1)(iii) of this 
section to influence state legislation in order to directly reduce the 
cost, or to avoid

[[Page 309]]

material impairment of the non-Federal entity's authority to perform the 
grant, contract, or other agreement; or
    (iii) Any activity specifically authorized by statute to be 
undertaken with funds from the Federal award.
    (iv) Any activity excepted from the definitions of ``lobbying'' or 
``influencing legislation'' by the Internal Revenue Code provisions that 
require nonprofit organizations to limit their participation in direct 
and ``grass roots'' lobbying activities in order to retain their 
charitable deduction status and avoid punitive excise taxes, IRC 
secs.501(c)(3), 501(h), 4911(a), including:
    (A) Nonpartisan analysis, study, or research reports;
    (B) Examinations and discussions of broad social, economic, and 
similar problems; and
    (C) Information provided upon request by a legislator for technical 
advice and assistance, as defined by IRC sec. 4911(d)(2) and 26 CFR 
56.4911-2(c)(1)-(c)(3).
    (v) When a non-Federal entity seeks reimbursement for indirect (F&A) 
costs, total lobbying costs must be separately identified in the 
indirect (F&A) cost rate proposal, and thereafter treated as other 
unallowable activity costs in accordance with the procedures of Sec. 
75.413.
    (vi) The non-Federal entity must submit as part of its annual 
indirect (F&A) cost rate proposal a certification that the requirements 
and standards of this section have been complied with. (See also Sec. 
75.415.)
    (vii)(A) Time logs, calendars, or similar records are not required 
to be created for purposes of complying with the record keeping 
requirements in Sec. 75.302 with respect to lobbying costs during any 
particular calendar month when:
    (1) The employee engages in lobbying (as defined in paragraphs 
(c)(1) and (c)(2) of this section) 25 percent or less of the employee's 
compensated hours of employment during that calendar month; and
    (2) Within the preceding five-year period, the non-Federal entity 
has not materially misstated allowable or unallowable costs of any 
nature, including legislative lobbying costs.
    (B) When conditions in paragraph (c)(2)(vii)(A)(1) and (2) of this 
section are met, non-Federal entities are not required to establish 
records to support the allowability of claimed costs in addition to 
records already required or maintained. Also, when conditions in 
paragraphs (c)(2)(vii)(A)(1) and (2) of this section are met, the 
absence of time logs, calendars, or similar records will not serve as a 
basis for disallowing costs by contesting estimates of lobbying time 
spent by employees during a calendar month.
    (viii) The HHS awarding agency must establish procedures for 
resolving in advance, in consultation with OMB, any significant 
questions or disagreements concerning the interpretation or application 
of this section. Any such advance resolutions must be binding in any 
subsequent settlements, audits, or investigations with respect to that 
grant or contract for purposes of interpretation of this part, provided, 
however, that this must not be construed to prevent a contractor or non-
Federal entity from contesting the lawfulness of such a determination.



Sec. 75.451  Losses on other awards or contracts.

    Any excess of costs over income under any other award or contract of 
any nature is unallowable. This includes, but is not limited to, the 
non-Federal entity's contributed portion by reason of cost-sharing 
agreements or any under-recoveries through negotiation of flat amounts 
for indirect (F&A) costs. Also, any excess of costs over authorized 
funding levels transferred from any award or contract to another award 
or contract is unallowable. All losses are not allowable indirect (F&A) 
costs and are required to be included in the appropriate indirect cost 
rate base for allocation of indirect costs.



Sec. 75.452  Maintenance and repair costs.

    Costs incurred for utilities, insurance, security, necessary 
maintenance, janitorial services, repair, or upkeep of buildings and 
equipment (including Federal property unless otherwise provided for) 
which neither add to the permanent value of the property nor appreciably 
prolong its intended life, but

[[Page 310]]

keep it in an efficient operating condition, are allowable. Costs 
incurred for improvements which add to the permanent value of the 
buildings and equipment or appreciably prolong their intended life must 
be treated as capital expenditures (see Sec. 75.439). These costs are 
only allowable to the extent not paid through rental or other 
agreements.



Sec. 75.453  Materials and supplies costs, including costs of computing devices.

    (a) Costs incurred for materials, supplies, and fabricated parts 
necessary to carry out a Federal award are allowable.
    (b) Purchased materials and supplies must be charged at their actual 
prices, net of applicable credits. Withdrawals from general stores or 
stockrooms must be charged at their actual net cost under any recognized 
method of pricing inventory withdrawals, consistently applied. Incoming 
transportation charges are a proper part of materials and supplies 
costs.
    (c) Materials and supplies used for the performance of a Federal 
award may be charged as direct costs. In the specific case of computing 
devices, charging as direct costs is allowable for devices that are 
essential and allocable, but not solely dedicated, to the performance of 
a Federal award.
    (d) Where federally-donated or furnished materials are used in 
performing the Federal award, such materials will be used without 
charge.



Sec. 75.454  Memberships, subscriptions, and professional activity costs.

    (a) Costs of the non-Federal entity's membership in business, 
technical, and professional organizations are allowable.
    (b) Costs of the non-Federal entity's subscriptions to business, 
professional, and technical periodicals are allowable.
    (c) Costs of membership in any civic or community organization are 
allowable with prior approval by the HHS awarding agency or pass-through 
entity.
    (d) Costs of membership in any country club or social or dining club 
or organization are unallowable.
    (e) Costs of membership in organizations whose primary purpose is 
lobbying are unallowable. See also Sec. 75.450.



Sec. 75.455  Organization costs.

    Costs such as incorporation fees, brokers' fees, fees to promoters, 
organizers or management consultants, attorneys, accountants, or 
investment counselor, whether or not employees of the non-Federal entity 
in connection with establishment or reorganization of an organization, 
are unallowable except with prior approval of the HHS awarding agency.



Sec. 75.456  Participant support costs.

    Participant support costs are defined in Sec. 75.2. Participant 
support costs are allowable with the prior approval of the HHS awarding 
agency.



Sec. 75.457  Plant and security costs.

    Necessary and reasonable expenses incurred for protection and 
security of facilities, personnel, and work products are allowable. Such 
costs include, but are not limited to, wages and uniforms of personnel 
engaged in security activities; equipment; barriers; protective (non-
military) gear, devices, and equipment; contractual security services; 
and consultants. Capital expenditures for plant security purposes are 
subject to Sec. 75.439.



Sec. 75.458  Pre-award costs.

    Pre-award costs are those incurred prior to the effective date of 
the Federal award directly pursuant to the negotiation and in 
anticipation of the Federal award where such costs are necessary for 
efficient and timely performance of the scope of work. Such costs are 
allowable only to the extent that they would have been allowable if 
incurred after the date of the Federal award and only with the written 
approval of the HHS awarding agency.



Sec. 75.459  Professional services costs.

    (a) Costs of professional and consultant services rendered by 
persons who are members of a particular profession or possess a special 
skill, and who are not officers or employees of the non-Federal entity, 
are allowable, subject to paragraphs (b) and (c) of this section when 
reasonable in relation to the

[[Page 311]]

services rendered and when not contingent upon recovery of the costs 
from the Federal Government. In addition, legal and related services are 
limited under Sec. 75.435.
    (b) In determining the allowability of costs in a particular case, 
no single factor or any special combination of factors is necessarily 
determinative. However, the following factors are relevant:
    (1) The nature and scope of the service rendered in relation to the 
service required.
    (2) The necessity of contracting for the service, considering the 
non-Federal entity's capability in the particular area.
    (3) The past pattern of such costs, particularly in the years prior 
to Federal awards.
    (4) The impact of Federal awards on the non-Federal entity's 
business (i.e., what new problems have arisen).
    (5) Whether the proportion of Federal work to the non-Federal 
entity's total business is such as to influence the non-Federal entity 
in favor of incurring the cost, particularly where the services rendered 
are not of a continuing nature and have little relationship to work 
under Federal awards.
    (6) Whether the service can be performed more economically by direct 
employment rather than contracting.
    (7) The qualifications of the individual or concern rendering the 
service and the customary fees charged, especially on non-federally 
funded activities.
    (8) Adequacy of the contractual agreement for the service (e.g., 
description of the service, estimate of time required, rate of 
compensation, and termination provisions).
    (c) In addition to the factors in paragraph (b) of this section, to 
be allowable, retainer fees must be supported by evidence of bona fide 
services available or rendered.



Sec. 75.460  Proposal costs.

    Proposal costs are the costs of preparing bids, proposals, or 
applications on potential Federal and non-Federal awards or projects, 
including the development of data necessary to support the non-Federal 
entity'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 (F&A) costs and allocated currently to all 
activities of the non-Federal entity. No proposal costs of past 
accounting periods will be allocable to the current period.



Sec. 75.461  Publication and printing costs.

    (a) Publication costs for electronic and print media, including 
distribution, promotion, and general handling are allowable. If these 
costs are not identifiable with a particular cost objective, they should 
be allocated as indirect costs to all benefiting activities of the non-
Federal entity.
    (b) Page charges for professional journal publications are allowable 
where:
    (1) The publications report work supported by the Federal 
Government; and
    (2) The charges are levied impartially on all items published by the 
journal, whether or not under a Federal award.
    (c) The non-Federal entity may charge the Federal award before 
closeout for the costs of publication as prescribed in paragraphs (a) or 
(b) of this section or sharing of research results if the costs are not 
incurred during the period of performance of the Federal award.



Sec. 75.462  Rearrangement and reconversion costs.

    (a) Costs incurred for ordinary and normal rearrangement and 
alteration of facilities are allowable as indirect costs. Special 
arrangements and alterations costs incurred specifically for a Federal 
award are allowable as a direct cost with the prior approval of the HHS 
awarding agency or pass-through entity.
    (b) Costs incurred in the restoration or rehabilitation of the non-
Federal entity's facilities to approximately the same condition existing 
immediately prior to commencement of Federal awards, less costs related 
to normal wear and tear, are allowable.



Sec. 75.463  Recruiting costs.

    (a) Subject to paragraphs (b) and (c) of this section, and provided 
that the

[[Page 312]]

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 the non-Federal 
entity's standard recruitment program. Where the non-Federal entity uses 
employment agencies, costs not in excess of standard commercial rates 
for such services are allowable.
    (b) Special emoluments, fringe benefits, and salary allowances 
incurred to attract professional personnel that do not meet the test of 
reasonableness or do not conform with the established practices of the 
non-Federal entity, are unallowable.
    (c) Where relocation costs incurred incident to recruitment of a new 
employee have been funded in whole or in part to a Federal award, and 
the newly hired employee resigns for reasons within the employee's 
control within 12 months after hire, the non-Federal entity will be 
required to refund or credit the Federal share of such relocation costs 
to the Federal Government. See also Sec. 75.464.
    (d) Short-term, travel visa costs (as opposed to longer-term, 
immigration visas) are generally allowable expenses that may be proposed 
as a direct cost. Since short-term visas are issued for a specific 
period and purpose, they can be clearly identified as directly connected 
to work performed on a Federal award. For these costs to be directly 
charged to a Federal award, they must:
    (1) Be critical and necessary for the conduct of the project;
    (2) Be allowable under the applicable cost principles;
    (3) Be consistent with the non-Federal entity's cost accounting 
practices and non-Federal entity policy; and
    (4) Meet the definition of ``direct cost'' as described in the 
applicable cost principles.



Sec. 75.464  Relocation costs of employees.

    (a) Relocation costs are costs incident to the permanent change of 
duty assignment (for an indefinite period or for a stated period of not 
less than 12 months) of an existing employee or upon recruitment of a 
new employee. Relocation costs are allowable, subject to the limitations 
described in paragraphs (b), (c), and (d) of this section, provided 
that:
    (1) The move is for the benefit of the employer.
    (2) Reimbursement to the employee is in accordance with an 
established written policy consistently followed by the employer.
    (3) The reimbursement does not exceed the employee's actual (or 
reasonably estimated) expenses.
    (b) Allowable relocation costs for current employees are limited to 
the following:
    (1) The costs of transportation of the employee, members of his or 
her immediate family and his household, and personal effects to the new 
location.
    (2) The costs of finding a new home, such as advance trips by 
employees and spouses to locate living quarters and temporary lodging 
during the transition period, up to maximum period of 30 calendar days.
    (3) Closing costs, such as brokerage, legal, and appraisal fees, 
incident to the disposition of the employee's former home. These costs, 
together with those described in (4), are limited to 8 per cent of the 
sales price of the employee's former home.
    (4) The continuing costs of ownership (for up to six months) of the 
vacant former home after the settlement or lease date of the employee's 
new permanent home, such as maintenance of buildings and grounds 
(exclusive of fixing-up expenses), utilities, taxes, and property 
insurance.
    (5) Other necessary and reasonable expenses normally incident to 
relocation, such as the costs of canceling an unexpired lease, 
transportation of personal property, and purchasing insurance against 
loss of or damages to personal property. The cost of canceling an 
unexpired lease is limited to three times the monthly rental.

[[Page 313]]

    (c) Allowable relocation costs for new employees are limited to 
those described in paragraphs (b)(1) and (2) of this section. When 
relocation costs incurred incident to the recruitment of new employees 
have been charged to a Federal award and the employee resigns for 
reasons within the employee's control within 12 months after hire, the 
non-Federal entity must refund or credit the Federal Government for its 
share of the cost. However, the costs of travel to an overseas location 
must be considered travel costs in accordance with Sec. 75.474, and not 
Sec. 75.464, for the purpose of this paragraph if dependents are not 
permitted at the location for any reason and the costs do not include 
costs of transporting household goods.
    (d) The following costs related to relocation are unallowable:
    (1) Fees and other costs associated with acquiring a new home.
    (2) A loss on the sale of a former home.
    (3) Continuing mortgage principal and interest payments on a home 
being sold.
    (4) Income taxes paid by an employee related to reimbursed 
relocation costs.



Sec. 75.465  Rental costs of real property and equipment.

    (a) Subject to the limitations described in paragraphs (b) and (c) 
of this section, rental costs are allowable to the extent that the rates 
are reasonable in light of such factors as: Rental costs of comparable 
property, if any; market conditions in the area; alternatives available; 
and the type, life expectancy, condition, and value of the property 
leased. Rental arrangements should be reviewed periodically to determine 
if circumstances have changed and other options are available.
    (b) Rental costs under ``sale and lease back'' arrangements are 
allowable only up to the amount that would be allowed had the non-
Federal entity continued to own the property. This amount would include 
expenses such as depreciation, maintenance, taxes, and insurance.
    (c) Rental costs under ``less-than-arm's-length'' leases are 
allowable only up to the amount (as explained in paragraph (b) of this 
section). For this purpose, a less-than-arm's-length lease is one under 
which one party to the lease agreement is able to control or 
substantially influence the actions of the other. Such leases include, 
but are not limited to those between:
    (1) Divisions of the non-Federal entity;
    (2) The non-Federal entity under common control through common 
officers, directors, or members; and
    (3) The non-Federal entity and a director, trustee, officer, or key 
employee of the non-Federal entity or an immediate family member, either 
directly or through corporations, trusts, or similar arrangements in 
which they hold a controlling interest. For example, the non-Federal 
entity may establish a separate corporation for the sole purpose of 
owning property and leasing it back to the non-Federal entity.
    (4) Family members include one party with any of the following 
relationships to another party:
    (i) Spouse, and parents thereof;
    (ii) Children, and spouses thereof;
    (iii) Parents, and spouses thereof;
    (iv) Siblings, and spouses thereof;
    (v) Grandparents and grandchildren, and spouses thereof;
    (vi) Domestic partner and parents thereof, including domestic 
partners of any individual in 2 through 5 of this definition; and
    (vii) Any individual related by blood or affinity whose close 
association with the employee is the equivalent of a family 
relationship.
    (5) Rental costs under leases which are required to be treated as 
capital leases under GAAP are allowable only up to the amount (as 
explained in paragraph (b) of this section) that would be allowed had 
the non-Federal entity purchased the property on the date the lease 
agreement was executed. The provisions of GAAP must be used to determine 
whether a lease is a capital lease. Interest costs related to capital 
leases are allowable to the extent they meet the criteria in Sec. 
75.449. Unallowable costs include amounts paid for profit, management 
fees, and taxes that would not have been incurred had the non-Federal 
entity purchased the property.
    (6) The rental of any property owned by any individuals or entities 
affiliated with the non-Federal entity, to include commercial or 
residential real estate,

[[Page 314]]

for purposes such as the home office workspace is unallowable.



Sec. 75.466  Scholarships and student aid costs.

    (a) Costs of scholarships, fellowships, and other programs of 
student aid at IHEs are allowable only when the purpose of the Federal 
award is to provide training to selected participants and the charge is 
approved by the HHS awarding agency. However, tuition remission and 
other forms of compensation paid as, or in lieu of, wages to students 
performing necessary work are allowable provided that:
    (1) The individual is conducting activities necessary to the Federal 
award;
    (2) Tuition remission and other support are provided in accordance 
with established policy of the IHE and consistently provided in a like 
manner to students in return for similar activities conducted under 
Federal awards as well as other activities; and
    (3) During the academic period, the student is enrolled in an 
advanced degree program at a non-Federal entity or affiliated 
institution and the activities of the student in relation to the Federal 
award are related to the degree program;
    (4) The tuition or other payments are reasonable compensation for 
the work performed and are conditioned explicitly upon the performance 
of necessary work; and
    (5) It is the IHE's practice to similarly compensate students under 
Federal awards as well as other activities.
    (b) Charges for tuition remission and other forms of compensation 
paid to students as, or in lieu of, salaries and wages must be subject 
to the reporting requirements in Sec. 75.430, and must be treated as 
direct or indirect cost in accordance with the actual work being 
performed. Tuition remission may be charged on an average rate basis. 
See also Sec. 75.431.



Sec. 75.467  Selling and marketing costs.

    Costs of selling and marketing any products or services of the non-
Federal entity (unless allowed under Sec. 75.421) are unallowable, 
except as direct costs, with prior approval by the HHS awarding agency 
when necessary for the performance of the Federal award.



Sec. 75.468  Specialized service facilities.

    (a) The costs of services provided by highly complex or specialized 
facilities operated by the non-Federal entity, such as computing 
facilities, wind tunnels, and reactors are allowable, provided the 
charges for the services meet the conditions of either paragraphs (b) or 
(c) of this section, and, in addition, take into account any items of 
income or Federal financing that qualify as applicable credits under 
Sec. 75.406.
    (b) The costs of such services, when material, must be charged 
directly to applicable awards based on actual usage of the services on 
the basis of a schedule of rates or established methodology that:
    (1) Does not discriminate between activities under Federal awards 
and other activities of the non-Federal entity, including usage by the 
non-Federal entity for internal purposes, and
    (2) Is designed to recover only the aggregate costs of the services. 
The costs of each service must consist normally of both its direct costs 
and its allocable share of all indirect (F&A) costs. Rates must be 
adjusted at least biennially, and must take into consideration over/
under applied costs of the previous period(s).
    (c) Where the costs incurred for a service are not material, they 
may be allocated as indirect (F&A) costs.
    (d) Under some extraordinary circumstances, where it is in the best 
interest of the Federal Government and the non-Federal entity to 
establish alternative costing arrangements, such arrangements may be 
worked out with the Federal cognizant agency for indirect costs.



Sec. 75.469  Student activity costs.

    Costs incurred for intramural activities, student publications, 
student clubs, and other student activities, are unallowable, unless 
specifically provided for in the Federal award.



Sec. 75.470  Taxes (including Value Added Tax).

    (a) For states, local governments and Indian tribes:

[[Page 315]]

    (1) Taxes that a governmental unit is legally required to pay are 
allowable, except for self-assessed taxes that disproportionately affect 
Federal programs or changes in tax policies that disproportionately 
affect Federal programs.
    (2) Gasoline taxes, motor vehicle fees, and other taxes that are in 
effect user fees for benefits provided to the Federal Government are 
allowable.
    (3) This provision does not restrict the authority of the HHS 
awarding agency to identify taxes where Federal participation is 
inappropriate. Where the identification of the amount of unallowable 
taxes would require an inordinate amount of effort, the cognizant agency 
for indirect costs may accept a reasonable approximation thereof.
    (b) For nonprofit organizations and IHEs:
    (1) In general, taxes which the non-Federal entity is required to 
pay and which are paid or accrued in accordance with GAAP, and payments 
made to local governments in lieu of taxes which are commensurate with 
the local government services received are allowable, except for:
    (i) Taxes from which exemptions are available to the non-Federal 
entity directly or which are available to the non-Federal entity based 
on an exemption afforded the Federal Government and, in the latter case, 
when the HHS awarding agency makes available the necessary exemption 
certificates,
    (ii) Special assessments on land which represent capital 
improvements, and
    (iii) Federal income taxes.
    (2) Any refund of taxes, and any payment to the non-Federal entity 
of interest thereon, which were allowed as Federal award costs, will be 
credited either as a cost reduction or cash refund, as appropriate, to 
the Federal Government. However, any interest actually paid or credited 
to an non-Federal entity incident to a refund of tax, interest, and 
penalty will be paid or credited to the Federal Government only to the 
extent that such interest accrued over the period during which the non-
Federal entity has been reimbursed by the Federal Government for the 
taxes, interest, and penalties.
    (c) Value Added Tax (VAT) Foreign taxes charged for the purchase of 
goods or services that a non-Federal entity is legally required to pay 
in country is an allowable expense under Federal awards. Foreign tax 
refunds or applicable credits under Federal awards refer to receipts, or 
reduction of expenditures, which operate to offset or reduce expense 
items that are allocable to Federal awards as direct or indirect costs. 
To the extent that such credits accrued or received by the non-Federal 
entity relate to allowable cost, these costs must be credited to the HHS 
awarding agency either as costs or cash refunds. If the costs are 
credited back to the Federal award, the non-Federal entity may reduce 
the Federal share of costs by the amount of the foreign tax 
reimbursement, or where Federal award has not expired, use the foreign 
government tax refund for approved activities under the Federal award 
with prior approval of the HHS awarding agency.



Sec. 75.471  Termination costs.

    Termination of a Federal award generally gives rise to the 
incurrence of costs, or the need for special treatment of costs, which 
would not have arisen had the Federal award not been terminated. Cost 
principles covering these items are set forth in this section. They are 
to be used in conjunction with the other provisions of this part in 
termination situations.
    (a) The cost of items reasonably usable on the non-Federal entity's 
other work must not be allowable unless the non-Federal entity submits 
evidence that it would not retain such items at cost without sustaining 
a loss. In deciding whether such items are reasonably usable on other 
work of the non-Federal entity, the HHS awarding agency should consider 
the non-Federal entity's plans and orders for current and scheduled 
activity. Contemporaneous purchases of common items by the non-Federal 
entity must be regarded as evidence that such items are reasonably 
usable on the non-Federal entity's other work. Any acceptance of common 
items as allocable to the terminated portion of the Federal award must 
be limited to the extent that the quantities of such items on hand, in

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transit, and on order are in excess of the reasonable quantitative 
requirements of other work.
    (b) If in a particular case, despite all reasonable efforts by the 
non-Federal entity, certain costs cannot be discontinued immediately 
after the effective date of termination, such costs are generally 
allowable within the limitations set forth in this part, except that any 
such costs continuing after termination due to the negligent or willful 
failure of the non-Federal entity to discontinue such costs must be 
unallowable.
    (c) Loss of useful value of special tooling, machinery, and 
equipment is generally allowable if:
    (1) Such special tooling, special machinery, or equipment is not 
reasonably capable of use in the other work of the non-Federal entity,
    (2) The interest of the Federal Government is protected by transfer 
of title or by other means deemed appropriate by the HHS awarding agency 
(see also Sec. 75.320(d)), and
    (3) The loss of useful value for any one terminated Federal award 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 
Federal award bears to the entire terminated Federal award and other 
Federal awards for which the special tooling, machinery, or equipment 
was acquired.
    (d) Rental costs under unexpired leases are generally allowable 
where clearly shown to have been reasonably necessary for the 
performance of the terminated Federal award 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 Federal award and 
such further period as may be reasonable, and
    (2) The non-Federal entity 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 Federal award, and of reasonable restoration required by the 
provisions of the lease.
    (e) Settlement expenses including the following are generally 
allowable:
    (1) Accounting, legal, clerical, and similar costs reasonably 
necessary for:
    (i) The preparation and presentation to the Federal awarding agency 
of settlement claims and supporting data with respect to the terminated 
portion of the Federal award, unless the termination is for cause (see 
subpart D of this part, Sec. Sec. 75.371 through 75.375); and
    (ii) The termination and settlement of subawards.
    (2) Reasonable costs for the storage, transportation, protection, 
and disposition of property provided by the Federal Government or 
acquired or produced for the Federal award.
    (f) Claims under subawards, including the allocable portion of 
claims which are common to the Federal award and to other work of the 
non-Federal entity, are generally allowable. An appropriate share of the 
non-Federal entity's indirect costs may be allocated to the amount of 
settlements with contractors and/or subrecipients, provided that the 
amount allocated is otherwise consistent with the basic guidelines 
contained in Sec. 75.414. The indirect costs so allocated must exclude 
the same and similar costs claimed directly or indirectly as settlement 
expenses.



Sec. 75.472  Training and education costs.

    The cost of training and education provided for employee development 
is allowable.



Sec. 75.473  Transportation costs.

    Costs incurred for 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 
materials received cannot readily be made, inbound transportation cost 
may be charged to the appropriate indirect (F&A) cost accounts if the 
non-Federal entity follows a consistent, equitable procedure in this 
respect. Outbound freight, if reimbursable under the terms and 
conditions of the Federal award, should be treated as a direct cost.

[[Page 317]]



Sec. 75.474  Travel costs.

    (a) General. 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 non-Federal entity. Such costs 
may be charged on an actual cost 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 in like circumstances in the non-Federal entity's non-
federally-funded activities and in accordance with non-Federal entity's 
written travel reimbursement policies. Notwithstanding the provisions of 
Sec. 75.444, travel costs of officials covered by that section are 
allowable with the prior written approval of the Federal awarding agency 
or pass-through entity when they are specifically related to the Federal 
award.
    (b) Lodging and subsistence. Costs incurred by employees and 
officers for travel, including costs of lodging, other subsistence, and 
incidental expenses, must be considered reasonable and otherwise 
allowable only to the extent such costs do not exceed charges normally 
allowed by the non-Federal entity in its regular operations as the 
result of the non-Federal entity's written travel policy. In addition, 
if these costs are charged directly to the Federal award documentation 
must justify that:
    (1) Participation of the individual is necessary to the Federal 
award; and
    (2) The costs are reasonable and consistent with non-Federal 
entity's established travel policy.
    (c)(1) Temporary dependent care costs (as dependent is defined in 26 
U.S.C. 152) above and beyond regular dependent care that directly 
results from travel to conferences is allowable provided that:
    (i) The costs are a direct result of the individual's travel for the 
Federal award;
    (ii) The costs are consistent with the non-Federal entity's 
documented travel policy for all entity travel; and
    (iii) Are only temporary during the travel period.
    (2) Travel costs for dependents are unallowable, except for travel 
of duration of six months or more with prior approval of the HHS 
awarding agency. See also Sec. 75.432.
    (d) In the absence of an acceptable, written non-Federal entity 
policy regarding travel costs, the rates and amounts established under 5 
U.S.C. 5701-11, or by the Administrator of General Services, or by the 
President (or his or her designee) pursuant to any provisions of such 
subchapter must apply to travel under Federal awards (48 CFR 31.205-
46(a)).
    (e) Commercial air travel. (1) Airfare costs in excess of the basic 
least expensive unrestricted accommodations class offered by commercial 
airlines are unallowable except when such accommodations would:
    (i) Require circuitous routing;
    (ii) Require travel during unreasonable hours;
    (iii) Excessively prolong travel;
    (iv) Result in additional costs that would offset the transportation 
savings; or
    (v) Offer accommodations not reasonably adequate for the traveler's 
medical needs. The non-Federal entity must justify and document these 
conditions on a case-by-case basis in order for the use of first-class 
or business-class airfare to be allowable in such cases.
    (2) Unless a pattern of avoidance is detected, the Federal 
Government will generally not question a non-Federal entity's 
determinations that customary standard airfare or other discount airfare 
is unavailable for specific trips if the non-Federal entity can 
demonstrate that such airfare was not available in the specific case.
    (f) Air travel by other than commercial carrier. Costs of travel by 
non-Federal entity-owned, -leased, or -chartered aircraft include the 
cost of lease, charter, operation (including personnel costs), 
maintenance, depreciation, insurance, and other related costs. The 
portion of such costs that exceeds the cost of airfare as provided for 
in paragraph (d) of this section, is unallowable.

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Sec. 75.475  Trustees.

    Travel and subsistence costs of trustees (or directors) at IHEs and 
nonprofit organizations are allowable. See also Sec. 75.474.

                       HHS Selected Items of Cost



Sec. 75.476  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.



                      Subpart F_Audit Requirements

                                 General



Sec. 75.500  Purpose.

    This part sets forth standards for obtaining consistency and 
uniformity among HHS agencies for the audit of non-Federal entities 
expending Federal awards.

                                 Audits



Sec. 75.501  Audit requirements.

    (a) Audit required. A non-Federal entity that expends $750,000 or 
more during the non-Federal entity's fiscal year in Federal awards must 
have a single or program-specific audit conducted for that year in 
accordance with the provisions of this part.
    (b) Single audit. A non-Federal entity that expends $750,000 or more 
during the non-Federal entity's fiscal year in Federal awards must have 
a single audit conducted in accordance with Sec. 75.514 except when it 
elects to have a program-specific audit conducted in accordance with 
paragraph (c) of this section.
    (c) Program-specific audit election. When an auditee expends Federal 
awards under only one Federal program (excluding R&D) and the Federal 
program's statutes, regulations, or the terms and conditions of the 
Federal award do not require a financial statement audit of the auditee, 
the auditee may elect to have a program-specific audit conducted in 
accordance with Sec. 75.507. A program-specific audit may not be 
elected for R&D unless all of the Federal awards expended were received 
from the same Federal agency, or the same Federal agency and the same 
pass-through entity, and that Federal agency, or pass-through entity in 
the case of a subrecipient, approves in advance a program-specific 
audit.
    (d) Exemption when Federal awards expended are less than $750,000. A 
non-Federal entity that expends less than $750,000 during the non-
Federal entity's fiscal year in Federal awards is exempt from Federal 
audit requirements for that year, except as noted in Sec. 75.503, but 
records must be available for review or audit by appropriate officials 
of the Federal agency, pass-through entity, and Government 
Accountability Office (GAO).
    (e) Federally Funded Research and Development Centers (FFRDC). 
Management of an auditee that owns or operates a FFRDC may elect to 
treat the FFRDC as a separate entity for purposes of this part.
    (f) Subrecipients and contractors. An auditee may simultaneously be 
a recipient, a subrecipient, and a contractor. Federal awards expended 
as a recipient or a subrecipient are subject to audit under this part. 
The payments received for goods or services provided as a contractor are 
not Federal awards. Section 75.351 sets forth the considerations in 
determining whether payments constitute a Federal award or a payment for 
goods or services provided as a contractor.
    (g) Compliance responsibility for contractors. In most cases, the 
auditee's compliance responsibility for contractors is only to ensure 
that the procurement, receipt, and payment for goods and services comply 
with Federal statutes, regulations, and the terms and conditions of 
Federal awards. Federal

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award compliance requirements normally do not pass through to 
contractors. However, the auditee is responsible for ensuring compliance 
for procurement transactions which are structured such that the 
contractor is responsible for program compliance or the contractor's 
records must be reviewed to determine program compliance. Also, when 
these procurement transactions relate to a major program, the scope of 
the audit must include determining whether these transactions are in 
compliance with Federal statutes, regulations, and the terms and 
conditions of Federal awards.
    (h) For-profit subrecipient. Since this part does not apply to for-
profit subrecipients, the pass-through entity is responsible for 
establishing requirements, as necessary, to ensure compliance by for-
profit subrecipients. The agreement with the for-profit subrecipient 
must describe applicable compliance requirements and the for-profit 
subrecipient's compliance responsibility. Methods to ensure compliance 
for Federal awards made to for-profit subrecipients may include pre-
award audits, monitoring during the agreement, and post-award audits. 
See also Sec. 75.352.
    (i) Recipients and subrecipients that are commercial organizations 
(including for-profit hospitals) have two options regarding audits:
    (1) 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
    (2) An audit that meets the requirements contained in this subpart.
    (j) Commercial organizations that receive annual HHS awards totaling 
less than $750,000 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.
    (k) See also Sec. 75.215.



Sec. 75.502  Basis for determining Federal awards expended.

    (a) Determining Federal awards expended. The determination of when a 
Federal award is expended must be based on when the activity related to 
the Federal award occurs. Generally, the activity pertains to events 
that require the non-Federal entity to comply with Federal statutes, 
regulations, and the terms and conditions of Federal awards, such as: 
expenditure/expense transactions associated with awards including 
grants, cost-reimbursement contracts under the FAR, compacts with Indian 
Tribes, cooperative agreements, and direct appropriations; the 
disbursement of funds to subrecipients; the use of loan proceeds under 
loan and loan guarantee programs; the receipt of property; the receipt 
of surplus property; the receipt or use of program income; the 
distribution or use of food commodities; the disbursement of amounts 
entitling the non-Federal entity to an interest subsidy; and the period 
when insurance is in force.
    (b) Loan and loan guarantees (loans). Since the Federal Government 
is at risk for loans until the debt is repaid, the following guidelines 
must be used to calculate the value of Federal awards expended under 
loan programs, except as noted in paragraphs (c) and (d) of this 
section:
    (1) Value of new loans made or received during the audit period; 
plus
    (2) Beginning of the audit period balance of loans from previous 
years for which the Federal Government imposes continuing compliance 
requirements; plus
    (3) Any interest subsidy, cash, or administrative cost allowance 
received.
    (c) Loan and loan guarantees (loans) at IHEs. When loans are made to 
students of an IHE but the IHE does not make the loans, then only the 
value of loans made during the audit period must be considered Federal 
awards expended in that audit period. The balance of loans for previous 
audit periods is not included as Federal awards expended because the 
lender accounts for the prior balances.
    (d) Prior loan and loan guarantees (loans). Loans, the proceeds of 
which were received and expended in prior years, are not considered 
Federal

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awards expended under this part when the Federal statutes, regulations, 
and the terms and conditions of Federal awards pertaining to such loans 
impose no continuing compliance requirements other than to repay the 
loans.
    (e) Endowment funds. The cumulative balance of Federal awards for 
endowment funds that are federally restricted are considered Federal 
awards expended in each audit period in which the funds are still 
restricted.
    (f) Free rent. Free rent received by itself is not considered a 
Federal award expended under this part. However, free rent received as 
part of a Federal award to carry out a Federal program must be included 
in determining Federal awards expended and subject to audit under this 
part.
    (g) Valuing non-cash assistance. Federal non-cash assistance, such 
as free rent, food commodities, donated property, or donated surplus 
property, must be valued at fair market value at the time of receipt or 
the assessed value provided by the HHS agency.
    (h) Medicare. Medicare payments to a non-Federal entity for 
providing patient care services to Medicare-eligible individuals are not 
considered Federal awards expended under this part.
    (i) Medicaid. Medicaid payments to a subrecipient for providing 
patient care services to Medicaid-eligible individuals are not 
considered Federal awards expended under this part unless a state 
requires the funds to be treated as Federal awards expended because 
reimbursement is on a cost-reimbursement basis.
    (j) Certain loans provided by the National Credit Union 
Administration. For purposes of this part, loans made from the National 
Credit Union Share Insurance Fund and the Central Liquidity Facility 
that are funded by contributions from insured non-Federal entities are 
not considered Federal awards expended.



Sec. 75.503  Relation to other audit requirements.

    (a) An audit conducted in accordance with this part must be in lieu 
of any financial audit of Federal awards which a non-Federal entity is 
required to undergo under any other Federal statute or regulation. To 
the extent that such audit provides a Federal agency with the 
information it requires to carry out its responsibilities under Federal 
statute or regulation, a Federal agency must rely upon and use that 
information.
    (b) Notwithstanding paragraph (a) of this section, a Federal agency, 
Inspectors General, or GAO may conduct or arrange for additional audits 
which are necessary to carry out its responsibilities under Federal 
statute or regulation. The provisions of this part do not authorize any 
non-Federal entity to constrain, in any manner, such Federal agency from 
carrying out or arranging for such additional audits, except that the 
Federal agency must plan such audits to not be duplicative of other 
audits of Federal awards. Prior to commencing such an audit, the Federal 
agency or pass-through entity must review the FAC for recent audits 
submitted by the non-Federal entity, and to the extent such audits meet 
a Federal agency or pass-through entity's needs, the Federal agency or 
pass-through entity must rely upon and use such audits. Any additional 
audits must be planned and performed in such a way as to build upon work 
performed, including the audit documentation, sampling, and testing 
already performed, by other auditors.
    (c) The provisions of this part do not limit the authority of 
Federal agencies to conduct, or arrange for the conduct of, audits and 
evaluations of Federal awards, nor limit the authority of any Federal 
agency Inspector General or other Federal official. For example, 
requirements that may be applicable under the FAR or CAS and the terms 
and conditions of a cost-reimbursement contract may include additional 
applicable audits to be conducted or arranged for by Federal agencies.
    (d) Federal agency to pay for additional audits. A Federal agency 
that conducts or arranges for additional audits must, consistent with 
other applicable Federal statutes and regulations, arrange for funding 
the full cost of such additional audits.
    (e) Request for a program to be audited as a major program. An HHS 
awarding agency may request that an auditee have a particular Federal 
program audited as a major program in

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lieu of the HHS awarding agency conducting or arranging for the 
additional audits. To allow for planning, such requests should be made 
at least 180 calendar days prior to the end of the fiscal year to be 
audited. The auditee, after consultation with its auditor, should 
promptly respond to such a request by informing the HHS awarding agency 
whether the program would otherwise be audited as a major program using 
the risk-based audit approach described in Sec. 75.518 and, if not, the 
estimated incremental cost. The HHS awarding agency must then promptly 
confirm to the auditee whether it wants the program audited as a major 
program. If the program is to be audited as a major program based upon 
this HHS awarding agency request, and the HHS awarding agency agrees to 
pay the full incremental costs, then the auditee must have the program 
audited as a major program. A pass-through entity may use the provisions 
of this paragraph for a subrecipient.



Sec. 75.504  Frequency of audits.

    Except for the provisions for biennial audits provided in paragraphs 
(a) and (b) of this section, audits required by this part must be 
performed annually. Any biennial audit must cover both years within the 
biennial period.
    (a) A state, local government, or Indian tribe that is required by 
constitution or statute, in effect on January 1, 1987, to undergo its 
audits less frequently than annually, is permitted to undergo its audits 
pursuant to this part biennially. This requirement must still be in 
effect for the biennial period.
    (b) Any nonprofit organization that had biennial audits for all 
biennial periods ending between July 1, 1992, and January 1, 1995, is 
permitted to undergo its audits pursuant to this part biennially.



Sec. 75.505  Sanctions.

    In cases of continued inability or unwillingness to have an audit 
conducted in accordance with this part, Federal agencies and pass-
through entities must take appropriate action as provided in Sec. 
75.371.



Sec. 75.506  Audit costs.

    See Sec. 75.425.



Sec. 75.507  Program-specific audits.

    (a) Program-specific audit guide available. In many cases, a 
program-specific audit guide will be available to provide specific 
guidance to the auditor with respect to internal controls, compliance 
requirements, suggested audit procedures, and audit reporting 
requirements. A listing of current program-specific audit guides can be 
found in the compliance supplement beginning with the 2014 supplement 
including HHS awarding agency contact information and a Web site where a 
copy of the guide can be obtained. When a current program-specific audit 
guide is available, the auditor must follow GAGAS and the guide when 
performing a program-specific audit.
    (b) Program-specific audit guide not available. (1) When a current 
program-specific audit guide is not available, the auditee and auditor 
must have basically the same responsibilities for the Federal program as 
they would have for an audit of a major program in a single audit.
    (2) The auditee must prepare the financial statement(s) for the 
Federal program that includes, at a minimum, a schedule of expenditures 
of Federal awards for the program and notes that describe the 
significant accounting policies used in preparing the schedule, a 
summary schedule of prior audit findings consistent with the 
requirements of Sec. 75.511(b), and a corrective action plan consistent 
with the requirements of Sec. 75.511(c).
    (3) The auditor must:
    (i) Perform an audit of the financial statement(s) for the Federal 
program in accordance with GAGAS;
    (ii) Obtain an understanding of internal controls and perform tests 
of internal controls over the Federal program consistent with the 
requirements of Sec. 75.514(c) for a major program;
    (iii) Perform procedures to determine whether the auditee has 
complied with Federal statutes, regulations, and the terms and 
conditions of Federal awards that could have a direct and material 
effect on the Federal program consistent with the requirements of Sec. 
75.514(d) for a major program;
    (iv) Follow up on prior audit findings, perform procedures to assess 
the reasonableness of the summary schedule

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of prior audit findings prepared by the auditee in accordance with the 
requirements of Sec. 75.511, and report, as a current year audit 
finding, when the auditor concludes that the summary schedule of prior 
audit findings materially misrepresents the status of any prior audit 
finding; and
    (v) Report any audit findings consistent with the requirements of 
Sec. 75.516.
    (4) The auditor's report(s) may be in the form of either combined or 
separate reports and may be organized differently from the manner 
presented in this section. The auditor's report(s) must state that the 
audit was conducted in accordance with this part and include the 
following:
    (i) An opinion (or disclaimer of opinion) as to whether the 
financial statement(s) of the Federal program is presented fairly in all 
material respects in accordance with the stated accounting policies;
    (ii) A report on internal control related to the Federal program, 
which must describe the scope of testing of internal control and the 
results of the tests;
    (iii) A report on compliance which includes an opinion (or 
disclaimer of opinion) as to whether the auditee complied with laws, 
regulations, and the terms and conditions of Federal awards which could 
have a direct and material effect on the Federal program; and
    (iv) A schedule of findings and questioned costs for the Federal 
program that includes a summary of the auditor's results relative to the 
Federal program in a format consistent with Sec. 75.515(d)(1) and 
findings and questioned costs consistent with the requirements of Sec. 
75.515(d)(3).
    (c) Report submission for program-specific audits. (1) The audit 
must be completed and the reporting required by paragraph (c)(2) or 
(c)(3) of this section submitted within the earlier of 30 calendar days 
after receipt of the auditor's report(s), or nine months after the end 
of the audit period, unless a different period is specified in a 
program-specific audit guide. Unless restricted by Federal law or 
regulation, the auditee must make report copies available for public 
inspection. Auditees and auditors must ensure that their respective 
parts of the reporting package do not include protected personally 
identifiable information.
    (2) When a program-specific audit guide is available, the auditee 
must electronically submit to the FAC the data collection form prepared 
in accordance with Sec. 75.512(b), as applicable to a program-specific 
audit, and the reporting required by the program-specific audit guide.
    (3) When a program-specific audit guide is not available, the 
reporting package for a program-specific audit must consist of the 
financial statement(s) of the Federal program, a summary schedule of 
prior audit findings, and a corrective action plan as described in 
paragraph (b)(2) of this section, and the auditor's report(s) described 
in paragraph (b)(4) of this section. The data collection form prepared 
in accordance with Sec. 75.512(b), as applicable to a program-specific 
audit, and one copy of this reporting package must be electronically 
submitted to the FAC.
    (d) Other sections of this part may apply. Program-specific audits 
are subject to:
    (1) Sec. 75.500 through Sec. 75.503(d);
    (2) Sec. 75.504 through Sec. 75.506;
    (3) Sec. 75.508 through Sec. 75.509;
    (4) Sec. 75.511;
    (5) Sec. 75.512(e) through (h);
    (6) Sec. 75.513;
    (7) Sec. 75.516 through Sec. 75.517;
    (8) Sec. 75.521, and
    (9) Other referenced provisions of this part unless contrary to the 
provisions of this section, a program-specific audit guide, or program 
statutes and regulations.

                                Auditees



Sec. 75.508  Auditee responsibilities.

    The auditee must:
    (a) Procure or otherwise arrange for the audit required by this part 
in accordance with Sec. 75.509, and ensure it is properly performed and 
submitted when due in accordance with Sec. 75.512.
    (b) Prepare appropriate financial statements, including the schedule 
of expenditures of Federal awards in accordance with Sec. 75.510.

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    (c) Promptly follow up and take corrective action on audit findings, 
including preparation of a summary schedule of prior audit findings and 
a corrective action plan in accordance with Sec. 75.511(b) and Sec. 
75.511(c), respectively.
    (d) Provide the auditor with access to personnel, accounts, books, 
records, supporting documentation, and other information as needed for 
the auditor to perform the audit required by this part.



Sec. 75.509  Auditor selection.

    (a) Auditor procurement. In procuring audit services, the auditee 
must follow the procurement standards prescribed by the Procurement 
Standards in Sec. Sec. 75.326 through 75.335 of subpart D of this part 
or the FAR (48 CFR part 42), as applicable. When procuring audit 
services, the objective is to obtain high-quality audits. In requesting 
proposals for audit services, the objectives and scope of the audit must 
be made clear and the non-Federal entity must request a copy of the 
audit organization's peer review report which the auditor is required to 
provide under GAGAS. Factors to be considered in evaluating each 
proposal for audit services include the responsiveness to the request 
for proposal, relevant experience, availability of staff with 
professional qualifications and technical abilities, the results of peer 
and external quality control reviews, and price. Whenever possible, the 
auditee must make positive efforts to utilize small businesses, 
minority-owned firms, and women's business enterprises, in procuring 
audit services as stated in Sec. 75.330, or the FAR (48 CFR part 42), 
as applicable.
    (b) Restriction on auditor preparing indirect cost proposals. An 
auditor who prepares the indirect cost proposal or cost allocation plan 
may not also be selected to perform the audit required by this part when 
the indirect costs recovered by the auditee during the prior year 
exceeded $1 million. This restriction applies to the base year used in 
the preparation of the indirect cost proposal or cost allocation plan 
and any subsequent years in which the resulting indirect cost agreement 
or cost allocation plan is used to recover costs.
    (c) Use of Federal auditors. Federal auditors may perform all or 
part of the work required under this part if they comply fully with the 
requirements of this part.



Sec. 75.510  Financial statements.

    (a) Financial statements. The auditee must prepare financial 
statements that reflect its financial position, results of operations or 
changes in net assets, and, where appropriate, cash flows for the fiscal 
year audited. The financial statements must be for the same 
organizational unit and fiscal year that is chosen to meet the 
requirements of this part. However, non-Federal entity-wide financial 
statements may also include departments, agencies, and other 
organizational units that have separate audits in accordance with Sec. 
75.514(a) and prepare separate financial statements.
    (b) Schedule of expenditures of Federal awards. The auditee must 
also prepare a schedule of expenditures of Federal awards for the period 
covered by the auditee's financial statements which must include the 
total Federal awards expended as determined in accordance with Sec. 
75.502. While not required, the auditee may choose to provide 
information requested by HHS awarding agencies and pass-through entities 
to make the schedule easier to use. For example, when a Federal program 
has multiple Federal award years, the auditee may list the amount of 
Federal awards expended for each Federal award year separately. At a 
minimum, the schedule must:
    (1) List individual Federal programs by Federal agency. For a 
cluster of programs, provide the cluster name, list individual Federal 
programs within the cluster of programs, and provide the applicable 
Federal agency name. For R&D, total Federal awards expended must be 
shown either by individual Federal award or by Federal agency and major 
subdivision within the Federal agency. For example, the National 
Institutes of Health is a major subdivision in the Department of Health 
and Human Services.
    (2) For Federal awards received as a subrecipient, the name of the 
pass-through entity and identifying number

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assigned by the pass-through entity must be included.
    (3) Provide total Federal awards expended for each individual 
Federal program and the CFDA number or other identifying number when the 
CFDA information is not available. For a cluster of programs also 
provide the total for the cluster.
    (4) Include the total amount provided to subrecipients from each 
Federal program.
    (5) For loan or loan guarantee programs described in Sec. 
75.502(b), identify in the notes to the schedule the balances 
outstanding at the end of the audit period. This is in addition to 
including the total Federal awards expended for loan or loan guarantee 
programs in the schedule.
    (6) Include notes that describe that significant accounting policies 
used in preparing the schedule, and note whether or not the auditee 
elected to use the 10% de minimis cost rate as covered in Sec. 75.414.



Sec. 75.511  Audit findings follow-up.

    (a) General. The auditee is responsible for follow-up and corrective 
action on all audit findings. As part of this responsibility, the 
auditee must prepare a summary schedule of prior audit findings. The 
auditee must also prepare a corrective action plan for current year 
audit findings. The summary schedule of prior audit findings and the 
corrective action plan must include the reference numbers the auditor 
assigns to audit findings under Sec. 75.516(c). Since the summary 
schedule may include audit findings from multiple years, it must include 
the fiscal year in which the finding initially occurred. The corrective 
action plan and summary schedule of prior audit findings must include 
findings relating to the financial statements which are required to be 
reported in accordance with GAGAS.
    (b) Summary schedule of prior audit findings. The summary schedule 
of prior audit findings must report the status of all audit findings 
included in the prior audit's schedule of findings and questioned costs. 
The summary schedule must also include audit findings reported in the 
prior audit's summary schedule of prior audit findings except audit 
findings listed as corrected in accordance with paragraph (b)(1) of this 
section, or no longer valid or not warranting further action in 
accordance with paragraph (b)(3) of this section.
    (1) When audit findings were fully corrected, the summary schedule 
need only list the audit findings and state that corrective action was 
taken.
    (2) When audit findings were not corrected or were only partially 
corrected, the summary schedule must describe the reasons for the 
finding's recurrence and planned corrective action, and any partial 
corrective action taken. When corrective action taken is significantly 
different from corrective action previously reported in a corrective 
action plan or in the Federal agency's or pass-through entity's 
management decision, the summary schedule must provide an explanation.
    (3) When the auditee believes the audit findings are no longer valid 
or do not warrant further action, the reasons for this position must be 
described in the summary schedule. A valid reason for considering an 
audit finding as not warranting further action is that all of the 
following have occurred:
    (i) Two years have passed since the audit report in which the 
finding occurred was submitted to the FAC;
    (ii) The Federal agency or pass-through entity is not currently 
following up with the auditee on the audit finding; and
    (iii) A management decision was not issued.
    (c) Corrective action plan. At the completion of the audit, the 
auditee must prepare, in a document separate from the auditor's findings 
described in Sec. 75.516, a corrective action plan to address each 
audit finding included in the current year auditor's reports. The 
corrective action plan must provide the name(s) of the contact person(s) 
responsible for corrective action, the corrective action planned, and 
the anticipated completion date. If the auditee does not agree with the 
audit findings or believes corrective action is not required, then the 
corrective action plan must include an explanation and specific reasons.

[[Page 325]]



Sec. 75.512  Report submission.

    (a) General. (1) The audit must be completed and the data collection 
form described in paragraph (b) of this section and reporting package 
described in paragraph (c) of this section must be submitted within the 
earlier of 30 calendar days after receipt of the auditor's report(s), or 
nine months after the end of the audit period. If the due date falls on 
a Saturday, Sunday, or Federal holiday, the reporting package is due the 
next business day.
    (2) Unless restricted by Federal statutes or regulations, the 
auditee must make copies available for public inspection. Auditees and 
auditors must ensure that their respective parts of the reporting 
package do not include protected personally identifiable information.
    (b) Data collection. The FAC is the repository of record for subpart 
F of this part reporting packages and the data collection form. All 
Federal agencies, pass-through entities and others interested in a 
reporting package and data collection form must obtain it by accessing 
the FAC.
    (1) The auditee must submit required data elements described in 
appendix X to part 75, which state whether the audit was completed in 
accordance with this part and provides information about the auditee, 
its Federal programs, and the results of the audit. The data must 
include information available from the audit required by this part that 
is necessary for Federal agencies to use the audit to ensure integrity 
for Federal programs. The data elements and format must be approved by 
OMB, available from the FAC, and include collections of information from 
the reporting package described in paragraph (c) of this section. A 
senior level representative of the auditee (e.g., state controller, 
director of finance, chief executive officer, or chief financial 
officer) must sign a statement to be included as part of the data 
collection that says that the auditee complied with the requirements of 
this part, the data were prepared in accordance with this part (and the 
instructions accompanying the form), the reporting package does not 
include protected personally identifiable information, the information 
included in its entirety is accurate and complete, and that the FAC is 
authorized to make the reporting package and the form publicly available 
on a Web site.
    (2) Exception for Indian Tribes and Tribal Organizations. An auditee 
that is an Indian tribe or a tribal organization (as defined in the 
Indian Self-Determination, Education and Assistance Act (ISDEAA), 25 
U.S.C. 450b(l)) may opt not to authorize the FAC to make the reporting 
package publicly available on a Web site, by excluding the authorization 
for the FAC publication in the statement described in paragraph (b)(1) 
of this section. If this option is exercised, the auditee becomes 
responsible for submitting the reporting package directly to any pass-
through entities through which it has received a Federal award and to 
pass-through entities for which the summary schedule of prior audit 
findings reported the status of any findings related to Federal awards 
that the pass-through entity provided. Unless restricted by Federal 
statute or regulation, if the auditee opts not to authorize publication, 
it must make copies of the reporting package available for public 
inspection.
    (3) Using the information included in the reporting package 
described in paragraph (c) of this section, the auditor must complete 
the applicable data elements of the data collection form. The auditor 
must sign a statement to be included as part of the data collection form 
that indicates, at a minimum, the source of the information included in 
the form, the auditor's responsibility for the information, that the 
form is not a substitute for the reporting package described in 
paragraph (c) of this section, and that the content of the form is 
limited to the collection of information prescribed by OMB.
    (c) Reporting package. The reporting package must include the:
    (1) Financial statements and schedule of expenditures of Federal 
awards discussed in Sec. 75.510(a) and (b), respectively;
    (2) Summary schedule of prior audit findings discussed in Sec. 
75.511(b);
    (3) Auditor's report(s) discussed in Sec. 75.515; and
    (4) Corrective action plan discussed in Sec. 75.511(c).

[[Page 326]]

    (d) Submission to FAC. The auditee must electronically submit to the 
FAC the data collection form described in paragraph (b) of this section 
and the reporting package described in paragraph (c) of this section.
    (e) Requests for management letters issued by the auditor. In 
response to requests by a Federal agency or pass-through entity, 
auditees must submit a copy of any management letters issued by the 
auditor.
    (f) Report retention requirements. Auditees must keep one copy of 
the data collection form described in paragraph (b) of this section and 
one copy of the reporting package described in paragraph (c) of this 
section on file for three years from the date of submission to the FAC.
    (g) FAC responsibilities. The FAC must make available the reporting 
packages received in accordance with paragraph (c) of this section and 
Sec. 75.507(c) to the public, except for Indian tribes exercising the 
option in (b)(2) of this section, and maintain a data base of completed 
audits, provide appropriate information to Federal agencies, and follow 
up with known auditees that have not submitted the required data 
collection forms and reporting packages.
    (h) Electronic filing. Nothing in this part must preclude electronic 
submissions to the FAC in such manner as may be approved by OMB.

                            Federal Agencies



Sec. 75.513  Responsibilities.

    (a)(1) Cognizant agency for audit responsibilities. A non-Federal 
entity expending more than $50 million a year in Federal awards must 
have a cognizant agency for audit. The designated cognizant agency for 
audit must be the Federal awarding agency that provides the predominant 
amount of direct funding to a non-Federal entity unless OMB designates a 
specific cognizant agency for audit.
    (2) To provide for continuity of cognizance, the determination of 
the predominant amount of direct funding must be based upon direct 
Federal awards expended in the non-Federal entity's fiscal years ending 
in 2009, 2014, 2019 and every fifth year thereafter. For example, audit 
cognizance for periods ending in 2011 through 2015 will be determined 
based on Federal awards expended in 2009.
    (3) Notwithstanding the manner in which audit cognizance is 
determined, a Federal awarding agency with cognizance for an auditee may 
reassign cognizance to another Federal awarding agency that provides 
substantial funding and agrees to be the cognizant agency for audit. 
Within 30 calendar days after any reassignment, both the old and the new 
cognizant agency for audit must provide notice of the change to the FAC, 
the auditee, and, if known, the auditor. The cognizant agency for audit 
must:
    (i) Provide technical audit advice and liaison assistance to 
auditees and auditors.
    (ii) Obtain or conduct quality control reviews on selected audits 
made by non-Federal auditors, and provide the results to other 
interested organizations. Cooperate and provide support to the Federal 
agency designated by OMB to lead a government-wide project to determine 
the quality of single audits by providing a statistically reliable 
estimate of the extent that single audits conform to applicable 
requirements, standards, and procedures; and to make recommendations to 
address noted audit quality issues, including recommendations for any 
changes to applicable requirements, standards and procedures indicated 
by the results of the project. This government-wide audit quality 
project must be performed once every 6 years beginning in 2018 or at 
such other interval as determined by OMB, and the results must be 
public.
    (iii) Promptly inform other affected Federal agencies and 
appropriate Federal law enforcement officials of any direct reporting by 
the auditee or its auditor required by GAGAS or statutes and 
regulations.
    (iv) Advise the community of independent auditors of any noteworthy 
or important factual trends related to the quality of audits stemming 
from quality control reviews. Significant problems or quality issues 
consistently identified through quality control reviews of audit reports 
must be referred to appropriate state licensing agencies and 
professional bodies.

[[Page 327]]

    (v) Advise the auditor, HHS awarding agencies, and, where 
appropriate, the auditee of any deficiencies found in the audits when 
the deficiencies require corrective action by the auditor. When advised 
of deficiencies, the auditee must work with the auditor to take 
corrective action. If corrective action is not taken, the cognizant 
agency for audit must notify the auditor, the auditee, and applicable 
HHS awarding agencies and pass-through entities of the facts and make 
recommendations for follow-up action. Major inadequacies or repetitive 
substandard performance by auditors must be referred to appropriate 
state licensing agencies and professional bodies for disciplinary 
action.
    (vi) Coordinate, to the extent practical, audits or reviews made by 
or for Federal agencies that are in addition to the audits made pursuant 
to this part, so that the additional audits or reviews build upon rather 
than duplicate audits performed in accordance with this part.
    (vii) Coordinate a management decision for cross-cutting audit 
findings (as defined in Sec. 75.2 Cross-cutting audit finding) that 
affect the Federal programs of more than one agency when requested by 
any Federal awarding agency whose awards are included in the audit 
finding of the auditee.
    (viii) Coordinate the audit work and reporting responsibilities 
among auditors to achieve the most cost-effective audit.
    (ix) Provide advice to auditees as to how to handle changes in 
fiscal years.
    (b) Oversight agency for audit responsibilities. An auditee who does 
not have a designated cognizant agency for audit will be under the 
general oversight of the Federal agency determined in accordance with 
Sec. 75.2 Oversight agency for audit. A Federal agency with oversight 
for an auditee may reassign oversight to another Federal agency that 
agrees to be the oversight agency for audit. Within 30 calendar days 
after any reassignment, both the old and the new oversight agency for 
audit must provide notice of the change to the FAC, the auditee, and, if 
known, the auditor. The oversight agency for audit:
    (1) Must provide technical advice to auditees and auditors as 
requested.
    (2) May assume all or some of the responsibilities normally 
performed by a cognizant agency for audit.
    (c) HHS awarding agency responsibilities. The HHS awarding agency 
must perform the following for the Federal awards it makes (See also the 
requirements of Sec. 75.210):
    (1) Ensure that audits are completed and reports are received in a 
timely manner and in accordance with the requirements of this part.
    (2) Provide technical advice and counsel to auditees and auditors as 
requested.
    (3) Follow-up on audit findings to ensure that the recipient takes 
appropriate and timely corrective action. As part of audit follow-up, 
the HHS awarding agency must:
    (i) Issue a management decision as prescribed in Sec. 75.521;
    (ii) Monitor the recipient taking appropriate and timely corrective 
action;
    (iii) Use cooperative audit resolution mechanisms (see Sec. 75.2 
Cooperative audit resolution) to improve Federal program outcomes 
through better audit resolution, follow-up, and corrective action; and
    (iv) Develop a baseline, metrics, and targets to track, over time, 
the effectiveness of the Federal agency's process to follow-up on audit 
findings and on the effectiveness of Single Audits in improving non-
Federal entity accountability and their use by HHS awarding agencies in 
making award decisions.
    (4) Provide OMB annual updates to the compliance supplement and work 
with OMB to ensure that the compliance supplement focuses the auditor to 
test the compliance requirements most likely to cause improper payments, 
fraud, waste, abuse or generate audit finding for which the Federal 
awarding agency will take sanctions.
    (5) Provide OMB with the name of a single audit accountable official 
from among the senior policy officials of the HHS awarding agency who 
must be:
    (i) Responsible for ensuring that the agency fulfills all the 
requirements of paragraph (c) of this section and effectively uses the 
single audit process to reduce improper payments and improve Federal 
program outcomes.

[[Page 328]]

    (ii) Held accountable to improve the effectiveness of the single 
audit process based upon metrics as described in paragraph (c)(3)(iv) of 
this section.
    (iii) Responsible for designating the Federal agency's key 
management single audit liaison.
    (6) Provide OMB with the name of a key management single audit 
liaison who must:
    (i) Serve as the Federal awarding agency's management point of 
contact for the single audit process both within and outside the Federal 
Government.
    (ii) Promote interagency coordination, consistency, and sharing in 
areas such as coordinating audit follow-up; identifying higher-risk non-
Federal entities; providing input on single audit and follow-up policy; 
enhancing the utility of the FAC; and studying ways to use single audit 
results to improve Federal award accountability and best practices.
    (iii) Oversee training for the HHS awarding agency's program 
management personnel related to the single audit process.
    (iv) Promote the HHS awarding agency's use of cooperative audit 
resolution mechanisms.
    (v) Coordinate the HHS awarding agency's activities to ensure 
appropriate and timely follow-up and corrective action on audit 
findings.
    (vi) Organize the Federal cognizant agency for audit's follow-up on 
cross-cutting audit findings that affect the Federal programs of more 
than one HHS awarding agency.
    (vii) Ensure the HHS awarding agency provides annual updates of the 
compliance supplement to OMB.
    (viii) Support the HHS awarding agency's single audit accountable 
official's mission.

                                Auditors



Sec. 75.514  Scope of audit.

    (a) General. The audit must be conducted in accordance with GAGAS. 
The audit must cover the entire operations of the auditee, or, at the 
option of the auditee, such audit must include a series of audits that 
cover departments, agencies, and other organizational units that 
expended or otherwise administered Federal awards during such audit 
period, provided that each such audit must encompass the financial 
statements and schedule of expenditures of Federal awards for each such 
department, agency, and other organizational unit, which must be 
considered to be a non-Federal entity. The financial statements and 
schedule of expenditures of Federal awards must be for the same audit 
period.
    (b) Financial statements. The auditor must determine whether the 
financial statements of the auditee are presented fairly in all material 
respects in accordance with generally accepted accounting principles. 
The auditor must also determine whether the schedule of expenditures of 
Federal awards is stated fairly in all material respects in relation to 
the auditee's financial statements as a whole.
    (c) Internal control. (1) The compliance supplement provides 
guidance on internal controls over Federal programs based upon the 
guidance in Standards for Internal Control in the Federal Government 
issued by the Comptroller General of the United States and the Internal 
Control--Integrated Framework, issued by the Committee of Sponsoring 
Organizations of the Treadway Commission (COSO).
    (2) In addition to the requirements of GAGAS, the auditor must 
perform procedures to obtain an understanding of internal control over 
Federal programs sufficient to plan the audit to support a low assessed 
level of control risk of noncompliance for major programs.
    (3) Except as provided in paragraph (c)(4) of this section, the 
auditor must:
    (i) Plan the testing of internal control over compliance for major 
programs to support a low assessed level of control risk for the 
assertions relevant to the compliance requirements for each major 
program; and
    (ii) Perform testing of internal control as planned in paragraph 
(c)(3)(i) of this section.
    (4) When internal control over some or all of the compliance 
requirements for a major program are likely to be ineffective in 
preventing or detecting

[[Page 329]]

noncompliance, the planning and performing of testing described in 
paragraph (c)(3) of this section are not required for those compliance 
requirements. However, the auditor must report a significant deficiency 
or material weakness in accordance with Sec. 75.516, assess the related 
control risk at the maximum, and consider whether additional compliance 
tests are required because of ineffective internal control.
    (d) Compliance. (1) In addition to the requirements of GAGAS, the 
auditor must determine whether the auditee has complied with Federal 
statutes, regulations, and the terms and conditions of Federal awards 
that may have a direct and material effect on each of its major 
programs.
    (2) The principal compliance requirements applicable to most Federal 
programs and the compliance requirements of the largest Federal programs 
are included in the compliance supplement.
    (3) For the compliance requirements related to Federal programs 
contained in the compliance supplement, an audit of these compliance 
requirements will meet the requirements of this part. Where there have 
been changes to the compliance requirements and the changes are not 
reflected in the compliance supplement, the auditor must determine the 
current compliance requirements and modify the audit procedures 
accordingly. For those Federal programs not covered in the compliance 
supplement, the auditor must follow the compliance supplement's guidance 
for programs not included in the supplement.
    (4) The compliance testing must include tests of transactions and 
such other auditing procedures necessary to provide the auditor 
sufficient appropriate audit evidence to support an opinion on 
compliance.
    (e) Audit follow-up. The auditor must follow-up on prior audit 
findings, perform procedures to assess the reasonableness of the summary 
schedule of prior audit findings prepared by the auditee in accordance 
with Sec. 75.511(b), and report, as a current year audit finding, when 
the auditor concludes that the summary schedule of prior audit findings 
materially misrepresents the status of any prior audit finding. The 
auditor must perform audit follow-up procedures regardless of whether a 
prior audit finding relates to a major program in the current year.
    (f) Data collection form. As required in Sec. 75.512(b)(3), the 
auditor must complete and sign specified sections of the data collection 
form.



Sec. 75.515  Audit reporting.

    The auditor's report(s) may be in the form of either combined or 
separate reports and may be organized differently from the manner 
presented in this section. The auditor's report(s) must state that the 
audit was conducted in accordance with this part and include the 
following:
    (a) An opinion (or disclaimer of opinion) as to whether the 
financial statements are presented fairly in all material respects in 
accordance with generally accepted accounting principles and an opinion 
(or disclaimer of opinion) as to whether the schedule of expenditures of 
Federal awards is fairly stated in all material respects in relation to 
the financial statements as a whole.
    (b) A report on internal control over financial reporting and 
compliance with provisions of laws, regulations, contracts, or award 
agreements, noncompliance with which could have a material effect on the 
financial statements. This report must describe the scope of testing of 
internal control and compliance and the results of the tests, and, where 
applicable, it will refer to the separate schedule of findings and 
questioned costs described in paragraph (d) of this section.
    (c) A report on compliance for each major program and a report on 
internal control over compliance. This report must describe the scope of 
testing of internal control over compliance, include an opinion or 
disclaimer of opinion as to whether the auditee complied with Federal 
statutes, regulations, and the terms and conditions of Federal awards 
which could have a direct and material effect on each major program and 
refer to the separate schedule of findings and questioned costs 
described in paragraph (d) of this section.

[[Page 330]]

    (d) A schedule of findings and questioned costs which must include 
the following three components:
    (1) A summary of the auditor's results, which must include:
    (i) The type of report the auditor issued on whether the financial 
statements audited were prepared in accordance with GAAP (i.e., 
unmodified opinion, qualified opinion, adverse opinion, or disclaimer of 
opinion);
    (ii) Where applicable, a statement about whether significant 
deficiencies or material weaknesses in internal control were disclosed 
by the audit of the financial statements;
    (iii) A statement as to whether the audit disclosed any 
noncompliance that is material to the financial statements of the 
auditee;
    (iv) Where applicable, a statement about whether significant 
deficiencies or material weaknesses in internal control over major 
programs were disclosed by the audit;
    (v) The type of report the auditor issued on compliance for major 
programs (i.e., unmodified opinion, qualified opinion, adverse opinion, 
or disclaimer of opinion);
    (vi) A statement as to whether the audit disclosed any audit 
findings that the auditor is required to report under Sec. 75.516(a);
    (vii) An identification of major programs by listing each individual 
major program; however in the case of a cluster of programs only the 
cluster name as shown on the Schedule of Expenditures of Federal Awards 
is required;
    (viii) The dollar threshold used to distinguish between Type A and 
Type B programs, as described in Sec. 75.518(b)(1), or (b)(3) when a 
recalculation of the Type A threshold is required for large loan or loan 
guarantees; and
    (ix) A statement as to whether the auditee qualified as a low-risk 
auditee under Sec. 75.520.
    (2) Findings relating to the financial statements which are required 
to be reported in accordance with GAGAS.
    (3) Findings and questioned costs for Federal awards which must 
include audit findings as defined in Sec. 75.516(a).
    (i) Audit findings (e.g., internal control findings, compliance 
findings, questioned costs, or fraud) that relate to the same issue must 
be presented as a single audit finding. Where practical, audit findings 
should be organized by Federal agency or pass-through entity.
    (ii) Audit findings that relate to both the financial statements and 
Federal awards, as reported under paragraphs (d)(2) and (d)(3) of this 
section, respectively, must be reported in both sections of the 
schedule. However, the reporting in one section of the schedule may be 
in summary form with a reference to a detailed reporting in the other 
section of the schedule.
    (e) Nothing in this part precludes combining of the audit reporting 
required by this section with the reporting required by Sec. 75.512(b) 
when allowed by GAGAS and appendix X to part 75.



Sec. 75.516  Audit findings.

    (a) Audit findings reported. The auditor must report the following 
as audit findings in a schedule of findings and questioned costs:
    (1) Significant deficiencies and material weaknesses in internal 
control over major programs and significant instances of abuse relating 
to major programs. The auditor's determination of whether a deficiency 
in internal control is a significant deficiency or material weakness for 
the purpose of reporting an audit finding is in relation to a type of 
compliance requirement for a major program identified in the Compliance 
Supplement.
    (2) Material noncompliance with the provisions of Federal statutes, 
regulations, or the terms and conditions of Federal awards related to a 
major program. The auditor's determination of whether a noncompliance 
with the provisions of Federal statutes, regulations, or the terms and 
conditions of Federal awards is material for the purpose of reporting an 
audit finding is in relation to a type of compliance requirement for a 
major program identified in the compliance supplement.
    (3) Known questioned costs that are greater than $25,000 for a type 
of compliance requirement for a major program. Known questioned costs 
are those specifically identified by the auditor. In evaluating the 
effect of questioned costs on the opinion on compliance, the auditor 
considers the best estimate of total costs questioned (likely questioned 
costs), not just the

[[Page 331]]

questioned costs specifically identified (known questioned costs). The 
auditor must also report known questioned costs when likely questioned 
costs are greater than $25,000 for a type of compliance requirement for 
a major program. In reporting questioned costs, the auditor must include 
information to provide proper perspective for judging the prevalence and 
consequences of the questioned costs.
    (4) Known questioned costs that are greater than $25,000 for a 
Federal program which is not audited as a major program. Except for 
audit follow-up, the auditor is not required under this part to perform 
audit procedures for such a Federal program; therefore, the auditor will 
normally not find questioned costs for a program that is not audited as 
a major program. However, if the auditor does become aware of questioned 
costs for a Federal program that is not audited as a major program 
(e.g., as part of audit follow-up or other audit procedures) and the 
known questioned costs are greater than $25,000, then the auditor must 
report this as an audit finding.
    (5) The circumstances concerning why the auditor's report on 
compliance for each major program is other than an unmodified opinion, 
unless such circumstances are otherwise reported as audit findings in 
the schedule of findings and questioned costs for Federal awards.
    (6) Known or likely fraud affecting a Federal award, unless such 
fraud is otherwise reported as an audit finding in the schedule of 
findings and questioned costs for Federal awards. This paragraph does 
not require the auditor to report publicly information which could 
compromise investigative or legal proceedings or to make an additional 
reporting when the auditor confirms that the fraud was reported outside 
the auditor's reports under the direct reporting requirements of GAGAS.
    (7) Instances where the results of audit follow-up procedures 
disclosed that the summary schedule of prior audit findings prepared by 
the auditee in accordance with Sec. 75.511(b) materially misrepresents 
the status of any prior audit finding.
    (b) Audit finding detail and clarity. Audit findings must be 
presented in sufficient detail and clarity for the auditee to prepare a 
corrective action plan and take corrective action, and for Federal 
agencies and pass-through entities to arrive at a management decision. 
The following specific information must be included, as applicable, in 
audit findings:
    (1) Federal program and specific Federal award identification 
including the CFDA title and number, Federal award identification number 
and year, name of Federal agency, and name of the applicable pass-
through entity. When information, such as the CFDA title and number or 
Federal award identification number, is not available, the auditor must 
provide the best information available to describe the Federal award.
    (2) The criteria or specific requirement upon which the audit 
finding is based, including the Federal statutes, regulations, or the 
terms and conditions of the Federal awards. Criteria generally identify 
the required or desired state or expectation with respect to the program 
or operation. Criteria provide a context for evaluating evidence and 
understanding findings.
    (3) The condition found, including facts that support the deficiency 
identified in the audit finding.
    (4) A statement of cause that identifies the reason or explanation 
for the condition or the factors responsible for the difference between 
the situation that exists (condition) and the required or desired state 
(criteria), which may also serve as a basis for recommendations for 
corrective action.
    (5) The possible asserted effect to provide sufficient information 
to the auditee and Federal agency, or pass-through entity in the case of 
a subrecipient, to permit them to determine the cause and effect to 
facilitate prompt and proper corrective action. A statement of the 
effect or potential effect should provide a clear, logical link to 
establish the impact or potential impact of the difference between the 
condition and the criteria.
    (6) Identification of questioned costs and how they were computed. 
Known questioned costs must be identified by applicable CFDA number(s) 
and applicable Federal award identification number(s).

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    (7) Information to provide proper perspective for judging the 
prevalence and consequences of the audit findings, such as whether the 
audit findings represent an isolated instance or a systemic problem. 
Where appropriate, instances identified must be related to the universe 
and the number of cases examined and be quantified in terms of dollar 
value. The auditor should report whether the sampling was a 
statistically valid sample.
    (8) Identification of whether the audit finding was a repeat of a 
finding in the immediately prior audit and if so any applicable prior 
year audit finding numbers.
    (9) Recommendations to prevent future occurrences of the deficiency 
identified in the audit finding.
    (10) Views of responsible officials of the auditee.
    (c) Reference numbers. Each audit finding in the schedule of 
findings and questioned costs must include a reference number in the 
format meeting the requirements of the data collection form submission 
required by Sec. 75.512(b) to allow for easy referencing of the audit 
findings during follow-up.



Sec. 75.517  Audit documentation.

    (a) Retention of audit documentation. The auditor must retain audit 
documentation and reports for a minimum of three years after the date of 
issuance of the auditor's report(s) to the auditee, unless the auditor 
is notified in writing by the cognizant agency for audit, oversight 
agency for audit, cognizant agency for indirect costs, or pass-through 
entity to extend the retention period. When the auditor is aware that 
the Federal agency, pass-through entity, or auditee is contesting an 
audit finding, the auditor must contact the parties contesting the audit 
finding for guidance prior to destruction of the audit documentation and 
reports.
    (b) Access to audit documentation. Audit documentation must be made 
available upon request to the cognizant or oversight agency for audit or 
its designee, cognizant agency for indirect cost, a Federal agency, or 
GAO at the completion of the audit, as part of a quality review, to 
resolve audit findings, or to carry out oversight responsibilities 
consistent with the purposes of this part. Access to audit documentation 
includes the right of Federal agencies to obtain copies of audit 
documentation, as is reasonable and necessary.



Sec. 75.518  Major program determination.

    (a) General. The auditor must use a risk-based approach to determine 
which Federal programs are major programs. This risk-based approach must 
include consideration of: Current and prior audit experience, oversight 
by Federal agencies and pass-through entities, and the inherent risk of 
the Federal this program. The process in paragraphs (b) through (h) of 
this section must be followed.
    (b) Step one. (1) The auditor must identify the larger Federal 
programs, which must be labeled Type A programs. Type A programs are 
defined as Federal programs with Federal awards expended during the 
audit period exceeding the levels outlined in the table in this 
paragraph (b)(1):

------------------------------------------------------------------------
     Total Federal awards expended              Type A/B threshold
------------------------------------------------------------------------
(i) Equal to or exceed $750,000 but      $750,000.
 less than or equal to $25 million.
(ii) Exceed $25 million but less than    Total Federal awards expended
 or equal to $100 million.                times .03.
(iii) Exceed $100 million but less than  $3 million.
 or equal to $1 billion.
(iv) Exceed $1 billion but less than or  Total Federal awards expended
 equal to $10 billion.                    times .003.
(v) Exceed $10 billion but less than or  $30 million.
 equal to $20 billion.
(vi) Exceed $20 billion................  Total Federal awards expended
                                          times .0015.
------------------------------------------------------------------------

    (2) Federal programs not labeled Type A under paragraph (b)(1) of 
this section must be labeled Type B programs.
    (3) The inclusion of large loan and loan guarantees (loans) must not 
result in the exclusion of other programs as Type A programs. When a 
Federal program providing loans exceeds four

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times the largest non-loan program it is considered a large loan 
program, and the auditor must consider this Federal program as a Type A 
program and exclude its values in determining other Type A programs. 
This recalculation of the Type A program is performed after removing the 
total of all large loan programs. For the purposes of this paragraph a 
program is only considered to be a Federal program providing loans if 
the value of Federal awards expended for loans within the program 
comprises fifty percent or more of the total Federal awards expended for 
the program. A cluster of programs is treated as one program and the 
value of Federal awards expended under a loan program is determined as 
described in Sec. 75.502.
    (4) For biennial audits permitted under Sec. 75.504, the 
determination of Type A and Type B programs must be based upon the 
Federal awards expended during the two-year period.
    (c) Step two. (1) The auditor must identify Type A programs which 
are low-risk. In making this determination, the auditor must consider 
whether the requirements in Sec. 75.519(c), the results of audit 
follow-up, or any changes in personnel or systems affecting the program 
indicate significantly increased risk and preclude the program from 
being low risk. For a Type A program to be considered low-risk, it must 
have been audited as a major program in at least one of the two most 
recent audit periods (in the most recent audit period in the case of a 
biennial audit), and, in the most recent audit period, the program must 
have not had:
    (i) Internal control deficiencies which were identified as material 
weaknesses in the auditor's report on internal control for major 
programs as required under Sec. 75.515(c);
    (ii) A modified opinion on the program in the auditor's report on 
major programs as required under Sec. 75.515(c); or
    (iii) Known or likely questioned costs that exceed five percent of 
the total Federal awards expended for the program.
    (2) Notwithstanding paragraph (c)(1) of this section, OMB may 
approve an HHS awarding agency's request that a Type A program may not 
be considered low risk for a certain recipient. For example, it may be 
necessary for a large Type A program to be audited as a major program 
each year at a particular recipient to allow the HHS awarding agency to 
comply with 31 U.S.C. 3515. The HHS awarding agency must notify the 
recipient and, if known, the auditor of OMB's approval at least 180 
calendar days prior to the end of the fiscal year to be audited.
    (d) Step three. (1) The auditor must identify Type B programs which 
are high-risk using professional judgment and the criteria in Sec. 
75.519. However, the auditor is not required to identify more high-risk 
Type B programs than at least one fourth the number of low-risk Type A 
programs identified as low-risk under Step 2 (paragraph (c) of this 
section). Except for known material weakness in internal control or 
compliance problems as discussed in Sec. 75.519(b)(1), (b)(2), and 
(c)(1), a single criteria in risk would seldom cause a Type B program to 
be considered high-risk. When identifying which Type B programs to risk 
assess, the auditor is encouraged to use an approach which provides an 
opportunity for different high-risk Type B programs to be audited as 
major over a period of time.
    (2) The auditor is not expected to perform risk assessments on 
relatively small Federal programs. Therefore, the auditor is only 
required to perform risk assessments on Type B programs that exceed 
twenty-five percent (0.25) of the Type A threshold determined in Step 1 
(paragraph (b) of this section).
    (e) Step four. At a minimum, the auditor must audit all of the 
following as major programs:
    (1) All Type A programs not identified as low risk under step two 
(paragraph (c)(1) of this section).
    (2) All Type B programs identified as high-risk under step three 
(paragraph (d) of this section).
    (3) Such additional programs as may be necessary to comply with the 
percentage of coverage rule discussed in paragraph (f) of this section. 
This may require the auditor to audit more programs as major programs 
than the number of Type A programs.
    (f) Percentage of coverage rule. If the auditee meets the criteria 
in Sec. 75.520,

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the auditor need only audit the major programs identified in Step 4 
(paragraph (e)(1) and (2) of this section) and such additional Federal 
programs with Federal awards expended that, in aggregate, all major 
programs encompass at least 20 percent (0.20) of total Federal awards 
expended. Otherwise, the auditor must audit the major programs 
identified in Step 4 (paragraphs (e)(1) and (2) of this section) and 
such additional Federal programs with Federal awards expended that, in 
aggregate, all major programs encompass at least 40 percent (0.40) of 
total Federal awards expended.
    (g) Documentation of risk. The auditor must include in the audit 
documentation the risk analysis process used in determining major 
programs.
    (h) Auditor's judgment. When the major program determination was 
performed and documented in accordance with this subpart, the auditor's 
judgment in applying the risk-based approach to determine major programs 
must be presumed correct. Challenges by Federal agencies and pass-
through entities must only be for clearly improper use of the 
requirements in this part. However, Federal agencies and pass-through 
entities may provide auditors guidance about the risk of a particular 
Federal program and the auditor must consider this guidance in 
determining major programs in audits not yet completed.



Sec. 75.519  Criteria for Federal program risk.

    (a) General. The auditor's determination should be based on an 
overall evaluation of the risk of noncompliance occurring that could be 
material to the Federal program. The auditor must consider criteria, 
such as described in paragraphs (b), (c), and (d) of this section, to 
identify risk in Federal programs. Also, as part of the risk analysis, 
the auditor may wish to discuss a particular Federal program with 
auditee management and the Federal agency or pass-through entity.
    (b) Current and prior audit experience. (1) Weaknesses in internal 
control over Federal programs would indicate higher risk. Consideration 
should be given to the control environment over Federal programs and 
such factors as the expectation of management's adherence to Federal 
statutes, regulations, and the terms and conditions of Federal awards 
and the competence and experience of personnel who administer the 
Federal programs.
    (i) A Federal program administered under multiple internal control 
structures may have higher risk. When assessing risk in a large single 
audit, the auditor must consider whether weaknesses are isolated in a 
single operating unit (e.g., one college campus) or pervasive throughout 
the entity.
    (ii) When significant parts of a Federal program are passed through 
to subrecipients, a weak system for monitoring subrecipients would 
indicate higher risk.
    (2) Prior audit findings would indicate higher risk, particularly 
when the situations identified in the audit findings could have a 
significant impact on a Federal program or have not been corrected.
    (3) Federal programs not recently audited as major programs may be 
of higher risk than Federal programs recently audited as major programs 
without audit findings.
    (c) Oversight exercised by Federal agencies and pass-through 
entities. (1) Oversight exercised by Federal agencies or pass-through 
entities could be used to assess risk. For example, recent monitoring or 
other reviews performed by an oversight entity that disclosed no 
significant problems would indicate lower risk, whereas monitoring that 
disclosed significant problems would indicate higher risk.
    (2) Federal agencies, with the concurrence of OMB, may identify 
Federal programs that are higher risk. OMB will provide this 
identification in the compliance supplement.
    (d) Inherent risk of the Federal program. (1) The nature of a 
Federal program may indicate risk. Consideration should be given to the 
complexity of the program and the extent to which the Federal program 
contracts for goods and services. For example, Federal programs that 
disburse funds through third party contracts or have eligibility 
criteria may be of higher risk. Federal programs primarily involving 
staff payroll costs may have

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high risk for noncompliance with requirements of Sec. 75.430, but 
otherwise be at low risk.
    (2) The phase of a Federal program in its life cycle at the Federal 
agency may indicate risk. For example, a new Federal program with new or 
interim regulations may have higher risk than an established program 
with time-tested regulations. Also, significant changes in Federal 
programs, statutes, regulations, or the terms and conditions of Federal 
awards may increase risk.
    (3) The phase of a Federal program in its life cycle at the auditee 
may indicate risk. For example, during the first and last years that an 
auditee participates in a Federal program, the risk may be higher due to 
start-up or closeout of program activities and staff.
    (4) Type B programs with larger Federal awards expended would be of 
higher risk than programs with substantially smaller Federal awards 
expended.



Sec. 75.520  Criteria for a low-risk auditee.

    An auditee that meets all of the following conditions for each of 
the preceding two audit periods must qualify as a low-risk auditee and 
be eligible for reduced audit coverage in accordance with Sec. 75.518.
    (a) Single audits were performed on an annual basis in accordance 
with the provisions of this subpart, including submitting the data 
collection form and the reporting package to the FAC within the 
timeframe specified in Sec. 75.512 . A non-Federal entity that has 
biennial audits does not qualify as a low-risk auditee.
    (b) The auditor's opinion on whether the financial statements were 
prepared in accordance with GAAP, or a basis of accounting required by 
state law, and the auditor's in relation to opinion on the schedule of 
expenditures of Federal awards were unmodified.
    (c) There were no deficiencies in internal control which were 
identified as material weaknesses under the requirements of GAGAS.
    (d) The auditor did not report a substantial doubt about the 
auditee's ability to continue as a going concern.
    (e) None of the Federal programs had audit findings from any of the 
following in either of the preceding two audit periods in which they 
were classified as Type A programs:
    (1) Internal control deficiencies that were identified as material 
weaknesses in the auditor's report on internal control for major 
programs as required under Sec. 75.515(c);
    (2) A modified opinion on a major program in the auditor's report on 
major programs as required under Sec. 75.515(c); or
    (3) Known or likely questioned costs that exceeded five percent of 
the total Federal awards expended for a Type A program during the audit 
period.

                          Management Decisions



Sec. 75.521  Management decision.

    (a) General. The management decision must clearly state whether or 
not the audit finding is sustained, the reasons for the decision, and 
the expected auditee action to repay disallowed costs, make financial 
adjustments, or take other action. If the auditee has not completed 
corrective action, a timetable for follow-up should be given. Prior to 
issuing the management decision, the Federal agency or pass-through 
entity may request additional information or documentation from the 
auditee, including a request for auditor assurance related to the 
documentation, as a way of mitigating disallowed costs. The management 
decision should describe any appeal process available to the auditee. 
While not required, the Federal agency or pass-through entity may also 
issue a management decision on findings relating to the financial 
statements which are required to be reported in accordance with GAGAS.
    (b) Federal agency. As provided in Sec. 75.513(a)(3)(vii), the 
cognizant agency for audit must be responsible for coordinating a 
management decision for audit findings that affect the programs of more 
than one Federal agency. As provided in Sec. 75.513(c)(3), a Federal 
awarding agency is responsible for issuing a management decision for 
findings that relate to Federal awards it makes to non-Federal entities.
    (c) Pass-through entity. As provided in Sec. 75.352(d), the pass-
through entity

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must be responsible for issuing a management decision for audit findings 
that relate to Federal awards it makes to subrecipients.
    (d) Time requirements. The HHS awarding agency or pass-through 
entity responsible for issuing a management decision must do so within 
six months of acceptance of the audit report by the FAC. The auditee 
must initiate and proceed with corrective action as rapidly as possible 
and corrective action should begin no later than upon receipt of the 
audit report.
    (e) Reference numbers. Management decisions must include the 
reference numbers the auditor assigned to each audit finding in 
accordance with Sec. 75.516(c).



 Sec. Appendix I to Part 75--Full Text of Notice of Funding Opportunity

    The full text of the notice of funding opportunity is organized in 
sections. The required format outlined in this appendix indicates 
immediately following the title of each section whether that section is 
required in every announcement or is an HHS awarding agency option. The 
format is designed so that similar types of information will appear in 
the same sections in announcements of different Federal funding 
opportunities. Toward that end, there is text in each of the following 
sections to describe the types of information that an HHS awarding 
agency would include in that section of an actual announcement.
    An HHS awarding agency that wishes to include information that the 
format does not specifically discuss may address that subject in 
whatever section(s) is most appropriate. For example, if an HHS awarding 
agency chooses to address performance goals in the announcement, it 
might do so in the funding opportunity description, the application 
content, or the reporting requirements.
    Similarly, when this format calls for a type of information to be in 
a particular section, an HHS awarding agency wishing to address that 
subject in other sections may elect to repeat the information in those 
sections or use cross references between the sections (there should be 
hyperlinks for cross-references in any electronic versions of the 
announcement). For example, an HHS awarding agency may want to include 
in Section A information about the types of non-Federal entities who are 
eligible to apply. The format specifies a standard location for that 
information in Section C.1 but that does not preclude repeating the 
information in Section I or creating a cross reference between Sections 
A and C.1, as long as a potential applicant can find the information 
quickly and easily from the standard location.
    The sections of the full text of the announcement are described in 
the following paragraphs.

                    A. Program Description--Required

    This section contains the full program description of the funding 
opportunity. It may be as long as needed to adequately communicate to 
potential applicants the areas in which funding may be provided. It 
describes the HHS awarding agency's funding priorities or the technical 
or focus areas in which the HHS awarding agency intends to provide 
assistance. As appropriate, it may include any program history (e.g., 
whether this is a new program or a new or changed area of program 
emphasis). This section may communicate indicators of successful 
projects (e.g., if the program encourages collaborative efforts) and may 
include examples of projects that have been funded previously. This 
section also may include other information the HHS awarding agency deems 
necessary, and must at a minimum include citations for authorizing 
statutes and regulations for the funding opportunity.

                 B. Federal Award Information--Required

    This section provides sufficient information to help an applicant 
make an informed decision about whether to submit a proposal. Relevant 
information could include the total amount of funding that the HHS 
awarding agency expects to award through the announcement; the 
anticipated number of Federal awards; the expected amounts of individual 
Federal awards (which may be a range); the amount of funding per Federal 
award, on average, experienced in previous years; and the anticipated 
start dates and periods of performance for new Federal awards. This 
section also should address whether applications for renewal or 
supplementation of existing projects are eligible to compete with 
applications for new Federal awards.
    This section also must indicate the type(s) of assistance instrument 
(e.g., grant, cooperative agreement) that may be awarded if applications 
are successful. If cooperative agreements may be awarded, this section 
either should describe the ``substantial involvement'' that the HHS 
awarding agency expects to have or should reference where the potential 
applicant can find that information (e.g., in the funding opportunity 
description in section A. or Federal award administration information in 
Section D. If procurement contracts also may be awarded, this must be 
stated.

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                       C. Eligibility Information

    This section addresses the considerations or factors that determine 
applicant or application eligibility. This includes the eligibility of 
particular types of applicant organizations, any factors affecting the 
eligibility of the principal investigator or project director, and any 
criteria that make particular projects ineligible. HHS agencies should 
make clear whether an applicant's failure to meet an eligibility 
criterion by the time of an application deadline will result in the HHS 
awarding agency returning the application without review or, even though 
an application may be reviewed, will preclude the HHS awarding agency 
from making a Federal award. Key elements to be addressed are:
    1. Eligible Applicants--Required. Announcements must clearly 
identify the types of entities that are eligible to apply. If there are 
no restrictions on eligibility, this section may simply indicate that 
all potential applicants are eligible. If there are restrictions on 
eligibility, it is important to be clear about the specific types of 
entities that are eligible, not just the types that are ineligible. For 
example, if the program is limited to nonprofit organizations subject to 
26 U.S.C. 501(c)(3) of the tax code (26 U.S.C. 501(c)(3)), the 
announcement should say so. Similarly, it is better to state explicitly 
that Native American tribal organizations are eligible than to assume 
that they can unambiguously infer that from a statement that nonprofit 
organizations may apply. Eligibility also can be expressed by exception, 
(e.g., open to all types of domestic applicants other than individuals). 
This section should refer to any portion of Section D. specifying 
documentation that must be submitted to support an eligibility 
determination (e.g., proof of 501(c)(3) status as determined by the 
Internal Revenue Service or an authorizing tribal resolution). To the 
extent that any funding restriction in Section D.6 could affect the 
eligibility of an applicant or project, the announcement must either 
restate that restriction in this section or provide a cross-reference to 
its description in Section D.6.
    2. Cost Sharing or Matching--Required. Announcements must state 
whether there is required cost sharing, matching, or cost participation 
without which an application would be ineligible (if cost sharing is not 
required, the announcement must explicitly say so). Required cost 
sharing may be a certain percentage or amount, or may be in the form of 
contributions of specified items or activities (e.g., provision of 
equipment). It is important that the announcement be clear about any 
restrictions on the types of cost (e.g., in-kind contributions) that are 
acceptable as cost sharing. Cost sharing as an eligibility criterion 
includes requirements based in statute or regulation, as described in 
Sec. 75.306. This section should refer to the appropriate portion(s) of 
section D. stating any pre-award requirements for submission of letters 
or other documentation to verify commitments to meet cost-sharing 
requirements if a Federal award is made.
    3. Other--Required, if applicable. If there are other eligibility 
criteria (i.e., criteria that have the effect of making an application 
or project ineligible for Federal awards, whether referred to as 
``responsiveness'' criteria, ``go-no go'' criteria, ``threshold'' 
criteria, or in other ways), must be clearly stated and must include a 
reference to the regulation of requirement that describes the 
restriction, as applicable. For example, if entities that have been 
found to be in violation of a particular Federal statute are ineligible, 
it is important to say so. This section must also state any limit on the 
number of applications an applicant may submit under the announcement 
and make clear whether the limitation is on the submitting organization, 
individual investigator/program director, or both. This section should 
also address any eligibility criteria for beneficiaries or for program 
participants other than Federal award recipients.

                D. Application and Submission Information

    1. Address to Request Application Package--Required. Potential 
applicants must be told how to get application forms, kits, or other 
materials needed to apply (if this announcement contains everything 
needed, this section need only say so). An Internet address where the 
materials can be accessed is acceptable. However, since high-speed 
Internet access is not yet universally available for downloading 
documents, and applicants may have additional accessibility 
requirements, there also should be a way for potential applicants to 
request paper copies of materials, such as a U.S. Postal Service mailing 
address, telephone or FAX number, Telephone Device for the Deaf (TDD), 
Text Telephone (TTY) number, and/or Federal Information Relay Service 
(FIRS) number.
    2. Content and Form of Application Submission--Required. This 
section must identify the required content of an application and the 
forms or formats that an applicant must use to submit it. If any 
requirements are stated elsewhere because they are general requirements 
that apply to multiple programs or funding opportunities, this section 
should refer to where those requirements may be found. This section also 
should include required forms or formats as part of the announcement or 
state where the applicant may obtain them.
    This section should specifically address content and form or format 
requirements for:
    i. Pre-applications, letters of intent, or white papers required or 
encouraged (see Section D.4), including any limitations on

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the number of pages or other formatting requirements similar to those 
for full applications.
    ii. The application as a whole. For all submissions, this would 
include any limitations on the number of pages, font size and typeface, 
margins, paper size, number of copies, and sequence or assembly 
requirements. If electronic submission is permitted or required, this 
could include special requirements for formatting or signatures.
    iii. Component pieces of the application (e.g., if all copies of the 
application must bear original signatures on the face page or the 
program narrative may not exceed 10 pages). This includes any pieces 
that may be submitted separately by third parties (e.g., references or 
letters confirming commitments from third parties that will be 
contributing a portion of any required cost sharing).
    iv. Information that successful applicants must submit after 
notification of intent to make a Federal award, but prior to a Federal 
award. This could include evidence of compliance with requirements 
relating to human subjects or information needed to comply with the 
National Environmental Policy Act (NEPA) (42 U.S.C. 4321-4370h).
    3. Unique Entity Identifier and System for Award Management (SAM)--
Required.
    This paragraph must state clearly that each applicant (unless the 
applicant is an individual or Federal awarding agency that is excepted 
from those requirements under 2 CFR 25.110(b) or (c), or has an 
exception approved by the Federal awarding agency under 2 CFR 25.110(d)) 
is required to:
    (i) Be registered in SAM before submitting its application;
    (ii) provide a valid unique entity identifier in its application; 
and
    (iii) continue to maintain an active SAM registration with current 
information at all times during which it has an active Federal award or 
an application or plan under consideration by a Federal awarding agency.
    It also must state that the Federal awarding agency may not make a 
Federal award to an applicant until the applicant has complied with all 
applicable unique entity identifier and SAM requirements and, if an 
applicant has not fully complied with the requirements by the time the 
Federal awarding agency is ready to make a Federal award, the Federal 
awarding agency may determine that the applicant is not qualified to 
receive a Federal award and use that determination as a basis for making 
a Federal award to another applicant.
    4. Submission Dates and Times--Required. Announcements must identify 
due dates and times for all submissions. This includes not only the full 
applications but also any preliminary submissions (e.g., letters of 
intent, white papers, or pre-applications). It also includes any other 
submissions of information before Federal award that are separate from 
the full application. If the funding opportunity is a general 
announcement that is open for a period of time with no specific due 
dates for applications, this section should say so. Note that the 
information on dates that is included in this section also must appear 
with other overview information in a location preceding the full text of 
the announcement (see Sec. 75.203).
    Each type of submission should be designated as encouraged or 
required and, if required, any deadline date (or dates, if the Federal 
awarding agency plans more than one cycle of application submission, 
review, and Federal award under the announcement) should be specified. 
The announcement must state (or provide a reference to another document 
that states):
    i. Any deadline in terms of a date and local time. If the due date 
falls on a Saturday, Sunday, or Federal holiday, the reporting package 
is due the next business day.
    ii. What the deadline means (e.g., whether it is the date and time 
by which the Federal awarding agency must receive the application, the 
date by which the application must be postmarked, or something else) and 
how that depends, if at all, on the submission method (e.g., mail, 
electronic, or personal/courier delivery).
    iii. The effect of missing a deadline (e.g., whether late 
applications are neither reviewed nor considered or are reviewed and 
considered under some circumstances).
    iv. How the receiving Federal office determines whether an 
application or pre-application has been submitted before the deadline. 
This includes the form of acceptable proof of mailing or system-
generated documentation of receipt date and time.
    This section also may indicate whether, when, and in what form the 
applicant will receive an acknowledgement of receipt. This information 
should be displayed in ways that will be easy to understand and use. It 
can be difficult to extract all needed information from narrative 
paragraphs, even when they are well written. A tabular form for 
providing a summary of the information may help applicants for some 
programs and give them what effectively could be a checklist to verify 
the completeness of their application package before submission.
    5. Intergovernmental Review--Required, if applicable. If the funding 
opportunity is subject to Executive Order 12372, ``Intergovernmental 
Review of Federal Programs,'' the notice must say so. In alerting 
applicants that they must contact their state's Single Point of Contact 
(SPOC) to find out about and comply with the state's process under 
Executive Order 12372, it may be useful to inform potential applicants 
that the names and addresses of the SPOCs are listed in the Office of 
Management and Budget's Web site. www.whitehouse.gov/omb/grants/
spoc.html.

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    6. Funding Restrictions--Required. Notices must include information 
on funding restrictions in order to allow an applicant to develop an 
application and budget consistent with program requirements. Examples 
are whether construction is an allowable activity, if there are any 
limitations on direct costs such as foreign travel or equipment 
purchases, and if there are any limits on indirect costs (or facilities 
and administrative costs). Applicants must be advised if Federal awards 
will not allow reimbursement of pre-Federal award costs.
    7. Other Submission Requirements-- Required. This section must 
address any other submission requirements not included in the other 
paragraphs of this section. This might include the format of submission, 
i.e., paper or electronic, for each type of required submission. 
Applicants should not be required to submit in more than one format and 
this section should indicate whether they may choose whether to submit 
applications in hard copy or electronically, may submit only in hard 
copy, or may submit only electronically.
    This section also must indicate where applications (and any pre-
applications) must be submitted if sent by postal mail, electronic 
means, or hand-delivery. For postal mail submission, this must include 
the name of an office, official, individual or function (e.g., 
application receipt center) and a complete mailing address. For 
electronic submission, this must include the URL or email address; 
whether a password(s) is required; whether particular software or other 
electronic capabilities are required; what to do in the event of system 
problems and a point of contact who will be available in the event the 
applicant experiences technical difficulties.\1\
---------------------------------------------------------------------------

    \1\With respect to electronic methods for providing information 
about funding opportunities or accepting applicants' submissions of 
information, each HHS awarding agency is responsible for compliance with 
Section 508 of the Rehabilitation Act of 1973 (29 U.S.C. 794d).
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                    E. Application Review Information

    1. Criteria--Required. This section must address the criteria that 
the Federal awarding agency will use to evaluate applications. This 
includes the merit and other review criteria that evaluators will use to 
judge applications, including any statutory, regulatory, or other 
preferences (e.g., minority status or Native American tribal 
preferences) that will be applied in the review process. These criteria 
are distinct from eligibility criteria that are addressed before an 
application is accepted for review and any program policy or other 
factors that are applied during the selection process, after the review 
process is completed. The intent is to make the application process 
transparent so applicants can make informed decisions when preparing 
their applications to maximize fairness of the process. The announcement 
should clearly describe all criteria, including any sub-criteria. If 
criteria vary in importance, the announcement should specify the 
relative percentages, weights, or other means used to distinguish among 
them. For statutory, regulatory, or other preferences, the announcement 
should provide a detailed explanation of those preferences with an 
explicit indication of their effect (e.g., whether they result in 
additional points being assigned).
    If an applicant's proposed cost sharing will be considered in the 
review process (as opposed to being an eligibility criterion described 
in Section C.2), the announcement must specifically address how it will 
be considered (e.g., to assign a certain number of additional points to 
applicants who offer cost sharing, or to break ties among applications 
with equivalent scores after evaluation against all other factors). If 
cost sharing will not be considered in the evaluation, the announcement 
should say so, so that there is no ambiguity for potential applicants. 
Vague statements that cost sharing is encouraged, without clarification 
as to what that means, are unhelpful to applicants. It also is important 
that the announcement be clear about any restrictions on the types of 
cost (e.g., in-kind contributions) that are acceptable as cost sharing.
    2. Review and Selection Process--Required. This section may vary in 
the level of detail provided. The announcement must list any program 
policy or other factors or elements, other than merit criteria, that the 
selecting official may use in selecting applications for Federal award 
(e.g., geographical dispersion, program balance, or diversity). The HHS 
awarding agency may also include other appropriate details. For example, 
this section may indicate who is responsible for evaluation against the 
merit criteria (e.g., peers external to the HHS awarding agency or HHS 
awarding agency personnel) and/or who makes the final selections for 
Federal awards. If there is a multi-phase review process (e.g., an 
external panel advising internal HHS awarding agency personnel who make 
final recommendations to the deciding official), the announcement may 
describe the phases. It also may include: the number of people on an 
evaluation panel and how it operates, the way reviewers are selected, 
reviewer qualifications, and the way that conflicts of interest are 
avoided. With respect to electronic methods for providing information 
about funding opportunities or accepting applicants' submissions of 
information, each HHS awarding agency is responsible for compliance with 
Section 508 of the Rehabilitation Act of 1973 (29 U.S.C. 794d).

[[Page 340]]

    In addition, if the HHS awarding agency permits applicants to 
nominate suggested reviewers of their applications or suggest those they 
feel may be inappropriate due to a conflict of interest, that 
information should be included in this section.
    3. Anticipated Announcement and Federal Award Dates--Optional. This 
section is intended to provide applicants with information they can use 
for planning purposes. If there is a single application deadline 
followed by the simultaneous review of all applications, the HHS 
awarding agency can include in this section information about the 
anticipated dates for announcing or notifying successful and 
unsuccessful applicants and for having Federal awards in place. If 
applications are received and evaluated on a ``rolling'' basis at 
different times during an extended period, it may be appropriate to give 
applicants an estimate of the time needed to process an application and 
notify the applicant of the Federal awarding agency's decision.

               F. Federal Award Administration Information

    1. Federal Award Notices--Required. This section must address what a 
successful applicant can expect to receive following selection. If the 
HHS awarding agency's practice is to provide a separate notice stating 
that an application has been selected before it actually makes the 
Federal award, this section would be the place to indicate that the 
letter is not an authorization to begin performance (to the extent that 
it allows charging to Federal awards of pre-award costs at the non-
Federal entity's own risk). This section should indicate that the notice 
of Federal award signed by the grants officer (or equivalent) is the 
authorizing document, and whether it is provided through postal mail or 
by electronic means and to whom. It also may address the timing, form, 
and content of notifications to unsuccessful applicants. See also Sec. 
75.210.
    2. Administrative and National Policy Requirements--Required. This 
section must identify the usual administrative and national policy 
requirements the HHS awarding agency's Federal awards may include. 
Providing this information lets a potential applicant identify any 
requirements with which it would have difficulty complying if its 
application is successful. In those cases, early notification about the 
requirements allows the potential applicant to decide not to apply or to 
take needed actions before receiving the Federal award. The announcement 
need not include all of the terms and conditions of the Federal-award, 
but may refer to a document (with information about how to obtain it) or 
Internet site where applicants can see the terms and conditions. If this 
funding opportunity will lead to Federal awards with some specific terms 
and conditions that differ from the HHS awarding agency's usual 
(sometimes called ``general'') terms and conditions, this section should 
highlight those specific terms and conditions. Doing so will alert 
applicants that have received Federal awards from the HHS awarding 
agency previously and might not otherwise expect different terms and 
conditions. For the same reason, the announcement should inform 
potential applicants about special requirements that could apply to 
particular Federal awards after the review of applications and other 
information, based on the particular circumstances of the effort to be 
supported (e.g., if human subjects were to be involved or if some 
situations may justify special terms on intellectual property, data 
sharing or security requirements).
    3. Reporting--Required. This section must include general 
information about the type (e.g., financial or performance), frequency, 
and means of submission (paper or electronic) of post-Federal award 
reporting requirements. Highlight any special reporting requirements for 
Federal awards under this funding opportunity that differ (e.g., by 
report type, frequency, form/format, or circumstances for use) from what 
the HHS awarding agency's Federal awards usually require.

               G. HHS Awarding Agency Contact(s)--Required

    The announcement must give potential applicants a point(s) of 
contact for answering questions or helping with problems while the 
funding opportunity is open. The intent of this requirement is to be as 
helpful as possible to potential applicants, so the HHS awarding agency 
should consider approaches such as giving:
    1. Points of contact who may be reached in multiple ways (e.g., by 
telephone, FAX, and/or email, as well as regular mail).
    2. A fax or email address that multiple people access, so that 
someone will respond even if others are unexpectedly absent during 
critical periods.
    3. Different contacts for distinct kinds of help (e.g., one for 
questions of programmatic content and a second for administrative 
questions).

                     H. Other Information--Optional

    This section may include any additional information that will assist 
a potential applicant. For example, the section might:
    1. Indicate whether this is a new program or a one-time initiative.
    2. Mention related programs or other upcoming or ongoing HHS 
awarding agency funding opportunities for similar activities.
    3. Include current Internet addresses for the HHS awarding agency 
Web sites that

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may be useful to an applicant in understanding the program.
    4. Alert applicants to the need to identify proprietary information 
and inform them about the way the HHS awarding agency will handle it.
    5. Include certain routine notices to applicants (e.g., that the 
Federal Government is not obligated to make any Federal award as a 
result of the announcement or that only grants officers can bind the 
Federal Government to the expenditure of funds).



Sec. Appendix II to Part 75--Contract Provisions for Non-Federal Entity 
                     Contracts Under Federal Awards

    In addition to other provisions required by the HHS agency or non-
Federal entity, all contracts made by the non-Federal entity under the 
Federal award must contain provisions covering the following, as 
applicable.
    A. Contracts for more than the simplified acquisition threshold 
currently set at $150,000, which is the inflation adjusted amount 
determined by the Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) as authorized by 41 U.S.C. 
1908, must address administrative, contractual, or legal remedies in 
instances where contractors violate or breach contract terms, and 
provide for such sanctions and penalties as appropriate.
    B. All contracts in excess of $10,000 must address termination for 
cause and for convenience by the non-Federal entity including the manner 
by which it will be effected and the basis for settlement.
    C. Equal Employment Opportunity. Except as otherwise provided under 
41 CFR part 60, all contracts that meet the definition of ``federally 
assisted construction contract'' in 41 CFR part 60-1.3 must include the 
equal opportunity clause provided under 41 CFR 60-1.4(b), in accordance 
with Executive Order 11246, as amended by Executive Order 11375, and 
implementing regulations at 41 CFR part 60.
    D. Davis-Bacon Act, as amended (40 U.S.C. 3141-3148). When required 
by Federal program legislation, all prime construction contracts in 
excess of $2,000 awarded by non-Federal entities must include a 
provision for compliance with the Davis-Bacon Act (40 U.S.C. 3141-3144, 
and 3146-3148) as supplemented by Department of Labor regulations (29 
CFR part 5). In accordance with the statute, contractors must be 
required to pay wages to laborers and mechanics at a rate not less than 
the prevailing wages specified in a wage determination made by the 
Secretary of Labor. In addition, contractors must be required to pay 
wages not less than once a week. The non-Federal entity must place a 
copy of the current prevailing wage determination issued by the 
Department of Labor in each solicitation. The decision to award a 
contract or subcontract must be conditioned upon the acceptance of the 
wage determination. The non-Federal entity must report all suspected or 
reported violations to the Federal awarding agency. The contracts must 
also include a provision for compliance with the Copeland ``Anti-
Kickback'' Act (40 U.S.C. 3145), as supplemented by Department of Labor 
regulations (29 CFR part 3). The Act provides that each contractor or 
subrecipient must 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 or she is otherwise 
entitled. The non-Federal entity must report all suspected or reported 
violations to the Federal awarding agency.
    E. Contract Work Hours and Safety Standards Act (40 U.S.C. 3701-
3708). Where applicable, all contracts awarded by the non-Federal entity 
in excess of $100,000 that involve the employment of mechanics or 
laborers must include a provision for compliance with 40 U.S.C. 3702 and 
3704, as supplemented by Department of Labor regulations (29 CFR part 
5). Under 40 U.S.C. 3702 of the Act, each contractor must 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 one and a half times the basic rate of pay for all hours 
worked in excess of 40 hours in the work week. The requirements of 40 
U.S.C. 3704 are applicable to construction work and provide that no 
laborer or mechanic must 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.
    F. Rights to Inventions Made Under a Contract or Agreement. If the 
Federal award meets the definition of ``funding agreement'' under 37 CFR 
401.2 (a) and the recipient or subrecipient wishes to enter into a 
contract with a small business firm or nonprofit organization regarding 
the substitution of parties, assignment or performance of experimental, 
developmental, or research work under that ``funding agreement,'' the 
recipient or subrecipient must comply with the requirements of 37 CFR 
part 401 and any implementing regulations issued by the awarding agency.
    G. Clean Air Act (42 U.S.C. 7401-7671q.) and the Federal Water 
Pollution Control Act (33 U.S.C. 1251-1387), as amended--Contracts and 
subgrants of amounts in excess of $150,000 must contain a provision that 
requires the non-Federal award to agree to comply with

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all applicable standards, orders or regulations issued pursuant to the 
Clean Air Act (42 U.S.C. 7401-7671q) and the Federal Water Pollution 
Control Act as amended (33 U.S.C. 1251-1387). Violations must be 
reported to the Federal awarding agency and the Regional Office of the 
Environmental Protection Agency (EPA).
    H. Debarment and Suspension (Executive Orders 12549 and 12689)--A 
contract award (see 2 CFR 180.220) must not be made to parties listed on 
the government-wide exclusions in the System for Award Management (SAM), 
in accordance with the OMB guidelines at 2 CFR part 180 that implement 
Executive Orders 12549 (3 CFR part 1986 Comp., p. 189) and 12689 (3 CFR 
part 1989 Comp., p. 235), ``Debarment and Suspension.'' SAM Exclusions 
contains the names of parties debarred, suspended, or otherwise excluded 
by agencies, as well as parties declared ineligible under statutory or 
regulatory authority other than Executive Order 12549.
    I. Byrd Anti-Lobbying Amendment (31 U.S.C. 1352)--Contractors that 
apply or bid for an award exceeding $100,000 must 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 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 must 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 non-Federal 
award.
    J. See Sec. 75.331 Procurement of recovered materials.



 Sec. Appendix III to Part 75--Indirect (F&A) Costs Identification and 
 Assignment, and Rate Determination for Institutions of Higher Education

                               A. General

    This appendix provides criteria for identifying and computing 
indirect (or indirect (F&A)) rates at IHEs (institutions). Indirect 
(F&A) costs are those that are incurred for common or joint objectives 
and therefore cannot be identified readily and specifically with a 
particular sponsored project, an instructional activity, or any other 
institutional activity. See subsection B.1, for a discussion of the 
components of indirect (F&A) costs.

                  1. Major Functions of an Institution

    Refers to instruction, organized research, other sponsored 
activities and other institutional activities as defined in this 
section:
    a. Instruction means the teaching and training activities of an 
institution. Except for research training as provided in subsection b, 
this term includes all teaching and training activities, whether they 
are offered for credits toward a degree or certificate or on a non-
credit basis, and whether they are offered through regular academic 
departments or separate divisions, such as a summer school division or 
an extension division. Also considered part of this major function are 
departmental research, and, where agreed to, university research.
    (1) Sponsored instruction and training means specific instructional 
or training activity established by grant, contract, or cooperative 
agreement. For purposes of the cost principles, this activity may be 
considered a major function even though an institution's accounting 
treatment may include it in the instruction function.
    (2) Departmental research means research, development and scholarly 
activities that are not organized research and, consequently, are not 
separately budgeted and accounted for. Departmental research, for 
purposes of this document, is not considered as a major function, but as 
a part of the instruction function of the institution.
    b. Organized research means all research and development activities 
of an institution that are separately budgeted and accounted for. It 
includes:
    (1) Sponsored research means all research and development activities 
that are sponsored by Federal and non-Federal agencies and 
organizations. This term includes activities involving the training of 
individuals in research techniques (commonly called research training) 
where such activities utilize the same facilities as other research and 
development activities and where such activities are not included in the 
instruction function.
    (2) University research means all research and development 
activities that are separately budgeted and accounted for by the 
institution under an internal application of institutional funds. 
University research, for purposes of this document, must be combined 
with sponsored research under the function of organized research.
    (3) Only mandatory cost sharing or cost sharing specifically 
committed in the project budget must be included in the organized 
research base for computing the indirect (F&A) cost rate or reflected in 
any allocation of indirect costs. Salary costs above statutory limits 
are not considered cost sharing.
    c. Other sponsored activities means programs and projects financed 
by Federal and non-

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Federal agencies and organizations which involve the performance of work 
other than instruction and organized research. Examples of such programs 
and projects are health service projects and community service programs. 
However, when any of these activities are undertaken by the institution 
without outside support, they may be classified as other institutional 
activities.
    d. Other institutional activities means all activities of an 
institution except for instruction, departmental research, organized 
research, and other sponsored activities, as defined in this section; 
indirect (F&A) cost activities identified in this Appendix paragraph B, 
Identification and assignment of indirect (F&A) costs; and specialized 
services facilities described in Sec. 75.468 of this part.
    Examples of other institutional activities include operation of 
residence halls, dining halls, hospitals and clinics, student unions, 
intercollegiate athletics, bookstores, faculty housing, student 
apartments, guest houses, chapels, theaters, public museums, and other 
similar auxiliary enterprises. This definition also includes any other 
categories of activities, costs of which are ``unallowable'' to Federal 
awards, unless otherwise indicated in an award.

                      2. Criteria for Distribution

    a. Base period. A base period for distribution of indirect (F&A) 
costs is the period during which the costs are incurred. The base period 
normally should coincide with the fiscal year established by the 
institution, but in any event the base period should be so selected as 
to avoid inequities in the distribution of costs.
    b. Need for cost groupings. The overall objective of the indirect 
(F&A) cost allocation process is to distribute the indirect (F&A) costs 
described in Section B, Identification and assignment of indirect (F&A) 
costs, to the major functions of the institution in proportions 
reasonably consistent with the nature and extent of their use of the 
institution's resources. In order to achieve this objective, it may be 
necessary to provide for selective distribution by establishing separate 
groupings of cost within one or more of the indirect (F&A) cost 
categories referred to in subsection B.1. In general, the cost groupings 
established within a category should constitute, in each case, a pool of 
those items of expense that are considered to be of like nature in terms 
of their relative contribution to (or degree of remoteness from) the 
particular cost objectives to which distribution is appropriate. Cost 
groupings should be established considering the general guides provided 
in subsection c of this section. Each such pool or cost grouping should 
then be distributed individually to the related cost objectives, using 
the distribution base or method most appropriate in light of the 
guidelines set forth in subsection d of this section.
    c. General considerations on cost groupings. The extent to which 
separate cost groupings and selective distribution would be appropriate 
at an institution 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 groupings (based on account classification or 
analysis) within an indirect (F&A) cost category include but are not 
limited to the following:
    (1) If certain items or categories of expense relate solely to one 
of the major functions of the institution or to less than all functions, 
such expenses should be set aside as a separate cost grouping for direct 
assignment or selective allocation in accordance with the guides 
provided in subsections b and d.
    (2) If any types of expense ordinarily treated as general 
administration or departmental administration are charged to Federal 
awards as direct costs, expenses applicable to other activities of the 
institution when incurred for the same purposes in like circumstances 
must, through separate cost groupings, be excluded from the indirect 
(F&A) costs allocable to those Federal awards and included in the direct 
cost of other activities for cost allocation purposes.
    (3) If 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, instructional, and other activities at the 
institution or within the department.
    (4) If activities provide their own purchasing, personnel 
administration, building maintenance or similar service, the 
distribution of general administration and general expenses, or 
operation and maintenance expenses to such activities should be 
accomplished through cost groupings which include only that portion of 
central indirect (F&A) costs (such as for overall management) which are 
properly allocable to such activities.
    (5) If the institution elects to treat fringe benefits as indirect 
(F&A) charges, such costs should be set aside as a separate cost 
grouping for selective distribution to related cost objectives.
    (6) The number of separate cost groupings within a 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.
    d. Selection of distribution method.
    (1) Actual conditions must be taken into account in selecting the 
method or base to be used in distributing individual cost

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groupings. The essential consideration in selecting a base is that it be 
the one best suited for assigning the pool of costs to cost objectives 
in accordance with benefits derived; with a traceable cause-and-effect 
relationship; or with logic and reason, where neither benefit nor a 
cause-and-effect relationship is determinable.
    (2) If a cost grouping can be identified directly with the cost 
objective benefitted, it should be assigned to that cost objective.
    (3) If the expenses in a cost grouping are more general in nature, 
the distribution may be based on a cost analysis study which results in 
an equitable distribution of the costs. Such cost analysis studies may 
take into consideration weighting factors, population, or space occupied 
if appropriate. Cost analysis studies, however, must (a) be 
appropriately documented in sufficient detail for subsequent review by 
the cognizant agency for indirect costs, (b) distribute the costs to the 
related cost objectives in accordance with the relative benefits 
derived, (c) be statistically sound, (d) be performed specifically at 
the institution at which the results are to be used, and (e) be reviewed 
periodically, but not less frequently than rate negotiations, updated if 
necessary, and used consistently. Any assumptions made in the study must 
be stated and explained. The use of cost analysis studies and periodic 
changes in the method of cost distribution must be fully justified.
    (4) If a cost analysis study is not performed, or if the study does 
not result in an equitable distribution of the costs, the distribution 
must be made in accordance with the appropriate base cited in Section B, 
unless one of the following conditions is met:
    (a) It can be demonstrated that the use of a different base would 
result in a more equitable allocation of the costs, or that a more 
readily available base would not increase the costs charged to Federal 
awards, or
    (b) The institution qualifies for, and elects to use, the simplified 
method for computing indirect (F&A) cost rates described in Section D.
    (5) Notwithstanding subsection (3), effective July 1, 1998, a cost 
analysis or base other than that in Section B must not be used to 
distribute utility or student services costs. Instead, subsections B.4.c 
may be used in the recovery of utility costs.
    e. Order of distribution.
    (1) Indirect (F&A) costs are the broad categories of costs discussed 
in Section B.1.
    (2) Depreciation, interest expenses, operation and maintenance 
expenses, and general administrative and general expenses should be 
allocated in that order to the remaining indirect (F&A) cost categories 
as well as to the major functions and specialized service facilities of 
the institution. Other cost categories may be allocated in the order 
determined to be most appropriate by the institutions. When cross 
allocation of costs is made as provided in subsection (3), this order of 
allocation does not apply.
    (3) Normally an indirect (F&A) cost category will be considered 
closed once it has been allocated to other cost objectives, and costs 
may not be subsequently allocated to it. However, a cross allocation of 
costs between two or more indirect (F&A) cost categories may be used if 
such allocation will result in a more equitable allocation of costs. If 
a cross allocation is used, an appropriate modification to the 
composition of the indirect (F&A) cost categories described in Section B 
is required.

        B. Identification and Assignment of Indirect (F&A) Costs

             1. Definition of Facilities and Administration

    See Sec. 75.414 which provides the basis for these indirect cost 
requirements.

                             2. Depreciation

    a. The expenses under this heading are the portion of the costs of 
the institution's buildings, capital improvements to land and buildings, 
and equipment which are computed in accordance with Sec. 75.436.
    b. In the absence of the alternatives provided for in Section A.2.d, 
the expenses included in this category must be allocated in the 
following manner:
    (1) Depreciation on buildings used exclusively in the conduct of a 
single function, and on capital improvements and equipment used in such 
buildings, must be assigned to that function.
    (2) Depreciation on buildings used for more than one function, and 
on capital improvements and equipment used in such buildings, must be 
allocated to the individual functions performed in each building on the 
basis of usable square feet of space, excluding common areas such as 
hallways, stairwells, and rest rooms.
    (3) Depreciation on buildings, capital improvements and equipment 
related to space (e.g., individual rooms, laboratories) used jointly by 
more than one function (as determined by the users of the space) must be 
treated as follows. The cost of each jointly used unit of space must be 
allocated to benefitting functions on the basis of:
    (a) The employee full-time equivalents (FTEs) or salaries and wages 
of those individual functions benefitting from the use of that space; or
    (b) Institution-wide employee FTEs or salaries and wages applicable 
to the benefitting major functions (see Section A.1) of the institution.
    (4) Depreciation on certain capital improvements to land, such as 
paved parking

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areas, fences, sidewalks, and the like, not included in the cost of 
buildings, must be allocated to user categories of students and 
employees on a full-time equivalent basis. The amount allocated to the 
student category must be assigned to the instruction function of the 
institution. The amount allocated to the employee category must be 
further allocated to the major functions of the institution in 
proportion to the salaries and wages of all employees applicable to 
those functions.

                               3. Interest

    Interest on debt associated with certain buildings, equipment and 
capital improvements, as defined in Sec. 75.449, must be classified as 
an expenditure under the category Facilities. These costs must be 
allocated in the same manner as the depreciation on the buildings, 
equipment and capital improvements to which the interest relates.

                  4. Operation and Maintenance Expenses

    a. The expenses under this heading are those that have been incurred 
for the administration, supervision, operation, maintenance, 
preservation, and protection of the institution's physical plant. They 
include expenses normally incurred for such items as janitorial and 
utility services; repairs and ordinary or normal alterations of 
buildings, furniture and equipment; care of grounds; maintenance and 
operation of buildings and other plant facilities; security; earthquake 
and disaster preparedness; environmental safety; hazardous waste 
disposal; property, liability and all other insurance relating to 
property; space and capital leasing; facility planning and management; 
and central receiving. The operation and maintenance expense category 
should also include its allocable share of fringe benefit costs, 
depreciation, and interest costs.
    b. In the absence of the alternatives provided for in Section A.2.d, 
the expenses included in this category must be allocated in the same 
manner as described in subsection 2.b for depreciation.
    c. A utility cost adjustment of up to 1.3 percentage points may be 
included in the negotiated indirect cost rate of the IHE for organized 
research, per the computation alternatives in paragraphs (c)(1) and (2) 
of this section:
    (1) Where space is devoted to a single function and metering allows 
unambiguous measurement of usage related to that space, costs must be 
assigned to the function located in that space.
    (2) Where space is allocated to different functions and metering 
does not allow unambiguous measurement of usage by function, costs must 
be allocated as follows:
    (i) Utilities costs should be apportioned to functions in the same 
manner as depreciation, based on the calculated difference between the 
site or building actual square footage for monitored research laboratory 
space (site, building, floor, or room), and a separate calculation 
prepared by the IHE using the ``effective square footage'' described in 
subsection (c)(2)(ii) of this section.
    (ii) ``Effective square footage'' allocated to research laboratory 
space must be calculated as the actual square footage times the relative 
energy utilization index (REUI) posted on the OMB Web site at the time 
of a rate determination.
    A. This index is the ratio of a laboratory energy use index (lab 
EUI) to the corresponding index for overall average college or 
university space (college EUI).
    B. In July 2012, values for these two indices (taken respectively 
from the Lawrence Berkeley Laboratory ``Labs for the 21st Century'' 
benchmarking tool http://labs21benchmarking.lbl.gov/CompareData.php and 
the US Department of Energy ``Buildings Energy Databook'' and http://
buildingsdatabook.eren.doe.gov/CBECS.aspx) were 310 kBtu/sq ft-yr. and 
155 kBtu/sq ft-yr., so that the adjustment ratio is 2.0 by this 
methodology. To retain currency, OMB will adjust the EUI numbers from 
time to time (no more often than annually nor less often than every 5 
years), using reliable and publicly disclosed data. Current values of 
both the EUIs and the REUI will be posted on the OMB Web site.

             5. General Administration and General Expenses

    a. The expenses under this heading are those that have been incurred 
for the general executive and administrative offices of educational 
institutions and other expenses of a general character which do not 
relate solely to any major function of the institution; i.e., solely to 
(1) instruction, (2) organized research, (3) other sponsored activities, 
or (4) other institutional activities. The general administration and 
general expense category should also include its allocable share of 
fringe benefit costs, operation and maintenance expense, depreciation, 
and interest costs. Examples of general administration and general 
expenses include: Those expenses incurred by administrative offices that 
serve the entire university system of which the institution is a part; 
central offices of the institution such as the President's or 
Chancellor's office, the offices for institution-wide financial 
management, business services, budget and planning, personnel 
management, and safety and risk management; the office of the General 
Counsel; and the operations of the central administrative management 
information systems. General administration and general expenses must 
not include expenses incurred within non-

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university-wide deans' offices, academic departments, organized research 
units, or similar organizational units. (See subsection 6.)
    b. In the absence of the alternatives provided for in Section A.2.d, 
the expenses included in this category must be grouped first according 
to common major functions of the institution to which they render 
services or provide benefits. The aggregate expenses of each group must 
then be allocated to serviced or benefitted functions on the modified 
total cost basis. Modified total costs consist of the same elements as 
those in Section C.2. When an activity included in this indirect (F&A) 
cost category provides a service or product to another institution or 
organization, an appropriate adjustment must be made to either the 
expenses or the basis of allocation or both, to assure a proper 
allocation of costs.

                 6. Departmental Administration Expenses

    a. The expenses under this heading are those that have been incurred 
for administrative and supporting services that benefit common or joint 
departmental activities or objectives in academic deans' offices, 
academic departments and divisions, and organized research units. 
Organized research units include such units as institutes, study 
centers, and research centers. Departmental administration expenses are 
subject to the following limitations.
    (1) Academic deans' offices. Salaries and operating expenses are 
limited to those attributable to administrative functions.
    (2) Academic departments:
    (a) Salaries and fringe benefits attributable to the administrative 
work (including bid and proposal preparation) of faculty (including 
department heads) and other professional personnel conducting research 
and/or instruction, must be allowed at a rate of 3.6 percent of modified 
total direct costs. This category does not include professional business 
or professional administrative officers. This allowance must be added to 
the computation of the indirect (F&A) cost rate for major functions in 
Section C; the expenses covered by the allowance must be excluded from 
the departmental administration cost pool. No documentation is required 
to support this allowance.
    (b) Other administrative and supporting expenses incurred within 
academic departments are allowable provided they are treated 
consistently in like circumstances. This would include expenses such as 
the salaries of secretarial and clerical staffs, the salaries of 
administrative officers and assistants, travel, office supplies, 
stockrooms, and the like.
    (3) Other fringe benefit costs applicable to the salaries and wages 
included in subsections (1) and (2) are allowable, as well as an 
appropriate share of general administration and general expenses, 
operation and maintenance expenses, and depreciation.
    (4) Federal agencies may authorize reimbursement of additional costs 
for department heads and faculty only in exceptional cases where an 
institution can demonstrate undue hardship or detriment to project 
performance.
    b. The following guidelines apply to the determination of 
departmental administrative costs as direct or indirect (F&A) costs.
    (1) In developing the departmental administration cost pool, special 
care should be exercised to ensure that costs incurred for the same 
purpose in like circumstances are treated consistently as either direct 
or indirect (F&A) costs. For example, salaries of technical staff, 
laboratory supplies (e.g., chemicals), telephone toll charges, animals, 
animal care costs, computer costs, travel costs, and specialized shop 
costs must be treated as direct costs wherever identifiable to a 
particular cost objective. Direct charging of these costs may be 
accomplished through specific identification of individual costs to 
benefitting cost objectives, or through recharge centers or specialized 
service facilities, as appropriate under the circumstances. See 
Sec. Sec. 75.413(c) and 75.468.
    (2) Items such as office supplies, postage, local telephone costs, 
and memberships must normally be treated as indirect (F&A) costs.
    c. In the absence of the alternatives provided for in Section A.2.d, 
the expenses included in this category must be allocated as follows:
    (1) The administrative expenses of the dean's office of each college 
and school must be allocated to the academic departments within that 
college or school on the modified total cost basis.
    (2) The administrative expenses of each academic department, and the 
department's share of the expenses allocated in subsection (1) must be 
allocated to the appropriate functions of the department on the modified 
total cost basis.

                  7. Sponsored Projects Administration

    a. The expenses under this heading are limited to those incurred by 
a separate organization(s) established primarily to administer sponsored 
projects, including such functions as grant and contract administration 
(Federal and non-Federal), special security, purchasing, personnel, 
administration, and editing and publishing of research and other 
reports. They include the salaries and expenses of the head of such 
organization, assistants, and immediate staff, together with the 
salaries and expenses of personnel engaged in supporting activities 
maintained by the organization, such as stock rooms, print shops, and 
the like. This category also includes an allocable share of fringe 
benefit costs, general administration and general expenses,

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operation and maintenance expenses, and depreciation. Appropriate 
adjustments will be made for services provided to other functions or 
organizations.
    b. In the absence of the alternatives provided for in Section A.2.d, 
the expenses included in this category must be allocated to the major 
functions of the institution under which the sponsored projects are 
conducted on the basis of the modified total cost of sponsored projects.
    c. An appropriate adjustment must be made to eliminate any duplicate 
charges to Federal awards when this category includes similar or 
identical activities as those included in the general administration and 
general expense category or other indirect (F&A) cost items, such as 
accounting, procurement, or personnel administration.

                           8. Library Expenses

    a. The expenses under this heading are those that have been incurred 
for the operation of the library, including the cost of books and 
library materials purchased for the library, less any items of library 
income that qualify as applicable credits under Sec. 75.406. The 
library expense category should also include the fringe benefits 
applicable to the salaries and wages included therein, an appropriate 
share of general administration and general expense, operation and 
maintenance expense, and depreciation. Costs incurred in the purchases 
of rare books (museum-type books) with no value to Federal awards should 
not be allocated to them.
    b. In the absence of the alternatives provided for in Section A.2.d, 
the expenses included in this category must be allocated first on the 
basis of primary categories of users, including students, professional 
employees, and other users.
    (1) The student category must consist of full-time equivalent 
students enrolled at the institution, regardless of whether they earn 
credits toward a degree or certificate.
    (2) The professional employee category must consist of all faculty 
members and other professional employees of the institution, on a full-
time equivalent basis. This category may also include post-doctorate 
fellows and graduate students.
    (3) The other users category must consist of a reasonable factor as 
determined by institutional records to account for all other users of 
library facilities.
    c. Amount allocated in paragraph b of this section must be assigned 
further as follows:
    (1) The amount in the student category must be assigned to the 
instruction function of the institution.
    (2) The amount in the professional employee category must be 
assigned to the major functions of the institution in proportion to the 
salaries and wages of all faculty members and other professional 
employees applicable to those functions.
    (3) The amount in the other users category must be assigned to the 
other institutional activities function of the institution.

                 9. Student Administration and Services

    a. The expenses under this heading are those that have been incurred 
for the administration of student affairs and for services to students, 
including expenses of such activities as deans of students, admissions, 
registrar, counseling and placement services, student advisers, student 
health and infirmary services, catalogs, and commencements and 
convocations. The salaries of members of the academic staff whose 
responsibilities to the institution require administrative work that 
benefits sponsored projects may also be included to the extent that the 
portion charged to student administration is determined in accordance 
with Subpart E of this part. This expense category also includes the 
fringe benefit costs applicable to the salaries and wages included 
therein, an appropriate share of general administration and general 
expenses, operation and maintenance, interest expense, and depreciation.
    b. In the absence of the alternatives provided for in Section A.2.d, 
the expenses in this category must be allocated to the instruction 
function, and subsequently to Federal awards in that function.

  10. Offset for Indirect (F&A) Expenses Otherwise Provided for by the 
                           Federal Government

    a. The items to be accumulated under this heading are the 
reimbursements and other payments from the Federal Government which are 
made to the institution to support solely, specifically, and directly, 
in whole or in part, any of the administrative or service activities 
described in subsections 2 through 9.
    b. The items in this group must be treated as a credit to the 
affected individual indirect (F&A) cost category before that category is 
allocated to benefitting functions.

  C. Determination and Application of Indirect (F&A) Cost Rate or Rates

                      1. Indirect (F&A) Cost Pools

    a. (1) Subject to subsection b, the separate categories of indirect 
(F&A) costs allocated to each major function of the institution as 
prescribed in Section B of this paragraph C.1-, must be aggregated and 
treated as a common pool for that function. The amount in each pool must 
be divided by the distribution base described in subsection 2 to arrive 
at a single indirect (F&A) cost rate for each function.
    (2) The rate for each function is used to distribute indirect (F&A) 
costs to individual Federal awards of that function. Since a common pool 
is established for each major

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function of the institution, a separate indirect (F&A) cost rate would 
be established for each of the major functions described in Section A.1 
under which Federal awards are carried out.
    (3) Each institution's indirect (F&A) cost rate process must be 
appropriately designed to ensure that Federal sponsors do not in any way 
subsidize the indirect (F&A) costs of other sponsors, specifically 
activities sponsored by industry and foreign governments. Accordingly, 
each allocation method used to identify and allocate the indirect (F&A) 
cost pools, as described in Sections A.2, and B.2 through B.9, must 
contain the full amount of the institution's modified total costs or 
other appropriate units of measurement used to make the computations. In 
addition, the final rate distribution base (as defined in subsection 2) 
for each major function (organized research, instruction, etc., as 
described in Section A.1) must contain all the programs or activities 
which utilize the indirect (F&A) costs allocated to that major function. 
At the time an indirect (F&A) cost proposal is submitted to a cognizant 
agency for indirect costs, each institution must describe the process it 
uses to ensure that Federal funds are not used to subsidize industry and 
foreign government funded programs.
    b. In some instances a single rate basis for use across the board on 
all work within a major function at an institution may not be 
appropriate. A single rate for research, for example, might not take 
into account those different environmental factors and other conditions 
which may affect substantially the indirect (F&A) costs applicable to a 
particular segment of research at the institution. A particular segment 
of research may be that performed under a single sponsored agreement or 
it may consist of research under a group of Federal awards 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. If a particular segment of a sponsored agreement is performed 
within an environment which appears to generate a significantly 
different level of indirect (F&A) costs, provisions should be made for a 
separate indirect (F&A) cost pool applicable to such work. The separate 
indirect (F&A) cost pool should be developed during the regular course 
of the rate determination process and the separate indirect (F&A) cost 
rate resulting therefrom should be utilized; provided it is determined 
that (1) such indirect (F&A) cost rate differs significantly from that 
which would have been obtained under subsection a, and (2) the volume of 
work to which such rate would apply is material in relation to other 
Federal awards at the institution.

                        2. The Distribution Basis

    Indirect (F&A) costs must be distributed to applicable Federal 
awards and other benefitting activities within each major function (see 
section A.1, Major functions of an institution) on the basis of modified 
total direct costs (MTDC), consisting of all salaries and wages, fringe 
benefits, materials and supplies, services, travel, and up to the first 
$25,000 of each subaward (regardless of the period covered by the 
subaward). MTDC is defined in Sec. 75.2. For this purpose, an indirect 
(F&A) cost rate should be determined for each of the separate indirect 
(F&A) cost pools developed pursuant to subsection 1. The rate in each 
case should be stated as the percentage which the amount of the 
particular indirect (F&A) cost pool is of the modified total direct 
costs identified with such pool.

             3. Negotiated Lump Sum for Indirect (F&A) Costs

    A negotiated fixed amount in lieu of indirect (F&A) costs may be 
appropriate for self-contained, off-campus, or primarily subcontracted 
activities where the benefits derived from an institution's indirect 
(F&A) services cannot be readily determined. Such negotiated indirect 
(F&A) costs will be treated as an offset before allocation to 
instruction, organized research, other sponsored activities, and other 
institutional activities. The base on which such remaining expenses are 
allocated should be appropriately adjusted.

             4. Predetermined Rates for Indirect (F&A) Costs

    Public Law 87-638 (76 Stat. 437) as amended (41 U.S.C. 4708) 
authorizes the use of predetermined rates in determining the ``indirect 
costs'' (indirect (F&A) costs) applicable under research agreements with 
educational institutions. The stated objectives of the law are to 
simplify the administration of cost-type research and development 
contracts (including grants) with educational institutions, to 
facilitate the preparation of their budgets, and to permit more 
expeditious closeout of such contracts when the work is completed. In 
view of the potential advantages offered by this procedure, negotiation 
of predetermined rates for indirect (F&A) costs for a period of two to 
four years should be the norm in those situations where the cost 
experience and other pertinent facts available are deemed sufficient to 
enable the parties involved to reach an informed judgment as to the 
probable level of indirect (F&A) costs during the ensuing accounting 
periods.

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         5. Negotiated Fixed Rates and Carry-Forward Provisions

    When a fixed rate is negotiated in advance for a fiscal year (or 
other time period), the over- or under-recovery for that year may be 
included as an adjustment to the indirect (F&A) cost for the next rate 
negotiation. When the rate is negotiated before the carry-forward 
adjustment is determined, the carry-forward amount may be applied to the 
next subsequent rate negotiation. When such adjustments are to be made, 
each fixed rate negotiated in advance for a given period will be 
computed by applying the expected indirect (F&A) costs allocable to 
Federal awards for the forecast period plus or minus the carry-forward 
adjustment (over- or under-recovery) from the prior period, to the 
forecast distribution base. Unrecovered amounts under lump-sum 
agreements or cost-sharing provisions of prior years must not be carried 
forward for consideration in the new rate negotiation. There must, 
however, be an advance understanding in each case between the 
institution and the cognizant agency for indirect costs as to whether 
these differences will be considered in the rate negotiation rather than 
making the determination after the differences are known. Further, 
institutions electing to use this carry-forward provision may not 
subsequently change without prior approval of the cognizant agency for 
indirect costs. In the event that an institution returns to a post-
determined rate, any over- or under-recovery during the period in which 
negotiated fixed rates and carry-forward provisions were followed will 
be included in the subsequent post-determined rates. Where multiple 
rates are used, the same procedure will be applicable for determining 
each rate.

         6. Provisional and Final Rates for Indirect (F&A) Costs

    Where the cognizant agency for indirect costs determines that cost 
experience and other pertinent facts do not justify the use of 
predetermined rates, or a fixed rate with a carry-forward, or if the 
parties cannot agree on an equitable rate, a provisional rate must be 
established. To prevent substantial overpayment or underpayment, the 
provisional rate may be adjusted by the cognizant agency for indirect 
costs during the institution's fiscal year. Predetermined or fixed rates 
may replace provisional rates at any time prior to the close of the 
institution's fiscal year. If a provisional rate is not replaced by a 
predetermined or fixed rate prior to the end of the institution's fiscal 
year, a final rate will be established and upward or downward 
adjustments will be made based on the actual allowable costs incurred 
for the period involved.

         7. Fixed Rates for the Life of the Sponsored Agreement

    a. Except as provided in paragraph (c)(1) of Sec. 75.414 Federal 
agencies must use the negotiated rates for indirect (F&A) costs in 
effect at the time of the initial award throughout the life of the 
Federal award. Award levels for Federal awards may not be adjusted in 
future years as a result of changes in negotiated rates. ``Negotiated 
rates'' per the rate agreement include final, fixed, and predetermined 
rates and exclude provisional rates. ``Life'' for the purpose of this 
subsection means each competitive segment of a project. A competitive 
segment is a period of years approved by the Federal awarding agency at 
the time of the Federal award. If negotiated rate agreements do not 
extend through the life of the Federal award at the time of the initial 
award, then the negotiated rate for the last year of the Federal award 
must be extended through the end of the life of the Federal award.
    b. Except as provided in Sec. 75.414, when an educational 
institution does not have a negotiated rate with the Federal Government 
at the time of an award (because the educational institution is a new 
recipient or the parties cannot reach agreement on a rate), the 
provisional rate used at the time of the award must be adjusted once a 
rate is negotiated and approved by the cognizant agency for indirect 
costs.

         8. Limitation on Reimbursement of Administrative Costs

    a. Notwithstanding the provisions of subsection C.1.a, the 
administrative costs charged to Federal awards awarded or amended 
(including continuation and renewal awards) with effective dates 
beginning on or after the start of the institution's first fiscal year 
which begins on or after October 1, 1991, must be limited to 26% of 
modified total direct costs (as defined in subsection 2) for the total 
of General Administration and General Expenses, Departmental 
Administration, Sponsored Projects Administration, and Student 
Administration and Services (including their allocable share of 
depreciation, interest costs, operation and maintenance expenses, and 
fringe benefits costs, as provided by Section B, Identification and 
assignment of indirect (F&A) costs, and all other types of expenditures 
not listed specifically under one of the subcategories of facilities in 
Section B.
    b. Institutions should not change their accounting or cost 
allocation methods if the effect is to change the charging of a 
particular type of cost from F&A to direct, or to reclassify costs, or 
increase allocations from the administrative pools identified in 
paragraph B.1 of this Appendix to the other F&A cost pools or fringe 
benefits. Cognizant agencies for indirect cost are authorized to allow

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changes where an institution's charging practices are at variance with 
acceptable practices followed by a substantial majority of other 
institutions.

             9. Alternative Method for Administrative Costs

    a. Notwithstanding the provisions of subsection C.1.a, an 
institution may elect to claim a fixed allowance for the 
``Administration'' portion of indirect (F&A) costs. The allowance could 
be either 24% of modified total direct costs or a percentage equal to 
95% of the most recently negotiated fixed or predetermined rate for the 
cost pools included under ``Administration'' as defined in Section B.1, 
whichever is less. Under this alternative, no cost proposal need be 
prepared for the ``Administration'' portion of the indirect (F&A) cost 
rate nor is further identification or documentation of these costs 
required (see subsection c). Where a negotiated indirect (F&A) cost 
agreement includes this alternative, an institution must make no further 
charges for the expenditure categories described in Section B.5, Section 
B.6, Section B.7, and Section B.9.
    b. In negotiations of rates for subsequent periods, an institution 
that has elected the option of subsection a may continue to exercise it 
at the same rate without further identification or documentation of 
costs.
    c. If an institution elects to accept a threshold rate as defined in 
subsection a of this section, it is not required to perform a detailed 
analysis of its administrative costs. However, in order to compute the 
facilities components of its indirect (F&A) cost rate, the institution 
must reconcile its indirect (F&A) cost proposal to its financial 
statements and make appropriate adjustments and reclassifications to 
identify the costs of each major function as defined in Section A.1, as 
well as to identify and allocate the facilities components. 
Administrative costs that are not identified as such by the 
institution's accounting system (such as those incurred in academic 
departments) will be classified as instructional costs for purposes of 
reconciling indirect (F&A) cost proposals to financial statements and 
allocating facilities costs.

                     10. Individual Rate Components

    In order to provide mutually agreed-upon information for management 
purposes, each indirect (F&A) cost rate negotiation or determination 
must include development of a rate for each indirect (F&A) cost pool as 
well as the overall indirect (F&A) cost rate.

           11. Negotiation and Approval of Indirect (F&A) Rate

    a. Cognizant agency for indirect costs is defined in Sec. 75.2.
    (1) Cost negotiation cognizance is assigned to the Department of 
Health and Human Services (HHS) or the Department of Defense's Office of 
Naval Research (DOD), normally depending on which of the two agencies 
(HHS or DOD) provides more funds to the educational institution for the 
most recent three years. Information on funding must be derived from 
relevant data gathered by the National Science Foundation. In cases 
where neither HHS nor DOD provides Federal funding to an educational 
institution, the cognizant agency for indirect costs assignment must 
default to HHS. Notwithstanding the method for cognizance determination 
described in this section, other arrangements for cognizance of a 
particular educational institution may also be based in part on the 
types of research performed at the educational institution and must be 
decided based on mutual agreement between HHS and DOD. Where a non-
Federal entity only receives funds as a subrecipient, see the 
requirements of Sec. 75.352.
    (2) After cognizance is established, it must continue for a five-
year period.
    b. Acceptance of rates. See Sec. 75.414.
    c. Correcting deficiencies. The cognizant agency for indirect costs 
must negotiate changes needed to correct systems deficiencies relating 
to accountability for Federal awards. Cognizant agencies for indirect 
costs must address the concerns of other affected agencies, as 
appropriate, and must negotiate special rates for Federal agencies that 
are required to limit recovery of indirect costs by statute.
    d. Resolving questioned costs. The cognizant agency for indirect 
costs must conduct any necessary negotiations with an educational 
institution regarding amounts questioned by audit that are due the 
Federal Government related to costs covered by a negotiated agreement.
    e. Reimbursement. Reimbursement to cognizant agencies for indirect 
costs for work performed under this Part may be made by reimbursement 
billing under the Economy Act, 31 U.S.C. 1535.
    f. Procedure for establishing facilities and administrative rates 
must be established by one of the following methods:
    (1) Formal negotiation. The cognizant agency for indirect costs is 
responsible for negotiating and approving rates for an educational 
institution on behalf of all Federal agencies. Federal awarding agencies 
that do not have cognizance for indirect costs must notify the cognizant 
agency for indirect costs of specific concerns (i.e., a need to 
establish special cost rates) which could affect the negotiation 
process. The cognizant agency for indirect costs must address the 
concerns of all interested agencies, as appropriate. A pre-negotiation 
conference may be scheduled among all interested agencies, if necessary. 
The cognizant agency for indirect

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costs must then arrange a negotiation conference with the educational 
institution.
    (2) Other than formal negotiation. The cognizant agency for indirect 
costs and educational institution may reach an agreement on rates 
without a formal negotiation conference; for example, through 
correspondence or use of the simplified method described in this section 
D of this Appendix.
    g. Formalizing determinations and agreements. The cognizant agency 
for indirect costs must formalize all determinations or agreements 
reached with an educational institution and provide copies to other 
agencies having an interest. Determinations should include a description 
of any adjustments, the actual amount, both dollar and percentage 
adjusted, and the reason for making adjustments.
    h. Disputes and disagreements. Where the cognizant agency for 
indirect costs is unable to reach agreement with an educational 
institution with regard to rates or audit resolution, the appeal system 
of the cognizant agency for indirect costs must be followed for 
resolution of the disagreement.

                   12. Standard Format for Submission

    For facilities and administrative (indirect (F&A)) rate proposals, 
educational institutions must use the standard format, shown in section 
E of this appendix, to submit their indirect (F&A) rate proposal to the 
cognizant agency for indirect costs. The cognizant agency for indirect 
costs may, on an institution-by-institution basis, grant exceptions from 
all or portions of Part II of the standard format requirement. This 
requirement does not apply to educational institutions that use the 
simplified method for calculating indirect (F&A) rates, as described in 
Section D of this Appendix.
    As provided in section C.10, each F&A cost rate negotiation or 
determination must include development of a rate for each F&A cost pool 
as well as the overall F&A rate.

               D. Simplified Method for Small Institutions

                               1. General

    a. Where the total direct cost of work covered by this part 75 at an 
institution does not exceed $10 million in a fiscal year, the simplified 
procedure described in subsections 2 or 3 may be used in determining 
allowable indirect (F&A) costs. Under this simplified procedure, the 
institution's most recent annual financial report and immediately 
available supporting information must be utilized as a basis for 
determining the indirect (F&A) cost rate applicable to all Federal 
awards. The institution may use either the salaries and wages (see 
subsection 2) or modified total direct costs (see subsection 3) as the 
distribution basis.
    b. The simplified procedure should not be used where it produces 
results which appear inequitable to the Federal Government or the 
institution. In any such case, indirect (F&A) costs should be determined 
through use of the regular procedure.

            2. Simplified Procedure--Salaries and Wages Base

    a. Establish the total amount of salaries and wages paid to all 
employees of the institution.
    b. Establish an indirect (F&A) cost pool consisting of the 
expenditures (exclusive of capital items and other costs specifically 
identified as unallowable) which customarily are classified under the 
following titles or their equivalents:
    (1) General administration and general expenses (exclusive of costs 
of student administration and services, student activities, student aid, 
and scholarships).
    (2) Operation and maintenance of physical plant and depreciation 
(after appropriate adjustment for costs applicable to other 
institutional activities).
    (3) Library.
    (4) Department administration expenses, which will be computed as 20 
percent of the salaries and expenses of deans and heads of departments.
    In those cases where expenditures classified under subsection (1) 
have previously been allocated to other institutional activities, they 
may be included in the indirect (F&A) cost pool. The total amount of 
salaries and wages included in the indirect (F&A) cost pool must be 
separately identified.
    c. Establish a salary and wage distribution base, determined by 
deducting from the total of salaries and wages as established in 
subsection a. from the amount of salaries and wages included under 
subsection b.
    d. Establish the indirect (F&A) cost rate, determined by dividing 
the amount in the indirect (F&A) cost pool, subsection b, by the amount 
of the distribution base, subsection c.
    e. Apply the indirect (F&A) cost rate to direct salaries and wages 
for individual agreements to determine the amount of indirect (F&A) 
costs allocable to such agreements.

        3. Simplified Procedure--Modified Total Direct Cost Base

    a. Establish the total costs incurred by the institution for the 
base period.
    b. Establish an indirect (F&A) cost pool consisting of the 
expenditures (exclusive of capital items and other costs specifically 
identified as unallowable) which customarily are classified under the 
following titles or their equivalents:
    (1) General administration and general expenses (exclusive of costs 
of student administration and services, student activities, student aid, 
and scholarships).

[[Page 352]]

    (2) Operation and maintenance of physical plant and depreciation 
(after appropriate adjustment for costs applicable to other 
institutional activities).
    (3) Library.
    (4) Department administration expenses, which will be computed as 20 
percent of the salaries and expenses of deans and heads of departments. 
In those cases where expenditures classified under subsection (1) have 
previously been allocated to other institutional activities, they may be 
included in the indirect (F&A) cost pool. The modified total direct 
costs amount included in the indirect (F&A) cost pool must be separately 
identified.
    c. Establish a modified total direct cost distribution base, as 
defined in Section C.2, that consists of all institution's direct 
functions.
    d. Establish the indirect (F&A) cost rate, determined by dividing 
the amount in the indirect (F&A) cost pool, subsection b, by the amount 
of the distribution base, subsection c.
    e. Apply the indirect (F&A) cost rate to the modified total direct 
costs for individual agreements to determine the amount of indirect 
(F&A) costs allocable to such agreements.

                      E. Documentation Requirements

    The standard format for documentation requirements for indirect 
(indirect (F&A)) rate proposals for claiming costs under the regular 
method is available on the OMB Web site here: http://www.whitehouse.gov/
omb/grants_forms.

                            F. Certification

                       1. Certification of Charges

    To assure that expenditures for Federal awards are proper and in 
accordance with the agreement documents and approved project budgets, 
the annual and/or final fiscal reports or vouchers requesting payment 
under the agreements will include a certification, signed by an 
authorized official of the university, which reads ``By signing this 
report, I certify to the best of my knowledge and belief that the report 
is true, complete, and accurate, and the expenditures, disbursements and 
cash receipts are for the purposes and intent set forth in the award 
documents. I am aware that any false, fictitious, or fraudulent 
information, or the omission of any material fact, may subject me to 
criminal, civil or administrative penalties for fraud, false statements, 
false claims or otherwise. (U.S. Code, Title 18, Section 1001 and Title 
31, Sections 3729-3733 and 3801-3812)''.

                2. Certification of Indirect (F&A) Costs

    a. Policy. Cognizant agencies must not accept a proposed indirect 
cost rate unless such costs have been certified by the educational 
institution using the Certificate of indirect (F&A) Costs set forth in 
subsection F.2.c
    b. The certificate must be signed on behalf of the institution by 
the chief financial officer or an individual designated by an individual 
at a level no lower than vice president or chief financial officer.
    An indirect (F&A) cost rate is not binding upon the Federal 
Government if the most recent required proposal from the institution has 
not been certified. Where it is necessary to establish indirect (F&A) 
cost rates, and the institution has not submitted a certified proposal 
for establishing such rates in accordance with the requirements of this 
section, the Federal Government must unilaterally establish such rates. 
Such rates may be based upon audited historical data or such other data 
that have been furnished to the cognizant agency for indirect costs and 
for which it can be demonstrated that all unallowable costs have been 
excluded. When indirect (F&A) cost rates are unilaterally established by 
the Federal Government because of failure of the institution to submit a 
certified proposal for establishing such rates in accordance with this 
section, the rates established will be set at a level low enough to 
ensure that potentially unallowable costs will not be reimbursed.
    c. Certificate. The certificate required by this section must be in 
the following form:

                   Certificate of Indirect (F&A) Costs

    This is to certify that to the best of my knowledge and belief:
    (1) I have reviewed the indirect (F&A) cost proposal submitted 
herewith;
    (2) All costs included in this proposal [identify date] to establish 
billing or final indirect (F&A) costs rate for [identify period covered 
by rate] are allowable in accordance with the requirements of the 
Federal agreement(s) to which they apply and with the cost principles 
applicable to those agreements.
    (3) This proposal does not include any costs which are unallowable 
under applicable cost principles such as (without limitation): public 
relations costs, contributions and donations, entertainment costs, fines 
and penalties, lobbying costs, and defense of fraud proceedings; and
    (4) All costs included in this proposal are properly allocable to 
Federal agreements on the basis of a beneficial or causal relationship 
between the expenses incurred and the agreements to which they are 
allocated in accordance with applicable requirements.
    I declare that the foregoing is true and correct.
    Institution of Higher Education:
    Signature:
    Name of Official:
    Title:

[[Page 353]]

    Date of Execution:



  Sec. Appendix IV to Part 75--Indirect (F&A) Costs Identification and 
     Assignment, and Rate Determination for Nonprofit Organizations

                               A. General

    1. Indirect costs are those that have been incurred for common or 
joint objectives and cannot be readily identified with a particular 
final cost objective. Direct cost of minor amounts may be treated as 
indirect costs under the conditions described in Sec. 75.413(d). After 
direct costs have been determined and assigned directly to awards or 
other work as appropriate, indirect costs are those remaining to be 
allocated to benefitting cost objectives. A cost may not be allocated to 
a Federal award as an indirect cost if any other cost incurred for the 
same purpose, in like circumstances, has been assigned to a Federal 
award as a direct cost.
    ``Major nonprofit organizations'' are defined in Sec. 75.414. See 
indirect cost rate reporting requirements in sections B.2.e and B.3.g of 
this Appendix.

B. Allocation of Indirect Costs and Determination of Indirect Cost Rates

                               1. General

    a. If a nonprofit organization has only one major function, or where 
all its major functions benefit from its indirect costs to approximately 
the same degree, the allocation of indirect costs and the computation of 
an indirect cost rate may be accomplished through simplified allocation 
procedures, as described in section B.2 of this Appendix.
    b. If an organization has several major functions which benefit from 
its indirect costs in varying degrees, allocation of indirect costs may 
require the accumulation of such costs into separate cost groupings 
which then are allocated individually to benefitting functions by means 
of a base which best measures the relative degree of benefit. The 
indirect costs allocated to each function are then distributed to 
individual Federal awards and other activities included in that function 
by means of an indirect cost rate(s).
    c. The determination of what constitutes an organization's major 
functions will depend on its purpose in being; the types of services it 
renders to the public, its clients, and its members; and the amount of 
effort it devotes to such activities as fundraising, public information 
and membership activities.
    d. Specific methods for allocating indirect costs and computing 
indirect cost rates along with the conditions under which each method 
should be used are described in section B.2 through B.5 of this 
Appendix.
    e. The base period for the allocation of indirect costs is the 
period in which such costs are incurred and accumulated for allocation 
to work performed in that period. The base period normally should 
coincide with the organization's fiscal year but, in any event, must be 
so selected as to avoid inequities in the allocation of the costs.

                     2. Simplified Allocation Method

    a. Where an organization's major functions benefit from its indirect 
costs to approximately the same degree, the allocation of indirect costs 
may be accomplished by (i) separating the organization's total costs for 
the base period as either direct or indirect, and (ii) dividing the 
total allowable indirect costs (net of applicable credits) by an 
equitable distribution base. The result of this process is an indirect 
cost rate which is used to distribute indirect costs to individual 
Federal awards. The rate should be expressed as the percentage which the 
total amount of allowable indirect costs bears to the base selected. 
This method should also be used where an organization has only one major 
function encompassing a number of individual projects or activities, and 
may be used where the level of Federal awards to an organization is 
relatively small.
    b. Both the direct costs and the indirect costs must exclude capital 
expenditures and unallowable costs. However, unallowable costs which 
represent activities must be included in the direct costs under the 
conditions described in Sec. 75.413(e).
    c. The distribution base may be total direct costs (excluding 
capital expenditures and other distorting items, such contracts or 
subawards for $25,000 or more), direct salaries and wages, or other base 
which results in an equitable distribution. The distribution base must 
exclude participant support costs as defined in Sec. 75.2.
    d. Except where a special rate(s) is required in accordance with 
section B.5 of this Appendix, the indirect cost rate developed under the 
above principles is applicable to all Federal awards of the 
organization. If a special rate(s) is required, appropriate 
modifications must be made in order to develop the special rate(s).
    e. For an organization that receives more than $10 million in 
Federal funding of direct costs in a fiscal year, a breakout of the 
indirect cost component into two broad categories, Facilities and 
Administration as defined in section A.3 of this Appendix, is required. 
The rate in each case must be stated as the percentage which the amount 
of the particular indirect cost category (i.e., Facilities or 
Administration) is of the distribution base identified with that 
category.

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                   3. Multiple Allocation Base Method

    a. General. Where an organization's indirect costs benefit its major 
functions in varying degrees, indirect costs must be accumulated into 
separate cost groupings, as described in subparagraph b. Each grouping 
must then be allocated individually to benefitting functions by means of 
a base which best measures the relative benefits. The default allocation 
bases by cost pool are described in section B.3.c of this Appendix.
    b. Identification of indirect costs. Cost groupings must be 
established so as to permit the allocation of each grouping on the basis 
of benefits provided to the major functions. Each grouping must 
constitute a pool of expenses that are of like character in terms of 
functions they benefit and in terms of the allocation base which best 
measures the relative benefits provided to each function. The groupings 
are classified within the two broad categories: ``Facilities'' and 
``Administration,'' as described in section A.3 of this Appendix. The 
indirect cost pools are defined as follows:
    (1) Depreciation. The expenses under this heading are the portion of 
the costs of the organization's buildings, capital improvements to land 
and buildings, and equipment which are computed in accordance with Sec. 
75.436 .
    (2) Interest. Interest on debt associated with certain buildings, 
equipment and capital improvements are computed in accordance with Sec. 
75.449.
    (3) Operation and maintenance expenses. The expenses under this 
heading are those that have been incurred for the administration, 
operation, maintenance, preservation, and protection of the 
organization's physical plant. They include expenses normally incurred 
for such items as: janitorial and utility services; repairs and ordinary 
or normal alterations of buildings, furniture and equipment; care of 
grounds; maintenance and operation of buildings and other plant 
facilities; security; earthquake and disaster preparedness; 
environmental safety; hazardous waste disposal; property, liability and 
other insurance relating to property; space and capital leasing; 
facility planning and management; and central receiving. The operation 
and maintenance expenses category must also include its allocable share 
of fringe benefit costs, depreciation, and interest costs.
    (4) General administration and general expenses. The expenses under 
this heading are those that have been incurred for the overall general 
executive and administrative offices of the organization and other 
expenses of a general nature which do not relate solely to any major 
function of the organization. This category must also include its 
allocable share of fringe benefit costs, operation and maintenance 
expense, depreciation, and interest costs. Examples of this category 
include central offices, such as the director's office, the office of 
finance, business services, budget and planning, personnel, safety and 
risk management, general counsel, management information systems, and 
library costs.
    In developing this cost pool, special care should be exercised to 
ensure that costs incurred for the same purpose in like circumstances 
are treated consistently as either direct or indirect costs. For 
example, salaries of technical staff, project supplies, project 
publication, telephone toll charges, computer costs, travel costs, and 
specialized services costs must be treated as direct costs wherever 
identifiable to a particular program. The salaries and wages of 
administrative and pooled clerical staff should normally be treated as 
indirect costs. Direct charging of these costs may be appropriate as 
described in Sec. 75.413. Items such as office supplies, postage, local 
telephone costs, periodicals and memberships should normally be treated 
as indirect costs.
    c. Allocation bases. Actual conditions must be taken into account in 
selecting the base to be used in allocating the expenses in each 
grouping to benefitting functions. The essential consideration in 
selecting a method or a base is that it is the one best suited for 
assigning the pool of costs to cost objectives in accordance with 
benefits derived; a traceable cause and effect relationship; or logic 
and reason, where neither the cause nor the effect of the relationship 
is determinable. When an allocation can be made by assignment of a cost 
grouping directly to the function benefitted, the allocation must be 
made in that manner. When the expenses in a cost grouping are more 
general in nature, the allocation must be made through the use of a 
selected base which produces results that are equitable to both the 
Federal Government and the organization. The distribution must be made 
in accordance with the bases described herein unless it can be 
demonstrated that the use of a different base would result in a more 
equitable allocation of the costs, or that a more readily available base 
would not increase the costs charged to Federal awards. The results of 
special cost studies (such as an engineering utility study) must not be 
used to determine and allocate the indirect costs to Federal awards.
    (1) Depreciation. Depreciation expenses must be allocated in the 
following manner:
    (a) Depreciation on buildings used exclusively in the conduct of a 
single function, and on capital improvements and equipment used in such 
buildings, must be assigned to that function.
    (b) Depreciation on buildings used for more than one function, and 
on capital improvements and equipment used in such buildings, must be 
allocated to the individual functions performed in each building on the 
basis of

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usable square feet of space, excluding common areas, such as hallways, 
stairwells, and restrooms.
    (c) Depreciation on buildings, capital improvements and equipment 
related space (e.g., individual rooms, and laboratories) used jointly by 
more than one function (as determined by the users of the space) must be 
treated as follows. The cost of each jointly used unit of space must be 
allocated to the benefitting functions on the basis of:
    (i) the employees and other users on a full-time equivalent (FTE) 
basis or salaries and wages of those individual functions benefitting 
from the use of that space; or
    (ii) organization-wide employee FTEs or salaries and wages 
applicable to the benefitting functions of the organization.
    (d) Depreciation on certain capital improvements to land, such as 
paved parking areas, fences, sidewalks, and the like, not included in 
the cost of buildings, must be allocated to user categories on a FTE 
basis and distributed to major functions in proportion to the salaries 
and wages of all employees applicable to the functions.
    (2) Interest. Interest costs must be allocated in the same manner as 
the depreciation on the buildings, equipment and capital equipment to 
which the interest relates.
    (3) Operation and maintenance expenses. Operation and maintenance 
expenses must be allocated in the same manner as the depreciation.
    (4) General administration and general expenses. General 
administration and general expenses must be allocated to benefitting 
functions based on modified total costs (MTC). The MTC is the modified 
total direct costs (MTDC), as described in Sec. 75.2, plus the 
allocated indirect cost proportion. The expenses included in this 
category could be grouped first according to major functions of the 
organization to which they render services or provide benefits. The 
aggregate expenses of each group must then be allocated to benefitting 
functions based on MTC.
    d. Order of distribution.
    (1) Indirect cost categories consisting of depreciation, interest, 
operation and maintenance, and general administration and general 
expenses must be allocated in that order to the remaining indirect cost 
categories as well as to the major functions of the organization. Other 
cost categories should be allocated in the order determined to be most 
appropriate by the organization. This order of allocation does not apply 
if cross allocation of costs is made as provided in section B.3.d.2 of 
this Appendix.
    (2) Normally, an indirect cost category will be considered closed 
once it has been allocated to other cost objectives, and costs must not 
be subsequently allocated to it. However, a cross allocation of costs 
between two or more indirect costs categories could be used if such 
allocation will result in a more equitable allocation of costs. If a 
cross allocation is used, an appropriate modification to the composition 
of the indirect cost categories is required.
    e. Application of indirect cost rate or rates. Except where a 
special indirect cost rate(s) is required in accordance with section B.5 
of this Appendix, the separate groupings of indirect costs allocated to 
each major function must be aggregated and treated as a common pool for 
that function. The costs in the common pool must then be distributed to 
individual Federal awards included in that function by use of a single 
indirect cost rate.
    f. Distribution basis. Indirect costs must be distributed to 
applicable Federal awards and other benefitting activities within each 
major function on the basis of MTDC (see definition in Sec. 75.2).
    g. Individual Rate Components. An indirect cost rate must be 
determined for each separate indirect cost pool developed. The rate in 
each case must be stated as the percentage which the amount of the 
particular indirect cost pool is of the distribution base identified 
with that pool. Each indirect cost rate negotiation or determination 
agreement must include development of the rate for each indirect cost 
pool as well as the overall indirect cost rate. The indirect cost pools 
must be classified within two broad categories: ``Facilities'' and 
``Administration,'' as described in section A.3 of this Appendix.

                       4. Direct Allocation Method

    a. Some nonprofit organizations treat all costs as direct costs 
except general administration and general expenses. These organizations 
generally separate their costs into three basic categories: (i) General 
administration and general expenses, (ii) fundraising, and (iii) other 
direct functions (including projects performed under Federal awards). 
Joint costs, such as depreciation, rental costs, operation and 
maintenance of facilities, telephone expenses, and the like are prorated 
individually as direct costs to each category and to each Federal award 
or other activity using a base most appropriate to the particular cost 
being prorated.
    b. This method is acceptable, provided each joint cost is prorated 
using a base which accurately measures the benefits provided to each 
Federal award or other activity. The bases must be established in 
accordance with reasonable criteria, and be supported by current data. 
This method is compatible with the Standards of Accounting and Financial 
Reporting for Voluntary Health and Welfare Organizations issued jointly 
by the National Health Council, Inc., the National Assembly of Voluntary 
Health and Social Welfare Organizations, and the United Way of America.
    c. Under this method, indirect costs consist exclusively of general 
administration and general expenses. In all other respects, the 
organization's indirect cost rates must

[[Page 356]]

be computed in the same manner as that described in section B.2 of this 
Appendix.

                     5. Special Indirect Cost Rates

    In some instances, a single indirect cost rate for all activities of 
an organization or for each major function of the organization may not 
be appropriate, since it would not take into account those different 
factors which may substantially affect the indirect costs applicable to 
a particular segment of work. For this purpose, a particular segment of 
work may be that performed under a single Federal award or it may 
consist of work under a group of Federal awards performed in a common 
environment. These factors may include the physical location of the 
work, the level of 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. When a particular segment of work is performed in 
an environment which appears to generate a significantly different level 
of indirect costs, provisions should be made for a separate indirect 
cost pool applicable to such work. The separate indirect cost pool 
should be developed during the course of the regular allocation process, 
and the separate indirect cost rate resulting therefrom should be used, 
provided it is determined that (i) the rate differs significantly from 
that which would have been obtained under sections B.2, B.3, and B.4 of 
this Appendix, and (ii) the volume of work to which the rate would apply 
is material.

           C. Negotiation and Approval of Indirect Cost Rates

                             1. Definitions

    As used in this section, the following terms have the meanings set 
forth in this section:
    a. Cognizant agency for indirect costs means the Federal agency 
responsible for negotiating and approving indirect cost rates for a 
nonprofit organization on behalf of all Federal agencies.
    b. Predetermined rate means an indirect cost rate, applicable to a 
specified current or future period, usually the organization's fiscal 
year. The rate is based on an estimate of the costs to be incurred 
during the period. A predetermined rate is not subject to adjustment.
    c. Fixed rate means an indirect cost rate which has the same 
characteristics as a predetermined rate, except that the difference 
between the estimated costs and the actual costs of the period covered 
by the rate is carried forward as an adjustment to the rate computation 
of a subsequent period.
    d. Final rate means an indirect cost rate applicable to a specified 
past period which is based on the actual costs of the period. A final 
rate is not subject to adjustment.
    e. Provisional rate or billing rate means a temporary indirect cost 
rate applicable to a specified period which is used for funding, interim 
reimbursement, and reporting indirect costs on Federal awards pending 
the establishment of a final rate for the period.
    f. Indirect cost proposal means the documentation prepared by an 
organization to substantiate its claim for the reimbursement of indirect 
costs. This proposal provides the basis for the review and negotiation 
leading to the establishment of an organization's indirect cost rate.
    g. Cost objective means a function, organizational subdivision, 
contract, Federal award, or other work unit for which cost data are 
desired and for which provision is made to accumulate and measure the 
cost of processes, projects, jobs and capitalized projects.

                  2. Negotiation and Approval of Rates

    a. Unless different arrangements are agreed to by the Federal 
agencies concerned, the Federal agency with the largest dollar value of 
Federal awards with an organization will be designated as the cognizant 
agency for indirect costs for the negotiation and approval of the 
indirect cost rates and, where necessary, other rates such as fringe 
benefit and computer charge-out rates. Once an agency is assigned 
cognizance for a particular nonprofit organization, the assignment will 
not be changed unless there is a shift in the dollar volume of the 
Federal awards to the organization for at least three years. All 
concerned Federal agencies must be given the opportunity to participate 
in the negotiation process but, after a rate has been agreed upon, it 
will be accepted by all Federal agencies. When a Federal agency has 
reason to believe that special operating factors affecting its Federal 
awards necessitate special indirect cost rates in accordance with 
section B.5 of this Appendix, it will, prior to the time the rates are 
negotiated, notify the cognizant agency for indirect costs. (See also 
Sec. 75.414.) Where a non-Federal entity only receives funds as a 
subrecipient, see the requirements of Sec. 75.352.
    b. Except as otherwise provided in Sec. 75.414(e), a nonprofit 
organization which has not previously established an indirect cost rate 
with a Federal agency must submit its initial indirect cost proposal 
immediately after the organization is advised that a Federal award will 
be made and, in no event, later than three months after the effective 
date of the Federal award.
    c. Unless approved by the cognizant agency for indirect costs in 
accordance with Sec. 75.414(f), organizations that have previously 
established indirect cost rates must submit a new indirect cost proposal 
to the cognizant agency for indirect costs within six months after the 
close of each fiscal year.

[[Page 357]]

    d. A predetermined rate may be negotiated for use on Federal awards 
where there is reasonable assurance, based on past experience and 
reliable projection of the organization's costs, that the rate is not 
likely to exceed a rate based on the organization's actual costs.
    e. Fixed rates may be negotiated where predetermined rates are not 
considered appropriate. A fixed rate, however, must not be negotiated if 
(i) all or a substantial portion of the organization's Federal awards 
are expected to expire before the carry-forward adjustment can be made; 
(ii) the mix of Federal and non-Federal work at the organization is too 
erratic to permit an equitable carry-forward adjustment; or (iii) the 
organization's operations fluctuate significantly from year to year.
    f. Provisional and final rates must be negotiated where neither 
predetermined nor fixed rates are appropriate. Predetermined or fixed 
rates may replace provisional rates at any time prior to the close of 
the organization's fiscal year. If that event does not occur, a final 
rate will be established and upward or downward adjustments will be made 
based on the actual allowable costs incurred for the period involved.
    g. The results of each negotiation must be formalized in a written 
agreement between the cognizant agency for indirect costs and the 
nonprofit organization. The cognizant agency for indirect costs must 
make available copies of the agreement to all concerned Federal 
agencies.
    h. If a dispute arises in a negotiation of an indirect cost rate 
between the cognizant agency for indirect costs and the nonprofit 
organization, the dispute must be resolved in accordance with the 
appeals procedures of the cognizant agency for indirect costs.
    i. To the extent that problems are encountered among the Federal 
agencies in connection with the negotiation and approval process, OMB 
will lend assistance as required to resolve such problems in a timely 
manner.

                D. Certification of Indirect (F&A) Costs

    1. Required Certification. No proposal to establish indirect (F&A) 
cost rates must be acceptable unless such costs have been certified by 
the non-profit organization using the Certificate of Indirect (F&A) 
Costs set forth in subsection b., below. The certificate must be signed 
on behalf of the organization by an individual at a level no lower than 
vice president or chief financial officer for the organization.
    2. Certificate. Each indirect cost rate proposal must be accompanied 
by a certification in the following form:
    Certificate of Indirect (F&A) Costs
    This is to certify that to the best of my knowledge and belief:
    (1) I have reviewed the indirect (F&A) cost proposal submitted 
herewith;
    (2) All costs included in this proposal [identify date] to establish 
billing or final indirect (F&A) costs rate for [identify period covered 
by rate] are allowable in accordance with the requirements of the 
Federal awards to which they apply and with Subpart E of part 75.
    (3) This proposal does not include any costs which are unallowable 
under Subpart E of part 75 such as (without limitation): public 
relations costs, contributions and donations, entertainment costs, fines 
and penalties, lobbying costs, and defense of fraud proceedings; and
    (4) All costs included in this proposal are properly allocable to 
Federal awards on the basis of a beneficial or causal relationship 
between the expenses incurred and the Federal awards to which they are 
allocated in accordance with applicable requirements.
    I declare that the foregoing is true and correct.
Nonprofit Organization:
Signature:
Name of Official:
Title:
Date of Execution:



 Sec. Appendix V to Part 75--State/Local Governmentwide Central Service 
                          Cost Allocation Plans

                               A. General

    1. Most governmental units provide certain services, such as motor 
pools, computer centers, purchasing, accounting, etc., to operating 
agencies on a centralized basis. Since federally-supported awards are 
performed within the individual operating agencies, there needs to be a 
process whereby these central service costs can be identified and 
assigned to benefitted activities on a reasonable and consistent basis. 
The central service cost allocation plan provides that process. All 
costs and other data used to distribute the costs included in the plan 
should be supported by formal accounting and other records that will 
support the propriety of the costs assigned to Federal awards.
    2. Guidelines and illustrations of central service cost allocation 
plans are provided in a brochure published by the Department of Health 
and Human Services entitled ``A Guide for State, Local and Indian Tribal 
Governments: Cost Principles and Procedures for Developing Cost 
Allocation Plans and Indirect Cost Rates for Agreements with the Federal 
Government.'' A copy of this brochure may be obtained from the HHS' Cost 
Allocation Services at https://rates.psc.gov.

                             B. Definitions

    1. Agency or operating agency means an organizational unit or sub-
division within a governmental unit that is responsible for the 
performance or administration of Federal

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awards or activities of the governmental unit.
    2. Allocated central services means central services that benefit 
operating agencies but are not billed to the agencies on a fee-for-
service or similar basis. These costs are allocated to benefitted 
agencies on some reasonable basis. Examples of such services might 
include general accounting, personnel administration, purchasing, etc.
    3. Billed central services means central services that are billed to 
benefitted agencies or programs on an individual fee-for-service or 
similar basis. Typical examples of billed central services include 
computer services, transportation services, insurance, and fringe 
benefits.
    4. Cognizant agency for indirect costs is defined in Sec. 75.2. The 
determination of cognizant agency for indirect costs for states and 
local governments is described in section F.1.
    5. Major local government means local government that receives more 
than $100 million in direct Federal awards subject to this part.

          C. Scope of the Central Service Cost Allocation Plans

    The central service cost allocation plan will include all central 
service costs that will be claimed (either as a billed or an allocated 
cost) under Federal awards and will be documented as described in 
section E. Costs of central services omitted from the plan will not be 
reimbursed.

                       D. Submission Requirements

    1. Each state will submit a plan to the Department of Health and 
Human Services for each year in which it claims central service costs 
under Federal awards. The plan should include (a) a projection of the 
next year's allocated central service cost (based either on actual costs 
for the most recently completed year or the budget projection for the 
coming year), and (b) a reconciliation of actual allocated central 
service costs to the estimated costs used for either the most recently 
completed year or the year immediately preceding the most recently 
completed year.
    2. Each major local government is also required to submit a plan to 
its cognizant agency for indirect costs annually.
    3. All other local governments claiming central service costs must 
develop a plan in accordance with the requirements described in this 
Part and maintain the plan and related supporting documentation for 
audit. These local governments are not required to submit their plans 
for Federal approval unless they are specifically requested to do so by 
the cognizant agency for indirect costs. Where a local government only 
receives funds as a subrecipient, the pass-through entity will be 
responsible for monitoring the subrecipient's plan.
    4. All central service cost allocation plans will be prepared and, 
when required, submitted within six months prior to the beginning of 
each of the governmental unit's fiscal years in which it proposes to 
claim central service costs. Extensions may be granted by the cognizant 
agency for indirect costs on a case-by-case basis.

            E. Documentation Requirements for Submitted Plans

    The documentation requirements described in this section may be 
modified, expanded, or reduced by the cognizant agency for indirect 
costs on a case-by-case basis. For example, the requirements may be 
reduced for those central services which have little or no impact on 
Federal awards. Conversely, if a review of a plan indicates that certain 
additional information is needed, and will likely be needed in future 
years, it may be routinely requested in future plan submissions. Items 
marked with an asterisk (*) should be submitted only once; subsequent 
plans should merely indicate any changes since the last plan.

                               1. General

    All proposed plans must be accompanied by the following: An 
organization chart sufficiently detailed to show operations including 
the central service activities of the state/local government whether or 
not they are shown as benefitting from central service functions; a copy 
of the Comprehensive Annual Financial Report (or a copy of the Executive 
Budget if budgeted costs are being proposed) to support the allowable 
costs of each central service activity included in the plan; and, a 
certification (see subsection 4.) that the plan was prepared in 
accordance with this Part, contains only allowable costs, and was 
prepared in a manner that treated similar costs consistently among the 
various Federal awards and between Federal and non-Federal awards/
activities.

                      2. Allocated Central Services

    For each allocated central service, the plan must also include the 
following: A brief description of the service,* an identification of the 
unit rendering the service and the operating agencies receiving the 
service, the items of expense included in the cost of the service, the 
method used to distribute the cost of the service to benefitted 
agencies, and a summary schedule showing the allocation of each service 
to the specific benefitted agencies. If any self-insurance funds or 
fringe benefits costs are treated as allocated (rather than billed) 
central services, documentation discussed in subsections 3.b. and c. 
must also be included.

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                           3. Billed Services

    a. General. The information described in this section must be 
provided for all billed central services, including internal service 
funds, self-insurance funds, and fringe benefit funds.
    b. Internal service funds.
    (1) For each internal service fund or similar activity with an 
operating budget of $5 million or more, the plan must include: A brief 
description of each service; a balance sheet for each fund based on 
individual accounts contained in the governmental unit's accounting 
system; a revenue/expenses statement, with revenues broken out by 
source, e.g., regular billings, interest earned, etc.; a listing of all 
non-operating transfers (as defined by Generally Accepted Accounting 
Principles (GAAP)) into and out of the fund; a description of the 
procedures (methodology) used to charge the costs of each service to 
users, including how billing rates are determined; a schedule of current 
rates; and, a schedule comparing total revenues (including imputed 
revenues) generated by the service to the allowable costs of the 
service, as determined under this Part, with an explanation of how 
variances will be handled.
    (2) Revenues must consist of all revenues generated by the service, 
including unbilled and uncollected revenues. If some users were not 
billed for the services (or were not billed at the full rate for that 
class of users), a schedule showing the full imputed revenues associated 
with these users must be provided. Expenses must be broken out by object 
cost categories (e.g., salaries, supplies, etc.).
    c. Self-insurance funds. For each self-insurance fund, the plan must 
include: The fund balance sheet; a statement of revenue and expenses 
including a summary of billings and claims paid by agency; a listing of 
all non-operating transfers into and out of the fund; the type(s) of 
risk(s) covered by the fund (e.g., automobile liability, workers' 
compensation, etc.); an explanation of how the level of fund 
contributions are determined, including a copy of the current actuarial 
report (with the actuarial assumptions used) if the contributions are 
determined on an actuarial basis; and, a description of the procedures 
used to charge or allocate fund contributions to benefitted activities. 
Reserve levels in excess of claims (1) submitted and adjudicated but not 
paid, (2) submitted but not adjudicated, and (3) incurred but not 
submitted must be identified and explained.
    d. Fringe benefits. For fringe benefit costs, the plan must include: 
A listing of fringe benefits provided to covered employees, and the 
overall annual cost of each type of benefit; current fringe benefit 
policies; and procedures used to charge or allocate the costs of the 
benefits to benefitted activities. In addition, for pension and post-
retirement health insurance plans, the following information must be 
provided: the governmental unit's funding policies, e.g., legislative 
bills, trust agreements, or state-mandated contribution rules, if 
different from actuarially determined rates; the pension plan's costs 
accrued for the year; the amount funded, and date(s) of funding; a copy 
of the current actuarial report (including the actuarial assumptions); 
the plan trustee's report; and, a schedule from the activity showing the 
value of the interest cost associated with late funding.

                        4. Required Certification

    Each central service cost allocation plan will be accompanied by a 
certification in the following form:

                   Certificate of Cost Allocation Plan

    This is to certify that I have reviewed the cost allocation plan 
submitted herewith and to the best of my knowledge and belief:
    (1) All costs included in this proposal [identify date] to establish 
cost allocations or billings for [identify period covered by plan] are 
allowable in accordance with the requirements of this Part and the 
Federal award(s) to which they apply. Unallowable costs have been 
adjusted for in allocating costs as indicated in the cost allocation 
plan.
    (2) All costs included in this proposal are properly allocable to 
Federal awards on the basis of a beneficial or causal relationship 
between the expenses incurred and the Federal awards to which they are 
allocated in accordance with applicable requirements. Further, the same 
costs that have been treated as indirect costs have not been claimed as 
direct costs. Similar types of costs have been accounted for 
consistently.
    I declare that the foregoing is true and correct.
Governmental Unit:
Signature:
Name of Official:
Title:
Date of Execution:

          F. Negotiation and Approval of Central Service Plans

  1. Federal Cognizant Agency for Indirect Costs Assignments for Cost 
                               Negotiation

    In general, unless different arrangements are agreed to by the 
concerned Federal agencies, for central service cost allocation plans, 
the cognizant agency responsible for review and approval is the Federal 
agency with the largest dollar value of total Federal awards with a 
governmental unit. For indirect cost rates and departmental indirect 
cost allocation plans, the cognizant agency is the Federal agency with 
the largest dollar value of direct Federal awards with a governmental 
unit or component, as appropriate.

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Once designated as the cognizant agency for indirect costs, the Federal 
agency must remain so for a period of five years. In addition, the 
following Federal agencies continue to be responsible for the indicated 
governmental entities:
    Department of Health and Human Services--Public assistance and 
state-wide cost allocation plans for all states (including the District 
of Columbia and Puerto Rico), state and local hospitals, libraries and 
health districts.
    Department of the Interior--Indian tribal governments, territorial 
governments, and state and local park and recreational districts.
    Department of Labor--State and local labor departments.
    Department of Education--School districts and state and local 
education agencies.
    Department of Agriculture--State and local agriculture departments.
    Department of Transportation--State and local airport and port 
authorities and transit districts.
    Department of Commerce--State and local economic development 
districts.
    Department of Housing and Urban Development--State and local housing 
and development districts.
    Environmental Protection Agency--State and local water and sewer 
districts.

                                2. Review

    All proposed central service cost allocation plans that are required 
to be submitted will be reviewed, negotiated, and approved by the 
cognizant agency for indirect costs on a timely basis. The cognizant 
agency for indirect costs will review the proposal within six months of 
receipt of the proposal and either negotiate/approve the proposal or 
advise the governmental unit of the additional documentation needed to 
support/evaluate the proposed plan or the changes required to make the 
proposal acceptable. Once an agreement with the governmental unit has 
been reached, the agreement will be accepted and used by all Federal 
agencies, unless prohibited or limited by statute. Where a Federal 
awarding agency has reason to believe that special operating factors 
affecting its Federal awards necessitate special consideration, the 
funding agency will, prior to the time the plans are negotiated, notify 
the cognizant agency for indirect costs.

                              3. Agreement

    The results of each negotiation must be formalized in a written 
agreement between the cognizant agency for indirect costs and the 
governmental unit. This agreement will be subject to re-opening if the 
agreement is subsequently found to violate a statute or the information 
upon which the plan was negotiated is later found to be materially 
incomplete or inaccurate. The results of the negotiation must be made 
available to all Federal agencies for their use.

                             4. Adjustments

    Negotiated cost allocation plans based on a proposal later found to 
have included costs that: (a) Are unallowable (i) as specified by law or 
regulation, (ii) as identified in subpart F, General Provisions for 
selected Items of Cost of this Part, or (iii) by the terms and 
conditions of Federal awards, or (b) are unallowable because they are 
clearly not allocable to Federal awards, must be adjusted, or a refund 
must be made at the option of the cognizant agency for indirect costs, 
including earned or imputed interest from the date of transfer and debt 
interest, if applicable, chargeable in accordance with applicable 
Federal cognizant agency for indirect costs regulations. Adjustments or 
cash refunds may include, at the option of the cognizant agency for 
indirect costs, earned or imputed interest from the date of expenditure 
and delinquent debt interest, if applicable, chargeable in accordance 
with applicable cognizant agency claims collection regulations. These 
adjustments or refunds are designed to correct the plans and do not 
constitute a reopening of the negotiation.

                            G. Other Policies

                  1. Billed Central Service Activities

    Each billed central service activity must separately account for all 
revenues (including imputed revenues) generated by the service, expenses 
incurred to furnish the service, and profit/loss.

                       2. Working Capital Reserves

    Internal service funds are dependent upon a reasonable level of 
working capital reserve to operate from one billing cycle to the next. 
Charges by an internal service activity to provide for the establishment 
and maintenance of a reasonable level of working capital reserve, in 
addition to the full recovery of costs, are allowable. A working capital 
reserve as part of retained earnings of up to 60 calendar days cash 
expenses for normal operating purposes is considered reasonable. A 
working capital reserve exceeding 60 calendar days may be approved by 
the cognizant agency for indirect costs in exceptional cases.

     3. Carry-Forward Adjustments of Allocated Central Service Costs

    Allocated central service costs are usually negotiated and approved 
for a future fiscal year on a ``fixed with carry-forward'' basis. Under 
this procedure, the fixed amounts for the future year covered by 
agreement are not subject to adjustment for that year. However, when the 
actual costs of the year

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involved become known, the differences between the fixed amounts 
previously approved and the actual costs will be carried forward and 
used as an adjustment to the fixed amounts established for a later year. 
This ``carry-forward'' procedure applies to all central services whose 
costs were fixed in the approved plan. However, a carry-forward 
adjustment is not permitted, for a central service activity that was not 
included in the approved plan, or for unallowable costs that must be 
reimbursed immediately.

                4. Adjustments of Billed Central Services

    Billing rates used to charge Federal awards must be based on the 
estimated costs of providing the services, including an estimate of the 
allocable central service costs. A comparison of the revenue generated 
by each billed service (including total revenues whether or not billed 
or collected) to the actual allowable costs of the service will be made 
at least annually, and an adjustment will be made for the difference 
between the revenue and the allowable costs. These adjustments will be 
made through one of the following adjustment methods: (a) A cash refund 
including earned or imputed interest from the date of transfer and debt 
interest, if applicable, chargeable in accordance with applicable 
Federal cognizant agency for indirect costs regulations to the Federal 
Government for the Federal share of the adjustment, (b) credits to the 
amounts charged to the individual programs, (c) adjustments to future 
billing rates, or (d) adjustments to allocated central service costs. 
Adjustments to allocated central services will not be permitted where 
the total amount of the adjustment for a particular service (Federal 
share and non-Federal) share exceeds $500,000. Adjustment methods may 
include, at the option of the cognizant agency, earned or imputed 
interest from the date of expenditure and delinquent debt interest, if 
applicable, chargeable in accordance with applicable cognizant agency 
claims collection regulations.

                          5. Records Retention

    All central service cost allocation plans and related documentation 
used as a basis for claiming costs under Federal awards must be retained 
for audit in accordance with the records retention requirements 
contained in Subpart D of part 75.

                               6. Appeals

    If a dispute arises in the negotiation of a plan between the 
cognizant agency for indirect costs and the governmental unit, the 
dispute must be resolved in accordance with the appeals procedures of 
the cognizant agency for indirect costs.

                            7. OMB Assistance

    To the extent that problems are encountered among the Federal 
agencies or governmental units in connection with the negotiation and 
approval process, OMB will lend assistance, as required, to resolve such 
problems in a timely manner.



  Sec. Appendix VI to Part 75--Public Assistance Cost Allocation Plans

                               A. General

    Federally-financed programs administered by state public assistance 
agencies are funded predominately by the Department of Health and Human 
Services (HHS). In support of its stewardship requirements, HHS has 
published requirements for the development, documentation, submission, 
negotiation, and approval of public assistance cost allocation plans in 
Subpart E of 45 CFR part 95. All administrative costs (direct and 
indirect) are normally charged to Federal awards by implementing the 
public assistance cost allocation plan. This Appendix extends these 
requirements to all Federal awarding agencies whose programs are 
administered by a state public assistance agency. Major federally-
financed programs typically administered by state public assistance 
agencies include: Temporary Aid for Needy Families (TANF), Medicaid, 
Food Stamps, Child Support Enforcement, Adoption Assistance and Foster 
Care, and Social Services Block Grant.

                             B. Definitions

    1. State public assistance agency means a state agency administering 
or supervising the administration of one or more public assistance 
programs operated by the state as identified in Subpart E of 45 CFR part 
95. For the purpose of this Appendix, these programs include all 
programs administered by the state public assistance agency.
    2. State public assistance agency costs means all costs incurred by, 
or allocable to, the state public assistance agency, except expenditures 
for financial assistance, medical contractor payments, food stamps, and 
payments for services and goods provided directly to program recipients.

                                C. Policy

    State public assistance agencies will develop, document and 
implement, and the Federal Government will review, negotiate, and 
approve, public assistance cost allocation plans in accordance with 
Subpart E of 45 CFR part 95. The plan will include all programs 
administered by the state public assistance agency. Where a letter of 
approval or disapproval is transmitted to a state public assistance 
agency in accordance with

[[Page 362]]

Subpart E, the letter will apply to all Federal agencies and programs. 
The remaining sections of this Appendix (except for the requirement for 
certification) summarize the provisions of Subpart E of 45 CFR part 95.

  D. Submission, Documentation, and Approval of Public Assistance Cost 
                            Allocation Plans

    1. State public assistance agencies are required to promptly submit 
amendments to the cost allocation plan to HHS for review and approval.
    2. Under the coordination process outlined in section E, Review of 
Implementation of Approved Plans, affected Federal agencies will review 
all new plans and plan amendments and provide comments, as appropriate, 
to HHS. The effective date of the plan or plan amendment will be the 
first day of the calendar quarter following the event that required the 
amendment, unless another date is specifically approved by HHS. HHS, as 
the cognizant agency for indirect costs acting on behalf of all affected 
Federal agencies, will, as necessary, conduct negotiations with the 
state public assistance agency and will inform the state agency of the 
action taken on the plan or plan amendment.

              E. Review of Implementation of Approved Plans

    1. Since public assistance cost allocation plans are of a narrative 
nature, the review during the plan approval process consists of 
evaluating the appropriateness of the proposed groupings of costs (cost 
centers) and the related allocation bases. As such, the Federal 
Government needs some assurance that the cost allocation plan has been 
implemented as approved. This is accomplished by reviews by the Federal 
awarding agencies, single audits, or audits conducted by the cognizant 
agency for indirect costs.
    2. Where inappropriate charges affecting more than one Federal 
awarding agency are identified, the cognizant HHS cost negotiation 
office will be advised and will take the lead in resolving the issue(s) 
as provided for in Subpart E of 45 CFR part 95.
    3. If a dispute arises in the negotiation of a plan or from a 
disallowance involving two or more Federal awarding agencies, the 
dispute must be resolved in accordance with the appeals procedures set 
out in 45 CFR part 16. Disputes involving only one Federal awarding 
agency will be resolved in accordance with the Federal awarding agency's 
appeal process.
    4. To the extent that problems are encountered among the Federal 
awarding agencies or governmental units in connection with the 
negotiation and approval process, the Office of Management and Budget 
will lend assistance, as required, to resolve such problems in a timely 
manner.

                          F. Unallowable Costs

    Claims developed under approved cost allocation plans will be based 
on allowable costs as identified in this Part. Where unallowable costs 
have been claimed and reimbursed, they will be refunded to the program 
that reimbursed the unallowable cost using one of the following methods: 
(a) A cash refund, (b) offset to a subsequent claim, or (c) credits to 
the amounts charged to individual Federal awards. Cash refunds, offsets, 
and credits may include at the option of the cognizant agency for 
indirect cost, earned or imputed interest from the date of expenditure 
and delinquent debt interest, if applicable, chargeable in accordance 
with applicable cognizant agency for indirect cost claims collection 
regulations.



  Sec. Appendix VII to Part 75--States and Local Government and Indian 
                      Tribe Indirect Cost Proposals

                               A. General

    1. Indirect costs are those that have been incurred for common or 
joint purposes. These costs benefit more than one cost objective and 
cannot be readily identified with a particular final cost objective 
without effort disproportionate to the results achieved. After direct 
costs have been determined and assigned directly to Federal awards and 
other activities as appropriate, indirect costs are those remaining to 
be allocated to benefitted cost objectives. A cost may not be allocated 
to a Federal award as an indirect cost if any other cost incurred for 
the same purpose, in like circumstances, has been assigned to a Federal 
award as a direct cost.
    2. Indirect costs include (a) the indirect costs originating in each 
department or agency of the governmental unit carrying out Federal 
awards and (b) the costs of central governmental services distributed 
through the central service cost allocation plan (as described in 
Appendix V to part) and not otherwise treated as direct costs.
    3. Indirect costs are normally charged to Federal awards by the use 
of an indirect cost rate. A separate indirect cost rate(s) is usually 
necessary for each department or agency of the governmental unit 
claiming indirect costs under Federal awards. Guidelines and 
illustrations of indirect cost proposals are provided in a brochure 
published by the Department of Health and Human Services entitled ``A 
Guide for States and Local Government Agencies: Cost Principles and 
Procedures for Establishing Cost Allocation Plans and Indirect Cost 
Rates for Grants and Contracts with the Federal Government.'' A copy of 
this brochure may be obtained from the HHS' Cost Allocation Services at 
https://rates.psc.gov.
    4. Because of the diverse characteristics and accounting practices 
of governmental

[[Page 363]]

units, the types of costs which may be classified as indirect costs 
cannot be specified in all situations. However, typical examples of 
indirect costs may include certain state/local-wide central service 
costs, general administration of the non-Federal entity accounting and 
personnel services performed within the non-Federal entity, depreciation 
on buildings and equipment, the costs of operating and maintaining 
facilities.
    5. This Appendix does not apply to state public assistance agencies. 
These agencies should refer instead to Appendix VI to part 75.

                             B. Definitions

    1. Base means the accumulated direct costs (normally either total 
direct salaries and wages or total direct costs exclusive of any 
extraordinary or distorting expenditures) used to distribute indirect 
costs to individual Federal awards. The direct cost base selected should 
result in each Federal award bearing a fair share of the indirect costs 
in reasonable relation to the benefits received from the costs.
    2. Base period for the allocation of indirect costs is the period in 
which such costs are incurred and accumulated for allocation to 
activities performed in that period. The base period normally should 
coincide with the governmental unit's fiscal year, but in any event, 
must be so selected as to avoid inequities in the allocation of costs.
    3. Cognizant agency for indirect costs means the Federal agency 
responsible for reviewing and approving the governmental unit's indirect 
cost rate(s) on the behalf of the Federal Government. The cognizant 
agency for indirect costs assignment is described in Appendix V, section 
F.
    4. Final rate means an indirect cost rate applicable to a specified 
past period which is based on the actual allowable costs of the period. 
A final audited rate is not subject to adjustment.
    5. Fixed rate means an indirect cost rate which has the same 
characteristics as a predetermined rate, except that the difference 
between the estimated costs and the actual, allowable costs of the 
period covered by the rate is carried forward as an adjustment to the 
rate computation of a subsequent period.
    6. Indirect cost pool is the accumulated costs that jointly benefit 
two or more programs or other cost objectives.
    7. Indirect cost rate is a device for determining in a reasonable 
manner the proportion of indirect costs each program should bear. It is 
the ratio (expressed as a percentage) of the indirect costs to a direct 
cost base.
    8. Indirect cost rate proposal means the documentation prepared by a 
governmental unit or subdivision thereof to substantiate its request for 
the establishment of an indirect cost rate.
    9. Predetermined rate means an indirect cost rate, applicable to a 
specified current or future period, usually the governmental unit's 
fiscal year. This rate is based on an estimate of the costs to be 
incurred during the period. Except under very unusual circumstances, a 
predetermined rate is not subject to adjustment. (Because of legal 
constraints, predetermined rates are not permitted for Federal 
contracts; they may, however, be used for grants or cooperative 
agreements.) Predetermined rates may not be used by governmental units 
that have not submitted and negotiated the rate with the cognizant 
agency for indirect costs. In view of the potential advantages offered 
by this procedure, negotiation of predetermined rates for indirect costs 
for a period of two to four years should be the norm in those situations 
where the cost experience and other pertinent facts available are deemed 
sufficient to enable the parties involved to reach an informed judgment 
as to the probable level of indirect costs during the ensuing accounting 
periods.
    10. Provisional rate means a temporary indirect cost rate applicable 
to a specified period which is used for funding, interim reimbursement, 
and reporting indirect costs on Federal awards pending the establishment 
of a ``final'' rate for that period.

C. Allocation of Indirect Costs and Determination of Indirect Cost Rates

                               1. General

    a. Where a governmental unit's department or agency has only one 
major function, or where all its major functions benefit from the 
indirect costs to approximately the same degree, the allocation of 
indirect costs and the computation of an indirect cost rate may be 
accomplished through simplified allocation procedures as described in 
subsection 2.
    b. Where a governmental unit's department or agency has several 
major functions which benefit from its indirect costs in varying 
degrees, the allocation of indirect costs may require the accumulation 
of such costs into separate cost groupings which then are allocated 
individually to benefitted functions by means of a base which best 
measures the relative degree of benefit. The indirect costs allocated to 
each function are then distributed to individual Federal awards and 
other activities included in that function by means of an indirect cost 
rate(s).
    c. Specific methods for allocating indirect costs and computing 
indirect cost rates along with the conditions under which each method 
should be used are described in subsections 2, 3 and 4.

                          2. Simplified Method

    a. Where a non-Federal entity's major functions benefit from its 
indirect costs to approximately the same degree, the allocation of 
indirect costs may be accomplished

[[Page 364]]

by (1) classifying the non-Federal entity's total costs for the base 
period as either direct or indirect, and (2) dividing the total 
allowable indirect costs (net of applicable credits) by an equitable 
distribution base. The result of this process is an indirect cost rate 
which is used to distribute indirect costs to individual Federal awards. 
The rate should be expressed as the percentage which the total amount of 
allowable indirect costs bears to the base selected. This method should 
also be used where a governmental unit's department or agency has only 
one major function encompassing a number of individual projects or 
activities, and may be used where the level of Federal awards to that 
department or agency is relatively small.
    b. Both the direct costs and the indirect costs must exclude capital 
expenditures and unallowable costs. However, unallowable costs must be 
included in the direct costs if they represent activities to which 
indirect costs are properly allocable.
    c. The distribution base may be (1) total direct costs (excluding 
capital expenditures and other distorting items, such as pass-through 
funds, subawards in excess of $25,000, participant support costs, etc.), 
(2) direct salaries and wages, or (3) another base which results in an 
equitable distribution.

                   3. Multiple Allocation Base Method

    a. Where a non-Federal entity's indirect costs benefit its major 
functions in varying degrees, such costs must be accumulated into 
separate cost groupings. Each grouping must then be allocated 
individually to benefitted functions by means of a base which best 
measures the relative benefits.
    b. The cost groupings should be established so as to permit the 
allocation of each grouping on the basis of benefits provided to the 
major functions. Each grouping should constitute a pool of expenses that 
are of like character in terms of the functions they benefit and in 
terms of the allocation base which best measures the relative benefits 
provided to each function. The number of separate groupings should be 
held within practical limits, taking into consideration the materiality 
of the amounts involved and the degree of precision needed.
    c. Actual conditions must be taken into account in selecting the 
base to be used in allocating the expenses in each grouping to 
benefitted functions. When an allocation can be made by assignment of a 
cost grouping directly to the function benefitted, the allocation must 
be made in that manner. When the expenses in a grouping are more general 
in nature, the allocation should be made through the use of a selected 
base which produces results that are equitable to both the Federal 
Government and the governmental unit. In general, any cost element or 
related factor associated with the governmental unit's activities is 
potentially adaptable for use as an allocation base provided that: (1) 
It can readily be expressed in terms of dollars or other quantitative 
measures (total direct costs, direct salaries and wages, staff hours 
applied, square feet used, hours of usage, number of documents 
processed, population served, and the like), and (2) it is common to the 
benefitted functions during the base period.
    d. Except where a special indirect cost rate(s) is required in 
accordance with paragraph (C)(4) of this Appendix, the separate 
groupings of indirect costs allocated to each major function must be 
aggregated and treated as a common pool for that function. The costs in 
the common pool must then be distributed to individual Federal awards 
included in that function by use of a single indirect cost rate.
    e. The distribution base used in computing the indirect cost rate 
for each function may be (1) total direct costs (excluding capital 
expenditures and other distorting items such as pass-through funds, 
subawards in excess of $25,000, participant support costs, etc.), (2) 
direct salaries and wages, or (3) another base which results in an 
equitable distribution. An indirect cost rate should be developed for 
each separate indirect cost pool developed. The rate in each case should 
be stated as the percentage relationship between the particular indirect 
cost pool and the distribution base identified with that pool.

                     4. Special Indirect Cost Rates

    a. In some instances, a single indirect cost rate for all activities 
of a non-Federal entity or for each major function of the agency may not 
be appropriate. It may not take into account those different factors 
which may substantially affect the indirect costs applicable to a 
particular program or group of programs. The factors may include the 
physical location of the work, the level of administrative support 
required, the nature of the facilities or other resources employed, the 
organizational arrangements used, or any combination thereof. When a 
particular Federal award is carried out in an environment which appears 
to generate a significantly different level of indirect costs, 
provisions should be made for a separate indirect cost pool applicable 
to that Federal award. The separate indirect cost pool should be 
developed during the course of the regular allocation process, and the 
separate indirect cost rate resulting therefrom should be used, provided 
that: (1) The rate differs significantly from the rate which would have 
been developed under paragraphs (C)(2) and (C)(3) of this Appendix, and 
(2) the Federal award to which the rate would apply is material in 
amount.
    b. Where Federal statutes restrict the reimbursement of certain 
indirect costs, it may be necessary to develop a special rate

[[Page 365]]

for the affected Federal award. Where a ``restricted rate'' is required, 
the same procedure for developing a non-restricted rate will be used 
except for the additional step of the elimination from the indirect cost 
pool those costs for which the law prohibits reimbursement.

              D. Submission and Documentation of Proposals

              1. Submission of Indirect Cost Rate Proposals

    a. All departments or agencies of the governmental unit desiring to 
claim indirect costs under Federal awards must prepare an indirect cost 
rate proposal and related documentation to support those costs. The 
proposal and related documentation must be retained for audit in 
accordance with the records retention requirements contained in Sec. 
75.361.
    b. A governmental department or agency unit that receives more than 
$35 million in direct Federal funding must submit its indirect cost rate 
proposal to its cognizant agency for indirect costs. Other governmental 
department or agency must develop an indirect cost proposal in 
accordance with the requirements of this Part and maintain the proposal 
and related supporting documentation for audit. These governmental 
departments or agencies are not required to submit their proposals 
unless they are specifically requested to do so by the cognizant agency 
for indirect costs. Where a non-Federal entity only receives funds as a 
subrecipient, the pass-through entity will be responsible for 
negotiating and/or monitoring the subrecipient's indirect costs.
    c. Each Indian tribal government desiring reimbursement of indirect 
costs must submit its indirect cost proposal to the Department of the 
Interior (its cognizant agency for indirect costs).
    d. Indirect cost proposals must be developed (and, when required, 
submitted) within six months after the close of the governmental unit's 
fiscal year, unless an exception is approved by the cognizant agency for 
indirect costs. If the proposed central service cost allocation plan for 
the same period has not been approved by that time, the indirect cost 
proposal may be prepared including an amount for central services that 
is based on the latest federally-approved central service cost 
allocation plan. The difference between these central service amounts 
and the amounts ultimately approved will be compensated for by an 
adjustment in a subsequent period.

                      2. Documentation of Proposals

    The following must be included with each indirect cost proposal:
    a. The rates proposed, including subsidiary work sheets and other 
relevant data, cross referenced and reconciled to the financial data 
noted in subsection b. Allocated central service costs will be supported 
by the summary table included in the approved central service cost 
allocation plan. This summary table is not required to be submitted with 
the indirect cost proposal if the central service cost allocation plan 
for the same fiscal year has been approved by the cognizant agency for 
indirect costs and is available to the funding agency.
    b. A copy of the financial data (financial statements, comprehensive 
annual financial report, executive budgets, accounting reports, etc.) 
upon which the rate is based. Adjustments resulting from the use of 
unaudited data will be recognized, where appropriate, by the Federal 
cognizant agency for indirect costs in a subsequent proposal.
    c. The approximate amount of direct base costs incurred under 
Federal awards. These costs should be broken out between salaries and 
wages and other direct costs.
    d. A chart showing the organizational structure of the agency during 
the period for which the proposal applies, along with a functional 
statement(s) noting the duties and/or responsibilities of all units that 
comprise the agency. (Once this is submitted, only revisions need be 
submitted with subsequent proposals.)

                       3. Required Certification.

    Each indirect cost rate proposal must be accompanied by a 
certification in the following form:

                      Certificate of Indirect Costs

    This is to certify that I have reviewed the indirect cost rate 
proposal submitted herewith and to the best of my knowledge and belief:
    (1) All costs included in this proposal [identify date] to establish 
billing or final indirect costs rates for [identify period covered by 
rate] are allowable in accordance with the requirements of the Federal 
award(s) to which they apply and the provisions of this 45 CFR part 75. 
Unallowable costs have been adjusted for in allocating costs as 
indicated in the indirect cost proposal.
    (2) All costs included in this proposal are properly allocable to 
Federal awards on the basis of a beneficial or causal relationship 
between the expenses incurred and the agreements to which they are 
allocated in accordance with applicable requirements. Further, the same 
costs that have been treated as indirect costs have not been claimed as 
direct costs. Similar types of costs have been accounted for 
consistently and the Federal Government will be notified of any 
accounting changes that would affect the predetermined rate.
    I declare that the foregoing is true and correct.

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Governmental Unit:
Signature:
Name of Official:
Title:
Date of Execution:

                  E. Negotiation and Approval of Rates

    1. Indirect cost rates will be reviewed, negotiated, and approved by 
the cognizant agency on a timely basis. Once a rate has been agreed 
upon, it will be accepted and used by all Federal agencies unless 
prohibited or limited by statute. Where a Federal awarding agency has 
reason to believe that special operating factors affecting its Federal 
awards necessitate special indirect cost rates, the funding agency will, 
prior to the time the rates are negotiated, notify the cognizant agency 
for indirect costs.
    2. The use of predetermined rates, if allowed, is encouraged where 
the cognizant agency for indirect costs has reasonable assurance based 
on past experience and reliable projection of the non-Federal entity's 
costs, that the rate is not likely to exceed a rate based on actual 
costs. Long-term agreements utilizing predetermined rates extending over 
two or more years are encouraged, where appropriate.
    3. The results of each negotiation must be formalized in a written 
agreement between the cognizant agency for indirect costs and the 
governmental unit. This agreement will be subject to re-opening if the 
agreement is subsequently found to violate a statute, or the information 
upon which the plan was negotiated is later found to be materially 
incomplete or inaccurate. The agreed upon rates must be made available 
to all Federal agencies for their use.
    4. Refunds must be made if proposals are later found to have 
included costs that (a) are unallowable (i) as specified by law or 
regulation, (ii) as identified in Sec. 75.420 of this part, or (iii) by 
the terms and conditions of Federal awards, or (b) are unallowable 
because they are clearly not allocable to Federal awards. These 
adjustments or refunds will be made regardless of the type of rate 
negotiated (predetermined, final, fixed, or provisional).

                            F. Other Policies

                         1. Fringe Benefit Rates

    If overall fringe benefit rates are not approved for the 
governmental unit as part of the central service cost allocation plan, 
these rates will be reviewed, negotiated and approved for individual 
recipient agencies during the indirect cost negotiation process. In 
these cases, a proposed fringe benefit rate computation should accompany 
the indirect cost proposal. If fringe benefit rates are not used at the 
recipient agency level (i.e., the agency specifically identifies fringe 
benefit costs to individual employees), the governmental unit should so 
advise the cognizant agency for indirect costs.

           2. Billed Services Provided by the Recipient Agency

    In some cases, governmental departments or agencies (components of 
the governmental unit) provide and bill for services similar to those 
covered by central service cost allocation plans (e.g., computer 
centers). Where this occurs, the governmental departments or agencies 
(components of the governmental unit) should be guided by the 
requirements in Appendix V relating to the development of billing rates 
and documentation requirements, and should advise the cognizant agency 
for indirect costs of any billed services. Reviews of these types of 
services (including reviews of costing/billing methodology, profits or 
losses, etc.) will be made on a case-by-case basis as warranted by the 
circumstances involved.

              3. Indirect Cost Allocations Not Using Rates

    In certain situations, governmental departments or agencies 
(components of the governmental unit), because of the nature of their 
Federal awards, may be required to develop a cost allocation plan that 
distributes indirect (and, in some cases, direct) costs to the specific 
funding sources. In these cases, a narrative cost allocation methodology 
should be developed, documented, maintained for audit, or submitted, as 
appropriate, to the cognizant agency for indirect costs for review, 
negotiation, and approval.

                               4. Appeals

    If a dispute arises in a negotiation of an indirect cost rate (or 
other rate) between the cognizant agency for indirect costs and the 
governmental unit, the dispute must be resolved in accordance with the 
appeals procedures of the cognizant agency for indirect costs.

        5. Collection of Unallowable Costs and Erroneous Payments

    Costs specifically identified as unallowable and charged to Federal 
awards either directly or indirectly will be refunded (including 
interest chargeable in accordance with applicable Federal cognizant 
agency for indirect costs regulations).

                            6. OMB Assistance

    To the extent that problems are encountered among the Federal 
agencies or governmental units in connection with the negotiation and 
approval process, OMB will lend assistance, as required, to resolve such 
problems in a timely manner.

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  Sec. Appendix VIII to Part 75--Nonprofit Organizations Exempted from 
                          Subpart E of Part 75

Advance Technology Institute (ATI), Charleston, South Carolina
Aerospace Corporation, El Segundo, California
American Institutes of Research (AIR), Washington, DC
Argonne National Laboratory, Chicago, Illinois
Atomic Casualty Commission, Washington, DC
Battelle Memorial Institute, Headquartered in Columbus, Ohio
Brookhaven National Laboratory, Upton, New York
Charles Stark Draper Laboratory, Incorporated, Cambridge, Massachusetts
CNA Corporation (CNAC), Alexandria, Virginia
Environmental Institute of Michigan, Ann Arbor, Michigan
Georgia Institute of Technology/Georgia Tech Applied Research 
Corporation/Georgia Tech Research Institute, Atlanta, Georgia
Hanford Environmental Health Foundation, Richland, Washington
IIT Research Institute, Chicago, Illinois
Institute of Gas Technology, Chicago, Illinois
Institute for Defense Analysis, Alexandria, Virginia
LMI, McLean, Virginia
Mitre Corporation, Bedford, Massachusetts
Noblis, Inc., Falls Church, Virginia
National Radiological Astronomy Observatory, Green Bank, West Virginia
National Renewable Energy Laboratory, Golden, Colorado
Oak Ridge Associated Universities, Oak Ridge, Tennessee
Rand Corporation, Santa Monica, California
Research Triangle Institute, Research Triangle Park, North Carolina
Riverside Research Institute, New York, New York
South Carolina Research Authority (SCRA), Charleston, South Carolina
Southern Research Institute, Birmingham, Alabama
Southwest Research Institute, San Antonio, Texas
SRI International, Menlo Park, California
Syracuse Research Corporation, Syracuse, New York
Universities Research Association, Incorporated (National Acceleration 
Lab), Argonne, Illinois
Urban Institute, Washington DC
Non-profit insurance companies, such as Blue Cross and Blue Shield 
Organizations
Other non-profit organizations as negotiated with Federal awarding 
agencies



Sec. Appendix IX to Part 75--Principles for Determining Costs Applicable 
  to Research and Development Under Grants and Contracts with Hospitals

                          A. Purpose and Scope

                              1. 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.

                            2. 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:
    a. 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.
    b. 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.
    c. Each hospital in the fulfillment of its contractual obligations 
should be expected to employ sound management practices.
    d. The application of the principles established herein shall be in 
conformance with the generally accepted accounting practices of 
hospitals.
    e. 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

[[Page 368]]

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.

                             3. 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.

                         B. Definition of Terms

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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 C.4 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 E.1.) are properly allocable.
    6. 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 I.2.w, it means the cost of these services applicable 
to patients involved in research programs.
    7. Allocation means the process by which the indirect costs are 
assigned as between:
    a. Organized research,
    b. Patient care including departmental research.
    c. Instruction and training, and
    d. Other hospital activities.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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.

                         C. Basic Considerations

                      1. 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 C.5.)

               2. Factors Affecting Allowability of Costs

    The tests of allowability of costs under these principles are:

[[Page 369]]

    a. They must be reasonable.
    b. They must be assigned to research agreements under the standards 
and methods provided herein.
    c. They must be accorded consistent treatment through application of 
those generally accepted accounting principles appropriate to the 
circumstances (See paragraph A.2.e.) and
    d. 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.

                           3. 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:
    a. 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,
    b. 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,
    c. 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
    d. 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.

                           4. Allocable Costs

    a. 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.
    b. 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 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.

                          5. Applicable Credits

    a. 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 E.1. 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.
    b. 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.

                             D. Direct Costs

                               1. 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

[[Page 370]]

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.

                  2. 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 E.2.d(2)); 
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.

                            E. Indirect Costs

                               1. 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.

                      2. Criteria for Distribution

    a. 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.
    b. Need for cost groupings.
    The overall objective of the allocation process is to distribute the 
indirect costs described in paragraph F. 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 
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 E.1. 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 2.c. below. While this 
paragraph places primary emphasis on a step-down method of indirect cost 
computation, paragraph H. provides an alternate method which may be used 
under certain conditions.
    c. 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 2.b. 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:
    (1) It can readily be expressed in terms of dollars or other 
quantitative measure (total direct expenditures, direct salaries, man-
hours applied, square feet utilized, hours of

[[Page 371]]

usage, number of documents processed, population served, and the like); 
and
    (2) 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.
    d. 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:
    (1) 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 2.b. and 2.c.above.
    (2) Where any types of expense ordinary treated as indirect cost as 
outlined in paragraph 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.
    (3) 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.
    (4) Where organized activities (including identifiable segments of 
organized research as well as the activities cited inB.5.) 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.
    (5) 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.
    (6) 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.)
    e. 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.

    3. Administration of Limitations on Allowances for Indirect Costs

    a. 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:
    (1) The terms and amount authorized in each case conform with the 
provisions of paragraphs C, E, and I of these principles as they apply 
to matters involving the consistent treatment and allowability of 
individual items of cost; and
    (2) 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.
    b. 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 3.a. above, such alternative amounts should be determined 
in accordance with the following guides:
    (1) 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
    (2) 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.
    c. 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.

[[Page 372]]

           F. Identification and Assignment of Indirect Costs

                      1. Depreciation or Use Charge

    a. The expenses under this heading should include depreciation (as 
defined in paragraph I.2.i(1)) 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 I.2.)
    b. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides set forth 
in paragraph E.2., 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.

                 2. Administration and General Expenses

    a. 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.
    b. 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 E.2.

                          3. Operation of Plant

    a. 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.
    b. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides provided 
in paragraph E.2., on a basis that gives primary emphasis to space 
utilization. The allocations should be developed as follows:
    (1) 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;
    (2) 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
    (3) 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 the use of facilities by 
research personnel and others, including patients.

                         4. Maintenance of Plant

    a. The expenses under this heading should include:
    (1) All salaries and wages pertaining to ordinary repair and 
maintenance work performed by employees on the payroll of the hospital;
    (2) All supplies and parts used in the ordinary repairing and 
maintaining of buildings and general equipment; and
    (3) Amounts paid to outside concerns for the ordinary repairing and 
maintaining of buildings and general equipment.
    b. The expenses included in this category should be allocated to 
applicable cost centers in a manner consistent with the guides provided 
in paragraph E.2. on a basis that gives primary emphasis to space 
utilization. The allocations and apportionments should be developed as 
follows:
    (1) 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;
    (2) 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
    (3) 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.

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                          5. Laundry and Linen

    a. The expenses under this heading should include:
    (1) Salaries and wages of laundry department employees, 
seamstresses, clean linen handlers, linen delivery men, etc.;
    (2) Supplies used in connection with the laundry operation and all 
linens purchased; and
    (3) Amounts paid to outside concerns for purchased laundry and/or 
linen service.
    b. The expense included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided in 
paragraph E.2. on a basis that gives primary emphasis to actual pounds 
of linen used. The allocations should be developed as follows:
    (1) 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;
    (2) 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.

                             6. Housekeeping

    a. The expenses under this heading should include:
    (1) All salaries and wages of the department head, foreman, maids, 
porters, janitors, wall washers, and other housekeeping employees;
    (2) All supplies used in carrying out the housekeeping functions; 
and
    (3) Amounts paid to outside concerns for purchased services such as 
window washing, insect extermination, etc.
    b. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided in 
paragraph E.2. on a basis that gives primary emphasis to space actually 
serviced by the housekeeping department. The allocations and 
apportionments should be developed as follows:
    (1) 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;
    (2) 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
    (3) 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.

                               7. Dietary

    a. 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.
    b. 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 E.2. on a basis that gives primary 
emphasis to number of employees.

                  8. Maintenance (Housing) of Personnel

    a. The expenses under this heading should include:
    (1) The salaries and wages of matrons, clerks, and other employees 
engaged in work in nurses' residences and other employees' quarters;
    (2) All supplies used in connection with the operation of such 
dormitories; and
    (3) Payments to outside agencies for the rental of houses, 
apartments, or rooms used by hospital personnel.
    b. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided in 
paragraph E.2. on a basis that gives primary emphasis to employee 
utilization of housing facilities. The allocation should be developed as 
follows:
    (1) Appropriate credit should be given for all payments received 
from employees or otherwise to reduce the expense to be allocated;
    (2) A net cost per housed employee may then be computed; and
    (3) Allocation should be made on a departmental basis based on the 
number of housed employees in each respective department.

                     9. Medical Records and Library

    a. The expenses under this heading should include:
    (1) The salaries and wages of the records librarian, medical 
librarian, clerks, stenographers, etc.; and
    (2) All supplies such as medical record forms, chart covers, filing 
supplies, stationery, medical library books, periodicals, etc.
    b. The expenses included in this category should be allocated to 
related cost centers in a manner consistent with the guides provided in 
paragraph E.2. on a basis that gives

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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.

     G. Determination and Application of Indirect Cost Rate or Rates

                         1. Indirect Cost Pools

    a. Subject to b. 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.
    b. 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:
    (1) Such indirect cost rate differs significantly from that which 
would have obtained under a. above; and
    (2) The volume of research work to which such rate would apply is 
material in relation to other government research at the institution.
    c. 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.

                        2. 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 G.1. 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.

                   3. 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 are allocated should be appropriately adjusted.

                     4. 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.

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               H. Simplified Method for Small Institutions

                               1. General

    a. 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 H.2. 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.
    b. 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.
    c. 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.

                        2. Abbreviated Procedure

    a. 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 I.2.d. and 
unallowable costs as defined under various headings in paragraph I. and 
paragraph C.5.
    b. Total expenditures as adjusted under the foregoing will then be 
distributed among (1) expenditures applicable to administrative and 
general overhead functions, (2) expenditures applicable to all other 
overhead functions, and (3) expenditures for all other purposes. The 
first group shall include amounts associated with the functional 
categories, Administration and General, and Dietary, as defined in 
paragraphs F.2. and 7. 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 B.5. 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 E. shall be 
considered as expenditures for all other purposes.
    c. The expenditures distributed to the first two groups in paragraph 
H.2.b. 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 C.5.a.
    d. In applying the procedures in paragraphs H.2.a and 2.b, 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.
    e. 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 H.2.b and 2.c. 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 H.2.b. and 2.c. 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 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 H.2.b.

             I. General Standards for Selected Items of Cost

                               1. 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

[[Page 376]]

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:
    a. Facilities costs, such as;
    (1) Depreciation
    (2) Rental
    (3) Use charges for fully depreciated assets
    (4) Idle facilities and idle capacity
    (5) Plant reconversion
    (6) Extraordinary or deferred maintenance and repair
    (7) Acquisition of automatic data processing equipment.
    b. Pre-award costs
    c. Non-hospital professional activities
    d. Self-insurance
    e. Support services charged directly (computer services, printing 
and duplicating services, etc.)
    f. Employee compensation, travel, and other personnel costs, 
including:
    (1) 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;
    (2) Morale, health, welfare, and food service and dormitory costs.
    (3) Training and education costs.
    (4) Relocation costs, including special or mass personnel movement.

                            2. Selected Items

    a. 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:
    (1) 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 I.2.hh;
    (2) The procurement of scarce items for the performance of the 
research agreement; or
    (3) 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 D. and E. are observed.
    b. 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.
    c. Bonding costs.
    (1) 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.
    Included are such types as bid, performance, payment, advance 
payment, infringement, and fidelity bonds.
    (2) Costs of bonding required pursuant to the terms of the research 
agreement are allowable.
    (3) 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.

[[Page 377]]

    d. 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.
    e. 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.
    f. Communication costs. Costs incurred for telephone services, local 
and long distance telephone calls, telegrams, radiograms, postage, and 
the like are allowable.
    g. Compensation for personal services.

                               (1) 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 I.2.j.), and pension plan costs (see paragraph I.2.y.). 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.

                        (2) 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 (3) 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: (i) Patient care; (ii) 
organized research; (iii) instruction and training; (iv) indirect 
activities as defined in paragraph E.1.; or (v) other hospital 
activities as defined in paragraph B.5.

                      (3) 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.

                 (4) Preparation of Estimates of Effort

    Where required under paragraph (3) 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 (2) 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 the 
agreement, such as preparing and delivering special lectures about 
specific aspects of the ongoing research, writing research reports and 
articles, participating in

[[Page 378]]

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.

                   (5) 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.

                (6) 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 (i) hospital activities, and (ii) 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.

               (7) 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.
    h. 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.
    i. Depreciation and use allowances.
    (1) 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.
    (2) 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.
    (3) Normal depreciation on a hospital's plant, equipment, and other 
capital facilities, except as excluded by (4) below, is an allowable 
element of research cost provided that the amount thereof is computed:
    i. 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
    ii. 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
    iii. 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--
    (a) The straight line method;
    (b) 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 (a) above;
    (c) The sum of the years-digits method; and
    (d) 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 (b) above.
    (4) Where the depreciation method is followed, adequate property 
records must be

[[Page 379]]

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.
    (5) Depreciation on idle or excess facilities shall not be allowed 
except on such facilities as are reasonably necessary for standby 
purposes.
    (6) 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.
    (7) 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.
    (8) 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.
    (9) Depreciation and/or use charges should usually be allocated to 
research and other activities as an indirect cost.
    j. 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

[[Page 380]]

credited to the cost thereof unless such income has been irrevocably set 
over to employee welfare organizations.
    k. Entertainment costs.
    Except as pertains to j. above, costs incurred for amusement, social 
activities, entertainment, and any items relating thereto, such as 
meals, lodging, rentals, transportation, and gratuities are unallowable.
    l. 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.
    m. 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.
    n. Insurance and indemnification.
    (1) Costs of insurance required or approved and maintained pursuant 
to the research agreement are allowable.
    (2) Costs of other insurance maintained by the hospital in 
connection with the general conduct of its activities are allowable 
subject to the following limitations: (i) Types and extent and cost of 
coverage must be in accordance with sound institutional practice; (ii) 
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 (iii) 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.
    (3) 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.
    (4) 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.
    o. Interest, fund raising and investment management costs.
    (1) Costs incurred for interest on borrowed capital or temporary use 
of endowment funds, however represented, are unallowable.
    (2) 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.
    (3) Costs of investment counsel and staff and similar expenses 
incurred solely to enhance income from investments are not allowable.
    (4) Costs related to the physical custody and control of monies and 
securities are allowable.
    p. 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.
    q. 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.
    r. Maintenance and repair costs.
    (1) 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:
    i. Normal maintenance and repair costs are allowable;
    ii. Extraordinary maintenance and repair costs are allowable, 
provided they are allocated to the periods to which applicable for 
purposes of determining research costs.
    (2) 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.
    s. 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

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cost. Direct material cost should 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.
    t. Memberships, subscriptions and professional activity costs.
    (1) Costs of the hospital's membership in civic, business, technical 
and professional organizations are allowable.
    (2) Costs of the hospital's subscriptions to civic, business, 
professional and technical periodicals are allowable.
    (3) 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.
    u. Organization costs.
    Expenditures such as incorporation fees, attorneys' fees, 
accountants' fees, brokers' fees, fees to promoters and organizers in 
connection with (1) organization or reorganization of a hospital, or (2) 
raising capital, are unallowable.
    v. 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.
    w. Patient care.
    The cost of routine and ancillary or special services to research 
patients is an allowable direct cost of research agreements.
    (1) 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.
    (2) 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.
    (3) 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 paragraph w.(3).ii.
    (4) 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.
    x. 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 I.2.jj.)
    y. Pension plan costs.

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    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 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.
    z. 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.
    aa. Pre-research 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.
    bb. Professional services costs.
    (1) Costs of professional services rendered by the members of a 
particular profession who are not employees of the hospital are 
allowable subject to (2) and (3) 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.
    (2) Factors to be considered in determining the allowability of 
costs in a particular case include (i) the past pattern of such costs, 
particularly in the years prior to the award of government research 
agreements on the institution's total activity; (ii) the nature and 
scope of managerial services expected of the institution's own 
organizations; and (iii) 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.
    (3) 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.
    cc. 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.
    dd. 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.
    ee. Public information services costs.
    Costs of news releases pertaining to specific research or scientific 
accomplishment are unallowable unless specifically authorized by the 
sponsoring agency.
    ff. 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.
    gg. 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.
    hh. Recruiting costs.
    (1) Subject to (2), (3), and (4) 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.
    (2) 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

[[Page 383]]

which intended and normal institutional practices in this respect) are 
unallowable.
    (3) 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.
    (4) 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.
    ii. Rental costs (including sale and lease-back of facilities).
    (1) 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.
    (2) 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.
    (3) 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.
    jj. 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.
    kk. Severance pay.
    (1) 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.
    (2) 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.
    (3) 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.
    ll. Specialized service facilities operated by a hospital.
    (1) 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 (2) or (3) below, and otherwise take into account any items of income 
or federal financing that qualify as applicable credits under paragraph 
C.5.
    (2) 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 (i) are designed to recover 
only actual costs of providing such services, and (ii) 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.
    (3) In the absence of an acceptable arrangement for direct costing 
as provided in (2) 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.
    mm. Special administrative costs.
    Costs incurred for general public relations activities, catalogs, 
alumni activities, and similar services are unallowable.

[[Page 384]]

    nn. Staff and/or employee benefits.
    (1) 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.
    (2) Staff benefits in the form of employer contributions or expenses 
for Social Security taxes, employee insurance, Workmen's Compensation 
insurance, the Pension Plan (see paragraph I.2.y.), 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.
    oo. Taxes.
    (1) 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 (i) 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, 
(ii) special assessments on land which represent capital improvements, 
and (iii) Federal Income Taxes.
    (2) 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.
    pp. 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.
    qq. Travel costs.
    (1) 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.
    (2) Travel costs are allowable subject to (3) and (4) 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.
    (3) 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 (i) require circuitous routing, (ii) require travel 
during unreasonable hours, (iii) greatly increase the duration of the 
flight, (iv) result in additional costs which would offset the 
transportation savings, or (v) offer accommodations which are not 
reasonably adequate for the medical needs of the traveler.
    (4) 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.
    rr. Termination costs applicable to contracts.
    (1) 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.
    (2) 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

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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.
    (3) 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.
    (4) Loss of useful value of special tooling and special machinery 
and equipment is generally allowable, provided (i) such special tooling, 
machinery or equipment is not reasonably capable of use in the other 
work of the hospital; (ii) the interest of the Government is protected 
by transfer of title or by other means deemed appropriate by the 
contracting officer; and (iii) 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.
    (5) 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 (i) 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 (ii) 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.
    (6) Settlement expenses including the following are generally 
allowable: (i) 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 (ii) 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.
    (7) Subcontractor claims including the allocable portion of claims 
which are common to the contract and to other work of the contractor are 
generally allowable.
    ss. 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.



        Sec. Appendix X to Part 75--Data Collection Form (SF-SAC)

    The Data Collection Form SF-SAC is available on the FAC Web site 
https://harvester.census.gov/facweb/Default.aspx.



           Sec. Appendix XI to Part 75--Compliance Supplement

    The compliance supplement is available on the OMB Web site: (http://
www.whitehouse.gov/omb/circulars/)



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

[[Page 386]]

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.



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

[[Page 387]]

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 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.

[[Page 388]]

    (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).



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

[[Page 389]]

1986, Pub. L. 99-509, Sec. Sec. 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, 
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 
Sec. 79.10 or Sec. 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

[[Page 390]]

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;
    (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

[[Page 391]]

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,
    (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

[[Page 392]]

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
    (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.

[[Page 393]]

    (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 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

[[Page 394]]

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;
    (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.

[[Page 395]]

    (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;
    (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;

[[Page 396]]

    (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 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 Sec. Sec. 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.

[[Page 397]]

    (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.
    (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;

[[Page 398]]

    (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).
    (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.

[[Page 399]]

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
    (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;

[[Page 400]]

    (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
    (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

[[Page 401]]

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.
    (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

[[Page 402]]

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 
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.

[[Page 403]]

    (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.



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.

[[Page 404]]

    (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.
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 to which Federal financial 
assistance is authorized to be extended to a recipient under a law 
administered by the Department, including the Federal financial 
assistance 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

[[Page 405]]

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, as amended at 70 FR 24318, May 9, 2005]



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;
    (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.

[[Page 406]]

    (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.
    (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 benefits 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; 70 FR 24318, May 9, 2005]



Sec. 80.4  Assurances required.

    (a) General. (1) Every application for Federal financial assistance 
to which this part applies, except an application to which paragraph (b) 
of this section

[[Page 407]]

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 in the 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 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 Federal financial assistance. Every application by a 
State or a State agency for 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

[[Page 408]]

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 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.

(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; 70 FR 24318, May 9, 2005]



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 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

[[Page 409]]

the prohibition extends to the entire university.
    (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, 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.
    (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

[[Page 410]]

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; 70 FR 24318, May 9, 2005]



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 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 in 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; 70 FR 24318, May 9, 2005]



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

[[Page 411]]

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 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

[[Page 412]]

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 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

[[Page 413]]

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.
    (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 Federal statutes, authorities, or 
other means by which Federal financial assistance is extended, 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; 70 FR 24318, May 9, 2005]



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

[[Page 414]]

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 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]

[[Page 415]]



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 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.

[[Page 416]]

    (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 (5) any Federal agreement, 
arrangement, or other contract which has as one of its purposes the 
provision of assistance.
    (g) The term program or activity and the term program mean all of 
the operations of--
    (1)(i) A department, agency, special purpose district, or other 
instrumentality of a State or of a local government; or
    (ii) The entity of such State or local government that distributes 
Federal financial assistance and each such department or agency (and 
each other State or local government entity) to which the assistance is 
extended, in the case of assistance to a State or local government;
    (2)(i) A college, university, or other postsecondary institution, or 
a public system of higher education; or
    (ii) A local educational agency (as defined in 20 U.S.C. 7801), 
system of vocational education, or other school system;
    (3)(i) An entire corporation, partnership, or other private 
organization, or an entire sole proprietorship--
    (A) If assistance is extended to such corporation, partnership, 
private organization, or sole proprietorship as a whole; or
    (B) Which is principally engaged in the business of providing 
education, health care, housing, social services, or parks and 
recreation; or
    (ii) The entire plant or other comparable, geographically separate 
facility to which Federal financial assistance is extended, in the case 
of any other corporation, partnership, private organization, or sole 
proprietorship; or
    (4) Any other entity which is established by two or more of the 
entities described in paragraph (g)(1), (g)(2), or (g)(3) of this 
section; any part of which is extended Federal financial assistance.
    (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, including any 
successor, assign, or transferee thereof, but such term does not include 
any ultimate beneficiary.
    (j) The term primary recipient means any recipient which is 
authorized or required to extend Federal financial assistance to another 
recipient.
    (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.

(Secs. 602, 606, Civil Rights Act of 1964, (42 U.S.C. 2000d-1, 2000d-
4a))

[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; 70 FR 24318, May 9, 
2005]



Sec. Appendix A to Part 80--Federal Financial Assistance to Which These 
                            Regulations Apply

      Part 1. Assistance other than Continuing Assistance to States

    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).

[[Page 417]]

    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 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).

[[Page 418]]

    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 (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).

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    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)).
    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,

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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 CFR 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 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

    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).

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    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)).
    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, as amended at 70 
FR 24319, May 9, 2005]



 Sec. 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

[[Page 422]]

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.
    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,

[[Page 423]]

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;
    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.

[[Page 424]]

     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 
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

[[Page 425]]

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 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.

[[Page 426]]

 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.
    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 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.

[[Page 427]]

   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.

 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

[[Page 428]]

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 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.

[[Page 429]]

              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, 1979]



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.

[[Page 430]]

                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 Sec. Sec. 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 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

[[Page 431]]

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 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

[[Page 432]]

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 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

[[Page 433]]

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 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.

[[Page 434]]



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.
    (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 Sec. Sec. 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

[[Page 435]]

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 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.

[[Page 436]]



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 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.

[[Page 437]]



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.



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

[[Page 438]]

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 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.

[[Page 439]]



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 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.

[[Page 440]]

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 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

[[Page 441]]

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 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.



Sec. Sec. 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.

[[Page 442]]

    (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.
    (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

[[Page 443]]

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, 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

[[Page 444]]

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 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

[[Page 445]]

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 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.



Sec. Sec. 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 OR 
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_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.
84.39 Private education.
84.40 [Reserved]

                    Subpart E_Postsecondary Education

84.41 Application of this subpart.
84.42 Admissions and recruitment.

[[Page 446]]

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

    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 the program or 
activity that receives such assistance.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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

[[Page 447]]

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.
    (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) Program or activity means all of the operations of--
    (1)(i) A department, agency, special purpose district, or other 
instrumentality of a State or of a local government; or
    (ii) The entity of such State or local government that distributes 
Federal financial assistance and each such department or agency (and 
each other State or local government entity) to which the assistance is 
extended, in the case of assistance to a State or local government;
    (2)(i) A college, university, or other postsecondary institution, or 
a public system of higher education; or
    (ii) A local educational agency (as defined in 20 U.S.C. 7801), 
system of vocational education, or other school system;
    (3)(i) An entire corporation, partnership, or other private 
organization, or an entire sole proprietorship--
    (A) If assistance is extended to such corporation, partnership, 
private organization, or sole proprietorship as a whole; or
    (B) Which is principally engaged in the business of providing 
education, health care, housing, social services, or parks and 
recreation; or
    (ii) The entire plant or other comparable, geographically separate 
facility to which Federal financial assistance is extended, in the case 
of any other corporation, partnership, private organization, or sole 
proprietorship; or
    (4) Any other entity which is established by two or more of the 
entities described in paragraph (k)(1), (2), or (3) of this section; any 
part of which is extended Federal financial assistance.
    (l) 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 handicapped 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;

[[Page 448]]

    (4) With respect to other services, a handicapped person who meets 
the essential eligibility requirements for the receipt of such services.
    (m) Handicap means any condition or characteristic that renders a 
person a handicapped person as defined in paragraph (j) of this section.

(29 U.S.C. 794(b))

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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 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 or 
activity;
    (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 aids, benefits, 
or services provided in accordance with this part, a recipient may not 
deny a qualified handicapped person the opportunity to participate in 
such aids, benefits, or services 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 or activity 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 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

[[Page 449]]

program or activity receiving 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) Aids, benefits, or services limited by Federal law. The 
exclusion of nonhandicapped persons from aids, benefits, or services 
limited by Federal statute or executive order to handicapped persons or 
the exclusion of a specific class of handicapped persons from aids, 
benefits, or services limited by Federal statute or executive order to a 
different class of handicapped persons is not prohibited by this part.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



Sec. 84.5  Assurances required.

    (a) Assurances. An applicant for Federal financial assistance to 
which this part applies shall submit an assurance, on a form specified 
by the Director, that the program or activity 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 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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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

[[Page 450]]

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 or 
activity but who were participants in the program or activity when such 
discrimination occurred or (ii) with respect to handicapped persons who 
would have been participants in the program or activity 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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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.



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 or 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.

[[Page 451]]

    (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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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 Sec. Sec. 
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 or activities 
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 
apprenticeships.
    (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;

[[Page 452]]

    (8) Employer sponsored activities, including those that are social 
or recreational; 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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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 or activity.
    (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 or activity, factors to be considered include:
    (1) The overall size of the recipient's program or activity 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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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 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

[[Page 453]]

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.



Sec. Sec. 84.15-84.20  [Reserved]



                         Subpart C_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) Accessibility. A recipient shall operate its program or activity 
so that when each part is viewed in its entirety, it 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 
serve 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.

[[Page 454]]

    (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 accessibility under paragraph (a) 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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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 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]



Sec. Sec. 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 or activities that receive Federal financial 
assistance and to recipients that operate, or that receive Federal 
financial assistance for the operation of, such programs or activities.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]

[[Page 455]]



Sec. 84.32  Location and notification.

    A recipient that operates a public elementary or secondary education 
program or activity 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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



Sec. 84.33  Free appropriate public education.

    (a) General. A recipient that operates a public elementary or 
secondary education program or activity 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 Sec. Sec. 
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 or refer such a 
person for aids, benefits, or services other than those that it operates 
or provides 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 or refers such person for aids, benefits, or services 
not operated or provided by the recipient as its means of carrying out 
the requirements of this subpart, of payment for the costs of the aids, 
benefits, or services. 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 or 
refers such person for aids, benefits, or services not operated or 
provided 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 aids, benefits, or services 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 aids, benefits, or services 
operated by the recipient.
    (3) Residential placement. If a public or private residential 
placement is necessary to provide a free appropriate public education to 
a handicapped person because of his or her handicap, the placement, 
including non-medical care and room and board, shall be provided at no 
cost to the person or his or her parents or guardian.
    (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 a free 
appropriate public education available or otherwise regarding the 
question of

[[Page 456]]

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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, 24320, May 9, 
2005]



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 or activity 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 regular or special 
education 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 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

[[Page 457]]

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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



Sec. 84.36  Procedural safeguards.

    A recipient that operates a public elementary or secondary education 
program or activity 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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24319, May 9, 2005]



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 aids, benefits, or services 
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.
    (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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



Sec. 84.38  Preschool and adult education.

    A recipient to which this subpart applies that provides preschool 
education or day care or adult education may not, on the basis of 
handicap, exclude qualified handicapped persons and shall take into 
account the needs of such persons in determining the aids, benefits, or 
services to be provided.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]

[[Page 458]]



Sec. 84.39  Private education.

    (a) A recipient that provides private elementary or secondary 
education may not, on the basis of handicap, exclude a qualified 
handicapped person if the person can, with minor adjustments, be 
provided an appropriate education, as defined in Sec. 84.33(b)(1), 
within that recipient's program or activity.
    (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 provides special 
education shall do so in accordance with the provisions of Sec. Sec. 
84.35 and 84.36. Each recipient to which this section applies is subject 
to the provisions of Sec. Sec. 84.34, 84.37, and 84.38.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



Sec. 84.40  [Reserved]



                    Subpart E_Postsecondary Education



Sec. 84.41  Application of this subpart.

    Subpart E applies to postsecondary education programs or activities, 
including postsecondary vocational education programs or activities, 
that receive Federal financial assistance and to recipients that 
operate, or that receive Federal financial assistance for the operation 
of, such programs or activities.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



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 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

[[Page 459]]

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 
aids, benefits, or services 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 
program or activity in the most integrated setting appropriate.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



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 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, 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 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 because of the absence of 
educational auxiliary aids for students with impaired sensory, manual, 
or speaking skills.

[[Page 460]]

    (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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



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 aids, benefits, or services 
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 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

[[Page 461]]

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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



Sec. Sec. 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 or activities that receive Federal financial assistance and to 
recipients that operate, or that receive Federal financial assistance 
for the operation of, such programs or activities.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



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.



Sec. 84.54  Education of institutionalized persons.

    A recipient to which this subpart applies and that provides aids, 
benefits,

[[Page 462]]

or services for persons who are institutionalized because of handicap 
shall ensure that each qualified handicapped person, as defined in Sec. 
84.3(l)(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.

[42 FR 22677, May 4, 1977, as amended at 70 FR 24320, May 9, 2005]



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 or activities 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):

                                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

[[Page 463]]

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.
    (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

[[Page 464]]

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 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-

[[Page 465]]

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 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

[[Page 466]]

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; 70 
FR 24320, May 9, 2005]



Sec. Sec. 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 Sec. Sec. 
80.6 through 80.10 and part 81 of this title.

[42 FR 22677, May 4, 1977; 42 FR 22888, May 5, 1977]

[[Page 467]]



        Sec. 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. 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

[[Page 468]]

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 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

[[Page 469]]

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 possession 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 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

[[Page 470]]

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 Sec. Sec. 
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 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.

[[Page 471]]

    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 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

[[Page 472]]

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 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,

[[Page 473]]

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 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

[[Page 474]]

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 
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

[[Page 475]]

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.
    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

[[Page 476]]

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 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

[[Page 477]]

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, 
Sec. Sec. 84.32 and 84.33 apply only to public programs and Sec. 84.39 
applies only to private programs; Sec. Sec. 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 Sec. Sec. 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 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

[[Page 478]]

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 
Sec. Sec. 84.34 and 84.36.
    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

[[Page 479]]

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 Sec. Sec. 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 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

[[Page 480]]

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 
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 accessible 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

[[Page 481]]

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 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

[[Page 482]]

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.

             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

[[Page 483]]

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 Sec. Sec. 
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 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

[[Page 484]]

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.



 Sec. 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]

    Note: For the text of these guidelines, see 45 CFR part 80, appendix 
B.

[44 FR 17168, Mar. 21, 1979]



   Sec. 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 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.

[[Page 485]]

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 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

[[Page 486]]

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, 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.

[[Page 487]]



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 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.

[[Page 488]]

    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.



Sec. Sec. 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.



Sec. Sec. 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.

[[Page 489]]

    (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.



Sec. Sec. 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

[[Page 490]]

Equal Employment Opportunity Commission in 9 CFR part 1613, shall apply 
to employment in federally conducted programs and activities.



Sec. Sec. 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 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

[[Page 491]]

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.



Sec. Sec. 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 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.

[[Page 492]]



Sec. Sec. 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 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

[[Page 493]]

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.
---------------------------------------------------------------------------

    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\

[[Page 494]]

    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 Sec. Sec. 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.
    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.

[[Page 495]]

    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 agency must follow 
the procedures established in Sec. Sec. 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

[[Page 496]]

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 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.

[[Page 497]]

       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 (Sec. Sec. 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 
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

[[Page 498]]

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 Sec. Sec. 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 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)).

[[Page 499]]

    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 Sec. 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. 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

[[Page 500]]

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.

                      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

[[Page 501]]

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 Sec. 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'' 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

[[Page 502]]

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 
OR ACTIVITIES RECEIVING 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.
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.

[[Page 503]]

                           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 or 
                          Activities Prohibited

86.31 Education programs or 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 or 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.
    (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.

[[Page 504]]

    (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) Program or activity and program means all of the operations of--
    (1)(i) A department, agency, special purpose district, or other 
instrumentality of a State or of a local government; or
    (ii) The entity of such a State or local government that distributes 
Federal financial assistance and each such department or agency (and 
each other State or local government entity) to which the assistance is 
extended, in the case of assistance to a State or local government;
    (2)(i) A college, university, or other postsecondary institution, or 
a public system of higher education; or
    (ii) A local educational agency (as defined in 20 U.S.C. 7801), 
system of vocational education, or other school system;
    (3)(i) An entire corporation, partnership, or other private 
organization, or an entire sole proprietorship--
    (A) If assistance is extended to such corporation, partnership, 
private organization, or sole proprietorship as a whole; or
    (B) Which is principally engaged in the business of providing 
education, health care, housing, social services, or parks and 
recreation; or
    (ii) The entire plant or other comparable, geographically separate 
facility to which Federal financial assistance is extended, in the case 
of any other corporation, partnership, private organization, or sole 
proprietorship; or
    (4) Any other entity which is established by two or more of the 
entities described in paragraph (h)(1), (2), or (3) of this section; any 
part of which is extended Federal financial assistance.
    (i) 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 such assistance, including any subunit, 
successor, assignee, or transferee thereof.
    (j) 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.
    (k) 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 (l), (m), (n), or (o) of this section.

[[Page 505]]

    (l) 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.
    (m) 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.
    (n) Institution of professional education means an institution 
(except any institution of undergraduate higher education) which offers 
a program of 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.
    (o) 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.
    (p) 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.
    (q) 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.
    (r) Student means a person who has gained admission.
    (s) 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, 908, Education Amendments of 1972, 20 U.S.C. 1681, 
1682, 1687)

[40 FR 24137, June 4, 1975, as amended at 70 FR 24320, May 9, 2005]



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

[[Page 506]]

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 the 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 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)

[40 FR 24137, June 4, 1975, as amended at 70 FR 24321, May 9, 2005]



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

[[Page 507]]

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 Federal financial assistance.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)

[40 FR 24137, June 4, 1975, as amended at 70 FR 24321, May 9, 2005]



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 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 prompt 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)

[[Page 508]]

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 the education program or activity operated by such 
recipient which receives Federal financial assistance.

(Secs. 901, 902, Education Amendments of 1972, 86 Stat. 373, 374; 20 
U.S.C. 1681, 1682)

[40 FR 24137, June 4, 1975, as amended at 70 FR 24321, May 9, 2005]



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, Sec. Sec. 86.16 and 86.17, and subpart C, each 
administratively separate unit shall be deemed to be an educational 
institution.

[[Page 509]]

    (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.
    (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.

[[Page 510]]

    (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]



Sec. Sec. 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 
Sec. Sec. 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;
    (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

[[Page 511]]

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)



Sec. Sec. 86.24-86.30  [Reserved]



 Subpart D_Discrimination on the Basis of Sex in Education Programs or 
                          Activities Prohibited



Sec. 86.31  Education programs or 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 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 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) Aid, benefits, or services not provided 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.

[[Page 512]]

    (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)

[40 FR 24137, June 4, 1975, as amended at 70 FR 24321, May 9, 2005]



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 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.

[[Page 513]]

    (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 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,

[[Page 514]]

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]



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 so long as such a 
certification is required of all students for

[[Page 515]]

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 separate portion 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)

[40 FR 24137, June 4, 1975, as amended at 70 FR 24321, May 9, 2005]



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, 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

[[Page 516]]

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)



Sec. Sec. 86.43-86.50  [Reserved]



Subpart E_Discrimination on the Basis of Sex in Employment in Education 
                    Programs or 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 Federal 
financial assistance.
    (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 those that are social 
or recreational; and

[[Page 517]]

    (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)

[40 FR 24137, June 4, 1975, as amended at 70 FR 24321, May 9, 2005]



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:
    (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

[[Page 518]]

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 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

[[Page 519]]

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)



Sec. Sec. 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)



       Sec. 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
    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

[[Page 520]]

    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)

                                    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)

[[Page 521]]

    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)



 Sec. 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]

    Note: For the text of these guidelines, see 45 CFR part 80, appendix 
B.

[44 FR 17168, Mar. 21, 1979]



PART 87_EQUAL TREATMENT FOR FAITH-BASED ORGANIZATIONS--Table of Contents



Sec.
87.1 Discretionary grants
87.2 Formula and block grants

    Authority: 5 U.S.C. 301.

    Source: 69 FR 42593, July 16, 2004, unless otherwise noted.



Sec. 87.1  Discretionary grants.

    (a) This section is not applicable to the programs governed by the 
Charitable Choice regulations found at 42 CFR part 54a.
    (b) Religious organizations are eligible, on the same basis as any 
other organization, to participate in any Department program for which 
they are otherwise eligible. Neither the Department nor any State or 
local government and other intermediate organizations receiving funds 
under any Department program shall, in the selection of service 
providers, discriminate for or against an organization on the basis of 
the organization's religious character or affiliation. As used in this 
section, ``program'' refers to activities supported by discretionary 
grants under which recipients are selected through a competitive 
process. As used in this section, the term ``recipient'' means an 
organization receiving financial assistance from an HHS awarding agency 
to carry out a project or program and includes the term ``grantee'' as 
used in 45 CFR Parts 74, 92, and 96.
    (c) Organizations that receive direct financial assistance from the 
Department under any Department program may not engage in inherently 
religious activities, such as worship, religious instruction, or 
proselytization, as part of the programs or services funded with direct 
financial assistance from the Department. If an organization conducts 
such activities, the activities must be offered separately, in time or 
location, from the programs or services funded with direct financial 
assistance from the Department, and participation must be voluntary for 
beneficiaries of the programs or services funded with such assistance.
    (d) A religious organization that participates in the Department-
funded programs or services will retain its independence from Federal, 
State, and local governments, and may continue to carry out its mission, 
including the definition, practice, and expression of its religious 
beliefs, provided that it does not use direct financial assistance from 
the Department to support any inherently religious activities, such as 
worship, religious instruction, or proselytization. Among other things, 
a faith-based organization may use space in its facilities to provide 
programs or services funded with financial assistance from the 
Department without removing religious art, icons, scriptures, or other 
religious symbols. In addition, a religious organization that receives 
financial assistance from the Department retains its authority over its 
internal governance, and it may retain

[[Page 522]]

religious terms in its organization's name, select its board members on 
a religious basis, and include religious references in its 
organization's mission statements and other governing documents in 
accordance with all program requirements, statutes, and other applicable 
requirements governing the conduct of Department-funded activities.
    (e) An organization that participates in programs funded by direct 
financial assistance from the Department shall not, in providing 
services, discriminate against a program beneficiary or prospective 
program beneficiary on the basis of religion or religious belief.
    (f) No grant document, agreement, covenant, memorandum of 
understanding, policy, or regulation that is used by the Department or a 
State or local government in administering financial assistance from the 
Department shall require only religious organizations to provide 
assurances that they will not use monies or property for inherently 
religious activities. Any restrictions on the use of grant funds shall 
apply equally to religious and non-religious organizations. All 
organizations that participate in Department programs, including 
organizations with religious character or affiliations, must carry out 
eligible activities in accordance with all program requirements and 
other applicable requirements governing the conduct of Department-funded 
activities, including those prohibiting the use of direct financial 
assistance from the Department to engage in inherently religious 
activities. No grant document, agreement, covenant, memorandum of 
understanding, policy, or regulation that is used by the Department or a 
State or local government in administering financial assistance from the 
Department shall disqualify religious organizations from participating 
in the Department's programs because such organizations are motivated or 
influenced by religious faith to provide social services, or because of 
their religious character or affiliation.
    (g) A religious organization's exemption from the Federal 
prohibition on employment discrimination on the basis of religion, set 
forth in section 702(a) of the Civil Rights Act of 1964, 42 U.S.C. 
2000e-1, is not forfeited when the organization receives direct or 
indirect financial assistance from the Department. Some Department 
programs, however, contain independent statutory provisions requiring 
that all recipients agree not to discriminate in employment on the basis 
of religion. Accordingly, recipients should consult with the appropriate 
Department program office if they have questions about the scope of any 
applicable requirement.
    (h) In general, the Department does not require that a recipient, 
including a religious organization, obtain tax-exempt status under 
section 501(c)(3) of the Internal Revenue Code to be eligible for 
funding under Department programs. Many grant programs, however, do 
require an organization to be a ``nonprofit organization'' in order to 
be eligible for funding. Funding announcements and other grant 
application solicitations that require organizations to have nonprofit 
status will specifically so indicate in the eligibility section of the 
solicitation. In addition, any solicitation that requires an 
organization to maintain tax-exempt status will expressly state the 
statutory authority for requiring such status. Recipients should consult 
with the appropriate Department program office to determine the scope of 
any applicable requirements. In Department programs in which an 
applicant must show that it is a nonprofit organization, the applicant 
may do so by any of the following means:
    (1) Proof that the Internal Revenue Service currently recognizes the 
applicant as an organization to which contributions are tax deductible 
under section 501(c)(3) of the Internal Revenue Code;
    (2) A statement from a State or other governmental taxing body or 
the State secretary of State certifying that:
    (i) The organization is a nonprofit organization operating within 
the State; and
    (ii) No part of its net earnings may benefit any private shareholder 
or individual;
    (3) A certified copy of the applicant's certificate of incorporation 
or similar document that clearly establishes the nonprofit status of the 
applicant; or

[[Page 523]]

    (4) Any item described in paragraphs (h)(1) through (3) of this 
section if that item applies to a State or national parent organization, 
together with a statement by the State or parent organization that the 
applicant is a local nonprofit affiliate.
    (i) If a grantee contributes its own funds in excess of those funds 
required by a matching or grant agreement to supplement Department-
supported activities, the grantee has the option to segregate those 
additional funds or commingle them with the Federal award funds. If the 
funds are commingled, the provisions of this section shall apply to all 
of the commingled funds in the same manner, and to the same extent, as 
the provisions apply to the Federal funds. With respect to the matching 
funds, the provisions of this section apply irrespective of whether such 
funds are commingled with Federal funds or segregated.
    (j) To the extent otherwise permitted by Federal law, the 
restrictions on inherently religious activities set forth in this 
section do not apply where Department funds are provided to religious 
organizations as a result of a genuine and independent private choice of 
a beneficiary or through other indirect funding mechanisms, provided the 
religious organizations otherwise satisfy the requirements of the 
program. A religious organization may receive such funds as the result 
of a beneficiary's genuine and independent choice if, for example, a 
beneficiary redeems a voucher, coupon, or certificate, allowing the 
beneficiary to direct where funds are to be paid, or through a similar 
funding mechanism provided to that beneficiary and designed to give that 
beneficiary a genuine and independent choice among providers.



Sec. 87.2  Formula and block grants.

    (a) This section is not applicable to the programs governed by the 
Charitable Choice regulations found at 42 CFR part 54 and 45 CFR parts 
96, 260, and 1050.
    (b) Religious organizations are eligible, on the same basis as any 
other organization, to participate in any Department program for which 
they are otherwise eligible. Neither the Department nor any State or 
local government receiving funds under any Department program nor any 
intermediate organization with the same duties as a governmental entity 
under this part shall, in the selection of service providers, 
discriminate for or against an organization on the basis of the 
organization's religious character or affiliation. As used in this 
section, ``program'' refers to activities supported by formula or block 
grants. As used in this section, the term ``recipient'' means an 
organization receiving financial assistance from an HHS awarding agency 
to carry out a project or program and includes the term ``grantee'' as 
used in 45 CFR Parts 74, 92, and 96.
    (c) Organizations that receive direct financial assistance from the 
Department may not engage in inherently religious activities, such as 
worship, religious instruction, or proselytization, as part of the 
programs or services funded with direct financial assistance from the 
Department. If an organization conducts such activities, the activities 
must be offered separately, in time or location, from the programs or 
services funded with direct financial assistance from the Department, 
and participation must be voluntary for beneficiaries of the programs or 
services funded with such assistance.
    (d) A religious organization that participates in the Department-
funded programs or services will retain its independence from Federal, 
State, and local governments, and may continue to carry out its mission, 
including the definition, practice, and expression of its religious 
beliefs, provided that it does not use direct financial assistance from 
the Department to support any inherently religious activities, such as 
worship, religious instruction, or proselytization. Among other things, 
a faith-based organization that receives financial assistance from the 
Department may use space in its facilities, without removing religious 
art, icons, scriptures, or other religious symbols. In addition, a 
religious organization that receives financial assistance from the 
Department retains its authority over its internal governance and it may 
retain religious terms in its organization's name, select its board 
members on a religious basis, and include

[[Page 524]]

religious references in its organization's mission statements and other 
governing documents in accordance with all program requirements, 
statutes, and other applicable requirements governing the conduct of 
Department-funded activities.
    (e) An organization that participates in programs funded by direct 
financial assistance from the Department shall not, in providing 
services, discriminate against a program beneficiary or prospective 
program beneficiary on the basis of religion or religious belief.
    (f) No grant document, agreement, covenant, memorandum of 
understanding, policy, or regulation that is used by the Department or a 
State or local government in administering financial assistance from the 
Department shall require only religious organizations to provide 
assurances that they will not use monies or property for inherently 
religious activities. Any restrictions on the use of grant funds shall 
apply equally to religious and non-religious organizations. All 
organizations that participate in Department programs, including 
organizations with religious character or affiliations, must carry out 
eligible activities in accordance with all program requirements and 
other applicable requirements governing the conduct of Department-funded 
activities, including those prohibiting the use of direct financial 
assistance to engage in inherently religious activities. No grant 
document, agreement, covenant, memorandum of understanding, policy, or 
regulation that is used by the Department or a State or local government 
in administering financial assistance from the Department shall 
disqualify religious organizations from participating in the 
Department's programs because such organizations are motivated or 
influenced by religious faith to provide social services, or because of 
their religious character or affiliation.
    (g) A religious organization's exemption from the Federal 
prohibition on employment discrimination on the basis of religion, set 
forth in section 702(a) of the Civil Rights Act of 1964, 42 U.S.C. 
2000e-1, is not forfeited when the religious organization receives 
direct or indirect financial assistance from the Department. Some 
Department programs, however, contain independent statutory provisions 
requiring that all recipients agree not to discriminate in employment on 
the basis of religion. Accordingly, grantees should consult with the 
appropriate Department program office if they have questions about the 
scope of any applicable requirement.
    (h) In general, the Department does not require that a recipient, 
including a religious organization, obtain tax-exempt status under 
section 501(c)(3) of the Internal Revenue Code to be eligible for 
funding under Department programs. Many grant programs, however, do 
require an organization to be a ``nonprofit organization'' in order to 
be eligible for funding. Individual solicitations that require 
organizations to have nonprofit status will specifically so indicate in 
the eligibility section of a solicitation. In addition, any solicitation 
that requires an organization to maintain tax-exempt status will 
expressly state the statutory authority for requiring such status. 
Grantees should consult with the appropriate Department program office 
to determine the scope of any applicable requirements. In Department 
programs in which an applicant must show that it is a nonprofit 
organization, the applicant may do so by any of the following means:
    (1) Proof that the Internal Revenue Service currently recognizes the 
applicant as an organization to which contributions are tax deductible 
under section 501(c)(3) of the Internal Revenue Code;
    (2) A statement from a State or other governmental taxing body or 
the State secretary of State certifying that:
    (i) The organization is a nonprofit organization operating within 
the State; and
    (ii) No part of its net earnings may benefit any private shareholder 
or individual;
    (3) A certified copy of the applicant's certificate of incorporation 
or similar document that clearly establishes the nonprofit status of the 
applicant; or
    (4) Any item described in paragraphs (h)(1) through (3) of this 
section if that item applies to a State or national parent organization, 
together with a

[[Page 525]]

statement by the State or parent organization that the applicant is a 
local nonprofit affiliate.
    (i) If a State or local government contributes its own funds in 
excess of those funds required by a matching or grant agreement to 
supplement Department-supported activities, the State or local 
government has the option to segregate those additional funds or 
commingle them with the Federal award funds. If the funds are 
commingled, the provisions of this section shall apply to all of the 
commingled funds in the same manner, and to the same extent, as the 
provisions apply to the Federal funds. With respect to matching funds, 
the provisions of this section apply irrespective of whether such funds 
are commingled with Federal funds or segregated.
    (j) To the extent otherwise permitted by Federal law, the 
restrictions on inherently religious activities set forth in this 
section do not apply where Department funds are provided to religious 
organizations as a result of a genuine and independent private choice of 
a beneficiary or through other indirect funding mechanisms, provided the 
religious organizations otherwise satisfy the requirements of the 
program. A religious organization may receive such funds as the result 
of a beneficiary's genuine and independent choice if, for example, a 
beneficiary redeems a voucher, coupon, or certificate, allowing the 
beneficiary to direct where funds are to be paid, or through a similar 
funding mechanism provided to that beneficiary and designed to give that 
beneficiary a choice among providers.



PART 88_ENSURING THAT DEPARTMENT OF HEALTH AND HUMAN SERVICES FUNDS DO 
NOT SUPPORT COERCIVE OR DISCIMINATORY POLICIES OR PRACTICES IN VIOLATION 

OF FEDERAL LAW--Table of Contents



Sec.
88.1 Purpose.
88.2 Complaint handling and investigating.

    Authority: 5 U.S.C. 301.

    Source: 73 FR 78096, Dec. 19, 2008, unless otherwise noted.



Sec. 88.1  Purpose.

    The purpose of this part is to provide for the enforcement of the 
Church Amendments, 42 U.S.C. 300a-7, section 245 of the Public Health 
Service Act, 42 U.S.C. 238n, and the Weldon Amendment, Consolidated 
Appropriations Act, 2010, Public Law 111-117, Div. D, Sec. 508(d), 123 
Stat. 3034, 3279-80, referred to collectively as the ``federal health 
care provider conscience protection statutes.''

[76 FR 9976, Feb. 23, 2011]



Sec. 88.2  Complaint handling and investigating.

    The Office for Civil Rights (OCR) of the Department of Health and 
Human Services is designated to receive complaints based on the Federal 
health care provider conscience protection statutes. OCR will coordinate 
the handling of complaints with the Departmental funding component(s) 
from which the entity, to which a complaint has been filed, receives 
funding.

[76 FR 9976, Feb. 23, 2011]



PART 89_ORGANIZATIONAL INTEGRITY OF ENTITIES IMPLEMENTING PROGRAMS AND 
ACTIVITIES UNDER THE LEADERSHIP ACT--Table of Contents



Sec.
89.1 Applicability and requirements.
89.2 Definitions.
89.3 Organizational integrity of recipients.

    Authority: Section 301(f) of the Leadership Act, Pub. L. 108-25, as 
amended (22 U.S.C. 7631(f)) and 5 U.S.C. 301.

    Source: 75 FR 18763, Apr. 13, 2010, unless otherwise noted.



Sec. 89.1  Applicability and requirements.

    (a) This regulation applies to all recipients unless they are 
exempted from the policy requirement by the Leadership Act or other 
statute.
    (b) The Department of Health and Human Services (HHS) components 
shall include in the public announcement of the availability of the 
grant, cooperative agreement, contract, or other funding instrument 
involving Leadership Act HIV/AIDS funds the requirement that recipients 
agree that

[[Page 526]]

they are opposed to the practices of prostitution and sex trafficking 
because of the psychological and physical risks they pose for women, 
men, and children. This requirement shall also be included in the award 
documents for any grant, cooperative agreement or other funding 
instrument involving Leadership Act HIV/AIDS funds entered into with the 
recipient.



Sec. 89.2  Definitions.

    For the purposes of this part:
    Commercial sex act means any sex act on account of which anything of 
value is given to or received by any person.
    Leadership Act means the United States Leadership Against HIV/AIDS, 
Tuberculosis, and Malaria Act of 2003, Public Law 108-25, as amended (22 
U.S.C. 7601-7682).
    Prostitution means procuring or providing any commercial sex act.
    Recipients are contractors, grantees, applicants or awardees who 
receive Leadership Act funds for HIV/AIDS programs directly or 
indirectly from HHS.
    Sex trafficking means the recruitment, harboring, transportation, 
provision, or obtaining of a person for the purpose of a commercial sex 
act.



Sec. 89.3  Organizational integrity of recipients.

    A recipient must have objective integrity and independence from any 
affiliated organization that engages in activities inconsistent with the 
recipient's opposition to the practices of prostitution and sex 
trafficking because of the psychological and physical risks they pose 
for women, men and children (``restricted activities''). A recipient 
will be found to have objective integrity and independence from such an 
organization if:
    (a) The affiliated organization receives no transfer of Leadership 
Act HIV/AIDS funds, and Leadership Act HIV/AIDS funds do not subsidize 
restricted activities; and
    (b) The recipient is, to the extent practicable in the 
circumstances, separate from the affiliated organization. Mere 
bookkeeping separation of Leadership Act HIV/AIDS funds from other funds 
is not sufficient. HHS will determine, on a case-by-case basis and based 
on the totality of the facts, whether sufficient separation exists. The 
presence or absence of any one or more factors relating to legal, 
physical, and financial separation will not be determinative. Factors 
relevant to this determination shall include, but not be limited to, the 
following:
    (1) Whether the organization is a legally separate entity;
    (2) The existence of separate personnel or other allocation of 
personnel that maintains adequate separation of the activities of the 
affiliated organization from the recipient;
    (3) The existence of separate accounting and timekeeping records;
    (4) The degree of separation of the recipient's facilities from 
facilities in which restricted activities occur; and
    (5) The extent to which signs and other forms of identification that 
distinguish the recipient from the affiliated organization are present.



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 or activities does the Age Discrimination Act of 1975 
          cover?
90.4 How are the terms in the regulations defined?

                  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.

[[Page 527]]

    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, as amended, 42 U.S.C. 
6101 et seq.

    Source: 44 FR 33776, June 12, 1979, 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 or 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.

[44 FR 33776, June 12, 1979, as amended at 70 FR 24321, May 9, 2005]



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 or 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 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,

[[Page 528]]

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.
    Program or activity means all of the operations of--
    (a)(1) A department, agency, special purpose district, or other 
instrumentality of a State or of a local government; or
    (2) The entity of such State or local government that distributes 
Federal financial assistance and each such department or agency (and 
each other State or local government entity) to which the assistance is 
extended, in the case of assistance to a State or local government;
    (b)(1) A college, university, or other postsecondary institution, or 
a public system of higher education; or
    (2) A local educational agency (as defined in 20 U.S.C. 7801), 
system of vocational education, or other school system;
    (c)(1) An entire corporation, partnership, or other private 
organization, or an entire sole proprietorship--
    (i) If assistance is extended to such corporation, partnership, 
private organization, or sole proprietorship as a whole; or
    (ii) Which is principally engaged in the business of providing 
education, health care, housing, social services, or parks and 
recreation; or
    (2) The entire plant or other comparable, geographically separate 
facility to which Federal financial assistance is extended, in the case 
of any other corporation, partnership, private organization, or sole 
proprietorship; or
    (d) Any other entity which is established by two or more of the 
entities described in paragraph (a), (b), or (c) of this definition; any 
part of which is extended Federal financial assistance.
    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.

(42 U.S.C. 6107)

[44 FR 33776, June 12, 1979, as amended at 70 FR 24321, May 9, 2005]



                  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.

[[Page 529]]



Sec. 90.12  Rules against age discrimination.

    The rules stated in this section are limited by the exceptions 
contained in Sec. Sec. 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.
    (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 Sec. Sec. 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 Sec. Sec. 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

[[Page 530]]

    (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 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 or 
activities 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

[[Page 531]]

has identified in any programs or activities 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 or activities receiving Federal financial 
assistance from the agency; and
    (e) Contains whatever other data the Secretary may require.

[44 FR 33776, June 12, 1979, as amended at 70 FR 24321, May 9, 2005]



    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.



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 or 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.

[44 FR 33776, June 12, 1979, as amended at 70 FR 24322, May 9, 2005]



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

[[Page 532]]

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 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 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.

[44 FR 33776, June 12, 1979, as amended at 70 FR 24322, May 9, 2005]



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

[[Page 533]]

    (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 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 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.

[44 FR 33776, June 12, 1979, as amended at 70 FR 24322, May 9, 2005]



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 Federal financial 
assistance.

[44 FR 33776, June 12, 1979, as amended at 70 FR 24322, May 9, 2005]



Sec. 90.49  Remedial and affirmative action by recipients.

    (a) Where a recipient is found to have discriminated on the basis of 
age, the

[[Page 534]]

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 or activity 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 or activity.

[44 FR 33776, June 12, 1979, as amended at 70 FR 24322, May 9, 2005]



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.
    (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.

[[Page 535]]



PART 91_NONDISCRIMINATION ON THE BASIS OF AGE IN PROGRAMS OR 
ACTIVITIES RECEIVING FEDERAL FINANCIAL ASSISTANCE FROM HHS--

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 or activities 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.
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 or 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.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



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 or 
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.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



Sec. 91.3  To what programs or activities 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 
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:

[[Page 536]]

    (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.)

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



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
    (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.
    Program or activity means all of the operations of--
    (a)(1) A department, agency, special purpose district, or other 
instrumentality of a State or of a local government; or
    (2) The entity of such State or local government that distributes 
Federal financial assistance and each such department or agency (and 
each other State or local government entity) to which the assistance is 
extended, in the case of assistance to a State or local government;
    (b)(1) A college, university, or other postsecondary institution, or 
a public system of higher education; or
    (2) A local educational agency (as defined in 20 U.S.C. 7801), 
system of vocational education, or other school system;
    (c)(1) An entire corporation, partnership, or other private 
organization, or an entire sole proprietorship--
    (i) If assistance is extended to such corporation, partnership, 
private organization, or sole proprietorship as a whole; or
    (ii) Which is principally engaged in the business of providing 
education, health care, housing, social services, or parks and 
recreation; or
    (2) The entire plant or other comparable, geographically separate 
facility to which Federal financial assistance is extended, in the case 
of any other corporation, partnership, private organization, or sole 
proprietorship; or
    (d) Any other entity which is established by two or more of the 
entities described in paragraph (a), (b), or (c) of this definition; any 
part of which is extended Federal financial assistance.
    Recipient means any State or its political subdivision, any 
instrumentality of a State or its political subdivision, any public or 
private agency,

[[Page 537]]

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.

(Authority: 42 U.S.C. 6107)

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



         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 Sec. Sec. 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 Sec. Sec. 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 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.

[[Page 538]]



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 Sec. Sec. 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 or activity 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 
or activity, notwithstanding the provisions of Sec. 91.13.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



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 or activity to which the rule or regulation 
applies, notwithstanding the provisions of Sec. 91.13.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



                   Subpart C_Duties of HHS Recipients



Sec. 91.31  General responsibilities.

    Each HHS recipient has primary responsibility to ensure that its 
programs or 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.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



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 beneficiaries in order to inform 
them about the protections against discrimination provided by the Act 
and these regulations.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



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 539]]

    (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 540]]

    (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 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.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



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 541]]

    (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 or 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 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.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



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 Federal financial assistance.

[47 FR 57858, Dec. 28, 1982, as amended at 70 FR 24322, May 9, 2005]



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:

[[Page 542]]

    (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.
    (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 [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).

    Source: 55 FR 6754, Feb. 26, 1990, unless otherwise noted.

    Cross Reference: See also Office of Management and Budget notice 
published at 54 FR 52306, December 20, 1989.



                            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 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

[[Page 543]]

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 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.

[[Page 544]]

    (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.



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

[[Page 545]]

    (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 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

[[Page 546]]

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, 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.

[[Page 547]]



            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 $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.

[[Page 548]]

    (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 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

[[Page 549]]

(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.



      Sec. 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 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.

[[Page 550]]

    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 551]]



     Sec. Appendix B to Part 93--Disclosure Form To Report Lobbying
[GRAPHIC] [TIFF OMITTED] TC01JA91.003


[[Page 552]]


[GRAPHIC] [TIFF OMITTED] TC01JA91.004


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[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 Responsibilities of Institutions regarding Investigator financial 
          conflicts of interest.

[[Page 554]]

94.5 Management and reporting of financial conflicts of interest.
94.6 Remedies.

    Authority: 42 U.S.C. 216, 289b-1, 299c-4.

    Source: 76 FR 53288, Aug. 25, 2011, unless otherwise noted.



Sec. 94.1  Purpose.

    This part promotes objectivity in research by establishing standards 
that provide a reasonable expectation that the design, conduct, and 
reporting of research performed under PHS contracts will be free from 
bias resulting from Investigator financial conflicts of interest.



Sec. 94.2  Applicability.

    This part is applicable to each Institution that submits a proposal, 
or that receives, Public Health Service (PHS) research funding by means 
of a contract and, through the implementation of this part by the 
Institution, to each Investigator who is planning to participate in, or 
is participating in such research; provided, however, 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 under 
contract for the direct benefit or use of the Federal Government.
    Disclosure of significant financial interests means an 
Investigator's disclosure of significant financial interests to an 
Institution.
    Financial conflict of interest (FCOI) means a significant financial 
interest that could directly and significantly affect the design, 
conduct, or reporting of PHS-funded research.
    FCOI report means an Institution's report of a financial conflict of 
interest to a PHS Awarding Component.
    Financial interest means anything of monetary value, whether or not 
the value is readily ascertainable.
    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 domestic or foreign, public or private, entity 
or organization (excluding a Federal agency) that submits a proposal, or 
that receives, PHS research funding.
    Institutional responsibilities means an Investigator's professional 
responsibilities on behalf of the Institution, and as defined by the 
Institution in its policy on financial conflicts of interest, which may 
include for example: activities such as research, research consultation, 
teaching, professional practice, institutional committee memberships, 
and service on panels such as Institutional Review Boards or Data and 
Safety Monitoring Boards.
    Investigator means the project director or principal Investigator 
and any other person, regardless of title or position, who is 
responsible for the design, conduct, or reporting of research funded by 
the PHS, or proposed for such funding, which may include, for example, 
collaborators or consultants.
    Key personnel includes the PD/PI and any other personnel considered 
to be essential to work performance in accordance with HHSAR subpart 
352.242-70 and identified as key personnel in the contract proposal and 
contract.
    Manage means taking action to address a financial conflict of 
interest, which can include reducing or eliminating the financial 
conflict of interest, to ensure, to the extent possible, that the 
design, conduct, and reporting of research will be free from bias.
    PD/PI means a project director or principal Investigator of a PHS-
funded research project; the PD/PI is included in the definitions of key 
personnel and Investigator under this part.
    PHS means the Public Health Service of the U.S. Department of Health 
and Human Services, and any components of the PHS to which the authority 
involved may be delegated, including the National Institutes of Health 
(NIH).
    PHS Awarding Component means the organizational unit of the PHS that 
funds the research that is subject to this part.
    Public Health Service Act or PHS Act means the statute codified at 
42 U.S.C. 201 et seq.
    Research means a systematic investigation, study or experiment 
designed to develop or contribute to generalizable knowledge relating 
broadly to public health, including behavioral and

[[Page 555]]

social-sciences research. The term encompasses basic and applied 
research (e.g., a published article, book or book chapter) and product 
development (e.g., a diagnostic test or drug). As used in this part, the 
term includes any such activity for which research funding is available 
from a PHS Awarding Component through a contract, whether authorized 
under the PHS Act or other statutory authority.
    Significant financial interest means:
    (1) A financial interest consisting of one or more of the following 
interests of the Investigator (and those of the Investigator's spouse 
and dependent children) that reasonably appears to be related to the 
Investigator's institutional responsibilities:
    (i) With regard to any publicly traded entity, a significant 
financial interest exists if the value of any remuneration received from 
the entity in the twelve months preceding the disclosure and the value 
of any equity interest in the entity as of the date of disclosure, when 
aggregated, exceeds $5,000. For purposes of this definition, 
remuneration includes salary and any payment for services not otherwise 
identified as salary (e.g., consulting fees, honoraria, paid 
authorship); equity interest includes any stock, stock option, or other 
ownership interest, as determined through reference to public prices or 
other reasonable measures of fair market value;
    (ii) With regard to any non-publicly traded entity, a significant 
financial interest exists if the value of any remuneration received from 
the entity in the twelve months preceding the disclosure, when 
aggregated, exceeds $5,000, or when the Investigator (or the 
Investigator's spouse or dependent children) holds any equity interest 
(e.g., stock, stock option, or other ownership interest); or
    (iii) Intellectual property rights and interests (e.g., patents, 
copyrights), upon receipt of income related to such rights and 
interests.
    (2) Investigators also must disclose the occurrence of any 
reimbursed or sponsored travel (i.e., that which is paid on behalf of 
the Investigator and not reimbursed to the Investigator so that the 
exact monetary value may not be readily available), related to their 
Institutional responsibilities; provided, however, that this disclosure 
requirement does not apply to travel that is reimbursed or sponsored by 
a Federal, state, or local government agency, an Institution of higher 
education as defined at 20 U.S.C. 1001(a), an academic teaching 
hospital, a medical center, or a research institute that is affiliated 
with an Institution of higher education. The Institution's FCOI policy 
will specify the details of this disclosure, which will include, at a 
minimum, the purpose of the trip, the identity of the sponsor/organizer, 
the destination, and the duration. In accordance with the Institution's 
FCOI policy, the Institutional official(s) will determine if further 
information is needed, including a determination or disclosure of 
monetary value, in order to determine whether the travel constitutes an 
FCOI with the PHS-funded research.
    (3) The term significant financial interest does not include the 
following types of financial interests: salary, royalties, or other 
remuneration paid by the Institution to the Investigator if the 
Investigator is currently employed or otherwise appointed by the 
Institution, including intellectual property rights assigned to the 
Institution and agreements to share in royalties related to such rights; 
any ownership interest in the Institution held by the Investigator, if 
the Institution is a commercial or for-profit organization; income from 
investment vehicles, such as mutual funds and retirement accounts, as 
long as the Investigator does not directly control the investment 
decisions made in these vehicles; income from seminars, lectures, or 
teaching engagements sponsored by a Federal, state, or local government 
agency, an Institution of higher education as defined at 20 U.S.C. 
1001(a), an academic teaching hospital, a medical center, or a research 
institute that is affiliated with an Institution of higher education; or 
income from service on advisory committees or review panels for a 
Federal, state, or local government agency, an Institution of higher 
education as defined at 20 U.S.C. 1001(a), an academic teaching 
hospital, a medical center, or a research institute that is affiliated 
with an Institution of higher education.

[[Page 556]]

    Small Business Innovation Research (SBIR) Program means the 
extramural research program for small businesses 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 also includes the Small Business Technology Transfer (STTR) 
Program, which was established by Public Law 102-564.



Sec. 94.4  Responsibilities of Institutions regarding Investigator 
financial conflicts of interest.

    Each Institution shall:
    (a) Maintain an up-to-date, written, enforced policy on financial 
conflicts of interest that complies with this part, and make such policy 
available via a publicly accessible Web site. If the Institution does 
not have any current presence on a publicly accessible Web site (and 
only in those cases), the Institution shall make its written policy 
available to any requestor within five business days of a request. If, 
however, the Institution acquires a presence on a publicly accessible 
Web site during the time of the PHS award, the requirement to post the 
information on that Web site will apply within 30 calendar days. If an 
Institution maintains a policy on financial conflicts of interest that 
includes standards that are more stringent than this part (e.g., that 
require a more extensive disclosure of financial interests), the 
Institution shall adhere to its policy and shall provide FCOI reports 
regarding identified financial conflicts of interest to the PHS Awarding 
Component in accordance with the Institution's own standards and within 
the timeframe prescribed by this part.
    (b) Inform each Investigator of the Institution's policy on 
financial conflicts of interest, the Investigator's responsibilities 
regarding disclosure of significant financial interests, and of these 
regulations, and require each Investigator to complete training 
regarding the same prior to engaging in research related to any PHS-
funded contract and at least every four years, and immediately when any 
of the following circumstances apply:
    (1) The Institution revises its financial conflict of interest 
policies or procedures in any manner that affects the requirements of 
Investigators;
    (2) An Investigator is new to an Institution; or
    (3) An Institution finds that an Investigator is not in compliance 
with the Institution's financial conflict of interest policy or 
management plan.
    (c) If the Institution carries out the PHS-funded research through a 
subrecipient (e.g., subcontractors, or consortium members), the 
Institution (awardee Institution) must take reasonable steps to ensure 
that any subrecipient Investigator complies with this part by
    (1) Incorporating as part of a written agreement with the 
subrecipient terms that establish whether the financial conflicts of 
interest policy of the awardee Institution or that of the subrecipient 
will apply to the subrecipient's Investigators.
    (i) If the subrecipient's Investigators must comply with the 
subrecipient's financial conflicts of interest policy, the subrecipient 
shall certify as part of the agreement referenced above that its policy 
complies with this part. If the subrecipient cannot provide such 
certification, the agreement shall state that subrecipient Investigators 
are subject to the financial conflicts of interest policy of the awardee 
Institution for disclosing significant financial interests that are 
directly related to the subrecipient's work for the awardee Institution;
    (ii) Additionally, if the subrecipient's Investigators must comply 
with the subrecipient's financial conflicts of interest policy, the 
agreement referenced above shall specify time period(s) for the 
subrecipient to report all identified financial conflicts of interest to 
the awardee Institution. Such time period(s) shall be sufficient to 
enable the awardee Institution to provide timely FCOI reports, as 
necessary, to the PHS as required by this part;
    (iii) Alternatively, if the subrecipient's Investigators must comply 
with the awardee Institution's financial conflicts of interest policy, 
the agreement referenced above shall specify time period(s) for the 
subrecipient to submit

[[Page 557]]

all Investigator disclosures of significant financial interests to the 
awardee Institution. Such time period(s) shall be sufficient to enable 
the awardee Institution to comply timely with its review, management, 
and reporting obligations under this part.
    (2) Providing FCOI reports to the PHS Awarding Component regarding 
all financial conflicts of interest of all subrecipient Investigators 
consistent with this part, i.e., prior to the expenditure of funds and 
within 60 days of any subsequently identified FCOI.
    (d) Designate an institutional official(s) to solicit and review 
disclosures of significant financial interests from each Investigator 
who is planning to participate in, or is participating in, the PHS-
funded research.
    (e)(1) Require that each Investigator who is planning to participate 
in the PHS-funded research disclose to the Institution's designated 
official(s) the Investigator's significant financial interests (and 
those of the Investigator's spouse and dependent children) no later than 
date of submission of the Institution's proposal for PHS-funded 
research.
    (2) Require each Investigator who is participating in the PHS-funded 
research to submit an updated disclosure of significant financial 
interests at least annually, in accordance with the specific time period 
prescribed by the Institution, during the period of the award. Such 
disclosure shall include any information that was not disclosed 
initially to the Institution pursuant to paragraph (e)(1) of this 
section, or in a subsequent disclosure of significant financial 
interests (e.g., any financial conflict of interest identified on a PHS-
funded project that was transferred from another Institution), and shall 
include updated information regarding any previously disclosed 
significant financial interest (e.g., the updated value of a previously 
disclosed equity interest).
    (3) Require each Investigator who is participating in the PHS-funded 
research to submit an updated disclosure of significant financial 
interests within thirty days of discovering or acquiring (e.g., through 
purchase, marriage, or inheritance) a new significant financial 
interest.
    (f) Provide guidelines consistent with this part for the designated 
institutional official(s) to determine whether an Investigator's 
significant financial interest is related to PHS-funded research and, if 
so related, whether the significant financial interest is a financial 
conflict of interest. An Investigator's significant financial interest 
is related to PHS-funded research when the Institution, through its 
designated official(s), reasonably determines that the significant 
financial interest: Could be affected by the PHS-funded research; or is 
in an entity whose financial interest could be affected by the research. 
The Institution may involve the Investigator in the designated 
official(s)'s determination of whether a significant financial interest 
is related to the PHS-funded research. A financial conflict of interest 
exists when the Institution, through its designated official(s), 
reasonably determines that the significant financial interest could 
directly and significantly affect the design, conduct, or reporting of 
the PHS-funded research.
    (g) Take such actions as necessary to manage financial conflicts of 
interest, including any financial conflicts of a subrecipient 
Investigator pursuant to paragraph (c) of this section. Management of an 
identified financial conflict of interest requires development and 
implementation of a management plan and, if necessary, a retrospective 
review and mitigation report pursuant to Sec. 94.5(a).
    (h) Provide initial and ongoing FCOI reports to the PHS as required 
pursuant to Sec. 94.5(b).
    (i) Maintain records relating to all Investigator disclosures of 
financial interests and the Institution's review of, and response to, 
such disclosures (whether or not a disclosure resulted in the 
Institution's determination of a financial conflict of interest), and 
all actions under the Institution's policy or retrospective review, if 
applicable, for at least three years from the date of final payment or, 
where applicable, for the time periods specified in 48 CFR part 4, 
subpart 4.7.
    (j) Establish adequate enforcement mechanisms and provide for 
employee

[[Page 558]]

sanctions or other administrative actions to ensure Investigator 
compliance as appropriate.
    (k) Certify, in each contract proposal to which this part applies, 
that the Institution:
    (1) Has in effect at that Institution an up-to-date, written, and 
enforced administrative process to identify and manage financial 
conflicts of interest with respect to all research projects for which 
funding is sought or received from the PHS;
    (2) Shall promote and enforce Investigator compliance with this 
part's requirements including those pertaining to disclosure of 
significant financial interests;
    (3) Shall manage financial conflicts of interest and provide initial 
and ongoing FCOI reports to the PHS Awarding Component consistent with 
this part;
    (4) Agrees to make information available, promptly upon request, to 
the HHS relating to any Investigator disclosure of financial interests 
and the Institution's review of, and response to, such disclosure, 
whether or not the disclosure resulted in the Institution's 
determination of a financial conflict of interest; and
    (5) Shall fully comply with the requirements of this part.



Sec. 94.5  Management and reporting of financial conflicts of interest.

    (a) Management of financial conflicts of interest.
    (1) Prior to the Institution's expenditure of any funds under a PHS-
funded research project, the designated official(s) of an Institution 
shall, consistent with Sec. 94.4(f): review all Investigator 
disclosures of significant financial interests; determine whether any 
significant financial interests relate to PHS-funded research; determine 
whether a financial conflict of interest exists; and, if so, develop and 
implement a management plan that shall specify the actions that have 
been, and shall be, taken to manage such financial conflict of interest. 
Examples of conditions or restrictions that might be imposed to manage a 
financial conflict of interest include, but are not limited to:
    (i) Public disclosure of financial conflicts of interest (e.g., when 
presenting or publishing the research);
    (ii) For research projects involving human subjects research, 
disclosure of financial conflicts of interest directly to participants;
    (iii) Appointment of an independent monitor capable of taking 
measures to protect the design, conduct, and reporting of the research 
against bias, resulting from the financial conflict of interest;
    (iv) Modification of the research plan;
    (v) Change of personnel or personnel responsibilities, or 
disqualification of personnel from participation in all or a portion of 
the research;
    (vi) Reduction or elimination of the financial interest (e.g., sale 
of an equity interest); or
    (vii) Severance of relationships that create financial conflicts.
    (2) Whenever, in the course of an ongoing PHS-funded research 
project, an Investigator who is new to participating in the research 
project discloses a significant financial interest or an existing 
Investigator discloses a new significant financial interest to the 
Institution, the designated official(s) of the Institution shall, within 
sixty days: review the disclosure of the significant financial interest; 
determine whether it is related to PHS-funded research; determine 
whether a financial conflict of interest exists; and, if so, implement, 
on at least an interim basis, a management plan that shall specify the 
actions that have been, and will be, taken to manage such financial 
conflict of interest. Depending on the nature of the significant 
financial interest, an Institution may determine that additional interim 
measures are necessary with regard to the Investigator's participation 
in the PHS-funded research project between the date of disclosure and 
the completion of the Institution's review.
    (3) Whenever an Institution identifies a significant financial 
interest that was not disclosed timely by an Investigator or, for 
whatever reason, was not previously reviewed by the Institution during 
an ongoing PHS-funded research project (e.g., was not timely reviewed

[[Page 559]]

or reported by a subrecipient), the designated official(s) shall, within 
sixty days: review the significant financial interest; determine whether 
it is related to PHS-funded research; determine whether a financial 
conflict of interest exists; and, if so:
    (i) Implement, on at least an interim basis, a management plan that 
shall specify the actions that have been, and will be, taken to manage 
such financial conflict of interest going forward;
    (ii) (A) In addition, whenever a financial conflict of interest is 
not identified or managed in a timely manner including failure by the 
Investigator to disclose a significant financial interest that is 
determined by the Institution to constitute a financial conflict of 
interest; failure by the Institution to review or manage such a 
financial conflict of interest; or failure by the Investigator to comply 
with a financial conflict of interest management plan, the Institution 
shall, within 120 days of the Institution's determination of 
noncompliance, complete a retrospective review of the Investigator's 
activities and the PHS-funded research project to determine whether any 
PHS-funded research, or portion thereof, conducted during the time 
period of the noncompliance, was biased in the design, conduct, or 
reporting of such research.
    (B) The Institution is required to document the retrospective 
review; such documentation shall include, but not necessarily be limited 
to, all of the following key elements:
    (1) Project number;
    (2) Project title;
    (3) PD/PI or contact PD/PI if a multiple PD/PI model is used;
    (4) Name of the Investigator with the FCOI;
    (5) Name of the entity with which the Investigator has a financial 
conflict of interest;
    (6) Reason(s) for the retrospective review;
    (7) Detailed methodology used for the retrospective review (e.g., 
methodology of the review process, composition of the review panel, 
documents reviewed);
    (8) Findings of the review; and
    (9) Conclusions of the review.
    (iii) Based on the results of the retrospective review, if 
appropriate, the Institution shall update the previously submitted FCOI 
report, specifying the actions that will be taken to manage the 
financial conflict of interest going forward. If bias is found, the 
Institution is required to notify the PHS Awarding Component promptly 
and submit a mitigation report to the PHS Awarding Component. The 
mitigation report must include, at a minimum, the key elements 
documented in the retrospective review above and a description of the 
impact of the bias on the research project and the Institution's plan of 
action or actions taken to eliminate or mitigate the effect of the bias 
(e.g., impact on the research project; extent of harm done, including 
any qualitative and quantitative data to support any actual or future 
harm; analysis of whether the research project is salvageable). 
Thereafter, the Institution will submit FCOI reports annually, as 
specified elsewhere in this part. Depending on the nature of the 
financial conflict of interest, an Institution may determine that 
additional interim measures are necessary with regard to the 
Investigator's participation in the PHS-funded research project between 
the date that the financial conflict of interest or the Investigator's 
noncompliance is determined and the completion of the Institution's 
retrospective review.
    (4) Whenever an Institution implements a management plan pursuant to 
this part, the Institution shall monitor Investigator compliance with 
the management plan on an ongoing basis until the completion of the PHS-
funded research project.
    (5)(i) Prior to the Institution's expenditure of any funds under a 
PHS-funded research project, the Institution shall ensure public 
accessibility, via a publicly accessible Web site or written response to 
any requestor within five business days of a request, of information 
concerning any significant financial interest disclosed to the 
Institution that meets the following three criteria:
    (A) The significant financial interest was disclosed and is still 
held by key personnel as defined in this part;
    (B) The Institution determines that the significant financial 
interest is related to the PHS-funded research; and

[[Page 560]]

    (C) The Institution determines that the significant financial 
interest is a financial conflict of interest.
    (ii) The information that the Institution makes available via a 
publicly accessible Web site or written response to any requestor within 
five business days of a request, shall include, at a minimum, the 
following: The Investigator's name; the Investigator's title and role 
with respect to the research project; the name of the entity in which 
the significant financial interest is held; the nature of the 
significant financial interest; and the approximate dollar value of the 
significant financial interest (dollar ranges are permissible: $0-
$4,999; $5,000-$9,999; $10,000-$19,999; amounts between $20,000-$100,000 
by increments of $20,000; amounts above $100,000 by increments of 
$50,000), or a statement that the interest is one whose value cannot be 
readily determined through reference to public prices or other 
reasonable measures of fair market value.
    (iii) If the Institution uses a publicly accessible Web site for the 
purposes of this subsection, the information that the Institution posts 
shall be updated at least annually. In addition, the Institution shall 
update the Web site within sixty days of the Institution's receipt or 
identification of information concerning any additional significant 
financial interest of the senior/key personnel for the PHS-funded 
research project that was not previously disclosed, or upon the 
disclosure of a significant financial interest of senior/key personnel 
new to the PHS-funded research project, if the Institution determines 
that the significant financial interest is related to the PHS-funded 
research and is a financial conflict of interest. The Web site shall 
note that the information provided is current as of the date listed and 
is subject to updates, on at least an annual basis and within 60 days of 
the Institution's identification of a new financial conflict of 
interest. If the Institution responds to written requests for the 
purposes of this subsection, the Institution will note in its written 
response that the information provided is current as of the date of the 
correspondence and is subject to updates, on at least an annual basis 
and within 60 days of the Institution's identification of a new 
financial conflict of interest, which should be requested subsequently 
by the requestor.
    (iv) Information concerning the significant financial interests of 
an individual subject to paragraph (a)(5) of this section shall remain 
available, for responses to written requests or for posting via the 
Institution's publicly accessible Web site for at least three years from 
the date that the information was most recently updated.
    (6) In addition to the types of financial conflicts of interest as 
defined in this part that must be managed pursuant to this section, an 
Institution may require the management of other financial conflicts of 
interest in its policy on financial conflicts of interest, as the 
Institution deems appropriate.
    (b) Reporting of financial conflicts of interest.
    (1) Prior to the Institution's expenditure of any funds under a PHS-
funded research project, the Institution shall provide to the PHS 
Awarding Component an FCOI report regarding any Investigator's 
significant financial interest found by the Institution to be 
conflicting and ensure that the Institution has implemented a management 
plan in accordance with this part. In cases in which the Institution 
identifies a financial conflict of interest and eliminates it prior to 
the expenditure of PHS-awarded funds, the Institution shall not submit 
an FCOI report to the PHS Awarding Component.
    (2) For any significant financial interest that the Institution 
identifies as conflicting subsequent to the Institution's initial FCOI 
report during an ongoing PHS-funded research project (e.g., upon the 
participation of an Investigator who is new to the research project), 
the Institution shall provide to the PHS Awarding Component, within 
sixty days, an FCOI report regarding the financial conflict of interest 
and ensure that the Institution has implemented a management plan in 
accordance with this part. Pursuant to paragraph (a)(3)(ii) of this 
section, where such FCOI report involves a significant financial 
interest that was not disclosed timely by an Investigator or,

[[Page 561]]

for whatever reason, was not previously reviewed or managed by the 
Institution (e.g., was not timely reviewed or reported by a 
subrecipient), the Institution also is required to complete a 
retrospective review to determine whether any PHS-funded research, or 
portion thereof, conducted prior to the identification and management of 
the financial conflict of interest was biased in the design, conduct, or 
reporting of such research. Additionally, pursuant to paragraph 
(a)(3)(iii) of this section, if bias is found, the Institution is 
required to notify the PHS Awarding Component promptly and submit a 
mitigation report to the PHS Awarding Component.
    (3) Any FCOI report required under paragraphs (b)(1) or (b)(2) of 
this section shall include sufficient information to enable the PHS 
Awarding Component to understand the nature and extent of the financial 
conflict, and to assess the appropriateness of the Institution's 
management plan. Elements of the FCOI report shall include, but are not 
necessarily limited to the following:
    (i) Project/Contract number;
    (ii) PD/PI or Contact PD/PI if a multiple PD/PI model is used;
    (iii) Name of the Investigator with the financial conflict of 
interest;
    (iv) Name of the entity with which the Investigator has a financial 
conflict of interest;
    (v) Nature of the financial interest (e.g., equity, consulting fee, 
travel reimbursement, honorarium);
    (vi) Value of the financial interest (dollar ranges are permissible: 
$0-$4,999; $5,000-$9,999; $10,000-$19,999; amounts between $20,000-
$100,000 by increments of $20,000; amounts above $100,000 by increments 
of $50,000), or a statement that the interest is one whose value cannot 
be readily determined through reference to public prices or other 
reasonable measures of fair market value;
    (vii) A description of how the financial interest relates to the 
PHS-funded research and the basis for the Institution's determination 
that the financial interest conflicts with such research; and
    (viii) A description of the key elements of the Institution's 
management plan, including:
    (A) Role and principal duties of the conflicted Investigator in the 
research project;
    (B) Conditions of the management plan;
    (C) How the management plan is designed to safeguard objectivity in 
the research project;
    (D) Confirmation of the Investigator's agreement to the management 
plan;
    (E) How the management plan will be monitored to ensure Investigator 
compliance; and
    (F) Other information as needed.
    (4) For any financial conflict of interest previously reported by 
the Institution with regard to an ongoing PHS-funded research project, 
the Institution shall provide to the PHS Awarding Component an annual 
FCOI report that addresses the status of the financial conflict of 
interest and any changes to the management plan for the duration of the 
PHS-funded research project. The annual FCOI report shall specify 
whether the financial conflict is still being managed or explain why the 
financial conflict of interest no longer exists. The Institution shall 
provide annual FCOI reports to the PHS Awarding Component for the 
duration of the project period (including extensions with or without 
funds) in the time and manner specified by the PHS Awarding Component.
    (5) In addition to the types of financial conflicts of interest as 
defined in this part that must be reported pursuant to this section, an 
Institution may require the reporting of other financial conflicts of 
interest in its policy on financial conflicts of interest, as the 
Institution deems appropriate.



Sec. 94.6  Remedies.

    (a) If the failure of an Investigator to comply with an 
Institution's financial conflicts of interest policy or a financial 
conflict of interest management plan appears to have biased the design, 
conduct, or reporting of the PHS-funded research, the Institution shall 
promptly notify the PHS Awarding Component of the corrective action

[[Page 562]]

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 PHS-funded research project.
    (b) The PHS Awarding Component and/or HHS may inquire at any time 
(before, during, or after award) into any Investigator disclosure of 
financial interests and the Institution's review of, and response to, 
such disclosure, regardless of whether or not the disclosure resulted in 
the Institution's determination of a financial conflict of interest. An 
Institution is required to submit, or permit on site review of, all 
records pertinent to compliance with this part. 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 or other 
information that may be available, the PHS Awarding Component may decide 
that a particular financial 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 the 
financial conflict of interest in accordance with this part. The PHS 
Awarding Component may determine that issuance of a Stop Work Order by 
the Contracting Officer or other enforcement action is 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 financial conflict of 
interest that was not managed or reported by the Institution as required 
by this part, the Institution shall require the Investigator involved to 
disclose the financial conflict of interest in each public presentation 
of the results of the research and to request an addendum to previously 
published presentations.



PART 95_GENERAL ADMINISTRATION_GRANT PROGRAMS (PUBLIC ASSISTANCE, 
MEDICAL ASSISTANCE AND STATE CHILDREN'S HEALTH INSURANCE PROGRAMS)--T

able 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.
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

95.610 Submission of advance planning documents.
95.611 Prior approval conditions.
95.612 Disallowance of Federal Financial Participation (FFP).

[[Page 563]]

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 Reconsideration of denied FFP for failure to obtain prior 
          approval.
95.624 Consideration for FFP in emergency situations.
95.625 Increased FFP for certain ADP systems.
95.626 Independent Verification and Validation.
95.627 Waivers.

      Federal Financial Participation in Costs of ADP Acquisitions

95.631 Cost identification for purpose of FFP claims.
95.633 Nondiscrimination requirements.
95.635 Disallowance of Federal financial participation for automated 
          systems that fail to comply substantially with 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: 5 U.S.C. 301, 42 U.S.C. 622(b), 629b(a), 652(a), 652(d), 
654A, 671(a), 1302, and 1396a(a).



             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 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

[[Page 564]]

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 the HHS Centers for Medicare & Medicaid 
Services (CMS), and Administration for Children and Families (ACF), 
depending on the program involved.

[46 FR 3529, Jan. 15, 1981, as amended at 65 FR 33632, May 24, 2000; 75 
FR 66336, Oct. 28, 2010]



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 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.

[[Page 565]]

    (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 Sec. Sec. 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.



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, 
CMS or ACF 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.

[46 FR 3529, Jan. 15, 1981, as amended at 75 FR 66336, Oct. 28, 2010]



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

[[Page 566]]

    (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 Administration for 
Children and Families (ACF) and the Centers for Medicare & Medicaid 
Services (CMS).
    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.
    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.

[47 FR 17509, Apr. 23, 1982, as amended at 75 FR 66336, Oct. 28, 2010]



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.

[[Page 567]]

    (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.
    (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.

[[Page 568]]

    (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.



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.

[[Page 569]]

    (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)

    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 the Federal 
Financial Participation (FFP) at the applicable rates for the costs of 
automated data processing incurred under an approved State plan for 
titles IV-B, IV-D, IV-E, XIX or XXI of the Social Security Act. The 
conditions of approval of this subpart add to the statutory and 
regulatory requirements for acquisition of Automated Data Processing 
(ADP) equipment and services under the specified titles of the Social 
Security Act.

[75 FR 66336, Oct. 28, 2010]



Sec. 95.605  Definitions.

    As used in this part, the term:
    Acceptance documents means a record 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.
    Acquisition Checklist means the standard Department checklist that 
States can submit to meet prior written approval requirements instead of 
submitting the actual Request for Proposal (RFP), contracts or contract 
amendments. The Acquisition Checklist allows States to self-certify that 
their acquisition documents, which include RFPs, contracts, contract 
amendments or similar documents, meet State and Federal procurement 
requirements, contain appropriate language about software ownership and 
licensing rights in compliance with Sec. 95.617, and provide access to 
documentation in compliance with Sec. 95.615.
    Advance Planning Document (APD), Initial advance automated data 
processing planning or Initial APD means a recorded plan of action to 
request funding approval for a project which will require the use of ADP 
service 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. 
Requirements are detailed in Sec. 95.610, paragraphs (a), (b), and (c).
    Advance Planning Document Update (APDU) is a document or record 
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 as 
specified in Sec. 95.610(c).
    Alternative approach to APD requirements means that the State has 
developed an APD that does not meet all conditions for APD approval in 
Sec. 95.610, resulting in the need for a waiver under Sec. 95.627(a).

[[Page 570]]

    Automated 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.
    Automated 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.
    Base contract means the initial contractual activity, including all 
option years, allowed during a defined unit of time, for example, 2 
years. The base contract includes option years but does not include 
amendments.
    Commercial-off-the-shelf (COTS) software means proprietary software 
products that are ready-made and available for sale to the general 
public at established catalog or market prices.
    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
    (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.

[[Page 571]]

    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.
    Federal program office means the Federal program office within the 
Department that is authorized to approve requests for the acquisition of 
ADP equipment or ADP services. The Federal program offices within the 
Administration for Children and Families (ACF) are the Children's Bureau 
for titles IV-B (child welfare services) and IV-E (foster care and 
adoption assistance), the Office of Child Support Enforcement for title 
IV-D (child support enforcement), and the Centers for Medicare & 
Medicaid Services (CMS) for titles XIX (Medicaid) and XXI (the 
Children's Health Insurance Program) of the Social Security Act.
    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).
    Grantee means an organization receiving financial assistance 
directly from an HHS awarding agency to carry out a project or program.
    Independent Verification and Validation--(IV&V) means a well-defined 
standard process for examining the organizational, management, and 
technical aspects of a project to determine the effort's adherence to 
industry standards and best practices, to identify risks, and make 
recommendations for remediation, where appropriate.
    Implementation APD means a recorded plan of action to request 
Federal Financial Participation (FFP) in the costs of designing, 
developing, and implementing the system.
    Independent Verification and Validation--(IV&V) means a well-defined 
standard process for examining the organizational, management, and 
technical aspects of a project to determine the effort's adherence to 
industry standards and best practices, to identify risks, and make 
recommendations for remediation, where appropriate.
    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.
    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.
    Noncompetitive means solicitation of a proposal from only one 
source, or after solicitation of a number of sources, negotiation with 
selected sources based on a finding that competition is inadequate.
    Operational APD--An operational APD is a record of no more than two 
pages to be submitted annually by State programs whose system is not in

[[Page 572]]

development. The Operational APD provides a short summary of the 
activities, method of acquisition, and annual budget for operations and 
software maintenance.
    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 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.
    Project means a defined set of information technology related tasks, 
undertaken by the State to improve the efficiency, economy and 
effectiveness of administration and/or operation of one or more of its 
human services programs. For example, a State may undertake a 
comprehensive, integrated initiative in support of its Child Support, 
Child Welfare and Medicaid program's 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.
    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; preferably through a service level agreement;
    (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 all applicable federal statutes and 
regulations, including Sec. Sec. 205.50 and 307.13;
    (f) Requires the provider to obtain prior approval pursuant to Sec. 
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 Sec. 
95.613 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 the human service programs 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.
    Service Oriented Architecture (SOA), also referred to as Service 
Component Based Architecture, describes a means of organizing and 
developing Information Technology capabilities as collaborating services 
that interact with each other based on open standards. Agency SOA 
artifacts may include models, approach documents, inventories of 
services or other descriptive documents.
    Software means a set of computer programs, procedures, and 
associated documentation used to operate the hardware.

[[Page 573]]

    Software maintenance means routine support activities that normally 
include corrective, adaptive, and perfective changes, without 
introducing additional functional capabilities. Corrective changes are 
tasks to correct minor errors or deficiencies in software. Adaptive 
changes are minor revisions to existing software to meet changing 
requirements. Perfective changes are minor improvements to application 
software so it will perform in a more efficient, economical, and/or 
effective manner. Software maintenance can include activities such as 
revising/creating new reports, making limited data element/data base 
changes, and making minor alterations to data input and display screen 
designs.
    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.
    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.

[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; 75 FR 66336, Oct. 
28, 2010]

                       Specific Conditions for FFP



Sec. 95.610  Submission of advance planning documents.

    Advance Planning Document (APD) refers to an Initial advance 
automated data processing planning document or Initial APD, providing a 
recorded plan of action to request funding approval for a project which 
will require the use of ADP services or equipment, including the use of 
shared or purchased services in lieu of State acquired stand-alone 
resources. Requirements are detailed in paragraph (a), (b) and (c) of 
this section.
    (a) Planning APD. (1) A separate planning effort and Planning APD is 
optional, but highly recommended, and generally applies to large 
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 engage in planning 
activities commensurate with the complexity of the projected ADP project 
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.
    (2) 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 that the existing capabilities 
can not resolve, new or changed program requirements or opportunities 
for improved economies and efficiencies and effectiveness of program and 
administration and operations;
    (ii) A project management plan that 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 phase of the project;
    (iv) An estimated total project cost and a prospective State and 
Federal

[[Page 574]]

cost allocation/distribution, including planning and implementation;
    (v) A commitment to conduct/prepare the problem(s) needs assessment, 
feasibility study, alternatives analysis, cost benefit analysis, and to 
develop a Functional Requirements Specification and/or a General Systems 
Design (GSD);
    (vi) A commitment to define the State's functional requirements, 
based on the State's business needs which may be used for the purpose of 
evaluating the transfer of an existing system, including the transfer of 
another State's General System Design that the State may adapt to meet 
State specific requirements;
    (vii) Additional Planning APD content requirements, for enhanced 
funding projects as contained in Sec. 307.15 and Sec. Sec. 1355.50 
through 1355.57; and
    (viii) An acquisition summary for the upcoming year or development 
phase that provides the following information on proposed acquisitions:
    (A) Type and scope of contract
    (B) Procurement strategy
    (C) Estimated cost or not to exceed amount
    (D) Timeframe of contract
    (E) A statement or certification that the proposed acquisition will 
comply with all State and Federal requirements including the retention 
of software ownership rights specified in Sec. 95.617.
    (b) Implementation APD. The Implementation APD shall include:
    (1) The results of the activities conducted under a Planning APD, if 
any;
    (2) A statement of problems/needs and outcomes/objectives;
    (3) A requirements analysis, feasibility study and a statement of 
alternative considerations including, where appropriate, the use of 
service-orientated architecture and a transfer of an existing system and 
an explanation of why such a transfer is not feasible if another 
alternative is identified;
    (4) A cost benefit analysis;
    (5) A personnel resource statement indicating availability of 
qualified and adequate numbers of staff, including a project director to 
accomplish the project objectives;
    (6) A detailed description of the nature and scope of the activities 
to be undertaken and the methods to be used to accomplish the project;
    (7) The proposed activity schedule for the project;
    (8) A proposed budget (including an accounting of all possible 
Implementation APD activity costs, e.g., system conversion, vendor and 
state personnel, computer capacity planning, supplies, training, 
hardware, software and miscellaneous ADP expenses) for the project;
    (9) A statement indicating the duration the State expects to use the 
equipment and/or system;
    (10) An estimate of the prospective cost allocation/distribution to 
the various State and Federal funding sources and the proposed 
procedures for distributing costs;
    (11) A statement setting forth the security and interface 
requirements to be employed and the system failure and disaster 
recovery/business continuity procedures available or to be implemented; 
and
    (12) Additional requirements, for acquisitions for which the State 
is requesting enhanced funding, as contained at Sec. Sec. 1355.54 
through 1355.57, Sec. 307.15 and 42 CFR subchapter C, part 433.
    (c) Advance Planning Document Update (APDU). (1) The Annual APDU, 
which is due 60 days prior to the expiration of the FFP approval, 
includes:
    (i) A reference to the approved APD and all approved changes;
    (ii) A project activity report which includes 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 and provides a risk management 
plan that assesses project risk and identifies risk mitigation 
strategies;
    (iii) A report of all project deliverables completed in the past 
year and degree of completion for unfinished products and tasks;
    (iv) An updated project activity schedule for the remainder of the 
project;
    (v) A revised budget for the entirety of the project's life-cycle, 
including

[[Page 575]]

operational and development cost categories;
    (vi) A project expenditures report that 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;
    (vii) A report of any approved or anticipated changes to the 
allocation basis in the APD's approved cost allocation methodology; and
    (viii) An acquisition summary for the upcoming year or development 
phase that provides the following information on proposed acquisitions:
    (A) Type and scope of contract
    (B) Procurement strategy
    (C) Estimated cost or not to exceed amount
    (D) Timeframe of contract
    (E) A statement or certification that the proposed acquisition will 
comply with all State and Federal requirements including the retention 
of software ownership rights specified in Sec. 95.617.
    (2) The As-Needed APDU is a document that 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, or to clarify project information 
requested as an approval condition of the Planning APD, Annual APDU, or 
Implementation APD. The As-Needed APDU may be submitted any time as a 
stand-alone funding or project continuation request, or may be submitted 
as part of the Annual APDU. The As-Needed APDU is submitted:
    (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;
    (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.
    (vi) Changes to the acquisition summary in the following areas:
    (A) Type and scope of contract
    (B) Procurement strategy
    (C) Estimated cost or not to exceed amount
    (D) Timeframe of contract
    (E) A statement or certification that the proposed acquisition will 
comply with all State and Federal requirements including the retention 
of software ownership rights specified in Sec. 95.617.
    (F) New acquisitions not summarized in the Annual APDU.
    (3) The Operational Advance Planning Document Update (OAPDU) is an 
annual submission of no more than two pages, including:
    (i) Summary of activities;
    (ii) Acquisitions; and,
    (iii) Annual budget by project/system receiving funding through the 
programs covered under this part.

[75 FR 66337, Oct. 28, 2010]



Sec. 95.611  Prior approval conditions.

    (a) General acquisition requirements. (1) A State shall obtain prior 
approval from the Department which is reflected in a record, as 
specified in paragraph (b) of this section, when the State plans to 
acquire ADP equipment or services with proposed FFP at the regular 
matching rate that it anticipates will have total acquisition costs of 
$5,000,000 or more in Federal and State funds. States will be required 
to submit an Operational APDU only if they exceed the threshold 
requiring Federal approval, and only upon the receipt of a submission 
request, which is reflected in a record, from the Department. See 
definition of software maintenance under Sec. 95.605.
    (2) A State shall obtain prior approval from the Department which is 
reflected in a record, as specified in paragraph (b) of this section, 
when the State plans to acquire ADP equipment or services with proposed 
FFP at the

[[Page 576]]

enhanced matching rate authorized by Sec. 205.35, part 307, Sec. 
1355.52 or 42 CFR part 433, subpart C, regardless of the acquisition 
cost.
    (3) A State shall obtain prior approval from the Department, which 
is reflected in a record, for a sole source/non-competitive acquisition, 
of ADP equipment or services with a total State and Federal acquisition 
cost of $1,000,000 or more.
    (4) Except as provided for in paragraph (a)(5) of this section, the 
State shall submit multi-program requests for Department approval, 
signed by the appropriate State official, to the Department's Secretary 
or his/her designee. For each HHS agency that has federal funding 
participation in the project, an additional copy must be provided to the 
applicable Federal program office and respective Regional Offices.
    (5) States shall submit requests for approval which affect only one 
approving component of HHS (CMS, OCSE, or Children's Bureau), to the 
applicable Federal program office and Regional Administrator.
    (6) The Department will not approve any Planning or Implementation 
APD that does not include all information required in Sec. 95.610.
    (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 acquisition documents, an exemption from prior Federal 
prior approval shall be assumed in the approval of the Planning, Annual 
or As-Needed APDU provided that:
    (A) The acquisition summary provides sufficient detail to base an 
exemption request;
    (B) The acquisition does not deviate from the terms of the 
exemption; and
    (C) The acquisition is not the initial acquisition for a high risk 
activity, such as software application development. Acquisitions, 
whether exempted from prior Federal approval or not, must comply with 
the Federal provisions contained in Sec. 95.610(c)(1)(viii) or 
(c)(2)(vi) or submit an Acquisition Checklist.
    (iv) For noncompetitive acquisitions, including contract amendments, 
when the resulting contract is anticipated to exceed $1,000,000, States 
will be required to submit a sole source justification in addition to 
the acquisition document. The sole source justification can be provided 
as part of the Planning, Annual or As-Needed APDU.
    (v) If the State does not opt for an exemption or submittal of an 
Acquisition Checklist for the contract, prior to the execution, the 
State will be required to submit the contract when it is anticipated to 
exceed the following thresholds, unless specifically exempted by the 
Department:
    (A) Software application development--$6,000,000 or more 
(competitive) and $1,000,000 or more (noncompetitive);
    (B) Hardware and Commercial Off-the-Shelf (COTS) software--
$20,000,000 or more (competitive) and $1,000,000 or more 
(noncompetitive);
    (C) Operations and Software Maintenance acquisitions combined with 
hardware, COTS or software application development--the thresholds 
stated in Sec. 95.611(b)(1)(v)(A) and (B) apply.
    (vi) For contract amendments within the scope of the base contract, 
unless specifically exempted by the Department, prior to execution of 
the contract amendment involving contract cost increases which 
cumulatively exceed 20 percent of the base contract cost.
    (2) For enhanced FFP requests.
    (i) For the Planning APD.
    (ii) For the Implementation APD.
    (iii) For the acquisition solicitation documents and contract, 
unless specifically exempted by the Department, prior to release of the 
acquisition solicitation documents or prior to execution of the contract 
when the contract is anticipated to or will exceed $500,000.
    (iv) For contract amendments, unless specifically exempted by the 
Department, prior to execution of the contract amendment, involving 
contract cost increases exceeding $500,000 or contract time extensions 
of more than 60 days.

[[Page 577]]

    (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 cost of more than 
$5,000,000, and projects with a total estimated cost of less than 
$5,000,000 only if requested 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.
    (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 $300,000 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 Department 
will promptly send to the approving Federal program offices the items 
specified in paragraph (b) of this section. If the Department has not 
provided approval, disapproval, or a request for information which is 
reflected in a record, within 60 days of the date of the Departmental 
letter acknowledging receipt of a State's request, the Department will 
consider the request to have provisionally met the prior approval 
conditions of paragraph (b) of this section.
    (e) Acquisitions not subject to prior approval. If the Department 
has not specifically requested in a record, the submittal of additional 
acquisition documentation for those acquisitions summarized in the APD, 
the approval of the Planning, Annual or As-Needed APDU will constitute 
an exemption of the acquisition documents from prior Federal approval. 
States will be required to submit acquisition documents, contracts and 
contract amendments under the threshold amounts on an exception basis if 
requested to do so in a record by the Department.

[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; 75 FR 66338, Oct. 28, 2010]

[[Page 578]]



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 activities described in the approved 
APD to the detriment of the proper, efficient, economical and effective 
operation of the affected program, payment of FFP may be disallowed. In 
the case of a suspension of the approval of a Child Support APD for 
enhanced funding, see Sec. 307.40(a). In the case of a suspension of 
the approval of an APD for a State Automated Child Welfare Information 
System (SACWIS) project, see Sec. 1355.56.

[75 FR 66339, Oct. 28, 2010]



Sec. 95.613  Procurement standards.

    (a) General. Procurements of ADP equipment and services are subject 
to the procurement standards prescribed by part 92 regardless of any 
conditions for prior approval. The Department retains the authority to 
provide greater oversight including requiring a State to comply with 
Sec. 92.36(c) if the Department determines that the State procurement 
process is an impediment to competition that could substantially impact 
project cost or risk of failure.
    (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 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.

[51 FR 45326, Dec. 18, 1986, as amended at 75 FR 66339, Oct. 28, 2010]



Sec. 95.615  Access to systems and records.

    The State agency must allow the Department access to the system in 
all of its aspects, including pertinent state staff, 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.

[75 FR 66340, Oct. 28, 2010]



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 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.

[51 FR 45326, Dec. 18, 1986, as amended at 75 FR 66340, Oct. 28, 2010]



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

[[Page 579]]

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 than $200,000 or acquisitions exempted from 
prior approval were made in accordance with part 92 and the conditions 
of this subpart and to determine the efficiency, economy and 
effectiveness of the equipment or service.
    (e) State Agency Maintenance of Service Agreements. The State agency 
will maintain a copy of each service agreement in its files for Federal 
review.
    (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; 75 FR 66340, Oct. 28, 2010]



Sec. 95.623  Reconsideration of denied FFP for failure to obtain 
prior approval.

    For ADP equipment and services acquired by a State without prior 
approval, which is reflected in a record, the State may request 
reconsideration of the disallowance of FFP by written

[[Page 580]]

request to the head of the Federal program office within 30 days of the 
initial written disallowance determination. In such a reconsideration, 
the agency may take into account overall federal interests. The 
Department may grant a request for reconsideration if:
    (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 requests reconsideration of a denial by submitting in 
a record information that addresses the following requirements:
    (1) The acquisition must be reasonable, useful and necessary;
    (2) The State's failure to obtain prior approval, which is reflected 
in a record, must have been inadvertent (i.e., the State did not 
knowingly avoid the prior approval requirements);
    (3) The request was not previously denied by HHS;
    (4) The acquisition must otherwise meet all other applicable Federal 
and State requirements, and would have been approved under part 95, 
Subpart F had the State requested in a record, prior approval;
    (5) The State must not have a record of recurrent failures, under 
any of the programs covered by the prior approval regulations, to comply 
with the requirement to obtain prior approval in a record, of its 
automatic data processing acquisitions (i.e., submissions under these 
procedures, from States that have failed in the past to acquire prior 
approval which is reflected in a record, in accordance with part 95, 
subpart F, may be denied);

[51 FR 3339, Jan. 27, 1986, as amended at 55 FR 4378, Feb. 7, 1990; 75 
FR 66340, Oct. 28, 2010]



Sec. 95.624  Consideration for FFP in emergency situations.

    For ADP equipment and services acquired by a State after December 1, 
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 request from the State which is 
reflected in a record. In order for the Department to consider providing 
FFP in emergency situations, the following conditions must be met:
    (a) The State must submit a request to the Department, prior to the 
acquisition of any ADP equipment or services. The request must be 
reflected in a record, 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 a communication reflected in a record, that 
the Department recognizes that an emergency exists and that within 90 
days from the date of the State's initial 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; 75 
FR 66340, Oct. 28, 2010]



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

[[Page 581]]

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]



Sec. 95.626  Independent Verification and Validation.

    (a) An assessment for independent verification and validation (IV&V) 
analysis of a State's system development effort may be required in the 
case of APD projects that meet any of the following criteria:
    (1) Are at risk of missing statutory or regulatory deadlines for 
automation that is intended to meet program requirements;
    (2) Are at risk of failing to meet a critical milestone;
    (3) Indicate the need for a new project or total system redesign;
    (4) Are developing systems under waivers pursuant to sections 
452(d)(3) or 627 of the Social Security Act;
    (5) Are at risk of failure, major delay, or cost overrun in their 
systems development efforts;
    (6) Fail to timely and completely submit APD updates or other 
required systems documentation.
    (7) State's procurement policies put the project at risk, including 
a pattern of failing to pursue competition to the maximum extent 
feasible.
    (8) State's failure to adequately involve the State program offices 
in the development and implementation of the project.
    (b) Independent Verification and Validation efforts must be 
conducted by an entity that is independent from the State (unless the 
State receives an exception from the Department) and the entity selected 
must:
    (1) Develop a project workplan. The plan must be provided directly 
to the Department at the same time it is given to the State.
    (2) Review and make recommendations on both the management of the 
project, both State and vendor, and the technical aspects of the 
project. The IV&V provider must give the results of its analysis 
directly to the federal agencies that required the IV&V at the same time 
it reports to the State.
    (3) Consult with all stakeholders and assess the user involvement 
and buy-in regarding system functionality and the system's ability to 
support program business needs.
    (4) Conduct an analysis of past project performance sufficient to 
identify and make recommendations for improvement.
    (5) Provide risk management assessment and capacity planning 
services.
    (6) Develop performance metrics which allow tracking project 
completion against milestones set by the State.
    (c) The acquisition document and contract for selecting the IV&V 
provider (or similar documents if IV&V services are provided by other 
State agencies) must include requirements regarding the experience and 
skills of the key personnel proposed for the IV&V analysis. The contract 
(or similar document if the IV&V services are provided by other State 
agencies) must specify by name the key personnel who actually will work 
on the project. The acquisition documents and contract for required IV&V 
services must be submitted to the Department for prior written approval.

[75 FR 66340, Oct. 28, 2010]



Sec. 95.627  Waivers.

    (a) Application for a waiver. A State may apply for a waiver of any 
requirement in subpart F by presenting an alternative approach. Waiver 
requests must be submitted and approved as part of the State's APD or 
APD Update.
    (b) Waiver approvals. The Secretary, or his or her designee, may 
grant a State a waiver if the State demonstrates that it has an 
alternative approach to a requirement in this chapter that will 
safeguard the State and Federal Governments' interest and that enables 
the State to be in substantial compliance with the other requirements of 
this chapter.
    (c) Contents of waiver request. The State's request for approval of 
an alternative approach or waiver of a requirement in this chapter must 
demonstrate why meeting the condition is unnecessary, diminishes the 
State's ability to

[[Page 582]]

meet program requirements, or that the alternative approach leads to a 
more efficient, economical, and effective administration of the programs 
for which federal financial participation is provided, benefiting both 
the State and Federal Governments.
    (d) Review of waiver requests. The Secretary, or his or her 
designee, will review waiver requests to assure that all necessary 
information is provided, that all processes provide for effective 
economical and effective program operation, and that the conditions for 
waiver in this section are met.
    (e) Agency's response to a waiver request. When a waiver is approved 
by an agency, it becomes part of the State's approved APD and is 
applicable to the approving agency. A waiver is subject to the APD 
suspension provisions in Sec. 95.611(c)(3). When a waiver is 
disapproved, the entire APD will be disapproved. The APD disapproval is 
a final administrative decision and is not subject to administrative 
appeal.

[75 FR 66340, Oct. 28, 2010]

      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 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]



Sec. 95.635  Disallowance of Federal financial participation for 
automated systems that fail to comply substantially with requirements.

    (a) Federal financial participation at the applicable matching rate 
is available for automated data processing system expenditures that meet 
the requirements specified under the approved APD including the approved 
cost allocation plan.
    (b) All or part of any costs for system projects that have a major 
failure to comply with an APD approved under applicable regulation at 
Sec. 95.611, or for the Title IV-D program contained in part 307, the 
applicable regulations for the Title IV-E and Title IV-B programs 
contained in Chapter 13, subchapter G, Sec. 1355.55, or the applicable 
regulations for the Title XIX program contained in 42 CFR chapter 4 
subchapter C, part 433, are subject to disallowance by the Department.

[75 FR 66340, Oct. 28, 2010]

[[Page 583]]

                               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, 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 prescribed in part 92.
    (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)

[[Page 584]]

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.

[47 FR 41576, Sept. 21, 1982, 75 FR 66341, Oct. 28, 2010]



Sec. 95.707  Equipment management and disposition.

    (a) Once equipment, whose costs are claimed for Federal financial 
participation (i.e., equipment that is capitalized and depreciated or is 
claimed in the period acquired), has reached the end of its useful life 
(as defined in an approved APD), the equipment shall be subject to the 
property disposal rules in Sec. 92.32, Equipment.
    (b) 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.

[47 FR 41576, Sept. 21, 1982, 75 FR 66341, Oct. 28, 2010]



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.
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.
96.18 Participation by faith-based organizations.

                     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.

[[Page 585]]

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.

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., 
Sec. 300x et seq., Sec. 300y et seq., Sec. 701 et seq., Sec. 8621 et 
seq., Sec. 9901 et seq., Sec. 1397 et seq., 5 U.S.C. Sec. 301.

    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).

[[Page 586]]

    (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 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.

[[Page 587]]

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 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.

[[Page 588]]

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
    (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]

[[Page 589]]



Sec. 96.18  Participation by faith-based organizations.

    The funds provided under this part shall be administered in 
compliance with the standards set forth in part 87 (Equal Treatment for 
Faith-based Organizations) of this chapter.

[69 FR 42592, July 16, 2004]



                     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 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

[[Page 590]]

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
    (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

[[Page 591]]

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 
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

[[Page 592]]

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 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

[[Page 593]]

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.



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]

[[Page 594]]



                          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, 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

[[Page 595]]

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.



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

[[Page 596]]

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.
    (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.

[[Page 597]]

    (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 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]

[[Page 598]]



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, 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,

[[Page 599]]

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 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

[[Page 600]]

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:
    (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.

[[Page 601]]

    (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 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

[[Page 602]]

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.
    (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

[[Page 603]]

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 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

[[Page 604]]

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.
    (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

[[Page 605]]

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, 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.

[[Page 606]]

    (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 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;

[[Page 607]]

    (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, 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

[[Page 608]]

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 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;

[[Page 609]]

    (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 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

[[Page 610]]

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 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

[[Page 611]]

low-income households during the preceding 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 
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

[[Page 612]]

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 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),

[[Page 613]]

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 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

[[Page 614]]

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.



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

[[Page 615]]

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 CFR 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 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

[[Page 616]]

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 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

[[Page 617]]

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 Sec. Sec. 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 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

[[Page 618]]

    (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.
    (v) A description of the activities the State has undertaken to 
comply with 42 CFR part 54.
    (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;
    (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

[[Page 619]]

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; 68 FR 56448, Sept. 
4, 2003]



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 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

[[Page 620]]

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 Sec. Sec. 
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).
    (18) The State will comply with the requirements of 42 CFR part 54.

[58 FR 17070, Mar. 31, 1993, as amended at 61 FR 1508, Jan. 19, 1996; 66 
FR 46227, Sept. 4, 2001; 68 FR 56448, Sept. 30, 2003]



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 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

[[Page 621]]

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.
    (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

[[Page 622]]

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 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

[[Page 623]]

    (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 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.

[[Page 624]]

    (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 CFR 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 
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

[[Page 625]]

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 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

[[Page 626]]

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 
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

[[Page 627]]

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.
    (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,

[[Page 628]]

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 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

[[Page 629]]

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 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

[[Page 630]]

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:
    (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.

[[Page 631]]



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 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

[[Page 632]]

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 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

[[Page 633]]

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;
    (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

[[Page 634]]

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 Sec. Sec. 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.



       Sec. 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 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.

[[Page 635]]

                      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, 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

[[Page 636]]

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.

         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.

[[Page 637]]

                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.

  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

[[Page 638]]

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]



    Sec. 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 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.

[[Page 639]]

                            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 640]]

[GRAPHIC] [TIFF OMITTED] TC01JA91.006


[58 FR 60128, Nov. 15, 1993]

[[Page 641]]



PART 97_CONSOLIDATION OF GRANTS TO THE INSULAR AREAS--Table of 
Contents



Sec.
97.10 What is a consolidated grant?
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]

[[Page 642]]



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.
    (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.

[[Page 643]]

98.18 Approval and disapproval of Plans and Plan amendments.

                   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.

                     Subpart K_Error Rate Reporting

98.100 Error Rate Report.
98.101 Case Review Methodology.
98.102 Content of Error Rate Reports.

    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;

[[Page 644]]

    (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 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

[[Page 645]]

Grant Act. The Discretionary funds were formerly referred to as the 
Child Care and Development Block Grant;
    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 Sec. Sec. 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

[[Page 646]]

not extend beyond the last day to liquidate funds;
    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 647]]

    (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 648]]

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 649]]

    (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 public or private entities 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 Sec. Sec. 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 650]]

    (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.

[63 FR 39981, July 24, 1998, as amended at 72 FR 27979, May 18, 2007]



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

[[Page 651]]

of such determination, file a petition with the Assistant Secretary 
asking 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 652]]

    (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 653]]

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 654]]

    (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 655]]

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 656]]

    (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 Sec. Sec. 98.40 and 98.41;
    (iii) Improving the monitoring of compliance with, and enforcement 
of, applicable State, local, and tribal requirements pursuant to 
Sec. Sec. 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 657]]

    (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;
    (iii) Are not used to match other Federal funds;
    (iv) Shall be certified both by the Lead Agency and by the donor (if 
funds are donated directly to the Lead Agency) or the Lead Agency and 
the entity designated by the State to receive donated funds pursuant to 
Sec. 98.53(f) (if funds are donated directly to the designated entity) 
as available and representing funds eligible for Federal match; and
    (v) Shall be subject to the audit requirements in Sec. 98.65 of 
these regulations.

[[Page 658]]

    (f) Donated funds need not be transferred to or under the 
administrative control of the Lead Agency in order to qualify as an 
expenditure eligible to receive Federal match under this subsection. 
They may be given to the public or private entities designated by the 
State to implement the child care program in accordance with Sec. 98.11 
provided that such entities are identified and designated in the State 
Plan to receive donated funds in accordance with 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 addition, in any fiscal year, a State may use other public pre-K 
funds as expenditures serving as State matching funds under this 
subsection; such public pre-K funds used as State expenditures may not 
exceed 30% of the amount of a State's expenditures required to draw down 
the State's full allotment of Federal matching funds available 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 
its maintenance-of-effort or 30% of its 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).

[63 FR 39981, July 24, 1998, as amended at 72 FR 27979, May 18, 2007]



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.

[[Page 659]]

    (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.



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

[[Page 660]]

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 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

[[Page 661]]

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
    (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

[[Page 662]]

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.
    (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

[[Page 663]]

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).
    (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

[[Page 664]]

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 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

[[Page 665]]

    (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, 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--

[[Page 666]]

    (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-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;

[[Page 667]]

    (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 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

[[Page 668]]

    (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 of children in 
accordance with Sec. Sec. 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 Sec. Sec. 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 
Sec. Sec. 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 
Sec. Sec. 98.61(c)

[[Page 669]]

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 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 Sec. Sec. 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

[[Page 670]]

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).
    (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

[[Page 671]]

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 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 Sec. Sec. 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,

[[Page 672]]

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.
    (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.



                     Subpart K_Error Rate Reporting

    Source: 72 FR 50898, Sept. 5, 2007, unless otherwise noted.



Sec. 98.100  Error Rate Report.

    (a) Applicability--The requirements of this subpart apply to the 
fifty States, the District of Columbia and Puerto Rico.
    (b) Generally--States, the District of Columbia and Puerto Rico 
shall calculate, prepare and submit to the Department, a report of 
errors occurring in the administration of CCDF grant funds, at times and 
in a manner specified by the Secretary in instructions. States, the 
District of Columbia and Puerto Rico must use this report to calculate 
their error rates, which is defined as the percentage of cases with an 
error (expressed as the total number of cases with an error compared to 
the total number of cases); the percentage of cases with an improper 
payment (expressed as the total number of cases with an improper payment 
compared to the total number of cases); the percentage of improper 
payments (expressed as the total amount of improper payments in the 
sample compared to the total dollar amount of payments made in the 
sample); the average amount of improper payment; and the estimated 
annual amount of improper payments. The report also will provide 
strategies for reducing their error rates and allow States, the District 
of Columbia and Puerto Rico to set target error rates for the next 
cycle.
    (c) Error Defined--For purposes of this subpart, an ``error'' shall 
mean any violation or misapplication of statutory, contractual, 
administrative, or other legally applicable requirements governing the 
administration of CCDF grant funds, regardless of whether such violation 
results in an improper payment.
    (d) Improper Payment Defined--For purposes of this subpart, 
``improper payment.''
    (1) Means any payment of CCDF grant funds that should not have been 
made or that was made in an incorrect amount (including overpayments and 
underpayments) under statutory, contractual, administrative, or other 
legally applicable requirements governing the administration of CCDF 
grant funds; and
    (2) Includes any payment of CCDF grant funds to an ineligible 
recipient, any payment of CCDF grant funds for an ineligible service, 
any duplicate payment of CCDF grant funds and payments of CCDF grant 
funds for services not received.
    (e) Costs of Preparing the Error Rate Report--Provided the error 
rate calculations and reports focus on client eligibility, expenses 
incurred by the States, the District of Columbia and Puerto Rico in 
complying with this rule, including preparation of required reports, 
shall be considered a cost of direct service related to eligibility 
determination and therefore is not subject to the five percent 
limitation on CCDF administrative costs pursuant to Section 98.52(a).



Sec. 98.101  Case Review Methodology.

    (a) Case Reviews and Sampling--In preparing the error reports 
required by this subpart, States, the District of Columbia and Puerto 
Rico shall conduct comprehensive reviews of case records using a 
methodology established by the

[[Page 673]]

Secretary. For purposes of the case reviews, States, the District of 
Columbia and Puerto Rico shall select a random sample of case records 
which is estimated to achieve the calculation of an estimated annual 
amount of improper payments with a 90 percent confidence interval of 
5.0 percent.
    (b) Methodology and Forms--States, the District of Columbia and 
Puerto Rico must prepare and submit forms issued by the Secretary, 
following the accompanying instructions setting forth the methodology to 
be used in conducting case reviews and calculating the error rates.
    (c) Reporting Frequency and Cycle--States, the District of Columbia 
and Puerto Rico shall conduct case reviews and submit error rate reports 
to the Department according to a staggered three-year cycle established 
by the Secretary such that each State, the District of Columbia, and 
Puerto Rico will be selected once, and only once, in every three years.
    (d) Access to Federal Staff--States, the District of Columbia and 
Puerto Rico must provide access to Federal staff to participate and 
provide oversight in case reviews and error rate calculations, including 
access to forms related to determining error rates.
    (e) Record Retention--Records pertinent to the case reviews and 
submission of error rate reports shall be retained for a period of five 
years from the date of submission of the applicable error rate report 
or, if the error rate report was revised, from the date of submission of 
the revision. Records must be made available to Federal staff upon 
request.



Sec. 98.102  Content of Error Rate Reports.

    (a) Baseline Submission Report--At a minimum, States, the District 
of Columbia and Puerto Rico shall submit an initial error rate report to 
the Department, as required in Sec. 98.100, which includes the 
following information on errors and resulting improper payments 
occurring in the administration of CCDF grant funds, including Federal 
Discretionary Funds (which includes any funds transferred from the TANF 
Block Grant), Mandatory and Matching Funds and State Matching and 
Maintenance-of-Effort (MOE Funds):
    (1) Percentage of cases with an error (regardless of whether such 
error resulted in an over or under payment), expressed as the total 
number of cases in the sample with an error compared to the total number 
of cases in the sample;
    (2) Percentage of cases with an improper payment (both over and 
under payments), expressed as the total number of cases in the sample 
with an improper payment compared to the total number of cases in the 
sample;
    (3) Percentage of improper payments (both over and under payments), 
expressed as the total dollar amount of improper payments in the sample 
compared to the total dollar amount of payments made in the sample;
    (4) Average amount of improper payments (gross over and under 
payments, divided by the total number of cases in the sample that had an 
improper payment (both over and under payments));
    (5) Estimated annual amount of improper payments (which is a 
projection of the results from the sample to the universe of cases 
statewide during the 12-month review period) calculated by multiplying 
the percentage of improper payments by the total dollar amount of child 
care payments that the State, the District of Columbia or Puerto Rico 
paid during the 12-month review period
    (6) For each category of data listed above, targets for errors and 
improper payments in the next reporting cycle;
    (7) Summary of methodology used to arrive at estimate, including 
fieldwork preparation, sample generation, record review and error rate 
computation processes;
    (8) Discussion of the causes of improper payments identified and 
actions that will be taken to correct those causes in order to reduce 
the error rates;
    (9) Description of the information systems and other infrastructure 
that assist the State, the District of Columbia and Puerto Rico in 
identifying and reducing improper payments, or if the State, the 
District of Columbia or Puerto Rico does not have these tools, a 
description of actions that will be

[[Page 674]]

taken to acquire the necessary information systems and other 
infrastructure; and
    (10) Such other information as specified by the Secretary.
    (b) Standard Report--At a minimum, the State, the District of 
Columbia and Puerto Rico shall submit an error rate report to the 
Department, as required in Sec. 98.100, made subsequent to the baseline 
submission report as set forth in Sec. 98.102(a) which includes the 
following information on errors and resulting improper payments 
occurring in the administration of CCDF grant funds, including Federal 
Discretionary Funds (which includes any funds transferred from the TANF 
Block Grant), Mandatory and Matching Funds and State Matching and 
Maintenance-of-Effort (MOE Funds):
    (1) All the information reported in the baseline submission, as set 
forth in Sec. 98.102(a), updated for the current cycle;
    (2) For each category of data listed in Sec. 98.102(a)(1) through 
(5), States, the District of Columbia and Puerto Rico must include data 
and targets from the prior cycle in addition to data from the current 
cycle and targets for the next cycle;
    (3) Description of whether the State, the District of Columbia or 
Puerto Rico met error rate targets set in the prior cycle and, if not, 
an explanation of why not;
    (4) Discussion of the causes of improper payments identified in the 
prior cycle and actions that were taken to correct those causes, in 
addition to a discussion on the causes of improper payments identified 
in the current cycle and actions that will be taken to correct those 
causes in order to reduce the error rates; and
    (5) Such other information as specified by the Secretary.



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 Sec. 
98.18(c) or Sec. 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.

[[Page 675]]

    (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 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

[[Page 676]]

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.
    (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

[[Page 677]]

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;
    (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.

[[Page 678]]



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 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

[[Page 679]]

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.



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.''

[[Page 680]]

    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 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

[[Page 681]]

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.
    (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

[[Page 682]]

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 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.



PART 101_DESCRIBING AGENCY NEEDS--Table of Contents



      Subpart A_Health Resources Priorities and Allocations System

                                 General

Sec.
101.1 Purpose.
101.2 Priorities and allocations authority.
101.3 Program eligibility.

                          Subpart B_Definitions

101.20 Definitions.

                   Subpart C_Placement of Rated Orders

101.30 Delegations of authority.
101.31 Priority ratings.
101.32 Elements of a rated order.
101.33 Acceptance and rejection of rated orders.
101.34 Preferential scheduling.
101.35 Extension of priority ratings.
101.36 Changes or cancellations of priority ratings and rated orders.
101.37 Use of rated orders.
101.38 Limitations on placing rated orders.

                 Subpart D_Special Priorities Assistance

101.40 General provisions.
101.41 Requests for priority rating authority.
101.42 Examples of assistance.
101.43 Criteria for assistance.
101.44 Instances where assistance may not be provided.

                      Subpart E_Allocation Actions

101.50 Policy.
101.51 General procedures.
101.52 Controlling the general distribution of a material in the 
          civilian market.
101.53 Types of allocation orders.
101.54 Elements of an allocation order.
101.55 Mandatory acceptance of an allocation order.
101.56 Changes or cancellations of an allocation order.

                       Subpart F_Official Actions

101.60 General provisions.
101.61 Rating Authorizations.
101.62 Directives.
101.63 Letters and Memoranda of Understanding.

                          Subpart G_Compliance

101.70 General provisions.
101.71 Audits and investigations.
101.72 Compulsory process.
101.73 Notification of failure to comply.

[[Page 683]]

101.74 Violations, penalties, and remedies.
101.75 Compliance conflicts.

             Subpart H_Adjustments, Exceptions, and Appeals

101.80 Adjustments or exceptions.
101.81 Appeals.

                   Subpart I_Miscellaneous Provisions

101.90 Protection against claims.
101.91 Records and reports.
101.92 Applicability of this part and official actions.
101.93 Communications.

    Authority: 50 U.S.C. App. 2061-2171;

    Source: 80 FR 42413, July 17, 2015, unless otherwise noted.



      Subpart A_Health Resources Priorities and Allocations System

                                 General



Sec. 101.1  Purpose.

    This section provides guidance and procedures for use of Defense 
Production Act (DPA) of 1950 Section 101(a) priorities and allocations 
authority with respect to all forms of health resources necessary or 
appropriate to promote the national defense. The guidance and procedures 
in this part are consistent with the guidance and procedures provided in 
other regulations that, as a whole, form the Federal Priorities and 
Allocations System. Guidance and procedures for use of the DPA 
priorities and allocations authority with respect to other types of 
resources are provided for: food resources, food resource facilities, 
and the domestic distribution of farm equipment and commercial 
fertilizer in7 CFR part 700; energy supplies in 10 CFR part 217; all 
forms of civil transportation in 49 CFR part 33; water resources in 32 
CFR part 555; and all other materials, services, and facilities, 
including construction materials in the Defense Priorities and 
Allocations System (DPAS) regulation (15 CFR part 700).



Sec. 101.2  Priorities and allocations authority.

    (a) Section 201 of E.O. 13603, delegates the President's authority 
under Section 101 of the DPA. DPA Section 101 provides the President 
with authority to require acceptance and priority performance of 
contracts and orders (other than contracts of employment) to promote the 
national defense over performance of any other contracts or orders, and 
to allocate materials, services, and facilities as deemed necessary or 
appropriate to promote the national defense to a number of agencies. 
Section 201 of E.O. 13603 delegates the President's authority to 
specific agencies as follows:
    (1) The Secretary of Agriculture with respect to food resources, 
food resource facilities, livestock resources, veterinary resources, 
plant health resources, and the domestic distribution of farm equipment 
and commercial fertilizer;
    (2) The Secretary of Energy with respect to all forms of energy;
    (3) The Secretary of Health and Human Services with respect to 
health resources;
    (4) The Secretary of Transportation with respect to all forms of 
civil transportation;
    (5) The Secretary of Defense with respect to water resources; and
    (6) The Secretary of Commerce for all other materials, services, and 
facilities, including construction materials.
    (b) Section 202(a) of E.O. 13603 states that the priorities and 
allocations authority delegated in Section 201 of that Executive Order 
may be used only to support programs that have been determined in 
writing as necessary or appropriate to promote the national defense:
    (1) By the Secretary of Defense with respect to military production 
and construction, military assistance to foreign nations, military use 
of civil transportation, stockpiles managed by the Department of 
Defense, space, and directly related activities;
    (2) By the Secretary of Energy with respect to energy production and 
construction, distribution and use, and directly related activities; and
    (3) By the Secretary of Homeland Security with respect to all other 
national defense programs, including civil defense and continuity of 
Government.
    (c) Section 201(e) of E.O. 13603 provides that each department that 
is delegated priorities and allocations authority under Section 201(a) 
of E.O.

[[Page 684]]

13603 may use this authority with respect to control of the general 
distribution of any material (including applicable services) in the 
civilian market only after:
    (1) Making the finding required under Section 101(b) of the DPA; and
    (2) The finding has been approved by the President.
    (d) Priorities authorities (and other authorities delegated to the 
Secretary in E.O. 13603 but not covered by this regulation) have been 
re-delegated by the Secretary to the Assistant Secretary for 
Preparedness and Response (the ``ASPR''). The Secretary retains the 
authority for allocations.



Sec. 101.3  Program eligibility.

    Certain programs to promote the national defense are eligible for 
priorities and allocations support. These include programs for military 
and energy production or construction, military or critical 
infrastructure assistance to any foreign nation, deployment and 
sustainment of military forces, homeland security, stockpiling, space, 
and any directly related activity. Other eligible programs include 
emergency preparedness activities conducted pursuant to Title VI of the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act [42 
U.S.C. 5195 et seq.] and critical infrastructure protection and 
restoration.



                          Subpart B_Definitions



Sec. 101.20  Definitions.

    The following definitions pertain to all sections of this part:
    Allocation means the control of the distribution of materials, 
services, or facilities for a purpose deemed necessary or appropriate to 
promote the national defense.
    Allocation order means an official action to control the 
distribution of materials, services, or facilities for a purpose deemed 
necessary or appropriate to promote the national defense.
    Allotment means an official action that specifies the maximum 
quantity or use of a material, service, or facility authorized for a 
specific use to promote the national defense.
    Approved program means a program determined by the Secretary of 
Defense, the Secretary of Energy, or the Secretary of Homeland Security 
to be necessary or appropriate to promote the national defense, in 
accordance with Section 202 of E.O. 13603.
    Construction means the erection, addition, extension, or alteration 
of any building, structure, or project, using materials or products 
which are to be an integral and permanent part of the building, 
structure, or project. Construction does not include maintenance and 
repair.
    Critical infrastructure means any systems and assets, whether 
physical or cyber-based, so vital to the United States that the 
degradation or destruction of such systems and assets would have a 
debilitating impact on national security, including, but not limited to, 
national economic security and national public health or safety.
    Defense Production Act or DPA means the Defense Production Act of 
1950, as amended (50 U.S.C. App. 2061 et seq.).
    Delegate agency means a Federal government agency authorized by 
delegation from HHS to place priority ratings on contracts or orders 
needed to support approved programs.
    Directive means an official action that requires a person to take or 
refrain from taking certain actions in accordance with its provisions.
    Emergency preparedness means all those activities and measures 
designed or undertaken to prepare for or minimize the effects of a 
hazard upon the civilian population, to deal with the immediate 
emergency conditions which would be created by the hazard, and to 
effectuate emergency repairs to, or the emergency restoration of, vital 
utilities and facilities destroyed or damaged by the hazard. ``Emergency 
Preparedness'' includes the following:
    (1) Measures to be undertaken in preparation for anticipated hazards 
(including the establishment of appropriate organizations, operational 
plans, and supporting agreements, the recruitment and training of 
personnel, the conduct of research, the procurement and stockpiling of 
necessary materials and supplies, the provision of suitable warning 
systems, the construction or preparation of shelters, shelter areas, and 
control centers, and,

[[Page 685]]

when appropriate, the nonmilitary evacuation of the civilian 
population).
    (2) Measures to be undertaken during a hazard (including the 
enforcement of passive defense regulations prescribed by duly 
established military or civil authorities, the evacuation of personnel 
to shelter areas, the control of traffic and panic, and the control and 
use of lighting and civil communications).
    (3) Measures to be undertaken following a hazard (including 
activities for firefighting; rescue; emergency medical, health and 
sanitation services; monitoring for specific dangers of special weapons; 
unexploded bomb reconnaissance; essential debris clearance; emergency 
welfare measures; and immediately essential emergency repair or 
restoration of damaged vital facilities).
    Facilities includes all types of buildings, structures, or other 
improvements to real property (but excluding farms, churches or other 
places of worship, and private dwelling houses), and services relating 
to the use of any such building, structure, or other improvement.
    Farm equipment means equipment, machinery, and repair parts 
manufactured for use on farms in connection with the production or 
preparation for market use of Food resources.
    Fertilizer means any product or combination of products that contain 
one or more of the elements--nitrogen, phosphorus, and potassium--for 
use as a plant nutrient.
    Food resource facilities means plants, machinery, vehicles 
(including on-farm), and other facilities required for the production, 
processing, distribution, and storage (including cold storage) of food 
resources, and for the domestic distribution of farm equipment and 
fertilizer (excluding transportation thereof).
    Food resources means all commodities and products, (simple, mixed, 
or compound), or complements to such commodities or products, that are 
capable of being ingested by either human beings or animals, 
irrespective of other uses to which such commodities or products may be 
put, at all stages of processing from the raw commodity to the products 
thereof in vendible form for human or animal consumption. ``Food 
Resources'' also means potable water packaged in commercially marketable 
containers, all starches, sugars, vegetable and animal or marine fats 
and oils, seed, cotton, hemp, and flax fiber, but does not mean any such 
material after it loses its identity as an agricultural commodity or 
agricultural product.
    Hazard means an emergency or disaster resulting from:
    (1) A natural disaster; or
    (2) An accidental or human-caused event.
    Health resources means drugs, biological products, medical devices, 
materials, facilities, health supplies, services and equipment required 
to diagnose, mitigate or prevent the impairment of, improve, treat, 
cure, or restore the physical or mental health conditions of the 
population.
    Homeland Security includes efforts--
    (1) To prevent terrorist attacks within the United States;
    (2) To reduce the vulnerability of the United States to terrorism;
    (3) To minimize damage from a terrorist attack in the United States; 
and
    (4) To recover from a terrorist attack in the United States.
    Industrial Resource means all materials, services, and facilities, 
including construction materials, but not including: Food resources, 
food resource facilities, and the domestic distribution of farm 
equipment and commercial fertilizer; all forms of health resources; all 
forms of civil transportation; and water resources.
    Item means any raw, in process, or manufactured material, article, 
commodity, supply, equipment, component, accessory, part, assembly, or 
product of any kind, technical information, process, or service.
    Maintenance and Repair and Operating Supplies (MRO) includes the 
following--
    (1) ``Maintenance'' is the upkeep necessary to continue any plant, 
facility, or equipment in working condition.
    (2) ``Repair'' is the restoration of any plant, facility, or 
equipment to working condition when it has been rendered unsafe or unfit 
for service by wear and tear, damage, or failure of parts.

[[Page 686]]

    (3) ``Operating Supplies'' are any resources carried as operating 
supplies according to a person's established accounting practice. 
``Operating Supplies'' may include hand tools and expendable tools, 
jigs, dies, fixtures used on production equipment, lubricants, cleaners, 
chemicals and other expendable items.
    (4) MRO does not include items produced or obtained for sale to 
other persons or for installation upon or attachment to the property of 
another person, or items required for the production of such items; 
items needed for the replacement of any plant, facility, or equipment; 
or items for the improvement of any plant, facility, or equipment by 
replacing items which are still in working condition with items of a new 
or different kind, quality, or design.
    Materials includes--
    (1) Any raw materials (including minerals, metals, and advanced 
processed materials), commodities, articles, components (including 
critical components), products, and items of supply;
    (2) Any technical information or services ancillary to the use of 
any such materials, commodities, articles, components, products, or 
items; and
    (3) Natural resources such as oil and gas.
    National defense means programs for military and health resources 
production or construction, military or critical infrastructure 
assistance to any foreign nation, homeland security, stockpiling, space, 
and any directly related activity. Such term includes emergency 
preparedness activities conducted pursuant to title VI of the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5195, 
et seq.) and critical infrastructure protection and restoration.
    Official action means an action taken by the Department of Health 
and Human Services or another resource agency under the authority of the 
Defense Production Act, E.O.13603, and this part or another regulation 
under the Federal Priorities and Allocations System. Such actions 
include the issuance of Rating Authorizations, Directives, Set Asides, 
Allotments, Letters of Understanding, Memoranda of Understanding, and 
Demands for Information, Inspection Authorizations, and Administrative 
Subpoenas.
    Person includes an individual, corporation, partnership, 
association, or any other organized group of persons, or legal successor 
or representative thereof, or any State or local government or agency 
thereof.
    Rated order means a prime contract, a subcontract, or a purchase 
order in support of an approved program issued in accordance with the 
provisions of this part.
    Resource agency means any agency delegated priorities and 
allocations authority as specified in Sec. 101.2.
    Secretary means the Secretary of Health and Human Services.
    Services includes any effort that is needed for or incidental to--
    (1) The development, production, processing, distribution, delivery, 
or use of an industrial resource or a critical technology item;
    (2) The construction of facilities;
    (3) The movement of individuals and property by all modes of civil 
transportation; or
    (4) Other national defense programs and activities.
    Set-aside means an official action that requires a person to reserve 
materials, services, or facilities capacity in anticipation of the 
receipt of rated orders.
    Stafford Act means title VI (Emergency Preparedness) of the Robert 
T. Stafford Disaster Relief and Emergency Assistance Act, as amended (42 
U.S.C. 5195-5197h).
    Water resources means all usable water, from all sources, within the 
jurisdiction of the United States, that can be managed, controlled, and 
allocated to meet emergency requirements, except ``water resources does 
not include usable water that qualifies as ``food resources''.



                   Subpart C_Placement of Rated Orders



Sec. 101.30  Delegations of authority.

    The priorities and allocations authorities of the President under 
Title I of the DPA with respect to all forms of health resources have 
been delegated to the Secretary under E.O. 13603. The

[[Page 687]]

Secretary may re-delegate the Secretary's priority rating activities 
under the DPA though the allocations authority provided to the Secretary 
is not subject to delegation per Section 201(e) of E.O. 13603.



Sec. 101.31  Priority ratings.

    (a) Levels of priority. (1) There are two levels of priority 
established by Federal Priorities and Allocations System regulations, 
identified by the rating symbols ``DO'' and ``DX''.
    (2) All DO-rated orders have equal priority with each other and take 
precedence over unrated orders. All DX-rated orders have equal priority 
with each other and take precedence over DO-rated orders and unrated 
orders. (For resolution of conflicts among rated orders of equal 
priority, see Sec. 101.34(c).)
    (3) In addition, a Directive regarding priority treatment for a 
given item issued by the Department of Health and Human Services for 
that item takes precedence over any DX-rated order, DO-rated order, or 
unrated order, as stipulated in the Directive. (For a full discussion of 
Directives, see Sec. 101. 62.
    (b) Program identification symbols. Program identification symbols, 
such as ``DO-HR'', or ``DX-HR'', indicate which approved program is 
being supported by a rated order. Programs may be approved under the 
procedures of E.O. 13603 Section 202 at any time. Program identification 
symbols do not connote any priority.
    (c) Priority ratings. A priority rating consists of the rating 
symbol--DO or DX--and the program identification symbol, such as DO-HR 
or DX-HR.



Sec. 101.32  Elements of a rated order.

    Each rated order must include:
    (a) The appropriate priority rating (e.g. DO-HR or DX-HR);
    (b) A required delivery date or dates. The words ``immediately'' or 
``as soon as possible'' do not constitute a delivery date. A 
``requirements contract'', ``basic ordering agreement'', ``prime vendor 
contract'', or similar procurement document bearing a priority rating 
may contain no specific delivery date or dates and may provide for the 
furnishing of items or service from time-to-time or within a stated 
period against specific purchase orders, such as ``calls'', 
``requisitions'', and ``delivery orders''. These purchase orders must 
specify a required delivery date or dates and are to be considered as 
rated as of the date of their receipt by the supplier and not as of the 
date of the original procurement document;
    (c) The written signature on a manually placed order, or the digital 
signature or name on an electronically placed order, of an individual 
authorized to sign rated orders for the person placing the order. The 
signature or use of the name certifies that the rated order is 
authorized under this part and that the requirements of this part are 
being followed; and
    (d)(1) A statement that reads in substance:

    This is a rated order certified for national defense use, and you 
are required to follow all the provisions of the Health Resources 
Priorities and Allocations System regulation at 45 CFR part 101.

    (2) If the rated order is placed in support of emergency 
preparedness requirements and expedited action is necessary and 
appropriate to meet these requirements, the following sentences should 
be added following the statement set forth in paragraph (d)(1) of this 
section:
    (i) This rated order is placed for the purpose of emergency 
preparedness. It must be accepted or rejected within two (2) days after 
receipt of the order if:
    (A) The order is issued in response to a hazard that has occurred; 
or
    (B) If the order is issued to prepare for an imminent hazard, as 
specified in HRPAS Sec. 101.33(e).
    (ii) [Reserved]



Sec. 101.33  Acceptance and rejection of rated orders.

    (a) Mandatory acceptance. (1) Except as otherwise specified in this 
section, a person shall accept every rated order received and must fill 
such orders regardless of any other rated or unrated orders that have 
been accepted.
    (2) A person shall not discriminate against rated orders in any 
manner such as by charging higher prices or by

[[Page 688]]

imposing different terms and conditions than for comparable unrated 
orders.
    (b) Mandatory rejection. Unless otherwise directed by HHS for a 
rated order involving all forms of health resources:
    (1) A person shall not accept a rated order for delivery on a 
specific date if unable to fill the order by that date. However, the 
person must inform the customer of the earliest date on which delivery 
can be made and offer to accept the order on the basis of that date. 
Scheduling conflicts with previously accepted lower rated or unrated 
orders are not sufficient reason for rejection under this section.
    (2) A person shall not accept a DO-rated order for delivery on a 
date which would interfere with delivery of any previously accepted DO- 
or DX-rated orders. However, the person must offer to accept the order 
based on the earliest delivery date otherwise possible.
    (3) A person shall not accept a DX-rated order for delivery on a 
date which would interfere with delivery of any previously accepted DX-
rated orders, but must offer to accept the order based on the earliest 
delivery date otherwise possible.
    (4) If a person is unable to fill all of the rated orders of equal 
priority status received on the same day, the person must accept, based 
upon the earliest delivery dates, only those orders which can be filled, 
and reject the other orders. For example, a person must accept order A 
requiring delivery on December 15 before accepting order B requiring 
delivery on December 31. However, the person must offer to accept the 
rejected orders based on the earliest delivery dates otherwise possible.
    (c) Optional rejection. Unless otherwise directed by HHS for a rated 
order involving all forms of health resources, rated orders may be 
rejected in any of the following cases as long as a supplier does not 
discriminate among customers:
    (1) If the person placing the order is unwilling or unable to meet 
regularly established terms of sale or payment;
    (2) If the order is for an item not supplied or for a service not 
capable of being performed;
    (3) If the order is for an item or service produced, acquired, or 
provided only for the supplier's own use for which no orders have been 
filled for two years prior to the date of receipt of the rated order. 
If, however, a supplier has sold some of these items or provided similar 
services, the supplier is obligated to accept rated orders up to that 
quantity or portion of production or service, whichever is greater, sold 
or provided within the past two years;
    (4) If the person placing the rated order, other than the U.S. 
Government, makes the item or performs the service being ordered;
    (5) If acceptance of a rated order or performance against a rated 
order would violate any other regulation, official action, or order of 
the HHS issued under the authority of the DPA or another relevant 
statute.
    (d) Customer notification requirements. (1) Except as provided in 
paragraph (e) of this section, a person must accept or reject a rated 
order in writing or electronically within fifteen (15) working days 
after receipt of a DO-rated order and within ten (10) working days after 
receipt of a DX-rated order. If the order is rejected, the person must 
give reasons in writing or electronically for the rejection.
    (2) If a person has accepted a rated order and subsequently finds 
that shipment or performance will be delayed, the person must notify the 
customer immediately, give the reasons for the delay, and advise of a 
new shipment or performance date. If notification is given verbally, 
written or electronic confirmation must be provided within five (5) 
working days.
    (e) Exception for emergency response conditions. If the rated order 
is placed for the purpose of emergency preparedness, a person must 
accept or reject a rated order and transmit the acceptance or rejection 
in writing or in an electronic format within two (2) days after receipt 
of the order if:
    (1) The order is issued in response to a hazard that has occurred; 
or
    (2) The order is issued to prepare for an imminent hazard.



Sec. 101.34  Preferential scheduling.

    (a) A person must schedule operations, including the acquisition of 
all

[[Page 689]]

needed production items or services, in a timely manner to satisfy the 
delivery requirements of each rated order. Modifying production or 
delivery schedules is necessary only when required delivery dates for 
rated orders cannot otherwise be met.
    (b) DO-rated orders must be given production preference over unrated 
orders, if necessary to meet required delivery dates, even if this 
requires the diversion of items being processed or ready for delivery or 
services being performed against unrated orders. Similarly, DX-rated 
orders must be given preference over DO-rated orders and unrated orders. 
(Examples: If a person receives a DO-rated order with a delivery date of 
June 3 and if meeting that date would mean delaying production or 
delivery of an item for an unrated order, the unrated order must be 
delayed. If a DX-rated order is received calling for delivery on July 15 
and a person has a DO-rated order requiring delivery on June 2 and 
operations can be scheduled to meet both deliveries, there is no need to 
alter production schedules to give any additional preference to the DX-
rated order.)
    (c) Conflicting rated orders. (1) If a person finds that delivery or 
performance against any accepted rated orders conflicts with the 
delivery or performance against other accepted rated orders of equal 
priority status, the person shall give precedence to the conflicting 
orders in the sequence in which they are to be delivered or performed 
(not to the receipt dates). If the conflicting orders are scheduled to 
be delivered or performed on the same day, the person shall give 
precedence to those orders that have the earliest receipt dates.
    (2) If a person is unable to resolve rated order delivery or 
performance conflicts under this section, the person should promptly 
seek special priorities assistance as provided in Sec. Sec. 101.40 
through 101.44. If the person's customer objects to the rescheduling of 
delivery or performance of a rated order, the customer should promptly 
seek special priorities assistance as provided in Sec. Sec. 101.40 
through 101.44. For any rated order against which delivery or 
performance will be delayed, the person must notify the customer as 
provided in Sec. 101.33(d)(2).
    (d) If a person is unable to purchase needed production items in 
time to fill a rated order by its required delivery date, the person 
must fill the rated order by using inventoried production items. A 
person who uses inventoried items to fill a rated order may replace 
those items with the use of a rated order as provided in Sec. 
101.37(b).



Sec. 101.35  Extension of priority ratings.

    (a) A person must use rated orders with suppliers to obtain items or 
services needed to fill a rated order. The person must use the priority 
rating indicated on the customer's rated order, except as otherwise 
provided in this part or as directed by the Department of Health and 
Human Services.
    (b) The priority rating must be included on each successive order 
placed to obtain items or services needed to fill a customer's rated 
order. This continues from contractor to subcontractor to supplier 
throughout the entire procurement chain.



Sec. 101.36  Changes or cancellations of priority ratings and rated orders.

    (a) The priority rating on a rated order may be changed or canceled 
by:
    (1) An official action of HHS; or
    (2) Written notification from the originating agency that placed the 
rated order.
    (b) If an unrated order is amended so as to make it a rated order, 
or a DO rating is changed to a DX rating, the supplier must give the 
appropriate preferential treatment to the order as of the date the 
change is received by the supplier.
    (c) An amendment to a rated order that significantly alters a 
supplier's original production or delivery schedule shall constitute a 
new rated order as of the date of its receipt. The supplier must accept 
or reject the amended order according to the provisions of Sec. 101.33.
    (d) The following amendments do not constitute a new rated order: a 
change in shipping destination; a reduction in the total amount of the 
order; an increase in the total amount of the order

[[Page 690]]

which has negligible impact upon deliveries; a minor variation in size 
or design; or a change which is agreed upon between the supplier and the 
customer.
    (e) If a person no longer needs items or services to fill a rated 
order, any rated orders placed with suppliers for the items or services, 
or the priority rating on those orders, must be canceled.
    (f) When a priority rating is added to an unrated order, or is 
changed or canceled, all suppliers must be promptly notified in writing.



Sec. 101.37  Use of rated orders.

    (a) A person must use rated orders to obtain:
    (1) Items which will be physically incorporated into other items to 
fill rated orders, including that portion of such items normally 
consumed or converted into scrap or by-products in the course of 
processing;
    (2) Containers or other packaging materials required to make 
delivery of the finished items against rated orders;
    (3) Services, other than contracts of employment, needed to fill 
rated orders; and
    (4) MRO needed to produce the finished items to fill rated orders.
    (b) A person may use a rated order to replace inventoried items 
(including finished items) if such items were used to fill rated orders, 
as follows:
    (1) The order must be placed within 90 days of the date of use of 
the inventory.
    (2) A DO rating and the program identification symbol indicated on 
the customer's rated order must be used on the order. A DX rating may 
not be used even if the inventory was used to fill a DX-rated order.
    (3) If the priority ratings on rated orders from one customer or 
several customers contain different program identification symbols, the 
rated orders may be combined. In this case, the program identification 
symbol ``H1'' must be used (i.e., DO-H1).
    (c) A person may combine DX- and DO-rated orders from one customer 
or several customers if the items or services covered by each level of 
priority are identified separately and clearly. If different program 
identification symbols are indicated on those rated orders of equal 
priority, the person must use the program identification symbol ``H1'' 
(i.e., DO-H1 or DX-H1).
    (d) Combining rated and unrated orders. (1) A person may combine 
rated and unrated order quantities on one purchase order provided that:
    (i) The rated quantities are separately and clearly identified; and
    (ii) The four elements of a rated order, as required by Sec. 
101.32, are included on the order with the statement required in Sec. 
101.32(d) modified to read in substance:

    This purchase order contains rated order quantities certified for 
national defense use, and you are required to follow all applicable 
provisions of the Health Resources Priorities and Allocations System 
regulations at 45 CFR part 101, subpart A, only as it pertains to the 
rated quantities.

    (2) A supplier must accept or reject the rated portion of the 
purchase order as provided in Sec. 101.33 and give preferential 
treatment only to the rated quantities as required by this part. This 
part may not be used to require preferential treatment for the unrated 
portion of the order.
    (3) Any supplier who believes that rated and unrated orders are 
being combined in a manner contrary to the intent of this part or in a 
fashion that causes undue or exceptional hardship may submit a request 
for adjustment or exception under Sec. 101.80.
    (e) A person may place a rated order for the minimum commercially 
procurable quantity even if the quantity needed to fill a rated order is 
less than that minimum. However, a person must combine rated orders as 
provided in paragraph (c) of this section, if possible, to obtain 
minimum procurable quantities.
    (f) A person is not required to place a priority rating on an order 
for less than one-half of the Simplified Acquisition Threshold (as 
established in the Federal Acquisition Regulation (FAR) (see 48 CFR 
2.101) or in other authorized acquisition regulatory or management 
systems) whichever amount is greater, provided that delivery can be 
obtained in a timely fashion without the use of the priority rating.

[[Page 691]]



Sec. 101.38  Limitations on placing rated orders.

    (a) General limitations. (1) A person may not place a DO- or DX-
rated order unless entitled to do so under this part.
    (2) Rated orders may not be used to obtain:
    (i) Delivery on a date earlier than needed;
    (ii) A greater quantity of the item or services than needed, except 
to obtain a minimum procurable quantity. Separate rated orders may not 
be placed solely for the purpose of obtaining minimum procurable 
quantities on each order;
    (iii) Items or services in advance of the receipt of a rated order, 
except as specifically authorized by HHS (see Sec. 101.41(c) for 
information on obtaining authorization for a priority rating in advance 
of a rated order);
    (iv) Items that are not needed to fill a rated order, except as 
specifically authorized by HHS, or as otherwise permitted by this part; 
or
    (v) Any of the following items unless specific priority rating 
authority has been obtained from HHS, a Delegate Agency, or the 
Department of Commerce, as appropriate:
    (A) Items for plant improvement, expansion, or construction, unless 
they will be physically incorporated into a construction project covered 
by a rated order; and
    (B) Production or construction equipment or items to be used for the 
manufacture of production equipment. [For information on requesting 
priority rating authority, see Sec. 101.41.]
    (vi) Any items related to the development of chemical or biological 
warfare capabilities or the production of chemical or biological 
weapons, unless such development or production has been authorized by 
the President or the Secretary of Defense. This provision does not 
however prohibit the use of the priority and allocations authority to 
acquire or produce qualified countermeasures that are necessary to 
treat, identify, or prevent harm from any biological or chemical agent 
that may cause a public health emergency affecting national security.
    (b) Jurisdictional limitations. Unless authorized by the resource 
agency with jurisdiction, the provisions of this part are not applicable 
to the following resources:
    (1) Food resources, food resource facilities, and the domestic 
distribution of farm equipment and commercial fertilizer (Resource 
agency with jurisdiction--Department of Agriculture);
    (2) Energy supplies (Resource agency with jurisdiction--Department 
of Energy);
    (3) All forms of civil transportation (Resource agency with 
jurisdiction--Department of Transportation);
    (4) Water resources (Resource agency with jurisdiction--Department 
of Defense/U.S. Army Corps of Engineers); and
    (5) Communications services (Resource agency with jurisdiction-- 
National Communications System under E.O. 12472 of April 3, 1984).



                 Subpart D_Special Priorities Assistance



Sec. 101.40  General provisions.

    (a) The six regulations that comprise the Federal Priorities and 
Allocations System are designed to be largely self-executing. However, 
from time-to-time production or delivery problems will arise in 
connection with rated orders for health resources as covered under this 
part. In this event, a person should immediately contact the Secretary 
for guidance, as specified in Sec. 101.93. If the HHS is unable to 
resolve the problem or to authorize the use of a priority rating and 
believes additional assistance is warranted, HHS may forward the request 
to another agency with resource jurisdiction, or the Department of 
Commerce, as appropriate, for action. Special priorities assistance is 
provided to alleviate problems that do arise.
    (b) Special priorities assistance is available for any reason 
consistent with this part. Generally, special priorities assistance is 
provided to expedite deliveries, resolve delivery conflicts, place rated 
orders, locate suppliers, or to verify information supplied by customers 
and vendors. Special priorities assistance may also be used to request 
rating authority for items that are not normally eligible for priority 
treatment.

[[Page 692]]

    (c) A request for special priorities assistance or priority rating 
authority must be submitted to the Secretary, as specified in Sec. 
101.93.



Sec. 101.41  Requests for priority rating authority.

    (a) If a rated order is likely to be delayed because a person is 
unable to obtain items or services not normally rated under this part, 
the person may request the authority to use a priority rating in 
ordering the needed items or services.
    (b) Rating authority for production or construction equipment. (1) A 
request for priority rating authority for production or construction 
equipment must be submitted to the U.S. Department of Commerce on Form 
BIS-999.
    (2) When the use of a priority rating is authorized for the 
procurement of production or construction equipment, a rated order may 
be used either to purchase or to lease such equipment. However, in the 
latter case, the equipment may be leased only from a person engaged in 
the business of leasing such equipment or from a person willing to lease 
rather than sell.
    (c) Rating authority in advance of a rated prime contract. (1) In 
certain cases and upon specific request, the Department of Health and 
Human Services, in order to promote the national defense, may authorize 
a person to place a priority rating on an order to a supplier in advance 
of the issuance of a rated prime contract. In these instances, the 
person requesting advance-rating authority must obtain sponsorship of 
the request from the Department of Health and Human Services or the 
appropriate Delegate Agency. The person shall also assume any business 
risk associated with the placing of rated orders in the event the rated 
prime contract is not issued.
    (2) The person must state the following in the request:

    It is understood that the authorization of a priority rating in 
advance of our receiving a rated prime contract from the Department of 
Health and Human Services and our use of that priority rating with our 
suppliers in no way commits the Department of Health and Human Services 
or any other government agency to enter into a contract or order or to 
expend funds. Further, we understand that the Federal Government shall 
not be liable for any cancellation charges, termination costs, or other 
damages that may accrue if a rated prime contract is not eventually 
placed and, as a result, we must subsequently cancel orders placed with 
the use of the priority rating authorized as a result of this request.

    (3) In reviewing requests for rating authority in advance of a rated 
prime contract, HHS will consider, among other things, the following 
criteria:
    (i) The probability that the prime contract will be awarded;
    (ii) The impact of the resulting rated orders on suppliers and on 
other authorized programs;
    (iii) Whether the contractor is the sole source;
    (iv) Whether the item being produced has a long lead time;
    (v) The time period for which the rating is being requested.
    (4) The HHS may require periodic reports on the use of the rating 
authority granted under paragraph (c) of this section.
    (5) If a rated prime contract is not issued, the person shall 
promptly notify all suppliers who have received rated orders pursuant to 
the advanced rating authority that the priority rating on those orders 
is cancelled.



Sec. 101.42  Examples of assistance.

    (a) While special priorities assistance may be provided for any 
reason in support of this part, it is usually provided in situations 
where:
    (1) A person is experiencing difficulty in obtaining delivery 
against a rated order by the required delivery date; or
    (2) A person cannot locate a supplier for an item or service needed 
to fill a rated order.
    (b) Other examples of special priorities assistance include:
    (1) Ensuring that rated orders receive preferential treatment by 
suppliers;
    (2) Resolving production or delivery conflicts between various rated 
orders;
    (3) Assisting in placing rated orders with suppliers;
    (4) Verifying the urgency of rated orders; and
    (5) Determining the validity of rated orders.

[[Page 693]]



Sec. 101.43  Criteria for assistance.

    Requests for special priorities assistance should be timely, i.e., 
the request has been submitted promptly and enough time exists for HHS, 
or the agencies to which HHS has delegated its authority to issue rated 
orders (the ``Delegate Agency''), or the Department of Commerce for 
industrial resources to effect a meaningful resolution to the problem, 
and must establish that:
    (a) There is an urgent need for the item; and
    (b) The applicant has made a reasonable effort to resolve the 
problem.



Sec. 101.44  Instances where assistance may not be provided.

    Special priorities assistance is provided at the discretion of HHS 
or the Delegate Agency when it is determined that such assistance is 
warranted to meet the objectives of this part. Examples where assistance 
may not be provided include situations when a person is attempting to:
    (a) Secure a price advantage;
    (b) Obtain delivery prior to the time required to fill a rated 
order;
    (c) Gain competitive advantage;
    (d) Disrupt an industry apportionment program in a manner designed 
to provide a person with an unwarranted share of scarce items; or
    (e) Overcome a supplier's regularly established terms of sale or 
conditions of doing business.



                      Subpart E_Allocation Actions



Sec. 101.50  Policy.

    (a) It is the policy of the Federal Government that the allocations 
authority under title I of the Defense Production Act may:
    (1) Only be used when there is insufficient supply of a material, 
service, or facility to satisfy national defense supply requirements 
through the use of the priorities authority or when the use of the 
priorities authority would cause a severe and prolonged disruption in 
the supply of materials, services, or facilities available to support 
normal U.S. economic activities; and
    (2) Not be used to ration materials or services at the retail level.
    (b) Allocation orders, when used, will be distributed equitably 
among the suppliers of the materials, services, or facilities being 
allocated and not require any person to relinquish a disproportionate 
share of the civilian market.



Sec. 101.51  General procedures.

    When HHS plans to execute its allocations authority to address a 
supply problem within its resource jurisdiction, the Department shall 
develop a plan that includes the following information:
    (a) A copy of the Secretary's finding for Presidential approval 
made, in accordance with Section 201(e) of E.O. 13603, that the material 
or materials at issue are scarce and critical materials essential to the 
national defense and that the requirements for national defense for such 
material(s) cannot otherwise be met without creating a significant 
dislocation of the normal distribution of such material(s) in to such a 
degree as to create appreciable hardship.
    (b) A detailed description of the situation to include any unusual 
events or circumstances that have created the requirement for an 
allocation action;
    (c) A statement of the specific objective(s) of the allocation 
action;
    (d) A list of the materials, services, or facilities to be 
allocated;
    (e) A list of the sources of the materials, services, or facilities 
that will be subject to the allocation action;
    (f) A detailed description of the provisions that will be included 
in the allocation orders, including the type(s) of allocation orders, 
the percentages or quantity of capacity or output to be allocated for 
each purpose, and the duration of the allocation action (i.e., 
anticipated start and end dates);
    (g) An evaluation of the impact of the proposed allocation action on 
the civilian market; and
    (h) Proposed actions, if any, to mitigate disruptions to civilian 
market operations.



Sec. 101.52  Controlling the general distribution of a material in 
the civilian market.

    (a) No allocation action taken by HHS may be used to control the 
general distribution of a material in the

[[Page 694]]

civilian market, unless the Secretary has:
    (1) Made a written finding that:
    (i) Such material is a scarce and critical material essential to the 
national defense, and
    (ii) The requirements of the national defense for such material 
cannot otherwise be met without creating a significant dislocation of 
the normal distribution of such material in the civilian market to such 
a degree as to create appreciable hardship;
    (2) Submitted the finding for the President's approval through the 
Assistant to the President for National Security Affairs; and
    (3) The President has approved the finding.
    (b) The requirements of this section may not delegated by the 
Secretary (See E.O. 13603, Section 201(e)).



Sec. 101.53  Types of allocation orders.

    There are three types of allocation orders available for 
communicating allocation actions. These are:
    (a) Set-aside. An official action that requires a person to reserve 
materials, services, or facilities capacity in anticipation of the 
receipt of rated orders;
    (b) Directive. An official action that requires a person to take or 
refrain from taking certain actions in accordance with its provisions. A 
directive can require a person to: Stop or reduce production of an item; 
prohibit the use of selected materials, services, or facilities; or 
divert the use of materials, services, or facilities from one purpose to 
another; and
    (c) Allotment. An official action that specifies the maximum 
quantity of a material, service, or facility authorized for a specific 
use.



Sec. 101.54  Elements of an allocation order.

    Each allocation order must include:
    (a) A detailed description of the required allocation action(s);
    (b) Specific start and end calendar dates for each required 
allocation action;
    (c) The written signature on a manually placed order, or the digital 
signature or name on an electronically placed order, of the Secretary of 
Health and Human Services. The signature or use of the name certifies 
that the order is authorized under this part and that the requirements 
of this part are being followed;
    (d) A statement that reads in substance:

    This is an allocation order certified for national defense use. 
[Insert the legal name of the person receiving the order] is required to 
comply with this order, in accordance with the provisions of the Health 
Resources Priorities and Allocations System regulation (45 CFR part 101, 
subpart A), which is part of the Federal Priorities and Allocations 
System; and

    (e) A current copy of the Health Resources Priorities and 
Allocations System regulation (subpart A of this part).



Sec. 101.55  Mandatory acceptance of an allocation order.

    (a) Except as otherwise specified in this section (see paragraph (c) 
of this section), a person shall accept and comply with every allocation 
order received.
    (b) A person shall not discriminate against an allocation order in 
any manner such as by charging higher prices for materials, services, or 
facilities covered by the order or by imposing terms and conditions for 
contracts and orders involving allocated materials, services, or 
facilities that differ from the person's terms and conditions for 
contracts and orders for the materials, services, or facilities prior to 
receiving the allocation order.
    (c) If a person is unable to comply fully with the required 
action(s) specified in an allocation order, the person must notify the 
Secretary, as specified in Sec. 101.93, immediately, explain the extent 
to which compliance is possible, and give the reasons why full 
compliance is not possible. If notification is given verbally, written 
or electronic confirmation must be provided within five (5) working 
days. Such notification does not release the person from complying with 
the order to the fullest extent possible, until the person is notified 
by the Department of Health and Human Services that the order has been 
changed or cancelled.

[[Page 695]]



Sec. 101.56  Changes or cancellations of an allocation order.

    An allocation order may be changed or canceled by an official action 
of the Department of Health and Human Services.



                       Subpart F_Official Actions



Sec. 101.60  General provisions.

    (a) HHS may take specific official actions to implement the 
provisions of this subpart.
    (b) These official actions include, but are limited to, Rating 
Authorizations, Directives, and Memoranda of Understanding (See Sec. 
101.20.)



Sec. 101.61  Rating Authorizations.

    (a) A Rating Authorization is an official action granting specific 
priority rating authority that:
    (1) Permits a person to place a priority rating on an order for an 
item or service not normally ratable under this part; or
    (2) Authorizes a person to modify a priority rating on a specific 
order or series of contracts or orders.
    (b) To request priority rating authority, see Sec. 101.41.



Sec. 101.62  Directives.

    (a) A Directive is an official action that requires a person to take 
or refrain from taking certain actions in accordance with its 
provisions.
    (b) A person must comply with each Directive issued. However, a 
person may not use or extend a Directive to obtain any items from a 
supplier, unless expressly authorized to do so in the Directive.
    (c) A Priorities Directive takes precedence over all DX-rated 
orders, DO-rated orders, and unrated orders previously or subsequently 
received, unless a contrary instruction appears in the Directive.
    (d) An Allocations Directive takes precedence over all Priorities 
Directives, DX-rated orders, DO-rated orders, and unrated orders 
previously or subsequently received, unless a contrary instruction 
appears in the Directive.



Sec. 101.63  Letters and Memoranda of Understanding.

    (a) A Letter or Memorandum of Understanding is an official action 
that may be issued in resolving special priorities assistance cases to 
reflect an agreement reached by all parties including HHS, the 
Department of Commerce (if applicable), a Delegate Agency (if 
applicable), the supplier, and the customer).
    (b) A Letter or Memorandum of Understanding is not used to alter 
scheduling between rated orders, to authorize the use of priority 
ratings, to impose restrictions under this part. Rather, Letters or 
Memoranda of Understanding are used to confirm production or shipping 
schedules that do not require modifications to other rated orders.



                          Subpart G_Compliance



Sec. 101.70  General provisions.

    (a) HHS may take specific official actions for any reason necessary 
or appropriate to the enforcement or the administration of the Defense 
Production Act and other applicable statutes, this part, or an official 
action. Such actions include Administrative Subpoenas, Demands for 
Information, and Inspection Authorizations.
    (b) Any person who places or receives a rated order or an allocation 
order must comply with the provisions of this part.
    (c) Willful violation of the provisions of title I or section 705 of 
the Defense Production Act and other applicable statutes, this part, or 
an official action of the Department of Health and Human Services is a 
criminal act, punishable as provided in the Defense Production Act and 
other applicable statutes, and as set forth in Sec. 101.74.



Sec. 101.71  Audits and investigations.

    (a) Audits and investigations are official examinations of books, 
records, documents, other writings and information to ensure that the 
provisions of the Defense Production Act and other applicable statutes, 
this part, and official actions have been properly followed. An audit or 
investigation may also include interviews and a systems

[[Page 696]]

evaluation to detect problems or failures in the implementation of this 
part.
    (b) When undertaking an audit or investigation, HHS shall:
    (1) Define the scope and purpose in the official action given to the 
person under investigation; and
    (2) Have ascertained that the information sought or other adequate 
and authoritative data are not available from any Federal or other 
responsible agency.
    (c) In administering this part, HHS may issue the following 
documents that constitute official actions:
    (1) Administrative Subpoenas. An Administrative Subpoena requires a 
person to appear as a witness before an official designated by HHS to 
testify under oath on matters of which that person has knowledge 
relating to the enforcement or the administration of the Defense 
Production Act and other applicable statutes, this part, or official 
actions. An Administrative Subpoena may also require the production of 
books, papers, records, documents and physical objects or property.
    (2) Demands for Information. A Demand for Information requires a 
person to furnish to a duly authorized representative of HHS any 
information necessary or appropriate to the enforcement or the 
administration of the Defense Production Act and other applicable 
statutes, this part, or official actions.
    (3) Inspection Authorizations. An Inspection Authorization requires 
a person to permit a duly authorized representative of HHS to interview 
the person's employees or agents, to inspect books, records, documents, 
other writings, and information, including electronically-stored 
information, in the person's possession or control at the place where 
that person usually keeps them or otherwise, and to inspect a person's 
property when such interviews and inspections are necessary or 
appropriate to the enforcement or the administration of the Defense 
Production Act and related statutes, this part, or official actions.
    (d) The production of books, records, documents, other writings, and 
information will not be required at any place other than where they are 
usually kept, if, prior to the return date specified in the 
Administrative Subpoena or Demand for Information, a duly authorized 
official of HHS is furnished with copies of such material that are 
certified under oath to be true copies. As an alternative, a duly 
authorized representative of HHS may enter into a stipulation with a 
person as to the content of the material.
    (e) An Administrative Subpoena, Demand for Information, or 
Inspection Authorization, shall include the name, title, or official 
position of the person to be served, the evidence sought to be adduced, 
and its general relevance to the scope and purpose of the audit, 
investigation, or other inquiry. If employees or agents are to be 
interviewed; if books, records, documents, other writings, or 
information are to be produced; or if property is to be inspected; the 
Administrative Subpoena, Demand for Information, or Inspection 
Authorization will describe them with particularity.
    (f) Service of documents shall be made in the following manner:
    (1) Service of a Demand for Information or Inspection Authorization 
shall be made personally, or by Certified Mail-Return Receipt Requested 
at the person's last known address. Service of an Administrative 
Subpoena shall be made personally. Personal service may also be made by 
leaving a copy of the document with someone at least 18 years old at the 
person's last known dwelling or place of business.
    (2) Service upon other than an individual may be made by serving a 
partner, corporate officer, or a managing or general agent authorized by 
appointment or by law to accept service of process. If an agent is 
served, a copy of the document shall be mailed to the person named in 
the document.
    (3) Any individual 18 years of age or over may serve an 
Administrative Subpoena, Demand for Information, or Inspection 
Authorization. When personal service is made, the individual making the 
service shall prepare an affidavit as to the manner in which service was 
made and the identity of the person served, and return the affidavit, 
and in the case of subpoenas, the original document, to the issuing 
officer. In case of failure to make service, the reasons for

[[Page 697]]

the failure shall be stated on the original document.



Sec. 101.72  Compulsory process.

    (a) If a person refuses to permit a duly authorized representative 
of the Department of Health and Human Services to have access to any 
premises or to the source of information necessary to the administration 
or the enforcement of the Defense Production Act and other applicable 
statutes, this part, or official actions, HHS, through its authorized 
representative may seek compulsory process. Compulsory process means the 
institution of appropriate legal action, including ex parte application 
for an inspection warrant or its equivalent, in any forum of appropriate 
jurisdiction.
    (b) Compulsory process may be sought in advance of an audit, 
investigation, or other inquiry, if, in the judgment of the Secretary 
there is reason to believe that a person will refuse to permit an audit, 
investigation, or other inquiry, or that other circumstances exist which 
make such process desirable or necessary.



Sec. 101.73  Notification of failure to comply.

    (a) At the conclusion of an audit, investigation, or other inquiry, 
or at any other time, HHS may inform the person in writing of HHS's 
position regarding that person's non-compliance with the requirements of 
the DPA and other applicable statutes, this part, or an official action.
    (b) In cases where HHS determines that failure to comply with the 
provisions of the DPA and other applicable statutes, this part, or an 
official action was inadvertent, the person may be informed in writing 
of the particulars involved and the corrective action to be taken. 
Failure to take corrective action may then be construed as a willful 
violation of DPA and other applicable statutes, this part, or an 
official action.



Sec. 101.74  Violations, penalties, and remedies.

    (a) Willful violation of the provisions of the DPA, the priorities 
provisions of the Selective Service Act and related statutes (when 
applicable), this part, or an official action, is a crime and upon 
conviction, a person may be punished by fine or imprisonment, or both. 
The maximum penalties provided by the DPA are a $10,000 fine, or one 
year in prison, or both. The maximum penalties provided by the Selective 
Service Act and related statutes are a $50,000 fine, or three years in 
prison, or both.
    (b) The Government may also seek an injunction from a court of 
appropriate jurisdiction to prohibit the continuance of any violation 
of, or to enforce compliance with, the DPA, this part, or an official 
action.
    (c) In order to secure the effective enforcement of the DPA and 
other applicable statutes, this part, and official actions, the 
following are prohibited:
    (1) No person may solicit, influence or permit another person to 
perform any act prohibited by, or to omit any act required by, the DPA 
and other applicable statutes, this part, or an official action.
    (2) No person may conspire or act in concert with any other person 
to perform any act prohibited by, or to omit any act required by, the 
DPA and other applicable statutes, this part, or an official action.
    (3) No person shall deliver any item if the person knows or has 
reason to believe that the item will be accepted, redelivered, held, or 
used in violation of the DPA and other applicable statutes, this part, 
or an official action. In such instances, the person must immediately 
notify HHS that, in accordance with this provision, delivery has not 
been made.



Sec. 101.75  Compliance conflicts.

    If compliance with any provision of the DPA and other applicable 
statutes, this part, or an official action would prevent a person from 
filling a rated order or from complying with another provision of the 
DPA and other applicable statutes, this part, or an official action, the 
person must immediately notify the Secretary, as specified in Sec. 
101.93, for resolution of the conflict.

[[Page 698]]



             Subpart H_Adjustments, Exceptions, and Appeals



Sec. 101.80  Adjustments or exceptions.

    (a) A person may submit a request to the Secretary for an adjustment 
or exception on the ground that:
    (1) A provision of this part or an official action results in an 
undue or exceptional hardship on that person not suffered generally by 
others in similar situations and circumstances; or
    (2) The consequences of following a provision of this part or an 
official action are contrary to the intent of the DPA and other 
applicable statutes, or this part.
    (b) Each request for adjustment or exception must be in writing and 
contain a complete statement of all the facts and circumstances related 
to the provision of this part or official action from which adjustment 
is sought and a full and precise statement of the reasons why relief 
should be provided.
    (c) The submission of a request for adjustment or exception shall 
not relieve any person from the obligation of complying with the 
provision of this part or official action in question while the request 
is being considered unless such interim relief is granted in writing by 
the Secretary or the Secretary's designated representative.
    (d) A decision of the Secretary or the Secretary's designated 
representative under this section may be appealed to the Secretary (For 
information on the appeal procedure, see Sec. 101.81.)



Sec. 101.81  Appeals.

    (a) Any person whose request for adjustment or exception was denied 
by the Secretary or the Secretary's designated representative under 
Section. 94a.80, may appeal to the Secretary who, through the 
Secretary's designated representative, shall review and reconsider the 
denial.
    (b)(1) Except as provided in paragraph (b)(2) of this section, an 
appeal must be received by the Secretary no later than 45 days after 
receipt of a written notice of denial. After this 45 day period, an 
appeal may be accepted at the discretion of the Secretary.
    (2) For requests for adjustment or exception involving rated orders 
placed for the purpose of emergency preparedness (see Sec. 101.33(e)), 
an appeal must be received by the Secretary, no later than 15 days after 
receipt of a written notice of denial. Contract performance under the 
order shall not be stayed pending resolution of the appeal.
    (c) Each appeal must be in writing and contain a complete statement 
of all the facts and circumstances related to the action appealed from 
and a full and precise statement of the reasons the decision should be 
modified or reversed.
    (d) In addition to the written materials submitted in support of an 
appeal, an appellant may request, in writing, an opportunity for an 
informal hearing. This request may be granted or denied at the 
discretion of the Secretary or the Secretary's designated 
representative.
    (e) When a hearing is granted, the Secretary may designate an HHS 
employee to act as the Secretary's representative and hearing officer to 
conduct the hearing and to prepare a report. The hearing officer shall 
determine all procedural questions and impose such time or other 
limitations deemed reasonable. In the event that the hearing officer 
decides that a printed transcript is necessary, all expenses shall be 
borne by the appellant.
    (f) When determining an appeal, the Secretary may consider all 
information submitted during the appeal as well as any recommendations, 
reports, or other relevant information and documents available to HHS or 
consult with any other persons or groups.
    (g) The submission of an appeal under this section shall not relieve 
any person from the obligation of complying with the provision of this 
part or official action in question while the appeal is being considered 
unless such relief is granted in writing by the Secretary.



                    Subpart I_Miscellaneous Provisions



Sec. 101.90  Protection against claims.

    A person shall not be held liable for damages or penalties for any 
act or failure to act resulting directly or indirectly from compliance 
with any provision of this part, or an official action, notwithstanding 
that such provision or action shall subsequently be declared

[[Page 699]]

invalid by judicial or other competent authority.



Sec. 101.91  Records and reports.

    (a) Persons are required to make and preserve for at least three 
years, accurate and complete records of any transaction covered by this 
part or an official action.
    (b) Records must be maintained in sufficient detail to permit the 
determination, upon examination, of whether each transaction complies 
with the provisions of this part or any official action. However, this 
part does not specify any particular method or system to be used.
    (c) Records required to be maintained by this part must be made 
available for examination on demand by duly authorized representatives 
of HHS as provided in Sec. 101.71.
    (d) In addition, persons must develop, maintain, and submit any 
other records and reports to HHS that may be required for the 
administration of the DPA and other applicable statutes, and this part.
    (e) DPA Section 705(d), as implemented by E.O. 13603, provides that 
information obtained under this section which the Secretary deems 
confidential, or with reference to which a request for confidential 
treatment is made by the person furnishing such information, shall not 
be published or disclosed unless the Secretary determines that the 
withholding of this information is contrary to the interest of the 
national defense. Information required to be submitted to HHS in 
connection with the enforcement or administration of the DPA, this part, 
or an official action, is deemed to be confidential under DPA Section 
705(d) and shall be handled in accordance with applicable Federal law.



Sec. 101.92  Applicability of this part and official actions.

    (a) This part and all official actions, unless specifically stated 
otherwise, apply to transactions in any state, territory, or possession 
of the United States and the District of Columbia.
    (b) This part and all official actions apply not only to deliveries 
to other persons but also include deliveries to affiliates and 
subsidiaries of a person and deliveries from one branch, division, or 
section of a single entity to another branch, division, or section under 
common ownership or control.
    (c) This part and its schedules shall not be construed to affect any 
administrative actions taken by HHS, or any outstanding contracts or 
orders placed pursuant to any of the regulations, orders, schedules or 
delegations of authority previously issued by HHS pursuant to authority 
granted to HHS, by the President under the DPA and E.O. 13603. Such 
actions, contracts, or orders shall continue in full force and effect 
under this part unless modified or terminated by proper authority.



Sec. 101.93  Communications.

    All communications concerning this part, including requests for 
copies of the part and explanatory information, requests for guidance or 
clarification, and requests for adjustment or exception shall be 
addressed to the Secretary, U.S. Department of Health and Human 
Services, and Washington, DC.

[[Page 700]]



        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_Qualified State Long-Term Care Insurance Partnerships: 
                   Reporting Requirements for Insurers

144.200 Basis.
144.202 Definitions.
144.204 Applicability of regulations.
144.206 Reporting requirements.
144.208 Deadlines for submission of reports.
144.210 Form and manner of reports.
144.212 Confidentiality of information.
144.214 Notifications of noncompliance with reporting requirements.

    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 requirements of Title 
XXVII of the Public Health Service Act (PHS Act, 42 U.S.C. 300gg, et 
seq.) that apply to group health plans and group health insurance 
issuers.
    (b) Part 147 of this subchapter implements the provisions of the 
Patient Protection and Affordable Care Act that apply to both group 
health plans and health insurance issuers in the Group and Individual 
Markets.
    (c) Part 148 of this subchapter implements Individual Health 
Insurance Market requirements 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.
    (d) Part 150 of this subchapter implements the enforcement 
provisions of sections 2723 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, one or more provisions of 
part 147 concerning group or individual health insurance, or the 
requirements of part 148 of this subchapter concerning individual health 
insurance.
    (2) Insurance issuers in States described in paragraph (d)(1) of 
this section.
    (3) Group health plans that are non-Federal governmental plans.
    (e) 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, as amended at 74 FR 51688, Oct. 7, 2009; 75 
FR 27137, May 13, 2010; 78 FR 13435, Feb. 27, 2013]



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 and the individual market. The group market is further divided 
into the large group market and the small group 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 individual market.
    (c) Coverage that is provided to associations, but not related to 
employment, and sold to individuals is not considered group coverage 
under 45

[[Page 701]]

CFR parts 144 through 148. If the coverage is offered to an association 
member other than in connection with a group health plan, the coverage 
is considered individual health insurance coverage for purposes of 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. If the health insurance coverage is offered in 
connection with a group health plan as defined at 45 CFR 144.103, it is 
considered group health insurance coverage for purposes of 45 CFR parts 
144 through 148.
    (d) Provisions relating to CMS enforcement of parts 146, 147, and 
148 are contained in part 150 of this subchapter.

[78 FR 13435, Feb. 27, 2013, as amended at 78 FR 65091, Oct. 30, 2013]



Sec. 144.103  Definitions.

    For purposes of parts 146 (group market), 147 (group and individual 
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 601-608 of the 
Employee Retirement Income Security Act, section 4980B of the Internal 
Revenue Code of 1986 (other than paragraph (f)(1) of such section 4980B 
insofar as it relates to pediatric vaccines), or 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, 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.

[[Page 702]]

    (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;
    (ii) When the individual no longer resides, lives, or works in the 
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; or
    (iii) When the individual incurs a claim that would meet or exceed a 
lifetime limit on all benefits 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;
    (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; or
    (iii) When the individual incurs a claim that would meet or exceed a 
lifetime limit on all benefits and there is no other continuation 
coverage available to the individual.
    Condition means a medical condition.
    Creditable coverage has the meaning given the term in 45 CFR 
146.113(a).
    Dependent means any individual who is or may become eligible for 
coverage under the terms of a group health plan because of a 
relationship to a participant.
    Eligible individual, for purposes of--
    (1) The group market provisions in 45 CFR part 146, subpart E, is 
defined in 45 CFR 146.150(b); and
    (2) The individual market provisions in 45 CFR part 148, 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 become covered under the plan. For this purpose, an 
individual who has health 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 means the first day of coverage or, if there is a 
waiting period, the first day of the waiting period. If an individual 
receiving benefits under a group health plan changes benefit packages, 
or if the plan changes group health insurance issuers, the individual's 
enrollment date does not change.
    ERISA stands for the Employee Retirement Income Security Act of 
1974, as amended (29 U.S.C. 1001 et seq.).
    Excepted benefits, consistent for purposes of the--
    (1) Group market provisions in 45 CFR part 146 subpart D, is defined 
in 45 CFR 146.145(c); and
    (2) Individual market provisions in 45 CFR part 148, is defined in 
45 CFR 148.220.

[[Page 703]]

    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.
    First day of coverage means, in the case of an individual covered 
for benefits under a group health plan, 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 or contract.
    Genetic information has the meaning specified in Sec. 146.122(a) of 
this subchapter.
    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 or plan means a group health plan within the 
meaning of 45 CFR 146.145(a).
    Group market means the market for health insurance coverage offered 
in connection with a group health plan.
    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 coverage includes group health 
insurance coverage, individual health insurance coverage, and short-
term, limited-duration insurance.
    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 is any factor identified as a health 
factor in 45 CFR 146.121(a).
    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, or other than coverage offered pursuant to a contract between the 
health insurance issuer with the Medicaid, Children's Health Insurance 
Program, or Basic Health programs.
    Internal Revenue 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 101 employees on business days during the preceding 
calendar year and who employs at least 1 employee on the first day of 
the plan year. In the case of plan years beginning before January 1, 
2016, a State may elect to define large employer by substituting ``51 
employees'' for ``101 employees.''
    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 enrollee means an individual whose enrollment in a plan is a 
late enrollment.
    Late enrollment means enrollment of an individual under a group 
health plan other than on the earliest date on which coverage can become 
effective for the individual under the terms of

[[Page 704]]

the plan; or through special enrollment. (For rules relating to special 
enrollment and limited open enrollment, see Sec. Sec. 146.117 and 
147.104 of this subchapter.) If an individual ceases to be eligible for 
coverage under a plan, and then subsequently becomes eligible for 
coverage under the plan, only the individual's most recent period of 
eligibility 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.
    Medical care means amounts paid for--
    (1) The diagnosis, cure, mitigation, treatment, 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; and
    (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.
    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 that is not 
a Federal governmental plan.
    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 such person 
ends upon the termination of such legal obligation.
    Plan means, with respect to an issuer and a product, the pairing of 
the health insurance coverage benefits under the product with a 
particular cost-sharing structure, provider network, and service area. 
The product comprises all plans offered with those characteristics and 
the combination of the service areas for all plans offered within a 
product constitutes the total service area of the product. With respect 
to a plan that has been modified at the time of coverage renewal 
consistent with Sec. 147.106 of this subchapter--
    (1) The plan will be considered to be the same plan if it:
    (i) Has the same cost-sharing structure as before the modification, 
or any variation in cost sharing is solely related to changes in cost or 
utilization of medical care, or is to maintain the same metal tier level 
described in sections 1302(d) and (e) of the Affordable Care Act;
    (ii) Continues to cover a majority of the same service area; and
    (iii) Continues to cover a majority of the same provider network. 
For this purpose, the plan's provider network on the first day of the 
plan year is compared with the plan's provider network on the first day 
of the preceding plan year (as applicable).
    (2) The plan will not fail to be treated as the same plan to the 
extent the modification(s) are made uniformly and solely pursuant to 
applicable Federal and State requirements if--
    (i) The modification is made within a reasonable time period after 
the imposition or modification of the Federal or State requirement;
    (ii) The modification is directly related to the imposition or 
modification of the Federal or State requirement.

[[Page 705]]

    (3) A State may permit greater changes to the cost-sharing 
structure, or designate a lower threshold for maintenance of the same 
provider network or service area for a plan to still be considered the 
same plan.
    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 or limit year used under the plan;
    (2) If the plan does not impose deductibles or limits on a yearly 
basis, then 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, then the plan year is the employer's taxable 
year; or
    (4) In any other case, the plan year is the calendar year.
    Policy year means, with respect to--
    (1) A grandfathered health plan offered in the individual health 
insurance market and student health insurance coverage, the 12-month 
period that is designated as the policy year in the policy documents of 
the health insurance coverage. If there is no designation of a policy 
year in the policy document (or no such policy document is available), 
then the policy year is the deductible or limit year used under the 
coverage. If deductibles or other limits are not imposed on a yearly 
basis, the policy year is the calendar year.
    (2) A non-grandfathered health plan offered in the individual health 
insurance market, or in a market in which the State has merged the 
individual and small group risk pools, for coverage issued or renewed 
beginning January 1, 2014, a calendar year for which health insurance 
coverage provides coverage for health benefits.
    Preexisting condition exclusion means a limitation or exclusion of 
benefits (including a denial of coverage) based on the fact that the 
condition was present before the effective date of coverage (or if 
coverage is denied, the date of the denial) under a group health plan or 
group or individual health insurance coverage (or other coverage 
provided to Federally eligible individuals pursuant to 45 CFR part 148), 
whether or not any medical advice, diagnosis, care, or treatment was 
recommended or received before that day. A preexisting condition 
exclusion includes any limitation or exclusion of benefits (including a 
denial of coverage) applicable to an individual as a result of 
information relating to an individual's health status before the 
individual's effective date of coverage (or if coverage is denied, the 
date of the denial) under a group health plan, or group or individual 
health insurance coverage (or other coverage provided to Federally 
eligible individuals pursuant to 45 CFR part 148), 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.
    Product means a discrete package of health insurance coverage 
benefits that a health insurance issuer offers using a particular 
product network type within a service area.
    Public health plan has the meaning given the term in 45 CFR 
146.113(a)(1)(ix).
    Short-term, limited-duration insurance means health insurance 
coverage provided pursuant to 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 less than 12 months after the original effective date 
of the contract.

[[Page 706]]

    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 1 but not more than 100 employees on business days 
during the preceding calendar year and who employs at least 1 employee 
on the first day of the plan year. In the case of plan years beginning 
before January 1, 2016, a State may elect to define small employer by 
substituting ``50 employees'' for ``100 employees.''
    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 means enrollment in a group health plan or group 
health insurance coverage under the rights described in 45 CFR 146.117.
    State means each of the 50 States, the District of Columbia, Puerto 
Rico, the Virgin Islands, Guam, American Samoa, and the Northern Mariana 
Islands; except that for purposes of part 147, the term does not include 
Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern 
Mariana Islands.
    State health benefits risk pool has the meaning given the term in 45 
CFR Sec. 146.113(a)(1)(vii).
    Student health insurance coverage has the meaning given the term in 
Sec. 147.145.
    Waiting period has the meaning given the term in 45 CFR 147.116(b).

[69 FR 78781, Dec. 30, 2004, as amended at 74 FR 51688, Oct. 7, 2009; 75 
FR 27138, May 13, 2010; 75 FR 37235, June 28, 2010; 77 FR 16468, Mar. 
21, 2012; 78 FR 65091, Oct. 30, 2013; 79 FR 10313, Feb. 24, 2014; 79 FR 
13833, Mar. 11, 2014; 79 FR 14151, Mar. 12, 2014; 79 FR 30335, May 27, 
2014; 80 FR 10861, Feb. 27, 2015]



    Subpart B_Qualified State Long-Term Care Insurance Partnerships: 
                   Reporting Requirements for Insurers

    Source: 73 FR 76968, Dec. 18, 2008, unless otherwise noted.



Sec. 144.200  Basis.

    This subpart implements--
    (a) Section 1917(b)(1)(C) (iii)(VI) of the Social Security Act, 
(Act) which requires the issuer of a long-term care insurance policy 
issued under a qualified State long-term care insurance partnership to 
provide specified regular reports to the Secretary.
    (b) Section 1917(b)(1)(C)(v) of the Act, which specifies that the 
regulations of the Secretary under section 1917(b)(1)(C)(iii)(VI) of the 
Act shall be promulgated after consultation with the National 
Association of Insurance Commissioners, issuers of long-term care 
insurance policies, States with experience with long-term care insurance 
partnership plans, other States, and representatives of consumers of 
long-term care insurance policies, and shall specify the type and format 
of the data to be reported and the frequency with which such reports are 
to be made. This section of the statute also provides that the Secretary 
provide copies of the reports to the States involved.



Sec. 144.202  Definitions.

    As used in this Subpart--
    Partnership qualified policy refers to a qualified long-term care 
insurance policy issued under a qualified State long-term care insurance 
partnership.
    Qualified long-term care insurance policy means an insurance policy 
that has been determined by a State insurance commissioner to meet the 
requirements of sections 1917(b)(1)(C)(iii)(I) through (IV) and 
1917(b)(5) of the Act. It includes a certificate issued under a group 
insurance contract.
    Qualified State long-term care insurance partnership means an 
approved Medicaid State plan amendment that provides for the disregard 
of any assets or resources in an amount equal to the insurance benefit 
payments that are made to or on behalf of an individual who is a 
beneficiary under a long-term care insurance policy that has been 
determined by a State insurance commissioner to meet the requirements of 
section 1917(b)(1)(C)(iii) of the Act.



Sec. 144.204  Applicability of regulations.

    The regulations contained in this subpart for reporting data apply 
only to those insurers that have issued

[[Page 707]]

qualified long-term care insurance policies to individuals under a 
qualified State long-term care insurance partnership. They do not apply 
to the reporting of data by insurers for States with a Medicaid State 
plan amendment that established a long-term care partnership on or 
before May 14, 1993.



Sec. 144.206  Reporting requirements.

    (a) General requirement. Any insurer that sells a qualified long-
term care insurance policy under a qualified State long-term care 
insurance partnership must submit, in accordance with the requirements 
of this section, data on insured individuals, policyholders, and 
claimants who have active partnership qualified policies or certificates 
for a reporting period.
    (b) Specific requirements. Insurers of qualified long-term care 
insurance policies must submit the following data to the Secretary by 
the deadlines specified in paragraph (c) of this section:
    (1) Registry of active individual and group partnership qualified 
policies or certificates. (i) Insurers must submit data on--
    (A) Any insured individual who held an active partnership qualified 
policy or certificate at any point during a reporting period, even if 
the policy or certificate was subsequently cancelled, lost partnership 
qualified status, or otherwise terminated during the reporting period; 
and
    (B) All active group long-term care partnership qualified insurance 
policies, even if the identity of the individual policy/certificate 
holder is unavailable.
    (ii) The data required under paragraph (b)(1)(i) of this section 
must cover a 6-month reporting period of January through June 30 or July 
1 through December 31 of each year; and
    (iii) The data must include, but are not limited to--
    (A) Current identifying information on the insured individual;
    (B) The name of the insurance company and issuing State;
    (C) The effective date and terms of coverage under the policy.
    (D) The annual premium.
    (E) The coverage period.
    (F) Other information, as specified by the Secretary in ``State 
Long-Term Care Partnership Insurer Reporting Requirements.''
    (2) Claims paid under partnership qualified policies or 
certificates. Insurers must submit data on all partnership qualified 
policies or certificates for which the insurer paid at least one claim 
during the reporting period. This includes data for employer-paid core 
plans and buy-up plans without individual insured data. The data must--
    (i) Cover a quarterly reporting period of 3 months;
    (ii) Include, but are not limited to--
    (A) Current identifying information on the insured individual;
    (B) The type and cash amount of the benefits paid during the 
reporting period and lifetime to date;
    (C) Remaining lifetime benefits;
    (D) Other information, as specified by the Secretary in ``State 
Long-Term Care Partnership Insurer Reporting Requirements.''



Sec. 144.208  Deadlines for submission of reports.

    (a) Transition provision for insurers who have issued or exchanged a 
qualified partnership policy prior to the effective date of these 
regulations.
    The first reports required for these insurers will be the reports 
that pertain to the reporting period that begins no more than 120 days 
after the effective date of the final regulations.
    (b) All reports on the registry of qualified long-term care 
insurance policies issued to individuals or individuals under group 
coverage specified in Sec. 144.206(b)(1)(ii) must be submitted within 
30 days of the end of the 6-month reporting period.
    (c) All reports on the claims paid under qualified long-term care 
insurance policies issued to individual and individuals under group 
coverage specified in Sec. 144.206(b)(2)(i) must be submitted within 30 
days of the end of the 3-month quarterly reporting period.



Sec. 144.210  Form and manner of reports.

    All reports specified in Sec. 144.206 must be submitted in the form 
and manner specified by the Secretary.

[[Page 708]]



Sec. 144.212  Confidentiality of information.

    Data collected and reported under the requirements of this subpart 
are subject to the confidentiality of information requirements specified 
in regulations under 42 CFR part 401, subpart B, and 45 CFR part 5, 
subpart F.



Sec. 144.214  Notifications of noncompliance with reporting requirements.

    If an insurer of a qualified long-term care insurance policy does 
not submit the required reports by the due dates specified in this 
subpart, the Secretary notifies the appropriate State insurance 
commissioner within 45 days after the deadline for submission of the 
information and data specified in Sec. 144.208.

                           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 Preexisting condition exclusions.
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 an alternative to a preexisting 
          condition exclusion.
146.120 Interaction with the Family and Medical Leave Act. [Reserved]
146.121 Prohibiting discrimination against participants and 
          beneficiaries based on a health factor.
146.122 Additional requirements prohibiting discrimination based on 
          genetic information.
146.125 Applicability dates.

               Subpart C_Requirements Related to Benefits

146.130 Standards relating to benefits for mothers and newborns.
146.136 Parity in mental health and substance use disorder 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. 2702 through 2705, 2711 through 2723, 2791, and 
2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 through 
300gg-23, 300gg-91, and 300gg-92).

    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 the Group Market 
requirements 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 group health insurance issuers 
offering group health insurance coverage concerning certain consumer 
protections of the Health Insurance Portability and Accountability Act 
(HIPAA), as amended, including

[[Page 709]]

special enrollment periods, prohibiting discrimination against 
participants and beneficiaries based on a health factor, and additional 
requirements prohibiting discrimination against participants and 
beneficiaries based on genetic information.
    (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 requirements 
relating to group health plans and issuers in the Group Health Insurance 
Market.
    (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; 71 
FR 75046, Dec. 13, 2006; 74 FR 51688, Oct. 7, 2009, as amended at 75 FR 
27138, May 13, 2010; 79 FR 10313, Feb. 24, 2014]



Subpart B_Requirements Relating to Access and Renewability of Coverage, 
       and Limitations on Preexisting Condition Exclusion Periods



Sec. 146.111  Preexisting condition exclusions.

    (a) Preexisting condition exclusion defined--(1) A preexisting 
condition exclusion means a preexisting condition exclusion within the 
meaning set forth in Sec. 144.103 of this part.
    (2) Examples. The rules of this paragraph (a)(1) are illustrated by 
the following examples:

    Example 1. (i) Facts. A group health plan provides benefits solely 
through an insurance policy offered by Issuer S. At the expiration of 
the policy, the plan switches coverage to a policy offered by Issuer T. 
Issuer T's policy excludes benefits for any prosthesis if the body part 
was lost before the effective date of coverage under the policy.
    (ii) Conclusion. In this Example 1, the exclusion of benefits for 
any prosthesis if the body part was lost before the effective date of 
coverage is a preexisting condition exclusion because it operates to 
exclude benefits for a condition based on the fact that the condition 
was present before the effective date of coverage under the policy. The 
exclusion of benefits, therefore, is prohibited.
    Example 2. (i) Facts. A group health plan provides coverage for 
cosmetic surgery in cases of accidental injury, but only if the injury 
occurred while the individual was covered under the plan.
    (ii) Conclusion. In this Example 2, the plan provision excluding 
cosmetic surgery benefits for individuals injured before enrolling in 
the plan is a preexisting condition exclusion because it operates to 
exclude benefits relating to a condition based on the fact that the 
condition was present before the effective date of coverage. The plan 
provision, therefore, is prohibited.
    Example 3. (i) Facts. A group health plan provides coverage for the 
treatment of diabetes, generally not subject to any requirement to 
obtain an approval for a treatment plan. However, if an individual was 
diagnosed with diabetes before the effective date of coverage under the 
plan, diabetes coverage is subject to a requirement to obtain approval 
of a treatment plan in advance.
    (ii) Conclusion. In this Example 3, the requirement to obtain 
advance approval of a treatment plan is a preexisting condition 
exclusion because it limits benefits for a condition based on the fact 
that the condition was present before the effective date of coverage. 
The plan provision, therefore, is prohibited.
    Example 4. (i) Facts. A group health plan provides coverage for 
three infertility treatments. The plan counts against the three-
treatment limit benefits provided under prior health coverage.
    (ii) Conclusion. In this Example 4, counting benefits for a specific 
condition provided under prior health coverage against a treatment limit 
for that condition is a preexisting condition exclusion because it 
operates to limit benefits for a condition based on the fact that the 
condition was present before the effective date of coverage. The plan 
provision, therefore, is prohibited.
    Example 5. (i) Facts. When an individual's coverage begins under a 
group health plan, the individual generally becomes eligible for all 
benefits. However, benefits for pregnancy are not available until the 
individual has been covered under the plan for 12 months.
    (ii) Conclusion. In this Example 5, the requirement to be covered 
under the plan for 12 months to be eligible for pregnancy benefits is a 
subterfuge for a preexisting condition exclusion because it is designed 
to exclude benefits for a condition (pregnancy) that

[[Page 710]]

arose before the effective date of coverage. The plan provision, 
therefore, is prohibited.
    Example 6. (i) Facts. A group health plan provides coverage for 
medically necessary items and services, generally including treatment of 
heart conditions. However, the plan does not cover those same items and 
services when used for treatment of congenital heart conditions.
    (ii) Conclusion. In this Example 6, the exclusion of coverage for 
treatment of congenital heart conditions is a preexisting condition 
exclusion because it operates to exclude benefits relating to a 
condition based on the fact that the condition was present before the 
effective date of coverage. The plan provision, therefore, is 
prohibited.
    Example 7. (i) Facts. A group health plan generally provides 
coverage for medically necessary items and services. However, the plan 
excludes coverage for the treatment of cleft palate.
    (ii) Conclusion. In this Example 7, the exclusion of coverage for 
treatment of cleft palate is not a preexisting condition exclusion 
because the exclusion applies regardless of when the condition arose 
relative to the effective date of coverage. The plan provision, 
therefore, is not prohibited. (But see 45 CFR 147.150, which may require 
coverage of cleft palate as an essential health benefit for health 
insurance coverage in the individual or small group market, depending on 
the essential health benefits benchmark plan as defined in Sec. 156.20 
of this subchapter).
    Example 8. (i) Facts. A group health plan provides coverage for 
treatment of cleft palate, but only if the individual being treated has 
been continuously covered under the plan from the date of birth.
    (ii) Conclusion. In this Example 8, the exclusion of coverage for 
treatment of cleft palate for individuals who have not been covered 
under the plan from the date of birth operates to exclude benefits in 
relation to a condition based on the fact that the condition was present 
before the effective date of coverage. The plan provision, therefore, is 
prohibited.

    (b) General rules. See Sec. 147.108 of this subchapter for rules 
prohibiting the imposition of a preexisting condition exclusion.

[69 FR 78783, Dec. 30, 2004, as amended at 75 FR 37235, June 28, 2010; 
79 FR 10313, Feb. 24, 2014]



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) of this section, the 
term creditable coverage means coverage of an individual under any of 
the following:
    (i) A group health plan as defined in Sec. 146.145(a).
    (ii) Health insurance coverage as defined in Sec. 144.103 of this 
chapter (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 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 
Internal Revenue 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 and which is established 
and maintained primarily to provide health 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.

[[Page 711]]

    (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, the 
U.S. government, a foreign country, or any political subdivision of a 
State, the U.S. government, or a foreign country that provides health 
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)).
    (xi) Title XXI of the Social Security Act (State Children's Health 
Insurance Program).
    (2) Excluded coverage. Creditable coverage does not include coverage 
of solely excepted benefits (described in Sec. 146.145).
    (b) Counting creditable coverage rules superseded by prohibition on 
preexisting condition exclusion. See Sec. 147.108 of this subchapter 
for rules prohibiting the imposition of a preexisting condition 
exclusion.

[69 FR 78788, Dec. 30, 2004, as amended at 79 FR 10314, Feb. 24, 2014]



Sec. 146.115  Certification and disclosure of previous coverage.

    (a) In general. The rules for providing certificates of creditable 
coverage and demonstrating creditable coverage have been superseded by 
the prohibition on preexisting condition exclusions. See Sec. 147.108 
of this subchapter for rules prohibiting the imposition of a preexisting 
condition exclusion.
    (b) Applicability. The provisions of this section apply beginning 
December 31, 2014.

[79 FR 10314, Feb. 24, 2014]



Sec. 146.117  Special enrollment periods.

    (a) Special enrollment for certain individuals who lose coverage--
(1) In General. A group health plan, and a health insurance issuer 
offering health insurance coverage in connection with a group health 
plan, is required to permit current employees and dependents (as defined 
in Sec. 144.103 of this chapter) who are described in paragraph (a)(2) 
of this section to enroll for coverage under the terms of the plan if 
the conditions in paragraph (a)(3) of this section are satisfied. 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) Individuals eligible for special enrollment--(i) When employee 
loses coverage. A current employee and any dependents (including the 
employee's spouse) each are eligible for special enrollment in any 
benefit package under the plan (subject to plan eligibility rules 
conditioning dependent enrollment on enrollment of the employee) if--
    (A) The employee and the dependents are otherwise eligible to enroll 
in the benefit package;
    (B) When coverage under the plan was previously offered, the 
employee had coverage under any group health plan or health insurance 
coverage; and
    (C) The employee satisfies the conditions of paragraph (a)(3)(i), 
(ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv) 
of this section.
    (ii) When dependent loses coverage--(A) A dependent of a current 
employee (including the employee's spouse) and the employee each are 
eligible for special enrollment in any benefit package under the plan 
(subject to plan eligibility rules conditioning dependent enrollment on 
enrollment of the employee) if--
    (1) The dependent and the employee are otherwise eligible to enroll 
in the benefit package;
    (2) When coverage under the plan was previously offered, the 
dependent had coverage under any group health plan or health insurance 
coverage; and
    (3) The dependent satisfies the conditions of paragraph (a)(3)(i), 
(ii), or (iii) of this section and, if applicable, paragraph (a)(3)(iv) 
of this section.
    (B) However, the plan or issuer is not required to enroll any other 
dependent unless that dependent satisfies the criteria of this paragraph 
(a)(2)(ii), or the employee satisfies the criteria of paragraph 
(a)(2)(i) of this section.
    (iii) Examples. The rules of this paragraph (a)(2) are illustrated 
by the following examples:

    Example 1. (i) Facts. Individual A works for Employer X. A, A's 
spouse, and A's dependent

[[Page 712]]

children are eligible but not enrolled for coverage under X's group 
health plan. A's spouse works for Employer Y and at the time coverage 
was offered under X's plan, A was enrolled in coverage under Y's plan. 
Then, A loses eligibility for coverage under Y's plan.
    (ii) Conclusion. In this Example 1, because A satisfies the 
conditions for special enrollment under paragraph (a)(2)(i) of this 
section, A, A's spouse, and A's dependent children are eligible for 
special enrollment under X's plan.
    Example 2. (i) Facts. Individual A and A's spouse are eligible but 
not enrolled for coverage under Group Health Plan P maintained by A's 
employer. When A was first presented with an opportunity to enroll A and 
A's spouse, they did not have other coverage. Later, A and A's spouse 
enroll in Group Health Plan Q maintained by the employer of A's spouse. 
During a subsequent open enrollment period in P, A and A's spouse did 
not enroll because of their coverage under Q. They then lose eligibility 
for coverage under Q.
    (ii) Conclusion. In this Example 2, because A and A's spouse were 
covered under Q when they did not enroll in P during open enrollment, 
they satisfy the conditions for special enrollment under paragraphs 
(a)(2)(i) and (ii) of this section. Consequently, A and A's spouse are 
eligible for special enrollment under P.
    Example 3. (i) Facts. Individual B works for Employer X. B and B's 
spouse are eligible but not enrolled for coverage under X's group health 
plan. B's spouse works for Employer Y and at the time coverage was 
offered under X's plan, B's spouse was enrolled in self-only coverage 
under Y's group health plan. Then, B's spouse loses eligibility for 
coverage under Y's plan.
    (ii) Conclusion. In this Example 3, because B's spouse satisfies the 
conditions for special enrollment under paragraph (a)(2)(ii) of this 
section, both B and B's spouse are eligible for special enrollment under 
X's plan.
    Example 4. (i) Facts. Individual A works for Employer X. X maintains 
a group health plan with two benefit packages--an HMO option and an 
indemnity option. Self-only and family coverage are available under both 
options. A enrolls for self-only coverage in the HMO option. A's spouse 
works for Employer Y and was enrolled for self-only coverage under Y's 
plan at the time coverage was offered under X's plan. Then, A's spouse 
loses coverage under Y's plan. A requests special enrollment for A and 
A's spouse under the plan's indemnity option.
    (ii) Conclusion. In this Example 4, because A's spouse satisfies the 
conditions for special enrollment under paragraph (a)(2)(ii) of this 
section, both A and A's spouse can enroll in either benefit package 
under X's plan. Therefore, if A requests enrollment in accordance with 
the requirements of this section, the plan must allow A and A's spouse 
to enroll in the indemnity option.

    (3) Conditions for special enrollment--(i) Loss of eligibility for 
coverage. In the case of an employee or dependent who has coverage that 
is not COBRA continuation coverage, the conditions of this paragraph 
(a)(3)(i) are satisfied at the time the coverage is terminated as a 
result of loss of eligibility (regardless of whether the individual is 
eligible for or elects COBRA continuation coverage). Loss of eligibility 
under this paragraph (a)(3)(i) does not include a loss due to the 
failure of the employee or dependent 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). Loss of eligibility for coverage under this paragraph 
(a)(3)(i) includes (but is not limited to)--
    (A) Loss of eligibility for coverage as a result of legal 
separation, divorce, cessation of dependent status (such as attaining 
the maximum age to be eligible as a dependent child under the plan), 
death of an employee, termination of employment, reduction in the number 
of hours of employment, and any loss of eligibility for coverage after a 
period that is measured by reference to any of the foregoing;
    (B) In the case of coverage offered through an HMO, or other 
arrangement, in the individual market that does not provide benefits to 
individuals who no longer reside, live, or work in a service area, loss 
of coverage because an individual no longer resides, lives, or works in 
the service area (whether or not within the choice of the individual);
    (C) In the case of coverage offered through an HMO, or other 
arrangement, in the group market that does not provide benefits to 
individuals who no longer reside, live, or work in a service area, loss 
of coverage because an individual no longer resides, lives, or works in 
the service area (whether or not within the choice of the individual), 
and no other benefit package is available to the individual; and
    (D) A situation in which a plan no longer offers any benefits to the 
class

[[Page 713]]

of similarly situated individuals (as described in Sec. 146.121(d)) 
that includes the individual.
    (ii) Termination of employer contributions. In the case of an 
employee or dependent who has coverage that is not COBRA continuation 
coverage, the conditions of this paragraph (a)(3)(ii) are satisfied at 
the time employer contributions towards the employee's or dependent's 
coverage terminate. Employer contributions include contributions by any 
current or former employer that was contributing to coverage for the 
employee or dependent.
    (iii) Exhaustion of COBRA continuation coverage. In the case of an 
employee or dependent who has coverage that is COBRA continuation 
coverage, the conditions of this paragraph (a)(3)(iii) are satisfied at 
the time the COBRA continuation coverage is exhausted. For purposes of 
this paragraph (a)(3)(iii), an individual who satisfies the conditions 
for special enrollment of paragraph (a)(3)(i) of this section, does not 
enroll, and instead elects and exhausts COBRA continuation coverage 
satisfies the conditions of this paragraph (a)(3)(iii). (Exhaustion of 
COBRA continuation coverage is defined in Sec. 144.103 of this 
chapter.)
    (iv) Written statement. A plan may require an employee declining 
coverage (for the employee or any dependent of the employee) to state in 
writing whether the coverage is being declined due to other health 
coverage only if, at or before the time the employee declines coverage, 
the employee is provided with notice of the requirement to provide the 
statement (and the consequences of the employee's failure to provide the 
statement). If a plan requires such a statement, and an employee does 
not provide it, the plan is not required to provide special enrollment 
to the employee or any dependent of the employee under this paragraph 
(a)(3). A plan must treat an employee as having satisfied the plan 
requirement permitted under this paragraph (a)(3)(iv) if the employee 
provides a written statement that coverage was being declined because 
the employee or dependent had other coverage; a plan cannot require 
anything more for the employee to satisfy the plan's requirement to 
provide a written statement. (For example, the plan cannot require that 
the statement be notarized.)
    (v) The rules of this paragraph (a)(3) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual D enrolls in a group health plan 
maintained by Employer Y. At the time D enrolls, Y pays 70 percent of 
the cost of employee coverage and D pays the rest. Y announces that 
beginning January 1, Y will no longer make employer contributions 
towards the coverage. Employees may maintain coverage, however, if they 
pay the total cost of the coverage.
    (ii) Conclusion. In this Example 1, employer contributions towards 
D's coverage ceased on January 1 and the conditions of paragraph 
(a)(3)(ii) of this section are satisfied on this date (regardless of 
whether D elects to pay the total cost and continue coverage under Y's 
plan).
    Example 2. (i) Facts. A group health plan provides coverage through 
two options--Option 1 and Option 2. Employees can enroll in either 
option only within 30 days of hire or on January 1 of each year. 
Employee A is eligible for both options and enrolls in Option 1. 
Effective July 1 the plan terminates coverage under Option 1 and the 
plan does not create an immediate open enrollment opportunity into 
Option 2.
    (ii) Conclusion. In this Example 2, A has experienced a loss of 
eligibility for coverage that satisfies paragraph (a)(3)(i) of this 
section, and has satisfied the other conditions for special enrollment 
under paragraph (a)(2)(i) of this section. Therefore, if A satisfies the 
other conditions of this paragraph (a), the plan must permit A to enroll 
in Option 2 as a special enrollee. (A may also be eligible to enroll in 
another group health plan, such as a plan maintained by the employer of 
A's spouse, as a special enrollee.) The outcome would be the same if 
Option 1 was terminated by an issuer and the plan made no other coverage 
available to A.
    Example 3. (i) Facts. Individual C is covered under a group health 
plan maintained by Employer X. While covered under X's plan, C was 
eligible for but did not enroll in a plan maintained by Employer Z, the 
employer of C's spouse. C terminates employment with X and loses 
eligibility for coverage under X's plan. C has a special enrollment 
right to enroll in Z's plan, but C instead elects COBRA continuation 
coverage under X's plan. C exhausts COBRA continuation coverage under 
X's plan and requests special enrollment in Z's plan.
    (ii) Conclusion. In this Example 3, C has satisfied the conditions 
for special enrollment under paragraph (a)(3)(iii) of this section, and 
has satisfied the other conditions for special enrollment under 
paragraph (a)(2)(i) of this section. The special enrollment right that C 
had into Z's plan immediately after

[[Page 714]]

the loss of eligibility for coverage under X's plan was an offer of 
coverage under Z's plan. When C later exhausts COBRA coverage under X's 
plan, C has a second special enrollment right in Z's plan.

    (4) Applying for special enrollment and effective date of coverage--
(i) A plan or issuer must allow an employee a period of at least 30 days 
after an event described in paragraph (a)(3) of this section to request 
enrollment (for the employee or the employee's dependent).
    (ii) Coverage must begin no later than the first day of the first 
calendar month beginning after the date the plan or issuer receives the 
request for special enrollment.
    (b) Special enrollment with respect to certain dependent 
beneficiaries--(1) General. A group health plan, and a health insurance 
issuer offering health insurance coverage in connection with a group 
health plan, that makes coverage available with respect to dependents is 
required to permit individuals described in paragraph (b)(2) of this 
section to be enrolled for coverage in a benefit package under the terms 
of the plan. Paragraph (b)(3) of this section describes the required 
special enrollment period and the date by which coverage must begin. 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) Individuals eligible for special enrollment. An individual is 
described in this paragraph (b)(2) if the individual is otherwise 
eligible for coverage in a benefit package under the plan and if the 
individual is described in paragraph (b)(2)(i), (ii), (iii), (iv), (v), 
or (vi) of this section.
    (i) Current employee only. A current employee is described in this 
paragraph (b)(2)(i) if a person becomes a dependent of the individual 
through marriage, birth, adoption, or placement for adoption.
    (ii) Spouse of a participant only. An individual is described in 
this paragraph (b)(2)(ii) if either--
    (A) The individual becomes the spouse of a participant; or
    (B) The individual is a spouse of a participant and a child becomes 
a dependent of the participant through birth, adoption, or placement for 
adoption.
    (iii) Current employee and spouse. A current employee and an 
individual who is or becomes a spouse of such an employee, are described 
in this paragraph (b)(2)(iii) if either--
    (A) The employee and the spouse become married; or
    (B) The employee and spouse are married and a child becomes a 
dependent of the employee through birth, adoption, or placement for 
adoption.
    (iv) Dependent of a participant only. An individual is described in 
this paragraph (b)(2)(iv) if the individual is a dependent (as defined 
in Sec. 144.103 of this chapter) of a participant and the individual 
has become a dependent of the participant through marriage, birth, 
adoption, or placement for adoption.
    (v) Current employee and a new dependent. A current employee and an 
individual who is a dependent of the employee, are described in this 
paragraph (b)(2)(v) if the individual becomes a dependent of the 
employee through marriage, birth, adoption, or placement for adoption.
    (vi) Current employee, spouse, and a new dependent. A current 
employee, the employee's spouse, and the employee's dependent are 
described in this paragraph (b)(2)(vi) if the dependent becomes a 
dependent of the employee through marriage, birth, adoption, or 
placement for adoption.
    (3) Applying for special enrollment and effective date of coverage--
(i) Request. A plan or issuer must allow an individual a period of at 
least 30 days after the date of the marriage, birth, adoption, or 
placement for adoption (or, if dependent coverage is not generally made 
available at the time of the marriage, birth, adoption, or placement for 
adoption, a period of at least 30 days after the date the plan makes 
dependent coverage generally available) to request enrollment (for the 
individual or the individual's dependent).
    (ii) Reasonable procedures for special enrollment. [Reserved]
    (iii) Date coverage must begin--(A) Marriage. In the case of 
marriage, coverage must begin no later than the first day of the first 
calendar month beginning after the date the plan or

[[Page 715]]

issuer receives the request for special enrollment.
    (B) Birth, adoption, or placement for adoption. Coverage must begin 
in the case of a dependent's birth on the date of birth and in the case 
of a dependent's adoption or placement for adoption no later than the 
date of such adoption or placement for adoption (or, if dependent 
coverage is not made generally available at the time of the birth, 
adoption, or placement for adoption, the date the plan makes dependent 
coverage available).
    (4) Examples. The rules of this paragraph (b) are illustrated by the 
following examples:

    Example 1. (i) Facts. An employer maintains a group health plan that 
offers all employees employee-only coverage, employee-plus-spouse 
coverage, or family coverage. Under the terms of the plan, any employee 
may elect to enroll when first hired (with coverage beginning on the 
date of hire) or during an annual open enrollment period held each 
December (with coverage beginning the following January 1). Employee A 
is hired on September 3. A is married to B, and they have no children. 
On March 15 in the following year a child C is born to A and B. Before 
that date, A and B have not been enrolled in the plan.
    (ii) Conclusion. In this Example 1, the conditions for special 
enrollment of an employee with a spouse and new dependent under 
paragraph (b)(2)(vi) of this section are satisfied. If A satisfies the 
conditions of paragraph (b)(3) of this section for requesting enrollment 
timely, the plan will satisfy this paragraph (b) if it allows A to 
enroll either with employee-only coverage, with employee-plus-spouse 
coverage (for A and B), or with family coverage (for A, B, and C). The 
plan must allow whatever coverage is chosen to begin on March 15, the 
date of C's birth.
    Example 2. (i) Facts. Individual D works for Employer X. X maintains 
a group health plan with two benefit packages--an HMO option and an 
indemnity option. Self-only and family coverage are available under both 
options. D enrolls for self-only coverage in the HMO option. Then, a 
child, E, is placed for adoption with D. Within 30 days of the placement 
of E for adoption, D requests enrollment for D and E under the plan's 
indemnity option.
    (ii) Conclusion. In this Example 2, D and E satisfy the conditions 
for special enrollment under paragraphs (b)(2)(v) and (b)(3) of this 
section. Therefore, the plan must allow D and E to enroll in the 
indemnity coverage, effective as of the date of the placement for 
adoption.

    (c) Notice of special enrollment. At or before the time an employee 
is initially offered the opportunity to enroll in a group health plan, 
the plan must furnish the employee with a notice of special enrollment 
that complies with the requirements of this paragraph (c).
    (1) Description of special enrollment rights. The notice of special 
enrollment must include a description of special enrollment rights. The 
following model language may be used to satisfy this requirement:

    If you are declining enrollment for yourself or your dependents 
(including your spouse) because of other health insurance or group 
health plan coverage, you may be able to enroll yourself and your 
dependents in this plan if you or your dependents lose eligibility for 
that other coverage (or if the employer stops contributing towards your 
or your dependents' other coverage). However, you must request 
enrollment within [insert ``30 days'' or any longer period that applies 
under the plan] after your or your dependents' other coverage ends (or 
after the employer stops contributing toward the other coverage).
    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. However, you must request enrollment 
within [insert ``30 days'' or any longer period that applies under the 
plan] after the marriage, birth, adoption, or placement for adoption.
    To request special enrollment or obtain more information, contact 
[insert the name, title, telephone number, and any additional contact 
information of the appropriate plan representative].

    (2) Additional information that may be required. The notice of 
special enrollment must also include, if applicable, the notice 
described in paragraph (a)(3)(iv) of this section (the notice required 
to be furnished to an individual declining coverage if the plan requires 
the reason for declining coverage to be in writing).
    (d) Treatment of special enrollees--(1) If an individual requests 
enrollment while the individual is entitled to special enrollment under 
either paragraph (a) or (b) of this section, the individual is a special 
enrollee, even if the request for enrollment coincides with a late 
enrollment opportunity under the plan. Therefore, the individual cannot 
be treated as a late enrollee.

[[Page 716]]

    (2) Special enrollees must be offered all the benefit packages 
available to similarly situated individuals who enroll when first 
eligible. For this purpose, any difference in benefits or cost-sharing 
requirements for different individuals constitutes a different benefit 
package. In addition, a special enrollee cannot be required to pay more 
for coverage than a similarly situated individual who enrolls in the 
same coverage when first eligible.
    (3) The rules of this section are illustrated by the following 
example:

    Example. (i) Facts. Employer Y maintains a group health plan that 
has an enrollment period for late enrollees every November 1 through 
November 30 with coverage effective the following January 1. On October 
18, Individual B loses coverage under another group health plan and 
satisfies the requirements of paragraphs (a)(2), (3), and (4) of this 
section. B submits a completed application for coverage on November 2.
    (ii) Conclusion. In this Example, B is a special enrollee. 
Therefore, even though B's request for enrollment coincides with an open 
enrollment period, B's coverage is required to be made effective no 
later than December 1 (rather than the plan's January 1 effective date 
for late enrollees).

[69 FR 78794, Dec. 30, 2004, as amended at 79 FR 10314, Feb. 24, 2014]



Sec. 146.119  HMO affiliation period as an alternative to a preexisting 
condition exclusion.

    The rules for HMO affiliation periods have been superseded by the 
prohibition on preexisting condition exclusions. See Sec. 147.108 of 
this subchapter for rules prohibiting the imposition of a preexisting 
condition exclusion.

[79 FR 10314, Feb. 24, 2014]



Sec. 146.120  Interaction with the Family and Medical Leave Act. [Reserved]



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 of this chapter;
    (iii) Claims experience;
    (iv) Receipt of health care;
    (v) Medical history;
    (vi) Genetic information, as defined in Sec. 146.122(a) of this 
subchapter;
    (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--42V3(4839):
    As used in this part, unless the context indicates otherwise--(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 (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 wellness 
programs), and paragraph (g) of this section (permitting favorable 
treatment of individuals with adverse health factors).
    (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;

[[Page 717]]

    (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 
(b)(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 
or 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 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 may limit or exclude benefits 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

[[Page 718]]

not directed at individual participants or beneficiaries based on any 
health factor of the participants or beneficiaries. In addition, a plan 
or issuer 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 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 
ERISA, the Affordable Care Act (including the requirements related to 
essential health benefits), 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 $10,000 annual 
limit on a specific covered benefit that is not an essential health 
benefit 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 coverage of the specific, non-essential 
health benefit up to $10,000 is 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 $500 deductible on 
all benefits 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 $2,000 deductible on benefits for the 
treatment of AIDS, effective before the beginning of the next plan year.
    (ii) Conclusion. The facts of this Example 2 strongly suggest that 
the plan modification is directed at B based on B's claim. Absent 
outweighing evidence to the contrary, the plan violates this paragraph 
(b)(2)(i).
    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. (However, applying a lifetime limit on TMJ may violate 
Sec. 147.126 of this subchapter, if TMJ coverage is an essential health 
benefit, depending on the essential health benefits benchmark plan as 
defined in Sec. 156.20 of this subchapter. This example does not 
address whether the plan provision is permissible under any other 
applicable law, including PHS Act section 2711 or the Americans with 
Disabilities Act.)
    Example 5. (i) Facts. A group health plan applies a $2 million 
lifetime limit on all benefits. However, the $2 million lifetime limit

[[Page 719]]

is reduced to $10,000 for any participant or 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. Additionally, this plan provision is prohibited 
under Sec. 147.126 of this subchapter because it imposes a lifetime 
limit on essential health benefits.
    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) Exception for wellness programs. A group health plan or group 
health insurance issuer may vary benefits, including cost-sharing 
mechanisms (such as a deductible, copayment, or coinsurance), based on 
whether an individual has met the standards of a wellness program that 
satisfies the requirements of paragraph (f) of this section.
    (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). This rule 
applies in the case of an injury resulting from a medical condition even 
if the condition is not diagnosed before the injury.
    (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. Because of depression, Individual D attempts suicide. As a 
result, D sustains injuries and is hospitalized for treatment of the 
injuries. Under 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.)

    (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

[[Page 720]]

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. But see Sec. 146.122(b) of this 
part, which prohibits adjustments in group premium or contribution rates 
based on genetic information.
    (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 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. (However, 
if the issuer used genetic information in computing the group rate, it 
would violate Sec. 146.122(b) of this part.)
    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 wellness programs. Notwithstanding paragraphs 
(c)(1) and (c)(2) of this section, a plan or issuer may vary the amount 
of premium or contribution it requires similarly situated individuals to 
pay based on whether an individual has met the standards of a wellness 
program that satisfies the requirements of paragraph (f) of this 
section.
    (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.

[[Page 721]]

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 (for example, as a spouse or as 
a dependent child);
    (C) Marital status;
    (D) With respect to children of a participant, age or student 
status; or
    (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 (d)(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 
usual 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 children. However, 
coverage is made available to a child only if the child is under age 26 
(or under age 29 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 children 
differently by imposing an age limitation on children, but not on 
spouses, is permitted under this paragraph (d). Specifically, the 
distinction between spouses and 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 children who are under 
age 26 (or full-time students under age 29) as a group of similarly 
situated individuals separate from those who are age 26 or older (or age 
29 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.

[[Page 722]]

    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 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 higher 
deductible 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 (e)(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. State law cannot change the obligation of Issuer N under this 
section. However,

[[Page 723]]

under State law Issuer M may also be responsible for providing benefits 
to such a dependent. In a case in which Issuer N has an obligation under 
this section to provide benefits and Issuer M has an obligation under 
State law to provide benefits, any State laws designed to prevent more 
than 100% reimbursement, such as State coordination-of-benefits laws, 
continue to apply.

    (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 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. (In 
addition, any eligibility provision that is time-based must comply with 
the requirements of PHS Act section 2708 and its implementing 
regulations.)

    (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 
(e)(2) of this section, a

[[Page 724]]

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 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) Nondiscriminatory wellness programs--in general. A wellness 
program is a program of health promotion or disease prevention. 
Paragraphs (b)(2)(ii) and (c)(3) of this section provide exceptions to 
the general prohibitions against discrimination based on a health factor 
for plan provisions that vary benefits (including cost-sharing 
mechanisms) or the premium or contribution for similarly situated 
individuals in connection with a wellness program that satisfies the 
requirements of this paragraph (f).

[[Page 725]]

    (1) Definitions. The definitions in this paragraph (f)(1) govern in 
applying the provisions of this paragraph (f).
    (i) Reward. Except where expressly provided otherwise, references in 
this section to an individual obtaining a reward include both obtaining 
a reward (such as a discount or rebate of a premium or contribution, a 
waiver of all or part of a cost-sharing mechanism, an additional 
benefit, or any financial or other incentive) and avoiding a penalty 
(such as the absence of a premium surcharge or other financial or 
nonfinancial disincentive). References in this section to a plan 
providing a reward include both providing a reward (such as a discount 
or rebate of a premium or contribution, a waiver of all or part of a 
cost-sharing mechanism, an additional benefit, or any financial or other 
incentive) and imposing a penalty (such as a surcharge or other 
financial or nonfinancial disincentive).
    (ii) Participatory wellness programs. If none of the conditions for 
obtaining a reward under a wellness program is based on an individual 
satisfying a standard that is related to a health factor (or if a 
wellness program does not provide a reward), the wellness program is a 
participatory wellness program. Examples of participatory wellness 
programs are:
    (A) A program that reimburses employees for all or part of the cost 
for membership in a fitness center.
    (B) A diagnostic testing program that provides a reward for 
participation in that program and does not base any part of the reward 
on outcomes.
    (C) A program that encourages preventive care through the waiver of 
the copayment or deductible requirement under a group health plan for 
the costs of, for example, prenatal care or well-baby visits. (Note 
that, with respect to non-grandfathered plans, Sec. 147.130 of this 
subchapter requires benefits for certain preventive health services 
without the imposition of cost sharing.)
    (D) A program that reimburses employees for the costs of 
participating, or that otherwise provides a reward for participating, in 
a smoking cessation program without regard to whether the employee quits 
smoking.
    (E) A program that provides a reward to employees for attending a 
monthly, no-cost health education seminar.
    (F) A program that provides a reward to employees who complete a 
health risk assessment regarding current health status, without any 
further action (educational or otherwise) required by the employee with 
regard to the health issues identified as part of the assessment. (See 
also Sec. 146.122 for rules prohibiting collection of genetic 
information.)
    (iii) Health-contingent wellness programs. A health-contingent 
wellness program is a program that requires an individual to satisfy a 
standard related to a health factor to obtain a reward (or requires an 
individual to undertake more than a similarly situated individual based 
on a health factor in order to obtain the same reward). A health-
contingent wellness program may be an activity-only wellness program or 
an outcome-based wellness program.
    (iv) Activity-only wellness programs. An activity-only wellness 
program is a type of health-contingent wellness program that requires an 
individual to perform or complete an activity related to a health factor 
in order to obtain a reward but does not require the individual to 
attain or maintain a specific health outcome. Examples include walking, 
diet, or exercise programs, which some individuals may be unable to 
participate in or complete (or have difficulty participating in or 
completing) due to a health factor, such as severe asthma, pregnancy, or 
a recent surgery. See paragraph (f)(3) of this section for requirements 
applicable to activity-only wellness programs.
    (v) Outcome-based wellness programs. An outcome-based wellness 
program is a type of health-contingent wellness program that requires an 
individual to attain or maintain a specific health outcome (such as not 
smoking or attaining certain results on biometric screenings) in order 
to obtain a reward. To comply with the rules of this paragraph (f), an 
outcome-based wellness program typically has two tiers. That is, for 
individuals who do not attain or maintain the specific health outcome, 
compliance with an educational program or an activity may be offered as

[[Page 726]]

an alternative to achieve the same reward. This alternative pathway, 
however, does not mean that the overall program, which has an outcome-
based component, is not an outcome-based wellness program. That is, if a 
measurement, test, or screening is used as part of an initial standard 
and individuals who meet the standard are granted the reward, the 
program is considered an outcome-based wellness program. For example, if 
a wellness program tests individuals for specified medical conditions or 
risk factors (including biometric screening such as testing for high 
cholesterol, high blood pressure, abnormal body mass index, or high 
glucose level) and provides a reward to individuals identified as within 
a normal or healthy range for these medical conditions or risk factors, 
while requiring individuals who are identified as outside the normal or 
healthy range (or at risk) to take additional steps (such as meeting 
with a health coach, taking a health or fitness course, adhering to a 
health improvement action plan, complying with a walking or exercise 
program, or complying with a health care provider's plan of care) to 
obtain the same reward, the program is an outcome-based wellness 
program. See paragraph (f)(4) of this section for requirements 
applicable to outcome-based wellness programs.
    (2) Requirement for participatory wellness programs. A participatory 
wellness program, as described in paragraph (f)(1)(ii) of this section, 
does not violate the provisions of this section only if participation in 
the program is made available to all similarly situated individuals, 
regardless of health status.
    (3) Requirements for activity-only wellness programs. A health-
contingent wellness program that is an activity-only wellness program, 
as described in paragraph (f)(1)(iv) of this section, does not violate 
the provisions of this section only if all of the following requirements 
are satisfied:
    (i) Frequency of opportunity to qualify. The program must give 
individuals eligible for the program the opportunity to qualify for the 
reward under the program at least once per year.
    (ii) Size of reward. The reward for the activity-only wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage (as defined in paragraph (f)(5) of this section) of the total 
cost of employee-only coverage under the plan. However, if, in addition 
to employees, any class of dependents (such as spouses, or spouses and 
dependent children) may participate in the wellness program, the reward 
must not exceed the applicable percentage of the total cost of the 
coverage in which an employee and any dependents are enrolled. For 
purposes of this paragraph (f)(3)(ii), the cost of coverage is 
determined based on the total amount of employer and employee 
contributions towards the cost of coverage for the benefit package under 
which the employee is (or the employee and any dependents are) receiving 
coverage.
    (iii) Reasonable design. The program must be reasonably designed to 
promote health or prevent disease. A program satisfies this standard if 
it has a reasonable chance of improving the health of, or preventing 
disease in, participating individuals, and it is not overly burdensome, 
is not a subterfuge for discriminating based on a health factor, and is 
not highly suspect in the method chosen to promote health or prevent 
disease. This determination is based on all the relevant facts and 
circumstances.
    (iv) Uniform availability and reasonable alternative standards. The 
full reward under the activity-only wellness program must be available 
to all similarly situated individuals.
    (A) Under this paragraph (f)(3)(iv), a reward under an activity-only 
wellness program is not available to all similarly situated individuals 
for a period unless the program meets both of the following 
requirements:
    (1) The program allows a reasonable alternative standard (or waiver 
of the otherwise applicable standard) for obtaining the reward for any 
individual for whom, for that period, it is unreasonably difficult due 
to a medical condition to satisfy the otherwise applicable standard; and

[[Page 727]]

    (2) The program allows a reasonable alternative standard (or waiver 
of the otherwise applicable standard) for obtaining the reward for any 
individual for whom, for that period, it is medically inadvisable to 
attempt to satisfy the otherwise applicable standard.
    (B) While plans and issuers are not required to determine a 
particular reasonable alternative standard in advance of an individual's 
request for one, if an individual is described in either paragraph 
(f)(3)(iv)(A)(1) or (2) of this section, a reasonable alternative 
standard must be furnished by the plan or issuer upon the individual's 
request or the condition for obtaining the reward must be waived.
    (C) All the facts and circumstances are taken into account in 
determining whether a plan or issuer has furnished a reasonable 
alternative standard, including but not limited to the following:
    (1) If the reasonable alternative standard is completion of an 
educational program, the plan or issuer must make the educational 
program available or assist the employee in finding such a program 
(instead of requiring an individual to find such a program unassisted), 
and may not require an individual to pay for the cost of the program.
    (2) The time commitment required must be reasonable (for example, 
requiring attendance nightly at a one-hour class would be unreasonable).
    (3) If the reasonable alternative standard is a diet program, the 
plan or issuer is not required to pay for the cost of food but must pay 
any membership or participation fee.
    (4) If an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical professional) is not medically appropriate for that individual, 
the plan or issuer must provide a reasonable alternative standard that 
accommodates the recommendations of the individual's personal physician 
with regard to medical appropriateness. Plans and issuers may impose 
standard cost sharing under the plan or coverage for medical items and 
services furnished pursuant to the physician's recommendations.
    (D) To the extent that a reasonable alternative standard under an 
activity-only wellness program is, itself, an activity-only wellness 
program, it must comply with the requirements of this paragraph (f)(3) 
in the same manner as if it were an initial program standard. (Thus, for 
example, if a plan or issuer provides a walking program as a reasonable 
alternative standard to a running program, individuals for whom it is 
unreasonably difficult due to a medical condition to complete the 
walking program (or for whom it is medically inadvisable to attempt to 
complete the walking program) must be provided a reasonable alternative 
standard to the walking program.) To the extent that a reasonable 
alternative standard under an activity-only wellness program is, itself, 
an outcome-based wellness program, it must comply with the requirements 
of paragraph (f)(4) of this section, including paragraph (f)(4)(iv)(D).
    (E) If reasonable under the circumstances, a plan or issuer may seek 
verification, such as a statement from an individual's personal 
physician, that a health factor makes it unreasonably difficult for the 
individual to satisfy, or medically inadvisable for the individual to 
attempt to satisfy, the otherwise applicable standard of an activity-
only wellness program. Plans and issuers may seek verification with 
respect to requests for a reasonable alternative standard for which it 
is reasonable to determine that medical judgment is required to evaluate 
the validity of the request.
    (v) Notice of availability of reasonable alternative standard. The 
plan or issuer must disclose in all plan materials describing the terms 
of an activity-only wellness program the availability of a reasonable 
alternative standard to qualify for the reward (and, if applicable, the 
possibility of waiver of the otherwise applicable standard), including 
contact information for obtaining a reasonable alternative standard and 
a statement that recommendations of an individual's personal physician 
will be accommodated. If plan materials merely mention that such a 
program is available, without describing its terms, this disclosure is 
not required. Sample language is provided in paragraph (f)(6)

[[Page 728]]

of this section, as well as in certain examples of this section.
    (vi) Example. The provisions of this paragraph (f)(3) are 
illustrated by the following example:

    Example. (i) Facts. A group health plan provides a reward to 
individuals who participate in a reasonable specified walking program. 
If it is unreasonably difficult due to a medical condition for an 
individual to participate (or if it is medically inadvisable for an 
individual to attempt to participate), the plan will waive the walking 
program requirement and provide the reward. All materials describing the 
terms of the walking program disclose the availability of the waiver.
    (ii) Conclusion. In this Example, the program satisfies the 
requirements of paragraph (f)(3)(iii) of this section because the 
walking program is reasonably designed to promote health and prevent 
disease. The program satisfies the requirements of paragraph (f)(3)(iv) 
of this section because the reward under the program is available to all 
similarly situated individuals. It accommodates individuals for whom it 
is unreasonably difficult to participate in the walking program due to a 
medical condition (or for whom it would be medically inadvisable to 
attempt to participate) by providing them with the reward even if they 
do not participate in the walking program (that is, by waiving the 
condition). The plan also complies with the disclosure requirement of 
paragraph (f)(3)(v) of this section. Thus, the plan satisfies paragraphs 
(f)(3)(iii), (iv), and (v) of this section.

    (4) Requirements for outcome-based wellness programs. A health-
contingent wellness program that is an outcome-based wellness program, 
as described in paragraph (f)(1)(v) of this section, does not violate 
the provisions of this section only if all of the following requirements 
are satisfied:
    (i) Frequency of opportunity to qualify. The program must give 
individuals eligible for the program the opportunity to qualify for the 
reward under the program at least once per year.
    (ii) Size of reward. The reward for the outcome-based wellness 
program, together with the reward for other health-contingent wellness 
programs with respect to the plan, must not exceed the applicable 
percentage (as defined in paragraph (f)(5) of this section) of the total 
cost of employee-only coverage under the plan. However, if, in addition 
to employees, any class of dependents (such as spouses, or spouses and 
dependent children) may participate in the wellness program, the reward 
must not exceed the applicable percentage of the total cost of the 
coverage in which an employee and any dependents are enrolled. For 
purposes of this paragraph (f)(4)(ii), the cost of coverage is 
determined based on the total amount of employer and employee 
contributions towards the cost of coverage for the benefit package under 
which the employee is (or the employee and any dependents are) receiving 
coverage.
    (iii) Reasonable design. The program must be reasonably designed to 
promote health or prevent disease. A program satisfies this standard if 
it has a reasonable chance of improving the health of, or preventing 
disease in, participating individuals, and it is not overly burdensome, 
is not a subterfuge for discriminating based on a health factor, and is 
not highly suspect in the method chosen to promote health or prevent 
disease. This determination is based on all the relevant facts and 
circumstances. To ensure that an outcome-based wellness program is 
reasonably designed to improve health and does not act as a subterfuge 
for underwriting or reducing benefits based on a health factor, a 
reasonable alternative standard to qualify for the reward must be 
provided to any individual who does not meet the initial standard based 
on a measurement, test, or screening that is related to a health factor, 
as explained in paragraph (f)(4)(iv) of this section.
    (iv) Uniform availability and reasonable alternative standards. The 
full reward under the outcome-based wellness program must be available 
to all similarly situated individuals.
    (A) Under this paragraph (f)(4)(iv), a reward under an outcome-based 
wellness program is not available to all similarly situated individuals 
for a period unless the program allows a reasonable alternative standard 
(or waiver of the otherwise applicable standard) for obtaining the 
reward for any individual who does not meet the initial standard based 
on the measurement, test, or screening, as described in this paragraph 
(f)(4)(iv).
    (B) While plans and issuers are not required to determine a 
particular reasonable alternative standard in advance of an individual's 
request for

[[Page 729]]

one, if an individual is described in paragraph (f)(4)(iv)(A) of this 
section, a reasonable alternative standard must be furnished by the plan 
or issuer upon the individual's request or the condition for obtaining 
the reward must be waived.
    (C) All the facts and circumstances are taken into account in 
determining whether a plan or issuer has furnished a reasonable 
alternative standard, including but not limited to the following:
    (1) If the reasonable alternative standard is completion of an 
educational program, the plan or issuer must make the educational 
program available or assist the employee in finding such a program 
(instead of requiring an individual to find such a program unassisted), 
and may not require an individual to pay for the cost of the program.
    (2) The time commitment required must be reasonable (for example, 
requiring attendance nightly at a one-hour class would be unreasonable).
    (3) If the reasonable alternative standard is a diet program, the 
plan or issuer is not required to pay for the cost of food but must pay 
any membership or participation fee.
    (4) If an individual's personal physician states that a plan 
standard (including, if applicable, the recommendations of the plan's 
medical professional) is not medically appropriate for that individual, 
the plan or issuer must provide a reasonable alternative standard that 
accommodates the recommendations of the individual's personal physician 
with regard to medical appropriateness. Plans and issuers may impose 
standard cost sharing under the plan or coverage for medical items and 
services furnished pursuant to the physician's recommendations.
    (D) To the extent that a reasonable alternative standard under an 
outcome-based wellness program is, itself, an activity-only wellness 
program, it must comply with the requirements of paragraph (f)(3) of 
this section in the same manner as if it were an initial program 
standard. To the extent that a reasonable alternative standard under an 
outcome-based wellness program is, itself, another outcome-based 
wellness program, it must comply with the requirements of this paragraph 
(f)(4), subject to the following special rules:
    (1) The reasonable alternative standard cannot be a requirement to 
meet a different level of the same standard without additional time to 
comply that takes into account the individual's circumstances. For 
example, if the initial standard is to achieve a BMI less than 30, the 
reasonable alternative standard cannot be to achieve a BMI less than 31 
on that same date. However, if the initial standard is to achieve a BMI 
less than 30, a reasonable alternative standard for the individual could 
be to reduce the individual's BMI by a small amount or small percentage, 
over a realistic period of time, such as within a year.
    (2) An individual must be given the opportunity to comply with the 
recommendations of the individual's personal physician as a second 
reasonable alternative standard to meeting the reasonable alternative 
standard defined by the plan or issuer, but only if the physician joins 
in the request. The individual can make a request to involve a personal 
physician's recommendations at any time and the personal physician can 
adjust the physician's recommendations at any time, consistent with 
medical appropriateness.
    (E) It is not reasonable to seek verification, such as a statement 
from an individual's personal physician, under an outcome-based wellness 
program that a health factor makes it unreasonably difficult for the 
individual to satisfy, or medically inadvisable for the individual to 
attempt to satisfy, the otherwise applicable standard as a condition of 
providing a reasonable alternative to the initial standard. However, if 
a plan or issuer provides an alternative standard to the otherwise 
applicable measurement, test, or screening that involves an activity 
that is related to a health factor, then the rules of paragraph (f)(3) 
of this section for activity-only wellness programs apply to that 
component of the wellness program and the plan or issuer may, if 
reasonable under the circumstances, seek verification that it is 
unreasonably difficult due to a medical condition for an individual to 
perform or

[[Page 730]]

complete the activity (or it is medically inadvisable to attempt to 
perform or complete the activity). (For example, if an outcome-based 
wellness program requires participants to maintain a certain healthy 
weight and provides a diet and exercise program for individuals who do 
not meet the targeted weight, a plan or issuer may seek verification, as 
described in paragraph (f)(3)(iv)(D) of this section, if reasonable 
under the circumstances, that a second reasonable alternative standard 
is needed for certain individuals because, for those individuals, it 
would be unreasonably difficult due to a medical condition to comply, or 
medically inadvisable to attempt to comply, with the diet and exercise 
program, due to a medical condition.)
    (v) Notice of availability of reasonable alternative standard. The 
plan or issuer must disclose in all plan materials describing the terms 
of an outcome-based wellness program, and in any disclosure that an 
individual did not satisfy an initial outcome-based standard, the 
availability of a reasonable alternative standard to qualify for the 
reward (and, if applicable, the possibility of waiver of the otherwise 
applicable standard), including contact information for obtaining a 
reasonable alternative standard and a statement that recommendations of 
an individual's personal physician will be accommodated. If plan 
materials merely mention that such a program is available, without 
describing its terms, this disclosure is not required. Sample language 
is provided in paragraph (f)(6) of this section, as well as in certain 
examples of this section.
    (vi) Examples. The provisions of this paragraph (f)(4) are 
illustrated by the following examples:

    Example 1--Cholesterol screening with reasonable alternative 
standard to work with personal physician. (i) Facts. A group health plan 
offers a reward to participants who achieve a count under 200 on a total 
cholesterol test. If a participant does not achieve the targeted 
cholesterol count, the plan allows the participant to develop an 
alternative cholesterol action plan in conjunction with the 
participant's personal physician that may include recommendations for 
medication and additional screening. The plan allows the physician to 
modify the standards, as medically necessary, over the year. (For 
example, if a participant develops asthma or depression, requires 
surgery and convalescence, or some other medical condition or 
consideration makes completion of the original action plan inadvisable 
or unreasonably difficult, the physician may modify the original action 
plan.) All plan materials describing the terms of the program include 
the following statement: ``Your health plan wants to help you take 
charge of your health. Rewards are available to all employees who 
participate in our Cholesterol Awareness Wellness Program. If your total 
cholesterol count is under 200, you will receive the reward. If not, you 
will still have an opportunity to qualify for the reward. We will work 
with you and your doctor to find a Health Smart program that is right 
for you.'' In addition, when any individual participant receives 
notification that his or her cholesterol count is 200 or higher, the 
notification includes the following statement: ``Your plan offers a 
Health Smart program under which we will work with you and your doctor 
to try to lower your cholesterol. If you complete this program, you will 
qualify for a reward. Please contact us at [contact information] to get 
started.''
    (ii) Conclusion. In this Example 1, the program is an outcome-based 
wellness program because the initial standard requires an individual to 
attain or maintain a specific health outcome (a certain cholesterol 
level) to obtain a reward. The program satisfies the requirements of 
paragraph (f)(4)(iii) of this section because the cholesterol program is 
reasonably designed to promote health and prevent disease. The program 
satisfies the requirements of paragraph (f)(4)(iv) of this section 
because it makes available to all participants who do not meet the 
cholesterol standard a reasonable alternative standard to qualify for 
the reward. Lastly, the plan also discloses in all materials describing 
the terms of the program and in any disclosure that an individual did 
not satisfy the initial outcome-based standard the availability of a 
reasonable alternative standard (including contact information and the 
individual's ability to involve his or her personal physician), as 
required by paragraph (f)(4)(v) of this section. Thus, the program 
satisfies the requirements of paragraphs (f)(4)(iii), (iv), and (v) of 
this section.
    Example 2--Cholesterol screening with plan alternative and no 
opportunity for personal physician involvement. (i) Facts. Same facts as 
Example 1, except that the wellness program's physician or nurse 
practitioner (rather than the individual's personal physician) 
determines the alternative cholesterol action plan. The plan does not 
provide an opportunity for a participant's personal physician to modify 
the action plan if it is not medically appropriate for that individual.

[[Page 731]]

    (ii) Conclusion. In this Example 2, the wellness program does not 
satisfy the requirements of paragraph (f)(4)(iii) of this section 
because the program does not accommodate the recommendations of the 
participant's personal physician with regard to medical appropriateness, 
as required under paragraph (f)(4)(iv)(C)(3) of this section. Thus, the 
program is not reasonably designed under paragraph (f)(4)(iii) of this 
section and is not available to all similarly situated individuals under 
paragraph (f)(4)(iv) of this section. The notice also does not provide 
all the content required under paragraph (f)(4)(v) of this section.
    Example 3--Cholesterol screening with plan alternative that can be 
modified by personal physician. (i) Facts. Same facts as Example 2, 
except that if a participant's personal physician disagrees with any 
part of the action plan, the personal physician may modify the action 
plan at any time, and the plan discloses this to participants.
    (ii) Conclusion. In this Example 3, the wellness program satisfies 
the requirements of paragraph (f)(4)(iii) of this section because the 
participant's personal physician may modify the action plan determined 
by the wellness program's physician or nurse practitioner at any time if 
the physician states that the recommendations are not medically 
appropriate, as required under paragraph (f)(4)(iv)(C)(3) of this 
section. Thus, the program is reasonably designed under paragraph 
(f)(4)(iii) of this section and is available to all similarly situated 
individuals under paragraph (f)(4)(iv) of this section. The notice, 
which includes a statement that recommendations of an individual's 
personal physician will be accommodated, also complies with paragraph 
(f)(4)(v) of this section.
    Example 4--BMI screening with walking program alternative. (i) 
Facts. A group health plan will provide a reward to participants who 
have a body mass index (BMI) that is 26 or lower, determined shortly 
before the beginning of the year. Any participant who does not meet the 
target BMI is given the same discount if the participant complies with 
an exercise program that consists of walking 150 minutes a week. Any 
participant for whom it is unreasonably difficult due to a medical 
condition to comply with this walking program (and any participant for 
whom it is medically inadvisable to attempt to comply with the walking 
program) during the year is given the same discount if the participant 
satisfies an alternative standard that is reasonable taking into 
consideration the participant's medical situation, is not unreasonably 
burdensome or impractical to comply with, and is otherwise reasonably 
designed based on all the relevant facts and circumstances. All plan 
materials describing the terms of the wellness program include the 
following statement: ``Fitness is Easy! Start Walking! Your health plan 
cares about your health. If you are considered overweight because you 
have a BMI of over 26, our Start Walking program will help you lose 
weight and feel better. We will help you enroll. (**If your doctor says 
that walking isn't right for you, that's okay too. We will work with you 
(and, if you wish, your own doctor) to develop a wellness program that 
is.)'' Participant E is unable to achieve a BMI that is 26 or lower 
within the plan's timeframe and receives notification that complies with 
paragraph (f)(4)(v) of this section. Nevertheless, it is unreasonably 
difficult due to a medical condition for E to comply with the walking 
program. E proposes a program based on the recommendations of E's 
physician. The plan agrees to make the same discount available to E that 
is available to other participants in the BMI program or the alternative 
walking program, but only if E actually follows the physician's 
recommendations.
    (ii) Conclusion. In this Example 4, the program is an outcome-based 
wellness program because the initial standard requires an individual to 
attain or maintain a specific health outcome (a certain BMI level) to 
obtain a reward. The program satisfies the requirements of paragraph 
(f)(4)(iii) of this section because it is reasonably designed to promote 
health and prevent disease. The program also satisfies the requirements 
of paragraph (f)(4)(iv) of this section because it makes available to 
all individuals who do not satisfy the BMI standard a reasonable 
alternative standard to qualify for the reward (in this case, a walking 
program that is not unreasonably burdensome or impractical for 
individuals to comply with and that is otherwise reasonably designed 
based on all the relevant facts and circumstances). In addition, the 
walking program is, itself, an activity-only standard and the plan 
complies with the requirements of paragraph (f)(3) of this section 
(including the requirement of paragraph (f)(3)(iv) that, if there are 
individuals for whom it is unreasonably difficult due to a medical 
condition to comply, or for whom it is medically inadvisable to attempt 
to comply, with the walking program, the plan provide a reasonable 
alternative to those individuals). Moreover, the plan satisfies the 
requirements of paragraph (f)(4)(v) of this section because it 
discloses, in all materials describing the terms of the program and in 
any disclosure that an individual did not satisfy the initial outcome-
based standard, the availability of a reasonable alternative standard 
(including contact information and the individual's option to involve 
his or her personal physician) to qualify for the reward or the 
possibility of waiver of the otherwise applicable standard. Thus, the 
program satisfies the requirements of paragraphs (f)(4)(iii), (iv), and 
(v) of this section.
    Example 5--BMI screening with alternatives available to either lower 
BMI or meet personal

[[Page 732]]

physician's recommendations. (i) Facts. Same facts as Example 4 except 
that, with respect to any participant who does not meet the target BMI, 
instead of a walking program, the participant is expected to reduce BMI 
by one point. At any point during the year upon request, any individual 
can obtain a second reasonable alternative standard, which is compliance 
with the recommendations of the participant's personal physician 
regarding weight, diet, and exercise as set forth in a treatment plan 
that the physician recommends or to which the physician agrees. The 
participant's personal physician is permitted to change or adjust the 
treatment plan at any time and the option of following the participant's 
personal physician's recommendations is clearly disclosed.
    (ii) Conclusion. In this Example 5, the reasonable alternative 
standard to qualify for the reward (the alternative BMI standard 
requiring a one-point reduction) does not make the program unreasonable 
under paragraph (f)(4)(iii) or (iv) of this section because the program 
complies with paragraph (f)(4)(iv)(C)(4) of this section by allowing a 
second reasonable alternative standard to qualify for the reward 
(compliance with the recommendations of the participant's personal 
physician, which can be changed or adjusted at any time). Accordingly, 
the program continues to satisfy the applicable requirements of 
paragraph (f) of this section.
    Example 6--Tobacco use surcharge with smoking cessation program 
alternative. (i) Facts. In conjunction with an annual open enrollment 
period, a group health plan provides a premium differential based on 
tobacco use, determined using a health risk assessment. The following 
statement is included in all plan materials describing the tobacco 
premium differential: ``Stop smoking today! We can help! If you are a 
smoker, we offer a smoking cessation program. If you complete the 
program, you can avoid this surcharge.'' The plan accommodates 
participants who smoke by facilitating their enrollment in a smoking 
cessation program that requires participation at a time and place that 
are not unreasonably burdensome or impractical for participants, and 
that is otherwise reasonably designed based on all the relevant facts 
and circumstances, and discloses contact information and the 
individual's option to involve his or her personal physician. The plan 
pays for the cost of participation in the smoking cessation program. Any 
participant can avoid the surcharge for the plan year by participating 
in the program, regardless of whether the participant stops smoking, but 
the plan can require a participant who wants to avoid the surcharge in a 
subsequent year to complete the smoking cessation program again.
    (ii) Conclusion. In this Example 6, the premium differential 
satisfies the requirements of paragraphs (f)(4)(iii), (iv), and (v). The 
program is an outcome-based wellness program because the initial 
standard for obtaining a reward is dependent on the results of a health 
risk assessment (a measurement, test, or screening). The program is 
reasonably designed under paragraph (f)(4)(iii) because the plan 
provides a reasonable alternative standard (as required under paragraph 
(f)(4)(iv) of this section) to qualify for the reward to all tobacco 
users (a smoking cessation program). The plan discloses, in all 
materials describing the terms of the program, the availability of the 
reasonable alternative standard (including contact information and the 
individual's option to involve his or her personal physician). Thus, the 
program satisfies the requirements of paragraphs (f)(4)(iii), (iv), and 
(v) of this section.
    Example 7--Tobacco use surcharge with alternative program requiring 
actual cessation. (i) Facts. Same facts as Example 6, except the plan 
does not provide participant F with the reward in subsequent years 
unless F actually stops smoking after participating in the tobacco 
cessation program.
    (ii) Conclusion. In this Example 7, the program is not reasonably 
designed under paragraph (f)(4)(iii) of this section and does not 
provide a reasonable alternative standard as required under paragraph 
(f)(4)(iv) of this section. The plan cannot cease to provide a 
reasonable alternative standard merely because the participant did not 
stop smoking after participating in a smoking cessation program. The 
plan must continue to offer a reasonable alternative standard whether it 
is the same or different (such as a new recommendation from F's personal 
physician or a new nicotine replacement therapy).
    Example 8--Tobacco use surcharge with smoking cessation program 
alternative that is not reasonable. (i) Facts. Same facts as Example 6, 
except the plan does not facilitate participant F's enrollment in a 
smoking cessation program. Instead the plan advises F to find a program, 
pay for it, and provide a certificate of completion to the plan.
    (ii) Conclusion. In this Example 8, the requirement for F to find 
and pay for F's own smoking cessation program means that the alternative 
program is not reasonable. Accordingly, the plan has not offered a 
reasonable alternative standard that complies with paragraphs 
(f)(4)(iii) and (iv) of this section and the program fails to satisfy 
the requirements of paragraph (f) of this section.

    (5) Applicable percentage--(i) For purposes of this paragraph (f), 
the applicable percentage is 30 percent, except that the applicable 
percentage is increased by an additional 20 percentage points (to 50 
percent) to the extent that the additional percentage is in connection 
with a program designed to prevent or reduce tobacco use.

[[Page 733]]

    (ii) The rules of this paragraph (f)(5) are illustrated by the 
following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan. The 
annual premium for employee-only coverage is $6,000 (of which the 
employer pays $4,500 per year and the employee pays $1,500 per year). 
The plan offers employees a health-contingent wellness program with 
several components, focused on exercise, blood sugar, weight, 
cholesterol, and blood pressure. The reward for compliance is an annual 
premium rebate of $600.
    (ii) Conclusion. In this Example 1, the reward for the wellness 
program, $600, does not exceed the applicable percentage of 30 percent 
of the total annual cost of employee-only coverage, $1,800. ($6,000 x 
30% = $1,800.)
    Example 2. (i) Facts. Same facts as Example 1, except the wellness 
program is exclusively a tobacco prevention program. Employees who have 
used tobacco in the last 12 months and who are not enrolled in the 
plan's tobacco cessation program are charged a $1,000 premium surcharge 
(in addition to their employee contribution towards the coverage). 
(Those who participate in the plan's tobacco cessation program are not 
assessed the $1,000 surcharge.)
    (ii) Conclusion. In this Example 2, the reward for the wellness 
program (absence of a $1,000 surcharge), does not exceed the applicable 
percentage of 50 percent of the total annual cost of employee-only 
coverage, $3,000. ($6,000 x 50% = $3,000.)
    Example 3. (i) Facts. Same facts as Example 1, except that, in 
addition to the $600 reward for compliance with the health-contingent 
wellness program, the plan also imposes an additional $2,000 tobacco 
premium surcharge on employees who have used tobacco in the last 12 
months and who are not enrolled in the plan's tobacco cessation program. 
(Those who participate in the plan's tobacco cessation program are not 
assessed the $2,000 surcharge.)
    (ii) Conclusion. In this Example 3, the total of all rewards 
(including absence of a surcharge for participating in the tobacco 
program) is $2,600 ($600 + $2,000 = $2,600), which does not exceed the 
applicable percentage of 50 percent of the total annual cost of 
employee-only coverage ($3,000); and, tested separately, the $600 reward 
for the wellness program unrelated to tobacco use does not exceed the 
applicable percentage of 30 percent of the total annual cost of 
employee-only coverage ($1,800).
    Example 4. (i) Facts. An employer sponsors a group health plan. The 
total annual premium for employee-only coverage (including both employer 
and employee contributions towards the coverage) is $5,000. The plan 
provides a $250 reward to employees who complete a health risk 
assessment, without regard to the health issues identified as part of 
the assessment. The plan also offers a Healthy Heart program, which is a 
health-contingent wellness program, with an opportunity to earn a $1,500 
reward.
    (ii) Conclusion. In this Example 4, even though the total reward for 
all wellness programs under the plan is $1,750 ($250 + $1,500 = $1,750, 
which exceeds the applicable percentage of 30 percent of the cost of the 
annual premium for employee-only coverage ($5,000 x 30% = $1,500)), only 
the reward offered for compliance with the health-contingent wellness 
program ($1,500) is taken into account in determining whether the rules 
of this paragraph (f)(5) are met. (The $250 reward is offered in 
connection with a participatory wellness program and therefore is not 
taken into account.) Accordingly, the health-contingent wellness program 
offers a reward that does not exceed the applicable percentage of 30 
percent of the total annual cost of employee-only coverage.

    (6) Sample language. The following language, or substantially 
similar language, can be used to satisfy the notice requirement of 
paragraphs (f)(3)(v) or (f)(4)(v) of this section: ``Your health plan is 
committed to helping you achieve your best health. Rewards for 
participating in a wellness program are available to all employees. If 
you think you might be unable to meet a standard for a reward under this 
wellness program, you might qualify for an opportunity to earn the same 
reward by different means. Contact us at [insert contact information] 
and we will work with you (and, if you wish, with your doctor) to find a 
wellness program with the same reward that is right for you in light of 
your health status.''
    (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

[[Page 734]]

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 26. However, dependent children who are disabled are 
eligible for coverage beyond age 26.
    (ii) Conclusion. In this Example 1, the plan provision allowing 
coverage for disabled dependent children beyond age 26 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.
    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

[[Page 735]]

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) Generally. This section applies for 
plan years beginning on or after July 1, 2007.
    (2) Special rule for self-funded nonfederal governmental plans 
exempted under 45 CFR 146.180--(i) If coverage has been denied to any 
individual because the sponsor of a self-funded nonfederal 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 of this 
part (with regard to this section) is no longer in effect; and
    (D) May not treat the individual as a late enrollee or a special 
enrollee.
    (ii) For purposes of this paragraph (i)(2), 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 of this part, 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)(2) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual D was hired by a nonfederal 
governmental employer in June 1999. The employer maintains a self-funded 
group health plan with a plan year beginning on October 1. 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, 
2005, and renewed the exemption election for the plan year beginning 
October 1, 2006. Under the terms of the plan while the exemption was in 
effect, employees and their dependents were allowed to enroll when the 
employee was first hired without regard to any health factor. If an 
individual declines to enroll when first eligible, the individual could 
enroll effective October 1 of any plan year if the individual could pass 
a physical examination. The evidence-of-good-health requirement for late 
enrollees, absent an exemption election under Sec. 146.180 of this 
part, would have been in violation of this section. D chose not to 
enroll for coverage when first hired. In February of 2006, D was treated 
for skin cancer but did not apply for coverage under the plan for the 
plan year beginning October 1, 2006, because D assumed D could not meet 
the evidence-of-good-health requirement. With the plan year beginning 
October 1, 2007 the plan sponsor chose not to renew its exemption 
election and brought the plan into compliance with this section. The 
plan notifies individual D (and all other employees) that it will be 
coming into compliance with the requirements of this section. The notice 
specifies that the effective date of compliance will be October 1, 2007, 
explains the applicable enrollment restrictions that will apply under 
the plan, states that individuals will have at least 30 days to enroll, 
and explains that coverage for those who choose to enroll will be 
effective as of October 1, 2007. Individual D timely requests enrollment 
in the plan, and coverage commences under the plan on October 1, 2007.
    (ii) Conclusion. In this Example 1, the plan complies with this 
paragraph (i)(2).
    Example 2. (i) Facts. Individual E was hired by a nonfederal 
governmental employer in February 1999. The employer maintains a self-
funded group health plan with a plan year beginning on September 1. 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, 2002, and renews the exemption election for the plan years 
beginning September 1, 2003, September 1, 2004, September 1, 2005, and 
September 1, 2006. Under the terms of the plan while the exemption was 
in effect, employees and their dependents were allowed to enroll when 
the employee was first hired without regard to any health factor. If an 
individual declined to enroll when first eligible, the individual could 
enroll effective September 1 of

[[Page 736]]

any plan year if the individual could pass a physical examination. Also 
under the terms of the plan, all enrollees were subject to a 12-month 
preexisting condition exclusion period, regardless of whether they had 
creditable coverage. E chose not to enroll for coverage when first 
hired. In June of 2006, E is diagnosed as having multiple sclerosis 
(MS). With the plan year beginning September 1, 2007, 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 notifies E of her opportunity to 
enroll, without a physical examination, effective September 1, 2007. The 
plan gives E 30 days to enroll. 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, 2008, 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.)

[71 FR 75046, Dec. 13, 2006, as amended at 74 FR 51688, Oct. 7, 2009; 78 
FR 33187, June 3, 2013; 79 FR 10314, Feb. 24, 2014]



Sec. 146.122  Additional requirements prohibiting discrimination 
based on genetic information.

    (a) Definitions. Unless otherwise provided, the definitions in this 
paragraph (a) govern in applying the provisions of this section.
    (1) Collect means, with respect to information, to request, require, 
or purchase such information.
    (2) Family member means, with respect to an individual--
    (i) A dependent (as defined in Sec. 144.103 of this part) of the 
individual; or
    (ii) Any other person who is a first-degree, second-degree, third-
degree, or fourth-degree relative of the individual or of a dependent of 
the individual. Relatives by affinity (such as by marriage or adoption) 
are treated the same as relatives by consanguinity (that is, relatives 
who share a common biological ancestor). In determining the degree of 
the relationship, relatives by less than full consanguinity (such as 
half-siblings, who share only one parent) are treated the same as 
relatives by full consanguinity (such as siblings who share both 
parents).
    (A) First-degree relatives include parents, spouses, siblings, and 
children.
    (B) Second-degree relatives include grandparents, grandchildren, 
aunts, uncles, nephews, and nieces.
    (C) Third-degree relatives include great-grandparents, great-
grandchildren, great aunts, great uncles, and first cousins.
    (D) Fourth-degree relatives include great-great grandparents, great-
great grandchildren, and children of first cousins.
    (3) Genetic information means--
    (i) Subject to paragraphs (a)(3)(ii) and (iii) of this section, with 
respect to an individual, information about--
    (A) The individual's genetic tests (as defined in paragraph (a)(5) 
of this section);
    (B) The genetic tests of family members of the individual;
    (C) The manifestation (as defined in paragraph (a)(6) of this 
section) of a disease or disorder in family members of the individual; 
or
    (D) Any request for, or receipt of, genetic services (as defined in 
paragraph (a)(4) of this section), or participation in clinical research 
which includes genetic services, by the individual or any family member 
of the individual.
    (ii) The term genetic information does not include information about 
the sex or age of any individual.
    (iii) The term genetic information includes--
    (A) With respect to a pregnant woman (or a family member of the 
pregnant woman), genetic information of any fetus carried by the 
pregnant woman; and
    (B) With respect to an individual (or a family member of the 
individual) who is utilizing an assisted reproductive technology, 
genetic information of any embryo legally held by the individual or 
family member.
    (4) Genetic services means --
    (i) A genetic test, as defined in paragraph (a)(5) of this section;
    (ii) Genetic counseling (including obtaining, interpreting, or 
assessing genetic information); or
    (iii) Genetic education.
    (5)(i) Genetic test means an analysis of human DNA, RNA, 
chromosomes, proteins, or metabolites, if the analysis

[[Page 737]]

detects genotypes, mutations, or chromosomal changes. However, a genetic 
test does not include an analysis of proteins or metabolites that is 
directly related to a manifested disease, disorder, or pathological 
condition. Accordingly, a test to determine whether an individual has a 
BRCA1 or BRCA2 variant is a genetic test. Similarly, a test to determine 
whether an individual has a genetic variant associated with hereditary 
nonpolyposis colorectal cancer is a genetic test. However, an HIV test, 
complete blood count, cholesterol test, liver function test, or test for 
the presence of alcohol or drugs is not a genetic test.
    (ii) The rules of this paragraph (a)(5) are illustrated by the 
following example:

    Example. (i) Facts. Individual A is a newborn covered under a group 
health plan. A undergoes a phenylketonuria (PKU) screening, which 
measures the concentration of a metabolite, phenylalanine, in A's blood. 
In PKU, a mutation occurs in the phenylalanine hydroxylase (PAH) gene 
which contains instructions for making the enzyme needed to break down 
the amino acid phenylalanine. Individuals with the mutation, who have a 
deficiency in the enzyme to break down phenylalanine, have high 
concentrations of phenylalanine.
    (ii) Conclusion. In this Example, the PKU screening is a genetic 
test with respect to A because the screening is an analysis of 
metabolites that detects a genetic mutation.

    (6)(i) Manifestation or manifested means, with respect to a disease, 
disorder, or pathological condition, that an individual has been or 
could reasonably be diagnosed with the disease, disorder, or 
pathological condition by a health care professional with appropriate 
training and expertise in the field of medicine involved. For purposes 
of this section, a disease, disorder, or pathological condition is not 
manifested if a diagnosis is based principally on genetic information.
    (ii) The rules of this paragraph (a)(6) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual A has a family medical history of 
diabetes. A begins to experience excessive sweating, thirst, and 
fatigue. A's physician examines A and orders blood glucose testing 
(which is not a genetic test). Based on the physician's examination, A's 
symptoms, and test results that show elevated levels of blood glucose, 
A's physician diagnoses A as having adult onset diabetes mellitus (Type 
2 diabetes).
    (ii) Conclusion. In this Example 1, A has been diagnosed by a health 
care professional with appropriate training and expertise in the field 
of medicine involved. The diagnosis is not based principally on genetic 
information. Thus, Type 2 diabetes is manifested with respect to A.
    Example 2. (i) Facts. Individual B has several family members with 
colon cancer. One of them underwent genetic testing which detected a 
mutation in the MSH2 gene associated with hereditary nonpolyposis 
colorectal cancer (HNPCC). B's physician, a health care professional 
with appropriate training and expertise in the field of medicine 
involved, recommends that B undergo a targeted genetic test to look for 
the specific mutation found in B 's relative to determine if B has an 
elevated risk for cancer. The genetic test with respect to B showed that 
B also carries the mutation and is at increased risk to develop 
colorectal and other cancers associated with HNPCC. B has a colonoscopy 
which indicates no signs of disease, and B has no symptoms.
    (ii) Conclusion. In this Example 2, because B has no signs or 
symptoms of colorectal cancer, B has not been and could not reasonably 
be diagnosed with HNPCC. Thus, HNPCC is not manifested with respect to 
B.
    Example 3. (i) Facts. Same facts as Example 2, except that B's 
colonoscopy and subsequent tests indicate the presence of HNPCC. Based 
on the colonoscopy and subsequent test results, B's physician makes a 
diagnosis of HNPCC.
    (ii) Conclusion. In this Example 3, HNPCC is manifested with respect 
to B because a health care professional with appropriate training and 
expertise in the field of medicine involved has made a diagnosis that is 
not based principally on genetic information.
    Example 4. (i) Facts. Individual C has a family member that has been 
diagnosed with Huntington's Disease. A genetic test indicates that C has 
the Huntington's Disease gene variant. At age 42, C begins suffering 
from occasional moodiness and disorientation, symptoms which are 
associated with Huntington's Disease. C is examined by a neurologist (a 
physician with appropriate training and expertise for diagnosing 
Huntington's Disease). The examination includes a clinical neurological 
exam. The results of the examination do not support a diagnosis of 
Huntington's Disease.
    (ii) Conclusion. In this Example 4, C is not and could not 
reasonably be diagnosed with Huntington's Disease by a health care 
professional with appropriate training and expertise. Therefore, 
Huntington's Disease is not manifested with respect to C.

[[Page 738]]

    Example 5. (i) Facts. Same facts as Example 4, except that C 
exhibits additional neurological and behavioral symptoms, and the 
results of the examination support a diagnosis of Huntington's Disease 
with respect to C.
    (ii) Conclusion. In this Example 5, C could reasonably be diagnosed 
with Huntington's Disease by a health care professional with appropriate 
training and expertise. Therefore, Huntington's Disease is manifested 
with respect to C.

    (7) Underwriting purposes has the meaning given in paragraph (d)(1) 
of this section.
    (b) No group-based discrimination based on genetic information--(1) 
In general. For purposes of this section, a group health plan, and a 
health insurance issuer offering health insurance coverage in connection 
with a group health plan, must not adjust premium or contribution 
amounts for the plan, or any group of similarly situated individuals 
under the plan, on the basis of genetic information. For this purpose, 
``similarly situated individuals'' are those described in Sec. 
146.121(d) of this part.
    (2) Rule of construction. Nothing in paragraph (b)(1) of this 
section (or in paragraph (d)(1) or (d)(2) of this section) limits the 
ability of a health insurance issuer offering health insurance coverage 
in connection with a group health plan to increase the premium for a 
group health plan or a group of similarly situated individuals under the 
plan based on the manifestation of a disease or disorder of an 
individual who is enrolled in the plan. In such a case, however, the 
manifestation of a disease or disorder in one individual cannot also be 
used as genetic information about other group members to further 
increase the premium for a group health plan or a group of similarly 
situated individuals under the plan.
    (3) Examples. The rules of this paragraph (b) are illustrated by the 
following examples:

    Example 1. (i) Facts. An employer sponsors a group health plan that 
provides coverage through 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 and 
other health status information of the individuals, including genetic 
information. The issuer finds that three individuals covered under the 
plan had unusually high claims experience. In addition, the issuer finds 
that the genetic information of two other individuals indicates the 
individuals have a higher probability of developing certain illnesses 
although the illnesses are not manifested at this time. The issuer 
quotes the plan a higher per-participant rate because of both the 
genetic information and the higher claims experience.
    (ii) Conclusion. In this Example 1, the issuer violates the 
provisions of this paragraph (b) because the issuer adjusts the premium 
based on genetic information. However, if the adjustment related solely 
to claims experience, the adjustment would not violate the requirements 
of this section (nor would it violate the requirements of paragraph (c) 
of Sec. 146.121 of this part, which prohibits discrimination in 
individual premiums or contributions based on a health factor but 
permits increases in the group rate based on a health factor).
    Example 2. (i) Facts. An employer sponsors a group health plan that 
provides coverage through 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 and 
other health status information of the individuals, including genetic 
information. The issuer finds that Employee A has made claims for 
treatment of polycystic kidney disease. A also has two dependent 
children covered under the plan. The issuer quotes the plan a higher 
per-participant rate because of both A's claims experience and the 
family medical history of A's children (that is, the fact that A has the 
disease).
    (ii) Conclusion. In this Example 2, the issuer violates the 
provisions of this paragraph (b) because, by taking the likelihood that 
A's children may develop polycystic kidney disease into account in 
computing the rate for the plan, the issuer adjusts the premium based on 
genetic information relating to a condition that has not been manifested 
in A's children. However, it is permissible for the issuer to increase 
the premium based on A's claims experience.

    (c) Limitation on requesting or requiring genetic testing--(1) 
General rule. Except as otherwise provided in this paragraph (c), a 
group health plan, and a health insurance issuer offering health 
insurance coverage in connection with a group health plan, must not 
request or require an individual or a family member of the individual to 
undergo a genetic test.
    (2) Health care professional may recommend a genetic test. Nothing 
in paragraph (c)(1) of this section limits the authority of a health 
care professional

[[Page 739]]

who is providing health care services to an individual to request that 
the individual undergo a genetic test.
    (3) Examples. The rules of paragraphs (c)(1) and (2) of this section 
are illustrated by the following examples:

    Example 1. (i) Facts. Individual A goes to a physician for a routine 
physical examination. The physician reviews A's family medical history 
and A informs the physician that A's mother has been diagnosed with 
Huntington's Disease. The physician advises A that Huntington's Disease 
is hereditary and recommends that A undergo a genetic test.
    (ii) Conclusion. In this Example 1, the physician is a health care 
professional who is providing health care services to A. Therefore, the 
physician's recommendation that A undergo the genetic test does not 
violate this paragraph (c).
    Example 2. (i) Facts. Individual B is covered by a health 
maintenance organization (HMO). B is a child being treated for leukemia. 
B's physician, who is employed by the HMO, is considering a treatment 
plan that includes six-mercaptopurine, a drug for treating leukemia in 
most children. However, the drug could be fatal if taken by a small 
percentage of children with a particular gene variant. B's physician 
recommends that B undergo a genetic test to detect this variant before 
proceeding with this course of treatment.
    (ii) Conclusion. In this Example 2, even though the physician is 
employed by the HMO, the physician is nonetheless a health care 
professional who is providing health care services to B. Therefore, the 
physician's recommendation that B undergo the genetic test does not 
violate this paragraph (c).

    (4) Determination regarding payment--(i) In general. As provided in 
this paragraph (c)(4), nothing in paragraph (c)(1) of this section 
precludes a plan or issuer from obtaining and using the results of a 
genetic test in making a determination regarding payment. For this 
purpose, ``payment'' has the meaning given such term in Sec. 164.501 of 
the privacy regulations issued under the Health Insurance Portability 
and Accountability Act. Thus, if a plan or issuer conditions payment for 
an item or service based on its medical appropriateness and the medical 
appropriateness of the item or service depends on the genetic makeup of 
a patient, then the plan or issuer is permitted to condition payment for 
the item or service on the outcome of a genetic test. The plan or issuer 
may also refuse payment if the patient does not undergo the genetic 
test.
    (ii) Limitation. A plan or issuer is permitted to request only the 
minimum amount of information necessary to make a determination 
regarding payment. The minimum amount of information necessary is 
determined in accordance with the minimum necessary standard in Sec. 
164.502(b) of the privacy regulations issued under the Health Insurance 
Portability and Accountability Act.
    (iii) Examples. See paragraph (e) of this section for examples 
illustrating the rules of this paragraph (c)(4), as well as other 
provisions of this section.
    (5) Research exception. Notwithstanding paragraph (c)(1) of this 
section, a plan or issuer may request, but not require, that a 
participant or beneficiary undergo a genetic test if all of the 
conditions of this paragraph (c)(5) are met:
    (i) Research in accordance with Federal regulations and applicable 
State or local law or regulations. The plan or issuer makes the request 
pursuant to research, as defined in Sec. 46.102(d) of this subtitle, 
that complies with part 46 of this subtitle or equivalent Federal 
regulations, and any applicable State or local law or regulations for 
the protection of human subjects in research.
    (ii) Written request for participation in research. The plan or 
issuer makes the request in writing, and the request clearly indicates 
to each participant or beneficiary (or, in the case of a minor child, to 
the legal guardian of the beneficiary) that--
    (A) Compliance with the request is voluntary; and
    (B) Noncompliance will have no effect on eligibility for benefits 
(as described in Sec. 146.121(b)(1) of this part) or premium or 
contribution amounts.
    (iii) Prohibition on underwriting. No genetic information collected 
or acquired under this paragraph (c)(5) can be used for underwriting 
purposes (as described in paragraph (d)(1) of this section).
    (iv) Notice to Federal agencies. The plan or issuer completes a copy 
of the ``Notice of Research Exception under the Genetic Information 
Nondiscrimination Act'' authorized by the Secretary and provides the 
notice to

[[Page 740]]

the address specified in the instructions thereto.
    (d) Prohibitions on collection of genetic information--(1) For 
underwriting purposes--(i) General rule. A group health plan, and a 
health insurance issuer offering health insurance coverage in connection 
with a group health plan, must not collect (as defined in paragraph 
(a)(1) of this section) genetic information for underwriting purposes. 
See paragraph (e) of this section for examples illustrating the rules of 
this paragraph (d)(1), as well as other provisions of this section.
    (ii) Underwriting purposes defined. Subject to paragraph (d)(1)(iii) 
of this section, underwriting purposes means, with respect to any group 
health plan, or health insurance coverage offered in connection with a 
group health plan--
    (A) Rules for, or determination of, eligibility (including 
enrollment and continued eligibility) for benefits under the plan or 
coverage as described in Sec. 146.121(b)(1)(ii) of this part (including 
changes in deductibles or other cost-sharing mechanisms in return for 
activities such as completing a health risk assessment or participating 
in a wellness program);
    (B) The computation of premium or contribution amounts under the 
plan or coverage (including discounts, rebates, payments in kind, or 
other premium differential mechanisms in return for activities such as 
completing a health risk assessment or participating in a wellness 
program);
    (C) The application of any preexisting condition exclusion under the 
plan or coverage; and
    (D) Other activities related to the creation, renewal, or 
replacement of a contract of health insurance or health benefits.
    (iii) Medical appropriateness. If an individual seeks a benefit 
under a group health plan or health insurance coverage, the plan or 
coverage may limit or exclude the benefit based on whether the benefit 
is medically appropriate, and the determination of whether the benefit 
is medically appropriate is not within the meaning of underwriting 
purposes. Accordingly, if an individual seeks a benefit under the plan 
and the plan or issuer conditions the benefit based on its medical 
appropriateness and the medical appropriateness of the benefit depends 
on genetic information of the individual, then the plan or issuer is 
permitted to condition the benefit on the genetic information. A plan or 
issuer is permitted to request only the minimum amount of genetic 
information necessary to determine medical appropriateness. The plan or 
issuer may deny the benefit if the patient does not provide the genetic 
information required to determine medical appropriateness. If an 
individual is not seeking a benefit, the medical appropriateness 
exception of this paragraph (d)(1)(iii) to the definition of 
underwriting purposes does not apply. See paragraph (e) of this section 
for examples illustrating the medical appropriateness provisions of this 
paragraph (d)(1)(iii), as well as other provisions of this section.
    (2) Prior to or in connection with enrollment--(i) In general. A 
group health plan, and a health insurance issuer offering health 
insurance coverage in connection with a group health plan, must not 
collect genetic information with respect to any individual prior to that 
individual's effective date of coverage under that plan or coverage, nor 
in connection with the rules for eligibility (as defined in Sec. 
146.121(b)(1)(ii) of this part) that apply to that individual. Whether 
or not an individual's information is collected prior to that 
individual's effective date of coverage is determined at the time of 
collection.
    (ii) Incidental collection exception--(A) In general. If a group 
health plan, or a health insurance issuer offering health insurance 
coverage in connection with a group health plan, obtains genetic 
information incidental to the collection of other information concerning 
any individual, the collection is not a violation of this paragraph 
(d)(2), as long as the collection is not for underwriting purposes in 
violation of paragraph (d)(1) of this section.
    (B) Limitation. The incidental collection exception of this 
paragraph (d)(2)(ii) does not apply in connection with any collection 
where it is reasonable to anticipate that health information will be 
received, unless the collection explicitly states that genetic 
information should not be provided.

[[Page 741]]

    (3) Examples. The rules of this paragraph (d) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan provides a premium 
reduction to enrollees who complete a health risk assessment. The health 
risk assessment is requested to be completed after enrollment. Whether 
or not it is completed or what responses are given on it has no effect 
on an individual's enrollment status, or on the enrollment status of 
members of the individual's family. The health risk assessment includes 
questions about the individual's family medical history.
    (ii) Conclusion. In this Example 1, the health risk assessment 
includes a request for genetic information (that is, the individual's 
family medical history). Because completing the health risk assessment 
results in a premium reduction, the request for genetic information is 
for underwriting purposes. Consequently, the request violates the 
prohibition on the collection of genetic information in paragraph (d)(1) 
of this section.
    Example 2. (i) Facts. The same facts as Example 1, except there is 
no premium reduction or any other reward for completing the health risk 
assessment.
    (ii) Conclusion. In this Example 2, the request is not for 
underwriting purposes, nor is it prior to or in connection with 
enrollment. Therefore, it does not violate the prohibition on the 
collection of genetic information in this paragraph (d).
    Example 3. (i) Facts. A group health plan requests that enrollees 
complete a health risk assessment prior to enrollment, and includes 
questions about the individual's family medical history. There is no 
reward or penalty for completing the health risk assessment.
    (ii) Conclusion. In this Example 3, because the health risk 
assessment includes a request for genetic information (that is, the 
individual's family medical history), and requests the information prior 
to enrollment, the request violates the prohibition on the collection of 
genetic information in paragraph (d)(2) of this section. Moreover, 
because it is a request for genetic information, it is not an incidental 
collection under paragraph (d)(2)(ii) of this section.
    Example 4. (i) Facts. The facts are the same as in Example 1, except 
there is no premium reduction or any other reward given for completion 
of the health risk assessment. However, certain people completing the 
health risk assessment may become eligible for additional benefits under 
the plan by being enrolled in a disease management program based on 
their answers to questions about family medical history. Other people 
may become eligible for the disease management program based solely on 
their answers to questions about their individual medical history.
    (ii) Conclusion. In this Example 4, the request for information 
about an individual's family medical history could result in the 
individual being eligible for benefits for which the individual would 
not otherwise be eligible. Therefore, the questions about family medical 
history on the health risk assessment are a request for genetic 
information for underwriting purposes and are prohibited under this 
paragraph (d). Although the plan conditions eligibility for the disease 
management program based on determinations of medical appropriateness, 
the exception for determinations of medical appropriateness does not 
apply because the individual is not seeking benefits.
    Example 5. (i) Facts. A group health plan requests enrollees to 
complete two distinct health risk assessments (HRAs) after and unrelated 
to enrollment. The first HRA instructs the individual to answer only for 
the individual and not for the individual's family. The first HRA does 
not ask about any genetic tests the individual has undergone or any 
genetic services the individual has received. The plan offers a reward 
for completing the first HRA. The second HRA asks about family medical 
history and the results of genetic tests the individual has undergone. 
The plan offers no reward for completing the second HRA and the 
instructions make clear that completion of the second HRA is wholly 
voluntary and will not affect the reward given for completion of the 
first HRA.
    (ii) Conclusion. In this Example 5, no genetic information is 
collected in connection with the first HRA, which offers a reward, and 
no benefits or other rewards are conditioned on the request for genetic 
information in the second HRA. Consequently, the request for genetic 
information in the second HRA is not for underwriting purposes, and the 
two HRAs do not violate the prohibition on the collection of genetic 
information in this paragraph (d).
    Example 6. (i) Facts. A group health plan waives its annual 
deductible for enrollees who complete an HRA. The HRA is requested to be 
completed after enrollment. Whether or not the HRA is completed or what 
responses are given on it has no effect on an individual's enrollment 
status, or on the enrollment status of members of the individual's 
family. The HRA does not include any direct questions about the 
individual's genetic information (including family medical history). 
However, the last question reads, ``Is there anything else relevant to 
your health that you would like us to know or discuss with you?''
    (ii) Conclusion. In this Example 6, the plan's request for medical 
information does not explicitly state that genetic information should 
not be provided. Therefore, any genetic information collected in 
response to

[[Page 742]]

the question is not within the incidental collection exception and is 
prohibited under this paragraph (d).
    Example 7. (i) Facts. Same facts as Example 6, except that the last 
question goes on to state, ``In answering this question, you should not 
include any genetic information. That is, please do not include any 
family medical history or any information related to genetic testing, 
genetic services, genetic counseling, or genetic diseases for which you 
believe you may be at risk.''
    (ii) Conclusion. In this Example 7, the plan's request for medical 
information explicitly states that genetic information should not be 
provided. Therefore, any genetic information collected in response to 
the question is within the incidental collection exception. However, the 
plan may not use any genetic information it obtains incidentally for 
underwriting purposes.
    Example 8. (i) Facts. Issuer M acquires Issuer N. M requests N's 
records, stating that N should not provide genetic information and 
should review the records to excise any genetic information. N assembles 
the data requested by M and, although N reviews it to delete genetic 
information, the data from a specific region included some individuals' 
family medical history. Consequently, M receives genetic information 
about some of N's covered individuals.
    (ii) Conclusion. In this Example 8, M's request for health 
information explicitly stated that genetic information should not be 
provided. Therefore, the collection of genetic information was within 
the incidental collection exception. However, M may not use the genetic 
information it obtained incidentally for underwriting purposes.

    (e) Examples regarding determinations of medical appropriateness. 
The application of the rules of paragraphs (c) and (d) of this section 
to plan or issuer determinations of medical appropriateness is 
illustrated by the following examples:

    Example 1. (i) Facts. Individual A group health plan covers genetic 
testing for celiac disease for individuals who have family members with 
this condition. After A's son is diagnosed with celiac disease, A 
undergoes a genetic test and promptly submits a claim for the test to 
A's issuer for reimbursement. The issuer asks A to provide the results 
of the genetic test before the claim is paid.
    (ii) Conclusion. In this Example 1, under the rules of paragraph 
(c)(4) of this section the issuer is permitted to request only the 
minimum amount of information necessary to make a decision regarding 
payment. Because the results of the test are not necessary for the 
issuer to make a decision regarding the payment of A's claim, the 
issuer's request for the results of the genetic test violates paragraph 
(c) of this section.
    Example 2. (i) Facts. Individual B's group health plan covers a 
yearly mammogram for participants and beneficiaries starting at age 40, 
or at age 30 for those with increased risk for breast cancer, including 
individuals with BRCA1 or BRCA2 gene mutations. B is 33 years old and 
has the BRCA2 mutation. B undergoes a mammogram and promptly submits a 
claim to B's plan for reimbursement. Following an established policy, 
the plan asks B for evidence of increased risk of breast cancer, such as 
the results of a genetic test or a family history of breast cancer, 
before the claim for the mammogram is paid. This policy is applied 
uniformly to all similarly situated individuals and is not directed at 
individuals based on any genetic information.
    (ii) Conclusion. In this Example 2, the plan does not violate 
paragraphs (c) or (d) of this section. Under paragraph (c), the plan is 
permitted to request and use the results of a genetic test to make a 
determination regarding payment, provided the plan requests only the 
minimum amount of information necessary. Because the medical 
appropriateness of the mammogram depends on the genetic makeup of the 
patient, the minimum amount of information necessary includes the 
results of the genetic test. Similarly, the plan does not violate 
paragraph (d) of this section because the plan is permitted to request 
genetic information in making a determination regarding the medical 
appropriateness of a claim if the genetic information is necessary to 
make the determination (and if the genetic information is not used for 
underwriting purposes).
    Example 3. (i) Facts. Individual C was previously diagnosed with and 
treated for breast cancer, which is currently in remission. In 
accordance with the recommendation of C's physician, C has been taking a 
regular dose of tamoxifen to help prevent a recurrence. C's group health 
plan adopts a new policy requiring patients taking tamoxifen to undergo 
a genetic test to ensure that tamoxifen is medically appropriate for 
their genetic makeup. In accordance with, at the time, the latest 
scientific research, tamoxifen is not helpful in up to 7 percent of 
breast cancer patients, those with certain variations of the gene for 
making the CYP2D6 enzyme. If a patient has a gene variant 
making tamoxifen not medically appropriate, the plan does not pay for 
the tamoxifen prescription.
    (ii) Conclusion. In this Example 3, the plan does not violate 
paragraph (c) of this section if it conditions future payments for the 
tamoxifen prescription on C's undergoing a genetic test to determine 
what genetic markers C has for making the CYP2D6 enzyme. Nor 
does the plan violate paragraph (c) of this section if the plan refuses 
future

[[Page 743]]

payment if the results of the genetic test indicate that tamoxifen is 
not medically appropriate for C.
    Example 4. (i) Facts. A group health plan offers a diabetes disease 
management program to all similarly situated individuals for whom it is 
medically appropriate based on whether the individuals have or are at 
risk for diabetes. The program provides enhanced benefits related only 
to diabetes for individuals who qualify for the program. The plan sends 
out a notice to all participants that describes the diabetes disease 
management program and explains the terms for eligibility. Individuals 
interested in enrolling in the program are advised to contact the plan 
to demonstrate that they have diabetes or that they are at risk for 
diabetes. For individuals who do not currently have diabetes, genetic 
information may be used to demonstrate that an individual is at risk.
    (ii) Conclusion. In this Example 4, the plan may condition benefits 
under the disease management program upon a showing by an individual 
that the individual is at risk for diabetes, even if such showing may 
involve genetic information, provided that the plan requests genetic 
information only when necessary to make a determination regarding 
whether the disease management program is medically appropriate for the 
individual and only requests the minimum amount of information necessary 
to make that determination.
    Example 5. (i) Facts. Same facts as Example 4, except that the plan 
includes a questionnaire that asks about the occurrence of diabetes in 
members of the individual's family as part of the notice describing the 
disease management program.
    (ii) Conclusion. In this Example 5, the plan violates the 
requirements of paragraph (d)(1) of this section because the requests 
for genetic information are not limited to those situations in which it 
is necessary to make a determination regarding whether the disease 
management program is medically appropriate for the individuals.
    Example 6. (i) Facts. Same facts as Example 4, except the disease 
management program provides an enhanced benefit in the form of a lower 
annual deductible to individuals under the program; the lower deductible 
applies with respect to all medical expenses incurred by the individual. 
Thus, whether or not a claim relates to diabetes, the individual is 
provided with a lower deductible based on the individual providing the 
plan with genetic information.
    (ii) Conclusion. In this Example 6, because the enhanced benefits 
include benefits not related to the determination of medical 
appropriateness, making available the enhanced benefits is within the 
meaning of underwriting purposes. Accordingly, the plan may not request 
or require genetic information (including family history information) in 
determining eligibility for enhanced benefits under the program because 
such a request would be for underwriting purposes and would violate 
paragraph (d)(1) of this section.

    (f) Applicability date. This section applies for plan years 
beginning on or after December 7, 2009.

[74 FR 51688, Oct. 7, 2009]



Sec. 146.125  Applicability dates.

    Section 144.103, Sec. Sec. 146.111 through 146.119, 146.143, and 
146.145 are applicable for plan years beginning on or after July 1, 
2005. Until the applicability date for this regulation, plans and 
issuers are required to continue to comply with the corresponding 
sections of 45 CFR parts 144 and 146, contained in the 45 CFR, parts 1 
to 199, edition revised as of October 1, 2004.

[69 FR 78797, Dec. 30, 2004; 70 FR 21147, Apr. 25, 2005]



               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

[[Page 744]]

with childbirth is a medical decision to be made by the attending 
provider.
    (3) Examples. The rules of paragraphs (a)(1) and (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) Facts. 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) Conclusion. 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) Facts. 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) Conclusion. 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) Facts. 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) Conclusion. 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 is 
prohibited from requiring that a physician or other health care provider 
obtain authorization from the plan or issuer for prescribing the 
hospital length of stay specified in 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) Facts. 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) Conclusion. 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. Therefore, a plan, hospital, managed care organization, 
or other issuer is not an attending provider.
    (iv) Example. The rules of this paragraph (a)(5) are illustrated by 
the following example:

    Example. (i) Facts. 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) Conclusion. 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

[[Page 745]]

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) Facts. 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) Conclusion. 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) Facts. 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) Conclusion. 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 
specified in 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) Facts. 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 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) Conclusion. 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, 
the requirement to obtain precertification from the plan based on 
medical necessity for a hospital length of stay within the 96-hour 
period 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.

[[Page 746]]

    (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 specified in 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) Facts. 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) Conclusion. 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) Facts. 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) Conclusion. 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 (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, 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, or that 
notifies participants and beneficiaries of plan benefit changes, 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

[[Page 747]]

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, 2009. Each time a plan 
distributes one or both of the documents described in paragraph (d)(1) 
to participants and beneficiaries after providing this initial notice, 
the disclosure notice in paragraph (d)(2) must appear in at least one of 
those documents.
    (4) Exceptions. The requirements of this paragraph (d) do not apply 
in the following situations.
    (i) Self-insured plans that have already provided notice. If 
benefits for hospital lengths of stay in connection with childbirth are 
not provided through health insurance coverage, and the group health 
plan has already provided an initial notice that complies with 
paragraphs (d)(1) and (d)(2) of this section, the group health plan is 
not automatically required to provide another such notice to 
participants and beneficiaries who have been provided with the initial 
notice. However, following the effective date of these regulations, 
whenever such a plan provides one or both of the documents described in 
paragraph (d)(1) of this section to participants and beneficiaries, the 
disclosure notice in paragraph (d)(2) of this section must appear in at 
least one of those documents.
    (ii) Self-insured plans that have elected exemption from this 
section. If 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, the group health plan is 
not subject to this paragraph (d).
    (iii) Insured plans. If 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, the group health plan is not subject to 
this paragraph (d).
    (e) Applicability in certain states--(1) Health insurance coverage. 
The requirements of section 2725 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 that relate to care 
following childbirth 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 2725 of the PHS Act and this section do not apply.
    (ii) Self-insured plans. For a group health plan that provides all 
benefits for hospital lengths of stay in connection with childbirth 
other than through health insurance coverage, the requirements of 
section 2725 of the PHS Act and this section apply.
    (iii) Partially-insured plans. For a group health plan that provides 
some

[[Page 748]]

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 2725 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 2724 (a) of the PHS Act. The preemption 
provisions contained in section 2724 (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) Facts. 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) Conclusion. In this Example 1, the coverage is subject to state 
law, and the requirements of section 2725 of the PHS Act and this 
section do not apply.
    Example 2. (i) Facts. 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 and 
pediatric care in accordance with guidelines that relate to care 
following childbirth established by the American College of 
Obstetricians and Gynecologists and the American Academy of Pediatrics.
    (ii) Conclusion. 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 2725 of the PHS Act and this 
section.

    (f) Applicability date. Section 2725 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, 2009.

[73 FR 62424, Oct. 20, 2008, as amended at 75 FR 27138, May 13, 2010]



Sec. 146.136  Parity in mental health and substance use disorder benefits.

    (a) Meaning of terms. For purposes of this section, except where the 
context clearly indicates otherwise, the following terms have the 
meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under a group health 
plan (or health insurance coverage offered in connection with such a 
plan) for any coverage unit.
    Annual dollar limit means a dollar limitation on the total amount of 
specified benefits that may be paid in a 12-month period under a group 
health plan (or health insurance coverage offered in connection with 
such a plan) for any coverage unit.
    Coverage unit means coverage unit as described in paragraph 
(c)(1)(iv) of this section.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    Cumulative quantitative treatment limitations are treatment 
limitations that determine whether or to what extent benefits are 
provided based on accumulated amounts, such as annual or lifetime day or 
visit limits.
    Financial requirements include deductibles, copayments, coinsurance, 
or out-of-pocket maximums. Financial requirements do not include 
aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits with respect to items or 
services for medical conditions or surgical procedures, as defined under 
the terms of the plan or health insurance coverage and in accordance 
with applicable Federal and State law, but does not include mental 
health or substance use

[[Page 749]]

disorder benefits. Any condition defined by the plan or coverage as 
being or as not being a medical/surgical condition must be defined to be 
consistent with generally recognized independent standards of current 
medical practice (for example, the most current version of the 
International Classification of Diseases (ICD) or State guidelines).
    Mental health benefits means benefits with respect to items or 
services for mental health conditions, as defined under the terms of the 
plan or health insurance coverage and in accordance with applicable 
Federal and State law. Any condition defined by the plan or coverage as 
being or as not being a mental health condition must be defined to be 
consistent with generally recognized independent standards of current 
medical practice (for example, the most current version of the 
Diagnostic and Statistical Manual of Mental Disorders (DSM), the most 
current version of the ICD, or State guidelines).
    Substance use disorder benefits means benefits with respect to items 
or services for substance use disorders, as defined under the terms of 
the plan or health insurance coverage and in accordance with applicable 
Federal and State law. Any disorder defined by the plan as being or as 
not being a substance use disorder must be defined to be consistent with 
generally recognized independent standards of current medical practice 
(for example, the most current version of the DSM, the most current 
version of the ICD, or State guidelines).
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under a 
plan or coverage. (See paragraph (c)(4)(ii) of this section for an 
illustrative list of nonquantitative treatment limitations.) A permanent 
exclusion of all benefits for a particular condition or disorder, 
however, is not a treatment limitation for purposes of this definition.
    (b) Parity requirements with respect to aggregate lifetime and 
annual dollar limits. This paragraph (b) details the application of the 
parity requirements with respect to aggregate lifetime and annual dollar 
limits. This paragraph (b) does not address the provisions of PHS Act 
section 2711, which prohibit imposing lifetime and annual limits on the 
dollar value of essential health benefits. For more information, see 
Sec. 147.126 of this subchapter.
    (1) 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 or substance use disorder benefits must comply with 
paragraph (b)(2), (b)(3), or (b)(5) of this section.
    (ii) Exception. The rule in paragraph (b)(1)(i) of this section does 
not apply if a plan (or health insurance coverage) satisfies the 
requirements of paragraph (f) or (g) of this section (relating to 
exemptions for small employers and for increased cost).
    (2) Plan with no limit or limits on less than one-third of all 
medical/surgical benefits. If a plan (or health insurance coverage) does 
not include an aggregate lifetime or annual dollar limit on any medical/
surgical benefits or includes an aggregate lifetime or annual dollar 
limit that applies to less than one-third of all medical/surgical 
benefits, it may not impose an aggregate lifetime or annual dollar 
limit, respectively, on mental health or substance use disorder 
benefits.
    (3) Plan with a limit on at least two-thirds of all medical/surgical 
benefits. If a plan (or health insurance coverage) includes an aggregate 
lifetime or annual dollar limit on at least two-thirds of all medical/
surgical benefits, it must either--
    (i) Apply the aggregate lifetime or annual dollar limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health or substance use disorder benefits in a manner that 
does not distinguish between the medical/surgical benefits and mental 
health or substance use disorder benefits; or

[[Page 750]]

    (ii) Not include an aggregate lifetime or annual dollar limit on 
mental health or substance use disorder benefits that is less than the 
aggregate lifetime or annual dollar limit, respectively, on medical/
surgical benefits. (For cumulative limits other than aggregate lifetime 
or annual dollar limits, see paragraph (c)(3)(v) of this section 
prohibiting separately accumulating cumulative financial requirements or 
cumulative quantitative treatment limitations.)
    (4) 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 an aggregate 
lifetime or annual dollar 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 dollar limits). Any reasonable method may be used to 
determine whether the dollar amount 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.
    (5) Plan not described in paragraph (b)(2) or (b)(3) of this 
section--(i) In general. A group health plan (or health insurance 
coverage) that is not described in paragraph (b)(2) or (b)(3) of this 
section with respect to aggregate lifetime or annual dollar limits on 
medical/surgical benefits, must either--
    (A) Impose no aggregate lifetime or annual dollar limit, as 
appropriate, on mental health or substance use disorder benefits; or
    (B) Impose an aggregate lifetime or annual dollar limit on mental 
health or substance use disorder benefits that is no less than an 
average limit calculated for medical/surgical benefits in the following 
manner. The average limit is calculated by taking into account the 
weighted average of the aggregate lifetime or annual dollar 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)(5)(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 dollar 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)(5), the weighting 
applicable to any category of medical/surgical benefits is determined in 
the manner set forth in paragraph (b)(4) of this section for determining 
one-third or two-thirds of all medical/surgical benefits.
    (c) Parity requirements with respect to financial requirements and 
treatment limitations--(1) Clarification of terms--(i) Classification of 
benefits. When reference is made in this paragraph (c) to a 
classification of benefits, the term ``classification'' means a 
classification as described in paragraph (c)(2)(ii) of this section.
    (ii) Type of financial requirement or treatment limitation. When 
reference is made in this paragraph (c) to a type of financial 
requirement or treatment limitation, the reference to type means its 
nature. Different types of financial requirements include deductibles, 
copayments, coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and lifetime 
day and visit limits. See paragraph (c)(4)(ii) of this section for an 
illustrative list of nonquantitative treatment limitations.
    (iii) Level of a type of financial requirement or treatment 
limitation. When reference is made in this paragraph (c) to a level of a 
type of financial requirement or treatment limitation, level refers to 
the magnitude of the type of financial requirement or treatment 
limitation. For example, different levels of coinsurance include 20 
percent and 30

[[Page 751]]

percent; different levels of a copayment include $15 and $20; different 
levels of a deductible include $250 and $500; and different levels of an 
episode limit include 21 inpatient days per episode and 30 inpatient 
days per episode.
    (iv) Coverage unit. When reference is made in this paragraph (c) to 
a coverage unit, coverage unit refers to the way in which a plan (or 
health insurance coverage) groups individuals for purposes of 
determining benefits, or premiums or contributions. For example, 
different coverage units include self-only, family, and employee-plus-
spouse.
    (2) General parity requirement--(i) General rule. 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 or substance use disorder benefits may not apply any 
financial requirement or treatment limitation to mental health or 
substance use disorder benefits in any classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation of that type applied to substantially all medical/surgical 
benefits in the same classification. Whether a financial requirement or 
treatment limitation is a predominant financial requirement or treatment 
limitation that applies to substantially all medical/surgical benefits 
in a classification is determined separately for each type of financial 
requirement or treatment limitation. The application of the rules of 
this paragraph (c)(2) to financial requirements and quantitative 
treatment limitations is addressed in paragraph (c)(3) of this section; 
the application of the rules of this paragraph (c)(2) to nonquantitative 
treatment limitations is addressed in paragraph (c)(4) of this section.
    (ii) Classifications of benefits used for applying rules--(A) In 
general. If a plan (or health insurance coverage) provides mental health 
or substance use disorder benefits in any classification of benefits 
described in this paragraph (c)(2)(ii), mental health or substance use 
disorder benefits must be provided in every classification in which 
medical/surgical benefits are provided. In determining the 
classification in which a particular benefit belongs, a plan (or health 
insurance issuer) must apply the same standards to medical/surgical 
benefits and to mental health or substance use disorder benefits. To the 
extent that a plan (or health insurance coverage) provides benefits in a 
classification and imposes any separate financial requirement or 
treatment limitation (or separate level of a financial requirement or 
treatment limitation) for benefits in the classification, the rules of 
this paragraph (c) apply separately with respect to that classification 
for all financial requirements or treatment limitations (illustrated in 
examples in paragraph (c)(2)(ii)(C) of this section). The following 
classifications of benefits are the only classifications used in 
applying the rules of this paragraph (c):
    (1) Inpatient, in-network. Benefits furnished on an inpatient basis 
and within a network of providers established or recognized under a plan 
or health insurance coverage. See special rules for plans with multiple 
network tiers in paragraph (c)(3)(iii) of this section.
    (2) Inpatient, out-of-network. Benefits furnished on an inpatient 
basis and outside any network of providers established or recognized 
under a plan or health insurance coverage. This classification includes 
inpatient benefits under a plan (or health insurance coverage) that has 
no network of providers.
    (3) Outpatient, in-network. Benefits furnished on an outpatient 
basis and within a network of providers established or recognized under 
a plan or health insurance coverage. See special rules for office visits 
and plans with multiple network tiers in paragraph (c)(3)(iii) of this 
section.
    (4) Outpatient, out-of-network. Benefits furnished on an outpatient 
basis and outside any network of providers established or recognized 
under a plan or health insurance coverage. This classification includes 
outpatient benefits under a plan (or health insurance coverage) that has 
no network of providers. See special rules for office visits in 
paragraph (c)(3)(iii) of this section.
    (5) Emergency care. Benefits for emergency care.
    (6) Prescription drugs. Benefits for prescription drugs. See special 
rules for

[[Page 752]]

multi-tiered prescription drug benefits in paragraph (c)(3)(iii) of this 
section.
    (B) Application to out-of-network providers. See paragraph 
(c)(2)(ii)(A) of this section, under which a plan (or health insurance 
coverage) that provides mental health or substance use disorder benefits 
in any classification of benefits must provide mental health or 
substance use disorder benefits in every classification in which 
medical/surgical benefits are provided, including out-of-network 
classifications.
    (C) Examples. The rules of this paragraph (c)(2)(ii) are illustrated 
by the following examples. In each example, the group health plan is 
subject to the requirements of this section and provides both medical/
surgical benefits and mental health and substance use disorder benefits.

    Example 1. (i) Facts. A group health plan offers inpatient and 
outpatient benefits and does not contract with a network of providers. 
The plan imposes a $500 deductible on all benefits. For inpatient 
medical/surgical benefits, the plan imposes a coinsurance requirement. 
For outpatient medical/surgical benefits, the plan imposes copayments. 
The plan imposes no other financial requirements or treatment 
limitations.
    (ii) Conclusion. In this Example 1, because the plan has no network 
of providers, all benefits provided are out-of-network. Because 
inpatient, out-of-network medical/surgical benefits are subject to 
separate financial requirements from outpatient, out-of-network medical/
surgical benefits, the rules of this paragraph (c) apply separately with 
respect to any financial requirements and treatment limitations, 
including the deductible, in each classification.
    Example 2. (i) Facts. A plan imposes a $500 deductible on all 
benefits. The plan has no network of providers. The plan generally 
imposes a 20 percent coinsurance requirement with respect to all 
benefits, without distinguishing among inpatient, outpatient, emergency 
care, or prescription drug benefits. The plan imposes no other financial 
requirements or treatment limitations.
    (ii) Conclusion. In this Example 2, because the plan does not impose 
separate financial requirements (or treatment limitations) based on 
classification, the rules of this paragraph (c) apply with respect to 
the deductible and the coinsurance across all benefits.
    Example 3. (i) Facts. Same facts as Example 2, except the plan 
exempts emergency care benefits from the 20 percent coinsurance 
requirement. The plan imposes no other financial requirements or 
treatment limitations.
    (ii) Conclusion. In this Example 3, because the plan imposes 
separate financial requirements based on classifications, the rules of 
this paragraph (c) apply with respect to the deductible and the 
coinsurance separately for--
    (A) Benefits in the emergency care classification; and
    (B) All other benefits.
    Example 4. (i) Facts. Same facts as Example 2, except the plan also 
imposes a preauthorization requirement for all inpatient treatment in 
order for benefits to be paid. No such requirement applies to outpatient 
treatment.
    (ii) Conclusion. In this Example 4, because the plan has no network 
of providers, all benefits provided are out-of-network. Because the plan 
imposes a separate treatment limitation based on classifications, the 
rules of this paragraph (c) apply with respect to the deductible and 
coinsurance separately for--
    (A) Inpatient, out-of-network benefits; and
    (B) All other benefits.

    (3) Financial requirements and quantitative treatment limitations--
(i) Determining ``substantially all'' and ``predominant''--(A) 
Substantially all. For purposes of this paragraph (c), a type of 
financial requirement or quantitative treatment limitation is considered 
to apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. (For this purpose, 
benefits expressed as subject to a zero level of a type of financial 
requirement are treated as benefits not subject to that type of 
financial requirement, and benefits expressed as subject to a 
quantitative treatment limitation that is unlimited are treated as 
benefits not subject to that type of quantitative treatment limitation.) 
If a type of financial requirement or quantitative treatment limitation 
does not apply to at least two-thirds of all medical/surgical benefits 
in a classification, then that type cannot be applied to mental health 
or substance use disorder benefits in that classification.
    (B) Predominant--(1) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (c)(3)(i)(A) of this section, the level of the financial 
requirement or quantitative treatment

[[Page 753]]

limitation that is considered the predominant level of that type in a 
classification of benefits is the level that applies to more than one-
half of medical/surgical benefits in that classification subject to the 
financial requirement or quantitative treatment limitation.
    (2) If, with respect to a type of financial requirement or 
quantitative treatment limitation that applies to at least two-thirds of 
all medical/surgical benefits in a classification, there is no single 
level that applies to more than one-half of medical/surgical benefits in 
the classification subject to the financial requirement or quantitative 
treatment limitation, the plan (or health insurance issuer) may combine 
levels until the combination of levels applies to more than one-half of 
medical/surgical benefits subject to the financial requirement or 
quantitative treatment limitation in the classification. The least 
restrictive level within the combination is considered the predominant 
level of that type in the classification. (For this purpose, a plan may 
combine the most restrictive levels first, with each less restrictive 
level added to the combination until the combination applies to more 
than one-half of the benefits subject to the financial requirement or 
treatment limitation.)
    (C) Portion based on plan payments. For purposes of this paragraph 
(c), the determination of the portion of medical/surgical benefits in a 
classification of benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation) is based on 
the dollar amount of all plan payments for medical/surgical benefits in 
the classification 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 financial requirement or 
quantitative treatment limitation).
    (D) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of plan payments includes all plan 
payments with respect to claims that would be subject to the deductible 
if it had not been satisfied. For any out-of-pocket maximum, the dollar 
amount of plan payments includes all plan payments associated with out-
of-pocket payments that are taken into account towards the out-of-pocket 
maximum as well as all plan payments associated with out-of-pocket 
payments that would have been made towards the out-of-pocket maximum if 
it had not been satisfied. Similar rules apply for any other thresholds 
at which the rate of plan payment changes. (See also PHS Act section 
2707(b) and Affordable Care Act section 1302(c), which establish 
limitations on annual deductibles for non-grandfathered health plans in 
the small group market and annual limitations on out-of-pocket maximums 
for all non-grandfathered health plans.)
    (E) Determining the dollar amount of plan payments. Subject to 
paragraph (c)(3)(i)(D) of this section, any reasonable method may be 
used to determine the dollar amount expected to be paid under a plan for 
medical/surgical benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation).
    (ii) Application to different coverage units. If a plan (or health 
insurance coverage) applies different levels of a financial requirement 
or quantitative treatment limitation to different coverage units in a 
classification of medical/surgical benefits, the predominant level that 
applies to substantially all medical/surgical benefits in the 
classification is determined separately for each coverage unit.
    (iii) Special rules--(A) Multi-tiered prescription drug benefits. If 
a plan (or health insurance coverage) applies different levels of 
financial requirements to different tiers of prescription drug benefits 
based on reasonable factors determined in accordance with the rules in 
paragraph (c)(4)(i) of this section (relating to requirements for 
nonquantitative treatment limitations) and without regard to whether a 
drug is generally prescribed with respect to medical/surgical benefits 
or with respect to mental health or substance use disorder benefits, the 
plan (or health insurance coverage) satisfies the parity requirements of 
this paragraph (c) with respect to prescription drug benefits. 
Reasonable factors include cost, efficacy, generic versus

[[Page 754]]

brand name, and mail order versus pharmacy pick-up.
    (B) Multiple network tiers. If a plan (or health insurance coverage) 
provides benefits through multiple tiers of in-network providers (such 
as an in-network tier of preferred providers with more generous cost-
sharing to participants than a separate in-network tier of participating 
providers), the plan may divide its benefits furnished on an in-network 
basis into sub-classifications that reflect network tiers, if the 
tiering is based on reasonable factors determined in accordance with the 
rules in paragraph (c)(4)(i) of this section (such as quality, 
performance, and market standards) and without regard to whether a 
provider provides services with respect to medical/surgical benefits or 
mental health or substance use disorder benefits. After the sub-
classifications are established, the plan or issuer may not impose any 
financial requirement or treatment limitation on mental health or 
substance use disorder benefits in any sub-classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation that applies to substantially all medical/surgical benefits 
in the sub-classification using the methodology set forth in paragraph 
(c)(3)(i) of this section.
    (C) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this paragraph (c), a plan 
or issuer may divide its benefits furnished on an outpatient basis into 
the two sub-classifications described in this paragraph (c)(3)(iii)(C). 
After the sub-classifications are established, the plan or issuer may 
not impose any financial requirement or quantitative treatment 
limitation on mental health or substance use disorder benefits in any 
sub-classification that is more restrictive than the predominant 
financial requirement or quantitative treatment limitation that applies 
to substantially all medical/surgical benefits in the sub-classification 
using the methodology set forth in paragraph (c)(3)(i) of this section. 
Sub-classifications other than these special rules, such as separate 
sub-classifications for generalists and specialists, are not permitted. 
The two sub-classifications permitted under this paragraph 
(c)(3)(iii)(C) are:
    (1) Office visits (such as physician visits), and
    (2) All other outpatient items and services (such as outpatient 
surgery, facility charges for day treatment centers, laboratory charges, 
or other medical items).
    (iv) Examples. The rules of paragraphs (c)(3)(i), (c)(3)(ii), and 
(c)(3)(iii) of this section are illustrated by the following examples. 
In each example, the group health plan is subject to the requirements of 
this section and provides both medical/surgical benefits and mental 
health and substance use disorder benefits.

    Example 1. (i) Facts. For inpatient, out-of-network medical/surgical 
benefits, a group health plan imposes five levels of coinsurance. Using 
a reasonable method, the plan projects its payments for the upcoming 
year as follows:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Coinsurance rate................  0%        10%            15%           20%           30%            Total.
Projected payments..............  $200x     $100x          $450x         $100x         $150x          $1,000x.
Percent of total plan costs.....  20%       10%            45%           10%           15%
Percent subject to coinsurance    N/A       12.5%          56.25%        12.5%         18.75%
 level.                                     (100x/800x)    (450x/800x)   (100x/800x)   (150x/800x)
----------------------------------------------------------------------------------------------------------------


The plan projects plan costs of $800x to be subject to coinsurance 
($100x + $450x + $100x + $150x = $800x). Thus, 80 percent ($800x/
$1,000x) of the benefits are projected to be subject to coinsurance, and 
56.25 percent of the benefits subject to coinsurance are projected to be 
subject to the 15 percent coinsurance level.
    (ii) Conclusion. In this Example 1, the two-thirds threshold of the 
substantially all standard is met for coinsurance because 80 percent of 
all inpatient, out-of-network medical/surgical benefits are subject to 
coinsurance. Moreover, the 15 percent coinsurance is the predominant 
level because it is applicable to more than one-half of inpatient, out-
of-network medical/surgical benefits subject to the coinsurance 
requirement. The plan may not impose any level of coinsurance with 
respect to inpatient, out-of-network

[[Page 755]]

mental health or substance use disorder benefits that is more 
restrictive than the 15 percent level of coinsurance.
    Example 2. (i) Facts. For outpatient, in-network medical/surgical 
benefits, a plan imposes five different copayment levels. Using a 
reasonable method, the plan projects payments for the upcoming year as 
follows:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Copayment amount................  $0        $10            $15           $20           $50            Total.
Projected payments..............  $200x     $200x          $200x         $300x         $100x          $1,000x.
Percent of total plan costs.....  20%       20%            20%           30%           10%
Percent subject to copayments...  N/A       25%            25%           37.5%         12.5%
                                            (200x/800x)    (200x/800x)   (300x/800x)   (100x/800x)
----------------------------------------------------------------------------------------------------------------


The plan projects plan costs of $800x to be subject to copayments ($200x 
+ $200x + $300x + $100x = $800x). Thus, 80 percent ($800x/$1,000x) of 
the benefits are projected to be subject to a copayment.
    (ii) Conclusion. In this Example 2, the two-thirds threshold of the 
substantially all standard is met for copayments because 80 percent of 
all outpatient, in-network medical/surgical benefits are subject to a 
copayment. Moreover, there is no single level that applies to more than 
one-half of medical/surgical benefits in the classification subject to a 
copayment (for the $10 copayment, 25%; for the $15 copayment, 25%; for 
the $20 copayment, 37.5%; and for the $50 copayment, 12.5%). The plan 
can combine any levels of copayment, including the highest levels, to 
determine the predominant level that can be applied to mental health or 
substance use disorder benefits. If the plan combines the highest levels 
of copayment, the combined projected payments for the two highest 
copayment levels, the $50 copayment and the $20 copayment, are not more 
than one-half of the outpatient, in-network medical/surgical benefits 
subject to a copayment because they are exactly one-half ($300x + $100x 
= $400x; $400x/$800x = 50%). The combined projected payments for the 
three highest copayment levels--the $50 copayment, the $20 copayment, 
and the $15 copayment--are more than one-half of the outpatient, in-
network medical/surgical benefits subject to the copayments ($100x + 
$300x + $200x = $600x; $600x/$800x = 75%). Thus, the plan may not impose 
any copayment on outpatient, in-network mental health or substance use 
disorder benefits that is more restrictive than the least restrictive 
copayment in the combination, the $15 copayment.
    Example 3. (i) Facts. A plan imposes a $250 deductible on all 
medical/surgical benefits for self-only coverage and a $500 deductible 
on all medical/surgical benefits for family coverage. The plan has no 
network of providers. For all medical/surgical benefits, the plan 
imposes a coinsurance requirement. The plan imposes no other financial 
requirements or treatment limitations.
    (ii) Conclusion. In this Example 3, because the plan has no network 
of providers, all benefits are provided out-of-network. Because self-
only and family coverage are subject to different deductibles, whether 
the deductible applies to substantially all medical/surgical benefits is 
determined separately for self-only medical/surgical benefits and family 
medical/surgical benefits. Because the coinsurance is applied without 
regard to coverage units, the predominant coinsurance that applies to 
substantially all medical/surgical benefits is determined without regard 
to coverage units.
    Example 4. (i) Facts. A plan applies the following financial 
requirements for prescription drug benefits. The requirements are 
applied without regard to whether a drug is generally prescribed with 
respect to medical/surgical benefits or with respect to mental health or 
substance use disorder benefits. Moreover, the process for certifying a 
particular drug as ``generic'', ``preferred brand name'', ``non-
preferred brand name'', or ``specialty'' complies with the rules of 
paragraph (c)(4)(i) of this section (relating to requirements for 
nonquantitative treatment limitations).

----------------------------------------------------------------------------------------------------------------
                                                   Tier 1           Tier 2           Tier 3           Tier 4
----------------------------------------------------------------------------------------------------------------
                                                                                 Non-preferred
                                                                                   brand name
                                                               Preferred brand    drugs (which
              Tier description                 Generic drugs      name drugs    may have Tier 1  Specialty drugs
                                                                                   or Tier 2
                                                                                 alternatives)
----------------------------------------------------------------------------------------------------------------
Percent paid by plan........................             90%              80%              60%              50%
----------------------------------------------------------------------------------------------------------------

    (ii) Conclusion. In this Example 4, the financial requirements that 
apply to prescription drug benefits are applied without regard to 
whether a drug is generally prescribed with respect to medical/surgical 
benefits or with respect to mental health or substance use

[[Page 756]]

disorder benefits; the process for certifying drugs in different tiers 
complies with paragraph (c)(4) of this section; and the bases for 
establishing different levels or types of financial requirements are 
reasonable. The financial requirements applied to prescription drug 
benefits do not violate the parity requirements of this paragraph 
(c)(3).
    Example 5. (i) Facts. A plan has two-tiers of network of providers: 
A preferred provider tier and a participating provider tier. Providers 
are placed in either the preferred tier or participating tier based on 
reasonable factors determined in accordance with the rules in paragraph 
(c)(4)(i) of this section, such as accreditation, quality and 
performance measures (including customer feedback), and relative 
reimbursement rates. Furthermore, provider tier placement is determined 
without regard to whether a provider specializes in the treatment of 
mental health conditions or substance use disorders, or medical/surgical 
conditions. The plan divides the in-network classifications into two 
sub-classifications (in-network/preferred and in-network/participating). 
The plan does not impose any financial requirement or treatment 
limitation on mental health or substance use disorder benefits in either 
of these sub-classifications that is more restrictive than the 
predominant financial requirement or treatment limitation that applies 
to substantially all medical/surgical benefits in each sub-
classification.
    (ii) Conclusion. In this Example 5, the division of in-network 
benefits into sub-classifications that reflect the preferred and 
participating provider tiers does not violate the parity requirements of 
this paragraph (c)(3).
    Example 6. (i) Facts. With respect to outpatient, in-network 
benefits, a plan imposes a $25 copayment for office visits and a 20 
percent coinsurance requirement for outpatient surgery. The plan divides 
the outpatient, in-network classification into two sub-classifications 
(in-network office visits and all other outpatient, in-network items and 
services). The plan or issuer does not impose any financial requirement 
or quantitative treatment limitation on mental health or substance use 
disorder benefits in either of these sub-classifications that is more 
restrictive than the predominant financial requirement or quantitative 
treatment limitation that applies to substantially all medical/surgical 
benefits in each sub-classification.
    (ii) Conclusion. In this Example 6, the division of outpatient, in-
network benefits into sub-classifications for office visits and all 
other outpatient, in-network items and services does not violate the 
parity requirements of this paragraph (c)(3).
    Example 7. (i) Facts. Same facts as Example 6, but for purposes of 
determining parity, the plan divides the outpatient, in-network 
classification into outpatient, in-network generalists and outpatient, 
in-network specialists.
    (ii) Conclusion. In this Example 7, the division of outpatient, in-
network benefits into any sub-classifications other than office visits 
and all other outpatient items and services violates the requirements of 
paragraph (c)(3)(iii)(C) of this section.

    (v) No separate cumulative financial requirements or cumulative 
quantitative treatment limitations--(A) A group health plan (or health 
insurance coverage offered in connection with a group health plan) may 
not apply any cumulative financial requirement or cumulative 
quantitative treatment limitation for mental health or substance use 
disorder benefits in a classification that accumulates separately from 
any established for medical/surgical benefits in the same 
classification.
    (B) The rules of this paragraph (c)(3)(v) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan imposes a combined annual 
$500 deductible on all medical/surgical, mental health, and substance 
use disorder benefits.
    (ii) Conclusion. In this Example 1, the combined annual deductible 
complies with the requirements of this paragraph (c)(3)(v).
    Example 2. (i) Facts. A plan imposes an annual $250 deductible on 
all medical/surgical benefits and a separate annual $250 deductible on 
all mental health and substance use disorder benefits.
    (ii) Conclusion. In this Example 2, the separate annual deductible 
on mental health and substance use disorder benefits violates the 
requirements of this paragraph (c)(3)(v).
    Example 3. (i) Facts. A plan imposes an annual $300 deductible on 
all medical/surgical benefits and a separate annual $100 deductible on 
all mental health or substance use disorder benefits.
    (ii) Conclusion. In this Example 3, the separate annual deductible 
on mental health and substance use disorder benefits violates the 
requirements of this paragraph (c)(3)(v).
    Example 4. (i) Facts. A plan generally imposes a combined annual 
$500 deductible on all benefits (both medical/surgical benefits and 
mental health and substance use disorder benefits) except prescription 
drugs. Certain benefits, such as preventive care, are provided without 
regard to the deductible. The imposition of other types of financial 
requirements or treatment limitations varies with each classification. 
Using reasonable methods, the plan projects its payments for medical/
surgical benefits in each classification for the upcoming year as 
follows:

[[Page 757]]



----------------------------------------------------------------------------------------------------------------
                                                                     Benefits                         Percent
                         Classification                             subject to    Total benefits    subject to
                                                                    deductible                      deductible
----------------------------------------------------------------------------------------------------------------
Inpatient, in-network...........................................         $1,800x         $2,000x              90
Inpatient, out-of-network.......................................          1,000x          1,000x             100
Outpatient, in-network..........................................          1,400x          2,000x              70
Outpatient, out-of-network......................................          1,880x          2,000x              94
Emergency care..................................................            300x            500x              60
----------------------------------------------------------------------------------------------------------------

    (ii) Conclusion. In this Example 4, the two-thirds threshold of the 
substantially all standard is met with respect to each classification 
except emergency care because in each of those other classifications at 
least two-thirds of medical/surgical benefits are subject to the $500 
deductible. Moreover, the $500 deductible is the predominant level in 
each of those other classifications because it is the only level. 
However, emergency care mental health and substance use disorder 
benefits cannot be subject to the $500 deductible because it does not 
apply to substantially all emergency care medical/surgical benefits.

    (4) Nonquantitative treatment limitations--(i) General rule. A group 
health plan (or health insurance coverage) may not impose a 
nonquantitative treatment limitation with respect to mental health or 
substance use disorder benefits in any classification unless, under the 
terms of the plan (or health insurance coverage) as written and in 
operation, any processes, strategies, evidentiary standards, or other 
factors used in applying the nonquantitative treatment limitation to 
mental health or substance use disorder benefits in the classification 
are comparable to, and are applied no more stringently than, the 
processes, strategies, evidentiary standards, or other factors used in 
applying the limitation with respect to medical/surgical benefits in the 
classification.
    (ii) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (A) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (B) Formulary design for prescription drugs;
    (C) For plans with multiple network tiers (such as preferred 
providers and participating providers), network tier design;
    (D) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (E) Plan methods for determining usual, customary, and reasonable 
charges;
    (F) Refusal to pay for higher-cost therapies until it can be shown 
that a lower-cost therapy is not effective (also known as fail-first 
policies or step therapy protocols);
    (G) Exclusions based on failure to complete a course of treatment; 
and
    (H) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits for services provided under the plan or coverage.
    (iii) Examples. The rules of this paragraph (c)(4) are illustrated 
by the following examples. In each example, the group health plan is 
subject to the requirements of this section and provides both medical/
surgical benefits and mental health and substance use disorder benefits.

    Example 1. (i) Facts. A plan requires prior authorization from the 
plan's utilization reviewer that a treatment is medically necessary for 
all inpatient medical/surgical benefits and for all inpatient mental 
health and substance use disorder benefits. In practice, inpatient 
benefits for medical/surgical conditions are routinely approved for 
seven days, after which a treatment plan must be submitted by the 
patient's attending provider and approved by the plan. On the other 
hand, for inpatient mental health and substance use disorder benefits, 
routine approval is given only for one day, after which a treatment plan 
must be submitted by the patient's attending provider and approved by 
the plan.
    (ii) Conclusion. In this Example 1, the plan violates the rules of 
this paragraph (c)(4) because it is applying a stricter nonquantitative 
treatment limitation in practice to mental health and substance use 
disorder benefits than is applied to medical/surgical benefits.

[[Page 758]]

    Example 2. (i) Facts. A plan applies concurrent review to inpatient 
care where there are high levels of variation in length of stay (as 
measured by a coefficient of variation exceeding 0.8). In practice, the 
application of this standard affects 60 percent of mental health 
conditions and substance use disorders, but only 30 percent of medical/
surgical conditions.
    (ii) Conclusion. In this Example 2, the plan complies with the rules 
of this paragraph (c)(4) because the evidentiary standard used by the 
plan is applied no more stringently for mental health and substance use 
disorder benefits than for medical/surgical benefits, even though it 
results in an overall difference in the application of concurrent review 
for mental health conditions or substance use disorders than for 
medical/surgical conditions.
    Example 3. (i) Facts. A plan requires prior approval that a course 
of treatment is medically necessary for outpatient, in-network medical/
surgical, mental health, and substance use disorder benefits and uses 
comparable criteria in determining whether a course of treatment is 
medically necessary. For mental health and substance use disorder 
treatments that do not have prior approval, no benefits will be paid; 
for medical/surgical treatments that do not have prior approval, there 
will only be a 25 percent reduction in the benefits the plan would 
otherwise pay.
    (ii) Conclusion. In this Example 3, the plan violates the rules of 
this paragraph (c)(4). Although the same nonquantitative treatment 
limitation--medical necessity--is applied both to mental health and 
substance use disorder benefits and to medical/surgical benefits for 
outpatient, in-network services, it is not applied in a comparable way. 
The penalty for failure to obtain prior approval for mental health and 
substance use disorder benefits is not comparable to the penalty for 
failure to obtain prior approval for medical/surgical benefits.
    Example 4. (i) Facts. A plan generally covers medically appropriate 
treatments. For both medical/surgical benefits and mental health and 
substance use disorder benefits, evidentiary standards used in 
determining whether a treatment is medically appropriate (such as the 
number of visits or days of coverage) are based on recommendations made 
by panels of experts with appropriate training and experience in the 
fields of medicine involved. The evidentiary standards are applied in a 
manner that is based on clinically appropriate standards of care for a 
condition.
    (ii) Conclusion. In this Example 4, the plan complies with the rules 
of this paragraph (c)(4) because the processes for developing the 
evidentiary standards used to determine medical appropriateness and the 
application of these standards to mental health and substance use 
disorder benefits are comparable to and are applied no more stringently 
than for medical/surgical benefits. This is the result even if the 
application of the evidentiary standards does not result in similar 
numbers of visits, days of coverage, or other benefits utilized for 
mental health conditions or substance use disorders as it does for any 
particular medical/surgical condition.
    Example 5. (i) Facts. A plan generally covers medically appropriate 
treatments. In determining whether prescription drugs are medically 
appropriate, the plan automatically excludes coverage for antidepressant 
drugs that are given a black box warning label by the Food and Drug 
Administration (indicating the drug carries a significant risk of 
serious adverse effects). For other drugs with a black box warning 
(including those prescribed for other mental health conditions and 
substance use disorders, as well as for medical/surgical conditions), 
the plan will provide coverage if the prescribing physician obtains 
authorization from the plan that the drug is medically appropriate for 
the individual, based on clinically appropriate standards of care.
    (ii) Conclusion. In this Example 5, the plan violates the rules of 
this paragraph (c)(4). Although the standard for applying a 
nonquantitative treatment limitation is the same for both mental health 
and substance use disorder benefits and medical/surgical benefits--
whether a drug has a black box warning--it is not applied in a 
comparable manner. The plan's unconditional exclusion of antidepressant 
drugs given a black box warning is not comparable to the conditional 
exclusion for other drugs with a black box warning.
    Example 6. (i) Facts. An employer maintains both a major medical 
plan and an employee assistance program (EAP). The EAP provides, among 
other benefits, a limited number of mental health or substance use 
disorder counseling sessions. Participants are eligible for mental 
health or substance use disorder benefits under the major medical plan 
only after exhausting the counseling sessions provided by the EAP. No 
similar exhaustion requirement applies with respect to medical/surgical 
benefits provided under the major medical plan.
    (ii) Conclusion. In this Example 6, limiting eligibility for mental 
health and substance use disorder benefits only after EAP benefits are 
exhausted is a nonquantitative treatment limitation subject to the 
parity requirements of this paragraph (c). Because no comparable 
requirement applies to medical/surgical benefits, the requirement may 
not be applied to mental health or substance use disorder benefits.
    Example 7. (i) Facts. Training and State licensing requirements 
often vary among types of providers. A plan applies a general standard 
that any provider must meet the

[[Page 759]]

highest licensing requirement related to supervised clinical experience 
under applicable State law in order to participate in the plan's 
provider network. Therefore, the plan requires master's-level mental 
health therapists to have post-degree, supervised clinical experience 
but does not impose this requirement on master's-level general medical 
providers because the scope of their licensure under applicable State 
law does require clinical experience. In addition, the plan does not 
require post-degree, supervised clinical experience for psychiatrists or 
Ph.D. level psychologists since their licensing already requires 
supervised training.
    (ii) Conclusion. In this Example 7, the plan complies with the rules 
of this paragraph (c)(4). The requirement that master's-level mental 
health therapists must have supervised clinical experience to join the 
network is permissible, as long as the plan consistently applies the 
same standard to all providers even though it may have a disparate 
impact on certain mental health providers.
    Example 8. (i) Facts. A plan considers a wide array of factors in 
designing medical management techniques for both mental health and 
substance use disorder benefits and medical/surgical benefits, such as 
cost of treatment; high cost growth; variability in cost and quality; 
elasticity of demand; provider discretion in determining diagnosis, or 
type or length of treatment; clinical efficacy of any proposed treatment 
or service; licensing and accreditation of providers; and claim types 
with a high percentage of fraud. Based on application of these factors 
in a comparable fashion, prior authorization is required for some (but 
not all) mental health and substance use disorder benefits, as well as 
for some medical/surgical benefits, but not for others. For example, the 
plan requires prior authorization for: Outpatient surgery; speech, 
occupational, physical, cognitive and behavioral therapy extending for 
more than six months; durable medical equipment; diagnostic imaging; 
skilled nursing visits; home infusion therapy; coordinated home care; 
pain management; high-risk prenatal care; delivery by cesarean section; 
mastectomy; prostate cancer treatment; narcotics prescribed for more 
than seven days; and all inpatient services beyond 30 days. The evidence 
considered in developing its medical management techniques includes 
consideration of a wide array of recognized medical literature and 
professional standards and protocols (including comparative 
effectiveness studies and clinical trials). This evidence and how it was 
used to develop these medical management techniques is also well 
documented by the plan.
    (ii) Conclusion. In this Example 8, the plan complies with the rules 
of this paragraph (c)(4). Under the terms of the plan as written and in 
operation, the processes, strategies, evidentiary standards, and other 
factors considered by the plan in implementing its prior authorization 
requirement with respect to mental health and substance use disorder 
benefits are comparable to, and applied no more stringently than, those 
applied with respect to medical/surgical benefits.
    Example 9. (i) Facts. A plan generally covers medically appropriate 
treatments. The plan automatically excludes coverage for inpatient 
substance use disorder treatment in any setting outside of a hospital 
(such as a freestanding or residential treatment center). For inpatient 
treatment outside of a hospital for other conditions (including 
freestanding or residential treatment centers prescribed for mental 
health conditions, as well as for medical/surgical conditions), the plan 
will provide coverage if the prescribing physician obtains authorization 
from the plan that the inpatient treatment is medically appropriate for 
the individual, based on clinically appropriate standards of care.
    (ii) Conclusion. In this Example 9, the plan violates the rules of 
this paragraph (c)(4). Although the same nonquantitative treatment 
limitation--medical appropriateness--is applied to both mental health 
and substance use disorder benefits and medical/surgical benefits, the 
plan's unconditional exclusion of substance use disorder treatment in 
any setting outside of a hospital is not comparable to the conditional 
exclusion of inpatient treatment outside of a hospital for other 
conditions.
    Example 10. (i) Facts. A plan generally provides coverage for 
medically appropriate medical/surgical benefits as well as mental health 
and substance use disorder benefits. The plan excludes coverage for 
inpatient, out-of-network treatment of chemical dependency when obtained 
outside of the State where the policy is written. There is no similar 
exclusion for medical/surgical benefits within the same classification.
    (ii) Conclusion. In this Example 10, the plan violates the rules of 
this paragraph (c)(4). The plan is imposing a nonquantitative treatment 
limitation that restricts benefits based on geographic location. Because 
there is no comparable exclusion that applies to medical/surgical 
benefits, this exclusion may not be applied to mental health or 
substance use disorder benefits.
    Example 11. (i) Facts. A plan requires prior authorization for all 
outpatient mental health and substance use disorder services after the 
ninth visit and will only approve up to five additional visits per 
authorization. With respect to outpatient medical/surgical benefits, the 
plan allows an initial visit without prior authorization. After the 
initial visit, the plan pre-approves benefits based on the individual 
treatment plan recommended by the attending provider based on that 
individual's specific medical condition. There is no explicit, 
predetermined cap on the

[[Page 760]]

amount of additional visits approved per authorization.
    (ii) Conclusion. In this Example 11, the plan violates the rules of 
this paragraph (c)(4). Although the same nonquantitative treatment 
limitation--prior authorization to determine medical appropriateness--is 
applied to both mental health and substance use disorder benefits and 
medical/surgical benefits for outpatient services, it is not applied in 
a comparable way. While the plan is more generous with respect to the 
number of visits initially provided without pre-authorization for mental 
health benefits, treating all mental health conditions and substance use 
disorders in the same manner, while providing for individualized 
treatment of medical conditions, is not a comparable application of this 
nonquantitative treatment limitation.

    (5) Exemptions. The rules of this paragraph (c) do not apply if a 
group health plan (or health insurance coverage) satisfies the 
requirements of paragraph (f) or (g) of this section (relating to 
exemptions for small employers and for increased cost).
    (d) Availability of plan information--(1) Criteria for medical 
necessity determinations. The criteria for medical necessity 
determinations made under a group health plan with respect to mental 
health or substance use disorder benefits (or health insurance coverage 
offered in connection with the plan with respect to such benefits) must 
be made available by the plan administrator (or the health insurance 
issuer offering such coverage) to any current or potential participant, 
beneficiary, or contracting provider upon request.
    (2) Reason for any denial. The reason for any denial under a group 
health plan (or health insurance coverage offered in connection with 
such plan) of reimbursement or payment for services with respect to 
mental health or substance use disorder benefits in the case of any 
participant or beneficiary must be made available by the plan 
administrator (or the health insurance issuer offering such coverage) to 
the participant or beneficiary. For this purpose, a non-Federal 
governmental plan (or health insurance coverage offered in connection 
with such plan) that provides the reason for the claim denial in a form 
and manner consistent with the requirements of 29 CFR 2560.503-1 for 
group health plans complies with the requirements of this paragraph 
(d)(2).
    (3) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (d)(1) and (d)(2) of this section is not 
determinative of compliance with any other provision of applicable 
Federal or State law. In particular, in addition to those disclosure 
requirements, provisions of other applicable law require disclosure of 
information relevant to medical/surgical, mental health, and substance 
use disorder benefits. For example, Sec. 147.136 of this subchapter 
sets forth rules regarding claims and appeals, including the right of 
claimants (or their authorized representative) upon appeal of an adverse 
benefit determination (or a final internal adverse benefit 
determination) to be provided upon request and free of charge, 
reasonable access to and copies of all documents, records, and other 
information relevant to the claimant's claim for benefits. This includes 
documents with information on medical necessity criteria for both 
medical/surgical benefits and mental health and substance use disorder 
benefits, as well as the processes, strategies, evidentiary standards, 
and other factors used to apply a nonquantitative treatment limitation 
with respect to medical/surgical benefits and mental health or substance 
use disorder benefits under the plan.
    (e) Applicability--(1) Group health plans. The requirements of this 
section apply to a group health plan offering medical/surgical benefits 
and mental health or substance use disorder benefits. If, under an 
arrangement or arrangements to provide medical care benefits by an 
employer or employee organization (including for this purpose a joint 
board of trustees of a multiemployer trust affiliated with one or more 
multiemployer plans), any participant (or beneficiary) can 
simultaneously receive coverage for medical/surgical benefits and 
coverage for mental health or substance use disorder benefits, then the 
requirements of this section (including the exemption provisions in 
paragraph (g) of this section) apply separately with respect to each 
combination of medical/surgical benefits and of mental health or 
substance use disorder benefits that any participant (or beneficiary) 
can simultaneously receive from that employer's

[[Page 761]]

or employee organization's arrangement or arrangements to provide 
medical care benefits, and all such combinations are considered for 
purposes of this section to be a single group health plan.
    (2) Health insurance issuers. The requirements of this section apply 
to a health insurance issuer offering health insurance coverage for 
mental health or substance use disorder benefits in connection with a 
group health plan subject to paragraph (e)(1) of this section.
    (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 substance use disorder benefits, and the provision of 
benefits by a plan (or health insurance coverage) for one or more mental 
health conditions or substance use disorders does not require the plan 
or health insurance coverage under this section to provide benefits for 
any other mental health condition or substance use disorder;
    (ii) Require a group health plan (or health insurance issuer 
offering coverage in connection with a group health plan) that provides 
coverage for mental health or substance use disorder benefits only to 
the extent required under PHS Act section 2713 to provide additional 
mental health or substance use disorder benefits in any classification 
in accordance with this section; or
    (iii) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the plan (or health insurance coverage) except as specifically 
provided in paragraphs (b) and (c) of this section.
    (4) Coordination with EHB requirements. Nothing in paragraph (f) or 
(g) of this section changes the requirements of Sec. Sec. 147.150 and 
156.115 of this subchapter, providing that a health insurance issuer 
offering non-grandfathered health insurance coverage in the individual 
or small group market providing mental health and substance use disorder 
services, including behavioral health treatment services, as part of 
essential health benefits required under Sec. Sec. 156.110(a)(5) and 
156.115(a) of this subchapter, must comply with the provisions of this 
section to satisfy the requirement to provide essential health benefits.
    (f) 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 (as defined in section 2791 of the PHS 
Act).
    (2) Rules in determining employer size. For purposes of paragraph 
(f)(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 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.
    (g) Increased cost exemption--(1) In general. If the application of 
this section to a group health plan (or health insurance coverage 
offered in connection with such plans) results in an increase for the 
plan year involved of the actual total cost of coverage with respect to 
medical/surgical benefits and mental health and substance use disorder 
benefits as determined and certified under paragraph (g)(3) of this 
section by an amount that exceeds the applicable percentage described in 
paragraph (g)(2) of this section of the actual total plan costs, the 
provisions of this section shall not apply to such plan (or coverage) 
during the following plan year, and such exemption shall apply to the 
plan (or coverage) for one plan year. An employer or issuer may elect to 
continue to provide mental health and substance use disorder benefits in 
compliance with this section with respect to the plan or coverage 
involved regardless of any increase in total costs.

[[Page 762]]

    (2) Applicable percentage. With respect to a plan or coverage, the 
applicable percentage described in this paragraph (g) is--
    (i) 2 percent in the case of the first plan year in which this 
section is applied to the plan or coverage; and
    (ii) 1 percent in the case of each subsequent plan year.
    (3) Determinations by actuaries--(i) Determinations as to increases 
in actual costs under a plan or coverage that are attributable to 
implementation of the requirements of this section shall be made and 
certified by a qualified and licensed actuary who is a member in good 
standing of the American Academy of Actuaries. All such determinations 
must be based on the formula specified in paragraph (g)(4) of this 
section and shall be in a written report prepared by the actuary.
    (ii) The written report described in paragraph (g)(3)(i) of this 
section shall be maintained by the group health plan or health insurance 
issuer, along with all supporting documentation relied upon by the 
actuary, for a period of six years following the notification made under 
paragraph (g)(6) of this section.
    (4) Formula. The formula to be used to make the determination under 
paragraph (g)(3)(i) of this section is expressed mathematically as 
follows:
[(E1-E0)/T0] -D  k
    (i) E1 is the actual total cost of coverage with respect 
to mental health and substance use disorder benefits for the base 
period, including claims paid by the plan or issuer with respect to 
mental health and substance use disorder benefits and administrative 
costs (amortized over time) attributable to providing these benefits 
consistent with the requirements of this section.
    (ii) E0 is the actual total cost of coverage with respect 
to mental health and substance use disorder benefits for the length of 
time immediately before the base period (and that is equal in length to 
the base period), including claims paid by the plan or issuer with 
respect to mental health and substance use disorder benefits and 
administrative costs (amortized over time) attributable to providing 
these benefits.
    (iii) T0 is the actual total cost of coverage with 
respect to all benefits during the base period.
    (iv) k is the applicable percentage of increased cost specified in 
paragraph (g)(2) of this section that will be expressed as a fraction 
for purposes of this formula.
    (v) D is the average change in spending that is calculated by 
applying the formula (E1-E0)/T0 to mental health and substance use 
disorder spending in each of the five prior years and then calculating 
the average change in spending.
    (5) Six month determination. If a group health plan or health 
insurance issuer seeks an exemption under this paragraph (g), 
determinations under paragraph (g)(3) of this section shall be made 
after such plan or coverage has complied with this section for at least 
the first 6 months of the plan year involved.
    (6) Notification. A group health plan or health insurance issuer 
that, based on the certification described under paragraph (g)(3) of 
this section, qualifies for an exemption under this paragraph (g), and 
elects to implement the exemption, must notify participants and 
beneficiaries covered under the plan, the Secretary, and the appropriate 
State agencies of such election.
    (i) Participants and beneficiaries--(A) Content of notice. The 
notice to participants and beneficiaries must include the following 
information:
    (1) A statement that the plan or issuer 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 or issuer name and plan number (PN).
    (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 (g)(6)(i)(A)(3) of this 
section) and the plan sponsor's employer identification number (EIN).
    (6) The effective date of such exemption.
    (7) A statement regarding the ability of participants and 
beneficiaries to contact the plan administrator or health insurance 
issuer to see how benefits may be affected as a result of the

[[Page 763]]

plan's or issuer's election of the exemption.
    (8) A statement regarding the availability, upon request and free of 
charge, of a summary of the information on which the exemption is based 
(as required under paragraph (g)(6)(i)(D) of this section).
    (B) Use of summary of material reductions in covered services or 
benefits. A plan or issuer may satisfy the requirements of paragraph 
(g)(6)(i)(A) of this section by providing participants and beneficiaries 
(in accordance with paragraph (g)(6)(i)(C) of this section) with a 
summary of material reductions in covered services or benefits 
consistent with 29 CFR 2520.104b-3(d) that also includes the information 
specified in paragraph (g)(6)(i)(A) of this section. 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 (g)(6)(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)) and 
its implementing regulations (for example, first-class mail). If the 
notice is provided to the participant and any beneficiaries at the 
participant's last known address, then the requirements of this 
paragraph (g)(6)(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) 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. (For purposes of this paragraph (g), an individual 
who is not a participant or beneficiary and who presents a notice 
described in paragraph (g)(6)(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 (g)(6)(i) of this section with any personally 
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 or coverage absent amendments required to comply 
with paragraphs (b) and (c) of this section, the administrative costs 
related to those claims, and other administrative costs attributable to 
complying with the requirements of this section. In no event should the 
summary of information include any personally identifiable information.
    (ii) Federal agencies--(A) Content of notice. The notice to the 
Secretary must include the following information:
    (1) A description of the number of covered lives under the plan (or 
coverage) involved at the time of the notification, and as applicable, 
at the time of any prior election of the cost exemption under this 
paragraph (g) by such plan (or coverage);
    (2) For both the plan year upon which a cost exemption is sought and 
the year prior, a description of the actual total costs of coverage with 
respect to medical/surgical benefits and mental health and substance use 
disorder benefits; and
    (3) For both the plan year upon which a cost exemption is sought and 
the year prior, the actual total costs of coverage with respect to 
mental health and substance use disorder benefits under the plan.
    (B) Reporting by health insurance coverage offered in connection 
with a church plan. See 26 CFR 54.9812(g)(6)(ii)(B) for delivery with 
respect to church plans.
    (C) Reporting by health insurance coverage offered in connection 
with a group health plans subject to Part 7 of Subtitle B of Title I of 
ERISA. See 29 CFR 2590.712(g)(6)(ii) for delivery with respect to group 
health plans subject to ERISA.
    (D) Reporting with respect to non-Federal governmental plans and 
health insurance issuers in the individual market. A group health plan 
that is a non-Federal governmental plan, or a health insurance issuer 
offering health insurance coverage in the individual market,

[[Page 764]]

claiming the exemption of this paragraph (g) for any benefit package 
must provide notice to the Department of Health and Human Services. This 
requirement is satisfied if the plan or issuer sends a copy, to the 
address designated by the Secretary in generally applicable guidance, of 
the notice described in paragraph (g)(6)(ii)(A) of this section 
identifying the benefit package to which the exemption applies.
    (iii) Confidentiality. A notification to the Secretary under this 
paragraph (g)(6) shall be confidential. The Secretary shall make 
available, upon request and not more than on an annual basis, an 
anonymous itemization of each notification that includes--
    (A) A breakdown of States by the size and type of employers 
submitting such notification; and
    (B) A summary of the data received under paragraph (g)(6)(ii) of 
this section.
    (iv) Audits. The Secretary may audit the books and records of a 
group health plan or a health insurance issuer relating to an exemption, 
including any actuarial reports, during the 6 year period following 
notification of such exemption under paragraph (g)(6) of this section. A 
State agency receiving a notification under paragraph (g)(6) of this 
section may also conduct such an audit with respect to an exemption 
covered by such notification.
    (h) Sale of nonparity health insurance coverage. A health insurance 
issuer may not sell a policy, certificate, or contract of insurance that 
fails to comply with paragraph (b) or (c) of this section, except to a 
plan for a year for which the plan is exempt from the requirements of 
this section because the plan meets the requirements of paragraph (f) or 
(g) of this section.
    (i) Applicability dates--(1) In general. Except as provided in 
paragraph (i)(2) of this section, this section applies to group health 
plans and health insurance issuers offering group health insurance 
coverage on the first day of the first plan year beginning on or after 
July 1, 2014. Until the applicability date, plans and issuers are 
required to continue to comply with the corresponding sections of Sec. 
146.136 contained in the 45 CFR, parts 1 to 199, edition revised as of 
October 1, 2013.
    (2) Special effective date for certain collectively-bargained plans. 
For a group health plan maintained pursuant to one or more collective 
bargaining agreements ratified before October 3, 2008, the requirements 
of this section do not apply to the plan (or health insurance coverage 
offered in connection with the plan) for plan years beginning before the 
date on which the last of the collective bargaining agreements 
terminates (determined without regard to any extension agreed to after 
October 3, 2008).

[78 FR 68286, Nov. 13, 2013]



                 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 
this part.
    (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) In 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 section 2701 of the PHS Act.

[[Page 765]]

    (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 
requires special enrollment periods in addition to those required under 
section 2702 of the Act.
    (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 (as defined in Sec. 144.103), any political subdivisions of a 
State, or any agency or instrumentality of either.

[69 FR 78797, Dec. 30, 2004; 70 FR 21147, Apr. 25, 2005; 79 FR 10315, 
Feb. 24, 2014]



Sec. 146.145  Special rules relating to group health plans.

    (a) Group health plan--(1) Definition. A group health plan means an 
employee welfare benefit plan to the extent that the plan provides 
medical care (including items and services paid for as medical care) to 
employees (including both current and former employees) or their 
dependents (as defined under the terms of the plan) directly or through 
insurance, reimbursement, or otherwise.
    (2) Determination of number of plans. [Reserved]
    (b) Excepted benefits--(1) In general. The requirements of subparts 
B and C of this part do not apply to any group health plan (or any group 
health insurance coverage) 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 coverage;
    (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 coverage;
    (vi) Automobile medical payment insurance;
    (vii) Credit-only insurance (for example, mortgage insurance); and
    (viii) Coverage for on-site medical clinics.
    (3) Limited excepted benefits--(i) In 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 a group 
health plan as described in paragraph (b)(3)(ii) of this section. In 
addition, benefits provided under a health flexible spending arrangement 
are excepted benefits if they satisfy the requirements of paragraph 
(b)(3)(v) of this section. Furthermore, benefits provided under an 
employee assistance program are excepted benefits if they satisfy the 
requirements of paragraph (b)(3)(vi) of this section.
    (ii) Not an integral part of a group health plan. For purposes of 
this paragraph (b)(3), benefits are not an integral part of a group 
health plan (whether the benefits are provided through the same plan, a 
separate plan, or as the only plan offered to participants) if either 
paragraph (b)(3)(ii)(A) or (B) are satisfied.
    (A) Participants may decline coverage. For example, a participant 
may decline coverage if the participant can opt out of the coverage upon 
request, whether or not there is a participant contribution required for 
the coverage.
    (B) Claims for the benefits are administered under a contract 
separate from claims administration for any other benefits under the 
plan.
    (iii) Limited scope--(A) Dental benefits. Limited scope dental 
benefits are benefits substantially all of which are for treatment of 
the mouth (including any organ or structure within the mouth).
    (B) Vision benefits. Limited scope vision benefits are benefits 
substantially all of which are for treatment of the eye.
    (iv) Long-term care. Long-term care benefits are benefits that are 
either--

[[Page 766]]

    (A) Subject to State long-term care insurance laws;
    (B) For qualified long-term care 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.
    (v) Health flexible spending arrangements. Benefits provided under a 
health flexible spending arrangement (as defined in section 106(c)(2) of 
the Internal Revenue Code) are excepted for a class of participants only 
if they satisfy the following two requirements--
    (A) Other group health plan coverage, not limited to excepted 
benefits, is made available for the year to the class of participants by 
reason of their employment; and
    (B) The arrangement is structured so that the maximum benefit 
payable to any participant in the class for a year cannot exceed two 
times the participant's salary reduction election under the arrangement 
for the year (or, if greater, cannot exceed $500 plus the amount of the 
participant's salary reduction election). For this purpose, any amount 
that an employee can elect to receive as taxable income but elects to 
apply to the health flexible spending arrangement is considered a salary 
reduction election (regardless of whether the amount is characterized as 
salary or as a credit under the arrangement).
    (vi) Employee assistance programs. Benefits provided under employee 
assistance programs are excepted if they satisfy all of the requirements 
of this paragraph (b)(3)(vi).
    (A) The program does not provide significant benefits in the nature 
of medical care. For this purpose, the amount, scope and duration of 
covered services are taken into account.
    (B) The benefits under the employee assistance program are not 
coordinated with benefits under another group health plan, as follows:
    (1) Participants in the other group health plan must not be required 
to use and exhaust benefits under the employee assistance program 
(making the employee assistance program a gatekeeper) before an 
individual is eligible for benefits under the other group health plan; 
and
    (2) Participant eligibility for benefits under the employee 
assistance program must not be dependent on participation in another 
group health plan.
    (C) No employee premiums or contributions are required as a 
condition of participation in the employee assistance program.
    (D) There is no cost sharing under the employee assistance program.
    (vii) Limited wraparound coverage. Limited benefits provided through 
a group health plan that wrap around eligible individual health 
insurance (or Basic Health Plan coverage described in section 1331 of 
the Patient Protection and Affordable Care Act); or that wrap around 
coverage under a Multi-State Plan described in section 1334 of the 
Patient Protection and Affordable Care Act, collectively referred to as 
``limited wraparound coverage,'' are excepted benefits if all of the 
following conditions are satisfied. For this purpose, eligible 
individual health insurance is individual health insurance coverage that 
is not a grandfathered health plan (as described in section 1251 of the 
Patient Protection and Affordable Care Act and Sec. 147.140 of this 
subchapter), not a transitional individual health insurance plan (as 
described in the March 5, 2014 Insurance Standards Bulletin Series--
Extension of Transitional Policy through October 1, 2016), and does not 
consist solely of excepted benefits (as defined in paragraph (b) of this 
section).
    (A) Covers additional benefits. The limited wraparound coverage 
provides meaningful benefits beyond coverage of cost sharing under 
either the eligible individual health insurance, Basic Health Program 
coverage, or Multi-State Plan coverage. The limited wraparound coverage 
must not provide benefits only under a coordination-of-benefits 
provision and must not consist of an account-based reimbursement 
arrangement.
    (B) Limited in amount. The annual cost of coverage per employee (and 
any covered dependents, as defined in Sec. 144.103 of this subchapter) 
under the limited wraparound coverage does not

[[Page 767]]

exceed the greater of the amount determined under either paragraph 
(b)(3)(vii)(B)(1) or (2) of this section. Making a determination 
regarding the annual cost of coverage per employee must occur on an 
aggregate basis relying on sound actuarial principles.
    (1) The maximum permitted annual salary reduction contribution 
toward health flexible spending arrangements, indexed in the manner 
prescribed under section 125(i)(2) of the Internal Revenue Code. For 
this purpose, the cost of coverage under the limited wraparound includes 
both employer and employee contributions towards coverage and is 
determined in the same manner as the applicable premium is calculated 
under a COBRA continuation provision.
    (2) Fifteen percent of the cost of coverage under the primary plan. 
For this purpose, the cost of coverage under the primary plan and under 
the limited wraparound coverage includes both employer and employee 
contributions towards the coverage and each is determined in the same 
manner as the applicable premium is calculated under a COBRA 
continuation provision.
    (C) Nondiscrimination. All of the conditions of this paragraph 
(b)(3)(vii)(C) are satisfied.
    (1) No preexisting condition exclusion. The limited wraparound 
coverage does not impose any preexisting condition exclusion, consistent 
with the requirements of section 2704 of the PHS Act and Sec. 147.108 
of this subchapter.
    (2) No discrimination based on health status. The limited wraparound 
coverage does not discriminate against individuals in eligibility, 
benefits, or premiums based on any health factor of an individual (or 
any dependent of the individual, as defined in Sec. 144.103 of this 
subchapter), consistent with the requirements of section 2705 of the PHS 
Act.
    (3) No discrimination in favor of highly compensated individuals. 
Neither the limited wraparound coverage, nor any other group health plan 
coverage offered by the plan sponsor, fails to comply with section 2716 
of the PHS Act or fails to be excludible from income for any individual 
due to the application of section 105(h) of the Internal Revenue Code 
(as applicable).
    (D) Plan eligibility requirements. Individuals eligible for the 
wraparound coverage are not enrolled in excepted benefit coverage under 
paragraph (b)(3)(v) of this section (relating to health FSAs). In 
addition, the conditions set forth in either paragraph (b)(3)(vii)(D)(1) 
or (2) of this section are met.
    (1) Limited wraparound coverage that wraps around eligible 
individual insurance for persons who are not full-time employees. 
Coverage that wraps around eligible individual health insurance (or that 
wraps around Basic Health Plan coverage) must satisfy all of the 
conditions of this paragraph (b)(3)(vii)(D)(1).
    (i) For each year for which limited wraparound coverage is offered, 
the employer that is the sponsor of the plan offering limited wraparound 
coverage, or the employer participating in a plan offering limited 
wraparound coverage, offers to its full-time employees coverage that is 
substantially similar to coverage that the employer would need to offer 
to its full-time employees in order not to be subject to a potential 
assessable payment under the employer shared responsibility provisions 
of section 4980H(a) of the Internal Revenue Code, if such provisions 
were applicable; provides minimum value (as defined in section 
36B(c)(2)(C)(ii) of the Internal Revenue Code); and is reasonably 
expected to be affordable (applying the safe harbor rules for 
determining affordability set forth in 26 CFR 54.4980H-5(e)(2)). If a 
plan or issuer providing limited wraparound coverage takes reasonable 
steps to ensure that employers disclose to the plan or issuer necessary 
information regarding their coverage offered and affordability 
information, the plan or issuer is permitted to rely on reasonable 
representations by employers regarding this information, unless the plan 
or issuer has specific knowledge to the contrary. In the event that the 
employer that is the sponsor of the plan offering wraparound coverage, 
or the employer participating in a plan offering wraparound coverage, 
has no full-time employees for any plan year limited wraparound coverage 
is offered, the requirement of this paragraph (b)(3)(vii)(D)(1)(i) is 
considered satisfied.

[[Page 768]]

    (ii) Eligibility for the limited wraparound coverage is limited to 
employees who are reasonably determined at the time of enrollment to not 
be full-time employees (and their dependents, as defined in Sec. 
144.103 of this subchapter), or who are retirees (and their dependents, 
as defined in Sec. 144.103 of this subchapter). For this purpose, full-
time employees are employees who are reasonably expected to work at 
least an average of 30 hours per week.
    (iii) Other group health plan coverage, not limited to excepted 
benefits, is offered to the individuals eligible for the limited 
wraparound coverage. Only individuals eligible for the other group 
health plan coverage are eligible for the limited wraparound coverage.
    (2) Limited coverage that wraps around Multi-State Plan coverage. 
Coverage that wraps around Multi-State Plan coverage must satisfy all of 
the conditions of this paragraph (b)(3)(vii)(D)(2). For this purpose, 
the term ``full-time employee'' means a ``full-time employee'' as 
defined in 26 CFR 54.4980H-1(a)(21) who is not in a limited non-
assessment period for certain employees (as defined in 26 CFR 54.4980H-
1(a)(26)). Moreover, if a plan or issuer providing limited wraparound 
coverage takes reasonable steps to ensure that employers disclose to the 
plan or issuer necessary information regarding their coverage offered 
and contribution levels for 2013 or 2014 (as applicable), and for any 
year in which limited wraparound coverage is offered, the plan or issuer 
is permitted to rely on reasonable representations by employers 
regarding this information, unless the plan or issuer has specific 
knowledge to the contrary. Consistent with the reporting and evaluation 
criteria of paragraph (b)(3)(vii)(E) of this section, the Office of 
Personnel Management may verify that plans and issuers have reasonable 
mechanisms in place to ensure that contributing employers meet these 
standards.
    (i) The limited wraparound coverage is reviewed and approved by the 
Office of Personnel Management, consistent with the reporting and 
evaluation criteria of paragraph (b)(3)(vii)(E) of this section, to 
provide benefits in conjunction with coverage under a Multi-State Plan 
authorized under section 1334 of the Patient Protection and Affordable 
Care Act. The Office of Personnel Management may revoke approval if it 
determines that continued approval is inconsistent with the reporting 
and evaluation criteria of paragraph (b)(3)(vii)(E) of this section.
    (ii) The employer offered coverage in the plan year that began in 
either 2013 or 2014 that is substantially similar to coverage that the 
employer would need to have offered to its full-time employees in order 
to not be subject to an assessable payment under the employer shared 
responsibility provisions of section 4980H(a) of the Internal Revenue 
Code, if such provisions had been applicable. In the event that a plan 
that offered coverage in 2013 or 2014 has no full-time employees for any 
plan year limited wraparound coverage is offered, the requirement of 
this paragraph (b)(3)(vii)(D)(2)(ii) is considered satisfied.
    (iii) In the plan year that began in either 2013 or 2014, the 
employer offered coverage to a substantial portion of full-time 
employees that provided minimum value (as defined in section 
36B(c)(2)(C)(ii) of the Internal Revenue Code) and was affordable 
(applying the safe harbor rules for determining affordability set forth 
in 26 CFR 54.4980H-5(e)(2)). In the event that the plan that offered 
coverage in 2013 or 2014 has no full-time employees for any plan year 
limited wraparound coverage is offered, the requirement of this 
paragraph (b)(3)(vii)(D)(2)(iii) is considered satisfied.
    (iv) For the duration of the pilot program, as described in 
paragraph (b)(3)(vii)(F) of this section, the employer's annual 
aggregate contributions for both primary and limited wraparound coverage 
are substantially the same as the employer's total contributions for 
coverage offered to full-time employees in 2013 or 2014.
    (E) Reporting--(1) Reporting by group health plans and group health 
insurance issuers. A self-insured group health plan, or a health 
insurance issuer, offering or proposing to offer limited wraparound 
coverage in connection with Multi-State Plan coverage pursuant to 
paragraph (b)(3)(vii)(D)(2) of this section reports to the Office of 
Personnel Management (OPM), in a form

[[Page 769]]

and manner specified in guidance, information OPM reasonably requires to 
determine whether the plan or issuer qualifies to offer such coverage or 
complies with the applicable requirements of this section.
    (2) Reporting by group health plan sponsors. The plan sponsor of a 
group health plan offering limited wraparound coverage under paragraph 
(b)(3)(vii) of this section, must report to the Department of Health and 
Human Services (HHS), in a form and manner specified in guidance, 
information HHS reasonably requires.
    (F) Pilot program with sunset--The provisions of paragraph 
(b)(3)(vii) of this section apply to limited wraparound coverage that is 
first offered no earlier than January 1, 2016 and no later than December 
31, 2018 and that ends no later than on the later of:
    (1) The date that is three years after the date limited wraparound 
coverage is first offered; or
    (2) The date on which the last collective bargaining agreement 
relating to the plan terminates after the date limited wraparound 
coverage is first offered (determined without regard to any extension 
agreed to after the date limited wraparound coverage is first offered).
    (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 
indemnity insurance is excepted only if it meets each of the conditions 
specified in paragraph (b)(4)(ii) of this section. To be hospital 
indemnity or other fixed indemnity insurance, the insurance must pay a 
fixed dollar amount per day (or per other period) of hospitalization or 
illness (for example, $100/day) regardless of the amount of expenses 
incurred.
    (ii) Conditions. Benefits are described in paragraph (b)(4)(i) of 
this section only if--
    (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.
    (iii) Example. The rules of this paragraph (b)(4) are illustrated by 
the following example:

    Example. (i) Facts. An employer sponsors a group health plan that 
provides coverage through an insurance policy. The policy provides 
benefits only for hospital stays at a fixed percentage of hospital 
expenses up to a maximum of $100 a day.
    (ii) Conclusion. In this Example, even though the benefits under the 
policy satisfy the conditions in paragraph (b)(4)(ii) of this section, 
because the policy pays a percentage of expenses incurred rather than a 
fixed dollar amount, the benefits under the policy are not excepted 
benefits under this paragraph (b)(4). This is the result even if, in 
practice, the policy pays the maximum of $100 for every day of 
hospitalization.

    (5) Supplemental benefits. (i) The following benefits are excepted 
only if they are provided under a separate policy, certificate, or 
contract of insurance--
    (A) Medicare supplemental health insurance (as defined under section 
1882(g)(1) of the Social Security Act; also known as Medigap or MedSupp 
insurance);
    (B) Coverage supplemental to the coverage provided under Chapter 55, 
Title 10 of the United States Code (also known as TRICARE supplemental 
programs); and
    (C) Similar supplemental coverage provided to coverage under a group 
health plan. To be similar supplemental coverage, the coverage must be 
specifically designed to fill gaps in primary coverage, such as 
coinsurance or deductibles. Similar supplemental coverage does not 
include coverage that becomes secondary or supplemental only under a 
coordination-of-benefits provision.
    (ii) The rules of this paragraph (b)(5) are illustrated by the 
following example:

    Example. (i) Facts. An employer sponsors a group health plan that 
provides coverage for both active employees and retirees. The coverage 
for retirees supplements benefits provided by Medicare, but does not 
meet the requirements for a supplemental policy under section 1882(g)(1) 
of the Social Security Act.

[[Page 770]]

    (ii) Conclusion. In this Example, the coverage provided to retirees 
does not meet the definition of supplemental excepted benefits under 
this paragraph (b)(5) because the coverage is not Medicare supplemental 
insurance as defined under section 1882(g)(1) of the Social Security 
Act, is not a TRICARE supplemental program, and is not supplemental to 
coverage provided under a group health plan.

    (c) Treatment of partnerships. For purposes of this part:
    (1) Treatment as a group health plan. Any plan, fund, or program 
that would not be (but for this paragraph (c)) an employee welfare 
benefit plan and that is established or maintained by a partnership, to 
the extent that the plan, fund, or program provides medical care 
(including items and services paid for as medical care) to present or 
former partners in the partnership or to their dependents (as defined 
under the terms of the plan, fund, or program), directly or through 
insurance, reimbursement, or otherwise, is treated (subject to paragraph 
(c)(2) of this section) as an employee welfare benefit plan that is a 
group health plan.
    (2) Employment relationship. In the case of a group health plan, the 
term employer also includes the partnership in relation to any bona fide 
partner. In addition, the term employee also includes any bona fide 
partner. Whether or not an individual is a bona fide partner is 
determined based on all the relevant facts and circumstances, including 
whether the individual performs services on behalf of the partnership.
    (3) Participants of group health plans. In the case of a group 
health plan, the term participant also includes any individual described 
in paragraph (c)(3)(i) or (ii) of this section if the individual is, or 
may become, eligible to receive a benefit under the plan or the 
individual's beneficiaries may be eligible to receive any such benefit.
    (i) In connection with a group health plan maintained by a 
partnership, the individual is a partner in relation to the partnership.
    (ii) In connection with a group health plan maintained by a self-
employed individual (under which one or more employees are 
participants), the individual is the self-employed individual.
    (d) Determining the average number of employees. [Reserved]

[69 FR 78798, Dec. 30, 2004, as amended at 74 FR 51692, Oct. 7, 2009; 78 
FR 65092, Oct. 30, 2013; 79 FR 59136, Oct. 1, 2014; 80 FR 14007, Mar. 
18, 2015]



    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

[[Page 771]]

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 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

[[Page 772]]

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 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 product. The issuer is ceasing to offer coverage 
in the market in accordance with paragraph (c) or (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); provided the 
issuer provides notice in accordance with the requirements of paragraph 
(c)(1) of this section.
    (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, in a form and manner 
specified by the Secretary, 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

[[Page 773]]

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. (1) 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 following--
    (i) Large group market; and
    (ii) 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.
    (2) For purposes of paragraph (f)(1)(ii) of this section, 
modifications made uniformly and solely pursuant to applicable Federal 
or State requirements are considered a uniform modification of coverage 
if:
    (i) The modification is made within a reasonable time period after 
the imposition or modification of the Federal or State requirement; and
    (ii) The modification is directly related to the imposition or 
modification of the Federal or State requirement.
    (3) For purposes of paragraph (f)(1)(ii) of this section, other 
types of modifications made uniformly are considered a uniform 
modification of coverage if the health insurance coverage for the 
product in the small group market meets all of the following criteria:
    (i) The product is offered by the same health insurance issuer 
(within the meaning of section 2791(b)(2) of the PHS Act);
    (ii) The product is offered as the same product network type (for 
example, health maintenance organization, preferred provider 
organization, exclusive provider organization, point of service, or 
indemnity);
    (iii) The product continues to cover at least a majority of the same 
service area;
    (iv) Within the product, each plan has the same cost-sharing 
structure as before the modification, except for any variation in cost 
sharing solely related to changes in cost and utilization of medical 
care, or to maintain the same metal tier level described in sections 
1302(d) and (e) of the Affordable Care Act; and
    (v) The product provides the same covered benefits, except for any 
changes in benefits that cumulatively impact the rate for any plan 
within the product within an allowable variation of 2 percentage points (not including changes pursuant to 
applicable Federal or State requirements).
    (4) A State may only broaden the standards in paragraphs (f)(3)(iii) 
and (iv) of this section.
    (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.
    (h) Notice of renewal of coverage. If an issuer in the small group 
market is renewing grandfathered coverage as described in paragraph (a) 
of this section, or uniformly modifying grandfathered coverage as 
described in paragraph (f) of this section, the issuer must provide to 
each plan sponsor written notice of the renewal at least 60 calendar 
days before the date the coverage will be renewed in a form and manner 
specified by the Secretary.

(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; 79 FR 30335, May 27, 2014; 79 FR 53004, Sept. 5, 
2014]

[[Page 758]]



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) Opt-out election for self-funded non-Federal governmental 
plans--(1) Requirements subject to exemption. The PHS Act requirements 
described in this paragraph are the following:
    (i) Limitations on preexisting condition exclusion periods in 
accordance with section 2701 of the PHS Act as codified before enactment 
of the Affordable Care Act.
    (ii) Special enrollment periods for individuals and dependents 
described under section 2704(f) of the PHS Act.
    (iii) Prohibitions against discriminating against individual 
participants and beneficiaries based on health status under section 2705 
of the PHS Act, except that the sponsor of a self-funded non-Federal 
governmental plan cannot elect to exempt its plan from requirements 
under section 2705(a)(6) and 2705(c) through (f) that prohibit 
discrimination with respect to genetic information.
    (iv) Standards relating to benefits for mothers and newborns under 
section 2725 of the PHS Act.
    (v) Parity in mental health and substance use disorder benefits 
under section 2726 of the PHS Act.
    (vi) Required coverage for reconstructive surgery following 
mastectomies under section 2727 of the PHS Act.
    (vii) Coverage of dependent students on a medically necessary leave 
of absence under section 2728 of the PHS Act.

[[Page 775]]

    (2) General rule. For plan years beginning on or after September 23, 
2010, a sponsor of a non-Federal governmental plan may elect to exempt 
its plan, to the extent the plan is not provided through health 
insurance coverage (that is, it is self-funded), from one or more of the 
requirements described in paragraphs (a)(1)(iv) through (vii) of this 
section.
    (3) Special rule for certain collectively bargained plans. In the 
case of a plan that is maintained pursuant to a collective bargaining 
agreement that was ratified before March 23, 2010, and whose sponsor 
made an election to exempt its plan from any of the requirements 
described in paragraphs (a)(1)(i) through (iii) of this section, the 
provisions of paragraph (a)(2) of this section apply for plan years 
beginning after the expiration of the term of the agreement.
    (4) Examples--(i) Example 1. A non-Federal governmental employer has 
elected to exempt its self-funded group health plan from all of the 
requirements described in paragraph (a)(1) of this section. The plan 
year commences September 1 of each year. The plan is not subject to the 
provisions of paragraph (a)(2) of this section until the plan year that 
commences on September 1, 2011. Accordingly, for that plan year and any 
subsequent plan years, the plan sponsor may elect to exempt its plan 
only from the requirements described in paragraphs (a)(1)(iv) through 
(vii) of this section.
    (ii) Example 2. A non-Federal governmental employer has elected to 
exempt its collectively bargained self-funded plan from all of the 
requirements described in paragraph (a)(1) of this section. The 
collective bargaining agreement applies to five plan years, October 1, 
2009 through September 30, 2014. For the plan year that begins on 
October 1, 2014, the plan sponsor is no longer permitted to elect to 
exempt its plan from the requirements described in paragraph (a)(1) of 
this section. Accordingly, for that plan year and any subsequent plan 
years, the plan sponsor may elect to exempt its plan only from the 
requirements described in paragraphs (a)(1)(iv) through (vii) of this 
section.
    (5) Limitations. (i) An election under this section cannot 
circumvent a requirement of the PHS Act 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 2727 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 2727 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) [Reserved]
    (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.
    (6) Stop-loss or excess risk coverage. For purposes of this 
section--
    (i) Subject to paragraph (a)(6)(ii) of this section, 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 
described in paragraph (a)(1) of this section.
    (7) Construction. Nothing in this part should be construed as 
imposing collective bargaining obligations on any party to the 
collective bargaining process.

[[Page 776]]

    (b) Form and manner of election--(1) Election requirements. The 
election must meet the following requirements:
    (i) Be made in an electronic format in a form and manner as 
described by the Secretary in guidance.
    (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)(1) 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.
    (ix) In the case of a plan sponsor submitting one opt-out election 
for all group health plans subject to the same collective bargaining 
agreement, include a list of plans subject to the agreement.
    (x) In the case of a plan sponsor submitting opt-out elections for 
more than one group health plan that is not subject to a collective 
bargaining agreement, submit a separate election document for each such 
plan.
    (2) ``Term of the agreement'' defined. Except as provided in 
paragraphs (b)(2)(i) and (ii) of this section, 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 described in paragraph (a)(1) of this section 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) Filing a timely election--(1) Plan not governed by collective 
bargaining. Subject to paragraph (c)(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

[[Page 777]]

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 that was ratified before March 23, 2010, 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) Special rule for timely filing. If the latest filing date 
specified under paragraphs (c)(1) or (c)(2) of this section falls on a 
Saturday, Sunday, or a State or Federal holiday, CMS accepts filings 
submitted on the next business day.
    (4) Filing extension based on good cause. CMS may extend the 
deadlines specified in paragraphs (c)(1) and (2) of this section for 
good cause if the plan substantially complies with the requirements of 
paragraph (e) of this section.
    (5) Failure to file a timely election. Absent an extension under 
paragraph (c)(4) of this section, a plan sponsor's failure to file a 
timely election under paragraph (c)(1) or (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.
    (d) 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 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. For submissions via hard copy via U.S. Mail, 
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 (d)(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 (d)(1) of 
this section.
    (e) 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 paragraph (e) of this section, 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 (e)(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 paragraph (e) 
of this section 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

[[Page 778]]

time of enrollment to all individuals who enroll during that plan year.
    (ii) In the case of a collectively bargained plan, 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 under the terms of the plan, or as required by State law, 
without regard to an exemption under this section.
    (f) Subsequent elections--(1) Election renewal. A plan sponsor may 
renew an election under this section through subsequent elections. The 
timeliness standards described in paragraph (c) of this section apply to 
election renewals under paragraph (f) of this section.
    (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 paragraph (b)(1)(viii) of this 
section, the plan sponsor may include a statement that the notice has 
been, or will be, provided to enrollees as specified under paragraph (e) 
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)(1) 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 (e)(2) of this 
section apply with respect to the additional requirement(s) of paragraph 
(a) of this section 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) of this section) 
under which an election under this section was in effect, the plan must 
comply with the enrollee notification requirements of paragraph (e)(1) 
of this section, and, following closure of the collective bargaining 
process, must file an election renewal with CMS as provided under 
paragraph (c)(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 (c)(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.
    (g) Requirements not subject to exemption--(1) Genetic information. 
Without regard to an election under this section that exempts a non-
Federal governmental plan from any or all of the provisions of 
Sec. Sec. 146.111 and 146.121, the exemption election must not be 
construed to exempt the plan from any provisions of this part that 
pertain to genetic information.

[[Page 779]]

    (2) Enforcement. CMS enforces these requirements as provided under 
paragraph (j) of this section.
    (h) Effect of failure to comply with certification and notification 
requirements--(1) Substantial failure--(i) General rule. Except as 
provided in paragraph (h)(1)(iii) of this section, a substantial failure 
to comply with paragraph (e) or (g)(1) 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 
(e) or (g)(1) 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 paragraph (e) or (g)(1) 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 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 (e) 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 (e) of this section 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. Two non-Federal governmental employers cosponsor a 
self-funded group health plan. One employer substantially fails to 
comply with the requirements of paragraph (e) 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.
    (i) 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 780]]

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 (c)(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.
    (j) 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 plan sponsor, as 
determined under subpart C of part 150.
    (k) 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.

[79 FR 30336, May 27, 2014]



PART 147_HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS--Table of Contents



Sec.
147.100 Basis and scope.
147.102 Fair health insurance premiums.
147.103 State reporting.
147.104 Guaranteed availability of coverage.
147.106 Guaranteed renewability of coverage.
147.108 Prohibition of preexisting condition exclusions.
147.110 Prohibiting discrimination against participants, beneficiaries, 
          and individuals based on a health factor.
147.116 Prohibition on waiting periods that exceed 90 days.
147.120 Eligibility of children until at least age 26.
147.126 No lifetime or annual limits.
147.128 Rules regarding rescissions.
147.130 Coverage of preventive health services.
147.131 Exemption and accommodations in connection with coverage of 
          preventive health services.
147.136 Internal claims and appeals and external review processes.
147.138 Patient protections.
147.140 Preservation of right to maintain existing coverage.
147.145 Student health insurance coverage.
147.150 Coverage of essential health benefits.
147.160 Parity in mental health and substance use disorder benefits.
147.200 Summary of benefits and coverage and uniform glossary.

    Authority: Secs 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 USC 300gg through 300gg-63, 300gg-91, and 300gg-
92), as amended.

    Source: 75 FR 27138, May 13, 2010, unless otherwise noted.



Sec. 147.100  Basis and scope.

    Part 147 of this subchapter implements the requirements of the 
Patient Protection and Affordable Care Act that apply to group health 
plans and health insurance issuers in the Group and Individual markets.

[[Page 781]]



Sec. 147.102  Fair health insurance premiums.

    (a) In general. With respect to the premium rate charged by a health 
insurance issuer in accordance with Sec. 156.80 of this subchapter for 
health insurance coverage offered in the individual or small group 
market--
    (1) The rate may vary with respect to the particular plan or 
coverage involved only by determining the following:
    (i) Whether the plan or coverage covers an individual or family.
    (ii) Rating area, as established in accordance with paragraph (b) of 
this section. For purposes of this paragraph, rating area is determined 
in the small group market using the group policyholder's principal 
business address and in the individual market using the primary 
policyholder's address. For plans (other than qualified health plans 
offered through the Federally-facilitated Small Business Health Options 
Program) for which an issuer can demonstrate that it relied in good 
faith on guidance from an applicable State authority issued before 
August 28, 2013, that differs from this paragraph (a)(1)(ii), the 
preceding sentence will not apply until the first plan year beginning on 
or after January 1, 2015 with respect to coverage in the small group 
market.
    (iii) Age, except that the rate may not vary by more than 3:1 for 
like individuals of different age who are age 21 and older and that the 
variation in rate must be actuarially justified for individuals under 
age 21, consistent with the uniform age rating curve under paragraph (e) 
of this section. For purposes of identifying the appropriate age 
adjustment under this paragraph and the age band under paragraph (d) of 
this section applicable to a specific enrollee, the enrollee's age as of 
the date of policy issuance or renewal must be used.
    (iv) Subject to section 2705 of the Public Health Service Act and 
its implementing regulations (related to prohibiting discrimination 
based on health status and programs of health promotion or disease 
prevention) as applicable, tobacco use, except that such rate may not 
vary by more than 1.5:1 and may only be applied with respect to 
individuals who may legally use tobacco under federal and state law. For 
purposes of this section, tobacco use means use of tobacco on average 
four or more times per week within no longer than the past 6 months. 
This includes all tobacco products, except that tobacco use does not 
include religious or ceremonial use of tobacco. Further, tobacco use 
must be defined in terms of when a tobacco product was last used.
    (2) The rate must not vary with respect to the particular plan or 
coverage involved by any other factor not described in paragraph (a)(1) 
of this section.
    (b) Rating area. (1) A state may establish one or more rating areas 
within that state, as provided in paragraphs (b)(3) and (b)(4) of this 
section, for purposes of applying this section and the requirements of 
title XXVII the Public Health Service Act and title I of the Patient 
Protection and Affordable Care Act.
    (2) If a state does not establish rating areas as provided in 
paragraphs (b)(3) and (b)(4) of this section or provide information on 
such rating areas in accordance with Sec. 147.103, or CMS determines in 
accordance with paragraph (b)(5) of this section that a state's rating 
areas under paragraph (b)(4) of this section are not adequate, the 
default will be one rating area for each metropolitan statistical area 
in the state and one rating area comprising all non-metropolitan 
statistical areas in the state, as defined by the Office of Management 
and Budget.
    (3) A state's rating areas must be based on the following geographic 
boundaries: Counties, three-digit zip codes, or metropolitan statistical 
areas and non-metropolitan statistical areas, as defined by the Office 
of Management and Budget, and will be presumed adequate if either of the 
following conditions are satisfied:
    (i) The state established by law, rule, regulation, bulletin, or 
other executive action uniform rating areas for the entire state as of 
January 1, 2013.
    (ii) The state establishes by law, rule, regulation, bulletin, or 
other executive action after January 1, 2013 uniform rating areas for 
the entire state that are no greater in number than the

[[Page 782]]

number of metropolitan statistical areas in the state plus one.
    (4) Notwithstanding paragraph (b)(3) of this section, a state may 
propose to CMS for approval a number of rating areas that is greater 
than the number described in paragraph (b)(3)(ii) of this section, 
provided such rating areas are based on the geographic boundaries 
specified in paragraph (b)(3) of this section.
    (5) In determining whether the rating areas established by each 
state under paragraph (b)(4) of this section are adequate, CMS will 
consider whether the state's rating areas are actuarially justified, are 
not unfairly discriminatory, reflect significant differences in health 
care unit costs, lead to stability in rates over time, apply uniformly 
to all issuers in a market, and are based on the geographic boundaries 
of counties, three-digit zip codes, or metropolitan statistical areas 
and non-metropolitan statistical areas.
    (c) Application of variations based on age or tobacco use. With 
respect to family coverage under health insurance coverage, the rating 
variations permitted under paragraphs (a)(1)(iii) and (a)(1)(iv) of this 
section must be applied based on the portion of the premium attributable 
to each family member covered under the coverage.
    (1) Per-member rating. The total premium for family coverage must be 
determined by summing the premiums for each individual family member. 
With respect to family members under the age of 21, the premiums for no 
more than the three oldest covered children must be taken into account 
in determining the total family premium.
    (2) Family tiers under community rating. If a state does not permit 
any rating variation for the factors described in paragraphs (a)(1)(iii) 
and (a)(1)(iv) of this section, the state may require that premiums for 
family coverage be determined by using uniform family tiers and the 
corresponding multipliers established by the state. If a state does not 
establish uniform family tiers and the corresponding multipliers, the 
per-member-rating methodology under paragraph (c)(1) of this section 
will apply in that state.
    (3) Application to small group market--(i) In the case of the small 
group market, the total premium charged to a group health plan is 
determined by summing the premiums of covered participants and 
beneficiaries in accordance with paragraph (c)(1) or (2) of this 
section, as applicable.
    (ii) Subject to paragraph (c)(3)(iii) of this section, nothing in 
this section prevents a state from requiring issuers to offer to a group 
health plan, or an issuer from voluntarily offering to a group health 
plan, premiums that are based on average enrollee premium amounts, 
provided that the total group premium established at the time of 
applicable enrollment at the beginning of the plan year is the same 
total amount derived in accordance with paragraph (c)(1) or (2) of this 
section, as applicable.
    (iii) Effective for plan years beginning on or after January 1, 
2015, an issuer that, in connection with a group health plan in the 
small group market, offers premiums that are based on average enrollee 
premium amounts under paragraph (c)(3)(ii) of this section must--
    (A) Ensure an average enrollee premium amount calculated based on 
applicable enrollment of participants and beneficiaries at the beginning 
of the plan year does not vary during the plan year.
    (B) Unless a state establishes and CMS approves an alternate rating 
methodology, calculate an average enrollee premium amount for covered 
individuals age 21 and older, and calculate an average enrollee premium 
amount for covered individuals under age 21. The premium for a given 
family composition is determined by summing the average enrollee premium 
amount applicable to each family member covered under the plan, taking 
into account no more than three covered children under age 21.
    (C) Pursuant to applicable state law, ensure that the average 
enrollee premium amount calculated for any individual covered under the 
plan does not include any rating variation for tobacco use permitted 
under paragraph (a)(1)(iv) of this section. The rating variation for 
tobacco use permitted under paragraph (a)(1)(iv) of this section is 
determined based on the premium rate that would be applied on a

[[Page 783]]

per-member basis with respect to an individual who uses tobacco and then 
included in the premium charged for that individual.
    (D) To the extent permitted by applicable state law and, in the case 
of coverage offered through a Federally-facilitated SHOP, as permitted 
by Sec. 156.285(a)(4) of this subchapter, apply this paragraph 
(c)(3)(iii) uniformly among group health plans enrolling in that 
product, giving those group health plans the option to pay premiums 
based on average enrollee premium amounts.
    (d) Uniform age bands. The following uniform age bands apply for 
rating purposes under paragraph (a)(1)(iii) of this section:
    (1) Child age bands. A single age band for individuals age 0 through 
20.
    (2) Adult age bands. One-year age bands for individuals age 21 
through 63.
    (3) Older adult age bands. A single age band for individuals age 64 
and older.
    (e) Uniform age rating curves. Each state may establish a uniform 
age rating curve in the individual or small group market, or both 
markets, for rating purposes under paragraph (a)(1)(iii) of this 
section. If a state does not establish a uniform age rating curve or 
provide information on such age curve in accordance with Sec. 147.103, 
a default uniform age rating curve specified in guidance by the 
Secretary will apply in that state which takes into account the rating 
variation permitted for age under state law.
    (f) Special rule for large group market. If a state permits health 
insurance issuers that offer coverage in the large group market in the 
state to offer such coverage through an Exchange starting in 2017, the 
provisions of this section applicable to coverage in the small group 
market apply to all coverage offered in the large group market in the 
state.
    (g) Applicability date. The provisions of this section apply for 
plan years (in the individual market, policy years) beginning on or 
after January 1, 2014.
    (h) Grandfathered health plans. This section does not apply to 
grandfathered health plans in accordance with Sec. 147.140.

[78 FR 13436, Feb. 27, 2013, as amended at 78 FR 54133, Aug. 30, 2013; 
79 FR 13834, Mar. 11, 2014]



Sec. 147.103  State reporting.

    (a) 2014. If a state has adopted or intends to adopt for the 2014 
plan or policy year a standard or requirement described in this 
paragraph, the state must submit to CMS information about such standard 
or requirement in a form and manner specified in guidance by the 
Secretary no later than March 29, 2013. A state standard or requirement 
is described in this paragraph if it includes any of the following:
    (1) A ratio narrower than 3:1 in connection with establishing rates 
for individuals who are age 21 and older, pursuant to Sec. 
147.102(a)(1)(iii).
    (2) A ratio narrower than 1.5:1 in connection with establishing 
rates for individuals who use tobacco legally, pursuant to Sec. 
147.102(a)(1)(iv).
    (3) Geographic rating areas, pursuant to Sec. 147.102(b).
    (4) In states that do not permit rating based on age or tobacco use, 
uniform family tiers and corresponding multipliers, pursuant to Sec. 
147.102(c)(2).
    (5) A requirement that that issuers in the small group market offer 
to a group premiums that are based on average enrollee amounts, pursuant 
to paragraph Sec. 147.102(c)(3).
    (6) A uniform age rating curve, pursuant to Sec. 147.102(e).
    (b) Updates. If a state adopts a standard or requirement described 
in paragraph (a) of this section for any plan or policy year beginning 
after the 2014 plan or policy year (or updates a standard or requirement 
that applies for the 2014 plan or policy year), the state must submit to 
CMS information about such standard in a form and manner specified in 
guidance by the Secretary.
    (c) Applicability date. The provisions of this section apply on 
March 29, 2013.

[78 FR 13437, Feb. 27, 2013]



Sec. 147.104  Guaranteed availability of coverage.

    (a) Guaranteed availability of coverage in the individual and group 
market. Subject to paragraphs (b) through (d) of this section, a health 
insurance issuer

[[Page 784]]

that offers health insurance coverage in the individual, small group, or 
large group market in a State must offer to any individual or employer 
in the State all products that are approved for sale in the applicable 
market, and must accept any individual or employer that applies for any 
of those products.
    (b) Enrollment periods. A health insurance issuer may restrict 
enrollment in health insurance coverage to open or special enrollment 
periods.
    (1) Open enrollment periods--(i) Group market. (A) Subject to 
paragraph (b)(1)(i)(B) of this section, a health insurance issuer in the 
group market must allow an employer to purchase health insurance 
coverage for a group health plan at any point during the year.
    (B) In the case of a group health plan in the small group market 
that cannot comply with employer contribution or group participation 
rules for the offering of health insurance coverage, as allowed under 
applicable State law and in the case of a QHP offered in the SHOP, as 
permitted by Sec. 156.285(e) of this subchapter, a health insurance 
issuer may restrict the availability of coverage to an annual enrollment 
period that begins November 15 and extends through December 15 of each 
calendar year.
    (C) With respect to coverage in the small group market, and in the 
large group market if such coverage is offered through a Small Business 
Health Options Program (SHOP) in a State, coverage must become effective 
consistent with the dates described in Sec. 155.725 of this subchapter, 
except as provided in paragraph (b)(1)(iii) of this section.
    (ii) Individual market. A health insurance issuer in the individual 
market must allow an individual to purchase health insurance coverage 
during the initial and annual open enrollment periods described in Sec. 
155.410(b) and (e) of this subchapter. Coverage must become effective 
consistent with the dates described in Sec. 155.410(c) and (f) of this 
subchapter, except as provided in paragraph (b)(1)(iii) of this section.
    (iii) Exception in certain effective dates of coverage. Only with 
respect to coverage offered outside of an Exchange or SHOP, for a plan 
selection received by an issuer on or before December 15, 2013, the 
issuer must ensure a coverage effective date of January 1, 2014, and for 
a plan selection received by an issuer between the 16th and 31st of the 
month of December 2013, an issuer generally must ensure a coverage 
effective date of February 1, 2014. The preceding sentence does not 
prevent an issuer from aligning the plan selection and coverage 
effective dates with those required by the Exchange or SHOP, as 
applicable, in the applicable state, consistent with Sec. 155.410(c) of 
this subchapter.
    (2) Limited open enrollment periods. A health insurance issuer in 
the individual market must provide a limited open enrollment period for 
the events described in Sec. 155.420(d) of this subchapter, excluding 
Sec. 155.420(d)(3) of this subchapter (concerning citizenship status), 
Sec. 155.420(d)(8) of this subchapter (concerning Indians), and Sec. 
155.420(d)(9) of this subchapter (concerning exceptional circumstances).
    (3) Special enrollment periods. A health insurance issuer in the 
group and individual market must establish special enrollment periods 
for qualifying events as defined under section 603 of the Employee 
Retirement Income Security Act of 1974, as amended. These special 
enrollment periods are in addition to any other special enrollment 
periods that are required under federal and state law.
    (4) Length of enrollment periods. (i) In the group market, enrollees 
must be provided 30 calendar days after the date of the qualifying event 
described in paragraph (b)(3) of this section to elect coverage.
    (ii) In the individual market, enrollees must be provided 60 
calendar days after the date of an event described in paragraph (b)(2) 
and (3) of this section to elect coverage, as well as 60 calendar days 
before certain triggering events as provided for in Sec. 155.420(c)(2) 
of this subchapter.
    (5) Effective date of coverage for limited open and special 
enrollment periods. With respect to an election made under paragraph 
(b)(2) or (b)(3) of this section, coverage must become effective 
consistent with the dates described in Sec. 155.420(b) of this 
subchapter.

[[Page 785]]

    (c) Special rules for network plans. (1) In the case of a health 
insurance issuer that offers health insurance coverage in the group and 
individual market through a network plan, the issuer may do the 
following:
    (i) Limit the employers that may apply for the coverage to those 
with eligible individuals in the group market who live, work, or reside 
in the service area for the network plan, and limit the individuals who 
may apply for the coverage in the individual market to those who live or 
reside in the service area for the network plan.
    (ii) Within the service area of the plan, deny coverage to employers 
and individuals if the issuer has demonstrated to the applicable state 
authority (if required by the state authority) the following:
    (A) It will not have the capacity to deliver services adequately to 
enrollees of any additional groups or any additional individuals because 
of its obligations to existing group contract holders and enrollees.
    (B) It is applying paragraph (c)(1) of this section uniformly to all 
employers and individuals without regard to the claims experience of 
those individuals, employers and their employees (and their dependents) 
or any health status-related factor relating to such individuals, 
employees, and dependents.
    (2) An issuer that denies health insurance coverage to an individual 
or an employer in any service area, in accordance with paragraph 
(c)(1)(ii) of this section, may not offer coverage in the individual, 
small group, or large group market, as applicable, for a period of 180 
calendar days after the date the coverage is denied. This 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 group or individual 
market if the issuer has demonstrated to the applicable state authority 
(if required by the state authority) the following:
    (i) It does not have the financial reserves necessary to offer 
additional coverage.
    (ii) It is applying this paragraph (d)(1) uniformly to all employers 
or individual in the large group, small group, or individual market, as 
applicable, in the State consistent with applicable State law and 
without regard to the claims experience of those individuals, employers 
and their employees (and their dependents) or any health status-related 
factor relating to such individuals, employees, and dependents.
    (2) An issuer that denies health insurance coverage to any employer 
or individual in a state under paragraph (d)(1) of this section may not 
offer coverage in the large group, small group, or individual market, as 
applicable, in the State before the later of either 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) Marketing. A health insurance issuer and its officials, 
employees, agents and representatives must comply with any applicable 
state laws and regulations regarding marketing by health insurance 
issuers and cannot employ marketing practices or benefit designs that 
will have the effect of discouraging the enrollment of individuals with 
significant health needs in health insurance coverage or discriminate 
based on an individual's race,

[[Page 786]]

color, national origin, present or predicted disability, age, sex, 
gender identity, sexual orientation, expected length of life, degree of 
medical dependency, quality of life, or other health conditions.
    (f) Calendar year plans. An issuer that offers coverage in the 
individual market, or in a merged market in a State that has elected to 
merge the individual market and small group market risk pools in 
accordance with section 1312(c)(3) of the Affordable Care Act, must 
ensure that such coverage is offered on a calendar year basis with a 
policy year ending on December 31 of each calendar year.
    (g) Applicability date. The provisions of this section apply for 
plan years (in the individual market, policy years) beginning on or 
after January 1, 2014.
    (h) Grandfathered health plans. This section does not apply to 
grandfathered health plans in accordance with Sec. 147.140.
    (i) Construction. Nothing in this section should be construed to 
require an issuer to offer coverage otherwise prohibited under 
applicable Federal law.

[78 FR 13437, Feb. 27, 2013, as amended at 78 FR 65092, Oct. 30, 2013; 
78 FR 76217, Dec. 17, 2013; 79 FR 30339, May 27, 2014; 79 FR 59138, Oct. 
1, 2014; 80 FR 10862, Feb. 27, 2015]



Sec. 147.106  Guaranteed renewability of coverage.

    (a) General rule. Subject to paragraphs (b) through (d) of this 
section, a health insurance issuer offering health insurance coverage in 
the individual, small group, or large group market is required to renew 
or continue in force the coverage at the option of the plan sponsor or 
the individual, as applicable.
    (b) Exceptions. An issuer may nonrenew or discontinue health 
insurance coverage offered in the group or individual market based only 
on one or more of the following:
    (1) Nonpayment of premiums. The plan sponsor or individual, as 
applicable, has failed to pay premiums or contributions in accordance 
with the terms of the health insurance coverage, including any 
timeliness requirements.
    (2) Fraud. The plan sponsor or individual, as applicable, 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. In the case of 
group health insurance coverage, the plan sponsor has failed to comply 
with a material plan provision relating to employer contribution or 
group participation rules, pursuant to applicable state law. For 
purposes of this paragraph the following apply:
    (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.
    (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.
    (4) Termination of product. The issuer is ceasing to offer coverage 
in the market in accordance with paragraph (c) or (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 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. 147.104(c)(1)(i); provided the issuer 
provides notice in accordance with the requirements of paragraph (c)(1) 
of this section.
    (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 bona fide 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 group or individual market, that product may be

[[Page 787]]

discontinued by the issuer in accordance with applicable state law in 
the applicable market only if the following occurs:
    (1) The issuer provides notice in writing, in a form and manner 
specified by the Secretary, to each plan sponsor or individual, as 
applicable, provided that particular product in that market (and to all 
participants and beneficiaries covered under such coverage) of the 
discontinuation at least 90 calendar days before the date the coverage 
will be discontinued.
    (2) The issuer offers to each plan sponsor or individual, as 
applicable, provided that particular product the option, on a guaranteed 
availability 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 or individual health insurance 
coverage in that market.
    (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 individuals, as applicable, 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. (1) An issuer may elect to 
discontinue offering all health insurance coverage in the individual, 
small group, or large group market, or all markets, in a State in 
accordance with applicable State law only if--
    (i) The issuer provides notice in writing to the applicable state 
authority and to each plan sponsor or individual, as applicable, (and 
all participants and beneficiaries covered under the coverage) of the 
discontinuation at least 180 calendar days prior to the date the 
coverage will be discontinued; and
    (ii) All health insurance policies issued or delivered for issuance 
in the state in the applicable market (or markets) are discontinued and 
not renewed.
    (2) An issuer that elects to discontinue offering all health 
insurance coverage in a market (or markets) in a state as described in 
this paragraph (d) may not issue coverage in the applicable market (or 
markets) and state involved during the 5-year period beginning on the 
date of discontinuation of the last coverage not renewed.
    (e) Exception for uniform modification of coverage. (1) Only at the 
time of coverage renewal may issuers modify the health insurance 
coverage for a product offered to a group health plan or an individual, 
as applicable, in the following:
    (i) Large group market.
    (ii) 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.
    (iii) Individual market if the modification is consistent with State 
law and is effective uniformly for all individuals with that product.
    (2) For purposes of paragraphs (e)(1)(ii) and (iii) of this section, 
modifications made uniformly and solely pursuant to applicable Federal 
or State requirements are considered a uniform modification of coverage 
if:
    (i) The modification is made within a reasonable time period after 
the imposition or modification of the Federal or State requirement; and
    (ii) The modification is directly related to the imposition or 
modification of the Federal or State requirement.
    (3) Other types of modifications made uniformly are considered a 
uniform modification of coverage if the health insurance coverage for 
the product in the individual or small group market meets all of the 
following criteria:
    (i) The product is offered by the same health insurance issuer 
(within the meaning of section 2791(b)(2) of the PHS Act);
    (ii) The product is offered as the same product network type (for 
example, health maintenance organization, preferred provider 
organization, exclusive provider organization, point of service, or 
indemnity);
    (iii) The product continues to cover at least a majority of the same 
service area;
    (iv) Within the product, each plan has the same cost-sharing 
structure as before the modification, except for any

[[Page 788]]

variation in cost sharing solely related to changes in cost and 
utilization of medical care, or to maintain the same metal tier level 
described in sections 1302(d) and (e) of the Affordable Care Act; and
    (v) The product provides the same covered benefits, except for any 
changes in benefits that cumulatively impact the plan-adjusted index 
rate (as described in Sec. 156.80(d)(2) of this subchapter) for any 
plan within the product within an allowable variation of 2 percentage points (not including changes pursuant to 
applicable Federal or State requirements).
    (4) A State may only broaden the standards in paragraphs (e)(3)(iii) 
and (iv) of this section.
    (f) Notice of renewal of coverage. (1) If an issuer in the 
individual market is renewing non-grandfathered coverage as described in 
paragraph (a) of this section, or uniformly modifying non-grandfathered 
coverage as described in paragraph (e) of this section, the issuer must 
provide to each individual written notice of the renewal before the date 
of the first day of the next annual open enrollment period in a form and 
manner specified by the Secretary.
    (2) If an issuer in the small group market is renewing coverage as 
described in paragraph (a) of this section, or uniformly modifying 
coverage as described in paragraph (e) of this section, the issuer must 
provide to each plan sponsor written notice of the renewal at least 60 
calendar days before the date of the coverage will be renewed in a form 
and manner specified by the Secretary.
    (g) Notification of change of ownership. If an issuer of a QHP, a 
plan otherwise subject to risk corridors, a risk adjustment covered 
plan, or a reinsurance-eligible plan experiences a change of ownership, 
as recognized by the State in which the plan is offered, the issuer must 
notify HHS in a manner specified by HHS, by the latest of--
    (1) The date the transaction is entered into; or
    (2) The 30th day prior to the effective date of the transaction.
    (h) Construction. (1) Nothing in this section should be construed to 
require an issuer to renew or continue in force coverage for which 
continued eligibility would otherwise be prohibited under applicable 
Federal law.
    (2) Medicare eligibility or entitlement is not a basis for 
nonrenewal or termination of an individual's health insurance coverage 
in the individual market.
    (i) 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 the employer.
    (j) Applicability date. The provisions of this section apply for 
plan years (in the individual market, policy years) beginning on or 
after January 1, 2014.
    (k) Grandfathered health plans. This section does not apply to 
grandfathered health plans in accordance with Sec. 147.140.

[78 FR 13437, Feb. 27, 2013, as amended at 78 FR 65092, Oct. 30, 2013; 
79 FR 30339, May 27, 2014; 79 FR 42985, July 24, 2014; 79 FR 53004, 
Sept. 5, 2014; 80 FR 10862, Feb. 27, 2015]



Sec. 147.108  Prohibition of preexisting condition exclusions.

    (a) No preexisting condition exclusions--(1) In general. A group 
health plan, or a health insurance issuer offering group or individual 
health insurance coverage, may not impose any preexisting condition 
exclusion (as defined in Sec. 144.103).
    (2) Examples. The rules of this paragraph (a) are illustrated by the 
following examples (for additional examples illustrating the definition 
of a preexisting condition exclusion, see Sec. 146.111(a)(1)(ii)):

    Example 1. (i) Facts. A group health plan provides benefits solely 
through an insurance policy offered by Issuer P. At the expiration of 
the policy, the plan switches coverage to a policy offered by Issuer N. 
N's policy excludes benefits for oral surgery required as a result of a 
traumatic injury if the injury occurred before the effective date of 
coverage under the policy.
    (ii) Conclusion. In this Example 1, the exclusion of benefits for 
oral surgery required as a result of a traumatic injury if the injury

[[Page 789]]

occurred before the effective date of coverage is a preexisting 
condition exclusion because it operates to exclude benefits for a 
condition based on the fact that the condition was present before the 
effective date of coverage under the policy.
    Example 2. (i) Facts. Individual C applies for individual health 
2insurance coverage with Issuer M. M denies C's application for coverage 
because a pre-enrollment physical revealed that C has type 2 diabetes.
    (ii) Conclusion. In this Example 2, M's denial of C's application 
for coverage is a preexisting condition exclusion because a denial of an 
application for coverage based on the fact that a condition was present 
before the date of denial is an exclusion of benefits based on a 
preexisting condition.

    (b) Applicability--(1) General applicability date. Except as 
provided in paragraph (b)(2) of this section, the rules of this section 
apply for plan years beginning on or after January 1, 2014; in the case 
of individual health insurance coverage, for policy years beginning, or 
applications denied, on or after January 1, 2014.
    (2) Early applicability date for children. The rules of this section 
apply with respect to enrollees, including applicants for enrollment, 
who are under 19 years of age for plan years beginning on or after 
September 23, 2010; in the case of individual health insurance coverage, 
for policy years beginning, or applications denied, on or after 
September 23, 2010.
    (3) Applicability to grandfathered health plans. See Sec. 147.140 
of this part for determining the application of this section to 
grandfathered health plans (providing that a grandfathered health plan 
that is a group health plan or group health insurance coverage must 
comply with the prohibition against preexisting condition exclusions; 
however, a grandfathered health plan that is individual health insurance 
coverage is not required to comply with PHS Act section 2704).
    (4) Examples. The rules of this paragraph (b) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual F commences employment and enrolls 
F and F's 16-year-old child in the group health plan maintained by F's 
employer, with a first day of coverage of October 15, 2010. F's child 
had a significant break in coverage because of a lapse of more than 63 
days without creditable coverage immediately prior to enrolling in the 
plan. F's child was treated for asthma within the six-month period prior 
to the enrollment date and the plan imposes a 12-month preexisting 
condition exclusion for coverage of asthma. The next plan year begins on 
January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan year beginning January 
1, 2011, is the first plan year of the group health plan beginning on or 
after September 23, 2010. Thus, beginning on January 1, 2011, because 
the child is under 19 years of age, the plan cannot impose a preexisting 
condition exclusion with respect to the child's asthma regardless of the 
fact that the preexisting condition exclusion was imposed by the plan 
before the applicability date of this provision.
    Example 2. (i) Facts. Individual G applies for a policy of family 
coverage in the individual market for G, G's spouse, and G's 13-year-old 
child. The issuer denies the application for coverage on March 1, 2011 
because G's 13-year-old child has autism.
    (ii) Conclusion. In this Example 2, the issuer's denial of G's 
application for a policy of family coverage in the individual market is 
a preexisting condition exclusion because the denial was based on the 
child's autism, which was present before the date of denial of coverage. 
Because the child is under 19 years of age and the March 1, 2011, denial 
of coverage is after the applicability date of this section, the issuer 
is prohibited from imposing a preexisting condition exclusion with 
respect to G's 13-year-old child.

[75 FR 37235, June 28, 2010]



Sec. 147.110  Prohibiting discrimination against participants, 
beneficiaries, and individuals based on a health factor.

    (a) In general. A group health plan and a health insurance issuer 
offering group or individual health insurance coverage must comply with 
all the requirements under 45 CFR 146.121 applicable to a group health 
plan and a health insurance issuer offering group health insurance 
coverage. Accordingly, with respect to an issuer offering health 
insurance coverage in the individual market, the issuer is subject to 
the requirements of Sec. 146.121 to the same extent as an issuer 
offering group health insurance coverage, except the exception contained 
in Sec. 146.121(f) (concerning nondiscriminatory wellness programs) 
does not apply.
    (b) Applicability date. This section is applicable to group health 
plans and health insurance issuers offering group or individual health 
insurance coverage for plan years (in the individual

[[Page 790]]

market, policy years) beginning on or after January 1, 2014. See Sec. 
147.140, which provides that the rules of this section do not apply to 
grandfathered health plans that are individual health insurance 
coverage.

[78 FR 33192, June 3, 2013]



Sec. 147.116  Prohibition on waiting periods that exceed 90 days.

    (a) General rule. A group health plan, and a health insurance issuer 
offering group health insurance coverage, must not apply any waiting 
period that exceeds 90 days, in accordance with the rules of this 
section. If, under the terms of a plan, an individual can elect coverage 
that would begin on a date that is not later than the end of the 90-day 
waiting period, this paragraph (a) is considered satisfied. Accordingly, 
in that case, a plan or issuer will not be considered to have violated 
this paragraph (a) solely because individuals take, or are permitted to 
take, additional time (beyond the end of the 90-day waiting period) to 
elect coverage.
    (b) Waiting period defined. For purposes of this part, a waiting 
period is the period that must pass before coverage for an individual 
who is otherwise eligible to enroll under the terms of a group health 
plan can become effective. If an individual enrolls as a late enrollee 
(as defined under Sec. 144.103 of this subchapter) or special enrollee 
(as described in Sec. 146.117 of this subchapter), any period before 
such late or special enrollment is not a waiting period.
    (c) Relation to a plan's eligibility criteria--(1) In general. 
Except as provided in paragraphs (c)(2) and (c)(3) of this section, 
being otherwise eligible to enroll under the terms of a group health 
plan means having met the plan's substantive eligibility conditions 
(such as, for example, being in an eligible job classification, 
achieving job-related licensure requirements specified in the plan's 
terms, or satisfying a reasonable and bona fide employment-based 
orientation period). Moreover, except as provided in paragraphs (c)(2) 
and (c)(3) of this section, nothing in this section requires a plan 
sponsor to offer coverage to any particular individual or class of 
individuals (including, for example, part-time employees). Instead, this 
section prohibits requiring otherwise eligible individuals to wait more 
than 90 days before coverage is effective. See also section 4980H of the 
Code and its implementing regulations for an applicable large employer's 
shared responsibility to provide health coverage to full-time employees.
    (2) Eligibility conditions based solely on the lapse of time. 
Eligibility conditions that are based solely on the lapse of a time 
period are permissible for no more than 90 days.
    (3) Other conditions for eligibility. Other conditions for 
eligibility under the terms of a group health plan are generally 
permissible under PHS Act section 2708, unless the condition is designed 
to avoid compliance with the 90-day waiting period limitation, 
determined in accordance with the rules of this paragraph (c)(3).
    (i) Application to variable-hour employees in cases in which a 
specified number of hours of service per period is a plan eligibility 
condition. If a group health plan conditions eligibility on an employee 
regularly having a specified number of hours of service per period (or 
working full-time), and it cannot be determined that a newly-hired 
employee is reasonably expected to regularly work that number of hours 
per period (or work full-time), the plan may take a reasonable period of 
time, not to exceed 12 months and beginning on any date between the 
employee's start date and the first day of the first calendar month 
following the employee's start date, to determine whether the employee 
meets the plan's eligibility condition. Except in cases in which a 
waiting period that exceeds 90 days is imposed in addition to a 
measurement period, the time period for determining whether such an 
employee meets the plan's eligibility condition will not be considered 
to be designed to avoid compliance with the 90-day waiting period 
limitation if coverage is made effective no later than 13 months from 
the employee's start date plus, if the employee's start date is not the 
first day of a calendar month, the time remaining until the first day of 
the next calendar month.
    (ii) Cumulative service requirements. If a group health plan or 
health insurance

[[Page 791]]

issuer conditions eligibility on an employee's having completed a number 
of cumulative hours of service, the eligibility condition is not 
considered to be designed to avoid compliance with the 90-day waiting 
period limitation if the cumulative hours-of-service requirement does 
not exceed 1,200 hours.
    (iii) Limitation on orientation periods. To ensure that an 
orientation period is not used as a subterfuge for the passage of time, 
or designed to avoid compliance with the 90-day waiting period 
limitation, an orientation period is permitted only if it does not 
exceed one month. For this purpose, one month is determined by adding 
one calendar month and subtracting one calendar day, measured from an 
employee's start date in a position that is otherwise eligible for 
coverage. For example, if an employee's start date in an otherwise 
eligible position is May 3, the last permitted day of the orientation 
period is June 2. Similarly, if an employee's start date in an otherwise 
eligible position is October 1, the last permitted day of the 
orientation period is October 31. If there is not a corresponding date 
in the next calendar month upon adding a calendar month, the last 
permitted day of the orientation period is the last day of the next 
calendar month. For example, if the employee's start date is January 30, 
the last permitted day of the orientation period is February 28 (or 
February 29 in a leap year). Similarly, if the employee's start date is 
August 31, the last permitted day of the orientation period is September 
30.
    (d) Application to rehires. A plan or issuer may treat an employee 
whose employment has terminated and who then is rehired as newly 
eligible upon rehire and, therefore, required to meet the plan's 
eligibility criteria and waiting period anew, if reasonable under the 
circumstances (for example, the termination and rehire cannot be a 
subterfuge to avoid compliance with the 90-day waiting period 
limitation).
    (e) Counting days. Under this section, all calendar days are counted 
beginning on the enrollment date (as defined in Sec. 144.103), 
including weekends and holidays. A plan or issuer that imposes a 90-day 
waiting period may, for administrative convenience, choose to permit 
coverage to become effective earlier than the 91st day if the 91st day 
is a weekend or holiday.
    (f) Examples. The rules of this section are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan provides that full-time 
employees are eligible for coverage under the plan. Employee A begins 
employment as a full-time employee on January 19.
    (ii) Conclusion. In this Example 1, any waiting period for A would 
begin on January 19 and may not exceed 90 days. Coverage under the plan 
must become effective no later than April 19 (assuming February lasts 28 
days).
    Example 2. (i) Facts. A group health plan provides that only 
employees with job title M are eligible for coverage under the plan. 
Employee B begins employment with job title L on January 30.
    (ii) Conclusion. In this Example 2, B is not eligible for coverage 
under the plan, and the period while B is working with job title L and 
therefore not in an eligible class of employees, is not part of a 
waiting period under this section.
    Example 3. (i) Facts. Same facts as in Example 2, except that B 
transfers to a new position with job title M on April 11.
    (ii) Conclusion. In this Example 3, B becomes eligible for coverage 
on April 11, but for the waiting period. Any waiting period for B begins 
on April 11 and may not exceed 90 days; therefore, coverage under the 
plan must become effective no later than July 10.
    Example 4. (i) Facts. A group health plan provides that only 
employees who have completed specified training and achieved specified 
certifications are eligible for coverage under the plan. Employee C is 
hired on May 3 and meets the plan's eligibility criteria on September 
22.
    (ii) Conclusion. In this Example 4, C becomes eligible for coverage 
on September 22, but for the waiting period. Any waiting period for C 
would begin on September 22 and may not exceed 90 days; therefore, 
coverage under the plan must become effective no later than December 21.
    Example 5. (i) Facts. A group health plan provides that employees 
are eligible for coverage after one year of service.
    (ii) Conclusion. In this Example 5, the plan's eligibility condition 
is based solely on the lapse of time and, therefore, is impermissible 
under paragraph (c)(2) of this section because it exceeds 90 days.
    Example 6. (i) Facts. Employer V's group health plan provides for 
coverage to begin on the first day of the first payroll period on or 
after the date an employee is hired and completes the applicable 
enrollment forms. Enrollment forms are distributed on an employee's 
start date and may be completed within

[[Page 792]]

90 days. Employee D is hired and starts on October 31, which is the 
first day of a pay period. D completes the enrollment forms and submits 
them on the 90th day after D's start date, which is January 28. Coverage 
is made effective 7 days later, February 4, which is the first day of 
the next pay period.
    (ii) Conclusion. In this Example 6, under the terms of V's plan, 
coverage may become effective as early as October 31, depending on when 
D completes the applicable enrollment forms. Under the terms of the 
plan, when coverage becomes effective depends solely on the length of 
time taken by D to complete the enrollment materials. Therefore, under 
the terms of the plan, D may elect coverage that would begin on a date 
that does not exceed the 90-day waiting period limitation, and the plan 
complies with this section.
    Example 7. (i) Facts. Under Employer W's group health plan, only 
employees who are full-time (defined under the plan as regularly 
averaging 30 hours of service per week) are eligible for coverage. 
Employee E begins employment for Employer W on November 26 of Year 1. 
E's hours are reasonably expected to vary, with an opportunity to work 
between 20 and 45 hours per week, depending on shift availability and 
E's availability. Therefore, it cannot be determined at E's start date 
that E is reasonably expected to work full-time. Under the terms of the 
plan, variable-hour employees, such as E, are eligible to enroll in the 
plan if they are determined to be a full-time employee after a 
measurement period of 12 months that begins on the employee's start 
date. Coverage is made effective no later than the first day of the 
first calendar month after the applicable enrollment forms are received. 
E's 12-month measurement period ends November 25 of Year 2. E is 
determined to be a full-time employee and is notified of E's plan 
eligibility. If E then elects coverage, E's first day of coverage will 
be January 1 of Year 3.
    (ii) Conclusion. In this Example 7, the measurement period is 
permissible because it is not considered to be designed to avoid 
compliance with the 90-day waiting period limitation. The plan may use a 
reasonable period of time to determine whether a variable-hour employee 
is a full-time employee, provided that (a) the period of time is no 
longer than 12 months; (b) the period of time begins on a date between 
the employee's start date and the first day of the next calendar month 
(inclusive); (c) coverage is made effective no later than 13 months from 
E's start date plus, if the employee's start date is not the first day 
of a calendar month, the time remaining until the first day of the next 
calendar month; and (d) in addition to the measurement period, no more 
than 90 days elapse prior to the employee's eligibility for coverage.
    Example 8. (i) Facts. Employee F begins working 25 hours per week 
for Employer X on January 6 and is considered a part-time employee for 
purposes of X's group health plan. X sponsors a group health plan that 
provides coverage to part-time employees after they have completed a 
cumulative 1,200 hours of service. F satisfies the plan's cumulative 
hours of service condition on December 15.
    (ii) Conclusion. In this Example 8, the cumulative hours of service 
condition with respect to part-time employees is not considered to be 
designed to avoid compliance with the 90-day waiting period limitation. 
Accordingly, coverage for F under the plan must begin no later than the 
91st day after F completes 1,200 hours. (If the plan's cumulative hours-
of-service requirement was more than 1,200 hours, the requirement would 
be considered to be designed to avoid compliance with the 90-day waiting 
period limitation.)
    Example 9. (i) Facts. A multiemployer plan operating pursuant to an 
arms-length collective bargaining agreement has an eligibility provision 
that allows employees to become eligible for coverage by working a 
specified number of hours of covered employment for multiple 
contributing employers. The plan aggregates hours in a calendar quarter 
and then, if enough hours are earned, coverage begins the first day of 
the next calendar quarter. The plan also permits coverage to extend for 
the next full calendar quarter, regardless of whether an employee's 
employment has terminated.
    (ii) Conclusion. In this Example 9, these eligibility provisions are 
designed to accommodate a unique operating structure, and, therefore, 
are not considered to be designed to avoid compliance with the 90-day 
waiting period limitation, and the plan complies with this section.
    Example 10. (i) Facts. Employee G retires at age 55 after 30 years 
of employment with Employer Y with no expectation of providing further 
services to Employer Y. Three months later, Y recruits G to return to 
work as an employee providing advice and transition assistance for G's 
replacement under a one-year employment contract. Y's plan imposes a 90-
day waiting period from an employee's start date before coverage becomes 
effective.
    (ii) Conclusion. In this Example 10, Y's plan may treat G as newly 
eligible for coverage under the plan upon rehire and therefore may 
impose the 90-day waiting period with respect to G for coverage offered 
in connection with G's rehire.
    Example 11. (i) Facts. Employee H begins working full time for 
Employer Z on October 16. Z sponsors a group health plan, under which 
full time employees are eligible for coverage after they have 
successfully completed a bona fide one-month orientation period. H 
completes the orientation period on November 15.

[[Page 793]]

    (ii) Conclusion. In this Example 11, the orientation period is not 
considered a subterfuge for the passage of time and is not considered to 
be designed to avoid compliance with the 90-day waiting period 
limitation. Accordingly, plan coverage for H must begin no later than 
February 14, which is the 91st day after H completes the orientation 
period. (If the orientation period was longer than one month, it would 
be considered to be a subterfuge for the passage of time and designed to 
avoid compliance with the 90-day waiting period limitation. Accordingly 
it would violate the rules of this section.)

    (g) Special rule for health insurance issuers. To the extent 
coverage under a group health plan is insured by a health insurance 
issuer, the issuer is permitted to rely on the eligibility information 
reported to it by the employer (or other plan sponsor) and will not be 
considered to violate the requirements of this section with respect to 
its administration of any waiting period, if both of the following 
conditions are satisfied:
    (1) The issuer requires the plan sponsor to make a representation 
regarding the terms of any eligibility conditions or waiting periods 
imposed by the plan sponsor before an individual is eligible to become 
covered under the terms of the plan (and requires the plan sponsor to 
update this representation with any changes), and
    (2) The issuer has no specific knowledge of the imposition of a 
waiting period that would exceed the permitted 90-day period.
    (h) No effect on other laws. Compliance with this section is not 
determinative of compliance with any other provision of State or Federal 
law (including ERISA, the Code, or other provisions of the Patient 
Protection and Affordable Care Act). See e.g., Sec. 146.121 of this 
subchapter and Sec. 147.110, which prohibits discrimination in 
eligibility for coverage based on a health factor and Code section 
4980H, which generally requires applicable large employers to offer 
coverage to full-time employees and their dependents or make an 
assessable payment.
    (i) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2015. See Sec. 147.140 
providing that the prohibition on waiting periods exceeding 90 days 
applies to all group health plans and group health insurance issuers, 
including grandfathered health plans.

[79 FR 10315, Feb. 24, 2014, as amended at 79 FR 35948, June 25, 2014]



Sec. 147.120  Eligibility of children until at least age 26.

    (a) In general--(1) A group health plan, or a health insurance 
issuer offering group or individual health insurance coverage, that 
makes available dependent coverage of children must make such coverage 
available for children until attainment of 26 years of age.
    (2) The rule of this paragraph (a) is illustrated by the following 
example:

    Example. (i) Facts. For the plan year beginning January 1, 2011, a 
group health plan provides health coverage for employees, employees' 
spouses, and employees' children until the child turns 26. On the 
birthday of a child of an employee, July 17, 2011, the child turns 26. 
The last day the plan covers the child is July 16, 2011.
    (ii) Conclusion. In this Example, the plan satisfies the requirement 
of this paragraph (a) with respect to the child.

    (b) Restrictions on plan definition of dependent. With respect to a 
child who has not attained age 26, a plan or issuer may not define 
dependent for purposes of eligibility for dependent coverage of children 
other than in terms of a relationship between a child and the 
participant (in the individual market, the primary subscriber). Thus, 
for example, a plan or issuer may not deny or restrict coverage for a 
child who has not attained age 26 based on the presence or absence of 
the child's financial dependency (upon the participant or primary 
subscriber, or any other person), residency with the participant (in the 
individual market, the primary subscriber) or with any other person, 
student status, employment, or any combination of those factors. In 
addition, a plan or issuer may not deny or restrict coverage of a child 
based on eligibility for other coverage, except that paragraph (g) of 
this section provides a special rule for plan years beginning before 
January 1, 2014 for grandfathered health plans that are group health 
plans. (Other requirements of Federal or State law, including section 
609 of

[[Page 794]]

ERISA or section 1908 of the Social Security Act, may mandate coverage 
of certain children.)
    (c) Coverage of grandchildren not required. Nothing in this section 
requires a plan or issuer to make coverage available for the child of a 
child receiving dependent coverage.
    (d) Uniformity irrespective of age. The terms of the plan or health 
insurance coverage providing dependent coverage of children cannot vary 
based on age (except for children who are age 26 or older).
    (e) Examples. The rules of paragraph (d) of this section are 
illustrated by the following examples:

    Example 1. (i) Facts. A group health plan offers a choice of self-
only or family health coverage. Dependent coverage is provided under 
family health coverage for children of participants who have not 
attained age 26. The plan imposes an additional premium surcharge for 
children who are older than age 18.
    (ii) Conclusion. In this Example 1, the plan violates the 
requirement of paragraph (d) of this section because the plan varies the 
terms for dependent coverage of children based on age.
    Example 2. (i) Facts. A group health plan offers a choice among the 
following tiers of health coverage: Self-only, self-plus-one, self-plus-
two, and self-plus-three-or-more. The cost of coverage increases based 
on the number of covered individuals. The plan provides dependent 
coverage of children who have not attained age 26.
    (ii) Conclusion. In this Example 2, the plan does not violate the 
requirement of paragraph (d) of this section that the terms of dependent 
coverage for children not vary based on age. Although the cost of 
coverage increases for tiers with more covered individuals, the increase 
applies without regard to the age of any child.
    Example 3. (i) Facts. A group health plan offers two benefit 
packages--an HMO option and an indemnity option. Dependent coverage is 
provided for children of participants who have not attained age 26. The 
plan limits children who are older than age 18 to the HMO option.
    (ii) Conclusion. In this Example 3, the plan violates the 
requirement of paragraph (d) of this section because the plan, by 
limiting children who are older than age 18 to the HMO option, varies 
the terms for dependent coverage of children based on age.

    (f) Transitional rules for individuals whose coverage ended by 
reason of reaching a dependent eligibility threshold--(1) In general. 
The relief provided in the transitional rules of this paragraph (f) 
applies with respect to any child--
    (i) Whose coverage ended, or who was denied coverage (or was not 
eligible for coverage) under a group health plan or group or individual 
health insurance coverage because, under the terms of the plan or 
coverage, the availability of dependent coverage of children ended 
before the attainment of age 26 (which, under this section, is no longer 
permissible); and
    (ii) Who becomes eligible (or is required to become eligible) for 
coverage under a group health plan or group or individual health 
insurance coverage on the first day of the first plan year (in the 
individual market, the first day of the first policy year) beginning on 
or after September 23, 2010 by reason of the application of this 
section.
    (2) Opportunity to enroll required--(i) If a group health plan, or 
group or individual health insurance coverage, in which a child 
described in paragraph (f)(1) of this section is eligible to enroll (or 
is required to become eligible to enroll) is the plan or coverage in 
which the child's coverage ended (or did not begin) for the reasons 
described in paragraph (f)(1)(i) of this section, and if the plan, or 
the issuer of such coverage, is subject to the requirements of this 
section, the plan and the issuer are required to give the child an 
opportunity to enroll that continues for at least 30 days (including 
written notice of the opportunity to enroll). This opportunity 
(including the written notice) must be provided beginning not later than 
the first day of the first plan year (in the individual market, the 
first day of the first policy year) beginning on or after September 23, 
2010.
    (ii) The written notice must include a statement that children whose 
coverage ended, or who were denied coverage (or were not eligible for 
coverage), because the availability of dependent coverage of children 
ended before attainment of age 26 are eligible to enroll in the plan or 
coverage. The notice may be provided to an employee on behalf of the 
employee's child (in the individual market, to the primary subscriber on 
behalf of the primary subscriber's child). In addition, for a group 
health plan or group health insurance coverage, the notice may be 
included

[[Page 795]]

with other enrollment materials that a plan distributes to employees, 
provided the statement is prominent. For a group health plan or group 
health insurance coverage, if a notice satisfying the requirements of 
this paragraph (f)(2) is provided to an employee whose child is entitled 
to an enrollment opportunity under this paragraph (f), the obligation to 
provide the notice of enrollment opportunity under this paragraph (f)(2) 
with respect to that child is satisfied for both the plan and the 
issuer.
    (3) Effective date of coverage. In the case of an individual who 
enrolls under paragraph (f)(2) of this section, coverage must take 
effect not later than the first day of the first plan year (in the 
individual market, the first day of the first policy year) beginning on 
or after September 23, 2010.
    (4) Treatment of enrollees in a group health plan. For purposes of 
this Part, any child enrolling in a group health plan pursuant to 
paragraph (f)(2) of this section must be treated as if the child were a 
special enrollee, as provided under the rules of 45 CFR 146.117(d). 
Accordingly, the child (and, if the child would not be a participant 
once enrolled in the plan, the participant through whom the child is 
otherwise eligible for coverage under the plan) must be offered all the 
benefit packages available to similarly situated individuals who did not 
lose coverage by reason of cessation of dependent status. For this 
purpose, any difference in benefits or cost-sharing requirements 
constitutes a different benefit package. The child also cannot be 
required to pay more for coverage than similarly situated individuals 
who did not lose coverage by reason of cessation of dependent status.
    (5) Examples. The rules of this paragraph (f) are illustrated by the 
following examples:

    Example 1. (i) Facts. Employer Y maintains a group health plan with 
a calendar year plan year. The plan has a single benefit package. For 
the 2010 plan year, the plan allows children of employees to be covered 
under the plan until age 19, or until age 23 for children who are full-
time students. Individual B, an employee of Y, and Individual C, B's 
child and a full-time student, were enrolled in Y's group health plan at 
the beginning of the 2010 plan year. On June 10, 2010, C turns 23 years 
old and loses dependent coverage under Y's plan. On or before January 1, 
2011, Y's group health plan gives B written notice that individuals who 
lost coverage by reason of ceasing to be a dependent before attainment 
of age 26 are eligible to enroll in the plan, and that individuals may 
request enrollment for such children through February 14, 2011 with 
enrollment effective retroactively to January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan has complied with the 
requirements of this paragraph (f) by providing an enrollment 
opportunity to C that lasts at least 30 days.
    Example 2. (i) Facts. Employer Z maintains a group health plan with 
a plan year beginning October 1 and ending September 30. Prior to 
October 1, 2010, the group health plan allows children of employees to 
be covered under the plan until age 22. Individual D, an employee of Z, 
and Individual E, D's child, are enrolled in family coverage under Z's 
group health plan for the plan year beginning on October 1, 2008. On May 
1, 2009, E turns 22 years old and ceases to be eligible as a dependent 
under Z's plan and loses coverage. D drops coverage but remains an 
employee of Z.
    (ii) Conclusion. In this Example 2, not later than October 1, 2010, 
the plan must provide D and E an opportunity to enroll (including 
written notice of an opportunity to enroll) that continues for at least 
30 days, with enrollment effective not later than October 1, 2010.
    Example 3. (i) Facts. Same facts as Example 2, except that D did not 
drop coverage. Instead, D switched to a lower-cost benefit package 
option.
    (ii) Conclusion. In this Example 3, not later than October 1, 2010, 
the plan must provide D and E an opportunity to enroll in any benefit 
package available to similarly situated individuals who enroll when 
first eligible.
    Example 4. (i) Facts. Same facts as Example 2, except that E elected 
COBRA continuation coverage.
    (ii) Conclusion. In this Example 4, not later than October 1, 2010, 
the plan must provide D and E an opportunity to enroll other than as a 
COBRA qualified beneficiary (and must provide, by that date, written 
notice of the opportunity to enroll) that continues for at least 30 
days, with enrollment effective not later than October 1, 2010.
    Example 5. (i) Facts. Employer X maintains a group health plan with 
a calendar year plan year. Prior to 2011, the plan allows children of 
employees to be covered under the plan until the child attains age 22. 
During the 2009 plan year, an individual with a 22-year old child joins 
the plan; the child is denied coverage because the child is 22.
    (ii) Conclusion. In this Example 5, notwithstanding that the child 
was not previously covered under the plan, the plan must provide the 
child, not later than January 1, 2011,

[[Page 796]]

an opportunity to enroll (including written notice to the employee of an 
opportunity to enroll the child) that continues for at least 30 days, 
with enrollment effective not later than January 1, 2011.

    (g) Special rule for grandfathered group health plans--(1) For plan 
years beginning before January 1, 2014, a group health plan that 
qualifies as a grandfathered health plan under section 1251 of the 
Patient Protection and Affordable Care Act and that makes available 
dependent coverage of children may exclude an adult child who has not 
attained age 26 from coverage only if the adult child is eligible to 
enroll in an eligible employer-sponsored health plan (as defined in 
section 5000A(f)(2) of the Internal Revenue Code) other than a group 
health plan of a parent.
    (2) For plan years beginning on or after January 1, 2014, a group 
health plan that qualifies as a grandfathered health plan under section 
1251 of the Patient Protection and Affordable Care Act must comply with 
the requirements of paragraphs (a) through (f) of this section.
    (h) Applicability date. The provisions of this section apply for 
plan years (in the individual market, policy years) beginning on or 
after September 23, 2010. See Sec. 147.140 of this part for determining 
the application of this section to grandfathered health plans.

[75 FR 27138, May 13, 2010, as amended at 75 FR 34566, June 17, 2010]



Sec. 147.126  No lifetime or annual limits.

    (a) Prohibition--(1) Lifetime limits. Except as provided in 
paragraph (b) of this section, a group health plan, or a health 
insurance issuer offering group or individual health insurance coverage, 
may not establish any lifetime limit on the dollar amount of benefits 
for any individual.
    (2) Annual limits--(i) General rule. Except as provided in 
paragraphs (a)(2)(ii), (b), and (d) of this section, a group health 
plan, or a health insurance issuer offering group or individual health 
insurance coverage, may not establish any annual limit on the dollar 
amount of benefits for any individual.
    (ii) Exception for health flexible spending arrangements. A health 
flexible spending arrangement (as defined in section 106(c)(2) of the 
Internal Revenue Code) is not subject to the requirement in paragraph 
(a)(2)(i) of this section.
    (b) Construction--(1) Permissible limits on specific covered 
benefits. The rules of this section do not prevent a group health plan, 
or a health insurance issuer offering group or individual health 
insurance coverage, from placing annual or lifetime dollar limits with 
respect to any individual on specific covered benefits that are not 
essential health benefits to the extent that such limits are otherwise 
permitted under applicable Federal or State law. (The scope of essential 
health benefits is addressed in paragraph (c) of this section).
    (2) Condition-based exclusions. The rules of this section do not 
prevent a group health plan, or a health insurance issuer offering group 
or individual health insurance coverage, from excluding all benefits for 
a condition. However, if any benefits are provided for a condition, then 
the requirements of this section apply. Other requirements of Federal or 
State law may require coverage of certain benefits.
    (c) Definition of essential health benefits. The term ``essential 
health benefits'' means essential health benefits under section 1302(b) 
of the Patient Protection and Affordable Care Act and applicable 
regulations.
    (d) Restricted annual limits permissible prior to 2014--(1) In 
general. With respect to plan years (in the individual market, policy 
years) beginning prior to January 1, 2014, a group health plan, or a 
health insurance issuer offering group or individual health insurance 
coverage, may establish, for any individual, an annual limit on the 
dollar amount of benefits that are essential health benefits, provided 
the limit is no less than the amounts in the following schedule:
    (i) For a plan year (in the individual market, policy year) 
beginning on or after September 23, 2010, but before September 23, 2011, 
$750,000.
    (ii) For a plan year (in the individual market, policy year) 
beginning on or after September 23, 2011, but before September 23, 2012, 
$1,250,000.
    (iii) For plan years (in the individual market, policy years) 
beginning on or

[[Page 797]]

after September 23, 2012, but before January 1, 2014, $2,000,000.
    (2) Only essential health benefits taken into account. In 
determining whether an individual has received benefits that meet or 
exceed the applicable amount described in paragraph (d)(1) of this 
section, a plan or issuer must take into account only essential health 
benefits.
    (3) Waiver authority of the Secretary. For plan years (in the 
individual market, policy years) beginning before January 1, 2014, the 
Secretary may establish a program under which the requirements of 
paragraph (d)(1) of this section relating to annual limits may be waived 
(for such period as is specified by the Secretary) for a group health 
plan or health insurance coverage that has an annual dollar limit on 
benefits below the restricted annual limits provided under paragraph 
(d)(1) of this section if compliance with paragraph (d)(1) of this 
section would result in a significant decrease in access to benefits 
under the plan or health insurance coverage or would significantly 
increase premiums for the plan or health insurance coverage.
    (e) Transitional rules for individuals whose coverage or benefits 
ended by reason of reaching a lifetime limit--(1) In general. The relief 
provided in the transitional rules of this paragraph (e) applies with 
respect to any individual--
    (i) Whose coverage or benefits under a group health plan or group or 
individual health insurance coverage ended by reason of reaching a 
lifetime limit on the dollar value of all benefits for any individual 
(which, under this section, is no longer permissible); and
    (ii) Who becomes eligible (or is required to become eligible) for 
benefits not subject to a lifetime limit on the dollar value of all 
benefits under the group health plan or group or individual health 
insurance coverage on the first day of the first plan year (in the 
individual market, policy year) beginning on or after September 23, 
2010, by reason of the application of this section.
    (2) Notice and enrollment opportunity requirements--(i) If an 
individual described in paragraph (e)(1) of this section is eligible for 
benefits (or is required to become eligible for benefits) under the 
group health plan--or group or individual health insurance coverage--
described in paragraph (e)(1) of this section, the plan and the issuer 
are required to give the individual written notice that the lifetime 
limit on the dollar value of all benefits no longer applies and that the 
individual, if covered, is once again eligible for benefits under the 
plan. Additionally, if the individual is not enrolled in the plan or 
health insurance coverage, or if an enrolled individual is eligible for 
but not enrolled in any benefit package under the plan or health 
insurance coverage, then the plan and issuer must also give such an 
individual an opportunity to enroll that continues for at least 30 days 
(including written notice of the opportunity to enroll). The notices and 
enrollment opportunity required under this paragraph (e)(2)(i) must be 
provided beginning not later than the first day of the first plan year 
(in the individual market, policy year) beginning on or after September 
23, 2010.
    (ii) The notices required under paragraph (e)(2)(i) of this section 
may be provided to an employee on behalf of the employee's dependent (in 
the individual market, to the primary subscriber on behalf of the 
primary subscriber's dependent). In addition, for a group health plan or 
group health insurance coverage, the notices may be included with other 
enrollment materials that a plan distributes to employees, provided the 
statement is prominent. For either notice, with respect to a group 
health plan or group health insurance coverage, if a notice satisfying 
the requirements of this paragraph (e)(2) is provided to an individual, 
the obligation to provide the notice with respect to that individual is 
satisfied for both the plan and the issuer.
    (3) Effective date of coverage. In the case of an individual who 
enrolls under paragraph (e)(2) of this section, coverage must take 
effect not later than the first day of the first plan year (in the 
individual market, policy year) beginning on or after September 23, 
2010.
    (4) Treatment of enrollees in a group health plan. Any individual 
enrolling in a group health plan pursuant to paragraph (e)(2) of this 
section must be treated as if the individual were a special enrollee, as 
provided under the

[[Page 798]]

rules of Sec. 146.117(d). Accordingly, the individual (and, if the 
individual would not be a participant once enrolled in the plan, the 
participant through whom the individual is otherwise eligible for 
coverage under the plan) must be offered all the benefit packages 
available to similarly situated individuals who did not lose coverage by 
reason of reaching a lifetime limit on the dollar value of all benefits. 
For this purpose, any difference in benefits or cost-sharing 
requirements constitutes a different benefit package. The individual 
also cannot be required to pay more for coverage than similarly situated 
individuals who did not lose coverage by reason of reaching a lifetime 
limit on the dollar value of all benefits.
    (5) Examples. The rules of this paragraph (e) are illustrated by the 
following examples:

    Example 1. (i) Facts. Employer Y maintains a group health plan with 
a calendar year plan year. The plan has a single benefit package. For 
plan years beginning before September 23, 2010, the plan has a lifetime 
limit on the dollar value of all benefits. Individual B, an employee of 
Y, was enrolled in Y's group health plan at the beginning of the 2008 
plan year. On June 10, 2008, B incurred a claim for benefits that 
exceeded the lifetime limit under Y's plan and ceased to be enrolled in 
the plan. B is still eligible for coverage under Y's group health plan. 
On or before January 1, 2011, Y's group health plan gives B written 
notice informing B that the lifetime limit on the dollar value of all 
benefits no longer applies, that individuals whose coverage ended by 
reason of reaching a lifetime limit under the plan are eligible to 
enroll in the plan, and that individuals can request such enrollment 
through February 1, 2011 with enrollment effective retroactively to 
January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan has complied with the 
requirements of this paragraph (e) by providing a timely written notice 
and enrollment opportunity to B that lasts at least 30 days.
    Example 2. (i) Facts. Employer Z maintains a group health plan with 
a plan year beginning October 1 and ending September 30. Prior to 
October 1, 2010, the group health plan has a lifetime limit on the 
dollar value of all benefits. Individual D, an employee of Z, and 
Individual E, D's child, were enrolled in family coverage under Z's 
group health plan for the plan year beginning on October 1, 2008. On May 
1, 2009, E incurred a claim for benefits that exceeded the lifetime 
limit under Z's plan. D dropped family coverage but remains an employee 
of Z and is still eligible for coverage under Z's group health plan.
    (ii) Conclusion. In this Example 2, not later than October 1, 2010, 
the plan must provide D and E an opportunity to enroll (including 
written notice of an opportunity to enroll) that continues for at least 
30 days, with enrollment effective not later than October 1, 2010.
    Example 3. (i) Facts. Same facts as Example 2, except that Z's plan 
had two benefit packages (a low-cost and a high-cost option). Instead of 
dropping coverage, D switched to the low-cost benefit package option.
    (ii) Conclusion. In this Example 3, not later than October 1, 2010, 
the plan must provide D and E an opportunity to enroll in any benefit 
package available to similarly situated individuals who enroll when 
first eligible. The plan would have to provide D and E the opportunity 
to enroll in any benefit package available to similarly situated 
individuals who enroll when first eligible, even if D had not switched 
to the low-cost benefit package option.
    Example 4. (i) Facts. Employer Q maintains a group health plan with 
a plan year beginning October 1 and ending September 30. For the plan 
year beginning on October 1, 2009, Q has an annual limit on the dollar 
value of all benefits of $500,000.
    (ii) Conclusion. In this Example 4, Q must raise the annual limit on 
the dollar value of essential health benefits to at least $750,000 for 
the plan year beginning October 1, 2010. For the plan year beginning 
October 1, 2011, Q must raise the annual limit to at least $1.25 
million. For the plan year beginning October 1, 2012, Q must raise the 
annual limit to at least $2 million. Q may also impose a restricted 
annual limit of $2 million for the plan year beginning October 1, 2013. 
After the conclusion of that plan year, Q cannot impose an overall 
annual limit.
    Example 5. (i) Facts. Same facts as Example 4, except that the 
annual limit for the plan year beginning on October 1, 2009, is $1 
million and Q lowers the annual limit for the plan year beginning 
October 1, 2010 to $750,000.
    (ii) Conclusion. In this Example 5, Q complies with the requirements 
of this paragraph (e). However, Q's choice to lower its annual limit 
means that under Sec. 147.140(g)(1)(vi)(C), the group health plan will 
cease to be a grandfathered health plan and will be generally subject to 
all of the provisions of PHS Act sections 2701 through 2719A.
    Example 6. (i) Facts. For a policy year that began on October 1, 
2009, Individual T has individual health insurance coverage with a 
lifetime limit on the dollar value of all benefits of $1 million. For 
the policy year beginning October 1, 2010, the issuer of T's health 
insurance coverage eliminates the lifetime limit and replaces it with an 
annual limit of

[[Page 799]]

$1 million dollars. In the policy year beginning October 1, 2011, the 
issuer of T's health insurance coverage maintains the annual limit of $1 
million dollars.
    (ii) Conclusion. In this Example 6, the issuer's replacement of a 
lifetime limit with an equal dollar annual limit allows it to maintain 
status as a grandfathered health policy under Sec. 
147.140(g)(1)(vi)(B). Since grandfathered health plans that are 
individual health insurance coverage are not subject to the requirements 
of this section relating to annual limits, the issuer does not have to 
comply with this paragraph (e).

    (f) Applicability date. The provisions of this section apply for 
plan years (in the individual market, for policy years) beginning on or 
after September 23, 2010. See Sec. 147.140 of this part for determining 
the application of this section to grandfathered health plans (providing 
that the prohibitions on lifetime and annual limits apply to all 
grandfathered health plans that are group health plans and group health 
insurance coverage, including the special rules regarding restricted 
annual limits, and the prohibition on lifetime limits apply to 
individual health insurance coverage that is a grandfathered health plan 
but the rules on annual limits do not apply to individual health 
insurance coverage that is a grandfathered health plan).

[75 FR 37236, June 28, 2010]



Sec. 147.128  Rules regarding rescissions.

    (a) Prohibition on rescissions--(1) A group health plan, or a health 
insurance issuer offering group or individual health insurance coverage, 
must not rescind coverage under the plan, or under the policy, 
certificate, or contract of insurance, with respect to an individual 
(including a group to which the individual belongs or family coverage in 
which the individual is included) once the individual is covered under 
the plan or coverage, unless the individual (or a person seeking 
coverage on behalf of the individual) performs an act, practice, or 
omission that constitutes fraud, or unless the individual makes an 
intentional misrepresentation of material fact, as prohibited by the 
terms of the plan or coverage. A group health plan, or a health 
insurance issuer offering group or individual health insurance coverage, 
must provide at least 30 days advance written notice to each participant 
(in the individual market, primary subscriber) who would be affected 
before coverage may be rescinded under this paragraph (a)(1), regardless 
of, in the case of group coverage, whether the coverage is insured or 
self-insured, or whether the rescission applies to an entire group or 
only to an individual within the group. (The rules of this paragraph 
(a)(1) apply regardless of any contestability period that may otherwise 
apply.)
    (2) For purposes of this section, a rescission is a cancellation or 
discontinuance of coverage that has retroactive effect. For example, a 
cancellation that treats a policy as void from the time of the 
individual's or group's enrollment is a rescission. As another example, 
a cancellation that voids benefits paid up to a year before the 
cancellation is also a rescission for this purpose. A cancellation or 
discontinuance of coverage is not a rescission if--
    (i) The cancellation or discontinuance of coverage has only a 
prospective effect; or
    (ii) The cancellation or discontinuance of coverage is effective 
retroactively to the extent it is attributable to a failure to timely 
pay required premiums or contributions towards the cost of coverage.
    (3) The rules of this paragraph (a) are illustrated by the following 
examples:

    Example 1. (i) Facts. Individual A seeks enrollment in an insured 
group health plan. The plan terms permit rescission of coverage with 
respect to an individual if the individual engages in fraud or makes an 
intentional misrepresentation of a material fact. The plan requires A to 
complete a questionnaire regarding A's prior medical history, which 
affects setting the group rate by the health insurance issuer. The 
questionnaire complies with the other requirements of this part and part 
146. The questionnaire includes the following question: ``Is there 
anything else relevant to your health that we should know?'' A 
inadvertently fails to list that A visited a psychologist on two 
occasions, six years previously. A is later diagnosed with breast cancer 
and seeks benefits under the plan. On or around the same time, the 
issuer receives information about A's visits to the psychologist, which 
was not disclosed in the questionnaire.
    (ii) Conclusion. In this Example 1, the plan cannot rescind A's 
coverage because A's failure to disclose the visits to the psychologist

[[Page 800]]

was inadvertent. Therefore, it was not fraudulent or an intentional 
misrepresentation of material fact.
    Example 2. (i) Facts. An employer sponsors a group health plan that 
provides coverage for employees who work at least 30 hours per week. 
Individual B has coverage under the plan as a full-time employee. The 
employer reassigns B to a part-time position. Under the terms of the 
plan, B is no longer eligible for coverage. The plan mistakenly 
continues to provide health coverage, collecting premiums from B and 
paying claims submitted by B. After a routine audit, the plan discovers 
that B no longer works at least 30 hours per week. The plan rescinds B's 
coverage effective as of the date that B changed from a full-time 
employee to a part-time employee.
    (ii) Conclusion. In this Example 2, the plan cannot rescind B's 
coverage because there was no fraud or an intentional misrepresentation 
of material fact. The plan may cancel coverage for B prospectively, 
subject to other applicable Federal and State laws.

    (b) Compliance with other requirements. Other requirements of 
Federal or State law may apply in connection with a rescission of 
coverage.
    (c) Applicability date. The provisions of this section apply for 
plan years (in the individual market, for policy years) beginning on or 
after September 23, 2010. See Sec. 147.140 of this part for determining 
the application of this section to grandfathered health plans (providing 
that the rules regarding rescissions and advance notice apply to all 
grandfathered health plans).

[75 FR 37238, June 28, 2010]



Sec. 147.130  Coverage of preventive health services.

    (a) Services--(1) In general. Beginning at the time described in 
paragraph (b) of this section and subject to Sec. 147.131, a group 
health plan, or a health insurance issuer offering group or individual 
health insurance coverage, must provide coverage for all of the 
following items and services, and may not impose any cost-sharing 
requirements (such as a copayment, coinsurance, or a deductible) with 
respect to those items and services:
    (i) Evidence-based items or services that have in effect a rating of 
A or B in the current recommendations of the United States Preventive 
Services Task Force with respect to the individual involved (except as 
otherwise provided in paragraph (c) of this section);
    (ii) Immunizations for routine use in children, adolescents, and 
adults that have in effect a recommendation from the Advisory Committee 
on Immunization Practices of the Centers for Disease Control and 
Prevention with respect to the individual involved (for this purpose, a 
recommendation from the Advisory Committee on Immunization Practices of 
the Centers for Disease Control and Prevention is considered in effect 
after it has been adopted by the Director of the Centers for Disease 
Control and Prevention, and a recommendation is considered to be for 
routine use if it is listed on the Immunization Schedules of the Centers 
for Disease Control and Prevention);
    (iii) With respect to infants, children, and adolescents, evidence-
informed preventive care and screenings provided for in comprehensive 
guidelines supported by the Health Resources and Services 
Administration; and
    (iv) With respect to women, to the extent not described in paragraph 
(a)(1)(i) of this section, evidence-informed preventive care and 
screenings provided for in binding comprehensive health plan coverage 
guidelines supported by the Health Resources and Services 
Administration.
    (2) Office visits--(i) If an item or service described in paragraph 
(a)(1) of this section is billed separately (or is tracked as individual 
encounter data separately) from an office visit, then a plan or issuer 
may impose cost-sharing requirements with respect to the office visit.
    (ii) If an item or service described in paragraph (a)(1) of this 
section is not billed separately (or is not tracked as individual 
encounter data separately) from an office visit and the primary purpose 
of the office visit is the delivery of such an item or service, then a 
plan or issuer may not impose cost-sharing requirements with respect to 
the office visit.
    (iii) If an item or service described in paragraph (a)(1) of this 
section is not billed separately (or is not tracked as individual 
encounter data separately) from an office visit and the primary purpose 
of the office visit is not the delivery of such an item or service, then

[[Page 801]]

a plan or issuer may impose cost-sharing requirements with respect to 
the office visit.
    (iv) The rules of this paragraph (a)(2) are illustrated by the 
following examples:

    Example 1. (i) Facts. An individual covered by a group health plan 
visits an in-network health care provider. While visiting the provider, 
the individual is screened for cholesterol abnormalities, which has in 
effect a rating of A or B in the current recommendations of the United 
States Preventive Services Task Force with respect to the individual. 
The provider bills the plan for an office visit and for the laboratory 
work of the cholesterol screening test.
    (ii) Conclusion. In this Example 1, the plan may not impose any 
cost-sharing requirements with respect to the separately-billed 
laboratory work of the cholesterol screening test. Because the office 
visit is billed separately from the cholesterol screening test, the plan 
may impose cost-sharing requirements for the office visit.
    Example 2. (i) Facts. Same facts as Example 1. As the result of the 
screening, the individual is diagnosed with hyperlipidemia and is 
prescribed a course of treatment that is not included in the 
recommendations under paragraph (a)(1) of this section.
    (ii) Conclusion. In this Example 2, because the treatment is not 
included in the recommendations under paragraph (a)(1) of this section, 
the plan is not prohibited from imposing cost-sharing requirements with 
respect to the treatment.
    Example 3. (i) Facts. An individual covered by a group health plan 
visits an in-network health care provider to discuss recurring abdominal 
pain. During the visit, the individual has a blood pressure screening, 
which has in effect a rating of A or B in the current recommendations of 
the United States Preventive Services Task Force with respect to the 
individual. The provider bills the plan for an office visit.
    (ii) Conclusion. In this Example 3, the blood pressure screening is 
provided as part of an office visit for which the primary purpose was 
not to deliver items or services described in paragraph (a)(1) of this 
section. Therefore, the plan may impose a cost-sharing requirement for 
the office visit charge.
    Example 4. (i) Facts. A child covered by a group health plan visits 
an in-network pediatrician to receive an annual physical exam described 
as part of the comprehensive guidelines supported by the Health 
Resources and Services Administration. During the office visit, the 
child receives additional items and services that are not described in 
the comprehensive guidelines supported by the Health Resources and 
Services Administration, nor otherwise described in paragraph (a)(1) of 
this section. The provider bills the plan for an office visit.
    (ii) Conclusion. In this Example 4, the service was not billed as a 
separate charge and was billed as part of an office visit. Moreover, the 
primary purpose for the visit was to deliver items and services 
described as part of the comprehensive guidelines supported by the 
Health Resources and Services Administration. Therefore, the plan may 
not impose a cost-sharing requirement for the office visit charge.

    (3) Out-of-network providers--(i) Subject to paragraph (a)(3)(ii) of 
this section, nothing in this section requires a plan or issuer that has 
a network of providers to provide benefits for items or services 
described in paragraph (a)(1) of this section that are delivered by an 
out-of-network provider. Moreover, nothing in this section precludes a 
plan or issuer that has a network of providers from imposing cost-
sharing requirements for items or services described in paragraph (a)(1) 
of this section that are delivered by an out-of-network provider.
    (ii) If a plan or issuer does not have in its network a provider who 
can provide an item or service described in paragraph (a)(1) of this 
section, the plan or issuer must cover the item or service when 
performed by an out-of-network provider, and may not impose cost sharing 
with respect to the item or service.
    (4) Reasonable medical management. Nothing prevents a plan or issuer 
from using reasonable medical management techniques to determine the 
frequency, method, treatment, or setting for an item or service 
described in paragraph (a)(1) of this section to the extent not 
specified in the relevant recommendation or guideline. To the extent not 
specified in a recommendation or guideline, a plan or issuer may rely on 
the relevant clinical evidence base and established reasonable medical 
management techniques to determine the frequency, method, treatment, or 
setting for coverage of a recommended preventive health service.
    (5) Services not described. Nothing in this section prohibits a plan 
or issuer from providing coverage for items and services in addition to 
those recommended by the United States Preventive Services Task Force or 
the Advisory Committee on Immunization

[[Page 802]]

Practices of the Centers for Disease Control and Prevention, or provided 
for by guidelines supported by the Health Resources and Services 
Administration, or from denying coverage for items and services that are 
not recommended by that task force or that advisory committee, or under 
those guidelines. A plan or issuer may impose cost-sharing requirements 
for a treatment not described in paragraph (a)(1) of this section, even 
if the treatment results from an item or service described in paragraph 
(a)(1) of this section.
    (b) Timing--(1) In general. A plan or issuer must provide coverage 
pursuant to paragraph (a)(1) of this section for plan years (in the 
individual market, policy years) that begin on or after September 23, 
2010, or, if later, for plan years (in the individual market, policy 
years) that begin on or after the date that is one year after the date 
the recommendation or guideline is issued.
    (2) Changes in recommendations or guidelines. (i) A plan or issuer 
that is required to provide coverage for any items and services 
specified in any recommendation or guideline described in paragraph 
(a)(1) of this section on the first day of a plan year (in the 
individual market, policy year) must provide coverage through the last 
day of the plan or policy year, even if the recommendation or guideline 
changes or is no longer described in paragraph (a)(1) of this section, 
during the plan or policy year.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, to the 
extent a recommendation or guideline described in paragraph (a)(1)(i) of 
this section that was in effect on the first day of a plan year (in the 
individual market, policy year) is downgraded to a ``D'' rating, or any 
item or service associated with any recommendation or guideline 
specified in paragraph (a)(1) of this section is subject to a safety 
recall or is otherwise determined to pose a significant safety concern 
by a federal agency authorized to regulate the item or service during a 
plan or policy year, there is no requirement under this section to cover 
these items and services through the last day of the plan or policy 
year.
    (c) Recommendations not current. For purposes of paragraph (a)(1)(i) 
of this section, and for purposes of any other provision of law, 
recommendations of the United States Preventive Services Task Force 
regarding breast cancer screening, mammography, and prevention issued in 
or around November 2009 are not considered to be current.
    (d) Applicability date. The provisions of this section apply for 
plan years (in the individual market, for policy years) beginning on or 
after September 23, 2010. See Sec. 147.140 of this part for determining 
the application of this section to grandfathered health plans (providing 
that these rules regarding coverage of preventive health services do not 
apply to grandfathered health plans).

[75 FR 41759, July 19, 2010, as amended at 76 FR 46626, Aug. 3, 2011; 78 
FR 39896, July 2, 2013; 80 FR 41346, July 14, 2015]



Sec. 147.131  Exemption and accommodations in connection with coverage 
of preventive health services.

    (a) Religious employers. In issuing guidelines under Sec. 
147.130(a)(1)(iv), the Health Resources and Services Administration may 
establish an exemption from such guidelines with respect to a group 
health plan established or maintained by a religious employer (and 
health insurance coverage provided in connection with a group health 
plan established or maintained by a religious employer) with respect to 
any requirement to cover contraceptive services under such guidelines. 
For purposes of this paragraph (a), a ``religious employer'' is an 
organization that is organized and operates as a nonprofit entity and is 
referred to in section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue 
Code of 1986, as amended.
    (b) Eligible organizations. An eligible organization is an 
organization that meets the criteria of paragraphs (b)(1) through (3) of 
this section.
    (1) The organization opposes providing coverage for some or all of 
any contraceptive items or services required to be covered under Sec. 
147.130(a)(1)(iv) on account of religious objections.
    (2)(i) The organization is organized and operates as a nonprofit 
entity and

[[Page 803]]

holds itself out as a religious organization; or
    (ii) The organization is organized and operates as a closely held 
for-profit entity, as defined in paragraph (b)(4) of this section, and 
the organization's highest governing body (such as its board of 
directors, board of trustees, or owners, if managed directly by its 
owners) has adopted a resolution or similar action, under the 
organization's applicable rules of governance and consistent with state 
law, establishing that it objects to covering some or all of the 
contraceptive services on account of the owners' sincerely held 
religious beliefs.
    (3) The organization must self-certify in the form and manner 
specified by the Secretary of Labor or provide notice to the Secretary 
of Health and Human Services as described in paragraph (c) of this 
section. The organization must make such self-certification or notice 
available for examination upon request by the first day of the first 
plan year to which the accommodation in paragraph (c) of this section 
applies. The self-certification or notice must be executed by a person 
authorized to make the certification or notice on behalf of the 
organization, and must be maintained in a manner consistent with the 
record retention requirements under section 107 of ERISA.
    (4) A closely held for-profit entity is an entity that--
    (i) Is not a nonprofit entity;
    (ii) Has no publicly traded ownership interests (for this purpose, a 
publicly traded ownership interest is any class of common equity 
securities required to be registered under section 12 of the Securities 
Exchange Act of 1934); and
    (iii) Has more than 50 percent of the value of its ownership 
interest owned directly or indirectly by five or fewer individuals, or 
has an ownership structure that is substantially similar thereto, as of 
the date of the entity's self-certification or notice described in 
paragraph (b) or (c) of this section.
    (iv) For the purpose of the calculation in paragraph (b)(4)(iii) of 
this section, the following rules apply:
    (A) Ownership interests owned by a corporation, partnership, estate, 
or trust are considered owned proportionately by such entity's 
shareholders, partners, or beneficiaries. Ownership interests owned by a 
nonprofit entity are considered owned by a single owner.
    (B) An individual is considered to own the ownership interests 
owned, directly or indirectly, by or for his or her family. Family 
includes only brothers and sisters (including half-brothers and half-
sisters), a spouse, ancestors, and lineal descendants.
    (C) If a person holds an option to purchase ownership interests, he 
or she is considered to be the owner of those ownership interests.
    (v) A for-profit entity that seeks further information regarding 
whether it qualifies for the accommodation described in this section may 
send a letter describing its ownership structure to the Department of 
Health and Human Services. An entity must submit the letter in the 
manner described by the Department of Health and Human Services. If the 
entity does not receive a response from the Department of Health and 
Human Services to a properly submitted letter describing the entity's 
current ownership structure within 60 calendar days, as long as the 
entity maintains that structure it will be considered to meet the 
requirement set forth in paragraph (b)(4)(iii) of this section.
    (c) Contraceptive coverage--insured group health plans--(1) General 
rule. A group health plan established or maintained by an eligible 
organization that provides benefits through one or more group health 
insurance issuers complies for one or more plan years with any 
requirement under Sec. 147.130(a)(1)(iv) to provide contraceptive 
coverage if the eligible organization or group health plan provides 
either a copy of the self-certification to each issuer providing 
coverage in connection with the plan or a notice to the Secretary of 
Health and Human Services that it is an eligible organization and of its 
religious objection to coverage for all or a subset of contraceptive 
services.
    (i) When a self-certification is provided directly to an issuer, the 
issuer has sole responsibility for providing such coverage in accordance 
with Sec. 147.130. An issuer may not require any

[[Page 804]]

further documentation from the eligible organization regarding its 
status as such.
    (ii) When a notice is provided to the Secretary of Health and Human 
Services, the notice must include the name of the eligible organization 
and the basis on which it qualifies for an accommodation; its objection 
based on its sincerely held religious beliefs to coverage of some or all 
contraceptive services, as applicable (including an identification of 
the subset of contraceptive services to which coverage the eligible 
organization objects, if applicable); the plan name and type (i.e., 
whether it is a student health insurance plan within the meaning of 
Sec. 147.145(a) or a church plan within the meaning of ERISA section 
3(33)); and the name and contact information for any of the plan's third 
party administrators and health insurance issuers. If there is a change 
in any of the information required to be included in the notice, the 
organization must provide updated information to the Secretary of Health 
and Human Services. The Department of Health and Human Services will 
send a separate notification to each of the plan's health insurance 
issuers informing the issuer that the Secretary of Health and Human 
Services has received a notice under paragraph (c)(1) of this section 
and describing the obligations of the issuer under this section.
    (2) Payments for contraceptive services--(i) A group health 
insurance issuer that receives a copy of the self-certification or 
notification described in paragraph (c)(1)(ii) of this section with 
respect to a group health plan established or maintained by an eligible 
organization in connection with which the issuer would otherwise provide 
contraceptive coverage under Sec. 147.130(a)(1)(iv) must--
    (A) Expressly exclude contraceptive coverage from the group health 
insurance coverage provided in connection with the group health plan; 
and
    (B) Provide separate payments for any contraceptive services 
required to be covered under Sec. 147.130(a)(1)(iv) for plan 
participants and beneficiaries for so long as they remain enrolled in 
the plan.
    (ii) With respect to payments for contraceptive services, the issuer 
may not impose any cost-sharing requirements (such as a copayment, 
coinsurance, or a deductible), or impose any premium, fee, or other 
charge, or any portion thereof, directly or indirectly, on the eligible 
organization, the group health plan, or plan participants or 
beneficiaries. The issuer must segregate premium revenue collected from 
the eligible organization from the monies used to provide payments for 
contraceptive services. The issuer must provide payments for 
contraceptive services in a manner that is consistent with the 
requirements under sections 2706, 2709, 2711, 2713, 2719, and 2719A of 
the PHS Act. If the group health plan of the eligible organization 
provides coverage for some but not all of any contraceptive services 
required to be covered under Sec. 147.130(a)(1)(iv), the issuer is 
required to provide payments only for those contraceptive services for 
which the group health plan does not provide coverage. However, the 
issuer may provide payments for all contraceptive services, at the 
issuer's option.
    (d) Notice of availability of separate payments for contraceptive 
services--insured group health plans and student health insurance 
coverage. For each plan year to which the accommodation in paragraph (c) 
of this section is to apply, an issuer required to provide payments for 
contraceptive services pursuant to paragraph (c) of this section must 
provide to plan participants and beneficiaries written notice of the 
availability of separate payments for contraceptive services 
contemporaneous with (to the extent possible), but separate from, any 
application materials distributed in connection with enrollment (or re-
enrollment) in group health coverage that is effective beginning on the 
first day of each applicable plan year. The notice must specify that the 
eligible organization does not administer or fund contraceptive 
benefits, but that the issuer provides separate payments for 
contraceptive services, and must provide contact information for 
questions and complaints. The following model language, or substantially 
similar language, may be used to satisfy the notice requirement

[[Page 805]]

of this paragraph (d): ``Your [employer/institution of higher education] 
has certified that your [group health plan/student health insurance 
coverage] qualifies for an accommodation with respect to the federal 
requirement to cover all Food and Drug Administration-approved 
contraceptive services for women, as prescribed by a health care 
provider, without cost sharing. This means that your [employer/
institution of higher education] will not contract, arrange, pay, or 
refer for contraceptive coverage. Instead, [name of health insurance 
issuer] will provide separate payments for contraceptive services that 
you use, without cost sharing and at no other cost, for so long as you 
are enrolled in your [group health plan/student health insurance 
coverage]. Your [employer/institution of higher education] will not 
administer or fund these payments. If you have any questions about this 
notice, contact [contact information for health insurance issuer].''
    (e) Reliance--(1) If an issuer relies reasonably and in good faith 
on a representation by the eligible organization as to its eligibility 
for the accommodation in paragraph (c) of this section, and the 
representation is later determined to be incorrect, the issuer is 
considered to comply with any requirement under Sec. 147.130(a)(1)(iv) 
to provide contraceptive coverage if the issuer complies with the 
obligations under this section applicable to such issuer.
    (2) A group health plan is considered to comply with any requirement 
under Sec. 147.130(a)(1)(iv) to provide contraceptive coverage if the 
plan complies with its obligations under paragraph (c) of this section, 
without regard to whether the issuer complies with the obligations under 
this section applicable to such issuer.
    (f) Application to student health insurance coverage. The provisions 
of this section apply to student health insurance coverage arranged by 
an eligible organization that is an institution of higher education as 
defined in 20 U.S.C. 1002 in a manner comparable to that in which they 
apply to group health insurance coverage provided in connection with a 
group health plan established or maintained by an eligible organization 
that is an employer. In applying this section in the case of student 
health insurance coverage, a reference to ``plan participants and 
beneficiaries'' is a reference to student enrollees and their covered 
dependents.

[78 FR 39896, July 2, 2013, as amended at 79 FR 51101, Aug. 27, 2014; 80 
FR 41346, July 14, 2015]



Sec. 147.136  Internal claims and appeals and external review processes.

    (a) Scope and definitions--(1) Scope. This section sets forth 
requirements with respect to internal claims and appeals and external 
review processes for group health plans and health insurance issuers 
that are not grandfathered health plans under Sec. 147.140 of this 
part. Paragraph (b) of this section provides requirements for internal 
claims and appeals processes. Paragraph (c) of this section sets forth 
rules governing the applicability of State external review processes. 
Paragraph (d) of this section sets forth a Federal external review 
process for plans and issuers not subject to an applicable State 
external review process. Paragraph (e) of this section prescribes 
requirements for ensuring that notices required to be provided under 
this section are provided in a culturally and linguistically appropriate 
manner. Paragraph (f) of this section describes the authority of the 
Secretary to deem certain external review processes in existence on 
March 23, 2010 as in compliance with paragraph (c) or (d) of this 
section. Paragraph (g) of this section sets forth the applicability date 
for this section.
    (2) Definitions. For purposes of this section, the following 
definitions apply--
    (i) Adverse benefit determination. An adverse benefit determination 
means an adverse benefit determination as defined in 29 CFR 2560.503-1, 
as well as any rescission of coverage, as described in Sec. 147.128 
(whether or not, in connection with the rescission, there is an adverse 
effect on any particular benefit at that time).
    (ii) Appeal (or internal appeal). An appeal or internal appeal means 
review by a plan or issuer of an adverse benefit determination, as 
required in paragraph (b) of this section.
    (iii) Claimant. Claimant means an individual who makes a claim under 
this

[[Page 806]]

section. For purposes of this section, references to claimant include a 
claimant's authorized representative.
    (iv) External review. External review means a review of an adverse 
benefit determination (including a final internal adverse benefit 
determination) conducted pursuant to an applicable State external review 
process described in paragraph (c) of this section or the Federal 
external review process of paragraph (d) of this section.
    (v) Final internal adverse benefit determination. A final internal 
adverse benefit determination means an adverse benefit determination 
that has been upheld by a plan or issuer at the completion of the 
internal appeals process applicable under paragraph (b) of this section 
(or an adverse benefit determination with respect to which the internal 
appeals process has been exhausted under the deemed exhaustion rules of 
paragraph (b)(2)(ii)(F) or (b)(3)(ii)(F) of this section).
    (vi) Final external review decision. A final external review 
decision, as used in paragraph (d) of this section, means a 
determination by an independent review organization at the conclusion of 
an external review.
    (vii) Independent review organization (or IRO). An independent 
review organization (or IRO) means an entity that conducts independent 
external reviews of adverse benefit determinations and final internal 
adverse benefit determinations pursuant to paragraph (c) or (d) of this 
section.
    (viii) NAIC Uniform Model Act. The NAIC Uniform Model Act means the 
Uniform Health Carrier External Review Model Act promulgated by the 
National Association of Insurance Commissioners in place on July 23, 
2010.
    (b) Internal claims and appeals process--(1) In general. A group 
health plan and a health insurance issuer offering group or individual 
health insurance coverage must implement an effective internal claims 
and appeals process, as described in this paragraph (b).
    (2) Requirements for group health plans and group health insurance 
issuers. A group health plan and a health insurance issuer offering 
group health insurance coverage must comply with all the requirements of 
this paragraph (b)(2). In the case of health insurance coverage offered 
in connection with a group health plan, if either the plan or the issuer 
complies with the internal claims and appeals process of this paragraph 
(b)(2), then the obligation to comply with this paragraph (b)(2) is 
satisfied for both the plan and the issuer with respect to the health 
insurance coverage.
    (i) Minimum internal claims and appeals standards. A group health 
plan and a health insurance issuer offering group health insurance 
coverage must comply with all the requirements applicable to group 
health plans under 29 CFR 2560.503-1, except to the extent those 
requirements are modified by paragraph (b)(2)(ii) of this section. 
Accordingly, under this paragraph (b), with respect to health insurance 
coverage offered in connection with a group health plan, the group 
health insurance issuer is subject to the requirements in 29 CFR 
2560.503-1 to the same extent as the group health plan.
    (ii) Additional standards. In addition to the requirements in 
paragraph (b)(2)(i) of this section, the internal claims and appeals 
processes of a group health plan and a health insurance issuer offering 
group health insurance coverage must meet the requirements of this 
paragraph (b)(2)(ii).
    (A) Clarification of meaning of adverse benefit determination. For 
purposes of this paragraph (b)(2), an ``adverse benefit determination'' 
includes an adverse benefit determination as defined in paragraph 
(a)(2)(i) of this section. Accordingly, in complying with 29 CFR 
2560.503-1, as well as the other provisions of this paragraph (b)(2), a 
plan or issuer must treat a rescission of coverage (whether or not the 
rescission has an adverse effect on any particular benefit at that time) 
as an adverse benefit determination. (Rescissions of coverage are 
subject to the requirements of Sec. 147.128 of this part.)
    (B) Expedited notification of benefit determinations involving 
urgent care. The requirements of 29 CFR 2560.503-1(f)(2)(i) (which 
generally provide, among other things, in the case of urgent care claims 
for notification of the plan's benefit determination (whether adverse or 
not) as soon as possible, taking into account the medical exigencies, 
but not later than 72 hours after

[[Page 807]]

receipt of the claim) continue to apply to the plan and issuer. For 
purposes of this paragraph (b)(2)(ii)(B), a claim involving urgent care 
has the meaning given in 29 CFR 2560.503-1(m)(1), as determined by the 
attending provider, and the plan or issuer shall defer to such 
determination of the attending provider.
    (C) Full and fair review. A plan and issuer must allow a claimant to 
review the claim file and to present evidence and testimony as part of 
the internal claims and appeals process. Specifically, in addition to 
complying with the requirements of 29 CFR 2560.503-1(h)(2)--
    (1) The plan or issuer must provide the claimant, free of charge, 
with any new or additional evidence considered, relied upon, or 
generated by the plan or issuer (or at the direction of the plan or 
issuer) in connection with the claim; such evidence must be provided as 
soon as possible and sufficiently in advance of the date on which the 
notice of final internal adverse benefit determination is required to be 
provided under 29 CFR 2560.503-1(i) to give the claimant a reasonable 
opportunity to respond prior to that date; and
    (2) Before the plan or issuer can issue a final internal adverse 
benefit determination based on a new or additional rationale, the 
claimant must be provided, free of charge, with the rationale; the 
rationale must be provided as soon as possible and sufficiently in 
advance of the date on which the notice of final internal adverse 
benefit determination is required to be provided under 29 CFR 2560.503-
1(i) to give the claimant a reasonable opportunity to respond prior to 
that date.
    (D) Avoiding conflicts of interest. In addition to the requirements 
of 29 CFR 2560.503-1(b) and (h) regarding full and fair review, the plan 
and issuer must ensure that all claims and appeals are adjudicated in a 
manner designed to ensure the independence and impartiality of the 
persons involved in making the decision. Accordingly, decisions 
regarding hiring, compensation, termination, promotion, or other similar 
matters with respect to any individual (such as a claims adjudicator or 
medical expert) must not be made based upon the likelihood that the 
individual will support the denial of benefits.
    (E) Notice. A plan and issuer must provide notice to individuals, in 
a culturally and linguistically appropriate manner (as described in 
paragraph (e) of this section) that complies with the requirements of 29 
CFR 2560.503-1(g) and (j). The plan and issuer must also comply with the 
additional requirements of this paragraph (b)(2)(ii)(E).
    (1) The plan and issuer must ensure that any notice of adverse 
benefit determination or final internal adverse benefit determination 
includes information sufficient to identify the claim involved 
(including the date of service, the health care provider, the claim 
amount (if applicable), and a statement describing the availability, 
upon request, of the diagnosis code and its corresponding meaning, and 
the treatment code and its corresponding meaning).
    (2) The plan and issuer must provide to participants and 
beneficiaries, as soon as practicable, upon request, the diagnosis code 
and its corresponding meaning, and the treatment code and its 
corresponding meaning, associated with any adverse benefit determination 
or final internal adverse benefit determination. The plan or issuer must 
not consider a request for such diagnosis and treatment information, in 
itself, to be a request for an internal appeal under this paragraph (b) 
or an external review under paragraphs (c) and (d) of this section.
    (3) The plan and issuer must ensure that the reason or reasons for 
the adverse benefit determination or final internal adverse benefit 
determination includes the denial code and its corresponding meaning, as 
well as a description of the plan's or issuer's standard, if any, that 
was used in denying the claim. In the case of a notice of final internal 
adverse benefit determination, this description must include a 
discussion of the decision.
    (4) The plan and issuer must provide a description of available 
internal appeals and external review processes, including information 
regarding how to initiate an appeal.
    (5) The plan and issuer must disclose the availability of, and 
contact information for, any applicable office of health insurance 
consumer assistance

[[Page 808]]

or ombudsman established under PHS Act section 2793 to assist 
individuals with the internal claims and appeals and external review 
processes.
    (F) Deemed exhaustion of internal claims and appeals processes--(1) 
In the case of a plan or issuer that fails to adhere to all the 
requirements of this paragraph (b)(2) with respect to a claim, the 
claimant is deemed to have exhausted the internal claims and appeals 
process of this paragraph (b), except as provided in paragraph 
(b)(2)(ii)(F)(2) of this section. Accordingly, the claimant may initiate 
an external review under paragraph (c) or (d) of this section, as 
applicable. The claimant is also entitled to pursue any available 
remedies under section 502(a) of ERISA or under State law, as 
applicable, on the basis that the plan or issuer has failed to provide a 
reasonable internal claims and appeals process that would yield a 
decision on the merits of the claim. If a claimant chooses to pursue 
remedies under section 502(a) of ERISA under such circumstances, the 
claim or appeal is deemed denied on review without the exercise of 
discretion by an appropriate fiduciary.
    (2) Notwithstanding paragraph (b)(2)(ii)(F)(1) of this section, the 
internal claims and appeals process of this paragraph (b) will not be 
deemed exhausted based on de minimis violations that do not cause, and 
are not likely to cause, prejudice or harm to the claimant so long as 
the plan or issuer demonstrates that the violation was for good cause or 
due to matters beyond the control of the plan or issuer and that the 
violation occurred in the context of an ongoing, good faith exchange of 
information between the plan and the claimant. This exception is not 
available if the violation is part of a pattern or practice of 
violations by the plan or issuer. The claimant may request a written 
explanation of the violation from the plan or issuer, and the plan or 
issuer must provide such explanation within 10 days, including a 
specific description of its bases, if any, for asserting that the 
violation should not cause the internal claims and appeals process of 
this paragraph (b) to be deemed exhausted. If an external reviewer or a 
court rejects the claimant's request for immediate review under 
paragraph (b)(2)(ii)(F)(1) of this section on the basis that the plan 
met the standards for the exception under this paragraph 
(b)(2)(ii)(F)(2), the claimant has the right to resubmit and pursue the 
internal appeal of the claim. In such a case, within a reasonable time 
after the external reviewer or court rejects the claim for immediate 
review (not to exceed 10 days), the plan shall provide the claimant with 
notice of the opportunity to resubmit and pursue the internal appeal of 
the claim. Time periods for re-filing the claim shall begin to run upon 
claimant's receipt of such notice.
    (iii) Requirement to provide continued coverage pending the outcome 
of an appeal. A plan and issuer subject to the requirements of this 
paragraph (b)(2) are required to provide continued coverage pending the 
outcome of an appeal. For this purpose, the plan and issuer must comply 
with the requirements of 29 CFR 2560.503-1(f)(2)(ii), which generally 
provides that benefits for an ongoing course of treatment cannot be 
reduced or terminated without providing advance notice and an 
opportunity for advance review.
    (3) Requirements for individual health insurance issuers. A health 
insurance issuer offering individual health insurance coverage must 
comply with all the requirements of this paragraph (b)(3).
    (i) Minimum internal claims and appeals standards. A health 
insurance issuer offering individual health insurance coverage must 
comply with all the requirements of the ERISA internal claims and 
appeals procedures applicable to group health plans under 29 CFR 
2560.503-1 except for the requirements with respect to multiemployer 
plans, and except to the extent those requirements are modified by 
paragraph (b)(3)(ii) of this section. Accordingly, under this paragraph 
(b), with respect to individual health insurance coverage, the issuer is 
subject to the requirements in 29 CFR 2560.503-1 as if the issuer were a 
group health plan.
    (ii) Additional standards. In addition to the requirements in 
paragraph (b)(3)(i) of this section, the internal claims and appeals 
processes of a

[[Page 809]]

health insurance issuer offering individual health insurance coverage 
must meet the requirements of this paragraph (b)(3)(ii).
    (A) Clarification of meaning of adverse benefit determination. For 
purposes of this paragraph (b)(3), an adverse benefit determination 
includes an adverse benefit determination as defined in paragraph 
(a)(2)(i) of this section. Accordingly, in complying with 29 CFR 
2560.503-1, as well as other provisions of this paragraph (b)(3), an 
issuer must treat a rescission of coverage (whether or not the 
rescission has an adverse effect on any particular benefit at that time) 
and any decision to deny coverage in an initial eligibility 
determination as an adverse benefit determination. (Rescissions of 
coverage are subject to the requirements of 45 CFR 147.128.)
    (B) Expedited notification of benefit determinations involving 
urgent care. The requirements of 29 CFR 2560.503-1(f)(2)(i) (which 
generally provide, among other things, in the case of urgent care claims 
for notification of the issuer's benefit determination (whether adverse 
or not) as soon as possible, taking into account the medical exigencies, 
but not later than 72 hours after receipt of the claim) continue to 
apply to the issuer. For purposes of this paragraph (b)(3)(ii)(B), a 
claim involving urgent care has the meaning given in 29 CFR 2560.503-
1(m)(1), as determined by the attending provider, and the issuer shall 
defer to such determination of the attending provider.
    (C) Full and fair review. An issuer must allow a claimant to review 
the claim file and to present evidence and testimony as part of the 
internal claims and appeals process. Specifically, in addition to 
complying with the requirements of 29 CFR 2560.503-1(h)(2)--
    (1) The issuer must provide the claimant, free of charge, with any 
new or additional evidence considered, relied upon, or generated by the 
issuer (or at the direction of the issuer) in connection with the claim; 
such evidence must be provided as soon as possible and sufficiently in 
advance of the date on which the notice of final internal adverse 
benefit determination is required to be provided under 29 CFR 2560.503-
1(i) to give the claimant a reasonable opportunity to respond prior to 
that date; and
    (2) Before the issuer can issue a final internal adverse benefit 
determination based on a new or additional rationale, the claimant must 
be provided, free of charge, with the rationale; the rationale must be 
provided as soon as possible and sufficiently in advance of the date on 
which the notice of final internal adverse benefit determination is 
required to be provided under 29 CFR 2560.503-1(i) to give the claimant 
a reasonable opportunity to respond prior to that date.
    (D) Avoiding conflicts of interest. In addition to the requirements 
of 29 CFR 2560.503-1(b) and (h) regarding full and fair review, the 
issuer must ensure that all claims and appeals are adjudicated in a 
manner designed to ensure the independence and impartiality of the 
persons involved in making the decision. Accordingly, decisions 
regarding hiring, compensation, termination, promotion, or other similar 
matters with respect to any individual (such as a claims adjudicator or 
medical expert) must not be made based upon the likelihood that the 
individual will support the denial of benefits.
    (E) Notice. An issuer must provide notice to individuals, in a 
culturally and linguistically appropriate manner (as described in 
paragraph (e) of this section) that complies with the requirements of 29 
CFR 2560.503-1(g) and (j). The issuer must also comply with the 
additional requirements of this paragraph (b)(2)(ii)(E).
    (1) The issuer must ensure that any notice of adverse benefit 
determination or final internal adverse benefit determination includes 
information sufficient to identify the claim involved (including the 
date of service, the name of the health care provider, the claim amount 
(if applicable), and a statement describing the availability, upon 
request, of the diagnosis code and its corresponding meaning, and the 
treatment code and its corresponding meaning).
    (2) The issuer must provide to participants and beneficiaries, as 
soon as practicable, upon request, the diagnosis code and its 
corresponding meaning, and the treatment code and its

[[Page 810]]

corresponding meaning, associated with any adverse benefit determination 
or final internal adverse benefit determination. The issuer must not 
consider a request for such diagnosis and treatment information, in 
itself, to be a request for an internal appeal under this paragraph (b) 
or an external review under paragraphs (c) and (d) of this section.
    (3) The issuer must ensure that the reason or reasons for the 
adverse benefit determination or final internal adverse benefit 
determination includes the denial code and its corresponding meaning, as 
well as a description of the issuer's standard, if any, that was used in 
denying the claim. In the case of a notice of final internal adverse 
benefit determination, this description must include a discussion of the 
decision.
    (4) The issuer must provide a description of available internal 
appeals and external review processes, including information regarding 
how to initiate an appeal.
    (5) The issuer must disclose the availability of, and contact 
information for, any applicable office of health insurance consumer 
assistance or ombudsman established under PHS Act section 2793 to assist 
individuals with the internal claims and appeals and external review 
processes.
    (F) Deemed exhaustion of internal claims and appeals processes--(1) 
In the case of an issuer that fails to adhere to all the requirements of 
this paragraph (b)(3) with respect to a claim, the claimant is deemed to 
have exhausted the internal claims and appeals process of this paragraph 
(b), except as provided in paragraph (b)(3)(ii)(F)(2) of this section. 
Accordingly, the claimant may initiate an external review under 
paragraph (c) or (d) of this section, as applicable. The claimant is 
also entitled to pursue any available remedies under State law, as 
applicable, on the basis that the issuer has failed to provide a 
reasonable internal claims and appeals process that would yield a 
decision on the merits of the claim.
    (2) Notwithstanding paragraph (b)(3)(ii)(F)(1) of this section, the 
internal claims and appeals process of this paragraph (b) will not be 
deemed exhausted based on de minimis violations that do not cause, and 
are not likely to cause, prejudice or harm to the claimant so long as 
the issuer demonstrates that the violation was for good cause or due to 
matters beyond the control of the issuer and that the violation occurred 
in the context of an ongoing, good faith exchange of information between 
the issuer and the claimant. This exception is not available if the 
violation is part of a pattern or practice of violations by the issuer. 
The claimant may request a written explanation of the violation from the 
issuer, and the issuer must provide such explanation within 10 days, 
including a specific description of its bases, if any, for asserting 
that the violation should not cause the internal claims and appeals 
process of this paragraph (b) to be deemed exhausted. If an external 
reviewer or a court rejects the claimant's request for immediate review 
under paragraph (b)(3)(ii)(F)(1) of this section on the basis that the 
issuer met the standards for the exception under this paragraph 
(b)(3)(ii)(F)(2), the claimant has the right to resubmit and pursue the 
internal appeal of the claim. In such a case, within a reasonable time 
after the external reviewer or court rejects the claim for immediate 
review (not to exceed 10 days), the issuer shall provide the claimant 
with notice of the opportunity to resubmit and pursue the internal 
appeal of the claim. Time periods for re-filing the claim shall begin to 
run upon claimant's receipt of such notice.
    (G) One level of internal appeal. Notwithstanding the requirements 
in 29 CFR Sec. 2560.503-1(c)(3), a health insurance issuer offering 
individual health insurance coverage must provide for only one level of 
internal appeal before issuing a final determination.
    (H) Recordkeeping requirements. A health insurance issuer offering 
individual health insurance coverage must maintain for six years records 
of all claims and notices associated with the internal claims and 
appeals process, including the information detailed in paragraph 
(b)(3)(ii)(E) of this section and any other information specified by the 
Secretary. An issuer must make such records available for examination by 
the claimant or State or Federal oversight agency upon request.

[[Page 811]]

    (iii) Requirement to provide continued coverage pending the outcome 
of an appeal. An issuer subject to the requirements of this paragraph 
(b)(3) is required to provide continued coverage pending the outcome of 
an appeal. For this purpose, the issuer must comply with the 
requirements of 29 CFR 2560.503-1(f)(2)(ii) as if the issuer were a 
group health plan, so that the issuer cannot reduce or terminate an 
ongoing course of treatment without providing advance notice and an 
opportunity for advance review.
    (c) State standards for external review--(1) In general. (i) If a 
State external review process that applies to and is binding on a health 
insurance issuer offering group or individual health insurance coverage 
includes at a minimum the consumer protections in the NAIC Uniform Model 
Act, then the issuer must comply with the applicable State external 
review process and is not required to comply with the Federal external 
review process of paragraph (d) of this section. In such a case, to the 
extent that benefits under a group health plan are provided through 
health insurance coverage, the group health plan is not required to 
comply with either this paragraph (c) or the Federal external review 
process of paragraph (d) of this section.
    (ii) To the extent that a group health plan provides benefits other 
than through health insurance coverage (that is, the plan is self-
insured) and is subject to a State external review process that applies 
to and is binding on the plan (for example, is not preempted by ERISA) 
and the State external review process includes at a minimum the consumer 
protections in the NAIC Uniform Model Act, then the plan must comply 
with the applicable State external review process and is not required to 
comply with the Federal external review process of paragraph (d) of this 
section.
    (iii) If a plan or issuer is not required under paragraph (c)(1)(i) 
or (c)(1)(ii) of this section to comply with the requirements of this 
paragraph (c), then the plan or issuer must comply with the Federal 
external review process of paragraph (d) of this section, except to the 
extent, in the case of a plan, the plan is not required under paragraph 
(c)(1)(i) of this section to comply with paragraph (d) of this section.
    (2) Minimum standards for State external review processes. An 
applicable State external review process must meet all the minimum 
consumer protections in this paragraph (c)(2). The Department of Health 
and Human Services will determine whether State external review 
processes meet these requirements.
    (i) The State process must provide for the external review of 
adverse benefit determinations (including final internal adverse benefit 
determinations) by issuers (or, if applicable, plans) that are based on 
the issuer's (or plan's) requirements for medical necessity, 
appropriateness, health care setting, level of care, or effectiveness of 
a covered benefit.
    (ii) The State process must require issuers (or, if applicable, 
plans) to provide effective written notice to claimants of their rights 
in connection with an external review for an adverse benefit 
determination.
    (iii) To the extent the State process requires exhaustion of an 
internal claims and appeals process, exhaustion must be unnecessary 
where the issuer (or, if applicable, the plan) has waived the 
requirement, the issuer (or the plan) is considered to have exhausted 
the internal claims and appeals process under applicable law (including 
by failing to comply with any of the requirements for the internal 
appeal process, as outlined in paragraph (b)(2) or (b)(3) of this 
section), or the claimant has applied for expedited external review at 
the same time as applying for an expedited internal appeal.
    (iv) The State process provides that the issuer (or, if applicable, 
the plan) against which a request for external review is filed must pay 
the cost of the IRO for conducting the external review. Notwithstanding 
this requirement, the State external review process may require a 
nominal filing fee from the claimant requesting an external review. For 
this purpose, to be considered nominal, a filing fee must not exceed 
$25, it must be refunded to the claimant if the adverse benefit 
determination (or final internal adverse benefit determination) is 
reversed through external review, it must be

[[Page 812]]

waived if payment of the fee would impose an undue financial hardship, 
and the annual limit on filing fees for any claimant within a single 
plan year (in the individual market, policy year) must not exceed $75.
    (v) The State process may not impose a restriction on the minimum 
dollar amount of a claim for it to be eligible for external review. 
Thus, the process may not impose, for example, a $500 minimum claims 
threshold.
    (vi) The State process must allow at least four months after the 
receipt of a notice of an adverse benefit determination or final 
internal adverse benefit determination for a request for an external 
review to be filed.
    (vii) The State process must provide that IROs will be assigned on a 
random basis or another method of assignment that assures the 
independence and impartiality of the assignment process (such as 
rotational assignment) by a State or independent entity, and in no event 
selected by the issuer, plan, or the individual.
    (viii) The State process must provide for maintenance of a list of 
approved IRO qualified to conduct the external review based on the 
nature of the health care service that is the subject of the review. The 
State process must provide for approval only of IROs that are accredited 
by a nationally recognized private accrediting organization.
    (ix) The State process must provide that any approved IRO has no 
conflicts of interest that will influence its independence. Thus, the 
IRO may not own or control, or be owned or controlled by a health 
insurance issuer, a group health plan, the sponsor of a group health 
plan, a trade association of plans or issuers, or a trade association of 
health care providers. The State process must further provide that the 
IRO and the clinical reviewer assigned to conduct an external review may 
not have a material professional, familial, or financial conflict of 
interest with the issuer or plan that is the subject of the external 
review; the claimant (and any related parties to the claimant) whose 
treatment is the subject of the external review; any officer, director, 
or management employee of the issuer; the plan administrator, plan 
fiduciaries, or plan employees; the health care provider, the health 
care provider's group, or practice association recommending the 
treatment that is subject to the external review; the facility at which 
the recommended treatment would be provided; or the developer or 
manufacturer of the principal drug, device, procedure, or other therapy 
being recommended.
    (x) The State process allows the claimant at least five business 
days to submit to the IRO in writing additional information that the IRO 
must consider when conducting the external review and it requires that 
the claimant is notified of the right to do so. The process must also 
require that any additional information submitted by the claimant to the 
IRO must be forwarded to the issuer (or, if applicable, the plan) within 
one business day of receipt by the IRO.
    (xi) The State process must provide that the decision is binding on 
the plan or issuer, as well as the claimant, except to the extent other 
remedies are available under State or Federal law, and except that the 
requirement that the decision be binding shall not preclude the plan or 
issuer from making payment on the claim or otherwise providing benefits 
at any time, including after a final external review decision that 
denies the claim or otherwise fails to require such payment or benefits. 
For this purpose, the plan or issuer must provide benefits (including by 
making payment on the claim) pursuant to the final external review 
decision without delay, regardless of whether the plan or issuer intends 
to seek judicial review of the external review decision and unless or 
until there is a judicial decision otherwise.
    (xii) The State process must require, for standard external review, 
that the IRO provide written notice to the claimant and the issuer (or, 
if applicable, the plan) of its decision to uphold or reverse the 
adverse benefit determination (or final internal adverse benefit 
determination) within no more than 45 days after the receipt of the 
request for external review by the IRO.
    (xiii) The State process must provide for an expedited external 
review if the adverse benefit determination (or final internal adverse 
benefit determination) concerns an admission, availability of

[[Page 813]]

care, continued stay, or health care service for which the claimant 
received emergency services, but has not been discharged from a 
facility; or involves a medical condition for which the standard 
external review time frame would seriously jeopardize the life or health 
of the claimant or jeopardize the claimant's ability to regain maximum 
function. As expeditiously as possible but within no more than 72 hours 
after the receipt of the request for expedited external review by the 
IRO, the IRO must make its decision to uphold or reverse the adverse 
benefit determination (or final internal adverse benefit determination) 
and notify the claimant and the issuer (or, if applicable, the plan) of 
the determination. If the notice is not in writing, the IRO must provide 
written confirmation of the decision within 48 hours after the date of 
the notice of the decision.
    (xiv) The State process must require that issuers (or, if 
applicable, plans) include a description of the external review process 
in or attached to the summary plan description, policy, certificate, 
membership booklet, outline of coverage, or other evidence of coverage 
it provides to participants, beneficiaries, or enrollees, substantially 
similar to what is set forth in section 17 of the NAIC Uniform Model 
Act.
    (xv) The State process must require that IROs maintain written 
records and make them available upon request to the State, substantially 
similar to what is set forth in section 15 of the NAIC Uniform Model 
Act.
    (xvi) The State process follows procedures for external review of 
adverse benefit determinations (or final internal adverse benefit 
determinations) involving experimental or investigational treatment, 
substantially similar to what is set forth in section 10 of the NAIC 
Uniform Model Act.
    (3) Transition period for external review processes. (i) Through 
December 31, 2011, an applicable State external review process 
applicable to a health insurance issuer or group health plan is 
considered to meet the requirements of PHS Act section 2719(b). 
Accordingly, through December 31, 2011, an applicable State external 
review process will be considered binding on the issuer or plan (in lieu 
of the requirements of the Federal external review process). If there is 
no applicable State external review process, the issuer or plan is 
required to comply with the requirements of the Federal external review 
process in paragraph (d) of this section.
    (ii) For final internal adverse benefit determinations (or, in the 
case of simultaneous internal appeal and external review, adverse 
benefit determinations) provided on or after January 1, 2012, the 
Federal external review process will apply unless the Department of 
Health and Human Services determines that a State law meets all the 
minimum standards of paragraph (c)(2) of this section.
    (ii) For final internal adverse benefit determinations (or, in the 
case of simultaneous internal appeal and external review, adverse 
benefit determinations) provided after the first day of the first plan 
year (in the individual market, policy year) beginning on or after July 
1, 2011, the Federal external review process will apply unless the 
Department of Health and Human Services determines that a State law 
meets all the minimum standards of paragraph (c)(2) of this section as 
of the first day of the plan year (in the individual market, policy 
year).
    (d) Federal external review process--A plan or issuer not subject to 
an applicable State external review process under paragraph (c) of this 
section must provide an effective Federal external review process in 
accordance with this paragraph (d) (except to the extent, in the case of 
a plan, the plan is described in paragraph (c)(1)(i) of this section as 
not having to comply with this paragraph (d)). In the case of health 
insurance coverage offered in connection with a group health plan, if 
either the plan or the issuer complies with the Federal external review 
process of this paragraph (d), then the obligation to comply with this 
paragraph (d) is satisfied for both the plan and the issuer with respect 
to the health insurance coverage. A Multi State Plan or MSP, as defined 
by 45 CFR 800.20, must provide an effective Federal external review 
process in accordance with this paragraph (d).
    (1) Scope--(i) In general. Subject to the suspension provision in 
paragraph (d)(1)(ii) of this section and except to

[[Page 814]]

the extent provided otherwise by the Secretary in guidance, the Federal 
external review process established pursuant to this paragraph (d) 
applies, at a minimum, to any adverse benefit determination or final 
internal adverse benefit determination (as defined in paragraphs 
(a)(2)(i) and (a)(2)(v) of this section), except that a denial, 
reduction, termination, or a failure to provide payment for a benefit 
based on a determination that a participant or beneficiary fails to meet 
the requirements for eligibility under the terms of a group health plan 
is not eligible for the Federal external review process under this 
paragraph (d).
    (ii) Suspension of general rule. Unless or until this suspension is 
revoked in guidance by the Secretary, with respect to claims for which 
external review has not been initiated before September 20, 2011, the 
Federal external review process established pursuant to this paragraph 
(d) applies only to:
    (A) An adverse benefit determination (including a final internal 
adverse benefit determination) by a plan or issuer that involves medical 
judgment (including, but not limited to, those based on the plan's or 
issuer's requirements for medical necessity, appropriateness, health 
care setting, level of care, or effectiveness of a covered benefit; or 
its determination that a treatment is experimental or investigational), 
as determined by the external reviewer; and
    (B) A rescission of coverage (whether or not the rescission has any 
effect on any particular benefit at that time).
    (iii) Examples. This rules of paragraph (d)(1)(ii) of this section 
are illustrated by the following examples:

    Example 1. (i) Facts. A group health plan provides coverage for 30 
physical therapy visits generally. After the 30th visit, coverage is 
provided only if the service is preauthorized pursuant to an approved 
treatment plan that takes into account medical necessity using the 
plan's definition of the term. Individual A seeks coverage for a 31st 
physical therapy visit. A's health care provider submits a treatment 
plan for approval, but it is not approved by the plan, so coverage for 
the 31st visit is not preauthorized. With respect to the 31st visit, A 
receives a notice of final internal adverse benefit determination 
stating that the maximum visit limit is exceeded.
    (ii) Conclusion. In this Example 1, the plan's denial of benefits is 
based on medical necessity and involves medical judgment. Accordingly, 
the claim is eligible for external review during the suspension period 
under paragraph (d)(1)(ii) of this section. Moreover, the plan's 
notification of final internal adverse benefit determination is 
inadequate under paragraphs (b)(2)(i) and (b)(2)(ii)(E)(3) of this 
section because it fails to make clear that the plan will pay for more 
than 30 visits if the service is preauthorized pursuant to an approved 
treatment plan that takes into account medical necessity using the 
plan's definition of the term. Accordingly, the notice of final internal 
adverse benefit determination should refer to the plan provision 
governing the 31st visit and should describe the plan's standard for 
medical necessity, as well as how the treatment fails to meet the plan's 
standard.
    Example 2. (i) Facts. A group health plan does not provide coverage 
for services provided out of network, unless the service cannot 
effectively be provided in network. Individual B seeks coverage for a 
specialized medical procedure from an out-of-network provider because B 
believes that the procedure cannot be effectively provided in network. B 
receives a notice of final internal adverse benefit determination 
stating that the claim is denied because the provider is out-of-network.
    (ii) Conclusion. In this Example 2, the plan's denial of benefits is 
based on whether a service can effectively be provided in network and, 
therefore, involves medical judgment. Accordingly, the claim is eligible 
for external review during the suspension period under paragraph 
(d)(1)(ii) of this section. Moreover, the plan's notice of final 
internal adverse benefit determination is inadequate under paragraphs 
(b)(2)(i) and (b)(2)(ii)(E)(3) of this section because the plan does 
provide benefits for services on an out-of-network basis if the services 
cannot effectively be provided in network. Accordingly, the notice of 
final internal adverse benefit determination is required to refer to the 
exception to the out-of-network exclusion and should describe the plan's 
standards for determining effectiveness of services, as well as how 
services available to the claimant within the plan's network meet the 
plan's standard for effectiveness of services.

    (2) External review process standards. The Federal external review 
process established pursuant to this paragraph (d) will be similar to 
the process set forth in the NAIC Uniform Model Act and will meet 
standards issued by the Secretary. These standards will comply with all 
of the requirements described in this paragraph (d)(2).
    (i) These standards will describe how a claimant initiates an 
external review, procedures for preliminary reviews to determine whether 
a claim is

[[Page 815]]

eligible for external review, minimum qualifications for IROs, a process 
for approving IROs eligible to be assigned to conduct external reviews, 
a process for random assignment of external reviews to approved IROs, 
standards for IRO decision-making, and rules for providing notice of a 
final external review decision.
    (ii) These standards will provide an expedited external review 
process for--
    (A) An adverse benefit determination, if the adverse benefit 
determination involves a medical condition of the claimant for which the 
timeframe for completion of an expedited internal appeal under paragraph 
(b) of this section would seriously jeopardize the life or health of the 
claimant, or would jeopardize the claimant's ability to regain maximum 
function and the claimant has filed a request for an expedited internal 
appeal under paragraph (b) of this section; or
    (B) A final internal adverse benefit determination, if the claimant 
has a medical condition where the timeframe for completion of a standard 
external review pursuant to paragraph (d)(3) of this section would 
seriously jeopardize the life or health of the claimant or would 
jeopardize the claimant's ability to regain maximum function, or if the 
final internal adverse benefit determination concerns an admission, 
availability of care, continued stay or health care service for which 
the claimant received emergency services, but has not been discharged 
from a facility.
    (iii) With respect to claims involving experimental or 
investigational treatments, these standards will also provide additional 
consumer protections to ensure that adequate clinical and scientific 
experience and protocols are taken into account as part of the external 
review process.
    (iv) These standards will provide that an external review decision 
is binding on the plan or issuer, as well as the claimant, except to the 
extent other remedies are available under State or Federal law, and 
except that the requirement that the decision be binding shall not 
preclude the plan or issuer from making payment on the claim or 
otherwise providing benefits at any time, including after a final 
external review decision that denies the claim or otherwise fails to 
require such payment or benefits. For this purpose, the plan or issuer 
must provide any benefits (including by making payment on the claim) 
pursuant to the final external review decision without delay, regardless 
of whether the plan or issuer intends to seek judicial review of the 
external review decision and unless or until there is a judicial 
decision otherwise.
    (v) These standards may establish external review reporting 
requirements for IROs.
    (vi) These standards will establish additional notice requirements 
for plans and issuers regarding disclosures to participants, 
beneficiaries, and enrollees describing the Federal external review 
procedures (including the right to file a request for an external review 
of an adverse benefit determination or a final internal adverse benefit 
determination in the summary plan description, policy, certificate, 
membership booklet, outline of coverage, or other evidence of coverage 
it provides to participants, beneficiaries, or enrollees.
    (vii) These standards will require plans and issuers to provide 
information relevant to the processing of the external review, 
including, but not limited to, the information considered and relied on 
in making the adverse benefit determination or final internal adverse 
benefit determination.
    (e) Form and manner of notice--(1) In general. For purposes of this 
section, a group health plan and a health insurance issuer offering 
group or individual health insurance coverage are considered to provide 
relevant notices in a culturally and linguistically appropriate manner 
if the plan or issuer meets all the requirements of paragraph (e)(2) of 
this section with respect to the applicable non-English languages 
described in paragraph (e)(3) of this section.
    (2) Requirements--(i) The plan or issuer must provide oral language 
services (such as a telephone customer assistance hotline) that include 
answering questions in any applicable non-English language and providing 
assistance with filing claims and appeals (including external review) in 
any applicable non-English language;

[[Page 816]]

    (ii) The plan or issuer must provide, upon request, a notice in any 
applicable non-English language; and
    (iii) The plan or issuer must include in the English versions of all 
notices, a statement prominently displayed in any applicable non-English 
language clearly indicating how to access the language services provided 
by the plan or issuer.
    (3) Applicable non-English language. With respect to an address in 
any United States county to which a notice is sent, a non-English 
language is an applicable non-English language if ten percent or more of 
the population residing in the county is literate only in the same non-
English language, as determined in guidance published by the Secretary.
    (f) Secretarial authority. The Secretary may determine that the 
external review process of a group health plan or health insurance 
issuer, in operation as of March 23, 2010, is considered in compliance 
with the applicable process established under paragraph (c) or (d) of 
this section if it substantially meets the requirements of paragraph (c) 
or (d) of this section, as applicable.
    (g) Applicability date. The provisions of this section apply for 
plan years (in the individual market, policy years) beginning on or 
after September 23, 2010. See Sec. 147.140 of this part for determining 
the application of this section to grandfathered health plans (providing 
that these rules regarding internal claims and appeals and external 
review processes do not apply to grandfathered health plans).

[75 FR 43350, July 23, 2010, as amended at 76 FR 37232, June 24, 2011; 
76 FR 44492, July 26, 2011; 78 FR 68296, Nov. 13, 2013]



Sec. 147.138  Patient protections.

    (a) Choice of health care professional--(1) Designation of primary 
care provider--(i) In general. If a group health plan, or a health 
insurance issuer offering group or individual health insurance coverage, 
requires or provides for designation by a participant, beneficiary, or 
enrollee of a participating primary care provider, then the plan or 
issuer must permit each participant, beneficiary, or enrollee to 
designate any participating primary care provider who is available to 
accept the participant, beneficiary, or enrollee. In such a case, the 
plan or issuer must comply with the rules of paragraph (a)(4) of this 
section by informing each participant (in the individual market, primary 
subscriber) of the terms of the plan or health insurance coverage 
regarding designation of a primary care provider.
    (ii) Example. The rules of this paragraph (a)(1) are illustrated by 
the following example:

    Example. (i) Facts. A group health plan requires individuals covered 
under the plan to designate a primary care provider. The plan permits 
each individual to designate any primary care provider participating in 
the plan's network who is available to accept the individual as the 
individual's primary care provider. If an individual has not designated 
a primary care provider, the plan designates one until one has been 
designated by the individual. The plan provides a notice that satisfies 
the requirements of paragraph (a)(4) of this section regarding the 
ability to designate a primary care provider.
    (ii) Conclusion. In this Example, the plan has satisfied the 
requirements of paragraph (a) of this section.

    (2) Designation of pediatrician as primary care provider--(i) In 
general. If a group health plan, or a health insurance issuer offering 
group or individual health insurance coverage, requires or provides for 
the designation of a participating primary care provider for a child by 
a participant, beneficiary, or enrollee, the plan or issuer must permit 
the participant, beneficiary, or enrollee to designate a physician 
(allopathic or osteopathic) who specializes in pediatrics as the child's 
primary care provider if the provider participates in the network of the 
plan or issuer and is available to accept the child. In such a case, the 
plan or issuer must comply with the rules of paragraph (a)(4) of this 
section by informing each participant (in the individual market, primary 
subscriber) of the terms of the plan or health insurance coverage 
regarding designation of a pediatrician as the child's primary care 
provider.
    (ii) Construction. Nothing in paragraph (a)(2)(i) of this section is 
to be construed to waive any exclusions of coverage under the terms and 
conditions of the plan or health insurance

[[Page 817]]

coverage with respect to coverage of pediatric care.
    (iii) Examples. The rules of this paragraph (a)(2) are illustrated 
by the following examples:

    Example 1. (i) Facts. A group health plan's HMO designates for each 
participant a physician who specializes in internal medicine to serve as 
the primary care provider for the participant and any beneficiaries. 
Participant A requests that Pediatrician B be designated as the primary 
care provider for A's child. B is a participating provider in the HMO's 
network.
    (ii) Conclusion. In this Example 1, the HMO must permit A's 
designation of B as the primary care provider for A's child in order to 
comply with the requirements of this paragraph (a)(2).
    Example 2. (i) Facts. Same facts as Example 1, except that A takes 
A's child to B for treatment of the child's severe shellfish allergies. 
B wishes to refer A's child to an allergist for treatment. The HMO, 
however, does not provide coverage for treatment of food allergies, nor 
does it have an allergist participating in its network, and it therefore 
refuses to authorize the referral.
    (ii) Conclusion. In this Example 2, the HMO has not violated the 
requirements of this paragraph (a)(2) because the exclusion of treatment 
for food allergies is in accordance with the terms of A's coverage.

    (3) Patient access to obstetrical and gynecological care--(i) 
General rights--(A) Direct access. A group health plan, or a health 
insurance issuer offering group or individual health insurance coverage, 
described in paragraph (a)(3)(ii) of this section may not require 
authorization or referral by the plan, issuer, or any person (including 
a primary care provider) in the case of a female participant, 
beneficiary, or enrollee who seeks coverage for obstetrical or 
gynecological care provided by a participating health care professional 
who specializes in obstetrics or gynecology. In such a case, the plan or 
issuer must comply with the rules of paragraph (a)(4) of this section by 
informing each participant (in the individual market, primary 
subscriber) that the plan may not require authorization or referral for 
obstetrical or gynecological care by a participating health care 
professional who specializes in obstetrics or gynecology. The plan or 
issuer may require such a professional to agree to otherwise adhere to 
the plan's or issuer's policies and procedures, including procedures 
regarding referrals and obtaining prior authorization and providing 
services pursuant to a treatment plan (if any) approved by the plan or 
issuer. For purposes of this paragraph (a)(3), a health care 
professional who specializes in obstetrics or gynecology is any 
individual (including a person other than a physician) who is authorized 
under applicable State law to provide obstetrical or gynecological care.
    (B) Obstetrical and gynecological care. A group health plan or 
health insurance issuer described in paragraph (a)(3)(ii) of this 
section must treat the provision of obstetrical and gynecological care, 
and the ordering of related obstetrical and gynecological items and 
services, pursuant to the direct access described under paragraph 
(a)(3)(i)(A) of this section, by a participating health care 
professional who specializes in obstetrics or gynecology as the 
authorization of the primary care provider.
    (ii) Application of paragraph. A group health plan, or a health 
insurance issuer offering group or individual health insurance coverage, 
is described in this paragraph (a)(3) if the plan or issuer--
    (A) Provides coverage for obstetrical or gynecological care; and
    (B) Requires the designation by a participant, beneficiary, or 
enrollee of a participating primary care provider.
    (iii) Construction. Nothing in paragraph (a)(3)(i) of this section 
is to be construed to--
    (A) Waive any exclusions of coverage under the terms and conditions 
of the plan or health insurance coverage with respect to coverage of 
obstetrical or gynecological care; or
    (B) Preclude the group health plan or health insurance issuer 
involved from requiring that the obstetrical or gynecological provider 
notify the primary care health care professional or the plan or issuer 
of treatment decisions.
    (iv) Examples. The rules of this paragraph (a)(3) are illustrated by 
the following examples:

    Example 1. (i) Facts. A group health plan requires each participant 
to designate a physician to serve as the primary care provider for the 
participant and the participant's family. Participant A, a female, 
requests a

[[Page 818]]

gynecological exam with Physician B, an in-network physician 
specializing in gynecological care. The group health plan requires prior 
authorization from A's designated primary care provider for the 
gynecological exam.
    (ii) Conclusion. In this Example 1, the group health plan has 
violated the requirements of this paragraph (a)(3) because the plan 
requires prior authorization from A's primary care provider prior to 
obtaining gynecological services.
    Example 2. (i) Facts. Same facts as Example 1 except that A seeks 
gynecological services from C, an out-of-network provider.
    (ii) Conclusion. In this Example 2, the group health plan has not 
violated the requirements of this paragraph (a)(3) by requiring prior 
authorization because C is not a participating health care provider.
    Example 3. (i) Facts. Same facts as Example 1 except that the group 
health plan only requires B to inform A's designated primary care 
physician of treatment decisions.
    (ii) Conclusion. In this Example 3, the group health plan has not 
violated the requirements of this paragraph (a)(3) because A has direct 
access to B without prior authorization. The fact that the group health 
plan requires notification of treatment decisions to the designated 
primary care physician does not violate this paragraph (a)(3).
    Example 4. (i) Facts. A group health plan requires each participant 
to designate a physician to serve as the primary care provider for the 
participant and the participant's family. The group health plan requires 
prior authorization before providing benefits for uterine fibroid 
embolization.
    (ii) Conclusion. In this Example 4, the plan requirement for prior 
authorization before providing benefits for uterine fibroid embolization 
does not violate the requirements of this paragraph (a)(3) because, 
though the prior authorization requirement applies to obstetrical 
services, it does not restrict access to any providers specializing in 
obstetrics or gynecology.

    (4) Notice of right to designate a primary care provider--(i) In 
general. If a group health plan or health insurance issuer requires the 
designation by a participant, beneficiary, or enrollee of a primary care 
provider, the plan or issuer must provide a notice informing each 
participant (in the individual market, primary subscriber) of the terms 
of the plan or health insurance coverage regarding designation of a 
primary care provider and of the rights--
    (A) Under paragraph (a)(1)(i) of this section, that any 
participating primary care provider who is available to accept the 
participant, beneficiary, or enrollee can be designated;
    (B) Under paragraph (a)(2)(i) of this section, with respect to a 
child, that any participating physician who specializes in pediatrics 
can be designated as the primary care provider; and
    (C) Under paragraph (a)(3)(i) of this section, that the plan may not 
require authorization or referral for obstetrical or gynecological care 
by a participating health care professional who specializes in 
obstetrics or gynecology.
    (ii) Timing. In the case of a group health plan or group health 
insurance coverage, the notice described in paragraph (a)(4)(i) of this 
section must be included whenever the plan or issuer provides a 
participant with a summary plan description or other similar description 
of benefits under the plan or health insurance coverage. In the case of 
individual health insurance coverage, the notice described in paragraph 
(a)(4)(i) of this section must be included whenever the issuer provides 
a primary subscriber with a policy, certificate, or contract of health 
insurance.
    (iii) Model language. The following model language can be used to 
satisfy the notice requirement described in paragraph (a)(4)(i) of this 
section:
    (A) For plans and issuers that require or allow for the designation 
of primary care providers by participants, beneficiaries, or enrollees, 
insert:

    [Name of group health plan or health insurance issuer] generally 
[requires/allows] the designation of a primary care provider. You have 
the right to designate any primary care provider who participates in our 
network and who is available to accept you or your family members. [If 
the plan or health insurance coverage designates a primary care provider 
automatically, insert: Until you make this designation, [name of group 
health plan or health insurance issuer] designates one for you.] For 
information on how to select a primary care provider, and for a list of 
the participating primary care providers, contact the [plan 
administrator or issuer] at [insert contact information].

    (B) For plans and issuers that require or allow for the designation 
of a primary care provider for a child, add:

    For children, you may designate a pediatrician as the primary care 
provider.


[[Page 819]]


    (C) For plans and issuers that provide coverage for obstetric or 
gynecological care and require the designation by a participant, 
beneficiary, or enrollee of a primary care provider, add:

    You do not need prior authorization from [name of group health plan 
or issuer] or from any other person (including a primary care provider) 
in order to obtain access to obstetrical or gynecological care from a 
health care professional in our network who specializes in obstetrics or 
gynecology. The health care professional, however, may be required to 
comply with certain procedures, including obtaining prior authorization 
for certain services, following a pre-approved treatment plan, or 
procedures for making referrals. For a list of participating health care 
professionals who specialize in obstetrics or gynecology, contact the 
[plan administrator or issuer] at [insert contact information].

    (b) Coverage of emergency services--(1) Scope. If a group health 
plan, or a health insurance issuer offering group or individual health 
insurance coverage, provides any benefits with respect to services in an 
emergency department of a hospital, the plan or issuer must cover 
emergency services (as defined in paragraph (b)(4)(ii) of this section) 
consistent with the rules of this paragraph (b).
    (2) General rules. A plan or issuer subject to the requirements of 
this paragraph (b) must provide coverage for emergency services in the 
following manner--
    (i) Without the need for any prior authorization determination, even 
if the emergency services are provided on an out-of-network basis;
    (ii) Without regard to whether the health care provider furnishing 
the emergency services is a participating network provider with respect 
to the services;
    (iii) If the emergency services are provided out of network, without 
imposing any administrative requirement or limitation on coverage that 
is more restrictive than the requirements or limitations that apply to 
emergency services received from in-network providers;
    (iv) If the emergency services are provided out of network, by 
complying with the cost-sharing requirements of paragraph (b)(3) of this 
section; and
    (v) Without regard to any other term or condition of the coverage, 
other than--
    (A) The exclusion of or coordination of benefits;
    (B) An affiliation or waiting period permitted under part 7 of 
ERISA, part A of title XXVII of the PHS Act, or chapter 100 of the 
Internal Revenue Code; or
    (C) Applicable cost sharing.
    (3) Cost-sharing requirements--(i) Copayments and coinsurance. Any 
cost-sharing requirement expressed as a copayment amount or coinsurance 
rate imposed with respect to a participant, beneficiary, or enrollee for 
out-of-network emergency services cannot exceed the cost-sharing 
requirement imposed with respect to a participant, beneficiary, or 
enrollee if the services were provided in-network. However, a 
participant, beneficiary, or enrollee may be required to pay, in 
addition to the in-network cost-sharing, the excess of the amount the 
out-of-network provider charges over the amount the plan or issuer is 
required to pay under this paragraph (b)(3)(i). A group health plan or 
health insurance issuer complies with the requirements of this paragraph 
(b)(3) if it provides benefits with respect to an emergency service in 
an amount equal to the greatest of the three amounts specified in 
paragraphs (b)(3)(i)(A), (b)(3)(i)(B), and (b)(3)(i)(C) of this section 
(which are adjusted for in-network cost-sharing requirements).
    (A) The amount negotiated with in-network providers for the 
emergency service furnished, excluding any in-network copayment or 
coinsurance imposed with respect to the participant, beneficiary, or 
enrollee. If there is more than one amount negotiated with in-network 
providers for the emergency service, the amount described under this 
paragraph (b)(3)(i)(A) is the median of these amounts, excluding any in-
network copayment or coinsurance imposed with respect to the 
participant, beneficiary, or enrollee. In determining the median 
described in the preceding sentence, the amount negotiated with each in-
network provider is treated as a separate amount (even if the same 
amount is paid to more than one provider). If there is no per-service 
amount negotiated with in-network

[[Page 820]]

providers (such as under a capitation or other similar payment 
arrangement), the amount under this paragraph (b)(3)(i)(A) is 
disregarded.
    (B) The amount for the emergency service calculated using the same 
method the plan generally uses to determine payments for out-of-network 
services (such as the usual, customary, and reasonable amount), 
excluding any in-network copayment or coinsurance imposed with respect 
to the participant, beneficiary, or enrollee. The amount in this 
paragraph (b)(3)(i)(B) is determined without reduction for out-of-
network cost sharing that generally applies under the plan or health 
insurance coverage with respect to out-of-network services. Thus, for 
example, if a plan generally pays 70 percent of the usual, customary, 
and reasonable amount for out-of-network services, the amount in this 
paragraph (b)(3)(i)(B) for an emergency service is the total (that is, 
100 percent) of the usual, customary, and reasonable amount for the 
service, not reduced by the 30 percent coinsurance that would generally 
apply to out-of-network services (but reduced by the in-network 
copayment or coinsurance that the individual would be responsible for if 
the emergency service had been provided in-network).
    (C) The amount that would be paid under Medicare (part A or part B 
of title XVIII of the Social Security Act, 42 U.S.C. 1395 et seq.) for 
the emergency service, excluding any in-network copayment or coinsurance 
imposed with respect to the participant, beneficiary, or enrollee.
    (ii) Other cost sharing. Any cost-sharing requirement other than a 
copayment or coinsurance requirement (such as a deductible or out-of-
pocket maximum) may be imposed with respect to emergency services 
provided out of network if the cost-sharing requirement generally 
applies to out-of-network benefits. A deductible may be imposed with 
respect to out-of-network emergency services only as part of a 
deductible that generally applies to out-of-network benefits. If an out-
of-pocket maximum generally applies to out-of-network benefits, that 
out-of-pocket maximum must apply to out-of-network emergency services.
    (iii) Examples. The rules of this paragraph (b)(3) are illustrated 
by the following examples. In all of these examples, the group health 
plan covers benefits with respect to emergency services.

    Example 1. (i) Facts. A group health plan imposes a 25% coinsurance 
responsibility on individuals who are furnished emergency services, 
whether provided in network or out of network. If a covered individual 
notifies the plan within two business days after the day an individual 
receives treatment in an emergency department, the plan reduces the 
coinsurance rate to 15%.
    (ii) Conclusion. In this Example 1, the requirement to notify the 
plan in order to receive a reduction in the coinsurance rate does not 
violate the requirement that the plan cover emergency services without 
the need for any prior authorization determination. This is the result 
even if the plan required that it be notified before or at the time of 
receiving services at the emergency department in order to receive a 
reduction in the coinsurance rate.
    Example 2. (i) Facts. A group health plan imposes a $60 copayment on 
emergency services without preauthorization, whether provided in network 
or out of network. If emergency services are preauthorized, the plan 
waives the copayment, even if it later determines the medical condition 
was not an emergency medical condition.
    (ii) Conclusion. In this Example 2, by requiring an individual to 
pay more for emergency services if the individual does not obtain prior 
authorization, the plan violates the requirement that the plan cover 
emergency services without the need for any prior authorization 
determination. (By contrast, if, to have the copayment waived, the plan 
merely required that it be notified rather than a prior authorization, 
then the plan would not violate the requirement that the plan cover 
emergency services without the need for any prior authorization 
determination.)
    Example 3. (i) Facts. A group health plan covers individuals who 
receive emergency services with respect to an emergency medical 
condition from an out-of-network provider. The plan has agreements with 
in-network providers with respect to a certain emergency service. Each 
provider has agreed to provide the service for a certain amount. Among 
all the providers for the service: one has agreed to accept $85, two 
have agreed to accept $100, two have agreed to accept $110, three have 
agreed to accept $120, and one has agreed to accept $150. Under the 
agreement, the plan agrees to pay the providers 80% of the agreed 
amount, with the individual receiving the service responsible for the 
remaining 20%.

[[Page 821]]

    (ii) Conclusion. In this Example 3, the values taken into account in 
determining the median are $85, $100, $100, $110, $110, $120, $120, 
$120, and $150. Therefore, the median amount among those agreed to for 
the emergency service is $110, and the amount under paragraph 
(b)(3)(i)(A) of this section is 80% of $110 ($88).
    Example 4. (i) Facts. Same facts as Example 3. Subsequently, the 
plan adds another provider to its network, who has agreed to accept $150 
for the emergency service.
    (ii) Conclusion. In this Example 4, the median amount among those 
agreed to for the emergency service is $115. (Because there is no one 
middle amount, the median is the average of the two middle amounts, $110 
and $120.) Accordingly, the amount under paragraph (b)(3)(i)(A) of this 
section is 80% of $115 ($92).
    Example 5. (i) Facts. Same facts as Example 4. An individual covered 
by the plan receives the emergency service from an out-of-network 
provider, who charges $125 for the service. With respect to services 
provided by out-of-network providers generally, the plan reimburses 
covered individuals 50% of the reasonable amount charged by the provider 
for medical services. For this purpose, the reasonable amount for any 
service is based on information on charges by all providers collected by 
a third party, on a zip code by zip code basis, with the plan treating 
charges at a specified percentile as reasonable. For the emergency 
service received by the individual, the reasonable amount calculated 
using this method is $116. The amount that would be paid under Medicare 
for the emergency service, excluding any copayment or coinsurance for 
the service, is $80.
    (ii) Conclusion. In this Example 5, the plan is responsible for 
paying $92.80, 80% of $116. The median amount among those agreed to for 
the emergency service is $115 and the amount the plan would pay is $92 
(80% of $115); the amount calculated using the same method the plan uses 
to determine payments for out-of-network services--$116--excluding the 
in-network 20% coinsurance, is $92.80; and the Medicare payment is $80. 
Thus, the greatest amount is $92.80. The individual is responsible for 
the remaining $32.20 charged by the out-of-network provider.
    Example 6. (i) Facts. Same facts as Example 5. The group health plan 
generally imposes a $250 deductible for in-network health care. With 
respect to all health care provided by out-of-network providers, the 
plan imposes a $500 deductible. (Covered in-network claims are credited 
against the deductible.) The individual has incurred and submitted $260 
of covered claims prior to receiving the emergency service out of 
network.
    (ii) Conclusion. In this Example 6, the plan is not responsible for 
paying anything with respect to the emergency service furnished by the 
out-of-network provider because the covered individual has not satisfied 
the higher deductible that applies generally to all health care provided 
out of network. However, the amount the individual is required to pay is 
credited against the deductible.

    (4) Definitions. The definitions in this paragraph (b)(4) govern in 
applying the provisions of this paragraph (b).
    (i) Emergency medical condition. The term emergency medical 
condition means a medical condition manifesting itself by acute symptoms 
of sufficient severity (including severe pain) so that a prudent 
layperson, who possesses an average knowledge of health and medicine, 
could reasonably expect the absence of immediate medical attention to 
result in a condition described in clause (i), (ii), or (iii) of section 
1867(e)(1)(A) of the Social Security Act (42 U.S.C. 1395dd(e)(1)(A)). 
(In that provision of the Social Security Act, clause (i) refers to 
placing the health of the individual (or, with respect to a pregnant 
woman, the health of the woman or her unborn child) in serious jeopardy; 
clause (ii) refers to serious impairment to bodily functions; and clause 
(iii) refers to serious dysfunction of any bodily organ or part.)
    (ii) Emergency services. The term emergency services means, with 
respect to an emergency medical condition--
    (A) A medical screening examination (as required under section 1867 
of the Social Security Act, 42 U.S.C. 1395dd) that is within the 
capability of the emergency department of a hospital, including 
ancillary services routinely available to the emergency department to 
evaluate such emergency medical condition, and
    (B) Such further medical examination and treatment, to the extent 
they are within the capabilities of the staff and facilities available 
at the hospital, as are required under section 1867 of the Social 
Security Act (42 U.S.C. 1395dd) to stabilize the patient.
    (iii) Stabilize. The term to stabilize, with respect to an emergency 
medical condition (as defined in paragraph (b)(4)(i) of this section) 
has the meaning given in section 1867(e)(3) of the Social Security Act 
(42 U.S.C. 1395dd(e)(3)).
    (c) Applicability date. The provisions of this section apply for 
plan years (in the individual market, policy years)

[[Page 822]]

beginning on or after September 23, 2010. See Sec. 147.140 of this part 
for determining the application of this section to grandfathered health 
plans (providing that these rules regarding patient protections do not 
apply to grandfathered health plans).

[75 FR 37238, June 28, 2010]



Sec. 147.140  Preservation of right to maintain existing coverage.

    (a) Definition of grandfathered health plan coverage--(1) In 
general--(i) Grandfathered health plan coverage. Grandfathered health 
plan coverage means coverage provided by a group health plan, or a group 
or individual health insurance issuer, in which an individual was 
enrolled on March 23, 2010 (for as long as it maintains that status 
under the rules of this section). A group health plan or group health 
insurance coverage does not cease to be grandfathered health plan 
coverage merely because one or more (or even all) individuals enrolled 
on March 23, 2010 cease to be covered, provided that the plan has 
continuously covered someone since March 23, 2010 (not necessarily the 
same person, but at all times at least one person). In addition, subject 
to the limitation set forth in paragraph (a)(1)(ii) of this section, a 
group health plan (and any health insurance coverage offered in 
connection with the group health plan) does not cease to be a 
grandfathered health plan merely because the plan (or its sponsor) 
enters into a new policy, certificate, or contract of insurance after 
March 23, 2010 (for example, a plan enters into a contract with a new 
issuer or a new policy is issued with an existing issuer). For purposes 
of this section, a plan or health insurance coverage that provides 
grandfathered health plan coverage is referred to as a grandfathered 
health plan. The rules of this section apply separately to each benefit 
package made available under a group health plan or health insurance 
coverage.
    (ii) Changes in group health insurance coverage. Subject to 
paragraphs (f) and (g)(2) of this section, if a group health plan 
(including a group health plan that was self-insured on March 23, 2010) 
or its sponsor enters into a new policy, certificate, or contract of 
insurance after March 23, 2010 that is effective before November 15, 
2010, then the plan ceases to be a grandfathered health plan.
    (2) Disclosure of grandfather status--(i) To maintain status as a 
grandfathered health plan, a plan or health insurance coverage must 
include a statement, in any plan materials provided to a participant or 
beneficiary (in the individual market, primary subscriber) describing 
the benefits provided under the plan or health insurance coverage, that 
the plan or coverage believes it is a grandfathered health plan within 
the meaning of section 1251 of the Patient Protection and Affordable 
Care Act and must provide contact information for questions and 
complaints.

    (ii) The following model language can be used to satisfy this 
disclosure requirement:
    This [group health plan or health insurance issuer] believes this 
[plan or coverage] is a ``grandfathered health plan'' under the Patient 
Protection and Affordable Care Act (the Affordable Care Act). As 
permitted by the Affordable Care Act, a grandfathered health plan can 
preserve certain basic health coverage that was already in effect when 
that law was enacted. Being a grandfathered health plan means that your 
[plan or policy] may not include certain consumer protections of the 
Affordable Care Act that apply to other plans, for example, the 
requirement for the provision of preventive health services without any 
cost sharing. However, grandfathered health plans must comply with 
certain other consumer protections in the Affordable Care Act, for 
example, the elimination of lifetime limits on benefits.
    Questions regarding which protections apply and which protections do 
not apply to a grandfathered health plan and what might cause a plan to 
change from grandfathered health plan status can be directed to the plan 
administrator at [insert contact information]. [For ERISA plans, insert: 
You may also contact the Employee Benefits Security Administration, U.S. 
Department of Labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform. 
This Web site has a table summarizing which protections do and do not 
apply to grandfathered health plans.] [For individual market policies 
and nonfederal governmental plans, insert: You may also contact the U.S. 
Department of Health and Human Services at www.healthreform.gov.]

    (3)(i) Documentation of plan or policy terms on March 23, 2010. To 
maintain status as a grandfathered health plan, a group health plan, or 
group or individual health insurance coverage,

[[Page 823]]

must, for as long as the plan or health insurance coverage takes the 
position that it is a grandfathered health plan--
    (A) Maintain records documenting the terms of the plan or health 
insurance coverage in connection with the coverage in effect on March 
23, 2010, and any other documents necessary to verify, explain, or 
clarify its status as a grandfathered health plan; and
    (B) Make such records available for examination upon request.
    (ii) Change in group health insurance coverage. To maintain status 
as a grandfathered health plan, a group health plan that enters into a 
new policy, certificate, or contract of insurance must provide to the 
new health insurance issuer (and the new health insurance issuer must 
require) documentation of plan terms (including benefits, cost sharing, 
employer contributions, and annual limits) under the prior health 
coverage sufficient to determine whether a change causing a cessation of 
grandfathered health plan status under paragraph (g)(1) of this section 
has occurred.
    (4) Family members enrolling after March 23, 2010. With respect to 
an individual who is enrolled in a group health plan or health insurance 
coverage on March 23, 2010, grandfathered health plan coverage includes 
coverage of family members of the individual who enroll after March 23, 
2010 in the grandfathered health plan coverage of the individual.
    (b) Allowance for new employees to join current plan--(1) In 
general. Subject to paragraph (b)(2) of this section, a group health 
plan (including health insurance coverage provided in connection with 
the group health plan) that provided coverage on March 23, 2010 and has 
retained its status as a grandfathered health plan (consistent with the 
rules of this section, including paragraph (g) of this section) is 
grandfathered health plan coverage for new employees (whether newly 
hired or newly enrolled) and their families enrolling in the plan after 
March 23, 2010.
    (2) Anti-abuse rules--(i) Mergers and acquisitions. If the principal 
purpose of a merger, acquisition, or similar business restructuring is 
to cover new individuals under a grandfathered health plan, the plan 
ceases to be a grandfathered health plan.
    (ii) Change in plan eligibility. A group health plan or health 
insurance coverage (including a benefit package under a group health 
plan) ceases to be a grandfathered health plan if--
    (A) Employees are transferred into the plan or health insurance 
coverage (the transferee plan) from a plan or health insurance coverage 
under which the employees were covered on March 23, 2010 (the transferor 
plan);
    (B) Comparing the terms of the transferee plan with those of the 
transferor plan (as in effect on March 23, 2010) and treating the 
transferee plan as if it were an amendment of the transferor plan would 
cause a loss of grandfather status under the provisions of paragraph 
(g)(1) of this section; and
    (C) There was no bona fide employment-based reason to transfer the 
employees into the transferee plan. For this purpose, changing the terms 
or cost of coverage is not a bona fide employment-based reason.
    (3) Examples. The rules of this paragraph (b) are illustrated by the 
following examples:

    Example 1. (i) Facts. A group health plan offers two benefit 
packages on March 23, 2010, Options F and G. During a subsequent open 
enrollment period, some of the employees enrolled in Option F on March 
23, 2010 switch to Option G.
    (ii) Conclusion. In this Example 1, the group health coverage 
provided under Option G remains a grandfathered health plan under the 
rules of paragraph (b)(1) of this section because employees previously 
enrolled in Option F are allowed to enroll in Option G as new employees.
    Example 2. (i) Facts. Same facts as Example 1, except that the plan 
sponsor eliminates Option F because of its high cost and transfers 
employees covered under Option F to Option G. If instead of transferring 
employees from Option F to Option G, Option F was amended to match the 
terms of Option G, then Option F would cease to be a grandfathered 
health plan.
    (ii) Conclusion. In this Example 2, the plan did not have a bona 
fide employment-based reason to transfer employees from Option F to 
Option G. Therefore, Option G ceases to be a grandfathered health plan 
with respect to all employees. (However, any other benefit package 
maintained by the plan sponsor is analyzed separately under the rules of 
this section.)

[[Page 824]]

    Example 3. (i) Facts. A group health plan offers two benefit 
packages on March 23, 2010, Options H and I. On March 23, 2010, Option H 
provides coverage only for employees in one manufacturing plant. 
Subsequently, the plant is closed, and some employees in the closed 
plant are moved to another plant. The employer eliminates Option H and 
the employees that are moved are transferred to Option I. If instead of 
transferring employees from Option H to Option I, Option H was amended 
to match the terms of Option I, then Option H would cease to be a 
grandfathered health plan.
    (ii) Conclusion. In this Example 3, the plan has a bona fide 
employment-based reason to transfer employees from Option H to Option I. 
Therefore, Option I does not cease to be a grandfathered health plan.

    (c) General grandfathering rule--(1) Except as provided in 
paragraphs (d) and (e) of this section, subtitles A and C of title I of 
the Patient Protection and Affordable Care Act (and the amendments made 
by those subtitles, and the incorporation of those amendments into ERISA 
section 715 and Internal Revenue Code section 9815) do not apply to 
grandfathered health plan coverage. Accordingly, the provisions of PHS 
Act sections 2701, 2702, 2703, 2705, 2706, 2707, 2709 (relating to 
coverage for individuals participating in approved clinical trials, as 
added by section 10103 of the Patient Protection and Affordable Care 
Act), 2713, 2715A, 2716, 2717, 2719, and 2719A, as added or amended by 
the Patient Protection and Affordable Care Act, do not apply to 
grandfathered health plans. In addition, the provisions of PHS Act 
section 2704, and PHS Act section 2711 insofar as it relates to annual 
limits, do not apply to grandfathered health plans that are individual 
health insurance coverage.
    (2) To the extent not inconsistent with the rules applicable to a 
grandfathered health plan, a grandfathered health plan must comply with 
the requirements of the PHS Act, ERISA, and the Internal Revenue Code 
applicable prior to the changes enacted by the Patient Protection and 
Affordable Care Act.
    (d) Provisions applicable to all grandfathered health plans. The 
provisions of PHS Act section 2711 insofar as it relates to lifetime 
limits, and the provisions of PHS Act sections 2712, 2714, 2715, and 
2718, apply to grandfathered health plans for plan years (in the 
individual market, policy years) beginning on or after September 23, 
2010. The provisions of PHS Act section 2708 apply to grandfathered 
health plans for plan years (in the individual market, policy years) 
beginning on or after January 1, 2014.
    (e) Applicability of PHS Act sections 2704, 2711, and 2714 to 
grandfathered group health plans and group health insurance coverage--
(1) The provisions of PHS Act section 2704 as it applies with respect to 
enrollees who are under 19 years of age, and the provisions of PHS Act 
section 2711 insofar as it relates to annual limits, apply to 
grandfathered health plans that are group health plans (including group 
health insurance coverage) for plan years beginning on or after 
September 23, 2010. The provisions of PHS Act section 2704 apply 
generally to grandfathered health plans that are group health plans 
(including group health insurance coverage) for plan years beginning on 
or after January 1, 2014.
    (2) For plan years beginning before January 1, 2014, the provisions 
of PHS Act section 2714 apply in the case of an adult child with respect 
to a grandfathered health plan that is a group health plan only if the 
adult child is not eligible to enroll in an eligible employer-sponsored 
health plan (as defined in section 5000A(f)(2) of the Internal Revenue 
Code) other than a grandfathered health plan of a parent. For plan years 
beginning on or after January 1, 2014, the provisions of PHS Act section 
2714 apply with respect to a grandfathered health plan that is a group 
health plan without regard to whether an adult child is eligible to 
enroll in any other coverage.
    (f) Effect on collectively bargained plans-- In general. In the case 
of health insurance coverage maintained pursuant to one or more 
collective bargaining agreements between employee representatives and 
one or more employers that was ratified before March 23, 2010, the 
coverage is grandfathered health plan coverage at least until the date 
on which the last of the collective bargaining agreements relating to 
the coverage that was in effect on March 23, 2010 terminates. Any 
coverage

[[Page 825]]

amendment made pursuant to a collective bargaining agreement relating to 
the coverage that amends the coverage solely to conform to any 
requirement added by subtitles A and C of title I of the Patient 
Protection and Affordable Care Act (and the amendments made by those 
subtitles, and the incorporation of those amendments into ERISA section 
715 and Internal Revenue Code section 9815) is not treated as a 
termination of the collective bargaining agreement. After the date on 
which the last of the collective bargaining agreements relating to the 
coverage that was in effect on March 23, 2010 terminates, the 
determination of whether health insurance coverage maintained pursuant 
to a collective bargaining agreement is grandfathered health plan 
coverage is made under the rules of this section other than this 
paragraph (f) (comparing the terms of the health insurance coverage 
after the date the last collective bargaining agreement terminates with 
the terms of the health insurance coverage that were in effect on March 
23, 2010).
    (g) Maintenance of grandfather status--(1) Changes causing cessation 
of grandfather status. Subject to paragraph (g)(2) of this section, the 
rules of this paragraph (g)(1) describe situations in which a group 
health plan or health insurance coverage ceases to be a grandfathered 
health plan.
    (i) Elimination of benefits. The elimination of all or substantially 
all benefits to diagnose or treat a particular condition causes a group 
health plan or health insurance coverage to cease to be a grandfathered 
health plan. For this purpose, the elimination of benefits for any 
necessary element to diagnose or treat a condition is considered the 
elimination of all or substantially all benefits to diagnose or treat a 
particular condition.
    (ii) Increase in percentage cost-sharing requirement. Any increase, 
measured from March 23, 2010, in a percentage cost-sharing requirement 
(such as an individual's coinsurance requirement) causes a group health 
plan or health insurance coverage to cease to be a grandfathered health 
plan.
    (iii) Increase in a fixed-amount cost-sharing requirement other than 
a copayment. Any increase in a fixed-amount cost-sharing requirement 
other than a copayment (for example, deductible or out-of-pocket limit), 
determined as of the effective date of the increase, causes a group 
health plan or health insurance coverage to cease to be a grandfathered 
health plan, if the total percentage increase in the cost-sharing 
requirement measured from March 23, 2010 exceeds the maximum percentage 
increase (as defined in paragraph (g)(3)(ii) of this section).
    (iv) Increase in a fixed-amount copayment. Any increase in a fixed-
amount copayment, determined as of the effective date of the increase, 
causes a group health plan or health insurance coverage to cease to be a 
grandfathered health plan, if the total increase in the copayment 
measured from March 23, 2010 exceeds the greater of:
    (A) An amount equal to $5 increased by medical inflation, as defined 
in paragraph (g)(3)(i) of this section (that is, $5 times medical 
inflation, plus $5), or
    (B) The maximum percentage increase (as defined in paragraph 
(g)(3)(ii) of this section), determined by expressing the total increase 
in the copayment as a percentage.
    (v) Decrease in contribution rate by employers and employee 
organizations--(A) Contribution rate based on cost of coverage. A group 
health plan or group health insurance coverage ceases to be a 
grandfathered health plan if the employer or employee organization 
decreases its contribution rate based on cost of coverage (as defined in 
paragraph (g)(3)(iii)(A) of this section) towards the cost of any tier 
of coverage for any class of similarly situated individuals (as 
described in section 146.121(d) of this subchapter) by more than 5 
percentage points below the contribution rate for the coverage period 
that includes March 23, 2010.
    (B) Contribution rate based on a formula. A group health plan or 
group health insurance coverage ceases to be a grandfathered health plan 
if the employer or employee organization decreases its contribution rate 
based on a formula (as defined in paragraph (g)(3)(iii)(B) of this 
section) towards the cost of any tier of coverage for any class of 
similarly situated individuals (as described in section 146.121(d) of

[[Page 826]]

this subchapter) by more than 5 percent below the contribution rate for 
the coverage period that includes March 23, 2010.
    (vi) Changes in annual limits--(A) Addition of an annual limit. A 
group health plan, or group or individual health insurance coverage, 
that, on March 23, 2010, did not impose an overall annual or lifetime 
limit on the dollar value of all benefits ceases to be a grandfathered 
health plan if the plan or health insurance coverage imposes an overall 
annual limit on the dollar value of benefits.
    (B) Decrease in limit for a plan or coverage with only a lifetime 
limit. A group health plan, or group or individual health insurance 
coverage, that, on March 23, 2010, imposed an overall lifetime limit on 
the dollar value of all benefits but no overall annual limit on the 
dollar value of all benefits ceases to be a grandfathered health plan if 
the plan or health insurance coverage adopts an overall annual limit at 
a dollar value that is lower than the dollar value of the lifetime limit 
on March 23, 2010.
    (C) Decrease in limit for a plan or coverage with an annual limit. A 
group health plan, or group or individual health insurance coverage, 
that, on March 23, 2010, imposed an overall annual limit on the dollar 
value of all benefits ceases to be a grandfathered health plan if the 
plan or health insurance coverage decreases the dollar value of the 
annual limit (regardless of whether the plan or health insurance 
coverage also imposed an overall lifetime limit on March 23, 2010 on the 
dollar value of all benefits).
    (2) Transitional rules--(i) Changes made prior to March 23, 2010. If 
a group health plan or health insurance issuer makes the following 
changes to the terms of the plan or health insurance coverage, the 
changes are considered part of the terms of the plan or health insurance 
coverage on March 23, 2010 even though they were not effective at that 
time and such changes do not cause a plan or health insurance coverage 
to cease to be a grandfathered health plan:
    (A) Changes effective after March 23, 2010 pursuant to a legally 
binding contract entered into on or before March 23, 2010;
    (B) Changes effective after March 23, 2010 pursuant to a filing on 
or before March 23, 2010 with a State insurance department; or
    (C) Changes effective after March 23, 2010 pursuant to written 
amendments to a plan that were adopted on or before March 23, 2010.
    (ii) Changes made after March 23, 2010 and adopted prior to issuance 
of regulations. If, after March 23, 2010, a group health plan or health 
insurance issuer makes changes to the terms of the plan or health 
insurance coverage and the changes are adopted prior to June 14, 2010, 
the changes will not cause the plan or health insurance coverage to 
cease to be a grandfathered health plan if the changes are revoked or 
modified effective as of the first day of the first plan year (in the 
individual market, policy year) beginning on or after September 23, 
2010, and the terms of the plan or health insurance coverage on that 
date, as modified, would not cause the plan or coverage to cease to be a 
grandfathered health plan under the rules of this section, including 
paragraph (g)(1) of this section. For this purpose, changes will be 
considered to have been adopted prior to June 14, 2010 if:
    (A) The changes are effective before that date;
    (B) The changes are effective on or after that date pursuant to a 
legally binding contract entered into before that date;
    (C) The changes are effective on or after that date pursuant to a 
filing before that date with a State insurance department; or
    (D) The changes are effective on or after that date pursuant to 
written amendments to a plan that were adopted before that date.
    (3) Definitions--(i) Medical inflation defined. For purposes of this 
paragraph (g), the term medical inflation means the increase since March 
2010 in the overall medical care component of the Consumer Price Index 
for All Urban Consumers (CPI-U) (unadjusted) published by the Department 
of Labor using the 1982-1984 base of 100. For this purpose, the increase 
in the overall medical care component is computed

[[Page 827]]

by subtracting 387.142 (the overall medical care component of the CPI-U 
(unadjusted) published by the Department of Labor for March 2010, using 
the 1982-1984 base of 100) from the index amount for any month in the 12 
months before the new change is to take effect and then dividing that 
amount by 387.142.
    (ii) Maximum percentage increase defined. For purposes of this 
paragraph (g), the term maximum percentage increase means medical 
inflation (as defined in paragraph (g)(3)(i) of this section), expressed 
as a percentage, plus 15 percentage points.
    (iii) Contribution rate defined. For purposes of paragraph (g)(1)(v) 
of this section:
    (A) Contribution rate based on cost of coverage. The term 
contribution rate based on cost of coverage means the amount of 
contributions made by an employer or employee organization compared to 
the total cost of coverage, expressed as a percentage. The total cost of 
coverage is determined in the same manner as the applicable premium is 
calculated under the COBRA continuation provisions of section 604 of 
ERISA, section 4980B(f)(4) of the Internal Revenue Code, and section 
2204 of the PHS Act. In the case of a self-insured plan, contributions 
by an employer or employee organization are equal to the total cost of 
coverage minus the employee contributions towards the total cost of 
coverage.
    (B) Contribution rate based on a formula. The term contribution rate 
based on a formula means, for plans that, on March 23, 2010, made 
contributions based on a formula (such as hours worked or tons of coal 
mined), the formula.
    (4) Examples. The rules of this paragraph (g) are illustrated by the 
following examples:

    Example 1. (i) Facts. On March 23, 2010, a grandfathered health plan 
has a coinsurance requirement of 20% for inpatient surgery. The plan is 
subsequently amended to increase the coinsurance requirement to 25%.
    (ii) Conclusion. In this Example 1, the increase in the coinsurance 
requirement from 20% to 25% causes the plan to cease to be a 
grandfathered health plan.
    Example 2. (i) Facts. Before March 23, 2010, the terms of a group 
health plan provide benefits for a particular mental health condition, 
the treatment for which is a combination of counseling and prescription 
drugs. Subsequently, the plan eliminates benefits for counseling.
    (ii) Conclusion. In this Example 2, the plan ceases to be a 
grandfathered health plan because counseling is an element that is 
necessary to treat the condition. Thus the plan is considered to have 
eliminated substantially all benefits for the treatment of the 
condition.
    Example 3. (i) Facts. On March 23, 2010, a grandfathered health plan 
has a copayment requirement of $30 per office visit for specialists. The 
plan is subsequently amended to increase the copayment requirement to 
$40. Within the 12-month period before the $40 copayment takes effect, 
the greatest value of the overall medical care component of the CPI-U 
(unadjusted) is 475.
    (ii) Conclusion. In this Example 3, the increase in the copayment 
from $30 to $40, expressed as a percentage, is 33.33% (40 - 30 = 10; 10 
/ 30 = 0.3333; 0.3333 = 33.33%). Medical inflation (as defined in 
paragraph (g)(3)(i) of this section) from March 2010 is 0.2269 (475 - 
387.142 = 87.858; 87.858 / 387.142 = 0.2269). The maximum percentage 
increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). 
Because 33.33% does not exceed 37.69%, the change in the copayment 
requirement at that time does not cause the plan to cease to be a 
grandfathered health plan.
    Example 4. (i) Facts. Same facts as Example 3, except the 
grandfathered health plan subsequently increases the $40 copayment 
requirement to $45 for a later plan year. Within the 12-month period 
before the $45 copayment takes effect, the greatest value of the overall 
medical care component of the CPI-U (unadjusted) is 485.
    (ii) Conclusion. In this Example 4, the increase in the copayment 
from $30 (the copayment that was in effect on March 23, 2010) to $45, 
expressed as a percentage, is 50% (45 - 30 = 15; 15 / 30 = 0.5; 0.5 = 
50%). Medical inflation (as defined in paragraph (g)(3)(i) of this 
section) from March 2010 is 0.2527 (485 - 387.142 = 97.858; 97.858 / 
387.142 = 0.2527). The increase that would cause a plan to cease to be a 
grandfathered health plan under paragraph (g)(1)(iv) of this section is 
the greater of the maximum percentage increase of 40.27% (0.2527 = 
25.27%; 25.27% + 15% = 40.27%), or $6.26 ($5 x 0.2527 = $1.26; $1.26 + 
$5 = $6.26). Because 50% exceeds 40.27% and $15 exceeds $6.26, the 
change in the copayment requirement at that time causes the plan to 
cease to be a grandfathered health plan.
    Example 5. (i) Facts. On March 23, 2010, a grandfathered health plan 
has a copayment of $10 per office visit for primary care providers. The 
plan is subsequently amended to increase the copayment requirement to 
$15. Within the 12-month period before the $15 copayment takes effect, 
the greatest value of

[[Page 828]]

the overall medical care component of the CPI-U (unadjusted) is 415.
    (ii) Conclusion. In this Example 5, the increase in the copayment, 
expressed as a percentage, is 50% (15 - 10 = 5; 5 / 10 = 0.5; 0.5 = 
50%). Medical inflation (as defined in paragraph (g)(3) of this section) 
from March 2010 is 0.0720 (415.0 - 387.142 = 27.858; 27.858 / 387.142 = 
0.0720). The increase that would cause a plan to cease to be a 
grandfathered health plan under paragraph (g)(1)(iv) of this section is 
the greater of the maximum percentage increase of 22.20% (0.0720 = 
7.20%; 7.20% + 15% = 22.20), or $5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 = 
$5.36). The $5 increase in copayment in this Example 5 would not cause 
the plan to cease to be a grandfathered health plan pursuant to 
paragraph (g)(1)(iv) this section, which would permit an increase in the 
copayment of up to $5.36.
    Example 6. (i) Facts. The same facts as Example 5, except on March 
23, 2010, the grandfathered health plan has no copayment ($0) for office 
visits for primary care providers. The plan is subsequently amended to 
increase the copayment requirement to $5.
    (ii) Conclusion. In this Example 6, medical inflation (as defined in 
paragraph (g)(3)(i) of this section) from March 2010 is 0.0720 (415.0 - 
387.142 = 27.858; 27.858 / 387.142 = 0.0720). The increase that would 
cause a plan to cease to be a grandfathered health plan under paragraph 
(g)(1)(iv)(A) of this section is $5.36 ($5 x 0.0720 = $0.36; $0.36 + $5 
= $5.36). The $5 increase in copayment in this Example 6 is less than 
the amount calculated pursuant to paragraph (g)(1)(iv)(A) of this 
section of $5.36. Thus, the $5 increase in copayment does not cause the 
plan to cease to be a grandfathered health plan.
    Example 7. (i) Facts. On March 23, 2010, a self-insured group health 
plan provides two tiers of coverage--self-only and family. The employer 
contributes 80% of the total cost of coverage for self-only and 60% of 
the total cost of coverage for family. Subsequently, the employer 
reduces the contribution to 50% for family coverage, but keeps the same 
contribution rate for self-only coverage.
    (ii) Conclusion. In this Example 7, the decrease of 10 percentage 
points for family coverage in the contribution rate based on cost of 
coverage causes the plan to cease to be a grandfathered health plan. The 
fact that the contribution rate for self-only coverage remains the same 
does not change the result.
    Example 8. (i) Facts. On March 23, 2010, a self-insured 
grandfathered health plan has a COBRA premium for the 2010 plan year of 
$5000 for self-only coverage and $12,000 for family coverage. The 
required employee contribution for the coverage is $1000 for self-only 
coverage and $4000 for family coverage. Thus, the contribution rate 
based on cost of coverage for 2010 is 80% ((5000 - 1000)/5000) for self-
only coverage and 67% ((12,000 - 4000)/12,000) for family coverage. For 
a subsequent plan year, the COBRA premium is $6000 for self-only 
coverage and $15,000 for family coverage. The employee contributions for 
that plan year are $1200 for self-only coverage and $5000 for family 
coverage. Thus, the contribution rate based on cost of coverage is 80% 
((6000 - 1200)/6000) for self-only coverage and 67% ((15,000 - 5000)/
15,000) for family coverage.
    (ii) Conclusion. In this Example 8, because there is no change in 
the contribution rate based on cost of coverage, the plan retains its 
status as a grandfathered health plan. The result would be the same if 
all or part of the employee contribution was made pre-tax through a 
cafeteria plan under section 125 of the Internal Revenue Code.
    Example 9. (i) Facts. A group health plan not maintained pursuant to 
a collective bargaining agreement offers three benefit packages on March 
23, 2010. Option F is a self-insured option. Options G and H are insured 
options. Beginning July 1, 2013, the plan increases coinsurance under 
Option H from 10% to 15%.
    (ii) Conclusion. In this Example 9, the coverage under Option H is 
not grandfathered health plan coverage as of July 1, 2013, consistent 
with the rule in paragraph (g)(1)(ii) of this section. Whether the 
coverage under Options F and G is grandfathered health plan coverage is 
determined separately under the rules of this paragraph (g).

[75 FR 34566, June 17, 2010, as amended at 75 FR 70121, Nov. 15, 2010]



Sec. 147.145  Student health insurance coverage.

    (a) Definition. Student health insurance coverage is a type of 
individual health insurance coverage (as defined in Sec. 144.103 of 
this subchapter) that is provided pursuant to a written agreement 
between an institution of higher education (as defined in the Higher 
Education Act of 1965) and a health insurance issuer, and provided to 
students enrolled in that institution of higher education and their 
dependents, that meets the following conditions:
    (1) Does not make health insurance coverage available other than in 
connection with enrollment as a student (or as a dependent of a student) 
in the institution of higher education.
    (2) Does not condition eligibility for the health insurance coverage 
on any health status-related factor (as defined in Sec. 146.121(a) of 
this subchapter) relating to a student (or a dependent of a student).
    (3) Meets any additional requirement that may be imposed under State 
law.

[[Page 829]]

    (b) Exemptions from the Public Health Service Act and the Affordable 
Care Act--(1) Guaranteed availability and guaranteed renewability--(i) 
For purposes of sections 2741(e)(1) and 2742(b)(5) of the Public Health 
Service Act, student health insurance coverage is deemed to be available 
only through a bona fide association.
    (ii) For purposes of section 2702 of the Public Health Service Act, 
a health insurance issuer that offers student health insurance coverage 
is not required to accept individuals who are not students or dependents 
of students in such coverage, and, notwithstanding the requirements of 
Sec. 147.104(b), is not required to establish open enrollment periods 
or coverage effective dates that are based on a calendar policy year or 
to offer policies on a calendar year basis.
    (iii) For purposes of section 2703(a) of the Public Health Service 
Act, a health insurance issuer that offers student health insurance 
coverage is not required to renew or continue in force coverage for 
individuals who are no longer students or dependents of students.
    (2) Annual limits. (i) Notwithstanding the annual dollar limits 
requirements of Sec. 147.126, for policy years beginning before 
September 23, 2012, a health insurance issuer offering student health 
insurance coverage may not establish an annual dollar limit on essential 
health benefits that is lower than $100,000.
    (ii) Notwithstanding the annual dollar limits requirements of Sec. 
147.126, for policy years beginning on or after September 23, 2012, but 
before January 1, 2014, a health insurance issuer offering student 
health insurance coverage may not establish an annual dollar limit on 
essential health benefits that is lower than $500,000.
    (iii) For policy years beginning on or after January 1, 2014, a 
health insurance issuer offering student health insurance coverage must 
comply with the annual dollar limits requirements in Sec. 147.126.
    (3) Single risk pool. Student health insurance coverage is not 
subject to the requirements of section 1312(c) of the Affordable Care 
Act.
    (c) Student administrative health fees--(1) Definition. A student 
administrative health fee is a fee charged by the institution of higher 
education on a periodic basis to students of the institution of higher 
education to offset the cost of providing health care through health 
clinics regardless of whether the students utilize the health clinics or 
enroll in student health insurance coverage.
    (2) Preventive services. Notwithstanding the requirements under 
section 2713 of the Public Health Service Act and its implementing 
regulations, student administrative health fees as defined in paragraph 
(c)(1) of this section are not considered cost-sharing requirements with 
respect to specified recommended preventive services.
    (d) Notice--(1) Requirements. (i) A health insurance issuer that 
provides student health insurance coverage, and does not meet the annual 
dollar limits requirements under section 2711 of the Public Health 
Service Act, must provide a notice informing students that the policy 
does not meet the minimum annual limits requirements under section 2711 
of the Public Health Service Act. The notice must include the dollar 
amount of the annual limit along with a description of the plan benefits 
to which the limit applies for the student health insurance coverage.
    (ii) The notice must state that the student may be eligible for 
coverage as a dependent in a group health plan of a parent's employer or 
under the parent's individual market coverage if the student is under 
the age of 26.
    (iii) The notice must be prominently displayed in clear, conspicuous 
14-point bold type on the front of the insurance policy or certificate 
and in any other plan materials summarizing the terms of the coverage 
(such as a summary description document).
    (iv) The notice must be provided for policy years beginning before 
January 1, 2014.
    (2) Model language. The following model language, or substantially 
similar language, can be used to satisfy the notice requirement of this 
paragraph (d): ``Your student health insurance coverage, offered by 
[name of health insurance issuer], may not meet the minimum standards 
required by the

[[Page 830]]

health care reform law for the restrictions on annual dollar limits. The 
annual dollar limits ensure that consumers have sufficient access to 
medical benefits throughout the annual term of the policy. Restrictions 
for annual dollar limits for group and individual health insurance 
coverage are $1.25 million for policy years before September 23, 2012; 
and $2 million for policy years beginning on or after September 23, 2012 
but before January 1, 2014. Restrictions for annual dollar limits for 
student health insurance coverage are $100,000 for policy years before 
September 23, 2012, and $500,000 for policy years beginning on or after 
September 23, 2012, but before January 1, 2014. Your student health 
insurance coverage put an annual limit of: [Dollar amount] on [which 
covered benefits--notice should describe all annual limits that apply]. 
If you have any questions or concerns about this notice, contact 
[provide contact information for the health insurance issuer]. Be 
advised that you may be eligible for coverage under a group health plan 
of a parent's employer or under a parent's individual health insurance 
policy if you are under the age of 26. Contact the plan administrator of 
the parent's employer plan or the parent's individual health insurance 
issuer for more information.''
    (e) Applicability. The provisions of this section apply for policy 
years beginning on or after July 1, 2012.

[77 FR 16468, Mar. 21, 2012, as amended at 78 FR 13439, Feb. 27, 2013; 
79 FR 13834, Mar. 11, 2014]



Sec. 147.150  Coverage of essential health benefits.

    (a) Requirement to cover the essential health benefits package. A 
health insurance issuer offering health insurance coverage in the 
individual or small group market must ensure that such coverage includes 
the essential health benefits package as defined in section 1302(a) of 
the Affordable Care Act effective for plan or policy years beginning on 
or after January 1, 2014.
    (b) Cost-sharing under group health plans. [Reserved]
    (c) Child-only plans. If a health insurance issuer offers health 
insurance coverage in any level of coverage specified under section 
1302(d)(1) of the Affordable Care Act, the issuer must offer coverage in 
that level as a plan in which the only enrollees are individuals who, as 
of the beginning of a plan year, have not attained the age of 21.

[78 FR 12865, Feb. 25, 2013]



Sec. 147.160  Parity in mental health and substance use disorder benefits.

    (a) In general. The provisions of Sec. 146.136 of this subchapter 
apply to health insurance coverage offered by health insurance issuer in 
the individual market in the same manner and to the same extent as such 
provisions apply to health insurance coverage offered by a health 
insurance issuer in connection with a group health plan in the large 
group market.
    (b) Applicability date. The provisions of this section apply for 
policy years beginning on or after the applicability dates set forth in 
Sec. 146.136(i) of this subchapter. This section applies to non-
grandfathered and grandfathered health plans as defined in Sec. 
147.140.

[78 FR 68296, Nov. 13, 2013]



Sec. 147.200  Summary of benefits and coverage and uniform glossary.

    (a) Summary of benefits and coverage--(1) In general. A group health 
plan (and its administrator as defined in section 3(16)(A) of ERISA)), 
and a health insurance issuer offering group or individual health 
insurance coverage, is required to provide a written summary of benefits 
and coverage (SBC) for each benefit package without charge to entities 
and individuals described in this paragraph (a)(1) in accordance with 
the rules of this section.
    (i) SBC provided by a group health insurance issuer to a group 
health plan--(A) Upon application. A health insurance issuer offering 
group health insurance coverage must provide the SBC to a group health 
plan (or its sponsor) upon application for health coverage, as soon as 
practicable following receipt of the application, but in no event later 
than seven business days following receipt of the application. If an SBC 
was provided before application pursuant to paragraph (a)(1)(i)(D) of 
this section (relating to SBCs upon request), this

[[Page 831]]

paragraph (a)(1)(i)(A) is deemed satisfied, provided there is no change 
to the information required to be in the SBC. However, if there has been 
a change in the information required, a new SBC that includes the 
changed information must be provided upon application pursuant to this 
paragraph (a)(1)(i)(A).
    (B) By first day of coverage (if there are changes). If there is any 
change in the information required to be in the SBC that was provided 
upon application and before the first day of coverage, the issuer must 
update and provide a current SBC to the plan (or its sponsor) no later 
than the first day of coverage.
    (C) Upon renewal, reissuance, or reenrollment. If the issuer renews 
or reissues a policy, certificate, or contract of insurance for a 
succeeding policy year, or automatically re-enrolls the policyholder or 
its participants and beneficiaries in coverage, the issuer must provide 
a new SBC as follows:
    (1) If written application is required (in either paper or 
electronic form) for renewal or reissuance, the SBC must be provided no 
later than the date the written application materials are distributed.
    (2) If renewal, reissuance, or reenrollment is automatic, the SBC 
must be provided no later than 30 days prior to the first day of the new 
plan or policy year; however, with respect to an insured plan, if the 
policy, certificate, or contract of insurance has not been issued or 
renewed before such 30-day period, the SBC must be provided as soon as 
practicable but in no event later than seven business days after 
issuance of the new policy, certificate, or contract of insurance, or 
the receipt of written confirmation of intent to renew, whichever is 
earlier.
    (D) Upon request. If a group health plan (or its sponsor) requests 
an SBC or summary information about a health insurance product from a 
health insurance issuer offering group health insurance coverage, an SBC 
must be provided as soon as practicable, but in no event later than 
seven business days following receipt of the request.
    (ii) SBC provided by a group health insurance issuer and a group 
health plan to participants and beneficiaries--(A) In general. A group 
health plan (including its administrator, as defined under section 3(16) 
of ERISA), and a health insurance issuer offering group health insurance 
coverage, must provide an SBC to a participant or beneficiary (as 
defined under sections 3(7) and 3(8) of ERISA), and consistent with the 
rules of paragraph (a)(1)(iii) of this section, with respect to each 
benefit package offered by the plan or issuer for which the participant 
or beneficiary is eligible.
    (B) Upon application. The SBC must be provided as part of any 
written application materials that are distributed by the plan or issuer 
for enrollment. If the plan or issuer does not distribute written 
application materials for enrollment, the SBC must be provided no later 
than the first date on which the participant is eligible to enroll in 
coverage for the participant or any beneficiaries. If an SBC was 
provided before application pursuant to paragraph (a)(1)(ii)(F) of this 
section (relating to SBCs upon request), this paragraph (a)(1)(ii)(B) is 
deemed satisfied, provided there is no change to the information 
required to be in the SBC. However, if there has been a change in the 
information that is required to be in the SBC, a new SBC that includes 
the changed information must be provided upon application pursuant to 
this paragraph (a)(1)(ii)(B).
    (C) By first day of coverage (if there are changes). (1) If there is 
any change to the information required to be in the SBC that was 
provided upon application and before the first day of coverage, the plan 
or issuer must update and provide a current SBC to a participant or 
beneficiary no later than the first day of coverage.
    (2) If the plan sponsor is negotiating coverage terms after an 
application has been filed and the information required to be in the SBC 
changes, the plan or issuer is not required to provide an updated SBC 
(unless an updated SBC is requested) until the first day of coverage.
    (D) Special enrollees. The plan or issuer must provide the SBC to 
special enrollees (as described in Sec. 146.117 of this subchapter) no 
later than the date by which a summary plan description is required to 
be provided under the timeframe set forth in ERISA section

[[Page 832]]

104(b)(1)(A) and its implementing regulations, which is 90 days from 
enrollment.
    (E) Upon renewal, reissuance, or reenrollment. If the plan or issuer 
requires participants or beneficiaries to renew in order to maintain 
coverage (for example, for a succeeding plan year), or automatically re-
enrolls participants and beneficiaries in coverage, the plan or issuer 
must provide a new SBC, as follows:
    (1) If written application is required for renewal, reissuance, or 
reenrollment (in either paper or electronic form), the SBC must be 
provided no later than the date on which the written application 
materials are distributed.
    (2) If renewal, reissuance, or reenrollment is automatic, the SBC 
must be provided no later than 30 days prior to the first day of the new 
plan or policy year; however, with respect to an insured plan, if the 
policy, certificate, or contract of insurance has not been issued or 
renewed before such 30-day period, the SBC must be provided as soon as 
practicable but in no event later than seven business days after 
issuance of the new policy, certificate, or contract of insurance, or 
the receipt of written confirmation of intent to renew, whichever is 
earlier.
    (F) Upon request. A plan or issuer must provide the SBC to 
participants or beneficiaries upon request for an SBC or summary 
information about the health coverage, as soon as practicable, but in no 
event later than seven business days following receipt of the request.
    (iii) Special rules to prevent unnecessary duplication with respect 
to group health coverage--(A) An entity required to provide an SBC under 
this paragraph (a)(1) with respect to an individual satisfies that 
requirement if another party provides the SBC, but only to the extent 
that the SBC is timely and complete in accordance with the other rules 
of this section. Therefore, for example, in the case of a group health 
plan funded through an insurance policy, the plan satisfies the 
requirement to provide an SBC with respect to an individual if the 
issuer provides a timely and complete SBC to the individual. An entity 
required to provide an SBC under this paragraph (a)(1) with respect to 
an individual that contracts with another party to provide such SBC is 
considered to satisfy the requirement to provide such SBC if:
    (1) The entity monitors performance under the contract;
    (2) If the entity has knowledge that the SBC is not being provided 
in a manner that satisfies the requirements of this section and the 
entity has all information necessary to correct the noncompliance, the 
entity corrects the noncompliance as soon as practicable; and
    (3) If the entity has knowledge the SBC is not being provided in a 
manner that satisfies the requirements of this section and the entity 
does not have all information necessary to correct the noncompliance, 
the entity communicates with participants and beneficiaries who are 
affected by the noncompliance regarding the noncompliance, and begins 
taking significant steps as soon as practicable to avoid future 
violations.
    (B) If a single SBC is provided to a participant and any 
beneficiaries at the participant's last known address, then the 
requirement to provide the SBC to the participant and any beneficiaries 
is generally satisfied. However, if a beneficiary's last known address 
is different than the participant's last known address, a separate SBC 
is required to be provided to the beneficiary at the beneficiary's last 
known address.
    (C) With respect to a group health plan that offers multiple benefit 
packages, the plan or issuer is required to provide a new SBC 
automatically to participants and beneficiaries upon renewal or 
reenrollment only with respect to the benefit package in which a 
participant or beneficiary is enrolled (or will be automatically re-
enrolled under the plan); SBCs are not required to be provided 
automatically upon renewal or reenrollment with respect to benefit 
packages in which the participant or beneficiary is not enrolled (or 
will not automatically be enrolled). However, if a participant or 
beneficiary requests an SBC with respect to another benefit package (or 
more than one other benefit package) for which

[[Page 833]]

the participant or beneficiary is eligible, the SBC (or SBCs, in the 
case of a request for SBCs relating to more than one benefit package) 
must be provided upon request as soon as practicable, but in no event 
later than seven business days following receipt of the request.
    (D) Subject to paragraph (a)(2)(ii) of this section, a plan 
administrator of a group health plan that uses two or more insurance 
products provided by separate health insurance issuers with respect to a 
single group health plan may synthesize the information into a single 
SBC or provide multiple partial SBCs provided that all the SBC include 
the content in paragraph (a)(2)(iii) of this section.
    (iv) SBC provided by a health insurance issuer offering individual 
health insurance coverage--(A) Upon application. A health insurance 
issuer offering individual health insurance coverage must provide an SBC 
to an individual covered under the policy (including every dependent) 
upon receiving an application for any health insurance policy, as soon 
as practicable following receipt of the application, but in no event 
later than seven business days following receipt of the application. If 
an SBC was provided before application pursuant to paragraph 
(a)(1)(iv)(D) of this section (relating to SBCs upon request), this 
paragraph (a)(1)(iv)(A) is deemed satisfied, provided there is no change 
to the information required to be in the SBC. However, if there has been 
a change in the information that is required to be in the SBC, a new SBC 
that includes the changed information must be provided upon application 
pursuant to this paragraph (a)(1)(iv)(A).
    (B) By first day of coverage (if there are changes). If there is any 
change in the information required to be in the SBC that was provided 
upon application and before the first day of coverage, the issuer must 
update and provide a current SBC to the individual no later than the 
first day of coverage.
    (C) Upon renewal, reissuance, or reenrollment. If the issuer renews 
or reissues a policy, certificate, or contract of insurance for a 
succeeding policy year, or automatically re-enrolls an individual (or 
dependent) covered under a policy, certificate, or contract of insurance 
into a policy, certificate, or contract of insurance under a different 
plan or product, the issuer must provide an SBC for the coverage in 
which the individual (including every dependent) will be enrolled, as 
follows:
    (1) If written application is required (in either paper or 
electronic form) for renewal, reissuance, or reenrollment, the SBC must 
be provided no later than the date on which the written application 
materials are distributed.
    (2) If renewal, reissuance, or reenrollment is automatic, the SBC 
must be provided no later than 30 days prior to the first day of the new 
policy year; however, if the policy, certificate, or contract of 
insurance has not been issued or renewed before such 30 day period, the 
SBC must be provided as soon as practicable but in no event later than 
seven business days after issuance of the new policy, certificate, or 
contract of insurance, or the receipt of written confirmation of intent 
to renew, whichever is earlier.
    (D) Upon request. A health insurance issuer offering individual 
health insurance coverage must provide an SBC to any individual or 
dependent upon request for an SBC or summary information about a health 
insurance product as soon as practicable, but in no event later than 
seven business days following receipt of the request.
    (v) Special rule to prevent unnecessary duplication with respect to 
individual health insurance coverage--(A) In general. If a single SBC is 
provided to an individual and any dependents at the individual's last 
known address, then the requirement to provide the SBC to the individual 
and any dependents is generally satisfied. However, if a dependent's 
last known address is different than the individual's last known 
address, a separate SBC is required to be provided to the dependent at 
the dependents' last known address.
    (B) Student health insurance coverage. With respect to student 
health insurance coverage as defined at Sec. 147.145(a), the 
requirement to provide an SBC to an individual will be considered 
satisfied for an entity if another party provides a timely and complete 
SBC to the individual. An entity required to provide an SBC under this 
paragraph (a)(1)

[[Page 834]]

with respect to an individual that contracts with another party to 
provide such SBC is considered to satisfy the requirement to provide 
such SBC if:
    (1) The entity monitors performance under the contract;
    (2) If the entity has knowledge that the SBC is not being provided 
in a manner that satisfies the requirements of this section and the 
entity has all information necessary to correct the noncompliance, the 
entity corrects the noncompliance as soon as practicable; and
    (3) If the entity has knowledge the SBC is not being provided in a 
manner that satisfies the requirements of this section and the entity 
does not have all information necessary to correct the noncompliance, 
the entity communicates with covered individuals and dependents who are 
affected by the noncompliance regarding the noncompliance, and begins 
taking significant steps as soon as practicable to avoid future 
violations.
    (2) Content--(i) In general. Subject to paragraph (a)(2)(iii) of 
this section, the SBC must include the following:
    (A) Uniform definitions of standard insurance terms and medical 
terms so that consumers may compare health coverage and understand the 
terms of (or exceptions to) their coverage, in accordance with guidance 
as specified by the Secretary;
    (B) A description of the coverage, including cost sharing, for each 
category of benefits identified by the Secretary in guidance;
    (C) The exceptions, reductions, and limitations of the coverage;
    (D) The cost-sharing provisions of the coverage, including 
deductible, coinsurance, and copayment obligations;
    (E) The renewability and continuation of coverage provisions;
    (F) Coverage examples, in accordance with the rules of paragraph 
(a)(2)(ii) of this section;
    (G) With respect to coverage beginning on or after January 1, 2014, 
a statement about whether the plan or coverage provides minimum 
essential coverage as defined under section 5000A(f) and whether the 
plan's or coverage's share of the total allowed costs of benefits 
provided under the plan or coverage meets applicable requirements;
    (H) A statement that the SBC is only a summary and that the plan 
document, policy, certificate, or contract of insurance should be 
consulted to determine the governing contractual provisions of the 
coverage;
    (I) Contact information for questions;
    (J) For issuers, an Internet web address where a copy of the actual 
individual coverage policy or group certificate of coverage can be 
reviewed and obtained;
    (K) For plans and issuers that maintain one or more networks of 
providers, an Internet address (or similar contact information) for 
obtaining a list of network providers;
    (L) For plans and issuers that use a formulary in providing 
prescription drug coverage, an Internet address (or similar contact 
information) for obtaining information on prescription drug coverage;
    (M) An Internet address for obtaining the uniform glossary, as 
described in paragraph (c) of this section, as well as a contact phone 
number to obtain a paper copy of the uniform glossary, and a disclosure 
that paper copies are available; and
    (N) For qualified health plans sold through an individual market 
Exchange that exclude or provide for coverage of the services described 
in Sec. 156.280(d)(1) or (2) of this subchapter, a notice of coverage 
or exclusion of such services.
    (ii) Coverage examples. The SBC must include coverage examples 
specified by the Secretary in guidance that illustrate benefits provided 
under the plan or coverage for common benefits scenarios (including 
pregnancy and serious or chronic medical conditions) in accordance with 
this paragraph (a)(2)(ii).
    (A) Number of examples. The Secretary may identify up to six 
coverage examples that may be required in an SBC.
    (B) Benefits scenarios. For purposes of this paragraph (a)(2)(ii), a 
benefits scenario is a hypothetical situation, consisting of a sample 
treatment plan for a specified medical condition during a

[[Page 835]]

specific period of time, based on recognized clinical practice 
guidelines as defined by the National Guideline Clearinghouse, Agency 
for Healthcare Research and Quality. The Secretary will specify, in 
guidance, the assumptions, including the relevant items and services and 
reimbursement information, for each claim in the benefits scenario.
    (C) Illustration of benefit provided. For purposes of this paragraph 
(a)(2)(ii), to illustrate benefits provided under the plan or coverage 
for a particular benefits scenario, a plan or issuer simulates claims 
processing in accordance with guidance issued by the Secretary to 
generate an estimate of what an individual might expect to pay under the 
plan, policy, or benefit package. The illustration of benefits provided 
will take into account any cost sharing, excluded benefits, and other 
limitations on coverage, as specified by the Secretary in guidance.
    (iii) Coverage provided outside the United States. In lieu of 
summarizing coverage for items and services provided outside the United 
States, a plan or issuer may provide an Internet address (or similar 
contact information) for obtaining information about benefits and 
coverage provided outside the United States. In any case, the plan or 
issuer must provide an SBC in accordance with this section that 
accurately summarizes benefits and coverage available under the plan or 
coverage within the United States.
    (3) Appearance. (i) A group health plan and a health insurance 
issuer must provide an SBC in the form, and in accordance with the 
instructions for completing the SBC, that are specified by the Secretary 
in guidance. The SBC must be presented in a uniform format, use 
terminology understandable by the average plan enrollee (or, in the case 
of individual market coverage, the average individual covered under a 
health insurance policy), not exceed four double-sided pages in length, 
and not include print smaller than 12-point font. A health insurance 
issuer offering individual health insurance coverage must provide the 
SBC as a stand-alone document.
    (ii) A group health plan that utilizes two or more benefit packages 
(such as major medical coverage and a health flexible spending 
arrangement) may synthesize the information into a single SBC, or 
provide multiple SBCs.
    (4) Form. (i) An SBC provided by an issuer offering group health 
insurance coverage to a plan (or its sponsor), may be provided in paper 
form. Alternatively, the SBC may be provided electronically (such as by 
email or an Internet posting) if the following three conditions are 
satisfied--
    (A) The format is readily accessible by the plan (or its sponsor);
    (B) The SBC is provided in paper form free of charge upon request; 
and
    (C) If the electronic form is an Internet posting, the issuer timely 
advises the plan (or its sponsor) in paper form or email that the 
documents are available on the Internet and provides the Internet 
address.
    (ii) An SBC provided by a group health plan or health insurance 
issuer to a participant or beneficiary may be provided in paper form. 
Alternatively, the SBC may be provided electronically (such as by email 
or an Internet posting) if the requirements of this paragraph (a)(4)(ii) 
are met.
    (A) With respect to participants and beneficiaries covered under the 
plan or coverage, the SBC may be provided electronically as described in 
this paragraph (a)(4)(ii)(A). However, in all cases, the plan or issuer 
must provide the SBC in paper form if paper form is requested.
    (1) In accordance with the Department of Labor's disclosure 
regulations at 29 CFR 2520.104b-1;
    (2) In connection with online enrollment or online renewal of 
coverage under the plan; or
    (3) In response to an online request made by a participant or 
beneficiary for the SBC.
    (B) With respect to participants and beneficiaries who are eligible 
but not enrolled for coverage, the SBC may be provided electronically 
if:
    (1) The format is readily accessible;
    (2) The SBC is provided in paper form free of charge upon request; 
and
    (3) In a case in which the electronic form is an Internet posting, 
the plan or issuer timely notifies the individual in paper form (such as 
a postcard) or email that the documents are available on the Internet, 
provides the Internet

[[Page 836]]

address, and notifies the individual that the documents are available in 
paper form upon request.
    (iii) An issuer offering individual health insurance coverage must 
provide an SBC in a manner that can reasonably be expected to provide 
actual notice in paper or electronic form.
    (A) An issuer satisfies the requirements of this paragraph 
(a)(4)(iii) if the issuer:
    (1) Hand-delivers a printed copy of the SBC to the individual or 
dependent;
    (2) Mails a printed copy of the SBC to the mailing address provided 
to the issuer by the individual or dependent;
    (3) Provides the SBC by email after obtaining the individual's or 
dependent's agreement to receive the SBC or other electronic disclosures 
by email;
    (4) Posts the SBC on the Internet and advises the individual or 
dependent in paper or electronic form, in a manner compliant with 
paragraphs (a)(4)(iii)(A)(1) through (3) of this section, that the SBC 
is available on the Internet and includes the applicable Internet 
address; or
    (5) Provides the SBC by any other method that can reasonably be 
expected to provide actual notice.
    (B) An SBC may not be provided electronically unless:
    (1) The format is readily accessible;
    (2) The SBC is placed in a location that is prominent and readily 
accessible;
    (3) The SBC is provided in an electronic form which can be 
electronically retained and printed;
    (4) The SBC is consistent with the appearance, content, and language 
requirements of this section;
    (5) The issuer notifies the individual or dependent that the SBC is 
available in paper form without charge upon request and provides it upon 
request.
    (C) Deemed compliance. A health insurance issuer offering individual 
health insurance coverage that provides the content required under 
paragraph (a)(2) of this section, as specified in guidance published by 
the Secretary, to the federal health reform Web portal described in 
Sec. 159.120 of this subchapter will be deemed to satisfy the 
requirements of paragraph (a)(1)(iv)(D) of this section with respect to 
a request for summary information about a health insurance product made 
prior to an application for coverage. However, nothing in this paragraph 
should be construed as otherwise limiting such issuer's obligations 
under this section.
    (iv) An SBC provided by a self-insured non-Federal governmental plan 
may be provided in paper form. Alternatively, the SBC may be provided 
electronically if the plan conforms to either the substance of the 
provisions in paragraph (a)(4)(ii) or (iii) of this section.
    (5) Language. A group health plan or health insurance issuer must 
provide the SBC in a culturally and linguistically appropriate manner. 
For purposes of this paragraph (a)(5), a plan or issuer is considered to 
provide the SBC in a culturally and linguistically appropriate manner if 
the thresholds and standards of Sec. 147.136(e) are met as applied to 
the SBC.
    (b) Notice of modification. If a group health plan, or health 
insurance issuer offering group or individual health insurance coverage, 
makes any material modification (as defined under section 102 of ERISA) 
in any of the terms of the plan or coverage that would affect the 
content of the SBC, that is not reflected in the most recently provided 
SBC, and that occurs other than in connection with a renewal or 
reissuance of coverage, the plan or issuer must provide notice of the 
modification to enrollees (or, in the case of individual market 
coverage, an individual covered under a health insurance policy) not 
later than 60 days prior to the date on which the modification will 
become effective. The notice of modification must be provided in a form 
that is consistent with the rules of paragraph (a)(4) of this section.
    (c) Uniform glossary--(1) In general. A group health plan, and a 
health insurance issuer offering group health insurance coverage, must 
make available to participants and beneficiaries, and a health insurance 
issuer offering individual health insurance coverage must make available 
to applicants, policyholders, and covered dependents, the uniform 
glossary described in paragraph (c)(2) of this section in accordance 
with the appearance and form and manner requirements of paragraphs 
(c)(3) and (4) of this section.

[[Page 837]]

    (2) Health-coverage-related terms and medical terms. The uniform 
glossary must provide uniform definitions, specified by the Secretary in 
guidance, of the following health-coverage-related terms and medical 
terms:
    (i) Allowed amount, appeal, balance billing, co-insurance, 
complications of pregnancy, co-payment, deductible, durable medical 
equipment, emergency medical condition, emergency medical 
transportation, emergency room care, emergency services, excluded 
services, grievance, habilitation services, health insurance, home 
health care, hospice services, hospitalization, hospital outpatient 
care, in-network co-insurance, in-network co-payment, medically 
necessary, network, non-preferred provider, out-of-network coinsurance, 
out-of-network co-payment, out-of-pocket limit, physician services, 
plan, preauthorization, preferred provider, premium, prescription drug 
coverage, prescription drugs, primary care physician, primary care 
provider, provider, reconstructive surgery, rehabilitation services, 
skilled nursing care, specialist, usual customary and reasonable (UCR), 
and urgent care; and
    (ii) Such other terms as the Secretary determines are important to 
define so that individuals and employers may compare and understand the 
terms of coverage and medical benefits (including any exceptions to 
those benefits), as specified in guidance.
    (3) Appearance. A group health plan, and a health insurance issuer, 
must provide the uniform glossary with the appearance specified by the 
Secretary in guidance to ensure the uniform glossary is presented in a 
uniform format and uses terminology understandable by the average plan 
enrollee (or, in the case of individual market coverage, an average 
individual covered under a health insurance policy).
    (4) Form and manner. A plan or issuer must make the uniform glossary 
described in this paragraph (c) available upon request, in either paper 
or electronic form (as requested), within seven business days after 
receipt of the request.
    (d) Preemption. For purposes of this section, the provisions of 
section 2724 of the PHS Act continue to apply with respect to preemption 
of State law. State laws that conflict with this section (including a 
state law that requires a health insurance issuer to provide an SBC that 
supplies less information than required under paragraph (a) of this 
section) are preempted.
    (e) Failure to provide. A health insurance issuer or a non-federal 
governmental health plan that willfully fails to provide information to 
a covered individual required under this section is subject to a fine of 
not more than $1,000 for each such failure. A failure with respect to 
each covered individual constitutes a separate offense for purposes of 
this paragraph (e). HHS will enforce these provisions in a manner 
consistent with Sec. Sec. 150.101 through 150.465 of this subchapter.
    (f) Applicability to Medicare Advantage benefits. The requirements 
of this section do not apply to a group health plan benefit package that 
provides Medicare Advantage benefits pursuant to or 42 U.S.C. Chapter 7, 
Subchapter XVIII, Part C.
    (g) Applicability date. (1) This section is applicable to group 
health plans and group health insurance issuers in accordance with this 
paragraph (g). (See Sec. 147.140(d), providing that this section 
applies to grandfathered health plans.)
    (i) For disclosures with respect to participants and beneficiaries 
who enroll or re-enroll through an open enrollment period (including re-
enrollees and late enrollees), this section applies beginning on the 
first day of the first open enrollment period that begins on or after 
September 1, 2015; and
    (ii) For disclosures with respect to participants and beneficiaries 
who enroll in coverage other than through an open enrollment period 
(including individuals who are newly eligible for coverage and special 
enrollees), this section applies beginning on the first day of the first 
plan year that begins on or after September 1, 2015.
    (2) For disclosures with respect to plans, this section is 
applicable to health insurance issuers beginning September 1, 2015.
    (3) For disclosures with respect individuals and covered dependents 
in the individual market, this section is applicable to health insurance 
issuers beginning with respect to SBCs issued for

[[Page 838]]

coverage that begins on or after January 1, 2016.

[80 FR 34310, June 16, 2015]



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.

 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.
148.180 Prohibition of discrimination based on genetic information.

                 Subpart D_Preemption; Excepted Benefits

148.210 Preemption.
148.220 Excepted benefits.

  Subpart E_Grants to States for Operation of Qualified High Risk Pools

148.306 Basis and scope.
148.308 Definitions.
148.310 Eligibility requirements for a grant.
148.312 Amount of grant payment.
148.314 Periods during which eligible States may apply for a grant.
148.316 Grant application instructions.
148.318 Grant application review.
148.320 Grant awards.

    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), as amended.

    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 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 and protects all individuals and family 
members who have, or seek, individual health insurance coverage from 
discrimination based on genetic information.

[79 FR 30340, May 27, 2014]



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 of this subchapter) 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.
    (2) The requirements that pertain to guaranteed renewability for all 
individuals, to protections for mothers and newborns with respect to 
hospital stays in connection with childbirth, and to protections against 
discrimination based on genetic information apply to all issuers of 
individual health insurance coverage in the State.
    (b) Applicability date. Except as provided in Sec. 148.124 
(certificate of creditable coverage), Sec. 148.170 (standards relating 
to benefits for mothers and newborns), and Sec. 148.180 (prohibition of 
health discrimination based on genetic information), 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.

[79 FR 30340, May 27, 2014]

[[Page 839]]



 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.

    The rules for guaranteeing the availability of individual health 
insurance coverage to certain eligible individuals with prior group 
coverage have been superseded by the requirements of Sec. 147.104 of 
this subchapter, which set forth Federal requirements for guaranteed 
availability of coverage in the group and individual markets.

[79 FR 30340, May 27, 2014]



Sec. 148.122  Guaranteed renewability of individual health insurance 
coverage.

    (a) Applicability. This section applies to non-grandfathered and 
grandfathered health plans (within the meaning of Sec. 147.140 of this 
subchapter) that are individual health insurance coverage. See also 
Sec. 147.106 of this subchapter for requirements relating to guaranteed 
renewability of coverage with respect to non-grandfathered health plans.
    (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.
    (3) Termination of product. The issuer is ceasing to offer coverage 
in the market in accordance with paragraph (d) or (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; provided the issuer 
provides notice in accordance with the requirements of paragraph (d)(1) 
of this section.
    (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, in a form and manner specified by 
the Secretary, to each individual provided coverage of that type of 
health insurance at least 90 calendar 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

[[Page 840]]

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. (1) An issuer 
may, only at the time of coverage renewal, modify the health insurance 
coverage for a product offered in the individual market if the 
modification is consistent with State law and is effective uniformly for 
all individuals with that product.
    (2) For purposes of paragraph (g) of this section, modifications 
made uniformly and solely pursuant to applicable Federal or State 
requirements are considered a uniform modification of coverage if:
    (i) The modification is made within a reasonable time period after 
the imposition or modification of the Federal or State requirement; and
    (ii) The modification is directly related to the imposition or 
modification of the Federal or State requirement.
    (3) For purposes of paragraph (g) of this section, other types of 
modifications made uniformly are considered a uniform modification of 
coverage if the health insurance coverage for the product meets all of 
the following criteria:
    (i) The product is offered by the same health insurance issuer 
(within the meaning of section 2791(b)(2) of the PHS Act);
    (ii) The product is offered as the same product network type (for 
example, health maintenance organization, preferred provider 
organization, exclusive provider organization, point of service, or 
indemnity);
    (iii) The product continues to cover at least a majority of the same 
service area;
    (iv) Within the product, each plan has the same cost-sharing 
structure as before the modification, except for any variation in cost 
sharing solely related to changes in cost and utilization of medical 
care, or to maintain the same metal tier level described in sections 
1302(d) and (e) of the Affordable Care Act; and
    (v) The product provides the same covered benefits, except for any 
changes in benefits that cumulatively impact the rate for any plan 
within the product within an allowable variation of  2 percentage points (not including changes pursuant to 
applicable Federal or State requirements).
    (4) A State may only broaden the standards in paragraphs (g)(3)(iii) 
and (iv) of this section.
    (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.
    (i) Notice of renewal of coverage. If an issuer is renewing 
grandfathered coverage as described in paragraph (b) of this section, or 
uniformly modifying grandfathered coverage as described in paragraph (g) 
of this section, the issuer must provide to each individual written 
notice of the renewal at least 60 calendar days before the date the 
coverage will be renewed in a form and manner specified by the 
Secretary.

(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; 79 FR 30340, May 27, 2014; 79 FR 42986, July 24, 
2014; 79 FR 53004, Sept. 5, 2014]



Sec. 148.124  Certification and disclosure of coverage.

    (a) General rule. The rules for providing certificates of creditable 
coverage and demonstrating creditable coverage have been superseded by 
the prohibition on preexisting condition exclusions. See Sec. 147.108 
of this subchapter for rules prohibiting the imposition of a preexisting 
condition exclusion.

[[Page 841]]

    (b) Applicability. The provisions of this section apply beginning 
December 31, 2014.

[79 FR 30341, May 27, 2014]



Sec. 148.126  Determination of an eligible individual.

    The rules for guaranteeing the availability of individual health 
insurance coverage to certain eligible individuals with prior group 
coverage have been superseded by the requirements of Sec. 147.104 of 
this subchapter, which set forth Federal requirements for guaranteed 
availability of coverage in the group and individual markets.

[79 FR 30341, May 27, 2014]



Sec. 148.128  State flexibility in individual market reforms--
alternative mechanisms.

    The rules for a State to implement an acceptable alternative 
mechanism for purposes of guaranteeing the availability of individual 
health insurance coverage to certain eligible individuals with prior 
group coverage have been superseded by the requirements of Sec. 147.104 
of this subchapter, which set forth Federal requirements for guaranteed 
availability of coverage in the group and individual markets.

[79 FR 30341, May 27, 2014]



               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 (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) Facts. 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) Conclusion. 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) Facts. 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) Conclusion. 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) Facts. 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) Conclusion. 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 is 
prohibited from requiring that a physician or other health care provider 
obtain authorization from the issuer for prescribing the hospital length 
of stay specified in 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.)

[[Page 842]]

    (ii) Example. The rule of this paragraph (a)(4) is illustrated by 
the following example:

    Example. (i) Facts. 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) Conclusion. 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. Therefore, an issuer, plan, hospital, or managed care 
organization is not an attending provider.
    (iv) Example. The rules of this paragraph (a)(5) are illustrated by 
the following example:

    Example. (i) Facts. 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) Conclusion. 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 subject to the requirements of this section 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) Facts. An issuer provides benefits for at least a 48-
hour hospital length of stay 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) Conclusion. 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) Facts. 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.

[[Page 843]]

    (ii) Conclusion. 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 specified in 
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) Facts. 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) Conclusion. 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, 
the requirement to obtain precertification from the issuer based on 
medical necessity for a hospital length of stay within the 96-hour 
period 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 specified in 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 issuer is subject to the 
requirements of this section, as follows:

    Example 1. (i) Facts. 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) Conclusion. 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) Facts. 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.

[[Page 844]]

    (ii) Conclusion. 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 (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 requirements 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) no later than December 19, 2008. To the extent an issuer 
has already provided the disclosure notice in paragraph (d)(2) of this 
section to covered individuals, it need not provide another such notice 
by December 19, 2008.
    (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.
    (ii) The state law requires the coverage to provide for maternity 
and pediatric care in accordance with guidelines that relate to care 
following childbirth 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

[[Page 845]]

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) Applicability 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, 2009.

[73 FR 62427, Oct. 20, 2008]



Sec. 148.180  Prohibition of discrimination based on genetic information.

    (a) Definitions. For purposes of this section, the following 
definitions as set forth in Sec. 146.122 of this subchapter pertain to 
health insurance issuers in the individual market to the extent that 
those definitions are not inconsistent with respect to health insurance 
coverage offered, sold, issued, renewed, in effect or operated in the 
individual market:
    Collect has the meaning set forth at Sec. 146.122(a).
    Family member has the meaning set forth at Sec. 146.122(a).
    Genetic information has the meaning set forth at Sec. 146.122(a).
    Genetic services has the meaning set forth at Sec. 146.122(a).
    Genetic test has the meaning set forth at Sec. 146.122(a).
    Manifestation or manifested has the meaning set forth at Sec. 
146.122(a).
    Preexisting condition exclusion has the meaning set forth at Sec. 
144.103.
    Underwriting purposes has the meaning set forth at Sec. 
148.180(f)(1).
    (b) Prohibition on genetic information as a condition of 
eligibility--(1) In general. An issuer offering health insurance 
coverage in the individual market may not establish rules for the 
eligibility (including continued eligibility) of any individual to 
enroll in individual health insurance coverage based on genetic 
information.
    (2) Rule of construction. Nothing in paragraph (b)(1) of this 
section precludes an issuer from establishing rules for eligibility for 
an individual to enroll in individual health insurance coverage based on 
the manifestation of a disease or disorder in that individual, or in a 
family member of that individual when the family member is covered under 
the policy that covers the individual.
    (3) Examples. The rules of this paragraph (b) are illustrated by the 
following examples:

    Example 1. (i) Facts. A State implements the HIPAA guaranteed 
availability requirement in the individual health insurance market in 
accordance with Sec. 148.120. Individual A and his spouse S are not 
``eligible individuals'' as that term is defined at Sec. 148.103 and, 
therefore, they are not entitled to obtain individual health insurance 
coverage on a guaranteed available basis. They apply for individual 
coverage with Issuer M. As part of the application for coverage, M 
receives health information about A and S. Although A has no known 
medical conditions, S has high blood pressure. M declines to offer 
coverage to S.
    (ii) Conclusion. In this Example 1, M permissibly may decline to 
offer coverage to S because S has a manifested disorder (high blood 
pressure) that makes her ineligible for coverage under the policy's 
rules for eligibility.
    Example 2. (i) Facts. Same facts as Example 1, except that S does 
not have high blood pressure or any other known medical condition. The 
only health information relevant to S that M receives in the application 
indicates that both of S's parents are overweight and have high blood 
pressure. M declines to offer coverage to S.
    (ii) Conclusion. In this Example 2, M cannot decline to offer 
coverage to S because S does not have a manifested disease or disorder. 
The only health information M has that relates to her pertains to a 
manifested disease or disorder of family members, which as family 
medical history constitutes genetic information with respect to S. If M 
denies eligibility to S based on genetic information, the denial will 
violate this paragraph (b).

    (c) Prohibition on genetic information in setting premium rates--(1) 
In general. An issuer offering health insurance coverage in the 
individual market must not adjust premium amounts for an individual on 
the basis of genetic information regarding the individual or a family 
member of the individual.
    (2) Rule of construction. (i) Nothing in paragraph (c)(1) of this 
section precludes an issuer from adjusting premium amounts for an 
individual on the basis of a manifestation of a disease or disorder in 
that individual, or on the basis of a manifestation of a disease or

[[Page 846]]

disorder in a family member of that individual when the family member is 
covered under the policy that covers the individual.
    (ii) The manifestation of a disease or disorder in one individual 
cannot also be used as genetic information about other individuals 
covered under the policy issued to that individual and to further 
increase premium amounts.
    (3) Examples. The rules of this paragraph (c) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual B is covered under an individual 
health insurance policy through Issuer N. Every other policy year, 
before renewal, N requires policyholders to submit updated health 
information before the policy renewal date for purposes of determining 
an appropriate premium, in excess of any increases due to inflation, 
based on the policyholders' health status. B complies with that 
requirement. During the past year, B's blood glucose levels have 
increased significantly. N increases its premium for renewing B's policy 
to account for N's increased risk associated with B's elevated blood 
glucose levels.
    (ii) Conclusion. In this Example 1, N is permitted to increase the 
premium for B's policy on the basis of a manifested disorder (elevated 
blood glucose) in B.
    Example 2. (i) Facts. Same facts as Example 1, except that B's blood 
glucose levels have not increased and are well within the normal range. 
In providing updated health information to N, B indicates that both his 
mother and sister are being treated for adult onset diabetes mellitus 
(Type 2 diabetes). B provides this information voluntarily and not in 
response to a specific request for family medical history or other 
genetic information. N increases B's premium to account for B's genetic 
predisposition to develop Type 2 diabetes in the future.
    (ii) Conclusion. In this Example 2, N cannot increase B's premium on 
the basis of B's family medical history of Type 2 diabetes, which is 
genetic information with respect to B. Since there is no manifestation 
of the disease in B at this point in time, N cannot increase B's 
premium.

    (d) Prohibition on genetic information as preexisting condition--(1) 
In general. An issuer offering health insurance coverage in the 
individual market may not, on the basis of genetic information, impose 
any preexisting condition exclusion with respect to that coverage.
    (2) Rule of construction. Nothing in paragraph (d)(1) of this 
section precludes an issuer from imposing any preexisting condition 
exclusion for an individual with respect to health insurance coverage on 
the basis of a manifestation of a disease or disorder in that 
individual.
    (3) Examples: The rules of this paragraph (d) are illustrated by the 
following examples:

    Example 1. (i) Facts. Individual C has encountered delays in 
receiving payment from the issuer of his individual health insurance 
policy for covered services. He decides to switch carriers and applies 
for an individual health insurance policy through Issuer O. C is 
generally in good health, but has arthritis for which he has received 
medical treatment. O offers C an individual policy that excludes 
coverage for a 12-month period for any services related to C's 
arthritis.
    (ii) Conclusion. In this Example 1, O is permitted to impose a 
preexisting condition exclusion with respect to C because C has a 
manifested disease (arthritis).
    Example 2. (i) Facts. Individual D applies for individual health 
insurance coverage through Issuer P. D has no known medical conditions. 
However, in response to P's request for medical information about D, P 
receives information from D's physician that indicates that both of D's 
parents have adult onset diabetes mellitus (Type 2 diabetes). P offers D 
an individual policy with a rider that permanently excludes coverage for 
any treatment related to diabetes that D may receive while covered by 
the policy, based on the fact that both of D's parents have the disease.
    (ii) Conclusion. In this Example 2, the rider violates this 
paragraph (d) because the preexisting condition exclusion is based on 
genetic information with respect to D (family medical history of Type 2 
diabetes).

    (e) Limitation on requesting or requiring genetic testing--(1) 
General rule. Except as otherwise provided in this paragraph (e), an 
issuer offering health insurance coverage in the individual market must 
not request or require an individual or a family member of the 
individual to undergo a genetic test.
    (2) Health care professional may recommend a genetic test. Nothing 
in paragraph (e)(1) of this section limits the authority of a health 
care professional who is providing health care services to an individual 
to request that the individual undergo a genetic test.
    (3) Examples. The rules of paragraphs (e)(1) and (e)(2) of this 
section are illustrated by the following examples:


[[Page 847]]


    Example 1. (i) Facts. Individual E goes to a physician for a routine 
physical examination. The physician reviews E's family medical history, 
and E informs the physician that E's mother has been diagnosed with 
Huntington's Disease. The physician advises E that Huntington's Disease 
is hereditary, and recommends that E undergo a genetic test.
    (ii) Conclusion. In this Example 1, the physician is a health care 
professional who is providing health care services to E. Therefore, the 
physician's recommendation that E undergo the genetic test does not 
violate this paragraph (e).
    Example 2. (i) Facts. Individual F is covered by a health 
maintenance organization (HMO). F is a child being treated for leukemia. 
F's physician, who is employed by the HMO, is considering a treatment 
plan that includes six-mercaptopurine, a drug for treating leukemia in 
most children. However, the drug could be fatal if taken by a small 
percentage of children with a particular gene variant. F's physician 
recommends that F undergo a genetic test to detect this variant before 
proceeding with this course of treatment.
    (ii) Conclusion. In this Example 2, even though the physician is 
employed by the HMO, the physician is nonetheless a health care 
professional who is providing health care services to F. Therefore, the 
physician's recommendation that F undergo the genetic test does not 
violate this paragraph (e).

    (4) Determination regarding payment. (i) In general. As provided in 
this paragraph (e)(4), nothing in paragraph (e)(1) of this section 
precludes an issuer offering health insurance in the individual market 
from obtaining and using the results of a genetic test in making a 
determination regarding payment. For this purpose, ``payment'' has the 
meaning given such term in Sec. 164.501 of this subtitle of the privacy 
regulations issued under the Health Insurance Portability and 
Accountability Act. Thus, if an issuer conditions payment for an item or 
service based on its medical appropriateness and the medical 
appropriateness of the item or service depends on a covered individual's 
genetic makeup, the issuer is permitted to condition payment on the 
outcome of a genetic test, and may refuse payment if the covered 
individual does not undergo the genetic test.
    (ii) Limitation. An issuer in the individual market is permitted to 
request only the minimum amount of information necessary to make a 
determination regarding payment. The minimum amount of information 
necessary is determined in accordance with the minimum necessary 
standard in Sec. 164.502(b) of this subtitle of the privacy regulations 
issued under the Health Insurance Portability and Accountability Act.
    (iii) Examples. See paragraph (g) of this section for examples 
illustrating the rules of this paragraph (e)(4), as well as other 
provisions of this section.
    (5) Research exception. Notwithstanding paragraph (e)(1) of this 
section, an issuer may request, but not require, that an individual or 
family member covered under the same policy undergo a genetic test if 
all of the conditions of this paragraph (e)(5) are met:
    (i) Research in accordance with Federal regulations and applicable 
State or local law or regulations. The issuer makes the request pursuant 
to research, as defined in Sec. 46.102(d) of this subtitle, that 
complies with part 46 of this subtitle or equivalent Federal 
regulations, and any applicable State or local law or regulations for 
the protection of human subjects in research.
    (ii) Written request for participation in research. The issuer makes 
the request in writing, and the request clearly indicates to each 
individual (or, in the case of a minor child, to the child's legal 
guardian) that--
    (A) Compliance with the request is voluntary; and
    (B) Noncompliance will have no effect on eligibility for benefits 
(as described in paragraph (b) of this section) or premium amounts (as 
described in paragraph (c) of this section).
    (iii) Prohibition on underwriting. No genetic information collected 
or acquired under this paragraph (e)(5) can be used for underwriting 
purposes (as described in paragraph (f)(1) of this section).
    (iv) Notice to Federal agencies. The issuer completes a copy of the 
``Notice of Research Exception under the Genetic Information 
Nondiscrimination Act'' authorized by the Secretary and provides the 
notice to the address specified in the instructions thereto.
    (f) Prohibitions on collection of genetic information--(1) For 
underwriting purposes--(i) General rule. An issuer offering health 
insurance coverage in the

[[Page 848]]

individual market must not collect (as defined in paragraph (a) of this 
section) genetic information for underwriting purposes. See paragraph 
(g) of this section for examples illustrating the rules of this 
paragraph (f)(1), as well as other provisions of this section.
    (ii) Underwriting purposes defined. Subject to paragraph (f)(1)(iii) 
of this section, underwriting purposes means, with respect to any issuer 
offering health insurance coverage in the individual market--
    (A) Rules for, or determination of, eligibility (including 
enrollment and continued eligibility) for benefits under the coverage;
    (B) The computation of premium amounts under the coverage;
    (C) The application of any preexisting condition exclusion under the 
coverage; and
    (D) Other activities related to the creation, renewal, or 
replacement of a contract of health insurance.
    (iii) Medical appropriateness. An issuer in the individual market 
may limit or exclude a benefit based on whether the benefit is medically 
appropriate, and the determination of whether the benefit is medically 
appropriate is not within the meaning of underwriting purposes. 
Accordingly, if an issuer conditions a benefit based on its medical 
appropriateness and the medical appropriateness of the benefit depends 
on a covered individual's genetic information, the issuer is permitted 
to condition the benefit on the genetic information. An issuer is 
permitted to request only the minimum amount of genetic information 
necessary to determine medical appropriateness, and may deny the benefit 
if the covered individual does not provide the genetic information 
required to determine medical appropriateness. See paragraph (g) of this 
section for examples illustrating the applicability of this paragraph 
(f)(1)(iii), as well as other provisions of this section.
    (2) Prior to or in connection with enrollment.
    (i) In general. An issuer offering health insurance coverage in the 
individual market must not collect genetic information with respect to 
any individual prior to that individual's enrollment under the coverage 
or in connection with that individual's enrollment. Whether or not an 
individual's information is collected prior to that individual's 
enrollment is determined at the time of collection.
    (ii) Incidental collection exception.
    (A) In general. If an issuer offering health insurance coverage in 
the individual market obtains genetic information incidental to the 
collection of other information concerning any individual, the 
collection is not a violation of this paragraph (f)(2), as long as the 
collection is not for underwriting purposes in violation of paragraph 
(f)(1) of this section.
    (B) Limitation. The incidental collection exception of this 
paragraph (f)(2)(ii) does not apply in connection with any collection 
where it is reasonable to anticipate that health information will be 
received, unless the collection explicitly provides that genetic 
information should not be provided.
    (iii) Examples. The rules of this paragraph (f)(2) are illustrated 
by the following examples:

    Example 1. (i) Facts. Individual G applies for a health insurance 
policy through Issuer Q. Q's application materials ask for the 
applicant's medical history, but not for family medical history. The 
application's instructions state that no genetic information, including 
family medical history, should be provided. G answers the questions in 
the application completely and truthfully, but volunteers certain health 
information about diseases his parents had, believing that Q also needs 
this information.
    (ii) Conclusion. In this Example 1, G's family medical history is 
genetic information with respect to G. However, since Q did not request 
this genetic information, and Q's instructions stated that no genetic 
information should be provided, Q's collection is an incidental 
collection under paragraph (f)(2)(ii). However, Q may not use the 
genetic information it obtained incidentally for underwriting purposes.
    Example 2. (i) Facts. Individual H applies for a health insurance 
policy through Issuer R. R's application materials request that an 
applicant provide information on his or her individual medical history, 
including the names and contact information of physicians from whom the 
applicant sought treatment. The application includes a release which 
authorizes the physicians to furnish information to R. R forwards a 
request for health information about H, including the signed release, to 
his primary care physician. Although the request for information does 
not

[[Page 849]]

ask for genetic information, including family medical history, it does 
not state that no genetic information should be provided. The 
physician's office administrator includes part of H's family medical 
history in the package to R.
    (ii) Conclusion. In this Example 2, R's request was for health 
information solely about its applicant, H, which is not genetic 
information with respect to H. However, R's materials did not state that 
genetic information should not be provided. Therefore, R's collection of 
H's family medical history (which is genetic information with respect to 
H), violates the rule against collection of genetic information and does 
not qualify for the incidental collection exception under paragraph 
(f)(2)(ii).
    Example 3. (i) Facts. Issuer S acquires Issuer T. S requests T's 
records, stating that S should not provide genetic information and 
should review the records to excise any genetic information. T assembles 
the data requested by S and, although T reviews it to delete genetic 
information, the data from a specific region included some individuals' 
family medical history. Consequently, S receives genetic information 
about some of T's covered individuals.
    (ii) Conclusion. In this Example 3, S's request for health 
information explicitly stated that genetic information should not be 
provided. Therefore, its collection of genetic information was within 
the incidental collection exception. However, S may not use the genetic 
information it obtained incidentally for underwriting purposes.

    (g) Examples regarding determinations of medical appropriateness. 
The application of the rules of paragraphs (e) and (f) of this section 
to issuer determinations of medical appropriateness is illustrated by 
the following examples:

    Example 1. (i) Facts. Individual I has an individual health 
insurance policy through Issuer U that covers genetic testing for celiac 
disease for individuals who have family members with this condition. I's 
policy includes dependent coverage. After I's son is diagnosed with 
celiac disease, I undergoes a genetic test and promptly submits a claim 
for the test to U for reimbursement. U asks I to provide the results of 
the genetic test before the claim is paid.
    (ii) Conclusion. In this Example 1, under the rules of paragraph 
(e)(4) of this section, U is permitted to request only the minimum 
amount of information necessary to make a decision regarding payment. 
Because the results of the test are not necessary for U to make a 
decision regarding the payment of I's claim, U's request for the results 
of the genetic test violates paragraph (e) of this section.
    Example 2. (i) Facts. Individual J has an individual health 
insurance policy through Issuer V that covers a yearly mammogram for 
participants starting at age 40, or at age 30 for those with increased 
risk for breast cancer, including individuals with BRCA1 or BRCA2 gene 
mutations. J is 33 years old and has the BRCA2 mutation. J undergoes a 
mammogram and promptly submits a claim to V for reimbursement. V asks J 
for evidence of increased risk of breast cancer, such as the results of 
a genetic test, before the claim for the mammogram is paid.
    (ii) Conclusion. In this Example 2, V does not violate paragraphs 
(e) or (f) of this section. Under paragraph (e), an issuer is permitted 
to request and use the results of a genetic test to make a determination 
regarding payment, provided the issuer requests only the minimum amount 
of information necessary. Because the medical appropriateness of the 
mammogram depends on the covered individual's genetic makeup, the 
minimum amount of information necessary includes the results of the 
genetic test. Similarly, V does not violate paragraph (f) of this 
section because an issuer is permitted to request genetic information in 
making a determination regarding the medical appropriateness of a claim 
if the genetic information is necessary to make the determination (and 
the genetic information is not used for underwriting purposes).
    Example 3. (i) Facts. Individual K was previously diagnosed with and 
treated for breast cancer, which is currently in remission. In 
accordance with the recommendation of K's physician, K has been taking a 
regular dose of tamoxifen to help prevent a recurrence. K has an 
individual health insurance policy through Issuer W which adopts a new 
policy requiring patients taking tamoxifen to undergo a genetic test to 
ensure that tamoxifen is medically appropriate for their genetic makeup. 
In accordance with, at the time, the latest scientific research, 
tamoxifen is not helpful in up to 7 percent of breast cancer patients 
with certain variations of the gene for making the CYP2D6 
enzyme. If a patient has a gene variant making tamoxifen not medically 
appropriate, W does not pay for the tamoxifen prescription.
    (ii) Conclusion. In this Example 3, W does not violate paragraph (e) 
of this section if it conditions future payments for the tamoxifen 
prescription on K's undergoing a genetic test to determine the genetic 
markers K has for making the CYP2D6 enzyme. W also does not 
violate paragraph (e) of this section if it refuses future payment if 
the results of the genetic test indicate that tamoxifen is not medically 
appropriate for K.


[[Page 850]]


    (h) Applicability date. The provisions of this section are effective 
with respect to health insurance coverage offered, sold, issued, 
renewed, in effect, or operated in the individual market on or after 
December 7, 2009.

[74 FR 51693, Oct. 7, 2009]



                 Subpart D_Preemption; Excepted Benefits



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 and part 147 of this subchapter do not 
apply to any individual 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
    (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) if the policies meet the requirements of Sec. 
146.145(b)(4)(ii)(B) and (C) of this subchapter regarding 
noncoordination of benefits.
    (4) Hospital indemnity or other fixed indemnity insurance only if--
    (i) The benefits are provided only to individuals who attest, in 
their fixed indemnity insurance application, that they have other health 
coverage that is minimum essential coverage within the meaning of 
section 5000A(f) of the Internal Revenue Code, or that they are treated 
as having minimum essential coverage due to their status as a bona fide 
resident of any possession of the United States pursuant to Code section 
5000A(f)(4)(B).
    (ii) There is no coordination between the provision of benefits and 
an exclusion of benefits under any other health coverage.

[[Page 851]]

    (iii) The benefits are paid in a fixed dollar amount per period of 
hospitalization or illness and/or per service (for example, $100/day or 
$50/visit) regardless of the amount of expenses incurred and without 
regard to the amount of benefits provided with respect to the event or 
service under any other health coverage.
    (iv) A notice is displayed prominently in the application materials 
in at least 14 point type that has the following language: ``THIS IS A 
SUPPLEMENT TO HEALTH INSURANCE AND IS NOT A SUBSTITUTE FOR MAJOR MEDICAL 
COVERAGE. LACK OF MAJOR MEDICAL COVERAGE (OR OTHER MINIMUM ESSENTIAL 
COVERAGE) MAY RESULT IN AN ADDITIONAL PAYMENT WITH YOUR TAXES.''
    (v) The requirement of paragraph (b)(4)(iv) of this section applies 
to all hospital or other fixed indemnity insurance policy years 
beginning on or after January 1, 2015, and the requirement of paragraph 
(b)(4)(i) of this section applies to hospital or other fixed indemnity 
insurance policies issued on or after January 1, 2015, and to hospital 
or other fixed indemnity policies issued before that date, upon their 
first renewal occurring on or after October 1, 2016.
    (5) 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). The requirements of this part 148 
(including genetic nondiscrimination requirements), do not apply to 
Medicare supplemental health insurance policies. However, Medicare 
supplemental health insurance policies are subject to similar genetic 
nondiscrimination requirements under section 104 of the Genetic 
Information Nondiscrimination Act of 2008 (Pub. L. 110-233), as 
incorporated into the NAIC Model Regulation relating to sections 
1882(s)(2)(e) and (x) of the Act (The NAIC Model Regulation can be 
accessed at http://www.naic.org.).
    (6) Coverage supplemental to the coverage provided under Chapter 55, 
Title 10 of the United States Code (also known as CHAMPUS supplemental 
programs).
    (7) Similar supplemental coverage provided to coverage under a group 
health plan.

[62 FR 16995, Apr. 8, 1997; 62 FR 31696, June 10, 1997, as amended at 74 
FR 51696, Oct. 7, 2009; 79 FR 30341, May 27, 2014]



  Subpart E_Grants to States for Operation of Qualified High Risk Pools

    Source: 68 FR 23414, May 2, 2003, unless otherwise noted.



Sec. 148.306  Basis and scope.

    This subpart implements section 2745 of the Public Health Service 
Act (PHS Act). It extends grants to States that have qualified high risk 
pools that meet the specific requirements described in Sec. 148.310. It 
also provides specific instructions on how to apply for the grants and 
outlines the grant review and grant award processes.

[73 FR 22285, Apr. 25, 2008]



Sec. 148.308  Definitions.

    For the purposes of this subpart, the following definitions apply:
    Bonus grants means funds that the Secretary provides from the 
appropriated grant funds to be used to provide supplemental consumer 
benefits to enrollees or potential enrollees in qualified high risk 
pools.
    CMS stands for Centers for Medicare & Medicaid Services.
    Loss means the difference between expenses incurred by a qualified 
high risk pool, including payment of claims and administrative expenses, 
and the premiums collected by the pool.
    Qualified high risk pool as defined in sections 2744(c)(2) and 
2745(g) of the PHS Act means a risk pool that--
    (1) Provides to all eligible individuals health insurance coverage 
(or comparable coverage) that does not impose any preexisting condition 
exclusion with respect to such coverage for all eligible individuals, 
except that it may provide for enrollment of eligible individuals 
through an acceptable alternative mechanism (as defined for purposes of 
section 2744 of the PHS Act) that includes a high risk pool as a 
component; and

[[Page 852]]

    (2) Provides for premium rates and covered benefits for such 
coverage consistent with standards included in the NAIC Model Health 
Plan for Uninsurable Individuals Act that was in effect at the time of 
the enactment of the Health Insurance Portability and Accountability Act 
of 1996 (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.
    Standard risk rate means a rate developed by a State using 
reasonable actuarial techniques and taking into account the premium 
rates charged by other insurers offering health insurance coverage to 
individuals in the same geographical service area to which the rate 
applies. The standard rate may be adjusted based upon age, sex, and 
geographical location.
    State means any of the 50 States and the District of Columbia and 
includes the U.S. Territories of Puerto Rico, the Virgin Islands, Guam, 
American Samoa and the Northern Mariana Islands.
    State fiscal year, for purposes of this subpart, means the fiscal 
year used for accounting purposes by either a State or a risk pool 
entity to which a State has delegated the authority to conduct risk pool 
operations.

[68 FR 23414, May 2, 2003, as amended at 69 FR 15700, Mar. 26, 2004; 72 
FR 41236, July 27, 2007; 73 FR 22285, Apr. 25, 2008]



Sec. 148.310  Eligibility requirements for a grant.

    A State must meet all of the following requirements to be eligible 
for a grant:
    (a) The State has a qualified high risk pool as defined in Sec. 
148.308.
    (b) The pool restricts premiums charged under the pool to no more 
than 200 percent of the premium for applicable standard risk rates for 
the State.
    (c) The pool offers a choice of two or more coverage options through 
the pool.
    (d) The pool has in effect a mechanism reasonably designed to ensure 
continued funding of losses incurred by the State after the end of each 
fiscal year for which the State applies for Federal Funding in fiscal 
year (FY) 2005 through FY 2010 in connection with the operation of the 
pool.
    (e) The pool has incurred a loss in a period described in Sec. 
148.314.
    (f) In the case of a qualified high risk pool in a State that 
charges premiums that exceed 150 percent of the premium for applicable 
standard risks, the State will use at least 50 percent of the amount of 
the grant provided to the State to reduce premiums for enrollees.
    (g) In no case will the aggregate amount allotted and made available 
to the U.S. Territories for a fiscal year exceed $1,000,000 in total.
    (h) Bonus grant funding must be used for one or more of the 
following benefits:
    (1) Low income premium subsidies;
    (2) Reduction in premium trends, actual premium or other cost-
sharing requirements;
    (3) An expansion or broadening of the pool of individuals eligible 
for coverage, such as through eliminating waiting lists, increasing 
enrollment caps, or providing flexibility in enrollment rules;
    (4) Less stringent rules or additional waiver authority with respect 
to coverage of pre-existing conditions;
    (5) Increased benefits; and
    (6) The establishment of disease management programs.

[68 FR 23414, May 2, 2003, as amended at 72 FR 41236, July 27, 2007; 73 
FR 22285, Apr. 25, 2008]



Sec. 148.312  Amount of grant payment.

    (a) An eligible State may receive a grant to fund up to 100 percent 
of the losses incurred in the operation of its qualified high risk pool 
during the period for which it is applying or a lesser amount based on 
the limits of the allotment under the formula.
    (b) Funds will be allocated in accordance with this paragraph to 
each State that meets the eligibility requirements of Sec. 148.310 and 
files an application in accordance with Sec. 148.316. The amount will 
be divided among the States that apply and are awarded grants according 
to the allotment rules that generally provide that: 40 percent will be 
equally divided among those States; 30 percent will be divided among 
States and territories based on their number of uninsured residents in 
the State during the specified year as compared to

[[Page 853]]

all States that apply; and 30 percent will be divided among States and 
territories based on the number of people in State high risk pools 
during the specified year as compared to all States that apply.
    For purposes of this paragraph:
    (1) The number of uninsured individuals is calculated for each 
eligible State by taking a 3-year average of the number of uninsured 
individuals in that State in the Current Population Survey (CPS) of the 
Census Bureau during the period for which it is applying. The 3-year 
average will be calculated using numbers available as of March 1 of each 
year.
    (2) The number of individuals enrolled in health care coverage 
through the qualified high risk pool of the State will be determined by 
attestation by the State in its grant application and verified for 
reasonability by the Secretary through acceptable industry data sources.
    (c) The amount awarded to each eligible State will be the lesser of 
the 50 percent of losses incurred by its qualified risk pool for the 
fiscal year in question or its allotment under the formula.
    (d) One-third of the total appropriation will be available for the 
bonus grants. In no case will a State for a fiscal year receive bonus 
grants that exceed 10 percent of the total allotted funds for bonus 
grants.

[68 FR 23414, May 2, 2003, as amended at 69 FR 15700, Mar. 26, 2004; 72 
FR 41237, July 27, 2007; 73 FR 22285, Apr. 25, 2008]



Sec. 148.314  Periods during which eligible States may apply for a grant.

    (a) General rule. A State that meets the eligibility requirements in 
Sec. 148.310 may apply for a grant to fund losses that were incurred 
during the State's FYs 2005, 2006, 2007, 2008 and 2009 in connection 
with the operation of its qualified high risk pool. Funding for FY 2007 
through FY 2010 under the Extension Act requires subsequent enactment of 
appropriations authority. States will be unable to apply for grants 
unless and until such funding becomes available. Grants funding is on a 
retrospective basis and applies to the States previous fiscal year. If a 
State becomes eligible for a grant in the middle of its fiscal year, a 
State may apply for losses incurred in a partial fiscal year if a 
partial year audit is done. Only losses that are incurred after 
eligibility is established will qualify for a grant.
    (b) Maximum number of grants. An eligible State may only be awarded 
a maximum of five grants, with one grant per fiscal year. A grant for a 
partial fiscal year counts as a full grant.
    (c) Deadline for submitting grant applications. The deadlines for 
submitting grant applications are stated in Sec. 148.316(d).
    (d) Distribution of grant funds. States that meet all of the 
eligibility requirements in Sec. 148.310 and submit timely requests in 
accordance with paragraph (c) of this section will receive an initial 
distribution of grant funds using the following methodology: Grant 
applications for losses will be on a retrospective basis. For example, 
grant applications for 2006 funds are based on the State's FY 2005 
incurred losses. Grant funding was appropriated for Federal FY 2006 and 
is authorized to be appropriated for Federal FYs 2008 through 2010.
    (e) Grant allocations. Grant allocations for each fiscal year will 
be determined by taking all grant applications during the period for 
which States are applying and allocating the funds in accordance with 
Sec. 148.312.
    (1) In no case will a State receive funds greater than 100 percent 
of their losses.
    (2) If any excess funds remain after the initial calculation, these 
excess funds will be proportionately redistributed to the States whose 
allocations have not exceeded 100 percent of their losses.

[73 FR 22285, Apr. 25, 2008]



Sec. 148.316  Grant application instructions.

    Funding for FY 2008, FY 2009, and FY 2010 under the Extension Act 
requires the subsequent enactment of appropriations authority. Funding 
was appropriated for Federal FY 2006. States will be unable to apply for 
FY 2008 through FY 2010 grants unless and until such funding becomes 
available.

[[Page 854]]

    (a) Application for operational losses. Each State must compile an 
application package that documents that it has met the requirements for 
a grant. If a risk pool entity applies on behalf of a State, it must 
provide documentation that it has been delegated appropriate authority 
by the State. At a minimum, the application package must include a 
completed standard form application kit (see paragraph (b) of this 
section) along with the following information:
    (1) History and description of the qualified high risk pool. Provide 
a detailed description of the qualified high risk pool that includes the 
following:
    (i) Brief history, including date of inception.
    (ii) Enrollment criteria (including provisions for the admission of 
eligible individuals as defined in Sec. 148.103) and number of 
enrollees.
    (iii) Description of how coverage is provided administratively in 
the qualified high risk pool (that is, self-insured, through a private 
carrier, etc.).
    (iv) Benefits options and packages offered in the qualified high 
risk pool to both eligible individual (as defined in Sec. 148.103) and 
other applicants.
    (v) Outline of plan benefits and coverage offered in the pool. 
Provide evidence that the level of plan benefits is consistent with 
either Alternative One or Alternative Two in Section 8 of the NAIC Model 
Health Plan for Uninsurable Individuals Act. See appendix for the text 
of Section 8 of the NAIC Model.
    (vi) Premiums charged (in terms of dollars and in percentage of 
standard risk rate) and other cost-sharing mechanisms, such as co-pays 
and deductibles, imposed on enrollees (both eligible individuals (as 
defined in Sec. 148.103) and non-eligible individuals if a distinction 
is made).
    (vii) How the standard risk rate for the State is calculated and 
when it was last calculated.
    (viii) Revenue sources for the qualified high risk pool, including 
current funding mechanisms and, if different, future funding mechanisms. 
Provide current projections of future income.
    (ix) Copies of all governing authorities of the pool, including 
statutes, regulations and plan of operation.
    (2) Accounting of risk pool losses. Provide a detailed accounting of 
claims paid, administrative expenses, and premiums collected for the 
fiscal year for which the grant is being requested. Indicate the timing 
of the fiscal year upon which the accounting is based. Provide the 
methodology of projecting losses and expenses, and include current 
projections of future operating losses (this information is needed to 
judge compliance with the requirements in Sec. 148.310(d)).
    (3) Bonus grants for supplemental consumer benefits. Provide 
detailed information about the following supplemental consumer benefits 
for which the entity is applying:
    (i) A narrative description of one or more of the following of the 
supplemental consumer benefits to be provided to enrollees and/or 
potential enrollees in the high risk pool:
    (A) Low income premium subsidies;
    (B) Reduction in premium trends, actual premium or other cost-
sharing requirements;
    (C) An expansion or broadening of the pool of individuals eligible 
for coverage, such as through eliminating waiting lists, increasing 
enrollment caps, or providing flexibility in enrollment;
    (D) Less stringent rules, or additional waiver authority with 
respect to coverage of pre-existing conditions;
    (E) Increased benefits; and
    (F) The establishment of disease management programs.
    (ii) A description of the population or subset population that will 
be eligible for the supplemental consumer benefits.
    (iii) A projected budget for the use of bonus grant funds using the 
SF 424 A.
    (4) Contact person. Identify the name, position title, address, e-
mail address, and telephone number of the person to contact for further 
information and questions.
    (b) Standard form application kit--(1) Forms. (i) The following 
standard forms must be completed with an original signature and enclosed 
as part of the application package:

SF-424 Application for Federal Assistance.
SF-424A Budget Information.

[[Page 855]]

SF-424B Assurances Non-Construction Programs.
SF-LLL Disclosure of Lobbying Activities Biographical Sketch.

    (ii) These forms can be accessed from the following Web site: http:/
/www.grants.gov.
    (2) Other narrative. All other narrative in the application must be 
submitted on 8\1/2\ x 11 inches white paper.
    (c) Application submission. Submission of application package is 
through http://www.grants.gov. Submissions by facsimile (fax) 
transmissions will not be accepted.
    (d) Application deadlines. (1) The deadline for States to submit an 
application for losses incurred in a State fiscal year is June 30 of the 
next Federal fiscal year that begins after the end of the State fiscal 
year. Funding for FY 2008, FY 2009, and FY 2010 under the Extension Act 
requires the subsequent enactment of appropriations authority. Funding 
was appropriated for Federal FY 2006. States will be unable to apply for 
FY 2008 through FY 2010 grants unless and until such funding becomes 
available.
    (2) Deadline for States to submit an application for losses incurred 
in their fiscal year 2005. States had to submit an application to CMS no 
later than June 30, 2006.
    (3) Deadline for States to submit an application for losses incurred 
in their fiscal year 2006. States must submit an application to CMS by 
no later than June 30, 2007.
    (4) Deadline for States to submit an application for losses incurred 
in their fiscal year 2007. States must submit an application to CMS by 
no later than June 30, 2008.
    (5) Deadline for States to submit an application for losses incurred 
in their fiscal year 2008. States must submit an application to CMS by 
no later than June 30, 2009.
    (6) Deadline for States to submit an application for losses incurred 
in their fiscal year 2009. States must submit an application to CMS by 
no later than June 30, 2010.
    (e) Where to submit an application. Applications must be submitted 
to http://www.grants.gov. Submissions by facsimile (fax) transmissions 
will not be accepted.

[68 FR 23414, May 2, 2003, as amended at 69 FR 15701, Mar. 26, 2004; 72 
FR 41237, July 27, 2007; 73 FR 22286, Apr. 25, 2008]



Sec. 148.318  Grant application review.

    (a) Executive Order 12372. This grant program is not listed by the 
Secretary under Sec. 100.3 of this title, and therefore the grant 
program is not subject to review by States under part 100 of this title, 
which implements Executive Order 12372, ``Intergovernmental Review of 
Federal Programs'' (see part 100 of this title).
    (b) Review team. A team consisting of staff from CMS and the 
Department of Health and Human Services will review all applications. 
The team will meet as necessary on an ongoing basis as applications are 
received.
    (c) Eligibility criteria. To be eligible for a grant, a State must 
submit sufficient documentation that its high risk pool meets the 
eligibility requirements described in Sec. 148.310. A State must 
include sufficient documentation of the losses incurred in the operation 
of the qualified high risk pool in the period for when it is applying.
    (d) Review criteria. If the review team determines that a State 
meets the eligibility requirements described in Sec. 148.310, the 
review team will use the following additional criteria in reviewing the 
applications:
    (1) Documentation of expenses incurred during operation of the 
qualified high risk pool. The losses and expenses incurred in the 
operation of a State's pool are sufficiently documented.
    (2) Funding mechanism. The State has outlined funding sources, such 
as assessments and State general revenues, which can cover the projected 
costs and are reasonably designed to ensure continued funding of losses 
a State incurs in connection with the operation of the qualified high 
risk pool after each fiscal year for which it is applying for grant 
funds.

[68 FR 23414, May 2, 2003, as amended at 72 FR 41238, July 27, 2007; 73 
FR 22286, Apr. 25, 2008]



Sec. 148.320  Grant awards.

    (a) Notification and award letter. (1) Each State applicant will be 
notified in

[[Page 856]]

writing of CMS's decision on its application.
    (2) If the State applicant is awarded a grant, the award letter will 
contain the following terms and conditions:
    (i) All funds awarded to the grantee under this program must be used 
exclusively for the operation of a qualified high risk pool that meets 
the eligibility requirements for this program.
    (ii) The grantee must keep sufficient records of the grant 
expenditures for audit purposes (see part 92 of this title).
    (iii) The grantee will be required to submit quarterly progress and 
financial reports under part 92 of this title and in accordance with 
section 2745(f) of the Public Health Service Act, requiring the 
Secretary to make an annual report to Congress that includes information 
on the use of these grant funds by States.
    (b) Grantees letter of acceptance. Grantees must submit a letter of 
acceptance to CMS' Acquisition and Grants Group within 30 days of the 
date of the award agreeing to the terms and conditions of the award 
letter.

[68 FR 23414, May 2, 2003, as amended at 72 FR 41238, July 27, 2007; 73 
FR 22286, Apr. 25, 2008]



PART 149_REQUIREMENTS FOR THE EARLY RETIREE REINSURANCE PROGRAM--
Table of Contents



                      Subpart A_General Provisions

Sec.
149.1 Purpose and basis.
149.2 Definitions.

       Subpart B_Requirements for Eligible Employment-based Plans

149.30 General requirements.
149.35 Requirements to participate.
149.40 Application.
149.41 Consequences of Non-Compliance, Fraud, or Similar Fault
149.45 Funding limitation.

                      Subpart C_Reinsurance Amounts

149.100 Amount of reimbursement.
149.105 Transition provision.
149.110 Negotiated price concessions.
149.115 Cost threshold and cost limit.

                     Subpart D_Use of Reimbursements

149.200 Use of reimbursements.

                     Subpart E_Reimbursement Methods

149.300 General reimbursement rules.
149.310 Timing.
149.315 Reimbursement conditioned upon available funds.
149.320 Universe of claims that must be submitted.
149.325 Requirements for eligibility of claims.
149.330 Content of claims.
149.335 Documentation of costs of actual claims involved.
149.340 Rule for insured plans.
149.345 Use of information provided.
149.350 Maintenance of records.

                            Subpart F_Appeals

149.500 Appeals.
149.510 Content of request for appeal.
149.520 Review of appeals.

                 Subpart G_Disclosure of Inaccurate Data

149.600 Sponsor's duty to report data inaccuracies.
149.610 Secretary's authority to reopen and revise reimbursement 
          determination amounts.

               Subpart H_Change of Ownership Requirements

149.700 Change of ownership requirements.

    Authority: Section 1102 of the Patient Protection and Affordable 
Care Act (Pub. L. 111-148).

    Source: 75 FR 24466, May 5, 2010, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 149.1  Purpose and basis.

    This part implements the Early Retiree Reinsurance Program, as 
required by section 1102 of the Patient Protection and Affordable Care 
Act (Pub. L. 111-148).



Sec. 149.2  Definitions.

    For purposes of this part, the following definitions apply:
    Authorized representative means an individual with legal authority 
to sign and bind a sponsor to the terms of a contract or agreement.
    Benefit option means a particular benefit design, category of 
benefits, or

[[Page 857]]

cost-sharing arrangement offered within an employment-based plan.
    Certified means that the sponsor and its employment-based plan or 
plans meet the requirements of this part and the sponsor's application 
to participate in the program has been approved by the Secretary.
    Chronic and high-cost condition means a condition for which $15,000 
or more in health benefit claims are likely to be incurred during a plan 
year by one plan participant.
    Claim or medical claim means documentation, in a form and manner to 
be specified by the Secretary, indicating the health benefit provided, 
the provider or supplier, the incurred date, the individual for whom the 
health benefit was provided, the date and amount of payment net any 
known negotiated price concessions, and the employment-based plan and 
benefit option under which the health benefit was provided. The terms 
claim or medical claim include medical, surgical, hospital, prescription 
drug and other such claims as determined by the Secretary.
    Early retiree means a plan participant who is age 55 and older who 
is enrolled for health benefits in a certified employment-based plan, 
who is not eligible for coverage under title XVIII of the Act, and who 
is not an active employee of an employer maintaining, or currently 
contributing to, the employment-based plan or of any employer that has 
made substantial contributions to fund such plan. In this part, the term 
early retiree also includes the enrolled spouse, surviving spouse, and 
dependents of such individuals. The determination of whether an 
individual is not an active employee is made by the sponsor in 
accordance with the rules of its plan. For purposes of this subpart, 
however, an individual is presumed to be an active employee if, under 
the Medicare Secondary Payer rules in 42 CFR 411.104 and related 
guidance published by the Centers for Medicare & Medicaid Services, the 
person is considered to be receiving coverage by reason of current 
employment status. This presumption applies whether or not the Medicare 
Secondary Payer rules actually apply to the sponsor. For this purpose, a 
sponsor may also treat a person receiving coverage under its employment-
based plan as a dependent in accordance with the rules of its plan, 
regardless of whether that individual is considered a dependent for 
Federal or state tax purposes. For purposes of this definition of early 
retiree, an employer maintaining, or currently contributing to, the 
employment-based plan or any employer that has made substantial 
contributions to fund such plan, means a plan sponsor (as defined in 
this section).
    Employment-based plan means a group health plan as defined in this 
section of the regulation.
    Good cause means:
    (1) New and material evidence exists that was not readily available 
at the time the reimbursement determination was made;
    (2) A clerical error in the computation of the reimbursement 
determination was made by the Secretary; or
    (3) The evidence that was considered in making the reimbursement 
determination clearly shows on its face that an error was made.
    Group health plan means group health plan as defined in 42 CFR 
423.882 that provides health benefits to early retirees, but excludes 
Federal governmental plans.
    Health benefits means medical, surgical, hospital, prescription 
drug, and other benefits that may be specified by the Secretary, whether 
self-funded or delivered through the purchase of health insurance or 
otherwise. Such benefits include benefits for the diagnosis, cure, 
mitigation, or prevention of physical or mental disease or condition 
with respect to any structure or function of the body. Health benefits 
do not include benefits specified at 45 CFR 146.145(c)(2) through (4).
    Incurred means the point in time when the sponsor, health insurance 
issuer (as defined in 45 CFR 160.103), employment-based plan, plan 
participant, or a combination of these or similar stakeholders, become 
responsible for payment of the claim.
    Negotiated price concession means any direct or indirect 
remuneration (including discounts, direct or indirect subsidies, charge 
backs or rebates, cash discounts, free goods contingent on a purchase 
agreement, up-front payments, coupons, goods in kind, free or

[[Page 858]]

reduced-price services, grants, or other price concessions or similar 
benefits) offered to some or all purchasers, which may include a 
sponsor, a health insurance issuer, or an employment-based plan) that 
would serve to decrease the costs incurred under the employment-based 
plan.
    Plan participant means anyone enrolled in an applicable plan 
including an early retiree, as defined in this section, a retiree, a 
retiree's spouse and dependent, an active employee and an active 
employee's spouse and dependent.
    Plan year means the year that is designated as the plan year in the 
plan document of an employment-based plan, except that if the plan 
document does not designate a plan year, if the plan year is not a 12-
month plan year, or if there is no plan document, the plan year is:
    (1) The deductible or limit year used under the plan;
    (2) The policy year, if the plan does not impose deductibles or 
limits on a 12-month basis;
    (3) The sponsor's taxable year, If the plan does not impose 
deductibles or limits on a 12-month basis, and either the plan is not 
insured or the insurance policy is not renewed on a 12-month basis, or;
    (4) The calendar year, in any other case.
    Post point-of-sale negotiated price concession means any negotiated 
price concession that an employment-based plan or insurer receives with 
respect to a given health benefit, after making payment for that health 
benefit.
    Program means the Early Retiree Reinsurance Program established in 
section 1102 of the Patient Protection and Affordable Care Act.
    Secretary means the Secretary of the United States Department of 
Health & Human Services or the Secretary's designee.
    Sponsor means a plan sponsor as defined in section 3(16)(B) of the 
Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 
1002(16)(B), except that in the case of a plan maintained jointly by one 
employer and an employee organization and for which the employer is the 
primary source of financing, the term means the employer.
    Sponsor agreement means an agreement between the sponsor and the 
United States Department of Health & Human Services, or its designee, 
which is made to comply with the provisions of this part.



       Subpart B_Requirements for Eligible Employment-Based Plans



Sec. 149.30  General requirements.

    A sponsor is eligible to participate in the program if it meets the 
requirements of section 1102 of the Patient Protection and Affordable 
Care Act, this part, and guidance developed by the Secretary.



Sec. 149.35  Requirements to participate.

    (a) A sponsor's employment-based plan must--
    (1) Be certified by the Secretary.
    (2) Include programs and procedures that have generated or have the 
potential to generate cost-savings with respect to plan participants 
with chronic and high-cost conditions.
    (b) A sponsor must--
    (1) Make available information, data, documents, and records as 
specified in Sec. 149.350.
    (2) Have a written agreement with its health insurance issuer (as 
defined in 45 CFR 160.103) or employment-based plan (as applicable) 
regarding disclosure of information, data, documents, and records, to 
the Secretary, and the health insurance issuer or employment-based plan 
must disclose to the Secretary, on behalf of the sponsor, at a time and 
in a manner specified by the Secretary in guidance, the information, 
data, documents and records necessary for the sponsor to comply with the 
program, this part, and program guidance.
    (3) Ensure that policies and procedures to protect against fraud, 
waste and abuse under this program are in place, and must comply timely 
with requests from the Secretary to produce the policies and procedures 
and any documents or data to substantiate the implementation of the 
policies and procedures and their effectiveness.
    (4) Submit an application to the Secretary in the manner, and at the 
time,

[[Page 859]]

required by the Secretary as specified in Sec. 149.40.



Sec. 149.40  Application.

    (a) The applicant must submit an application to participate in this 
program to the Secretary, which is signed by an authorized 
representative of the applicant who certifies that the information 
contained in the application is true and accurate to the best of the 
authorized representative's knowledge and belief.
    (b) Applications will be processed in the order in which they are 
received.
    (c) An application that fails to meet all the requirements of this 
part will be denied and the applicant must submit another application if 
it wishes to participate in the program. The new application will be 
processed based on when the new submission is received.
    (d) An applicant need not submit a separate application for each 
plan year but must identify in its application the plan year start and 
end date cycle (starting month and day, and ending month and day) for 
which it is applying.
    (e) An applicant must submit an application for each plan for which 
it will submit a reimbursement request.
    (f) In connection with each application the applicant must submit 
the following:
    (1) Applicant's Tax Identification Number.
    (2) Applicant's name and address.
    (3) Contact name, telephone number and email address.
    (4) Plan sponsor agreement signed by an authorized representative, 
which includes--
    (i) An assurance that the sponsor has a written agreement with its 
health insurance issuer (as defined in 45 CFR 160.103) or employment-
based plan, as applicable, regarding disclosure of information to the 
Secretary, and the health insurance issuer or employment-based plan must 
disclose to the Secretary, on behalf of the sponsor, at a time and in a 
manner specified by the Secretary in guidance, information, data, 
documents, and records necessary for the sponsor to comply with the 
requirements of the program.
    (ii) An acknowledgment that the information in the application is 
being provided to obtain Federal funds, and that all subcontractors 
acknowledge that information provided in connection with a subcontract 
is used for purposes of obtaining Federal funds.
    (iii) An attestation that policies and procedures are in place to 
detect and reduce fraud, waste, and abuse, and that the sponsor will 
produce the policies and procedures, and necessary information, records 
and data, upon request by the Secretary, to substantiate existence of 
the policies and procedures and their effectiveness.
    (iv) Other terms and conditions required by the Secretary.
    (5) A summary indicating how the applicant will use any 
reimbursement received under the program to meet the requirements of the 
program, including:
    (i) How the reimbursement will be used to reduce premium 
contributions, co-payments, deductibles, coinsurance, or other out-of-
pocket costs for plan participants, to reduce health benefit or health 
benefit premium costs for the sponsor, or to reduce any combination of 
these costs;
    (ii) What procedures or programs the sponsor has in place that have 
generated or have the potential to generate cost savings with respect to 
plan participants with chronic and high-cost conditions; and
    (iii) How the sponsor will use the reimbursement to maintain its 
level of contribution to the applicable plan.
    (6) Projected amount of reimbursement to be received under the 
program for the first two plan year cycles with specific amounts for 
each of the two cycles.
    (7) A list of all benefit options under the employment-based plan 
that any early retiree for whom the sponsor receives program 
reimbursement may be claimed.
    (8) Any other information the Secretary requires.
    (g) An application must be approved, and the plan and the sponsor 
certified, by the Secretary before a sponsor may request reimbursement 
under the program.
    (h) The Secretary may reopen a determination under which an 
application had been approved or denied:
    (1) Within 1 year of the determination for any reason;

[[Page 860]]

    (2) Within 4 years of the determination if the evidence that was 
considered in making the determination shows on its face that an error 
was made; or
    (3) At any time in instances of fraud or similar fault.



Sec. 149.41  Consequences of Non-Compliance, Fraud, or Similar Fault.

    Upon failure to comply with the requirements of this part, or if 
fraud, waste, and abuse, or similar fault are found, the Secretary may 
recoup or withhold funds, terminate or deny a sponsor's application, or 
take a combination of these actions.



Sec. 149.45  Funding limitation.

    (a) Based on the projected or actual availability of program 
funding, the Secretary may deny applications that otherwise meet the 
requirements of this part, and if an application is approved, may deny 
all or part of a sponsor's reimbursement request.
    (b) The Secretary's decision to stop accepting applications or 
satisfying reimbursement requests based on the availability of funding 
is final and binding, and is not appealable.



                      Subpart C_Reinsurance Amounts



Sec. 149.100  Amount of reimbursement.

    (a) For each early retiree enrolled in a certified plan in a plan 
year, the sponsor receives reimbursement in the amount of 80 percent of 
the costs for health benefits (net of negotiated price concessions for 
health benefits) for claims incurred during the plan year that are 
attributed to health benefits costs between the cost threshold and cost 
limit, and that are paid by the employment-based plan or by the insurer 
(if an insured plan), and by the early retiree.
    (b) Costs are considered paid by an early retiree, if paid by that 
individual or another person on behalf of the early retiree, and the 
early retiree (or person paying on behalf of the early retiree) is not 
reimbursed through insurance or otherwise, or other third party payment 
arrangement.
    (c) Reimbursement is calculated by first determining the costs for 
health benefits net of negotiated price concessions, within the 
applicable plan year for each early retiree, and then subtracting 
amounts below the cost threshold and above the cost limit within the 
applicable plan year for each such individual.
    (d) For purposes of determining amounts below the cost threshold and 
above the cost limit for any given early retiree, all costs for health 
benefits paid by the employment-based plan (or by the insurer, if 
applicable), or by or on behalf of, an early retiree, for all benefit 
options the early retiree is enrolled in with respect to a given 
certified employment-based plan for a given plan year, will be combined. 
For each early retiree enrolled in an employment-based plan, there is 
only one cost threshold and one cost limit per plan year regardless of 
the number of benefit options the early retiree is enrolled in during 
that plan year.



Sec. 149.105  Transition provision.

    For a certified plan that has a plan year that begins before June 1, 
2010 and ends on any date thereafter, the reinsurance amount for the 
plan year must be determined as follows:
    (a) With respect to claims incurred before June 1, 2010, the amount 
of such claims up to $15,000 count toward the cost threshold and the 
cost limit. The amount of claims incurred before June 1, 2010 that 
exceed $15,000 are not eligible for reimbursement and do not count 
toward the cost limit.
    (b) The reinsurance amount to be paid is based only on claims 
incurred on and after June 1, 2010, that fall between the cost threshold 
and cost limit for the plan year.



Sec. 149.110  Negotiated price concessions.

    (a) The amount of negotiated price concessions that will be taken 
into account in determining the reinsurance amount will reflect 
negotiated price concessions that have already been subtracted from the 
amount the employment-based plan or insurer paid for the cost of health 
benefits and the amount of post-point-of-sale negotiated price 
concessions received.
    (b) At a time specified by the Secretary, sponsors are required to 
disclose the amount of post-point-of-sale price concessions that were 
received

[[Page 861]]

but not accounted for in their submitted claims.



Sec. 149.115  Cost threshold and cost limit.

    The following cost threshold and cost limits apply individually, to 
each early retiree as defined in Sec. 149.2:
    (a) The cost threshold is equal to $15,000 for plan years that start 
on any date before October 1, 2011.
    (b) The cost limit is equal to $90,000 for plan years that start on 
any date before October 1, 2011.
    (c) The cost threshold and cost limit specified in paragraphs (a) 
and (b) of this section, for plan years that start on or after October 
1, 2011, will be adjusted each fiscal year based on the percentage 
increase in the Medical Care Component of the Consumer Price Index for 
all urban consumers (rounded to the nearest multiple of $1,000) for the 
year involved.



                     Subpart D_Use of Reimbursements



Sec. 149.200  Use of reimbursements.

    (a) A sponsor must use the proceeds under this program:
    (1) To reduce the sponsor's health benefit premiums or health 
benefit costs,
    (2) To reduce health benefit premium contributions, copayments, 
deductibles, coinsurance, or other out-of-pocket costs, or any 
combination of these costs, for plan participants, or
    (3) To reduce any combination of the costs in (a)(1) and (a)(2) of 
this section.
    (b) Proceeds under this program must not be used as general revenue 
for the sponsor.



                     Subpart E_Reimbursement Methods



Sec. 149.300  General reimbursement rules.

    Reimbursement under this program is conditioned on provision of 
accurate information by the sponsor or its designee. The information 
must be submitted, in a form and manner and at the times provided in 
this subpart and other guidance specified by the Secretary. A sponsor 
must provide the information specified in section Sec. 149.335.



Sec. 149.310  Timing.

    (a) An employment-based plan and a sponsor must be certified by the 
Secretary before claims can be submitted and a reimbursement request may 
be made. Reimbursement will be made with respect to submitted claims for 
health benefits at a time and in a manner to be specified by the 
Secretary, after the sponsor or its designee submits the claims to the 
Secretary. Claims must satisfy the requirements of this subpart in order 
to be eligible for reimbursement.
    (b) Claims for health benefits may be submitted for a given plan 
year only upon the approval of an application that references that plan 
year cycle. Claims for an early retiree for a plan year cannot be 
submitted until the total paid costs for health benefits for that early 
retiree incurred for that plan year exceed the applicable cost 
threshold.
    (c) For employment-based plans for which a provider in the normal 
course of business does not produce a claim, such as a staff-model 
health maintenance organization, the information required in a claim 
must be produced and provided to the Secretary, as set out in this 
regulation and applicable guidance.



Sec. 149.315  Reimbursement conditioned upon available funds.

    Notwithstanding a sponsor's compliance with this part, reimbursement 
is conditioned upon the availability of program funds.



Sec. 149.320  Universe of claims that must be submitted.

    (a) Claims submitted for an early retiree, as defined in Sec. 
149.2, must include claims below the applicable cost threshold for the 
plan year.
    (b) Claims must not be submitted until claims are submitted for 
amounts that exceed the applicable cost threshold for the plan year for 
the early retiree.
    (c) Sponsors must not submit claims for health benefits for an early 
retiree to the extent the sponsor has already submitted claims for the 
early retiree that total more than the applicable cost limit for the 
applicable plan year.

[[Page 862]]



Sec. 149.325  Requirements for eligibility of claims.

    A claim may be submitted only if it represents costs for health 
benefits for an early retiree, as defined in Sec. 149.2, has been 
incurred during the applicable plan year, and has been paid.



Sec. 149.330  Content of claims.

    Each claim on its face must include the information specified in, 
and meet, the definition of claim or medical claim found at Sec. 149.2.



Sec. 149.335  Documentation of costs of actual claims involved.

    (a) A submission of claims consists of a list of early retirees for 
whom claims are being submitted, and documentation of the actual costs 
of the items and services for claims being submitted, in a form and 
manner specified by the Secretary.
    (b) In order for a sponsor to receive reimbursement for the portion 
of a claim that an early retiree paid, the sponsor must submit prima 
facie evidence that the early enrollee paid his or her portion of the 
claim.



Sec. 149.340  Rule for insured plans.

    With respect to insured plans, the claims and data specified in the 
subpart may be submitted directly to the Secretary by the insurer.



Sec. 149.345  Use of information provided.

    The Secretary may use data and information collected under this 
section only for the purpose of, and to the extent necessary in, 
carrying out this part including, but not limited to, determining 
reimbursement and reimbursement-related oversight and program integrity 
activities, or as otherwise allowed by law. Nothing in this section 
limits the Office of the Inspector General's authority to fulfill the 
Inspector General's responsibilities in accordance with applicable 
Federal law.



Sec. 149.350  Maintenance of records.

    (a) The sponsor of the certified plan (or a subcontractor, as 
applicable) must maintain and furnish to the Secretary, upon request the 
records enumerated in paragraph (b) of this section. The records must be 
maintained for 6 years after the expiration of the plan year in which 
the costs were incurred, or longer if otherwise required by law.
    (b) The records that must be retained are as follows--
    (1) All documentation, data, and other information related to this 
part.
    (2) Any other records specified by the Secretary.
    (c) The Secretary may issue additional guidance addressing 
recordkeeping requirements, including (but not limited to) the use of 
electronic media.
    (d) The sponsor must require its health insurance issuer or 
employment-based plan, as applicable, to maintain and produce upon 
request records to satisfy subparagraph (a) of this regulation.
    (e) The sponsor is responsible for ensuring that the records are 
maintained and provided according to this subpart.



                            Subpart F_Appeals



Sec. 149.500  Appeals.

    (a) An adverse reimbursement determination is final and binding 
unless appealed pursuant to paragraph (e) of this section.
    (b) Except as provided in paragraph (c) of this section, a sponsor 
may request an appeal of an adverse reimbursement determination.
    (c) A sponsor may not appeal an adverse reimbursement determination 
if the denial is based on the unavailability of funds.
    (d) An adverse reimbursement determination is a determination 
constituting a complete or partial denial of a reimbursement request.
    (e) If a sponsor appeals an adverse reimbursement determination, the 
sponsor must submit the appeal in writing to the Secretary within 15 
calendar days of receipt of the determination pursuant to guidance 
issued by the Secretary.



Sec. 149.510  Content of request for appeal.

    The request for appeal must specify the findings or issues with 
which the sponsor disagrees and the reasons for

[[Page 863]]

the disagreements. The request for appeal may include supporting 
documentary evidence the sponsor wishes the Secretary to consider.



Sec. 149.520  Review of appeals.

    (a) In conducting review of the appeal, the Secretary reviews the 
appeal, the evidence and findings upon which the adverse reimbursement 
determination was made, and any other written evidence submitted by the 
sponsor or the Secretary's designee and will provide a ruling on the 
appeal request.
    (b) In conducting the review, the Secretary reviews the 
determination at issue, the evidence and findings upon which it was 
based, any written documents submitted to the Secretary by the sponsor 
and the Secretary's designee, and determines whether to uphold, reverse 
or modify the Secretary's initial reimbursement determination.
    (c) A decision by the Secretary under this provision is final and 
binding.
    (d) Regardless of the Secretary's decision, additional reimbursement 
is contingent upon the availability of funds at the time of the 
Secretary's determination.
    (e) The Secretary informs the sponsor and the applicable Secretary's 
designee of the decision. The Secretary sends a written decision to the 
sponsor or the applicable Secretary's designee upon request.



                Subpart G_Disclosure of Data Inaccuracies



Sec. 149.600  Sponsor's duty to report data inaccuracies.

    A sponsor is required to disclose any data inaccuracies upon which a 
reimbursement determination is made, including inaccurate claims data 
and negotiated price concessions, in a manner and at a time specified by 
the Secretary in guidance.



Sec. 149.610  Secretary's authority to reopen and revise a reimbursement 
determination.

    (a) The Secretary may reopen and revise a reimbursement 
determination upon the Secretary's own motion or upon the request of a 
sponsor:
    (1) Within 1 year of the reimbursement determination for any reason.
    (2) Within 4 years of a reimbursement determination for good cause.
    (3) At any time, in instances of fraud or similar fault.
    (b) For purposes of this section, the Secretary does not find good 
cause if the only reason for the revision is a change of legal 
interpretation or administrative ruling upon which the determination to 
reimburse was made.
    (c) A decision by the Secretary not to revise a reimbursement 
determination is final and binding (unless fraud or similar fault is 
found) and cannot be appealed.



               Subpart H_Change of Ownership Requirements



Sec. 149.700  Change of ownership requirements.

    (a) Change of ownership consists of: (1) Partnership. The removal, 
addition, or substitution of a partner, unless the partners expressly 
agree otherwise as permitted by applicable state law.
    (2) Asset sale. Transfer of all or substantially all of the assets 
of the sponsor to another party.
    (3) Corporation. The merger of the sponsor's corporation into 
another corporation or the consolidation of the sponsor's organization 
with one or more other corporations, resulting in a new corporate body.
    (b) Change of ownership; exception. Transfer of corporate stock or 
the merger of another corporation into the sponsor's corporation, with 
the sponsor surviving, does not ordinarily constitute change of 
ownership.
    (c) Advance notice requirement. A sponsor that has a sponsor 
agreement in effect under this part and is considering or negotiating a 
change in ownership must notify the Secretary at least 60 days before 
the anticipated effective date of the change.
    (d) Assignment of agreement. When there is a change of ownership as 
specified in paragraph (a) of this section, and this results in a 
transfer of the liability for health benefits, the existing sponsor 
agreement is automatically assigned to the new owner.
    (e) Conditions that apply to assigned agreements. The new owner to 
whom a

[[Page 864]]

sponsor agreement is assigned is subject to all applicable statutes and 
regulations and to the terms and conditions of the sponsor agreement.
    (f) Failure to notify the Secretary at least 60 days before the 
anticipated effective date of the change may result in the Secretary 
recovering funds paid under this program.



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 PHS Act 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 PHS Act 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.

                    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.
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 2723 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.

[[Page 865]]

    (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 parts 146, 147, and 148 of this subchapter, 
CMS enforces them under subpart C of this part.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13439, Feb. 27, 2013]



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.
    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 parts 147 and 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 parts 
146 and 147 of this subchapter.
    PHS Act requirements means the requirements of title XXVII of the 
PHS Act and its implementing regulations in parts 146, 147, and 148 of 
this subchapter.
    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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13439, Feb. 27, 2013]

[[Page 866]]



 Subpart B_CMS Enforcement Processes for Determining Whether States Are 
          Failing To Substantially Enforce PHS Act Requirement



Sec. 150.201  State enforcement.

    Except as provided in subpart C of this part, each State enforces 
PHS Act requirements with respect to health insurance issuers that 
issue, sell, renew, or offer health insurance coverage in the State.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



Sec. 150.203  Circumstances requiring CMS enforcement.

    CMS enforces PHS Act requirement 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 PHS 
Act requirements.
    (b) Determination by CMS. If CMS receives or obtains information 
that a State may not be substantially enforcing PHS Act 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 Sec. Sec. 148.101 through 148.126 and Sec. 148.170 
of this subchapter.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 PHS Act 
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 PHS Act 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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



Sec. 150.207  Procedure for determining that a State fails to 
substantially enforce PHS Act requirements.

    Sections 150.209 through 150.219 describe the procedures CMS follows 
to determine whether a State is substantially enforcing PHS Act 
requirements.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 867]]

failing to enforce PHS Act 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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 PHS Act 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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



Sec. 150.213  Form and content of notice.

    The notice provided to the State is in writing and does the 
following:
    (a) Identifies the PHS Act 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 PHS Act 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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 PHS Act 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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 PHS Act requirements that CMS is 
enforcing.
    (b) The effective date of CMS's enforcement.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 
PHS Act 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:

[[Page 868]]

    (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 will assume enforcement responsibility.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



   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 PHS Act requirements, it may be subject to a civil money 
penalty as described in this subpart.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 PHS Act 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 PHS Act 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 PHS Act 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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 PHS Act 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

[[Page 869]]

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 PHS 
Act 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 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 PHS Act 
requirements.
    (d) Actions or inactions of agent. A principal is liable for 
penalties assessed for the actions or inactions of its agent.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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.
    (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.

[64 FR 45795, Aug. 20, 1999, as amended at 70 FR 71023, Nov. 25, 2005]



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 PHS Act 
requirements.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 PHS Act 
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.

[[Page 870]]

    (d) Documentation that the policies, certificates of insurance, or 
non-Federal governmental plan documents have been amended to comply with 
PHS Act 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 
to the responsible entity or entities 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 PHS Act 
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-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 PHS Act 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.

[64 FR 45795, Aug. 20, 1999, as amended at 70 FR 71023, Nov. 25, 2005; 
78 FR 13440, Feb. 27, 2013]



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 PHS Act 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:

[[Page 871]]

    (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 PHS Act requirements.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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:
    (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 PHS Act 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 PHS Act 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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 PHS Act 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 PHS Act 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 PHS Act requirements that were 
violated so that, to the extent

[[Page 872]]

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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 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 Sec. Sec. 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 Sec. Sec. 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 PHS Act 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

[[Page 873]]

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 Sec. Sec. 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.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]



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 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.



                    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.

[[Page 874]]



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.
    (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

[[Page 875]]

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 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)).

[[Page 876]]



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 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.

[[Page 877]]

    (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 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

[[Page 878]]

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 Sec. Sec. 150.317 and 150.323 of this part to 
consider the entity's prior 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 Sec. Sec. 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.

[[Page 879]]



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 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.

[[Page 880]]

    (b) The funds are available without appropriation until expended.
    (c) The funds may be used only for the purpose of enforcing the PHS 
Act requirements for which the penalty was assessed.

[64 FR 45795, Aug. 20, 1999, as amended at 78 FR 13440, Feb. 27, 2013]

                           PART 151 [RESERVED]



PART 152_PRE-EXISTING CONDITION INSURANCE PLAN PROGRAM--Table of 
Contents



                      Subpart A_General Provisions

Sec.
152.1 Statutory basis.
152.2 Definitions.

                  Subpart B_PCIP Program Administration

152.6 Program administration.
152.7 PCIP proposal process.

                  Subpart C_Eligibility and Enrollment

152.14 Eligibility.
152.15 Enrollment and disenrollment process.

                           Subpart D_Benefits

152.19 Covered benefits.
152.20 Prohibitions on pre-existing condition exclusions and waiting 
          periods.
152.21 Premiums and cost-sharing.
152.22 Access to services.

                           Subpart E_Oversight

152.26 Appeals procedures.
152.27 Fraud, waste, and abuse.
152.28 Preventing insurer dumping.

                            Subpart F_Funding

152.32 Use of funds.
152.33 Initial allocation of funds.
152.34 Reallocation of funds.
152.35 Insufficient funds.

          Subpart G_Relationship to Existing Laws and Programs

152.39 Maintenance of effort.
152.40 Relation to State laws.

                    Subpart H_Transition to Exchanges

152.44 End of PCIP program coverage.
152.45 Transition to the exchanges.

    Authority: Sec. 1101 of the Patient Protection and Affordable Care 
Act (Pub. L. 111-148).

    Source: 75 FR 45029, July 30, 2010, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 152.1  Statutory basis.

    (a) Basis. This part establishes provisions needed to implement 
section 1101 of the Patient Protection and Affordable Care Act of 2010 
(Affordable Care Act), which requires the Secretary of the Department of 
Health and Human Services to establish a temporary high risk health 
insurance pool program to provide health insurance coverage for 
individuals described in Sec. 152.14 of this part.
    (b) Scope. This part establishes standards and sets forth the 
requirements, limitations, and procedures for the temporary high risk 
health insurance pool program, hereafter referred to as the ``Pre-
Existing Condition Insurance Plan'' (PCIP) program.



Sec. 152.2  Definitions.

    For purposes of this part the following definitions apply:
    Creditable coverage means coverage of an individual as defined in 
section 2701(c)(1) of the Public Health Service Act as of March 23, 2010 
and 45 CFR 146.113(a)(1).
    Enrollee means an individual receiving coverage from a PCIP 
established under this section.
    Lawfully present means
    (1) A qualified alien as defined in section 431 of the Personal 
Responsibility and Work Opportunity Act (PRWORA) (8 U.S.C. 1641);
    (2) An alien in nonimmigrant status who has not violated the terms 
of the status under which he or she was admitted or to which he or she 
has changed after admission;
    (3) An alien who has been paroled into the United States pursuant to 
section 212(d)(5) of the Immigration and Nationality Act (INA) (8 U.S.C. 
1182(d)(5)) for less than 1 year, except for an alien paroled for 
prosecution, for deferred inspection or pending removal proceedings;
    (4) An alien who belongs to one of the following classes:

[[Page 881]]

    (i) Aliens currently in temporary resident status pursuant to 
section 210 or 245A of the INA (8 U.S.C. 1160 or 1255a, respectively);
    (ii) Aliens currently under Temporary Protected Status (TPS) 
pursuant to section 244 of the INA (8 U.S.C. 1254a), and pending 
applicants for TPS who have been granted employment authorization;
    (iii) Aliens who have been granted employment authorization under 8 
CFR 274a.12(c)(9), (10), (16), (18), (20), (22), or (24);
    (iv) Family Unity beneficiaries pursuant to section 301 of Public 
Law 101-649 as amended;
    (v) Aliens currently under Deferred Enforced Departure (DED) 
pursuant to a decision made by the President;
    (vi) Aliens currently in deferred action status;
    (vii) Aliens whose visa petitions have been approved and who have a 
pending application for adjustment of status;
    (5) A pending applicant for asylum under section 208(a) of the INA 
(8 U.S.C. 1158) or for withholding of removal under section 241(b)(3) of 
the INA (8 U.S.C. 1231) or under the Convention Against Torture who has 
been granted employment authorization, and such an applicant under the 
age of 14 who has had an application pending for at least 180 days;
    (6) An alien who has been granted withholding of removal under the 
Convention Against Torture; or
    (7) A child who has a pending application for Special Immigrant 
Juvenile status as described in section 101(a)(27)(J) of the INA (8 
U.S.C. 1101(a)(27)(J)).
    Out-of-pocket costs means the sum of the annual deductible and the 
other annual out-of-pocket expenses, other than for premiums, required 
to be paid under the program.
    Pre-Existing condition exclusion has the meaning given such term in 
45 CFR 144.103.
    Pre-Existing Condition Insurance Plan (PCIP) means the temporary 
high risk health insurance pool plan (sometimes referred to as a 
``qualified high risk pool'') that provides coverage in a State, or 
combination of States, in accordance with the requirements of section 
1101 of the Affordable Care Act and this part. The term ``PCIP program'' 
is generally used to describe the national program the Secretary is 
charged with carrying out, under which States or non-profit entities 
operate individual PCIPs.
    Resident means an individual who has been legally domiciled in a 
State.
    Service Area refers to the geographic area encompassing an entire 
State or States in which PCIP furnishes benefits.
    State refers each of the 50 States and the District of Columbia.
    (8) Exception. An individual with deferred action under the 
Department of Homeland Security's deferred action for childhood arrivals 
process, as described in the Secretary of Homeland Security's June 15, 
2012, memorandum, shall not be considered to be lawfully present with 
respect to any of the above categories in paragraphs (1) through (7) of 
this definition.

[75 FR 45029, July 30, 2010, as amended at 77 FR 52616, Aug. 30, 2012]



                  Subpart B_PCIP Program Administration



Sec. 152.6  Program administration.

    (a) General rule. Section 1101(b)(1) of the Affordable Care Act 
requires that HHS carry out the Pre-Existing Condition Insurance Plan 
program directly or through contracts with eligible entities, which are 
States or nonprofit private entities.
    (b) Administration by State. A State (or its designated non-profit 
private entity) may submit a proposal to enter into a contract with HHS 
to establish and administer a PCIP in accordance with section 1101 of 
the Affordable Care Act and this part.
    (1) At the Secretary's discretion, a State may designate a nonprofit 
entity or entities to contract with HHS to administer a PCIP.
    (2) As part of its administrative approach, a State or designated 
entity may subcontract with either a for-profit or nonprofit entity.
    (c) Administration by HHS. If a State or its designated entity 
notifies HHS that it will not establish or continue to administer a 
PCIP, or does not submit an acceptable or timely proposal to do

[[Page 882]]

so, HHS will contract with a nonprofit private entity or entities to 
administer a PCIP in that State.
    (d) Transition in administration. The Secretary may consider a 
request from a State to transition from administration by HHS to 
administration by a State or from administration by a State to 
administration by HHS. Such transitions shall be approved only if the 
Secretary determines that the transition is in the best interests of the 
PCIP enrollees and potential PCIP enrollees in that state, consistent 
with Sec. 152.7(b) of this part.



Sec. 152.7  PCIP proposal process.

    (a) General. A proposal from a State or nonprofit private entity to 
contract with HHS shall demonstrate that the eligible entity has the 
capacity and technical capability to perform all functions necessary for 
the design and operation of a PCIP, and that its proposed PCIP is in 
full compliance with all of the requirements of this part.
    (b) Special rules for transitions in administration. (1) Transitions 
from HHS administration of a PCIP to State administration must take 
effect on January 1 of a given year.
    (2) A State's proposal to administer a PCIP must meet all the 
requirements of this section.
    (3) Transitions from State administration to HHS administration must 
comply with the termination procedures of the PCIP contract in effect 
with the State or its designated entity.
    (4) The Secretary may establish other requirements needed to ensure 
a seamless transition of coverage for all existing enrollees.



                  Subpart C_Eligibility and Enrollment



Sec. 152.14  Eligibility.

    (a) General rule. An individual is eligible to enroll in a PCIP if 
he or she:
    (1) Is a citizen or national of the United States or lawfully 
present in the United States;
    (2) Subject to paragraph (b) of this section, has not been covered 
under creditable coverage for a continuous 6-month period of time prior 
to the date on which such individual is applying for PCIP;
    (3) Has a pre-existing condition as established under paragraph (c) 
of this section; and
    (4) Is a resident of one of the 50 States or the District of 
Columbia which constitutes or is within the service area of the PCIP. A 
PCIP may not establish any standards with regard to the duration of 
residency in the PCIP service area.
    (b) Satisfaction of 6-month creditable coverage requirement when an 
enrollee leaves the PCIP service area. An individual who becomes 
ineligible for a PCIP on the basis of no longer residing in the PCIP's 
service area as described in paragraph (a)(4) of this section is deemed 
to have satisfied the requirement in paragraph (a)(2) of this section 
for purposes of applying to enroll in a PCIP in the new service area.
    (c) Pre-existing condition requirement. For purposes of establishing 
a process for determining eligibility, and subject to HHS approval, a 
PCIP may elect to apply any one or more of the following criteria in 
determining whether an individual has a pre-existing condition for 
purposes of this section:
    (1) Refusal of coverage. Documented evidence that an insurer has 
refused, or a clear indication that the insurer would refuse, to issue 
coverage to an individual on grounds related to the individual's health.
    (2) Exclusion of coverage. Documented evidence that such individual 
has been offered coverage but only with a rider that excludes coverage 
of benefits associated with an individuals' identified pre-existing 
condition.
    (3) Medical or health condition. Documented evidence of the 
existence or history of certain medical or health condition, as approved 
or specified by the Secretary.
    (4) Other. Other criteria, as defined by a PCIP and approved by HHS.



Sec. 152.15  Enrollment and disenrollment process.

    (a) Enrollment process. (1) A PCIP must establish a process for 
verifying eligibility and enrolling an individual that is approved by 
HHS.
    (2) A PCIP must allow an individual to remain enrolled in the PCIP 
unless:
    (i) The individual is disenrolled under paragraph (b) of this 
section;

[[Page 883]]

    (ii) The individual obtains other creditable coverage;
    (iii) The PCIP program terminates, or is terminated; or
    (iv) As specified by the PCIP program and approved by HHS.
    (3) A PCIP must verify that an individual is a United States citizen 
or national or lawfully present in the United States by:
    (i) Verifying the individual's citizenship, nationality, or lawful 
presence with the Commissioner of Security or Secretary of Homeland 
Security as applicable; or
    (ii) By requiring the individual to provide documentation which 
establishes the individual's citizenship, nationality, or lawful 
presence.
    (iii) The PCIP must provide an individual who is applying to enroll 
in the PCIP with a disclosure specifying if the information will be 
shared with the Department of Health and Human Services, Social Security 
Administration, and if necessary, Department of Homeland Security for 
purposes of establishing eligibility.
    (b) Disenrollment process. (1) A PCIP must establish a disenrollment 
process that is approved by HHS.
    (2) A PCIP may disenroll an individual if the monthly premium is not 
paid on a timely basis, following notice and a reasonable grace period, 
not to exceed 61 days from when payment is due, as defined by the PCIP 
and approved by HHS.
    (3) A PCIP must disenroll an individual in any of the following 
circumstances:
    (i) The individual no longer resides in the PCIP service area.
    (ii) The individual obtains other creditable coverage.
    (iii) Death of the individual.
    (iv) Other exceptional circumstances established by HHS.
    (c) Effective dates. A PCIP must establish rules governing the 
effective date of enrollment and disenrollment that are approved by HHS. 
A complete enrollment request submitted by an eligible individual by the 
15th day of a month, where the individual is determined to be eligible 
for enrollment, must take effect by the 1st day of the following month, 
except in exceptional circumstances that are subject to HHS approval.
    (d) Funding limitation. A PCIP may stop taking applications for 
enrollment to comply with funding limitations established by the HHS 
under section 1101(g) of Public Law 111-148 and Sec. 152.35 of this 
part. Accordingly, a PCIP may employ strategies to manage enrollment 
over the course of the program that may include enrollment capacity 
limits, phased-in (delayed) enrollment, and other measures, as defined 
by the PCIP and approved by HHS, including measures specified under 
Sec. 152.35(b).



                           Subpart D_Benefits



Sec. 152.19  Covered benefits.

    (a) Required benefits. Each benefit plan offered by a PCIP shall 
cover at least the following categories and the items and services:
    (1) Hospital inpatient services
    (2) Hospital outpatient services
    (3) Mental health and substance abuse services
    (4) Professional services for the diagnosis or treatment of injury, 
illness, or condition
    (5) Non-custodial skilled nursing services
    (6) Home health services
    (7) Durable medical equipment and supplies
    (8) Diagnostic x-rays and laboratory tests
    (9) Physical therapy services (occupational therapy, physical 
therapy, speech therapy)
    (10) Hospice
    (11) Emergency services, consistent with Sec. 152.22(b), and 
ambulance services
    (12) Prescription drugs
    (13) Preventive care
    (14) Maternity care
    (b) Excluded services. Benefit plans offered by a PCIP shall not 
cover the following services:
    (1) Cosmetic surgery or other treatment for cosmetic purposes except 
to restore bodily function or correct deformity resulting from disease.
    (2) Custodial care except for hospice care associated with the 
palliation of terminal illness.
    (3) In vitro fertilization, artificial insemination or any other 
artificial means used to cause pregnancy.

[[Page 884]]

    (4) Abortion services except when the life of the woman would be 
endangered or when the pregnancy is the result of an act of rape or 
incest.
    (5) Experimental care except as part of an FDA-approved clinical 
trial.



Sec. 152.20  Prohibitions on pre-existing condition exclusions and 
waiting periods.

    (a) Pre-existing condition exclusions. A PCIP must provide all 
enrollees with health coverage that does not impose any pre-existing 
condition exclusions (as defined in Sec. 152.2) with respect to such 
coverage.
    (b) Waiting periods. A PCIP may not impose a waiting period with 
respect to the coverage of services after the effective date of 
enrollment.



Sec. 152.21  Premiums and cost-sharing.

    (a) Limitation on enrollee premiums. (1) The premiums charged under 
the PCIP may not exceed 100 percent of the premium for the applicable 
standard risk rate that would apply to the coverage offered in the State 
or States. The PCIP shall determine a standard risk rate by considering 
the premium rates charged for similar benefits and cost-sharing by other 
insurers offering health insurance coverage to individuals in the 
applicable State or States. The standard risk rate shall be established 
using reasonable actuarial techniques, that are approved by the 
Secretary, and that reflect anticipated experience and expenses. A PCIP 
may not use other methods of determining the standard rate, except with 
the approval of the Secretary.
    (2) Premiums charged to enrollees in the PCIP may vary on the basis 
of age by a factor not greater than 4 to 1.
    (b) Limitation on enrollee costs. (1) The PCIP's average share of 
the total allowed costs of the PCIP benefits must be at least 65 percent 
of such costs.
    (2) The out-of-pocket limit of coverage for cost-sharing for covered 
services under the PCIP may not be greater than the applicable amount 
described in section 223(c)(2) of the Internal Revenue code of 1986 for 
the year involved. If the plan uses a network of providers, this limit 
may be applied only for in-network providers, consistent with the terms 
of PCIP benefit package.
    (c) Prohibition on balance billing in the PCIP administered by HHS. 
A facility or provider that accepts payment under Sec. 152.35(c)(2) for 
a covered service furnished to an enrollee may not bill the enrollee for 
an amount greater than the cost-sharing amount for the covered service 
calculated by the PCIP.

[75 FR 45029, July 30, 2010, as amended at 78 FR 30226, May 22, 2013]



Sec. 152.22  Access to services.

    (a) General rule. A PCIP may specify the networks of providers from 
whom enrollees may obtain plan services. The PCIP must demonstrate to 
HHS that it has a sufficient number and range of providers to ensure 
that all covered services are reasonably available and accessible to its 
enrollees.
    (b) Emergency services. In the case of emergency services, such 
services must be covered out of network if:
    (1) The enrollee had a reasonable concern that failure to obtain 
immediate treatment could present a serious risk to his or her life or 
health; and
    (2) The services were required to assess whether a condition 
requiring immediate treatment exists, or to provide such immediate 
treatment where warranted.



                           Subpart E_Oversight



Sec. 152.26  Appeals procedures.

    (a) General. A PCIP shall establish and maintain procedures for 
individuals to appeal eligibility and coverage determinations.
    (b) Minimum requirements. The appeals procedure must, at a minimum, 
provide:
    (1) A potential enrollee with the right to a timely redetermination 
by the PCIP or its designee of a determination regarding PCIP 
eligibility, including a determination of whether the individual is a 
citizen or national of the United States, or is lawfully present in the 
United States.
    (2) An enrollee with the right to a timely redetermination by the 
PCIP or its designee of a determination regarding the coverage of a 
service or the amount paid by the PCIP for a service.

[[Page 885]]

    (3) An enrollee with the right to a timely reconsideration of a 
redetermination made under paragraph (b)(2) of this section by an entity 
independent of the PCIP.



Sec. 152.27  Fraud, waste, and abuse.

    (a) Procedures. The PCIP shall develop, implement, and execute 
operating procedures to prevent, detect, recover (when applicable or 
allowable), and promptly report to HHS incidences of waste, fraud, and 
abuse, and to appropriate law enforcement authorities instances of 
fraud. Such procedures shall include identifying situations in which 
enrollees or potential enrollees (or their family members) are employed, 
and may have, or have had, access to other coverage such as group health 
coverage, but were discouraged from enrolling.
    (b) Cooperation. The PCIP shall cooperate with Federal law 
enforcement and oversight authorities in cases involving waste, fraud 
and abuse, and shall report to appropriate authorities situations in 
which enrollment in other coverage may have been discouraged.



Sec. 152.28  Preventing insurer dumping.

    (a) General rule. If it is determined based on the procedures and 
criteria set forth in paragraph (b) of this section that a health 
insurance issuer or group health plan has discouraged an individual from 
remaining enrolled in coverage offered by such issuer or health plan 
based on the individual's health status, if the individual subsequently 
enrolls in a PCIP under this part, the issuer or health plan will be 
responsible for any medical expenses incurred by the PCIP with respect 
to the individual.
    (b) Procedures and criteria for a determination of dumping. A PCIP 
shall establish procedures to identify and report to HHS instances in 
which health insurance issuers or employer-based group health plans are 
discouraging high-risk individuals from remaining enrolled in their 
current coverage in instances in which such individuals subsequently are 
eligible to enroll in the qualified high risk pool. Such procedures 
shall include methods to identify the following circumstances, either 
through the PCIP enrollment application form or other vehicles:
    (1) Situations where an enrollee or potential enrollee had prior 
coverage obtained through a group health plan or issuer, and the 
individual was provided financial consideration or other rewards for 
disenrolling from their coverage, or disincentives for remaining 
enrolled.
    (2) Situations where enrollees or potential enrollees had prior 
coverage obtained directly from an issuer or a group health plan and 
either of the following occurred:
    (i) The premium for the prior coverage was increased to an amount 
that exceeded the premium required by the PCIP (adjusted based on the 
age factors applied to the prior coverage), and this increase was not 
otherwise explained;
    (ii) The health plan, issuer or employer otherwise provided money or 
other financial consideration to disenroll from coverage, or 
disincentive to remain enrolled in such coverage. Such considerations 
include payment of the PCIP premium for an enrollee or potential 
enrollee.
    (c) Remedies. If the Secretary determines, based on the criteria in 
paragraph (b) of this section, that the rule in paragraph (a) of this 
section applies, an issuer or a group health plan will be billed for the 
medical expenses incurred by the PCIP. The issuer or group health plan 
also will be referred to appropriate Federal and State authorities for 
other enforcement actions that may be warranted based on the behavior at 
issue.
    (d) Other. Nothing in this section may be construed as constituting 
exclusive remedies for violations of this section or as preventing 
States from applying or enforcing this section or other provisions of 
law with respect to health insurance issuers.



                            Subpart F_Funding



Sec. 152.32  Use of funds.

    (a) Limitation on use of funding. All funds awarded through the 
contracts established under this program must be used exclusively to pay 
allowable claims and administrative costs incurred in the development 
and operation of the PCIP that are in excess of

[[Page 886]]

the amounts of premiums collected from individuals enrolled in the 
program.
    (b) Limitation on administrative expenses. No more than 10 percent 
of available funds shall be used for administrative expenses over the 
life of the contract with the PCIP, absent approval from HHS.



Sec. 152.33  Initial allocation of funds.

    HHS will establish an initial ceiling for the amount of the $5 
billion in Federal funds allocated for PCIPs in each State using a 
methodology consistent with that used to established allocations under 
the Children's Health Insurance Program, as set forth under 42 CFR part 
457, subpart F, Payment to States.



Sec. 152.34  Reallocation of funds.

    If HHS determines, based on actual and projected enrollment and 
claims experience, that the PCIP in a given State will not make use of 
the total estimated funding allocated to that State, HHS may reallocate 
unused funds to other States, as needed.



Sec. 152.35  Insufficient funds.

    (a) Adjustments by a PCIP to eliminate a deficit. In the event that 
a PCIP determines, based on actual and projected enrollment and claims 
data, that its allocated funds are insufficient to cover projected PCIP 
expenses, the PCIP shall report such insufficiency to HHS, and identify 
and implement necessary adjustments to eliminate such deficit, subject 
to HHS approval.
    (b) Adjustment by the Secretary. If the Secretary estimates that 
aggregate amounts available for PCIP expenses will be less than the 
actual amount of expenses, HHS reserves the right to make such 
adjustments as are necessary to eliminate such deficit.
    (c) Payment rates for covered services furnished beginning June 15, 
2013 to enrollees in the PCIP administered by HHS. (1) Covered services 
furnished under the prescription drug, organ/tissue transplant, dialysis 
and durable medical equipment benefits will be paid at the payment rates 
that are in effect on June 15, 2013.
    (2) With respect to all other covered services, the payment rates 
will be--
    (i) 100 percent of Medicare payment rates; or
    (ii) Where Medicare payment rates cannot be implemented by the 
federally-administered PCIP, 50 percent of billed charges or a rate 
using a relative value scale pricing methodology.

[75 FR 45029, July 30, 2010, as amended at 78 FR 30226, May 22, 2013]



          Subpart G_Relationship to Existing Laws and Programs



Sec. 152.39  Maintenance of effort.

    (a) General. A State that enters into a contract with HHS under this 
part must demonstrate, subject to approval by HHS, that it will continue 
to provide funding of any existing high risk pool in the State at a 
level that is not reduced from the amount provided for in the year prior 
to the year in which the contract is entered.
    (b) Failure to maintain efforts. In situations where a State enters 
into a contract with HHS under this part, HHS shall take appropriate 
action, such as terminating the PCIP contract, against any State that 
fails to maintain funding levels for existing State high risk pools as 
required, and approved by HHS, under paragraph (a) of this section.



Sec. 152.40  Relation to State laws.

    The standards established under this section shall supersede any 
State law or regulation, other than State licensing laws or State laws 
relating to plan solvency, with respect to PCIPs which are established 
in accordance with this section.



                    Subpart H_Transition to Exchanges



Sec. 152.44  End of PCIP program coverage.

    Effective January 1, 2014, coverage under the PCIP program (45 CFR 
part 152) will end.



Sec. 152.45  Transition to the exchanges.

    Prior to termination of the PCIP program, HHS will develop 
procedures to transition PCIP enrollees to the Exchanges, established 
under sections 1311 or 1321 of the Affordable Care Act,

[[Page 887]]

to ensure that there are no lapses in health coverage for those 
individuals.



PART 153_STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND RISK 
ADJUSTMENT UNDER THE AFFORDABLE CARE ACT--Table of Contents



                      Subpart A_General Provisions

Sec.
153.10 Basis and scope.
153.20 Definitions.

        Subpart B_State Notice of Benefit and Payment Parameters

153.100 State notice of benefit and payment parameters.
153.110 Standards for the State notice of benefit and payment 
          parameters.

      Subpart C_State Standards Related to the Reinsurance Program

153.200 [Reserved]
153.210 State establishment of a reinsurance program.
153.220 Collection of reinsurance contribution funds.
153.230 Calculation of reinsurance payments made under the national 
          contribution rate.
153.232 Calculation of reinsurance payments made under a State 
          additional contribution rate.
153.234 Eligibility under health insurance market rules.
153.235 Allocation and distribution of reinsurance contributions.
153.240 Disbursement of reinsurance payments.
153.250 Coordination with high-risk pools.
153.260 General oversight requirements for State-operated reinsurance 
          programs.
153.265 Restrictions on use of reinsurance funds for administrative 
          expenses.
153.270 HHS audits of State-operated reinsurance programs.

    Subpart D_State Standards Related to the Risk Adjustment Program

153.300 [Reserved]
153.310 Risk adjustment administration.
153.320 Federally certified risk adjustment methodology.
153.330 State alternate risk adjustment methodology.
153.340 Data collection under risk adjustment.
153.350 Risk adjustment data validation standards.
153.360 Application of risk adjustment to the small group market.
153.365 General oversight requirements for State-operated risk 
          adjustment programs.

   Subpart E_Health Insurance Issuer and Group Health Plan Standards 
                   Related to the Reinsurance Program

153.400 Reinsurance contribution funds.
153.405 Calculation of reinsurance contributions.
153.410 Requests for reinsurance payment.
153.420 Data collection.

    Subpart F_Health Insurance Issuer Standards Related to the Risk 
                            Corridors Program

153.500 Definitions.
153.510 Risk corridors establishment and payment methodology.
153.520 Attribution and allocation of revenue and expense items.
153.530 Risk corridors data requirements.
153.540 Compliance with risk corridors standards.

    Subpart G_Health Insurance Issuer Standards Related to the Risk 
                           Adjustment Program

153.600 [Reserved]
153.610 Risk adjustment issuer requirements.
153.620 Compliance with risk adjustment standards.
153.630 Data validation requirements when HHS operates risk adjustment.

     Subpart H_Distributed Data Collection for HHS-Operated Programs

153.700 Distributed data environment.
153.710 Data requirements.
153.720 Establishment and usage of masked enrollee identification 
          numbers.
153.730 Deadline for submission of data.
153.740 Failure to comply with HHS-operated risk adjustment and 
          reinsurance data requirements.

    Authority: Secs. 1311, 1321, 1341-1343, Pub. L. 111-148, 24 Stat. 
119.

    Source: 77 FR 17245, Mar. 23, 2012, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 153.10  Basis and scope.

    (a) Basis. This part is based on the following sections of title I 
of the Affordable Care Act (Pub. L. 111-148, 24 Stat. 119):

[[Page 888]]

    (1) Section 1321. State flexibility in operation and enforcement of 
Exchanges and related requirements.
    (2) Section 1341. Transitional reinsurance program for individual 
market in each State.
    (3) Section 1342. Establishment of risk corridors for plans in 
individual and small group markets.
    (4) Section 1343. Risk adjustment.
    (b) Scope. This part establishes standards for the establishment and 
operation of a transitional reinsurance program, temporary risk 
corridors program, and a permanent risk adjustment program.



Sec. 153.20  Definitions.

    The following definitions apply to this part, unless the context 
indicates otherwise:
    Alternate risk adjustment methodology means a risk adjustment 
methodology proposed by a State for use instead of a Federally certified 
risk adjustment methodology that has not yet been certified by HHS.
    Applicable reinsurance entity means a not-for-profit organization 
that is exempt from taxation under Chapter 1 of the Internal Revenue 
Code of 1986 that carries out reinsurance functions under this part on 
behalf of the State. An entity is not an applicable reinsurance entity 
to the extent it is carrying out reinsurance functions under subpart C 
of this part on behalf of HHS.
    Attachment point means the threshold dollar amount for claims costs 
incurred by a health insurance issuer for an enrolled individual's 
covered benefits in a benefit year, after which threshold the claims 
costs for such benefits are eligible for reinsurance payments.
    Benefit year has the meaning given to the term in Sec. 155.20 of 
this subchapter.
    Calculation of payments and charges means the methodology applied to 
plan average actuarial risk to determine risk adjustment payments and 
charges for a risk adjustment covered plan.
    Calculation of plan average actuarial risk means the specific 
procedures used to determine plan average actuarial risk from individual 
risk scores for a risk adjustment covered plan, including adjustments 
for variable rating and the specification of the risk pool from which 
average actuarial risk is to be calculated.
    Coinsurance rate means the rate at which the applicable reinsurance 
entity will reimburse the health insurance issuer for claims costs 
incurred for an enrolled individual's covered benefits in a benefit year 
after the attachment point and before the reinsurance cap.
    Contributing entity means--
    (1) A health insurance issuer; or
    (2) For the 2014 benefit year, a self-insured group health plan 
(including a group health plan that is partially self-insured and 
partially insured, where the health insurance coverage does not 
constitute major medical coverage), whether or not it uses a third party 
administrator; and for the 2015 and 2016 benefit years, a self-insured 
group health plan (including a group health plan that is partially self-
insured and partially insured, where the health insurance coverage does 
not constitute major medical coverage) that uses a third party 
administrator in connection with claims processing or adjudication 
(including the management of internal appeals) or plan enrollment for 
services other than for pharmacy benefits or excepted benefits within 
the meaning of section 2791(c) of the PHS Act. Notwithstanding the 
foregoing, a self-insured group health plan that uses an unrelated third 
party to obtain provider network and related claim repricing services, 
or uses an unrelated third party for up to 5 percent of claims 
processing or adjudication or plan enrollment, will not be deemed to use 
a third party administrator, based on either the number of transactions 
processed by the third party, or the value of the claims processing and 
adjudication and plan enrollment services provided by the third party. A 
self-insured group health plan that is a contributing entity is 
responsible for the reinsurance contributions, although it may elect to 
use a third party administrator or administrative services-only 
contractor for transfer of the reinsurance contributions.
    Contribution rate means, with respect to a benefit year, the per 
capita amount each contributing entity must pay for a reinsurance 
program established under this part with respect to

[[Page 889]]

each reinsurance contribution enrollee who resides in that State.
    Exchange has the meaning given to the term in Sec. 155.20 of this 
subchapter.
    Federally certified risk adjustment methodology means a risk 
adjustment methodology that either has been developed and promulgated by 
HHS, or has been certified by HHS.
    Grandfathered health plan has the meaning given to the term in Sec. 
147.140(a) of this subchapter.
    Group health plan has the meaning given to the term in Sec. 144.103 
of this subchapter.
    Health insurance coverage has the meaning given to the term in Sec. 
144.103 of this subchapter.
    Health insurance issuer or issuer has the meaning given to the term 
in Sec. 144.103 of this subchapter.
    Health plan has the meaning given to the term in section 1301(b)(1) 
of the Affordable Care Act.
    Individual market has the meaning given to the term in Sec. 144.103 
of this subchapter.
    Individual risk score means a relative measure of predicted health 
care costs for a particular enrollee that is the result of a risk 
adjustment model.
    Large employer has the meaning given to the term in Sec. 155.20 of 
this subchapter.
    Major medical coverage means, for purposes only of the requirements 
related to reinsurance contributions under section 1341 of the 
Affordable Care Act, a catastrophic plan, an individual or a small group 
market plan subject to the actuarial value requirements under Sec. 
156.140 of this subchapter, or health coverage for a broad range of 
services and treatments provided in various settings that provides 
minimum value as defined in Sec. 156.145 of this subchapter.
    Qualified employer has the meaning given to the term in Sec. 155.20 
of this subchapter.
    Qualified individual has the meaning given to the term in Sec. 
155.20 of this subchapter.
    Reinsurance cap means the threshold dollar amount for claims costs 
incurred by a health insurance issuer for an enrolled individual's 
covered benefits, after which threshold, the claims costs for such 
benefits are no longer eligible for reinsurance payments.
    Reinsurance contribution enrollee means an individual covered by a 
plan for which reinsurance contributions must be made pursuant to Sec. 
153.400.
    Reinsurance-eligible plan means, for the purpose of the reinsurance 
program, any health insurance coverage offered in the individual market, 
except for grandfathered plans and health insurance coverage not 
required to submit reinsurance contributions under Sec. 153.400(a).
    Risk adjustment covered plan means, for the purpose of the risk 
adjustment program, any health insurance coverage offered in the 
individual or small group market with the exception of grandfathered 
health plans, group health insurance coverage described in Sec. 
146.145(c) of this subchapter, individual health insurance coverage 
described in Sec. 148.220 of this subchapter, and any plan determined 
not to be a risk adjustment covered plan in the applicable Federally 
certified risk adjustment methodology.
    Risk adjustment data means all data that are used in a risk 
adjustment model, the calculation of plan average actuarial risk, or the 
calculation of payments and charges, or that are used for validation or 
audit of such data.
    Risk adjustment data collection approach means the specific 
procedures by which risk adjustment data is to be stored, collected, 
accessed, transmitted, and validated and the applicable timeframes, data 
formats, and privacy and security standards.
    Risk adjustment methodology means the risk adjustment model, the 
calculation of plan average actuarial risk, the calculation of payments 
and charges, the risk adjustment data collection approach, and the 
schedule for the risk adjustment program.
    Risk adjustment model means an actuarial tool used to predict health 
care costs based on the relative actuarial risk of enrollees in risk 
adjustment covered plans.
    Risk pool means the State-wide population across which risk is 
distributed.
    Small group market has the meaning given to the term in section 
1304(a)(3) of the Affordable Care Act.

[[Page 890]]

    State has the meaning given to the term in Sec. 155.20 of this 
subchapter.

[77 FR 17245, Mar. 23, 2012, as amended at 78 FR 15525, Mar. 11, 2013; 
78 FR 54133, Aug. 30, 2013; 78 FR 65093, Oct. 30, 2013; 79 FR 13834, 
Mar. 11, 2014; 79 FR 36432, June 27, 2014]



        Subpart B_State Notice of Benefit and Payment Parameters



Sec. 153.100  State notice of benefit and payment parameters.

    (a) General requirement for reinsurance. A State establishing a 
reinsurance program must issue an annual notice of benefit and payment 
parameters specific to that State if that State elects to:
    (1) Modify the data requirements for health insurance issuers to 
receive reinsurance payments from those specified in the annual HHS 
notice of benefit and payment parameters for the applicable benefit 
year;
    (2) Collect additional reinsurance contributions under Sec. 
153.220(d)(1) or use additional funds for reinsurance payments under 
Sec. 153.220(d)(2); or
    (3) Use more than one applicable reinsurance entity; or
    (b) Risk adjustment requirements. A State operating a risk 
adjustment program must issue an annual notice of benefit and payment 
parameters specific to that State setting forth the risk adjustment 
methodology and data validation standards it will use.
    (c) State notice deadlines. If a State is required to publish an 
annual State notice of benefit and payment parameters for a particular 
benefit year, it must do so by the later of March 1 of the calendar year 
prior to the applicable benefit year, or by the 30th day following the 
publication of the final HHS notice of benefit and payment parameters 
for that benefit year.
    (d) State failure to publish notice. Any State establishing a 
reinsurance program or operating a risk adjustment program that fails to 
publish a State notice of benefit and payment parameters within the 
period specified in paragraph (c) of this section must--
    (1) Adhere to the data requirements for health insurance issuers to 
receive reinsurance payments that are specified in the annual HHS notice 
of benefit and payment parameters for the applicable benefit year;
    (2) Forgo the collection of additional reinsurance contributions 
under Sec. 153.220(d)(1) and the use of additional funds for 
reinsurance payments under Sec. 153.220(d)(2);
    (3) Forgo the use of more than one applicable reinsurance entity;
    (4) Adhere to the risk adjustment methodology and data validation 
standards published in the annual HHS notice of benefit and payment 
parameters for use by HHS when operating risk adjustment on behalf of a 
State.

[77 FR 17245, Mar. 23, 2012, as amended at 78 FR 15525, Mar. 11, 2013; 
80 FR 10862, Feb. 27, 2015]



Sec. 153.110  Standards for the State notice of benefit and 
payment parameters.

    (a) Data requirements. If a State that establishes a reinsurance 
program elects to modify the data requirements for health insurance 
issuers to receive reinsurance payments from those specified in the 
annual HHS notice of benefit and payment parameters for the applicable 
benefit year, the State notice of benefit and payment parameters must 
specify those modifications.
    (b) Additional collections. If a State that establishes a 
reinsurance program elects to collect additional funds under Sec. 
153.220(d)(1) or use additional funds for reinsurance payments under 
Sec. 153.220(d)(2), the State must publish in the State notice of 
benefit and payment parameters the following:
    (1) A description of the purpose of the additional collection, 
including whether it will be used to cover reinsurance payments made 
under Sec. 153.232, administrative costs, or both;
    (2) The additional contribution rate at which the funds will be 
collected; and
    (3) If the purpose of the additional collection includes reinsurance 
payments (or if the State is using additional funds for reinsurance 
payments under Sec. 153.220(d)(2)), the State supplemental reinsurance 
payment parameters required under Sec. 153.232.
    (c) Multiple reinsurance entities. If a State plans to use more than 
one applicable reinsurance entity, the State must publish in the State 
notice of

[[Page 891]]

benefit and payment parameters, for each applicable reinsurance entity--
    (1) The geographic boundaries for that entity;
    (2) An estimate of the number of enrollees in the individual market 
within those boundaries;
    (3) An estimate of the amount of reinsurance payments that will be 
made to issuers with respect to enrollees within those boundaries.
    (d) Risk adjustment content. A State operating a risk adjustment 
program must provide the information set forth in Sec. 153.330(a) and 
the data validation standards set forth pursuant to Sec. 153.350 in the 
State notice of benefit and payment parameters.

[77 FR 17245, Mar. 23, 2012, as amended at 78 FR 15525, Mar. 11, 2013]



      Subpart C_State Standards Related to the Reinsurance Program



Sec. 153.200  [Reserved]



Sec. 153.210  State establishment of a reinsurance program.

    (a) General requirement. Each State is eligible to establish a 
reinsurance program for the years 2014 through 2016.
    (1) If a State establishes a reinsurance program, the State must 
enter into a contract with one or more applicable reinsurance entities 
to carry out the provisions of this subpart.
    (2) If a State contracts with or establishes more than one 
applicable reinsurance entity, the State must ensure that each 
applicable reinsurance entity operates in a distinct geographic area 
with no overlap of jurisdiction with any other applicable reinsurance 
entity.
    (3) A State may permit an applicable reinsurance entity to 
subcontract specific administrative functions required under this 
subpart and subpart E of this part.
    (4) A State must review and approve subcontracting arrangements to 
ensure efficient and appropriate expenditures of administrative funds 
collected under this subpart.
    (5) A State must ensure that the applicable reinsurance entity 
completes all reinsurance-related activities for benefit years 2014 
through 2016 and any activities required to be undertaken in subsequent 
periods.
    (b) Multi-State reinsurance arrangements. Multiple States may 
contract with a single entity to serve as an applicable reinsurance 
entity for each State. In such a case, the reinsurance programs for 
those States must be operated as separate programs.
    (c) Non-electing States. HHS will establish a reinsurance program 
for each State that does not elect to establish its own reinsurance 
program.
    (d) Oversight. Each State that establishes a reinsurance program 
must ensure that the applicable reinsurance entity complies with all 
provisions of this subpart and subpart E of this part throughout the 
duration of its contract.
    (e) Reporting to HHS. Each State that establishes a reinsurance 
program must ensure that each applicable reinsurance entity provides 
information regarding requests for reinsurance payments under the 
national contribution rate made under Sec. 153.410 for all reinsurance-
eligible plans for each quarter during the applicable benefit year in a 
manner and timeframe established by HHS.

[77 FR 17245, Mar. 23, 2012, as amended at 78 FR 15525, Mar. 11, 2013]



Sec. 153.220  Collection of reinsurance contribution funds.

    (a) Collections. If a State establishes a reinsurance program, HHS 
will collect all reinsurance contributions from all contributing 
entities for that State under the national contribution rate.
    (b) Contribution funding. Reinsurance contributions collected must 
fund the following:
    (1) Reinsurance payments that will total, on a national basis, $10 
billion in 2014, $6 billion in 2015, and $4 billion in 2016;
    (2) U.S. Treasury contributions that will total, on a national 
basis, $2 billion in 2014, $2 billion in 2015, and $1 billion in 2016; 
and
    (3) Administrative expenses of the applicable reinsurance entity or 
HHS when performing reinsurance functions under this subpart.
    (c) National contribution rate. HHS will set in the annual HHS 
notice of benefit and payment parameters for

[[Page 892]]

the applicable benefit year the national contribution rate and the 
proportion of contributions collected under the national contribution 
rate to be allocated to:
    (1) Reinsurance payments;
    (2) Payments to the U.S. Treasury as described in paragraph (b)(2) 
of this section; and
    (3) Administrative expenses of the applicable reinsurance entity or 
HHS when performing reinsurance functions under this subpart.
    (d) Additional State collections. If a State establishes a 
reinsurance program:
    (1) The State may elect to collect more than the amounts that would 
be collected based on the national contribution rate set forth in the 
annual HHS notice of benefit and payment parameters for the applicable 
benefit year to provide:
    (i) Funding for administrative expenses of the applicable 
reinsurance entity; or
    (ii) Additional funds for reinsurance payments.
    (2) A State may use additional funds which were not collected as 
additional reinsurance contributions under this part for reinsurance 
payments under the State supplemental payment parameters under Sec. 
153.232.

[77 FR 17245, Mar. 23, 2012, as amended at 77 FR 29236, May 17, 2012, 78 
FR 15525, Mar. 11, 2013; 78 FR 66655, Nov. 6, 2013]



Sec. 153.230  Calculation of reinsurance payments made under the 
national contribution rate.

    (a) Eligibility for reinsurance payments under the national 
reinsurance parameters. A health insurance issuer of a reinsurance-
eligible plan becomes eligible for reinsurance payments from 
contributions collected under the national contribution rate when its 
claims costs for an individual enrollee's covered benefits in a benefit 
year exceed the national attachment point.
    (b) National reinsurance payment parameters. The national 
reinsurance payment parameters for each benefit year commencing in 2014 
and ending in 2016 set forth in the annual HHS notice of benefit and 
payment parameters for each applicable benefit year will apply with 
respect to reinsurance payments made from contributions received under 
the national contribution rate.
    (c) National reinsurance payments. Each reinsurance payment made 
from contributions received under the national contribution rate will be 
calculated as the product of the national coinsurance rate multiplied by 
the health insurance issuer's claims costs for an individual enrollee's 
covered benefits that the health insurance issuer incurs in the 
applicable benefit year between the national attachment point and the 
national reinsurance cap.
    (d) Uniform adjustment to national reinsurance payments. If HHS 
determines that all reinsurance payments requested under the national 
payment parameters from all reinsurance-eligible plans in all States for 
a benefit year will not be equal to the amount of all reinsurance 
contributions collected for reinsurance payments under the national 
contribution rate in all States for an applicable benefit year, HHS will 
determine a uniform pro rata adjustment to be applied to all such 
requests for reinsurance payments for all States. Each applicable 
reinsurance entity, or HHS on behalf of a State, must reduce or increase 
the reinsurance payment amounts for the applicable benefit year by any 
adjustment required under this paragraph (d).

[78 FR 15526, Mar. 11, 2013, as amended at 78 FR 66655, Nov. 6, 2013; 79 
FR 13835, Mar. 11, 2014]



Sec. 153.232  Calculation of reinsurance payments made under a State 
additional contribution rate.

    (a) State supplemental reinsurance payment parameters. (1) If a 
State establishes a reinsurance program and elects to collect additional 
contributions under Sec. 153.220(d)(1)(ii) or use additional funds for 
reinsurance payments under Sec. 153.220(d)(2), the State must set 
supplemental reinsurance payment parameters using one or more of the 
following methods:
    (i) Decreasing the national attachment point;
    (ii) Increasing the national reinsurance cap; or
    (iii) Increasing the national coinsurance rate.
    (2) The State must ensure that additional reinsurance contributions 
and

[[Page 893]]

funds projected to be received under Sec. 153.220(d)(1)(ii) and Sec. 
153.220(d)(2), as applicable, for any applicable benefit year are 
reasonably calculated to cover additional reinsurance payments that are 
projected to be made only under the State supplemental reinsurance 
payment parameters (that will not be paid under the national payment 
parameters) for the given benefit year.
    (3) All applicable reinsurance entities in a State collecting 
additional reinsurance contributions must apply the State supplemental 
reinsurance payment parameters established under paragraph (a)(1) of 
this section when calculating reinsurance payments.
    (b) General requirement for payments under State supplemental 
reinsurance parameters. Contributions collected under Sec. 
153.220(d)(1)(ii) or funds under Sec. 153.220(d)(2), as applicable, 
must be applied towards requests for reinsurance payments made under the 
State supplemental reinsurance payments parameters for each benefit year 
commencing in 2014 and ending in 2016.
    (c) Eligibility for reinsurance payments under State supplemental 
reinsurance parameters. If a State establishes State supplemental 
reinsurance payment parameters under Sec. 153.232(a)(1), a reinsurance-
eligible plan becomes eligible for reinsurance payments from 
contributions under Sec. 153.220(d)(1)(ii) or funds under Sec. 
153.220(d)(2), as applicable, if its incurred claims costs for an 
individual enrollee's covered benefits in the applicable benefit year:
    (1) Exceed the State supplemental attachment point set forth in the 
State notice of benefit and payment parameters for the applicable 
benefit year if a State has established such a supplemental attachment 
point under Sec. 153.232(a)(1)(i);
    (2) Exceed the national reinsurance cap set forth in the annual HHS 
notice of benefit and payment parameters for the applicable benefit year 
if a State has established a State supplemental reinsurance cap under 
Sec. 153.232(a)(1)(ii); or
    (3) Exceed the national attachment point set forth in the annual HHS 
notice of benefit and payment parameters for the applicable benefit year 
if a State has established a supplemental coinsurance rate under Sec. 
153.232(a)(1)(iii).
    (d) Payments under State supplemental reinsurance parameters. Each 
reinsurance payment made from contributions received under Sec. 
153.220(d)(1)(ii) or funds under Sec. 153.220(d)(2), as applicable, 
will be calculated with respect to an issuer's incurred claims costs for 
an individual enrollee's covered benefits in the applicable benefit year 
as the sum of the following:
    (1) If the State has established a State supplemental attachment 
point, to the extent the issuer's incurred claims costs for such 
benefits in the applicable benefit year exceed the State supplemental 
attachment point but do not exceed the national attachment point, the 
product of such claims costs between the State supplemental attachment 
point and the national attachment point multiplied by the national 
coinsurance rate (or, if the State has established a State supplemental 
coinsurance rate, the State supplemental coinsurance rate);
    (2) If the State has established a State supplemental reinsurance 
cap, to the extent the issuer's incurred claims costs for such benefits 
in the applicable benefit year exceed the national reinsurance cap but 
do not exceed the State supplemental reinsurance cap, the product of 
such claims costs between the national reinsurance cap and the State 
supplemental reinsurance cap multiplied by the national coinsurance rate 
(or, if the State has established a State supplemental coinsurance rate, 
the State supplemental coinsurance rate); and
    (3) If the State has established a State supplemental coinsurance 
rate, the product of the issuer's incurred claims costs for such 
benefits in the applicable benefit year between the national attachment 
point and the national reinsurance cap multiplied by the difference 
between the State supplemental coinsurance rate and the national 
coinsurance rate.
    (e) Uniform adjustment to payments under State supplemental 
reinsurance payment parameters. If all requested reinsurance payments 
under the State supplemental reinsurance parameters

[[Page 894]]

calculated in accordance with paragraph (a)(1) of this section from all 
reinsurance-eligible plans in a State for a benefit year will exceed all 
reinsurance contributions collected under Sec. 153.220(d)(1)(ii) or 
funds under Sec. 153.220(d)(2) for the applicable benefit year, the 
State must determine a uniform pro rata adjustment to be applied to all 
such requests for reinsurance payments. Each applicable reinsurance 
entity in the State must reduce all such requests for reinsurance 
payments for the applicable benefit year by that adjustment.
    (f) Limitations on payments under State supplemental reinsurance 
parameters. A State must ensure that:
    (1) The payments made to issuers must not exceed the issuer's total 
paid amount for the reinsurance-eligible claim(s); and
    (2) Any remaining additional funds for reinsurance payments 
collected under Sec. 153.220(d)(1)(ii) must be used for reinsurance 
payments under the State supplemental reinsurance payment parameters in 
subsequent benefit years.

[78 FR 15526, Mar. 11, 2013]



Sec. 153.234  Eligibility under health insurance market rules.

    A reinsurance-eligible plan's covered claims costs for an enrollee 
incurred prior to the application of the following provisions do not 
count towards either the national reinsurance payment parameters or the 
State supplemental reinsurance payment parameters: 45 CFR 147.102, 
147.104 (subject to 147.145), 147.106 (subject to 147.145), 156.80, and 
subpart B of part 156.

[78 FR 15527, Mar. 11, 2013]



Sec. 153.235  Allocation and distribution of reinsurance contributions

    (a) Allocation of reinsurance contributions. HHS will allocate and 
disburse to each State operating reinsurance (and will distribute 
directly to issuers if HHS is operating reinsurance on behalf of a 
State), reinsurance contributions collected from contributing entities 
under the national contribution rate for reinsurance payments. The 
disbursed funds would be based on the total requests for reinsurance 
payments made under the national reinsurance payment parameters in all 
States and submitted under Sec. 153.410, net of any adjustment under 
Sec. 153.230(d).
    (b) Excess reinsurance contributions. Any reinsurance contributions 
collected from contributing entities under the national contribution 
rate for reinsurance payments for any benefit year but unused for the 
applicable benefit year will be used for reinsurance payments under the 
national reinsurance payment parameters for subsequent benefit years.

[78 FR 15527, Mar. 11, 2013]



Sec. 153.240  Disbursement of reinsurance payments.

    (a) Data collection. If a State establishes a reinsurance program, 
the State must ensure that the applicable reinsurance entity:
    (1) Collects data required to determine reinsurance payments as 
described in Sec. Sec. 153.230 and 153.232, as applicable, from an 
issuer of reinsurance-eligible plans or is provided access to such data, 
according to the data requirements specified by the State in the State 
notice of benefit and payment parameters described in subpart B of this 
part.
    (2) Makes reinsurance payments to the issuer of a reinsurance-
eligible plan after receiving a valid claim for payment from that health 
insurance issuer in accordance with the requirements of Sec. 153.410.
    (3) Provides a process through which an issuer of a reinsurance-
eligible plan that does not generate individual enrollee claims in the 
normal course of business may use estimated claims costs to make a 
request for payment (or to submit data to be considered for reinsurance 
payments) in accordance with the requirements of Sec. 153.410. The 
State must ensure that such requests for reinsurance payment (or a 
subset of such requests) are subject to validation.
    (b) Notification of reinsurance payments. For each applicable 
benefit year,
    (1) A State, or HHS on behalf of the State, must notify issuers 
annually of:
    (i) Reinsurance payments under the national payment parameters, and

[[Page 895]]

    (ii) Reinsurance payments under the State supplemental payment 
parameters if applicable, to be made for the applicable benefit year no 
later than June 30 of the year following the applicable benefit year.
    (2) A State must provide to each issuer of a reinsurance-eligible 
plan the calculation of total reinsurance payment requests, on a 
quarterly basis during the applicable benefit year in a timeframe and 
manner specified by HHS, made under:
    (i) The national reinsurance payment parameters, and
    (ii) State supplemental reinsurance payments parameters if 
applicable.
    (c) Maintenance of records. If a State establishes a reinsurance 
program, the State must maintain documents and records relating to the 
reinsurance program, whether paper, electronic, or in other media, for 
each benefit year for at least 10 years, and make them available upon 
request from HHS, the OIG, the Comptroller General, or their designees, 
to any such entity. The documents and records must be sufficient to 
enable the evaluation of the State-operated reinsurance program's 
compliance with Federal standards. The State must also ensure that its 
contractors, subcontractors, and agents similarly maintain and make 
relevant documents and records available upon request from HHS, the OIG, 
the Comptroller General, or their designees, to any such entity.
    (d) Privacy and security. (1) If a State establishes a reinsurance 
program, the State must ensure that the applicable reinsurance entity's 
collection of personally identifiable information is limited to 
information reasonably necessary for use in the calculation of 
reinsurance payments, and that use and disclosure of personally 
identifiable information is limited to those purposes for which the 
personally identifiable information was collected (including for 
purposes of data validation).
    (2) If a State establishes a reinsurance program, the State must 
ensure that the applicable reinsurance entity implements security 
standards that provide administrative, physical, and technical 
safeguards for the personally identifiable information consistent with 
the security standards described at 45 CFR 164.308, 164.310, and 
164.312.

[77 FR 17247, Mar. 23, 2012, as amended at 78 FR 15527, Mar. 11, 2013; 
78 FR 65093, Oct. 30, 2013]



Sec. 153.250  Coordination with high-risk pools.

    (a) General requirement. The State must eliminate or modify any 
State high-risk pool to the extent necessary to carry out the 
reinsurance program established under this subpart.
    (b) Coordination with high-risk pools. The State may coordinate the 
State high-risk pool with the reinsurance program to the extent that the 
State high-risk pool conforms to the provisions of this subpart.



Sec. 153.260  General oversight requirements for State-operated 
reinsurance programs.

    (a) Accounting requirements. A State that establishes a reinsurance 
program must ensure that its applicable reinsurance entity keeps an 
accounting for each benefit year of:
    (1) All reinsurance contributions received from HHS for reinsurance 
payments and for administrative expenses;
    (2) All claims for reinsurance payments received from issuers of 
reinsurance-eligible plans;
    (3) All reinsurance payments made to issuers of reinsurance-eligible 
plans; and
    (4) All administrative expenses incurred for the reinsurance 
program.
    (b) State summary report. A State that establishes a reinsurance 
program must submit to HHS and make public a report on its reinsurance 
program operations for each benefit year in the manner and timeframe 
specified by HHS. The report must summarize the accounting for the 
benefit year kept pursuant to paragraph (a) of this section.
    (c) Independent external audit. A State that establishes a 
reinsurance program must engage an independent qualified auditing entity 
to perform a financial and programmatic audit for each benefit year of 
its State-operated reinsurance program in accordance with generally 
accepted auditing standards (GAAS). The State must:

[[Page 896]]

    (1) Provide to HHS the results of the audit, in the manner and 
timeframe to be specified by HHS;
    (2) Ensure that the audit addresses the prohibitions set forth in 
Sec. 153.265;
    (3) Identify to HHS any material weakness or significant deficiency 
identified in the audit, and address in writing to HHS how the State 
intends to correct any such material weakness or significant deficiency; 
and
    (4) Make public a summary of the results of the audit, including any 
material weakness or significant deficiency and how the State intends to 
correct the material weakness or significant deficiency, in the manner 
and timeframe to be specified by HHS.

[78 FR 65093, Oct. 30, 2013]



Sec. 153.265  Restrictions on use of reinsurance funds for 
administrative expenses.

    A State that establishes a reinsurance program must ensure that its 
applicable reinsurance entity does not use any funds for the support of 
reinsurance operations, including any reinsurance contributions provided 
under the national contribution rate for administrative expenses, for 
any of the following purposes:
    (a) Staff retreats;
    (b) Promotional giveaways;
    (c) Excessive executive compensation; or
    (d) Promotion of Federal or State legislative or regulatory 
modifications.

[78 FR 65093, Oct. 30, 2013]



Sec. 153.270  HHS audits of State-operated reinsurance programs.

    (a) Audits. HHS or its designee may conduct a financial and 
programmatic audit of a State-operated reinsurance program to assess 
compliance with the requirements of this subpart or subpart B of this 
part. A State that establishes a reinsurance program must ensure that 
its applicable reinsurance entity and any relevant contractors, 
subcontractors, or agents cooperate with any audit under this section.
    (b) Action on audit findings. If an audit results in a finding of 
material weakness or significant deficiency with respect to compliance 
with any requirement of this subpart or subpart B, the State must ensure 
that the applicable reinsurance entity:
    (1) Within 60 calendar days of the issuance of the final audit 
report, provides a written corrective action plan to HHS for approval;
    (2) Implements that plan; and
    (3) Provides to HHS written documentation of the corrective actions 
once taken.

[79 FR 13835, Mar. 11, 2014]



    Subpart D_State Standards Related to the Risk Adjustment Program



Sec. 153.300  [Reserved]



Sec. 153.310  Risk adjustment administration.

    (a) State eligibility to establish a risk adjustment program. (1) A 
State that elects to operate an Exchange is eligible to establish a risk 
adjustment program.
    (2) Any State that does not elect to operate an Exchange, or that 
HHS has not approved to operate an Exchange, will forgo implementation 
of all State functions in this subpart, and HHS will carry out all of 
the provisions of this subpart on behalf of the State.
    (3) Any State that elects to operate an Exchange but does not elect 
to administer risk adjustment will forgo implementation of all State 
functions in this subpart, and HHS will carry out all of the provisions 
of this subpart on behalf of the State.
    (4) Beginning in 2015, any State that is approved to operate an 
Exchange and elects to operate risk adjustment but has not been approved 
by HHS to operate risk adjustment prior to publication of its State 
notice of benefit and payment parameters for the applicable benefit 
year, will forgo implementation of all State functions in this subpart, 
and HHS will carry out all of the provisions of this subpart on behalf 
of the State.
    (b) Entities eligible to carry out risk adjustment activities. If a 
State is operating a risk adjustment program, the State may elect to 
have an entity other than the Exchange perform the

[[Page 897]]

State functions of this subpart, provided that the entity meets the 
standards promulgated by HHS to be an entity eligible to carry out 
Exchange functions.
    (c) State responsibility for risk adjustment. (1) A State operating 
a risk adjustment program for a benefit year must administer the 
applicable Federally certified risk adjustment methodology through an 
entity that--
    (i) Is operationally ready to implement the applicable Federally 
certified risk adjustment methodology and process the resulting payments 
and charges; and
    (ii) Has experience relevant to operating the risk adjustment 
program.
    (2) The State must ensure that the risk adjustment entity complies 
with all applicable provisions of subpart D of this part in the 
administration of the applicable Federally certified risk adjustment 
methodology.
    (3) The State must conduct oversight and monitoring of its risk 
adjustment program.
    (4) Maintenance of records. A State operating a risk adjustment 
program must maintain documents and records relating to the risk 
adjustment program, whether paper, electronic, or in other media, for 
each benefit year for at least 10 years, and make them available upon 
request from HHS, the OIG, the Comptroller General, or their designees, 
to any such entity. The documents and records must be sufficient to 
enable the evaluation of the State-operated risk adjustment program's 
compliance with Federal standards. A State operating a risk adjustment 
program must also ensure that its contractors, subcontractors, and 
agents similarly maintain and make relevant documents and records 
available upon request from HHS, the OIG, the Comptroller General, or 
their designees, to any such entity.
    (d) Approval for a State to operate risk adjustment. (1) To be 
approved by HHS to operate risk adjustment under a particular Federally 
certified risk adjustment methodology for a benefit year, a State must 
establish that it and its risk adjustment entity meet the standards set 
forth in paragraph (c) of this section.
    (2) To obtain such approval, the State must submit to HHS, in a form 
and manner specified by HHS, evidence that its risk adjustment entity 
meets these standards.
    (3) In addition to requirements set forth in paragraphs (d)(1) and 
(2) of this section, to obtain re-approval from HHS to operate risk 
adjustment for a third benefit year, the State must, in the first 
benefit year for which it operates risk adjustment, provide to HHS an 
interim report, in a manner specified by HHS, including a detailed 
summary of its risk adjustment activities in the first 10 months of the 
benefit year, no later than December 31 of the applicable benefit year.
    (4) To obtain re-approval from HHS to operate risk adjustment for 
each benefit year after the third benefit year, each State operating a 
risk adjustment program must submit to HHS and make public a detailed 
summary of its risk adjustment program operations for the most recent 
benefit year for which risk adjustment operations have been completed, 
in the manner and timeframe specified by HHS.
    (i) The summary must include the results of a programmatic and 
financial audit for each benefit year of the State-operated risk 
adjustment program conducted by an independent qualified auditing entity 
in accordance with generally accepted auditing standards (GAAS).
    (ii) The summary must identify any material weakness or significant 
deficiency identified in the audit and address how the State intends to 
correct any such material weakness or significant deficiency.
    (e) Timeframes. A State, or HHS on behalf of the State, must 
implement risk adjustment for the 2014 benefit year and every benefit 
year thereafter. For each benefit year, a State, or HHS on behalf of the 
State, must notify issuers of risk adjustment payments due or charges 
owed annually by June 30 of the year following the benefit year.

[77 FR 17247, Mar. 23, 2012, as amended at 78 FR 15527, Mar. 11, 2013; 
78 FR 65093, Oct. 30, 2013]

[[Page 898]]



Sec. 153.320  Federally certified risk adjustment methodology.

    (a) General requirement. Any risk adjustment methodology used by a 
State, or HHS on behalf of the State, must be a Federally certified risk 
adjustment methodology. A risk adjustment methodology may become 
Federally certified by one of the following processes:
    (1) The risk adjustment methodology is developed by HHS and 
published in the applicable annual HHS notice of benefit and payment 
parameters; or
    (2) An alternate risk adjustment methodology is submitted by a State 
in accordance with Sec. 153.330, reviewed and certified by HHS, and 
published in the applicable annual HHS notice of benefit and payment 
parameters.
    (b) Publication of methodology in notices. The publication of a risk 
adjustment methodology by HHS in an annual HHS notice of benefit and 
payment parameters or by a State in an annual State notice of benefit 
and payment parameters described in subpart B of this part must include:
    (1) A complete description of the risk adjustment model, including--
    (i) Factors to be employed in the model, including but not limited 
to demographic factors, diagnostic factors, and utilization factors, if 
any;
    (ii) The qualifying criteria for establishing that an individual is 
eligible for a specific factor;
    (iii) Weights assigned to each factor; and
    (iv) The schedule for the calculation of individual risk scores.
    (2) A complete description of the calculation of plan average 
actuarial risk.
    (3) A complete description of the calculation of payments and 
charges.
    (4) A complete description of the risk adjustment data collection 
approach.
    (5) The schedule for the risk adjustment program.
    (c) Use of methodology for States that do not operate a risk 
adjustment program. HHS will specify in the annual HHS notice of benefit 
and payment parameters for the applicable year the Federally certified 
risk adjustment methodology that will apply in States that do not 
operate a risk adjustment program.

[77 FR 17247, Mar. 23, 2012, as amended at 78 FR 15528, Mar. 11, 2013]



Sec. 153.330  State alternate risk adjustment methodology.

    (a) State request for alternate methodology certification. (1) A 
State request to HHS for the certification of an alternate risk 
adjustment methodology must include:
    (i) The elements specified in Sec. 153.320(b);
    (ii) The calibration methodology and frequency of calibration; and
    (iii) The statistical performance metrics specified by HHS.
    (2) The request must include the extent to which the methodology:
    (i) Accurately explains the variation in health care costs of a 
given population;
    (ii) Links risk factors to daily clinical practice and is clinically 
meaningful to providers;
    (iii) Encourages favorable behavior among providers and health plans 
and discourages unfavorable behavior;
    (iv) Uses data that is complete, high in quality, and available in a 
timely fashion;
    (v) Is easy for stakeholders to understand and implement;
    (vi) Provides stable risk scores over time and across plans; and
    (vii) Minimizes administrative costs.
    (b) Evaluation criteria for alternate risk adjustment methodology. 
An alternate risk adjustment methodology will be certified by HHS as a 
Federally certified risk adjustment methodology based on the following 
criteria:
    (1) The criteria listed in paragraph (a)(2) of this section;
    (2) Whether the methodology complies with the requirements of this 
subpart D;
    (3) Whether the methodology accounts for risk selection across metal 
levels; and
    (4) Whether each of the elements of the methodology are aligned.
    (c) State renewal of alternate methodology. If a State is operating 
a risk adjustment program, the State may not implement a recalibrated 
risk adjustment model or otherwise alter its risk adjustment methodology 
without first obtaining HHS certification.
    (1) Recalibration of the risk adjustment model must be performed at 
least as frequently as described in paragraph (a)(1)(ii) of this 
section;

[[Page 899]]

    (2) A State request to implement a recalibrated risk adjustment 
model or otherwise alter its risk adjustment methodology must include 
any changes to the parameters described in paragraph (a)(1) of this 
section.

[77 FR 17248, Mar. 23, 2012, as amended at 78 FR 15528, Mar. 11, 2013]



Sec. 153.340  Data collection under risk adjustment.

    (a) Data collection requirements. If a State is operating a risk 
adjustment program, the State must collect risk adjustment data.
    (b) Minimum standards. (1) If a State is operating a risk adjustment 
program, the State may vary the amount and type of data collected, but 
the State must collect or calculate individual risk scores generated by 
the risk adjustment model in the applicable Federally certified risk 
adjustment methodology;
    (2) If a State is operating a risk adjustment program, the State 
must require that issuers offering risk adjustment covered plans in the 
State comply with data privacy and security standards set forth in the 
applicable risk adjustment data collection approach; and
    (3) If a State is operating a risk adjustment program, the State 
must ensure that any collection of personally identifiable information 
is limited to information reasonably necessary for use in the applicable 
risk adjustment model, calculation of plan average actuarial risk, or 
calculation of payments and charges. Except for purposes of data 
validation, the State may not collect or store any personally 
identifiable information for use as a unique identifier for an 
enrollee's data, unless such information is masked or encrypted by the 
issuer, with the key to that masking or encryption withheld from the 
State. Use and disclosure of personally identifiable information is 
limited to those purposes for which the personally identifiable 
information was collected (including for purposes of data validation).
    (4) If a State is operating a risk adjustment program, the State 
must implement security standards that provide administrative, physical, 
and technical safeguards for the individually identifiable information 
consistent with the security standards described at 45 CFR 164.308, 
164.310, and 164.312.

[77 FR 17248, Mar. 23, 2012, as amended at 78 FR 15528, Mar. 11, 2013]



Sec. 153.350  Risk adjustment data validation standards.

    (a) General requirement. The State, or HHS on behalf of the State, 
must ensure proper implementation of any risk adjustment software and 
ensure proper validation of a statistically valid sample of risk 
adjustment data from each issuer that offers at least one risk 
adjustment covered plan in that State.
    (b) Adjustment to plan average actuarial risk. The State, or HHS on 
behalf of the State, may adjust the plan average actuarial risk for a 
risk adjustment covered plan based on errors discovered with respect to 
implementation of risk adjustment software or as a result of data 
validation conducted pursuant to paragraph (a) of this section.
    (c) Adjustment to charges and payments. The State, or HHS on behalf 
of the State, may adjust charges and payments to all risk adjustment 
covered plan issuers based on the adjustments calculated in paragraph 
(b) of this section.
    (d) Appeals. The State, or HHS on behalf of the State, must provide 
an administrative process to appeal findings with respect to the 
implementation of risk adjustment software or data validation.



Sec. 153.360  Application of risk adjustment to the small group market.

    Enrollees in a risk adjustment covered plan must be assigned to the 
applicable risk pool in the State in which the employer's policy was 
filed and approved.

[78 FR 15528, Mar. 11, 2013]

[[Page 900]]



Sec. 153.365  General oversight requirements for State-operated risk 
adjustment programs.

    If a State is operating a risk adjustment program, it must keep an 
accounting of all receipts and expenditures related to risk adjustment 
payments and charges and the administration of risk adjustment-related 
functions and activities for each benefit year.

[78 FR 65094, Oct. 30, 2013]



   Subpart E_Health Insurance Issuer and Group Health Plan Standards 
                   Related to the Reinsurance Program



Sec. 153.400  Reinsurance contribution funds.

    (a) General requirement. Each contributing entity must make 
reinsurance contributions annually: at the national contribution rate 
for all reinsurance contribution enrollees, in a manner specified by 
HHS; and at the additional State supplemental contribution rate if the 
State has elected to collect additional contributions under Sec. 
153.220(d)(1), in a manner specified by the State.
    (1) In general, reinsurance contributions are required for major 
medical coverage that is considered to be part of a commercial book of 
business, but are not required to be paid more than once with respect to 
the same covered life. In order to effectuate that principle, a 
contributing entity must make reinsurance contributions for lives 
covered by its self-insured group health plans and health insurance 
coverage except to the extent that:
    (i) Such plan or coverage is not major medical coverage, subject to 
paragraph (a)(3) of this section.
    (ii) In the case of health insurance coverage, such coverage is not 
considered to be part of an issuer's commercial book of business;
    (iii) Such plan or coverage is expatriate health coverage, as 
defined by the Secretary, or for the 2015 and 2016 benefit years only, 
is a self-insured group health plan with respect to which enrollment is 
limited to participants who reside outside of their home country for at 
least 6 months of the plan year, and any covered dependents; or
    (iv) In the case of employer-provided health coverage, such coverage 
applies to individuals with respect to which benefits under Title XVIII 
of the Act (Medicare) are primary under the Medicare Secondary Payor 
rules under section 1862(b) of the Act and the regulations issued 
thereunder.
    (v) Such plan or coverage applies to individuals with primary 
residence in a territory that does not operate a reinsurance program.
    (vi) In the case of employer-provided group health coverage:
    (A) Such coverage applies to individuals with individual market 
health insurance coverage for which reinsurance contributions are 
required; or
    (B) Such coverage is supplemental or secondary to group health 
coverage for which reinsurance contributions must be made for the same 
covered lives.
    (2) Accordingly, as specified in paragraph (a)(1) of this section, a 
contributing entity is not required to make contributions on behalf of 
the following:
    (i) A self-insured group health plan or health insurance coverage 
that consists solely of excepted benefits as defined by section 2791(c) 
of the PHS Act;
    (ii) Coverage offered by an issuer under contract to provide 
benefits under any of the following titles of the Act:
    (A) Title XVIII (Medicare);
    (B) Title XIX (Medicaid); or
    (C) Title XXI (Children's Health Insurance Program);
    (iii) A Federal or State high-risk pool, including the Pre-Existing 
Condition Insurance Plan Program;
    (iv) Basic health plan coverage offered by issuers under contract 
with a State as described in section 1331 of the Affordable Care Act;
    (v) A health reimbursement arrangement within the meaning of IRS 
Notice 2002-45 (2002-2 CB 93) or any subsequent applicable guidance, 
that is integrated with a self-insured group health plan or health 
insurance coverage;
    (vi) A health savings account within the meaning of section 223(d) 
of the Code;

[[Page 901]]

    (vii) A health flexible spending arrangement within the meaning of 
section 125 of the Code;
    (viii) An employee assistance plan, disease management program, or 
wellness program that does not provide major medical coverage;
    (ix) A stop-loss policy or an indemnity reinsurance policy;
    (x) TRICARE and other military health benefits for active and 
retired uniformed services personnel and their dependents;
    (xi) A plan or coverage provided by an Indian Tribe to Tribal 
members and their spouses and dependents (and other persons of Indian 
descent closely affiliated with the Tribe), in the capacity of the 
Tribal members as Tribal members (and not in their capacity as current 
or former employees of the Tribe or their dependents);
    (xii) Health programs operated under the authority of the Indian 
Health Service; or
    (xiii) A self-insured group health plan or health insurance coverage 
that consists solely of benefits for prescription drugs.
    (3) Notwithstanding paragraph (a)(1)(i) of this section, a health 
insurance issuer must make reinsurance contributions for lives covered 
by its group health insurance coverage whether or not the insurance 
coverage constitutes major medical coverage, if--
    (i) The group health plan provides health insurance coverage for 
those covered lives through more than one insurance policy that in 
combination constitute major medical coverage;
    (ii) The lives are not covered by self-insured coverage of the group 
health plan (except for self-insured coverage limited to excepted 
benefits); and
    (iii) The health insurance coverage under the policy offered by the 
health insurance issuer constitutes the greatest portion of inpatient 
hospitalization benefits under the group health plan.
    (b) Data requirements. Each contributing entity must submit to HHS 
data required to substantiate the contribution amounts for the 
contributing entity, in the manner and timeframe specified by HHS.
    (c) Determination of a debt. Any amount owed to the Federal 
government by a self-insured group health plan (including a group health 
plan that is partially self-insured and partially insured, where the 
health insurance coverage does not constitute major medical coverage) 
and its affiliates for reinsurance is a determination of a debt.

[78 FR 15528, Mar. 11, 2013, as amended at 78 FR 65094, Oct. 30, 2013; 
79 FR 13835, Mar. 11, 2014; 80 FR 10862, Feb. 27, 2015]



Sec. 153.405  Calculation of reinsurance contributions.

    (a) In general. The reinsurance contribution required from a 
contributing entity for its reinsurance contribution enrollees during a 
benefit year is calculated by multiplying:
    (1) The number of covered lives of reinsurance contribution 
enrollees during the applicable benefit year for all plans and coverage 
described in Sec. 153.400(a)(1) of the contributing entity; by
    (2) The contribution rate for the applicable benefit year.
    (b) Annual enrollment count. No later than November 15 of benefit 
year 2014, 2015, or 2016, as applicable, or, if such date is not a 
business day, the next business day, a contributing entity must submit 
an annual enrollment count of the number of covered lives of reinsurance 
contribution enrollees for the applicable benefit year to HHS. The count 
must be determined as specified in paragraphs (d) through (g) of this 
section, as applicable.
    (c) Notification and payment. (1) Following submission of the annual 
enrollment count described in paragraph (b) of this section, HHS will 
notify the contributing entity of the reinsurance contribution amount 
allocated to reinsurance payments, administrative expenses, and the U.S. 
Treasury to be paid for the applicable benefit year.
    (2) A contributing entity must remit reinsurance contributions to 
HHS no later than January 15, 2015, 2016, or 2017, as applicable, or, if 
such date is not a business day, the next business day, if making a 
combined contribution or the first payment of the bifurcated 
contribution, and no later than November 15, 2015, 2016, or 2017, as 
applicable, or, if such date is not a business day, the next business 
day, if

[[Page 902]]

making the second payment of the bifurcated contribution.
    (d) Procedures for counting covered lives for health insurance 
issuers. A health insurance issuer must use the same method in a benefit 
year for all of its health insurance plans in the State (including both 
the individual and group markets) for which reinsurance contributions 
are required. To determine the number of covered lives of reinsurance 
contribution enrollees under all health insurance plans in a State for a 
benefit year, a health insurance issuer must use one of the following 
methods:
    (1) Adding the total number of lives covered for each day of the 
first nine months of the benefit year and dividing that total by the 
number of days in the first nine months;
    (2) Adding the total number of lives covered on any date (or more 
dates, if an equal number of dates are used for each quarter) during the 
same corresponding month in each of the first three quarters of the 
benefit year, and dividing that total by the number of dates on which a 
count was made. For this purpose, the same months must be used for each 
quarter (for example January, April and July) and the date used for the 
second and third quarter must fall within the same week of the quarter 
as the corresponding date used for the first quarter; or
    (3) Multiplying the average number of policies in effect for the 
first nine months of the benefit year by the ratio of covered lives per 
policy in effect, calculated using the prior National Association of 
Insurance Commissioners (NAIC) Supplemental Health Care Exhibit (or a 
form filed with the issuer's State of domicile for the most recent time 
period).
    (e) Procedures for counting covered lives for self-insured group 
health plans. To determine the number of covered lives of reinsurance 
contribution enrollees under a self-insured group health plan for a 
benefit year, a plan must use one of the following methods:
    (1) One of the methods specified in either paragraph (d)(1) or 
paragraph (d)(2) of this section;
    (2) Adding the total number of lives covered on any date (or more 
dates, if an equal number of dates are used for each quarter) during the 
same corresponding month in each of the first three quarters of the 
benefit year (provided that the date used for the second and third 
quarters must fall within the same week of the quarter as the 
corresponding date used for the first quarter), and dividing that total 
by the number of dates on which a count was made, except that the number 
of lives covered on a date is calculated by adding the number of 
participants with self-only coverage on the date to the product of the 
number of participants with coverage other than self-only coverage on 
the date and a factor of 2.35. For this purpose, the same months must be 
used for each quarter (for example, January, April, and July); or
    (3) Using the number of lives covered for the most current plan year 
calculated based upon the ``Annual Return/Report of Employee Benefit 
Plan'' filed with the Department of Labor (Form 5500) for the last 
applicable time period. For purposes of this paragraph (e)(3), the 
number of lives covered for the plan year for a plan offering only self-
only coverage equals the sum of the total participants covered at the 
beginning and end of the plan year, as reported on the Form 5500, 
divided by 2, and the number of lives covered for the plan year for a 
plan offering self-only coverage and coverage other than self-only 
coverage equals the sum of the total participants covered at the 
beginning and the end of the plan year, as reported on the Form 5500.
    (f) Procedures for counting covered lives for group health plans 
with a self-insured coverage option and an insured coverage option. (1) 
To determine the number of covered lives of reinsurance contribution 
enrollees under a group health plan with a self-insured coverage option 
and an insured coverage option for a benefit year, a plan must use one 
of the methods specified in either paragraph (d)(1) or paragraph (d)(2) 
of this section.
    (2) Notwithstanding paragraph (f)(1), a plan with multiple coverage 
options may use any of the counting methods specified for self-insured 
coverage or insured coverage, as applicable to each option, if it 
determines the number of

[[Page 903]]

covered lives under each option separately as if each coverage option 
provided major medical coverage (not including any coverage option that 
consists solely of excepted benefits as defined by section 2791(c) of 
the PHS Act, that only provides benefits related to prescription drugs, 
or that is a health reimbursement arrangement, health savings account, 
or health flexible spending arrangement).
    (g) Multiple group health plans maintained by the same plan 
sponsor--(1) General rule. If a plan sponsor maintains two or more group 
health plans (including one or more group health plans that provide 
health insurance coverage) that collectively provide major medical 
coverage for the same covered lives simultaneously, then those multiple 
plans must be treated as a single group health plan for purposes of 
calculating any reinsurance contribution amount due under this section. 
However, a plan sponsor may treat the multiple plans as separate group 
health plans for purposes of calculating any reinsurance contribution 
due under this section if it determines the number of covered lives 
under each separate group health plan as if the separate group health 
plan provided major medical coverage.
    (2) Plan sponsor. For purposes of this paragraph (g), the term 
``plan sponsor'' means:
    (i) The employer, in the case of a 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;
    (iii) The joint board of trustees, in the case of a multiemployer 
plan (as defined in section 414(f) of the Code);
    (iv) The committee, in the case of a multiple employer welfare 
arrangement;
    (v) The cooperative or association that establishes or maintains a 
plan established or maintained by a rural electric cooperative or rural 
cooperative association (as such terms are defined in section 3(40)(B) 
of ERISA);
    (vi) The trustee, in the case of a plan established or maintained by 
a voluntary employees' beneficiary association (meaning that the 
association is not merely serving as a funding vehicle for a plan that 
is established or maintained by an employer or other person);
    (vii) In the case of a plan, the sponsor of which is not described 
in paragraph (g)(2)(i) through (g)(2)(vi) of this section, the person 
identified by the terms of the document under which the plan is operated 
as the plan sponsor, or the person designated by the terms of the 
document under which the plan is operated as the plan sponsor, provided 
that designation is made, and that person has consented to the 
designation, by no later than the date by which the count of covered 
lives for that benefit year is required to be provided, after which date 
that designation for that benefit year may not be changed or revoked, 
and provided further that a person may be designated as the plan sponsor 
only if the person is one of the persons maintaining the plan (for 
example, one of the employers that is maintaining the plan with one or 
more other employers or employee organizations); or
    (viii) In the case of a plan, the sponsor of which is not described 
in paragraph (g)(2)(i) through (g)(2)(vi) of this section, and for which 
no identification or designation of a plan sponsor has been made under 
paragraph (g)(2)(i)(vii) of this section, each employer that maintains 
the plan (with respect to employees of that employer), each employee 
organization that maintains the plan (with respect to members of that 
employee organization), and each board of trustees, cooperative or 
association that maintains the plan.
    (3) Exception. A plan sponsor is not required to include as part of 
a single group health plan as determined under paragraph (g)(1) of this 
section any group health plan that consists solely of excepted benefits 
as defined by section 2791(c) of the PHS Act, that only provides 
benefits related to prescription drugs, or that is a health 
reimbursement arrangement, health savings account, or health flexible 
spending arrangement.
    (4) Procedures for counting covered lives for multiple group health 
plans treated as a single group health plan. The rules in this paragraph 
(g)(4) govern the determination of the average number of covered lives 
in a benefit year for any set of multiple self-insured group health 
plans or health insurance plans (or a

[[Page 904]]

combination of one or more self-insured group health plans and one or 
more health insurance plans) that are treated as a single group health 
plan under paragraph (g)(1) of this section.
    (i) Multiple group health plans including an insured plan. If at 
least one of the multiple plans is an insured plan, the average number 
of covered lives of reinsurance contribution enrollees must be 
calculated using one of the methods specified in either paragraph (d)(1) 
or (2) of this section, applied across the multiple plans as a whole. 
The following information must be determined by the plan sponsor:
    (A) The average number of covered lives calculated;
    (B) The counting method used; and
    (C) The names of the multiple plans being treated as a single group 
health plan as determined by the plan sponsor and reported to HHS.
    (ii) Multiple group health plans not including an insured plan. If 
each of the multiple plans is a self-insured group health plan, the 
average number of covered lives of reinsurance contribution enrollees 
must be calculated using one of the methods specified either in 
paragraph (e)(1) or (2) of this section, applied across the multiple 
plans as a whole. The following information must be determined by the 
plan sponsor:
    (A) The average number of covered lives calculated;
    (B) The counting method used; and
    (C) The names of the multiple plans being treated as a single group 
health plan as determined by the plan sponsor.
    (h) Maintenance of records. A contributing entity must maintain 
documents and records, whether paper, electronic, or in other media, 
sufficient to substantiate the enrollment count submitted pursuant to 
this section for a period of at least 10 years, and must make those 
documents and records available upon request from HHS, the OIG, the 
Comptroller General, or their designees, to any such entity, for 
purposes of verification, investigation, audit, or other review of 
reinsurance contribution amounts.
    (i) Audits. HHS or its designee may audit a contributing entity to 
assess its compliance with the requirements of this subpart.

[78 FR 15528, Mar. 11, 2013, as amended at 78 FR 66655, Nov. 6, 2013; 78 
FR 65094, Oct. 30, 2013; 78 FR 66655, Nov. 6, 2014; 79 FR 13835, Mar. 
11, 2014; 80 FR 10862, Feb. 27, 2015]



Sec. 153.410  Requests for reinsurance payment.

    (a) General requirement. An issuer of a reinsurance-eligible plan 
may make a request for payment when that issuer's claims costs for an 
enrollee of that reinsurance-eligible plan has met the criteria for 
reinsurance payment set forth in subpart B of this part and the HHS 
notice of benefit and payment parameters and State notice of benefit and 
payment parameters for the applicable benefit year, if applicable.
    (b) Manner of request. An issuer of a reinsurance-eligible plan must 
make requests for payment in accordance with the requirements of the 
annual HHS notice of benefit and payment parameters for the applicable 
benefit year or the State notice of benefit and payment parameters 
described in subpart B of this part, as applicable.
    (c) Maintenance of records. An issuer of a reinsurance-eligible plan 
must maintain documents and records, whether paper, electronic, or in 
other media, sufficient to substantiate the requests for reinsurance 
payments made pursuant to this section for a period of at least 10 
years, and must make those documents and records available upon request 
from HHS, the OIG, the Comptroller General, or their designees, or, in a 
State where the State is operating reinsurance, the State or its 
designee, to any such entity, for purposes of verification, 
investigation, audit, or other review of reinsurance payment requests.
    (d) Audits. HHS or its designee may audit an issuer of a 
reinsurance-eligible plan to assess its compliance with the requirements 
of this subpart and subpart H of this part. The issuer must ensure that 
its relevant contractors, subcontractors, or agents cooperate with any 
audit under this section. If an audit results in a finding of material 
weakness or significant deficiency with respect to compliance with any 
requirement of this subpart or subpart H,

[[Page 905]]

the issuer must complete all of the following:
    (1) Within 30 calendar days of the issuance of the final audit 
report, provide a written corrective action plan to HHS for approval.
    (2) Implement that plan.
    (3) Provide to HHS written documentation of the corrective actions 
once taken.

[77 FR 17248, Mar. 23, 2012, as amended at 78 FR 15530, Mar. 11, 2013; 
78 FR 65094, Oct. 30, 2013; 79 FR 13835, Mar. 11, 2014]



Sec. 153.420  Data collection.

    (a) Data requirement. To be eligible for reinsurance payments, an 
issuer of a reinsurance-eligible plan must submit or make accessible all 
required reinsurance data in accordance with the reinsurance data 
collection approach established by the State, or by HHS on behalf of the 
State.
    (b) Deadline for submission of data. An issuer of a reinsurance-
eligible plan must submit or make accessible data to be considered for 
reinsurance payments for the applicable benefit year by April 30 of the 
year following the end of the applicable benefit year.

[78 FR 15530, Mar. 11, 2013]



    Subpart F_Health Insurance Issuer Standards Related to the Risk 
                            Corridors Program



Sec. 153.500  Definitions.

    The following definitions apply to this subpart:
    Adjustment percentage means, with respect to a QHP:
    (1) For benefit year 2014--
    (i) For a QHP offered by a health insurance issuer with allowable 
costs of at least 80 percent of after-tax premium in a transitional 
State, the percentage specified by HHS for such QHPs in the transitional 
State; and otherwise
    (ii) Zero percent.
    (2) For benefit year 2015, for a QHP offered by a health insurance 
issuer in any State, 2 percent.
    (3) For benefit year 2016--
    (i) For a QHP offered by a health insurance issuer with allowable 
costs of at least 80 percent of after-tax premium, the percentage 
specified by HHS; and otherwise
    (ii) Zero percent.
    Administrative costs mean, with respect to a QHP, total non-claims 
costs incurred by the QHP issuer for the QHP, including taxes and 
regulatory fees.
    After-tax premiums earned mean, with respect to a QHP, premiums 
earned with respect to the QHP minus taxes and regulatory fees.
    Allowable administrative costs mean, with respect to a QHP, the sum 
of administrative costs of the QHP, other than taxes and regulatory 
fees, plus profits earned by the QHP, which sum is limited to the sum of 
20 percent and the adjustment percentage of after-tax premiums earned 
with respect to the QHP (including any premium tax credit under any 
governmental program), plus taxes and regulatory fees.
    Allowable costs means, with respect to a QHP, an amount equal to the 
pro rata portion of the sum of incurred claims within the meaning of 
Sec. 158.140 of this subchapter (including adjustments for any direct 
and indirect remuneration), expenditures by the QHP issuer for the QHP 
for activities that improve health care quality as set forth in Sec. 
158.150 of this subchapter, expenditures by the QHP issuer for the QHP 
related to health information technology and meaningful use requirements 
as set forth in Sec. 158.151 of this subchapter, and the adjustments 
set forth in Sec. 153.530(b); in each case for all of the QHP issuer's 
non-grandfathered health plans in a market within a State, allocated to 
the QHP based on premiums earned.
    Charge means the flow of funds from QHP issuers to HHS.
    Direct and indirect remuneration means prescription drug rebates 
received by a QHP issuer within the meaning of Sec. 158.140(b)(1)(i) of 
this subchapter.
    Payment means the flow of funds from HHS to QHP issuers.
    Premiums earned mean, with respect to a QHP, all monies paid by or 
for enrollees with respect to that plan as a condition of receiving 
coverage, including any fees or other contributions paid by or for 
enrollees, within the meaning of Sec. 158.130 of this subchapter.

[[Page 906]]

    Profits mean, with respect to a QHP, the greater of:
    (1) The sum of three percent and the adjustment percentage of after-
tax premiums earned; and
    (2) Premiums earned of the QHP minus the sum of allowable costs and 
administrative costs of the QHP.
    Qualified health plan or QHP means, with respect to the risk 
corridors program only --
    (1) A qualified health plan, as defined at Sec. 155.20 of this 
subchapter;
    (2) A health plan offered outside the Exchange by an issuer that is 
the same plan as a qualified health plan, as defined at Sec. 155.20 of 
this subchapter, offered through the Exchange by the issuer. To be the 
same plan as a qualified health plan (as defined at Sec. 155.20 of this 
subchapter) means that the health plan offered outside the Exchange has 
identical benefits, premium, cost-sharing structure, provider network, 
and service area as the qualified health plan (as defined at Sec. 
155.20 of this subchapter); or
    (3) A health plan offered outside the Exchange that is substantially 
the same as a qualified health plan, as defined at Sec. 155.20 of this 
subchapter, offered through the Exchange by the issuer. To be 
substantially the same as a qualified health plan (as defined at Sec. 
155.20 of this subchapter) means that the health plan meets the criteria 
set forth in paragraph (2) of this definition with respect to the 
qualified health plan, except that its benefits, premium, cost-sharing 
structure, and provider network may differ from those of the qualified 
health plan (as defined at Sec. 155.20 of this subchapter) provided 
that such differences are tied directly and exclusively to Federal or 
State requirements or prohibitions on the coverage of benefits that 
apply differently to plans depending on whether they are offered through 
or outside an Exchange.
    Risk corridors means any payment adjustment system based on the 
ratio of allowable costs of a plan to the plan's target amount.
    Target amount means, with respect to a QHP, an amount equal to the 
total premiums earned with respect to a QHP, including any premium tax 
credit under any governmental program, reduced by the allowable 
administrative costs of the plan.
    Taxes and regulatory fees mean, with respect to a QHP, Federal and 
State licensing and regulatory fees paid with respect to the QHP as 
described in Sec. 158.161(a) of this subchapter, and Federal and State 
taxes and assessments paid with respect to the QHP as described in Sec. 
158.162(a)(1) and (b)(1) of this subchapter.
    Transitional State means a State that does not enforce compliance 
with Sec. 147.102, Sec. 147.104, Sec. 147.106, Sec. 147.150, Sec. 
156.80, or subpart B of part 156 of this subchapter for individual 
market and small group health plans that renew for a policy year 
starting between January 1, 2014, and October 1, 2014, in accordance 
with the transitional policy outlined in the CMS letter dated November 
14, 2013.

[77 FR 17248, Mar. 23, 2012, as amended at 78 FR 15530, 15550, Mar. 11, 
2013; 78 FR 54133, Aug. 30, 2013; 79 FR 13835, Mar. 11, 2014; 79 FR 
30341, May 27, 2014; 80 FR 10863, Feb. 27, 2015]



Sec. 153.510  Risk corridors establishment and payment methodology.

    (a) General requirement. A QHP issuer must adhere to the 
requirements set by HHS in this subpart and in the annual HHS notice of 
benefit and payment parameters for the establishment and administration 
of a program of risk corridors for calendar years 2014, 2015, and 2016.
    (b) HHS payments to health insurance issuers. QHP issuers will 
receive payment from HHS in the following amounts, under the following 
circumstances:
    (1) When a QHP's allowable costs for any benefit year are more than 
103 percent but not more than 108 percent of the target amount, HHS will 
pay the QHP issuer an amount equal to 50 percent of the allowable costs 
in excess of 103 percent of the target amount; and
    (2) When a QHP's allowable costs for any benefit year are more than 
108 percent of the target amount, HHS will pay to the QHP issuer an 
amount equal to the sum of 2.5 percent of the target amount plus 80 
percent of allowable costs in excess of 108 percent of the target 
amount.
    (c) Health insurance issuers' remittance of charges. QHP issuers 
must remit

[[Page 907]]

charges to HHS in the following amounts, under the following 
circumstances:
    (1) If a QHP's allowable costs for any benefit year are less than 97 
percent but not less than 92 percent of the target amount, the QHP 
issuer must remit charges to HHS in an amount equal to 50 percent of the 
difference between 97 percent of the target amount and the allowable 
costs; and
    (2) When a QHP's allowable costs for any benefit year are less than 
92 percent of the target amount, the QHP issuer must remit charges to 
HHS in an amount equal to the sum of 2.5 percent of the target amount 
plus 80 percent of the difference between 92 percent of the target 
amount and the allowable costs.
    (d) Charge submission deadline. A QHP issuer must remit charges to 
HHS within 30 days after notification of such charges.
    (e) A QHP issuer is not subject to the provisions of this subpart 
with respect to a stand-alone dental plan.
    (f) Eligibility under health insurance market rules. The provisions 
of this subpart apply only for plans offered by a QHP issuer in the SHOP 
or the individual or small group market, as determined according to the 
employee counting method applicable under State law, that are subject to 
the following provisions: Sec. Sec. 147.102, 147.104, 147.106, 147.150, 
156.80, and subpart B of part 156 of this subchapter.

[77 FR 17248, Mar. 23, 2012, as amended at 78 FR 15530, Mar. 11, 2013; 
78 FR 65094, Oct. 30, 2013; 79 FR 13836, Mar. 11, 2014]



Sec. 153.520  Attribution and allocation of revenue and expense items.

    (a) Attribution to plans. Each item of expense in the target amount 
with respect to a QHP must be reasonably attributable to the operation 
of the QHP issuer's non-grandfathered health plans in a market within a 
State, with the attribution based on a generally accepted accounting 
method, consistently applied. To the extent that a QHP issuer utilizes a 
specific method for allocating expenses for purposes of Sec. 158.170 of 
this subchapter, the method used for purposes of this paragraph must be 
consistent.
    (b) Allocation across plans. Each item of expense in the target 
amount must reflect an amount equal to the pro rata portion of the 
aggregate amount of such expense across all of the QHP issuer's non-
grandfathered health plans in a market within a State, allocated to the 
QHP based on premiums earned.
    (c) Disclosure of attribution and allocation methods. A QHP issuer 
must submit to HHS a report, in the manner and timeframe specified in 
the annual HHS notice of benefit and payment parameters, with a detailed 
description of the methods and specific bases used to perform the 
attributions and allocations set forth in paragraphs (a) and (b) of this 
section.
    (d) Attribution of reinsurance and risk adjustment to benefit year. 
A QHP issuer must attribute reinsurance payments and risk adjustment 
payments and charges to allowable costs for the benefit year with 
respect to which the reinsurance payments or risk adjustment 
calculations apply.
    (e) Maintenance of records. A QHP issuer must maintain documents and 
records, whether paper, electronic, or in other media, sufficient to 
enable the evaluation of the issuer's compliance with applicable risk 
corridors standards, for each benefit year for at least 10 years, and 
must make those documents and records available upon request from HHS, 
the OIG, the Comptroller General, or their designees, to any such 
entity, for purposes of verification, investigation, audit or other 
review.

[77 FR 17248, Mar. 23, 2012, as amended at 78 FR 15530, 15550, Mar. 11, 
2013; 78 FR 65094, Oct. 30, 2013]



Sec. 153.530  Risk corridors data requirements.

    (a) Premium data. A QHP issuer must submit to HHS data on the 
premiums earned with respect to each QHP that the issuer offers in a 
manner specified by HHS.
    (b) Allowable costs. A QHP issuer must submit to HHS data on the 
allowable costs incurred with respect to the QHP issuer's non-
grandfathered health plans in a market within a State in a manner 
specified by HHS. For purposes of this subpart, allowable costs must be 
--
    (1) Increased by any risk adjustment charges paid by the issuer for 
the non-grandfathered health plans under the

[[Page 908]]

risk adjustment program established under subpart D of this part.
    (2) Reduced by --
    (i) Any risk adjustment payments received by the issuer for the non-
grandfathered health plans under the risk adjustment program established 
pursuant to subpart D of this part;
    (ii) Any reinsurance payments received by the issuer for the non-
grandfathered health plans under the transitional reinsurance program 
established pursuant to subpart C of this part; and
    (iii) Any cost-sharing reduction payments received by the issuer for 
the QHP issuer's QHPs in a market within a State to the extent not 
reimbursed to the provider furnishing the item or service.
    (c) Allowable administrative costs. A QHP issuer must submit to HHS 
data on the allowable administrative costs incurred with respect to the 
QHP issuer's non-grandfathered health plans in a market within a State 
in a manner specified by HHS.
    (d) Timeframes. For each benefit year, a QHP issuer must submit all 
information required under paragraphs (a) through (c) of this section by 
July 31 of the year following the benefit year.
    (e) Requirement to submit enrollment data for risk corridors 
adjustment. A health insurance issuer in the individual or small group 
market of a transitional State must submit, in a manner and timeframe 
specified by HHS, the following:
    (1) A count of its total enrollment in the individual market and 
small group market; and
    (2) A count of its total enrollment in individual market and small 
group market policies that meet the criteria for transitional policies 
outlined in the CMS letter dated November 14, 2013.

[77 FR 17248, Mar. 23, 2012, as amended at 78 FR 15531, Mar. 11, 2013; 
78 FR 65094, Oct. 30, 2013; 79 FR 13836, Mar. 11, 2014; 79 FR 37662, 
July 2, 2014]



Sec. 153.540  Compliance with risk corridors standards.

    HHS or its designee may audit a QHP issuer to assess its compliance 
with the requirements of this subpart. HHS will conduct an audit in 
accordance with the procedures set forth in Sec. 158.402(a) through (e) 
of this subchapter.

[79 FR 13836, Mar. 11, 2014]



    Subpart G_Health Insurance Issuer Standards Related to the Risk 
                           Adjustment Program



Sec. 153.600  [Reserved]



Sec. 153.610  Risk adjustment issuer requirements.

    (a) Data requirements. An issuer that offers risk adjustment covered 
plans must submit or make accessible all required risk adjustment data 
for those risk adjustment covered plans in accordance with the risk 
adjustment data collection approach established by the State, or by HHS 
on behalf of the State.
    (b) Risk adjustment data storage. An issuer that offers risk 
adjustment covered plans must store all required risk adjustment data in 
accordance with the risk adjustment data collection approach established 
by the State, or by HHS on behalf of the State.
    (c) Issuer contracts. An issuer that offers risk adjustment covered 
plans may include in its contract with a provider, supplier, physician, 
or other practitioner, provisions that require such contractor's 
submission of complete and accurate risk adjustment data in the manner 
and timeframe established by the State, or HHS on behalf of the State. 
These provisions may include financial penalties for failure to submit 
complete, timely, or accurate data.
    (d) Assessment of charges. An issuer that offers risk adjustment 
covered plans that has a net balance of risk adjustment charges payable, 
including adjustments made pursuant to Sec. 153.350(c), will be 
notified by the State, or by HHS on behalf of the State, of those net 
charges, and must remit those risk adjustment charges to the State, or 
to HHS on behalf of the State, as applicable.
    (e) Charge submission deadline. An issuer must remit net charges to 
the State, or HHS on behalf of the State, within 30 days of notification 
of net charges payable by the State, or HHS on behalf of the State.
    (f) Assessment and collection of user fees for HHS risk adjustment 
operations.

[[Page 909]]

Where HHS is operating risk adjustment on behalf of a State, an issuer 
of a risk adjustment covered plan (other than a student health plan or a 
plan not subject to 45 CFR 147.102, 147.104, 147.106, 156.80, and 
subpart B of part 156) must, for each benefit year--
    (1) Submit or make accessible to HHS its monthly enrollment for the 
risk adjustment covered plan for the benefit year through the risk 
adjustment data collection approach established at Sec. 153.610(a), in 
a manner and timeframe specified by HHS; and
    (2) Remit to HHS an amount equal to the product of its monthly 
enrollment in the risk adjustment covered plan multiplied by the per-
enrollee-per-month risk adjustment user fee specified in the annual HHS 
notice of benefit and payment parameters for the applicable benefit 
year.

[77 FR 17248, Mar. 23, 2012, as amended at 78 FR 15531, Mar. 11, 2013]



Sec. 153.620  Compliance with risk adjustment standards.

    (a) Issuer support of data validation. An issuer that offers risk 
adjustment covered plans must comply with any data validation requests 
by the State or HHS on behalf of the State.
    (b) Issuer records maintenance requirements. An issuer that offers 
risk adjustment covered plans must also maintain documents and records, 
whether paper, electronic, or in other media, sufficient to enable the 
evaluation of the issuer's compliance with applicable risk adjustment 
standards, for each benefit year for at least 10 years, and must make 
those documents and records available upon request to HHS, the OIG, the 
Comptroller General, or their designees, or in a State where the State 
is operating risk adjustment, the State or its designee to any such 
entity, for purposes of verification, investigation, audit or other 
review.
    (c) Audits. HHS or its designee may audit an issuer of a risk 
adjustment covered plan to assess its compliance with the requirements 
of this subpart and subpart H of this part. The issuer must ensure that 
its relevant contractors, subcontractors, or agents cooperate with any 
audit under this section. If an audit results in a finding of material 
weakness or significant deficiency with respect to compliance with any 
requirement of this subpart or subpart H of this part, the issuer must 
complete all of the following:
    (1) Within 30 calendar days of the issuance of the final audit 
report, provide a written corrective action plan to HHS for approval.
    (2) Implement that plan.
    (3) Provide to HHS written documentation of the corrective actions 
once taken.

[77 FR 17245, Mar. 23, 2012, as amended at 78 FR 65095, Oct. 30, 2013; 
79 FR 13836, Mar. 11, 2014]



Sec. 153.630  Data validation requirements when HHS operates risk 
adjustment.

    (a) General requirement. An issuer of a risk adjustment covered plan 
in a State where HHS is operating risk adjustment on behalf of the State 
for the applicable benefit year must have an initial and second 
validation audit performed on its risk adjustment data as described in 
this section.
    (b) Initial validation audit. (1) An issuer of a risk adjustment 
covered plan must engage one or more independent auditors to perform an 
initial validation audit of a sample of its risk adjustment data 
selected by HHS. The issuer must provide HHS with the identity of the 
initial validation auditor, and must attest to the absence of conflicts 
of interest between the initial validation auditor (or the members of 
its audit team, owners, directors, officers, or employees) and the 
issuer (or its owners, directors, officers, or employees), to its 
knowledge, following reasonable investigation, and must attest that it 
has obtained an equivalent representation from the initial validation 
auditor, in a timeframe and manner to be specified by HHS.
    (2) The issuer must ensure that the initial validation auditors are 
reasonably capable of performing an initial data validation audit 
according to the standards established by HHS for such audit, and must 
ensure that the audit is so performed.
    (3) The issuer must ensure that each initial validation auditor is 
reasonably free of conflicts of interest, such that it is able to 
conduct the initial validation audit in an impartial manner and

[[Page 910]]

its impartiality is not reasonably open to question.
    (4) The issuer must ensure validation of the accuracy of risk 
adjustment data for a sample of enrollees selected by HHS. The issuer 
must ensure that the initial validation audit findings are submitted to 
HHS in a manner and timeframe specified by HHS.
    (5) An initial validation audit must be conducted by medical coders 
certified as such and in good standing by a nationally recognized 
accrediting agency.
    (6) An issuer must provide the initial validation auditor and the 
second validation auditor with all relevant source enrollment 
documentation, all claims and encounter data, and medical record 
documentation from providers of services to each enrollee in the 
applicable sample without unreasonable delay and in a manner that 
reasonably assures confidentiality and security in transmission.
    (7) The risk score of each enrollee in the sample must be validated 
by--
    (i) Validating the enrollee's enrollment data and demographic data 
in a manner to be determined by HHS.
    (ii) Validating enrollee health status through review of all 
relevant medical record documentation. Medical record documentation must 
originate from the provider of the services and align with dates of 
service for the medical diagnoses, and reflect permitted providers and 
services. For purposes of this section, ``medical record documentation'' 
means clinical documentation of hospital inpatient or outpatient 
treatment or professional medical treatment from which enrollee health 
status is documented and related to accepted risk adjustment services 
that occurred during a specified period of time. Medical record 
documentation must be generated under a face-to-face or telehealth visit 
documented and authenticated by a permitted provider of services;
    (iii) Validating medical records according to industry standards for 
coding and reporting; and
    (iv) Having a senior reviewer confirm any enrollee risk adjustment 
error discovered during the initial validation audit. For purposes of 
this section, a ``senior reviewer'' is a reviewer certified as a medical 
coder by a nationally recognized accrediting agency who possesses at 
least 5 years of experience in medical coding. However, for validation 
of risk adjustment data for the 2014 and 2015 benefit years, a senior 
reviewer may possess 3 or more years of experience.
    (8) The initial validation auditor must measure and report to the 
issuer and HHS, in a manner and timeframe specified by HHS, its inter-
rater reliability rates among its reviewers. The initial validation 
auditor must achieve a consistency measure of at least 95 percent for 
his or her review outcomes. However, for validation of risk adjustment 
data for the 2014 and 2015 benefit years, the initial validation auditor 
may meet an inter-rater reliability standard of 85 percent for review 
outcomes.
    (9) Enforcement actions. If an issuer of a risk adjustment covered 
plan fails to engage an initial validation auditor or to submit the 
results of an initial validation audit to HHS, HHS may impose civil 
money penalties in accordance with the procedures set forth in Sec. 
156.805 of this subchapter.
    (10) Default data validation charge. If an issuer of a risk 
adjustment covered plan fails to engage an initial validation auditor or 
to submit the results of an initial validation audit to HHS, HHS will 
impose a default risk adjustment charge.
    (c) Second validation audit. HHS will select a subsample of the risk 
adjustment data validated by the initial validation audit for a second 
validation audit. The issuer must comply with, and must ensure the 
initial validation auditor complies with, standards for such audit 
established by HHS, and must cooperate with, and must ensure that the 
initial validation auditor cooperates with, HHS and the second 
validation auditor in connection with such audit.
    (d) Data validation appeals. An issuer may appeal the findings of a 
second validation audit or the application of a risk score error rate to 
its risk adjustment payments and charges.
    (e) Adjustment of payments and charges. HHS may adjust payments and 
charges for issuers that do not comply with audit requirements and 
standards,

[[Page 911]]

as specified in paragraphs (b) and (c) of this section.
    (f) Data security and transmission. (1) An issuer must submit the 
risk adjustment data and source documentation for the initial and second 
validation audits specified by HHS to HHS or its designee in the manner 
and timeframe specified by HHS.
    (2) An issuer must ensure that it and its initial validation auditor 
comply with the security standards described at 45 CFR 164.308, 164.310, 
and 164.312 in connection with the initial validation audit, the second 
validation audit, and any appeal.

[78 FR 15531, Mar. 11, 2013, as amended at 79 FR 13836, Mar. 11, 2014]



     Subpart H_Distributed Data Collection for HHS-Operated Programs

    Source: 78 FR 15531, Mar. 11, 2013, unless otherwise noted.



Sec. 153.700  Distributed data environment.

    (a) Dedicated distributed data environments. For each benefit year 
in which HHS operates the risk adjustment or reinsurance program on 
behalf of a State, an issuer of a risk adjustment covered plan or a 
reinsurance-eligible plan in the State, as applicable, must establish a 
dedicated data environment and provide data access to HHS, in a manner 
and timeframe specified by HHS, for any HHS-operated risk adjustment and 
reinsurance program.
    (b) Timeline. An issuer must establish the dedicated data 
environment (and confirm proper establishment through successfully 
testing the environment to conform with applicable HHS standards for 
such testing) three months prior to the first date of full operation.



Sec. 153.710  Data requirements.

    (a) Enrollment, claims, and encounter data. An issuer of a risk 
adjustment covered plan or a reinsurance-eligible plan in a State in 
which HHS is operating the risk adjustment or reinsurance program, as 
applicable, must provide to HHS, through the dedicated data environment, 
access to enrollee-level plan enrollment data, enrollee claims data, and 
enrollee encounter data as specified by HHS.
    (b) Claims data. All claims data submitted by an issuer of a risk 
adjustment covered plan or a reinsurance-eligible plan in a State in 
which HHS is operating the risk adjustment or reinsurance program, as 
applicable, must have resulted in payment by the issuer (or payment of 
cost sharing by the enrollee).
    (c) Claims data from capitated plans. An issuer of a risk adjustment 
covered plan or a reinsurance-eligible plan in a State in which HHS is 
operating the risk adjustment or reinsurance program, as applicable, 
that does not generate individual enrollee claims in the normal course 
of business must derive the costs of all applicable provider encounters 
using its principal internal methodology for pricing those encounters. 
If the issuer does not have such a methodology, or has an incomplete 
methodology, it must supplement the methodology in a manner that yields 
derived claims that are reasonable in light of the specific service and 
insurance market that the plan is serving.
    (d) Interim dedicated distributed data environment reports. Within 
30 calendar days of the date of an interim dedicated distributed data 
environment report from HHS, the issuer must, in a format specified by 
HHS, either:
    (1) Confirm to HHS that the information in the interim report 
accurately reflects the data to which the issuer has provided access to 
HHS through its dedicated distributed data environment in accordance 
with Sec. 153.700(a) for the timeframe specified in the report; or
    (2) Describe to HHS any discrepancy it identifies in the interim 
dedicated distributed data environment report.
    (e) Final dedicated distributed data environment report. Within 15 
calendar days of the date of the final dedicated distributed data 
environment report from HHS, the issuer must, in a format specified by 
HHS, either:
    (1) Confirm to HHS that the information in the final report 
accurately reflects the data to which the issuer has provided access to 
HHS through its dedicated distributed data environment in accordance 
with Sec. 153.700(a) for

[[Page 912]]

the benefit year specified in the report; or
    (2) Describe to HHS any discrepancy it identifies in the final 
dedicated distributed data environment report.
    (f) Unresolved discrepancies. If a discrepancy first identified in 
an interim or final dedicated distributed data environment report in 
accordance with paragraphs (d)(2) or (e)(2) of this section remains 
unresolved after the issuance of the notification of risk adjustment 
payments and charges or reinsurance payments under Sec. 153.310(e) or 
Sec. 153.240(b)(1)(ii), respectively, an issuer of a risk adjustment 
covered plan or reinsurance-eligible plan may make a request for 
reconsideration regarding such discrepancy under the process set forth 
in Sec. 156.1220(a) of this subchapter.
    (g) Risk corridors and MLR reporting. (1) Notwithstanding any 
discrepancy report made under paragraph (d)(2) or (e)(2) of this 
section, or any request for reconsideration under Sec. 156.1220(a) of 
this subchapter with respect to any risk adjustment payment or charge, 
including an assessment of risk adjustment user fees; reinsurance 
payment; cost-sharing reconciliation payment or charge; or risk 
corridors payment or charge, unless the dispute has been resolved, an 
issuer must report, for purposes of the risk corridors and MLR programs:
    (i) The risk adjustment payment to be made or charge assessed, 
including an assessment of risk adjustment user fees, by HHS in the 
notification provided under Sec. 153.310(e);
    (ii) The reinsurance payment to be made by HHS in the notification 
provided under Sec. 153.240(b)(1)(ii);
    (iii) A cost-sharing reduction amount equal to the amount of the 
advance payments of cost-sharing reductions paid to the issuer by HHS 
for the benefit year; and
    (iv) For medical loss ratio report only, the risk corridors payment 
to be made or charge assessed by HHS as reflected in the notification 
provided under Sec. 153.510(d).
    (2) An issuer must report any adjustment made following any 
discrepancy report made under paragraph (d)(2) or (e)(2) of this 
section, or any request for reconsideration under Sec. 156.1220(a) of 
this subchapter with respect to any risk adjustment payment or charge, 
including an assessment of risk adjustment user fees; reinsurance 
payment; cost-sharing reconciliation payment or charge; or risk 
corridors payment or charge; or following any audit, where such 
adjustment has not be accounted for in a prior risk corridors or medical 
loss ratio report, in the next following risk corridors or medical loss 
ratio report.

[78 FR 15531, Mar. 11, 2013, as amended at 79 FR 13837, Mar. 11, 2014]



Sec. 153.720  Establishment and usage of masked enrollee 
identification numbers.

    (a) Enrollee identification numbers. An issuer of a risk adjustment 
covered plan or a reinsurance-eligible plan in a State in which HHS is 
operating the risk adjustment or reinsurance program, as applicable, 
must--
    (1) Establish a unique masked enrollee identification number for 
each enrollee; and
    (2) Maintain the same masked enrollee identification number for an 
enrollee across enrollments or plans within the issuer, within the 
State, during a benefit year.
    (b) Prohibition on personally identifiable information. An issuer of 
a risk adjustment covered plan or a reinsurance-eligible plan in a State 
in which HHS is operating the risk adjustment or reinsurance program on 
behalf of the State, as applicable, may not--
    (1) Include enrollee's personally identifiable information in the 
masked enrollee identification number; or
    (2) Use the same masked enrollee identification number for different 
enrollees enrolled with the issuer.



Sec. 153.730  Deadline for submission of data.

    A risk adjustment covered plan or a reinsurance-eligible plan in a 
State in which HHS is operating the risk adjustment or reinsurance 
program, as applicable, must submit data to be considered for risk 
adjustment payments and charges and reinsurance payments for the 
applicable benefit year by April 30 of the year following the applicable 
benefit year.

[[Page 913]]



Sec. 153.740  Failure to comply with HHS-operated risk adjustment 
and reinsurance data requirements.

    (a) Enforcement actions. If an issuer of a risk adjustment covered 
plan or reinsurance-eligible plan fails to establish a dedicated 
distributed data environment in a manner and timeframe specified by HHS; 
fails to provide HHS with access to the required data in such 
environment in accordance with Sec. 153.700(a) or otherwise fails to 
comply with the requirements of Sec. Sec. 153.700 through 153.730; 
fails to adhere to the reinsurance data submission requirements set 
forth in Sec. 153.420; or fails to adhere to the risk adjustment data 
submission and data storage requirements set forth in Sec. Sec. 153.610 
through 153.630, HHS may impose civil money penalties in accordance with 
the procedures set forth in Sec. 156.805 of this subchapter. Civil 
monetary penalties will not be imposed for non-compliance with these 
requirements during the 2014 or 2015 calendar years under this paragraph 
if the issuer has made good faith efforts to comply with these 
requirements.
    (b) Default risk adjustment charge. If an issuer of a risk 
adjustment covered plan fails to establish a dedicated distributed data 
environment or fails to provide HHS with access to the required data in 
such environment in accordance with Sec. 153.610(a), Sec. 153.700, 
Sec. 153.710, or Sec. 153.730 such that HHS cannot apply the 
applicable Federally certified risk adjustment methodology to calculate 
the risk adjustment payment transfer amount for the risk adjustment 
covered plan in a timely fashion, HHS will assess a default risk 
adjustment charge.
    (c) Information sharing. HHS may consult with and share information 
about issuers of risk adjustment covered plans and reinsurance-eligible 
plans with other Federal and State regulatory and enforcement entities 
to the extent the consultation or information is necessary for purposes 
of Federal or State oversight and enforcement activities.

[78 FR 65095, Oct. 30, 2013, as amended at 80 FR 10863, Feb. 27, 2015]



PART 154_HEALTH INSURANCE ISSUER RATE INCREASES: DISCLOSURE AND 
REVIEW REQUIREMENTS--Table of Contents



                      Subpart A_General Provisions

Sec.
154.101 Basis and scope.
154.102 Definitions.
154.103 Applicability.

               Subpart B_Disclosure and Review Provisions

154.200 Rate increases subject to review.
154.205 Unreasonable rate increases.
154.210 Review of rate increases subject to review by CMS or by a State.
154.215 Submission of rate filing justification.
154.220 Timing of providing the rate filing justification.
154.225 Determination by CMS or a State of an unreasonable rate 
          increase.
154.230 Submission and posting of Final Justifications for unreasonable 
          rate increases.

                Subpart C_Effective Rate Review Programs

154.301 CMS's determinations of Effective Rate Review Programs.

    Authority: Section 2794 of the Public Health Service Act (42 USC 
300gg-94).

    Source: 76 FR 29985, May 23, 2011, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 154.101  Basis and scope.

    (a) Basis. This part implements section 2794 of the Public Health 
Service (PHS) Act.
    (b) Scope. This part establishes the requirements for health 
insurance issuers offering health insurance coverage in the small group 
or individual markets to report information concerning unreasonable rate 
increases to the Centers for Medicare & Medicaid Services (CMS). This 
part further establishes the process by which it will be determined 
whether the rate increases are unreasonable rate increases as defined in 
this part.



Sec. 154.102  Definitions.

    As used in this part:

[[Page 914]]

    CMS means the Centers for Medicare & Medicaid Services.
    Effective Rate Review Program means a State program that CMS has 
determined meets the requirements set forth in Sec. 154.301(a) and (b) 
for the relevant market segment in the State.
    Federal medical loss ratio standard means the applicable medical 
loss ratio standard for the State and market segment involved, 
determined under subpart B of 45 CFR part 158.
    Health insurance coverage has the meaning given the term in section 
2791(b)(1) of the PHS Act.
    Health insurance issuer has the meaning given the term in section 
2791(b)(2) of the PHS Act.
    Individual market has the meaning given the term in Sec. 144.103 of 
this subchapter.
    Plan has the meaning given the term in Sec. 144.103 of this 
subchapter.
    Product means a package of health insurance coverage benefits with a 
discrete set of rating and pricing methodologies that a health insurance 
issuer offers in a State. The term product includes any product that is 
discontinued and newly filed within a 12-month period when the changes 
to the product meet the standards of Sec. 147.106(e)(2) or (3) of this 
subchapter (relating to uniform modification of coverage).
    Rate increase means, with respect to rates filed--
    (1) For coverage effective prior to January 1, 2017, any increase of 
the rates for a specific product offered in the individual or small 
group market.
    (2) For coverage effective on or after January 1, 2017, any increase 
of the rates for a specific product or plan within a product offered in 
the individual or small group market.
    Rate increase subject to review means a rate increase that meets the 
criteria set forth in Sec. 154.200.
    Secretary means the Secretary of the Department of Health and Human 
Services.
    Small group market has the meaning given the term in Sec. 144.103 
of this subchapter.
    State means each of the 50 States and the District of Columbia.
    Unreasonable rate increase means:
    (1) When CMS is conducting the review required by this part, a rate 
increase that CMS determines under Sec. 154.205 is:
    (i) An excessive rate increase;
    (ii) An unjustified rate increase; or
    (iii) An unfairly discriminatory rate increase.
    (2) When CMS adopts the determination of a State that has an 
Effective Rate Review Program, a rate increase that the State determines 
is excessive, unjustified, unfairly discriminatory, or otherwise 
unreasonable as provided under applicable State law.

[76 FR 29985, May 23, 2011, as amended at 76 FR 54976, Sept. 6, 2011; 79 
FR 30342, May 27, 2014; 80 FR 10863, Feb. 27, 2015]



Sec. 154.103  Applicability.

    (a) In general. The requirements of this part apply to health 
insurance issuers offering health insurance coverage in the individual 
market and small group market.
    (b) Exceptions. The requirements of this part do not apply to 
grandfathered health plan coverage as defined in 45 CFR Sec. 147.140, 
or to excepted benefits as described in section 2791(c) of the PHS Act.



               Subpart B_Disclosure and Review Provisions



Sec. 154.200  Rate increases subject to review.

    (a) A rate increase filed in a State, or effective in a State that 
does not require a rate increase to be filed, is subject to review if:
    (1) The rate increase is 10 percent or more applicable to a 12-month 
period that begins on January 1, as calculated under paragraph (c) of 
this section; or
    (2) The rate increase meets or exceeds a State-specific threshold 
applicable to a 12-month period that begins on January 1, as calculated 
under paragraph (c) of this section, determined by the Secretary. A 
State-specific threshold shall be based on factors impacting rate 
increases in a State to the extent that the data relating to such State-
specific factors is available by August 1. States interested in 
proposing a State-specific threshold for approval are required to submit 
a proposal to the Secretary by August 1.

[[Page 915]]

    (b) The Secretary will publish a notice no later than September 1 of 
each year, to be effective on January 1 of the following year, 
concerning whether a threshold under paragraph (a)(1) or (a)(2) of this 
section applies to the state; except that, with respect to the 12-month 
period that begins on September 1, 2011, the threshold under paragraph 
(a)(1) of this section applies.
    (c) A rate increase meets or exceeds the applicable threshold set 
forth in paragraph (a) of this section if--
    (1) For rates filed for coverage beginning before January 1, 2017, 
the average increase for all enrollees weighted by premium volume meets 
or exceeds the applicable threshold.
    (2) For rates filed for coverage beginning on or after January 1, 
2017, an increase in the plan-adjusted index rate (as described in Sec. 
156.80 of this subchapter) for any plan within the product meets or 
exceeds the applicable threshold.
    (d) If a rate increase that does not otherwise meet or exceed the 
threshold under paragraph (c) of this section meets or exceeds the 
threshold when combined with a previous increase or increases during the 
12-month period preceding the date on which the rate increase would 
become effective, then the rate increase must be considered to meet or 
exceed the threshold and is subject to review under Sec. 154.210, and 
such review shall include a review of the aggregate rate increases 
during the applicable 12-month period.

[76 FR 29985, May 23, 2011, as amended at 78 FR 13440, Feb. 27, 2013; 80 
FR 10863, Feb. 27, 2015]



Sec. 154.205  Unreasonable rate increases.

    (a) When CMS reviews a rate increase subject to review under Sec. 
154.210(a), CMS will determine that the rate increase is an unreasonable 
rate increase if the increase is an excessive rate increase, an 
unjustified rate increase, or an unfairly discriminatory rate increase.
    (b) The rate increase is an excessive rate increase if the increase 
causes the premium charged for the health insurance coverage to be 
unreasonably high in relation to the benefits provided under the 
coverage. In determining whether the rate increase causes the premium 
charged to be unreasonably high in relationship to the benefits 
provided, CMS will consider:
    (1) Whether the rate increase results in a projected medical loss 
ratio below the Federal medical loss ratio standard in the applicable 
market to which the rate increase applies, after accounting for any 
adjustments allowable under Federal law;
    (2) Whether one or more of the assumptions on which the rate 
increase is based is not supported by substantial evidence; and
    (3) Whether the choice of assumptions or combination of assumptions 
on which the rate increase is based is unreasonable.
    (c) The rate increase is an unjustified rate increase if the health 
insurance issuer provides data or documentation to CMS in connection 
with the increase that is incomplete, inadequate or otherwise does not 
provide a basis upon which the reasonableness of an increase may be 
determined.
    (d) The rate increase is an unfairly discriminatory rate increase if 
the increase results in premium differences between insureds within 
similar risk categories that:
    (1) Are not permissible under applicable State law; or
    (2) In the absence of an applicable State law, do not reasonably 
correspond to differences in expected costs.



Sec. 154.210  Review of rate increases subject to review by CMS or 
by a State.

    (a) Except as provided in paragraph (b) of this section, CMS will 
review a rate increase subject to review to determine whether it is 
unreasonable, as required by this part.
    (b) CMS will adopt a State's determination of whether a rate 
increase is an unreasonable rate increase, if the State:
    (1) Has an Effective Rate Review Program as described in Sec. 
154.301; and
    (2) The State provides to CMS, on a form and in a manner prescribed 
by the Secretary, its final determination of whether a rate increase is 
unreasonable, which must include a brief explanation of how its analysis 
of the relevant factors set forth in Sec. 154.301(a)(3)

[[Page 916]]

caused it to arrive at that determination, within five business days 
following the State's final determination.
    (c) CMS will post and maintain on its Web site a list of the States 
with market segments that meet the requirements of paragraph (b) of this 
section.



Sec. 154.215  Submission of rate filing justification.

    (a) If any plan within a product is subject to a rate increase, a 
health insurance issuer must submit a Rate Filing Justification for all 
products in the single risk pool, including new or discontinuing 
products, on a form and in a manner prescribed by the Secretary.
    (b) The Rate Filing Justification must consist of the following 
Parts:
    (1) Unified rate review template (Part I), as described in paragraph 
(d) of this section.
    (2) Written description justifying the rate increase (Part II), as 
described in paragraph (e) of this section.
    (3) Rating filing documentation (Part III), as described in 
paragraph (f) of this section.
    (c) A health insurance issuer must complete and submit Parts I and 
III of the Rate Filing Justification described in paragraphs (b)(1) and 
(b)(3) of this section to CMS and, as long as the applicable state 
accepts such submissions, to the applicable state. If a rate increase is 
subject to review, then the health insurance issuer must also complete 
and submit to CMS and, if applicable, the state Part II of the Rate 
Filing Justification described in paragraph (b)(2) of this section.
    (d) Content of unified rate review template (Part I): The unified 
rate review template must include the following as determined 
appropriate by the Secretary:
    (1) Historical and projected claims experience.
    (2) Trend projections related to utilization, and service or unit 
cost.
    (3) Any claims assumptions related to benefit changes.
    (4) Allocation of the overall rate increase to claims and non-claims 
costs.
    (5) Per enrollee per month allocation of current and projected 
premium.
    (6) Three year history of rate increases for the product associated 
with the rate increase.
    (e) Content of written description justifying the rate increase 
(Part II): The written description of the rate increase must include a 
simple and brief narrative describing the data and assumptions that were 
used to develop the rate increase and including the following:
    (1) Explanation of the most significant factors causing the rate 
increase, including a brief description of the relevant claims and non-
claims expense increases reported in the rate increase summary.
    (2) Brief description of the overall experience of the policy, 
including historical and projected expenses, and loss ratios.
    (f) Content of rate filing documentation (Part III): The rate filing 
documentation must include an actuarial memorandum that contains the 
reasoning and assumptions supporting the data contained in Part I of the 
Rate Filing Justification. Parts I and III must be sufficient to conduct 
an examination satisfying the requirements of Sec. 154.301(a)(3) and 
(4) and determine whether the rate increase is an unreasonable increase. 
Instructions concerning the requirements for the rate filing 
documentation will be provided in guidance issued by CMS.
    (g) If the level of detail provided by the issuer for the 
information under paragraphs (d) and (f) of this section does not 
provide sufficient basis for CMS to determine whether the rate increase 
is an unreasonable rate increase when CMS reviews a rate increase 
subject to review under Sec. 154.210(a), CMS will request the 
additional information necessary to make its determination. The health 
insurance issuer must provide the requested information to CMS within 10 
business days following its receipt of the request.
    (h) Posting of the disclosure on the CMS Web site:
    (1) CMS promptly will make available to the public on its Web site 
the information contained in Part II of each Rate Filing Justification.
    (2) CMS will make available to the public on its Web site the 
information contained in Parts I and III of each Rate Filing 
Justification that is not a trade secret or confidential commercial or 
financial information as defined

[[Page 917]]

in HHS's Freedom of Information Act regulations, 45 CFR 5.65.
    (3) CMS will include a disclaimer on its Web site with the 
information made available to the public that explains the purpose and 
role of the Rate Filing Justification.
    (4) CMS will include information on its Web site concerning how the 
public can submit comments on the proposed rate increases that CMS 
reviews.

[78 FR 13440, Feb. 27, 2013, as amended at 80 FR 10864, Feb. 27, 2015]



Sec. 154.220  Timing of providing the rate filing justification.

    A health insurance issuer must submit a Rate Filing Justification 
for all rate increases that are filed in a State, or effective in a 
State that does not require the rate increase to be filed, as follows:
    (a) For rate increases for coverage effective prior to January 1, 
2016:
    (1) If a State requires that a proposed rate increase be filed with 
the State prior to the implementation of the rate, the health insurance 
issuer must submit to CMS and the applicable State the Rate Filing 
Justification on the date on which the health insurance issuer submits 
the proposed rate increase to the State.
    (2) For all other States, the health insurance issuer must submit to 
CMS and the State the Rate Filing Justification prior to the 
implementation of the rate increase.
    (b) For rate increases for coverage effective on or after January 1, 
2016, the health insurance issuer must submit to CMS and the applicable 
State a Rate Filing Justification by the earlier of the following:
    (1) The date by which the State requires that a proposed rate 
increase be filed with the State; or
    (2) The date specified in guidance by the Secretary.

[80 FR 10864, Feb. 27, 2015]



Sec. 154.225  Determination by CMS or a State of an unreasonable 
rate increase.

    (a) When CMS receives a Rate Filing Justification for a rate 
increase subject to review and CMS reviews the rate increase under Sec. 
154.210(a), CMS will make a timely determination whether the rate 
increase is an unreasonable rate increase.
    (1) CMS will post on its Web site its final determination and a 
brief explanation of its analysis, consistent with the form and manner 
prescribed by the Secretary under Sec. 154.210(b)(2), within five 
business days following its final determination.
    (2) If CMS determines that the rate increase is an unreasonable rate 
increase, CMS will also provide its final determination and brief 
explanation to the health insurance issuer within five business days 
following its final determination.
    (b) If a State conducts a review under Sec. 154.210(b), CMS will 
adopt the State's determination of whether a rate increase is 
unreasonable and post on the CMS Web site the State's final 
determination described in Sec. 154.210(b)(2).
    (c) If a State determines that the rate increase is an unreasonable 
rate increase and the health insurance issuer is legally permitted to 
implement the unreasonable rate increase under applicable State law, CMS 
will provide the State's final determination and brief explanation to 
the health insurance issuer within five business days following CMS's 
receipt thereof.

[76 FR 29985, May 23, 2011, as amended at 78 FR 13441, Feb. 27, 2013]



Sec. 154.230  Submission and posting of Final Justifications for 
unreasonable rate increases.

    (a) If a health insurance issuer receives from CMS a final 
determination by CMS or a State that a rate increase is an unreasonable 
rate increase, and the health insurance issuer declines to implement the 
rate increase or chooses to implement a lower increase, the health 
insurance issuer must submit to CMS timely notice that it will not 
implement the rate increase or that it will implement a lower increase 
on a form and in the manner prescribed by the Secretary.
    (b) If a health insurance issuer implements a lower increase as 
described in paragraph (a) of this section and the lower increase does 
not meet or exceed the applicable threshold under Sec. 154.200, such 
lower increase is not subject to this part. If the lower increase meets 
or exceeds the applicable threshold, the

[[Page 918]]

health insurance issuer must submit a new Rate Filing Justification 
under this part.
    (c) If a health insurance issuer implements a rate increase 
determined by CMS or a State to be unreasonable, within the later of 10 
business days after the implementation of such increase or the health 
insurance issuer's receipt of CMS's final determination that a rate 
increase is an unreasonable rate increase, the health insurance issuer 
must:
    (1) Submit to CMS a Final Justification in response to CMS's or the 
State's final determination, as applicable. The information in the Final 
Justification must be consistent with the information submitted in the 
Rate Filing Justification supporting the rate increase; and
    (2) Prominently post on its Web site the following information on a 
form and in the manner prescribed by the Secretary:
    (i) The information made available to the public by CMS and 
described in Sec. 154.215(i);
    (ii) CMS's or the State's final determination and brief explanation 
described in Sec. Sec. 154.225(a) and 154.210(b)(2), as applicable; and
    (iii) The health insurance issuer's Final Justification for 
implementing an increase that has been determined to be unreasonable by 
CMS or the State, as applicable.
    (3) The health insurance issuer must continue to make this 
information available to the public on its Web site for at least three 
years.
    (d) CMS will post all Final Justifications on the CMS Web site. This 
information will remain available to the public on the CMS Web site for 
three years.

[76 FR 29985, May 23, 2011, as amended at 78 FR 13441, Feb. 27, 2013]



                Subpart C_Effective Rate Review Programs



Sec. 154.301  CMS's determinations of Effective Rate Review Programs.

    (a) Effective Rate Review Program. In evaluating whether a State has 
an Effective Rate Review Program, CMS will apply the following criteria 
for the review of rates for the small group market and the individual 
market, and also, as applicable depending on State law, the review of 
rates for different types of products within those markets:
    (1) The State receives from issuers data and documentation in 
connection with rate increases that are sufficient to conduct the 
examination described in paragraph (a)(3) of this section.
    (2) The State conducts an effective and timely review of the data 
and documentation submitted by a health insurance issuer in support of a 
proposed rate increase.
    (3) The State's rate review process includes an examination of:
    (i) The reasonableness of the assumptions used by the health 
insurance issuer to develop the proposed rate increase and the validity 
of the historical data underlying the assumptions.
    (ii) The health insurance issuer's data related to past projections 
and actual experience.
    (iii) The reasonableness of assumptions used by the health insurance 
issuer to estimate the rate impact of the reinsurance and risk 
adjustment programs under sections 1341 and 1343 of the Affordable Care 
Act.
    (iv) The health insurance issuer's data related to implementation 
and ongoing utilization of a market-wide single risk pool, essential 
health benefits, actuarial values and other market reform rules as 
required by the Affordable Care Act.
    (4) The examination must take into consideration the following 
factors to the extent applicable to the filing under review:
    (i) The impact of medical trend changes by major service categories.
    (ii) The impact of utilization changes by major service categories.
    (iii) The impact of cost-sharing changes by major service 
categories, including actuarial values.
    (iv) The impact of benefit changes, including essential health 
benefits and non-essential health benefits.
    (v) The impact of changes in enrollee risk profile and pricing, 
including rating limitations for age and tobacco use under section 2701 
of the Public Health Service Act.
    (vi) The impact of any overestimate or underestimate of medical 
trend for

[[Page 919]]

prior year periods related to the rate increase.
    (vii) The impact of changes in reserve needs;
    (viii) The impact of changes in administrative costs related to 
programs that improve health care quality;
    (ix) The impact of changes in other administrative costs;
    (x) The impact of changes in applicable taxes, licensing or 
regulatory fees.
    (xi) Medical loss ratio.
    (xii) The health insurance issuer's capital and surplus.
    (xiii) The impacts of geographic factors and variations.
    (xiv) The impact of changes within a single risk pool to all 
products or plans within the risk pool.
    (xv) The impact of reinsurance and risk adjustment payments and 
charges under sections 1341 and 1343 of the Affordable Care Act.
    (5) The State's determination of whether a rate increase is 
unreasonable is made under a standard that is set forth in State statute 
or regulation.
    (b) Public disclosure and input. (1) In addition to satisfying the 
provisions in paragraph (a) of this section, a State with an Effective 
Rate Review Program must provide:
    (i) For proposed rate increases subject to review, access from its 
Web site to at least the information contained in Parts I, II, and III 
of the Rate Filing Justification that CMS makes available on its Web 
site (or provide CMS's Web address for such information), and have a 
mechanism for receiving public comments on those proposed rate 
increases, no later than the date specified in guidance by the 
Secretary.
    (ii) Beginning with rates filed for coverage effective on or after 
January 1, 2016, for all final rate increases (including those not 
subject to review), access from its Web site to at least the information 
contained in Parts I, II, and III of the Rate Filing Justification (as 
applicable) that CMS makes available on its Web site (or provide CMS's 
Web address for such information), no later than the first day of the 
annual open enrollment period in the individual market for the 
applicable calendar year.
    (2) If a State intends to make the information in paragraph 
(b)(1)(i) of this section available to the public prior to the date 
specified by the Secretary, or if it intends to make the information in 
paragraph (b)(1)(ii) of this section available to the public prior to 
the first day of the annual open enrollment period in the individual 
market for the applicable calendar year, the State must notify CMS in 
writing, no later than 30 days prior to the date it intends to make the 
information public, of its intent to do so and the date it intends to 
make the information public.
    (3) A State with an Effective Rate Review Program must ensure the 
information in paragraphs (b)(1)(i) and (ii) of this section is made 
available to the public at a uniform time for all proposed and final 
rate increases, as applicable, in the relevant market segment and 
without regard to whether coverage is offered through or outside an 
Exchange.
    (c) CMS will determine whether a State has an Effective Rate Review 
Program for each market based on information available to CMS that a 
rate review program meets the criteria described in paragraphs (a) and 
(b) of this section.
    (d) CMS reserves the right to evaluate from time to time whether, 
and to what extent, a State's circumstances have changed such that it 
has begun to or has ceased to satisfy the criteria set forth in 
paragraphs (a) and (b) of this section.

[76 FR 29985, May 23, 2011, as amended at 78 FR 13441, Feb. 27, 2013; 80 
FR 10864, Feb. 27, 2015]



PART 155_EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED STANDARDS 
UNDER THE AFFORDABLE CARE ACT--Table of Contents



                      Subpart A_General Provisions

Sec.
155.10 Basis and scope.
155.20 Definitions.

 Subpart B_General Standards Related to the Establishment of an Exchange

155.100 Establishment of a State Exchange.
155.105 Approval of a State Exchange.
155.106 Election to operate an Exchange after 2014.

[[Page 920]]

155.110 Entities eligible to carry out Exchange functions.
155.120 Non-interference with Federal law and non-discrimination 
          standards.
155.130 Stakeholder consultation.
155.140 Establishment of a regional Exchange or subsidiary Exchange.
155.150 Transition process for existing State health insurance 
          exchanges.
155.160 Financial support for continued operations.
155.170 Additional required benefits.

               Subpart C_General Functions of an Exchange

155.200 Functions of an Exchange.
155.205 Consumer assistance tools and programs of an Exchange.
155.206 Civil money penalties for violations of applicable Exchange 
          standards by consumer assistance entities in Federally-
          facilitated Exchanges.
155.210 Navigator program standards.
155.215 Standards applicable to Navigators and Non-Navigator Assistance 
          Personnel carrying out consumer assistance functions under 
          Sec. Sec. 155.205(d) and (e) and 155.210 in a Federally-
          facilitated Exchange and to Non-Navigator Assistance Personnel 
          funded through an Exchange Establishment Grant.
155.220 Ability of States to permit agents and brokers to assist 
          qualified individuals, qualified employers, or qualified 
          employees enrolling in QHPs.
155.222 Standards for HHS-approved vendors of Federally-facilitated 
          Exchange training and information verification for agents and 
          brokers.
155.225 Certified application counselors.
155.227 Authorized representatives.
155.230 General standards for Exchange notices.
155.240 Payment of premiums.
155.260 Privacy and security of personally identifiable information.
155.270 Use of standards and protocols for electronic transactions.
155.280 Oversight and monitoring of privacy and security requirements.
155.285 Bases and process for imposing civil penalties for provision of 
          false or fraudulent information to an Exchange or improper use 
          or disclosure of information.

   Subpart D_Exchange Functions in the Individual Market: Eligibility 
 Determinations for Exchange Participation and Insurance Affordability 
                                Programs

155.300 Definitions and general standards for eligibility 
          determinations.
155.302 Options for conducting eligibility determinations.
155.305 Eligibility standards.
155.310 Eligibility process.
155.315 Verification process related to eligibility for enrollment in a 
          QHP through the Exchange.
155.320 Verification process related to eligibility for insurance 
          affordability programs.
155.330 Eligibility redetermination during the benefit year.
155.335 Annual eligibility redetermination.
155.340 Administration of advance payments of the premium tax credit and 
          cost-sharing reductions.
155.345 Coordination with Medicaid, CHIP, the Basic Health Program, and 
          the Pre-existing Condition Insurance Plan.
155.350 Special eligibility standards and process for Indians.
155.355 Right to appeal.

  Subpart E_Exchange Functions in the Individual Market: Enrollment in 
                         Qualified Health Plans

155.400 Enrollment of qualified individuals into QHPs.
155.405 Single streamlined application.
155.410 Initial and annual open enrollment periods.
155.415 Allowing issuer application assisters to assist with eligibility 
          applications.
155.420 Special enrollment periods.
155.430 Termination of Exchange enrollment or coverage.

      Subpart F_Appeals of Eligibility Determinations for Exchange 
           Participation and Insurance Affordability Programs

155.500 Definitions.
155.505 General eligibility appeals requirements.
155.510 Appeals coordination.
155.515 Notice of appeal procedures.
155.520 Appeal requests.
155.525 Eligibility pending appeal.
155.530 Dismissals.
155.535 Informal resolution and hearing requirements.
155.540 Expedited appeals.
155.545 Appeal decisions.
155.550 Appeal record.
155.555 Employer appeals process.

   Subpart G_Exchange Functions in the Individual Market: Eligibility 
                     Determinations for Exemptions.

155.600 Definitions and general requirements.
155.605 Eligibility standards for exemptions.
155.610 Eligibility process for exemptions.
155.615 Verification process related to eligibility for exemptions.
155.620 Eligibility redeterminations for exemptions during a calendar 
          year.
155.625 Options for conducting eligibility determinations for 
          exemptions.

[[Page 921]]

155.630 Reporting.
155.635 Right to appeal.

  Subpart H_Exchange Functions: Small Business Health Options Program 
                                 (SHOP)

155.700 Standards for the establishment of a SHOP.
155.705 Functions of a SHOP.
155.710 Eligibility standards for SHOP.
155.715 Eligibility determination process for SHOP.
155.720 Enrollment of employees into QHPs under SHOP.
155.725 Enrollment periods under SHOP.
155.730 Application standards for SHOP.
155.735 Termination of SHOP enrollment or coverage.
155.740 SHOP employer and employee eligibility appeals requirements.

Subparts I-J [Reserved]

  Subpart K_Exchange Functions: Certification of Qualified Health Plans

155.1000 Certification standards for QHPs.
155.1010 Certification process for QHPs.
155.1020 QHP issuer rate and benefit information.
155.1030 QHP certification standards related to advance payments of the 
          premium tax credit and cost-sharing reductions.
155.1040 Transparency in coverage.
155.1045 Accreditation timeline.
155.1050 Establishment of Exchange network adequacy standards.
155.1055 Service area of a QHP.
155.1065 Stand-alone dental plans.
155.1075 Recertification of QHPs.
155.1080 Decertification of QHPs.

Subpart L [Reserved]

 Subpart M_Oversight and Program Integrity Standards for State Exchanges

155.1200 General program integrity and oversight requirements.
155.1210 Maintenance of records.

                       Subpart N_State Flexibility

155.1300 Basis and purpose.
155.1302 Coordinated waiver process.
155.1304 Definitions.
155.1308 Application procedures.
155.1312 State public notice requirements.
155.1316 Federal public notice and approval process.
155.1320 Monitoring and compliance.
155.1324 State reporting requirements.
155.1328 Periodic evaluation requirements.

           Subpart O_Quality Reporting Standards for Exchanges

155.1400 Quality rating system.
155.1405 Enrollee satisfaction survey system.

    Authority: Title I of the Affordable Care Act, sections 1301, 1302, 
1303, 1304, 1311, 1312, 1313, 1321, 1322, 1331, 1332, 1334, 1402, 1411, 
1412, 1413, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 18021-18024, 
18031-18033, 18041-18042, 18051, 18054, 18071, and 18081-18083).

    Source: 77 FR 11718, Feb. 27, 2012, unless otherwise noted.



                      Subpart A_General Provisions.

    Source: 77 FR 18444, Mar. 27, 2012, unless otherwise noted.



Sec. 155.10  Basis and scope.

    (a) Basis. This part is based on the following sections of title I 
of the Affordable Care Act:
    (1) 1301. Qualified health plan defined
    (2) 1302. Essential health benefits requirements
    (3) 1303. Special rules
    (4) 1304. Related definitions
    (5) 1311. Affordable choices of health benefit plans.
    (6) 1312. Consumer choice
    (7) 1313. Financial integrity.
    (8) 1321. State flexibility in operation and enforcement of 
Exchanges and related requirements.
    (9) 1322. Federal program to assist establishment and operation of 
nonprofit, member-run health insurance issuers.
    (10) 1331. State flexibility to establish Basic Health Programs for 
low-income individuals not eligible for Medicaid.
    (11) 1334. Multi-State plans.
    (12) 1402. Reduced cost-sharing for individuals enrolling in QHPs.
    (13) 1411. Procedures for determining eligibility for Exchange 
participation, advance premium tax credits and reduced cost sharing, and 
individual responsibility exemptions.
    (14) 1412. Advance determination and payment of premium tax credits 
and cost-sharing reductions.
    (15) 1413. Streamlining of procedures for enrollment through an 
exchange and State Medicaid, CHIP, and health subsidy programs.
    (b) Scope. This part establishes minimum standards for the 
establishment of an Exchange, minimum Exchange functions, eligibility 
determinations, enrollment periods, minimum SHOP

[[Page 922]]

functions, certification of QHPs, and health plan quality improvement.



Sec. 155.20  Definitions.

    The following definitions apply to this part:
    Advance payments of the premium tax credit means payment of the tax 
credit authorized by 26 U.S.C. 36B and its implementing regulations, 
which are provided on an advance basis to an eligible individual 
enrolled in a QHP through an Exchange in accordance with section 1412 of 
the Affordable Care Act.
    Affordable Care Act means the Patient Protection and Affordable Care 
Act of 2010 (Pub. L. 111-148), as amended by the Health Care and 
Education Reconciliation Act of 2010 (Pub. L. 111-152).
    Agent or broker means a person or entity licensed by the State as an 
agent, broker or insurance producer.
    Annual open enrollment period means the period each year during 
which a qualified individual may enroll or change coverage in a QHP 
through the Exchange.
    Applicant means:
    (1) An individual who is seeking eligibility for him or herself 
through an application submitted to the Exchange, excluding those 
individuals seeking eligibility for an exemption from the individual 
shared responsibility payment pursuant to subpart G of this part, or 
transmitted to the Exchange by an agency administering an insurance 
affordability program for at least one of the following:
    (i) Enrollment in a QHP through the Exchange; or
    (ii) Medicaid, CHIP, and the BHP, if applicable.
    (2) An employer, employee, or former employee seeking eligibility 
for enrollment in a QHP through the SHOP for himself or herself, and, if 
the qualified employer offers dependent coverage through the SHOP, 
seeking eligibility to enroll his or her dependents in a QHP through the 
SHOP.
    Application filer means an applicant, an adult who is in the 
applicant's household, as defined in 42 CFR 435.603(f), or family, as 
defined in 26 CFR 1.36B-1(d), an authorized representative of an 
applicant, or if the applicant is a minor or incapacitated, someone 
acting responsibly for an applicant, excluding those individuals seeking 
eligibility for an exemption from the individual shared responsibility 
payment pursuant to subpart G of this part.
    Benefit year means a calendar year for which a health plan provides 
coverage for health benefits.
    Catastrophic plan means a health plan described in section 1302(e) 
of the Affordable Care Act.
    Code means the Internal Revenue Code of 1986.
    Cost sharing means any expenditure required by or on behalf of an 
enrollee with respect to essential health benefits; such term includes 
deductibles, coinsurance, copayments, or similar charges, but excludes 
premiums, balance billing amounts for non-network providers, and 
spending for non-covered services.
    Cost-sharing reductions means reductions in cost sharing for an 
eligible individual enrolled in a silver level plan in the Exchange or 
for an individual who is an Indian enrolled in a QHP in the Exchange.
    Educated health care consumer has the meaning given the term in 
section 1304(e) of the Affordable Care Act.
    Eligible employer-sponsored plan has the meaning given the term in 
section 5000A(f)(2) of the Code.
    Employee has the meaning given to the term in section 2791 of the 
PHS Act.
    Employer has the meaning given to the term in section 2791 of the 
PHS Act, except that such term includes employers with one or more 
employees. All persons treated as a single employer under subsection 
(b), (c), (m), or (o) of section 414 of the Code are treated as one 
employer.
    Employer contributions means any financial contributions towards an 
employer sponsored health plan, or other eligible employer-sponsored 
benefit made by the employer including those made by salary reduction 
agreement that is excluded from gross income.
    Enrollee means a qualified individual or qualified employee enrolled 
in a QHP. Enrollee also means the dependent of a qualified employee 
enrolled in a QHP through the SHOP, and any other person who is enrolled 
in a QHP

[[Page 923]]

through the SHOP, consistent with applicable law and the terms of the 
group health plan. Provided that at least one employee enrolls in a QHP 
through the SHOP, enrollee also means a business owner enrolled in a QHP 
through the SHOP, or the dependent of a business owner enrolled in a QHP 
through the SHOP.
    Exchange means a governmental agency or non-profit entity that meets 
the applicable standards of this part and makes QHPs available to 
qualified individuals and/or qualified employers. Unless otherwise 
identified, this term includes an Exchange serving the individual market 
for qualified individuals and a SHOP serving the small group market for 
qualified employers, regardless of whether the Exchange is established 
and operated by a State (including a regional Exchange or subsidiary 
Exchange) or by HHS.
    Exchange Blueprint means information submitted by a State, an 
Exchange, or a regional Exchange that sets forth how an Exchange 
established by a State or a regional Exchange meets the Exchange 
approval standards established in Sec. 155.105(b) and demonstrates 
operational readiness of an Exchange as described in Sec. 
155.105(c)(2).
    Exchange service area means the area in which the Exchange is 
certified to operate, in accordance with the standards specified in 
subpart B of this part.
    Federally-facilitated Exchange means an Exchange established and 
operated within a State by the Secretary under section 1321(c)(1) of the 
Affordable Care Act.
    Federally-facilitated SHOP means a Small Business Health Options 
Program established and operated within a State by the Secretary under 
section 1321(c)(1) of the Affordable Care Act.
    Full-time employee has the meaning given in section 4980H (c)(4) of 
the Code effective for plan years beginning on or after January 1, 2016, 
except for operations of a Federally-facilitated SHOP for which it is 
effective for plan years beginning on or after January 1, 2014 and in 
connection with open enrollment activities beginning October 1, 2013.
    Grandfathered health plan has the meaning given the term in Sec. 
147.140.
    Group health plan has the meaning given to the term in Sec. 
144.103.
    Health insurance issuer or issuer has the meaning given to the term 
in Sec. 144.103.
    Health insurance coverage has the meaning given to the term in Sec. 
144.103.
    Health plan has the meaning given to the term in section 1301(b)(1) 
of the Affordable Care Act.
    Individual market has the meaning given the term in section 
1304(a)(2) of the Affordable Care Act.
    Initial open enrollment period means the period during which a 
qualified individual may enroll in coverage through the Exchange for 
coverage during the 2014 benefit year.
    Issuer application assister means an employee, contractor, or agent 
of a QHP issuer who is not licensed as an agent, broker, or producer 
under State law and who assists individuals in the individual market 
with applying for a determination or redetermination of eligibility for 
coverage through the Exchange or for insurance affordability programs.
    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 101 employees on business days during the preceding 
calendar year and who employs at least 1 employee on the first day of 
the plan year. In the case of plan years beginning before January 1, 
2016, a State may elect to define large employer by substituting ``51 
employees'' for ``101 employees.'' The number of employees shall be 
determined using the method set forth in section 4980H(c)(2) of the 
Code, effective for plan years beginning on or after January 1, 2016, 
except for operations of a Federally-facilitated SHOP for which the 
method shall be used for plan years beginning on or after January 1, 
2014 and in connection with open enrollment activities beginning October 
1, 2013.
    Lawfully present has the meaning given the term in Sec. 152.2.
    Minimum essential coverage has the meaning given in section 5000A(f) 
of the Code.
    Navigator means a private or public entity or individual that is 
qualified, and licensed, if appropriate, to engage

[[Page 924]]

in the activities and meet the standards described in Sec. 155.210.
    Plan year means a consecutive 12 month period during which a health 
plan provides coverage for health benefits. A plan year may be a 
calendar year or otherwise.
    Plain language has the meaning given to the term in section 
1311(e)(3)(B) of the Affordable Care Act.
    Qualified employee means any employee or former employee of a 
qualified employer who has been offered health insurance coverage by 
such qualified employer through the SHOP for himself or herself and, if 
the qualified employer offers dependent coverage through the SHOP, for 
his or her dependents.
    Qualified employer means a small employer that elects to make, at a 
minimum, all full-time employees of such employer eligible for one or 
more QHPs in the small group market offered through a SHOP. Beginning in 
2017, if a State allows large employers to purchase coverage through the 
SHOP, the term ``qualified employer'' shall include a large employer 
that elects to make all full-time employees of such employer eligible 
for one or more QHPs in the large group market offered through the SHOP.
    Qualified health plan or QHP means a health plan that has in effect 
a certification that it meets the standards described in subpart C of 
part 156 issued or recognized by each Exchange through which such plan 
is offered in accordance with the process described in subpart K of part 
155.
    Qualified health plan issuer or QHP issuer means a health insurance 
issuer that offers a QHP in accordance with a certification from an 
Exchange.
    Qualified individual means, with respect to an Exchange, an 
individual who has been determined eligible to enroll through the 
Exchange in a QHP in the individual market.
    SHOP means a Small Business Health Options Program operated by an 
Exchange through which a qualified employer can provide its employees 
and their dependents with access to one or more QHPs.
    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 1 but not more than 100 employees on business days 
during the preceding calendar year and who employs at least 1 employee 
on the first day of the plan year. In the case of plan years beginning 
before January 1, 2016, a State may elect to define small employer by 
substituting ``50 employees'' for ``100 employees.'' The number of 
employees shall be determined using the method set forth in section 
4980H(c)(2) of the Code, effective for plan years beginning on or after 
January 1, 2016, except for operations of a Federally-facilitated SHOP 
for which the method shall be used for plan years beginning on or after 
January 1, 2014 and in connection with open enrollment activities 
beginning October 1, 2013.
    Small group market has the meaning given to the term in section 
1304(a)(3) of the Affordable Care Act.
    Special enrollment period means a period during which a qualified 
individual or enrollee who experiences certain qualifying events may 
enroll in, or change enrollment in, a QHP through the Exchange outside 
of the initial and annual open enrollment periods.
    State means each of the 50 States and the District of Columbia.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 15532, Mar. 11, 2013; 
78 FR 39523, July 1, 2013; 78 FR 42313, July 15, 2013; 78 FR 54134, Aug. 
30, 2013; 80 FR 10864, Feb. 27, 2015]



 Subpart B_General Standards Related to the Establishment of an Exchange



Sec. 155.100  Establishment of a State Exchange.

    (a) General requirements. Each State may elect to establish:
    (1) An Exchange that facilitates the purchase of health insurance 
coverage in QHPs in the individual market and that provides for the 
establishment of a SHOP; or
    (2) An Exchange that provides only for the establishment of a SHOP.
    (b) Timing. For plan years beginning before January 1, 2015, only 
States that provide reasonable assurances to CMS that they will be in a 
position to establish and operate only a SHOP for 2014 may elect to 
establish an Exchange

[[Page 925]]

that provides only for the establishment of a SHOP, pursuant to the 
process in Sec. 155.105(c), (d), and/or (e), whichever is applicable. 
For plan years beginning on or after January 1, 2015, any State may 
elect to establish an Exchange that provides only for the establishment 
of a SHOP, pursuant to the process in Sec. 155.106(a).
    (c) Eligible Exchange entities. The Exchange must be a governmental 
agency or non-profit entity established by a State, consistent with 
Sec. 155.110.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 54134, Aug. 30, 2013]



Sec. 155.105  Approval of a State Exchange.

    (a) State Exchange approval requirement. Each State Exchange must be 
approved by HHS by no later than January 1, 2013 to offer QHPs on 
January 1, 2014, and thereafter required in accordance with Sec. 
155.106. HHS may consult with other Federal Government agencies in 
determining whether to approve an Exchange.
    (b) State Exchange approval standards. HHS will approve the 
operation of an Exchange established by a State provided that it meets 
the following standards:
    (1) The Exchange is able to carry out the required functions of an 
Exchange consistent with subparts C, D, E, F, G, H, and K of this part 
unless the State is approved to operate only a SHOP by HHS pursuant to 
Sec. 155.100(a)(2), in which case the Exchange must perform the minimum 
functions described in subpart H and all applicable provisions of other 
subparts referenced therein;
    (2) The Exchange is capable of carrying out the information 
reporting requirements in accordance with section 36B of the Code, 
unless the State is approved to operate only a SHOP by HHS pursuant to 
Sec. 155.100(a)(2); and
    (3) The entire geographic area of the State is in the service area 
of an Exchange, or multiple Exchanges consistent with Sec. 155.140(b).
    (c) State Exchange approval process. In order to have its Exchange 
approved, a State must:
    (1) Elect to establish an Exchange by submitting, in a form and 
manner specified by HHS, an Exchange Blueprint that sets forth how the 
Exchange meets the standards outlined in paragraph (b) of this section; 
and
    (2) Demonstrate operational readiness to execute its Exchange 
Blueprint through a readiness assessment conducted by HHS.
    (d) State Exchange approval. Each Exchange must receive written 
approval or conditional approval of its Exchange Blueprint and its 
performance under the operational readiness assessment consistent with 
paragraph (c) of this section in order to be considered an approved 
Exchange.
    (e) Significant changes to Exchange Blueprint. The State must notify 
HHS in writing before making a significant change to its Exchange 
Blueprint; no significant change to an Exchange Blueprint may be 
effective until it is approved by HHS in writing or 60 days after HHS 
receipt of a completed request. For good cause, HHS may extend the 
review period by an additional 30 days to a total of 90 days. HHS may 
deny a request for a significant change to an Exchange Blueprint within 
the review period.
    (f) HHS operation of an Exchange. (1) If a State does not elect to 
operate an Exchange under Sec. 155.100(a)(1) or an electing State does 
not have an approved or conditionally approved Exchange pursuant to 
Sec. 155.100(a)(1) by January 1, 2013, HHS must (directly or through 
agreement with a not-for-profit entity) establish and operate such 
Exchange within the State. In this case, the requirements in Sec. Sec. 
155.120(c), 155.130 and subparts C, D, E, F, G, H, and K of this part 
will apply.
    (2) If an electing State has an approved or conditionally approved 
Exchange pursuant to Sec. 155.100(a)(2) by January 1, 2013, HHS must 
(directly or through agreement with a not-for-profit entity) establish 
and operate an Exchange that facilitates the purchase of health 
insurance coverage in QHPs in the individual market and operate such 
Exchange within the State. In this case, the requirements in Sec. Sec. 
155.120(c), 155.130 and subparts C, D, E, F, G, and K of this part will 
apply to the Exchange operated by HHS.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42313, July 15, 2013; 
78 FR 54134, Aug. 30, 2013]

[[Page 926]]



Sec. 155.106  Election to operate an Exchange after 2014.

    (a) Election to operate an Exchange after 2014. A State electing to 
seek approval of its Exchange later than January 1, 2013 must:
    (1) Comply with the State Exchange approval requirements and process 
set forth in Sec. 155.105;
    (2) Have in effect an approved, or conditionally approved, Exchange 
Blueprint and operational readiness assessment at least 6.5 months prior 
to the Exchange's first effective date of coverage; and
    (3) Develop a plan jointly with HHS to facilitate the transition 
from a Federally-facilitated Exchange to a State Exchange.
    (b) Transition process for State Exchanges that cease operations. A 
State that ceases operations of its Exchange after January 1, 2014 must:
    (1) Notify HHS that it will no longer operate an Exchange at least 
12 months prior to ceasing operations; and
    (2) Coordinate with HHS on a transition plan to be developed jointly 
between HHS and the State.

[77 FR 18444, Mar. 27, 2012, as amended at 79 FR 13837, Mar. 11, 2014]



Sec. 155.110  Entities eligible to carry out Exchange functions.

    (a) Eligible contracting entities. The State may elect to authorize 
an Exchange established by the State to enter into an agreement with an 
eligible entity to carry out one or more responsibilities of the 
Exchange. Eligible entities are:
    (1) An entity:
    (i) Incorporated under, and subject to the laws of, one or more 
States;
    (ii) That has demonstrated experience on a State or regional basis 
in the individual and small group health insurance markets and in 
benefits coverage; and
    (iii) Is not a health insurance issuer or treated as a health 
insurance issuer under subsection (a) or (b) of section 52 of the Code 
of 1986 as a member of the same controlled group of corporations (or 
under common control with) as a health insurance issuer; or
    (2) The State Medicaid agency, or any other State agency that meets 
the qualifications of paragraph (a)(1) of this section.
    (b) Responsibility. To the extent that an Exchange establishes such 
agreements, the Exchange remains responsible for ensuring that all 
Federal requirements related to contracted functions are met.
    (c) Governing board structure. If the Exchange is an independent 
State agency or a non-profit entity established by the State, the State 
must ensure that the Exchange has in place a clearly-defined governing 
board that:
    (1) Is administered under a formal, publicly-adopted operating 
charter or by-laws;
    (2) Holds regular public governing board meetings that are announced 
in advance;
    (3) Represents consumer interests by ensuring that overall governing 
board membership:
    (i) Includes at least one voting member who is a consumer 
representative;
    (ii) Is not made up of a majority of voting representatives with a 
conflict of interest, including representatives of health insurance 
issuers or agents or brokers, or any other individual licensed to sell 
health insurance; and
    (4) Ensures that a majority of the voting members on its governing 
board have relevant experience in health benefits administration, health 
care finance, health plan purchasing, health care delivery system 
administration, public health, or health policy issues related to the 
small group and individual markets and the uninsured.
    (d) Governance principles. (1) The Exchange must have in place and 
make publicly available a set of guiding governance principles that 
include ethics, conflict of interest standards, accountability and 
transparency standards, and disclosure of financial interest.
    (2) The Exchange must implement procedures for disclosure of 
financial interests by members of the Exchange board or governance 
structure.
    (e) SHOP independent governance. (1) A State may elect to create an 
independent governance and administrative structure for the SHOP, 
consistent with this section, if the State ensures that the SHOP 
coordinates and shares

[[Page 927]]

relevant information with the Exchange operating in the same service 
area.
    (2) If a State chooses to operate its Exchange and SHOP under a 
single governance or administrative structure, it must ensure that the 
Exchange has adequate resources to assist individuals and small 
employers in the Exchange.
    (f) HHS review. HHS may periodically review the accountability 
structure and governance principles of a State Exchange.



Sec. 155.120  Non-interference with Federal law and non-discrimination 
standards.

    (a) Non-interference with Federal law. An Exchange must not 
establish rules that conflict with or prevent the application of 
regulations promulgated by HHS under subtitle D of title I of the 
Affordable Care Act.
    (b) Non-interference with State law. Nothing in parts 155, 156, or 
157 of this subchapter shall be construed to preempt any State law that 
does not prevent the application of the provisions of title I of the 
Affordable Care Act.
    (c) Non-discrimination. (1) In carrying out the requirements of this 
part, the State and the Exchange must:
    (i) Comply with applicable non-discrimination statutes; and
    (ii) Not discriminate based on race, color, national origin, 
disability, age, sex, gender identity or sexual orientation.
    (2) Notwithstanding the provisions of paragraph (c)(1)(ii) of this 
section, an organization that receives Federal funds to provide services 
to a defined population under the terms of Federal legal authorities 
that participates in the certified application counselor program under 
Sec. 155.225 may limit its provision of certified application counselor 
services to the same defined population, but must comply with paragraph 
(c)(1)(ii) of this section with respect to the provision of certified 
application counselor services to that defined population. If the 
organization limits its provision of certified application counselor 
services pursuant to this exception, but is approached for certified 
application counselor services by an individual who is not included in 
the defined population that the organization serves, the organization 
must refer the individual to other Exchange-approved resources that can 
provide assistance. If the organization does not limit its provision of 
certified application counselor services pursuant to this exception, the 
organization must comply with paragraph (c)(1)(ii) of this section.

[77 FR 18444, Mar. 27, 2012, as amended at 79 FR 30342, May 27, 2014]



Sec. 155.130  Stakeholder consultation.

    The Exchange must regularly consult on an ongoing basis with the 
following stakeholders:
    (a) Educated health care consumers who are enrollees in QHPs;
    (b) Individuals and entities with experience in facilitating 
enrollment in health coverage;
    (c) Advocates for enrolling hard to reach populations, which include 
individuals with mental health or substance abuse disorders;
    (d) Small businesses and self-employed individuals;
    (e) State Medicaid and CHIP agencies;
    (f) Federally-recognized Tribes, as defined in the Federally 
Recognized Indian Tribe List Act of 1994, 25 U.S.C. 479a, that are 
located within such Exchange's geographic area;
    (g) Public health experts;
    (h) Health care providers;
    (i) Large employers;
    (j) Health insurance issuers; and
    (k) Agents and brokers.



Sec. 155.140  Establishment of a regional Exchange or subsidiary Exchange.

    (a) Regional Exchange. A State may participate in a regional 
Exchange if:
    (1) The Exchange spans two or more States, regardless of whether the 
States are contiguous; and
    (2) The regional Exchange submits a single Exchange Blueprint and is 
approved to operate consistent with Sec. 155.105(c).
    (b) Subsidiary Exchange. A State may establish one or more 
subsidiary Exchanges within the State if:
    (1) Each such Exchange serves a geographically distinct area; and
    (2) The area served by each subsidiary Exchange is at least as large 
as

[[Page 928]]

a rating area described in section 2701(a) of the PHS Act.
    (c) Exchange standards. Each regional or subsidiary Exchange must:
    (1) Otherwise meet the requirements of an Exchange consistent with 
this part; and
    (2) Meet the following standards for SHOP:
    (i) Perform the functions of a SHOP for its service area in 
accordance with subpart H of this part; and
    (ii) Encompass the same geographic area for its regional or 
subsidiary SHOP and its regional or subsidiary Exchange except:
    (A) In the case of a regional Exchange established pursuant to Sec. 
155.100(a)(2), the regional SHOP must encompass a geographic area that 
matches the combined geographic areas of the individual market Exchanges 
established to serve the same set of States establishing the regional 
SHOP; and
    (B) In the case of a subsidiary Exchange established pursuant to 
Sec. 155.100(a)(2), the combined geographic area of all subsidiary 
SHOPs established in the State must encompass the geographic area of the 
individual market Exchange established to serve the State.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 54134, Aug. 30, 2013]



Sec. 155.150  Transition process for existing State health insurance exchanges.

    (a) Presumption. Unless an exchange is determined to be non-
compliant through the process in paragraph (b) of this section, HHS will 
otherwise presume that an existing State exchange meets the standards 
under this part if:
    (1) The exchange was in operation prior to January 1, 2010; and
    (2) The State has insured a percentage of its population not less 
than the percentage of the population projected to be covered nationally 
after the implementation of the Affordable Care Act, according to the 
Congressional Budget Office estimates for projected coverage in 2016 
that were published on March 30, 2011.
    (b) Process for determining non-compliance. Any State described in 
paragraph (a) of this section must work with HHS to identify areas of 
non-compliance with the standards under this part.



Sec. 155.160  Financial support for continued operations.

    (a) Definition. For purposes of this section, participating issuers 
has the meaning provided in Sec. 156.50.
    (b) Funding for ongoing operations. A State must ensure that its 
Exchange has sufficient funding in order to support its ongoing 
operations beginning January 1, 2015, as follows:
    (1) States may generate funding, such as through user fees on 
participating issuers, for Exchange operations; and
    (2) No Federal grants under section 1311 of the Affordable Care Act 
will be awarded for State Exchange establishment after January 1, 2015.



Sec. 155.170  Additional required benefits.

    (a) Additional required benefits. (1) A State may require a QHP to 
offer benefits in addition to the essential health benefits.
    (2) A State-required benefit enacted on or before December 31, 2011 
is not considered in addition to the essential health benefits.
    (3) The Exchange shall identify which state-required benefits are in 
excess of EHB.
    (b) Payments. The State must make payments to defray the cost of 
additional required benefits specified in paragraph (a) of this section 
to one of the following:
    (1) To an enrollee, as defined in Sec. 155.20 of this subchapter; 
or
    (2) Directly to the QHP issuer on behalf of the individual described 
in paragraph (b)(1) of this section.
    (c) Cost of additional required benefits. (1) Each QHP issuer in the 
State shall quantify cost attributable to each additional required 
benefit specified in paragraph (a) of this section.
    (2) A QHP issuer's calculation shall be:
    (i) Based on an analysis performed in accordance with generally 
accepted actuarial principles and methodologies;
    (ii) Conducted by a member of the American Academy of Actuaries; and
    (iii) Reported to the Exchange.

[78 FR 12865, Feb. 25, 2013]

[[Page 929]]



               Subpart C_General Functions of an Exchange



Sec. 155.200  Functions of an Exchange.

    (a) General requirements. The Exchange must perform the minimum 
functions described in this subpart and in subparts D, E, F, G, H, and K 
of this part unless the State is approved to operate only a SHOP by HHS 
pursuant to Sec. 155.100(a)(2), in which case the Exchange operated by 
the State must perform the minimum functions described in subpart H and 
all applicable provisions of other subparts referenced therein while the 
Exchange operated by HHS must perform the minimum functions described in 
this subpart and in subparts D, E, F, G, and K of this part.
    (b) Certificates of exemption. The Exchange must issue certificates 
of exemption consistent with sections 1311(d)(4)(H) and 1411 of the 
Affordable Care Act.
    (c) Oversight and financial integrity. The Exchange must perform 
required functions related to oversight and financial integrity 
requirements in accordance with section 1313 of the Affordable Care Act.
    (d) Quality activities. The Exchange must evaluate quality 
improvement strategies and oversee implementation of enrollee 
satisfaction surveys, assessment and ratings of health care quality and 
outcomes, information disclosures, and data reporting in accordance with 
sections 1311(c)(1), 1311(c)(3), and 1311(c)(4) of the Affordable Care 
Act.
    (e) Clarification. In carrying out its responsibilities under this 
subpart, an Exchange is not operating on behalf of a QHP.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 39523, July 1, 2013; 78 
FR 54134, Aug. 30, 2013]



Sec. 155.205  Consumer assistance tools and programs of an Exchange.

    (a) Call center. The Exchange must provide for operation of a toll-
free call center that addresses the needs of consumers requesting 
assistance and meets the requirements outlined in paragraphs (c)(1), 
(c)(2)(i), and (c)(3) of this section.
    (b) Internet Web site. The Exchange must maintain an up-to-date 
Internet Web site that meets the requirements outlined in paragraph (c) 
of this section and:
    (1) Provides standardized comparative information on each available 
QHP, including at a minimum:
    (i) Premium and cost-sharing information;
    (ii) The summary of benefits and coverage established under section 
2715 of the PHS Act;
    (iii) Identification of whether the QHP is a bronze, silver, gold, 
or platinum level plan as defined by section 1302(d) of the Affordable 
Care Act, or a catastrophic plan as defined by section 1302(e) of the 
Affordable Care Act;
    (iv) The results of the enrollee satisfaction survey, as described 
in section 1311(c)(4) of the Affordable Care Act;
    (v) Quality ratings assigned in accordance with section 1311(c)(3) 
of the Affordable Care Act;
    (vi) Medical loss ratio information as reported to HHS in accordance 
with 45 CFR part 158;
    (vii) Transparency of coverage measures reported to the Exchange 
during certification in accordance with Sec. 155.1040; and
    (viii) The provider directory made available to the Exchange in 
accordance with Sec. 156.230.
    (2) Publishes the following financial information:
    (i) The average costs of licensing required by the Exchange;
    (ii) Any regulatory fees required by the Exchange;
    (iii) Any payments required by the Exchange in addition to fees 
under paragraphs (b)(2)(i) and (ii) of this section;
    (iv) Administrative costs of such Exchange; and
    (v) Monies lost to waste, fraud, and abuse.
    (3) Provides applicants with information about Navigators as 
described in Sec. 155.210 and other consumer assistance services, 
including the toll-free telephone number of the Exchange call center 
required in paragraph (a) of this section.
    (4) Allows for an eligibility determination to be made in accordance 
with subpart D of this part.

[[Page 930]]

    (5) Allows a qualified individual to select a QHP in accordance with 
subpart E of this part.
    (6) Makes available by electronic means a calculator to facilitate 
the comparison of available QHPs after the application of any advance 
payments of the premium tax credit and any cost-sharing reductions.
    (c) Accessibility. Information must be provided to applicants and 
enrollees in plain language and in a manner that is accessible and 
timely to--
    (1) Individuals living with disabilities including accessible Web 
sites and the provision of auxiliary aids and services at no cost to the 
individual in accordance with the Americans with Disabilities Act and 
section 504 of the Rehabilitation Act.
    (2) Individuals who are limited English proficient through the 
provision of language services at no cost to the individual, including
    (i) For all entities subject to this standard, oral interpretation.
    (A) For Exchanges and QHP issuers, this standard also includes 
telephonic interpreter services in at least 150 languages.
    (B) For an agent or broker subject to Sec. 155.220(c)(3)(i), 
beginning November 1, 2015, or when such entity been registered with the 
Exchange for at least 1 year, whichever is later, this standard also 
includes telephonic interpreter services in at least 150 languages.
    (ii) Written translations; and
    (iii) For all entities subject to this standard, taglines in non-
English languages indicating the availability of language services.
    (A) For Exchanges and QHP issuers, beginning no later than the first 
day of the individual market open enrollment period for the 2017 benefit 
year, this standard also includes taglines on Web site content and any 
document that is critical for obtaining health insurance coverage or 
access to health care services through a QHP for qualified individuals, 
applicants, qualified employers, qualified employees, or enrollees. A 
document is deemed to be critical for obtaining health insurance 
coverage or access to health care services through a QHP if it is 
required to be provided by law or regulation to a qualified individual, 
applicant, qualified employer, qualified employee, or enrollee. Such 
taglines must indicate the availability of language services in at least 
the top 15 languages spoken by the limited English proficient population 
of the relevant State, as determined in guidance published by the 
Secretary.
    (B) For an agent or broker subject to Sec. 155.220(c)(3)(i), 
beginning on the first day of the individual market open enrollment 
period for the 2017 benefit year, or when such entity has been 
registered with the Exchange for at least 1 year, whichever is later, 
this standard also includes taglines on Web site content and any 
document that is critical for obtaining health insurance coverage or 
access to health care services through a QHP for qualified individuals, 
applicants, qualified employers, qualified employees, or enrollees. A 
document is deemed to be critical for obtaining health insurance 
coverage or access to health care services through a QHP if it is 
required to be provided by law or regulation to a qualified individual, 
applicant, qualified employer, qualified employee, or enrollee. Such 
taglines must indicate the availability of language services in at least 
the top 15 languages spoken by the limited English proficient population 
of the relevant State, as determined in guidance published by the 
Secretary.
    (iv) For Exchanges, QHP issuers, and an agent or broker subject to 
Sec. 155.220(c)(3)(i), Web site translations.
    (A) For an Exchange, beginning no later than the first day of the 
individual market open enrollment period for the 2017 benefit year, 
content that is intended for qualified individuals, applicants, 
qualified employers, qualified employees, or enrollees on a Web site 
that is maintained by the Exchange must be translated into any non-
English language that is spoken by a limited English proficient 
population that reaches 10 percent or more of the population of the 
relevant State, as determined in guidance published by the Secretary.
    (B) For a QHP issuer, beginning no later than the first day of the 
individual market open enrollment period for the 2017 benefit year, if 
the content of a Web site maintained by the QHP issuer is critical for 
obtaining health insurance coverage or access to health

[[Page 931]]

care services through a QHP, within the meaning of Sec. 156.250 of this 
subchapter, it must be translated into any non-English language that is 
spoken by a limited English proficient population that reaches 10 
percent or more of the population of the relevant State, as determined 
in guidance published by the Secretary.
    (C) For an agent or broker subject to Sec. 155.220(c)(3)(i), 
beginning on the first day of the individual market open enrollment 
period for the 2017 benefit year, or when such entity has been 
registered with the Exchange for at least 1 year, whichever is later, 
content that is intended for qualified individuals, applicants, 
qualified employers, qualified employees, or enrollees on a Web site 
that is maintained by the agent or broker must be translated into any 
non-English language that is spoken by a limited English proficient 
population that reaches 10 percent or more of the population of the 
relevant State, as determined in guidance published by the Secretary.
    (3) Inform individuals of the availability of the services described 
in paragraphs (c)(1) and (2) of this section and how to access such 
services.
    (d) Consumer assistance. (1) The Exchange must have a consumer 
assistance function that meets the standards in paragraph (c) of this 
section, including the Navigator program described in Sec. 155.210. Any 
individual providing such consumer assistance must be trained regarding 
QHP options, insurance affordability programs, eligibility, and benefits 
rules and regulations governing all insurance affordability programs 
operated in the state, as implemented in the state, prior to providing 
such assistance.
    (2) The Exchange must provide referrals to any applicable office of 
health insurance consumer assistance or health insurance ombudsman 
established under section 2793 of the Public Health Service Act, or any 
other appropriate State agency or agencies, for any enrollee with a 
grievance, complaint, or question regarding their health plan, coverage, 
or a determination under such plan or coverage.
    (e) Outreach and education. The Exchange must conduct outreach and 
education activities that meet the standards in paragraph (c) of this 
section to educate consumers about the Exchange and insurance 
affordability programs to encourage participation.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42859, July 17, 2013; 
80 FR 10864, Feb. 27, 2015]



Sec. 155.206  Civil money penalties for violations of applicable 
Exchange standards by consumer assistance entities in Federally-
facilitated Exchanges.

    (a) Enforcement actions. If an individual or entity specified in 
paragraph (b) of this section engages in activity specified in paragraph 
(c) of this section, the Department of Health and Human Services (HHS) 
may impose the following sanctions:
    (1) Civil money penalties (CMPs), subject to the provisions of this 
section.
    (2) Corrective action plans. In the notice of assessment of CMPs 
specified in paragraph (l) of this section, HHS may provide an 
individual or entity specified in paragraph (b) of this section the 
opportunity to enter into a corrective action plan to correct the 
violation instead of paying the CMP, based on evaluation of the factors 
set forth in paragraph (h) of this section. In the event that the 
individual or entity does not follow such a corrective action plan, HHS 
could require payment of the CMP.
    (b) Consumer assistance entities. CMPs may be assessed under this 
section against the following consumer assistance entities:
    (1) Individual Navigators and Navigator entities in a Federally-
facilitated Exchange, including grantees, sub-grantees, and all 
personnel carrying out Navigator duties on behalf of a grantee or sub-
grantee;
    (2) Non-Navigator assistance personnel authorized under Sec. 
155.205(d) and (e) and non-Navigator assistance personnel entities in a 
Federally-facilitated Exchange, including but not limited to individuals 
and entities under contract with HHS to facilitate consumer enrollment 
in QHPs in a Federally-facilitated Exchange; and
    (3) Organizations that a Federally-facilitated Exchange has 
designated as

[[Page 932]]

certified application counselor organizations and individual certified 
application counselors carrying out certified application counselor 
duties in a Federally-facilitated Exchange.
    (c) Grounds for assessing CMPs. HHS may assess CMPs against a 
consumer assistance entity if, based on the outcome of the investigative 
process outlined in paragraphs (d) through (i) of this section, HHS has 
reasonably determined that the consumer assistance entity has failed to 
comply with the Federal regulatory requirements applicable to the 
consumer assistance entity that have been implemented pursuant to 
section 1321(a)(1) of the Affordable Care Act, including provisions of 
any agreements, contracts, and grant terms and conditions between HHS 
and the consumer assistance entity that interpret those Federal 
regulatory requirements or establish procedures for compliance with 
them, unless a CMP has been assessed for the same conduct under 45 CFR 
155.285.
    (d) Basis for initiating an investigation of a potential violation--
(1) Information. Any information received or learned by HHS that 
indicates that a consumer assistance entity may have engaged or may be 
engaging in activity specified in paragraph (c) of this section may 
warrant an investigation. Information that might trigger an 
investigation includes, but is not limited to, the following:
    (i) Complaints from the general public;
    (ii) Reports from State regulatory agencies, and other Federal and 
State agencies; or
    (iii) Any other information that indicates that a consumer 
assistance entity may have engaged or may be engaging in activity 
specified in paragraph (c) of this section.
    (2) Who may file a complaint. Any entity or individual, or the 
legally authorized representative of an entity or individual, may file a 
complaint with HHS alleging that a consumer assistance entity has 
engaged or is engaging in an activity specified in paragraph (c) of this 
section.
    (e) Notice of investigation. When HHS performs an investigation 
under this section, it must provide a written notice to the consumer 
assistance entity of its investigation. This notice must include the 
following:
    (1) Description of the activity that is being investigated.
    (2) Explanation that the consumer assistance entity has 30 days from 
the date of the notice to respond with additional information or 
documentation, including information or documentation to refute an 
alleged violation.
    (3) State that a CMP might be assessed if the allegations are not, 
as determined by HHS, refuted within 30 days from the date of the 
notice.
    (f) Request for extension. In circumstances in which a consumer 
assistance entity cannot prepare a response to HHS within the 30 days 
provided in the notice of investigation described in paragraph (e) of 
this section, the entity may make a written request for an extension 
from HHS detailing the reason for the extension request and showing good 
cause. If HHS grants the extension, the consumer assistance entity must 
respond to the notice within the time frame specified in HHS's letter 
granting the extension of time. Failure to respond within 30 days, or, 
if applicable, within an extended time frame, may result in HHS's 
imposition of a CMP depending upon the outcome of HHS's investigation of 
the alleged violation.
    (g) Responses to allegations of noncompliance. In determining 
whether to impose a CMP, HHS may review and consider documents or 
information received or collected in accordance with paragraph (d)(1) of 
this section, as well as additional documents or information provided by 
the consumer assistance entity in response to receiving a notice of 
investigation in accordance with paragraph (e)(2) of this section. HHS 
may also conduct an independent investigation into the alleged 
violation, which may include site visits and interviews, if applicable, 
and may consider the results of this investigation in its determination.
    (h) Factors in determining noncompliance and amount of CMPs, if any. 
In determining whether there has been noncompliance by the consumer 
assistance entity, and whether CMPs are appropriate:
    (1) HHS must take into account the following:

[[Page 933]]

    (i) The consumer assistance entity's previous or ongoing record of 
compliance, including but not limited to compliance or noncompliance 
with any corrective action plan.
    (ii) The gravity of the violation, which may be determined in part 
by--
    (A) The frequency of the violation, taking into consideration 
whether any violation is an isolated occurrence, represents a pattern, 
or is widespread; and
    (B) Whether the violation caused, or could reasonably be expected to 
cause, financial or other adverse impacts on consumer(s), and the 
magnitude of those impacts;
    (2) HHS may take into account the following:
    (i) The degree of culpability of the consumer assistance entity, 
including but not limited to--
    (A) Whether the violation was beyond the direct control of the 
consumer assistance entity; and
    (B) The extent to which the consumer assistance entity received 
compensation--legal or otherwise--for the services associated with the 
violation;
    (ii) Aggravating or mitigating circumstances;
    (iii) Whether other remedies or penalties have been assessed and/or 
imposed for the same conduct or occurrence; or
    (iv) Other such factors as justice may require.
    (i) Maximum per-day penalty. The maximum amount of penalty imposed 
for each violation is $100 for each day for each consumer assistance 
entity for each individual directly affected by the consumer assistance 
entity's noncompliance; and where the number of individuals cannot be 
determined, HHS may reasonably estimate the number of individuals 
directly affected by the violation.
    (j) Settlement authority. Nothing in Sec. 155.206 limits the 
authority of HHS to settle any issue or case described in the notice 
furnished in accordance with paragraph (e) of this section or to 
compromise on any penalty provided for in this section.
    (k) Limitations on penalties--(1) Circumstances under which a CMP is 
not imposed. HHS will not impose any CMP on:
    (i) Any violation for the period of time during which none of the 
consumer assistance entities knew, or exercising reasonable diligence 
would have known, of the violation; or
    (ii) The period of time after any of the consumer assistance 
entities knew, or exercising reasonable diligence would have known, of 
the failure, if the violation was due to reasonable cause and not due to 
willful neglect and the violation was corrected within 30 days of the 
first day that any of the consumer assistance entities against whom the 
penalty would be imposed knew, or exercising reasonable diligence would 
have known, that the violation existed.
    (2) Burden of establishing knowledge. The burden is on the consumer 
assistance entity or entities to establish to HHS's satisfaction that 
the consumer assistance entity did not know, or exercising reasonable 
diligence would have known, that the violation existed, as well as the 
period of time during which that limitation applies; or that the 
violation was due to reasonable cause and not due to willful neglect and 
was corrected pursuant to the elements in paragraph (k)(1)(ii) of this 
section.
    (3) Time limit for commencing action. No action under this section 
will be entertained unless commenced, in accordance with Sec. 
155.206(l), within six years from the date on which the violation 
occurred.
    (l) Notice of assessment of CMP. If HHS proposes to assess a CMP in 
accordance with this section, HHS will send a written notice of this 
decision to the consumer assistance entity against whom the sanction is 
being imposed, which notice must include the following:
    (1) A description of the basis for the determination;
    (2) The basis for the CMP;
    (3) The amount of the CMP, if applicable;
    (4) The date the CMP, if applicable, is due;
    (5) Whether HHS would permit the consumer assistance entity to enter 
into a corrective action plan in place of paying the CMP, and the terms 
of any such corrective action plan;
    (6) An explanation of the consumer assistance entity's right to a 
hearing

[[Page 934]]

under paragraph (m) of this section; and
    (7) Information about the process for filing a request for a 
hearing.
    (m) Appeal of proposed sanction. Any consumer assistance entity 
against which HHS has assessed a sanction may appeal that penalty in 
accordance with the procedures set forth at 45 CFR part 150, subpart D.
    (n) Failure to request a hearing. (1) If the consumer assistance 
entity does not request a hearing within 30 days of the issuance of the 
notice of assessment of CMP described in paragraph (l) of this section, 
HHS may require payment of the proposed CMP.
    (2) HHS will notify the consumer assistance entity in writing of any 
CMP that has been assessed and of the means by which the consumer 
assistance entity may pay the CMP.
    (3) The consumer assistance entity has no right to appeal a CMP with 
respect to which it has not requested a hearing in accordance with 
paragraph (m) of this section unless the consumer assistance entity can 
show good cause in accordance with Sec. 150.405(b) of this subchapter 
for failing to timely exercise its right to a hearing.

[79 FR 30342, May 27, 2014]



Sec. 155.210  Navigator program standards.

    (a) General requirements. The Exchange must establish a Navigator 
program consistent with this section through which it awards grants to 
eligible public or private entities or individuals described in 
paragraph (c) of this section.
    (b) Standards. The Exchange must develop and publicly disseminate--
    (1) A set of standards, to be met by all entities and individuals to 
be awarded Navigator grants, designed to prevent, minimize and mitigate 
any conflicts of interest, financial or otherwise, that may exist for an 
entity or individuals to be awarded a Navigator grant and to ensure that 
all entities and individuals carrying out Navigator functions have 
appropriate integrity; and
    (2) A set of training standards, to be met by all entities and 
individuals carrying out Navigator functions under the terms of a 
Navigator grant, to ensure expertise in:
    (i) The needs of underserved and vulnerable populations;
    (ii) Eligibility and enrollment rules and procedures;
    (iii) The range of QHP options and insurance affordability programs; 
and,
    (iv) The privacy and security standards applicable under Sec. 
155.260.
    (c) Entities and individuals eligible to be a Navigator. (1) To 
receive a Navigator grant, an entity or individual must--
    (i) Be capable of carrying out at least those duties described in 
paragraph (e) of this section;
    (ii) Demonstrate to the Exchange that the entity has existing 
relationships, or could readily establish relationships, with employers 
and employees, consumers (including uninsured and underinsured 
consumers), or self-employed individuals likely to be eligible for 
enrollment in a QHP;
    (iii) Meet any licensing, certification or other standards 
prescribed by the State or Exchange, if applicable, so long as such 
standards do not prevent the application of the provisions of title I of 
the Affordable Care Act. Standards that would prevent the application of 
the provisions of title I of the Affordable Care Act include but are not 
limited to the following:
    (A) Except as otherwise provided under Sec. 155.705(d), 
requirements that Navigators refer consumers to other entities not 
required to provide fair, accurate, and impartial information.
    (B) Except as otherwise provided under Sec. 155.705(d), 
requirements that would prevent Navigators from providing services to 
all persons to whom they are required to provide assistance.
    (C) Requirements that would prevent Navigators from providing advice 
regarding substantive benefits or comparative benefits of different 
health plans.
    (D) Requiring that a Navigator hold an agent or broker license or 
imposing any requirement that, in effect, would require all Navigators 
in the Exchange to be licensed agents or brokers.
    (E) Imposing standards that would, as applied or as implemented in a

[[Page 935]]

State, prevent the application of Federal requirements applicable to 
Navigator entities or individuals or applicable to the Exchange's 
implementation of the Navigator program.
    (iv) Not have a conflict of interest during the term as Navigator; 
and,
    (v) Comply with the privacy and security standards adopted by the 
Exchange as required in accordance with Sec. 155.260.
    (2) The Exchange must include an entity as described in paragraph 
(c)(2)(i) of this section and an entity from at least one of the other 
following categories for receipt of a Navigator grant:
    (i) Community and consumer-focused nonprofit groups;
    (ii) Trade, industry, and professional associations;
    (iii) Commercial fishing industry organizations, ranching and 
farming organizations;
    (iv) Chambers of commerce;
    (v) Unions;
    (vi) Resource partners of the Small Business Administration;
    (vii) Licensed agents and brokers; and
    (viii) Other public or private entities or individuals that meet the 
requirements of this section. Other entities may include but are not 
limited to Indian tribes, tribal organizations, urban Indian 
organizations, and State or local human service agencies.
    (d) Prohibition on Navigator conduct. The Exchange must ensure that 
a Navigator must not--
    (1) Be a health insurance issuer or issuer of stop loss insurance;
    (2) Be a subsidiary of a health insurance issuer or issuer of stop 
loss insurance;
    (3) Be an association that includes members of, or lobbies on behalf 
of, the insurance industry;
    (4) Receive any consideration directly or indirectly from any health 
insurance issuer or issuer of stop loss insurance in connection with the 
enrollment of any individuals or employees in a QHP or a non-QHP. 
Notwithstanding the requirements of this paragraph (d)(4), in a 
Federally-facilitated Exchange, no health care provider shall be 
ineligible to operate as a Navigator solely because it receives 
consideration from a health insurance issuer for health care services 
provided;
    (5) Charge any applicant or enrollee, or request or receive any form 
of remuneration from or on behalf of an individual applicant or 
enrollee, for application or other assistance related to Navigator 
duties;
    (6) Provide gifts, including gift cards or cash, unless they are of 
nominal value, or provide promotional items that market or promote the 
products or services of a third party, to any applicant or potential 
enrollee as an inducement for enrollment. Gifts, gift cards, or cash may 
exceed nominal value for the purpose of providing reimbursement for 
legitimate expenses incurred by a consumer in an effort to receive 
Exchange application assistance, such as, but not limited to, travel or 
postage expenses;
    (7) Use Exchange funds to purchase gifts or gift cards, or 
promotional items that market or promote the products or services of a 
third party, that would be provided to any applicant or potential 
enrollee;
    (8) Solicit any consumer for application or enrollment assistance by 
going door-to-door or through other unsolicited means of direct contact, 
including calling a consumer to provide application or enrollment 
assistance without the consumer initiating the contact, unless the 
individual has a pre-existing relationship with the individual Navigator 
or Navigator entity and other applicable State and Federal laws are 
otherwise complied with. Outreach and education activities may be 
conducted by going door-to-door or through other unsolicited means of 
direct contact, including calling a consumer; or
    (9) Initiate any telephone call to a consumer using an automatic 
telephone dialing system or an artificial or prerecorded voice, except 
in cases where the individual Navigator or Navigator entity has a 
relationship with the consumer and so long as other applicable State and 
Federal laws are otherwise complied with.
    (e) Duties of a Navigator. An entity that serves as a Navigator must 
carry out at least the following duties:
    (1) Maintain expertise in eligibility, enrollment, and program 
specifications

[[Page 936]]

and conduct public education activities to raise awareness about the 
Exchange;
    (2) Provide information and services in a fair, accurate, and 
impartial manner, which includes: providing information that assists 
consumers with submitting the eligibility application; clarifying the 
distinctions among health coverage options, including QHPs; and helping 
consumers make informed decisions during the health coverage selection 
process. Such information must acknowledge other health programs;
    (3) Facilitate selection of a QHP;
    (4) Provide referrals to any applicable office of health insurance 
consumer assistance or health insurance ombudsman established under 
section 2793 of the PHS Act, or any other appropriate State agency or 
agencies, for any enrollee with a grievance, complaint, or question 
regarding their health plan, coverage, or a determination under such 
plan or coverage;
    (5) Provide information in a manner that is culturally and 
linguistically appropriate to the needs of the population being served 
by the Exchange, including individuals with limited English proficiency, 
and ensure accessibility and usability of Navigator tools and functions 
for individuals with disabilities in accordance with the Americans with 
Disabilities Act and section 504 of the Rehabilitation Act;
    (6) Ensure that applicants--
    (i) Are informed of the functions and responsibilities of 
Navigators;
    (ii) Provide authorization in a form and manner as determined by the 
Exchange prior to a Navigator's obtaining access to an applicant's 
personally identifiable information, and that the Navigator maintains a 
record of the authorization provided in a form and manner as determined 
by the Exchange. The Exchange must establish a reasonable retention 
period for maintaining these records. In Federally-facilitated 
Exchanges, this period is no less than six years, unless a different and 
longer retention period has already been provided under other applicable 
Federal law; and
    (iii) May revoke at any time the authorization provided the 
Navigator pursuant to paragraph (e)(6)(ii) of this section; and
    (7) Maintain a physical presence in the Exchange service area, so 
that face-to-face assistance can be provided to applicants and 
enrollees. In a Federally-facilitated Exchange, no individual or entity 
shall be ineligible to operate as a Navigator solely because its 
principal place of business is outside of the Exchange service area.
    (f) Funding for Navigator grants. Funding for Navigator grants may 
not be from Federal funds received by the State to establish the 
Exchange.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42859, July 17, 2013; 
79 FR 30344, May 27, 2014; 79 FR 42986, July 24, 2014]



Sec. 155.215  Standards applicable to Navigators and Non-Navigator 
Assistance Personnel carrying out consumer assistance functions under 

Sec. Sec. 155.205(d) and (e) and 155.210 in a Federally-facilitated 
Exchange and to  Non-Navigator Assistance Personnel funded through an 

Exchange Establishment Grant.

    (a) Conflict-of-interest standards. The following conflict-of-
interest standards apply in an Exchange operated by HHS during the 
exercise of its authority under Sec. 155.105(f) and to non-Navigator 
assistance personnel funded through an Exchange Establishment Grant 
under section 1311(a) of the Affordable Care Act:
    (1) Conflict-of-interest standards for Navigators. (i) All Navigator 
entities, including Navigator grant applicants, must submit to the 
Exchange a written attestation that the Navigator, including the 
Navigator's staff:
    (A) Is not a health insurance issuer or issuer of stop loss 
insurance;
    (B) Is not a subsidiary of a health insurance issuer or issuer of 
stop loss insurance;
    (C) Is not an association that includes members of, or lobbies on 
behalf of, the insurance industry; and
    (D) Will not receive any consideration directly or indirectly from 
any health insurance issuer or issuer of stop loss insurance in 
connection with the enrollment of any individuals or employees in a QHP 
or non-QHP.
    (ii) All Navigator entities must submit to the Exchange a written 
plan to remain free of conflicts of interest during the term as a 
Navigator.

[[Page 937]]

    (iii) All Navigator entities, including the Navigator's staff, must 
provide information to consumers about the full range of QHP options and 
insurance affordability programs for which they are eligible.
    (iv) All Navigator entities, including the Navigator's staff, must 
disclose to the Exchange and, in plain language, to each consumer who 
receives application assistance from the Navigator:
    (A) Any lines of insurance business, not covered by the restrictions 
on participation and prohibitions on conduct in Sec. 155.210(d), which 
the Navigator intends to sell while carrying out the consumer assistance 
functions;
    (B) Any existing employment relationships, or any former employment 
relationships within the last 5 years, with any health insurance issuers 
or issuers of stop loss insurance, or subsidiaries of health insurance 
issuers or issuers of stop loss insurance, including any existing 
employment relationships between a spouse or domestic partner and any 
health insurance issuers or issuers of stop loss insurance, or 
subsidiaries of health insurance issuers or issuers of stop loss 
insurance; and
    (C) Any existing or anticipated financial, business, or contractual 
relationships with one or more health insurance issuers or issuers of 
stop loss insurance, or subsidiaries of health insurance issuers or 
issuers of stop loss insurance.
    (2) Conflict-of-interest standards for Non-Navigator assistance 
personnel carrying out consumer assistance functions under Sec. 
155.205(d) and (e). All Non-Navigator entities or individuals authorized 
to carry out consumer assistance functions under Sec. 155.205(d) and 
(e) must--
    (i) Comply with the prohibitions on Navigator conduct set forth at 
Sec. 155.210(d) and the duties of a Navigator set forth at Sec. 
155.210(e)(2).
    (ii) Submit to the Exchange a written attestation that the entity or 
individual--
    (A) Is not a health insurance issuer or issuer of stop loss 
insurance;
    (B) Is not a subsidiary of a health insurance issuer or issuer of 
stop loss insurance;
    (C) Is not an association that includes members of, or lobbies on 
behalf of, the insurance industry; and
    (D) Will not receive any consideration directly or indirectly from 
any health insurance issuer or issuer of stop loss insurance in 
connection with the enrollment of any individuals or employees in a QHP 
or non-QHP.
    (iii) Submit to the Exchange a written plan to remain free of 
conflicts of interest while carrying out consumer assistance functions 
under Sec. 155.205(d) and (e).
    (iv) Provide information to consumers about the full range of QHP 
options and insurance affordability programs for which they are 
eligible.
    (v) Submit to the Exchange, and, in plain language, to each consumer 
who receives application assistance from the entity or individual:
    (A) Any lines of insurance business, not covered by the restrictions 
on participation and prohibitions on conduct in Sec. 155.210(d), which 
the entity or individual intends to sell while carrying out the consumer 
assistance functions;
    (B) Any existing employment relationships, or any former employment 
relationships within the last five years, with any health insurance 
issuers or issuers of stop loss insurance, or subsidiaries of health 
insurance issuers or issuers of stop loss insurance, including any 
existing employment relationships between a spouse or domestic partner 
and any health insurance issuers or issuers of stop loss insurance, or 
subsidiaries of health insurance issuers or issuers of stop loss 
insurance; and
    (C) Any existing or anticipated financial, business, or contractual 
relationships with one or more health insurance issuers or issuers of 
stop loss insurance, or subsidiaries of health insurance issuers or 
issuers of stop loss insurance.
    (b) Training standards for Navigators and Non-Navigator assistance 
personnel carrying out consumer assistance functions under Sec. Sec. 
155.205(d) and (e) and 155.210. The following training standards apply 
in an Exchange operated by HHS during the exercise of its authority 
under Sec. 155.105(f), and to non-Navigator assistance personnel funded 
through an Exchange Establishment Grant under section 1311(a) of the 
Affordable Care Act.
    (1) Certification and recertification standards. All individuals or 
entities

[[Page 938]]

who carry out consumer assistance functions under Sec. Sec. 155.205(d) 
and (e) and 155.210, including Navigators, must meet the following 
certification and recertification requirements.
    (i) Obtain certification by the Exchange prior to carrying out any 
consumer assistance functions under Sec. 155.205(d) and (e) or Sec. 
155.210;
    (ii) Register for and complete a HHS-approved training;
    (iii) Following completion of the HHS-approved training described in 
paragraph (b)(1)(ii) of this section, complete and achieve a passing 
score on all approved certification examinations prior to carrying out 
any consumer assistance functions under Sec. 155.205(d) and (e) or 
Sec. 155.210;
    (iv) Obtain continuing education and be certified and/or recertified 
on at least an annual basis; and
    (v) Be prepared to serve both the individual Exchange and SHOP.
    (2) Training module content standards. All individuals who carry out 
the consumer assistance functions under Sec. Sec. 155.205(d) and (e) 
and 155.210 must receive training in the following subjects:
    (i) QHPs (including the metal levels described at Sec. 156.140(b) 
of this subchapter), and how they operate, including benefits covered, 
payment processes, rights and processes for appeals and grievances, and 
contacting individual plans;
    (ii) The range of insurance affordability programs, including 
Medicaid, the Children's Health Insurance Program (CHIP), and other 
public programs;
    (iii) The tax implications of enrollment decisions;
    (iv) Eligibility requirements for premium tax credits and cost-
sharing reductions, and the impacts of premium tax credits on the cost 
of premiums;
    (v) Contact information for appropriate federal, state, and local 
agencies for consumers seeking additional information about specific 
coverage options not offered through the Exchange;
    (vi) Basic concepts about health insurance and the Exchange; the 
benefits of having health insurance and enrolling through an Exchange; 
and the individual responsibility to have health insurance;
    (vii) Eligibility and enrollment rules and procedures, including how 
to appeal an eligibility determination;
    (viii) Providing culturally and linguistically appropriate services;
    (ix) Ensuring physical and other accessibility for people with a 
full range of disabilities;
    (x) Understanding differences among health plans;
    (xi) Privacy and security standards applicable under Sec. 155.260 
for handling and safeguarding consumers' personally identifiable 
information;
    (xii) Working effectively with individuals with limited English 
proficiency, people with a full range of disabilities, and vulnerable, 
rural, and underserved populations;
    (xiii) Customer service standards;
    (xiv) Outreach and education methods and strategies; and
    (xv) Applicable administrative rules, processes and systems related 
to Exchanges and QHPs.
    (c) Providing Culturally and Linguistically Appropriate Services 
(CLAS Standards). The following standards will apply in an Exchange 
operated by HHS during the exercise of its authority under Sec. 
155.105(f) and to non-Navigator assistance personnel funded through an 
Exchange Establishment Grant under section 1311(a) of the Affordable 
Care Act. To ensure that information provided as part of any consumer 
assistance functions under Sec. 155.205(d) and (e) or Sec. 155.210 is 
culturally and linguistically appropriate to the needs of the population 
being served, including individuals with limited English proficiency as 
required by Sec. Sec. 155.205(c)(2) and 155.210(e)(5), any entity or 
individual carrying out these functions must:
    (1) Develop and maintain general knowledge about the racial, ethnic, 
and cultural groups in their service area, including each group's 
diverse cultural health beliefs and practices, preferred languages, 
health literacy, and other needs;
    (2) Collect and maintain updated information to help understand the 
composition of the communities in the service area, including the 
primary languages spoken;
    (3) Provide consumers with information and assistance in the 
consumer's

[[Page 939]]

preferred language, at no cost to the consumer, including the provision 
of oral interpretation of non-English languages and the translation of 
written documents in non-English languages when necessary or when 
requested by the consumer to ensure effective communication. Use of a 
consumer's family or friends as oral interpreters can satisfy the 
requirement to provide linguistically appropriate services only when 
requested by the consumer as the preferred alternative to an offer of 
other interpretive services;
    (4) Provide oral and written notice to consumers with limited 
English proficiency, in their preferred language, informing them of 
their right to receive language assistance services and how to obtain 
them;
    (5) Receive ongoing education and training in culturally and 
linguistically appropriate service delivery; and
    (6) Implement strategies to recruit, support, and promote a staff 
that is representative of the demographic characteristics, including 
primary languages spoken, of the communities in their service area.
    (d) Standards ensuring access by persons with disabilities. The 
following standards related to ensuring access by people with 
disabilities will apply in an Exchange operated by HHS during the 
exercise of its authority under Sec. 155.105(f), and to non-Navigator 
assistance personnel funded through an Exchange Establishment Grant 
under section 1311(a) of the Affordable Care Act. Any entity or 
individual carrying out any consumer assistance functions under Sec. 
155.205(d) and (e) or Sec. 155.210, and in accordance with Sec. 
155.205(c), must--
    (1) Ensure that any consumer education materials, Web sites, or 
other tools utilized for consumer assistance purposes, are accessible to 
people with disabilities, including those with sensory impairments, such 
as visual or hearing impairments, and those with mental illness, 
addiction, and physical, intellectual, and developmental disabilities;
    (2) Provide auxiliary aids and services for individuals with 
disabilities, at no cost, when necessary or when requested by the 
consumer to ensure effective communication. Use of a consumer's family 
or friends as interpreters can satisfy the requirement to provide 
auxiliary aids and services only when requested by the consumer as the 
preferred alternative to an offer of other auxiliary aids and services;
    (3) Provide assistance to consumers in a location and in a manner 
that is physically and otherwise accessible to individuals with 
disabilities;
    (4) Ensure that authorized representatives are permitted to assist 
an individual with a disability to make informed decisions;
    (5) Acquire sufficient knowledge to refer people with disabilities 
to local, state, and federal long-term services and supports programs 
when appropriate; and
    (6) Be able to work with all individuals regardless of age, 
disability, or culture, and seek advice or experts when needed.
    (e) Monitoring. Any Exchange operated by HHS during the exercise of 
its authority under Sec. 155.105(f) will monitor compliance with the 
standards in this section and the requirements of Sec. Sec. 155.205(d) 
and (e) and 155.210.
    (f) State or Exchange standards. All non-Navigator entities or 
individuals carrying out consumer assistance functions under Sec. 
155.205(d) and (e) in an Exchange operated by HHS during the exercise of 
its authority under Sec. 155.105(f) and all non-Navigator assistance 
personnel funded through an Exchange Establishment Grant under section 
1311(a) of the Affordable Care Act must meet any licensing, 
certification, or other standards prescribed by the State or Exchange, 
if applicable, so long as such standards do not prevent the application 
of the provisions of title I of the Affordable Care Act. Standards that 
would prevent the application of the provisions of title I of the 
Affordable Care Act include but are not limited to the following:
    (1) Requirements that non-Navigator entities or individuals refer 
consumers to other entities not required to provide fair, accurate, and 
impartial information.
    (2) Requirements that would prevent non-Navigator entities or 
individuals from providing services to all persons to whom they are 
required to provide assistance.

[[Page 940]]

    (3) Requirements that would prevent non-Navigator entities or 
individuals from providing advice regarding substantive benefits or 
comparative benefits of different health plans.
    (4) Imposing standards that would, as applied or as implemented in a 
State, prevent the application of Federal requirements applicable to 
non-Navigator entities or individuals or applicable to the Exchange's 
implementation of the non-Navigator assistance personnel program.
    (g) Consumer authorization. All non-Navigator entities or 
individuals carrying out consumer assistance functions under Sec. 
155.205(d) and (e) in an Exchange operated by HHS during the exercise of 
its authority under Sec. 155.105(f) and all non-Navigator assistance 
personnel funded through an Exchange Establishment Grant under section 
1311(a) of the Affordable Care Act must establish procedures to ensure 
that applicants--
    (1) Are informed of the functions and responsibilities of non-
Navigator assistance personnel;
    (2) Provide authorization in a form and manner as determined by the 
Exchange prior to a non-Navigator assistance personnel's obtaining 
access to an applicant's personally identifiable information, and that 
the non-Navigator assistance personnel maintains a record of the 
authorization provided in a form and manner as determined by the 
Exchange. The Exchange must establish a reasonable retention period for 
maintaining these records. In Federally-facilitated Exchanges, this 
period is no less than six years, unless a different and longer 
retention period has already been provided under other applicable 
Federal law; and
    (3) May revoke at any time the authorization provided the non-
Navigator assistance personnel pursuant to paragraph (g)(2) of this 
section.
    (h) Physical presence. All non-Navigator entities carrying out 
consumer assistance functions under Sec. 155.205(d) and (e) in an 
Exchange operated by HHS during the exercise of its authority under 
Sec. 155.105(f) and all non-Navigator entities funded through an 
Exchange Establishment Grant under section 1311(a) of the Affordable 
Care Act must maintain a physical presence in the Exchange service area, 
so that face-to-face assistance can be provided to applicants and 
enrollees. In a Federally-facilitated Exchange, no individual or entity 
shall be ineligible to operate as a non-Navigator entity or as non-
Navigator assistance personnel solely because its principal place of 
business is outside of the Exchange service area.
    (i) Prohibition on compensation per enrollment. Beginning November 
15, 2014, Navigators and Non-Navigator assistance personnel carrying out 
consumer assistance functions under Sec. Sec. 155.205(d) and (e) and 
155.210, if operating in an Exchange operated by HHS during the exercise 
of its authority under Sec. 155.105(f), are prohibited from providing 
compensation to individual Navigators or non-Navigator assistance 
personnel on a per-application, per-individual-assisted, or per-
enrollment basis.

[78 FR 42859, July 17, 2013, as amended at 79 FR 30344, May 27, 2014; 80 
FR 10865, Feb. 27, 2015]



Sec. 155.220  Ability of States to permit agents and brokers to 
assist qualified individuals, qualified employers, or qualified 

employees enrolling in QHPs.

    (a) General rule. A State may permit agents and brokers to--
    (1) Enroll individuals, employers or employees in any QHP in the 
individual or small group market as soon as the QHP is offered through 
an Exchange in the State;
    (2) Subject to paragraphs (c), (d), and (e) of this section, enroll 
qualified individuals in a QHP in a manner that constitutes enrollment 
through the Exchange; and
    (3) Subject to paragraphs (d) and (e) of this section, assist 
individuals in applying for advance payments of the premium tax credit 
and cost-sharing reductions for QHPs.
    (b)(1) Web site disclosure. The Exchange or SHOP may elect to 
provide information regarding licensed agents and brokers on its Web 
site for the convenience of consumers seeking insurance through that 
Exchange and may elect to limit the information to information regarding 
licensed agents and

[[Page 941]]

brokers who have completed any required Exchange or SHOP registration 
and training process.
    (2) A Federally-facilitated Exchange or SHOP will limit the 
information provided on its Web site regarding licensed agents and 
brokers to information regarding licensed agents and brokers who have 
completed registration and training.
    (c) Enrollment through the Exchange. A qualified individual may be 
enrolled in a QHP through the Exchange with the assistance of an agent 
or broker if--
    (1) The agent or broker ensures the applicant's completion of an 
eligibility verification and enrollment application through the Exchange 
Web site as described in Sec. 155.405;
    (2) The Exchange transmits enrollment information to the QHP issuer 
as provided in Sec. 155.400(a) to allow the issuer to effectuate 
enrollment of qualified individuals in the QHP.
    (3) When an Internet Web site of the agent or broker is used to 
complete the QHP selection, at a minimum the Internet Web site must:
    (i) Disclose and display all QHP information provided by the 
Exchange or directly by QHP issuers consistent with the requirements of 
Sec. 155.205(b)(1) and Sec. 155.205(c), and to the extent that not all 
information required under Sec. 155.205(b)(1) is displayed on the agent 
or broker's Internet Web site for a QHP, prominently display a 
standardized disclaimer provided by HHS stating that information 
required under Sec. 155.205(b)(1) for the QHP is available on the 
Exchange Web site, and provide a Web link to the Exchange Web site;
    (ii) Provide consumers the ability to view all QHPs offered through 
the Exchange;
    (iii) Not provide financial incentives, such as rebates or 
giveaways;
    (iv) Display all QHP data provided by the Exchange;
    (v) Maintain audit trails and records in an electronic format for a 
minimum of ten years.
    (vi) Provide consumers with the ability to withdraw from the process 
and use the Exchange Web site described in Sec. 155.205(b) instead at 
any time; and
    (vii) For the Federally-facilitated Exchange, prominently display a 
standardized disclaimer provided by HHS, and provide a Web link to the 
Exchange Web site.
    (4) When an agent or broker, through a contract or other 
arrangement, uses the Internet Web site of another agent or broker to 
help an applicant or enrollee complete a QHP selection in the Federally-
facilitated Exchange, and the agent or broker accessing the Web site 
pursuant to the arrangement is listed as the agent of record on the 
enrollment:
    (i) The agent or broker who makes the Web site available must:
    (A) Provide HHS with a list of agents and brokers who enter into 
such an arrangement to the Federally-facilitated Exchange, if requested 
by HHS;
    (B) Verify that any agent or broker accessing or using the Web site 
pursuant to the arrangement is licensed in the State in which the 
consumer is selecting the QHP; and has completed training and 
registration and has signed all required agreements with the Federally-
facilitated Exchange pursuant to paragraph (d) of this section and Sec. 
155.260(b);
    (C) Ensure that its name and any identifier required by HHS 
prominently appears on the Internet Web site and on written materials 
containing QHP information that can be printed from the Web site, even 
if the agent or broker that is accessing the Internet Web site is able 
to customize the appearance of the Web site;
    (D) Terminate the agent or broker's access to its Web site if HHS 
determines that the agent or broker is in violation of the provisions of 
this section and/or HHS terminates any required agreement with the agent 
or broker;
    (E) Report to HHS and applicable State departments of insurance any 
potential material breach of the standards in paragraphs (c) and (d) of 
this section, or the agreement entered into pursuant to Sec. 
155.260(b), by the agent or broker accessing the Internet Web site, 
should it become aware of any such potential breach.
    (ii) HHS retains the right to temporarily suspend the ability of the 
agent or broker making its Web site available to transact information 
with HHS, if HHS discovers a security and privacy incident or breach, 
for the period in

[[Page 942]]

which HHS begins to conduct an investigation and until the incident or 
breach is remedied to HHS' satisfaction.
    (d) Agreement. An agent or broker that enrolls qualified individuals 
in a QHP in a manner that constitutes enrollment through the Exchange or 
assists individuals in applying for advance payments of the premium tax 
credit and cost-sharing reductions for QHPs must comply with the terms 
of an agreement between the agent or broker and the Exchange under which 
the agent or broker at least:
    (1) Registers with the Exchange in advance of assisting qualified 
individuals enrolling in QHPs through the Exchange;
    (2) Receives training in the range of QHP options and insurance 
affordability programs; and
    (3) Complies with the Exchange's privacy and security standards 
adopted consistent with Sec. 155.260.
    (e) Compliance with State law. An agent or broker that enrolls 
qualified individuals in a QHP in a manner that constitutes enrollment 
through the Exchange or assists individuals in applying for advance 
payments of the premium tax credit and cost-sharing reductions for QHPs 
must comply with applicable State law related to agents and brokers, 
including applicable State law related to confidentiality and conflicts 
of interest.
    (f) Termination notice to HHS. (1) An agent or broker may terminate 
its agreement with HHS by sending to HHS a written notice at least 30 
days in advance of the date of intended termination.
    (2) The notice must include the intended date of termination, but if 
it does not specify a date of termination, or the date provided is not 
acceptable to HHS, HHS may set a different termination date that will be 
no less than 30 days from the date on the agent's or broker's notice of 
termination.
    (3) Prior to the date of termination, an agent or broker should--
    (i) Notify applicants, qualified individuals, or enrollees that the 
agent or broker is assisting, of the agent's or broker's intended date 
of termination;
    (ii) Continue to assist such individuals with Exchange-related 
eligibility and enrollment services up until the date of termination; 
and
    (iii) Provide such individuals with information about alternatives 
available for obtaining additional assistance, including but not limited 
to the Federally-facilitated Exchange Web site.
    (4) When termination becomes effective under paragraph this 
paragraph (f) or paragraph (g) of this section, the agent or broker will 
not be able to assist any individual through the Federally-facilitated 
Exchange, and the agent's or broker's agreement with the Exchange 
pursuant to Sec. 155.260(b) will also be terminated through the 
termination without cause process set forth in that agreement. The agent 
or broker must continue to protect any personally identifiable 
information accessed during the term of either of these agreements with 
the Federally-facilitated Exchange.
    (g) Standards for termination for cause from the Federally-
facilitated Exchange. (1) If, in HHS's determination, a specific finding 
of noncompliance or pattern of noncompliance is sufficiently severe, HHS 
may terminate an agent's or broker's agreement with the Federally-
facilitated Exchange for cause.
    (2) An agent or broker may be determined noncompliant if HHS finds 
that the agent or broker violated--
    (i) Any standard specified under this section;
    (ii) Any term or condition of its agreement with the Federally-
facilitated Exchange required under paragraph (d) of this section, or if 
the agreement with the Federally-facilitated Exchange under Sec. 
155.260(b) is terminated;
    (iii) Any State law applicable to agents or brokers, as required 
under paragraph (e) of this section, including but not limited to State 
laws related to confidentiality and conflicts of interest; or
    (iv) Any Federal law applicable to agents or brokers.
    (3) HHS will notify the agent or broker of the specific finding of 
noncompliance or pattern of noncompliance, and after 30 days from the 
date of the notice, may terminate the agreement for cause if the matter 
is not resolved to the satisfaction of HHS.

[[Page 943]]

    (4) After the period in paragraph (g)(3) of this section has 
elapsed, the agent or broker will no longer be registered with the 
Federally-facilitated Exchange or able to transact information with HHS
    (h) Request for reconsideration of termination for cause from the 
Federally-facilitated Exchange--(1) Request for reconsideration. An 
agent or broker whose agreement with the Federally-facilitated Exchange 
has been terminated may request reconsideration of such action in the 
manner and form established by HHS.
    (2) Timeframe for request. The agent or broker must submit a request 
for reconsideration to the HHS reconsideration entity within 30 calendar 
days of the date of the written notice from HHS.
    (3) Notice of reconsideration decision. The HHS reconsideration 
entity will provide the agent or broker with a written notice of the 
reconsideration decision within 30 calendar days of the date it receives 
the request for reconsideration. This decision will constitute HHS's 
final determination.
    (i) Use of agents' and brokers' Internet Web sites for SHOP. For 
plan years beginning on or after January 1, 2015, in States that permit 
this activity under State law, a SHOP may permit agents and brokers to 
use an Internet Web site to assist qualified employers and facilitate 
enrollment of enrollees in a QHP through the Exchange, under paragraph 
(c)(3) of this section.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 15533, Mar. 11, 2013; 
78 FR 54134, Aug. 30, 2013; 79 FR 13837, Mar. 11, 2014; 80 FR 10865, 
Feb. 27, 2015]

    Editorial Note: At 78 FR 54134, Aug. 30, 2013, Sec. 155.220 was 
amended by revising (d)(3); however, the amendment could not be 
incorporated because there was no regulatory text provided in the 
amendment for (d)(3).



Sec. 155.222  Standards for HHS-approved vendors of Federally-
facilitated Exchange training and information verification for 

agents and brokers.

    (a) Application for approval. (1) A vendor must be approved by HHS, 
in a form and manner to be determined by HHS, in order to have its 
training and information verification program recognized for agents and 
brokers assisting with or facilitating enrollment in individual market 
or SHOP coverage through the Exchanges consistent with Sec. 155.220.
    (2) As part of the training program, the vendor must require agents 
and brokers to provide identifying information and proof of valid State 
licensure, and successfully complete the required curriculum and 
identity proofing.
    (3) HHS will approve vendors on an annual basis for a given plan 
year, and each vendor must submit an application for each year that 
approval is sought.
    (b) Standards. To be approved by HHS and maintain its status as an 
approved vendor for plan year 2016 and future plan years, a vendor must 
meet each of the following standards:
    (1) Submit a complete and accurate application by the deadline 
established by HHS, which includes demonstration of the following:
    (i) Prior experience with successfully conducting online training, 
verification of valid State license, as well as providing technical 
support to a large customer base; and
    (ii) The ability to conduct identity proofing.
    (2) Adhere to HHS specifications for content, format, and delivery 
of training and information verification, which include offering 
continuing education units (CEUs) for at least five States in which a 
Federally-facilitated Exchange is operating.
    (3) Collect, store, and share with HHS all data from agent and 
broker users of the vendor's training and information verification in a 
manner, format, and frequency specified by HHS, and protect the data in 
accordance with applicable privacy and security laws and regulations.
    (4) Execute an agreement with HHS, in a form and manner to be 
determined by HHS, which requires the vendor to comply with HHS 
guidelines for interfacing with HHS data systems, the implementation of 
the training and information verification processes, and the use of all 
data collected.
    (5) Permit any individual who holds a valid State license or 
equivalent State authority to sell health insurance products to access 
the vendor's training and information verification.

[[Page 944]]

    (c) Approved list. A list of approved vendors will be published on 
an HHS Web site.
    (d) Monitoring. HHS may periodically monitor and audit vendors 
approved under this subpart, and their records related to the training 
and information verification functions described in this section, to 
ensure ongoing compliance with the standards in paragraph (b) of this 
section. If HHS determines that an HHS-approved vendor is not in 
compliance with the standards required in paragraph (b) of this section, 
the vendor may be removed from the approved list described in paragraph 
(c) of this section and may be required by HHS to cease performing the 
training and information verification functions described under this 
subpart.
    (e) Appeals. A vendor that is not approved by HHS after submitting 
the application described in paragraph (a) of this section, or an 
approved vendor whose agreement is revoked under paragraph (d) of this 
section, may appeal HHS's decision by notifying HHS in writing within 15 
days from receipt of the notification of not being approved and 
submitting additional documentation demonstrating how the vendor meets 
the standards in paragraph (b) of this section and (if applicable) the 
terms of its agreement with HHS. HHS will review the submitted 
documentation and make a final approval determination within 30 days 
from receipt of the additional documentation.

[80 FR 10865, Feb. 27, 2015]



Sec. 155.225  Certified application counselors.

    (a) General rule. The Exchange must have a certified application 
counselor program that complies with the requirements of this section.
    (b) Exchange designation of organizations. (1) The Exchange may 
designate an organization, including an organization designated as a 
Medicaid certified application counselor organization by a state 
Medicaid or CHIP agency, to certify its staff members or volunteers to 
act as certified application counselors who perform the duties and meet 
the standards and requirements for certified application counselors in 
this section if the organization--
    (i) Enters into an agreement with the Exchange to comply with the 
standards and requirements of this section including the standards 
specified in paragraphs (d)(3) through (d)(5) of this section; and
    (ii) Maintains a registration process and method to track the 
performance of certified application counselors.
    (2) An Exchange may comply with paragraph (a) of this section either 
by--
    (i) Designating organizations to certify application counselors in 
compliance with paragraph (b)(1) of this section;
    (ii) Directly certifying individual staff members or volunteers of 
Exchange designated organizations to provide the duties specified in 
paragraph (c) of this section if the staff member or volunteer enters 
into an agreement with the Exchange to comply with the standards and 
requirements for certified application counselors in this section; or
    (iii) A combination of paragraphs (b)(2)(i) and (b)(2)(ii) of this 
section.
    (3) In a Federally-facilitated Exchange, no individual or entity 
shall be ineligible to operate as a certified application counselor or 
organization designated by the Exchange under paragraph (b) of this 
section solely because its principal place of business is outside of the 
Exchange service area.
    (c) Duties. Certified application counselors are certified to--
    (1) Provide information to individuals and employees about the full 
range of QHP options and insurance affordability programs for which they 
are eligible, which includes: providing fair, impartial, and accurate 
information that assists consumers with submitting the eligibility 
application; clarifying the distinctions among health coverage options, 
including QHPs; and helping consumers make informed decisions during the 
health coverage selection process;
    (2) Assist individuals and employees to apply for coverage in a QHP 
through the Exchange and for insurance affordability programs; and
    (3) Help to facilitate enrollment of eligible individuals in QHPs 
and insurance affordability programs.

[[Page 945]]

    (d) Standards of certification. An organization designated by the 
Exchange to provide certified application counselor services, or an 
Exchange that chooses to certify individual staff members or volunteers 
directly under paragraph (b)(2)(ii) of this section, may certify a staff 
member or volunteer to perform the duties specified in paragraph (c) of 
this section only if the staff member or volunteer--
    (1) Completes Exchange approved training regarding QHP options, 
insurance affordability programs, eligibility, and benefits rules and 
regulations governing all insurance affordability programs operated in 
the state, as implemented in the state, and completes and achieves a 
passing score on all Exchange approved certification examinations, prior 
to functioning as a certified application counselor;
    (2) Discloses to the organization, or to the Exchange if directly 
certified by an Exchange, and potential applicants any relationships the 
certified application counselor or sponsoring agency has with QHPs or 
insurance affordability programs, or other potential conflicts of 
interest;
    (3) Complies with the Exchange's privacy and security standards 
adopted consistent with Sec. 155.260, and applicable authentication and 
data security standards;
    (4) Agrees to act in the best interest of the applicants assisted;
    (5) Either directly or through an appropriate referral to a 
Navigator or non-Navigator assistance personnel authorized under Sec. 
155.205(d) and (e) or Sec. 155.210, or to the Exchange call center 
authorized under Sec. 155.205(a), provides information in a manner that 
is accessible to individuals with disabilities, as defined by the 
Americans with Disabilities Act, as amended, 42 U.S.C. 12101 et seq. and 
section 504 of the Rehabilitation Act, as amended, 29 U.S.C. 794;
    (6) Enters into an agreement with the organization regarding 
compliance with the standards specified in paragraphs (d), (f), and (g) 
of this section;
    (7) Is recertified on at least an annual basis after successfully 
completing recertification training as required by the Exchange; and
    (8) Meets any licensing, certification, or other standards 
prescribed by the State or Exchange, if applicable, so long as such 
standards do not prevent the application of the provisions of title I of 
the Affordable Care Act. Standards that would prevent the application of 
the provisions of title I of the Affordable Care Act include but are not 
limited to the following:
    (i) Requirements that certified application counselors refer 
consumers to other entities not required to provide fair, accurate, and 
impartial information.
    (ii) Requirements that would prevent certified application 
counselors from providing services to all persons to whom they are 
required to provide assistance.
    (iii) Requirements that would prevent certified application 
counselors from providing advice regarding substantive benefits or 
comparative benefits of different health plans.
    (iv) Imposing standards that would, as applied or as implemented in 
a State, prevent the application of Federal requirements applicable to 
certified application counselors, to an organization designated by the 
Exchange under paragraph (b) of this section, or to the Exchange's 
implementation of the certified application counselor program.
    (e) Withdrawal of designation and certification. (1) The Exchange 
must establish procedures to withdraw designation from a particular 
organization it has designated under paragraph (b) of this section, when 
it finds noncompliance with the terms and conditions of the 
organization's agreement required by paragraph (b) of this section.
    (2) If an Exchange directly certifies organizations' individual 
certified application counselors, it must establish procedures to 
withdraw certification from individual certified application counselors 
when it finds noncompliance with the requirements of this section.
    (3) An organization designated by the Exchange under paragraph (b) 
of this section must establish procedures to withdraw certification from 
individual certified application counselors when it finds noncompliance 
with the requirements of this section.
    (f) Availability of information; authorization. An organization 
designated by

[[Page 946]]

the Exchange under paragraph (b) of this section, or, if applicable, an 
Exchange that certifies staff members or volunteers of organizations 
directly must establish procedures to ensure that applicants--
    (1) Are informed of the functions and responsibilities of certified 
application counselors;
    (2) Provide authorization in a form and manner as determined by the 
Exchange prior to a certified application counselor obtaining access to 
an applicant's personally identifiable information, and that the 
organization or certified application counselor maintains a record of 
the authorization in a form and manner as determined by the Exchange. 
The Exchange must establish a reasonable retention period for 
maintaining these records. In Federally-facilitated Exchanges, this 
period is no less than six years, unless a different and longer 
retention period has already been provided under other applicable 
Federal law; and
    (3) May revoke at any time the authorization provided the certified 
application counselor, pursuant to paragraph (f)(2) of this section.
    (g) Fees, consideration, solicitation, and marketing. Organizations 
designated by the Exchange under paragraph (b) of this section and 
certified application counselors must not--
    (1) Impose any charge on applicants or enrollees for application or 
other assistance related to the Exchange;
    (2) Receive any consideration directly or indirectly from any health 
insurance issuer or issuer of stop-loss insurance in connection with the 
enrollment of any individuals in a QHP or a non-QHP. In a Federally-
facilitated Exchange, no health care provider shall be ineligible to 
operate as a certified application counselor or organization designated 
by the Exchange under paragraph (b) of this section solely because it 
receives consideration from a health insurance issuer for health care 
services provided;
    (3) Beginning November 15, 2014, if operating in a Federally-
facilitated Exchange, provide compensation to individual certified 
application counselors on a per-application, per-individual-assisted, or 
per-enrollment basis;
    (4) Provide gifts, including gift cards or cash, unless they are of 
nominal value, or provide promotional items that market or promote the 
products or services of a third party, to any applicant or potential 
enrollee as an inducement for enrollment. Gifts, gift cards, or cash may 
exceed nominal value for the purpose of providing reimbursement for 
legitimate expenses incurred by a consumer in an effort to receive 
Exchange application assistance, such as, but not limited to, travel or 
postage expenses;
    (5) Solicit any consumer for application or enrollment assistance by 
going door-to-door or through other unsolicited means of direct contact, 
including calling a consumer to provide application or enrollment 
assistance without the consumer initiating the contact, unless the 
individual has a pre-existing relationship with the individual certified 
application counselor or designated organization and other applicable 
State and Federal laws are otherwise complied with. Outreach and 
education activities may be conducted by going door-to-door or through 
other unsolicited means of direct contact, including calling a consumer; 
or
    (6) Initiate any telephone call to a consumer using an automatic 
telephone dialing system or an artificial or prerecorded voice, except 
in cases where the individual certified application counselor or 
designated organization has a relationship with the consumer and so long 
as other applicable State and Federal laws are otherwise complied with.

[78 FR 42861, July 17, 2013, as amended at 79 FR 30345, May 27, 2014; 79 
FR 42986, July 24, 2014]



Sec. 155.227  Authorized representatives.

    (a) General rule. (1) The Exchange must permit an applicant or 
enrollee in the individual or small group market, subject to applicable 
privacy and security requirements, to designate an individual person or 
organization to act on his or her behalf in applying for an eligibility 
determination or redetermination, under subpart D, G, or H of this part, 
and in carrying out other ongoing communications with the Exchange.

[[Page 947]]

    (2) Designation of an authorized representative must be in a written 
document signed by the applicant or enrollee, or through another legally 
binding format subject to applicable authentication and data security 
standards. If submitted, legal documentation of authority to act on 
behalf of an applicant or enrollee under State law, such as a court 
order establishing legal guardianship or a power of attorney, shall 
serve in the place of the applicant's or enrollee's signature.
    (3) The Exchange must ensure that the authorized representative 
agrees to maintain, or be legally bound to maintain, the confidentiality 
of any information regarding the applicant or enrollee provided by the 
Exchange.
    (4) The Exchange must ensure that the authorized representative is 
responsible for fulfilling all responsibilities encompassed within the 
scope of the authorized representation, as described in this section, to 
the same extent as the applicant or enrollee he or she represents.
    (5) The Exchange must provide information both to the applicant or 
enrollee, and to the authorized representative, regarding the powers and 
duties of authorized representatives.
    (b) Timing of designation. The Exchange must permit an applicant or 
enrollee to designate an authorized representative:
    (1) At the time of application; and
    (2) At other times and through methods as described in Sec. 
155.405(c)(2).
    (c) Duties. (1) The Exchange must permit an applicant or enrollee to 
authorize his or her representative to:
    (i) Sign an application on the applicant or enrollee's behalf;
    (ii) Submit an update or respond to a redetermination for the 
applicant or enrollee in accordance with Sec. 155.330 or Sec. 155.335;
    (iii) Receive copies of the applicant's or enrollee's notices and 
other communications from the Exchange; and
    (iv) Act on behalf of the applicant or enrollee in all other matters 
with the Exchange.
    (2) The Exchange may permit an applicant or enrollee to authorize a 
representative to perform fewer than all of the activities described in 
paragraph (c)(1) of this section, provided that the Exchange tracks the 
specific permissions for each authorized representative.
    (d) Duration. The Exchange must consider the designation of an 
authorized representative valid until:
    (1) The applicant or enrollee notifies the Exchange that the 
representative is no longer authorized to act on his or her behalf using 
one of the methods available for the submission of an application, as 
described in Sec. 155.405(c). The Exchange must notify the authorized 
representative of such change; or
    (2) The authorized representative informs the Exchange and the 
applicant or enrollee that he or she no longer is acting in such 
capacity. An authorized representative must notify the Exchange and the 
applicant or enrollee on whose behalf he or she is acting when the 
authorized representative no longer has legal authority to act on behalf 
of the applicant or enrollee.
    (e) Compliance with State and Federal law. The Exchange must require 
an authorized representative to comply with applicable state and federal 
laws concerning conflicts of interest and confidentiality of 
information.
    (f) Signature. For purposes of this section, designation of an 
authorized representative must be through a written document signed by 
the applicant or enrollee, or through another legally binding format, as 
described in Sec. 155.227(a)(2), and must be accepted through all of 
the modalities described in Sec. 155.405(c).

[78 FR 42313, July 15, 2013]



Sec. 155.230  General standards for Exchange notices.

    (a) General requirement. Any notice required to be sent by the 
Exchange to individuals or employers must be written and include:
    (1) An explanation of the action reflected in the notice, including 
the effective date of the action.
    (2) Any factual findings relevant to the action.
    (3) Citations to, or identification of, the relevant regulations 
supporting the action.
    (4) Contact information for available customer service resources.
    (5) An explanation of appeal rights, if applicable.

[[Page 948]]

    (b) Accessibility and readability requirements. All applications, 
forms, and notices, including the single, streamlined application 
described in Sec. 155.405 and notice of annual redetermination 
described in Sec. 155.335(c), must conform to the standards outlined in 
Sec. 155.205(c).
    (c) Re-evaluation of appropriateness and usability. The Exchange 
must re-evaluate the appropriateness and usability of applications, 
forms, and notices.
    (d) Electronic notices. (1) The individual market Exchange must 
provide required notices either through standard mail, or if an 
individual or employer elects, electronically, provided that the 
requirements for electronic notices in 42 CFR 435.918 are met, except 
that the individual market Exchange is not required to implement the 
process specified in 42 CFR 435.918(b)(1) for eligibility determinations 
for enrollment in a QHP through the Exchange and insurance affordability 
programs that are effective before January 1, 2015.
    (2) The SHOP must provide required notices either through standard 
mail, or if an employer or employee elects, electronically, provided 
that the requirements for electronic notices in 42 CFR 435.918(b)(2) 
through (5) are met for the employer or employee.

[77 FR 11718, Feb. 27, 2012, as amended at 78 FR 42314, July 15, 2013]



Sec. 155.240  Payment of premiums.

    (a) Payment by individuals. The Exchange must allow a qualified 
individual to pay any applicable premium owed by such individual 
directly to the QHP issuer.
    (b) Payment by tribes, tribal organizations, and urban Indian 
organizations. The Exchange may permit Indian tribes, tribal 
organizations and urban Indian organizations to pay aggregated QHP 
premiums on behalf of qualified individuals, including aggregated 
payment, subject to terms and conditions determined by the Exchange.
    (c) Payment facilitation. The Exchange may establish a process to 
facilitate through electronic means the collection and payment of 
premiums to QHP issuers.
    (d) Required standards. In conducting an electronic transaction with 
a QHP issuer that involves the payment of premiums or an electronic 
funds transfer, the Exchange must comply with the privacy and security 
standards adopted in accordance with Sec. 155.260 and use the standards 
and operating rules referenced in Sec. 155.270.
    (e) Premium calculation. The Exchange may establish one or more 
standard processes for premium calculation.
    (1) For a Federally-facilitated Exchange, the premium for coverage 
lasting less than one month must equal the product of--
    (i) The premium for one month of coverage divided by the number of 
days in the month; and
    (ii) The number of days for which coverage is being provided in the 
month described in paragraph (e)(1)(i) of this section.
    (2) [Reserved]

[77 FR 18444, Mar. 27, 2012, as amended at 79 FR 30346, May 27, 2014]



Sec. 155.260  Privacy and security of personally identifiable information.

    (a) Creation, collection, use and disclosure. (1) Where the Exchange 
creates or collects personally identifiable information for the purposes 
of determining eligibility for enrollment in a qualified health plan; 
determining eligibility for other insurance affordability programs, as 
defined in Sec. 155.20; or determining eligibility for exemptions from 
the individual responsibility provisions in section 5000A of the Code, 
the Exchange may only use or disclose such personally identifiable 
information to the extent such information is necessary:
    (i) For the Exchange to carry out the functions described in Sec. 
155.200;
    (ii) For the Exchange to carry out other functions not described in 
paragraph (a)(1)(i) of this section, which the Secretary determines to 
be in compliance with section 1411(g)(2)(A) of the Affordable Care Act 
and for which an individual provides consent for his or her information 
to be used or disclosed; or
    (iii) For the Exchange to carry out other functions not described in 
paragraphs (a)(1)(i) and (ii) of this section, for which an individual 
provides consent for his or her information to be

[[Page 949]]

used or disclosed, and which the Secretary determines are in compliance 
with section 1411(g)(2)(A) of the Affordable Care Act under the 
following substantive and procedural requirements:
    (A) Substantive requirements. The Secretary may approve other uses 
and disclosures of personally identifiable information created or 
collected as described in paragraph (a)(1) of this section that are not 
described in paragraphs (a)(1)(i) or (ii) of this section, provided that 
HHS determines that the information will be used only for the purposes 
of and to the extent necessary in ensuring the efficient operation of 
the Exchange consistent with section 1411(g)(2)(A) of the Affordable 
Care Act, and that the uses and disclosures are also permissible under 
relevant law and policy.
    (B) Procedural requirements for approval of a use or disclosure of 
personally identifiable information. To seek approval for a use or 
disclosure of personally identifiable information created or collected 
as described in paragraph (a)(1) of this section that is not described 
in paragraphs (a)(1)(i) or (ii) of this section, the Exchange must 
submit the following information to HHS:
    (1) Identity of the Exchange and appropriate contact persons;
    (2) Detailed description of the proposed use or disclosure, which 
must include, but not necessarily be limited to, a listing or 
description of the specific information to be used or disclosed and an 
identification of the persons or entities that may access or receive the 
information;
    (3) Description of how the use or disclosure will ensure the 
efficient operation of the Exchange consistent with section 
1411(g)(2)(A) of the Affordable Care Act; and
    (4) Description of how the information to be used or disclosed will 
be protected in compliance with privacy and security standards that meet 
the requirements of this section or other relevant law, as applicable.
    (2) The Exchange may not create, collect, use, or disclose 
personally identifiable information unless the creation, collection, 
use, or disclosure is consistent with this section.
    (3) The Exchange must establish and implement privacy and security 
standards that are consistent with the following principles:
    (i) Individual access. Individuals should be provided with a simple 
and timely means to access and obtain their personally identifiable 
information in a readable form and format;
    (ii) Correction. Individuals should be provided with a timely means 
to dispute the accuracy or integrity of their personally identifiable 
information and to have erroneous information corrected or to have a 
dispute documented if their requests are denied;
    (iii) Openness and transparency. There should be openness and 
transparency about policies, procedures, and technologies that directly 
affect individuals and/or their personally identifiable information;
    (iv) Individual choice. Individuals should be provided a reasonable 
opportunity and capability to make informed decisions about the 
collection, use, and disclosure of their personally identifiable 
information;
    (v) Collection, use, and disclosure limitations. Personally 
identifiable information should be created, collected, used, and/or 
disclosed only to the extent necessary to accomplish a specified 
purpose(s) and never to discriminate inappropriately;
    (vi) Data quality and integrity. Persons and entities should take 
reasonable steps to ensure that personally identifiable information is 
complete, accurate, and up-to-date to the extent necessary for the 
person's or entity's intended purposes and has not been altered or 
destroyed in an unauthorized manner;
    (vii) Safeguards. Personally identifiable information should be 
protected with reasonable operational, administrative, technical, and 
physical safeguards to ensure its confidentiality, integrity, and 
availability and to prevent unauthorized or inappropriate access, use, 
or disclosure; and,
    (viii) Accountability. These principles should be implemented, and 
adherence assured, through appropriate monitoring and other means and 
methods should be in place to report and mitigate non-adherence and 
breaches.
    (4) For the purposes of implementing the principle described in 
paragraph (a)(3)(vii) of this section, the Exchange

[[Page 950]]

must establish and implement operational, technical, administrative and 
physical safeguards that are consistent with any applicable laws 
(including this section) to ensure--
    (i) The confidentiality, integrity, and availability of personally 
identifiable information created, collected, used, and/or disclosed by 
the Exchange;
    (ii) Personally identifiable information is only used by or 
disclosed to those authorized to receive or view it;
    (iii) Return information, as such term is defined by section 
6103(b)(2) of the Code, is kept confidential under section 6103 of the 
Code;
    (iv) Personally identifiable information is protected against any 
reasonably anticipated threats or hazards to the confidentiality, 
integrity, and availability of such information;
    (v) Personally identifiable information is protected against any 
reasonably anticipated uses or disclosures of such information that are 
not permitted or required by law; and
    (vi) Personally identifiable information is securely destroyed or 
disposed of in an appropriate and reasonable manner and in accordance 
with retention schedules;
    (5) The Exchange must monitor, periodically assess, and update the 
security controls and related system risks to ensure the continued 
effectiveness of those controls.
    (6) The Exchange must develop and utilize secure electronic 
interfaces when sharing personally identifiable information 
electronically.
    (b) Application to non-Exchange entities--(1) Non-Exchange entities. 
A non-Exchange entity is any individual or entity that:
    (i) Gains access to personally identifiable information submitted to 
an Exchange; or
    (ii) Collects, uses, or discloses personally identifiable 
information gathered directly from applicants, qualified individuals, or 
enrollees while that individual or entity is performing functions agreed 
to with the Exchange.
    (2) Prior to any person or entity becoming a non-Exchange entity, 
Exchanges must execute with the person or entity a contract or agreement 
that includes:
    (i) A description of the functions to be performed by the non-
Exchange entity;
    (ii) A provision(s) binding the non-Exchange entity to comply with 
the privacy and security standards and obligations adopted in accordance 
with paragraph (b)(3) of this section, and specifically listing or 
incorporating those privacy and security standards and obligations;
    (iii) A provision requiring the non-Exchange entity to monitor, 
periodically assess, and update its security controls and related system 
risks to ensure the continued effectiveness of those controls in 
accordance with paragraph (a)(5) of this section;
    (iv) A provision requiring the non-Exchange entity to inform the 
Exchange of any change in its administrative, technical, or operational 
environments defined as material within the contract; and
    (v) A provision that requires the non-Exchange entity to bind any 
downstream entities to the same privacy and security standards and 
obligations to which the non-Exchange entity has agreed in its contract 
or agreement with the Exchange.
    (3) When collection, use or disclosure is not otherwise required by 
law, the privacy and security standards to which an Exchange binds non-
Exchange entities must:
    (i) Be consistent with the principles and requirements listed in 
paragraphs (a)(1) through (6) of this section, including being at least 
as protective as the standards the Exchange has established and 
implemented for itself in compliance with paragraph (a)(3) of this 
section;
    (ii) Comply with the requirements of paragraphs (c), (d), (f), and 
(g) of this section; and
    (iii) Take into specific consideration:
    (A) The environment in which the non-Exchange entity is operating;
    (B) Whether the standards are relevant and applicable to the non-
Exchange entity's duties and activities in connection with the Exchange; 
and
    (C) Any existing legal requirements to which the non-Exchange entity 
is bound in relation to its administrative, technical, and operational 
controls and practices, including but not limited to,

[[Page 951]]

its existing data handling and information technology processes and 
protocols.
    (c) Workforce compliance. The Exchange must ensure its workforce 
complies with the policies and procedures developed and implemented by 
the Exchange to comply with this section.
    (d) Written policies and procedures. Policies and procedures 
regarding the creation collection, use, and disclosure of personally 
identifiable information must, at minimum:
    (1) Be in writing, and available to the Secretary of HHS upon 
request; and
    (2) Identify applicable law governing collection, use, and 
disclosure of personally identifiable information.
    (e) Data sharing. Data matching and sharing arrangements that 
facilitate the sharing of personally identifiable information between 
the Exchange and agencies administering Medicaid, CHIP or the BHP for 
the exchange of eligibility information must:
    (1) Meet any applicable requirements described in this section;
    (2) Meet any applicable requirements described in section 1413(c)(1) 
and (c)(2) of the Affordable Care Act;
    (3) Be equal to or more stringent than the requirements for Medicaid 
programs under section 1942 of the Act; and
    (4) For those matching agreements that meet the definition of 
``matching program'' under 5 U.S.C. 552a(a)(8), comply with 5 U.S.C. 
552a(o).
    (f) Compliance with the Code. Return information, as defined in 
section 6103(b)(2) of the Code, must be kept confidential and disclosed, 
used, and maintained only in accordance with section 6103 of the Code.
    (g) Improper use and disclosure of information. Any person who 
knowingly and willfully uses or discloses information in violation of 
section 1411(g) of the Affordable Care Act will be subject to a CMP of 
not more than $25,000 per person or entity, per use or disclosure, 
consistent with the bases and process for imposing civil penalties 
specified at Sec. 155.285, in addition to other penalties that may be 
prescribed by law.

[77 FR 18444, Mar. 27, 2012, as amended at 77 FR 31515, May 29, 2012; 79 
FR 13837, Mar. 11, 2014; 79 FR 30346, May 27, 2014]



Sec. 155.270  Use of standards and protocols for electronic transactions.

    (a) HIPAA administrative simplification. To the extent that the 
Exchange performs electronic transactions with a covered entity, the 
Exchange must use standards, implementation specifications, operating 
rules, and code sets that are adopted by the Secretary in 45 CFR parts 
160 and 162 or that are otherwise approved by HHS.
    (b) HIT enrollment standards and protocols. The Exchange must 
incorporate interoperable and secure standards and protocols developed 
by the Secretary in accordance with section 3021 of the PHS Act. Such 
standards and protocols must be incorporated within Exchange information 
technology systems.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 54135, Aug. 30, 2013]



Sec. 155.280  Oversight and monitoring of privacy and security requirements.

    (a) General. HHS will oversee and monitor the Federally-facilitated 
Exchanges and non-Exchange entities required to comply with the privacy 
and security standards established and implemented by a Federally-
facilitated Exchange pursuant to Sec. 155.260 for compliance with those 
standards. HHS will oversee and monitor State Exchanges for compliance 
with the standards State Exchanges establish and implement pursuant to 
Sec. 155.260. State Exchanges will oversee and monitor non-Exchange 
entities required to comply with the privacy and security standards 
established and implemented by a State Exchange pursuant to Sec. 
155.260.
    (b) Audits and investigations. HHS may conduct oversight activities 
that include but are not limited to the following: audits, 
investigations, inspections, and any reasonable activities necessary for 
appropriate oversight of compliance with the Exchange privacy and 
security standards. HHS may also pursue civil, criminal or 
administrative proceedings or actions as determined necessary.

[78 FR 54135, Aug. 30, 2013]

[[Page 952]]



Sec. 155.285  Bases and process for imposing civil penalties for 
provision of false or fraudulent information to an Exchange or 

improper use or disclosure of information.

    (a) Grounds for imposing civil money penalties. (1) HHS may impose 
civil money penalties on any person, as defined in paragraph (a)(2) of 
this section, if, based on credible evidence, HHS reasonably determines 
that a person has engaged in one or more of the following actions:
    (i) Failure to provide correct information under section 1411(b) of 
the Affordable Care Act where such failure is attributable to negligence 
or disregard of any rules or regulations of the Secretary with 
negligence and disregard defined as they are in section 6662 of the 
Internal Revenue Code of 1986:
    (A) ``Negligence'' includes any failure to make a reasonable attempt 
to provide accurate, complete, and comprehensive information; and
    (B) ``Disregard'' includes any careless, reckless, or intentional 
disregard for any rules or regulations of the Secretary.
    (ii) Knowing and willful provision of false or fraudulent 
information required under section 1411(b) of the Affordable Care Act, 
where knowing and willful means the intentional provision of information 
that the person knows to be false or fraudulent; or
    (iii) Knowing and willful use or disclosure of information in 
violation of section 1411(g) of the Affordable Care Act, where knowing 
and willful means the intentional use or disclosure of information in 
violation of section 1411(g). Such violations would include, but not be 
limited to, the following:
    (A) Any use or disclosure performed which violates relevant privacy 
and security standards established by the Exchange pursuant to Sec. 
155.260;
    (B) Any other use or disclosure which has not been determined by the 
Secretary to be in compliance with section 1411(g)(2)(A) of the 
Affordable Care Act pursuant to Sec. 155.260(a); and
    (C) Any other use or disclosure which is not necessary to carry out 
a function described in a contract with a non-Exchange entity executed 
pursuant to Sec. 155.260(b)(2).
    (2) For purposes of this section, the term ``person'' is defined to 
include, but is not limited to, all individuals; corporations; 
Exchanges; Medicaid and CHIP agencies; other entities gaining access to 
personally identifiable information submitted to an Exchange to carry 
out additional functions which the Secretary has determined ensure the 
efficient operation of the Exchange pursuant to Sec. 155.260(a)(1); and 
non-Exchange entities as defined in Sec. 155.260(b) which includes 
agents, brokers, Web-brokers, QHP issuers, Navigators, non-Navigator 
assistance personnel, certified application counselors, in-person 
assistors, and other third party contractors.
    (b) Factors in determining the amount of civil money penalties 
imposed. In determining the amount of civil money penalties, HHS may 
take into account factors which include, but are not limited to, the 
following:
    (1) The nature and circumstances of the conduct including, but not 
limited to:
    (i) The number of violations;
    (ii) The severity of the violations;
    (iii) The person's history with the Exchange including any prior 
violations that would indicate whether the violation is an isolated 
occurrence or represents a pattern of behavior;
    (iv) The length of time of the violation;
    (v) The number of individuals affected or potentially affected;
    (vi) The extent to which the person received compensation or other 
consideration associated with the violation;
    (vii) Any documentation provided in any complaint or other 
information, as well as any additional information provided by the 
individual to refute performing the violation; and
    (viii) Whether other remedies or penalties have been imposed for the 
same conduct or occurrence.
    (2) The nature of the harm resulting from, or reasonably expected to 
result from, the violation, including but not limited to:
    (i) Whether the violation resulted in actual or potential financial 
harm;
    (ii) Whether there was actual or potential harm to an individual's 
reputation;

[[Page 953]]

    (iii) Whether the violation hindered or could have hindered an 
individual's ability to obtain health insurance coverage;
    (iv) [Reserved]
    (v) The actual or potential impact of the provision of false or 
fraudulent information or of the improper use or disclosure of the 
information; and
    (vi) Whether any person received a more favorable eligibility 
determination for enrollment in a QHP or insurance affordability 
program, such as greater advance payment of the premium tax credits or 
cost-sharing reductions than he or she would be eligible for if the 
correct information had been provided.
    (3) No penalty will be imposed under paragraph (a)(1)(i) of this 
section if HHS determines that there was a reasonable cause for the 
failure to provide correct information required under section 1411(b) of 
the Affordable Care Act and that the person acted in good faith.
    (c) Maximum penalty. The amount of a civil money penalty will be 
determined by HHS in accordance with paragraph (b) of this section.
    (1) The following provisions provide maximum penalties for a single 
``plan year,'' where ``plan year'' has the same meaning as at Sec. 
155.20:
    (i) Any person who fails to provide correct information as specified 
in paragraph (a)(1)(i) of this section may be subject to a maximum civil 
money penalty of $25,000 for each application, as defined at paragraph 
(c)(1)(iii) of this section, pursuant to which a person fails to provide 
correct information.
    (ii) Any person who knowingly and willfully provides false 
information as specified in paragraph (a)(1)(ii) of this section may be 
subject to a maximum civil money penalty of $250,000 for each 
application, as defined at paragraph (c)(1)(iii) of this section, on 
which a person knowingly and willfully provides false information.
    (iii) For the purposes of this subsection, ``application'' is 
defined as a submission of information, whether through an online 
portal, over the telephone through a call center, or through a paper 
submission process, in which the information is provided in relation to 
an eligibility determination; an eligibility redetermination based on a 
change in an individual's circumstances; or an annual eligibility 
redetermination for any of the following:
    (A) Enrollment in a qualified health plan;
    (B) Premium tax credits or cost sharing reductions; or
    (C) An exemption from the individual shared responsibility payment.
    (2) Any person who knowingly or willfully uses or discloses 
information as specified in paragraph (a)(1)(iii) of this section may be 
subject to the following civil money penalty:
    (i) A civil money penalty for each use or disclosure described in 
paragraph (a)(1)(iii) of this section of not more than $25,000 per use 
or disclosure.
    (ii) For purposes of paragraph (c) of this section, a use or 
disclosure includes one separate use or disclosure of a single 
individual's personally identifiable information where the person 
against whom a civil money penalty may be imposed has made the use or 
disclosure.
    (3) These penalties may be imposed in addition to any other 
penalties that may be prescribed by law.
    (d) Notice of intent to issue civil money penalty. If HHS intends to 
impose a civil money penalty in accordance with this part, HHS will send 
a written notice of such intent to the person against whom it intends to 
impose a civil money penalty.
    (1) This written notice will be either hand delivered, sent by 
certified mail, return receipt requested, or sent by overnight delivery 
service with signature upon delivery required. The written notice must 
include the following elements:
    (i) A description of the findings of fact regarding the violations 
with respect to which the civil money penalty is proposed;
    (ii) The basis and reasons why the findings of fact subject the 
person to a penalty;
    (iii) Any circumstances described in paragraph (b) of this section 
that were considered in determining the amount of the proposed penalty;
    (iv) The amount of the proposed penalty;

[[Page 954]]

    (v) An explanation of the person's right to a hearing under any 
applicable administrative hearing process;
    (vi) A statement that failure to request a hearing within 60 
calendar days after the date of issuance printed on the notice permits 
the assessment of the proposed penalty; and
    (vii) Information explaining how to file a request for a hearing and 
the address to which the hearing request must be sent.
    (2) The person may request a hearing before an ALJ on the proposed 
penalty by filing a request in accordance with the procedure to file an 
appeal specified in paragraph (f) of this section.
    (e) Failure to request a hearing. If the person does not request a 
hearing within 60 calendar days of the date of issuance printed on the 
notice described in paragraph (d) of this section, HHS may impose the 
proposed civil money penalty.
    (1) HHS will notify the person in writing of any penalty that has 
been imposed, the means by which the person may satisfy the penalty, and 
the date on which the penalty is due.
    (2) A person has no right to appeal a penalty with respect to which 
the person has not timely requested a hearing in accordance with 
paragraph (d) of this section.
    (f) Appeal of proposed penalty. Subject to paragraph (e)(2) of this 
section, any person against whom HHS proposed to impose a civil money 
penalty may appeal that penalty in accordance with the rules and 
procedures outlined at 45 CFR part 150, subpart D, excluding Sec. Sec. 
150.461, 150.463, and 150.465.
    (g) Enforcement authority--(1) HHS. HHS may impose civil money 
penalties up to the maximum amounts specified in paragraph (d) of this 
section for any of the violations described in paragraph (a) of this 
section.
    (2) OIG. In accordance with the rules and procedures of 42 CFR part 
1003, and in place of imposition of penalties by CMS, the OIG may impose 
civil money penalties for violations described in paragraph (a)(1)(ii) 
of this section.
    (h) Settlement authority. Nothing in this section limits the 
authority of HHS to settle any issue or case described in the notice 
furnished in accordance with Sec. 155.285(d) or to compromise on any 
penalty provided for in this section.
    (i) Limitations. No action under this section will be entertained 
unless commenced, in accordance with Sec. 155.285(d), within 6 years 
from the date on which the violation occurred.

[79 FR 30346, May 27, 2014]



   Subpart D_Exchange Functions in the Individual Market: Eligibility 
 Determinations for Exchange Participation and Insurance Affordability 
                                Programs



Sec. 155.300  Definitions and general standards for eligibility 
determinations.

    (a) Definitions. In addition to those definitions in Sec. 155.20, 
for purposes of this subpart, the following terms have the following 
meaning:
    Applicable Children's Health Insurance Program (CHIP) MAGI-based 
income standard means the applicable income standard as defined at 42 
CFR 457.310(b)(1), as applied under the State plan adopted in accordance 
with title XXI of the Act, or waiver of such plan and as certified by 
the State CHIP Agency in accordance with 42 CFR 457.348(d), for 
determining eligibility for child health assistance and enrollment in a 
separate child health program.
    Applicable Medicaid modified adjusted gross income (MAGI)-based 
income standard has the same meaning as ``applicable modified adjusted 
gross income standard,'' as defined at 42 CFR 435.911(b), as applied 
under the State plan adopted in accordance with title XIX of the Act, or 
waiver of such plan, and as certified by the State Medicaid agency in 
accordance with 42 CFR 435.1200(b)(2) for determining eligibility for 
Medicaid.
    Federal poverty level or FPL means the most recently published 
Federal poverty level, updated periodically in the Federal Register by 
the Secretary of Health and Human Services under the authority of 42 
U.S.C. 9902(2), as of the first day of the annual open enrollment period 
for coverage in a QHP through the Exchange, as specified in Sec. 
155.410.

[[Page 955]]

    Indian means any individual as defined in section 4(d) of the Indian 
Self-Determination and Education Assistance Act (Pub. L. 93-638).
    Insurance affordability program has the same meaning as ``insurance 
affordability program,'' as specified in 42 CFR 435.4.
    MAGI-based income has the same meaning as it does in 42 CFR 
435.603(e).
    Minimum value when used to describe coverage in an eligible 
employer-sponsored plan, means that the employer-sponsored plan meets 
the standards for coverage of the total allowed costs of benefits set 
forth in Sec. 156.145.
    Modified Adjusted Gross Income (MAGI) has the same meaning as it 
does in 26 CFR 1.36B-1(e)(2).
    Non-citizen means an individual who is not a citizen or national of 
the United States, in accordance with section 101(a)(3) of the 
Immigration and Nationality Act.
    Qualifying coverage in an eligible employer-sponsored plan means 
coverage in an eligible employer-sponsored plan that meets the 
affordability and minimum value standards specified in 26 CFR 1.36B-
2(c)(3).
    State CHIP Agency means the agency that administers a separate child 
health program established by the State under title XXI of the Act in 
accordance with implementing regulations at 42 CFR 457.
    State Medicaid Agency means the agency established or designated by 
the State under title XIX of the Act that administers the Medicaid 
program in accordance with implementing regulations at 42 CFR parts 430 
through 456.
    Tax dependent has the same meaning as the term dependent under 
section 152 of the Code.
    Tax filer means an individual, or a married couple, who indicates 
that he, she or they expects--
    (1) To file an income tax return for the benefit year, in accordance 
with 26 U.S.C. 6011, 6012, and implementing regulations;
    (2) If married (within the meaning of 26 CFR 1.7703-1), to file a 
joint tax return for the benefit year;
    (3) That no other taxpayer will be able to claim him, her or them as 
a tax dependent for the benefit year; and
    (4) That he, she, or they expects to claim a personal exemption 
deduction under section 151 of the Code on his or her tax return for one 
or more applicants, who may or may not include himself or herself and 
his or her spouse.
    (b) Medicaid and CHIP. In general, references to Medicaid and CHIP 
regulations in this subpart refer to those regulations as implemented in 
accordance with rules and procedures which are the same as those applied 
by the State Medicaid or State CHIP agency or approved by such agency in 
the agreement described in Sec. 155.345(a).
    (c) Attestation. (1) Except as specified in paragraph (c)(2) of this 
section, for the purposes of this subpart, an attestation may be made by 
the application filer.
    (2) The attestations specified in Sec. Sec. 155.310(d)(2)(ii) and 
155.315(f)(4)(ii) must be provided by the tax filer.
    (d) Reasonably compatible. For purposes of this subpart, the 
Exchange must consider information obtained through electronic data 
sources, other information provided by the applicant, or other 
information in the records of the Exchange to be reasonably compatible 
with an applicant's attestation if the difference or discrepancy does 
not impact the eligibility of the applicant, including the amount of 
advance payments of the premium tax credit or category of cost-sharing 
reductions.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42314, July 15, 2013]



Sec. 155.302  Options for conducting eligibility determinations.

    (a) Options for conducting eligibility determinations. The Exchange 
may satisfy the requirements of this subpart--
    (1) Directly or through contracting arrangements in accordance with 
Sec. 155.110(a), provided that any contracting arrangement for 
eligibility determinations for Medicaid and CHIP is subject to the 
standards in 42 CFR 431.10(c)(2); or
    (2) Through a combination of the approach described in paragraph 
(a)(1) of this section and one or both of the options described in 
paragraph (b) or (c) of this section, subject to the standards in 
paragraph (d) of this section.

[[Page 956]]

    (b) Medicaid and CHIP. Notwithstanding the requirements of this 
subpart, the Exchange may conduct an assessment of eligibility for 
Medicaid and CHIP, rather than an eligibility determination for Medicaid 
and CHIP, provided that--
    (1) The Exchange makes such an assessment based on the applicable 
Medicaid and CHIP MAGI-based income standards and citizenship and 
immigration status, using verification rules and procedures consistent 
with 42 CFR parts 435 and 457, without regard to how such standards are 
implemented by the State Medicaid and CHIP agencies.
    (2) Notices and other activities required in connection with an 
eligibility determination for Medicaid or CHIP are performed by the 
Exchange consistent with the standards identified in this subpart or the 
State Medicaid or CHIP agency consistent with applicable law.
    (3) Applicants found potentially eligible for Medicaid or CHIP. When 
the Exchange assesses an applicant as potentially eligible for Medicaid 
or CHIP consistent with the standards in paragraph (b)(1) of this 
section, the Exchange transmits all information provided as a part of 
the application, update, or renewal that initiated the assessment, and 
any information obtained or verified by the Exchange to the State 
Medicaid agency or CHIP agency via secure electronic interface, promptly 
and without undue delay.
    (4) Applicants not found potentially eligible for Medicaid and CHIP. 
(i) If the Exchange conducts an assessment in accordance with paragraph 
(b) of this section and finds that an applicant is not potentially 
eligible for Medicaid or CHIP based on the applicable Medicaid and CHIP 
MAGI-based income standards, the Exchange must consider the applicant as 
ineligible for Medicaid and CHIP for purposes of determining eligibility 
for advance payments of the premium tax credit and cost-sharing 
reductions and must notify such applicant, and provide him or her with 
the opportunity to--
    (A) Withdraw his or her application for Medicaid and CHIP, unless 
the Exchange has assessed the applicant as potentially eligible for 
Medicaid based on factors not otherwise considered in this subpart, in 
accordance with Sec. 155.345(b), and provided that the application will 
not be considered withdrawn if he or she appeals his or her eligibility 
determination for advance payments of the premium tax credit or cost-
sharing reductions and the appeals entity described in Sec. 155.500(a) 
finds that the individual is potentially eligible for Medicaid or CHIP; 
or
    (B) Request a full determination of eligibility for Medicaid and 
CHIP by the applicable State Medicaid and CHIP agencies.
    (ii) To the extent that an applicant described in paragraph 
(b)(4)(i) of this section requests a full determination of eligibility 
for Medicaid and CHIP, the Exchange must--
    (A) Transmit all information provided as a part of the application, 
update, or renewal that initiated the assessment, and any information 
obtained or verified by the Exchange to the State Medicaid agency and 
CHIP agency via secure electronic interface, promptly and without undue 
delay; and
    (B) Consider such an applicant as ineligible for Medicaid and CHIP 
for purposes of determining eligibility for advance payments of the 
premium tax credit and cost-sharing reductions until the State Medicaid 
or CHIP agency notifies the Exchange that the applicant is eligible for 
Medicaid or CHIP.
    (5) The Exchange and the Exchange appeals entity adheres to the 
eligibility determination or appeals decision for Medicaid or CHIP made 
by the State Medicaid or CHIP agency, or the appeals entity for such 
agency.
    (6) The Exchange and the State Medicaid and CHIP agencies enter into 
an agreement specifying their respective responsibilities in connection 
with eligibility determinations for Medicaid and CHIP, and provide a 
copy of such agreement to HHS upon request.
    (c) Advance payments of the premium tax credit and cost-sharing 
reductions. Notwithstanding the requirements of this subpart, the 
Exchange may implement a determination of eligibility for advance 
payments of the premium tax credit and cost-sharing reductions made by 
HHS, provided that--

[[Page 957]]

    (1) Verifications, notices, and other activities required in 
connection with an eligibility determination for advance payments of the 
premium tax credit and cost-sharing reductions are performed by the 
Exchange in accordance with the standards identified in this subpart or 
by HHS in accordance with the agreement described in paragraph (c)(4) of 
this section;
    (2) The Exchange transmits all information provided as a part of the 
application, update, or renewal that initiated the eligibility 
determination, and any information obtained or verified by the Exchange, 
to HHS via secure electronic interface, promptly and without undue 
delay;
    (3) The Exchange adheres to the eligibility determination for 
advance payments of the premium tax credit and cost-sharing reductions 
made by HHS; and
    (4) The Exchange and HHS enter into an agreement specifying their 
respective responsibilities in connection with eligibility 
determinations for advance payments of the premium tax credit and cost-
sharing reductions.
    (d) Standards. To the extent that assessments of eligibility for 
Medicaid and CHIP based on MAGI or eligibility determinations for 
advance payments of the premium tax credit and cost-sharing reductions 
are made in accordance with paragraphs (b) or (c) of this section, the 
Exchange must ensure that--
    (1) Eligibility processes for all insurance affordability programs 
are streamlined and coordinated across HHS, the Exchange, the State 
Medicaid agency, and the State CHIP agency, as applicable;
    (2) Such arrangement does not increase administrative costs and 
burdens on applicants, enrollees, beneficiaries, or application filers, 
or increase delay; and
    (3) Applicable requirements under 45 CFR 155.260, 155.270, and 
155.315(i), and section 6103 of the Code for the confidentiality, 
disclosure, maintenance, and use of information are met.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42314, July 15, 2013]



Sec. 155.305  Eligibility standards.

    (a) Eligibility for enrollment in a QHP through the Exchange. The 
Exchange must determine an applicant eligible for enrollment in a QHP 
through the Exchange if he or she meets the following requirements:
    (1) Citizenship, status as a national, or lawful presence. Is a 
citizen or national of the United States, or is a non-citizen who is 
lawfully present in the United States, and is reasonably expected to be 
a citizen, national, or a non-citizen who is lawfully present for the 
entire period for which enrollment is sought;
    (2) Incarceration. Is not incarcerated, other than incarceration 
pending the disposition of charges; and
    (3) Residency. Meets the applicable residency standard identified in 
this paragraph (a)(3).
    (i) For an individual who is age 21 and over, is not living in an 
institution as defined in 42 CFR 435.403(b), is capable of indicating 
intent, and is not receiving an optional State supplementary payment as 
addressed in 42 CFR 435.403(f), the service area of the Exchange of the 
individual is the service areas of the Exchange in which he or she is 
living and--
    (A) Intends to reside, including without a fixed address; or
    (B) Has entered with a job commitment or is seeking employment 
(whether or not currently employed).
    (ii) For an individual who is under the age of 21, is not living in 
an institution as defined in 42 CFR 435.403(b), is not eligible for 
Medicaid based on receipt of assistance under title IV-E of the Social 
Security Act as addressed in 42 CFR 435.403(g), is not emancipated, is 
not receiving an optional State supplementary payment as addressed in 42 
CFR 435.403(f), the Exchange service area of the individual--
    (A) Is the service area of the Exchange in which he or she resides, 
including without a fixed address; or
    (B) Is the service area of the Exchange of a parent or caretaker, 
established in accordance with paragraph (a)(3)(i) of this section, with 
whom the individual resides.
    (iii) Other special circumstances. In the case of an individual who 
is not described in paragraphs (a)(3)(i) or (ii) of this section, the 
Exchange must apply

[[Page 958]]

the residency requirements described in 42 CFR 435.403 with respect to 
the service area of the Exchange.
    (iv) Special rule for tax households with members in multiple 
Exchange service areas. (A) Except as specified in paragraph 
(a)(3)(iv)(B) of this section if all of the members of a tax household 
are not within the same Exchange service area, in accordance with the 
applicable standards in paragraphs (a)(3)(i), (ii), and (iii) of this 
section, any member of the tax household may enroll in a QHP through any 
of the Exchanges for which one of the tax filers meets the residency 
standard.
    (B) If both spouses in a tax household enroll in a QHP through the 
same Exchange, a tax dependent may only enroll in a QHP through that 
Exchange, or through the Exchange that services the area in which the 
dependent meets a residency standard described in paragraphs (a)(3)(i), 
(ii), or (iii) of this section.
    (v) Temporary absence. The Exchange may not deny or terminate an 
individual's eligibility for enrollment in a QHP through the Exchange if 
the individual meets the standards in paragraph (a)(3) of this section 
but for a temporary absence from the service area of the Exchange and 
intends to return when the purpose of the absence has been accomplished.
    (b) Eligibility for QHP enrollment periods. The Exchange must 
determine an applicant eligible for an enrollment period if he or she 
meets the criteria for an enrollment period, as specified in Sec. Sec. 
155.410 and 155.420.
    (c) Eligibility for Medicaid. The Exchange must determine an 
applicant eligible for Medicaid if he or she meets the non-financial 
eligibility criteria for Medicaid for populations whose eligibility is 
based on MAGI-based income, as certified by the Medicaid agency in 
accordance with 42 CFR 435.1200(b)(2), has a household income, as 
defined in 42 CFR 435.603(d), that is at or below the applicable 
Medicaid MAGI-based income standard as defined in 42 CFR 435.911(b)(1) 
and--
    (1) Is a pregnant woman, as defined in the Medicaid State Plan in 
accordance with 42 CFR 435.4;
    (2) Is under age 19;
    (3) Is a parent or caretaker relative of a dependent child, as 
defined in the Medicaid State plan in accordance with 42 CFR 435.4; or
    (4) Is not described in paragraph (c)(1), (2), or (3) of this 
section, is under age 65 and is not entitled to or enrolled for benefits 
under part A of title XVIII of the Social Security Act, or enrolled for 
benefits under part B of title XVIII of the Social Security Act.
    (d) Eligibility for CHIP. The Exchange must determine an applicant 
eligible for CHIP if he or she meets the requirements of 42 CFR 457.310 
through 457.320 and has a household income, as defined in 42 CFR 
435.603(d), at or below the applicable CHIP MAGI-based income standard.
    (e) Eligibility for BHP. If a BHP is operating in the service area 
of the Exchange, the Exchange must determine an applicant eligible for 
the BHP if he or she meets the requirements specified in section 1331(e) 
of the Affordable Care Act and regulations implementing that section.
    (f) Eligibility for advance payments of the premium tax credit--(1) 
In general. The Exchange must determine a tax filer eligible for advance 
payments of the premium tax credit if the Exchange determines that--
    (i) He or she is expected to have a household income, as defined in 
26 CFR 1.36B-1(e), of greater than or equal to 100 percent but not more 
than 400 percent of the FPL for the benefit year for which coverage is 
requested; and
    (ii) One or more applicants for whom the tax filer expects to claim 
a personal exemption deduction on his or her tax return for the benefit 
year, including the tax filer and his or her spouse--
    (A) Meets the requirements for eligibility for enrollment in a QHP 
through the Exchange, as specified in paragraph (a) of this section; and
    (B) Is not eligible for minimum essential coverage, with the 
exception of coverage in the individual market, in accordance with 
section 26 CFR 1.36B-2(a)(2) and (c).
    (2) Special rule for non-citizens who are lawfully present and who 
are ineligible for Medicaid by reason of immigration status. The 
Exchange must determine a tax filer eligible for advance payments

[[Page 959]]

of the premium tax credit if the Exchange determines that--
    (i) He or she meets the requirements specified in paragraph (f)(1) 
of this section, except for paragraph (f)(1)(i);
    (ii) He or she is expected to have a household income, as defined in 
26 CFR 1.36B-1(e) of less than 100 percent of the FPL for the benefit 
year for which coverage is requested; and
    (iii) One or more applicants for whom the tax filer expects to claim 
a personal exemption deduction on his or her tax return for the benefit 
year, including the tax filer and his or her spouse, is a non-citizen 
who is lawfully present and ineligible for Medicaid by reason of 
immigration status, in accordance with 26 CFR 1.36B-2(b)(5).
    (3) Enrollment required. The Exchange may provide advance payments 
of the premium tax credit on behalf of a tax filer only if one or more 
applicants for whom the tax filer attests that he or she expects to 
claim a personal exemption deduction for the benefit year, including the 
tax filer and his or her spouse, is enrolled in a QHP that is not a 
catastrophic plan, through the Exchange.
    (4) Compliance with filing requirement. The Exchange may not 
determine a tax filer eligible for advance payments of the premium tax 
credit if HHS notifies the Exchange as part of the process described in 
Sec. 155.320(c)(3) that advance payments of the premium tax credit were 
made on behalf of the tax filer or either spouse if the tax filer is a 
married couple for a year for which tax data would be utilized for 
verification of household income and family size in accordance with 
Sec. 155.320(c)(1)(i), and the tax filer or his or her spouse did not 
comply with the requirement to file an income tax return for that year 
as required by 26 U.S.C. 6011, 6012, and implementing regulations and 
reconcile the advance payments of the premium tax credit for that 
period.
    (5) Calculation of advance payments of the premium tax credit. The 
Exchange must calculate advance payments of the premium tax credit in 
accordance with 26 CFR 1.36B-3.
    (6) Collection of Social Security numbers. The Exchange must require 
an application filer to provide the Social Security number of a tax 
filer who is not an applicant only if an applicant attests that the tax 
filer has a Social Security number and filed a tax return for the year 
for which tax data would be utilized for verification of household 
income and family size.
    (g) Eligibility for cost-sharing reductions--(1) Eligibility 
criteria. (i) The Exchange must determine an applicant eligible for 
cost-sharing reductions if he or she--
    (A) Meets the requirements for eligibility for enrollment in a QHP 
through the Exchange, as specified in paragraph (a) of this section;
    (B) Meets the requirements for advance payments of the premium tax 
credit, as specified in paragraph (f) of this section; and
    (C) Is expected to have a household income that does not exceed 250 
percent of the FPL, for the benefit year for which coverage is 
requested.
    (ii) The Exchange may only provide cost-sharing reductions to an 
enrollee who is not an Indian if he or she is enrolled through the 
Exchange in a silver-level QHP, as defined by section 1302(d)(1)(B) of 
the Affordable Care Act.
    (2) Eligibility categories. The Exchange must use the following 
eligibility categories for cost-sharing reductions when making 
eligibility determinations under this section--
    (i) An individual who is expected to have a household income greater 
than or equal to 100 percent of the FPL and less than or equal to 150 
percent of the FPL for the benefit year for which coverage is requested, 
or for an individual who is eligible for advance payments of the premium 
tax credit under paragraph (f)(2) of this section, a household income 
less than 100 percent of the FPL for the benefit year for which coverage 
is requested;
    (ii) An individual is expected to have a household income greater 
than 150 percent of the FPL and less than or equal to 200 percent of the 
FPL for the benefit year for which coverage is requested; and
    (iii) An individual who is expected to have a household income 
greater than 200 percent of the FPL and less than or equal to 250 
percent of the FPL for the benefit year for which coverage is requested.

[[Page 960]]

    (3) Special rule for family policies. To the extent that an 
enrollment in a QHP in the individual market offered through an Exchange 
under a single policy covers two or more individuals who, if they were 
to enroll in separate individual policies would be eligible for 
different cost sharing, the Exchange must deem the individuals under 
such policy to be collectively eligible only for the category of 
eligibility last listed below for which all the individuals covered by 
the policy would be eligible:
    (i) Individuals not eligible for changes to cost sharing;
    (ii) Individuals described in Sec. 155.350(b) (the special cost-
sharing rule for Indians regardless of income);
    (iii) Individuals described in paragraph (g)(2)(iii) of this 
section;
    (iv) Individuals described in paragraph (g)(2)(ii) of this section;
    (v) Individuals described in paragraph (g)(2)(i) of this section; 
and
    (vi) Individuals described in Sec. 155.350(a) (the cost-sharing 
rule for Indians with household incomes under 300 percent of the FPL).
    (4) For the purposes of paragraph (g) of this section, ``household 
income'' means household income as defined in section 36B(d)(2) of the 
Code.
    (h) Eligibility for enrollment through the Exchange in a QHP that is 
a catastrophic plan. The Exchange must determine an applicant eligible 
for enrollment in a QHP through the Exchange in a QHP that is a 
catastrophic plan as defined by section 1302(e) of the Affordable Care 
Act, if he or she has met the requirements for eligibility for 
enrollment in a QHP through the Exchange, in accordance with Sec. 
155.305(a), and either--
    (1) Has not attained the age of 30 before the beginning of the plan 
year; or
    (2) Has a certification in effect for any plan year that he or she 
is exempt from the requirement to maintain minimum essential coverage 
under section 5000A of the Code by reason of--
    (i) Section 5000A(e)(1) of the Code (relating to individuals without 
affordable coverage); or
    (ii) Section 5000A(e)(5) of the Code (relating to individuals with 
hardships).

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 15533, Mar. 11, 2013; 
78 FR 42315, July 15, 2013]



Sec. 155.310  Eligibility process.

    (a) Application--(1) Accepting applications. The Exchange must 
accept applications from individuals in the form and manner specified in 
Sec. 155.405.
    (2) Information collection from non-applicants. The Exchange may not 
request information regarding citizenship, status as a national, or 
immigration status for an individual who is not seeking coverage for 
himself or herself on any application or supplemental form.
    (3) Collection of Social Security numbers. (i) The Exchange must 
require an applicant who has a Social Security number to provide such 
number to the Exchange.
    (ii) The Exchange may not require an individual who is not seeking 
coverage for himself or herself to provide a Social Security number, 
except as specified in Sec. 155.305(f)(6).
    (b) Applicant choice for Exchange to determine eligibility for 
insurance affordability programs. The Exchange must permit an applicant 
to request only an eligibility determination for enrollment in a QHP 
through the Exchange; however, the Exchange may not permit an applicant 
to request an eligibility determination for less than all insurance 
affordability programs.
    (c) Timing. The Exchange must accept an application and make an 
eligibility determination for an applicant seeking an eligibility 
determination at any point in time during the year.
    (d) Determination of eligibility. (1) The Exchange must determine an 
applicant's eligibility, in accordance with the standards specified in 
Sec. 155.305.
    (2) Special rules relating to advance payments of the premium tax 
credit. (i) The Exchange must permit an enrollee to accept less than the 
full amount of advance payments of the premium tax credit for which he 
or she is determined eligible.
    (ii) The Exchange may authorize advance payments of the premium tax 
credit on behalf of a tax filer only if the Exchange first obtains 
necessary

[[Page 961]]

attestations from the tax filer regarding advance payments of the 
premium tax credit, including, but not limited to attestations that--
    (A) He or she will file an income tax return for the benefit year, 
in accordance with 26 U.S.C. 6011, 6012, and implementing regulations;
    (B) If married (within the meaning of 26 CFR 1.7703-1), he or she 
will file a joint tax return for the benefit year;
    (C) No other taxpayer will be able to claim him or her as a tax 
dependent for the benefit year; and
    (D) He or she will claim a personal exemption deduction on his or 
her tax return for the applicants identified as members of his or her 
family, including the tax filer and his or her spouse, in accordance 
with Sec. 155.320(c)(3)(i).
    (3) Special rule relating to Medicaid and CHIP. To the extent that 
the Exchange determines an applicant eligible for Medicaid or CHIP, the 
Exchange must notify the State Medicaid or CHIP agency and transmit all 
information from the records of the Exchange to the State Medicaid or 
CHIP agency, promptly and without undue delay, that is necessary for 
such agency to provide the applicant with coverage.
    (e) Timeliness standards. (1) The Exchange must determine 
eligibility promptly and without undue delay.
    (2) The Exchange must assess the timeliness of eligibility 
determinations based on the period from the date of application or 
transfer from an agency administering an insurance affordability program 
to the date the Exchange notifies the applicant of its decision or the 
date the Exchange transfers the application to another agency 
administering an insurance affordability program, when applicable.
    (f) Effective dates for eligibility. Upon making an eligibility 
determination, the Exchange must implement the eligibility determination 
under this section for enrollment in a QHP through the Exchange, advance 
payments of the premium tax credit, and cost-sharing reductions as 
follows--
    (1) For an initial eligibility determination, in accordance with the 
dates specified in Sec. Sec. 155.410(c) and (f) and 155.420(b), as 
applicable,
    (2) For a redetermination, in accordance with the dates specified in 
Sec. Sec. 155.330(f) and 155.335(i), as applicable.
    (g) Notification of eligibility determination. The Exchange must 
provide timely written notice to an applicant of any eligibility 
determination made in accordance with this subpart.
    (h) Notice of an employee's eligibility for advance payments of the 
premium tax credit and cost-sharing reductions to an employer. The 
Exchange must notify an employer that an employee has been determined 
eligible for advance payments of the premium tax credit or cost-sharing 
reductions upon determination that an employee is eligible for advance 
payments of the premium tax credit or cost-sharing reductions. Such 
notice must:
    (1) Identify the employee;
    (2) Indicate that the employee has been determined eligible for 
advance payments of the premium tax credit;
    (3) Indicate that, if the employer has 50 or more full-time 
employees, the employer may be liable for the payment assessed under 
section 4980H of the Code; and
    (4) Notify the employer of the right to appeal the determination.
    (i) Certification program for employers. As part of its 
determination of whether an employer has a liability under section 4980H 
of the Code, the Internal Revenue Service will adopt methods to certify 
to an employer that one or more employees has enrolled for one or more 
months during a year in a QHP for which a premium tax credit or cost-
sharing reduction is allowed or paid.
    (j) Duration of eligibility determinations without enrollment. To 
the extent that an applicant who is determined eligible for enrollment 
in a QHP through the Exchange does not select a QHP within his or her 
enrollment period, or is not eligible for an enrollment period, in 
accordance with subpart E, and seeks a new enrollment period prior to 
the date on which his or her eligibility is redetermined in accordance 
with Sec. 155.335, the Exchange must require the applicant to attest as 
to whether information affecting his or her eligibility has changed 
since his or her most recent

[[Page 962]]

eligibility determination before determining his or her eligibility for 
a special enrollment period, and must process any changes reported in 
accordance with the procedures specified in Sec. 155.330.
    (k) Incomplete application. If an application filer submits an 
application that does not include sufficient information for the 
Exchange to conduct an eligibility determination for enrollment in a QHP 
through the Exchange or for insurance affordability programs, if 
applicable, the Exchange must--
    (1) Provide notice to the applicant indicating that information 
necessary to complete an eligibility determination is missing, 
specifying the missing information, and providing instructions on how to 
provide the missing information; and
    (2) Provide the applicant with a period of no less than 10 days and 
no more than 90 days from the date on which the notice described in 
paragraph (k)(1) of this section is sent to the applicant to provide the 
information needed to complete the application to the Exchange.
    (3) During the period described in paragraph (k)(2) of this section, 
the Exchange must not proceed with an applicant's eligibility 
determination or provide advance payments of the premium tax credit or 
cost-sharing reductions, unless an application filer has provided 
sufficient information to determine his or her eligibility for 
enrollment in a QHP through the Exchange, in which case the Exchange 
must make such a determination for enrollment in a QHP.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42314, July 15, 2013; 
78 FR 54136, Aug. 30, 2013]



Sec. 155.315  Verification process related to eligibility for enrollment 
in a QHP through the Exchange.

    (a) General requirement. Unless a request for modification is 
granted in accordance with paragraph (h) of this section, the Exchange 
must verify or obtain information as provided in this section in order 
to determine that an applicant is eligible for enrollment in a QHP 
through the Exchange.
    (b) Validation of Social Security number. (1) For any individual who 
provides his or her Social Security number to the Exchange, the Exchange 
must transmit the Social Security number and other identifying 
information to HHS, which will submit it to the Social Security 
Administration.
    (2) To the extent that the Exchange is unable to validate an 
individual's Social Security number through the Social Security 
Administration, or the Social Security Administration indicates that the 
individual is deceased, the Exchange must follow the procedures 
specified in paragraph (f) of this section, except that the Exchange 
must provide the individual with a period of 90 days from the date on 
which the notice described in paragraph (f)(2)(i) of this section is 
received for the applicant to provide satisfactory documentary evidence 
or resolve the inconsistency with the Social Security Administration. 
The date on which the notice is received means 5 days after the date on 
the notice, unless the individual demonstrates that he or she did not 
receive the notice within the 5 day period.
    (c) Verification of citizenship, status as a national, or lawful 
presence--(1) Verification with records from the Social Security 
Administration. For an applicant who attests to citizenship and has a 
Social Security number, the Exchange must transmit the applicant's 
Social Security number and other identifying information to HHS, which 
will submit it to the Social Security Administration.
    (2) Verification with the records of the Department of Homeland 
Security. For an applicant who has documentation that can be verified 
through the Department of Homeland Security and who attests to lawful 
presence, or who attests to citizenship and for whom the Exchange cannot 
substantiate a claim of citizenship through the Social Security 
Administration, the Exchange must transmit information from the 
applicant's documentation and other identifying information to HHS, 
which will submit necessary information to the Department of Homeland 
Security for verification.
    (3) Inconsistencies and inability to verify information. For an 
applicant who attests to citizenship, status as a national, or lawful 
presence, and for

[[Page 963]]

whom the Exchange cannot verify such attestation through the Social 
Security Administration or the Department of Homeland Security, the 
Exchange must follow the procedures specified in paragraph (f) of this 
section, except that the Exchange must provide the applicant with a 
period of 90 days from the date on which the notice described in 
paragraph (f)(2)(i) of this section is received for the applicant to 
provide satisfactory documentary evidence or resolve the inconsistency 
with the Social Security Administration or the Department of Homeland 
Security, as applicable. The date on which the notice is received means 
5 days after the date on the notice, unless the applicant demonstrates 
that he or she did not receive the notice within the 5 day period.
    (d) Verification of residency. The Exchange must verify an 
applicant's attestation that he or she meets the standards of Sec. 
155.305(a)(3) as follows--
    (1) Except as provided in paragraphs (d)(3) and (4) of this section, 
accept his or her attestation without further verification; or
    (2) Examine electronic data sources that are available to the 
Exchange and which have been approved by HHS for this purpose, based on 
evidence showing that such data sources are sufficiently current and 
accurate, and minimize administrative costs and burdens.
    (3) If information provided by an applicant regarding residency is 
not reasonably compatible with other information provided by the 
individual or in the records of the Exchange the Exchange must examine 
information in data sources that are available to the Exchange and which 
have been approved by HHS for this purpose, based on evidence showing 
that such data sources are sufficiently current and accurate.
    (4) If the information in such data sources is not reasonably 
compatible with the information provided by the applicant, the Exchange 
must follow the procedures specified in paragraph (f) of this section. 
Evidence of immigration status may not be used to determine that an 
applicant is not a resident of the Exchange service area.
    (e) Verification of incarceration status. The Exchange must verify 
an applicant's attestation that he or she meets the requirements of 
Sec. 155.305(a)(2) by--
    (1) Relying on any electronic data sources that are available to the 
Exchange and which have been approved by HHS for this purpose, based on 
evidence showing that such data sources are sufficiently current, 
accurate, and offer less administrative complexity than paper 
verification; or
    (2) Except as provided in paragraph (e)(3) of this section, if an 
approved data source is unavailable, accepting his or her attestation 
without further verification.
    (3) To the extent that an applicant's attestation is not reasonably 
compatible with information from approved data sources described in 
paragraph (e)(1) of this section or other information provided by the 
applicant or in the records of the Exchange, the Exchange must follow 
the procedures specified in Sec. 155.315(f).
    (f) Inconsistencies. Except as otherwise specified in this subpart, 
for an applicant for whom the Exchange cannot verify information 
required to determine eligibility for enrollment in a QHP through the 
Exchange, advance payments of the premium tax credit, and cost-sharing 
reductions, including when electronic data is required in accordance 
with this subpart but data for individuals relevant to the eligibility 
determination are not included in such data sources or when electronic 
data from IRS, DHS, or SSA is required but it is not reasonably expected 
that data sources will be available within 1 day of the initial request 
to the data source, the Exchange:
    (1) Must make a reasonable effort to identify and address the causes 
of such inconsistency, including through typographical or other clerical 
errors, by contacting the application filer to confirm the accuracy of 
the information submitted by the application filer;
    (2) If unable to resolve the inconsistency through the process 
described in paragraph (f)(1) of this section, must--
    (i) Provide notice to the applicant regarding the inconsistency; and
    (ii) Provide the applicant with a period of 90 days from the date on 
which the notice described in paragraph (f)(2)(i) of this section is 
sent to the applicant to either present satisfactory

[[Page 964]]

documentary evidence via the channels available for the submission of an 
application, as described in Sec. 155.405(c), except for by telephone 
through a call center, or otherwise resolve the inconsistency.
    (3) May extend the period described in paragraph (f)(2)(ii) of this 
section for an applicant if the applicant demonstrates that a good faith 
effort has been made to obtain the required documentation during the 
period.
    (4) During the periods described in paragraphs (f)(1) and (f)(2)(ii) 
of this section, must:
    (i) Proceed with all other elements of eligibility determination 
using the applicant's attestation, and provide eligibility for 
enrollment in a QHP to the extent that an applicant is otherwise 
qualified; and
    (ii) Ensure that advance payments of the premium tax credit and 
cost-sharing reductions are provided on behalf of an applicant within 
this period who is otherwise qualified for such payments and reductions, 
as described in Sec. 155.305, if the tax filer attests to the Exchange 
that he or she understands that any advance payments of the premium tax 
credit paid on his or her behalf are subject to reconciliation.
    (5) If, after the period described in paragraph (f)(2)(ii) of this 
section, the Exchange remains unable to verify the attestation, the 
Exchange must determine the applicant's eligibility based on the 
information available from the data sources specified in this subpart, 
unless such applicant qualifies for the exception provided under 
paragraph (g) of this section, and notify the applicant of such 
determination in accordance with the notice requirements specified in 
Sec. 155.310(g), including notice that the Exchange is unable to verify 
the attestation.
    (6) When electronic data to support the verifications specified in 
Sec. 155.315(d) or Sec. 155.320(b) is required but it is not 
reasonably expected that data sources will be available within 1 day of 
the initial request to the data source, the Exchange must accept the 
applicant's attestation regarding the factor of eligibility for which 
the unavailable data source is relevant.
    (g) Exception for special circumstances. For an applicant who does 
not have documentation with which to resolve the inconsistency through 
the process described in paragraph (f)(2) of this section because such 
documentation does not exist or is not reasonably available and for whom 
the Exchange is unable to otherwise resolve the inconsistency, with the 
exception of an inconsistency related to citizenship or immigration 
status, the Exchange must provide an exception, on a case-by-case basis, 
to accept an applicant's attestation as to the information which cannot 
otherwise be verified along with an explanation of circumstances as to 
why the applicant does not have documentation.
    (h) Flexibility in information collection and verification. HHS may 
approve an Exchange Blueprint in accordance with Sec. 155.105(d) or a 
significant change to the Exchange Blueprint in accordance with Sec. 
155.105(e) to modify the methods to be used for collection of 
information and verification of information as set forth in this 
subpart, as well as the specific information required to be collected, 
provided that HHS finds that such modification would reduce the 
administrative costs and burdens on individuals while maintaining 
accuracy and minimizing delay, that it would not undermine coordination 
with Medicaid and CHIP, and that applicable requirements under 
Sec. Sec. 155.260, 155.270, paragraph (i) of this section, and section 
6103 of the Code with respect to the confidentiality, disclosure, 
maintenance, or use of such information will be met.
    (i) Applicant information. The Exchange must not require an 
applicant to provide information beyond the minimum necessary to support 
the eligibility and enrollment processes of the Exchange, Medicaid, 
CHIP, and the BHP, if a BHP is operating in the service area of the 
Exchange, described in this subpart.
    (j) Verification related to eligibility for enrollment through the 
Exchange in a QHP that is a catastrophic plan. The Exchange must verify 
an applicant's attestation that he or she meets the requirements of 
Sec. 155.305(h) by--
    (1) Verifying the applicant's attestation of age as follows--
    (i) Except as provided in paragraph (j)(1)(iii) of this section, 
accepting his

[[Page 965]]

or her attestation without further verification; or
    (ii) Examining electronic data sources that are available to the 
Exchange and which have been approved by HHS for this purpose, based on 
evidence showing that such data sources are sufficiently current and 
accurate, and minimize administrative costs and burdens.
    (iii) If information regarding age is not reasonably compatible with 
other information provided by the individual or in the records of the 
Exchange, the Exchange must examine information in data sources that are 
available to the Exchange and which have been approved by HHS for this 
purpose based on evidence showing that such data sources are 
sufficiently current and accurate.
    (2) Verifying that an applicant has a certification of exemption in 
effect as described in Sec. 155.305(h)(2).
    (3) To the extent that the Exchange is unable to verify the 
information required to determine eligibility for enrollment through the 
Exchange in a QHP that is a catastrophic plan as described in paragraphs 
(j)(1) and (2) of this section, the Exchange must follow the procedures 
specified in Sec. 155.315(f), except for Sec. 155.315(f)(4).

[77 FR 18444, Mar. 27, 2012, as amended at 77 FR 31515, May 29, 2012; 78 
FR 42316, July 15, 2013]



Sec. 155.320  Verification process related to eligibility for insurance 
affordability programs.

    (a) General requirements. (1) The Exchange must verify information 
in accordance with this section only for an applicant or tax filer who 
requested an eligibility determination for insurance affordability 
programs in accordance with Sec. 155.310(b).
    (2) Unless a request for modification is granted in accordance with 
Sec. 155.315(h), the Exchange must verify or obtain information in 
accordance with this section before making an eligibility determination 
for insurance affordability programs, and must use such information in 
such determination.
    (b) Verification of eligibility for minimum essential coverage other 
than through an eligible employer-sponsored plan. (1)(i) The Exchange 
must verify whether an applicant is eligible for minimum essential 
coverage other than through an eligible employer-sponsored plan, 
Medicaid, CHIP, or the BHP, using information obtained by transmitting 
identifying information specified by HHS to HHS for verification 
purposes.
    (ii) The Exchange must verify whether an applicant has already been 
determined eligible for coverage through Medicaid, CHIP, or the BHP, if 
a BHP is operating in the service area of the Exchange, within the State 
or States in which the Exchange operates using information obtained from 
the agencies administering such programs.
    (2) Consistent with Sec. 164.512(k)(6)(i) of this subchapter, the 
disclosure to HHS of information regarding eligibility for and 
enrollment in a health plan, which may be considered protected health 
information, as that term is defined in Sec. 160.103 of this 
subchapter, is expressly authorized, for the purposes of verification of 
applicant eligibility for minimum essential coverage as part of the 
eligibility determination process for advance payments of the premium 
tax credit or cost-sharing reductions.
    (c) Verification of household income and family/household size--(1) 
Data--(i) Data regarding annual household income. (A) For all 
individuals whose income is counted in calculating a tax filer's 
household income, as defined in 26 CFR 1.36B-1(e), or an applicant's 
household income, calculated in accordance with 42 CFR 435.603(d), and 
for whom the Exchange has a Social Security number, the Exchange must 
request tax return data regarding MAGI and family size from the 
Secretary of the Treasury and data regarding Social security benefits 
described in 26 CFR 1.36B-1(e)(2)(iii) from the Commissioner of Social 
Security by transmitting identifying information specified by HHS to 
HHS.
    (B) If the identifying information for one or more individuals does 
not match a tax record on file with the Secretary of the Treasury that 
may be disclosed in accordance with section 6103(l)(21) of the Code and 
its accompanying regulations, the Exchange must proceed in accordance 
with Sec. 155.315(f)(1).
    (ii) Data regarding MAGI-based income. For all individuals whose 
income is

[[Page 966]]

counted in calculating a tax filer's household income, as defined in 26 
CFR 1.36B-1(e), or an applicant's household income, calculated in 
accordance with 42 CFR 435.603(d), the Exchange must request data 
regarding MAGI-based income in accordance with 42 CFR 435.948(a).
    (2) Verification process for Medicaid and CHIP. (i) Household size. 
(A) The Exchange must verify household size in accordance with 42 CFR 
435.945(a) or through other reasonable verification procedures 
consistent with the requirements in 42 CFR 435.952.
    (B) The Exchange must verify the information in paragraph 
(c)(2)(i)(A) of this section by accepting an applicant's attestation 
without further verification, unless the Exchange finds that an 
applicant's attestation to the individuals that comprise his or her 
household for Medicaid and CHIP is not reasonably compatible with other 
information provided by the application filer for the applicant or in 
the records of the Exchange, in which case the Exchange must utilize 
data obtained through electronic data sources to verify the attestation. 
If such data sources are unavailable or information in such data sources 
is not reasonably compatible with the applicant's attestation, the 
Exchange must request additional documentation to support the 
attestation within the procedures specified in 42 CFR 435.952.
    (ii) Verification process for MAGI-based household income. The 
Exchange must verify MAGI-based income, within the meaning of 42 CFR 
435.603(d), for the household described in paragraph (c)(2)(i) in 
accordance with the procedures specified in Medicaid regulations 42 CFR 
435.945, 42 CFR 435.948, and 42 CFR 435.952 and CHIP regulations at 42 
CFR 457.380.
    (3) Verification process for advance payments of the premium tax 
credit and cost-sharing reductions. (i) Family size. (A) The Exchange 
must require an applicant to attest to the individuals that comprise a 
tax filer's family for advance payments of the premium tax credit and 
cost-sharing reductions.
    (B) To the extent that the applicant attests that the information 
described in paragraph (c)(1)(i) of this section represents an accurate 
projection of a tax filer's family size for the benefit year for which 
coverage is requested, the Exchange must determine the tax filer's 
eligibility for advance payments of the premium tax credit and cost-
sharing reductions based on the family size data in paragraph (c)(1)(i) 
of this section.
    (C) To the extent that the data described in paragraph (c)(1)(i) of 
this section is unavailable, or an applicant attests that a change in 
circumstances has occurred or is reasonably expected to occur, and so it 
does not represent an accurate projection of a tax filer's family size 
for the benefit year for which coverage is requested, the Exchange must 
verify the tax filer's family size for advance payments of the premium 
tax credit and cost-sharing reductions by accepting an applicant's 
attestation without further verification, except as specified in 
paragraph (c)(3)(i)(D) of this section.
    (D) If the Exchange finds that an applicant's attestation of a tax 
filer's family size is not reasonably compatible with other information 
provided by the application filer for the family or in the records of 
the Exchange, with the exception of the data described in paragraph 
(c)(1)(i) of this section, the Exchange must utilize data obtained 
through other electronic data sources to verify the attestation. If such 
data sources are unavailable or information in such data sources is not 
reasonably compatible with the applicant's attestation, the Exchange 
must request additional documentation to support the attestation within 
the procedures specified in Sec. 155.315(f).
    (E) The Exchange must verify that neither advance payments of the 
premium tax credit nor cost-sharing reductions are being provided on 
behalf of an individual using information obtained by transmitting 
identifying information specified by HHS to HHS.
    (ii) Basic verification process for annual household income. (A) The 
Exchange must compute annual household income for the family described 
in paragraph (c)(3)(i)(A) of this section based on the data described in 
paragraph (c)(1)(i) of this section;

[[Page 967]]

    (B) The Exchange must require the applicant to attest regarding a 
tax filer's projected annual household income;
    (C) To the extent that the applicant's attestation indicates that 
the information described in paragraph (c)(3)(ii)(A) of this section 
represents an accurate projection of the tax filer's household income 
for the benefit year for which coverage is requested, the Exchange must 
determine the tax filer's eligibility for advance payments of the 
premium tax credit and cost-sharing reductions based on the household 
income data in paragraph (c)(3)(ii)(A) of this section.
    (D) To the extent that the data described in paragraph (c)(1)(i) of 
this section is unavailable, or an applicant attests that a change in 
circumstances has occurred or is reasonably expected to occur, and so it 
does not represent an accurate projection of the tax filer's household 
income for the benefit year for which coverage is requested, the 
Exchange must require the applicant to attest to the tax filer's 
projected household income for the benefit year for which coverage is 
requested.
    (iii) Verification process for increases in household income. (A) 
Except as specified in paragraph (c)(3)(iii)(B) and (C) of this section, 
if an applicant's attestation, in accordance with paragraph 
(c)(3)(ii)(B) of this section, indicates that a tax filer's annual 
household income has increased or is reasonably expected to increase 
from the data described in paragraph (c)(3)(ii)(A) of this section for 
the benefit year for which the applicant(s) in the tax filer's family 
are requesting coverage and the Exchange has not verified the 
applicant's MAGI-based income through the process specified in paragraph 
(c)(2)(ii) of this section to be within the applicable Medicaid or CHIP 
MAGI-based income standard, the Exchange must accept the applicant's 
attestation regarding a tax filer's annual household income without 
further verification.
    (B) If data available to the Exchange in accordance with paragraph 
(c)(1)(ii) of this section indicate that a tax filer's projected annual 
household income is in excess of his or her attestation by a significant 
amount, the Exchange must proceed in accordance with Sec. 155.315(f)(1) 
through (4).
    (C) If other information provided by the application filer indicates 
that a tax filer's projected annual household income is in excess of his 
or her attestation by a significant amount, the Exchange must utilize 
data available to the Exchange in accordance with paragraph (c)(1)(ii) 
of this section to verify the attestation. If such data is unavailable 
or are not reasonably compatible with the applicant's attestation, the 
Exchange must proceed in accordance with Sec. 155.315(f)(1) through 
(4).
    (iv) Eligibility for alternate verification process for decreases in 
annual household income and situations in which tax return data is 
unavailable. The Exchange must determine a tax filer's annual household 
income for advance payments of the premium tax credit and cost-sharing 
reductions based on the alternate verification procedures described in 
paragraph (c)(3)(v) of this section, if an applicant attests to 
projected annual household income in accordance with paragraph 
(c)(3)(ii)(B) of this section, the tax filer does not meet the criteria 
specified in paragraph (c)(3)(iii) of this section, the applicants in 
the tax filer's family have not established MAGI-based income through 
the process specified in paragraph (c)(2)(ii) of this section that is 
within the applicable Medicaid or CHIP MAGI-based income standard, and 
one of the following conditions is met--
    (A) The Secretary of the Treasury does not have tax return data that 
may be disclosed under section 6103(l)(21) of the Code for the tax filer 
that is at least as recent as the calendar year two years prior to the 
calendar year for which advance payments of the premium tax credit or 
cost-sharing reductions would be effective;
    (B) The applicant attests that the tax filer's applicable family 
size has changed or is reasonably expected to change for the benefit 
year for which the applicants in his or her family are requesting 
coverage, or the members of the tax filer's family have changed or are 
reasonably expected to change for the benefit year for which the 
applicants in his or her family are requesting coverage;

[[Page 968]]

    (C) The applicant attests that a change in circumstances has 
occurred or is reasonably expected to occur, and so the tax filer's 
annual household income has decreased or is reasonably expected to 
decrease from the data described in paragraph (c)(1)(i) of this section 
for the benefit year for which the applicants in his or her family are 
requesting coverage;
    (D) The applicant attests that the tax filer's filing status has 
changed or is reasonably expected to change for the benefit year for 
which the applicants in his or her family are requesting coverage; or
    (E) An applicant in the tax filer's family has filed an application 
for unemployment benefits.
    (v) Alternate verification process. If a tax filer qualifies for an 
alternate verification process based on the requirements specified in 
paragraph (c)(3)(iv) of this section and the applicant's attestation to 
projected annual household income, as described in paragraph 
(c)(3)(ii)(B) of this section, is no more than ten percent below the 
annual household income computed in accordance with paragraph 
(c)(3)(ii)(A) of this section, the Exchange must accept the applicant's 
attestation without further verification.
    (vi) Alternate verification process for decreases in annual 
household income and situations in which tax return data is unavailable. 
If a tax filer qualifies for an alternate verification process based on 
the requirements specified in paragraph (c)(3)(iv) of this section and 
the applicant's attestation to projected annual household income, as 
described in paragraph (c)(3)(ii)(B) of this section, is greater than 
ten percent below the annual household income computed in accordance 
with paragraph (c)(3)(ii)(A) of this section, or if data described in 
paragraph (c)(1)(i) of this section is unavailable, the Exchange must 
attempt to verify the applicant's attestation of the tax filer's 
projected annual household income by following the procedures specified 
in paragraph (c)(3)(vi)(A) through (G) of this section.
    (A) Data. The Exchange must annualize data from the MAGI-based 
income sources specified in paragraph (c)(1)(ii) of this section, and 
obtain any data available from other electronic data sources that have 
been approved by HHS, based on evidence showing that such data sources 
are sufficiently accurate and offer less administrative complexity than 
paper verification.
    (B) Eligibility. To the extent that the applicant's attestation 
indicates that the information described in paragraph (c)(3)(vi)(A) of 
this section represents an accurate projection of the tax filer's 
household income for the benefit year for which coverage is requested, 
the Exchange must determine the tax filer's eligibility for advance 
payments of the premium tax credit and cost-sharing reductions based on 
the household income data in paragraph (c)(3)(vi)(A) of this section.
    (C) Increases in annual household income. If an applicant's 
attestation, in accordance with paragraph (c)(3)(ii)(B) of this section, 
indicates that a tax filer's annual household income has increased or is 
reasonably expected to increase from the data described in paragraph 
(c)(3)(vi)(A) of this section to the benefit year for which the 
applicant(s) in the tax filer's family are requesting coverage and the 
Exchange has not verified the applicant's MAGI-based income through the 
process specified in paragraph (c)(2)(ii) of this section to be within 
the applicable Medicaid or CHIP MAGI-based income standard, the Exchange 
must accept the applicant's attestation for the tax filer's family 
without further verification, unless the Exchange finds that an 
applicant's attestation of a tax filer's annual household income is not 
reasonably compatible with other information provided by the application 
filer or available to the Exchange in accordance with paragraph 
(c)(1)(ii) of this section, in which case the Exchange must request 
additional documentation using the procedures specified in Sec. 
155.315(f).
    (D) Decreases in annual household income and situations in which 
electronic data is unavailable. If electronic data are unavailable or an 
applicant's attestation to projected annual household income, as 
described in paragraph (c)(3)(ii)(B) of this section, is more than ten 
percent below the annual household income as computed using data sources 
described in paragraphs

[[Page 969]]

(c)(3)(vi)(A) of this section, the Exchange must follow the procedures 
specified in Sec. 155.315(f)(1) through (4).
    (E) If, following the 90-day period described in paragraph 
(c)(3)(vi)(D) of this section, an applicant has not responded to a 
request for additional information from the Exchange and the data 
sources specified in paragraph (c)(1) of this section indicate that an 
applicant in the tax filer's family is eligible for Medicaid or CHIP, 
the Exchange must not provide the applicant with eligibility for advance 
payments of the premium tax credit, cost-sharing reductions, Medicaid, 
CHIP or the BHP, if a BHP is operating in the service area of the 
Exchange.
    (F) If, at the conclusion of the period specified in paragraph 
(c)(3)(vi)(D) of this section, the Exchange remains unable to verify the 
applicant's attestation, the Exchange must determine the applicant's 
eligibility based on the information described in paragraph 
(c)(3)(ii)(A) of this section, notify the applicant of such 
determination in accordance with the notice requirements specified in 
Sec. 155.310(g), and implement such determination in accordance with 
the effective dates specified in Sec. 155.330(f).
    (G) If, at the conclusion of the period specified in paragraph 
(c)(3)(vi)(D) of this section, the Exchange remains unable to verify the 
applicant's attestation for the tax filer and the information described 
in paragraph (c)(3)(ii)(A) of this section is unavailable, the Exchange 
must determine the tax filer ineligible for advance payments of the 
premium tax credit and cost-sharing reductions, notify the applicant of 
such determination in accordance with the notice requirement specified 
in Sec. 155.310(g), and discontinue any advance payments of the premium 
tax credit and cost-sharing reductions in accordance with the effective 
dates specified in Sec. 155.330(f).
    (vii) For the purposes of paragraph (c)(3) of this section, 
``household income'' means household income as specified in 26 CFR 
1.36B-1(e).
    (viii) For the purposes of paragraph (c)(3) of this section, 
``family size'' means family size as specified in 26 CFR 1.36B-1(d).
    (viii) For purposes of paragraph (c)(3) of this section, ``family 
size'' means family size as specified in section 36B(d)(1) of the Code.
    (4) The Exchange must provide education and assistance to an 
applicant regarding the process specified in this paragraph.
    (d) Verification related to enrollment in an eligible employer-
sponsored plan and eligibility for qualifying coverage in an eligible 
employer-sponsored plan--(1) General requirement. The Exchange must 
verify whether an applicant reasonably expects to be enrolled in an 
eligible employer-sponsored plan or is eligible for qualifying coverage 
in an eligible employer-sponsored plan for the benefit year for which 
coverage is requested.
    (2) Data. The Exchange must--
    (i) Obtain data about enrollment in and eligibility for an eligible 
employer-sponsored plan from any electronic data sources that are 
available to the Exchange and which have been approved by HHS, based on 
evidence showing that such data sources are sufficiently current, 
accurate, and minimize administrative burden.
    (ii) Obtain any available data regarding enrollment in employer-
sponsored coverage or eligibility for qualifying coverage in an eligible 
employer-sponsored plan based on federal employment by transmitting 
identifying information specified by HHS to HHS for HHS to provide the 
necessary verification using data obtained by HHS.
    (iii) Obtain any available data from the SHOP that corresponds to 
the State in which the Exchange is operating.
    (3) Verification procedures. (i) Except as specified in paragraphs 
(d)(3)(ii) or (iii) of this section, the Exchange must accept an 
applicant's attestation regarding the verification specified in 
paragraph (d) of this section without further verification.
    (ii) If an applicant's attestation is not reasonably compatible with 
the information obtained by the Exchange as specified in paragraphs 
(d)(2)(i) through (iii) of this section, other information provided by 
the application filer, or other information in the records of the

[[Page 970]]

Exchange, the Exchange must follow the procedures specified in Sec. 
155.315(f).
    (iii) Except as specified in paragraph (d)(3)(iv) of this section, 
if the Exchange does not have any of the information specified in 
paragraphs (d)(2)(i) through (iii) of this section for an applicant, the 
Exchange must select a statistically significant random sample of such 
applicants and--
    (A) Provide notice to the applicant indicating that the Exchange 
will be contacting any employer identified on the application for the 
applicant and the members of his or her household, as defined in 26 CFR 
1.36B-1(d), to verify whether the applicant is enrolled in an eligible 
employer-sponsored plan or is eligible for qualifying coverage in an 
eligible employer-sponsored plan for the benefit year for which coverage 
is requested;
    (B) Proceed with all other elements of the eligibility determination 
using the applicant's attestation, and provide eligibility for 
enrollment in a QHP to the extent that an applicant is otherwise 
qualified;
    (C) Ensure that advance payments of the premium tax credit and cost-
sharing reductions are provided on behalf of an applicant who is 
otherwise qualified for such payments and reductions, as described in 
Sec. 155.305, if the tax filer attests to the Exchange that he or she 
understands that any advance payments of the premium tax credit paid on 
his or her behalf are subject to reconciliation;
    (D) Make reasonable attempts to contact any employer identified on 
the application for the applicant and the members of his or her 
household, as defined in 26 CFR 1.36B-1(d), to verify whether the 
applicant is enrolled in an eligible employer-sponsored plan or is 
eligible for qualifying coverage in an eligible employer-sponsored plan 
for the benefit year for which coverage is requested;
    (E) If the Exchange receives any information from an employer 
relevant to the applicant's enrollment in an eligible employer-sponsored 
plan or eligibility for qualifying coverage in an eligible employer-
sponsored plan, the Exchange must determine the applicant's eligibility 
based on such information and in accordance with the effective dates 
specified in Sec. 155.330(f), and if such information changes his or 
her eligibility determination, notify the applicant and his or her 
employer or employers of such determination in accordance with the 
notice requirements specified in Sec. 155.310(g) and (h);
    (F) If, after a period of 90 days from the date on which the notice 
described in paragraph (d)(3)(iii)(A) of this section is sent to the 
applicant, the Exchange is unable to obtain the necessary information 
from an employer, the Exchange must determine the applicant's 
eligibility based on his or her attestation(s) regarding coverage 
provided by that employer.
    (G) To carry out the process described in paragraph (d)(3)(iii) of 
this section, the Exchange must only disclose an individual's 
information to an employer to the extent necessary for the employer to 
identify the employee.
    (iv) For eligibility determinations for advance payments of the 
premium tax credit and cost-sharing reductions that are effective before 
January 1, 2015, if the Exchange does not have any of the information 
specified in paragraphs (d)(2)(i) through (iii) of this section for an 
applicant, the Exchange may accept an applicant's attestation regarding 
enrollment in an eligible employer-sponsored plan and eligibility for 
qualifying coverage in an eligible employer-sponsored plan for the 
benefit year for which coverage is requested without further 
verification, instead of following the procedure in paragraph 
(d)(3)(iii) of this section.
    (e) Additional verification related to immigration status for 
Medicaid and CHIP. (1) For purposes of determining eligibility for 
Medicaid, the Exchange must verify whether an applicant who does not 
attest to being a citizen or a national has satisfactory immigration 
status to be eligible for Medicaid, as required by 42 CFR 435.406 and, 
if applicable under the State Medicaid plan, section 1903(v)(4) of the 
Act.
    (2) For purposes of determining eligibility for CHIP, the Exchange 
must verify whether an applicant who does not attest to being a citizen 
or a national has satisfactory immigration status to be eligible for 
CHIP, in accordance with 42 CFR 457.320(b) and if applicable under the 
State Child

[[Page 971]]

Health Plan, section 2107(e)(1)(J) of the Act.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42316, July 15, 2013; 
78 FR 54136, Aug. 30, 2013; 79 FR 30347, May 27, 2014]



Sec. 155.330  Eligibility redetermination during a benefit year.

    (a) General requirement. The Exchange must redetermine the 
eligibility of an enrollee in a QHP through the Exchange during the 
benefit year if it receives and verifies new information reported by an 
enrollee or identifies updated information through the data matching 
described in paragraph (d) of this section.
    (b) Requirement for individuals to report changes. (1) Except as 
specified in paragraphs (b)(2) and (3) of this section, the Exchange 
must require an enrollee to report any change with respect to the 
eligibility standards specified in Sec. 155.305 within 30 days of such 
change.
    (2) The Exchange must not require an enrollee who did not request an 
eligibility determination for insurance affordability programs to report 
changes that affect eligibility for insurance affordability programs.
    (3) The Exchange may establish a reasonable threshold for changes in 
income, such that an enrollee who experiences a change in income that is 
below the threshold is not required to report such change.
    (4) The Exchange must allow an enrollee, or an application filer on 
behalf of the enrollee, to report changes via the channels available for 
the submission of an application, as described in Sec. 155.405(c)(2), 
except that the Exchange is permitted but not required to allow an 
enrollee, or an application filer, on behalf of the enrollee, to report 
changes via mail.
    (c) Verification of reported changes. The Exchange must--
    (1) Verify any information reported by an enrollee in accordance 
with the processes specified in Sec. Sec. 155.315 and 155.320 prior to 
using such information in an eligibility redetermination; and
    (2) Provide periodic electronic notifications regarding the 
requirements for reporting changes and an enrollee's opportunity to 
report any changes as described in paragraph (b)(3) of this section, to 
an enrollee who has elected to receive electronic notifications, unless 
he or she has declined to receive notifications under this paragraph 
(c)(2).
    (d) Periodic examination of data sources. (1) The Exchange must 
periodically examine available data sources described in Sec. Sec. 
155.315(b)(1) and (b) to identify the following changes:
    (i) Death; and
    (ii) For an enrollee on whose behalf advance payments of the premium 
tax credit or cost-sharing reductions are being provided, eligibility 
determinations for Medicare, Medicaid, CHIP, or the BHP, if a BHP is 
operating in the service area of the Exchange.
    (2) Flexibility. The Exchange may make additional efforts to 
identify and act on changes that may affect an enrollee's eligibility 
for enrollment in a QHP through the Exchange or for insurance 
affordability programs, provided that such efforts--
    (i) Would reduce the administrative costs and burdens on individuals 
while maintaining accuracy and minimizing delay, that it would not 
undermine coordination with Medicaid and CHIP, and that applicable 
requirements under Sec. Sec. 155.260, 155.270, 155.315(i), and section 
6103 of the Code with respect to the confidentiality, disclosure, 
maintenance, or use of such information will be met; and
    (ii) Comply with the standards specified in paragraph (e)(2) of this 
section.
    (e) Redetermination and notification of eligibility--(1) Enrollee-
reported data. If the Exchange verifies updated information reported by 
an enrollee, the Exchange must--
    (i) Redetermine the enrollee's eligibility in accordance with the 
standards specified in Sec. 155.305;
    (ii) Notify the enrollee regarding the determination in accordance 
with the requirements specified in Sec. 155.310(g); and
    (iii) Notify the enrollee's employer, as applicable, in accordance 
with the requirements specified in Sec. 155.310(h).
    (2) Data matching. (i) If the Exchange identifies updated 
information regarding death, in accordance with paragraph (d)(1)(i) of 
this section, or regarding any factor of eligibility not regarding 
income, family size, or family composition, the Exchange must--

[[Page 972]]

    (A) Notify the enrollee regarding the updated information, as well 
as the enrollee's projected eligibility determination after considering 
such information.
    (B) Allow an enrollee 30 days from the date of the notice to notify 
the Exchange that such information is inaccurate.
    (C) If the enrollee responds contesting the updated information, 
proceed in accordance with Sec. 155.315(f) of this part.
    (D) If the enrollee does not respond within the 30-day period 
specified in paragraph (e)(2)(i)(B), proceed in accordance with 
paragraphs (e)(1)(i) and (ii) of this section.
    (ii) If the Exchange identifies updated information regarding 
income, family size, or family composition, with the exception of 
information regarding death, the Exchange must--
    (A) Follow procedures described in paragraph (e)(2)(i)(A) and (B) of 
this section; and
    (B) If the enrollee responds confirming the updated information, 
proceed in accordance with paragraphs (e)(1)(i) and (ii) of this 
section.
    (C) If the enrollee does not respond within the 30-day period 
specified in paragraph (e)(2)(i)(B) of this section, maintain the 
enrollee's existing eligibility determination without considering the 
updated information.
    (D) If the enrollee provides more up-to-date information, proceed in 
accordance with paragraph (c)(1) of this section.
    (f) Effective dates. (1) Except as specified in paragraphs (f)(2) 
through (f)(5) of this section, the Exchange must implement changes--
    (i) Resulting from a redetermination under this section on the first 
day of the month following the date of the notice described in paragraph 
(e)(1)(ii) of this section; or
    (ii) Resulting from an appeal decision, on the date specified in the 
appeal decision; or
    (iii) Affecting enrollment or premiums only, on the first day of the 
month following the date on which the Exchange is notified of the 
change;
    (2) Except as specified in paragraphs (f)(3) through (5) of this 
section, the Exchange may determine a reasonable point in a month after 
which a change described in paragraph (f)(1) of this section will not be 
effective until the first day of the month after the month specified in 
paragraph (f)(1) of this section. Such reasonable point in a month must 
be no earlier than the 15th of the month.
    (3) Except as specified in paragraphs (f)(4) and (5) of this 
section, the Exchange must implement a change described in paragraph 
(f)(1) of this section that results in a decreased amount of advance 
payments of the premium tax credit, or a change in the level of cost-
sharing reductions, and for which the date of the notices described in 
paragraphs (f)(1)(i) and (ii) of this section, or the date on which the 
Exchange is notified in accordance with paragraph (f)(1)(iii) of this 
section is after the 15th of the month, on the first day of the month 
after the month specified in paragraph (f)(1) of this section.
    (4) The Exchange must implement a change associated with the events 
described in Sec. 155.420(b)(2)(i) and (ii) on the coverage effective 
dates described in Sec. 155.420(b)(2)(i) and (ii), respectively.
    (5) Notwithstanding paragraphs (f)(1) through (f)(4) of this 
section, the Exchange may provide the effective date of a change 
associated with the events described in Sec. 155.420(d)(4), (d)(5), and 
(d)(9) based on the specific circumstances of each situation.
    (g) Recalculation of advance payments of the premium tax credit and 
cost-sharing reductions. (1) When an eligibility redetermination in 
accordance with this section results in a change in the amount of 
advance payments of the premium tax credit for the benefit year, the 
Exchange must recalculate the amount of advance payments of the premium 
tax credit in such a manner as to--
    (i) Account for any advance payments already made on behalf of the 
tax filer for the benefit year for which information is available to the 
Exchange, such that the recalculated advance payment amount is projected 
to result in total advance payments for the benefit year that correspond 
to the tax filer's total projected premium tax credit for the benefit 
year, calculated in accordance with 26 CFR 1.36B-3; and

[[Page 973]]

    (ii) Ensure that the advance payment provided on the tax filer's 
behalf is greater than or equal to zero and is calculated in accordance 
with 26 CFR 1.36B-3(d).
    (2) When an eligibility redetermination in accordance with this 
section results in a change in cost-sharing reductions, the Exchange 
must determine an individual eligible for the category of cost-sharing 
reductions that corresponds to his or her expected annual household 
income for the benefit year (subject to the special rule for family 
policies set forth in Sec. 155.305(g)(3)).

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 15533, Mar. 11, 2013; 
78 FR 42318, July 15, 2013; 79 FR 30347, May 27, 2014; 79 FR 53005, 
Sept. 5, 2014]



Sec. 155.335  Annual eligibility redetermination.

    (a) General requirement. (1) Except as specified in paragraphs (l) 
and (m) of this section, the Exchange must redetermine the eligibility 
of a qualified individual on an annual basis.
    (2) The Exchange must conduct annual redeterminations required under 
paragraph (a)(1) of this section using one of the following:
    (i) The procedures described in paragraphs (b) through (m) of this 
section;
    (ii) Alternative procedures specified by the Secretary for the 
applicable benefit year; or
    (iii) Alternative procedures approved by the Secretary based on a 
showing by the Exchange that the alternative procedures would facilitate 
continued enrollment in coverage for which the enrollee remains 
eligible, provide clear information about the process to the qualified 
individual or enrollee (including regarding any action by the qualified 
individual or enrollee necessary to obtain the most accurate 
redetermination of eligibility), and provide adequate program integrity 
protections.
    (b) Updated income and family size information. In the case of a 
qualified individual who requested an eligibility determination for 
insurance affordability programs in accordance with Sec. 155.310(b) of 
this part, the Exchange must request updated tax return information, if 
the qualified individual has authorized the request of such tax return 
information, data regarding Social Security benefits, and data regarding 
MAGI-based income as described in Sec. 155.320(c)(1) of this part for 
use in the qualified individual's eligibility redetermination.
    (c) Notice to qualified individual. The Exchange must provide a 
qualified individual with an annual redetermination notice including the 
following:
    (1)-(2) [Reserved]
    (3) The qualified individual's projected eligibility determination 
for the following year, after considering any updated information 
described in paragraph (b) of this section, including, if applicable, 
the amount of any advance payments of the premium tax credit and the 
level of any cost-sharing reductions or eligibility for Medicaid, CHIP 
or BHP.
    (d) Timing. (1) For redeterminations under this section for coverage 
effective January 1, 2015, the Exchange must satisfy the notice 
provisions of paragraph (c) of this section and Sec. 155.410(d) through 
a single, coordinated notice.
    (2) For redeterminations under this section for coverage effective 
on or after January 1, 2017, the Exchange may send the notice specified 
in paragraph (c) of this section separately from the notice of annual 
open enrollment specified in Sec. 155.410(d), provided that--
    (i) The Exchange sends the notice specified in paragraph (c) of this 
section no earlier than the date of the notice of annual open enrollment 
specified in Sec. 155.410(d); and
    (ii) The timing of the notice specified in paragraph (c) of this 
section allows a reasonable amount of time for the enrollee to review 
the notice, provide a timely response, and for the Exchange to implement 
any changes in coverage elected during the annual open enrollment 
period.
    (e) Changes reported by qualified individuals. Except as specified 
in paragraph (e)(1) of this section, the Exchange must require a 
qualified individual to report any change with respect to the 
eligibility standards specified in Sec. 155.305 within 30 days of such 
change.
    (1) The Exchange must not require a qualified individual who did not 
request an eligibility determination for

[[Page 974]]

insurance affordability programs to report changes that affect 
eligibility for insurance affordability programs.
    (2) The Exchange must allow a qualified individual, or an 
application filer, on behalf of the qualified individual, to report 
changes via the channels available for the submission of an application, 
as described in Sec. 155.405(c)(2), except that the Exchange is 
permitted but not required to allow a qualified individual, or an 
application filer, on behalf of the qualified individual, to report 
changes via mail.
    (f) Verification of reported changes. The Exchange must verify any 
information reported by a qualified individual under paragraph (e) of 
this section using the processes specified in Sec. Sec. 155.315 and 
155.320, including the relevant provisions in those sections regarding 
inconsistencies, prior to using such information to determine 
eligibility.
    (g) Response to redetermination notice. (1) The Exchange must 
require a qualified individual, or an application filer, on behalf of 
the qualified individual, to sign and return the notice described in 
paragraph (c) of this section.
    (2) To the extent that a qualified individual does not sign and 
return the notice described in paragraph (c) of this section within the 
30-day period specified in paragraph (e) of this section, the Exchange 
must proceed in accordance with the procedures specified in paragraph 
(h)(1) of this section.
    (h) Redetermination and notification of eligibility. (1) After the 
30-day period specified in paragraph (e) of this section has elapsed, 
the Exchange must--
    (i) Redetermine the qualified individual's eligibility in accordance 
with the standards specified in Sec. 155.305 using the information 
provided to the qualified individual in the notice specified in 
paragraph (c) of this section, as supplemented with any information 
reported by the qualified individual and verified by the Exchange in 
accordance with paragraphs (e) and (f) of this section.
    (ii) Notify the qualified individual in accordance with the 
requirements specified in Sec. 155.310(g).
    (iii) If applicable, notify the qualified individual employer, in 
accordance with the requirements specified in Sec. 155.310(h).
    (2) If a qualified individual reports a change for the information 
provided in the notice specified in paragraph (c) of this section that 
the Exchange has not verified as of the end of the 30-day period 
specified in paragraph (e) of this section, the Exchange must 
redetermine the qualified individual's eligibility after completing 
verification, as specified in paragraph (f) of this section.
    (i) Effective date of annual redetermination. The Exchange must 
ensure that a redetermination under this section is effective on the 
first day of the coverage year following the year in which the Exchange 
provided the notice in paragraph (c) of this section, or in accordance 
with the rules specified in Sec. 155.330(f) regarding effective dates, 
whichever is later.
    (j) Re-enrollment. If an enrollee remains eligible for enrollment in 
a QHP through the Exchange upon annual redetermination--
    (1) And the product under which the QHP in which he or she is 
enrolled remains available through the Exchange for renewal, consistent 
with Sec. 147.106 of this subchapter, such enrollee will have his or 
her enrollment through the Exchange in a QHP under that product renewed, 
unless he or she terminates coverage, including termination of coverage 
in connection with voluntarily selecting a different QHP, in accordance 
with Sec. 155.430. The Exchange will ensure that re-enrollment in 
coverage under this paragraph (j)(1) occurs under the same product in 
which the enrollee was enrolled, as follows:
    (i) The enrollee's coverage will be renewed in the same plan as the 
enrollee's current QHP, unless the current QHP is not available.
    (ii) If the enrollee's current QHP is not available, the enrollee's 
coverage will be renewed in a plan at the same metal level as the 
enrollee's current QHP.
    (iii) If the enrollee's current QHP is not available and the 
enrollee's product no longer includes a plan at the same metal level as 
the enrollee's current QHP, the enrollee's coverage will be renewed in a 
plan that is one metal level higher or lower than the enrollee's current 
QHP; or

[[Page 975]]

    (iv) If the enrollee's current QHP is not available and the 
enrollee's product no longer includes a plan that is at the same metal 
level as, or one metal level higher or lower than the enrollee's current 
QHP, the enrollee's coverage will be renewed in any other plan offered 
under the product in which the enrollee's current QHP is offered in 
which the enrollee is eligible to enroll.
    (2) And the product under which the QHP in which he or she is 
enrolled is not available through the Exchange for renewal, consistent 
with Sec. 147.106 of this subchapter, such enrollee may be enrolled in 
a plan under a different product offered by the same QHP issuer, to the 
extent permitted by applicable State law, unless he or she terminates 
coverage, including termination of coverage in connection with 
voluntarily selecting a different QHP, in accordance with Sec. 155.430. 
The Exchange will ensure that re-enrollment in coverage under this 
paragraph (j)(2) occurs as follows:
    (i) The enrollee will be re-enrolled in a plan through the Exchange 
at the same metal level as the enrollee's current QHP in the product 
offered by the same issuer that is the most similar to the enrollee's 
current product;
    (ii) If the issuer does not offer another plan through the Exchange 
at the same metal level as the enrollee's current QHP, the enrollee will 
be re-enrolled in a plan through the Exchange that is one metal level 
higher or lower than the enrollee's current QHP in the product offered 
by the same issuer through the Exchange that is the most similar to the 
enrollee's current product; or
    (iii) If the issuer does not offer another plan through the Exchange 
at the same metal level as, or one metal level higher or lower than the 
enrollee's current QHP, the enrollee will be re-enrolled in any other 
plan offered through the Exchange by the same issuer in which the 
enrollee is eligible to enroll.
    (k) Authorization of the release of tax data to support annual 
redetermination. (1) The Exchange must have authorization from a 
qualified individual to obtain updated tax return information described 
in paragraph (b) of this section for purposes of conducting an annual 
redetermination.
    (2) The Exchange is authorized to obtain the updated tax return 
information described in paragraph (b) of this section for a period of 
no more than five years based on a single authorization, provided that--
    (i) An individual may decline to authorize the Exchange to obtain 
updated tax return information; or
    (ii) An individual may authorize the Exchange to obtain updated tax 
return information for fewer than five years; and
    (iii) The Exchange must allow an individual to discontinue, change, 
or renew his or her authorization at any time.
    (l) Limitation on redetermination. To the extent that a qualified 
individual has requested an eligibility determination for insurance 
affordability programs in accordance with Sec. 155.310(b) and the 
Exchange does not have an active authorization to obtain tax data as a 
part of the annual redetermination process, the Exchange must 
redetermine the qualified individual's eligibility only for enrollment 
in a QHP and notify the enrollee in accordance with the timing described 
in paragraph (d) of this section. The Exchange may not proceed with a 
redetermination for insurance affordability programs until such 
authorization has been obtained or the qualified individual continues 
his or her request for an eligibility determination for insurance 
affordability programs in accordance with Sec. 155.310(b).
    (m) Special rule. The Exchange must not redetermine a qualified 
individual's eligibility in accordance with this section if the 
qualified individual's eligibility was redetermined under this section 
during the prior year, and the qualified individual was not enrolled in 
a QHP through the Exchange at the time of such redetermination, and has 
not enrolled in a QHP through the Exchange since such redetermination.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42319, July 15, 2013; 
79 FR 53005, Sept. 5, 2014]

[[Page 976]]



Sec. 155.340  Administration of advance payments of the premium tax credit and cost-sharing reductions.

    (a) Requirement to provide information to enable advance payments of 
the premium tax credit and cost-sharing reductions. In the event that 
the Exchange determines that a tax filer is eligible for advance 
payments of the premium tax credit, an applicant is eligible for cost-
sharing reductions, or that such eligibility for such programs has 
changed, the Exchange must, simultaneously--
    (1) Transmit eligibility and enrollment information to HHS necessary 
to enable HHS to begin, end, or change advance payments of the premium 
tax credit or cost-sharing reductions; and
    (2) Notify and transmit information necessary to enable the issuer 
of the QHP to implement, discontinue the implementation, or modify the 
level of advance payments of the premium tax credit or cost-sharing 
reductions, as applicable, including:
    (i) The dollar amount of the advance payment; and
    (ii) The cost-sharing reductions eligibility category.
    (b) Requirement to provide information related to employer 
responsibility. (1) In the event that the Exchange determines that an 
individual is eligible for advance payments of the premium tax credit or 
cost-sharing reductions based in part on a finding that an individual's 
employer does not provide minimum essential coverage, or provides 
minimum essential coverage that is unaffordable, within the standard of 
26 CFR 1.36B-2(c)(3)(v), or provide minimum essential coverage that does 
not meet the minimum value standard of Sec. 156.145, the Exchange must 
transmit the individual's name and taxpayer identification number to 
HHS.
    (2) If an enrollee for whom advance payments of the premium tax 
credit are made or who is receiving cost-sharing reductions notifies the 
Exchange that he or she has changed employers, the Exchange must 
transmit the enrollee's name and taxpayer identification number to HHS.
    (3) In the event that an individual for whom advance payments of the 
premium tax credit are made or who is receiving cost-sharing reductions 
terminates coverage from a QHP through the Exchange during a benefit 
year, the Exchange must--
    (i) Transmit the individual's name and taxpayer identification 
number, and the effective date of coverage termination, to HHS, which 
will transmit it to the Secretary of the Treasury; and,
    (ii) Transmit the individual's name and the effective date of the 
termination of coverage to his or her employer.
    (c) Requirement to provide information related to reconciliation of 
advance payments of the premium tax credit. The Exchange must comply 
with the requirements of 26 CFR 1.36B-5 regarding reporting to the IRS 
and to taxpayers.
    (d) Timeliness standard. The Exchange must transmit all information 
required in accordance with paragraphs (a) and (b) of this section 
promptly and without undue delay.
    (e) Allocation of advance payments of the premium tax credit among 
policies. If one or more advance payments of the premium tax credit are 
to be made on behalf of a tax filer (or two tax filers covered by the 
same plan(s)), and individuals in the tax filers' tax households are 
enrolled in more than one QHP or stand-alone dental plan, then the 
advance payment must be allocated as follows:
    (1) That portion of the advance payment of the premium tax credit 
that is less than or equal to the aggregate adjusted monthly premiums, 
as defined in 26 CFR 1.36B-3(e), for the QHP policies properly allocated 
to EHB must be allocated among the QHP policies in a reasonable and 
consistent manner specified by the Exchange; and
    (2) Any remaining advance payment of the premium tax credit must be 
allocated among the stand-alone dental policies in a reasonable and 
consistent manner specified by the Exchange.
    (f) Allocation of advance payments of the premium tax credit among 
policies offered through a Federally-facilitated Exchange. If one or 
more advance payments of the premium tax credit are to be made on behalf 
of a tax filer (or two tax filers covered by the same plan(s)), and 
individuals in the tax filers' tax households are enrolled in more than

[[Page 977]]

one QHP or stand-alone dental plan offered through a Federally-
facilitated Exchange, then that portion of the advance payment of the 
premium tax credit that is less than or equal to the aggregate adjusted 
monthly premiums, as defined in 26 CFR 1.36B-3(e), properly allocated to 
EHB for the QHP policies, will be allocated among the QHP policies, as 
described in Sec. 155.340(f)(1); and any remaining advance payment of 
the premium tax credit will be allocated among the stand-alone dental 
policies based on the methodology described in Sec. 155.340(f)(2).
    (1) That portion of the advance payment(s) of the premium tax credit 
to be allocated among QHP policies will be allocated based on the number 
of enrollees covered under the QHP, weighted by the age of the 
enrollees, using the default uniform age rating curve established by the 
Secretary of HHS under 45 CFR 147.102(e), with the portion allocated to 
any single QHP policy not to exceed the portion of the QHP's adjusted 
monthly premium properly allocated to EHB. If the portion of the advance 
payment(s) of the premium tax credit allocated to a QHP under this 
subparagraph exceeds the portion of the same QHP's adjusted monthly 
premium properly allocated to EHB, the remainder will be allocated 
evenly among all other QHPs in which individuals in the tax filers' tax 
households are enrolled.
    (2) That portion of the advance payment(s) of the premium tax credit 
to be allocated among stand-alone dental policies will be allocated 
based on the number of enrollees covered under the stand-alone dental 
policy, weighted by the age of the enrollees, using the default uniform 
age rating curve established by the Secretary of HHS under 45 CFR 
147.102(e), with the portion allocated to any single stand-alone dental 
policy not to exceed the portion of the stand-alone dental policy 
premium properly allocated to EHB. If the portion of the advance 
payment(s) of the premium tax credit allocated to a stand-alone dental 
policy under this subparagraph exceeds the portion of the same policy's 
premium properly allocated to EHB, the remainder will be allocated 
evenly among all other stand-alone dental policies in which individuals 
in the tax filers' tax households are enrolled.
    (g) Reduction of enrollee's portion of premium to account for 
advance payments of the premium tax credit. If an Exchange is 
facilitating the collection and payment of premiums to QHP issuers and 
stand-alone dental plans on behalf of enrollees under Sec. 155.240, and 
if a QHP issuer or stand-alone dental plan has been notified that it 
will receive an advance payment of the premium tax credit on behalf of 
an enrollee for whom the Exchange is facilitating such functions, the 
Exchange must--
    (1) Reduce the portion of the premium for the policy collected from 
the individual for the applicable month(s) by the amount of the advance 
payment of the premium tax credit; and
    (2) Include with each billing statement, as applicable, to or for 
the individual the amount of the advance payment of the premium tax 
credit for the applicable month(s) and the remaining premium owed for 
the policy.
    (h) Failure to reduce enrollee's premiums to account for advance 
payments of the premium tax credit. If the Exchange discovers that it 
did not reduce an enrollee's premium by the amount of the advance 
payment of the premium tax credit, then the Exchange must notify the 
enrollee of the improper reduction within 45 calendar days of discovery 
of the improper reduction and refund the enrollee any excess premium 
paid by or for the enrollee as follows:
    (1) Unless a refund is requested by or for the enrollee, the 
Exchange must, within 45 calendar days of discovery of the error, apply 
the excess premium paid by or for the enrollee to the enrollee's portion 
of the premium (or refund the amount directly). If any excess premium 
remains, the Exchange must then apply the excess premium to the 
enrollee's portion of the premium for each subsequent month for the 
remainder of the period of enrollment or benefit year until the excess 
premium is fully refunded (or refund the remaining amount directly). If 
any excess premium remains at the end of the period of enrollment or 
benefit year, the Exchange must refund any excess premium within 45 
calendar days of the

[[Page 978]]

end of the period of enrollment or benefit year, whichever comes first.
    (2) If a refund is requested by or for the enrollee, the refund must 
be provided within 45 calendar days of the date of the request.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 15533, Mar. 11, 2013; 
78 FR 42320, July 15, 2013; 78 FR 65095, Oct. 30, 2013]



Sec. 155.345  Coordination with Medicaid, CHIP, the Basic Health Program, and the Pre-existing Condition Insurance Plan.

    (a) Agreements. The Exchange must enter into agreements with 
agencies administering Medicaid, CHIP, and the BHP, if a BHP is 
operating in the service area of the Exchange, as are necessary to 
fulfill the requirements of this subpart and provide copies of any such 
agreements to HHS upon request. Such agreements must include a clear 
delineation of the responsibilities of each agency to--
    (1) Minimize burden on individuals;
    (2) Ensure prompt determinations of eligibility and enrollment in 
the appropriate program without undue delay, based on the date the 
application is submitted to or redetermination is initiated by the 
Exchange or the agency administering Medicaid, CHIP, or the BHP;
    (3) [Reserved]
    (4) Ensure compliance with paragraphs (c), (d), (e), and (g) of this 
section.
    (b) Responsibilities related to individuals potentially eligible for 
Medicaid based on other information or through other coverage groups. 
For an applicant who is not eligible for Medicaid based on the standards 
specified in Sec. 155.305(c), the Exchange must assess the information 
provided by the applicant on his or her application to determine whether 
he or she is potentially eligible for Medicaid based on factors not 
otherwise considered in this subpart.
    (c) Individuals requesting additional screening. The Exchange must 
notify an applicant of the opportunity to request a full determination 
of eligibility for Medicaid based on eligibility criteria that are not 
described in Sec. 155.305(c), and provide such an opportunity. The 
Exchange must also make such notification to an enrollee and provide an 
enrollee such opportunity in any determination made in accordance with 
Sec. 155.330 or Sec. 155.335.
    (d) Notification of applicant and State Medicaid agency. If an 
Exchange identifies an applicant as potentially eligible for Medicaid 
under paragraph (b) of this section or an applicant requests a full 
determination for Medicaid under paragraph (c) of this section, the 
Exchange must--
    (1) Transmit all information provided on the application and any 
information obtained or verified by, the Exchange to the State Medicaid 
agency, promptly and without undue delay; and
    (2) Notify the applicant of such transmittal.
    (e) Treatment of referrals to Medicaid on eligibility for advance 
payments of the premium tax credit and cost-sharing reductions. The 
Exchange must consider an applicant who is described in paragraph (d) of 
this section and has not been determined eligible for Medicaid based on 
the standards specified in Sec. 155.305(c) as ineligible for Medicaid 
for purposes of eligibility for advance payments of the premium tax 
credit or cost-sharing reductions until the State Medicaid agency 
notifies the Exchange that the applicant is eligible for Medicaid.
    (f) Special rule. If the Exchange verifies that a tax filer's 
household income, as defined in 26 CFR 1.36B-1(e), is less than 100 
percent of the FPL for the benefit year for which coverage is requested, 
determines that the tax filer is not eligible for advance payments of 
the premium tax credit based on Sec. 155.305(f)(2), and one or more 
applicants in the tax filer's household has been determined ineligible 
for Medicaid and CHIP based on income, the Exchange must--
    (1) Provide the applicant with any information regarding income used 
in the Medicaid and CHIP eligibility determination; and
    (2) Follow the procedures specified in Sec. 155.320(c)(3).
    (g) Determination of eligibility for individuals submitting 
applications directly to an agency administering Medicaid, CHIP, or the 
BHP. The Exchange, in consultation with the agency or agencies 
administering Medicaid, CHIP, and the

[[Page 979]]

BHP if a BHP is operating in the service area of the Exchange, must 
establish procedures to ensure that an eligibility determination for 
enrollment in a QHP, advance payments of the premium tax credit, and 
cost-sharing reductions is performed when an application is submitted 
directly to an agency administering Medicaid, CHIP, or the BHP if a BHP 
is operating in the service area of the Exchange. Under such procedures, 
the Exchange must--
    (1) Accept, via secure electronic interface, all information 
provided on the application and any information obtained or verified by, 
the agency administering Medicaid, CHIP, or the BHP, if a BHP is 
operating in the service area of the Exchange, for the individual, and 
not require submission of another application;
    (2) Notify such agency of the receipt of the information described 
in paragraph (g)(1) of this section and final eligibility determination 
for enrollment in a QHP, advance payments of the premium tax credit, and 
cost-sharing reductions.
    (3) Not duplicate any eligibility and verification findings already 
made by the transmitting agency, to the extent such findings are made in 
accordance with this part.
    (4) Not request information or documentation from the individual 
already provided to another agency administering an insurance 
affordability program and included in the transmission of information 
provided on the application or other information transmitted from the 
other agency.
    (5) Determine the individual's eligibility for enrollment in a QHP, 
advance payments of the premium tax credit, and cost-sharing reductions, 
promptly and without undue delay, and in accordance with this subpart.
    (6) Follow a streamlined process for eligibility determinations 
regardless of the agency that initially received an application.
    (h) Adherence to state decision regarding Medicaid and CHIP. The 
Exchange and the Exchange appeals entity must adhere to the eligibility 
determination or appeals decision for Medicaid or CHIP made by the State 
Medicaid or CHIP agency, or the appeals entity for such agency.
    (i) Standards for sharing information between the Exchange and the 
agencies administering Medicaid, CHIP, and the BHP. (1) The Exchange 
must utilize a secure electronic interface to exchange data with the 
agencies administering Medicaid, CHIP, and the BHP, if a BHP is 
operating in the service area of the Exchange, including to verify 
whether an applicant for insurance affordability programs has been 
determined eligible for Medicaid, CHIP, or the BHP, as specified in 
Sec. 155.320(b)(1)(ii), and for other functions required under this 
subpart.
    (2) Model agreements. The Exchange may utilize any model agreements 
as established by HHS for the purpose of sharing data as described in 
this section.
    (j) Transition from the Pre-existing Condition Insurance Plan 
(PCIP). The Exchange must follow procedures established in accordance 
with 45 CFR 152.45 to transition PCIP enrollees to the Exchange to 
ensure that there are no lapses in health coverage.

[77 FR 18444, Mar. 27, 2012, as amended at 77 FR 31515, May 29, 2012; 78 
FR 42320, July 15, 2013; 78 FR 54136, Aug. 30, 2013]



Sec. 155.350  Special eligibility standards and process for Indians.

    (a) Eligibility for cost-sharing reductions. (1) The Exchange must 
determine an applicant who is an Indian eligible for cost-sharing 
reductions if he or she--
    (i) Meets the requirements specified in Sec. 155.305(a) and Sec. 
155.305(f);
    (ii) Is expected to have a household income, as defined in 26 CFR 
1.36B-1(e) that does not exceed 300 percent of the FPL for the benefit 
year for which coverage is requested.
    (2) The Exchange may only provide cost-sharing reductions to an 
individual who is an Indian if he or she is enrolled in a QHP through 
the Exchange.
    (b) Special cost-sharing rule for Indians regardless of income. The 
Exchange must determine an applicant eligible for the special cost-
sharing rule described in section 1402(d)(2) of the Affordable Care Act 
if he or she is an Indian, without requiring the applicant to request an 
eligibility determination for insurance affordability programs in

[[Page 980]]

accordance with Sec. 155.310(b) in order to qualify for this rule.
    (c) Verification related to Indian status. To the extent that an 
applicant attests that he or she is an Indian, the Exchange must verify 
such attestation by--
    (1) Utilizing any relevant documentation verified in accordance with 
Sec. 155.315(f);
    (2) Relying on any electronic data sources that are available to the 
Exchange and which have been approved by HHS for this purpose, based on 
evidence showing that such data sources are sufficiently accurate and 
offer less administrative complexity than paper verification; or
    (3) To the extent that approved data sources are unavailable, an 
individual is not represented in available data sources, or data sources 
are not reasonably compatible with an applicant's attestation, the 
Exchange must follow the procedures specified in Sec. 155.315(f) and 
verify documentation provided by the applicant in accordance with the 
standards for acceptable documentation provided in section 
1903(x)(3)(B)(v) of the Social Security Act.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42321, July 15, 2013]



Sec. 155.355  Right to appeal.

    Individual appeals. The Exchange must include the notice of the 
right to appeal and instructions regarding how to file an appeal in any 
eligibility determination notice issued to the applicant in accordance 
with Sec. 155.310(g), Sec. 155.330(e)(1)(ii), or Sec. 
155.335(h)(1)(ii).



  Subpart E_Exchange Functions in the Individual Market: Enrollment in 
                         Qualified Health Plans



Sec. 155.400  Enrollment of qualified individuals into QHPs.

    (a) General requirements. The Exchange must accept a QHP selection 
from an applicant who is determined eligible for enrollment in a QHP in 
accordance with subpart D, and must--
    (1) Notify the issuer of the applicant's selected QHP; and
    (2) Transmit information necessary to enable the QHP issuer to 
enroll the applicant.
    (b) Timing of data exchange. The Exchange must:
    (1) Send eligibility and enrollment information to QHP issuers and 
HHS promptly and without undue delay; and
    (2) Establish a process by which a QHP issuer acknowledges the 
receipt of such information.
    (3) Send updated eligibility and enrollment information to HHS 
promptly and without undue delay, in a manner and timeframe as specified 
by HHS.
    (c) Records. The Exchange must maintain records of all enrollments 
in QHP issuers through the Exchange.
    (d) Reconcile files. The Exchange must reconcile enrollment 
information with QHP issuers and HHS no less than on a monthly basis.
    (e) Premium payment. Exchanges may, and the Federally-facilitated 
Exchange will, require payment of the first month's premium to 
effectuate an enrollment. Exchanges may, and the Federally-facilitated 
Exchange will, establish a standard policy for setting premium payment 
deadlines:
    (1) In a Federally-facilitated Exchange, for first month (or binder 
payment) premiums:
    (i) For coverage being effectuated under regular coverage effective 
dates, as provided for in Sec. Sec. 155.410(f) and 155.420(b)(1), 
premium payment deadlines must be no earlier than the coverage effective 
date, but no later than 30 calendar days from the coverage effective 
date; and
    (ii) For coverage being effectuated under special effective dates, 
as provided in Sec. 155.420(b)(2), premium payment deadlines must be 30 
calendar days from the date the issuer receives the enrollment 
transaction.
    (2) [Reserved]
    (f) Processing enrollment transactions. The Exchange may provide 
requirements to QHP issuers regarding the instructions for processing 
electronic enrollment-related transactions.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42321, July 15, 2013; 
79 FR 30348, May 27, 2014; 80 FR 10866, Feb. 27, 2015]

[[Page 981]]



Sec. 155.405  Single streamlined application.

    (a) The application. The Exchange must use a single streamlined 
application to determine eligibility and to collect information 
necessary for:
    (1) Enrollment in a QHP;
    (2) Advance payments of the premium tax credit;
    (3) Cost-sharing reductions; and
    (4) Medicaid, CHIP, or the BHP, where applicable.
    (b) Alternative application. If the Exchange seeks to use an 
alternative application, such application, as approved by HHS, must 
request the minimum information necessary for the purposes identified in 
paragraph (a) of this section.
    (c) Filing the single streamlined application. The Exchange must--
    (1) Accept the single streamlined application from an application 
filer;
    (2) Provide the tools to file an application--
    (i) Via an Internet Web site;
    (ii) By telephone through a call center;
    (iii) By mail; and
    (iv) In person, with reasonable accommodations for those with 
disabilities, as defined by the Americans with Disabilities Act.



Sec. 155.410  Initial and annual open enrollment periods.

    (a) General requirements. (1) The Exchange must provide an initial 
open enrollment period and annual open enrollment periods consistent 
with this section, during which qualified individuals may enroll in a 
QHP and enrollees may change QHPs.
    (2) The Exchange may only permit a qualified individual to enroll in 
a QHP or an enrollee to change QHPs during the initial open enrollment 
period specified in paragraph (b) of this section, the annual open 
enrollment period specified in paragraph (e) of this section, or a 
special enrollment period described in Sec. 155.420 of this subpart for 
which the qualified individual has been determined eligible.
    (b) Initial open enrollment period. The initial open enrollment 
period begins October 1, 2013 and extends through March 31, 2014.
    (c) Effective coverage dates for initial open enrollment period--(1) 
Regular effective dates. For a QHP selection received by the Exchange 
from a qualified individual--
    (i) On or before December 23, 2013, the Exchange must ensure a 
coverage effective date of January 1, 2014.
    (ii) Between the first and fifteenth day of any subsequent month 
during the initial open enrollment period, the Exchange must ensure a 
coverage effective date of the first day of the following month.
    (iii) Between the sixteenth and last day of the month for any month 
between January 2014 and March 31, 2014 or between the twenty-fourth and 
the thirty-first of the month of December 2013, the Exchange must ensure 
a coverage effective date of the first day of the second following 
month.
    (iv) Notwithstanding the requirement of paragraph (c)(1)(i) of this 
section, an Exchange or SHOP operated by a State may require a January 
1, 2014 effective date for plan selection dates later than December 23, 
2013; a SHOP may also establish plan selection dates as early as 
December 15, 2013 for enrollment in SHOP QHPs for a January 1, 2014 
coverage effective date.
    (v) Notwithstanding the regular effective dates set forth in this 
section, an Exchange may allow issuers to provide for a coverage 
effective date of January 1, 2014 for plan selections received after 
December 23, 2013 and on or before January 31, 2014, if a QHP issuer is 
willing to accept such enrollments.
    (2) Option for earlier effective dates. Subject to the Exchange 
demonstrating to HHS that all of its participating QHP issuers agree to 
effectuate coverage in a timeframe shorter than discussed in paragraphs 
(c)(1)(ii) and (iii) of this section, the Exchange may do one or both of 
the following for all applicable individuals:
    (i) For a QHP selection received by the Exchange from a qualified 
individual in accordance with the dates specified in paragraph 
(c)(1)(ii) or (iii) of this section, the Exchange may provide a coverage 
effective date for a qualified individual earlier than specified in such 
paragraphs, provided that either--

[[Page 982]]

    (A) The qualified individual has not been determined eligible for 
advance payments of the premium tax credit or cost-sharing reductions; 
or
    (B) The qualified individual pays the entire premium for the first 
partial month of coverage as well as all cost sharing, thereby waiving 
the benefit of advance payments of the premium tax credit and cost-
sharing reduction payments until the first of the next month.
    (ii) For a QHP selection received by the Exchange from a qualified 
individual on a date set by the Exchange after the fifteenth of the 
month for any month between December 2013 and March 31, 2014, the 
Exchange may provide a coverage effective date of the first of the 
following month.
    (d) Notice of annual open enrollment period. Starting in 2014, the 
Exchange must provide a written annual open enrollment notification to 
each enrollee no earlier than the first day of the month before the open 
enrollment period begins and no later than the first day of the open 
enrollment period.
    (e) Annual open enrollment period. (1) For the benefit year 
beginning on January 1, 2015, the annual open enrollment period begins 
on November 15, 2014, and extends through February 15, 2015.
    (2) For the benefit year beginning on January 1, 2016, the annual 
open enrollment period begins on November 1, 2015 and extends through 
January 31, 2016.
    (f) Effective date. (1) For the benefit year beginning on January 1, 
2015, the Exchange must ensure coverage is effective--
    (i) January 1, 2015, for QHP selections received by the Exchange on 
or before December 15, 2014.
    (ii) February 1, 2015, for QHP selections received by the Exchange 
from December 16, 2014 through January 15, 2015.
    (iii) March 1, 2015, for QHP selections received by the Exchange 
from January 16, 2015 through February 15, 2015.
    (2) For the benefit year beginning on January 1, 2016, the Exchange 
must ensure that coverage is effective--
    (i) January 1, 2016, for QHP selections received by the Exchange on 
or before December 15, 2015.
    (ii) February 1, 2016, for QHP selections received by the Exchange 
from December 16, 2015 through January 15, 2016.
    (iii) March 1, 2016, for QHP selections received by the Exchange 
from January 16, 2016 through January 31, 2016.
    (g) Automatic enrollment. The Exchange may automatically enroll 
qualified individuals, at such time and in such manner as HHS may 
specify, and subject to the Exchange demonstrating to HHS that it has 
good cause to perform such automatic enrollments.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 76218, Dec. 17, 2013; 
79 FR 13838, Mar. 11, 2014; 79 FR 30348, May 27, 2014; 80 FR 10866, Feb. 
27, 2015]



Sec. 155.415  Allowing issuer application assisters to assist with eligibility applications.

    (a) Exchange option. An Exchange, to the extent permitted by State 
law, may permit issuer application assisters, as defined at Sec. 
155.20, to assist individuals in the individual market with applying for 
a determination or redetermination of eligibility for coverage through 
the Exchange and insurance affordability programs, provided that such 
issuer application assisters meet the requirements set forth in Sec. 
156.1230(a)(2) of this subchapter.
    (b) [Reserved]

[78 FR 54136, Aug. 30, 2013]



Sec. 155.420  Special enrollment periods.

    (a) General requirements. (1) The Exchange must provide special 
enrollment periods consistent with this section, during which qualified 
individuals may enroll in QHPs and enrollees may change QHPs.
    (2) For the purpose of this section, ``dependent'', has the same 
meaning as it does in 26 CFR 54.9801-2, referring to any individual who 
is or who may become eligible for coverage under the terms of a QHP 
because of a relationship to a qualified individual or enrollee.
    (b) Effective dates--(1) Regular effective dates. Except as 
specified in paragraphs (b)(2) and (3) of this section, for a QHP 
selection received by the Exchange from a qualified individual--

[[Page 983]]

    (i) Between the first and the fifteenth day of any month, the 
Exchange must ensure a coverage effective date of the first day of the 
following month; and
    (ii) Between the sixteenth and the last day of any month, the 
Exchange must ensure a coverage effective date of the first day of the 
second following month.
    (2) Special effective dates. (i) In the case of birth, adoption, 
placement for adoption, or placement in foster care as described in 
paragraph (d)(2)(i) of this section, the Exchange must ensure that 
coverage is effective for a qualified individual or enrollee on the date 
of birth, adoption, placement for adoption, or placement in foster care, 
or it may permit the qualified individual or enrollee to elect a 
coverage effective date of the first of the month following the date of 
birth, adoption, placement for adoption, or placement in foster care, or 
in accordance with paragraph (b)(1) of this section. If the Exchange 
permits the qualified individual or enrollee to elect a coverage 
effective date of either the first of the month following the date of 
birth, adoption, placement for adoption or placement in foster care or 
in accordance with paragraph (b)(1) of this section, the Exchange must 
ensure coverage is effective on the date duly selected by the qualified 
individual or enrollee.
    (ii) In the case of marriage as described in paragraph (d)(2) of 
this section the Exchange must ensure that coverage is effective for a 
qualified individual or enrollee on the first day of the month following 
plan selection.
    (iii) In the case of a qualified individual or enrollee eligible for 
a special enrollment period as described in paragraphs (d)(4), (d)(5), 
(d)(9), or (d)(10) of this section, the Exchange must ensure that 
coverage is effective on an appropriate date based on the circumstances 
of the special enrollment period.
    (iv) If a consumer loses coverage as described in paragraph (d)(1) 
or (d)(6)(iii), or gains access to a new QHP as described in paragraph 
(d)(7) of this section, if the plan selection is made on or before the 
day of the triggering event, the Exchange must ensure that the coverage 
effective date is on the first day of the month following the loss of 
coverage. If the plan selection is made after the day of the triggering 
event, the Exchange must ensure that coverage is effective in accordance 
with paragraph (b)(1) of this section or on the first day of the 
following month, at the option of the Exchange.
    (v) In the case of a court order as described in paragraph (d)(2)(i) 
of this section, the Exchange must ensure that coverage is effective for 
a qualified individual or enrollee on the date the court order is 
effective, or it may permit the qualified individual or enrollee to 
elect a coverage effective date in accordance with paragraph (b)(1) of 
this section. If the Exchange permits the qualified individual or 
enrollee to elect a coverage effective date in accordance with paragraph 
(b)(1) of this section, the Exchange must ensure coverage is effective 
on the date duly selected by the qualified individual or enrollee.
    (vi) If an enrollee or his or her dependent dies as described in 
paragraph (d)(2)(ii) of this section, the Exchange must ensure that 
coverage is effective on the first day of the month following the plan 
selection, or it may permit the enrollee or his or her dependent to 
elect a coverage effective date in accordance with paragraph (b)(1) of 
this section. If the Exchange permits the enrollee or his or her 
dependent to elect a coverage effective date in accordance with 
paragraph (b)(1) of this section, the Exchange must ensure coverage is 
effective on the date duly selected by the enrollee or his or her 
dependent.
    (3) Option for earlier effective dates. Subject to the Exchange 
demonstrating to HHS that all of its participating QHP issuers agree to 
effectuate coverage in a timeframe shorter than discussed in paragraph 
(b)(1) or (b)(2)(ii) of this section, the Exchange may do one or both of 
the following for all applicable individuals:
    (i) For a QHP selection received by the Exchange from a qualified 
individual in accordance with the dates specified in paragraph (b)(1) or 
(b)(2)(ii) of this section, the Exchange may provide a coverage 
effective date for a qualified individual earlier than specified in such 
paragraphs.

[[Page 984]]

    (ii) For a QHP selection received by the Exchange from a qualified 
individual on a date set by the Exchange after the fifteenth of the 
month, the Exchange may provide a coverage effective date of the first 
of the following month.
    (4) Advance payments of the premium tax credit and cost-sharing 
reductions. Notwithstanding the standards of this section, the Exchange 
must ensure that advance payments of the premium tax credit and cost-
sharing reductions adhere to the effective dates specified in Sec. 
155.330(f).
    (c) Availability and length of special enrollment periods--(1) 
General rule. Unless specifically stated otherwise herein, a qualified 
individual or enrollee has 60 days from the date of a triggering event 
to select a QHP.
    (2) Advanced availability. A qualified individual or his or her 
dependent who is described in paragraph (d)(1) or (d)(6)(iii) or, 
beginning on January 1, 2017 or earlier at the option of the Exchange, 
paragraph (d)(7) of this section, has 60 days before and after the 
triggering event to select a QHP. Prior to January 1, 2017, a qualified 
individual or his or her dependent who is described in paragraph (d)(7) 
of this section may select a QHP in accordance with paragraph (c)(1) of 
this section.
    (3) Special rule. In the case of a qualified individual or enrollee 
who is eligible for a special enrollment period as described in 
paragraphs (d)(4), (5), or (9) of this section, the Exchange may define 
the length of the special enrollment period as appropriate based on the 
circumstances of the special enrollment period, but in no event may the 
length of the special enrollment period exceed 60 days.
    (d) The Exchange must allow a qualified individual or enrollee, and, 
when specified below, his or her dependent, to enroll in or change from 
one QHP to another if one of the following triggering events occur:
    (1) The qualified individual or his or her dependent either:
    (i) Loses minimum essential coverage. The date of the loss of 
coverage is the last day the consumer would have coverage under his or 
her previous plan or coverage.
    (ii) Is enrolled in any non-calendar year group health plan or 
individual health insurance coverage, even if the qualified individual 
or his or her dependent has the option to renew such coverage. The date 
of the loss of coverage is the last day of the plan or policy year;
    (iii) Loses pregnancy-related coverage described under section 
1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the Social Security Act 
(42 U.S.C. 1396a(a)(10)(A)(i)(IV), (a)(10)(A)(ii)(IX)). The date of the 
loss of coverage is the last day the consumer would have pregnancy-
related coverage; or
    (iv) Loses medically needy coverage as described under section 
1902(a)(10)(C) of the Social Security Act only once per calendar year. 
The date of the loss of coverage is the last day the consumer would have 
medically needy coverage.
    (2)(i) The qualified individual gains a dependent or becomes a 
dependent through marriage, birth, adoption, placement for adoption, or 
placement in foster care, or through a child support order or other 
court order.
    (ii) Effective January 1, 2017 or earlier at the option of the 
Exchange, the enrollee loses a dependent or is no longer considered a 
dependent through divorce or legal separation as defined by State law in 
the State in which the divorce or legal separation occurs, or if the 
enrollee, or his or her dependent, dies.
    (3) The qualified individual, or his or her dependent, which was not 
previously a citizen, national, or lawfully present individual gains 
such status;
    (4) The qualified individual's or his or her dependent's, enrollment 
or non-enrollment in a QHP is unintentional, inadvertent, or erroneous 
and is the result of the error, misrepresentation, misconduct, or 
inaction of an officer, employee, or agent of the Exchange or HHS, its 
instrumentalities, or a non-Exchange entity providing enrollment 
assistance or conducting enrollment activities. For purposes of this 
provision, misconduct includes the failure to comply with applicable 
standards under this part, part 156 of this subchapter, or other 
applicable Federal or

[[Page 985]]

State laws as determined by the Exchange.
    (5) The enrollee or, his or her dependent adequately demonstrates to 
the Exchange that the QHP in which he or she is enrolled substantially 
violated a material provision of its contract in relation to the 
enrollee;
    (6) Newly eligible or ineligible for advance payments of the premium 
tax credit, or change in eligibility for cost-sharing reductions. (i) 
The enrollee is determined newly eligible or newly ineligible for 
advance payments of the premium tax credit or has a change in 
eligibility for cost-sharing reductions;
    (ii) The enrollee's dependent enrolled in the same QHP is determined 
newly eligible or newly ineligible for advance payments of the premium 
tax credit or has a change in eligibility for cost-sharing reductions; 
or
    (iii) A qualified individual or his or her dependent who is enrolled 
in an eligible employer-sponsored plan is determined newly eligible for 
advance payments of the premium tax credit based in part on a finding 
that such individual is ineligible for qualifying coverage in an 
eligible-employer sponsored plan in accordance with 26 CFR 1.36B-
2(c)(3), including as a result of his or her employer discontinuing or 
changing available coverage within the next 60 days, provided that such 
individual is allowed to terminate existing coverage.
    (iv) A qualified individual in a non-Medicaid expansion State who 
was previously ineligible for advance payments of the premium tax credit 
solely because of a household income below 100 percent of the FPL, who 
was ineligible for Medicaid during that same timeframe, and who has 
experienced a change in household income that makes the qualified 
individual newly eligible for advance payments of the premium tax 
credit.
    (7) The qualified individual or enrollee, or his or her dependent, 
gains access to new QHPs as a result of a permanent move;
    (8) The qualified individual who is an Indian, as defined by section 
4 of the Indian Health Care Improvement Act, may enroll in a QHP or 
change from one QHP to another one time per month;
    (9) The qualified individual or enrollee, or his or her dependent, 
demonstrates to the Exchange, in accordance with guidelines issued by 
HHS, that the individual meets other exceptional circumstances as the 
Exchange may provide.
    (e) Loss of coverage. Loss of coverage described in paragraph (d)(1) 
of this section includes those circumstances described in 26 CFR 
54.9801-6(a)(3)(i) through (iii) and in paragraphs (d)(1)(ii) through 
(iv) of this section. Loss of coverage does not include voluntary 
termination of coverage or other loss due to--
    (1) Failure to pay premiums on a timely basis, including COBRA 
premiums prior to expiration of COBRA coverage, or
    (2) Situations allowing for a rescission as specified in 45 CFR 
147.128.

[77 FR 18444, Mar. 27, 2012, as amended at 78 FR 42321, July 15, 2013; 
78 FR 65095, Oct. 30, 2013; 79 FR 30348, May 27, 2014; 79 FR 59138, Oct. 
1, 2014; 80 FR 10866, Feb. 27, 2015; 80 FR 38653, July 7, 2015]



Sec. 155.430  Termination of Exchange enrollment or coverage.

    (a) General requirements. The Exchange must determine the form and 
manner in which enrollment in a QHP through the Exchange may be 
terminated.
    (b) Termination events--(1) Enrollee-initiated terminations. (i) The 
Exchange must permit an enrollee to terminate his or her coverage or 
enrollment in a QHP through the Exchange, including as a result of the 
enrollee obtaining other minimum essential coverage. To the extent the 
enrollee has the right to terminate the coverage under applicable State 
laws, including ``free look'' cancellation laws, the enrollee may do so, 
in accordance with such laws.
    (ii) The Exchange must provide an opportunity at the time of plan 
selection for an enrollee to choose to remain enrolled in a QHP if he or 
she becomes eligible for other minimum essential coverage and the 
enrollee does not request termination in accordance with paragraph 
(b)(1)(i) of this section. If an enrollee does not choose to remain 
enrolled in a QHP in such a situation, the Exchange must initiate 
termination of his or her enrollment in

[[Page 986]]

the QHP upon completion of the redetermination process specified in 
Sec. 155.330.
    (iii) The Exchange must establish a process to permit individuals, 
including enrollees' authorized representatives, to report the death of 
an enrollee for purposes of initiating termination of the enrollee's 
Exchange enrollment. The Exchange may require the reporting party to 
submit documentation of the death. Any applicable premium refund, or 
premium due, must be processed by the deceased enrollee's QHP in 
accordance with State law.
    (2) Exchange-initiated terminations. The Exchange may initiate 
termination of an enrollee's enrollment in a QHP through the Exchange, 
and must permit a QHP issuer to terminate such coverage or enrollment, 
in the following circumstances:
    (i) The enrollee is no longer eligible for coverage in a QHP through 
the Exchange;
    (ii) Non-payment of premiums for coverage of the enrollee, and
    (A) The 3-month grace period required for individuals receiving 
advance payments of the premium tax credit has been exhausted as 
described in Sec. 156.270(g); or,
    (B) Any other grace period not described in paragraph (b)(2)(ii)(A) 
of this section has been exhausted;
    (iii) The enrollee's coverage is rescinded in accordance with Sec. 
147.128 of this subtitle;
    (iv) The QHP terminates or is decertified as described in Sec. 
155.1080; or
    (v) The enrollee changes from one QHP to another during an annual 
open enrollment period or special enrollment period in accordance with 
Sec. 155.410 or Sec. 155.420.
    (vi) Any other reason for termination of coverage described in Sec. 
147.106 of this subchapter.
    (c) Termination of coverage or enrollment tracking and approval. The 
Exchange must--
    (1) Establish mandatory procedures for QHP issuers to maintain 
records of termination of enrollment in a QHP through the Exchange;
    (2) Send termination information to the QHP issuer and HHS, promptly 
and without undue delay in accordance with Sec. 155.400(b).
    (3) Require QHP issuers to make reasonable accommodations for all 
individuals with disabilities (as defined by the Americans with 
Disabilities Act) before terminating enrollment of such individuals 
through the Exchange; and
    (4) Retain records in order to facilitate audit functions.
    (d) Effective dates for termination of coverage or enrollment. (1) 
For purposes of this section--
    (i) Reasonable notice is defined as at least fourteen days before 
the requested effective date of termination; and
    (ii) Changes in eligibility for advance payments of the premium tax 
credit and cost sharing reductions, including terminations, must adhere 
to the effective dates specified in Sec. 155.330(f).
    (2) In the case of a termination in accordance with paragraph (b)(1) 
of this section, the last day of enrollment through the Exchange is--
    (i) The termination date specified by the enrollee, if the enrollee 
provides reasonable notice;
    (ii) Fourteen days after the termination is requested by the 
enrollee, if the enrollee does not provide reasonable notice; or
    (iii) On a date on or after the date on which the termination is 
requested by the enrollee, subject to the determination of the 
enrollee's QHP issuer, if the enrollee's QHP issuer agrees to effectuate 
termination in fewer than fourteen days, and the enrollee requests an 
earlier termination effective date.
    (iv) If the enrollee is newly eligible for Medicaid, CHIP, or the 
BHP, if a BHP is operating in the service area of the Exchange, the last 
day of enrollment in a QHP through the Exchange is the day before the 
individual is determined eligible for Medicaid, CHIP, or the BHP.
    (v) The retroactive termination date requested by the enrollee, if 
specified by applicable State laws.
    (3) In the case of a termination in accordance with paragraph 
(b)(2)(i) of this section, the last day of enrollment in a QHP through 
the Exchange is the last day of eligibility, as described in Sec. 
155.330(f), unless the individual requests an earlier termination 
effective date per paragraph (b)(1) of this section.

[[Page 987]]

    (4) In the case of a termination in accordance with paragraph 
(b)(2)(ii)(A) of this section, the last day of enrollment in a QHP 
through the Exchange will be the last day of the first month of the 3-
month grace period.
    (5) In the case of a termination in accordance with paragraph 
(b)(2)(ii)(B) of this section, the last day of enrollment in a QHP 
through the Exchange should be consistent with existing State laws 
regarding grace periods.
    (6) In the case of a termination in accordance with paragraph 
(b)(2)(v) of this section, the last day of coverage in an enrollee's 
prior QHP is the day before the effective date of coverage in his or her 
new QHP, including any retroactive enrollments effectuated under Sec. 
155.420(b)(2)(iii).
    (7) In the case of a termination due to death, the last day of 
enrollment in a QHP through the Exchange is the date of death.
    (8) In cases of retroactive termination dates, the Exchange will 
ensure that appropriate actions are taken to make necessary adjustments 
to advance payments of the premium tax credit, cost-sharing reductions, 
premiums, claims, and user fees.
    (e) Termination, cancellation, and reinstatement. The Exchange may 
establish operational instructions as to the form, manner, and method 
for addressing each of the following:
    (1) Termination. A termination is an action taken after a coverage 
effective date that ends an enrollee's enrollment through the Exchange 
for a date after the original coverage effective date, resulting in a 
period during which the individual was enrolled in coverage through the 
Exchange.
    (2) Cancellation. A cancellation is specific type of termination 
action that ends a qualified individual's enrollment through the 
Exchange on the date such enrollment became effective resulting in 
enrollment through the Exchange never having been effective.
    (3) Reinstatement. A reinstatement is a correction of an erroneous 
termination or cancellation action and results in restoration of an 
enrollment with no break in coverage.

[77 FR 18444, Mar. 27, 2012, as amended at 77 FR 31515, May 29, 2012; 78 
FR 42322, July 15, 2013; 79 FR 30348, May 27, 2014; 80 FR 10867, Feb. 
27, 2015]



      Subpart F_Appeals of Eligibility Determinations for Exchange 
           Participation and Insurance Affordability Programs

    Source: 78 FR 54136, Aug. 30, 2013, unless otherwise noted.



Sec. 155.500  Definitions.

    In addition to those definitions in Sec. Sec. 155.20 and 155.300, 
for purposes of this subpart and Sec. 155.740 of subpart H, the 
following terms have the following meanings:
    Appeal record means the appeal decision, all papers and requests 
filed in the proceeding, and, if a hearing was held, the transcript or 
recording of hearing testimony or an official report containing the 
substance of what happened at the hearing, and any exhibits introduced 
at the hearing.
    Appeal request means a clear expression, either orally or in 
writing, by an applicant, enrollee, employer, or small business employer 
or employee to have any eligibility determination or redetermination 
contained in a notice issued in accordance with Sec. 155.310(g), Sec. 
155.330(e)(1)(ii), Sec. 155.335(h)(1)(ii), Sec. 155.610(i), or Sec. 
155.715(e) or (f), reviewed by an appeals entity.
    Appeals entity means a body designated to hear appeals of 
eligibility determinations or redeterminations contained in notices 
issued in accordance with Sec. 155.310(g), Sec. 155.330(e)(1)(ii), 
Sec. 155.335(h)(1)(ii), Sec. 155.610(i), or Sec. 155.715(e) and (f).
    Appellant means the applicant or enrollee, the employer, or the 
small business employer or employee who is requesting an appeal.
    De novo review means a review of an appeal without deference to 
prior decisions in the case.
    Evidentiary hearing means a hearing conducted where evidence may be 
presented.
    Vacate means to set aside a previous action.

[[Page 988]]



Sec. 155.505  General eligibility appeals requirements.

    (a) General requirements. Unless otherwise specified, the provisions 
of this subpart apply to Exchange eligibility appeals processes, 
regardless of whether the appeals process is provided by a State 
Exchange appeals entity or by the HHS appeals entity.
    (b) Right to appeal. An applicant or enrollee must have the right to 
appeal--
    (1) An eligibility determination made in accordance with subpart D, 
including--
    (i) An initial determination of eligibility, including the amount of 
advance payments of the premium tax credit and level of cost-sharing 
reductions, made in accordance with the standards specified in Sec. 
155.305(a) through (h); and
    (ii) A redetermination of eligibility, including the amount of 
advance payments of the premium tax credit and level of cost-sharing 
reductions, made in accordance with Sec. Sec. 155.330 and 155.335;
    (2) An eligibility determination for an exemption made in accordance 
Sec. 155.605;
    (3) A failure by the Exchange to provide timely notice of an 
eligibility determination in accordance with Sec. 155.310(g), Sec. 
155.330(e)(1)(ii), Sec. 155.335(h)(1)(ii), or Sec. 155.610(i); and
    (4) A denial of a request to vacate dismissal made by a State 
Exchange appeals entity in accordance with Sec. 155.530(d)(2), made 
pursuant to paragraph (c)(2)(i) or this section.
    (c) Options for Exchange appeals. Exchange eligibility appeals may 
be conducted by--
    (1) A State Exchange appeals entity, or an eligible entity described 
in paragraph (d) of this section that is designated by the Exchange, if 
the Exchange establishes an appeals process in accordance with the 
requirements of this subpart; or
    (2) The HHS appeals entity--
    (i) Upon exhaustion of the State Exchange appeals process;
    (ii) If the Exchange has not established an appeals process in 
accordance with the requirements of this subpart; or
    (iii) If the Exchange has delegated appeals of exemption 
determinations made by HHS pursuant to Sec. 155.625(b) to the HHS 
appeals entity, and the appeal is limited to a determination of 
eligibility for an exemption.
    (d) Eligible entities. An appeals process established under this 
subpart must comply with Sec. 155.110(a).
    (e) Representatives. An appellant may represent himself or herself, 
or be represented by an authorized representative under Sec. 155.227, 
or by legal counsel, a relative, a friend, or another spokesperson, 
during the appeal.
    (f) Accessibility requirements. Appeals processes established under 
this subpart must comply with the accessibility requirements in Sec. 
155.205(c).
    (g) Judicial review. An appellant may seek judicial review to the 
extent it is available by law.

[78 FR 54136, Aug. 30, 2013, as amended at 79 FR 30349, May 27, 2014]



Sec. 155.510  Appeals coordination.

    (a) Agreements. The appeals entity or the Exchange must enter into 
agreements with the agencies administering insurance affordability 
programs regarding the appeals processes for such programs as are 
necessary to fulfill the requirements of this subpart. Such agreements 
must include a clear delineation of the responsibilities of each entity 
to support the eligibility appeals process, and must--
    (1) Minimize burden on appellants, including not asking the 
appellant to provide duplicative information or documentation that he or 
she already provided to an agency administering an insurance 
affordability program or eligibility appeals process;
    (2) Ensure prompt issuance of appeal decisions consistent with 
timeliness standards established under this subpart; and
    (3) Comply with the requirements set forth in--
    (i) 42 CFR 431.10(d), if the state Medicaid agency delegates 
authority to hear fair hearings under 42 CFR 431.10(c)(ii) to the 
Exchange appeals entity; or
    (ii) 42 CFR 457.348(b), if the state CHIP agency delegates authority 
to review appeals under Sec. 457.1120 to the Exchange appeals entity.
    (b) Coordination for Medicaid and CHIP appeals. (1) Where the 
Medicaid or

[[Page 989]]

CHIP agency has delegated appeals authority to the Exchange appeals 
entity consistent with 42 CFR 431.10(c)(1)(ii) or 457.1120, and the 
Exchange appeals entity has accepted such delegation--
    (i) The Exchange appeals entity will conduct the appeal in 
accordance with--
    (A) Medicaid and CHIP MAGI-based income standards and standards for 
citizenship and immigration status, in accordance with the eligibility 
and verification rules and procedures, consistent with 42 CFR parts 435 
and 457.
    (B) Notice standards identified in this subpart, subpart D, and by 
the State Medicaid or CHIP agency, consistent with applicable law.
    (ii) Consistent with 42 CFR 431.10(c)(1)(ii), an appellant who has 
been determined ineligible for Medicaid must be informed of the option 
to opt into pursuing his or her appeal of the adverse Medicaid 
eligibility determination with the Medicaid agency, and if the appellant 
elects to do so, the appeals entity transmits the eligibility 
determination and all information provided via secure electronic 
interface, promptly and without undue delay, to the Medicaid agency.
    (2) Where the Medicaid or CHIP agency has not delegated appeals 
authority to the appeals entity and the appellant seeks review of a 
denial of Medicaid or CHIP eligibility, the appeals entity must transmit 
the eligibility determination and all relevant information provided as 
part of the initial application or appeal, if applicable, via secure 
electronic interface, promptly and without undue delay, to the Medicaid 
or CHIP agency, as applicable.
    (3) The Exchange must consider an appellant determined or assessed 
by the appeals entity as not potentially eligible for Medicaid or CHIP 
as ineligible for Medicaid and CHIP based on the applicable Medicaid and 
CHIP MAGI-based income standards for purposes of determining eligibility 
for advance payments of the premium tax credit and cost-sharing 
reductions.
    (c) Data exchange. The appeals entity must--
    (1) Ensure that all data exchanges that are part of the appeals 
process, comply with the data exchange requirements in Sec. Sec. 
155.260, 155.270, and 155.345(i); and
    (2) Comply with all data sharing requests made by HHS.



Sec. 155.515  Notice of appeal procedures.

    (a) Requirement to provide notice of appeal procedures. The Exchange 
must provide notice of appeal procedures at the time that the--
    (1) Applicant submits an application; and
    (2) Notice of eligibility determination is sent under Sec. Sec. 
155.310(g), 155.330(e)(1)(ii), 155.335(h)(1)(ii), and 155.610(i).
    (b) General content on right to appeal and appeal procedures. 
Notices described in paragraph (a) of this section must contain--
    (1) An explanation of the applicant or enrollee's appeal rights 
under this subpart;
    (2) A description of the procedures by which the applicant or 
enrollee may request an appeal;
    (3) Information on the applicant or enrollee's right to represent 
himself or herself, or to be represented by legal counsel or another 
representative;
    (4) An explanation of the circumstances under which the appellant's 
eligibility may be maintained or reinstated pending an appeal decision, 
as described in Sec. 155.525; and
    (5) An explanation that an appeal decision for one household member 
may result in a change in eligibility for other household members and 
that such a change will be handled as a redetermination of eligibility 
for all household members in accordance with the standards specified in 
Sec. 155.305.



Sec. 155.520  Appeal requests.

    (a) General standards for appeal requests. The Exchange and the 
appeals entity--
    (1) Must accept appeal requests submitted--
    (i) By telephone;
    (ii) By mail;
    (iii) In person, if the Exchange or the appeals entity, as 
applicable, is capable of receiving in-person appeal requests; and
    (iv) Via the Internet.

[[Page 990]]

    (2) Must assist the applicant or enrollee in making the appeal 
request, if requested;
    (3) Must not limit or interfere with the applicant or enrollee's 
right to make an appeal request; and
    (4) Must consider an appeal request to be valid for the purpose of 
this subpart, if it is submitted in accordance with the requirements of 
paragraphs (b) and (c) of this section and Sec. 155.505(b).
    (b) Appeal request. The Exchange and the appeals entity must allow 
an applicant or enrollee to request an appeal within--
    (1) 90 days of the date of the notice of eligibility determination; 
or
    (2) A timeframe consistent with the state Medicaid agency's 
requirement for submitting fair hearing requests, provided that 
timeframe is no less than 30 days, measured from the date of the notice 
of eligibility determination.
    (c) Appeal of a State Exchange appeals entity decision to HHS. If 
the appellant disagrees with the appeal decision of a State Exchange 
appeals entity, he or she may make an appeal request to the HHS appeals 
entity within 30 days of the date of the State Exchange appeals entity's 
notice of appeal decision or notice of denial of a request to vacate a 
dismissal.
    (d) Acknowledgement of appeal request. (1) Upon receipt of a valid 
appeal request pursuant to paragraph (b), (c), or (d)(3)(i) of this 
section, the appeals entity must--
    (i) Send timely acknowledgment to the appellant of the receipt of 
his or her valid appeal request, including--
    (A) Information regarding the appellant's eligibility pending appeal 
pursuant to Sec. 155.525; and
    (B) An explanation that any advance payments of the premium tax 
credit paid on behalf of the tax filer pending appeal are subject to 
reconciliation under 26 CFR 1.36B-4.
    (ii) Send timely notice via secure electronic interface of the 
appeal request and, if applicable, instructions to provide eligibility 
pending appeal pursuant to Sec. 155.525, to the Exchange and to the 
agencies administering Medicaid or CHIP, where applicable.
    (iii) If the appeal request is made pursuant to paragraph (c) of 
this section, send timely notice via secure electronic interface of the 
appeal request to the State Exchange appeals entity.
    (iv) Promptly confirm receipt of the records transferred pursuant to 
paragraph (d)(3) or (4) of this section to the Exchange or the State 
Exchange appeals entity, as applicable.
    (2) Upon receipt of an appeal request that is not valid because it 
fails to meet the requirements of this section or Sec. 155.505(b), the 
appeals entity must--
    (i) Promptly and without undue delay, send written notice to the 
applicant or enrollee informing the appellant:
    (A) That the appeal request has not been accepted;
    (B) About the nature of the defect in the appeal request; and
    (C) That the applicant or enrollee may cure the defect and resubmit 
the appeal request by the date determined under paragraph (b) or (c) of 
this section, as applicable, or within a reasonable timeframe 
established by the appeals entity.
    (ii) Treat as valid an amended appeal request that meets the 
requirements of this section and Sec. 155.505(b).
    (3) Upon receipt of a valid appeal request pursuant to paragraph (b) 
of this section, or upon receipt of the notice under paragraph 
(d)(1)(ii) of this section, the Exchange must transmit via secure 
electronic interface to the appeals entity--
    (i) The appeal request, if the appeal request was initially made to 
the Exchange; and
    (ii) The appellant's eligibility record.
    (4) Upon receipt of the notice pursuant to paragraph (d)(1)(iii) of 
this section, the State Exchange appeals entity must transmit via secure 
electronic interface the appellant's appeal record, including the 
appellant's eligibility record as received from the Exchange, to the HHS 
appeals entity.



Sec. 155.525  Eligibility pending appeal.

    (a) General standards. After receipt of a valid appeal request or 
notice under Sec. 155.520(d)(1)(ii) that concerns an appeal of a 
redetermination under Sec. 155.330(e) or Sec. 155.335(h), the Exchange

[[Page 991]]

or the Medicaid or CHIP agency, as applicable, must continue to consider 
the appellant eligible while the appeal is pending in accordance with 
standards set forth in paragraph (b) of this section or as determined by 
the Medicaid or CHIP agency consistent with 42 CFR parts 435 and 457, as 
applicable.
    (b) Implementation. If the tax filer or appellant, as applicable, 
accepts eligibility pending an appeal, the Exchange must continue the 
appellant's eligibility for enrollment in a QHP, advance payments of the 
premium tax credit, and cost-sharing reductions, as applicable, in 
accordance with the level of eligibility immediately before the 
redetermination being appealed.



Sec. 155.530  Dismissals.

    (a) Dismissal of appeal. The appeals entity must dismiss an appeal 
if the appellant--
    (1) Withdraws the appeal request in writing or by telephone, if the 
appeals entity is capable of accepting telephonic withdrawals.
    (i) Accepting telephonic withdrawals means the appeals entity--
    (A) Records in full the appellant's statement and telephonic 
signature made under penalty of perjury; and
    (B) Provides a written confirmation to the appellant documenting the 
telephonic interaction.
    (ii) [Reserved]
    (2) Fails to appear at a scheduled hearing without good cause;
    (3) Fails to submit a valid appeal request as specified in Sec. 
155.520(a)(4); or
    (4) Dies while the appeal is pending.
    (b) Notice of dismissal to the appellant. If an appeal is dismissed 
under paragraph (a) of this section, the appeals entity must provide 
timely written notice to the appellant, including--
    (1) The reason for dismissal;
    (2) An explanation of the dismissal's effect on the appellant's 
eligibility; and
    (3) An explanation of how the appellant may show good cause why the 
dismissal should be vacated in accordance with paragraph (d) of this 
section.
    (c) Notice of the dismissal to the Exchange, Medicaid, and CHIP. If 
an appeal is dismissed under paragraph (a) of this section, the appeals 
entity must provide timely notice to the Exchange, and to the agency 
administering Medicaid or CHIP, as applicable, including instruction 
regarding--
    (1) The eligibility determination to implement; and
    (2) Discontinuing eligibility provided under Sec. 155.525, if 
applicable.
    (d) Vacating a dismissal. The appeals entity must--
    (1) Vacate a dismissal and proceed with the appeal if the appellant 
makes a written request within 30 days of the date of the notice of 
dismissal showing good cause why the dismissal should be vacated; and
    (2) Provide timely written notice of the denial of a request to 
vacate a dismissal to the appellant, if the request is denied.

[78 FR 54136, Aug. 30, 2013, as amended at 79 FR 30349, May 27, 2014]



Sec. 155.535  Informal resolution and hearing requirements.

    (a) Informal resolution. The HHS appeals process will provide an 
opportunity for informal resolution and a hearing in accordance with the 
requirements of this section. A State Exchange appeals entity may also 
provide an informal resolution process prior to a hearing, provided 
that--
    (1) The process complies with the scope of review specified in 
paragraph (e) of this section;
    (2) The appellant's right to a hearing is preserved in any case in 
which the appellant remains dissatisfied with the outcome of the 
informal resolution process;
    (3) If the appeal advances to hearing, the appellant is not asked to 
provide duplicative information or documentation that he or she 
previously provided during the application or informal resolution 
process; and
    (4) If the appeal does not advance to hearing, the informal 
resolution decision is final and binding.
    (b) Notice of hearing. When a hearing is scheduled, the appeals 
entity must send written notice to the appellant of the date, time, and 
location or format of the hearing no later than 15 days prior to the 
hearing date.
    (c) Conducting the hearing. All hearings under this subpart must be 
conducted--

[[Page 992]]

    (1) At a reasonable date, time, and location or format;
    (2) After notice of the hearing, pursuant to paragraph (b) of this 
section;
    (3) As an evidentiary hearing, consistent with paragraph (e) of this 
section; and
    (4) By one or more impartial officials who have not been directly 
involved in the eligibility determination or any prior Exchange appeal 
decisions in the same matter.
    (d) Procedural rights of an appellant. The appeals entity must 
provide the appellant with the opportunity to--
    (1) Review his or her appeal record, including all documents and 
records to be used by the appeals entity at the hearing, at a reasonable 
time before the date of the hearing as well as during the hearing;
    (2) Bring witnesses to testify;
    (3) Establish all relevant facts and circumstances;
    (4) Present an argument without undue interference; and
    (5) Question or refute any testimony or evidence, including the 
opportunity to confront and cross-examine adverse witnesses.
    (e) Information and evidence to be considered. The appeals entity 
must consider the information used to determine the appellant's 
eligibility as well as any additional relevant evidence presented during 
the course of the appeals process, including at the hearing.
    (f) Standard of review. The appeals entity will review the appeal de 
novo and will consider all relevant facts and evidence adduced during 
the appeals process.



Sec. 155.540  Expedited appeals.

    (a) Expedited appeals. The appeals entity must establish and 
maintain an expedited appeals process for an appellant to request an 
expedited process where there is an immediate need for health services 
because a standard appeal could jeopardize the appellant's life, health, 
or ability to attain, maintain, or regain maximum function.
    (b) Denial of a request for expedited appeal. If the appeals entity 
denies a request for an expedited appeal, it must--
    (1) Handle the appeal request under the standard process and issue 
the appeal decision in accordance with Sec. 155.545(b)(1); and
    (2) Inform the appellant, promptly and without undue delay, through 
electronic or oral notification, if possible, of the denial and, if 
notification is oral, follow up with the appellant by written notice, 
within the timeframe established by the Secretary. Written notice of the 
denial must include--
    (i) The reason for the denial;
    (ii) An explanation that the appeal request will be transferred to 
the standard process; and
    (iii) An explanation of the appellant's rights under the standard 
process.



Sec. 155.545  Appeal decisions.

    (a) Appeal decisions. Appeal decisions must--
    (1) Be based exclusively on the information and evidence specified 
in Sec. 155.535(e) and the eligibility requirements under subpart D or 
G of this part, as applicable, and if the Medicaid or CHIP agencies 
delegate authority to conduct the Medicaid fair hearing or CHIP review 
to the appeals entity in accordance with 42 CFR 431.10(c)(1)(ii) or 
457.1120, the eligibility requirements under 42 CFR parts 435 and 457, 
as applicable;
    (2) State the decision, including a plain language description of 
the effect of the decision on the appellant's eligibility;
    (3) Summarize the facts relevant to the appeal;
    (4) Identify the legal basis, including the regulations that support 
the decision;
    (5) State the effective date of the decision; and
    (6) If the appeals entity is a State Exchange appeals entity--
    (i) Provide an explanation of the appellant's right to pursue the 
appeal before the HHS appeals entity, including the applicable 
timeframe, if the appellant remains dissatisfied with the eligibility 
determination; and
    (ii) Indicate that the decision of the State Exchange appeals entity 
is final, unless the appellant pursues the appeal before the HHS appeals 
entity.
    (b) Notice of appeal decision. The appeals entity--
    (1) Must issue written notice of the appeal decision to the 
appellant within

[[Page 993]]

90 days of the date of an appeal request under Sec. 155.520(b) or (c) 
is received, as administratively feasible.
    (2) In the case of an appeal request submitted under Sec. 155.540 
that the appeals entity determines meets the criteria for an expedited 
appeal, must issue the notice as expeditiously as reasonably possible, 
consistent with the timeframe established by the Secretary.
    (3) Must provide notice of the appeal decision and instructions to 
cease pended eligibility to the appellant, if applicable, via secure 
electronic interface, to the Exchange or the Medicaid or CHIP agency, as 
applicable.
    (c) Implementation of appeal decisions. The Exchange, upon receiving 
the notice described in paragraph (b), must promptly--
    (1) Implement the appeal decision effective--
    (i) Prospectively, on the first day of the month following the date 
of the notice of appeal decision, or consistent with Sec. 155.330(f)(2) 
or (3), if applicable; or
    (ii) Retroactively, to the date the incorrect eligibility 
determination was made, at the option of the appellant.
    (2) Redetermine the eligibility of household members who have not 
appealed their own eligibility determinations but whose eligibility may 
be affected by the appeal decision, in accordance with the standards 
specified in Sec. 155.305.



Sec. 155.550  Appeal record.

    (a) Appellant access to the appeal record. Subject to the 
requirements of all applicable Federal and State laws regarding privacy, 
confidentiality, disclosure, and personally identifiable information, 
the appeals entity must make the appeal record accessible to the 
appellant at a convenient place and time.
    (b) Public access to the appeal decision. The appeals entity must 
provide public access to all appeal decisions, subject to all applicable 
Federal and State laws regarding privacy, confidentiality, disclosure, 
and personally identifiable information.



Sec. 155.555  Employer appeals process.

    (a) General requirements. The provisions of this section apply to 
employer appeals processes through which an employer may, in response to 
a notice under Sec. 155.310(h), appeal a determination that the 
employer does not provide minimum essential coverage through an 
employer-sponsored plan or that the employer does provide that coverage 
but it is not affordable coverage with respect to an employee.
    (b) Exchange employer appeals process. An Exchange may establish an 
employer appeals process in accordance with the requirements of this 
section, Sec. 155.505(f) through (g), and Sec. 155.510(a)(1), (a)(2), 
and (c). Where an Exchange has not established an employer appeals 
process, HHS will provide an employer appeals process that meets the 
requirements of this section, Sec. Sec. 155.505(f) through (g), and 
155.510(a)(1), (a)(2), and (c).
    (c) Appeal request. The Exchange and appeals entity, as applicable, 
must--
    (1) Allow an employer to request an appeal within 90 days from the 
date the notice described under Sec. 155.310(h) is sent;
    (2) Allow an employer to submit relevant evidence to support the 
appeal;
    (3) Allow an employer to submit an appeal request to--
    (i) The Exchange or the Exchange appeals entity, if the Exchange 
establishes an employer appeals process; or
    (ii) The HHS appeals entity, if the Exchange has not established an 
employer appeals process;
    (4) Comply with the requirements of Sec. 155.520(a)(1) through (3); 
and
    (5) Consider an appeal request valid if it is submitted in 
accordance with paragraph (c)(1) of this section and with the purpose of 
appealing the determination identified in the notice specified in Sec. 
155.310(h).
    (d) Notice of appeal request. (1) Upon receipt of a valid appeal 
request, the appeals entity must--
    (i) Send timely acknowledgement of the receipt of the appeal request 
to the employer, including an explanation of the appeals process;
    (ii) Send timely notice to the employee of the receipt of the appeal 
request, including--

[[Page 994]]

    (A) An explanation of the appeals process;
    (B) Instructions for submitting additional evidence for 
consideration by the appeals entity; and
    (C) An explanation of the potential effect of the employer's appeal 
on the employee's eligibility.
    (iii) Promptly notify the Exchange of the appeal, if the employer 
did not initially make the appeal request to the Exchange.
    (2) Upon receipt of an invalid appeal request, the appeals entity 
must promptly and without undue delay send written notice to the 
employer that the appeal request is not valid because it fails to meet 
the requirements of this section. The written notice must inform the 
employer--
    (i) That the appeal request has not been accepted;
    (ii) About the nature of the defect in the appeal request; and
    (iii) That the employer may cure the defect and resubmit the appeal 
request by the date determined under paragraph (c) of this section, or 
within a reasonable timeframe established by the appeals entity.
    (iv) Treat as valid an amended appeal request that meets the 
requirements of this section, including standards for timeliness.
    (e) Transmittal and receipt of records. (1) Upon receipt of a valid 
appeal request under this section, or upon receipt of the notice under 
paragraph (d)(3) of this section, the Exchange must promptly transmit 
via secure electronic interface to the appeals entity--
    (i) The appeal request, if the appeal request was initially made to 
the Exchange; and
    (ii) The employee's eligibility record.
    (2) The appeals entity must promptly confirm receipt of records 
transmitted pursuant to paragraph (e)(1) of this section to the entity 
that transmitted the records.
    (f) Dismissal of appeal. The appeals entity--
    (1) Must dismiss an appeal under the circumstances specified in 
Sec. 155.530(a)(1) or if the request fails to comply with the standards 
in paragraph (c)(4) of this section.
    (2) Must provide timely notice of the dismissal to the employer, 
employee, and Exchange including the reason for dismissal; and
    (3) May vacate a dismissal if the employer makes a written request 
within 30 days of the date of the notice of dismissal showing good cause 
as to why the dismissal should be vacated.
    (g) Procedural rights of the employer. The appeals entity must 
provide the employer the opportunity to--
    (1) Provide relevant evidence for review of the determination of an 
employee's eligibility for advance payments of the premium tax credit or 
cost-sharing reductions;
    (2) Review--
    (i) The information described in Sec. 155.310(h)(1);
    (ii) Information regarding whether the employee's income is above or 
below the threshold by which the affordability of employer-sponsored 
minimum essential coverage is measured, as set forth by standards 
described in 26 CFR 1.36B; and
    (iii) Other data used to make the determination described in Sec. 
155.305(f) or (g), to the extent allowable by law, except the 
information described in paragraph (h) of this section.
    (h) Confidentiality of employee information. Neither the Exchange 
nor the appeals entity may make available to an employer any tax return 
information of an employee as prohibited by section 6103 of the Code.
    (i) Adjudication of employer appeals. Employer appeals must--
    (1) Be reviewed by one or more impartial officials who have not been 
directly involved in the employee eligibility determination implicated 
in the appeal;
    (2) Consider the information used to determine the employee's 
eligibility as well as any additional relevant evidence provided by the 
employer or the employee during the course of the appeal; and
    (3) Be reviewed de novo.
    (j) Appeal decisions. Employer appeal decisions must--
    (1) Be based exclusively on the information and evidence described 
in paragraph (i)(2) of this section and the eligibility standards in 45 
CFR part 155, subpart D;

[[Page 995]]

    (2) State the decision, including a plain language description of 
the effect of the decision on the employee's eligibility; and
    (3) Comply with the requirements set forth in Sec. 155.545(a)(3) 
through (5).
    (k) Notice of appeal decision. The appeals entity must provide 
written notice of the appeal decision within 90 days of the date the 
appeal request is received, as administratively feasible, to--
    (1) The employer. Such notice must include--
    (i) The appeal decision; and
    (ii) An explanation that the appeal decision does not foreclose any 
appeal rights the employer may have under subtitle F of the Code.
    (2) The employee. Such notice must include--
    (i) The appeal decision; and
    (ii) An explanation that the employee and his or her household 
members, if applicable, may appeal a redetermination of eligibility that 
occurs as a result of the appeal decision.
    (3) The Exchange.
    (l) Implementation of the appeal decision. After receipt of the 
notice under paragraph (k)(3) of this section, if the appeal decision 
affects the employee's eligibility, the Exchange must promptly 
redetermine the employee's eligibility and the eligibility of the 
employee's household members, if applicable, in accordance with the 
standards specified in Sec. 155.305.
    (m) Appeal record. Subject to the requirements of Sec. 155.550 and 
paragraph (h) of this section, the appeal record must be accessible to 
the employer and to the employee in a convenient format and at a 
convenient time.

[78 FR 54136, Aug. 30, 2013, as amended at 79 FR 30349, May 27, 2014]



   Subpart G_Exchange Functions in the Individual Market: Eligibility 
                      Determinations for Exemptions

    Source: 78 FR 39523, July 1, 2013, unless otherwise noted.



Sec. 155.600  Definitions and general requirements.

    (a) Definitions. For purposes of this subpart, the following terms 
have the following meaning:
    Applicant means an individual who is seeking an exemption for him or 
herself through an application submitted to the Exchange.
    Application filer means an applicant, an individual who is liable 
for the shared responsibility payment in accordance with section 5000A 
of the Code for an applicant, an authorized representative, or if the 
applicant is a minor or incapacitated, someone acting responsibly for an 
applicant.
    Exemption means an exemption from the shared responsibility payment.
    Health care sharing ministry has the same meaning as it does in 
section 5000A(d)(2)(B)(ii) of the Code.
    Indian tribe has the same meaning as it does in section 45A(c)(6) of 
the Code.
    Required contribution has the same meaning as it does in section 
5000A(e)(1)(B) of the Code.
    Required contribution percentage means the product of eight percent 
and the rate of premium growth over the rate of income growth for the 
calendar year, rounded to the nearest one-hundredth of one percent.
    Shared responsibility payment means the payment imposed with respect 
to a non-exempt individual who does not maintain minimum essential 
coverage in accordance with section 5000A(b) of the Code.
    Tax filer has the same meaning as it does in Sec. 155.300(a).
    (b) Attestation. For the purposes of this subpart, any attestation 
that an applicant is to provide under this subpart may be made by the 
application filer on behalf of the applicant.
    (c) Reasonably compatible. For purposes of this subpart, the 
Exchange must consider information through electronic data sources, 
other information provided by the applicant, or other information in the 
records of the Exchange to be reasonably compatible with an applicant's 
attestation if the difference or discrepancy does not impact the 
eligibility of the applicant for the exemption or exemptions for which 
he or she applied.

[[Page 996]]

    (d) Accessibility. Information, including notices, forms, and 
applications, must be provided to applicants in accordance with the 
standards specified in Sec. 155.205(c).
    (e) Notices. Any notice required to be sent by the Exchange to an 
individual in accordance with this subpart must be provided in 
accordance with the standards specified in Sec. 155.230.

[78 FR 39523, July 1, 2013, as amended at 79 FR 30349, May 27, 2014]



Sec. 155.605  Eligibility standards for exemptions.

    (a) Eligibility for an exemption through the Exchange. Except as 
specified in paragraph (g) of this section, the Exchange must determine 
an applicant eligible for and issue a certificate of exemption for any 
month if the Exchange determines that he or she meets the requirements 
for one or more of the categories of exemptions described in this 
section for at least one day of the month.
    (b) Duration of single exemption. Except as specified in paragraphs 
(c)(2), (f)(2), and (g) of this section, the Exchange may provide a 
certificate of exemption only for the calendar year in which an 
applicant submitted an application for such exemption.
    (c) Religious conscience. (1) The Exchange must determine an 
applicant eligible for an exemption for any month if the applicant is a 
member of a recognized religious sect or division described in section 
1402(g)(1) of the Code, and an adherent of established tenets or 
teachings of such sect or division, for such month in accordance with 
section 5000A(d)(2)(A) of the Code.
    (2) Duration of exemption for religious conscience. (i) The Exchange 
must grant the certificate of exemption specified in this paragraph to 
an applicant who meets the standards provided in paragraph (c)(1) of 
this section for a month on a continuing basis, until the month after 
the month of the individual's 21st birthday, or until such time that an 
individual reports that he or she no longer meets the standards provided 
in paragraph (c)(1) of this section.
    (ii) If the Exchange granted a certificate of exemption in this 
category to an applicant prior to his or her reaching the age of 21, the 
Exchange must send the applicant a notice upon reaching the age of 21 
informing the applicant that he or she must submit a new exemption 
application to maintain the certificate of exemption.
    (3) The Exchange must make an exemption in this category available 
prospectively or retrospectively.
    (d) Membership in a health care sharing ministry. (1) The Exchange 
must determine an applicant eligible for an exemption for a month if for 
such month the applicant is a member of a health care sharing ministry 
as defined in section 5000A(d)(2)(B)(ii) of the Code.
    (2) The Exchange must make an exemption in this category available 
only retrospectively.
    (e) Incarceration. (1) The Exchange must determine an applicant 
eligible for an exemption for a month if he or she meets the standards 
in section 5000A(d)(4) of the Code for such month.
    (2) The Exchange must make an exemption in this category available 
only retrospectively.
    (f) Membership in an Indian tribe. (1) The Exchange must determine 
an applicant eligible for an exemption for any month if he or she is a 
member of an Indian tribe, as defined in section 45A(c)(6) of the Code, 
for such month, as provided in section 5000A(e)(3) of the Code.
    (2) Duration of exemption for membership in an Indian tribe. The 
Exchange must grant the exemption specified in this paragraph to an 
applicant who meets the standards specified in paragraph (f)(1) of this 
section for a month on a continuing basis, until such time that the 
applicant reports that he or she no longer meets the standards provided 
in paragraph (f)(1) of this section.
    (3) The Exchange must make an exemption available in this category 
prospectively or retrospectively.
    (g) Hardship--(1) General. The Exchange must grant a hardship 
exemption to an applicant eligible for an exemption for at least the 
month before, a month or months during which, and the month after, if 
the Exchange determines that--
    (i) He or she experienced financial or domestic circumstances, 
including an unexpected natural or human-caused

[[Page 997]]

event, such that he or she had a significant, unexpected increase in 
essential expenses that prevented him or her from obtaining coverage 
under a qualified health plan;
    (ii) The expense of purchasing a qualified health plan would have 
caused him or her to experience serious deprivation of food, shelter, 
clothing or other necessities; or
    (iii) He or she has experienced other circumstances that prevented 
him or her from obtaining coverage under a qualified health plan.
    (2) Lack of affordable coverage based on projected income. The 
Exchange must determine an applicant eligible for an exemption for a 
month or months during which he or she, or another individual the 
applicant attests will be included in the applicant's family, as defined 
in 26 CFR 1.36B-1(d), is unable to afford coverage in accordance with 
the standards specified in section 5000A(e)(1) of the Code, provided 
that--
    (i) Eligibility for this exemption is based on projected annual 
household income;
    (ii) An eligible employer-sponsored plan is only considered under 
paragraphs (g)(2)(iii) and (iv) of this section if it meets the minimum 
value standard described in Sec. 156.145 of this subchapter.
    (iii) For an individual who is eligible to purchase coverage under 
an eligible employer-sponsored plan, the Exchange determines the 
required contribution for coverage such that--
    (A) An individual who uses tobacco is treated as not earning any 
premium incentive related to participation in a wellness program 
designed to prevent or reduce tobacco use that is offered by an eligible 
employer-sponsored plan;
    (B) Wellness incentives offered by an eligible employer-sponsored 
plan that do not relate to tobacco use are treated as not earned;
    (C) In the case of an employee who is eligible to purchase coverage 
under an eligible employer-sponsored plan sponsored by the employee's 
employer, the required contribution is the portion of the annual premium 
that the employee would pay (whether through salary reduction or 
otherwise) for the lowest cost self-only coverage.
    (D) In the case of an individual who is eligible to purchase 
coverage under an eligible employer-sponsored plan as a member of the 
employee's family, as defined in 26 CFR 1.36B-1(d), the required 
contribution is the portion of the annual premium that the employee 
would pay (whether through salary reduction or otherwise) for the lowest 
cost family coverage that would cover the employee and all other 
individuals who are included in the employee's family who have not 
otherwise been granted an exemption through the Exchange.
    (iv) For an individual who is ineligible to purchase coverage under 
an eligible employer-sponsored plan, the Exchange determines the 
required contribution for coverage in accordance with section 
5000A(e)(1)(B)(ii) of the Code, inclusive of all members of the family, 
as defined in 26 CFR 1.36B-1(d), who have not otherwise been granted an 
exemption through the Exchange and who are not treated as eligible to 
purchase coverage under an eligible employer-sponsored plan, in 
accordance with paragraph (g)(2)(ii) of this section; and
    (v) The applicant applies for this exemption prior to the last date 
on which he or she could enroll in a QHP through the Exchange for the 
month or months of a calendar year for which the exemption is requested.
    (vi) The Exchange must make an exemption in this category available 
prospectively, and provide it for all remaining months in a coverage 
year, notwithstanding any change in an individual's circumstances.
    (3) Filing threshold. The IRS may allow an applicant to claim an 
exemption without obtaining an exemption certificate number from an 
Exchange for a taxable year if, for such year, the applicant could not 
be claimed as a dependent by another taxpayer and the applicant's gross 
income was less than the applicant's applicable return filing threshold 
described in section 5000A(e)(2) of the Code;
    (4) Ineligible for Medicaid based on a state's decision not to 
expand. The Exchange must determine an applicant eligible for an 
exemption for a calendar year if he or she has been determined 
ineligible for Medicaid for one or more

[[Page 998]]

months during the benefit year solely as a result of a State not 
implementing section 2001(a) of the Affordable Care Act;
    (5) Self-only coverage in an eligible employer-sponsored plan. The 
IRS may allow an applicant to claim an exemption for a calendar year if 
he or she, as well as one or more employed members of his or her family, 
as defined in 26 CFR 1.36B-1(d), has been determined eligible for 
affordable self-only employer-sponsored coverage pursuant to section 
5000A(e)(1) of the Code through their respective employers for one or 
more months during the calendar year, but the aggregate cost of 
employer-sponsored coverage for all the employed members of the family 
exceeds the required contribution percentage of household income for 
that calendar year; or
    (6) Eligible for services through an Indian health care provider. 
(i) The Exchange must determine an applicant eligible for an exemption 
for any month if he or she is an Indian eligible for services through an 
Indian health care provider, as defined in 42 CFR 447.51 and not 
otherwise eligible for an exemption under paragraph (f) of this section, 
or an individual eligible for services through the Indian Health Service 
in accordance with 25 U.S.C. 1680c(a), (b), or (d)(3).
    (ii) The Exchange must grant the exemption specified in paragraph 
(g)(6) of this section to an applicant who meets the standards specified 
in paragraph (g)(6) of this section for a month on a continuing basis, 
until such time that the applicant reports that he or she no longer 
meets the standards provided in paragraph (g)(6) of this section.
    (iii) The IRS may allow an applicant to claim the exemption 
specified in paragraph (g)(6) of this section without obtaining an 
exemption certificate number from an Exchange.

[78 FR 39523, July 1, 2013, as amended at 79 FR 30349, May 27, 2014; 80 
FR 10868, Feb. 27, 2015]



Sec. 155.610  Eligibility process for exemptions.

    (a) Application. Except as specified in paragraphs (b) and (c) of 
this section, the Exchange must use an application established by HHS to 
collect information necessary for determining eligibility for and 
granting certificates of exemption as described in Sec. 155.605.
    (b) Alternative application. If the Exchange seeks to use an 
alternative application, such application, as approved by HHS, must 
request the minimum information necessary for the purposes identified in 
paragraph (a) of this section.
    (c) Exemptions through the eligibility process for coverage. If an 
individual submits the application described in Sec. 155.405 and then 
requests an exemption, the Exchange must use information collected for 
purposes of the eligibility determination for enrollment in a QHP and 
for insurance affordability programs in making the exemption eligibility 
determination, and must not request duplicate information or conduct 
repeat verifications to the extent that the Exchange finds that such 
information is still applicable, where the standards for such 
verifications adhere to the standards specified in this subpart.
    (d) Filing the exemption application. The Exchange must--
    (1) Accept the application from an application filer; and
    (2) Provide the tools to file an application.
    (3) For applications submitted before October 15, 2014, the Exchange 
must, at a minimum, accept the application by mail.
    (e) Collection of Social Security Numbers. (1) The Exchange must 
require an applicant who has a Social Security number to provide such 
number to the Exchange.
    (2) The Exchange may not require an individual who is not seeking an 
exemption for himself or herself to provide a Social Security number, 
except as specified in paragraph (e)(3) of this section.
    (3) The Exchange must require an application filer to provide the 
Social Security number of a tax filer who is not an applicant only if an 
applicant attests that the tax filer has a Social Security number and 
filed a tax return for the year for which tax data would be utilized for 
verification of household income and family size for an exemption under 
Sec. 155.605(g)(2) that requires such verification.

[[Page 999]]

    (f) Determination of eligibility; granting of certificates. The 
Exchange must determine an applicant's eligibility for an exemption in 
accordance with the standards specified in Sec. 155.605, and grant a 
certificate of exemption to any applicant determined eligible.
    (g) Timeliness standards. (1) The Exchange must determine 
eligibility for exemption promptly and without undue delay.
    (2) The Exchange must assess the timeliness of eligibility 
determinations made under this subpart based on the period from the date 
of application to the date the Exchange notifies the applicant of its 
decision.
    (h) Exemptions for previous tax years. (1) Except for the exemptions 
described in Sec. 155.605(c), (f), and (g), after December 31 of a 
given calendar year, the Exchange will not accept an application for an 
exemption that is available retrospectively for months for such calendar 
year, and must provide information to individuals regarding how to claim 
an exemption through the tax filing process.
    (2) The Exchange will only accept an application for an exemption 
described in Sec. 155.605(g)(1) during one of the 3 calendar years 
after the month or months during which the applicant attests that the 
hardship occurred.
    (i) Notification of eligibility determination for exemptions. The 
Exchange must provide timely written notice to an applicant of any 
eligibility determination made in accordance with this subpart. In the 
case of a determination that an applicant is eligible for an exemption, 
this notification must include the exemption certificate number for the 
purposes of tax administration.
    (j) Retention of records for tax compliance. (1) An Exchange must 
notify an individual to retain the records that demonstrate receipt of 
the certificate of exemption and qualification for the underlying 
exemption.
    (2) In the case of any factor of eligibility that is verified 
through use of the special circumstances exception described in Sec. 
155.615(h), the records that demonstrate qualification for the 
underlying exemption are the information submitted to the Exchange 
regarding the circumstances that warranted the use of the exception, as 
well as records of the Exchange decision to allow such exception.



Sec. 155.615  Verification process related to eligibility for exemptions.

    (a) General rule. Unless a request for modification is granted under 
paragraph (i) of this section, the Exchange must verify or obtain 
information as provided in this section in order to determine that an 
applicant is eligible for an exemption.
    (b) Verification related to exemption for religious conscience. For 
any applicant who requests an exemption based on religious conscience, 
the Exchange must verify that he or she meets the standards specified in 
Sec. 155.605(c) by--
    (1) Except as specified in paragraph (b)(2) of this section, 
accepting a form that reflects that he or she is exempt from Social 
Security and Medicare taxes under section 1402(g)(1) of the Code;
    (2) Except as specified in paragraphs (b)(3) and (4) of this 
section, accepting his or her attestation of membership in a religious 
sect or division, and verifying that the religious sect or division to 
which the applicant attests membership is recognized by the Social 
Security Administration as an approved religious sect or division under 
section 1402(g)(1) of the Code.
    (3) If information provided by an applicant regarding his or her 
membership in a religious sect or division is not reasonably compatible 
with other information provided by the individual or in the records of 
the Exchange, the Exchange must follow the procedures specified in 
paragraph (g) of this section.
    (4) If an applicant attests to membership in a religious sect or 
division that is not recognized by the Social Security Administration as 
an approved religious sect or division under section 1402(g)(1) of the 
Code, the Exchange must provide the applicant with information regarding 
how his or her religious sect or division can pursue recognition under 
section 1402(g)(1) of the Code, and determine the applicant ineligible 
for this exemption until such time as the Exchange obtains information 
indicating that the religious sect or division has been approved.

[[Page 1000]]

    (c) Verification related to exemption for membership in a health 
care sharing ministry. (1) For any applicant who requests an exemption 
based on membership in a health care sharing ministry, the Exchange must 
verify that the applicant meets the standards specified in Sec. 
155.605(d) by, except as provided in paragraphs (c)(1)(i) and (c)(1)(ii) 
of this section, accepting his or her attestation; and verifying that 
the health care sharing ministry to which the applicant attests 
membership is known to the Exchange as a valid health care sharing 
ministry based on data provided by HHS--
    (i) If information provided by an applicant regarding his or her 
membership in a health care sharing ministry is not reasonably 
compatible with other information provided by the individual or in the 
records of the Exchange, the Exchange must follow the procedures 
specified in paragraph (g) of this section. The Exchange may not 
consider an applicant's prior or current enrollment in health coverage 
as not reasonably compatible with an applicant's attestation of 
membership in a health care sharing ministry.
    (ii) If an applicant attests to membership in a health care sharing 
ministry that is not known to the Exchange as a health care sharing 
ministry based on information provided by HHS, the Exchange must provide 
the applicant with information regarding how an organization can pursue 
recognition under Sec. 155.615(c)(2), and determine the applicant 
ineligible for this exemption until such time as HHS notifies the 
Exchange that the health care sharing ministry's meets the standards 
specified in section 5000A(d)(2)(B)(ii) of the Code.
    (2) To be considered a health care sharing ministry for the purposes 
of this subpart, an organization must submit information to HHS that 
substantiates the organization's compliance with the standards specified 
in section 5000A(d)(2)(B)(ii) of the Code. If at any time HHS determines 
that an organization previously considered a health care sharing 
ministry for the purposes of this subpart no longer meets the standards 
specified in section 5000A(d)(2)(B)(ii) of the Code, HHS may revoke its 
earlier decision regarding the status of the health care sharing 
ministry.
    (d) Verification related to exemption for incarceration. (1) For any 
applicant who provides information attesting that he or she was 
incarcerated for a given month in accordance with the standards 
specified in Sec. 155.605(e), the Exchange must verify his or her 
attestation through the same process as described in Sec. 155.315(e).
    (2) To the extent that the Exchange is unable to verify an 
applicant's attestation that he or she was incarcerated for a given 
month in accordance with the standards specified in Sec. 155.605(e) 
through the process described in Sec. 155.315(e), the Exchange must 
follow the procedures specified in paragraph (g) of this section.
    (e) Verification related to exemption for members of Indian tribes. 
(1) For any applicant who provides information attesting that he or she 
is a member of an Indian tribe, the Exchange must use the process 
outlined in Sec. 155.350(c) to verify that the applicant is a member of 
an Indian tribe.
    (2) To the extent that the Exchange is unable to verify an 
applicant's status as a member of an Indian tribe through the process 
described in Sec. 155.350(c), the Exchange must follow the procedures 
specified in paragraph (g) of this section.
    (f) Verification related to exemption for hardshi--(1) In general. 
For any applicant who requests an exemption based on hardship, except 
for the hardship exemptions described in Sec. 155.605(g)(3) and (5), 
the Exchange must verify whether he or she has experienced the hardship 
to which he or she is attesting.
    (2) Lack of affordable coverage based on projected income. (i) For 
any applicant who requests an exemption based on the hardship described 
in Sec. 155.605(g)(2), the Exchange must verify the unavailability of 
affordable coverage through the procedures used to determine eligibility 
for advance payments of the premium tax credit, as specified in subpart 
D of this part, including the procedures described in Sec. 
155.315(c)(1), and the procedures used to verify eligibility for 
qualifying coverage in an eligible employer-sponsored plan, as specified 
in Sec. 155.320(d), except as specified in Sec. 155.615(f)(2)(ii).

[[Page 1001]]

    (ii) The Exchange must accept an application filer's attestation for 
an applicant regarding eligibility for minimum essential coverage other 
than through an eligible employer-sponsored plan, instead of following 
the procedures specified in Sec. 155.320(b).
    (3) Eligible for services through an Indian health care provider. 
For any applicant who requests an exemption based on the hardship 
described in Sec. 155.605(g)(6), the Exchange must verify whether he or 
she meets the standards specified in Sec. 155.605(g)(6) through the 
same process described in Sec. 155.615(e).
    (4) To the extent that the Exchange is unable to verify any of the 
information needed to determine an applicant's eligibility for an 
exemption based on hardship, the Exchange must follow the procedures 
specified in paragraph (g) of this section.
    (g) Inability to verify necessary information. Except as otherwise 
specified in this subpart, for an applicant for whom the Exchange cannot 
verify information required to determine eligibility for an exemption, 
including but not limited to when electronic data is required in 
accordance with this subpart but data for individuals relevant to the 
eligibility determination for an exemption are not included in such data 
sources or when electronic data is required but it is not reasonably 
expected that data sources will be available within the time period as 
specified in Sec. 155.315(f), the Exchange--
    (1) Must make a reasonable effort to identify and address the causes 
of such inconsistency, including typographical or other clerical errors, 
by contacting the application filer to confirm the accuracy of the 
information submitted by the application filer;
    (2) If unable to resolve the inconsistency through the process 
described in paragraph (g)(1) of this section, must--
    (i) Provide notice to the applicant regarding the inconsistency; and
    (ii) Provide the applicant with a period of 90 days from the date on 
which the notice described in paragraph (g)(2)(i) of this section is 
sent to the applicant to either present satisfactory documentary 
evidence via the channels available for the submission of an 
application, as described in Sec. 155.610(d), except for by telephone, 
or otherwise to resolve the inconsistency.
    (3) May extend the period described in paragraph (g)(2)(ii) of this 
section for an applicant if the applicant demonstrates that a good faith 
effort has been made to obtain the required documentation during the 
period.
    (4) During the period described in paragraph (g)(1) and (g)(2)(ii) 
of this section, must not grant a certificate of exemption based on the 
information subject to this paragraph.
    (5) If, after the period described in paragraph (g)(2)(ii) of this 
section, the Exchange remains unable to verify the attestation, the 
Exchange must determine the applicant's eligibility for an exemption 
based on any information available from the data sources used in 
accordance with this subpart, if applicable, unless such applicant 
qualifies for the exception provided under paragraph (h) of this 
section, and notify the applicant of such determination in accordance 
with the notice requirements specified in Sec. 155.610(i), including 
notice that the Exchange is unable to verify the attestation.
    (h) Exception for special circumstances. For an applicant who does 
not have documentation with which to resolve the inconsistency through 
the process described in paragraph (g)(2) of this section because such 
documentation does not exist or is not reasonably available and for whom 
the Exchange is unable to otherwise resolve the inconsistency, the 
Exchange must provide an exception, on a case-by-case basis, to accept 
an applicant's attestation as to the information which cannot otherwise 
be verified along with an explanation of circumstances as to why the 
applicant does not have documentation.
    (i) Flexibility in information collection and verification. HHS may 
approve an Exchange Blueprint in accordance with Sec. 155.105(d) or a 
significant change to the Exchange Blueprint in accordance with Sec. 
155.105(e) to modify the methods to be used for collection of 
information and verification as set forth in this subpart, as well as 
the specific information required to be collected, provided that HHS 
finds that such modification would reduce the administrative costs and 
burdens on individuals

[[Page 1002]]

while maintaining accuracy and minimizing delay, and that applicable 
requirements under Sec. Sec. 155.260, 155.270, and paragraph (j) of 
this section, and section 6103 of the Code with respect to the 
confidentiality, disclosure, maintenance, or use of such information 
will be met.
    (j) Applicant information. The Exchange may not require an applicant 
to provide information beyond the minimum necessary to support the 
eligibility process for exemptions as described in this subpart.
    (k) Validation of Social Security number. (1) For any individual who 
provides his or her Social Security number to the Exchange, the Exchange 
must transmit the Social Security number and other identifying 
information to HHS, which will submit it to the Social Security 
Administration.
    (2) To the extent that the Exchange is unable to validate an 
individual's Social Security number through the Social Security 
Administration, or the Social Security Administration indicates that the 
individual is deceased, the Exchange must follow the procedures 
specified in paragraph (g) of this section, except that the Exchange 
must provide the individual with a period of 90 days from the date on 
which the notice described in paragraph (g)(2)(i) of this section is 
received for the applicant to provide satisfactory documentary evidence 
or resolve the inconsistency with the Social Security Administration. 
The date on which the notice is received means 5 days after the date on 
the notice, unless the individual demonstrates that he or she did not 
receive the notice within the 5 day period.

[78 FR 39523, July 1, 2013, as amended at 78 FR 42322, July 15, 2013]



Sec. 155.620  Eligibility redeterminations for exemptions during a calendar year.

    (a) General requirement. The Exchange must redetermine the 
eligibility of an individual with an exemption granted by the Exchange 
if it receives and verifies new information reported by such an 
individual, except for the exemption described in Sec. 155.605(g)(2).
    (b) Requirement for individuals to report changes. (1) Except as 
specified in paragraph (b)(2) of this section, the Exchange must require 
an individual who has a certificate of exemption from the Exchange to 
report any change with respect to the eligibility standards for the 
exemption as specified in Sec. 155.605, except for the exemption 
described in Sec. 155.605(g)(2), within 30 days of such change.
    (2) The Exchange must allow an individual with a certificate of 
exemption to report changes via the channels available for the 
submission of an application, as described in Sec. 155.610(d).
    (c) Verification of reported changes. The Exchange must--
    (1) Verify any information reported by an individual with a 
certificate of exemption in accordance with the processes specified in 
Sec. 155.615 prior to using such information in an eligibility 
redetermination.
    (2) Notify an individual in accordance with Sec. 155.610(i) after 
redetermining his or her eligibility based on a reported change.
    (3) Provide periodic electronic notifications regarding the 
requirements for reporting changes and an individual's opportunity to 
report any changes, to an individual who has a certificate of exemption 
for which changes must be reported in accordance with Sec. 155.620(b) 
and who has elected to receive electronic notifications, unless he or 
she has declined to receive such notifications.
    (d) Effective date of changes. The Exchange must implement a change 
resulting from a redetermination under this section for the month or 
months after the month in which the redetermination occurs, such that a 
certificate that was provided for the month in which the redetermination 
occurs, and for prior months remains effective.



Sec. 155.625  Options for conducting eligibility determinations for exemptions.

    (a) Options for conducting eligibility determinations. The Exchange 
may satisfy the requirements of this subpart--
    (1) Directly or through contracting arrangements in accordance with 
Sec. 155.110(a); or
    (2) For an application submitted before the start of open enrollment 
for

[[Page 1003]]

2016, through the approach described in paragraph (b) of this section.
    (b) Use of HHS service. Notwithstanding the requirements of this 
subpart, for an application submitted before the start of open 
enrollment for 2016, the Exchange may adopt an exemption eligibility 
determination made by HHS, provided that--
    (1) The Exchange adheres to the eligibility determination made by 
HHS;
    (2) The Exchange furnishes to HHS any information available through 
the Exchange that is necessary for an applicant to utilize the process 
administered by HHS; and
    (3) The Exchange call center and Internet Web site specified in 
Sec. 155.205(a) and (b), respectively, provide information to consumers 
regarding the exemption eligibility process.

[79 FR 30349, May 27, 2014]



Sec. 155.630  Reporting.

    Requirement to provide information related to tax administration. If 
the Exchange grants an individual a certificate of exemption in 
accordance with Sec. 155.610(i), the Exchange must transmit to the IRS 
at such time and in such manner as the IRS may specify--
    (a) The individual's name, Social Security number, and exemption 
certificate number;
    (b) Any other information required in guidance published by the 
Secretary of the Treasury in accordance with 26 CFR 601.601(d)(2).



Sec. 155.635  Right to appeal.

    (a) For an application submitted before October 15, 2014, the 
Exchange must include the notice of the right to appeal and instructions 
regarding how to file an appeal in any notification issued in accordance 
with Sec. 155.610(i).
    (b) For an application submitted on or after October 15, 2014, the 
Exchange must include the notice of the right to appeal and instructions 
regarding how to file an appeal in any notification issued in accordance 
with Sec. Sec. 155.610(i) and 155.625(b)(2)(i).



  Subpart H_Exchange Functions: Small Business Health Options Program 
                                 (SHOP)

    Source: 77 FR 18464, Mar. 27, 2012, unless otherwise noted.



Sec. 155.700  Standards for the establishment of a SHOP.

    (a) General requirement. An Exchange must provide for the 
establishment of a SHOP that meets the requirements of this subpart and 
is designed to assist qualified employers and facilitate the enrollment 
of qualified employees into qualified health plans.
    (b) Definition. For the purposes of this subpart:
    Group participation rate means the minimum percentage of all 
eligible individuals or employees of an employer that must be enrolled.
    SHOP application filer means an applicant, an authorized 
representative, an agent or broker of the employer, or an employer 
filing for its employees where not prohibited by other law.

[77 FR 18464, Mar. 27, 2012, as amended at 78 FR 54141, Aug. 30, 2013; 
80 FR 10868, Feb. 27, 2015]



Sec. 155.705  Functions of a SHOP.

    (a) Exchange functions that apply to SHOP. The SHOP must carry out 
all the required functions of an Exchange described in this subpart and 
in subparts C, E, K, and M of this part, except:
    (1) Requirements related to individual eligibility determinations in 
subpart D of this part;
    (2) Requirements related to enrollment of qualified individuals 
described in subpart E of this part;
    (3) The requirement to issue certificates of exemption in accordance 
with Sec. 155.200(b); and
    (4) Requirements related to the payment of premiums by individuals, 
Indian tribes, tribal organizations and urban Indian organizations under 
Sec. 155.240.
    (b) Unique functions of a SHOP. The SHOP must also provide the 
following unique functions:
    (1) Enrollment and eligibility functions. The SHOP must adhere to 
the requirements outlined in subpart H.

[[Page 1004]]

    (2) Employer choice requirements. With regard to QHPs offered 
through the SHOP for plan years beginning on or after January 1, 2015, 
the SHOP must allow a qualified employer to select a level of coverage 
as described in section 1302(d)(1) of the Affordable Care Act, in which 
all QHPs within that level are made available to the qualified employees 
of the employer, unless the SHOP makes an election pursuant to paragraph 
(b)(3)(vi) of this section.
    (3) SHOP options with respect to employer choice requirements. (i) 
For plan years beginning before January 1, 2015, a SHOP may allow a 
qualified employer to make one or more QHPs available to qualified 
employees:
    (A) By the method described in paragraph (b)(2) of this section, or
    (B) By a method other than the method described in paragraph (b)(2) 
of this section.
    (ii) Unless the SHOP makes an election pursuant to paragraph 
(b)(3)(vi) of this section, for plan years beginning on or after January 
1, 2015, a SHOP:
    (A) Must allow an employer to make available to qualified employees 
all QHPs at the level of coverage selected by the employer as described 
in paragraph (b)(2) of this section, and
    (B) May allow an employer to make one or more QHPs available to 
qualified employees by a method other than the method described in 
paragraph (b)(2) of this section.
    (iii) For plan years beginning before January 1, 2015, a Federally-
facilitated SHOP will provide a qualified employer the choice to make 
available to qualified employees a single QHP.
    (iv) Unless the Secretary makes an election pursuant to paragraph 
(b)(3)(vi) of this section, for plan years beginning on or after January 
1, 2015, a Federally-facilitated SHOP will provide a qualified employer 
a choice of two methods to make QHPs available to qualified employees:
    (A) The employer may choose a level of coverage as described in 
paragraph (b)(2) of this section, or
    (B) The employer may choose a single QHP.
    (v) For plan years beginning on or after January 1, 2015, a 
Federally-facilitated SHOP will provide a qualified employer a choice of 
two methods to make stand-alone dental plans available to qualified 
employees and their dependents:
    (A) The employer may choose to make available a single stand-alone 
dental plan.
    (B) The employer may choose to make available all stand-alone dental 
plans offered through a Federally-facilitated SHOP at a level of 
coverage as described in Sec. 156.150(b)(2) of this subchapter.
    (vi) For plan years beginning in 2015 only, the SHOP may elect to 
provide employers only with the option set forth at paragraph 
(b)(3)(ii)(B) of this section, or in the case of a Federally-facilitated 
SHOP, only with the option set forth at paragraph (b)(3)(iv)(B) of this 
section, only if the State Insurance Commissioner submits a written 
recommendation to the SHOP adequately explaining that it is the State 
Insurance Commissioner's expert judgment, based on a documented 
assessment of the full landscape of the small group market in his or her 
State, that not implementing employee choice would be in the best 
interests of small employers and their employees and dependents, given 
the likelihood that implementing employee choice would cause issuers to 
price products and plans higher in 2015 due to the issuers' beliefs 
about adverse selection. A State Insurance Commissioner's recommendation 
must be based on concrete evidence, including but not limited to 
discussions with those issuers expected to participate in the SHOP in 
2015.
    (vii) For plan years beginning in 2015 only, a State Insurance 
Commissioner should submit the recommendation specified in paragraph 
(b)(3)(vi) of this section, and the SHOP should make a decision based on 
that recommendation sufficiently in advance of the end of the QHP 
certification application window such that issuers can make informed 
decisions about whether to participate in the SHOP. In a Federally-
facilitated-SHOP, State Insurance Commissioners must submit to HHS the 
recommendation specified in paragraph (b)(3)(vi) of this section on or 
before June 2, 2014, and HHS will make a decision based on any 
recommendations submitted by that deadline before

[[Page 1005]]

the close of the QHP certification application window.
    (4)(i) Premium aggregation. Consistent with the effective dates set 
forth in paragraph (b)(4)(ii) of this section, the SHOP must perform the 
following functions related to premium payment administration:
    (A) Provide each qualified employer with a bill on a monthly basis 
that identifies the employer contribution, the employee contribution, 
and the total amount that is due to the QHP issuers from the qualified 
employer;
    (B) Collect from each employer the total amount due and make 
payments to QHP issuers in the SHOP for all enrollees except as provided 
for in paragraph (b)(4)(ii)(A) of this section; and
    (C) Maintain books, records, documents, and other evidence of 
accounting procedures and practices of the premium aggregation program 
for each benefit year for at least 10 years.
    (ii) The SHOP may establish one or more standard processes for 
premium calculation, premium payment, and premium collection.
    (A) The SHOP may, upon an election by a qualified employer, enter 
into an agreement with a qualified employer to facilitate the 
administration of continuation coverage by collecting premiums for 
continuation coverage enrolled in through the SHOP directly from a 
person enrolled in continuation coverage through the SHOP consistent 
with applicable law and the terms of the group health plan, and 
remitting premium payments for this coverage to QHP issuers. A 
Federally-facilitated SHOP may elect to limit this service to the 
collection of premiums related to continuation coverage required under 
29 U.S.C. 1161, et seq.
    (B) Qualified employers in a Federally-facilitated SHOP must make 
premium payments according to a timeline and process established by HHS;
    (C) For a Federally-facilitated SHOP, the premium for coverage 
lasting less than 1 month must equal the product of:
    (1) The premium for 1 month of coverage divided by the number of 
days in the month; and
    (2) The number of days for which coverage is being provided in the 
month described in paragraph (b)(4)(ii)(B)(1) of this section.
    (iii) Effective dates. (A) A State-based SHOP may elect to perform 
these functions for plan years beginning before January 1, 2015, but 
need not do so.
    (B) A Federally-facilitated SHOP will perform these functions only 
in plan years beginning on or after January 1, 2015.
    (5) QHP Certification. With respect to certification of QHPs in the 
small group market, the SHOP must ensure each QHP meets the requirements 
specified in Sec. 156.285 of this subchapter.
    (6) Rates and rate changes. The SHOP must--
    (i) Require all QHP issuers to make any change to rates at a uniform 
time that is no more frequently than quarterly.
    (A) In a Federally-facilitated SHOP, rates may be updated quarterly 
with effective dates of January 1, April 1, July 1, or October 1 of each 
calendar year, beginning with rates effective no sooner than July 1, 
2014. The updated rates must be submitted to HHS at least 60 days in 
advance of the effective date of the rates.
    (B) [Reserved]
    (ii) Prohibit all QHP issuers from varying rates for a qualified 
employer during the employer's plan year.
    (7) QHP availability in merged markets. If a State merges the 
individual market and the small group market risk pools in accordance 
with section 1312(c)(3) of the Affordable Care Act, the SHOP may permit 
a qualified employee to enroll in any QHP meeting level of coverage 
requirements described in section 1302(d) of the Affordable Care Act.
    (8) QHP availability in unmerged markets. If a State does not merge 
the individual and small group market risk pools, the SHOP must permit 
each qualified employee to enroll only in QHPs in the small group 
market.
    (9) SHOP expansion to large group market. If a State elects to 
expand the SHOP to the large group market, a SHOP must allow issuers of 
health insurance coverage in the large group market in the State to 
offer QHPs in

[[Page 1006]]

such market through a SHOP beginning in 2017 provided that a large 
employer meets the qualified employer requirements other than that it be 
a small employer.
    (10) Participation rules. Subject to Sec. 147.104 of this 
subchapter, the SHOP may authorize a uniform group participation rate 
for the offering of health insurance coverage in the SHOP, which must be 
a single, uniform rate that applies to all groups and issuers in the 
SHOP. If the SHOP authorizes a minimum participation rate, such rate 
must be based on the rate of employee participation in the SHOP, not on 
the rate of employee participation in any particular QHP or QHPs of any 
particular issuer.
    (i) For plan years beginning before January 1, 2016, subject to 
Sec. 147.104 of this subchapter, a Federally-facilitated SHOP must use 
a minimum participation rate of 70 percent, calculated as the number of 
qualified employees accepting coverage under the employer's group health 
plan, divided by the number of qualified employees offered coverage, 
excluding from the calculation any employee who, at the time the 
employer submits the SHOP application, is enrolled in coverage through 
another employer's group health plan or through a governmental plan such 
as Medicare, Medicaid, or TRICARE. For purposes of this calculation, 
qualified employees who are former employees will not be counted.
    (ii) For plan years beginning on or after January 1, 2016, subject 
to Sec. 147.104 of this subchapter, a Federally-facilitated SHOP must 
use a minimum participation rate of 70 percent, calculated as the number 
of full-time employees accepting coverage offered by a qualified 
employer plus the number of full-time employees who, at the time the 
employer submits the SHOP group enrollment, are enrolled in coverage 
through another group health plan, governmental coverage (such as 
Medicare, Medicaid, or TRICARE), coverage sold through the individual 
market, or in other minimum essential coverage, divided by the number of 
full-time employees offered coverage.
    (iii) Notwithstanding paragraphs (b)(10)(i) and (ii) of this 
section, a Federally-facilitated SHOP may utilize a different minimum 
participation rate in a State if there is evidence that a State law sets 
a minimum participation rate or that a higher or lower minimum 
participation rate is customarily used by the majority of QHP issuers in 
that State for products in the State's small group market outside the 
SHOP.
    (11) Premium calculator. In the SHOP, the premium calculator 
described in Sec. 155.205(b)(6) must facilitate the comparison of 
available QHPs after the application of any applicable employer 
contribution in lieu of any advance payment of the premium tax credit 
and any cost sharing reductions.
    (i) To determine the employer and employee contributions, a SHOP may 
establish one or more standard methods that employers may use to define 
their contributions toward employee and dependent coverage.
    (ii) A Federally-facilitated SHOP must use the following method for 
employer contributions:
    (A) The employer will select a level of coverage as described in 
paragraph (b)(2) and (b)(3) of this section.
    (B) The employer will select a QHP within that level of coverage to 
serve as a reference plan on which contributions will be based.
    (C) The employer will define a percentage contribution toward 
premiums for employee-only coverage under the reference plan and, if 
dependent coverage is offered, a percentage contribution toward premiums 
for dependent coverage under the reference plan. To the extent permitted 
by other applicable law, for plan years beginning on or after January 1, 
2015, a Federally-facilitated SHOP may permit an employer to define a 
different percentage contribution for full-time employees from the 
percentage contribution it defines for non-full-time employees, and it 
may permit an employer to define a different percentage contribution for 
dependent coverage for full-time employees from the percentage 
contribution it defines for dependent coverage for non-full-time 
employees.
    (D) Either State law or the employer may require that a Federally-
facilitated SHOP base contributions on a calculated composite premium 
for the reference plan for employees, for adult

[[Page 1007]]

dependents, and for dependents below age 21.
    (E) The resulting contribution amounts for each employee's coverage 
may then be applied toward the QHP selected by the employee.
    (c) Coordination with individual market Exchange for eligibility 
determinations. A SHOP must provide data related to eligibility and 
enrollment of a qualified employee to the individual market Exchange 
that corresponds to the service area of the SHOP, unless the SHOP is 
operated pursuant to Sec. 155.100(a)(2).
    (d) Duties of Navigators in the SHOP. In States that have elected to 
operate only a SHOP pursuant to Sec. 155.100(a)(2), at State option and 
if State law permits the Navigator duties described in Sec. 
155.210(e)(3) and (4) may be fulfilled through referrals to agents and 
brokers.

[77 FR 18464, Mar. 27, 2012, as amended at 78 FR 15533, Mar. 11, 2013; 
78 FR 33239, June 4, 2013; 78 FR 54141, Aug. 30, 2013; 78 FR 79620, Dec. 
31, 2013; 79 FR 13838, Mar. 11, 2014; 79 FR 30349, May 27, 2014; 79 FR 
59138, Oct. 1, 2014; 80 FR 10868, Feb. 27, 2015]



Sec. 155.710  Eligibility standards for SHOP.

    (a) General requirement. The SHOP must permit qualified employers to 
purchase coverage for qualified employees through the SHOP.
    (b) Employer eligibility requirements. An employer is a qualified 
employer eligible to purchase coverage through a SHOP if such employer--
    (1) Is a small employer;
    (2) Elects to offer, at a minimum, all full-time employees coverage 
in a QHP through a SHOP; and
    (3) Either--
    (i) Has its principal business address in the Exchange service area 
and offers coverage to all its full-time employees through that SHOP; or
    (ii) Offers coverage to each eligible employee through the SHOP 
serving that employee's primary worksite.
    (c) Participating in multiple SHOPs. If an employer meets the 
criteria in paragraph (b) of this section and makes the election 
described in (b)(3)(ii) of this section, a SHOP shall allow the employer 
to offer coverage to those employees whose primary worksite is in the 
SHOP's service area.
    (d) Continuing eligibility. The SHOP must treat a qualified employer 
which ceases to be a small employer solely by reason of an increase in 
the number of employees of such employer as a qualified employer until 
the qualified employer otherwise fails to meet the eligibility criteria 
of this section or elects to no longer purchase coverage for qualified 
employees through the SHOP.
    (e) Employee eligibility requirements. An employee is a qualified 
employee eligible to enroll in coverage through a SHOP if such employee 
receives an offer of coverage from a qualified employer. A qualified 
employee is eligible to enroll his or her dependents in coverage through 
a SHOP if the offer from the qualified employer includes an offer of 
dependent coverage.

[77 FR 18464, Mar. 27, 2012, as amended at 80 FR 10869, Feb. 27, 2015]



Sec. 155.715  Eligibility determination process for SHOP.

    (a) General requirement. Before permitting the purchase of coverage 
in a QHP, the SHOP must determine that the employer or individual who 
requests coverage is eligible in accordance with the requirements of 
Sec. 155.710.
    (b) Applications. The SHOP must accept a SHOP single employer 
application form from employers and the SHOP single employee application 
form from employees wishing to elect coverage through the SHOP, in 
accordance with the relevant standards of Sec. 155.730.
    (c) Verification of eligibility. For the purpose of verifying 
employer and employee eligibility, the SHOP--
    (1) Must verify that an individual applicant is identified by the 
employer as an employee to whom the qualified employer has offered 
coverage and must otherwise accept the information attested to within 
the application unless the information is inconsistent with the 
employer-provided information;
    (2) May establish, in addition to or in lieu of reliance on the 
application, additional methods to verify the information provided by 
the applicant on the applicable application;
    (3) Must collect only the minimum information necessary for 
verification of eligibility in accordance with the

[[Page 1008]]

eligibility standards described in Sec. 155.710; and
    (4) May not perform individual market Exchange eligibility 
determinations or verifications described in subpart D of this part.
    (d) Eligibility adjustment period. (1) When the information 
submitted on the SHOP single employer application is inconsistent with 
information collected from third-party data sources through the 
verification process described in Sec. 155.715(c)(2), the SHOP must--
    (i) Make a reasonable effort to identify and address the causes of 
such inconsistency, including through typographical or other clerical 
errors;
    (ii) Notify the employer of the inconsistency;
    (iii) Provide the employer with a period of 30 days from the date on 
which the notice described in paragraph (d)(1)(ii) of this section is 
sent to the employer to either present satisfactory documentary evidence 
to support the employer's application, or resolve the inconsistency; and
    (iv) If, after the 30-day period described in paragraph (d)(1)(iii) 
of this section, the SHOP has not received satisfactory documentary 
evidence, the SHOP must--
    (A) Notify the employer of its denial of eligibility in accordance 
with paragraph (e) of this section and of the employer's right to appeal 
such determination; and
    (B) If the employer was enrolled pending the confirmation or 
verification of eligibility information, discontinue the employer's 
participation in the SHOP at the end of the month following the month in 
which the notice is sent.
    (2) When the information submitted on the SHOP single employee 
application is inconsistent with information collected from third-party 
data sources through the verification process described in Sec. 
155.715(c)(2), the SHOP must-
    (i) Make a reasonable effort to identify and address the causes of 
such inconsistency, including through typographical or other clerical 
errors;
    (ii) Notify the individual of the inability to substantiate his or 
her employee status;
    (iii) Provide the employee with a period of 30 days from the date on 
which the notice described in paragraph (d)(2)(ii) of this section is 
sent to the employee to either present satisfactory documentary evidence 
to support the employee's application, or resolve the inconsistency; and
    (iv) If, after the 30-day period described in paragraph (d)(2)(iii) 
of this section, the SHOP has not received satisfactory documentary 
evidence, the SHOP must notify the employee of its denial of eligibility 
in accordance with paragraph (f) of this section.
    (e) Notification of employer eligibility. The SHOP must provide an 
employer requesting eligibility to purchase coverage with a notice of 
approval or denial of eligibility and the employer's right to appeal 
such eligibility determination.
    (f) Notification of employee eligibility. The SHOP must notify an 
employee seeking to enroll in a QHP offered through the SHOP of the 
determination by the SHOP whether the individual is eligible in 
accordance with Sec. 155.710 and the employee's right to appeal such 
determination.
    (g) Notification of employer withdrawal from SHOP. If a qualified 
employer ceases to purchase coverage through the SHOP, the SHOP must 
ensure that--
    (1) Each QHP terminates the coverage of the employer's qualified 
employees enrolled in the QHP through the SHOP; and
    (2) Each of the employer's qualified employees enrolled in a QHP 
through the SHOP is notified of the termination of coverage prior to 
such termination. Such notification must also provide information about 
other potential sources of coverage, including access to individual 
market coverage through the Exchange.

[77 FR 18464, Mar. 27, 2012, as amended at 79 FR 13839, Mar. 11, 2014]



Sec. 155.720  Enrollment of employees into QHPs under SHOP.

    (a) General requirements. The SHOP must process the SHOP single 
employee applications of qualified employees to the applicable QHP 
issuers and facilitate the enrollment of qualified employees in QHPs. 
All references

[[Page 1009]]

to QHPs in this section refer to QHPs offered through the SHOP.
    (b) Enrollment timeline and process. The SHOP must establish a 
uniform enrollment timeline and process for all QHP issuers and 
qualified employers to follow, which includes the following activities 
that must occur before the effective date of coverage for qualified 
employees:
    (1) Determination of employer eligibility for purchase of coverage 
in the SHOP as described in Sec. 155.715;
    (2) Qualified employer selection of QHPs offered through the SHOP to 
qualified employees, consistent with Sec. 155.705(b)(2) and (3);
    (3) Provision of a specific timeframe during which the qualified 
employer can select the level of coverage or QHP offering, as 
appropriate;
    (4) Provision of a specific timeframe for qualified employees to 
provide relevant information to complete the application process;
    (5) Determination and verification of employee eligibility for 
enrollment through the SHOP; and
    (6) Processing enrollment of qualified employees into selected QHPs.
    (c) Transfer of enrollment information. In order to enroll qualified 
employees of a qualified employer participating in the SHOP, the SHOP 
must--
    (1) Transmit enrollment information on behalf of qualified employees 
to QHP issuers in accordance with the timeline and process described in 
paragraph (b) of this section; and
    (2) Follow requirements set forth in Sec. 155.400(c) of this part.
    (d) Payment. The SHOP must--
    (1) Follow requirements set forth in Sec. 155.705(b)(4) of this 
part; and
    (2) Terminate participation of qualified employers that do not 
comply with the process established in Sec. 155.705(b)(4).
    (e) Notification of effective date. (1) For plan years beginning 
before January 1, 2017, the SHOP must ensure that a QHP issuer notifies 
a qualified employee enrolled in a QHP through the SHOP of the effective 
date of his or her coverage.
    (2) For plan years beginning on or after January 1, 2017, the SHOP 
must ensure that a QHP issuer notifies an enrollee enrolled in a QHP 
through the SHOP of the effective date of his or her coverage.
    (3) When a primary subscriber and his or her dependents live at the 
same address, a separate notice of the effective date of coverage need 
not be sent to each dependent at that address, provided that the notice 
sent to each primary subscriber at that address contains all required 
information about the coverage effective date for the primary subscriber 
and his or her dependents at that address.
    (f) Records. The SHOP must receive and maintain for at least 10 
years records of enrollment in QHPs, including identification of--
    (1) Qualified employers participating in the SHOP; and
    (2) Qualified employees enrolled in QHPs.
    (g) Reconcile files. The SHOP must reconcile enrollment information 
and employer participation information with QHPs on no less than a 
monthly basis.
    (h) Employee termination of coverage from a QHP. If any employee 
terminates coverage from a QHP, the SHOP must notify the employee's 
employer.
    (i) Reporting requirement for tax administration purposes. The SHOP 
must report to the IRS employer participation, employer contribution, 
and employee enrollment information in a time and format to be 
determined by HHS.

[77 FR 18464, Mar. 27, 2012, as amended at 80 FR 10869, Feb. 27, 2015]



Sec. 155.725  Enrollment periods under SHOP.

    (a) General requirements. The SHOP must ensure that enrollment 
transactions are sent to QHP issuers and that such issuers adhere to 
coverage effective dates in accordance with this section.
    (b) Rolling enrollment in the SHOP. The SHOP must permit a qualified 
employer to purchase coverage for its small group at any point during 
the year. The employer's plan year must consist of the 12-month period 
beginning with the qualified employer's effective date of coverage, 
unless the plan is issued in a State that has elected to merge its 
individual and small group risk pools under section 1312(c)(3) of the 
Affordable Care Act, in which

[[Page 1010]]

case the plan year will end on December 31 of the calendar year in which 
coverage first became effective.
    (c) Annual employer election period. (1) Notwithstanding any other 
paragraph in this section, for coverage beginning in 2015 in a 
Federally-facilitated SHOP, a qualified employer's annual election 
period may begin no sooner than November 15, 2014.
    (2) The SHOP must provide qualified employers with a standard 
election period prior to the completion of the employer's plan year and 
before the annual employee open enrollment period, in which the 
qualified employer may change its participation in the SHOP for the next 
plan year, including--
    (i) The method by which the qualified employer makes QHPs available 
to qualified employees pursuant to Sec. 155.705(b)(2) and (3);
    (ii) The employer contribution towards the premium cost of coverage;
    (iii) The level of coverage offered to qualified employees as 
described in Sec. 155.705(b)(2) and (3); and
    (iv) The QHP or QHPs offered to qualified employees in accordance 
with Sec. 155.705.
    (d) Annual employer election period notice. The SHOP must provide 
notification to a qualified employer of the annual election period in 
advance of such period.
    (e) Annual employee open enrollment period. The SHOP must establish 
a standardized annual open enrollment period for qualified employees 
prior to the completion of the applicable qualified employer's plan year 
and after that employer's annual election period.
    (f) Annual employee open enrollment period notice. The SHOP must 
provide notification to a qualified employee of the annual open 
enrollment period in advance of such period.
    (g) Newly qualified employees. (1) The SHOP must provide an employee 
who becomes a qualified employee outside of the initial or annual open 
enrollment period an enrollment period beginning on the first day of 
becoming a qualified employee. A newly qualified employee must have at 
least 30 days from the beginning of his or her enrollment period to 
select a QHP. The enrollment period must end no sooner than 15 days 
prior to the date that any applicable employee waiting period longer 
than 45 days would end if the employee made a plan selection on the 
first day of becoming eligible.
    (2) The effective date of coverage for a QHP selection received by 
the SHOP from a newly qualified employee must always be the first day of 
a month, and must generally be determined in accordance with Sec. 
155.725(h), unless the employee is subject to a waiting period 
consistent with Sec. 147.116 of this subchapter, in which case the 
effective date may be on the first day of a later month, but in no case 
may the effective date fail to comply with Sec. 147.116 of this 
subchapter.
    (h) Initial and annual open enrollment effective dates. (1) The SHOP 
must establish effective dates of coverage for qualified employees 
enrolling in coverage for the first time, and for qualified employees 
enrolling during the annual open enrollment period described in 
paragraph (e) of this section.
    (2) For a QHP selection received by the Federally-facilitated SHOP 
from a qualified employee in his or her initial or annual open 
enrollment period:
    (i) Between the first and fifteenth day of any month, the Federally-
facilitated SHOP must ensure a coverage effective date of the first day 
of the following month.
    (ii) Between the 16th and last day of any month, the Federally-
facilitated SHOP must ensure a coverage effective date of the first day 
of the second following month.
    (i) Renewal of coverage. (1) If a qualified employee enrolled in a 
QHP through the SHOP remains eligible for coverage, such employee will 
remain in the QHP selected the previous year unless--
    (i) The qualified employee terminates coverage from such QHP in 
accordance with standards identified in Sec. 155.430;
    (ii) The qualified employee enrolls in another QHP if such option 
exists; or
    (iii) The QHP is no longer available to the qualified employee.
    (2) The SHOP may treat a qualified employer offering coverage 
through the SHOP as offering the same coverage under Sec. 155.705(b)(3) 
at the same level of contribution under Sec. 155.705(b)(11) unless:

[[Page 1011]]

    (i) The qualified employer is no longer eligible to offer such 
coverage through the SHOP;
    (ii) The qualified employer elects to offer different coverage or a 
different contribution through the SHOP;
    (iii) The qualified employer withdraws from the SHOP; or
    (iv) In the case of a qualified employer offering a single QHP, the 
single QHP is no longer available through the SHOP.
    (j)(1) Special enrollment periods. The SHOP must provide special 
enrollment periods consistent with this section, during which certain 
qualified employees or a dependent of a qualified employee may enroll in 
QHPs and enrollees may change QHPs.
    (2) The SHOP must provide a special enrollment period for a 
qualified employee or dependent of a qualified employee who:
    (i) Experiences an event described in Sec. 155.420(d)(1), (2), (4), 
(5), (7), (8), (9), or (10);
    (ii) Loses eligibility for coverage under a Medicaid plan under 
title XIX of the Social Security Act or a State child health plan under 
title XXI of the Social Security Act; or
    (iii) Becomes eligible for assistance, with respect to coverage 
under a SHOP, under such Medicaid plan or a State child health plan 
(including any waiver or demonstration project conducted under or in 
relation to such a plan).
    (3) A qualified employee or dependent of a qualified employee who 
experiences a qualifying event described in paragraph (j)(2) of this 
section has:
    (i) Thirty (30) days from the date of a triggering event described 
in paragraph (j)(2)(i) of this section to select a QHP through the SHOP; 
and
    (ii) Sixty (60) days from the date of a triggering event described 
in paragraph (j)(2)(ii) or (iii) of this section to select a QHP through 
the SHOP;
    (4) A dependent of a qualified employee is not eligible for a 
special election period if the employer does not extend the offer of 
coverage to dependents.
    (5) The effective dates of coverage for special enrollment periods 
are determined using the provisions of Sec. 155.420(b).
    (6) Loss of minimum essential coverage is determined using the 
provisions of Sec. 155.420(e).
    (k) Limitation. Qualified employees will not be able to enroll 
unless the employer group meets any applicable minimum participation 
rate implemented under Sec. 155.705(b)(10).

[77 FR 18464, Mar. 27, 2012, as amended at 78 FR 33239, June 4, 2013; 78 
FR 65095, Oct. 30, 2013; 79 FR 30350, May 27, 2014; 79 FR 42986, July 
24, 2014; 80 FR 10869, Feb. 27, 2015]



Sec. 155.730  Application standards for SHOP.

    (a) General requirements. Application forms used by the SHOP must 
meet the requirements set forth in this section.
    (b) Single employer application. The SHOP must use a single 
application to determine employer eligibility and to collect information 
necessary for purchasing coverage. Such application must collect the 
following--
    (1) Employer name and address of employer's locations;
    (2) Number of employees;
    (3) Employer Identification Number (EIN); and
    (4) A list of qualified employees and their taxpayer identification 
numbers.
    (c) Single employee application. The SHOP must use a single 
application for eligibility determination, QHP selection and enrollment 
for qualified employees and their dependents.
    (d) Model application. The SHOP may use the model single employer 
application and the model single employee application provided by HHS.
    (e) Alternative employer and employee application. The SHOP may use 
an alternative application if such application is approved by HHS and 
collects the following:
    (1) In the case of the employer application, the information in 
described in paragraph (b); and
    (2) In the case of the employee application, the information 
necessary to establish eligibility of the employee as a qualified 
employee and to complete the enrollment of the qualified employee and 
any dependents to be enrolled.
    (f) Filing. The SHOP must:
    (1) Accept applications from SHOP application filers; and

[[Page 1012]]

    (2) Provide the tools to file an application via an Internet Web 
site.
    (g) Additional safeguards. (1) The SHOP may not provide to the 
employer any information collected on the employee application with 
respect to spouses or dependents other than the name, address, and birth 
date of the spouse or dependent.
    (2) The SHOP is not permitted to collect information on the single 
employer or single employee application unless that information is 
necessary to determine SHOP eligibility or effectuate enrollment through 
the SHOP.

[77 FR 18464, Mar. 27, 2012, as amended at 78 FR 54141, Aug. 30, 2013; 
79 FR 13839, Mar. 11, 2014]



Sec. 155.735  Termination of SHOP enrollment or coverage.

    (a) General requirements. The SHOP must determine the timing, form, 
and manner in which coverage or enrollment in a QHP through the SHOP may 
be terminated.
    (b) Termination of employer group health coverage or enrollment at 
the request of the employer. (1) The SHOP must establish policies for 
advance notice of termination required from the employer and effective 
dates of termination.
    (2) In the Federally-facilitated SHOP, an employer may terminate 
coverage or enrollment for all enrollees covered by the employer group 
health plan effective on the last day of any month, provided that the 
employer has given notice to the Federally-facilitated SHOP on or before 
the 15th day of any month. If notice is given after the 15th of the 
month, the Federally-facilitated SHOP may terminate the coverage or 
enrollment on the last day of the following month.
    (c) Termination of employer group health coverage for non-payment of 
premiums. (1) The SHOP must establish policies for termination for non-
payment of premiums, including but not limited to policies regarding due 
dates for payment of premiums to the SHOP, grace periods, employer and 
employee notices, and reinstatement provisions.
    (2) In an FF-SHOP--
    (i) For a given month of coverage, premium payment is due by the 
first day of the coverage month.
    (ii) If premium payment is not received 31 days from the first of 
the coverage month, the Federally-facilitated SHOP may terminate the 
qualified employer for lack of payment. The termination would take 
effect on the last day of the month for which the Federally-facilitated 
SHOP received full payment.
    (iii) If a qualified employer is terminated due to lack of premium 
payment, but within 30 days following its termination the qualified 
employer requests reinstatement, pays all premiums owed including any 
prior premiums owed for coverage during the grace period, and pays the 
premium for the next month's coverage, the Federally-facilitated SHOP 
must reinstate the qualified employer in its previous coverage. A 
qualified employer may be reinstated in the Federally-facilitated SHOP 
only once per calendar year.
    (iv) Enrollees enrolled in continuation coverage required under 29 
U.S.C. 1161, et seq. through the Federally-facilitated SHOP may not be 
terminated if timely payment is made to the Federally-facilitated SHOP 
in an amount that is not less than $50 less than the amount the plan 
requires to be paid for a period of coverage unless the Federally-
facilitated SHOP notifies the enrollee of the amount of the deficiency 
and the enrollee does not pay the deficiency within 30 days of such 
notice, pursuant to the notice requirements in Sec. 155.230.
    (3) Payment for COBRA Continuation Coverage. Nothing in this section 
modifies existing obligations related to the administration of coverage 
required under 29 U.S.C. 1161, et seq., as described in 26 CFR part 54.
    (d) Termination of employee or dependent coverage or enrollment. (1) 
The SHOP must establish consistent policies regarding the process for 
and effective dates of termination of employee or dependent coverage or 
enrollment in the following circumstances:
    (i) The employee or dependent is no longer eligible for coverage 
under the employer's group health plan;
    (ii) The employee requests that the SHOP terminate the coverage of 
the employee or a dependent of the employee under the employer's group 
health plan;

[[Page 1013]]

    (iii) The QHP in which the enrollee is enrolled terminates, is 
decertified as described in Sec. 155.1080, or its certification as a 
QHP is not renewed;
    (iv) The enrollee changes from one QHP to another during the 
employer's annual open enrollment period or during a special enrollment 
period in accordance with Sec. 155.725(j); or
    (v) The enrollee's coverage is rescinded in accordance with Sec. 
147.128 of this subtitle.
    (2) In the FF-SHOP, termination is effective on the last day of the 
month in which the FF-SHOP receives notice of an event described in 
paragraph (d)(1) of this section, and notice must have been received by 
the FF-SHOP prior to the proposed date of termination.
    (e) Termination of enrollment or coverage tracking and approval. The 
SHOP must comply with the standards described in Sec. 155.430(c).
    (f) Applicability date. The provisions of this section apply to 
coverage--
    (1) Beginning on or after January 1, 2015; and
    (2) In any SHOP providing qualified employers with the option 
described in Sec. 155.705(b)(2) or the option described in Sec. 
155.705(b)(4) before January 1, 2015, beginning with the date that 
option is offered.
    (g) Notice of termination. Beginning January 1, 2016:
    (1) Except as provided in paragraph (g)(3) of this section, if any 
enrollee's coverage or enrollment through the SHOP is terminated due to 
non-payment of premiums or due to a loss of the enrollee's eligibility 
to participate in the SHOP, including where an enrollee loses his or her 
eligibility because a qualified employer has lost its eligibility, the 
SHOP must notify the enrollee of the termination. Such notice must 
include the termination effective date and reason for termination, and 
must be sent within 3 business days if an electronic notice is sent, and 
within 5 business days if a mailed hard copy notice is sent.
    (2) Except as provided in paragraph (g)(3) of this section, if an 
employer group's coverage or enrollment through the SHOP is terminated 
due to non-payment of premiums or, where applicable, due to a loss of 
the qualified employer's eligibility to offer coverage through the SHOP, 
the SHOP must notify the employer of the termination. Such notice must 
include the termination effective date and reason for termination, and 
must be sent within 3 business days if an electronic notice is sent, and 
within 5 business days if a mailed hard copy notice is sent.
    (3) Where State law requires a QHP issuer to send the notices 
described in paragraphs (g)(1) and (2) of this section, a SHOP is not 
required to send such notices.
    (4) When a primary subscriber and his or her dependents live at the 
same address, a separate termination notice need not be sent to each 
dependent at that address, provided that the notice sent to each primary 
subscriber at that address contains all required information about the 
termination for the primary subscriber and his or her dependents at that 
address.

[78 FR 54141, Aug. 30, 2013, as amended at 80 FR 10870, Feb. 27, 2015]



Sec. 155.740  SHOP employer and employee eligibility appeals requirements.

    (a) Definitions. The definitions in Sec. Sec. 155.20, 155.300, and 
155.500 apply to this section.
    (b) General requirements. (1) A State, establishing an Exchange that 
provides for the establishment of a SHOP pursuant to Sec. 155.100 must 
provide an eligibility appeals process for the SHOP. Where a State has 
not established an Exchange that provides for the establishment of a 
SHOP pursuant to Sec. 155.100, HHS will provide an eligibility appeals 
process for the SHOP that meets the requirements of this section and the 
requirements in paragraph (b)(2) of this section.
    (2) The appeals entity must conduct appeals in accordance with the 
requirements established in this section, Sec. Sec. 155.505(e) through 
(g), and 155.510(a)(1), (a)(2), and (c).
    (c) Employer right to appeal. An employer may appeal--
    (1) A notice of denial of eligibility under Sec. 155.715(e); or
    (2) A failure of the SHOP to make an eligibility determination in a 
timely manner.

[[Page 1014]]

    (d) Employee right to appeal. An employee may appeal--
    (1) A notice of denial of eligibility under Sec. 155.715(f); or
    (2) A failure of the SHOP to make an eligibility determination in a 
timely manner.
    (e) Appeals notice requirement. Notices of the right to appeal a 
denial of eligibility under Sec. 155.715(e) or (f) must be written and 
include--
    (1) The reason for the denial of eligibility, including a citation 
to the applicable regulations; and
    (2) The procedure by which the employer or employee may request an 
appeal of the denial of eligibility.
    (f) Appeal request. The SHOP and appeals entity must--
    (1) Allow an employer or employee to request an appeal within 90 
days from the date of the notice of denial of eligibility to--
    (i) The SHOP or the appeals entity; or
    (ii) HHS, if no State Exchange that provides for establishment of a 
SHOP has been established;
    (2) Accept appeal requests submitted through any of the methods 
described in Sec. 155.520(a)(1);
    (3) Comply with the requirements of Sec. 155.520(a)(2) and (3); and
    (4) Consider an appeal request valid if it is submitted in 
accordance with paragraph (f)(1) of this section.
    (g) Notice of appeal request. (1) Upon receipt of a valid appeal 
request, the appeals entity must--
    (i) Send timely acknowledgement to the employer, or employer and 
employee if an employee is appealing, of the receipt of the appeal 
request, including--
    (A) An explanation of the appeals process; and
    (B) Instructions for submitting additional evidence for 
consideration by the appeals entity.
    (ii) Promptly notify the SHOP of the appeal, if the appeal request 
was not initially made to the SHOP.
    (2) Upon receipt of an appeal request that is not valid because it 
fails to meet the requirements of this section, the appeals entity 
must--
    (i) Promptly and without undue delay, send written notice to the 
employer or employee that is appealing that--
    (A) The appeal request has not been accepted,
    (B) The nature of the defect in the appeal request; and
    (C) An explanation that the employer or employee may cure the defect 
and resubmit the appeal request if it meets the timeliness requirements 
of paragraph (f) of this section, or within a reasonable timeframe 
established by the appeals entity.
    (ii) Treat as valid an amended appeal request that meets the 
requirements of this section.
    (h) Transmittal and receipt of records. (1) Upon receipt of a valid 
appeal request under this section, or upon receipt of the notice under 
paragraph (g)(2) of this section, the SHOP must promptly transmit, via 
secure electronic interface, to the appeals entity--
    (i) The appeal request, if the appeal request was initially made to 
the SHOP; and
    (ii) The eligibility record of the employer or employee that is 
appealing.
    (2) The appeals entity must promptly confirm receipt of records 
transmitted pursuant to paragraph (h)(1) of this section to the SHOP 
that transmitted the records.
    (i) Dismissal of appeal. The appeals entity--
    (1) Must dismiss an appeal if the employer or employee that is 
appealing--
    (i) Withdraws the request in accordance with the standards set forth 
in Sec. 155.530(a)(1); or
    (ii) Fails to submit an appeal request meeting the standards 
specified in paragraph (f) of this section.
    (2) Must provide timely notice to the employer or employee that is 
appealing of the dismissal of the appeal request, including the reason 
for dismissal, and must notify the SHOP of the dismissal.
    (3) May vacate a dismissal if the employer or employee makes a 
written request within 30 days of the date of the notice of dismissal 
showing good cause why the dismissal should be vacated.
    (j) Procedural rights of the employer or employee. The appeals 
entity must provide the employer, or the employer and employee if an 
employee is appealing,

[[Page 1015]]

the opportunity to submit relevant evidence for review of the 
eligibility determination.
    (k) Adjudication of SHOP appeals. SHOP appeals must--
    (1) Comply with the standards set forth in Sec. 155.555(i)(1) and 
(3); and
    (2) Consider the information used to determine the employer or 
employee's eligibility as well as any additional relevant evidence 
submitted during the course of the appeal by the employer or employee.
    (l) Appeal decisions. Appeal decisions must--
    (1) Be based solely on--
    (i) The evidence referenced in paragraph (k)(2) of this section;
    (ii) The eligibility requirements for the SHOP under Sec. 
155.710(b) or (e), as applicable.
    (2) Comply with the standards set forth in Sec. 155.545(a)(2) 
through (5); and
    (3) Be effective retroactive to the date the incorrect eligibility 
determination was made, if the decision finds the employer or employee 
eligible, or effective as of the date of the notice of the appeal 
decision, if eligibility is denied.
    (m) Notice of appeal decision. The appeals entity must issue written 
notice of the appeal decision to the employer, or to the employer and 
employee if an employee is appealing, and to the SHOP within 90 days of 
the date the appeal request is received.
    (n) Implementation of SHOP appeal decisions. The SHOP must promptly 
implement the appeal decision upon receiving the notice under paragraph 
(m) of this section.
    (o) Appeal record. Subject to the requirements of Sec. 155.550, the 
appeal record must be accessible to the employer, or employer and 
employee if an employee is appealing, in a convenient format and at a 
convenient time.

[78 FR 54141, Aug. 30, 2013, as amended at 79 FR 30350, May 27, 2014]

Subparts I-J [Reserved]



  Subpart K_Exchange Functions: Certification of Qualified Health Plans

    Source: 77 FR 18467, Mar. 27, 2012, unless otherwise noted.



Sec. 155.1000  Certification standards for QHPs.

    (a) Definition. The following definition applies in this subpart:
    Multi-State plan means a health plan that is offered in accordance 
with section 1334 of the Affordable Care Act.
    (b) General requirement. The Exchange must offer only health plans 
which have in effect a certification issued or are recognized as plans 
deemed certified for participation in an Exchange as a QHP, unless 
specifically provided for otherwise.
    (c) General certification criteria. The Exchange may certify a 
health plan as a QHP in the Exchange if--
    (1) The health insurance issuer provides evidence during the 
certification process in Sec. 155.1010 that it complies with the 
minimum certification requirements outlined in subpart C of part 156, as 
applicable; and
    (2) The Exchange determines that making the health plan available is 
in the interest of the qualified individuals and qualified employers, 
except that the Exchange must not exclude a health plan--
    (i) On the basis that such plan is a fee-for-service plan;
    (ii) Through the imposition of premium price controls; or
    (iii) On the basis that the health plan provides treatments 
necessary to prevent patients' deaths in circumstances the Exchange 
determines are inappropriate or too costly.
    (d) Special rule for SHOP. Except when a QHP is decertified by the 
Exchange pursuant to Sec. 155.1080, in a SHOP that certifies QHPs on a 
calendar-year basis, the certification shall remain in effect for the 
duration of any plan year beginning in the calendar year for which the 
QHP was certified, even if the plan year ends after the calendar year 
for which the QHP was certified.

[77 FR 18467, Mar. 27, 2012, as amended at 80 FR 10870, Feb. 27, 2015]

[[Page 1016]]



Sec. 155.1010  Certification process for QHPs.

    (a) Certification procedures. The Exchange must establish procedures 
for the certification of QHPs consistent with Sec. 155.1000(c).
    (1) Completion date. The Exchange must complete the certification of 
the QHPs that will be offered during the open enrollment period prior to 
the beginning of such period, as outlined in Sec. 155.410.
    (2) Ongoing compliance. The Exchange must monitor the QHP issuers 
for demonstration of ongoing compliance with the certification 
requirements in Sec. 155.1000(c).
    (b) Exchange recognition of plans deemed certified for participation 
in an Exchange. Notwithstanding paragraph (a) of this section, an 
Exchange must recognize as certified QHPs:
    (1) A multi-State plan certified by and under contract with the U.S. 
Office of Personnel Management.
    (2) A CO-OP QHP as described in subpart F of part 156 and deemed as 
certified under Sec. 156.520(e).



Sec. 155.1020  QHP issuer rate and benefit information.

    (a) Receipt and posting of rate increase justification. The Exchange 
must ensure that a QHP issuer submits a justification for a rate 
increase for a QHP prior to the implementation of such an increase, 
except for multi-State plans, for which the U.S. Office of Personnel 
Management will provide a process for the submission of rate increase 
justifications. The Exchange must ensure that the QHP issuer has 
prominently posted the justification on its Web site as required under 
Sec. 156.210. To ensure consumer transparency, the Exchange must also 
provide access to the justification on its Internet Web site described 
in Sec. 155.205(b).
    (b) Rate increase consideration. (1) The Exchange must consider rate 
increases in accordance with section 1311(e)(2) of the Affordable Care 
Act, which includes consideration of the following:
    (i) A justification for a rate increase prior to the implementation 
of the increase;
    (ii) Recommendations provided to the Exchange by the State in 
accordance with section 2794(b)(1)(B) of the PHS Act; and
    (iii) Any excess of rate growth outside the Exchange as compared to 
the rate of such growth inside the Exchange.
    (2) This paragraph does not apply to multi-State plans for which the 
U.S. Office of Personnel Management will provide a process for rate 
increase consideration.
    (c) Benefit and rate information. The Exchange must receive the 
information described in this paragraph, at least annually, from QHP 
issuers for each QHP in a form and manner to be specified by HHS. 
Information about multi-State plans may be provided in a form and manner 
determined by the U.S. Office of Personnel Management. The information 
identified in this paragraph is:
    (1) Rates;
    (2) Covered benefits; and
    (3) Cost-sharing requirements.

[77 FR 18467, Mar. 27, 2012, as amended at 77 FR 31515, May 29, 2012]



Sec. 155.1030  QHP certification standards related to advance payments 
of the premium tax credit and cost-sharing reductions.

    (a) Review of plan variations for cost-sharing reductions. (1) An 
Exchange must ensure that each issuer that offers, or intends to offer a 
health plan at any level of coverage in the individual market on the 
Exchange submits the required plan variations for the health plan as 
described in Sec. 156.420 of this subchapter. The Exchange must certify 
that the plan variations meet the requirements of Sec. 156.420.
    (2) The Exchange must provide to HHS the actuarial values of each 
QHP and silver plan variation, calculated under Sec. 156.135 of this 
subchapter, in the manner and timeframe established by HHS.
    (b) Information for administering advance payments of the premium 
tax credit and advance payments of cost-sharing reductions. (1) The 
Exchange must collect and review annually the rate allocation and the 
actuarial memorandum that an issuer submits to the Exchange under Sec. 
156.470 of this subchapter, to ensure

[[Page 1017]]

that the allocation meets the standards set forth in Sec. 156.470(c) 
and (d) of this subchapter.
    (2) The Exchange must submit, in the manner and timeframe 
established by HHS, to HHS the approved allocations and actuarial 
memorandum underlying the approved allocations for each health plan at 
any level of coverage or stand-alone dental plan offered, or intended to 
be offered in the individual market on the Exchange.
    (3) The Exchange must use the methodology specified in the annual 
HHS notice of benefit and payment parameters to calculate advance 
payment amounts for cost-sharing reductions, and must transmit the 
advance payment amounts to HHS, in accordance with Sec. 156.340(a) of 
this subchapter.
    (4) HHS may use the information provided to HHS by the Exchange 
under this section for oversight of advance payments of cost-sharing 
reductions and premium tax credits.
    (c) Multi-State plans. The U.S. Office of Personnel Management will 
ensure compliance with the standards referenced in this section for 
multi-State plans, as defined in Sec. 155.1000(a).

[78 FR 15534, Mar. 11, 2013, as amended at 79 FR 13839, Mar. 11, 2014]



Sec. 155.1040  Transparency in coverage.

    (a) General requirement. The Exchange must collect information 
relating to coverage transparency as described in Sec. 156.220 of this 
subtitle from QHP issuers, and from multi-State plans in a time and 
manner determined by the U.S. Office of Personnel Management.
    (b) Use of plain language. The Exchange must determine whether the 
information required to be submitted and made available under paragraph 
(a) of this section is provided in plain language.
    (c) Transparency of cost-sharing information. The Exchange must 
monitor whether a QHP issuer has made cost-sharing information available 
in a timely manner upon the request of an individual as required by 
Sec. 156.220(d) of this subtitle.



Sec. 155.1045  Accreditation timeline.

    (a) Timeline. The Exchange must establish a uniform period following 
certification of a QHP within which a QHP issuer that is not already 
accredited must become accredited as required by Sec. 156.275 of this 
subchapter, except for multi-state plans. The U.S. Office of Personnel 
Management will establish the accreditation period for multi-state 
plans.
    (b) Federally-facilitated Exchange. The accreditation timeline used 
in federally-facilitated Exchanges follows:
    (1) During certification for an issuer's initial year of QHP 
certification (for example, in 2013 for the 2014 coverage year), a QHP 
issuer without existing commercial, Medicaid, or Exchange health plan 
accreditation granted by a recognized accrediting entity for the same 
State in which the issuer is applying to offer coverage must have 
scheduled or plan to schedule a review of QHP policies and procedures of 
the applying QHP issuer with a recognized accrediting entity.
    (2) Prior to a QHP issuer's second year and third year of QHP 
certification (for example, in 2014 for the 2015 coverage year and 2015 
for the 2016 coverage year), a QHP issuer must be accredited by a 
recognized accrediting entity on the policies and procedures that are 
applicable to their Exchange products, or a QHP issuer must have 
commercial or Medicaid health plan accreditation granted by a recognized 
accrediting entity for the same State in which the issuer is offering 
Exchange coverage and the administrative policies and procedures 
underlying that accreditation must be the same or similar to the 
administrative policies and procedures used in connection with the QHP.
    (3) Prior to the QHP issuer's fourth year of QHP certification and 
in every subsequent year of certification (for example, in 2016 for the 
2017 coverage year and forward), a QHP issuer must be accredited in 
accordance with Sec. 156.275 of this subchapter.

[78 FR 12865, Feb. 25, 2013]



Sec. 155.1050  Establishment of Exchange network adequacy standards.

    (a) An Exchange must ensure that the provider network of each QHP 
meets the standards specified in Sec. 156.230 of this subtitle, except 
for multi-State plans.

[[Page 1018]]

    (b) The U.S. Office of Personnel Management will ensure compliance 
with the standards specified in Sec. 156.230 of this subtitle for 
multi-State plans.
    (c) A QHP issuer in an Exchange may not be prohibited from 
contracting with any essential community provider designated under Sec. 
156.235(c) of this subtitle.



Sec. 155.1055  Service area of a QHP.

    The Exchange must have a process to establish or evaluate the 
service areas of QHPs to ensure such service areas meet the following 
minimum criteria:
    (a) The service area of a QHP covers a minimum geographical area 
that is at least the entire geographic area of a county, or a group of 
counties defined by the Exchange, unless the Exchange determines that 
serving a smaller geographic area is necessary, nondiscriminatory, and 
in the best interest of the qualified individuals and employers.
    (b) The service area of a QHP has been established without regard to 
racial, ethnic, language, health status-related factors specified under 
section 2705(a) of the PHS Act, or other factors that exclude specific 
high utilizing, high cost or medically-underserved populations.



Sec. 155.1065  Stand-alone dental plans.

    (a) General requirements. The Exchange must allow the offering of a 
limited scope dental benefits plan through the Exchange, if--
    (1) The plan meets the requirements of section 9832(c)(2)(A) of the 
Code and 2791(c)(2)(A) of the PHS Act; and
    (2) The plan covers at least the pediatric dental essential health 
benefit as defined in section 1302(b)(1)(J) of the Affordable Care Act, 
provided that, with respect to this benefit, the plan satisfies the 
requirements of section 2711 of the PHS Act; and
    (3) The plan and issuer of such plan meets QHP certification 
standards, including Sec. 155.1020(c), except for any certification 
requirement that cannot be met because the plan covers only the benefits 
described in paragraph (a)(2) of this section.
    (b) Offering options. The Exchange may allow the dental plan to be 
offered--
    (1) As a stand-alone dental plan; or
    (2) In conjunction with a QHP.
    (c) Sufficient capacity. An Exchange must consider the collective 
capacity of stand-alone dental plans during certification to ensure 
sufficient access to pediatric dental coverage.
    (d) QHP Certification standards. If a plan described in paragraph 
(a) of this section is offered through an Exchange, another health plan 
offered through such Exchange must not fail to be treated as a QHP 
solely because the plan does not offer coverage of benefits offered 
through the stand-alone plan that are otherwise required under section 
1302(b)(1)(J) of the Affordable Care Act.



Sec. 155.1075  Recertification of QHPs.

    (a) Recertification process. Except with respect to multi-State 
plans and CO-OP QHPs, an Exchange must establish a process for 
recertification of QHPs that, at a minimum, includes a review of the 
general certification criteria as outlined in Sec. 155.1000(c). Upon 
determining the recertification status of a QHP, the Exchange must 
notify the QHP issuer.
    (b) Timing. The Exchange must complete the QHP recertification 
process no later than 2 weeks prior to the beginning of the open 
enrollment date at Sec. 155.410(e)(2) of the applicable calendar year.

[77 FR 18467, Mar. 27, 2012, as amended at 80 FR 10870, Feb. 27, 2015]



Sec. 155.1080  Decertification of QHPs.

    (a) Definition. The following definition applies to this section:
    Decertification means the termination by the Exchange of the 
certification status and offering of a QHP.
    (b) Decertification process. Except with respect to multi-State 
plans and CO-OP QHPs, the Exchange must establish a process for the 
decertification of QHPs, which, at a minimum, meets the requirements in 
this section.
    (c) Decertification by the Exchange. The Exchange may at any time 
decertify a health plan if the Exchange determines that the QHP issuer 
is no longer in compliance with the general certification criteria as 
outlined in Sec. 155.1000(c).

[[Page 1019]]

    (d) Appeal of decertification. The Exchange must establish a process 
for the appeal of a decertification of a QHP.
    (e) Notice of decertification. Upon decertification of a QHP, the 
Exchange must provide notice of decertification to all affected parties, 
including:
    (1) The QHP issuer;
    (2) Exchange enrollees in the QHP who must receive information about 
a special enrollment period, as described in Sec. 155.420;
    (3) HHS; and
    (4) The State department of insurance.

[77 FR 18467, Mar. 27, 2012, as amended at 77 FR 31515, May 29, 2012]

Subpart L [Reserved]



 Subpart M_Oversight and Program Integrity Standards for State Exchanges

    Source: 78 FR 65095, Oct. 30, 2013, unless otherwise noted.



Sec. 155.1200  General program integrity and oversight requirements.

    (a) General requirement. A State Exchange must:
    (1) Keep an accurate accounting of Exchange receipts and 
expenditures in accordance with generally accepted accounting principles 
(GAAP).
    (2) Monitor and report to HHS on Exchange related activities.
    (3) Collect and report to HHS performance monitoring data.
    (b) Reporting. The State Exchange must, at least annually, provide 
to HHS, in a manner specified by HHS, the following data and 
information:
    (1) A financial statement presented in accordance with GAAP by April 
1 of each year,
    (2) Eligibility and enrollment reports,
    (3) Performance monitoring data, and
    (4) If the Exchange is collecting premiums under Sec. 155.240, a 
report on instances in which it did not reduce an enrollee's premium by 
the amount of the advance payment of the premium tax credit in 
accordance with Sec. 155.340(g)(1) and (2).
    (c) External audits. The State Exchange must engage an independent 
qualified auditing entity which follows generally accepted governmental 
auditing standards (GAGAS) to perform an annual independent external 
financial and programmatic audit and must make such information 
available to HHS for review. The State must:
    (1) Provide to HHS the results of the annual external audit; and
    (2) Inform HHS of any material weakness or significant deficiency 
identified in the audit and must develop and inform HHS of a corrective 
action plan for such material weakness or significant deficiency;
    (3) Make public a summary of the results of the external audit.
    (d) External audit standard. The State Exchange must ensure that 
independent audits of State Exchange financial statements and program 
activities in paragraph (c) of this section address:
    (1) Compliance with paragraph (a)(1) of this section;
    (2) Compliance with requirements under this part;
    (3) Processes and procedures designed to prevent improper 
eligibility determinations and enrollment transactions; and
    (4) Identification of errors that have resulted in incorrect 
eligibility determinations.



Sec. 155.1210  Maintenance of records.

    (a) General. The State Exchange must maintain and must ensure its 
contractors, subcontractors, and agents maintain for 10 years, documents 
and records (whether paper, electronic, or other media) and other 
evidence of accounting procedures and practices, which are sufficient to 
do the following:
    (1) Accommodate periodic auditing of the State Exchange's financial 
records; and
    (2) Enable HHS or its designee(s) to inspect facilities, or 
otherwise evaluate the State- Exchange's compliance with Federal 
standards.
    (b) Records. The State Exchange and its contractors, subcontractors, 
and agents must ensure that the records specified in paragraph (a) of 
this section include, at a minimum, the following:

[[Page 1020]]

    (1) Information concerning management and operation of the State 
Exchange's financial and other record keeping systems;
    (2) Financial statements, including cash flow statements, and 
accounts receivable and matters pertaining to the costs of operations;
    (3) Any financial reports filed with other Federal programs or State 
authorities;
    (4) Data and records relating to the State Exchange's eligibility 
verifications and determinations, enrollment transactions, appeals, and 
plan variation certifications; and
    (5) Qualified health plan contracting (including benefit review) 
data and consumer outreach and Navigator grant oversight information.
    (c) Availability. A State Exchange must make all records and must 
ensure its contractors, subcontractors, and agents must make all records 
in paragraph (a) of this section available to HHS, the OIG, the 
Comptroller General, or their designees, upon request.



                       Subpart N_State Flexibility



Sec. 155.1300  Basis and purpose.

    (a) Statutory basis. This subpart implements provisions of section 
1332 of the Affordable Care Act, relating to Waivers for State 
Innovation, which the Secretary may authorize for plan years beginning 
on or after January 1, 2017. Section 1332 of the Affordable Care Act 
requires the Secretary to issue regulations that provide for all of the 
following:
    (1) A process for public notice and comment at the State level, 
including public hearings, sufficient to ensure a meaningful level of 
public input.
    (2) A process for the submission of an application that ensures the 
disclosure of all of the following:
    (i) The provisions of law that the State involved seeks to waive.
    (ii) The specific plans of the State to ensure that the waiver will 
meet all requirements specified in section 1332.
    (3) A process for the provision of public notice and comment after a 
waiver application is received by the Secretary, that is sufficient to 
ensure a meaningful level of public input and that does not impose 
requirements that are in addition to, or duplicative of, requirements 
imposed under the Administrative Procedures Act, or requirements that 
are unreasonable or unnecessarily burdensome with respect to State 
compliance.
    (4) A process for the submission of reports to the Secretary by a 
State relating to the implementation of a waiver.
    (5) A process for the periodic evaluation by the Secretary of 
programs under waivers.
    (b) Purpose. This subpart sets forth certain procedural requirements 
for Waivers for State Innovation under section 1332 of the Affordable 
Care Act.



Sec. 155.1302  Coordinated waiver process.

    (a) Coordination with applications for waivers under other Federal 
laws. A State may submit a single application to the Secretary for a 
waiver under section 1332 of the Affordable Care Act and a waiver under 
one or more of the existing waiver processes applicable under titles 
XVIII, XIX, and XXI of the Act, or under any other Federal law relating 
to the provision of health care items or services, provided that such 
application is consistent with the procedures described in this part, 
the procedures for demonstrations under section 1115 of the Act, if 
applicable, and the procedures under any other applicable Federal law 
under which the State seeks a waiver.
    (b) Coordinated process for section 1332 waivers. A State seeking a 
section 1332 waiver must submit a waiver application to the Secretary. 
Any application submitted to the Secretary that requests to waive 
sections 36B, 4980H, or 5000A of the Code, in accordance with section 
1332(a)(2)(D) of the Affordable Care Act, shall upon receipt be 
transmitted by the Secretary to the Secretary of the Treasury to be 
reviewed in accordance with 31 CFR part 33.



Sec. 155.1304  Definitions.

    For the purposes of this subpart:
    Complete application means an application that has been submitted 
and for which the Secretary and the Secretary of the Treasury, as 
applicable, have made a preliminary determination that it includes all 
required information and satisfies all requirements that are described 
in Sec. 155.1308(f).

[[Page 1021]]

    Public notice means a notice issued by a government agency or 
legislative body that contains sufficient detail to notify the public at 
large of a proposed action consistent with Sec. 155.1312.
    Section 1332 waiver means a Waiver for State Innovation under 
section 1332 of the Affordable Care Act.



Sec. 155.1308  Application procedures.

    (a) Acceptable formats for applications. Applications for initial 
approval of a section 1332 waiver shall be submitted in electronic 
format to the Secretary.
    (b) Application timing. Applications for initial approval of a 
section 1332 waiver must be submitted sufficiently in advance of the 
requested effective date to allow for an appropriate implementation 
timeline.
    (c) Preliminary review. Each application for a section 1332 waiver 
will be subject to a preliminary review by the Secretary and the 
Secretary of the Treasury, as applicable, who will make a preliminary 
determination that the application is complete. A submitted application 
will not be deemed received until the Secretary and the Secretary of the 
Treasury, as applicable, have made the preliminary determination that 
the application is complete.
    (1) The Secretary and the Secretary of the Treasury, as applicable, 
will complete the preliminary review of the application within 45 days 
after it is submitted.
    (2) If the Secretary and the Secretary of the Treasury, as 
applicable, determine that the application is not complete, the 
Secretary will send the State a written notice of the elements missing 
from the application.
    (3) The preliminary determination that an application is complete 
does not preclude a finding during the 180-day Federal decision-making 
period that a necessary element of the application is missing or 
insufficient.
    (d) Notification of preliminary determination. Upon making the 
preliminary determination that an application is complete, as defined in 
this part, the Secretary will send the State a written notice informing 
the State that the Secretary and the Secretary of the Treasury, as 
applicable, have made such a preliminary determination. That date will 
also mark the beginning of the Federal public notice process and the 
180-day Federal decision-making period.
    (e) Public notice of completed application. Upon receipt of a 
complete application for an initial section 1332 waiver, the Secretary 
will--
    (1) Make available to the public the application, and all related 
State submissions, including all supplemental information received from 
the State following the receipt of a complete application for a section 
1332 waiver.
    (2) Indicate the status of the application.
    (f) Criteria for a complete application. An application for initial 
approval of a section 1332 waiver will not be considered complete unless 
the application meets all of the following conditions:
    (1) Complies with paragraphs (a) through (f) of this section.
    (2) Provides written evidence of the State's compliance with the 
public notice requirements set forth in Sec. 155.1312, including a 
description of the key issues raised during the State public notice and 
comment period.
    (3) Provides all of the following:
    (i) A comprehensive description of the State legislation and program 
to implement a plan meeting the requirements for a waiver under section 
1332;
    (ii) A copy of the enacted State legislation that provides the State 
with authority to implement the proposed waiver, as required under 
section 1332(a)(1)(C) of the Affordable Care Act;
    (iii) A list of the provisions of law that the State seeks to waive 
including a description of the reason for the specific requests; and
    (iv) The analyses, actuarial certifications, data, assumptions, 
analysis, targets and other information set forth in paragraph (f)(4) of 
this section sufficient to provide the Secretary and the Secretary of 
the Treasury, as applicable, with the necessary data to determine that 
the State's proposed waiver:
    (A) As required under section 1332(b)(1)(A) of the Affordable Care 
Act (the comprehensive coverage requirement), will provide coverage that 
is at least as comprehensive as the coverage defined in section 1302(b) 
of the Affordable Care Act and offered through Exchanges established 
under the Affordable Care Act as certified by the Office

[[Page 1022]]

of the Actuary of the Centers for Medicare & Medicaid Services based on 
sufficient data from the State and from comparable States about their 
experience with programs created by the Affordable Care Act and the 
provisions of the Affordable Care Act that the State seeks to waive;
    (B) As required under section 1332(b)(1)(B) of the Affordable Care 
Act (the affordability requirement), will provide coverage and cost 
sharing protections against excessive out-of-pocket spending that are at 
least as affordable as the provisions of Title I of the Affordable Care 
Act would provide;
    (C) As required under section 1332(b)(1)(C) of the Affordable Care 
Act (the scope of coverage requirement), will provide coverage to at 
least a comparable number of its residents as the provisions of Title I 
of the Affordable Care Act would provide; and
    (D) As prohibited under section 1332(b)(1)(D) of the Affordable Care 
Act (the Federal deficit requirement), will not increase the Federal 
deficit.
    (4) Contains the following supporting information:
    (i) Actuarial analyses and actuarial certifications. Actuarial 
analyses and actuarial certifications to support the State's estimates 
that the proposed waiver will comply with the comprehensive coverage 
requirement, the affordability requirement, and the scope of coverage 
requirement;
    (ii) Economic analyses. Economic analyses to support the State's 
estimates that the proposed waiver will comply with the comprehensive 
coverage requirement, the affordability requirement, the scope of 
coverage requirement and the Federal deficit requirement, including:
    (A) A detailed 10-year budget plan that is deficit neutral to the 
Federal government, as prescribed by section 1332(a)(1)(B)(ii) of the 
Affordable Care Act, and includes all costs under the waiver, including 
administrative costs and other costs to the Federal government, if 
applicable; and
    (B) A detailed analysis regarding the estimated impact of the waiver 
on health insurance coverage in the State.
    (iii) Data and assumptions. The data and assumptions used to 
demonstrate that the State's proposed waiver is in compliance with the 
comprehensive coverage requirement, the affordability requirement, the 
scope of coverage requirement and the Federal deficit requirement, 
including:
    (A) Information on the age, income, health expenses and current 
health insurance status of the relevant State population; the number of 
employers by number of employees and whether the employer offers 
insurance; cross-tabulations of these variables; and an explanation of 
data sources and quality; and
    (B) An explanation of the key assumptions used to develop the 
estimates of the effect of the waiver on coverage and the Federal 
budget, such as individual and employer participation rates, behavioral 
changes, premium and price effects, and other relevant factors.
    (iv) Implementation timeline. A detailed draft timeline for the 
State's implementation of the proposed waiver.
    (v) Additional information. Additional information supporting the 
State's proposed waiver, including:
    (A) An explanation as to whether the waiver increases or decreases 
the administrative burden on individuals, insurers, and employers, and 
if so, how and why;
    (B) An explanation of how the waiver will affect the implementation 
of the provisions of the Affordable Care Act which the State is not 
requesting to waive in the State and at the Federal level;
    (C) An explanation of how the waiver will affect residents who need 
to obtain health care services out-of-State, as well as the States in 
which such residents may seek such services;
    (D) If applicable, an explanation as to how the State will provide 
the Federal government with all information necessary to administer the 
waiver at the Federal level; and
    (E) An explanation of how the State's proposal will address 
potential individual, employer, insurer, or provider compliance, waste, 
fraud and abuse within the State or in other States.
    (vi) Reporting targets. Quarterly, annual, and cumulative targets 
for the comprehensive coverage requirement, the affordability 
requirement, the

[[Page 1023]]

scope of coverage requirement and the Federal deficit requirement.
    (vii) Other information. Other information consistent with guidance 
provided by the Secretary and the Secretary of the Treasury, as 
applicable.
    (g) Additional supporting information. (1) During the Federal review 
process, the Secretary may request additional supporting information 
from the State as needed to address public comments or to address issues 
that arise in reviewing the application.
    (2) Requests for additional information, and responses to such 
requests, will be made available to the public in the same manner as 
information described in Sec. 155.1316(b).



Sec. 155.1312  State public notice requirements.

    (a) General. (1) Prior to submitting an application for a new 
section 1332 waiver to the Secretary for review and consideration, a 
State must provide a public notice and comment period sufficient to 
ensure a meaningful level of public input for the application for a 
section 1332 waiver.
    (2) Such public notice and comment period shall include, for a State 
with one or more Federally-recognized Indian tribes within its borders, 
a separate process for meaningful consultation with such tribes.
    (b) Public notice and comment period. The State shall make available 
at the beginning of the public notice and comment period, through its 
Web site or other effective means of communication, and shall update as 
appropriate, a public notice that includes all of the following:
    (1) A comprehensive description of the application for a section 
1332 waiver to be submitted to the Secretary including information and 
assurances related to all statutory requirements and other information 
consistent with guidance provided by the Secretary and the Secretary of 
the Treasury, as applicable.
    (2) Information relating to where copies of the application for a 
section 1332 waiver are available for public review and comment.
    (3) Information relating to how and where written comments may be 
submitted and reviewed by the public, and the timeframe during which 
comments will be accepted.
    (4) The location, date, and time of public hearings that will be 
convened by the State to seek public input on the application for a 
section 1332 waiver.
    (c) Public hearings. (1) After issuing the public notice and prior 
to submitting an application for a new section 1332 waiver, a State must 
conduct public hearings regarding the State's application.
    (2) Such public hearings shall provide an interested party the 
opportunity to learn about and comment on the contents of the 
application for a section 1332 waiver.
    (d) Submission of initial application. After the State public notice 
and comment period has concluded, the State may submit an application to 
the Secretary for an initial waiver in accordance with the requirements 
set forth in Sec. 155.1308.



Sec. 155.1316  Federal public notice and approval process.

    (a) General. The Federal public notice and approval process begins 
on the first business day after the Secretary and the Secretary of the 
Treasury, as applicable, determine that all elements for a complete 
application were documented and submitted to the Secretary.
    (b) Public notice and comment period. (1) Following a determination 
that a State's application for a section 1332 waiver is complete, the 
Secretary and the Secretary of the Treasury, as applicable, will provide 
for a public notice and comment period that is sufficient to ensure a 
meaningful level of public input and that does not impose requirements 
that are in addition to, or duplicative of, requirements imposed under 
the Administrative Procedures Act, or requirements that are unreasonable 
or unnecessarily burdensome with respect to State compliance.
    (2) At the beginning of the Federal notice and comment period, the 
Secretary will make available through its Web site and otherwise, and 
shall update as appropriate, public notice that includes all of the 
following:

[[Page 1024]]

    (i) The complete application for a section 1332 waiver, updates for 
the status of the State's application, and any supplemental materials 
received from the State prior to and during the Federal public notice 
and comment period.
    (ii) Information relating to where copies of the application for a 
section 1332 waiver are available for public review and comment.
    (iii) Information relating to how and where written comments may be 
submitted and reviewed by the public, and the timeframe during which 
comments will be accepted.
    (iv) Any public comments received during the Federal public notice 
and comment period.
    (c) Approval of a section 1332 waiver application. The final 
decision of the Secretary and the Secretary of the Treasury, as 
applicable, on a State application for a section 1332 waiver will be 
issued by the Secretary no later than 180 days after the determination 
by the Secretary and the Secretary of the Treasury, as applicable, that 
a complete application was received in accordance with Sec. 155.1308.



Sec. 155.1320  Monitoring and compliance.

    (a) General. (1) Following the issuance of a final decision to 
approve a section 1332 waiver by the Secretary and the Secretary of the 
Treasury, as applicable, a State must comply with all applicable Federal 
laws, regulations, interpretive policy statements and interpretive 
guidance unless expressly waived. A State must, within the timeframes 
specified in law, regulation, policy or guidance, come into compliance 
with any changes in Federal law, regulation, or policy affecting section 
1332 waivers, unless the provision being changed is expressly waived.
    (2) A State must comply with the terms and conditions of the 
agreement between the Secretary, the Secretary of the Treasury, as 
applicable, and the State to implement a section 1332 waiver.
    (b) Implementation reviews. (1) The terms and conditions of an 
approved section 1332 waiver will provide that the State will perform 
periodic reviews of the implementation of the section 1332 waiver.
    (2) The Secretary and the Secretary of the Treasury, as applicable, 
will review documented complaints that a State is failing to comply with 
requirements specified in the terms and conditions of any approved 
section 1332 waiver.
    (3) The Secretary and the Secretary of the Treasury, as applicable, 
will promptly share with a State any complaint that the Secretary and 
the Secretary of the Treasury has received and will also provide 
notification of any applicable monitoring and compliance issues.
    (c) Post award. Within at least 6 months after the implementation 
date of a section 1332 waiver and annually thereafter, a State must hold 
a public forum to solicit comments on the progress of a section 1332 
waiver. The State must hold the public forum at which members of the 
public have an opportunity to provide comments and must provide a 
summary of the forum to the Secretary as part of the quarterly report 
specified in Sec. 155.1324(a) that is associated with the quarter in 
which the forum was held, as well as in the annual report specified in 
Sec. 155.1324(b) that is associated with the year in which the forum 
was held.
    (1) The State must publish the date, time, and location of the 
public forum in a prominent location on the State's public web site, at 
least 30 days prior to the date of the planned public forum.
    (2) [Reserved]
    (d) Terminations and suspensions. The Secretary and the Secretary of 
the Treasury, as applicable, reserve the right to suspend or terminate a 
section 1332 waiver in whole or in part, at any time before the date of 
expiration, whenever the Secretary or the Secretary of the Treasury, as 
applicable, determines that a State has materially failed to comply with 
the terms of a section 1332 waiver.
    (e) Closeout costs. If all or part of a section 1332 waiver is 
terminated or suspended, or if a portion of a section 1332 waiver is 
withdrawn, Federal funding is limited to normal closeout costs

[[Page 1025]]

associated with an orderly termination, suspension, or withdrawal, 
including service costs during any approved transition period, and 
administrative costs of disenrolling participants.
    (f) Federal evaluators. (1) A State must fully cooperate with the 
Secretary, the Secretary of the Treasury, as applicable, or an 
independent evaluator selected by the Secretary or the Secretary of the 
Treasury, as applicable, to undertake an independent evaluation of any 
component of a section 1332 waiver.
    (2) As part of this required cooperation, a State must submit all 
requested data and information to the Secretary, the Secretary of the 
Treasury, as applicable, or the independent evaluator.



Sec. 155.1324  State reporting requirements.

    (a) Quarterly reports. A State must submit quarterly reports to the 
Secretary in accordance with the terms and conditions of the State's 
section 1332 waiver. These quarterly reports must include, but are not 
limited to, reports of any ongoing operational challenges and plans for 
and results of associated corrective actions.
    (b) Annual reports. A State must submit an annual report to the 
Secretary documenting all of the following:
    (1) The progress of the section 1332 waiver.
    (2) Data on compliance with section 1332(b)(1)(A) through (D) of the 
Affordable Care Act.
    (3) A summary of the annual post-award public forum, held in 
accordance with Sec. 155.1320(c), including all public comments 
received at such forum regarding the progress of the section 1332 waiver 
and action taken in response to such concerns or comments.
    (4) Other information consistent with the State's approved terms and 
conditions.
    (c) Submitting and publishing annual reports. A State must submit a 
draft annual report to the Secretary no later than 90 days after the end 
of each waiver year, or as specified in the waiver's terms and 
conditions.
    (1) Within 60 days of receipt of comments from the Secretary, a 
State must submit to the Secretary the final annual report for the 
waiver year.
    (2) The draft and final annual reports are to be published on a 
State's public web site within 30 days of submission to and approval by 
the Secretary, respectively.



Sec. 155.1328  Periodic evaluation requirements.

    (a) The Secretary and the Secretary of the Treasury, as applicable, 
shall periodically evaluate the implementation of a program under a 
section 1332 waiver consistent with guidance published by the Secretary 
and the Secretary of the Treasury, as applicable, and any terms and 
conditions governing the section 1332 waiver.
    (b) Each periodic evaluation must include a review of the annual 
report or reports submitted by the State in accordance with Sec. 
155.1324 that relate to the period of time covered by the evaluation.



           Subpart O_Quality Reporting Standards for Exchanges

    Source: 79 FR 30350, May 27, 2014, unless otherwise noted.



Sec. 155.1400  Quality rating system.

    The Exchange must prominently display the quality rating information 
assigned to each QHP on its Web site, in accordance with Sec. 
155.205(b)(1)(v), as calculated by HHS and in a form and manner 
specified by HHS.



Sec. 155.1405  Enrollee satisfaction survey system.

    The Exchange must prominently display results from the Enrollee 
Satisfaction Survey for each QHP on its Web site, in accordance with 
Sec. 155.205(b)(1)(iv), as calculated by HHS and in a form and manner 
specified by HHS.

[[Page 1026]]



PART 156_HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE CARE 
ACT, INCLUDING STANDARDS RELATED TO EXCHANGES--Table of Contents



                      Subpart A_General Provisions

Sec.
156.10 Basis and scope.
156.20 Definitions.
156.50 Financial support.
156.80 Single risk pool.

               Subpart B_Essential Health Benefits Package

156.100 State selection of benchmark.
156.105 Determination of EHB for multi-state plans.
156.110 EHB-benchmark plan standards.
156.115 Provision of EHB.
156.120 Collection of data to define essential health benefits.
156.122 Prescription drug benefits.
156.125 Prohibition on discrimination.
156.130 Cost-sharing requirements.
156.135 AV calculation for determining level of coverage.
156.140 Levels of coverage.
156.145 Determination of minimum value.
156.150 Application to stand-alone dental plans inside the Exchange.
156.155 Enrollment in catastrophic plans.

     Subpart C_Qualified Health Plan Minimum Certification Standards

156.200 QHP issuer participation standards.
156.210 QHP rate and benefit information.
156.215 Advance payments of the premium tax credit and cost-sharing 
          reduction standards.
156.220 Transparency in coverage.
156.225 Marketing and Benefit Design of QHPs.
156.230 Network adequacy standards.
156.235 Essential community providers.
156.245 Treatment of direct primary care medical homes.
156.250 Meaningful access to qualified health plan information.
156.255 Rating variations.
156.260 Enrollment periods for qualified individuals.
156.265 Enrollment process for qualified individuals.
156.270 Termination of coverage or enrollment for qualified individuals.
156.275 Accreditation of QHP issuers.
156.280 Segregation of funds for abortion services.
156.285 Additional standards specific to SHOP.
156.290 Non-renewal and decertification of QHPs.
156.295 Prescription drug distribution and cost reporting.
156.298 Meaningful difference standard for Qualified Health Plans in the 
          Federally-facilitated Exchanges.

 Subpart D_Federally-Facilitated Exchange Qualified Health Plan Issuer 
                                Standards

156.330 Changes of ownership of issuers of Qualified Health Plans in 
          Federally-facilitated Exchanges.
156.340 Standards for downstream and delegated entities.

   Subpart E_Health Insurance Issuer Responsibilities With Respect to 
 Advance Payments of the Premium Tax Credit and Cost-Sharing Reductions

156.400 Definitions.
156.410 Cost-sharing reductions for enrollees.
156.420 Plan variations.
156.425 Changes in eligibility for cost-sharing reductions.
156.430 Payment for cost-sharing reductions.
156.440 Plans eligible for advance payments of the premium tax credit 
          and cost-sharing reductions.
156.460 Reduction of enrollee's share of premium to account for advance 
          payments of the premium tax credit.
156.470 Allocation of rates for advance payments of the premium tax 
          credit.
156.480 Oversight of the administration of the cost-sharing reductions 
          and advance payments of the premium tax credit programs.

          Subpart F_Consumer Operated and Oriented Plan Program

156.500 Basis and scope.
156.505 Definitions.
156.510 Eligibility.
156.515 CO-OP Standards.
156.520 Loan terms.

                  Subpart G_Minimum Essential Coverage

156.600 The definition of minimum essential coverage.
156.602 Other coverage that qualifies as minimum essential coverage.
156.604 Requirements for recognition as minimum essential coverage for 
          types of coverage not otherwise designated minimum essential 
          coverage in the statute or this subpart.

[[Page 1027]]

156.606 HHS audit authority.

  Subpart H_Oversight and Financial Integrity Standards for Issuers of 
        Qualified Health Plans in Federally-Facilitated Exchanges

156.705 Maintenance of records for Federally-facilitated Exchange.
156.715 Compliance reviews of QHP issuers in Federally-facilitated 
          Exchanges.

    Subpart I_Enforcement Remedies in Federally-Facilitated Exchanges

156.800 Available remedies; Scope.
156.805 Bases and process for imposing civil money penalties in 
          Federally-facilitated Exchanges.
156.806 Notice of non-compliance.
156.810 Bases and process for decertification of a QHP offered by an 
          issuer through a Federally-facilitated Exchange.
156.815 Plan suppression.

  Subpart J_Administrative Review of QHP Issuer Sanctions in Federally-
                          Facilitated Exchanges

156.901 Definitions.
156.903 Scope of Administrative Law Judge's (ALJ) authority.
156.905 Filing of request for hearing.
156.907 Form and content of request for hearing.
156.909 Amendment of notice of assessment or decertification request for 
          hearing.
156.911 Dismissal of request for hearing.
156.913 Settlement.
156.915 Intervention.
156.917 Issues to be heard and decided by ALJ.
156.919 Forms of hearing.
156.921 Appearance of counsel.
156.923 Communications with the ALJ.
156.925 Motions.
156.927 Form and service of submissions.
156.929 Computation of time and extensions of time.
156.931 Acknowledgment of request for hearing.
156.935 Discovery.
156.937 Submission of briefs and proposed hearing exhibits.
156.939 Effect of submission of proposed hearing exhibits.
156.941 Prehearing conferences.
156.943 Standard of proof.
156.945 Evidence.
156.947 The record.
156.951 Posthearing briefs.
156.953 ALJ decision.
156.955 Sanctions.
156.957 Review by Administrator.
156.959 Judicial review.
156.961 Failure to pay assessment.
156.963 Final order not subject to review.

Subpart K_Cases Forwarded to Qualified Health Plans and Qualified Health 
             Plan Issuers in Federally-facilitated Exchanges

156.1010 Standards.

                       Subpart L_Quality Standards

156.1105 Establishment of standards for HHS-approved enrollee 
          satisfaction survey vendors for use by QHP issuers in 
          Exchanges.
156.1110 Establishment of patient safety standards for QHP issuers.
156.1120 Quality rating system.
156.1125 Enrollee satisfaction survey system.
156.1130 Quality improvement strategy.

         Subpart M_Qualified Health Plan Issuer Responsibilities

156.1210 Confirmation of HHS payment and collections reports.
156.1215 Payment and collections processes.
156.1220 Administrative appeals.
156.1230 Direct enrollment with the QHP issuer in a manner considered to 
          be through the Exchange.
156.1240 Enrollment process for qualified individuals.
156.1250 Acceptance of certain third party payments.
156.1255 Renewal and re-enrollment notices.

    Authority: Title I of the Affordable Care Act, sections 1301-1304, 
1311-1313, 1321-1322, 1324, 1334, 1342-1343, 1401-1402, Pub. L. 111-148, 
124 Stat. 119 (42 U.S.C. 18021-18024, 18031-18032, 18041-18042, 18044, 
18054, 18061, 18063, 18071, 18082, 26 U.S.C. 36B, and 31 U.S.C. 9701).

    Source: 76 FR 77411, Dec. 13, 2011, unless otherwise noted.



                      Subpart A_General Provisions

    Source: 77 FR 18468, Mar. 27, 2012, unless otherwise noted.



Sec. 156.10  Basis and scope.

    (a) Basis. (1) This part is based on the following sections of title 
I of the Affordable Care Act:
    (i) 1301. QHP defined.
    (ii) 1302. Essential health benefits requirements.
    (iii) 1303. Special rules.
    (iv) 1304. Related definitions.
    (v) 1311. Affordable choices of health benefit plans.
    (vi) 1312. Consumer choice.

[[Page 1028]]

    (vii) 1313. Financial integrity.
    (viii) 1321. State flexibility in operation and enforcement of 
Exchanges and related requirements.
    (ix) 1322. Federal program to assist establishment and operation of 
nonprofit, member-run health insurance issuers.
    (x) 1331. State flexibility to establish Basic Health Programs for 
low-income individuals not eligible for Medicaid.
    (xi) 1334. Multi-State plans.
    (xii) 1402. Reduced cost-sharing for individuals enrolling in QHPs.
    (xiii) 1411. Procedures for determining eligibility for Exchange 
participation, advance premium tax credits and reduced cost sharing, and 
individual responsibility exemptions.
    (xiv) 1412. Advance determination and payment of premium tax credits 
and cost-sharing reductions.
    (xv) 1413. Streamlining of procedures for enrollment through an 
Exchange and State, Medicaid, CHIP, and health subsidy programs.
    (2) This part is based on section 1150A, Pharmacy Benefit Managers 
Transparency Requirements, of title I of the Act:
    (b) Scope. This part establishes standards for QHPs under Exchanges, 
and addresses other health insurance issuer requirements.



Sec. 156.20  Definitions.

    The following definitions apply to this part, unless the context 
indicates otherwise:
    Actuarial value (AV) means the percentage paid by a health plan of 
the percentage of the total allowed costs of benefits.
    Applicant has the meaning given to the term in Sec. 155.20 of this 
subchapter.
    Base-benchmark plan means the plan that is selected by a State from 
the options described in Sec. 156.100(a) of this subchapter, or a 
default benchmark plan, as described in Sec. 156.100(c) of this 
subchapter, prior to any adjustments made pursuant to the benchmark 
standards described in Sec. 156.110 of this subchapter.
    Benefit design standards means coverage that provides for all of the 
following:
    (1) The essential health benefits as described in section 1302(b) of 
the Affordable Care Act;
    (2) Cost-sharing limits as described in section 1302(c) of the 
Affordable Care Act; and
    (3) A bronze, silver, gold, or platinum level of coverage as 
described in section 1302(d) of the Affordable Care Act, or is a 
catastrophic plan as described in section 1302(e) of the Affordable Care 
Act.
    Benefit year has the meaning given to the term in Sec. 155.20 of 
this subtitle.
    Cost-sharing has the meaning given to the term in Sec. 155.20 of 
this subtitle.
    Cost-sharing reductions has the meaning given to the term in Sec. 
155.20 of this subtitle.
    Delegated entity means any party, including an agent or broker, that 
enters into an agreement with a QHP issuer to provide administrative 
services or health care services to qualified individuals, qualified 
employers, or qualified employees and their dependents.
    Downstream entity means any party, including an agent or broker, 
that enters into an agreement with a delegated entity or with another 
downstream entity for purposes of providing administrative or health 
care services related to the agreement between the delegated entity and 
the QHP issuer. The term ``downstream entity'' is intended to reach the 
entity that directly provides administrative services or health care 
services to qualified individuals, qualified employers, or qualified 
employees and their dependents.
    EHB-benchmark plan means the standardized set of essential health 
benefits that must be met by a QHP, as defined in Sec. 155.20 of this 
section, or other issuer as required by Sec. 147.150 of this 
subchapter.
    Enrollee satisfaction survey vendor means an organization that has 
relevant survey administration experience (for example, CAHPS[supreg] 
surveys), organizational survey capacity, and quality control procedures 
for survey administration.
    Essential health benefits package or EHB package means the scope of 
covered benefits and associated limits of a health plan offered by an 
issuer that

[[Page 1029]]

provides at least the ten statutory categories of benefits, as described 
in Sec. 156.110(a) of this subchapter; provides the benefits in the 
manner described in Sec. 156.115 of this subchapter; limits cost 
sharing for such coverage as described in Sec. 156.130; and subject to 
offering catastrophic plans as described in section 1302(e) of the 
Affordable Care Act, provides distinct levels of coverage as described 
in Sec. 156.140 of this subchapter.
    Federally-facilitated SHOP has the meaning given to the term in 
Sec. 155.20 of this subchapter.
    Group health plan has the meaning given to the term in Sec. 144.103 
of this subtitle.
    Health insurance coverage has the meaning given to the term in Sec. 
144.103 of this subtitle.
    Health insurance issuer or issuer has the meaning given to the term 
in Sec. 144.103 of this subtitle.
    Issuer group means all entities treated under subsection (a) or (b) 
of section 52 of the Internal Revenue Code of 1986 as a member of the 
same controlled group of corporations as (or under common control with) 
a health insurance issuer, or issuers affiliated by the common use of a 
nationally licensed service mark.
    Level of coverage means one of four standardized actuarial values as 
defined by section 1302(d)(1) of the Affordable Care Act of plan 
coverage.
    Percentage of the total allowed costs of benefits means the 
anticipated covered medical spending for EHB coverage (as defined in 
Sec. 156.110(a) of this subchapter) paid by a health plan for a 
standard population, computed in accordance with the plan's cost-
sharing, divided by the total anticipated allowed charges for EHB 
coverage provided to a standard population, and expressed as a 
percentage.
    Plan has the meaning given the term in Sec. 144.103 of this 
subchapter.
    Plan year has the meaning given to the term in Sec. 155.20 of this 
subchapter.
    Qualified employer has the meaning given to the term in Sec. 155.20 
of this subchapter.
    Qualified health plan has the meaning given to the term in Sec. 
155.20 of this subchapter.
    Qualified health plan issuer has the meaning given to the term in 
Sec. 155.20 of this subchapter.
    Qualified individual has the meaning given to the term in Sec. 
155.20 of this subchapter.
    Registered user of the enrollee satisfaction survey data warehouse 
means enrollee satisfaction survey vendors, QHP issuers, and Exchanges 
authorized to access CMS's secure data warehouse to submit survey data 
and to preview survey results prior to public reporting.

[77 FR 18468, Mar. 27, 2012, as amended at 77 FR 31515, May 29, 2012; 78 
FR 12865, Feb. 25, 2013; 78 FR 15535, Mar. 11, 2013; 78 FR 54142, Aug. 
30, 2013; 78 FR 65096, Oct. 30, 2013; 80 FR 10871, Feb. 27, 2015]



Sec. 156.50  Financial support.

    (a) Definitions. The following definitions apply for the purposes of 
this section:
    Participating issuer means any issuer offering a plan that 
participates in the specific function that is funded by user fees. This 
term may include: health insurance issuers, QHP issuers, issuers of 
multi-State plans (as defined in Sec. 155.1000(a) of this subchapter), 
issuers of stand-alone dental plans (as described in Sec. 155.1065 of 
this subtitle), or other issuers identified by an Exchange.
    (b) Requirement for State-based Exchange user fees. A participating 
issuer must remit user fee payments, or any other payments, charges, or 
fees, if assessed by a State-based Exchange under Sec. 155.160 of this 
subchapter.
    (c) Requirement for Federally-facilitated Exchange user fee. To 
support the functions of Federally-facilitated Exchanges, a 
participating issuer offering a plan through a Federally-facilitated 
Exchange must remit a user fee to HHS each month, in the timeframe and 
manner established by HHS, equal to the product of the monthly user fee 
rate specified in the annual HHS notice of benefit and payment 
parameters for the applicable benefit year and the monthly premium 
charged by the issuer for each policy under the plan where enrollment is 
through a Federally-facilitated Exchange.
    (d) Adjustment of Federally-facilitated Exchange user fee--(1) A 
participating

[[Page 1030]]

issuer offering a plan through a Federally-facilitated Exchange may 
qualify for an adjustment in the Federally-facilitated Exchange user fee 
specified in paragraph (c) of this section to the extent that the 
participating issuer--
    (i) Made payments for contraceptive services on behalf of a third 
party administrator pursuant to 26 CFR 54.9815-2713A(b)(2)(ii) or 29 CFR 
2590.715-2713A(b)(2)(ii); or
    (ii) Seeks an adjustment in the Federally-facilitated Exchange user 
fee with respect to a third party administrator that, following receipt 
of a copy of the self-certification referenced in 26 CFR 54.9815-
2713A(a)(4) or 29 CFR 2590.715-2713A(a)(4), made or arranged for 
payments for contraceptive services pursuant to 26 CFR 54.9815-
2713A(b)(2)(i) or (ii) or 29 CFR 2590.715-2713A(b)(2)(i) or (ii).
    (2) For a participating issuer described in paragraph (d)(1) of this 
section to receive the Federally-facilitated Exchange user fee 
adjustment--
    (i) The participating issuer must submit to HHS, in the manner and 
timeframe specified by HHS, in the year following the calendar year in 
which the contraceptive services for which payments were made pursuant 
to 26 CFR 54.9815-2713A(b)(2) or 29 CFR 2590.715-2713A(b)(2) were 
provided --
    (A) Identifying information for the participating issuer and each 
third party administrator that received a copy of the self-certification 
referenced in 26 CFR 54.9815-2713A(a)(4) or 29 CFR 2590.715-2713A(a)(4) 
with respect to which the participating issuer seeks an adjustment in 
the Federally-facilitated Exchange user fee, whether or not the 
participating issuer was the entity that made the payments for 
contraceptive services;
    (B) Identifying information for each self-insured group health plan 
with respect to which a copy of the self-certification referenced in 26 
CFR 54.9815-2713A(a)(4) or 29 CFR 2590.715-2713A(a)(4) was received by a 
third party administrator and with respect to which the participating 
issuer seeks an adjustment in the Federally-facilitated Exchange user 
fee; and
    (C) For each such self-insured group health plan, the total dollar 
amount of the payments that were made pursuant to 26 CFR 54.9815-
2713A(b)(2) or 29 CFR 2590.715-2713A(b)(2) for contraceptive services 
that were provided during the applicable calendar year. If such payments 
were made by the participating issuer directly as described in paragraph 
(d)(1)(i) of this section, the total dollar amount should reflect the 
amount of the payments made by the participating issuer; if the third 
party administrator made or arranged for such payments, as described in 
paragraph (d)(1)(ii) of this section, the total dollar amount should 
reflect the amount reported to the participating issuer by the third 
party administrator.
    (ii) Each third party administrator that intends for a participating 
issuer to seek an adjustment in the Federally-facilitated Exchange user 
fee with respect to the third party administrator for payments for 
contraceptive services must submit to HHS a notification of such intent, 
in a manner specified by HHS, by the later of January 1, 2014, or the 
60th calendar day following the date on which the third party 
administrator receives the applicable copy of the self-certification 
referenced in 26 CFR 54.9815-2713A(a)(4) or 29 CFR 2590.715-2713A(a)(4).
    (iii) Each third party administrator identified in paragraph 
(d)(2)(i)(A) of this section must submit to HHS, in the manner and 
timeframe specified by HHS, in the year following the calendar year in 
which the contraceptive services for which payments were made pursuant 
to 26 CFR 54.9815-2713A(b)(2) or 29 CFR 2590.715-2713A(b)(2) were 
provided--
    (A) Identifying information for the third party administrator and 
the participating issuer;
    (B) Identifying information for each self-insured group health plan 
with respect to which a copy of the self-certification referenced in 26 
CFR 54.9815-2713A(a)(4) or 29 CFR 2590.715-2713A(a)(4) was received by 
the third party administrator and with respect to which the 
participating issuer seeks an adjustment in the Federally-facilitated 
Exchange user fee;
    (C) The total number of participants and beneficiaries in each such 
self-insured group health plan during the applicable calendar year;

[[Page 1031]]

    (D) For each such self-insured group health plan with respect to 
which the third party administrator made payments pursuant to 26 CFR 
54.9815-2713A(b)(2) or 29 CFR 2590.715-2713A(b)(2) for contraceptive 
services, the total dollar amount of such payments that were provided 
during the applicable calendar year. If such payments were made by the 
participating issuer directly as described in paragraph (d)(1)(i) of 
this section, the total dollar amount should reflect the amount reported 
to the third party administrator by the participating issuer; if the 
third party administrator made or arranged for such payments, as 
described in paragraph (d)(1)(ii) of this section, the total dollar 
amount should reflect the amount of the payments made by or on behalf of 
the third party administrator; and
    (E) An attestation that the payments for contraceptive services were 
made in compliance with 26 CFR 54.9815-2713A(b)(2) or 29 CFR 2590.715-
2713A(b)(2).
    (3) If the requirements set forth in paragraph (d)(2) of this 
section are met, and as long as an authorizing exception under OMB 
Circular No. A-25R is in effect, the participating issuer will be 
provided a reduction in its obligation to pay the Federally-facilitated 
Exchange user fee specified in paragraph (c) of this section equal in 
value to the sum of the following:
    (i) The total dollar amount of the payments for contraceptive 
services submitted by the applicable third party administrators, as 
described in paragraph (d)(2)(iii)(D) of this section.
    (ii) An allowance for administrative costs and margin. The allowance 
will be no less than 10 percent of the total dollar amount of the 
payments for contraceptive services specified in paragraph (d)(3)(i) of 
this section. HHS will specify the allowance for a particular calendar 
year in the annual HHS notice of benefit and payment parameters.
    (4) As long as an exception under OMB Circular No. A-25R is in 
effect, if the amount of the adjustment under paragraph (d)(3) of this 
section is greater than the amount of the participating issuer's 
obligation to pay the Federally-facilitated Exchange user fee in a 
particular month, the participating issuer will be provided a credit in 
succeeding months in the amount of the excess.
    (5) Within 60 days of receipt of any adjustment in the Federally-
facilitated Exchange user fee under this section, a participating issuer 
must pay each third party administrator with respect to which it 
received any portion of such adjustment an amount no less than the 
portion of the adjustment attributable to the total dollar amount of the 
payments for contraceptive services submitted by the third party 
administrator, as described in paragraph (d)(2)(iii)(D) of this section. 
No such payment is required with respect to the allowance for 
administrative costs and margin described in paragraph (d)(3)(ii) of 
this section. This paragraph does not apply if the participating issuer 
made the payments for contraceptive services on behalf of the third 
party administrator, as described in paragraph (d)(1)(i) of this 
section, or is in the same issuer group as the third party 
administrator.
    (6) A participating issuer receiving an adjustment in the Federally-
facilitated Exchange user fee under this section for a particular 
calendar year must maintain for 10 years following that year, and make 
available upon request to HHS, the Office of the Inspector General, the 
Comptroller General, and their designees, documentation demonstrating 
that it timely paid each third party administrator with respect to which 
it received any such adjustment any amount required to be paid to the 
third party administrator under paragraph (d)(5) of this section.
    (7) A third party administrator with respect to which an adjustment 
in the Federally-facilitated Exchange user fee is received under this 
section for a particular calendar year must maintain for 10 years 
following that year, and make available upon request to HHS, the Office 
of the Inspector General, the Comptroller General, and their designees, 
all of the following documentation:
    (i) A copy of the self-certification referenced in 26 CFR 54.9815-
2713A(a)(4) or 29 CFR 2590.715-2713A(a)(4) for each self-insured plan 
with respect to which an adjustment is received.

[[Page 1032]]

    (ii) Documentation demonstrating that the payments for contraceptive 
services were made in compliance with 26 CFR 54.9815-2713A(b)(2) or 29 
CFR 2590.715-2713A(b)(2).
    (iii) Documentation supporting the total dollar amount of the 
payments for contraceptive services submitted by the third party 
administrator, as described in paragraph (d)(2)(iii)(D) of this section.

[77 FR 18468, Mar. 27, 2012, as amended at 78 FR 15535, Mar. 11, 2013; 
78 FR 39897, July 2, 2013]



Sec. 156.80  Single risk pool.

    (a) Individual market. A health insurance issuer must consider the 
claims experience of all enrollees in all health plans (other than 
grandfathered health plans) subject to section 2701 of the Public Health 
Service Act and offered by such issuer in the individual market in a 
state, including those enrollees who do not enroll in such plans through 
the Exchange, to be members of a single risk pool.
    (b) Small group market. A health insurance issuer must consider the 
claims experience of all enrollees in all health plans (other than 
grandfathered health plans) subject to section 2701 of the Public Health 
Service Act and offered by such issuer in the small group market in a 
state, including those enrollees who do not enroll in such plans through 
the Exchange, to be members of a single risk pool.
    (c) Merger of the individual and small group markets. A state may 
require the individual and small group insurance markets within a state 
to be merged into a single risk pool if the state determines 
appropriate. A state that requires such merger must submit to CMS 
information on its election in accordance with the procedures described 
in Sec. 147.103 of this subchapter.
    (d) Index rate--(1) In general. A health insurance issuer must 
establish an index rate that is effective January 1 of each calendar 
year for a state market described in paragraphs (a) through (c) of this 
section based on the total combined claims costs for providing essential 
health benefits within the single risk pool of that state market. The 
index rate must be adjusted on a market-wide basis for the state based 
on the total expected market-wide payments and charges under the risk 
adjustment and reinsurance programs, and Exchange user fees (expected to 
be remitted under Sec. 156.50(b) or Sec. 156.50(c) and (d) of this 
subchapter as applicable plus the dollar amount under Sec. 
156.50(d)(3)(i) and (ii) of this subchapter expected to be credited 
against user fees payable for that state market). The premium rate for 
all of the health insurance issuer's plans in the relevant state market 
must use the applicable market-wide adjusted index rate, subject only to 
the plan-level adjustments permitted in paragraph (d)(2) of this 
section.
    (2) Permitted plan-level adjustments to the index rate. For plan 
years or policy years beginning on or after January 1, 2014, a health 
insurance issuer may vary premium rates for a particular plan from its 
market-wide index rate for a relevant state market based only on the 
following actuarially justified plan-specific factors:
    (i) The actuarial value and cost-sharing design of the plan.
    (ii) The plan's provider network, delivery system characteristics, 
and utilization management practices.
    (iii) The benefits provided under the plan that are in addition to 
the essential health benefits. These additional benefits must be pooled 
with similar benefits within the single risk pool and the claims 
experience from those benefits must be utilized to determine rate 
variations for plans that offer those benefits in addition to essential 
health benefits.
    (iv) Administrative costs, excluding Exchange user fees.
    (v) With respect to catastrophic plans, the expected impact of the 
specific eligibility categories for those plans.
    (3) Frequency of index rate and plan-level adjustments. (i) A health 
insurance issuer may not establish an index rate and make the market-
wide adjustments pursuant to paragraph (d)(1) of this section, or make 
the plan-level adjustments pursuant to paragraph (d)(2) of this section, 
more or less frequently than annually, except as provided in paragraph 
(d)(3)(ii) of this section.
    (ii) Beginning the quarter after HHS issues notification that the 
FF-SHOP

[[Page 1033]]

can process quarterly rate updates, a health insurance issuer in the 
small group market (not including a merged market) may establish index 
rates and make the market-wide adjustments pursuant to paragraph (d)(1) 
of this section, and make the plan-level adjustments pursuant to 
paragraph (d)(2) of this section, no more frequently than quarterly, 
provided that any changes to rates must have effective dates of January 
1, April 1, July 1, or October 1.
    (e) Grandfathered health plans in the individual and small group 
market. A state law requiring grandfathered health plans described in 
Sec. 147.140 of this subchapter to be included in a single risk pool 
described in paragraphs (a) through (c) of this section does not apply.
    (f) Applicability date. The provisions of this section apply for 
plan years (as that term is defined in Sec. 144.103 of this subchapter) 
in the group market, and for policy years (as that term is defined in 
Sec. 144.103 of this subchapter) in the individual market, beginning on 
or after January 1, 2014.

[78 FR 13441, Feb. 27, 2013, as amended at 78 FR 39898, July 2, 2013; 78 
FR 65096, Oct. 30, 2013]



               Subpart B_Essential Health Benefits Package

    Source: 78 FR 12866, Feb. 25, 2013, unless otherwise noted.



Sec. 156.100  State selection of benchmark.

    Each State may identify a single EHB-benchmark plan according to the 
selection criteria described below:
    (a) State selection of base-benchmark plan. The options from which a 
base-benchmark plan may be selected by the State are the following:
    (1) Small group market health plan. The largest health plan by 
enrollment in any of the three largest small group insurance products by 
enrollment, as defined in Sec. 159.110 of this subpart, in the State's 
small group market as defined in Sec. 155.20 of this subchapter.
    (2) State employee health benefit plan. Any of the largest three 
employee health benefit plan options by enrollment offered and generally 
available to State employees in the State involved.
    (3) FEHBP plan. Any of the largest three national Federal Employees 
Health Benefits Program (FEHBP) plan options by aggregate enrollment 
that is offered to all health-benefits-eligible federal employees under 
5 USC 8903.
    (4) HMO. The coverage plan with the largest insured commercial non-
Medicaid enrollment offered by a health maintenance organization 
operating in the State.
    (b) EHB-benchmark selection standards. In order to become an EHB-
benchmark plan as defined in Sec. 156.20 of this subchapter, a state-
selected base-benchmark plan must meet the requirements for coverage of 
benefits and limits described in Sec. 156.110 of this subpart; and
    (c) Default base-benchmark plan. If a State does not make a 
selection using the process described in this section, the default base-
benchmark plan will be the largest plan by enrollment in the largest 
product by enrollment in the State's small group market.

[78 FR 12866, Feb. 25, 2013, as amended at 80 FR 10871, Feb. 27, 2015]



Sec. 156.105  Determination of EHB for multi-state plans.

    A multi-state plan must meet benchmark standards set by the U.S. 
Office of Personnel Management.



Sec. 156.110  EHB-benchmark plan standards.

    An EHB-benchmark plan must meet the following standards:
    (a) EHB coverage. Provide coverage of at least the following 
categories of benefits:
    (1) Ambulatory patient services.
    (2) Emergency services.
    (3) Hospitalization.
    (4) Maternity and newborn care.
    (5) Mental health and substance use disorder services, including 
behavioral health treatment.
    (6) Prescription drugs.
    (7) Rehabilitative and habilitative services and devices.
    (8) Laboratory services.
    (9) Preventive and wellness services and chronic disease management.
    (10) Pediatric services, including oral and vision care.
    (b) Coverage in each benefit category. A base-benchmark plan not 
providing any

[[Page 1034]]

coverage in one or more of the categories described in paragraph (a) of 
this section, must be supplemented as follows:
    (1) General supplementation methodology. A base-benchmark plan that 
does not include items or services within one or more of the categories 
described in paragraph (a) of this section must be supplemented by the 
addition of the entire category of such benefits offered under any other 
benchmark plan option described in Sec. 156.100(a) of this subpart 
unless otherwise described in this subsection.
    (2) Supplementing pediatric oral services. A base-benchmark plan 
lacking the category of pediatric oral services must be supplemented by 
the addition of the entire category of pediatric oral benefits from one 
of the following:
    (i) The FEDVIP dental plan with the largest national enrollment that 
is described in and offered to federal employees under 5 U.S.C. 8952; or
    (ii) The benefits available under that State's separate CHIP plan, 
if a separate CHIP plan exists, to the eligibility group with the 
highest enrollment.
    (3) Supplementing pediatric vision services. A base-benchmark plan 
lacking the category of pediatric vision services must be supplemented 
by the addition of the entire category of pediatric vision benefits from 
one of the following:
    (i) The FEDVIP vision plan with the largest national enrollment that 
is offered to federal employees under 5 USC 8982; or
    (ii) The benefits available under the State's separate CHIP plan, if 
a separate CHIP plan exists, to the eligibility group with the highest 
enrollment.
    (c) Supplementing the default base-benchmark plan. A default base-
benchmark plan as defined in Sec. 156.100(c) of this subpart that lacks 
any categories of essential health benefits will be supplemented by HHS 
in the following order, to the extent that any of the plans offer 
benefits in the missing EHB category:
    (1) The largest plan by enrollment in the second largest product by 
enrollment in the State's small group market, as defined in Sec. 155.20 
of this subchapter (except for pediatric oral and vision benefits);
    (2) The largest plan by enrollment in the third largest product by 
enrollment in the State's small group market, as defined in Sec. 155.20 
of this subchapter (except for pediatric oral and vision benefits);
    (3) The largest national FEHBP plan by enrollment across States that 
is offered to federal employees under 5 USC 8903 (except for pediatric 
oral and vision benefits);
    (4) The plan described in paragraph (b)(2)(i) of this section for 
pediatric oral care benefits; and
    (5) The plan described in paragraph (b)(3)(i) of this section for 
pediatric vision care benefits.
    (d) Non-discrimination. Not include discriminatory benefit designs 
that contravene the non-discrimination standards defined in Sec. 
156.125 of this subpart.
    (e) Balance. Ensure an appropriate balance among the EHB categories 
to ensure that benefits are not unduly weighted toward any category.
    (f) Determining habilitative services. If the base-benchmark plan 
does not include coverage for habilitative services, the State may 
determine which services are included in that category.

[78 FR 12866, Feb. 25, 2013, as amended at 80 FR 10871, Feb. 27, 2015]



Sec. 156.115  Provision of EHB.

    (a) Provision of EHB means that a health plan provides benefits 
that--
    (1) Are substantially equal to the EHB-benchmark plan including:
    (i) Covered benefits;
    (ii) Limitations on coverage including coverage of benefit amount, 
duration, and scope; and
    (iii) Prescription drug benefits that meet the requirements of Sec. 
156.122 of this subpart;
    (2) With the exception of the EHB category of coverage for pediatric 
services, do not exclude an enrollee from coverage in an EHB category.
    (3) With respect to the mental health and substance use disorder 
services, including behavioral health treatment services, required under 
Sec. 156.110(a)(5) of this subpart, comply with the requirements of 
Sec. 146.136 of this subchapter.
    (4) Include preventive health services described in Sec. 147.130 of 
this subchapter.

[[Page 1035]]

    (5) If the EHB-benchmark plan does not include coverage for 
habilitative services, as described in Sec. 156.110(f) of this subpart, 
include habilitative services in a manner that meets one of the 
following--
    (i) Cover health care services and devices that help a person keep, 
learn, or improve skills and functioning for daily living (habilitative 
services). Examples include therapy for a child who is not walking or 
talking at the expected age. These services may include physical and 
occupational therapy, speech-language pathology and other services for 
people with disabilities in a variety of inpatient and/or outpatient 
settings;
    (ii) Do not impose limits on coverage of habilitative services and 
devices that are less favorable than any such limits imposed on coverage 
of rehabilitative services and devices; and
    (iii) For plan years beginning on or after January 1, 2017, do not 
impose combined limits on habilitative and rehabilitative services and 
devices.
    (6) For plan years beginning on or after January 1, 2016, for 
pediatric services that are required under Sec. 156.110(a)(10), provide 
coverage for enrollees until at least the end of the month in which the 
enrollee turns 19 years of age.
    (b) Unless prohibited by applicable State requirements, an issuer of 
a plan offering EHB may substitute benefits if the issuer meets the 
following conditions--
    (1) Substitutes a benefit that:
    (i) Is actuarially equivalent to the benefit that is being replaced 
as determined in paragraph (b)(2) of this section;
    (ii) Is made only within the same essential health benefit category; 
and
    (iii) Is not a prescription drug benefit.
    (2) Submits evidence of actuarial equivalence that is:
    (i) Certified by a member of the American Academy of Actuaries;
    (ii) Based on an analysis performed in accordance with generally 
accepted actuarial principles and methodologies;
    (iii) Based on a standardized plan population; and
    (iv) Determined regardless of cost-sharing.
    (c) A health plan does not fail to provide EHB solely because it 
does not offer the services described in Sec. 156.280(d) of this 
subchapter.
    (d) An issuer of a plan offering EHB may not include routine non-
pediatric dental services, routine non-pediatric eye exam services, 
long-term/custodial nursing home care benefits, or non-medically 
necessary orthodontia as EHB.

[78 FR 12866, Feb. 25, 2013, as amended at 80 FR 10871, Feb. 27, 2015]



Sec. 156.120  Collection of data to define essential health benefits.

    (a) Definitions. The following definitions apply to this section, 
unless the context indicates otherwise:
    Health benefits means benefits for medical care, as defined at Sec. 
144.103 of this subchapter, which may be delivered through the purchase 
of insurance or otherwise.
    Health plan has the meaning given to the term ``Portal Plan'' in 
Sec. 159.110 of this subchapter.
    State has the meaning given to that term in Sec. 155.20 of this 
subchapter.
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, or other 
similar limits on the scope or duration of treatment. Treatment 
limitations include only quantitative treatment limitations. A permanent 
exclusion of all benefits for a particular condition or disorder is not 
a treatment limitation.
    (b) Reporting requirement. A State that selects a base-benchmark 
plan or an issuer that offers a default base-benchmark plan in 
accordance with Sec. 156.100 must submit to HHS the following 
information in a form and manner, and by a date, determined by HHS:
    (1) Administrative data necessary to identify the health plan;
    (2) Data and descriptive information for each plan on the following 
items:
    (i) All health benefits in the plan;
    (ii) Treatment limitations;
    (iii) Drug coverage; and
    (iv) Exclusions.

[80 FR 10871, Feb. 27, 2015]

[[Page 1036]]



Sec. 156.122  Prescription drug benefits.

    (a) A health plan does not provide essential health benefits unless 
it:
    (1) Subject to the exception in paragraph (b) of this section, 
covers at least the greater of:
    (i) One drug in every United States Pharmacopeia (USP) category and 
class; or
    (ii) The same number of prescription drugs in each category and 
class as the EHB-benchmark plan;
    (2) Submits its formulary drug list to the Exchange, the State or 
OPM; and
    (3) For plans years beginning on or after January 1, 2017, uses a 
pharmacy and therapeutics (P&T) committee that meets the following 
standards.
    (i) Membership standards. The P&T committee must:
    (A) Have members that represent a sufficient number of clinical 
specialties to adequately meet the needs of enrollees.
    (B) Consist of a majority of individuals who are practicing 
physicians, practicing pharmacists and other practicing health care 
professionals who are licensed to prescribe drugs.
    (C) Prohibit any member with a conflict of interest with respect to 
the issuer or a pharmaceutical manufacturer from voting on any matters 
for which the conflict exists.
    (D) Require at least 20 percent of its membership to have no 
conflict of interest with respect to the issuer and any pharmaceutical 
manufacturer.
    (ii) Meeting standards. The P&T committee must:
    (A) Meet at least quarterly.
    (B) Maintain written documentation of the rationale for all 
decisions regarding formulary drug list development or revision.
    (iii) Formulary drug list establishment and management. The P&T 
committee must:
    (A) Develop and document procedures to ensure appropriate drug 
review and inclusion.
    (B) Base clinical decisions on the strength of scientific evidence 
and standards of practice, including assessing peer-reviewed medical 
literature, pharmacoeconomic studies, outcomes research data, and other 
such information as it determines appropriate.
    (C) Consider the therapeutic advantages of drugs in terms of safety 
and efficacy when selecting formulary drugs.
    (D) Review policies that guide exceptions and other utilization 
management processes, including drug utilization review, quantity 
limits, and therapeutic interchange.
    (E) Evaluate and analyze treatment protocols and procedures related 
to the plan's formulary at least annually.
    (F) Review and approve all clinical prior authorization criteria, 
step therapy protocols, and quantity limit restrictions applied to each 
covered drug.
    (G) Review new FDA-approved drugs and new uses for existing drugs.
    (H) Ensure the issuer's formulary drug list:
    (1) Covers a range of drugs across a broad distribution of 
therapeutic categories and classes and recommended drug treatment 
regimens that treat all disease states, and does not discourage 
enrollment by any group of enrollees; and
    (2) Provides appropriate access to drugs that are included in 
broadly accepted treatment guidelines and that are indicative of general 
best practices at the time.
    (b) A health plan does not fail to provide EHB prescription drug 
benefits solely because it does not offer drugs approved by the Food and 
Drug Administration as a service described in Sec. 156.280(d) of this 
subchapter.
    (c) A health plan providing essential health benefits must have the 
following processes in place that allow an enrollee, the enrollee's 
designee, or the enrollee's prescribing physician (or other prescriber, 
as appropriate) to request and gain access to clinically appropriate 
drugs not otherwise covered by the health plan (a request for 
exception). In the event that an exception request is granted, the plan 
must treat the excepted drug(s) as an essential health benefit, 
including by counting any cost-sharing towards the plan's annual 
limitation on cost-sharing under Sec. 156.130 and when calculating the 
plan's actuarial value under Sec. 156.135.
    (1) Standard exception request. For plans years beginning on or 
after January 1, 2016:
    (i) A health plan must have a process for an enrollee, the 
enrollee's designee,

[[Page 1037]]

or the enrollee's prescribing physician (or other prescriber) to request 
a standard review of a decision that a drug is not covered by the plan.
    (ii) A health plan must make its determination on a standard 
exception and notify the enrollee or the enrollee's designee and the 
prescribing physician (or other prescriber, as appropriate) of its 
coverage determination no later than 72 hours following receipt of the 
request.
    (iii) A health plan that grants a standard exception request must 
provide coverage of the non-formulary drug for the duration of the 
prescription, including refills.
    (2) Expedited exception request. (i) A health plan must have a 
process for an enrollee, the enrollee's designee, or the enrollee's 
prescribing physician (or other prescriber) to request an expedited 
review based on exigent circumstances.
    (ii) Exigent circumstances exist when an enrollee is suffering from 
a health condition that may seriously jeopardize the enrollee's life, 
health, or ability to regain maximum function or when an enrollee is 
undergoing a current course of treatment using a non-formulary drug.
    (iii) A health plan must make its coverage determination on an 
expedited review request based on exigent circumstances and notify the 
enrollee or the enrollee's designee and the prescribing physician (or 
other prescriber, as appropriate) of its coverage determination no later 
than 24 hours following receipt of the request.
    (iv) A health plan that grants an exception based on exigent 
circumstances must provide coverage of the non-formulary drug for the 
duration of the exigency.
    (3) External exception request review. For plans years beginning on 
or after January 1, 2016:
    (i) If the health plan denies a request for a standard exception 
under paragraph (c)(1) of this section or for an expedited exception 
under paragraph (c)(2) of this section, the health plan must have a 
process for the enrollee, the enrollee's designee, or the enrollee's 
prescribing physician (or other prescriber) to request that the original 
exception request and subsequent denial of such request be reviewed by 
an independent review organization.
    (ii) A health plan must make its determination on the external 
exception request and notify the enrollee or the enrollee's designee and 
the prescribing physician (or other prescriber, as appropriate) of its 
coverage determination no later than 72 hours following its receipt of 
the request, if the original request was a standard exception request 
under paragraph (c)(1) of this section, and no later than 24 hours 
following its receipt of the request, if the original request was an 
expedited exception request under paragraph (c)(2) of this section.
    (iii) If a health plan grants an external exception review of a 
standard exception request, the health plan must provide coverage of the 
non-formulary drug for the duration of the prescription. If a health 
plan grants an external exception review of an expedited exception 
request, the health plan must provide coverage of the non-formulary drug 
for the duration of the exigency.
    (d)(1) For plan years beginning on or after January 1, 2016, a 
health plan must publish an up-to-date, accurate, and complete list of 
all covered drugs on its formulary drug list, including any tiering 
structure that it has adopted and any restrictions on the manner in 
which a drug can be obtained, in a manner that is easily accessible to 
plan enrollees, prospective enrollees, the State, the Exchange, HHS, the 
U.S. Office of Personnel Management, and the general public. A formulary 
drug list is easily accessible when:
    (i) It can be viewed on the plan's public Web site through a clearly 
identifiable link or tab without requiring an individual to create or 
access an account or enter a policy number; and
    (ii) If an issuer offers more than one plan, when an individual can 
easily discern which formulary drug list applies to which plan.
    (2) A QHP in the Federally-facilitated Exchange must make available 
the information described in paragraph (d)(1) of this section on its Web 
site in an HHS-specified format and also submit this information to HHS, 
in a format and at times determined by HHS.

[[Page 1038]]

    (e) For plan years beginning on or after January 1, 2017, a health 
plan providing essential health benefits must have the following access 
procedures:
    (1) A health plan must allow enrollees to access prescription drug 
benefits at in-network retail pharmacies, unless:
    (i) The drug is subject to restricted distribution by the U.S. Food 
and Drug Administration; or
    (ii) The drug requires special handling, provider coordination, or 
patient education that cannot be provided by a retail pharmacy.
    (2) A health plan may charge enrollees a different cost-sharing 
amount for obtaining a covered drug at a retail pharmacy, but all cost 
sharing will count towards the plan's annual limitation on cost sharing 
under Sec. 156.130 and must be accounted for in the plan's actuarial 
value calculated under Sec. 156.135.

[78 FR 12866, Feb. 25, 2013, as amended at 79 FR 30350, May 27, 2014; 80 
FR 10871, Feb. 27, 2015]



Sec. 156.125  Prohibition on discrimination.

    (a) An issuer does not provide EHB if its benefit design, or the 
implementation of its benefit design, discriminates based on an 
individual's age, expected length of life, present or predicted 
disability, degree of medical dependency, quality of life, or other 
health conditions.
    (b) An issuer providing EHB must comply with the requirements of 
Sec. 156.200(e) of this subchapter; and
    (c) Nothing in this section shall be construed to prevent an issuer 
from appropriately utilizing reasonable medical management techniques.



Sec. 156.130  Cost-sharing requirements.

    (a) Annual limitation on cost sharing. (1) For a plan year beginning 
in the calendar year 2014, cost sharing may not exceed the following:
    (i) For self-only coverage--the annual dollar limit as described in 
section 223(c)(2)(A)(ii)(I) of the Internal Revenue Code of 1986 as 
amended, for self-only coverage that that is in effect for 2014; or
    (ii) For other than self-only coverage--the annual dollar limit in 
section 223(c)(2)(A)(ii)(II) of the Internal Revenue Code of 1986 as 
amended, for non-self-only coverage that is in effect for 2014.
    (2) For a plan year beginning in a calendar year after 2014, cost 
sharing may not exceed the following:
    (i) For self-only coverage--the dollar limit for calendar year 2014 
increased by an amount equal to the product of that amount and the 
premium adjustment percentage, as defined in paragraph (e) of this 
section.
    (ii) For other than self-only coverage--twice the dollar limit for 
self-only coverage described in paragraph (a)(2)(i) of this section.
    (b) [Reserved]
    (c) Special rule for network plans. In the case of a plan using a 
network of providers, cost sharing paid by, or on behalf of, an enrollee 
for benefits provided outside of such network is not required to count 
toward the annual limitation on cost sharing (as defined in paragraph 
(a) of this section).
    (d) Increase annual dollar limits in multiples of 50. For a plan 
year beginning in a calendar year after 2014, any increase in the annual 
dollar limits described in paragraph (a) of this section that does not 
result in a multiple of 50 dollars will be rounded down, to the next 
lowest multiple of 50 dollars.
    (e) Premium adjustment percentage. The premium adjustment percentage 
is the percentage (if any) by which the average per capita premium for 
health insurance coverage for the preceding calendar year exceeds such 
average per capita premium for health insurance for 2013. HHS will 
publish the annual premium adjustment percentage in the annual HHS 
notice of benefits and payment parameters.
    (f) Coordination with preventive limits. Nothing in this subpart is 
in derogation of the requirements of Sec. 147.130 of this subchapter.
    (g) Coverage of emergency department services. Emergency department 
services must be provided as follows:
    (1) Without imposing any requirement under the plan for prior 
authorization of services or any limitation on coverage where the 
provider of services

[[Page 1039]]

is out of network that is more restrictive than the requirements or 
limitations that apply to emergency department services received in 
network; and
    (2) If such services are provided out-of-network, cost-sharing must 
be limited as provided in Sec. 147.138(b)(3) of this subchapter.

[78 FR 12866, Feb. 25, 2013, as amended at 79 FR 30350, May 27, 2014; 80 
FR 10872, Feb. 27, 2015]



Sec. 156.135  AV calculation for determining level of coverage.

    (a) Calculation of AV. Subject to paragraphs (b) and (d) of this 
section, to calculate the AV of a health plan, the issuer must use the 
AV Calculator developed and made available by HHS for the given benefit 
year.
    (b) Exception to the use of the AV Calculator. If a health plan's 
design is not compatible with the AV Calculator, the issuer must meet 
the following:
    (1) Submit the actuarial certification from an actuary, who is a 
member of the American Academy of Actuaries, on the chosen methodology 
identified in paragraphs (b)(2) and (b)(3) of this section:
    (2) Calculate the plan's AV by:
    (i) Estimating a fit of its plan design into the parameters of the 
AV Calculator; and
    (ii) Having an actuary, who is a member of the American Academy of 
Actuaries, certify that the plan design was fit appropriately in 
accordance with generally accepted actuarial principles and 
methodologies; or
    (3) Use the AV Calculator to determine the AV for the plan 
provisions that fit within the calculator parameters and have an 
actuary, who is a member of the American Academy of Actuaries calculate 
and certify, in accordance with generally accepted actuarial principles 
and methodologies, appropriate adjustments to the AV identified by the 
calculator, for plan design features that deviate substantially from the 
parameters of the AV Calculator.
    (4) The calculation methods described in paragraphs (b)(2) and (3) 
of this section may include only in-network cost-sharing, including 
multi-tier networks.
    (c) Employer contributions to health savings accounts and amounts 
made available under certain health reimbursement arrangements. For 
plans other than those in the individual market that at the time of 
purchase are offered in conjunction with an HSA or with integrated HRAs 
that may be used only for cost-sharing, annual employer contributions to 
HSAs and amounts newly made available under such HRAs for the current 
year are:
    (1) Counted towards the total anticipated medical spending of the 
standard population that is paid by the health plan; and
    (2) Adjusted to reflect the expected spending for health care costs 
in a benefit year so that:
    (i) Any current year HSA contributions are accounted for; and
    (ii) The amounts newly made available under such integrated HRAs for 
the current year are accounted for.
    (d) Use of state-specific standard population for the calculation of 
AV. Beginning in 2015, if submitted by the State and approved by HHS, a 
state-specific data set will be used as the standard population to 
calculate AV in accordance with paragraph (a) of this section. The data 
set may be approved by HHS if it is submitted in accordance with 
paragraph (e) of this section and:
    (1) Supports the calculation of AVs for the full range of health 
plans available in the market;
    (2) Is derived from a non-elderly population and estimates those 
likely to be covered by private health plans on or after January 1, 
2014;
    (3) Is large enough that: (i) The demographic and spending patterns 
are stable over time; and (ii) Includes a substantial majority of the 
State's insured population, subject to the requirement in paragraph 
(d)(2) of this section;
    (4) Is a statistically reliable and stable basis for area-specific 
calculations; and (5) Contains claims data on health care services 
typically offered in the then-current market.
    (e) Submission of state-specific data. AV will be calculated using 
the default standard population described in paragraph (f) of this 
section, unless a data set in a format specified by HHS that

[[Page 1040]]

can support the use of the AV Calculator as described in paragraph (a) 
of this section is submitted by a State and approved by HHS consistent 
with paragraph (d) of this section by a date specified by HHS.
    (f) Default standard population. The default standard population for 
AV calculation will be developed and summary statistics, such as in 
continuance tables, will be provided by HHS in a format that supports 
the calculation of AV as described in paragraph (a) of this section.
    (g) Updates to the AV Calculator. HHS will update the AV Calculator 
as follows, HHS will:
    (1) Update the annual limit on cost sharing and related functions 
based on a projected estimate to enable the AV Calculator to comply with 
Sec. 156.130(a)(2);
    (2) Update the continuance tables to reflect more current enrollment 
data when HHS has determined that the enrolled population has materially 
changed;
    (3) Update the algorithms when HHS has determined the need to adapt 
the AV Calculator for use by additional plan designs or to allow the AV 
Calculator to accommodate potential new types of plan designs, where 
such adaptations can be based on actuarially sound principles and will 
not have a substantial effect on the AV calculations performed by the 
then current AV Calculator;
    (4) Update the continuance tables to reflect more current claims 
data no more than every 3 and no less than every 5 years and to annually 
trend the claims data when the trending factor is more than 5 percent 
different, calculated on a cumulative basis; and
    (5) Update the AV Calculator user interface when a change would be 
useful to a broad group of users of the AV Calculator, would not affect 
the function of the AV Calculator, and would be technically feasible.

[78 FR 12866, Feb. 25, 2013, as amended at 79 FR 13839, Mar. 11, 2014]



Sec. 156.140  Levels of coverage.

    (a) General requirement for levels of coverage. AV, calculated as 
described in Sec. 156.135 of this subpart, and within a de minimis 
variation as defined in paragraph (c) of this section, determines 
whether a health plan offers a bronze, silver, gold, or platinum level 
of coverage.
    (b) The levels of coverage are:
    (1) A bronze health plan is a health plan that has an AV of 60 
percent.
    (2) A silver health plan is a health plan that has an AV of 70 
percent.
    (3) A gold health plan is a health plan that has an AV of 80 
percent.
    (4) A platinum health plan is a health plan that has as an AV of 90 
percent.
    (c) De minimis variation. The allowable variation in the AV of a 
health plan that does not result in a material difference in the true 
dollar value of the health plan is 2 percentage 
points.



Sec. 156.145  Determination of minimum value.

    (a) Acceptable methods for determining MV. An employer-sponsored 
plan provides minimum value (MV) only if the percentage of the total 
allowed costs of benefits provided under the plan is greater than or 
equal to 60 percent, and the benefits under the plan include substantial 
coverage of inpatient hospital services and physician services. An 
employer-sponsored plan may use one of the following methods to 
determine whether the percentage of the total allowed costs of benefits 
provided under the plan is not less than 60 percent.
    (1) The MV Calculator to be made available by HHS and the Internal 
Revenue Service. The result derived from the calculator may be modified 
under the rules in paragraph (b) of this section.
    (2) Any safe harbor established by HHS and the Internal Revenue 
Service.
    (3) A group health plan may seek certification by an actuary to 
determine MV if the plan contains non-standard features that are not 
suitable for either of the methods described in paragraphs (a)(1) or (2) 
of this section. The determination of MV must be made by a member of the 
American Academy of Actuaries, based on an analysis performed in 
accordance with generally accepted actuarial principles and 
methodologies.
    (4) Any plan in the small group market that meets any of the levels 
of coverage, as described in Sec. 156.140 of this subpart, satisfies 
minimum value.

[[Page 1041]]

    (b) Benefits that may be counted towards the determination of MV. 
(1) In the event that a group health plan uses the MV Calculator and 
offers an EHB outside of the parameters of the MV Calculator, the plan 
may seek an actuary, who is a member of the American Academy of 
Actuaries, to determine the value of that benefit and adjust the result 
derived from the MV Calculator to reflect that value.
    (2) For the purposes of applying the options described in paragraph 
(a) of this section in determining MV, a group health plan will be 
permitted to take into account all benefits provided by the plan that 
are included in any one of the EHB-benchmarks.
    (c) Standard population. The standard population for MV 
determinations described in paragraph (a) of this section is the 
standard population developed by HHS for such use and described through 
summary statistics issued by HHS. The standard population for MV must 
reflect the population covered by self-insured group health plans.
    (d) Employer contributions to health savings accounts and amounts 
made available under certain health reimbursement arrangements. For 
employer-sponsored self-insured group health plans and insured group 
health plans that at the time of purchase are offered in conjunction 
with an HSA or with integrated HRAs that may be used only for cost-
sharing, annual employer contributions to HSAs and amounts newly made 
available under such HRAs for the current year are:
    (1) Counted towards the total anticipated medical spending of the 
standard population that is paid by the health plan; and
    (2) Adjusted to reflect the expected spending for health care costs 
in a benefit year so that:
    (i) Any current year HSA contributions are accounted for; and
    (ii) The amounts newly made available under such integrated HRAs for 
the current year are accounted for.

[78 FR 12866, Feb. 25, 2013, as amended at 80 FR 10872, Feb. 27, 2015]



Sec. 156.150  Application to stand-alone dental plans inside the Exchange.

    (a) Annual limitation on cost-sharing. For a stand-alone dental plan 
covering the pediatric dental EHB under Sec. 155.1065 of this 
subchapter in any Exchange, cost sharing may not exceed $350 for one 
covered child and $700 for two or more covered children.
    (b) Calculation of AV. A stand-alone dental plan:
    (1) May not use the AV calculator in Sec. 156.135 of this subpart;
    (2) Must demonstrate that the stand-alone dental plan offers the 
pediatric dental essential health benefit at either:
    (i) A low level of coverage with an AV of 70 percent; or
    (ii) A high level of coverage with an AV of 85 percent; and
    (iii) Within a de minimis variation of 2 
percentage points of the level of coverage in paragraphs (b)(2)(i) or 
(ii) of this section.
    (3) The level of coverage as defined in paragraph (b)(2) of this 
section must be certified by a member of the American Academy of 
Actuaries using generally accepted actuarial principles.

[78 FR 12866, Feb. 25, 2013, as amended at 79 FR 13840, Mar. 11, 2014]



Sec. 156.155  Enrollment in catastrophic plans.

    (a) General rule. A health plan is a catastrophic plan if it meets 
the following conditions:
    (1) Meets all applicable requirements for health insurance coverage 
in the individual market (including but not limited to those 
requirements described in parts 147 and 148 of this subchapter), and is 
offered only in the individual market.
    (2) Does not provide a bronze, silver, gold, or platinum level of 
coverage described in section 1302(d) of the Affordable Care Act.
    (3) Provides coverage of the essential health benefits under section 
1302(b) of the Affordable Care Act, except that the plan provides no 
benefits for any plan year (except as provided in paragraphs (a)(4) and 
(b) of this section) until the annual limitation on cost sharing in 
section 1302(c)(1) of the act is reached.
    (4) Provides coverage for at least three primary care visits per 
year before reaching the deductible.
    (5) Covers only individuals who meet either of the following 
conditions:

[[Page 1042]]

    (i) Have not attained the age of 30 prior to the first day of the 
plan or policy year.
    (ii) Have received a certificate of exemption for the reasons 
identified in section 1302(e)(2)(B)(i) or (ii) of the Affordable Care 
Act.
    (b) Coverage of preventive health services. A catastrophic plan may 
not impose any cost-sharing requirements (such as a copayment, 
coinsurance, or deductible) for preventive services, in accordance with 
section 2713 of the Public Health Service Act.
    (c) Application for family coverage. For other than self-only 
coverage, each individual enrolled must meet the requirements of 
paragraph (a)(5) of this section.

[78 FR 13442, Feb. 27, 2013, as amended at 78 FR 65096, Oct. 30, 2013]



     Subpart C_Qualified Health Plan Minimum Certification Standards

    Source: 77 FR 18469, Mar. 27, 2012, unless otherwise noted.



Sec. 156.200  QHP issuer participation standards.

    (a) General requirement. In order to participate in an Exchange, a 
health insurance issuer must have in effect a certification issued or 
recognized by the Exchange to demonstrate that each health plan it 
offers in the Exchange is a QHP.
    (b) QHP issuer requirement. A QHP issuer must--
    (1) Comply with the requirements of this subpart with respect to 
each of its QHPs on an ongoing basis;
    (2) Comply with Exchange processes, procedures, and requirements set 
forth in accordance with subpart K of part 155 and, in the small group 
market, Sec. 155.705 of this subchapter;
    (3) Ensure that each QHP complies with benefit design standards, as 
defined in Sec. 156.20;
    (4) Be licensed and in good standing to offer health insurance 
coverage in each State in which the issuer offers health insurance 
coverage;
    (5) Implement and report on a quality improvement strategy or 
strategies described in section 1311(c)(1)(E) of the Affordable Care Act 
consistent with the standards of section 1311(g) of the Affordable Care 
Act, disclose and report information on health care quality and outcomes 
described in sections 1311(c)(1)(H), (c)(1)(I), and (c)(3) of the 
Affordable Care Act, and implement appropriate enrollee satisfaction 
surveys consistent with section 1311(c)(4) of the Affordable Care Act
    (6) Pay any applicable user fees assessed under Sec. 156.50; and
    (7) Comply with the standards under 45 CFR part 153.
    (c) Offering requirements. A QHP issuer must offer through the 
Exchange:
    (1) At least one QHP in the silver coverage level and at least one 
QHP in the gold coverage level as described in section 1302(d)(1) of the 
Affordable Care Act; and,
    (2) A child-only plan at the same level of coverage, as described in 
section 1302(d)(1) of the Affordable Care Act, as any QHP offered 
through the Exchange to individuals who, as of the beginning of the plan 
year, have not attained the age of 21.
    (d) State requirements. A QHP issuer certified by an Exchange must 
adhere to the requirements of this subpart and any provisions imposed by 
the Exchange, or a State in connection with its Exchange, that are 
conditions of participation or certification with respect to each of its 
QHPs.
    (e) Non-discrimination. A QHP issuer must not, with respect to its 
QHP, discriminate on the basis of race, color, national origin, 
disability, age, sex, gender identity or sexual orientation.
    (f) Broker compensation in a Federally-facilitated Exchange. A QHP 
issuer must pay the same broker compensation for QHPs offered through a 
Federally-facilitated Exchange that the QHP issuer pays for similar 
health plans offered in the State outside a Federally-facilitated 
Exchange.
    (g) Certification standard specific to a Federally-facilitated 
Exchange. A Federally-facilitated Exchange may certify a QHP in the 
individual market of a Federally-facilitated Exchange only if the QHP 
issuer meets one of the conditions below:
    (1) The QHP issuer also offers through a Federally-facilitated SHOP 
serving that State at least one small

[[Page 1043]]

group market QHP at the silver level of coverage and one at the gold 
level of coverage as described in section 1302(d) of the Affordable Care 
Act;
    (2) The QHP issuer does not offer small group market products in 
that State, but another issuer in the same issuer group offers through a 
Federally-facilitated SHOP serving that State at least one small group 
market QHP at the silver level of coverage and one at the gold level of 
coverage; or
    (3) Neither the issuer nor any other issuer in the same issuer group 
has a share of the small group market, as determined by HHS, greater 
than 20 percent, based on the earned premiums submitted by all issuers 
in the State's small group market, under Sec. 158.110 of this 
subchapter, on the reporting date immediately preceding the due date of 
the application for QHP certification.
    (h) Operational requirements. As a condition of certification of a 
QHP, an issuer must attest that it will comply with all QHP operational 
requirements described in subparts D, E, H, K, L, and M of this part.

[77 FR 18469, Mar. 27, 2012, as amended at 78 FR 15535, Mar. 11, 2013; 
79 FR 30351, May 27, 2014; 80 FR 10873, Feb. 27, 2015]



Sec. 156.210  QHP rate and benefit information.

    (a) General rate requirement. A QHP issuer must set rates for an 
entire benefit year, or for the SHOP, plan year.
    (b) Rate and benefit submission. A QHP issuer must submit rate and 
benefit information to the Exchange.
    (c) Rate justification. A QHP issuer must submit to the Exchange a 
justification for a rate increase prior to the implementation of the 
increase. A QHP issuer must prominently post the justification on its 
Web site.



Sec. 156.215  Advance payments of the premium tax credit and 
cost-sharing reduction standards.

    (a) Standards relative to advance payments of the premium tax credit 
and cost-sharing reductions. In order for a health plan to be certified 
as a QHP initially and to maintain certification to be offered in the 
individual market on the Exchange, the issuer must meet the requirements 
related to the administration of cost-sharing reductions and advance 
payments of the premium tax credit set forth in subpart E of this part.
    (b) [Reserved]

[78 FR 15535, Mar. 11, 2013]



Sec. 156.220  Transparency in coverage.

    (a) Required information. A QHP issuer must provide the following 
information in accordance with the standards in paragraph (b) of this 
section:
    (1) Claims payment policies and practices;
    (2) Periodic financial disclosures;
    (3) Data on enrollment;
    (4) Data on disenrollment;
    (5) Data on the number of claims that are denied;
    (6) Data on rating practices;
    (7) Information on cost-sharing and payments with respect to any 
out-of-network coverage; and
    (8) Information on enrollee rights under title I of the Affordable 
Care Act.
    (b) Reporting requirement. A QHP issuer must submit, in an accurate 
and timely manner, to be determined by HHS, the information described in 
paragraph (a) of this section to the Exchange, HHS and the State 
insurance commissioner, and make the information described in paragraph 
(a) of this section available to the public.
    (c) Use of plain language. A QHP issuer must make sure that the 
information submitted under paragraph (b) is provided in plain language 
as defined under Sec. 155.20 of this subtitle.
    (d) Enrollee cost sharing transparency. A QHP issuer must make 
available the amount of enrollee cost sharing under the individual's 
plan or coverage with respect to the furnishing of a specific item or 
service by a participating provider in a timely manner upon the request 
of the individual. At a minimum, such information must be made available 
to such individual through an Internet Web site and such other means for 
individuals without access to the Internet.



Sec. 156.225  Marketing and Benefit Design of QHPs.

    A QHP issuer and its officials, employees, agents and 
representatives must--

[[Page 1044]]

    (a) State law applies. Comply with any applicable State laws and 
regulations regarding marketing by health insurance issuers; and
    (b) Non-discrimination. Not employ marketing practices or benefit 
designs that will have the effect of discouraging the enrollment of 
individuals with significant health needs in QHPs.



Sec. 156.230  Network adequacy standards.

    (a) General requirement. Each QHP issuer that uses a provider 
network must ensure that the provider network consisting of in-network 
providers, as available to all enrollees, meets the following 
standards--
    (1) Includes essential community providers in accordance with Sec. 
156.235;
    (2) Maintains a network that is sufficient in number and types of 
providers, including providers that specialize in mental health and 
substance abuse services, to assure that all services will be accessible 
without unreasonable delay; and,
    (3) Is consistent with the network adequacy provisions of section 
2702(c) of the PHS Act.
    (b) Access to provider directory. (1) A QHP issuer must make its 
provider directory for a QHP available to the Exchange for publication 
online in accordance with guidance from HHS and to potential enrollees 
in hard copy upon request. In the provider directory, a QHP issuer must 
identify providers that are not accepting new patients.
    (2) For plan years beginning on or after January 1, 2016, a QHP 
issuer must publish an up-to-date, accurate, and complete provider 
directory, including information on which providers are accepting new 
patients, the provider's location, contact information, specialty, 
medical group, and any institutional affiliations, in a manner that is 
easily accessible to plan enrollees, prospective enrollees, the State, 
the Exchange, HHS and OPM. A provider directory is easily accessible 
when--
    (i) The general public is able to view all of the current providers 
for a plan in the provider directory on the issuer's public Web site 
through a clearly identifiable link or tab and without creating or 
accessing an account or entering a policy number; and
    (ii) If a health plan issuer maintains multiple provider networks, 
the general public is able to easily discern which providers participate 
in which plans and which provider networks.
    (c) Increasing consumer transparency. A QHP issuer in a Federally-
facilitated Exchange must make available the information described in 
paragraph (b) of this section on its Web site in an HHS specified format 
and also submit this information to HHS, in a format and manner and at 
times determined by HHS.

[77 FR 18469, Mar. 27, 2012, as amended at 80 FR 10873, Feb. 27, 2015]



Sec. 156.235  Essential community providers.

    (a) General requirement. (1) A QHP issuer must have a sufficient 
number and geographic distribution of essential community providers, 
where available, to ensure reasonable and timely access to a broad range 
of such providers for low-income, medically underserved individuals in 
the QHP's service area, in accordance with the Exchange's network 
adequacy standards.
    (2) A QHP issuer that provides a majority of covered professional 
services through physicians employed by the issuer or through a single 
contracted medical group may instead comply with the alternate standard 
described in paragraph (b) of this section.
    (3) Nothing in this requirement shall be construed to require any 
QHP to provide coverage for any specific medical procedure provided by 
the essential community provider.
    (b) Alternate standard. A QHP issuer described in paragraph (a)(2) 
of this section must have a sufficient number and geographic 
distribution of employed providers and hospital facilities, or providers 
of its contracted medical group and hospital facilities to ensure 
reasonable and timely access for low-income, medically underserved 
individuals in the QHP's service area, in accordance with the Exchange's 
network adequacy standards.

[[Page 1045]]

    (c) Definition. Essential community providers are providers that 
serve predominantly low-income, medically underserved individuals, 
including providers that meet the criteria of paragraph (c)(1) or (2) of 
this section, and providers that met the criteria under paragraph (c)(1) 
or (2) of this section on the publication date of this regulation unless 
the provider lost its status under paragraph (c)(1) or (2) of this 
section thereafter as a result of violating Federal law:
    (1) Health care providers defined in section 340B(a)(4) of the PHS 
Act; and
    (2) Providers described in section 1927(c)(1)(D)(i)(IV) of the Act 
as set forth by section 221 of Public Law 111-8.
    (d) Payment rates. Nothing in paragraph (a) of this section shall be 
construed to require a QHP issuer to contract with an essential 
community provider if such provider refuses to accept the generally 
applicable payment rates of such issuer.
    (e) Payment of federally-qualified health centers. If an item or 
service covered by a QHP is provided by a federally-qualified health 
center (as defined in section 1905(l)(2)(B) of the Act) to an enrollee 
of a QHP, the QHP issuer must pay the federally-qualified health center 
for the item or service an amount that is not less than the amount of 
payment that would have been paid to the center under section 1902(bb) 
of the Act for such item or service. Nothing in this paragraph (e) would 
preclude a QHP issuer and federally-qualified health center from 
mutually agreeing upon payment rates other than those that would have 
been paid to the center under section 1902(bb) of the Act, as long as 
such mutually agreed upon rates are at least equal to the generally 
applicable payment rates of the issuer indicated in paragraph (d) of 
this section.

    Effective Date Note: At 80 FR 10873, Feb. 27, 2015, Sec. 156.235 
was revised, effective Jan. 1, 2016. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 156.235  Essential community providers.

    (a) General ECP standard. (1) A QHP issuer that uses a provider 
network must include in its provider network a sufficient number and 
geographic distribution of essential community providers (ECPs), where 
available, to ensure reasonable and timely access to a broad range of 
such providers for low-income individuals or individuals residing in 
Health Professional Shortage Areas within the QHP's service area, in 
accordance with the Exchange's network adequacy standards.
    (2) A plan applying for QHP certification to be offered through a 
Federally-facilitated Exchange has a sufficient number and geographic 
distribution of ECPs if it demonstrates in its QHP application that--
    (i) The network includes as participating providers at least a 
minimum percentage, as specified by HHS, of available ECPs in each 
plan's service area with multiple providers at a single location 
counting as a single ECP toward both the available ECPs in the plan's 
service area and the issuer's satisfaction of the ECP participation 
standard; and
    (ii) The issuer of the plan offers contracts to--
    (A) All available Indian health care providers in the service area, 
applying the special terms and conditions required by Federal law and 
regulations as referenced in the recommended model QHP addendum for 
Indian health care providers developed by HHS; and
    (B) At least one ECP in each of the ECP categories (Federally 
Qualified Health Centers, Ryan White Providers, Family Planning 
Providers, Indian Health Care Providers, Hospitals and other ECP 
providers) in each county in the service area, where an ECP in that 
category is available and provides medical or dental services that are 
covered by the issuer plan type.
    (3) If a plan applying for QHP certification to be offered through a 
Federally-facilitated Exchange does not satisfy the ECP standard 
described in paragraph (a)(2) of this section, the issuer must include 
as part of its QHP application a narrative justification describing how 
the plan's provider network provides an adequate level of service for 
low-income enrollees or individuals residing in Health Professional 
Shortage Areas within the plan's service area and how the plan's 
provider network will be strengthened toward satisfaction of the ECP 
standard prior to the start of the benefit year.
    (4) Nothing in paragraphs (a)(1) through (3) of this section 
requires any QHP to provide coverage for any specific medical procedure.
    (5) A plan that provides a majority of covered professional services 
through physicians employed by the issuer or through a single contracted 
medical group may instead comply with the alternate standard described 
in paragraph (b) of this section.
    (b) Alternate ECP standard. (1) A plan described in paragraph (a)(5) 
of this section must have a sufficient number and geographic 
distribution of employed providers and hospital facilities, or providers 
of its contracted medical group and hospital facilities, to ensure 
reasonable and timely access

[[Page 1046]]

for low-income individuals or individuals residing in Health 
Professional Shortage Areas within the plan's service area, in 
accordance with the Exchange's network adequacy standards.
    (2) A plan described in paragraph (a)(5) of this section applying 
for QHP certification to be offered through a Federally-facilitated 
Exchange has a sufficient number and geographic distribution of employed 
or contracted providers if it demonstrates in its QHP application that--
    (i) The number of its providers that are located in Health 
Professional Shortage Areas or five-digit zip codes in which 30 percent 
or more of the population falls below 200 percent of the Federal Poverty 
Line satisfies a minimum percentage, specified by HHS, of available ECPs 
in the plan's service area with multiple providers at a single location 
counting as a single ECP; and
    (ii) The issuer's integrated delivery system provides all of the 
categories of services provided by entities in each of the ECP 
categories in each county in the plan's service area as outlined in the 
general ECP standard, or otherwise offers a contract to at least one ECP 
outside of the issuer's integrated delivery system per ECP category in 
each county in the plan's service area that can provide those services 
to low-income, medically underserved individuals.
    (3) If a plan does not satisfy the alternate ECP standard described 
in paragraph (b)(2) of this section, the issuer must include as part of 
its QHP application a narrative justification describing how the plan's 
provider networks provide an adequate level of service for low-income 
enrollees or individuals residing in Health Professional Shortage Areas 
within the plan's service area and how the plan's provider network will 
be strengthened toward satisfaction of the ECP standard prior to the 
start of the benefit year.
    (c) Definition. An essential community provider is a provider that 
serves predominantly low-income, medically underserved individuals, 
including a health care provider defined in section 340B(a)(4) of the 
PHS Act; or described in section 1927(c)(1)(D)(i)(IV) of the Act as set 
forth by section 221 of Pub. L. 111-8; or a State-owned family planning 
service site, or governmental family planning service site, or not-for-
profit family planning service site that does not receive Federal 
funding under special programs, including under Title X of the PHS Act, 
or an Indian health care provider, unless any of the above providers has 
lost its status under either of these sections, 340(B) of the PHS Act or 
1927 of the Act as a result of violating Federal law.
    (d) Payment rates. Nothing in paragraph (a) of this section may be 
construed to require a QHP issuer to contract with an ECP if such 
provider refuses to accept the same rates and contract provisions 
included in contracts accepted by similarly situated providers.
    (e) Payment of Federally qualified health centers. If an item or 
service covered by a QHP is provided by a Federally-qualified health 
center (as defined in section 1905(l)(2)(B) of the Act) to an enrollee 
of a QHP, the QHP issuer must pay the Federally qualified health center 
for the item or service an amount that is not less than the amount of 
payment that would have been paid to the center under section 1902(bb) 
of the Act for such item or service. Nothing in this paragraph (e) 
precludes a QHP issuer and Federally-qualified health center from 
agreeing upon payment rates other than those that would have been paid 
to the center under section 1902(bb) of the Act, as long as that rate is 
at least equal to the generally applicable payment rate of the issuer 
described in paragraph (d) of this section.



Sec. 156.245  Treatment of direct primary care medical homes.

    A QHP issuer may provide coverage through a direct primary care 
medical home that meets criteria established by HHS, so long as the QHP 
meets all requirements that are otherwise applicable and the services 
covered by the direct primary care medical home are coordinated with the 
QHP issuer.



Sec. 156.250  Meaningful access to qualified health plan information.

    A QHP issuer must provide all information that is critical for 
obtaining health insurance coverage or access to health care services 
through the QHP, including applications, forms, and notices, to 
qualified individuals, applicants, qualified employers, qualified 
employees, and enrollees in accordance with the standards described in 
Sec. 155.205(c) of this subchapter. Information is deemed to be 
critical for obtaining health insurance coverage or access to health 
care services if the issuer is required by law or regulation to provide 
the document to a qualified individual, applicant, qualified employer, 
qualified employee, or enrollee.

[80 FR 10874, Feb. 27, 2015]



Sec. 156.255  Rating variations.

    (a) Rating areas. A QHP issuer, including an issuer of a multi-State 
plan, may vary premiums by the geographic rating area established under 
section 2701(a)(2) of the PHS Act.

[[Page 1047]]

    (b) Same premium rates. A QHP issuer must charge the same premium 
rate without regard to whether the plan is offered through an Exchange, 
or whether the plan is offered directly from the issuer or through an 
agent.



Sec. 156.260  Enrollment periods for qualified individuals.

    (a) Individual market requirement. A QHP issuer must:
    (1) Enroll a qualified individual during the initial and annual open 
enrollment periods described in Sec. 155.410(b) and (e) of this 
subchapter, and abide by the effective dates of coverage established by 
the Exchange in accordance with Sec. 155.410(c) and (f) of this 
subchapter; and
    (2) Make available, at a minimum, special enrollment periods 
described in Sec. 155.420(d) of this subchapter, for QHPs and abide by 
the effective dates of coverage established by the Exchange in 
accordance with Sec. 155.420(b) of this subchapter.
    (b) Notification of effective date. A QHP issuer must notify a 
qualified individual of his or her effective date of coverage.



Sec. 156.265  Enrollment process for qualified individuals.

    (a) General requirement. A QHP issuer must process enrollment in 
accordance with this section.
    (b) Enrollment through the Exchange for the individual market. (1) A 
QHP issuer must enroll a qualified individual only if the Exchange--
    (i) Notifies the QHP issuer that the individual is a qualified 
individual; and
    (ii) Transmits information to the QHP issuer as provided in Sec. 
155.400(a) of this subchapter.
    (2) If an applicant initiates enrollment directly with the QHP 
issuer for enrollment through the Exchange, the QHP issuer must either--
    (i) Direct the individual to file an application with the Exchange 
in accordance with Sec. 155.310, or
    (ii) Ensure the applicant received an eligibility determination for 
coverage through the Exchange through the Exchange Internet Web site.
    (c) Acceptance of enrollment information. A QHP issuer must accept 
enrollment information consistent with the privacy and security 
requirements established by the Exchange in accordance with Sec. 
155.260 and in an electronic format that is consistent with Sec. 
155.270.
    (d) Premium payment. A QHP issuer must follow the premium payment 
process established by the Exchange in accordance with Sec. 155.240 of 
this subchapter and the payment rules established in Sec. 155.400(e) of 
this subchapter.
    (e) Enrollment information package. A QHP issuer must provide new 
enrollees an enrollment information package that is compliant with 
accessibility and readability standards established in Sec. 155.230(b).
    (f) Enrollment reconciliation. A QHP issuer must reconcile 
enrollment files with the Exchange no less than once a month in 
accordance with Sec. 155.400(d).
    (g) Enrollment acknowledgement. A QHP issuer must acknowledge 
receipt of enrollment information transmitted from the Exchange in 
accordance with Exchange standards established in accordance with Sec. 
155.400(b)(2) of this subchapter.

[77 FR 18469, Mar. 27, 2012, as amended at 78 FR 76218, Dec. 17, 2013; 
79 FR 30351, May 27, 2014; 80 FR 10874, Feb. 27, 2015]



Sec. 156.270  Termination of coverage or enrollment for qualified 
individuals.

    (a) General requirement. A QHP issuer may only terminate enrollment 
in a QHP through the Exchange as permitted by the Exchange in accordance 
with Sec. 155.430(b) of this subchapter. (See also Sec. 147.106 of 
this subchapter for termination of coverage.)
    (b) Termination of coverage or enrollment notice requirement. If a 
QHP issuer terminates an enrollee's coverage or enrollment in a QHP 
through the Exchange in accordance with Sec. 155.430(b)(2)(i), (ii), or 
(iii) of this subchapter, the QHP issuer must, promptly and without 
undue delay:
    (1) Provide the enrollee with a notice of termination that includes 
the termination effective date and reason for termination.
    (2) [Reserved]
    (c) Termination of coverage or enrollment due to non-payment of 
premium. A QHP issuer must establish a standard

[[Page 1048]]

policy for the termination of enrollment of enrollees through the 
Exchange due to non-payment of premium as permitted by the Exchange in 
Sec. 155.430(b)(2)(ii) of this subchapter. This policy for the 
termination of enrollment:
    (1) Must include the grace period for enrollees receiving advance 
payments of the premium tax credits as described in paragraph (d) of 
this section; and
    (2) Must be applied uniformly to enrollees in similar circumstances.
    (d) Grace period for recipients of advance payments of the premium 
tax credit. A QHP issuer must provide a grace period of three 
consecutive months if an enrollee receiving advance payments of the 
premium tax credit has previously paid at least one full month's premium 
during the benefit year. During the grace period, the QHP issuer must:
    (1) Pay all appropriate claims for services rendered to the enrollee 
during the first month of the grace period and may pend claims for 
services rendered to the enrollee in the second and third months of the 
grace period;
    (2) Notify HHS of such non-payment; and,
    (3) Notify providers of the possibility for denied claims when an 
enrollee is in the second and third months of the grace period.
    (e) Advance payments of the premium tax credit. For the 3-month 
grace period described in paragraph (d) of this section, a QHP issuer 
must:
    (1) Continue to collect advance payments of the premium tax credit 
on behalf of the enrollee from the Department of the Treasury.
    (2) Return advance payments of the premium tax credit paid on the 
behalf of such enrollee for the second and third months of the grace 
period if the enrollee exhausts the grace period as described in 
paragraph (g) of this section.
    (f) Notice of non-payment of premiums. If an enrollee is delinquent 
on premium payment, the QHP issuer must provide the enrollee with notice 
of such payment delinquency.
    (g) Exhaustion of grace period. If an enrollee receiving advance 
payments of the premium tax credit exhausts the 3-month grace period in 
paragraph (d) of this section without paying all outstanding premiums, 
the QHP issuer must terminate the enrollee's enrollment through the 
Exchange on the effective date described in Sec. 155.430(d)(4) of this 
subchapter, provided that the QHP issuer meets the notice requirement 
specified in paragraph (b) of this section.
    (h) Records of termination of coverage. QHP issuers must maintain 
records in accordance with Exchange standards established in accordance 
with Sec. 155.430(c) of this subchapter.
    (i) Effective date of termination of coverage or enrollment. QHP 
issuers must abide by the termination of coverage or enrollment 
effective dates described in Sec. 155.430(d) of this subchapter.
    (j) Operational instructions. QHP issuers must follow the 
transaction rules established by the Exchange in accordance with Sec. 
155.430(e) of this subchapter.

[77 FR 18469, Mar. 27, 2012, as amended at 78 FR 42322, July 15, 2013; 
78 FR 54143, Aug. 30, 2013; 79 FR 30351, May 27, 2014; 80 FR 10874, Feb. 
27, 2015]



Sec. 156.275  Accreditation of QHP issuers.

    (a) General requirement. A QHP issuer must:
    (1) Be accredited on the basis of local performance of its QHPs in 
the following categories by an accrediting entity recognized by HHS:
    (i) Clinical quality measures, such as the Healthcare Effectiveness 
Data and Information Set;
    (ii) Patient experience ratings on a standardized CAHPS survey;
    (iii) Consumer access;
    (iv) Utilization management;
    (v) Quality assurance;
    (vi) Provider credentialing;
    (vii) Complaints and appeals;
    (viii) Network adequacy and access; and
    (ix) Patient information programs, and
    (2) Authorize the accrediting entity that accredits the QHP issuer 
to release to the Exchange and HHS a copy of its most recent 
accreditation survey, together with any survey-related information that 
HHS may require, such as corrective action plans and summaries of 
findings.
    (b) Timeframe for accreditation. A QHP issuer must be accredited 
within the

[[Page 1049]]

timeframe established by the Exchange in accordance with Sec. 155.1045 
of this subchapter. The QHP issuer must maintain accreditation so long 
as the QHP issuer offers QHPs.
    (c) Accreditation--(1) Recognition of accrediting entity by HHS--(i) 
Application. An accrediting entity may apply to HHS for recognition. An 
application must include the documentation described in paragraph (c)(4) 
of this section and demonstrate, in a concise and organized fashion how 
the accrediting entity meets the requirements of paragraphs (c)(2) and 
(3) of this section.
    (ii) Proposed notice. Within 60 days of receiving a complete 
application as described in paragraph (c)(1)(i) of this section, HHS 
will publish a notice in the Federal Register identifying the 
accrediting entity making the request, summarizing HHS's analysis of 
whether the accrediting entity meets the criteria described in 
paragraphs (c)(2) and (3) of this section, and providing no less than a 
30-day public comment period about whether HHS should recognize the 
accrediting entity.
    (iii) Final notice. After the close of the comment period described 
in paragraph (c)(1)(ii) of this section, HHS will notify the public in 
the Federal Register of the names of the accrediting entities recognized 
and those not recognized as accrediting entities by the Secretary of HHS 
to provide accreditation of QHPs.
    (iv) Other recognition. Upon completion of conditions listed in 
paragraphs (c)(2), (3), and (4) of this section, HHS recognized, and 
provided notice to the public in the Federal Register, the National 
Committee for Quality Assurance (NCQA) and URAC as accrediting entities 
by the Secretary of HHS to provide accreditation of QHPs meeting the 
requirement of this section.
    (2)(i) Scope of accreditation. Subject to paragraphs (c)(2)(ii), 
(iii), and (iv) of this section, recognized accrediting entities must 
provide accreditation within the categories identified in paragraphs 
(a)(1) of this section.
    (ii) Clinical quality measures. Recognized accrediting entities must 
include a clinical quality measure set in their accreditation standards 
for health plans that:
    (A) Spans a breadth of conditions and domains, including, but not 
limited to, preventive care, mental health and substance abuse 
disorders, chronic care, and acute care.
    (B) Includes measures that are applicable to adults and measures 
that are applicable to children.
    (C) Aligns with the priorities of the National Strategy for Quality 
Improvement in Health Care issued by the Secretary of HHS and submitted 
to Congress on March 12, 2011;
    (D) Only includes measures that are either developed or adopted by a 
voluntary consensus standards setting body (such as those described in 
the National Technology and Transfer Advancement of Act of 1995 (NTTAA) 
and Office of Management and Budget (OMB) Circular A-119 (1998)) or, 
where appropriate endorsed measures are unavailable, are in common use 
for health plan quality measurement and meet health plan industry 
standards; and
    (E) Is evidence-based.
    (iii) Level of accreditation. Recognized accrediting entities must 
provide accreditation at the Exchange product type level unless the 
product type level of accreditation is not methodologically sound. In 
such cases, the recognized accrediting entity must demonstrate that the 
Exchange product type level accreditation is not methodologically sound 
as a condition of the Exchange granting an exception to authorize 
accreditation at an aggregated level.
    (iv) Network adequacy. The network adequacy standards for 
accreditation used by the recognized accrediting entities must, at a 
minimum, be consistent with the general requirements for network 
adequacy for QHP issuers codified in Sec. 156.230(a)(2) and (a)(3).
    (3) Methodological and scoring criteria for accreditation. 
Recognized accrediting entities must use transparent and rigorous 
methodological and scoring criteria.
    (4) Documentation. An accrediting entity applying to be recognized 
under the process described in (c)(1) of this section must provide the 
following documentation:

[[Page 1050]]

    (i) To be recognized, an accrediting entity must provide current 
accreditation standards and requirements, processes and measure 
specifications for performance measures to demonstrate that it meets the 
conditions described in paragraphs (c)(2) and (3) of this section to 
HHS.
    (ii) Recognized accrediting entities must provide to HHS any 
proposed changes or updates to the accreditation standards and 
requirements, processes, and measure specifications for performance 
measures with 60 days notice prior to public notification.
    (5) Data sharing requirements between the recognized accrediting 
entities and Exchanges. When authorized by an accredited QHP issuer 
pursuant to paragraph (a)(2) of this section, recognized accrediting 
entities must provide the following QHP issuer's accreditation survey 
data elements to the Exchange, other than personally identifiable 
information (as described in OMB Memorandum M-07-16), in which the 
issuer plans to operate one or more QHPs during the annual certification 
period or as changes occur to these data throughout the coverage year--
the name, address, Health Insurance Oversight System (HIOS) issuer 
identifier, and unique accreditation identifier(s) of the QHP issuer and 
its accredited product line(s) and type(s) which have been released; and 
for each accredited product type:
    (i) HIOS product identifier (if applicable);
    (ii) Accreditation status, survey type, or level (if applicable);
    (iii) Accreditation score;
    (iv) Expiration date of accreditation; and
    (v) Clinical quality measure results and adult and child CAHPS 
measure survey results (and corresponding expiration dates of these 
data) at the level specified by the Exchange.

[77 FR 18469, Mar. 27, 2012, as amended at 77 FR 42671, July 20, 2012; 
78 FR 12869, Feb. 25, 2013]



Sec. 156.280  Segregation of funds for abortion services.

    (a) State opt-out of abortion coverage. A QHP issuer must comply 
with a State law that prohibits abortion coverage in QHPs.
    (b) Termination of opt out. A QHP issuer may provide coverage of 
abortion services through the Exchange in a State described in paragraph 
(a) of this section if the State repeals such law.
    (c) Voluntary choice of coverage of abortion services. 
Notwithstanding any other provision of title I of the Affordable Care 
Act (or any other amendment made under that title):
    (1) Nothing in title I of the Affordable Care Act (or any amendments 
by that title) shall be construed to require a QHP issuer to provide 
coverage of services described in paragraph (d) of this section as part 
of its essential health benefits, as described in section 1302(b) of the 
Affordable Care Act, for any plan year.
    (2) Subject to paragraphs (a) and (b) of this section, the QHP 
issuer must determine whether or not the QHP provides coverage of 
services described in paragraph (d) of this section as part of such 
benefits for the plan year.
    (d) Abortion services--(1) Abortions for which public funding is 
prohibited. The services described in this paragraph are abortion 
services for which the expenditure of Federal funds appropriated for HHS 
is not permitted, based on the law in effect 6 months before the 
beginning of the plan year involved.
    (2) Abortions for which public funding is allowed. The services 
described in this paragraph are abortion services for which the 
expenditure of Federal funds appropriated for HHS is permitted, based on 
the law in effect 6 months before the beginning of the plan year 
involved.
    (e) Prohibition on the use of Federal funds. (1) If a QHP provides 
coverage of services described in paragraph (d)(1) of this section, the 
QHP issuer must not use any amount attributable to any of the following 
for the purposes of paying for such services:
    (i) The credit under section 36B of the Code and the amount (if any) 
of the advance payment of the credit under section 1412 of the 
Affordable Care Act;
    (ii) Any cost-sharing reduction under section 1402 of the Affordable 
Care Act and the amount (if any) of the advance payments of the 
reduction under section 1412 of the Affordable Care Act.

[[Page 1051]]

    (2) Establishment of allocation accounts. In the case of a QHP to 
which paragraph (e)(1) of this section applies, the QHP issuer must:
    (i) Collect from each enrollee in the QHP (without regard to the 
enrollee's age, sex, or family status) a separate payment for each of 
the following:
    (A) An amount equal to the portion of the premium to be paid 
directly by the enrollee for coverage under the QHP of services other 
than services described in (d)(1) of this section (after reductions for 
credits and cost-sharing reductions described in paragraph (e)(1) of 
this section); and
    (B) An amount equal to the actuarial value of the coverage of 
services described in paragraph (d)(1) of this section.
    (ii) Deposit all such separate payments into separate allocation 
accounts as provided in paragraph (e)(3) of this section. In the case of 
an enrollee whose premium for coverage under the QHP is paid through 
employee payroll deposit, the separate payments required under this 
subparagraph shall each be paid by a separate deposit.
    (3) Segregation of funds. (i) The QHP issuer to which paragraph 
(e)(1) of this section applies must establish allocation accounts 
described in paragraph (e)(3)(ii) of this section for enrollees 
receiving the amounts described in paragraph (e)(1) of this section.
    (ii) Allocation accounts. The QHP issuer to which paragraph (e)(1) 
of this section applies must deposit:
    (A) All payments described in paragraph (e)(2)(i)(A) of this section 
into a separate account that consists solely of such payments and that 
is used exclusively to pay for services other than the services 
described in paragraph (d)(1) of this section;
    (B) All payments described in paragraph (e)(2)(i)(B) of this section 
into a separate account that consists solely of such payments and that 
is used exclusively to pay for services described in paragraph (d)(1) of 
this section.
    (4) Actuarial value. The QHP issuer must estimate the basic per 
enrollee, per month cost, determined on an average actuarial basis, for 
including coverage under the QHP of services described in paragraph 
(d)(1) of this section. In making such an estimate, the QHP issuer:
    (i) May take into account the impact on overall costs of the 
inclusion of such coverage, but may not take into account any cost 
reduction estimated to result from such services, including prenatal 
care, delivery, or postnatal care;
    (ii) Must estimate such costs as if such coverage were included for 
the entire population covered; and
    (iii) May not estimate such a cost at less than one dollar per 
enrollee, per month.
    (5) Ensuring compliance with segregation requirements. (i) Subject 
to paragraph (e)(5)(iv) of this section, the QHP issuer must comply with 
the efforts or direction of the State health insurance commissioner to 
ensure compliance with this section through the segregation of QHP funds 
in accordance with applicable provisions of generally accepted 
accounting requirements, circulars on funds management of the Office of 
Management and Budget and guidance on accounting of the Government 
Accountability Office.
    (ii) Each QHP issuer that participates in an Exchange and offers 
coverage for services described in paragraph (d)(1) of this section 
should, as a condition of participating in an Exchange, submit a plan 
that details its process and methodology for meeting the requirements of 
section 1303(b)(2)(C), (D), and (E) (hereinafter, ``segregation plan'') 
to the State health insurance commissioner. The segregation plan should 
describe the QHP issuer's financial accounting systems, including 
appropriate accounting documentation and internal controls, that would 
ensure the segregation of funds required by section 1303(b)(2)(C), (D), 
and (E), and should include:
    (A) The financial accounting systems, including accounting 
documentation and internal controls, that would ensure the appropriate 
segregation of payments received for coverage of services described in 
paragraph (d)(1) of this section from those received for coverage of all 
other services;
    (B) The financial accounting systems, including accounting 
documentation and internal controls, that would

[[Page 1052]]

ensure that all expenditures for services described in paragraph (d)(1) 
of this section are reimbursed from the appropriate account; and
    (C) An explanation of how the QHP issuer's systems, accounting 
documentation, and controls meet the requirements for segregation 
accounts under the law.
    (iii) Each QHP issuer participating in the Exchange must provide to 
the State insurance commissioner an annual assurance statement attesting 
that the plan has complied with section 1303 of the Affordable Care Act 
and applicable regulations.
    (iv) Nothing in this clause shall prohibit the right of an 
individual or QHP issuer to appeal such action in courts of competent 
jurisdiction.
    (f) Rules relating to notice--(1) Notice. A QHP that provides for 
coverage of services in paragraph (d)(1) of this section, must provide a 
notice to enrollees, only as part of the summary of benefits and 
coverage explanation, at the time of enrollment, of such coverage.
    (2) Rules relating to payments. The notice described in paragraph 
(f)(1) of this section, any advertising used by the QHP issuer with 
respect to the QHP, any information provided by the Exchange, and any 
other information specified by HHS must provide information only with 
respect to the total amount of the combined payments for services 
described in paragraph (d)(1) of this section and other services covered 
by the QHP.
    (g) No discrimination on basis of provision of abortion. No QHP 
offered through an Exchange may discriminate against any individual 
health care provider or health care facility because of its 
unwillingness to provide, pay for, provide coverage of, or refer for 
abortions.
    (h) Application of State and Federal laws regarding abortions--(1) 
No preemption of State laws regarding abortion. Nothing in the 
Affordable Care Act shall be construed to preempt or otherwise have any 
effect on State laws regarding the prohibition of (or requirement of) 
coverage, funding, or procedural requirements on abortions, including 
parental notification or consent for the performance of an abortion on a 
minor.
    (2) No effect on Federal laws regarding abortion. Nothing in the 
Affordable Care Act shall be construed to have any effect on Federal 
laws regarding:
    (i) Conscience protection;
    (ii) Willingness or refusal to provide abortion; and
    (iii) Discrimination on the basis of the willingness or refusal to 
provide, pay for, cover, or refer for abortion or to provide or 
participate in training to provide abortion.
    (3) No effect on Federal civil rights law. Nothing in section 
1303(c) of the Affordable Care Act shall alter the rights and 
obligations of employees and employers under Title VII of the Civil 
Rights Act of 1964.
    (i) Application of emergency services laws. Nothing in the 
Affordable Care Act shall be construed to relieve any health care 
provider from providing emergency services as required by State or 
Federal law, including section 1867 of the Act (popularly known as 
``EMTALA'').



Sec. 156.285  Additional standards specific to SHOP.

    (a) SHOP rating and premium payment requirements. QHP issuers 
offering a QHP through a SHOP must:
    (1) Accept payment from the SHOP on behalf of a qualified employer 
or an enrollee in accordance with Sec. 155.705(b)(4) of this 
subchapter;
    (2) Adhere to the SHOP timeline for rate setting as established in 
Sec. 155.705(b)(6) of this subchapter; and
    (3) Charge the same contract rate for a plan year.
    (4)(i) Adhere to the premium rating standards described in Sec. 
147.102 of this subchapter regardless of whether the QHP being sold 
through the SHOP is sold in the small group market or the large group 
market; and
    (ii) Effective in plan years beginning on or after January 1, 2015, 
a QHP issuer in a Federally-facilitated SHOP may not offer to an 
employer premiums that are based on average enrollee premium amounts 
under Sec. 147.102(c)(3) of this subchapter, if the employer elects to 
offer coverage to its employees under Sec. 155.705(b)(3)(iv)(A) of this 
subchapter. This paragraph

[[Page 1053]]

(a)(4)(ii) also applies to stand-alone dental plans in a Federally-
facilitated SHOP, if the employer elects to offer coverage to its 
employees under Sec. 155.705(b)(3)(v)(B) of this subchapter.
    (b) Enrollment periods for the SHOP. QHP issuers offering a QHP 
through the SHOP must:
    (1) Enroll a qualified employee in accordance with the qualified 
employer's initial and annual employee open enrollment periods described 
in Sec. 155.725 of this subchapter;
    (2) Provide special enrollment periods as described in Sec. 
155.725(j);
    (3) Provide an enrollment period for an employee who becomes a 
qualified employee outside of the initial or annual open enrollment 
period as described in Sec. 155.725(g) of this subchapter; and
    (4) Adhere to effective dates of coverage established in accordance 
with Sec. 155.725 of this subchapter.
    (c) Enrollment process for the SHOP. A QHP issuer offering a QHP 
through the SHOP must:
    (1) Adhere to the enrollment timeline and process for the SHOP as 
described in Sec. 155.720(b) of this subchapter;
    (2) Receive enrollment information in an electronic format, in 
accordance with the requirements in Sec. Sec. 155.260 and 155.270 of 
this subchapter, from the SHOP as described in Sec. 155.720(c);
    (3) Notify new enrollees of their effective date of coverage 
consistent with Sec. 155.720(e) of this subchapter.
    (4) Provide new enrollees with the enrollment information package as 
described in Sec. 156.265(e);
    (5) Reconcile enrollment files with the SHOP at least monthly;
    (6) Acknowledge receipt of enrollment information in accordance with 
SHOP standards; and
    (7) Enroll all qualified employees consistent with the plan year of 
the applicable qualified employer.
    (8) A QHP issuer must enroll a qualified employee only if the SHOP--
    (i) Notifies the QHP issuer that the employee is a qualified 
employee;
    (ii) Transmits information to the QHP issuer as provided in Sec. 
155.400(a) of this subchapter; and
    (iii) Effective for QHPs offered through a Federally-facilitated 
SHOP in plan years beginning on or after January 1, 2015, does not send 
a cancellation notice to the QHP issuer prior to the effective date of 
coverage.
    (d) Termination of coverage or enrollment in the SHOP. QHP issuers 
offering a QHP through the SHOP must:
    (1) Comply with the following requirements with respect to 
termination of enrollees in the SHOP:
    (i)(A) Effective in plan years beginning on or after January 1, 
2015, requirements regarding termination of coverage or enrollment 
established in Sec. 155.735 of this subchapter, if applicable to the 
coverage or enrollment being terminated; otherwise
    (B) General requirements regarding termination of coverage or 
enrollment established in Sec. 156.270(a).
    (ii) Requirements for notices to be provided to enrollees and 
qualified employers in Sec. Sec. 156.270(b) and 156.290(b); and
    (iii)(A) Effective in plan years beginning on or after January 1, 
2015, requirements regarding termination of coverage or enrollment 
effective dates as set forth in Sec. 155.735 of this subchapter, if 
applicable to the coverage or enrollment being terminated; otherwise
    (B) Requirements regarding termination of coverage or enrollment 
effective dates as set forth in Sec. 156.270(i).
    (2) If a qualified employer chooses to withdraw from participation 
in the SHOP, the QHP issuer must terminate coverage for all enrollees of 
the withdrawing qualified employer.
    (e) Participation rules. QHP issuers offering a QHP through the SHOP 
may impose group participation rules for the offering of health 
insurance coverage in connection with a QHP only if and to the extent 
authorized by the SHOP in accordance with Sec. 155.705 of this 
subchapter.

[77 FR 18469, Mar. 27, 2012, as amended at 78 FR 15535, Mar. 11, 2013; 
78 FR 33240, June 4, 2013; 78 FR 54143, Aug. 30, 2013; 79 FR 13840, Mar. 
11, 2014; 80 FR 10874, Feb. 27, 2015]

    Effective Date Note: At 80 FR 10875, Feb. 27, 2015, Sec. 156.285 
was amended by revising paragraph (d)(1)(ii), effective Jan. 1, 2016. 
For the convenience of the user, the revised text is set forth as 
follows:

[[Page 1054]]



Sec. 156.285  Additional standards specific to SHOP.

                                * * * * *

    (d) * * *
    (1) * * *
    (ii) If a QHP issuer terminates an enrollee's coverage or enrollment 
through the SHOP in accordance with Sec. 155.735(d)(1)(iii) or (v) of 
this subchapter, the QHP issuer must notify the qualified employer and 
the enrollee of the termination. Such notice must include the 
termination effective date and reason for termination, and must be sent 
within 3 business days if an electronic notice is sent, and within 5 
business days if a mailed hard copy notice is sent. When a primary 
subscriber and his or her dependents live at the same address, a 
separate termination notice need not be sent to each dependent at that 
address, provided that the notice sent to each primary subscriber at 
that address contains all required information about the termination for 
the primary subscriber and his or her dependents at that address.

                                * * * * *



Sec. 156.290  Non-renewal and decertification of QHPs.

    (a) Non-renewal of recertification. If a QHP issuer elects not to 
seek recertification with the Exchange, the QHP issuer, at a minimum, 
must--
    (1) Notify the Exchange of its decision prior to the beginning of 
the recertification process and adhere to the procedures adopted by the 
Exchange in accordance with Sec. 155.1075 of this subchapter;
    (2) Fulfill its obligation to cover benefits for each enrollee 
through the end of the plan or benefit year through the Exchange;
    (3) Fulfill data reporting obligations from the last plan or benefit 
year of the certification;
    (4) Provide notice to enrollees as described in paragraph (b) of 
this section; and
    (5) Terminate the coverage or enrollment through the Exchange of 
enrollees in the QHP in accordance with Sec. 156.270, as applicable.
    (b) Notice of QHP non-renewal. If a QHP issuer elects not to seek 
recertification with the Exchange for its QHP, the QHP issuer must 
provide written notice to each enrollee.
    (c) Decertification. If a QHP is decertified by the Exchange, the 
QHP issuer must terminate the enrollment of enrollees through the 
Exchange only after:
    (1) The Exchange has made notification as described in Sec. 
155.1080 of this subchapter; and
    (2) Enrollees have an opportunity to enroll in other coverage.

[77 FR 18469, Mar. 27, 2012, as amended at 80 FR 10875, Feb. 27, 2015]



Sec. 156.295  Prescription drug distribution and cost reporting.

    (a) General requirement. In a form, manner, and at such times 
specified by HHS, a QHP issuer must provide to HHS the following 
information:
    (1) The percentage of all prescriptions that were provided under the 
QHP through retail pharmacies compared to mail order pharmacies, and the 
percentage of prescriptions for which a generic drug was available and 
dispensed compared to all drugs dispensed, broken down by pharmacy type, 
which includes an independent pharmacy, supermarket pharmacy, or mass 
merchandiser pharmacy that is licensed as a pharmacy by the State and 
that dispenses medication to the general public, that is paid by the QHP 
issuer or the QHP issuer's contracted PBM;
    (2) The aggregate amount, and the type of rebates, discounts or 
price concessions (excluding bona fide service fees) that the QHP issuer 
or its contracted PBM negotiates that are attributable to patient 
utilization under the QHP, and the aggregate amount of the rebates, 
discounts, or price concessions that are passed through to the QHP 
issuer, and the total number of prescriptions that were dispensed.
    (i) Bona fide service fees means fees paid by a manufacturer to an 
entity that represent fair market value for a bona fide, itemized 
service actually performed on behalf of the manufacturer that the 
manufacturer would otherwise perform (or contract for) in the absence of 
the service arrangement, and that are not passed on in whole or in part 
to a client or customer of an entity, whether or not the entity takes 
title to the drug.
    (ii) [Reserved]

[[Page 1055]]

    (3) The aggregate amount of the difference between the amount the 
QHP issuer pays its contracted PBM and the amounts that the PBM pays 
retail pharmacies, and mail order pharmacies, and the total number of 
prescriptions that were dispensed.
    (b) Confidentiality. Information disclosed by a QHP issuer or a PBM 
under this section is confidential and shall not be disclosed by HHS or 
by a QHP receiving the information, except that HHS may disclose the 
information in a form which does not disclose the identity of a specific 
PBM, QHP, or prices charged for drugs, for the following purposes:
    (1) As HHS determines to be necessary to carry out section 1150A or 
part D of title XVIII of the Act;
    (2) To permit the Comptroller General to review the information 
provided;
    (3) To permit the Director of the Congressional Budget Office to 
review the information provided; or
    (4) To States to carry out section 1311 of the Affordable Care Act.
    (c) Penalties. A QHP issuer that fails to report the information 
described in paragraph (a) of this section to HHS on a timely basis or 
knowingly provides false information will be subject to the provisions 
of subsection (b)(3)(C) of section 1927 of the Act.



Sec. 156.298  Meaningful difference standard for Qualified Health 
Plans in the Federally-facilitated Exchanges.

    (a) General. Subject to paragraph (b)(2) of this section, starting 
in the 2015 coverage year, in order to be certified as a QHP offered 
through a Federally-facilitated Exchange, a plan must be meaningfully 
different from all other QHPs offered by the same issuer of that plan 
within a service area and level of coverage in the Exchange, as defined 
in paragraph (b) of this section.
    (b) Meaningful difference standard. A plan is considered 
meaningfully different from another plan in the same service area and 
metal tier (including catastrophic plans) if a reasonable consumer would 
be able to identify one or more material differences among the following 
characteristics between the plan and other plan offerings:
    (1) Cost sharing;
    (2) Provider networks;
    (3) Covered benefits;
    (4) Plan type;
    (5) Health Savings Account eligibility; or
    (6) Self-only, non-self-only, or child-only plan offerings.
    (c) Exception for limited plan availability. If HHS determines that 
the plan offerings at a particular metal level (including catastrophic 
plans) within a county are limited, plans submitted for certification in 
that particular metal level (including catastrophic plans) within that 
county will not be subject to the meaningful difference requirement set 
forth in paragraph (b) of this section.
    (d) Two-year transition period for issuers with new acquisitions. 
During the first 2 years after a merger or acquisition in which an 
acquiring issuer obtains or merges with another issuer, the FFEs may 
certify plans as QHPs that were previously offered by the acquired or 
merged issuer without those plans meeting the meaningful difference 
standard set forth in paragraph (b) of this section.

[79 FR 13840, Mar. 11, 2014]



 Subpart D_Federally-Facilitated Exchange Qualified Health Plan Issuer 
                                Standards

    Source: 78 FR 54143, Aug. 30, 2013, unless otherwise noted.



Sec. 156.330  Changes of ownership of issuers of Qualified Health 
Plans in Federally-facilitated Exchanges.

    When a QHP issuer that offers one or more QHPs in a Federally-
facilitated Exchange undergoes a change of ownership as recognized by 
the State in which the issuer offers the QHP, the QHP issuer must notify 
HHS of the change in a manner to be specified by HHS, and provide the 
legal name and Taxpayer Identification Number (TIN) of the new owner and 
the effective date of the change at least 30 days prior to the effective 
date of the change of ownership. The new owner must agree to adhere to 
all applicable statutes and regulations.

[78 FR 65096, Oct. 30, 2013]

[[Page 1056]]



Sec. 156.340  Standards for downstream and delegated entities.

    (a) General requirement. Effective October 1, 2013, notwithstanding 
any relationship(s) that a QHP issuer may have with delegated and 
downstream entities, a QHP issuer maintains responsibility for its 
compliance and the compliance of any of its delegated or downstream 
entities, as applicable, with all applicable standards, including--
    (1) Standards of subpart C of part 156 with respect to each of its 
QHPs on an ongoing basis;
    (2) Exchange processes, procedures, and standards in accordance with 
subparts H and K of part 155 and, in the small group market, Sec. 
155.705 of this subchapter;
    (3) Standards of Sec. 155.220 of this subchapter with respect to 
assisting with enrollment in QHPs; and
    (4) Standards of Sec. Sec. 156.705 and 156.715 for maintenance of 
records and compliance reviews for QHP issuers operating in a Federally-
facilitated Exchange or FF-SHOP.
    (b) Delegation agreement specifications. If any of the QHP issuer's 
activities or obligations, in accordance with paragraph (a) of this 
section, are delegated to other parties, the QHP issuer's agreement with 
any delegated or downstream entity must--
    (1) Specify the delegated activities and reporting responsibilities;
    (2) Provide for revocation of the delegated activities and reporting 
standards or specify other remedies in instances where HHS or the QHP 
issuer determines that such parties have not performed satisfactorily;
    (3) Specify that the delegated or downstream entity must comply with 
all applicable laws and regulations relating to the standards specified 
under paragraph (a) of this section;
    (4) Specify that the delegated or downstream entity must permit 
access by the Secretary and the OIG or their designees in connection 
with their right to evaluate through audit, inspection, or other means, 
to the delegated or downstream entity's books, contracts, computers, or 
other electronic systems, including medical records and documentation, 
relating to the QHP issuer's obligations in accordance with Federal 
standards under paragraph (a) of this section until 10 years from the 
final date of the agreement period; and
    (5) Contain specifications described in paragraph (b) of this 
section by no later than January 1, 2015, for existing agreements; and 
no later than the effective date of the agreement for agreements that 
are newly entered into as of October 1, 2013.



   Subpart E_Health Insurance Issuer Responsibilities With Respect to 
 Advance Payments of the Premium Tax Credit and Cost-Sharing Reductions

    Source: 78 FR 15535, Mar. 11, 2013, unless otherwise noted.



Sec. 156.400  Definitions.

    The following definitions apply to this subpart:
    Advance payments of the premium tax credit has the meaning given to 
the term in Sec. 155.20 of this subchapter.
    Affordable Care Act has the meaning given to the term in Sec. 
155.20 of this subchapter.
    Annual limitation on cost sharing means the annual dollar limit on 
cost sharing required to be paid by an enrollee that is established by a 
particular qualified health plan.
    De minimis variation means the allowable variation in the AV of a 
health plan that does not result in a material difference in the true 
dollar value of the health plan as established in Sec. 156.140(c).
    De minimis variation for a silver plan variation means a single 
percentage point.
    Federal poverty level or FPL has the meaning given to the term in 
Sec. 155.300(a) of this subchapter.
    Indian has the meaning given to the term in Sec. 155.300(a) of this 
subchapter.
    Limited cost sharing plan variation means, with respect to a QHP at 
any level of coverage, the variation of such QHP described in Sec. 
156.420(b)(2).
    Maximum annual limitation on cost sharing means the highest annual 
dollar amount that qualified health plans (other than QHPs with cost-
sharing reductions) may require in cost sharing

[[Page 1057]]

for a particular year, as established for that year under Sec. 156.130.
    Most generous or more generous means, as between a QHP (including a 
standard silver plan) or plan variation and one or more other plan 
variations of the same QHP, the standard plan or plan variation designed 
for the category of individuals last listed in Sec. 155.305(g)(3) of 
this subchapter. Least generous or less generous has the opposite 
meaning.
    Plan variation means a zero cost sharing plan variation, a limited 
cost sharing plan variation, or a silver plan variation.
    Reduced maximum annual limitation on cost sharing means the dollar 
value of the maximum annual limitation on cost sharing for a silver plan 
variation that remains after applying the reduction, if any, in the 
maximum annual limitation on cost sharing required by section 1402 of 
the Affordable Care Act as announced in the annual HHS notice of benefit 
and payment parameters.
    Silver plan variation means, with respect to a standard silver plan, 
any of the variations of that standard silver plan described in Sec. 
156.420(a).
    Stand-alone dental plan means a plan offered through an Exchange 
under Sec. 155.1065 of this subchapter.
    Standard plan means a QHP offered at one of the four levels of 
coverage, defined at Sec. 156.140, with an annual limitation on cost 
sharing that conforms to the requirements of Sec. 156.130(a). A 
standard plan at the bronze, silver, gold, or platinum level of coverage 
is referred to as a standard bronze plan, a standard silver plan, a 
standard gold plan, and a standard platinum plan, respectively.
    Zero cost sharing plan variation means, with respect to a QHP at any 
level of coverage, the variation of such QHP described in Sec. 
156.420(b)(1).

[78 FR 15535, Mar. 11, 2013, as amended at 78 FR 65097, Oct. 30, 2013]



Sec. 156.410  Cost-sharing reductions for enrollees.

    (a) General requirement. A QHP issuer must ensure that an individual 
eligible for cost-sharing reductions, as demonstrated by assignment to a 
particular plan variation, pays only the cost sharing required of an 
eligible individual for the applicable covered service under the plan 
variation. The cost-sharing reduction for which an individual is 
eligible must be applied when the cost sharing is collected.
    (b) Assignment to applicable plan variation. If an individual is 
determined to be eligible to enroll in a QHP in the individual market 
offered through an Exchange and elects to do so, the QHP issuer must 
assign the individual under enrollment and eligibility information 
submitted by the Exchange as follows--
    (1) If the individual is determined eligible by the Exchange for 
cost-sharing reductions under Sec. 155.305(g)(2)(i), (ii), or (iii) of 
this subchapter (subject to the special rule for family policies set 
forth in Sec. 155.305(g)(3) of this subchapter) and chooses to enroll 
in a silver health plan, the QHP issuer must assign the individual to 
the silver plan variation of the selected silver health plan described 
in Sec. 156.420(a)(1), (2), or (3), respectively.
    (2) If the individual is determined eligible by the Exchange for 
cost-sharing reductions for Indians with lower household income under 
Sec. 155.350(a) of this subchapter (subject to the special rule for 
family policies set forth in Sec. 155.305(g)(3) of this subchapter), 
and chooses to enroll in a QHP, the QHP issuer must assign the 
individual to the zero cost sharing plan variation of the selected QHP 
with all cost sharing eliminated described in Sec. 156.420(b)(1).
    (3) If the individual is determined by the Exchange to be eligible 
for cost-sharing reductions for Indians regardless of household income 
under Sec. 155.350(b) of this subchapter (subject to the special rule 
for family policies set forth in Sec. 155.305(g)(3) of this 
subchapter), and chooses to enroll in a QHP, the QHP issuer must assign 
the individual to the limited cost sharing plan variation of the 
selected QHP with the prohibition on cost sharing for benefits received 
from the Indian Health Service and certain other providers described in 
Sec. 156.420(b)(2).
    (4) If the individual is determined by the Exchange not to be 
eligible for cost-sharing reductions (including eligibility under the 
special rule for family policies set forth in Sec. 155.305(g)(3) of 
this subchapter), and chooses to enroll in a QHP, the QHP issuer must 
assign

[[Page 1058]]

the individual to the selected QHP with no cost-sharing reductions.
    (c) Improper cost-sharing reductions. (1) If a QHP issuer fails to 
ensure that an individual assigned to a plan variation receives the 
cost-sharing reductions required under the applicable plan variation, 
taking into account Sec. 156.425(b) concerning continuity of 
deductibles and out-of-pocket amounts (if applicable), then the QHP 
issuer must notify the enrollee of the improper application of any cost-
sharing reduction within 45 calendar days of discovery of such improper 
application, and refund any resulting excess cost sharing paid by or for 
the enrollee as follows:
    (i) If the excess cost sharing was paid by the provider, the QHP 
issuer must refund the excess cost sharing to the provider within 45 
calendar days of discovery of the improper application.
    (ii) If the excess cost sharing was not paid by the provider and is 
not requested by the enrollee as a refund, the QHP issuer must, within 
45 calendar days of discovery of the error, apply the excess cost 
sharing paid by or for the enrollee to the enrollee's portion of the 
premium (or refund the amount directly). If any excess premium remains, 
the QHP issuer must apply the excess premium to the enrollee's portion 
of the premium for each subsequent month for the remainder of the period 
of enrollment or benefit year until the excess is fully applied (or 
refund any remaining amount directly). If any excess premium remains at 
the end of the period of enrollment or benefit year, the QHP issuer must 
refund the enrollee any remaining excess cost sharing paid by or for the 
enrollee within 45 calendar days of the end of the period of enrollment 
or benefit year, whichever comes first.
    (iii) If the excess cost sharing was not paid by the provider, and 
if a refund is requested by the enrollee, the refund must be provided to 
the enrollee within 45 calendar days of the date of the request.
    (2) If a QHP issuer provides an individual assigned to a plan 
variation greater cost-sharing reductions than required under the 
applicable plan variation, taking into account Sec. 156.425(b) 
concerning continuity of deductibles and out-of-pocket amounts (if 
applicable), then the QHP issuer will not be eligible for reimbursement 
of any excess cost-sharing reductions provided to the enrollee, and may 
not seek reimbursement from the enrollee or the applicable provider for 
any of the excess cost-sharing reductions.
    (d) Improper assignment. If a QHP issuer does not assign an 
individual to the applicable plan variation (or standard plan without 
cost-sharing reductions) in accordance with Sec. Sec. 156.410(b) and 
156.425(a) based on the eligibility and enrollment information or 
notification provided by the Exchange, then the QHP issuer must reassign 
the enrollee to the applicable plan variation (or standard plan without 
cost-sharing reductions) and notify the enrollee of the improper 
assignment such that:
    (1) If the QHP issuer discovers the improper assignment between the 
first and fifteenth day of the month, the QHP issuer must reassign the 
enrollee to the correct plan variation (or standard plan without cost-
sharing reductions) by the first day of the following month.
    (2) If the QHP issuer discovers the improper assignment between the 
sixteen and the last day of the month, the QHP issuer must reassign the 
individual to the correct plan variation (or standard plan without cost-
sharing reductions) by the first day of the second following month.
    (3) If, pursuant to a reassignment under this paragraph (d), a QHP 
issuer reassigns an enrollee from a more generous plan variation to a 
less generous plan variation of a QHP (or a standard plan without cost-
sharing reductions), the QHP issuer will not be eligible for 
reimbursement for any of the excess cost-sharing reductions provided to 
the enrollee following the effective date of eligibility required by the 
Exchange, and may not seek reimbursement from the enrollee or the 
applicable provider for any of the excess cost-sharing reductions.
    (4) If, pursuant to a reassignment under this paragraph (d), a QHP 
issuer reassigns an enrollee from a less generous plan variation (or a 
standard plan without cost-sharing reductions) to a more generous plan 
variation of a QHP, the QHP issuer must recalculate the enrollee's 
liability for cost sharing

[[Page 1059]]

paid between the effective date of eligibility required by the Exchange 
and the date on which the issuer effectuated the change, and must refund 
any excess cost sharing paid by or for the enrollee during such period 
as follows:
    (i) If the excess cost sharing was paid by the provider, the QHP 
issuer must refund the excess cost sharing to the provider within 45 
calendar days of discovery of the improper assignment.
    (ii) If the excess cost sharing was not paid by the provider and is 
not requested by the enrollee as a refund, the QHP issuer must, within 
45 calendar days of discovery of the improper assignment, apply the 
excess cost sharing paid by or for the enrollee to the enrollee's 
portion of the premium (or refund the amount directly). If any excess 
premium remains, the QHP issuer must apply the excess premium to the 
enrollee's portion of the premium for each subsequent month for the 
remainder of the period of enrollment or benefit year until the excess 
is fully applied (or refund the remaining amount directly). If any 
excess premium remains at the end of the period of enrollment or benefit 
year, the QHP issuer must refund the enrollee any remaining excess cost 
sharing paid by or for the enrollee within 45 calendar days of the end 
of the period of enrollment or benefit year, whichever comes first.
    (iii) If the excess cost sharing was not paid by the provider, then, 
if the enrollee requests a refund, the refund must be provided to the 
enrollee within 45 calendar days of the date of the request.

[78 FR 15535, Mar. 11, 2013, as amended at 78 FR 65097, Oct. 30, 2013; 
80 FR 10875, Feb. 27, 2015]



Sec. 156.420  Plan variations.

    (a) Submission of silver plan variations. For each of its silver 
health plans that an issuer offers, or intends to offer in the 
individual market on an Exchange, the issuer must submit annually to the 
Exchange for certification prior to each benefit year the standard 
silver plan and three variations of the standard silver plan, as 
follows--
    (1) For individuals eligible for cost-sharing reductions under Sec. 
155.305(g)(2)(i) of this subchapter, a variation of the standard silver 
plan with:
    (i) An annual limitation on cost sharing no greater than the reduced 
maximum annual limitation on cost sharing specified in the annual HHS 
notice of benefit and payment parameters for such individuals, and
    (ii) Other cost-sharing reductions such that the AV of the silver 
plan variation is 94 percent plus or minus the de minimis variation for 
a silver plan variation;
    (2) For individuals eligible for cost-sharing reductions under Sec. 
155.305(g)(2)(ii) of this subchapter, a variation of the standard silver 
plan with:
    (i) An annual limitation on cost sharing no greater than the reduced 
maximum annual limitation on cost sharing specified in the annual HHS 
notice of benefit and payment parameters for such individuals, and
    (ii) Other cost-sharing reductions such that the AV of the silver 
plan variation is 87 percent plus or minus the de minimis variation for 
a silver plan variation; and
    (3) For individuals eligible for cost-sharing reductions under Sec. 
155.305(g)(2)(iii) of this subchapter, a variation of the standard 
silver plan with:
    (i) An annual limitation on cost sharing no greater than the reduced 
maximum annual limitation on cost sharing specified in the annual HHS 
notice of benefit and payment parameters for such individuals, and
    (ii) Other cost-sharing reductions such that the AV of the silver 
plan variation is 73 percent plus or minus the de minimis variation for 
a silver plan variation (subject to Sec. 156.420(h)).
    (b) Submission of zero and limited cost sharing plan variations. For 
each of its health plans at any level of coverage that an issuer offers, 
or intends to offer in the individual market on an Exchange, the issuer 
must submit to the Exchange for certification the health plan and two 
variations of the health plan, as follows--
    (1) For individuals eligible for cost-sharing reductions under Sec. 
155.350(a) of this subchapter, a variation of the health plan with all 
cost sharing eliminated; and

[[Page 1060]]

    (2) For individuals eligible for cost-sharing reductions under Sec. 
155.350(b) of this subchapter, a variation of the health plan with no 
cost sharing on any item or service that is an EHB furnished directly by 
the Indian Health Service, an Indian Tribe, Tribal Organization, or 
Urban Indian Organization (each as defined in 25 U.S.C. 1603), or 
through referral under contract health services.
    (c) Benefit and network equivalence in silver plan variations. A 
standard silver plan and each silver plan variation thereof must cover 
the same benefits and providers. Each silver plan variation is subject 
to all requirements applicable to the standard silver plan (except for 
the requirement that the plan have an AV as set forth in Sec. 
156.140(b)(2)).
    (d) Benefit and network equivalence in zero and limited cost sharing 
plan variations. A QHP and each zero cost sharing plan variation or 
limited cost sharing plan variation thereof must cover the same benefits 
and providers. The out-of-pocket spending required of enrollees in the 
zero cost sharing plan variation of a QHP for a benefit that is not an 
essential health benefit from a provider (including a provider outside 
the plan's network) may not exceed the corresponding out-of-pocket 
spending required in the limited cost sharing plan variation of the QHP 
and the corresponding out-of-pocket spending required in the silver plan 
variation of the QHP for individuals eligible for cost-sharing 
reductions under Sec. 155.305(g)(2)(i) of this subchapter, in the case 
of a silver QHP. The out-of-pocket spending required of enrollees in the 
limited cost sharing plan variation of the QHP for a benefit that is not 
an essential health benefit from a provider (including a provider 
outside the plan's network) may not exceed the corresponding out-of-
pocket spending required in the QHP with no cost-sharing reductions. A 
limited cost sharing plan variation must have the same cost sharing for 
essential health benefits not described in paragraph (b)(2) of this 
section as the QHP with no cost-sharing reductions. Each zero cost 
sharing plan variation or limited cost sharing plan variation is subject 
to all requirements applicable to the QHP (except for the requirement 
that the plan have an AV as set forth in Sec. 156.140(b)).
    (e) Decreasing cost sharing and out-of-pocket spending in higher AV 
silver plan variations. The cost sharing or out-of-pocket spending 
required of enrollees under any silver plan variation of a standard 
silver plan for a benefit from a provider (including a provider outside 
the plan's network) may not exceed the corresponding cost sharing or 
out-of-pocket spending required in the standard silver plan or any other 
silver plan variation thereof with a lower AV.
    (f) Minimum AV differential between 70 percent and 73 percent silver 
plan variations. Notwithstanding any permitted de minimis variation in 
AV for a health plan or permitted de minimis variation for a silver plan 
variation, the AVs of a standard silver plan and the silver plan 
variation thereof described in paragraph (a)(3) of this section must 
differ by at least 2 percentage points.
    (g) Multi-state plans. The U.S. Office of Personnel Management will 
determine the time and manner for multi-State plans, as defined in Sec. 
155.1000(a) of this subchapter, to submit silver plan variations, zero 
cost sharing plan variations, and limited cost sharing plan variations.
    (h) Notice. No later than November 1, 2015, for each plan variation 
that an issuer offers in accordance with the rules of this section, an 
issuer must provide a summary of benefits and coverage that accurately 
represents each plan variation consistent with the requirements set 
forth in Sec. 147.200 of this subchapter.

[78 FR 15535, Mar. 11, 2013, as amended at 79 FR 13840, Mar. 11, 2014; 
80 FR 10875, Feb. 27, 2015]



Sec. 156.425  Changes in eligibility for cost-sharing reductions.

    (a) Effective date of change in assignment. If the Exchange notifies 
a QHP issuer of a change in an enrollee's eligibility for cost-sharing 
reductions (including a change in the individual's eligibility under the 
special rule for family policies set forth in Sec. 155.305(g)(3) of 
this subchapter due to a change in eligibility of another individual on 
the same policy), then the QHP issuer must change the individual's 
assignment

[[Page 1061]]

such that the individual is assigned to the applicable standard plan or 
plan variation of the QHP as required under Sec. 156.410(b) as of the 
effective date of eligibility required by the Exchange.
    (b) Continuity of deductible and out-of-pocket amounts. In the case 
of a change in assignment to a different plan variation (or standard 
plan without cost-sharing reductions) of the same QHP in the course of a 
benefit year under this section, the QHP issuer must ensure that any 
cost sharing paid by the applicable individual under previous plan 
variations (or standard plan without cost-sharing reductions) for that 
benefit year is taken into account in the new plan variation (or 
standard plan without cost-sharing reductions) for purposes of 
calculating cost sharing based on aggregate spending by the individual, 
such as for deductibles or for the annual limitations on cost sharing.
    (c) Notice upon assignment. Beginning on January 1, 2016, if an 
individual's assignment to a standard plan or plan variation of the QHP 
changes in accordance with paragraph (a) of this section, the issuer 
must provide to that individual a summary of benefits and coverage that 
accurately reflects the new plan variation (or standard plan variation 
without cost-sharing reductions) in a manner consistent with Sec. 
147.200 of this subchapter as soon as practicable following receipt of 
notice from the Exchange, but not later than 7 business days following 
receipt of notice.

[78 FR 15535, Mar. 11, 2013, as amended at 80 FR 10875, Feb. 27, 2015]



Sec. 156.430  Payment for cost-sharing reductions.

    (a) [Reserved]
    (b) Advance payments for cost-sharing reductions--(1) A QHP issuer 
will receive periodic advance payments based on the advance payment 
amounts calculated in accordance with Sec. 155.1030(b)(3) of this 
subchapter.
    (2) HHS may adjust the advance payment amount for a particular QHP 
during the benefit year if the QHP issuer provides evidence, certified 
by a member of the American Academy of Actuaries in accordance with 
generally accepted actuarial principles and methodologies, that the 
advance payments for a particular QHP are likely to be substantially 
different than the cost-sharing reduction amounts that the QHP provides 
that will be reimbursed by HHS.
    (c) Submission of actual amounts--(1) General. For each plan 
variation that a QHP issuer offers on the Exchange, it must submit to 
HHS, in the manner and timeframe established by HHS, for each policy, 
the total allowed costs for essential health benefits charged for the 
policy for the benefit year, broken down by all of the following:
    (i) The amount the issuer paid.
    (ii) The amount the enrollee(s) paid.
    (iii) The amount the enrollee(s) would have paid under the standard 
plan without cost-sharing reductions.
    (2) Standard methodology. A QHP issuer must calculate the value of 
the amount the enrollee(s) would have paid under the standard plan 
without cost-sharing reductions by applying the actual cost-sharing 
requirements for the standard plan to the allowed costs for essential 
health benefits under the enrollee's policy for the benefit year.
    (i) For reconciliation of cost-sharing reduction amounts advanced 
for the 2014 and 2015 benefit years, an issuer of a QHP using the 
standard or simplified methodology may calculate claims amounts 
attributable to EHB, including cost sharing amounts attributable to EHB, 
by reducing total claims amounts by the plan-specific percentage 
estimate of non-essential health benefit claims submitted on the Uniform 
Rate Review Template for the corresponding benefit year, if the 
following conditions are met:
    (A) The non-essential health benefits percentage estimate is less 
than 2 percent; and
    (B) Out-of-pocket expenses for non-EHB benefits are included in the 
calculation of amounts subject to a deductible or annual limitation on 
cost sharing, but copayments and coinsurance rates on non-EHB benefits 
are not reduced under the plan variation.
    (ii) [Reserved]
    (3) Selection of methodology. For benefit years 2014 through 2016, 
notwithstanding paragraph (c)(2) of this section, a QHP issuer may 
choose to calculate the amounts that would have been paid under the 
standard plan

[[Page 1062]]

without cost-sharing reductions using the simplified methodology 
described in paragraph (c)(4) of this section.
    (i) The QHP issuer must notify HHS prior to the start of each 
benefit year, in the manner and timeframe established by HHS, whether or 
not it selects the simplified methodology for the benefit year.
    (ii) If the QHP issuer selects the simplified methodology, it must 
apply the simplified methodology to all plan variations it offers on the 
Exchange for a benefit year.
    (iii) The QHP issuer may not select the simplified methodology for a 
benefit year if the QHP issuer did not select the simplified methodology 
for the prior benefit year.
    (iv) Notwithstanding paragraphs (c)(3)(ii) and (iii) of this 
section, if a QHP issuer merges with or acquires another issuer of a QHP 
on the Exchange, or acquires a QHP offered on the Exchange from another 
QHP issuer, and if one, but not all, of the merging, acquiring, or 
acquired parties had selected the simplified methodology for the benefit 
year, then for the benefit year in which the merger or acquisition took 
place, the QHP issuer must calculate the amounts that would have been 
paid using the methodology (whether the standard methodology described 
in paragraph (c)(2) of this section or the simplified methodology 
described in paragraph (c)(4) of this section) selected with respect to 
the plan variation prior to the start of the benefit year (even if the 
selection was not made by that QHP issuer). For the next benefit year 
(if such benefit year is 2015 or 2016), the QHP issuer may select the 
simplified methodology (subject to paragraph (c)(3)(ii) of this section 
but, for that benefit year, not paragraph (c)(3)(iii) of this section) 
or the standard methodology.
    (4) Simplified methodology. Subject to paragraph (c)(4)(v) of this 
section, a QHP issuer that selects the simplified methodology described 
in this paragraph (c)(4) must calculate the amount that the enrollees 
would have paid under the standard plan without cost-sharing reductions 
for each policy that was assigned to a plan variation for any portion of 
the benefit year by applying each set of the standard plan's effective 
cost-sharing parameters (as calculated under paragraphs (c)(3)(ii) and 
(iii) of this section) to the corresponding subgroup of total allowed 
costs for EHB for the policy (as described in paragraph (c)(4)(i) of 
this section).
    (i) For plan variation policies with total allowed costs for EHB for 
the benefit year that are:
    (A) Less than or equal to the effective deductible, the amount that 
the enrollees would have paid under the standard plan is equal to the 
total allowed costs for EHB under the policy for the benefit year 
multiplied by the effective pre-deductible coinsurance rate.
    (B) Greater than the effective deductible but less than the 
effective claims ceiling, the amount that the enrollees would have paid 
under the standard plan is equal to the sum of (x) the average 
deductible, plus (y) the effective non-deductible cost sharing, plus (z) 
the difference, if positive, between the total allowed costs under the 
policy for the benefit year for EHB that are subject to a deductible and 
the average deductible, multiplied by the effective post-deductible 
coinsurance rate.
    (C) Greater than or equal to the effective claims ceiling, the 
amount that the enrollees would have paid under the standard plan is 
equal to the annual limitation on cost sharing for the standard plan (as 
defined at 45 CFR 156.400), or, at the QHP issuer's election on a 
policy-by-policy basis, the amount calculated pursuant to the standard 
methodology described in paragraph (c)(2) of this section,
    (ii) The QHP issuer must calculate one or more sets of effective 
cost-sharing parameters, as described in paragraph (c)(4)(iii) of this 
section, based on policies assigned to the standard plan without cost-
sharing reductions for the entire benefit year and must separately apply 
each set of effective cost-sharing parameters to the corresponding 
subgroup of total allowed costs for EHB for each plan variation policy, 
as described in paragraph (c)(4)(i) of this section, as follows:
    (A) If the standard plan has separate cost-sharing parameters for 
self-only coverage and other than self-only coverage, but does not have 
separate cost-

[[Page 1063]]

sharing parameters for pharmaceutical and medical services, the QHP 
issuer must calculate and apply separate sets of effective cost-sharing 
parameters based on the costs of enrollees in the standard plan with 
self-only coverage, and based on the costs of enrollees in the standard 
plan with other than self-only coverage.
    (B) If the standard plan has separate cost-sharing parameters for 
pharmaceutical and medical services, but does not have separate cost-
sharing parameters for self-only coverage and other than self-only 
coverage, the QHP issuer must calculate and apply separate sets of 
effective cost-sharing parameters based on the medical costs of the 
enrollees in the standard plan, and based on the pharmaceutical costs of 
the enrollees in the standard plan.
    (C) If the standard plan has separate cost-sharing parameters for 
self-only coverage and other than self-only coverage, and also has 
separate cost-sharing parameters for pharmaceutical and medical 
services, the QHP issuer must calculate and apply separate sets of 
effective cost-sharing parameters based on the medical costs of 
enrollees in the standard plan with self-only coverage, based on the 
pharmaceutical costs of enrollees in the standard plan with self-only 
coverage, based on the medical costs of enrollees in the standard plan 
with other than self-only coverage, and based on the pharmaceutical 
costs of enrollees in the standard plan with other than self-only 
coverage.
    (iii) The effective cost-sharing parameters for the standard plan 
without cost-sharing reductions must be calculated based on policies 
assigned to the standard plan for the entire benefit year for each of 
the required subgroups under paragraph (c)(4)(ii) of this section as 
follows:
    (A) If the standard plan has only one deductible (for the applicable 
subgroup), the average deductible of the standard plan is that 
deductible amount. If the standard plan has more than one deductible 
(for the applicable subgroup), the average deductible is the weighted 
average of the deductibles, weighted by allowed costs for EHB under the 
standard plan for the benefit year that are subject to each separate 
deductible. Services that are not subject to any deductible (including 
services subject to copayments or coinsurance but not any deductible) 
are not to be incorporated into the calculation of the average 
deductible.
    (B) The effective non-deductible cost sharing for the applicable 
subgroup is the average portion of total allowed costs for EHB that are 
not subject to any deductible for the standard plan for the benefit year 
incurred for standard plan enrollees and payable by the enrollees as 
cost sharing. The effective non-deductible cost sharing must be 
calculated based only on standard plan policies with total allowed costs 
for EHB for the benefit year that are above the effective deductible but 
for which associated cost sharing for EHB is less than the annual 
limitation on cost sharing.
    (C) The effective deductible for the applicable subgroup is equal to 
the sum of the average deductible and the average total allowed costs 
for EHB that are not subject to any deductible for the standard plan for 
the benefit year. The average total allowed costs for EHB that are not 
subject to any deductible for the standard plan for the benefit year 
must be calculated based only on standard plan policies with total 
allowed costs for EHB for the benefit year that are above the average 
deductible but for which associated cost sharing for EHB is less than 
the annual limitation on cost sharing.
    (D) The effective pre-deductible coinsurance rate for the applicable 
subgroup is the proportion of the total allowed costs for EHB under the 
standard plan for the benefit year incurred for standard plan enrollees 
and payable as cost sharing. The effective pre-deductible coinsurance 
rate must be calculated based only on standard plan policies with total 
allowed costs for EHB for the benefit year that are less than or equal 
to the effective deductible.
    (E) The effective post-deductible coinsurance rate for the 
applicable subgroup is the quotient of (x) the portion of average 
allowed costs for EHB subject to a deductible incurred for enrollees for 
the benefit year, and payable by the enrollees as cost sharing other 
than through a deductible, over the difference of (y) the average 
allowed costs

[[Page 1064]]

for EHB subject to a deductible incurred for enrollees for the benefit 
year, and (z) the average deductible. The effective post-deductible 
coinsurance rate must be calculated based only on standard plan policies 
with total allowed costs for EHB for the benefit year that are above the 
effective deductible but for which associated cost sharing for EHB is 
less than the annual limitation on cost sharing.
    (F) The effective claims ceiling for the applicable subgroup is 
calculated as the effective deductible plus the quotient of (x) the 
difference between the annual limitation on cost sharing and the sum of 
the average deductible and the effective non-deductible cost sharing, 
divided by (y) the effective post-deductible coinsurance rate.
    (iv) If a QHP issuer uses the simplified methodology described in 
this paragraph (c)(4), and the QHP issuer's standard plan does not meet 
any of the criteria in paragraphs (c)(4)(v)(A) through (D) of this 
section, the QHP issuer must also submit to HHS, in the manner and 
timeframe established by HHS, the following information for each 
standard plan offered by the QHP issuer in the individual market through 
the Exchange for each of the required subgroups described in paragraph 
(c)(4)(ii) of this section:
    (A) The average deductible for each applicable subgroup;
    (B) The effective deductible for each applicable subgroup;
    (C) The effective non-deductible cost sharing amount for each 
applicable subgroup;
    (D) The effective pre-deductible coinsurance rate for each 
applicable subgroup;
    (E) The effective post-deductible coinsurance rate for each 
applicable subgroup;
    (F) The effective claims ceiling for each applicable subgroup; and
    (G) A memorandum developed by a member of the American Academy of 
Actuaries in accordance with generally accepted actuarial principles and 
methodologies that describes how the QHP issuer calculated the effective 
cost-sharing parameters for each applicable subgroup for the standard 
plan.
    (v) Notwithstanding paragraphs (c)(4)(i) through (iii) of this 
section, if a QHP issuer's standard plan meets the criteria in any of 
the following subparagraphs, and the QHP issuer has selected the 
simplified methodology described in this paragraph (c)(4), then the QHP 
issuer must calculate the amount that the enrollees in the plan 
variation would have paid under the standard plan without cost-sharing 
reductions as the lesser of the annual limitation on cost sharing for 
the standard plan or the amount equal to the product of, (x) one minus 
the standard plan's actuarial value, as calculated under 45 CFR 156.135, 
and (y) the total allowed costs for EHB for the benefit year under each 
policy that was assigned to a plan variation for any portion of the 
benefit year.
    (A) The standard plan has separate cost-sharing parameters for self-
only coverage and other than self-only coverage, does not have separate 
cost-sharing parameters for pharmaceutical and medical services, and has 
an enrollment during the benefit year of fewer than 12,000 member months 
for coverage with total allowed costs for EHB for the benefit year that 
are greater than the effective deductible, but for which associated cost 
sharing for EHB is less than the annual limitation on cost sharing, in 
either of the following categories -
    (1) Self-only coverage; or
    (2) Other than self-only coverage.
    (B) The standard plan has separate cost-sharing parameters for 
pharmaceutical and medical services, does not have separate cost-sharing 
parameters for self-only coverage and other than self-only coverage, and 
has an enrollment during the benefit year of fewer than 12,000 member 
months for coverage with total allowed costs for EHB for the benefit 
year that are greater than the effective deductible, but for which 
associated cost sharing for EHB is less than the annual limitation on 
cost sharing, in either of the following categories:
    (1) Coverage of medical services; or
    (2) Coverage of pharmaceutical services.
    (C) The standard plan has separate cost-sharing parameters for self-
only coverage and other than self-only coverage and for pharmaceutical 
and medical services, and has an enrollment

[[Page 1065]]

during the benefit year of fewer than 12,000 member months for coverage 
with total allowed costs for EHB for the benefit year that are greater 
than the effective deductible, but for which associated cost sharing for 
EHB is less than the annual limitation on cost sharing, in any of the 
following categories:
    (1) Self-only coverage of medical services;
    (2) Self-only coverage of pharmaceutical services;
    (3) Other than self-only coverage of medical services; or
    (4) Other than self-only coverage of pharmaceutical services.
    (D) The standard plan does not have separate cost-sharing parameters 
for pharmaceutical and medical services, or for self-only coverage and 
other than self-only coverage, and has an enrollment during the benefit 
year of fewer than 12,000 member months with total allowed costs for EHB 
for the benefit year that are greater than the effective deductible, but 
for which associated cost sharing for EHB is less than the annual 
limitation on cost sharing.
    (vi) Notwithstanding paragraphs (c)(4)(i)(A) and (B) of this 
section, and paragraphs (c)(4)(iii)(A) through (E) of this section, if 
more than eighty percent of the total allowed costs for EHB for the 
benefit year under a standard plan for a subgroup that requires a 
separate set of effective cost-sharing parameters pursuant to paragraph 
(c)(4)(ii) are not subject to a deductible, then:
    (A) The average deductible, the effective non-deductible cost 
sharing, and the effective deductible for the subgroup equal zero;
    (B) The effective pre-deductible coinsurance rate for the subgroup 
is equal to the effective post-deductible coinsurance rate for the 
subgroup, which is determined based on all standard plan policies for 
the applicable subgroup for which associated cost sharing for EHB is 
less than the annual limitation on cost sharing, and calculated for the 
applicable subgroup as the proportion of the total allowed costs for EHB 
under the standard plan for the benefit year incurred for standard plan 
enrollees and payable as cost sharing (including cost sharing payable 
through a deductible); and
    (C) The amount that enrollees in the applicable subgroup in plan 
variation policies with total allowed costs for EHB for the benefit year 
that are less than the effective claims ceiling would have paid under 
the standard plan must be calculated using the formula in paragraph 
(c)(4)(i)(A).
    (5) Reimbursement of providers. In the case of a benefit for which 
the QHP issuer compensates an applicable provider in whole or in part on 
a fee-for-service basis, allowed costs associated with the benefit may 
be included in the calculation of the amount that an enrollee(s) would 
have paid under the standard plan without cost-sharing reductions only 
to the extent the amount was either payable by the enrollee(s) as cost 
sharing under the plan variation or was reimbursed to the provider by 
the QHP issuer.
    (d) Reconciliation of amounts. HHS will perform periodic 
reconciliations of any advance payments of cost-sharing reductions 
provided to a QHP issuer under paragraph (b) of this section against--
    (1) The actual amount of cost-sharing reductions provided to 
enrollees and reimbursed to providers by the QHP issuer for benefits for 
which the QHP issuer compensates the applicable providers in whole or in 
part on a fee-for-service basis; and
    (2) The actual amount of cost-sharing reductions provided to 
enrollees for benefits for which the QHP issuer compensates the 
applicable providers in any other manner.
    (e) Payment of discrepancies. If the actual amounts of cost-sharing 
reductions described in paragraphs (d)(1) and (2) of this section are--
    (1) More than the amount of advance payments provided and the QHP 
issuer has timely provided the actual amounts of cost-sharing reductions 
as required under paragraph (c) of this section, HHS will reimburse the 
QHP issuer for the difference; and
    (2) Less than the amount of advance payments provided, the QHP 
issuer must repay the difference to HHS in the manner and timeframe 
specified by HHS.

[[Page 1066]]

    (f) Cost-sharing reductions during special periods. (1) 
Notwithstanding the cost-sharing reduction reconciliation process 
described in paragraphs (c) through (e) of this section, a QHP issuer 
will not be eligible for reimbursement of any cost-sharing reductions 
provided following a termination of coverage effective date with respect 
to a grace period as described in Sec. 155.430(b)(2)(ii)(A) or (B) of 
this subchapter. However, the QHP issuer will be eligible for 
reimbursement of cost-sharing reductions provided prior to the 
termination of coverage effective date. Advance payments of cost-sharing 
reductions will be paid to a QHP issuer prior to a determination of 
termination (including during any grace period, but the QHP issuer will 
be required to repay any advance payments made with respect to any month 
after any termination of coverage effective date during a grace period).
    (2) Notwithstanding the cost-sharing reduction reconciliation 
process described in paragraphs (c) through (e) of this section, if the 
termination of coverage effective date is prior to the determination of 
termination other than in the circumstances described in paragraph 
(f)(1) of this section, and if the termination (or the late 
determination thereof) is the fault of the QHP issuer, as reasonably 
determined by the Exchange, the QHP issuer will not be eligible for 
advance payments and reimbursement for cost-sharing reductions provided 
during the period following the termination of coverage effective date 
and prior to the determination of the termination.
    (3) Subject to the requirements of the cost-sharing reduction 
reconciliation process described in paragraphs (c) through (e) of this 
section, if the termination of coverage effective date is prior to the 
determination of termination other than in the circumstances described 
in paragraph (f)(1) of this section, and if the reason for the 
termination (or late determination thereof) is not the fault of the QHP 
issuer, as reasonably determined by the Exchange, the QHP issuer will be 
eligible for advance payments and reimbursement for cost-sharing 
reductions provided during such period.
    (4) Subject to the requirements of the cost-sharing reduction 
reconciliation process described in paragraphs (c) through (e) of this 
section, a QHP issuer will be eligible for advance payments and 
reimbursement for cost-sharing reductions provided during any period of 
coverage pending resolution of inconsistencies in information required 
to determine eligibility for enrollment under Sec. 155.315(f) of this 
subchapter.
    (g) Prohibition on reduction in payments to Indian health providers. 
If an Indian is enrolled in a QHP in the individual market through an 
Exchange and is furnished an item or service directly by the Indian 
Health Service, an Indian Tribe, Tribal Organization, or Urban Indian 
Organization, or through referral under contract health services, the 
QHP issuer may not reduce the payment to any such entity for such item 
or service by the amount of any cost sharing that would be due from the 
Indian but for the prohibitions on cost sharing set forth in Sec. 
156.410(b)(2) and (3).

[78 FR 15535, 15555, Mar. 11, 2013, as amended at 78 FR 65097, Oct. 30, 
2013; 79 FR 13840, Mar. 11, 2014; 80 FR 10875, Feb. 27, 2015]



Sec. 156.440  Plans eligible for advance payments of the premium tax credit and cost-sharing reductions.

    Except as noted in paragraph (a) through (c) of this section, the 
provisions of this subpart apply to qualified health plans offered in 
the individual market on the Exchange.
    (a) Catastrophic plans. The provisions of this subpart do not apply 
to catastrophic plans described in Sec. 156.155.
    (b) Stand-alone dental plans. The provisions of this subpart, to the 
extent relating to cost-sharing reductions, do not apply to stand-alone 
dental plans. The provisions of this subpart, to the extent relating to 
advance payments of the premium tax credit, apply to stand-alone dental 
plans.
    (c) Child-only plans. The provisions of this subpart apply to child-
only QHPs, described in Sec. 156.200(c)(2).

[[Page 1067]]



Sec. 156.460  Reduction of enrollee's share of premium to account for advance payments of the premium tax credit.

    (a) Reduction of enrollee's share of premium to account for advance 
payments of the premium tax credit. A QHP issuer that receives notice 
from the Exchange that an individual enrolled in the issuer's QHP is 
eligible for an advance payment of the premium tax credit must--
    (1) Reduce the portion of the premium charged to or for the 
individual for the applicable month(s) by the amount of the advance 
payment of the premium tax credit;
    (2) Notify the Exchange of the reduction in the portion of the 
premium charged to the individual in accordance with Sec. 156.265(g); 
and
    (3) Include with each billing statement, as applicable, to or for 
the individual the amount of the advance payment of the premium tax 
credit for the applicable month(s), and the remaining premium owed.
    (b) Delays in payment. A QHP issuer may not refuse to commence 
coverage under a policy or terminate coverage on account of any delay in 
payment of an advance payment of the premium tax credit on behalf of an 
enrollee if the QHP issuer has been notified by the Exchange under Sec. 
155.340(a) of this subchapter that the QHP issuer will receive such 
advance payment.
    (c) Refunds to enrollees for improper reduction of enrollee's share 
of premium to account for advance payments of the premium tax credit. If 
a QHP issuer discovers that it did not reduce the portion of the premium 
charged to or for an enrollee for the applicable month(s) by the amount 
of the advance payment of the premium tax credit in accordance with 
paragraph (a)(1) of this section, the QHP issuer must notify the 
enrollee of the improper reduction within 45 calendar days of the QHP 
issuer's discovery of the improper reduction and refund any excess 
premium paid by or for the enrollee, as follows:
    (1) Unless a refund is requested by or for the enrollee, the QHP 
issuer must, within 45 calendar days of discovery of the error, apply 
the excess premium paid by or for the enrollee to the enrollee's portion 
of the premium (or refund the amount directly). If any excess premium 
remains, the QHP issuer must apply the excess premium to the enrollee's 
portion of the premium for each subsequent month for the remainder of 
the period of enrollment or benefit year until the excess is fully 
applied (or refund the remaining amount directly). If any excess premium 
remains at the end of the period of enrollment or benefit year, the QHP 
issuer must refund any excess premium within 45 calendar days of the end 
of the period of enrollment or benefit year, whichever comes first.
    (2) If a refund is requested by or for the enrollee, the refund must 
be provided within 45 calendar days of the date of the request.

[78 FR 15535, Mar. 11, 2013, as amended at 78 FR 65100, Oct. 30, 2013]



Sec. 156.470  Allocation of rates for advance payments of the premium 
tax credit.

    (a) Allocation to additional health benefits for QHPs. An issuer 
must provide to the Exchange annually for approval, in the manner and 
timeframe established by HHS, for each health plan at any level of 
coverage offered, or intended to be offered, in the individual market on 
an Exchange, an allocation of the rate for the plan to:
    (1) EHB, other than services described in Sec. 156.280(d)(1); and
    (2) Any other services or benefits offered by the health plan not 
described in paragraph (a)(1) of this section.
    (b) Allocation to additional health benefits for stand-alone dental 
plans. An issuer must provide to the Exchange annually for approval, in 
the manner and timeframe established by HHS, for each stand-alone dental 
plan offered, or intended to be offered, in the individual market on the 
Exchange, a dollar allocation of the expected premium for the plan, to:
    (1) The pediatric dental essential health benefit, and
    (2) Any benefits offered by the stand-alone dental plan that are not 
the pediatric dental essential health benefit.
    (c) Allocation standards for QHPs. The issuer must ensure that the 
allocation described in paragraph (a) of this section--

[[Page 1068]]

    (1) Is performed by a member of the American Academy of Actuaries in 
accordance with generally accepted actuarial principles and 
methodologies;
    (2) Reasonably reflects the allocation of the expected allowed 
claims costs attributable to EHB (excluding those services described in 
Sec. 156.280(d)(1));
    (3) Is consistent with the allocation applicable to State-required 
benefits to be submitted by the issuer under Sec. 155.170(c) of this 
subchapter, and the allocation requirements described in Sec. 
156.280(e)(4) for certain services; and
    (4) Is calculated under the fair health insurance premium standards 
described at 45 CFR 147.102, the single risk pool standards described at 
45 CFR 156.80, and the same premium rate standards described at 45 CFR 
156.255.
    (d) Allocation standards for stand-alone dental plans. The issuer 
must ensure that the dollar allocation described in paragraph (b) of 
this section is performed by a member of the American Academy of 
Actuaries in accordance with generally accepted actuarial principles and 
methodologies.
    (e) Disclosure of attribution and allocation methods. An issuer of a 
health plan at any level of coverage or a stand-alone dental plan 
offered, or intended to be offered, in the individual market on the 
Exchange must submit to the Exchange annually for approval, an actuarial 
memorandum, in the manner and timeframe specified by HHS, with a 
detailed description of the methods and specific bases used to perform 
the allocations set forth in paragraphs (a) and (b), and demonstrating 
that the allocations meet the standards set forth in paragraphs (c) and 
(d) of this section, respectively.
    (f) Multi-State plans. Issuers of multi-State plans, as defined in 
Sec. 155.1000(a) of this subchapter, must submit the allocations and 
actuarial memorandum described in this section to the U.S. Office of 
Personnel Management, in the time and manner established by the U.S. 
Office of Personnel Management.

[78 FR 15535, Mar. 11, 2013, as amended at 79 FR 13840, Mar. 11, 2014]



Sec. 156.480  Oversight of the administration of the cost-sharing reductions and advance payments of the premium tax credit programs.

    (a) Maintenance of records. An issuer that offers a QHP in the 
individual market through a State Exchange must adhere to, and ensure 
that any relevant delegated entities and downstream entities adhere to, 
the standards set forth in Sec. 156.705 concerning maintenance of 
documents and records, whether paper, electronic, or in other media, by 
issuers offering QHPs in a Federally-facilitated Exchange, in connection 
with cost-sharing reductions and advance payments of the premium tax 
credit.
    (b) Annual reporting requirements. For each benefit year, an issuer 
that offers a QHP in the individual market through an Exchange must 
report to HHS, in the manner and timeframe required by HHS, summary 
statistics specified by HHS with respect to administration of cost-
sharing reduction and advance payments of the premium tax credit 
programs, including any failure to adhere to the standards set forth 
under Sec. Sec. 156.410(a) through (d), 156.425(a) through (b), and 
156.460(a) through (c) of this part.
    (c) Audits. HHS or its designee may audit an issuer that offers a 
QHP in the individual market through an Exchange to assess compliance 
with the requirements of this subpart.

[78 FR 65100, Oct. 30, 2013]



          Subpart F_Consumer Operated and Oriented Plan Program



Sec. 156.500  Basis and scope.

    This subpart implements section 1322 of the Affordable Care Act by 
establishing the Consumer Operated and Oriented Plan (CO-OP) program to 
foster the creation of new consumer-governed, private, nonprofit health 
insurance issuers, known as ``CO-OPs.'' Under this program, loans are 
awarded to encourage the development of CO-OPs. Applicants that meet the 
eligibility standards of the CO-OP program may apply to receive loans to 
help fund start-up costs and meet the solvency requirements of States in 
which the applicant seeks to be licensed to issue

[[Page 1069]]

CO-OP qualified health plans. This subpart sets forth the eligibility 
and governance requirements for the CO-OP program, CO-OP standards, and 
the terms for loans awarded under the CO-OP program.



Sec. 156.505  Definitions.

    The following definitions apply to this subpart:
    Applicant means an entity eligible to apply for a loan described in 
Sec. 156.520 of this subpart.
    Consumer operated and oriented plan (CO-OP) means a loan recipient 
that satisfies the standards in section 1322(c) of the Affordable Care 
Act and Sec. 156.515 of this subpart within the timeframes specified in 
this subpart.
    CO-OP qualified health plan means a health plan that has in effect a 
certification that it meets the standards described in subpart C of this 
part, except that the plan can be deemed certified by CMS or an entity 
designated by CMS as described in Sec. 156.520(e).
    Exchange has the meaning given to the term in Sec. 155.20 of this 
subchapter.
    Formation board means the initial board of directors of the 
applicant or loan recipient before it has begun accepting enrollment and 
had an election by the members of the organization to the board of 
directors.
    Individual market has the meaning given to the term in Sec. 155.20 
of this subchapter.
    Issuer has the meaning given to the term in Sec. 155.20 of this 
subchapter.
    Member means an individual covered under health insurance policies 
issued by a loan recipient.
    Nonprofit member organization or nonprofit member corporation means 
a nonprofit, not-for-profit, public benefit, or similar membership 
entity organized as appropriate under State law.
    Operational board means the board of directors elected by the 
members of the loan recipient after it has begun accepting enrollment.
    Predecessor, with respect to a new entity, means any entity that 
participates in a merger, consolidation, purchase or acquisition of 
property or stock, corporate separation, or other similar business 
transaction that results in the formation of the new entity.
    Pre-existing issuer means a health insurance issuer that was in 
existence on July 16, 2009.
    Qualified nonprofit health insurance issuer means an entity that 
satisfies or can reasonably be expected to satisfy the standards in 
section 1322(c) of the Affordable Care Act and Sec. 156.515 of this 
subpart within the time frames specified in this subpart, until such 
time as CMS determines the entity does not satisfy or cannot reasonably 
be expected to satisfy these standards.
    Related entity means an entity that shares common ownership, 
control, or governance structure (including management team or Board 
members) with a pre-existing issuer, and satisfies at least one of the 
following conditions:
    (1) Retains responsibilities for the services to be provided by the 
issuer.
    (2) Furnishes services to the issuer's enrollees under an oral or 
written agreement.
    (3) Performs some of the issuer's management functions under 
contract or delegation.
    Representative means an individual who stands or acts for an 
organization or group of organizations through a formal agreement or 
financial compensation such as a contractor, broker, official, or 
employee.
    SHOP has the meaning given to the term in Sec. 155.20 of this 
subchapter.
    Small group market has the meaning given to the term in Sec. 155.20 
of this subchapter.
    Solvency Loan means a loan provided by CMS to a loan recipient in 
order to meet State solvency and reserve requirements.
    Sponsor means an organization or individual that is involved in the 
development, creation, or organization of the CO-OP or provides 40 
percent or more in total funding to a CO-OP (excluding any loans 
received from the CO-OP Program).
    Start-up Loan means a loan provided by CMS to a loan recipient for 
costs associated with establishing a CO-OP.
    State has the meaning given to the term in Sec. 155.20 of this 
subchapter.

[76 FR 77411, Dec. 13, 2011, as amended at 77 FR 18474, Mar. 27, 2012]

[[Page 1070]]



Sec. 156.510  Eligibility.

    (a) General. In addition to the eligibility standards set forth in 
the CO-OP program Funding Opportunity Announcement (FOA), to be eligible 
to apply for and receive a loan under the CO-OP program, an organization 
must intend to become a CO-OP and be a nonprofit member organization.
    (b) Exclusions from eligibility. (1) Subject to paragraph (b)(2) of 
this section, an organization is not eligible to apply for a loan if:
    (i) The organization or a sponsor of the organization is a pre-
existing issuer, a holding company (an organization that exists 
primarily to hold stock in other companies) that controls a pre-existing 
issuer, a trade association comprised of pre-existing issuers and whose 
purpose is to represent the interests of the health insurance industry, 
a foundation established by a pre-existing issuer, a related entity, or 
a predecessor of either a pre-existing issuer or related entity;
    (ii) The organization receives 25 percent or more of its total 
funding (excluding any loans received from the CO-OP Program) from pre-
existing issuers, holding companies (organizations that exists primarily 
to hold stock in other companies) that control pre-existing issuers, 
trade associations comprised of pre-existing issuers and whose purpose 
is to represent the interests of the health insurance industry, 
foundations established by a pre-existing issuer, a related entity, or a 
predecessor of either a pre-existing issuer or related entity; or
    (iii) A State or local government, any political subdivision 
thereof, or any instrumentality of such government or political 
subdivision is a sponsor of the organization. The organization receives 
40 percent or more of its total funding (excluding any loans received 
from the CO-OP Program) from a State or local government, any political 
subdivision thereof, or any instrumentality of such a government or 
political subdivision.
    (2) The exclusions in paragraphs (b)(1)(i) and (b)(1)(ii) of this 
section do not exclude from eligibility an applicant that:
    (i) Has as a sponsor a nonprofit, not-for-profit, public benefit, or 
similarly organized entity that is also a sponsor for a pre-existing 
issuer but is not an issuer, a foundation established by a pre-existing 
issuer, a holding company that controls a pre-existing issuer, or a 
trade association comprised of pre-existing issuers and whose purpose is 
to represent the interests of the health insurance industry, provided 
that the pre-existing issuer sponsored by the nonprofit organization 
does not share any of its board or the same chief executive with the 
applicant; or
    (ii) Has purchased assets from a preexisting issuer provided that it 
is an arm's-length transaction where each party acts independently and 
has no other relationship with the other party.
    (3) The exclusion of any instrumentality of a State or local 
government in paragraph (b)(1)(iii) of this section does not exclude 
from eligibility or sponsorship an organization that:
    (i) Is not a government organization under State law;
    (ii) Has no employee of a State or local government serving in his 
or her official capacity as a senior executive (for example, President, 
Chief Executive Officer, or Chief Financial Officer) for the 
organization; and
    (iii) Has a board of directors on which fewer than half of its 
directors are employees of a State or local government serving in their 
official capacities.

[76 FR 77411, Dec. 13, 2011, as amended at 77 FR 18474, Mar. 27, 2012]



Sec. 156.515  CO-OP standards.

    (a) General. A CO-OP must satisfy the standards in this section in 
addition to all other statutory, regulatory, or other requirements.
    (b) Governance requirements. A CO-OP must meet the following 
governance requirements:
    (1) Member control. A CO-OP must implement policies and procedures 
to foster and ensure member control of the organization. Accordingly, a 
CO-OP must meet the following requirements:
    (i) The CO-OP must be governed by an operational board with all of 
its directors elected by a majority vote of a quorum of the CO-OP's 
members that are age 18 or older;
    (ii) All members age 18 or older must be eligible to vote for each 
director on the organization's operational board;

[[Page 1071]]

    (iii) Each member age 18 or older of the organization must have one 
vote in the election of each director of the organization's operational 
board;
    (iv) The first elected directors of the organization's operational 
board must be elected no later than one year after the effective date on 
which the organization provides coverage to its first member; the entire 
operational board must be elected no later than two years after the same 
date;
    (v) Elections of the directors on the organization's operational 
board must be contested so that the total number of candidates for 
vacant positions on the operational board exceeds the number of vacant 
positions, except in cases where a seat is vacated mid-term due to 
death, resignation, or removal; and
    (vi) The majority of the voting directors on the operational board 
must be members of the organization.
    (2) Standards for board of directors. The operational board for a 
CO-OP must meet the following standards:
    (i) Each director must meet ethical, conflict-of-interest, and 
disclosure standards including that each director act in the sole 
interest of the CO-OP and, as appropriate, the health and wellbeing of 
its local geographic community;
    (ii) Each director has one vote unless he or she is a non-voting 
director;
    (iii) Positions on the board of directors may be designated for 
individuals with specialized expertise, experience, or affiliation (for 
example, providers, employers, and unions);
    (iv) Positions on the operational board that are designated for 
individuals with specialized expertise, experience, or affiliation 
cannot constitute a majority of the operational board even if the 
individuals in those positions are members of the CO-OP. This provision 
does not prevent any individual from seeking election to the operational 
board based on being a member of the CO-OP; and
    (v) Limitation on government and issuer participation. No 
representative of any Federal, State or local government (or of any 
political subdivision or instrumentality thereof) and no representative 
of any organization described in Sec. 156.510(b)(1)(i) may serve on the 
CO-OP's formation board or operational board.
    (3) Ethics and conflict of interest protections. The CO-OP must have 
governing documents that incorporate ethics, conflict of interest, and 
disclosure standards. The standards must protect against insurance 
industry involvement and interference. In addition, the standards must 
ensure that each director acts in the sole interest of the CO-OP, its 
members, and its local geographic community as appropriate, avoids self 
dealing, and acts prudently and consistently with the terms of the CO-
OP's governance documents and applicable State and Federal law. At a 
minimum, these standards must include:
    (i) A mechanism to identify potential ethical or other conflicts of 
interest;
    (ii) A duty on the CO-OP's executive officers and directors to 
disclose all potential conflicts of interest;
    (iii) A process to determine the extent to which a conflict exists;
    (iv) A process to address any conflict of interest; and
    (v) A process to be followed in the event a director or executive 
officer of the CO-OP violates these standards.
    (4) Consumer focus. The CO-OP must operate with a strong consumer 
focus, including timeliness, responsiveness, and accountability to 
members.
    (c) Standards for health plan issuance. A CO-OP must meet several 
standards for the issuance of health plans in the individual and small 
group market.
    (1) At least two-thirds of the policies or contracts for health 
insurance coverage issued by a CO-OP in each State in which it is 
licensed must be CO-OP qualified health plans offered in the individual 
and small group markets.
    (2) Loan recipients must offer a CO-OP qualified health plan at the 
silver and gold benefit levels, defined in section 1302(d) of the 
Affordable Care Act, in every individual market Exchange that serves the 
geographic regions in which the organization is licensed and intends to 
provide health care coverage. If offering at least one plan in the small 
group market, loan recipients must offer a CO-OP qualified health plan 
at both the silver and gold benefit levels, defined in section 1302(d) 
of the Affordable Care Act, in each

[[Page 1072]]

SHOP that serves the geographic regions in which the organization offers 
coverage in the small group market.
    (3) Within the earlier of thirty-six months following the initial 
drawdown of the Start-up Loan or one year following the initial drawdown 
of the Solvency Loan, loan recipients must be licensed in a State and 
offer at least one CO-OP qualified health plan at the silver and gold 
benefit levels, defined in section 1302(d) of the Affordable Care Act, 
in the individual market Exchanges and if the loan recipient offers 
coverage in the small group market, at the silver and gold benefit 
levels, defined in section 1302(d) of the Affordable Care Act, in the 
SHOPs. Loan recipients may only begin offering plans and accepting 
enrollment in the Exchanges for new CO-OP qualified health plans during 
the open enrollment period for each applicable Exchange.
    (d) Requirement to become a CO-OP. Loan recipients must meet the 
standards of Sec. 156.515 no later than five years following initial 
drawdown of the Start-up Loan or three years following the initial 
drawdown of a Solvency Loan.



Sec. 156.520  Loan terms.

    (a) Overview of Loans. Applicants may apply for the following loans 
under this section: Start-up Loans and Solvency Loans.
    (1) Use of loans. All loans awarded under this subpart must be used 
in a manner that is consistent with the FOA, the loan agreement, and all 
other statutory, regulatory, or other requirements.
    (2) Solvency loans. Solvency Loans awarded under this section will 
be structured in a manner that ensures that the loan amount is 
recognized by State insurance regulators as contributing to the State-
determined reserve requirements or other solvency requirements (rather 
than debt) consistent with the insurance regulations for the States in 
which the loan recipient will offer a CO-OP qualified health plan.
    (b) Repayment period. The loan recipient must make loan payments 
consistent with the approved repayment schedule in the loan agreement 
until the loan is paid in full consistent with State reserve 
requirements, solvency regulations, and requisite surplus note 
arrangements. Subject to their ability to meet State reserve 
requirements, solvency regulations, or requisite surplus note 
arrangements, the loan recipient must repay its loans and, if 
applicable, penalties within the repayment periods in paragraphs (b)(1), 
(b)(2), or (b)(3) of this section.
    (1) The contractual repayment period for Start-up Loans and any 
applicable penalty pursuant to paragraph (c)(3) of this section is 5 
years following each drawdown of loan funds consistent with the terms of 
the loan agreement.
    (2) The contractual repayment period for Solvency Loans and any 
applicable penalty pursuant to paragraph (c)(3) of this section is 15 
years following each drawdown of loan funds consistent with the terms of 
the loan agreement.
    (3) Changes to the loan terms, including the repayment periods, may 
be executed if CMS determines that the loan recipient is unable to repay 
the loans as a result of State reserve requirements, solvency 
regulations, or requisite surplus note arrangements or without 
compromising coverage stability, member control, quality of care, or 
market stability. In the case of a loan modification or workout, the 
repayment period for loans awarded under this subpart is the repayment 
period established in the loan modification or workout. The revised 
terms must meet all other regulatory, statutory, and other requirements.
    (c) Interest rates. Loan recipients will be charged interest for the 
loans awarded under this subpart. Interest will be accrued starting from 
the date of drawdown on the loan amounts that have been drawn down and 
not yet repaid by the loan recipient. The interest rate will be 
determined based on the date of award.
    (1) Start-up Loans. Consistent with the terms of the loan agreement, 
the interest rate for Start-up Loans is equal to the greater of the 
average interest rate on marketable Treasury securities of similar 
maturity minus one percentage point or zero percent. If the loan 
recipient's loan agreement is terminated by CMS, the loan recipient

[[Page 1073]]

will be charged the interest and penalty described in paragraph (c)(3) 
of this section.
    (2) Solvency Loans. Consistent with the terms of the loan agreement, 
the interest rate for Solvency Loans is equal to the greater of the 
average interest rate on marketable Treasury securities of similar 
maturity minus two percentage points or zero percent. If a loan 
recipient's loan agreement is terminated by CMS, the loan recipient will 
be charged the interest and penalty described in paragraph (c)(3) of 
this section.
    (3) Penalty payment. If CMS terminates a loan recipient's loan 
agreement because the loan recipient is not in compliance with program 
rules or the terms of its loan agreement, or CMS has reason to believe 
that the organization engages in, or has engaged in, criminal or 
fraudulent activities or activities that cause material harm to the 
organization's members or the government, the loan recipient must repay 
110 percent of the aggregate amount of loans received under this 
subpart. In addition, the loan recipient must pay interest on the 
aggregate amount of loans received for the period the loans were 
outstanding equal to the average interest rate on marketable Treasury 
securities of similar maturity.
    (d) Failure to pay. Loan recipients that fail to make loan payments 
consistent with the repayment schedule or loan modification or workout 
approved by CMS will be subject to any and all remedies available to CMS 
under law to collect the debt.
    (e) Deeming of CO-OP qualified health plans. Health plans offered by 
a loan recipient may be deemed certified as a CO-OP qualified health 
plan to participate in the Exchanges for two years and may be 
recertified every two years for up to ten years following the life of 
any loan awarded to the loan recipient under this subpart, consistent 
with section 1301(a)(2) of the Affordable Care Act.
    (1) To be deemed as certified to participate in the Exchanges, the 
plan must comply with the standards for CO-OP qualified health plans set 
forth pursuant to section 1311(c) of the Affordable Care Act, all State-
specific standards established by an Exchange for qualified health plans 
operating in that Exchange, except for those State-specific standards 
that operate to exclude loan recipients due to being new issuers or 
based on other characteristics that are inherent in the design of a CO-
OP, and the standards of the CO-OP program as set forth in this subpart.
    (2) A loan recipient seeking to have a plan deemed as certified to 
participate in the Exchanges must provide evidence to CMS or an entity 
designated by CMS that the plan complies with the standards for CO-OP 
qualified health plans set forth pursuant to section 1311(c) of the 
Affordable Care Act, all State-specific standards established by an 
Exchange for qualified health plans operating in that Exchange, except 
for those State-specific standards that operate to exclude loan 
recipients due to being new issuers or based on other characteristics 
that are inherent in the design of a CO-OP, and the standards of the CO-
OP program as set forth in this subpart.
    (3) If a plan offered by a loan recipient is deemed to be certified 
to participate in the Exchanges or loses its deemed status and is no 
longer certified to participate in the Exchanges, CMS or an entity 
designated by CMS will provide notice to the Exchanges in which the loan 
recipient offers CO-OP qualified health plans.
    (f) Conversions. The loan recipient shall not convert or sell to a 
for-profit or non-consumer operated entity at any time after receiving a 
loan under this subpart. The loan recipient shall not undertake any 
transaction that would result in the CO-OP implementing a governance 
structure that does not meet the standards in this subpart.

[76 FR 77411, Dec. 13, 2011, as amended at 77 FR 18474, Mar. 27, 2012]



                  Subpart G_Minimum Essential Coverage

    Source: 78 FR 39529, July 1, 2013, unless otherwise noted.

[[Page 1074]]



Sec. 156.600  The definition of minimum essential coverage.

    The term minimum essential coverage has the same meaning as provided 
in section 5000A(f) of the Code and its implementing regulations for 
purposes of this subpart.



Sec. 156.602  Other coverage that qualifies as minimum essential coverage.

    The following types of coverage are designated by the Secretary as 
minimum essential coverage for purposes of section 5000A(f)(1)(E) of the 
Code:
    (a) Self-funded student health coverage. Coverage offered to 
students by an institution of higher education (as defined in the Higher 
Education Act of 1965), where the institution assumes the risk for 
payment of claims, are designated as minimum essential coverage for plan 
or policy years beginning on or before December 31, 2014. For coverage 
beginning after December 31, 2014, sponsors of self-funded student 
health coverage may apply to be recognized as minimum essential coverage 
pursuant to the process provided under 45 CFR 156.604.
    (b) Refugee Medical Assistance supported by the Administration for 
Children and Families. Coverage under Refugee Medical Assistance, 
authorized under section 412(e)(7)(A) of The Immigration and Nationality 
Act, provides up to eight months of coverage to certain noncitizens who 
are considered Refugees, as defined in section 101(a)(42) of the Act.
    (c) Medicare advantage plans. Coverage under the Medicare program 
pursuant to Part C of title XVIII of the Social Security Act, which 
provides Medicare Parts A and B benefits through a private insurer.
    (d) State high risk pool coverage. A qualified high risk pool as 
defined by section 2744(c)(2) of the Public Health Service Act 
established on or before November 26, 2014 in any State.
    (e) Other coverage. Other coverage that qualifies pursuant to Sec. 
156.604.

[78 FR 39529, July 1, 2013, as amended at 80 FR 10875, Feb. 27, 2015]



Sec. 156.604  Requirements for recognition as minimum essential 
coverage for types of coverage not otherwise designated minimum 

essential coverage in the statute or this subpart.

    (a) The Secretary may recognize ``other coverage'' as minimum 
essential coverage provided HHS determines that the coverage meets the 
following substantive and procedural requirements:
    (1) Coverage requirements. A plan must meet substantially all the 
requirements of title I of the Affordable Care Act pertaining to non-
grandfathered, individual health insurance coverage.
    (2) Procedural requirements for recognition as minimum essential 
coverage. To be considered for recognition as minimum essential 
coverage, the sponsor of the coverage, government agency, health 
insurance issuer, or plan administrator must submit the following 
information to HHS:
    (i) Identity of the plan sponsor and appropriate contact persons;
    (ii) Basic information about the plan, including:
    (A) Name of the organization sponsoring the plan;
    (B) Name and title of the individual who is authorized to make, and 
makes, this certification on behalf of the organization;
    (C) Address of the individual named above;
    (D) Phone number of the individual named above;
    (E) Number of enrollees;
    (F) Eligibility criteria;
    (G) Cost sharing requirements, including deductible and out-of-
pocket maximum limit;
    (H) Essential health benefits covered; and
    (I) A certification by the appropriate individual, named pursuant to 
paragraph (a)(3)(ii)(b), that the organization substantially complies 
with the requirements of title I of the Affordable Care Act that apply 
to non-grandfathered plans in the individual market and any plan 
documentation or other information that demonstrate that the coverage 
substantially comply with these requirements.

[[Page 1075]]

    (b) CMS will publish a list of types of coverage that the Secretary 
has recognized as minimum essential coverage pursuant to this provision.
    (c) If at any time the Secretary determines that a type of coverage 
previously recognized as minimum essential coverage no longer meets the 
coverage requirements of paragraph (a)(1) of this section, the Secretary 
may revoke the recognition of such coverage.
    (d) Notice. Once recognized as minimum essential coverage, the 
sponsor of the coverage, government agency, health insurance issuer, or 
plan administrator must provide notice to all enrollees of its minimum 
essential coverage status and must comply with the information reporting 
requirements of section 6055 of the Internal Revenue Code and 
implementing regulations.

[78 FR 39529, July 1, 2013, as amended at 79 FR 30351, May 27, 2014]



Sec. 156.606  HHS audit authority.

    The Secretary may audit a plan or program recognized as minimum 
essential coverage under Sec. 156.604 at any time to ensure compliance 
with the requirements of Sec. 156.604(a).



  Subpart H_Oversight and Financial Integrity Standards for Issuers of 
        Qualified Health Plans in Federally-Facilitated Exchanges

    Source: 78 FR 65100, Oct. 30, 2013, unless otherwise noted.



Sec. 156.705  Maintenance of records for Federally-facilitated Exchanges.

    (a) General standard. Issuers offering QHPs in a Federally-
facilitated Exchange must maintain all documents and records (whether 
paper, electronic, or other media) and other evidence of accounting 
procedures and practices, necessary for HHS to do the following:
    (1) Periodically audit financial records related to QHP issuers' 
participation in a Federally-facilitated Exchange, and evaluate the 
ability of QHP issuers to bear the risk of potential financial losses; 
and
    (2) Conduct compliance reviews or otherwise monitor QHP issuers' 
compliance with all Exchange standards applicable to issuers offering 
QHPs in a federally-facilitated Exchange as listed in this part.
    (b) Records. The records described in paragraph (a) of this section 
include the sources listed in Sec. 155.1210(b)(2), (3), and (5) of this 
subchapter.
    (c) Record retention timeframe. Issuers offering QHPs in a 
Federally-facilitated Exchange must maintain all records referenced in 
paragraph (a) of this section for 10 years.
    (d) Record availability. Issuers offering QHPs in a Federally-
facilitated Exchange must make all records in paragraph (a) of this 
section available to HHS, the OIG, the Comptroller General, or their 
designees, upon request.



Sec. 156.715  Compliance reviews of QHP issuers in Federally-
facilitated Exchanges.

    (a) General standard. Issuers offering QHPs in a Federally-
facilitated Exchange may be subject to compliance reviews to ensure 
ongoing compliance with Exchange standards applicable to issuers 
offering QHPs in a Federally-facilitated Exchange.
    (b) Records. In preparation for or in the course of the compliance 
review, a QHP issuer must make available for HHS to review the records 
of the QHP issuer that pertain to its activities within a Federally-
facilitated Exchange. Such records may include, but are not limited to 
the following:
    (1) The QHP issuer's books and contracts, including the QHP issuer's 
policy manuals and other QHP plan benefit information provided to the 
QHP issuer's enrollees;
    (2) The QHP issuer's policies and procedures, protocols, standard 
operating procedures, or other similar manuals related to the QHP 
issuer's activities in a Federally-facilitated Exchange;
    (3) Any other information reasonably necessary for HHS to--
    (i) Evaluate the QHP issuer's compliance with QHP certification 
standards and other Exchange standards applicable to issuers offering 
QHPs in a Federally-facilitated Exchange;
    (ii) Evaluate the QHP's performance, including its adherence to an 
effective compliance plan, within a Federally-facilitated Exchange;

[[Page 1076]]

    (iii) Verify that the QHP issuer has performed the duties attested 
to as part of the QHP certification process; and
    (iv) Assess the likelihood of fraud or abuse.
    (c) Interest of Qualified Individuals and Qualified Employers. HHS's 
findings from the compliance reviews under this section may be in 
conjunction with other findings related to the QHP issuers' compliance 
with certification standards, used to confirm that permitting the 
issuer's QHPs to be available through a Federally-facilitated Exchange 
is in the interest of the qualified individuals and qualified employers 
as provided under Sec. 155.1000(c)(2) of this subchapter.
    (d) Onsite and desk reviews. The QHP issuer will make available, for 
the purposes listed in paragraph (c) of this section, its premises, 
physical facilities and equipment (including computer and other 
electronic systems), for HHS to conduct a compliance review as provided 
under this section.
    (1) A compliance review under this section will be carried out as an 
onsite or desk review based on the specific circumstances.
    (2) Unless otherwise specified, nothing in this section is intended 
to preempt Federal laws and regulations related to information privacy 
and security.
    (e) Compliance review timeframe. A QHP issuer may be subject to a 
compliance review up to 10 years from the last day of that plan benefit 
year, or 10 years from the last day that the QHP certification is 
effective if the QHP is no longer available through a Federally-
facilitated Exchange; provided, however, that if the 10 year review 
period falls during an ongoing compliance review, the review period 
would be extended until the compliance review is completed.



    Subpart I_Enforcement Remedies in Federally-Facilitated Exchanges

    Source: 78 FR 54143, Aug. 30, 2013, unless otherwise noted.



Sec. 156.800  Available remedies; Scope.

    (a) Kinds of sanctions. HHS may impose the following types of 
sanctions on QHP issuers in a Federally-facilitated Exchange that are 
not in compliance with Exchange standards applicable to issuers offering 
QHPs in the Federally-facilitated Exchange:
    (1) Civil money penalties as specified in Sec. 156.805; and
    (2) Decertification of a QHP offered by the non-compliant QHP issuer 
in a Federally-facilitated Exchange as described in Sec. 156.810.
    (b) Scope. Sanctions under subpart I are applicable only for non-
compliance with QHP issuer participation standards and other standards 
applicable to issuers offering QHPs in a Federally-facilitated Exchange.
    (c) Compliance standard. For calendar years 2014 and 2015, sanctions 
under this subpart will not be imposed if the QHP issuer has made good 
faith efforts to comply with applicable requirements.
    (d) Information sharing. HHS may consult and share information about 
QHP issuers with other Federal and State regulatory and enforcement 
entities to the extent that the consultation and information is 
necessary for purposes of State or Federal oversight and enforcement 
activities.

[78 FR 54143, Aug. 30, 2013, as amended at 79 FR 30351, May 27, 2014; 80 
FR 10875, Feb. 27, 2015]



Sec. 156.805  Bases and process for imposing civil money penalties in Federally-facilitated Exchanges.

    (a) Grounds for imposing civil money penalties. Civil money 
penalties may be imposed on an issuer in a Federally-facilitated 
Exchange by HHS if, based on credible evidence, HHS has reasonably 
determined that the issuer has engaged in one or more of the following 
actions:
    (1) Misconduct in the Federally-facilitated Exchange or substantial 
non-compliance with the Exchange standards and requirements applicable 
to issuers offering QHPs in the Federally-facilitated Exchange, 
including but not limited to issuer standards and requirements under 
parts 153 and 156 of this subchapter;
    (2) Limiting the QHP's enrollees' access to medically necessary 
items and services that are required to be covered

[[Page 1077]]

as a condition of the QHP issuer's ongoing participation in the 
Federally-facilitated Exchange, if the limitation has adversely affected 
or has a substantial likelihood of adversely affecting one or more 
enrollees in the QHP offered by the QHP issuer;
    (3) Imposing on enrollees premiums in excess of the monthly 
beneficiary premiums permitted by Federal standards applicable to QHP 
issuers participating in the Federally-facilitated Exchange;
    (4) Engaging in any practice that would reasonably be expected to 
have the effect of denying or discouraging enrollment into a QHP offered 
by the issuer (except as permitted by this part) by qualified 
individuals whose medical condition or history indicates the potential 
for a future need for significant medical services or items;
    (5) Intentionally or recklessly misrepresenting or falsifying 
information that it furnishes--
    (i) To HHS; or
    (ii) To an individual or entity upon which HHS relies to make its 
certifications or evaluations of the QHP issuer's ongoing compliance 
with Exchange standards applicable to issuers offering QHPs in the 
Federally-facilitated Exchange;
    (6) Failure to remit user fees assessed under Sec. 156.50(c); or
    (7) Failure to comply with the cost-sharing reductions and advance 
payments of the premium tax credit standards of subpart E of this part.
    (b) Factors in determining the amount of civil money penalties 
assessed. In determining the amount of civil money penalties, HHS may 
take into account the following:
    (1) The QHP issuer's previous or ongoing record of compliance;
    (2) The level of the violation, as determined in part by--
    (i) The frequency of the violation, taking into consideration 
whether any violation is an isolated occurrence, represents a pattern, 
or is widespread; and
    (ii) The magnitude of financial and other impacts on enrollees and 
qualified individuals; and
    (3) Aggravating or mitigating circumstances, or other such factors 
as justice may require, including complaints about the issuer with 
regard to the issuer's compliance with the medical loss ratio standards 
required by the Affordable Care Act and as codified by applicable 
regulations.
    (c) Maximum penalty. The maximum amount of penalty imposed for each 
violation is $100 for each day for each QHP issuer for each individual 
adversely affected by the QHP issuer's non-compliance; and where the 
number of individuals cannot be determined, HHS may estimate the number 
of individuals adversely affected by the violation.
    (d) Notice of intent to issue civil money penalty. If HHS proposes 
to assess a civil money penalty in accordance with this part, HHS will 
send a written notice of this decision to--
    (1) The QHP issuer against whom the civil money penalty is being 
imposed, whose notice must include the following:
    (i) A description of the basis for the determination;
    (ii) The basis for the penalty;
    (iii) The amount of the penalty;
    (iv) The date the penalty is due;
    (v) An explanation of the issuer's right to a hearing under an 
applicable administrative hearing process; and
    (vi) Information about where to file the request for hearing.
    (2) [Reserved]
    (3) HHS will deliver notice under this paragraph by either hand 
delivery, certified mail, return receipt requested, or by overnight 
delivery service with signature upon delivery required.
    (e) Failure to request a hearing. (1) If the QHP issuer does not 
request a hearing within 30 days of the issuance of the notice described 
in paragraph (d)(1) of this section, HHS may assess the proposed civil 
money penalty.
    (2) HHS will notify the issuer in writing of any penalty that has 
been assessed under this subpart and of the means by which the QHP 
issuer or another responsible entity may satisfy the CMP assessment.
    (3) The QHP issuer has no right to appeal a penalty with respect to 
which it has not requested a hearing in accordance with the requirements 
of the applicable administrative hearing process unless the QHP issuer 
can show good cause, as determined under Sec. 156.905(b),

[[Page 1078]]

for failing to timely exercise its right to a hearing.

[78 FR 54143, Aug. 30, 2013, as amended at 79 FR 15245, Mar. 19, 2014; 
79 FR 30351, May 27, 2014]



Sec. 156.806  Notice of non-compliance.

    If HHS learns of a potential violation described in Sec. 156.805 or 
if a State informs HHS of a potential violation, prior to imposing any 
CMPs, HHS must provide a written notice to the issuer, to include the 
following:
    (a) Describe the potential violation.
    (b) Provide 30 days from the date of the notice for the QHP issuer 
to respond and to provide additional information to refute an alleged 
violation.
    (c) State that a civil money penalty may be assessed if the 
allegations are not, as determined by HHS, refuted.

[79 FR 30351, May 27, 2014]



Sec. 156.810  Bases and process for decertification of a QHP offered by an issuer through a Federally-facilitated Exchange.

    (a) Bases for decertification. A QHP may be decertified on one or 
more of the following grounds:
    (1) The QHP issuer substantially fails to comply with the Federal 
laws and regulations applicable to QHP issuers participating in the 
Federally-facilitated Exchange;
    (2) The QHP issuer substantially fails to comply with the standards 
related to the risk adjustment, reinsurance, or risk corridors programs 
under 45 CFR part 153, including providing HHS with valid risk 
adjustment, reinsurance or risk corridors data;
    (3) The QHP issuer substantially fails to comply with the 
transparency and marketing standards in Sec. Sec. 156.220 and 156.225;
    (4) The QHP issuer substantially fails to comply with the standards 
regarding advance payments of the premium tax credit and cost-sharing in 
subpart E of this part;
    (5) The QHP issuer is operating in the Federally-facilitated 
Exchange in a manner that hinders the efficient and effective 
administration of the Exchange;
    (6) The QHP no longer meets the applicable standards set forth under 
subpart C of this part.
    (7) Based on credible evidence, the QHP issuer has committed or 
participated in fraudulent or abusive activities, including submission 
of false or fraudulent data;
    (8) The QHP issuer substantially fails to meet the requirements 
under Sec. 156.230 related to network adequacy standards or, Sec. 
156.235 related to inclusion of essential community providers;
    (9) The QHP issuer substantially fails to comply with the law and 
regulations related to internal claims and appeals and external review 
processes;
    (10) The State recommends to HHS that the QHP should no longer be 
available in a Federally-facilitated Exchange;
    (11) The QHP issuer substantially fails to comply with the privacy 
or security standards set forth in Sec. 156.260;
    (12) The QHP issuer substantially fails to meet the requirements 
related to the cases forwarded to QHP issuers under subpart K of this 
part; or
    (13) The QHP issuer substantially fails to meet the requirements 
related to the offering of a QHP under subpart M of this part.
    (b) State sanctions and determinations. (1) State sanctions. HHS may 
consider regulatory or enforcement actions taken by a State against a 
QHP issuer as a factor in determining whether to decertify a QHP offered 
by that issuer.
    (2) State determinations. HHS may decertify a QHP offered by an 
issuer in a Federally-facilitated Exchange based on a determination or 
action by a State as it relates to the issuer offering QHPs in a 
Federally-facilitated Exchange, including when a State places an issuer 
or its parent organization into receivership or when the State 
recommends to HHS that the QHP no longer be available in a Federally-
facilitated Exchange.
    (c) Standard decertification process. For decertification actions on 
grounds other than those described in paragraphs (a)(7), (8), or (9) of 
this section, HHS will provide written notices to the QHP issuer, 
enrollees in that QHP, and the State department of insurance in the 
State in which the QHP is being decertified. The written notice must 
include the following:
    (1) The effective date of the decertification, which will be a date 
specified

[[Page 1079]]

by HHS that is no earlier than 30 days after the date of issuance of the 
notice;
    (2) The reason for the decertification, including the regulation or 
regulations that are the basis for the decertification;
    (3) For the written notice to the QHP issuer, information about the 
effect of the decertification on the ability of the issuer to offer the 
QHP in the Federally-facilitated Exchange and must include information 
about the procedure for appealing the decertification by making a 
hearing request; and
    (4) The written notice to the QHP enrollees must include information 
about the effect of the decertification on enrollment in the QHP and 
about the availability of a special enrollment period, as described in 
Sec. 155.420 of this subchapter.
    (d) Expedited decertification process. For decertification actions 
on grounds described in paragraphs (a)(6), (7), (8), or (9) of this 
section, HHS will provide written notice to the QHP issuer, enrollees, 
and the State department of insurance in the State in which the QHP is 
being decertified. The written notice must include the following:
    (1) The effective date of the decertification, which will be a date 
specified by HHS; and
    (2) The information required by paragraphs (c)(2) through (4) of 
this section.
    (e) Appeals. An issuer may appeal the decertification of a QHP 
offered by that issuer under paragraph (c) or (d) of this section by 
filing a request for hearing under an applicable administrative hearing 
process.
    (1) Effect of request for hearing. If an issuer files a request for 
hearing under this paragraph,
    (i) If the decertification is under paragraph (c) of this section, 
the decertification will not take effect prior to the issuance of the 
final administrative decision in the appeal, notwithstanding the 
effective date specified in the notice under paragraph (c)(1) of this 
section.
    (ii) If the decertification is under paragraph (d) of this section, 
the decertification will be effective on the date specified in the 
notice of decertification, but the certification of the QHP may be 
reinstated immediately upon issuance of a final administrative decision 
that the QHP should not be decertified.
    (2) [Reserved]

[78 FR 54143, Aug. 30, 2013, as amended at 79 FR 30351, May 27, 2014]



Sec. 156.815  Plan suppression.

    (a) Suppression means temporarily making a QHP certified to be 
offered through the Federally-facilitated Exchange unavailable for 
enrollment through the Federally-facilitated Exchange.
    (b) Grounds for suppression. A QHP may be suppressed as described in 
paragraph (a) of this section on one or more of the following grounds:
    (1) The QHP issuer notifies HHS of its intent to withdraw the QHP 
from a Federally-facilitated Exchange when one of the exceptions to 
guaranteed renewability of coverage related to discontinuing a 
particular product or discontinuing all coverage under Sec. 147.106(c) 
or (d) of this subchapter applies;
    (2) Data submitted for the QHP is incomplete or inaccurate;
    (3) The QHP is in the process of being decertified as described in 
Sec. 156.810(c) or (d), or the QHP issuer is appealing a completed 
decertification as described in subpart J of this part;
    (4) The QHP issuer offering the QHP is the subject of a pending, 
ongoing, or final State regulatory or enforcement action or 
determination that could affect the issuer's ability to enroll consumers 
or otherwise relates to the issuer offering QHPs in the Federally-
facilitated Exchanges; or
    (5) One of the exceptions to guaranteed availability of coverage 
related to special rules for network plans or financial capacity limits 
under Sec. 147.104(c) or (d) of this subchapter applies.
    (c) A multi-State plan as defined in Sec. 155.1000(a) of this 
subchapter may be suppressed as described in paragraph (a) of this 
section if OPM notifies the Exchange that:
    (1) OPM has found a compliance violation within the multi-State 
plan, or
    (2) One of the grounds for suppression in paragraph (b) of this 
section exists for the multi-State plan.

[80 FR 10875, Feb. 27, 2015]

[[Page 1080]]



  Subpart J_Administrative Review of QHP Issuer Sanctions in Federally-
                          Facilitated Exchanges

    Source: 78 FR 65101, Oct. 30, 2013, unless otherwise noted.



Sec. 156.901  Definitions.

    In this subpart, unless the context indicates otherwise:
    ALJ means administrative law judge of the Departmental Appeals Board 
of HHS.
    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 HHS 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. 156.805 or 
a notice of decertification pursuant to Sec. 156.810(c) or (d).



Sec. 156.903  Scope of Administrative Law Judge's (ALJ) authority.

    (a) The ALJ has the authority, including all of the authority 
conferred by the Administrative Procedure Act (5 U.S.C. 554a), 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 or the 
decertification of a QHP offered in a Federally-facilitated Exchange.
    (b) The ALJ's authority includes the authority to modify, consistent 
with the Administrative Procedures 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. 156.905  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. 156.907(a), within 30 
days after the date of issuance of either HHS' notice of proposed 
assessment under Sec. 156.805, notice of decertification of a QHP under 
Sec. 156.810(c) or Sec. 156.810(d). 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. 156.907  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 or 
decertifications with which the respondent disagrees.
    (2) Describe with reasonable specificity the basis for the 
disagreement, including any affirmative facts or legal arguments on 
which the respondent is relying.
    (b) Identify the relevant notice of assessment or decertification by 
date and attach a copy of the notice.



Sec. 156.909  Amendment of notice of assessment or decertification 
request for hearing.

    The ALJ may permit CMS to amend its notice of assessment or 
decertification, or permit the respondent to amend a request for hearing 
that complies with Sec. 156.907(a), if the ALJ finds that no undue 
prejudice to either party will result.



Sec. 156.911  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. 156.905(a) or any extension of time

[[Page 1081]]

granted by the ALJ pursuant to Sec. 156.905(b).
    (b) The request for hearing fails to meet the requirements of Sec. 
156.907.
    (c) The entity that filed the request for hearing is not a 
respondent under Sec. 156.901.
    (d) The respondent has abandoned its request.
    (e) The respondent withdraws its request for hearing.



Sec. 156.913  Settlement.

    HHS has exclusive authority to settle any issue or any case, without 
the consent of the ALJ at any time before or after the ALJ's decision.



Sec. 156.915  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 (DOL) or the Internal Revenue Service 
(IRS) may intervene without regard to paragraphs (a)(1) through (3) of 
this section.



Sec. 156.917  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.
    (3) Whether a basis exists to decertify a QHP offered by the 
respondent in a Federally-facilitated Exchange.
    (b) In deciding whether the amount of a civil money penalty is 
reasonable, the ALJ--
    (1) Will apply the factors that are identified in Sec. 156.805 for 
civil money penalties.
    (2) May consider evidence of record relating to any factor that HHS 
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 HHS 
assessed.



Sec. 156.919  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 fact the resolution of 
which requires the receipt of oral testimony.



Sec. 156.921  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. 156.923  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. 156.925  Motions.

    (a) Any request to the ALJ for an order or ruling must be by motion,

[[Page 1082]]

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. 156.927  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. 156.929  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. 156.901) 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 Sec. 156.905(b)).



Sec. 156.931  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 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. 156.935  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. 156.937(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. 156.937 without discovery. The parties 
should attempt to resolve any discovery issues informally before seeking 
an order from the ALJ.

[[Page 1083]]

    (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.
    (5) The disclosure of information responsive to the discovery 
request is prohibited by law.
    (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. 156.937  Submission of briefs and proposed hearing exhibits.

    (a) Within 60 days of its receipt of the acknowledgment provided for 
in Sec. 156.931, the respondent must file the following with the ALJ:
    (1) A statement of its arguments concerning CMS's notice of 
assessment or decertification (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 or decertification 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.
    (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 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. 156.939  Effect of submission of proposed hearing exhibits.

    (a) Any proposed hearing exhibit submitted by a party in accordance 
with Sec. 156.937 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

[[Page 1084]]

objection must be raised either in writing prior to the prehearing 
conference provided for in Sec. 156.941 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. 156.937 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. 156.941  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. 156.937 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. 156.943  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 or decertification; 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. 156.945  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 Sec. 156.805 of this part to consider the 
entity's prior 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 HHS' 
notice sent in accordance with Sec. 156.805 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

[[Page 1085]]

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 HHS' notice under 
Sec. 156.805(d) or Sec. 156.810(c) or Sec. 156.810(d).



Sec. 156.947  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. 156.951  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. 156.953  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. 156.957.



Sec. 156.955  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. 156.957  Review by Administrator.

    (a) The Administrator of CMS (which for purposes of this section 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. 156.953.
    (b) The Administrator may decide to review an initial agency 
decision if it appears from a preliminary review of 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.

[[Page 1086]]

    (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. 156.959  Judicial review.

    (a) Filing of an action for review. Any responsible entity against 
whom a final order imposing a civil money penalty or decertification of 
a QHP 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 HHS.
    (b) Certification of administrative record. HHS promptly certifies 
and files with the court the record upon which the penalty was assessed.
    (c) Standard of review. The findings of HHS 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. 156.961  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. 156.963  Final order not subject to review.

    In an action brought under Sec. 156.961, the validity and 
appropriateness of the final order imposing a civil money penalty is not 
subject to review.



Subpart K_Cases Forwarded to Qualified Health Plans and Qualified Health 
             Plan Issuers in Federally-facilitated Exchanges

    Source: 78 FR 54143, Aug. 30, 2013, unless otherwise noted.



Sec. 156.1010  Standards.

    (a) A case is a communication brought by a complainant that 
expresses dissatisfaction with a specific person or entity subject to 
State or Federal laws regulating insurance, concerning the person or 
entity's activities related to the offering of insurance, other than a 
communication with respect to an adverse benefit determination as 
defined in Sec. 147.136(a)(2)(i) of this subchapter. Issues related to 
adverse benefit determinations are not addressed in this section and are 
subject to the provisions in Sec. 147.136 of this subchapter governing 
internal claims appeals and external review. Issues related to 
eligibility determination processes and appeals are not addressed in 
this section and are subject to the provisions in subpart F of part 155.
    (b) QHP issuers operating in a Federally-facilitated Exchange must 
investigate and resolve, as appropriate, cases from the complainant 
forwarded to the issuer by HHS. Cases received by

[[Page 1087]]

a QHP issuer operating in a Federally-facilitated Exchange directly from 
a complainant or the complainant's authorized representative will be 
handled by the issuer through its internal customer service process.
    (c) Cases may be forwarded to a QHP issuer operating in a Federally-
facilitated Exchange through a casework tracking system developed by HHS 
or other means as determined by HHS.
    (d) Cases received by a QHP issuer operating in a Federally-
facilitated Exchange from HHS must be resolved within 15 calendar days 
of receipt of the case. Urgent cases as defined in paragraph (e) of this 
section that do not otherwise fall within the scope of Sec. 147.136 of 
this subchapter must be resolved no later than 72 hours after receipt of 
the case. Where applicable State laws and regulations establish 
timeframes for case resolution that are stricter than the standards 
contained in this paragraph, QHP issuers operating in a Federally-
facilitated Exchange must comply with such stricter laws and 
regulations.
    (e) For cases received from HHS by a QHP issuer operating in a 
Federally-facilitated Exchange, an urgent case is one in which there is 
an immediate need for health services because the non-urgent standard 
could seriously jeopardize the enrollee's or potential enrollee's life, 
or health or ability to attain, maintain, or regain maximum function; or 
one in which the process for non-urgent cases would jeopardize the 
enrollee's or potential enrollee's ability enroll in a QHP through the 
Federally-facilitated Exchange.
    (f) For cases received from HHS, QHP issuers operating in a 
Federally-facilitated Exchange are required to notify complainants 
regarding the disposition of the as soon as possible upon resolution of 
the case, but in no event later than three (3) business days after the 
case is resolved.
    (1) For the purposes of meeting the requirement in this paragraph 
(f), notification may be by verbal or written means as determined most 
appropriate by the QHP issuer.
    (2) In instances when the initial notification of a case's 
disposition is not written, written notification must be provided to the 
consumer in a timely manner.
    (g) For cases received from HHS, QHP issuers operating in a 
Federally-facilitated Exchange must use the casework tracking system 
developed by HHS, or other means as determined by HHS, to document the 
following:
    (1) The date of resolution of a case received from HHS;
    (2) A resolution summary of the case no later than seven (7) 
business days after resolution of the case. The record must include a 
clear and concise narrative explaining how the case was resolved 
including information about how and when the complainant was notified of 
the resolution; and
    (3) For a case in which a State agency, including but not limited to 
a State department of insurance, conducts an investigation related to 
that case, any compliance issues identified by the State agency 
implicating the QHP or QHP issuer.
    (h) Cases received by a QHP issuer operating in a Federally-
facilitated Exchange from a State in which the issuer offers QHPs must 
be investigated and resolved according to applicable State laws and 
regulations. With respect to cases directly handled by the State, HHS or 
any other appropriate regulatory authority, QHP issuers operating in a 
Federally-facilitated Exchange must cooperate fully with the efforts of 
the State, HHS, or other regulatory authority to resolve the case.



                       Subpart L_Quality Standards

    Source: 78 FR 65105, Oct. 30, 2013, unless otherwise noted.



Sec. 156.1105  Establishment of standards for HHS-approved enrollee 
satisfaction survey vendors for use by QHP issuers in Exchanges.

    (a) Application for approval. An enrollee satisfaction survey vendor 
must be approved by HHS, in a form and manner to be determined by HHS, 
to administer, on behalf of a QHP issuer, enrollee satisfaction surveys 
to QHP enrollees. HHS will approve enrollee

[[Page 1088]]

satisfaction survey vendors on an annual basis, and each enrollee 
satisfaction survey vendor must submit an application for each year that 
approval is sought.
    (b) Standards. To be approved by HHS, an enrollee satisfaction 
survey vendor must meet each of the following standards:
    (1) Sign and submit an application form for approval in accordance 
with paragraph (a) of this section;
    (2) Ensure, on an annual basis, that appropriate staff participate 
in enrollee satisfaction survey vendor training and successfully 
complete a post-training certification exercise as established by HHS;
    (3) Ensure the accuracy of their data collection, calculation and 
submission processes and attest to HHS the veracity of the data and 
these processes;
    (4) Sign and execute a standard HHS data use agreement, in a form 
and manner to be determined by HHS, that establishes protocols related 
to the disclosure, use, and reuse of HHS data;
    (5) Adhere to the enrollee satisfaction survey protocols and 
technical specifications in a manner and form required by HHS;
    (6) Develop and submit to HHS a quality assurance plan and any 
supporting documentation as determined to be relevant by HHS. The plan 
must describe in adequate detail the implementation of and compliance 
with all required protocols and technical specifications described in 
paragraph (b)(5) of this section;
    (7) Adhere to privacy and security standards established and 
implemented under Sec. 155.260 of this subchapter by the Exchange with 
which they are associated;
    (8) Comply with all applicable State and Federal laws;
    (9) Become a registered user of the enrollee satisfaction survey 
data warehouse to submit files to HHS on behalf of its authorized QHP 
contracts;
    (10) Participate in and cooperate with HHS oversight for quality-
related activities, including, but not limited to: review of the 
enrollee satisfaction survey vendor's quality assurance plan and other 
supporting documentation; analysis of the vendor's submitted data and 
sampling procedures; and site visits and conference calls; and,
    (11) Comply with minimum business criteria as established by HHS.
    (c) Approved list. A list of approved enrollee satisfaction survey 
vendors will be published on an HHS Web site.
    (d) Monitoring. HHS will periodically monitor HHS-approved enrollee 
satisfaction survey vendors to ensure ongoing compliance with the 
standards in paragraph (b) of this section. If HHS determines that an 
HHS-approved enrollee satisfaction survey vendor is non-compliant with 
the standards required in paragraph (b) of this section, the survey 
vendor may be removed from the approved list described in paragraph (c) 
of this section and/or the submitted survey results may be ineligible to 
be included for ESS results.
    (e) Appeals. An enrollee satisfaction survey vendor that is not 
approved by HHS after submitting the application described in paragraph 
(a) of this section may appeal HHS's decision by notifying HHS in 
writing within 15 days from receipt of the notification of not being 
approved and submitting additional documentation demonstrating how the 
vendor meets the standards in paragraph (b) of this section. HHS will 
review the submitted documentation and make a final approval 
determination within 30 days from receipt of the additional 
documentation.

[78 FR 65105, Oct. 30, 2013, as amended at 79 FR 30351, May 27, 2014]



Sec. 156.1110  Establishment of patient safety standards for QHP issuers.

    (a) Patient safety standards. A QHP issuer that contracts with a 
hospital with greater than 50 beds must verify that the hospital, as 
defined in section 1861(e) of the Social Security Act, is Medicare-
certified or has been issued a Medicaid-only CMS Certification Number 
(CCN) and is subject to the Medicare Hospital Conditions of 
Participation requirements for--
    (1) A quality assessment and performance improvement program as 
specified in 42 CFR 482.21; and
    (2) Discharge planning as specified in 42 CFR 482.43.
    (b) Documentation. A QHP issuer must collect the CCN, from each of 
its contracted hospitals with greater than 50

[[Page 1089]]

beds, to demonstrate that those hospitals meet patient safety standards 
required in paragraph (a) of this section.
    (c) Reporting. (1) A QHP issuer must make available to the Exchange 
the documentation referenced in paragraph (b) of this section, upon 
request by the Exchange, in a time and manner specified by the Exchange.
    (2) Issuers of multi-State plans, as defined in Sec. 155.1000(a) of 
this subchapter, must provide the documentation described in paragraph 
(b) of this section to the U.S. Office of Personnel Management, in the 
time and manner specified by the U.S. Office of Personnel Management.
    (d) Effective date. A QHP issuer must ensure that each QHP meets 
patient safety standards in accordance with paragraph (a) of this 
section effective for plan years beginning on or after January 1, 2015.

[79 FR 13841, Mar. 11, 2014]



Sec. 156.1120  Quality rating system.

    (a) Data submission requirement. (1) A QHP issuer must submit data 
to HHS and Exchanges to support the calculation of quality ratings for 
each QHP that has been offered in an Exchange for at least one year.
    (2) In order to ensure the integrity of the data required to 
calculate the QRS, a QHP issuer must submit data that has been validated 
in a form and manner specified by HHS.
    (3) A QHP issuer must include in its data submission information 
only for those QHP enrollees at the level specified by HHS.
    (b) Timeline. A QHP issuer must annually submit data necessary to 
calculate the QHP's quality ratings to HHS and Exchanges, on a timeline 
and in a standardized form and manner specified by HHS.
    (c) Marketing requirement. A QHP issuer may reference the quality 
ratings for its QHPs in its marketing materials, in a manner specified 
by HHS.
    (d) Multi-State plans. Issuers of multi-State plans, as defined in 
Sec. 155.1000(a) of this subchapter, must provide the data described in 
paragraph (a) of this section to the U.S. Office of Personnel 
Management, in the time and manner specified by the U.S. Office of 
Personnel Management.

[79 FR 30352, May 27, 2014]



Sec. 156.1125  Enrollee satisfaction survey system.

    (a) General requirement. A QHP issuer must contract with an HHS-
approved enrollee satisfaction survey (ESS) vendor, as identified by 
Sec. 156.1105, in order to administer the Enrollee Satisfaction Survey 
of the QHP's enrollees. A QHP issuer must authorize its contracted ESS 
vendor to report survey results to HHS and the Exchange on the issuer's 
behalf.
    (b) Data requirement. (1) A QHP issuer must collect data for each 
QHP, with more than 500 enrollees in the previous year that has been 
offered in an Exchange for at least one year and following a survey 
sampling methodology provided by HHS.
    (2) In order to ensure the integrity of the data required to conduct 
the survey, a QHP issuer must submit data that has been validated in a 
form and manner specified by HHS, and submit this data to its contracted 
ESS vendor.
    (3) A QHP issuer must include in its data submission information 
only for those QHP enrollees at the level specified by HHS.
    (c) Marketing requirement. A QHP issuer may reference the survey 
results for its QHPs in its marketing materials, in a manner specified 
by HHS.
    (d) Timeline. A QHP issuer must annually submit data necessary to 
conduct the survey to its contracted ESS vendor on a timeline and in a 
standardized form and manner specified by HHS.
    (e) Multi-State plans. Issuers of multi-State plans, as defined in 
Sec. 155.1000(a) of this subchapter, must provide the data described in 
paragraph (b) of this section to the U.S. Office of Personnel 
Management, in the time and manner specified by the U.S. Office of 
Personnel Management.

[79 FR 30352, May 27, 2014]



Sec. 156.1130  Quality improvement strategy.

    (a) General requirement. A QHP issuer participating in an Exchange 
for 2 or

[[Page 1090]]

more consecutive years must implement and report on a quality 
improvement strategy including a payment structure that provides 
increased reimbursement or other market-based incentives in accordance 
with the health care topic areas in section 1311(g)(1) of the Affordable 
Care Act, for each QHP offered in an Exchange, consistent with the 
guidelines developed by HHS under section 1311(g) of the Affordable Care 
Act.
    (b) Data requirement. A QHP issuer must submit data that has been 
validated in a manner and timeframe specified by the Exchange to support 
the evaluation of quality improvement strategies in accordance with 
Sec. 155.200(d) of this subchapter.
    (c) Timeline. A QHP issuer must submit data annually to evaluate 
compliance with the standards for a quality improvement strategy in 
accordance with paragraph (a) of this section, in a manner and timeframe 
specified by the Exchange.
    (d) Multi-State plans. Issuers of multi-State plans, as defined in 
Sec. 155.1000(a) of this subchapter, must provide the data described in 
paragraph (b) of this section to the U.S. Office of Personnel 
Management, in the manner and timeframe specified by the U.S. Office of 
Personnel Management.

[80 FR 10876, Feb. 27, 2015]



         Subpart M_Qualified Health Plan Issuer Responsibilities

    Source: 78 FR 54143, Aug. 30, 2013, unless otherwise noted.



Sec. 156.1210  Confirmation of HHS payment and collections reports.

    (a) Responses to reports. Within 15 calendar days of the date of a 
payment and collections report from HHS, the issuer must, in a format 
specified by HHS, either:
    (1) Confirm to HHS that the amounts identified in the payment and 
collections report for the timeframe specified in the report accurately 
reflect applicable payments owed by the issuer to the Federal government 
and the payments owed to the issuer by the Federal government; or
    (2) Describe to HHS any inaccuracy it identifies in the payment and 
collections report.
    (b) Late discovery of a discrepancy. If an issuer reports a 
discrepancy in a payment and collections report later than 15 calendar 
days after the date of the report, HHS will work with the issuer to 
resolve the discrepancy as long as the late reporting was not due to 
misconduct on the part of the issuer.
    (c) Discrepancies to be addressed in future reports. Discrepancies 
in payment and collections reports identified to HHS under this section 
will be addressed in subsequent payment and collections reports, and 
will not be used to change debts determined pursuant to invoices 
generated under previous payment and collections reports.

[78 FR 65105, Oct. 30, 2013, as amended at 79 FR 13841, Mar. 11, 2014]



Sec. 156.1215  Payment and collections processes.

    (a) Netting of payments and charges for 2014. In 2014, as part of 
its monthly payment and collections process, HHS will net payments owed 
to QHP issuers and their affiliates under the same taxpayer 
identification number against amounts due to the Federal government from 
the QHP issuers and their affiliates under the same taxpayer 
identification number for advance payments of the premium tax credit, 
advance payments of cost-sharing reductions, and payment of Federally-
facilitated Exchange user fees.
    (b) Netting of payments and charges for later years. In 2015 and 
later years, as part of its payment and collections process, HHS may net 
payments owed to issuers and their affiliates operating under the same 
tax identification number against amounts due to the Federal government 
from the issuers and their affiliates under the same taxpayer 
identification number for advance payments of the premium tax credit, 
advance payments of and reconciliation of cost-sharing reductions, 
payment of Federally-facilitated Exchange user fees, and risk 
adjustment, reinsurance, and risk corridors payments and charges.
    (c) Determination of debt. Any amount owed to the Federal government 
by an issuer and its affiliates for advance

[[Page 1091]]

payments of the premium tax credit, advance payments of and 
reconciliation of cost-sharing reductions, Federally-facilitated 
Exchange user fees, risk adjustment, reinsurance, and risk corridors, 
after HHS nets amounts owed by the Federal government under these 
programs, is a determination of a debt.

[79 FR 13841, Mar. 11, 2014]



Sec. 156.1220  Administrative appeals.

    (a) Requests for reconsideration--(1) Matters for reconsideration. 
An issuer may file a request for reconsideration under this section to 
contest a processing error by HHS, HHS's incorrect application of the 
relevant methodology, or HHS's mathematical error only with respect to 
the following:
    (i) The amount of advance payment of the premium tax credit, advance 
payment of cost-sharing reductions or Federally-facilitated Exchange 
user fees charge for a benefit year;
    (ii) The amount of a risk adjustment payment or charge for a benefit 
year, including an assessment of risk adjustment user fees;
    (iii) The amount of a reinsurance payment for a benefit year;
    (iv) The amount of a risk adjustment default charge for a benefit 
year;
    (v) The amount of a reconciliation payment or charge for cost-
sharing reductions for a benefit year; or
    (vi) The amount of a risk corridors payment or charge for a benefit 
year.
    (2) Materiality threshold. Notwithstanding paragraph (a)(1) of this 
section, an issuer may file a request for reconsideration under this 
section only if the amount in dispute under paragraph (a)(1)(i) through 
(vi) of this section, as applicable, is equal to or exceeds 1 percent of 
the applicable payment or charge listed in that subparagraph payable to 
or due from the issuer for the benefit year, or $10,000, whichever is 
less.
    (3) Time for filing a request for reconsideration. The request for 
reconsideration must be filed in accordance with the following 
timeframes:
    (i) For advance payments of the premium tax credit, advance payments 
of cost-sharing reductions, or Federally-facilitated Exchange user fee 
charges, within 60 calendar days after the date of the final 
reconsideration notification specifying the aggregate amount of advance 
payments of the premium tax credit, advance payments of cost-sharing 
reductions, and Federally-facilitated Exchange user fees for the 
applicable benefit year;
    (ii) For a risk adjustment payment or charge, including an 
assessment of risk adjustment user fees, within 60 calendar days of the 
date of the notification provided by HHS under Sec. 153.310(e) of this 
subchapter;
    (iii) For a reinsurance payment, within 60 calendar days of the date 
of the notification provided by HHS under Sec. 153.240(b)(1)(ii) of 
this subchapter;
    (iv) For a default risk adjustment charge, within 60 calendar days 
of the date of the notification of the default risk adjustment charge;
    (v) For reconciliation of cost-sharing reductions, within 60 
calendar days of the date of the notification provided by HHS of the 
cost-sharing reduction reconciliation payment or charge; and
    (vi) For a risk corridors payment or charge, within 60 calendar days 
of the date of the notification provided by HHS under Sec. 153.510(d) 
of this subchapter.
    (4) Content of request. (i) The request for reconsideration must 
specify the findings or issues specified in paragraph (a)(1) of this 
section that the issuer challenges, and the reasons for the challenge.
    (ii) Notwithstanding paragraph (a)(1) of this section, a 
reconsideration with respect to a processing error by HHS, HHS's 
incorrect application of the relevant methodology, or HHS's mathematical 
error may be requested only if, to the extent the issue could have been 
previously identified by the issuer to HHS under Sec. 153.710(d)(2) or 
(e)(2) of this subchapter, it was so identified and remains unresolved.
    (iii) Notwithstanding paragraph (a)(1) of this section, a 
reconsideration with respect to advance payments of the premium tax 
credit, advance payments of cost-sharing reductions, and Federally-
facilitated Exchange user fees may be requested only if, to extent the 
issue could have been previously identified by the issuer to HHS under 
Sec. 156.1210, it

[[Page 1092]]

was so identified and remains unresolved. An issuer may request 
reconsideration if it previously identified an issue under Sec. 
156.1210 after the 15-calendar-day deadline, but late discovery of the 
issue was not due to misconduct on the part of the issuer.
    (iv) The issuer may include in the request for reconsideration 
additional documentary evidence that HHS should consider. Such documents 
may not include data that was to have been filed by the applicable data 
submission deadline, but may include evidence of timely submission.
    (5) Scope of review for reconsideration. In conducting the 
reconsideration, HHS will review the appropriate payment and charge 
determinations, the evidence and findings upon which the determination 
was based, and any additional documentary evidence submitted by the 
issuer. HHS may also review any other evidence it believes to be 
relevant in deciding the reconsideration, which will be provided to the 
issuer with a reasonable opportunity to review and rebut the evidence. 
The issuer must prove its case by a preponderance of the evidence with 
respect to issues of fact.
    (6) Reconsideration decision. HHS will inform the issuer of the 
reconsideration decision in writing. A reconsideration decision is final 
and binding for decisions regarding the advance payments of the premium 
tax credit, advance payment of cost-sharing reductions, or Federally-
facilitated Exchange user fees. A reconsideration decision with respect 
to other matters is subject to the outcome of a request for informal 
hearing filed in accordance with paragraph (b) of this section.
    (b) Informal hearing. An issuer may request an informal hearing 
before a CMS hearing officer to appeal HHS's reconsideration decision.
    (1) Manner and timing for request. A request for an informal hearing 
must be made in writing and filed with HHS within 30 calendar days of 
the date of the reconsideration decision under paragraph (a)(5) of this 
section.
    (2) Content of request. The request for informal hearing must 
include a copy of the reconsideration decision and must specify the 
findings or issues in the decision that the issuer challenges, and its 
reasons for the challenge. HHS may submit for review by the CMS hearing 
officer a statement of its reasons for the reconsideration decision.
    (3) Informal hearing procedures. (i) The issuer will receive a 
written notice of the time and place of the informal hearing at least 15 
calendar days before the scheduled date.
    (ii) The CMS hearing officer will neither receive testimony nor 
accept any new evidence that was not presented with the reconsideration 
request and HHS statement under paragraph (b) of this section. The CMS 
hearing officer will review only the documentary evidence provided by 
the issuer and HHS, and the record that was before HHS when HHS made its 
reconsideration determination. The issuer may be represented by counsel 
in the informal hearing, and must prove its case by clear and convincing 
evidence with respect to issues of fact.
    (4) Decision of the CMS hearing officer. The CMS hearing officer 
will send the informal hearing decision and the reasons for the decision 
to the issuer. The decision of the CMS hearing officer is final and 
binding, but is subject to the results of any Administrator's review 
initiated in accordance with paragraph (c) of this section.
    (c) Review by the Administrator of CMS. (1) Either the issuer or CMS 
may request review by the Administrator of CMS of the CMS hearing 
officer's decision. A request for review of the CMS hearing officer's 
decision must be submitted to the Administrator of CMS within 15 
calendar days of the date of the CMS hearing officer's decision, and 
must specify the findings or issues that the issuer or CMS challenges. 
The issuer or CMS may submit for review by the Administrator of CMS a 
statement supporting the decision of the CMS hearing officer.
    (2) After receiving a request for review, the Administrator of CMS 
has the discretion to elect to review the CMS hearing officer's decision 
or to decline to review the CMS hearing officer's decision. If the 
Administrator of CMS elects to review the CMS hearing officer's 
decision, the Administrator of CMS will also review the statements of 
the issuer and CMS, and any other information included in the record of 
the

[[Page 1093]]

CMS hearing officer's decision, and will determine whether to uphold, 
reverse, or modify the CMS hearing officer's decision. The issuer or CMS 
must prove its case by clear and convincing evidence for issues of fact. 
The Administrator of CMS will send the decision and the reasons for the 
decision to the issuer.
    (3) The Administrator of CMS's determination is final and binding.

[79 FR 13841, Mar. 11, 2014, as amended at 80 FR 10876, Feb. 27, 2015]



Sec. 156.1230  Direct enrollment with the QHP issuer in a manner 
considered to be through the Exchange.

    (a) A QHP issuer that is directly contacted by a potential applicant 
may, at the Exchange's option, enroll such applicant in a QHP in a 
manner that is considered through the Exchange. In order for the 
enrollment to be made directly with the issuer in a manner that is 
considered to be through the Exchange, the QHP issuer needs to comply 
with at least the following requirements:
    (1) QHP issuer general requirements. (i) The QHP issuer follows the 
enrollment process for qualified individuals consistent with Sec. 
156.265.
    (ii) The QHP issuer's Web site provides applicants the ability to 
view QHPs offered by the issuer with the data elements listed in Sec. 
155.205(b)(1)(i) through (viii) of this subchapter.
    (iii) The QHP issuer's Web site clearly distinguishes between QHPs 
for which the consumer is eligible and other non-QHPs that the issuer 
may offer, and indicate that advance payments of the premium tax credit 
and cost sharing reductions apply only to QHPs offered through the 
Exchange.
    (iv) The QHP issuer informs all applicants of the availability of 
other QHP products offered through the Exchange through an HHS-approved 
universal disclaimer and displays the Web link to and describes how to 
access the Exchange Web site.
    (v) The QHP issuer's Web site allows applicants to select and attest 
to an advance payment of the premium tax credit amount, if applicable, 
in accordance with Sec. 155.310(d)(2) of this subchapter.
    (2) QHP issuer application assister eligibility application 
assistance requirements. If permitted by the Exchange pursuant to Sec. 
155.415 of this subchapter, and to the extent permitted by State law, a 
QHP issuer may permit its issuer application assisters, as defined at 
Sec. 155.20, to assist individuals in the individual market with 
applying for a determination or redetermination of eligibility for 
coverage through the Exchange and for insurance affordability programs, 
provided that such issuer ensures that each of its application assisters 
at least-
    (i) Receives training on QHP options and insurance affordability 
programs, eligibility, and benefits rules and regulations;
    (ii) Complies with the Exchange's privacy and security standards 
adopted consistent with Sec. 155.260 of this subchapter; and
    (iii) Complies with applicable State law related to the sale, 
solicitation, and negotiation of health insurance products, including 
applicable State law related to agent, broker, and producer licensure; 
confidentiality; and conflicts of interest.
    (b) Direct enrollment in a Federally-facilitated Exchange. The 
individual market Federally-facilitated Exchanges will permit issuers of 
QHPs in each Federally-facilitated Exchange to directly enroll 
applicants in a manner that is considered to be through the Exchange, 
pursuant to paragraph (a) of this section, to the extent permitted by 
applicable State law.



Sec. 156.1240  Enrollment process for qualified individuals.

    (a) Premium payment. A QHP issuer must--
    (1) Follow the premium payment process established by the Exchange 
in accordance with Sec. 155.240.
    (2) At a minimum, for all payments in the individual market, accept 
paper checks, cashier's checks, money orders, EFT, and all general-
purpose pre-paid debit cards as methods of payment and present all 
payment method options equally for a consumer to select their preferred 
payment method.
    (b) [Reserved]

[[Page 1094]]



Sec. 156.1250  Acceptance of certain third party payments.

    Issuers offering individual market QHPs, including stand-alone 
dental plans, must accept premium and cost-sharing payments from the 
following third-party entities on behalf of plan enrollees:
    (a) Ryan White HIV/AIDS Program under title XXVI of the Public 
Health Service Act;
    (b) Indian tribes, tribal organizations or urban Indian 
organizations; and
    (c) State and Federal Government programs.

[79 FR 15245, Mar. 19, 2014]



Sec. 156.1255  Renewal and re-enrollment notices.

    A health insurance issuer that is renewing an enrollment group's 
coverage in an individual market QHP offered through the Exchange 
(including a renewal with modifications) in accordance with Sec. 
147.106 of this subchapter, or that is nonrenewing coverage offered 
through the Exchange and automatically enrolling an enrollee in a QHP 
under a different product offered by the same QHP issuer through the 
Exchange in accordance with Sec. 155.335 of this subchapter, must 
include the following information in the applicable notice described in 
Sec. 147.106(b)(5), (c)(1), or (f)(1) of this subchapter:
    (a) Premium and advance payment of the premium tax credit 
information sufficient to notify the enrollment group of its expected 
monthly premium payment under the renewed coverage, in a form and manner 
specified by the Exchange, provided that if the Exchange does not 
provide this information to enrollees and does not require issuers to 
provide this information to enrollees, consistent with this section, 
such information must be provided in a form and manner specified by HHS;
    (b) An explanation of the requirement to report changes to the 
Exchange, as specified in Sec. 155.335(e) of this subchapter, the 
timeframe and channels through which changes can be reported, and the 
implications of not reporting changes;
    (c) For an enrollment group that includes an enrollee on whose 
behalf advance payments of the premium tax credit are being provided, an 
explanation of the reconciliation process for advance payments of the 
premium tax credit established in accordance with 26 CFR 1.36B-4; and
    (d) For an enrollment group that includes an enrollee being provided 
cost-sharing reductions, but for whom no QHP under the product remains 
available for renewal at the silver level, an explanation that in 
accordance with Sec. 155.305(g)(1)(ii) of this subchapter, cost-sharing 
reductions are only available to an individual who is not an Indian if 
he or she is enrolled in a silver-level QHP.

[79 FR 53006, Sept. 5, 2014]



PART 157_EMPLOYER INTERACTIONS WITH EXCHANGES AND SHOP PARTICIPATION--
Table of Contents



                      Subpart A_General Provisions

Sec.
157.10 Basis and scope.
157.20 Definitions.

Subpart B [Reserved]

               Subpart C_Standards for Qualified Employers

157.200 Eligibility of qualified employers to participate in a SHOP.
157.205 Qualified employer participation process in a SHOP.

    Authority: Title I of the Affordable Care Act, Sections 1311, 1312, 
1321, 1411, 1412, Pub. L. 111-148, 124 Stat. 199.

    Source: 77 FR 18474, Mar. 27, 2012, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 157.10  Basis and scope.

    (a) Basis. This part is based on the following sections of title I 
of the Affordable Care:
    (1) 1311. Affordable choices of health benefits plans.
    (2) 1312. Consumer Choice.
    (3) 1321. State flexibility in operation and enforcement of 
Exchanges and related requirements.
    (4) 1411. Procedures for determining eligibility for Exchange 
participation, advance payments of the premium tax credit and cost-
sharing reductions, and individual responsibility exemptions.

[[Page 1095]]

    (5) 1412. Advance determination and payment of the premium tax 
credit and cost-sharing reductions.
    (b) Scope. This part establishes the requirements for employers in 
connection with the operation of Exchanges.



Sec. 157.20  Definitions.

    The following definitions apply to this part, unless otherwise 
indicated:
    Federally-facilitated SHOP has the meaning given to the term in 
Sec. 155.20 of this subchapter.
    Full-time employee has the meaning given to the term in Sec. 155.20 
of this subchapter.
    Large employer has the meaning given to the term in Sec. 155.20 of 
this subchapter.
    Qualified employee has the meaning given to the term in Sec. 155.20 
of this subchapter.
    Qualified employer has the meaning given to the term in Sec. 155.20 
of this subchapter.
    Small employer has the meaning given to the term in Sec. 155.20 of 
this subchapter.

[77 FR 18474, Mar. 27, 2012, as amended at 78 FR 15539, Mar. 11, 2013]

Subpart B [Reserved]



               Subpart C_Standards for Qualified Employers



Sec. 157.200  Eligibility of qualified employers to participate in a SHOP.

    (a) General requirement. Only a qualified employer may participate 
in the SHOP in accordance with Sec. 155.710 of this subchapter.
    (b) Continuing participation for growing small employers. A 
qualified employer may continue to participate in the SHOP if it ceases 
to be a small employer in accordance with Sec. 155.710 of this 
subchapter.
    (c) Participation in multiple SHOPs. A qualified employer may 
participate in multiple SHOPs in accordance with Sec. 155.710 of this 
subchapter.



Sec. 157.205  Qualified employer participation process in a SHOP.

    (a) General requirements. When joining the SHOP, a qualified 
employer must comply with the requirements, processes, and timelines set 
forth by this part and must remain in compliance for the duration of the 
employer's participation in the SHOP.
    (b) Selecting QHPs. During an election period, a qualified employer 
may make coverage in a QHP available through the SHOP in accordance with 
the processes developed by the SHOP in accordance with Sec. 155.705 of 
this subchapter.
    (c) Information dissemination to employees. A qualified employer 
participating in the SHOP must disseminate information to its qualified 
employees about the process to enroll in a QHP through the SHOP.
    (d) Payment. A qualified employer must submit any contribution 
towards the premiums of any qualified employee according to the 
standards and processes described in Sec. 155.705 of this subchapter.
    (e) Employees hired outside of the initial or annual open enrollment 
period. Qualified employers must provide employees hired outside of the 
initial or annual open enrollment period with:
    (1) A period to seek coverage in a QHP beginning on the first day of 
becoming a qualified employee; and
    (2) Information about the enrollment process in accordance with 
Sec. 155.725 of this subchapter.
    (f) New employees and changes in employee eligibility. Qualified 
employers participating in the SHOP must provide the SHOP with 
information about dependents or employees whose eligibility status for 
coverage purchased through the employer in the SHOP has changed, 
including:
    (1) Newly eligible dependents and employees; and
    (2) Loss of qualified employee status.
    (g) Annual employer election period. Qualified employers must adhere 
to the annual employer election period to change their program 
participation for the next plan year described in Sec. 155.725(c) of 
this subchapter.



PART 158_ISSUER USE OF PREMIUM REVENUE: REPORTING AND REBATE 
REQUIREMENTS--Table of Contents



Sec.
158.101 Basis and scope.
158.102 Applicability.
158.103 Definitions.

[[Page 1096]]

                   Subpart A_Disclosure and Reporting

158.110 Reporting requirements related to premiums and expenditures.
158.120 Aggregate reporting.
158.121 Newer experience.
158.130 Premium revenue.
158.140 Reimbursement for clinical services provided to enrollees.
158.150 Activities that improve health care quality.
158.151 Expenditures related to Health Information Technology and 
          meaningful use requirements.
158.160 Other non-claims costs.
158.161 Reporting of Federal and State licensing and regulatory fees.
158.162 Reporting of Federal and State taxes.
158.170 Allocation of expenses.

             Subpart B_Calculating and Providing the Rebate

158.210 Minimum medical loss ratio.
158.211 Requirement in States with a higher medical loss ratio.
158.220 Aggregation of data in calculating an issuer's medical loss 
          ratio.
158.221 Formula for calculating an issuer's medical loss ratio.
158.230 Credibility adjustment.
158.231 Life-years used to determine credible experience.
158.232 Calculating the credibility adjustment.
158.240 Rebating premium if the applicable medical loss ratio standard 
          is not met.
158.241 Form of rebate.
158.242 Recipients of rebates.
158.243 De minimis rebates.
158.244 Unclaimed rebates.
158.250 Notice of rebates.
158.251 Notice of MLR information.
158.260 Reporting of rebates.
158.270 Effect of rebate payments on solvency.

   Subpart C_Potential Adjustment to the MLR for a State's Individual 
                                 Market

158.301 Standard for adjustment to the medical loss ratio.
158.310 Who may request adjustment to the medical loss ratio.
158.311 Duration of adjustment to the medical loss ratio.
158.320 Information supporting a request for adjustment to the medical 
          loss ratio.
158.321 Information regarding the State's individual health insurance 
          market.
158.322 Proposal for adjusted medical loss ratio.
158.323 State contact information.
158.330 Criteria for assessing request for adjustment to the medical 
          loss ratio.
158.340 Process for submitting request for adjustment to the medical 
          loss ratio.
158.341 Treatment as a public document.
158.342 Invitation for public comments.
158.343 Optional State hearing.
158.344 Secretary's discretion to hold a hearing.
158.345 Determination on a State's request for adjustment to the medical 
          loss ratio.
158.346 Request for reconsideration.
158.350 Subsequent requests for adjustment to the medical loss ratio.

                        Subpart D_HHS Enforcement

158.401 HHS enforcement.
158.402 Audits.
158.403 Circumstances in which a State is conducting audits of issuers.

              Subpart E_Additional Requirements on Issuers

158.501 Access to facilities and records.
158.502 Maintenance of records.

                    Subpart F_Federal Civil Penalties

158.601 General rule regarding the imposition of civil penalties.
158.602 Basis for imposing civil penalties.
158.603 Notice to responsible entities.
158.604 Request for extension.
158.605 Responses to allegations of noncompliance.
158.606 Amount of penalty--general.
158.607 Factors HHS uses to determine the amount of penalty.
158.608 Determining the amount of the penalty--mitigating circumstances.
158.609 Determining the amount of the penalty--aggravating 
          circumstances.
158.610 Determining the amount of the penalty--other matters as justice 
          may require.
158.611 Settlement authority.
158.612 Limitations on penalties.
158.613 Notice of proposed penalty.
158.614 Appeal of proposed penalty.
158.615 Failure to request a hearing.

    Authority: Section 2718 of the Public Health Service Act (42 U.S.C. 
300gg-18), as amended.

    Source: 75 FR 74921, Dec. 1, 2010, unless otherwise noted.



Sec. 158.101  Basis and scope.

    (a) Basis. This part implements section 2718 of the Public Health 
Service Act (PHS Act).
    (b) Scope. Subpart A of this part establishes the requirements for 
health insurance issuers (``issuers'') offering group or individual 
health insurance

[[Page 1097]]

coverage to report information concerning premium revenues and the use 
of such premium revenues for clinical services provided to enrollees, 
activities that improve health care quality, and all other non-claims 
costs. Subpart B describes how this information will be used to 
determine, with respect to each medical loss ratio (MLR) reporting year, 
whether the ratio of the amount of adjusted premium revenue expended by 
the issuer on permitted costs to the total amount of adjusted premium 
revenue (MLR) meets or exceeds the percentages established by section 
2718(b)(1) of the PHS Act. Subpart B also addresses requirements for 
calculating any rebate amounts that may be due in the event an issuer 
does not meet the applicable MLR standard. Subpart C implements the 
provision of section 2718(b)(1)(A)(ii) of the PHS Act allowing the 
Secretary to adjust the MLR standard for the individual market in a 
State if requiring issuers to meet that standard may destabilize the 
individual market. Subparts D through F provide for enforcement of this 
part, including requirements for issuers to maintain records and civil 
monetary penalties that may be assessed against issuers who violate the 
requirements of this part.

[75 FR 74921, Dec. 1, 2010, as amended at 75 FR 82278, Dec. 30, 2010]



Sec. 158.102  Applicability.

    General requirements. The requirements of this part apply to issuers 
offering group or individual health insurance coverage, including a 
grandfathered health plan as defined in Sec. 147.140 of this subpart.



Sec. 158.103  Definitions.

    For the purposes of this Part, the following definitions apply 
unless specified otherwise.
    Blended rate means a single rate charged for health insurance 
coverage provided to a single employer through two or more of an 
issuer's affiliated companies for employees in one or more States.
    Contract reserves means reserves that are established by an issuer 
which, due to the gross premium pricing structure at issue, account for 
the value of the future benefits that at any time exceeds the value of 
any appropriate future valuation of net premiums at that time. Contract 
reserves must not include premium deficiency reserves. Contract reserves 
must not include reserves for expected MLR rebates.
    Direct paid claims means claim payments before ceded reinsurance and 
excluding assumed reinsurance except as otherwise provided in this Part.
    Enrollee means an individual who is enrolled, within the meaning of 
Sec. 144.103 of this title, in group health insurance coverage, or an 
individual who is covered by individual insurance coverage, at any time 
during an MLR reporting year.
    Experience rating refund means the return of a portion of premiums 
pursuant to a retrospectively rated funding arrangement when the sum of 
incurred losses, retention and margin are less than earned premium.
    Group conversion charges means the portion of earned premium 
allocated to providing the privilege for a certificate holder terminated 
from a group health plan to purchase individual health insurance without 
providing evidence of insurability.
    Health Plan means health insurance coverage offered through either 
individual coverage or a group health plan.
    Individual market has the meaning given the term in section 
2791(e)(1) of the PHS Act and section 1304(a)(2) of the Affordable Care 
Act.
    Large Employer has the meaning given the term in section 2791(e)(2) 
of the PHS Act and section 1304(b)(1) of the Affordable Care Act, except 
that as provided by section 1304(b)(3) of the Affordable Care Act, until 
2016 a State may substitute ``51'' employees for ``101'' employees in 
the definition.
    Large group market has the meaning given the term in section 
2791(e)(3) of the PHS Act and section 1304(a)(3) of the Affordable Care 
Act.
    MLR reporting year means a calendar year during which group or 
individual health insurance coverage is provided by an issuer.
    Policyholder means any entity that has entered into a contract with 
an issuer to receive health insurance coverage as defined in section 
2791(b) of the PHS Act.

[[Page 1098]]

    Situs of the contract means the jurisdiction in which the contract 
is issued or delivered as stated in the contract.
    Small Employer has the meaning given the term in section 2791(e)(4) 
of the PHS Act and section 1304(b)(2) of the Affordable Care Act, except 
that as provided by section 1304(b)(3) of the Affordable Care Act, until 
2016 a State may substitute ``50'' employees for ``100'' employees in 
the definition.
    Small group market has the meaning in section 2791(e)(5) of the PHS 
Act and section 1304(a)(3) of the Affordable Care Act.
    Student administrative health fee has the meaning given the term in 
Sec. 147.145 of this subchapter.
    Student health insurance coverage has the meaning given the term in 
Sec. 147.145 of this subchapter.
    Student market means the market for student health insurance 
coverage.
    Subscriber refers to both the group market and the individual 
market. In the group market, subscriber means the individual, generally 
the employee, whose eligibility is the basis for the enrollment in the 
group health plan and who is responsible for the payment of premiums. In 
the individual market, subscriber means the individual who purchases an 
individual policy and who is responsible for the payment of premiums.
    Unearned premium means that portion of the premium paid in the MLR 
reporting year that is intended to provide coverage during a period 
which extends beyond the MLR reporting year.
    Unpaid Claim Reserves means reserves and liabilities established to 
account for claims that were incurred during the MLR reporting year but 
had not been paid within 3 months of the end of the MLR reporting year.

[75 FR 74921, Dec. 1, 2010, as amended at 77 FR 16469, Mar. 21, 2012; 77 
FR 28790, May 16, 2012]



                   Subpart A_Disclosure and Reporting



Sec. 158.110  Reporting requirements related to premiums and expenditures.

    (a) General requirements. For each MLR reporting year, an issuer 
must submit to the Secretary a report which complies with the 
requirements of this Part, concerning premium revenue and expenses 
related to the group and individual health insurance coverage that it 
issued.
    (b) Timing and form of report. The report for each of the 2011, 
2012, and 2013 MLR reporting years must be submitted to the Secretary by 
June 1 of the year following the end of an MLR reporting year, on a form 
and in the manner prescribed by the Secretary. Beginning with the 2014 
MLR reporting year, the report for each MLR reporting year must be 
submitted to the Secretary by July 31 of the year following the end of 
an MLR reporting year, on a form and in the manner prescribed by the 
Secretary.
    (c) Transfer of Business. Issuers that purchase a line or block of 
business from another issuer during an MLR reporting year are 
responsible for submitting the information and reports required by this 
part for the assumed business, including for that part of the MLR 
reporting year that was prior to the purchase.

[75 FR 74921, Dec. 1, 2010, as amended at 76 FR 76592, Dec. 7, 2011; 78 
FR 15539, Mar. 11, 2013]



Sec. 158.120  Aggregate reporting.

    (a) General requirements. For purposes of submitting the report 
required in Sec. 158.110 of this subpart, the issuer must submit a 
report for each State in which it is licensed to issue health insurance 
coverage that includes the experience of all policies issued in the 
State during the MLR reporting year covered by the report. The report 
must aggregate data for each entity licensed within a State, aggregated 
separately for the large group market, the small group market and the 
individual market. Experience with respect to each policy must be 
included on the report submitted with respect to the State where the 
contract was issued, except as specified in Sec. 158.120(d) of this 
subpart.
    (b) Group Health Insurance Coverage in Multiple States. Group 
coverage issued by a single issuer that covers employees in multiple 
States must be attributed to the applicable State based on the situs of 
the contract. Group coverage issued by multiple affiliated

[[Page 1099]]

issuers that covers employees in multiple States must be attributed by 
each issuer to each State based on the situs of the contract.
    (c) Group Health Insurance Coverage With Dual Contracts. Where a 
group health plan involves health insurance coverage obtained from two 
affiliated issuers, one providing in-network coverage only and the 
second providing out-of-network coverage only, solely for the purpose of 
providing a group health plan that offers both in-network and out-of-
network benefits, experience may be treated as if it were all related to 
the contract provided by the in-network issuer. However, if the issuer 
chooses this method of aggregation, it must apply it for a minimum of 3 
MLR reporting years.
    (d) Exceptions. (1) For individual market business sold through an 
association or trust, the experience of the issuer must be included in 
the State report for the issue State of the certificate of coverage.
    (2) For employer business issued through a group trust or multiple 
employer welfare association (MEWA), the experience of the issuer must 
be included in the State report for the State where the employer (if 
sold through a trust) or the MEWA (if the MEWA is the policyholder) has 
its principal place of business.
    (3) An issuer with policies that have a total annual limit of 
$250,000 or less must report the experience from such policies 
separately from other policies.
    (4) An issuer with group policies that provide coverage to 
employees, substantially all of whom are: Working outside their country 
of citizenship; working outside of their country of citizenship and 
outside the employer's country of domicile; or non-U.S. citizens working 
in their home country, must aggregate and report the experience from 
these policies on a national basis, separately for the large group 
market and small group market, and separately from other policies.
    (5) An issuer in the student market must aggregate and report the 
experience from these policies on a national basis, separately from 
other policies.

[75 FR 74921, Dec. 1, 2010, as amended at 75 FR 82278, Dec. 30, 2010; 76 
FR 76592, Dec. 7, 2011; 77 FR 16469, Mar. 21, 2012; 77 FR 28790, May 16, 
2012]



Sec. 158.121  Newer experience.

    If, for any aggregation as defined in Sec. 158.120, 50 percent or 
more of the total earned premium for an MLR reporting year is 
attributable to policies newly issued and with less than 12 months of 
experience in that MLR reporting year, then the experience of these 
policies may be excluded from the report required under Sec. 158.110 of 
this subpart for that same MLR reporting year. If an issuer chooses to 
defer reporting of newer business as provided in this section, then the 
excluded experience must be added to the experience reported in the 
following MLR reporting year.



Sec. 158.130  Premium revenue.

    (a) General requirements. An issuer must report to the Secretary 
earned premium for each MLR reporting year. Earned premium means all 
monies paid by a policyholder or subscriber as a condition of receiving 
coverage from the issuer, including any fees or other contributions 
associated with the health plan.
    (1) Earned premium is to be reported on a direct basis except as 
provided in paragraph (b) of this section.
    (2) All earned premium for policies issued by one issuer and later 
assumed by another issuer must be reported by the assuming issuer for 
the entire MLR reporting year during which the policies were assumed and 
no earned premium for that MLR reporting year must be reported by the 
ceding issuer.
    (3) Reinsured earned premium for a block of business that was 
subject to indemnity reinsurance and administrative agreements effective 
prior to March 23, 2010, for which the assuming entity is responsible 
for 100 percent of the ceding entity's financial risk and takes on all 
of the administration of the block, must be reported by the assuming 
issuer and must not be reported by the ceding issuer.
    (b) Adjustments. Earned premium must include adjustments to:

[[Page 1100]]

    (1) Account for assessments paid to or subsidies received from 
Federal and State high risk pools.
    (2) Account for portions of premiums associated with group 
conversion charges.
    (3) Account for any experience rating refunds incurred, excluding 
any rebate paid based upon an issuer's MLR.
    (4) Account for unearned premium.
    (5) Account for the net payments or receipts related to the risk 
adjustment, risk corridors (using an adjustment percentage, as described 
in Sec. 153.500 of this subchapter, equal to zero percent), and 
reinsurance programs under sections 1341, 1342, and 1343 of the Patient 
Protection and Affordable Care Act, 42 U.S.C. 18061, 18062, 18063.

[75 FR 74921, Dec. 1, 2010, as amended at 77 FR 28790, May 16, 2012; 78 
FR 15539, Mar. 11, 2013; 79 FR 13842, Mar. 11, 2014]



Sec. 158.140  Reimbursement for clinical services provided to enrollees.

    (a) General requirements. The report required in Sec. 158.110 must 
include direct claims paid to or received by providers, including under 
capitation contracts with physicians, whose services are covered by the 
policy for clinical services or supplies covered by the policy. In 
addition, the report must include claim reserves associated with claims 
incurred during the MLR reporting year, the change in contract reserves, 
reserves for contingent benefits and the medical claim portion of 
lawsuits, and any incurred experience rating refunds. Reimbursement for 
clinical services, as defined in this section, is referred to as 
``incurred claims.'' All components of and adjustments to incurred 
claims, with the exception of contract reserves, must be calculated 
based on claims incurred only during the MLR reporting year and paid 
through March 31st of the following year. Contract reserves must be 
calculated as of December 31st of the applicable year.
    (1) If there are any group conversion charges for a health plan, the 
conversion charges must be subtracted from the incurred claims for the 
aggregation that includes the conversion policies and this same amount 
must be added to the incurred claims for the aggregation that provides 
coverage that is intended to be replaced by the conversion policies. If 
an issuer transfers portions of earned premium associated with group 
conversion privileges between group and individual lines of business in 
its Annual Statement accounting, these amounts must be added to or 
subtracted from incurred claims.
    (2) Incurred claims must include the current year's unpaid claims 
reserves, including claims reported in the process of adjustment, 
percentage withholds from payments made to contracted providers, claims 
that are recoverable for anticipated coordination of benefits (COB), and 
claim recoveries received as a result of subrogation.
    (3) Incurred claims must include claims incurred but not reported 
based on past experience, and modified to reflect current conditions 
such as changes in exposure, claim frequency or severity.
    (4) Incurred claims must include changes in other claims-related 
reserves.
    (5) Incurred claims must include incurred experience rating refunds 
and exclude rebates paid as required by Sec. 158.240 based upon prior 
MLR reporting year experience.
    (b) Adjustments to incurred claims. (1) Adjustments that must be 
deducted from incurred claims:
    (i) Prescription drug rebates received by the issuer.
    (ii) Overpayment recoveries received from providers.
    (iii) Cost-sharing reduction payments received by the issuer to the 
extent not reimbursed to the provider furnishing the item or service.
    (2) Adjustments that must be included in incurred claims:
    (i) Market stabilization payments or receipts by issuers that are 
directly tied to claims incurred and other claims based or census based 
assessments.
    (ii) State subsidies based on a stop-loss payment methodology.
    (iii) The amount of incentive and bonus payments made to providers.
    (iv) The amount of claims payments recovered through fraud reduction 
efforts not to exceed the amount of fraud reduction expenses.
    (3) Adjustments that must not be included in incurred claims:

[[Page 1101]]

    (i) Amounts paid to third party vendors for secondary network 
savings.
    (ii) Amounts paid to third party vendors for network development, 
administrative fees, claims processing, and utilization management. For 
example, if an issuer contracts with a behavioral health, chiropractic 
network, or high technology radiology vendor, or a pharmacy benefit 
manager, and the vendor reimburses the provider at one amount but bills 
the issuer a higher amount to cover its network development, utilization 
management costs, and profits, then the amount that exceeds the 
reimbursement to the provider must not be included in incurred claims.
    (iii) Amounts paid, including amounts paid to a provider, for 
professional or administrative services that do not represent 
compensation or reimbursement for covered services provided to an 
enrollee. For example, medical record copying costs, attorneys' fees, 
subrogation vendor fees, compensation to paraprofessionals, janitors, 
quality assurance analysts, administrative supervisors, secretaries to 
medical personnel and medical record clerks must not be included in 
incurred claims.
    (iv) Amounts paid to a provider for services that do not represent 
reimbursement for covered services provided to an enrollee and are 
directly covered by a student administrative health fee.
    (4) Adjustments that must be either included in or deducted from 
incurred claims:
    (i) Payment to and from unsubsidized State programs designed to 
address distribution of health risks across issuers via charges to low 
risk issuers that are distributed to high risk issuers must be included 
in or deducted from incurred claims, as applicable.
    (ii) Receipts related to the transitional reinsurance program and 
net payments or receipts related to the risk adjustment and risk 
corridors programs (calculated using an adjustment percentage, as 
described in Sec. 153.500 of this subchapter, equal to zero percent) 
under sections 1341, 1342, and 1343 of the Patient Protection and 
Affordable Care Act, 42 U.S.C. 18061, 18062, 18063.
    (5) Other adjustments to incurred claims:
    (i) Affiliated issuers that offer group coverage at a blended rate 
may choose whether to make an adjustment to each affiliate's incurred 
claims and activities to improve health care quality, to reflect the 
experience of the issuer with respect to the employer as a whole, 
according to an objective formula that must be defined by the issuer 
prior to January 1 of the MLR reporting year, so as to result in each 
affiliate having the same ratio of incurred claims to earned premium for 
that employer group for the MLR reporting year as the ratio of incurred 
claims to earned premium calculated for the employer group in the 
aggregate.
    (ii) [Reserved]

[75 FR 74921, Dec. 1, 2010, as amended at 75 FR 82278, Dec. 30, 2010; 77 
FR 16469, Mar. 21, 2012; 77 FR 28790, May 16, 2012; 78 FR 15539, Mar. 
11, 2013; 79 FR 13842, Mar. 11, 2014; 80 FR 10876, Feb. 27, 2015]



Sec. 158.150  Activities that improve health care quality.

    (a) General requirements. The report required in Sec. 158.110 of 
this subpart must include expenditures for activities that improve 
health care quality, as described in this section.
    (b) Activity requirements. Activities conducted by an issuer to 
improve quality must meet the following requirements:
    (1) The activity must be designed to:
    (i) Improve health quality.
    (ii) Increase the likelihood of desired health outcomes in ways that 
are capable of being objectively measured and of producing verifiable 
results and achievements.
    (iii) Be directed toward individual enrollees or incurred for the 
benefit of specified segments of enrollees or provide health 
improvements to the population beyond those enrolled in coverage as long 
as no additional costs are incurred due to the non-enrollees.
    (iv) Be grounded in evidence-based medicine, widely accepted best 
clinical practice, or criteria issued by recognized professional medical 
associations, accreditation bodies, government agencies or other 
nationally recognized health care quality organizations.

[[Page 1102]]

    (2) The activity must be primarily designed to:
    (i) Improve health outcomes including increasing the likelihood of 
desired outcomes compared to a baseline and reduce health disparities 
among specified populations.
    (A) Examples include the direct interaction of the issuer (including 
those services delegated by contract for which the issuer retains 
ultimate responsibility under the insurance policy), providers and the 
enrollee or the enrollee's representative (for example, face-to-face, 
telephonic, web-based interactions or other means of communication) to 
improve health outcomes, including activities such as:
    (1) Effective case management, care coordination, chronic disease 
management, and medication and care compliance initiatives including 
through the use of the medical homes model as defined in section 3502 of 
the Affordable Care Act.
    (2) Identifying and addressing ethnic, cultural or racial 
disparities in effectiveness of identified best clinical practices and 
evidence based medicine.
    (3) Quality reporting and documentation of care in non-electronic 
format.
    (4) Health information technology to support these activities.
    (5) Accreditation fees directly related to quality of care 
activities.
    (6) Commencing with the 2012 reporting year and extending through 
the first reporting year in which the Secretary requires ICD-10 as the 
standard medical data code set, implementing ICD-10 code sets that are 
designed to improve quality and are adopted pursuant to the Health 
Insurance Portability and Accountability Act (HIPAA), 42 U.S.C. 1320d-2, 
as amended, limited to 0.3 percent of an issuer's earned premium as 
defined in Sec. 158.130.
    (B) [Reserved]
    (ii) Prevent hospital readmissions through a comprehensive program 
for hospital discharge. Examples include:
    (A) Comprehensive discharge planning (for example, arranging and 
managing transitions from one setting to another, such as hospital 
discharge to home or to a rehabilitation center) in order to help assure 
appropriate care that will, in all likelihood, avoid readmission to the 
hospital;
    (B) Patient-centered education and counseling.
    (C) Personalized post-discharge reinforcement and counseling by an 
appropriate health care professional.
    (D) Any quality reporting and related documentation in non-
electronic form for activities to prevent hospital readmission.
    (E) Health information technology to support these activities.
    (iii) Improve patient safety, reduce medical errors, and lower 
infection and mortality rates.
    (A) Examples of activities primarily designed to improve patient 
safety, reduce medical errors, and lower infection and mortality rates 
include:
    (1) The appropriate identification and use of best clinical 
practices to avoid harm.
    (2) Activities to identify and encourage evidence-based medicine in 
addressing independently identified and documented clinical errors or 
safety concerns.
    (3) Activities to lower the risk of facility-acquired infections.
    (4) Prospective prescription drug Utilization Review aimed at 
identifying potential adverse drug interactions.
    (5) Any quality reporting and related documentation in non-
electronic form for activities that improve patient safety and reduce 
medical errors.
    (6) Health information technology to support these activities.
    (B) [Reserved]
    (iv) Implement, promote, and increase wellness and health 
activities:
    (A) Examples of activities primarily designed to implement, promote, 
and increase wellness and health activities, include--
    (1) Wellness assessments;
    (2) Wellness/lifestyle coaching programs designed to achieve 
specific and measurable improvements;
    (3) Coaching programs designed to educate individuals on clinically 
effective methods for dealing with a specific chronic disease or 
condition;
    (4) Public health education campaigns that are performed in 
conjunction with State or local health departments;

[[Page 1103]]

    (5) Actual rewards, incentives, bonuses, reductions in copayments 
(excluding administration of such programs), that are not already 
reflected in premiums or claims should be allowed as a quality 
improvement activity for the group market to the extent permitted by 
section 2705 of the PHS Act;
    (6) Any quality reporting and related documentation in non-
electronic form for wellness and health promotion activities;
    (7) Coaching or education programs and health promotion activities 
designed to change member behavior and conditions (for example, smoking 
or obesity); and
    (8) Health information technology to support these activities.
    (B) [Reserved]
    (v) Enhance the use of health care data to improve quality, 
transparency, and outcomes and support meaningful use of health 
information technology consistent with Sec. 158.151 of this subpart.
    (c) Exclusions. Expenditures and activities that must not be 
included in quality improving activities are:
    (1) Those that are designed primarily to control or contain costs;
    (2) The pro rata share of expenses that are for lines of business or 
products other than those being reported, including but not limited to, 
those that are for or benefit self-funded plans;
    (3) Those which otherwise meet the definitions for quality 
improvement activities but which were paid for with grant money or other 
funding separate from premium revenue;
    (4) Those activities that can be billed or allocated by a provider 
for care delivery and which are, therefore, reimbursed as clinical 
services;
    (5) Establishing or maintaining a claims adjudication system, 
including costs directly related to upgrades in health information 
technology that are designed primarily or solely to improve claims 
payment capabilities or to meet regulatory requirements for processing 
claims, including maintenance of ICD-10 code sets adopted pursuant to 
the Health Insurance Portability and Accountability Act (HIPAA), 42 
U.S.C. 1320d-2, as amended.
    (6) That portion of the activities of health care professional 
hotlines that does not meet the definition of activities that improve 
health quality;
    (7) All retrospective and concurrent utilization review;
    (8) Fraud prevention activities;
    (9) The cost of developing and executing provider contracts and fees 
associated with establishing or managing a provider network, including 
fees paid to a vendor for the same reason;
    (10) Provider credentialing;
    (11) Marketing expenses;
    (12) Costs associated with calculating and administering individual 
enrollee or employee incentives;
    (13) That portion of prospective utilization that does not meet the 
definition of activities that improve health quality; and
    (14) Any function or activity not expressly included in paragraph 
(a) or (b) of this section, unless otherwise approved by and within the 
discretion of the Secretary, upon adequate showing by the issuer that 
the activity's costs support the definitions and purposes in this part 
or otherwise support monitoring, measuring or reporting health care 
quality improvement.

[75 FR 74921, Dec. 1, 2010, as amended at 76 FR 76592, Dec. 7, 2011; 77 
FR 28790, May 16, 2012; 79 FR 30352, May 27, 2014]



Sec. 158.151  Expenditures related to Health Information Technology 
and meaningful use requirements.

    (a) General requirements. An issuer may include as activities that 
improve health care quality such Health Information Technology (HIT) 
expenses as are required to accomplish the activities allowed in Sec. 
158.150 of this subpart and that are designed for use by health plans, 
health care providers, or enrollees for the electronic creation, 
maintenance, access, or exchange of health information, as well as those 
consistent with Medicare and/or Medicaid meaningful use requirements, 
and which may in whole or in part improve quality of care, or provide 
the technological infrastructure to enhance current quality improvement 
or make new quality improvement initiatives possible by doing one or 
more of the following:
    (1) Making incentive payments to health care providers for the 
adoption of certified electronic health record

[[Page 1104]]

technologies and their ``meaningful use'' as defined by HHS to the 
extent such payments are not included in reimbursement for clinical 
services as defined in Sec. 158.140 of this subpart;
    (2) Implementing systems to track and verify the adoption and 
meaningful use of certified electronic health records technologies by 
health care providers, including those not eligible for Medicare and 
Medicaid incentive payments;
    (3) Providing technical assistance to support adoption and 
meaningful use of certified electronic health records technologies;
    (4) Monitoring, measuring, or reporting clinical effectiveness 
including reporting and analysis of costs related to maintaining 
accreditation by nationally recognized accrediting organizations such as 
NCQA or URAC, or costs for public reporting of quality of care, 
including costs specifically required to make accurate determinations of 
defined measures (for example, CAHPS surveys or chart review of HEDIS 
measures and costs for public reporting mandated or encouraged by law.
    (5) Tracking whether a specific class of medical interventions or a 
bundle of related services leads to better patient outcomes.
    (6) Advancing the ability of enrollees, providers, issuers or other 
systems to communicate patient centered clinical or medical information 
rapidly, accurately and efficiently to determine patient status, avoid 
harmful drug interactions or direct appropriate care, which may include 
electronic Health Records accessible by enrollees and appropriate 
providers to monitor and document an individual patient's medical 
history and to support care management.
    (7) Reformatting, transmitting or reporting data to national or 
international government-based health organizations for the purposes of 
identifying or treating specific conditions or controlling the spread of 
disease.
    (8) Provision of electronic health records, patient portals, and 
tools to facilitate patient self-management.
    (b) [Reserved]



Sec. 158.160  Other non-claims costs.

    (a) General requirements. The report required in Sec. 158.110 of 
this subpart must include non-claims costs described in paragraph (b) of 
this section and must provide an explanation of how premium revenue is 
used, other than to provide reimbursement for clinical services covered 
by the benefit plan, expenditures for activities that improve health 
care quality, and Federal and State taxes and licensing or regulatory 
fees as specified in this part.
    (b) Non-claims costs other than taxes and regulatory fees. (1) The 
report required in Sec. 158.110 of this subpart must include any 
expenses for administrative services that do not constitute adjustments 
to premium revenue as provided in Sec. 158.130 of this subpart, 
reimbursement for clinical services to enrollees as defined in Sec. 
158.140 of this subpart, or expenditures on quality improvement 
activities as defined in Sec. Sec. 158.150 and 158.151 of this subpart.
    (2) Expenses for administrative services include the following:
    (i) Cost-containment expenses not included as an expenditure related 
to an activity at Sec. 158.150 of this subpart.
    (ii) Loss adjustment expenses not classified as a cost containment 
expense.
    (iii) Direct sales salaries, workforce salaries and benefits.
    (iv) Agents and brokers fees and commissions.
    (v) General and administrative expenses.
    (vi) Community benefit expenditures.



Sec. 158.161  Reporting of Federal and State licensing and 
regulatory fees.

    (a) Licensing and regulatory fees included. The report required in 
Sec. 158.110 must include statutory assessments to defray operating 
expenses of any State or Federal department, transitional reinsurance 
contributions assessed under section 1341 of the Patient Protection and 
Affordable Care Act, 42 U.S.C. 18061, and examination fees in lieu of 
premium taxes as specified by State law.
    (b) Licensing and regulatory fees excluded. The report required in 
Sec. 158.110

[[Page 1105]]

must include fines and penalties of regulatory authorities, and fees for 
examinations by any State or Federal departments other than as specified 
in Sec. 158.161(a) as other non-claims costs, but not as an adjustment 
to premium revenue.''

[75 FR 82279, Dec. 30, 2010, as amended at 78 FR 15539, Mar. 11, 2013]



Sec. 158.162  Reporting of Federal and State taxes.

    (a) Federal taxes. The report required in Sec. 158.110 of this 
subpart must separately report:
    (1) Federal taxes excluded from premium under subpart B which 
include all Federal taxes and assessments allocated to health insurance 
coverage reported under section 2718 of the PHS Act.
    (2) Federal taxes not excluded from premium under subpart B which 
include Federal income taxes on investment income and capital gains as 
other non-claims costs.
    (b) State taxes and assessments. The report required in Sec. 
158.110 of this subpart must separately report:
    (1) State taxes and assessments excluded from premium under subpart 
B which include:
    (i) Any industry-wide (or subset) assessments (other than surcharges 
on specific claims) paid to the State directly, or premium subsidies 
that are designed to cover the costs of providing indigent care or other 
access to health care throughout the State.
    (ii) Guaranty fund assessments.
    (iii) Assessments of State industrial boards or other boards for 
operating expenses or for benefits to sick employed persons in 
connection with disability benefit laws or similar taxes levied by 
States.
    (iv) Advertising required by law, regulation or ruling, except 
advertising associated with investments.
    (v) State income, excise, and business taxes other than premium 
taxes.
    (vi) State premium taxes plus State taxes based on policy reserves, 
if in lieu of premium taxes.
    (vii) Payments made by a Federal income tax exempt issuer for 
community benefit expenditures as defined in paragraph (c) of this 
section, limited to the highest of either:
    (A) Three percent of earned premium; or
    (B) The highest premium tax rate in the State for which the report 
is being submitted, multiplied by the issuer's earned premium in the 
applicable State market.
    (viii) In lieu of reporting amounts described in paragraph 
(b)(1)(vi) of this section, an issuer that is not exempt from Federal 
income tax may choose to report payment for community benefit 
expenditures as described in paragraph (c) of this section, limited to 
the highest premium tax rate in the State for which the report is being 
submitted multiplied by the issuer's earned premium in the applicable 
State market.
    (2) State taxes and assessments not excluded from premium under 
subpart B which include:
    (i) State sales taxes if the issuer does not exercise options of 
including such taxes with the cost of goods and services purchased.
    (ii) Any portion of commissions or allowances on reinsurance assumed 
that represent specific reimbursement of premium taxes.
    (iii) Any portion of commissions or allowances on reinsurance ceded 
that represents specific reimbursement of premium taxes.
    (c) Community benefit expenditures. Community benefit expenditures 
means expenditures for activities or programs that seek to achieve the 
objectives of improving access to health services, enhancing public 
health and relief of government burden. This includes any of the 
following activities that:
    (1) Are available broadly to the public and serve low-income 
consumers;
    (2) Reduce geographic, financial, or cultural barriers to accessing 
health services, and if ceased to exist would result in access problems 
(for example, longer wait times or increased travel distances);
    (3) Address Federal, State or local public health priorities such as 
advancing health care knowledge through education or research that 
benefits the public;
    (4) Leverage or enhance public health department activities such as 
childhood immunization efforts; and

[[Page 1106]]

    (5) Otherwise would become the responsibility of government or 
another tax-exempt organization.

[75 FR 74921, Dec. 1, 2010. Redesignated and amended at 75 FR 82279, 
Dec. 30, 2010; 76 FR 76593, Dec. 7, 2011; 78 FR 15540, Mar. 11, 2013]

    Effective Date Note: At 80 FR 10876, Feb. 27, 2015, Sec. 158.162 
was amended by revising paragraph (a)(2) and adding paragraph 
(b)(2)(iv), effective Jan. 1, 2016. For the convenience of the user, the 
added and revised text is set forth as follows:



Sec. 158.162  Reporting of Federal and State taxes.

    (a) * * *
    (2) Federal taxes not excluded from premium under subpart B of this 
part which include Federal income taxes on investment income and capital 
gains, as well as Federal employment taxes, as other non-claims costs.
    (b) * * *
    (2) * * *
    (iv) State employment and similar taxes and assessments.

                                * * * * *



Sec. 158.170  Allocation of expenses.

    (a) General requirements. Each expense must be reported under only 
one type of expense, unless a portion of the expense fits under the 
definition of or criteria for one type of expense and the remainder fits 
into a different type of expense, in which case the expense must be pro-
rated between types of expenses. Expenditures that benefit lines of 
business or products other than those being reported, including but not 
limited to those that are for or benefit self-funded plans, must be 
reported on a pro rata share.
    (b) Description of the methods used to allocate expenses. The report 
required in Sec. 158.110 of this subpart must include a detailed 
description of the methods used to allocate expenses, including incurred 
claims, quality improvement expenses, Federal and State taxes and 
licensing or regulatory fees, and other non-claims costs, to each health 
insurance market in each State. A detailed description of each expense 
element must be provided, including how each specific expense meets the 
criteria for the type of expense in which it is categorized, as well as 
the method by which it was aggregated.
    (1) Allocation to each category should be based on a generally 
accepted accounting method that is expected to yield the most accurate 
results. Specific identification of an expense with an activity that is 
represented by one of the categories above will generally be the most 
accurate method. If a specific identification is not feasible, the 
issuer should provide an explanation of why it believes the more 
accurate result will be gained from allocation of expenses based upon 
pertinent factors or ratios such as studies of employee activities, 
salary ratios or similar analyses.
    (2) Many entities operate within a group where personnel and 
facilities are shared. Shared expenses, including expenses under the 
terms of a management contract, must be apportioned pro rata to the 
entities incurring the expense.
    (3) Any basis adopted to apportion expenses must be that which is 
expected to yield the most accurate results and may result from special 
studies of employee activities, salary ratios, premium ratios or similar 
analyses. Expenses that relate solely to the operations of a reporting 
entity, such as personnel costs associated with the adjusting and paying 
of claims, must be borne solely by the reporting entity and are not to 
be apportioned to other entities within a group.
    (c) Disclosure of allocation methods. The issuer must identify in 
the report required in Sec. 158.110 of this subpart the specific basis 
used to allocate expenses reported under this part to States and, within 
States, to lines of business including the individual market, small 
group market, large group market, supplemental health insurance 
coverage, health insurance coverage offered to beneficiaries of public 
programs (such as Medicare and Medicaid), and group health plans as 
defined in Sec. 145.103 of this chapter and administered by the issuer.
    (d) Maintenance of records. The issuer must maintain and make 
available to the Secretary upon request the data used to allocate 
expenses reported under this part together with all supporting 
information required to determine that the methods identified and 
reported as required under paragraph

[[Page 1107]]

(b) of this section were accurately implemented in preparing the report 
required in Sec. 158.110 of this subpart.



             Subpart B_Calculating and Providing the Rebate



Sec. 158.210  Minimum medical loss ratio.

    Subject to the provisions of Sec. 158.211 of this subpart:
    (a) Large group market. For all policies issued in the large group 
market in a State during the MLR reporting year, an issuer must provide 
a rebate to enrollees if the issuer has an MLR of less than 85 percent, 
as determined in accordance with this part.
    (b) Small group market. For all policies issued in the small group 
market in a State during the MLR reporting year, an issuer must provide 
a rebate to enrollees if the issuer has an MLR of less than 80 percent, 
as determined in accordance with this part.
    (c) Individual market. For all policies issued in the individual 
market in a State during the MLR reporting year, an issuer must provide 
a rebate to enrollees if the issuer has an MLR of less than 80 percent, 
as determined in accordance with this Part.
    (d) Adjustment by the Secretary. If the Secretary has adjusted the 
percentage that issuers in the individual market in a specific State 
must meet, then the adjusted percentage determined by the Secretary in 
accordance with Sec. 158.301 of this part et seq. must be substituted 
for 80 percent in paragraph (c) of this section.



Sec. 158.211  Requirement in States with a higher medical loss ratio.

    (a) State option to set higher minimum loss ratio. For coverage 
offered in a State whose law provides that issuers in the State must 
meet a higher MLR than that set forth in Sec. 158.210, the State's 
higher percentage must be substituted for the percentage stated in Sec. 
158.210. If a State requires the small group market and individual 
market to be merged and also sets a higher MLR standard for the merged 
market, the State's higher percentage must be substituted for the 
percentage stated in Sec. 158.210 for both the small group and 
individual markets.
    (b) Considerations in setting a higher minimum loss ratio. In 
adopting a higher minimum loss ratio than that set forth in Sec. 
158.210, a State must seek to ensure adequate participation by health 
insurance issuers, competition in the health insurance market in the 
State, and value for consumers so that premiums are used for clinical 
services and quality improvements.

[75 FR 74921, Dec. 1, 2010, as amended at 79 FR 30352, May 27, 2014]



Sec. 158.220  Aggregation of data in calculating an issuer's 
medical loss ratio.

    (a) Aggregation by State and by market. In general, an issuer's MLR 
must be calculated separately for the large group market, small group 
market and individual market within each State. However, if a State 
requires the small group market and individual market to be merged, then 
the data reported separately under subpart A of this part for the small 
group and individual market in that State must be merged for purposes of 
calculating an issuer's MLR and any rebates owing.
    (b) Years of data to include in calculating MLR. Subject to 
paragraphs (c) and (d) of this section, an issuer's MLR for an MLR 
reporting year is calculated according to the formula in Sec. 158.221 
of this subpart and aggregating the data reported under this part for 
the following 3-year period:
    (1) The data for the MLR reporting year whose MLR is being 
calculated; and
    (2) The data for the two prior MLR reporting years.
    (c) Requirements for MLR reporting years 2011 and 2012. (1) For the 
2011 MLR reporting year, an issuer's MLR is calculated using the data 
reported under this part for the 2011 MLR reporting year only.
    (2) For the 2012 MLR reporting year--
    (i) If an issuer's experience for the 2012 MLR reporting year is 
fully credible, as defined in Sec. 158.230 of this subpart, an issuer's 
MLR is calculated using the data reported under this part for the 2012 
MLR reporting year.
    (ii) If an issuer's experience for the 2012 MLR reporting year is 
partially credible or non-credible, as defined in Sec. 158.230 of this 
subpart, an issuer's

[[Page 1108]]

MLR is calculated using the data reported under this part for the 2011 
MLR reporting year and the 2012 MLR reporting year.
    (d) Requirements for MLR reporting years 2013 and 2014 for the 
student market only. (1) For the 2013 MLR reporting year, an issuer's 
MLR is calculated using the data reported under this part for the 2013 
MLR reporting year only.
    (2) For the 2014 MLR reporting year--
    (i) If an issuer's experience for the 2014 MLR reporting year is 
fully credible, as defined in Sec. 158.230 of this subpart, an issuer's 
MLR is calculated using the data reported under this part for the 2014 
MLR reporting year.
    (ii) If an issuer's experience for the 2014 MLR reporting year is 
partially credible or non-credible, as defined in Sec. 158.230 of this 
subpart, an issuer's MLR is calculated using the data reported under 
this part for the 2013 MLR reporting year and the 2014 MLR reporting 
year.

[75 FR 74921, Dec. 1, 2010, as amended at 77 FR 16469, Mar. 21, 2012; 79 
FR 30352, May 27, 2014]



Sec. 158.221  Formula for calculating an issuer's medical loss ratio.

    (a) Medical loss ratio. (1) An issuer's MLR is the ratio of the 
numerator, as defined in paragraph (b) of this section, to the 
denominator, as defined in paragraph (c) of this section, subject to the 
applicable credibility adjustment, if any, as provided in Sec. 158.232 
of this subpart.
    (2) An issuer's MLR shall be rounded to three decimal places. For 
example, if an MLR is 0.7988, it shall be rounded to 0.799 or 79.9 
percent. If an MLR is 0.8253 or 82.53 percent, it shall be rounded to 
0.825 or 82.5 percent.
    (b) Numerator. The numerator of an issuer's MLR for an MLR reporting 
year must be the issuer's incurred claims, as defined in Sec. 158.140 
of this part, plus the issuer's expenditures for activities that improve 
health care quality, as defined in Sec. 158.150 and Sec. 158.151 of 
this part, that are reported for the years specified in Sec. 158.220 of 
this subpart.
    (1) The numerator of the MLR for the 2012 MLR reporting year may 
include any rebate paid under Sec. 158.240 of this subpart for the 2011 
MLR reporting year if the 2012 MLR reporting year experience is not 
fully credible as defined in Sec. 158.230 of this subpart.
    (2) The numerator of the MLR for the 2013 MLR reporting year may 
include any rebate paid under Sec. 158.240 for the 2011 MLR reporting 
year or the 2012 MLR reporting year.
    (3) The numerator of the MLR for policies that are reported 
separately under Sec. 158.120(d)(3) of this part must be the amount 
specified in paragraph (b) of this section, except that for the 2012 MLR 
reporting year, the total of the incurred claims and expenditures for 
activities that improve health care quality are then multiplied by a 
factor of 1.75, for the 2013 MLR reporting year, the total of the 
incurred claims and expenditures for activities that improve health care 
quality are then multiplied by a factor of 1.50, and for the 2014 MLR 
reporting year, the total of the incurred claims and expenditures for 
activities that improve health care quality are then multiplied by a 
factor of 1.25.
    (4) The numerator of the MLR for policies that are reported 
separately under Sec. 158.120(d)(4) of this part must be the amount 
specified in paragraph (b) of this section, except that the total of the 
incurred claims and expenditures for activities that improve health care 
quality are then multiplied by a factor of 2.00.
    (5) The numerator of the MLR for policies that are reported 
separately under Sec. 158.120(d)(5) of this part must be the amount 
specified in paragraph (b) of this section, except that for the 2013 MLR 
reporting year the total of the incurred claims and expenditures for 
activities that improve health care quality is then multiplied by a 
factor of 1.15.
    (6) The numerator of the MLR in the individual and small group 
markets in States that adopted the transitional policy outlined in the 
CMS letter dated November 14, 2013 must be the amount specified in 
paragraph (b) of this section, except that issuers that provided 
transitional coverage may multiply the total incurred claims and 
expenditures for activities that improve health care quality incurred in 
2014 in the respective State and market by a factor of 1.0001.

[[Page 1109]]

    (7) The numerator of the MLR in the individual and small group 
markets for issuers participating in the State and Federal Exchanges 
(sometimes referred to as ``Marketplaces'') must be the amount specified 
in paragraph (b) of this section, except that the total incurred claims 
and expenditures for activities that improve health care quality 
incurred in 2014 in the respective State and market may be multiplied by 
a factor of 1.0004.
    (c) Denominator. The denominator of an issuer's MLR must equal the 
issuer's premium revenue, as defined in Sec. 158.130, excluding the 
issuer's Federal and State taxes and licensing and regulatory fees, 
described in Sec. Sec. 158.161(a) and 158.162(a)(1) and (b)(1), and 
after accounting for payments or receipts related to risk adjustment, 
risk corridors, and reinsurance, described in Sec. 158.130(b)(5).

[75 FR 74921, Dec. 1, 2010, as amended at 76 FR 76593, Dec. 7, 2011; 77 
FR 16469, Mar. 21, 2012; 78 FR 15540, Mar. 11, 2013; 79 FR 30352, May 
27, 2014]



Sec. 158.230  Credibility adjustment.

    (a) General rule. An issuer may add to the MLR calculated under 
Sec. 158.221(a) of this subpart the credibility adjustment specified by 
Sec. 158.232 of this section, if such MLR is based on partially 
credible experience as defined in paragraph (c)(2) of this section. An 
issuer may not apply the credibility adjustment if the issuer's 
experience is fully credible, as defined in paragraph (c)(1) of this 
section, or non-credible, as defined in paragraph (c)(3) of this 
section.
    (b) Life-years. The credibility of an issuer's experience is based 
upon the number of life-years covered by the issuer. Life-years means 
the total number of months of coverage for enrollees whose premiums and 
claims experience is included in the report to the Secretary required by 
Sec. 158.110 of this part, divided by 12.
    (c) Credible experience. (1) An MLR calculated under Sec. 
158.221(a) through (c) of this subpart is fully credible if it is based 
on the experience of 75,000 or more life-years.
    (2) An MLR calculated under Sec. 158.221(a) through (c) of this 
subpart is partially credible if it is based on the experience of at 
least 1,000 life-years and fewer than 75,000 life-years.
    (3) An MLR calculated under Sec. 158.221(a) through (c) of this 
subpart is non-credible if it is based on the experience of less than 
1,000 life-years.
    (d) If an issuer's MLR is non-credible, it is presumed to meet or 
exceed the minimum percentage required by Sec. 158.210 or Sec. 158.211 
of this subpart.



Sec. 158.231  Life-years used to determine credible experience.

    (a) The life-years used to determine the credibility of an issuer's 
experience are the life-years for the MLR reporting year plus the life-
years for the two prior MLR reporting years. If a State requires the 
small group market and individual market to be merged, then life-years 
used to determine credibility must be the life-years from the small 
group market and the individual market for the MLR reporting year plus 
the life-years from the small group market and the individual market for 
the two prior MLR reporting years.
    (b) For the 2011 MLR reporting year, the life-years used to 
determine credibility are the life-years for the 2011 MLR reporting year 
only.
    (c) For the 2012 MLR reporting year-
    (1) If an issuer's experience for the 2012 MLR reporting year is 
fully credible, the life-years used to determine credibility are the 
life-years for the 2012 MLR reporting year only;
    (2) If an issuer's experience for the 2012 MLR reporting year only 
is partially credible or non-credible, the life-years used to determine 
credibility are the life-years for the 2011 MLR reporting year plus the 
life-years for the 2012 MLR reporting year.
    (d) For the 2013 MLR reporting year for the student market only, the 
life-years used to determine credibility are the life-years for the 2013 
MLR reporting year only.
    (e) For the 2014 MLR reporting year for the student market only--
    (1) If an issuer's experience for the 2014 MLR reporting year is 
fully credible, the life-years used to determine credibility are the 
life-years for the 2014 MLR reporting year only;
    (2) If an issuer's experience for the 2014 MLR reporting year only 
is partially credible or non-credible, the life-

[[Page 1110]]

years used to determine credibility are the life-years for the 2013 MLR 
reporting year plus the life-years for the 2014 MLR reporting year.

[75 FR 74921, Dec. 1, 2010, as amended at 75 FR 82279, Dec. 30, 2010; 77 
FR 16469, Mar. 21, 2012; 79 FR 30353, May 27, 2014]



Sec. 158.232  Calculating the credibility adjustment.

    (a) Formula. An issuer's credibility adjustment, if any, is the 
product of the base credibility factor, as determined under paragraph 
(b) of this section, multiplied by the deductible factor, as determined 
under paragraph (c) of this section.
    (b) Base credibility factor. (1) The base credibility factor for 
fully credible experience or for non-credible experience is zero.
    (2) The base credibility factor for partially credible experience is 
determined based on the number of life-years included in the 
aggregation, as determined under Sec. 158.231 of this subpart, and the 
factors shown in Table 1. When the number of life-years used to 
determine credibility exactly matches a life-year category listed in 
Table 1, the value associated with that number of life-years is the base 
credibility factor. The base credibility factor for a number of life-
years between the values shown in Table 1 is determined by linear 
interpolation.

           Table 1 to Sec. 158.232: Base Credibility Factors
------------------------------------------------------------------------
              Life-years                     Base credibility factor
------------------------------------------------------------------------
<1,000................................  No Credibility.
1,000.................................  8.3%.
2,500.................................  5.2%.
5,000.................................  3.7%.
10,000................................  2.6%.
25,000................................  1.6%.
50,000................................  1.2%.
=75,000....................  0.0% (Full Credibility).
------------------------------------------------------------------------

    (c) Deductible factor. (1) The deductible factor is based on the 
average per person deductible of policies whose experience is included 
in the aggregation, as determined under Sec. 158.231 of this subpart. 
When the weighted average deductible, as determined in accordance with 
this section, exactly matches a deductible category listed in Table 2, 
the value associated with that deductible is the deductible factor. The 
deductible factor for an average weighted deductible between the values 
shown in Table 2 is determined by linear interpolation.
    (i) The per person deductible for a policy that covers a subscriber 
and the subscriber's dependents shall be the lesser of: the deductible 
applicable to each of the individual family members; or the overall 
family deductible for the subscriber and subscriber's family divided by 
two (regardless of the total number of individuals covered through the 
subscriber).
    (ii) The average deductible for an aggregation is calculated 
weighted by the life-years of experience for each deductible level of 
policies included in the aggregation.
    (2) An issuer may choose to use a deductible factor of 1.0 in lieu 
of calculating a deductible factor based on the average of policies 
included in the aggregation.

              Table 2 to Sec. 158.232: Deductible Factor
------------------------------------------------------------------------
                                                            Deductible
                 Health plan deductible                       factor
------------------------------------------------------------------------
<$2,500.................................................           1.000
$2,500..................................................           1.164
$5,000..................................................           1.402
=$10,000.....................................           1.736
------------------------------------------------------------------------

    (d) No credibility adjustment. Beginning with the 2013 MLR reporting 
year, the credibility adjustment for an MLR based on partially credible 
experience is zero if both of the following conditions are met:
    (1) The current MLR reporting year and each of the two previous MLR 
reporting years included experience of at least 1,000 life-years; and
    (2) Without applying any credibility adjustment, the issuer's MLR 
for the current MLR reporting year and each of the two previous MLR 
reporting years were below the applicable MLR standard for each year as 
established under Sec. 158.210 in this subpart.
    (e) No credibility adjustment. Beginning with the 2015 MLR reporting 
year for the student market only, the credibility adjustment for an MLR 
based on partially credible experience is zero if both of the following 
conditions are met:

[[Page 1111]]

    (1) The current MLR reporting year and each of the two previous MLR 
reporting years included experience of at least 1,000 life-years; and
    (2) Without applying any credibility adjustment, the issuer's MLR 
for the current MLR reporting year and each of the two previous MLR 
reporting years were below the applicable MLR standard for each year as 
established under Sec. 158.210 in this subpart.

[75 FR 74921, Dec. 1, 2010, as amended at 75 FR 82279, Dec. 30, 2010; 77 
FR 16469, Mar. 21, 2012; 77 FR 28790, May 16, 2012; 78 FR 15540, Mar. 
11, 2013; 78 FR 66655, Nov. 6, 2013]



Sec. 158.240  Rebating premium if the applicable medical loss ratio 
standard is not met.

    (a) General requirement. For each MLR reporting year, an issuer must 
provide a rebate to each enrollee if the issuer's MLR does not meet or 
exceed the minimum percentage required by Sec. Sec. 158.210 and 158.211 
of this subpart.
    (b) Definition of enrollee for purposes of rebate. For the sole 
purpose of determining whom is entitled to receive a rebate pursuant to 
this part, the term ``enrollee'' means the subscriber, policyholder, 
and/or government entity that paid the premium for health care coverage 
received by an individual during the respective MLR reporting year.
    (c) Amount of rebate to each enrollee. (1) For each MLR reporting 
year, an issuer must rebate to the enrollee the total amount of premium 
revenue, as defined in Sec. 158.130, received by the issuer from the 
enrollee, after subtracting Federal and State taxes and licensing and 
regulatory fees as provided in Sec. Sec. 158.161(a) and 158.162(a)(1) 
and (b)(1), and after accounting for payments or receipts for risk 
adjustment, risk corridors, and reinsurance as provided in Sec. 
158.130(b)(5), multiplied by the difference between the MLR required by 
Sec. 158.210 or Sec. 158.211, and the issuer's MLR as calculated under 
Sec. 158.221.
    (2) For example, an issuer must rebate a pro rata portion of premium 
revenue if it does not meet an 80 percent MLR for the individual market 
in a State that has not set a higher MLR. If an issuer has a 75 percent 
MLR for the coverage it offers in the individual market in a State that 
has not set a higher MLR, the issuer must rebate 5 percent of the 
premium paid by or on behalf of the enrollee for the MLR reporting year 
after subtracting a pro rata portion of taxes and fees and accounting 
for payments or receipts related to the reinsurance, risk adjustment and 
risk corridors programs (calculated using an adjustment percentage, as 
described in Sec. 153.500 of this subchapter, equal to zero percent). 
If the issuer's total earned premium for the MLR reporting year in the 
individual market in the State is $200,000, the issuer received 
transitional reinsurance payments of $2,500, and made net payments 
related to risk adjustment and risk corridors of $20,000 (calculated 
using an adjustment percentage, as described in Sec. 153.500 of this 
subchapter, equal to zero percent), the issuer's gross earned premium in 
the individual market in the State would be $200,000 plus $2,500 minus 
$20,000, for a total of $182,500. If the issuer's Federal and State 
taxes and licensing and regulatory fees, including reinsurance 
contributions, that may be excluded from premium revenue as described in 
Sec. Sec. 158.161(a), 158.162(a)(1) and 158.162(b)(1), allocated to the 
individual market in the State are $15,000, and the net payments related 
to risk adjustment and risk corridors, reduced by reinsurance receipts, 
that must be accounted for in premium revenue as described in Sec. Sec. 
158.130(b)(5), 158.221, and 158.240, are $17,500 ($20,000 reduced by 
$2,500), then the issuer would subtract $15,000 and add $17,500 to gross 
premium revenue of $182,500, for a base of $185,000 in premium. The 
issuer would owe rebates of 5 percent of $185,000, or $9,250 in the 
individual market in the State. In this example, if an enrollee of the 
issuer in the individual market in the State paid $2,000 in premiums for 
the MLR reporting year, or 1/100 of the issuer's total premium in that 
State market, then the enrollee would be entitled to 1/100 of the total 
rebates owed by the issuer, or $92.50.
    (d) Timing of rebate. For each of the 2011, 2012, and 2013 MLR 
reporting years, an issuer must provide any rebate owing to an enrollee 
no later than August 1 following the end of the MLR reporting year. 
Beginning with the 2014 MLR reporting year, an issuer must

[[Page 1112]]

provide any rebate owing to an enrollee no later than September 30 
following the end of the MLR reporting year.
    (e) Late payment interest. An issuer that fails to pay any rebate 
owing to an enrollee or subscriber in accordance with paragraph (d) of 
this section or to take other required action within the time periods 
set forth in this part must, in addition to providing the required 
rebate to the enrollee, pay the enrollee interest at the current Federal 
Reserve Board lending rate or ten percent annually, whichever is higher, 
on the total amount of the rebate, accruing from the date payment was 
due under paragraph (d) of this section.

[75 FR 74921, Dec. 1, 2010, as amended at 78 FR 15540, Mar. 11, 2013; 79 
FR 13842, Mar. 11, 2014]



Sec. 158.241  Form of rebate.

    (a) Current enrollees. (1) An issuer may choose to provide any 
rebates owing to current enrollees in the form of a premium credit, 
lump-sum check, or, if an enrollee paid the premium using a credit card 
or direct debit, by lump-sum reimbursement to the account used to pay 
the premium.
    (2) For each of the 2011, 2012, and 2013 MLR reporting years, any 
rebate provided in the form of a premium credit must be provided by 
applying the full amount due to the first month's premium that is due on 
or after August 1 following the MLR reporting year. If the amount of the 
rebate exceeds the premium due for August, then any overage shall be 
applied to succeeding premium payments until the full amount of the 
rebate has been credited. Beginning with the 2014 MLR reporting year, 
any rebate provided in the form of a premium credit must be provided by 
applying the full amount due to the first month's premium that is due on 
or after September 30 following the MLR reporting year. If the amount of 
the rebate exceeds the premium due for October, then any overage shall 
be applied to succeeding premium payments until the full amount of the 
rebate has been credited.
    (b) Former enrollees in the individual market. Rebates owing to 
former enrollees in the individual market must be paid in the form of 
lump-sum check or lump-sum reimbursement using the same method that was 
used for payment, such as credit card or direct debit.

[75 FR 74921, Dec. 1, 2010, as amended at 76 FR 76593, Dec. 7, 2011; 78 
FR 15540, Mar. 11, 2013]



Sec. 158.242  Recipients of rebates.

    (a) Individual market. An issuer must meet its obligation to provide 
any rebate due to an enrollee in the individual market by providing it 
to the enrollee. For individual policies that cover more than one 
person, one lump-sum rebate may be provided to the subscriber on behalf 
of all enrollees covered by the policy.
    (b) Large group and small group markets. Except as provided in 
paragraphs (b)(3) and (4) of this section, an issuer must meet its 
obligation to provide any rebate to persons covered under a group health 
plan by providing it to the policyholder.
    (1) In the case of a policyholder that is a non-Federal governmental 
group health plan, the policyholder must use the amount of the rebate 
that is proportionate to the total amount of premium paid by all 
subscribers under the policy, for the benefit of subscribers in one of 
the following ways, at the option of the policyholder:
    (i) For all subscribers covered under any option offered under the 
policyholder's group health plan at the time the rebate is received by 
the policyholder, to reduce the subscribers' portion of premium for the 
subsequent policy year;
    (ii) For subscribers covered, at the time the rebate is received by 
the policyholder, under the group health plan option for which the 
issuer is providing a rebate, to reduce the subscribers' portion of 
premium for the subsequent policy year;
    (iii) A cash refund to subscribers of the group health plan option 
for which the issuer is providing a rebate, who were enrolled in the 
group health plan option either during the MLR reporting year that 
resulted in the issuer providing the rebate or at the time the rebate is 
received by the policyholder;

[[Page 1113]]

    (iv) The reduction in future premium or the cash refund provided 
under paragraphs (b)(1)(i), (ii), or (iii) of this section may, at the 
option of the policyholder, be: Divided evenly among such subscribers; 
divided based on each subscriber's actual contributions to premium; or 
apportioned in a manner that reasonably reflects each subscriber's 
contributions to premium; and
    (v) All rebate distributions made under paragraphs (b)(1)(i), (ii), 
or (iii) of this section must be made within 3 months of the 
policyholder's receipt of the rebate. Rebate distributions made after 3 
months must include late payment interest at the current Federal Reserve 
Board lending rate or 10 percent annually, whichever is higher, on the 
total amount of the rebate, accruing from the date payment was due under 
this section.
    (2) In the case of a policyholder that is a non-Federal governmental 
group health plan, the portion of a rebate based upon former 
subscribers' contributions to premium must be aggregated and used for 
the benefit of current subscribers in the group health plan in any 
manner permitted by paragraph (b)(1) of this section.
    (3) If the policyholder is a group health plan that is not a 
governmental plan and not subject to the Employee Retirement Income 
Security Act of 1974, as amended (29 U.S.C. 1001 et seq.) (ERISA), 
rebates may only be paid to the policyholder if the issuer receives a 
written assurance from the policyholder that the rebates will be used as 
provided in paragraphs (b)(1) and (2) of this section; otherwise, the 
issuer must distribute the rebate directly to the subscribers of the 
group health plan covered by the policy during the MLR reporting year on 
which the rebate is based by dividing the entire rebate, including the 
amount proportionate to the amount of premium paid by the policyholder, 
in equal amounts to all subscribers entitled to a rebate without regard 
to how much each subscriber actually paid toward premiums.
    (4) If the group health plan has been terminated at the time of 
rebate payment and the issuer cannot, despite reasonable efforts, locate 
the policyholder whose plan participants or employees were enrolled in 
the group health plan, the issuer must distribute the rebate directly to 
the subscribers of the terminated group health plan by dividing the 
entire rebate, including the amount proportionate to the amount of 
premium paid by the policyholder, in equal amounts to all subscribers 
entitled to a rebate without regard to how much each subscriber actually 
paid toward premiums.

[75 FR 74921, Dec. 1, 2010, as amended at 76 FR 76593, 76599, Dec. 7, 
2011; 80 FR 10876, Feb. 27, 2015]



Sec. 158.243  De minimis rebates.

    (a) Minimum threshold. An issuer is not required to provide a rebate 
to an enrollee based upon the premium that enrollee paid, under the 
following circumstances:
    (1) For a group policy for which the issuer distributes the rebate 
to the policyholder, if the total rebate owed to the policyholder and 
the subscribers combined is less than $20 for a given MLR reporting 
year; or for a group policy for which the issuer distributes the rebate 
directly to the subscribers, as provided in Sec. 158.242(a)(3) and (4) 
of this subpart, if the total rebate owed to each subscriber is less 
than $5.
    (2) In the individual market, if the total rebated owed to the 
subscriber is less than $5.
    (b) Distribution. (1) An issuer must aggregate and distribute any 
rebates not provided because they did not meet the minimum threshold set 
forth in paragraph (a) of this section by aggregating the unpaid rebates 
by individual market, small group market and large group market in a 
State and use them to increase the rebates provided to enrollees who 
receive rebates based upon the same MLR reporting year as the aggregated 
unpaid rebates. An issuer must distribute such aggregated rebates by 
providing additional premium credit or payment divided evenly among 
enrollees who are being provided a rebate.
    (2) For example, an issuer in the individual market has aggregated 
unpaid rebates totaling $2,000, and the issuer has 10,000 enrollees who 
are entitled to be provided a rebate above the minimum threshold for the 
applicable MLR reporting year. The $2,000 must be redistributed to the 
10,000 and added on

[[Page 1114]]

to their existing rebate amounts. The $2,000 is divided evenly among the 
10,000 enrollees, so the issuer increases each enrollee's rebate by 
$0.20.

[75 FR 74921, Dec. 1, 2010, as amended at 76 FR 76593, Dec. 7, 2011]



Sec. 158.244  Unclaimed rebates.

    An issuer must make a good faith effort to locate and deliver to an 
enrollee any rebate required under this Part. If, after making a good 
faith effort, an issuer is unable to locate a former enrollee, the 
issuer must comply with any applicable State law.



Sec. 158.250  Notice of rebates.

    (a) Notice of rebates to policyholders and subscribers of group 
health plans. For each MLR reporting year, at the time any rebate of 
premium is provided to a policyholder of a group health plan in 
accordance with this part, an issuer must provide each policyholder who 
receives a rebate and subscribers whose policyholder receives a rebate, 
or each subscriber who receives a rebate directly from an issuer, the 
following information in a form prescribed by the Secretary:
    (1) A general description of the concept of an MLR;
    (2) The purpose of setting an MLR standard;
    (3) The applicable MLR standard;
    (4) The issuer's MLR, adjusted in accordance with the provisions of 
this subpart;
    (5) The issuer's aggregate premium revenue as reported in accordance 
with Sec. 158.130 of this part, minus any Federal and State taxes and 
licensing and regulatory fees that may be excluded from premium revenue 
as described in Sec. 158.162(a)(1) and (b)(1) of this part;
    (6) The rebate percentage and the amount owed to enrollees, as 
defined in section 158.240(b), based upon the difference between the 
issuer's MLR and the applicable MLR standard; and
    (7) The fact that, as provided by this subpart, the total aggregated 
rebate for the group health plan is being provided to the policyholder:
    (i) If the policy provides benefits for a plan subject to ERISA, a 
statement that the policyholder may have additional obligations under 
ERISA's fiduciary responsibility provisions with respect to the handling 
of rebates and contact information for questions regarding the rebate;
    (ii) If the policyholder is a non-Federal governmental plan, the 
proportion of the rebate attributable to subscribers' contribution to 
premium must be used for the benefit of subscribers, using one of the 
methods set forth in Sec. 158.242(b)(1) of this subpart; and
    (iii) If the policyholder is a group health plan that is not a 
governmental plan and is not subject to ERISA,
    (A) The policyholder has provided written assurance that the 
proportion of the rebate attributable to subscribers' contribution to 
premium will be used for the benefit of current subscribers, using one 
of the methods set forth in Sec. 158.242(b)(1) of this subpart, or
    (B) If the policyholder did not provide such written assurance, the 
issuer must distribute the rebate evenly among the policyholder's 
subscribers covered by the policy during the MLR reporting year on which 
the rebate is based.
    (b) Notice of rebates to subscribers in the individual market. For 
each MLR reporting year, at the time any rebate of premium is provided 
to a subscriber in the individual market in accordance with this part, 
an issuer must provide each subscriber that is receiving the rebate the 
following information in a form prescribed by the Secretary:
    (1) A general description of the concept of an MLR;
    (2) The purpose of setting an MLR standard;
    (3) The applicable MLR standard;
    (4) The issuer's MLR, adjusted in accordance with the provisions of 
this subpart;
    (5) The issuer's aggregate premium revenue as reported in accordance 
with Sec. 158.130 of this part, minus any Federal and State taxes and 
licensing and regulatory fees that may be excluded from premium revenue 
as described in Sec. 158.162(a)(1) and (b)(1) of this part; and
    (6) The rebate percentage and amount owed to enrollees based upon 
the difference between the issuer's MLR and the applicable MLR standard.

[76 FR 76593, Dec. 7, 2011]

[[Page 1115]]



Sec. 158.251  Notice of MLR information.

    (a) Notice of MLR information when the MLR standard is met or 
exceeded--(1) General requirement. Except as provided in paragraph (b) 
of this section, for the 2011 MLR reporting year, an issuer whose MLR 
meets or exceeds the applicable MLR standard required by Sec. 158.210 
or Sec. 158.211 must provide each policyholder and subscriber of a 
group health plan, and each subscriber in the individual market, a 
notice in accordance with the requirements of this section.
    (2) Timing. An issuer must provide the notice required in this 
paragraph (a) with the first plan document that the issuer provides to 
enrollees on or after July 1, 2012.
    (3) Form and appearance. The notice must be prominently displayed in 
clear, conspicuous 14-point bold type on the front of the plan document 
or as a separate notice. The notice may be provided electronically, if 
the requirements for electronic disclosure under section 2715 of the 
Public Health Service Act are met.
    (4) Language. The following language must be used to satisfy the 
notice requirement of this paragraph (a):
    Medical Loss Ratio Information--The Affordable Care Act requires 
health insurers in the individual and small group markets to spend at 
least 80 percent of the premiums they receive on health care services 
and activities to improve health care quality (in the large group 
market, this amount is 85 percent). This is referred to as the Medical 
Loss Ratio (MLR) rule or the 80/20 rule. If a health insurer does not 
spend at least 80 percent of the premiums it receives on health care 
services and activities to improve health care quality, the insurer must 
rebate the difference.
    A health insurer's Medical Loss Ratio is determined separately for 
each State's individual, small group and large group markets in which 
the health insurer offers health insurance. In some States, health 
insurers must meet a higher or lower Medical Loss Ratio. No later than 
August 1, 2012, health insurers must send any rebates due for 2011 and 
information to employers and individuals regarding any rebates due for 
2011.
    You are receiving this notice because your health insurer had a 
Medical Loss Ratio for 2011 that met or exceeded the required Medical 
Loss Ratio. For more information on Medical Loss Ratio and your health 
insurer's Medical Loss Ratio, visit www.HealthCare.gov.''
    (b) Exceptions. The requirements of paragraph (a) of this section do 
not apply to an issuer that reports its experience separately under 
Sec. 158.120(d)(3) or (d)(4), or to an issuer whose experience is non-
credible as defined in Sec. 158.230(c)(3) and determined in accordance 
with Sec. 158.231.

[77 FR 28797, May 16, 2012]



Sec. 158.260  Reporting of rebates.

    (a) General requirement. For each MLR reporting year, an issuer must 
submit to the Secretary a report concerning the rebates provided to and 
on behalf of enrollees pursuant to this subpart.
    (b) Aggregation of information in the report. The information in the 
report must be aggregated in the same manner as required by Sec. 
158.120.
    (c) Information to report. The report required by this section must 
include the total:
    (1) Number of subscribers in the individual, small group and large 
group markets to whom the issuer paid a rebate directly, and number of 
small group and large group policyholders receiving a rebate on behalf 
of enrollees;
    (2) Amount of rebates provided as premium credit;
    (3) Amount of rebates provided as lump sum payment regardless of 
whether in cash, reimbursement to an enrollee's credit card, or direct 
payment to an enrollee's bank account;
    (4) Amount of rebates that were de minimis as provided in Sec. 
158.243 of this subpart and the number of enrollees who did not receive 
a rebate because it was de minimis; and
    (5) Amount of unclaimed rebates, a description of the methods used 
to locate the applicable enrollees, and a description of how the 
unclaimed rebates were disbursed.
    (d) Timing and form of report. The data required by paragraphs 
(c)(1) through (4) of this section must be submitted with the report 
under Sec. 158.110, on a form and in the manner prescribed by

[[Page 1116]]

the Secretary. The data required by paragraph (c)(5) of this section 
must be submitted with the report under Sec. 158.110 for the subsequent 
MLR reporting year.

[75 FR 74921, Dec. 1, 2010, as amended at 76 FR 76594, Dec. 7, 2011]



Sec. 158.270  Effect of rebate payments on solvency.

    (a) If a State's insurance commissioner, superintendent, or other 
responsible official determines that the payment of rebates by a 
domestic issuer in that State will cause the issuer's risk based capital 
(RBC) level to fall below the Company Action Level RBC, as defined in 
the NAIC's Risk Based Capital (RBC) for Insurers Model Act, the 
commissioner, superintendent, or other responsible official must notify 
the Secretary. In such a circumstance, the commissioner, superintendent, 
or other responsible official may request that the Secretary defer all 
or a portion of the rebate payments owed by the issuer.
    (b) In the event an insurance commissioner, superintendent, or other 
responsible official makes the request set forth in paragraph (a) of 
this section, the following should be provided to the Secretary along 
with the notification:
    (1) The domestic issuer's RBC reports for the current calendar year 
and the 2 preceding calendar years; and
    (2) A calculation of the amount of rebates that would be owed by the 
domestic issuer pursuant to this part.
    (c) Upon receipt of the notification under paragraph (a), the 
Secretary will examine the information provided by the insurance 
commissioner, superintendent, or other responsible official along with 
any other information the Secretary may request from the issuer, and 
determine whether the payment of rebates by the issuer will cause its 
RBC level to fall below the Company Action Level RBC.
    (d) When the Secretary determines that the payment of rebates by an 
issuer will cause its RBC level to fall below the Company Action Level 
RBC, the Secretary may permit a deferral of all or a portion of the 
rebates owed, but only for a period determined by the Secretary in 
consultation with the State. The Secretary will require that the issuer 
must pay these rebates with interest in a future year in which payment 
of the rebates would not cause the issuer's RBC level to fall below the 
Company Action Level RBC.



   Subpart C_Potential Adjustment to the MLR for a State's Individual 
                                 Market



Sec. 158.301  Standard for adjustment to the medical loss ratio.

    The Secretary may adjust the MLR standard that must be met by 
issuers offering coverage in the individual market in a State, as 
defined in section 2791 of the PHS Act, for a given MLR reporting year 
if, in her discretion, she determines that application of the 80 percent 
MLR standard of section 2718(b)(1)(A)(ii) of the Public Health Service 
Act may destabilize the individual market in that State. Application of 
the 80 percent MLR standard may destabilize the individual market in a 
State only if there is a reasonable likelihood that application of the 
requirement will do so.



Sec. 158.310  Who may request adjustment to the medical loss ratio.

    A request for an adjustment to the MLR standard for a State must be 
submitted by the State's insurance commissioner, superintendent, or 
comparable official of that State in order to be considered by the 
Secretary.



Sec. 158.311  Duration of adjustment to the medical loss ratio.

    A State may request that an adjustment to the MLR standard be for up 
to three MLR reporting years.



Sec. 158.320  Information supporting a request for adjustment to 
the medical loss ratio.

    A State must submit in electronic format the information required by 
Sec. Sec. 158.321 through 158.323 of this subpart in order for the 
request for adjustment to the MLR standard for the State to be 
considered by the Secretary. A State may submit to the Secretary any 
additional information it determines would support its request. In the 
event that certain data are unavailable or that the collection of 
certain data is

[[Page 1117]]

unduly burdensome, a State may provide written notice to the Secretary 
and the Secretary may, at her discretion, request alternative supporting 
data or move forward with her determination.



Sec. 158.321  Information regarding the State's individual health 
insurance market.

    (a) State MLR standard. The State must describe its current MLR 
standard for the individual market, if any, and the formula used to 
assess compliance with such standard.
    (b) State market withdrawal requirements. The State must describe 
any requirements it has with respect to withdrawals from the State's 
individual health insurance market. Such requirements include, but are 
not limited to, any notice that must be provided and any authority the 
State regulator may have to approve a withdrawal plan or ensure that 
enrollees of the exiting issuer have continuing coverage, as well as any 
penalties or sanctions that may be levied upon exit or limitations on 
re-entry.
    (c) Mechanisms to provide options to consumers. The State must 
describe the mechanisms available to the State to provide consumers with 
options in the event an issuer withdraws from the individual market. 
Such mechanisms include, but are not limited to, a guaranteed issue 
requirement, limits on health status rating, an issuer of last resort, 
or a State-operated high risk pool. A description of each mechanism 
should include detail on the issuers participating in and products 
available under such mechanism, as well as any limitations with respect 
to eligibility, enrollment period, total enrollment, and coverage for 
pre-existing conditions.
    (d) Issuers in the State's individual market. Subject to Sec. 
158.320 of this subpart, the State must provide:
    (1) For each issuer who offers coverage in the individual market in 
the State its number of individual enrollees by product, available 
individual premium data by product, and individual health insurance 
market share within the State; and
    (2) For each issuer who offers coverage in the individual market in 
the State to more than 1,000 enrollees, the following additional 
information:
    (i) Total earned premium on individual market health insurance 
products in the State;
    (ii) Reported MLR pursuant to State law for the individual market 
business in the State;
    (iii) Estimated MLR for the individual market business in the State, 
as determined in accordance with Sec. 158.221 of this part;
    (iv) Total agents' and brokers' commission expenses on individual 
health insurance products;
    (v) Estimated rebate for the individual market business in the 
State, as determined in accordance with Sec. Sec. 158.221 and 158.240 
of this part;
    (vi) Net underwriting profit for the individual market business and 
consolidated business in the State;
    (vii) After-tax profit and profit margin for the individual market 
business and consolidated business in the State;
    (viii) Risk-based capital level; and
    (ix) Whether the issuer has provided notice of exit to the State's 
insurance commissioner, superintendent, or comparable State authority.



Sec. 158.322  Proposal for adjusted medical loss ratio.

    A State must provide its own proposal as to the adjustment it seeks 
to the MLR standard. This proposal must include:
    (a) An explanation and justification of how the proposed adjustment 
to the MLR was determined;
    (b) An explanation of how an adjustment to the MLR standard for the 
State's individual market will permit issuers to adjust current business 
models and practices in order to meet an 80 percent MLR as soon as is 
practicable;
    (c) An estimate of the rebates that would be paid if the issuers 
offering coverage in the individual market in the State must meet an 80 
percent MLR for the applicable MLR reporting years; and
    (d) An estimate of the rebates that would be paid if the issuers 
offering coverage in the individual market in the State must meet the 
adjusted MLR proposed by the State for the applicable MLR reporting 
years.

[[Page 1118]]



Sec. 158.323  State contact information.

    A State must provide the name, telephone number, e-mail address, and 
mailing address of the person the Secretary may contact regarding the 
request for an adjustment to the MLR standard.



Sec. 158.330  Criteria for assessing request for adjustment to the 
medical loss ratio.

    The Secretary may consider the following criteria in assessing 
whether application of an 80 percent MLR, as calculated in accordance 
with this subpart, may destabilize the individual market in a State that 
has requested an adjustment to the 80 percent MLR:
    (a) The number of issuers reasonably likely to exit the State or to 
cease offering coverage in the State absent an adjustment to the 80 
percent MLR and the resulting impact on competition in the State. In 
making this determination the Secretary may consider as to each issuer 
that is reasonably likely to exit the State:
    (1) Each issuer's MLR relative to an 80 percent MLR;
    (2) Each issuer's solvency and profitability, as measured by factors 
such as surplus level, risked-based capital ratio, net income, and 
operating or underwriting gain;
    (3) The requirements and limitations within the State with respect 
to market withdrawals; and
    (4) Whether each issuer covers less than 1,000 life-years in the 
State's individual insurance market.
    (b) The number of individual market enrollees covered by issuers 
that are reasonably likely to exit the State absent an adjustment to the 
80 percent MLR.
    (c) Whether absent an adjustment to the 80 percent MLR standard 
consumers may be unable to access agents and brokers.
    (d) The alternate coverage options within the State available to 
individual market enrollees in the event an issuer exits the market, 
including:
    (1) Any requirement that issuers who exit the State's individual 
market must have their block(s) of business assumed by another issuer;
    (2) The issuers that may remain in the State subsequent to the 
implementation of the 80 percent MLR, as calculated in accordance with 
this Part, and the nature, terms, and price of the products offered by 
such issuers;
    (3) The capacity of remaining issuers to write additional business, 
as measured by their risk based capital ratios;
    (4) The mechanisms, such as guaranteed issue products, an issuer of 
last resort, or a State high risk pool, available to the State to 
provide coverage to consumers in the event of an issuer withdrawing from 
the market, and the affordability of these options compared to the 
coverage provided by exiting or potentially exiting issuers; and
    (5) Any authority the State's insurance commissioner, 
superintendent, or comparable official may exercise with respect to 
stabilization of the individual insurance market.
    (e) The impact on premiums charged, and on benefits and cost-sharing 
provided, to consumers by issuers remaining in the market in the event 
one or more issuers were to withdraw from the market.
    (f) Any other relevant information submitted by the State's 
insurance commissioner, superintendent, or comparable official in the 
State's request.



Sec. 158.340  Process for submitting request for adjustment to the 
medical loss ratio.

    (a) Electronic submission. A State must submit electronically, to an 
address and in a format prescribed by the Secretary, all of the 
information required by this subpart in order for its request for an 
adjustment to the MLR standard for its individual market to be 
considered by the Secretary.
    (b) Submission by mail. A State may also submit by overnight 
delivery service or by U.S mail, return receipt requested, to an address 
and in a format prescribed by the Secretary, its request for an 
adjustment to the MLR standard for its individual market.



Sec. 158.341  Treatment as a public document.

    A State's request for an adjustment to the MLR standard, and all 
information submitted as part of its request, will be treated as a 
public document

[[Page 1119]]

and will be posted promptly on the Secretary's Internet Web site devoted 
to health care coverage.



Sec. 158.342  Invitation for public comments.

    The Secretary will invite public comment regarding a State's request 
for an adjustment to the MLR standard. All public comments must be 
submitted in writing within 10 days of the posting of the request, and 
must be submitted in the manner prescribed by the Secretary. The 
Secretary will consider timely public comments in assessing a State's 
request for an adjustment to the MLR standard.



Sec. 158.343  Optional State hearing.

    Any State that submits a request for adjustment to the MLR standard 
may, at its option, hold a public hearing and create an evidentiary 
record with respect to its application. If a State does so, the 
Secretary will take the evidentiary record of the hearing into 
consideration in making her determination.



Sec. 158.344  Secretary's discretion to hold a hearing.

    The Secretary may, at her discretion, conduct a public hearing with 
respect to a State's request for an adjustment to the MLR standard. All 
testimony and materials received in connection with any public hearing 
will be made part of the public record, and shall be considered by the 
Secretary in assessing a State's request for an adjustment to the MLR 
standard.



Sec. 158.345  Determination on a State's request for adjustment to 
the medical loss ratio.

    (a) General time frame. The Secretary will make a determination as 
to whether to grant a State's request for an adjustment to the MLR 
standard within 30 days after determining that the information required 
by this subpart has been received.
    (b) Extension at the discretion of the Secretary. The Secretary may, 
in her discretion, extend the 30 day time period in paragraph (a) of 
this section for as long a time as necessary not to exceed 30 days.



Sec. 158.346  Request for reconsideration.

    (a) Requesting reconsideration. A State whose request for adjustment 
to the MLR standard has been denied by the Secretary may request 
reconsideration of that determination. A request for reconsideration 
must be submitted in writing to the Secretary within 10 days of her 
decision to deny the State's request for an adjustment, and may include 
any additional information in support of its request.
    (b) Reconsideration determination. The Secretary will issue her 
determination on a State's request for reconsideration within 20 days of 
receiving the reconsideration request.



Sec. 158.350  Subsequent requests for adjustment to the medical 
loss ratio.

    A State that has made a previous request for an adjustment to the 
MLR standard must, in addition to the other information required by this 
subpart, submit information as to what steps the State has taken since 
its initial and other prior requests, if any, to increase the likelihood 
that enrollees who have health coverage through issuers that are 
considered likely to exit the State's individual market will receive 
coverage at a comparable price and with comparable benefits if the 
issuer does exit the market.



                        Subpart D_HHS Enforcement



Sec. 158.401  HHS enforcement.

    HHS enforces the reporting and rebate requirements described in 
subparts A and B, including but not limited to:
    (a) The requirement that such reports be submitted timely.
    (b) The requirement that the data reported complies with the 
definitions and criteria set forth in this part.
    (c) The requirement that rebates be paid timely and accurately.



Sec. 158.402  Audits.

    (a) Notice of Audit. HHS will provide 30 days advance notice of its 
intent to conduct an audit of an issuer.
    (b) Conferences. All audits will include an entrance conference at 
which the scope of the audit will be presented

[[Page 1120]]

and an exit conference at which the initial audit findings will be 
discussed.
    (c) Preliminary Audit Findings. HHS will share its preliminary audit 
findings with the issuer, which will then have 30 days to respond to 
such findings. HHS may extend, for good cause, the time for an issuer to 
submit such a response.
    (d) Final Audit Findings. If the issuer does not dispute the 
preliminary findings, the audit findings will become final. 
Alternatively, if the issuer responds to the preliminary findings, HHS 
will review and consider such response and finalize the audit findings.
    (e) Corrective actions. HHS will send a copy of the final audit 
findings to the issuer as well as any corrective actions that issuer 
must undertake as a result of the audit findings.
    (f) Order to pay rebates. If HHS determines as the result of an 
audit that an issuer has failed to pay rebates it is obligated to pay 
pursuant to this part, it may order the issuer to pay those rebates, 
together with interest from the date the rebates were due, in accordance 
with Sec. 158.240(d) of this part.



Sec. 158.403  Circumstances in which a State is conducting audits of 
issuers.

    (a) If a State conducts an audit of an issuer's MLR reporting and 
rebate obligations, HHS may, in the exercise of its discretion, accept 
the findings of that audit if HHS determines the following:
    (1) The laws of the State permit public release of the findings of 
audits of issuers;
    (2) The State's audit reports on the validity of the data regarding 
expenses and premiums that the issuer reported to the Secretary, 
including the appropriateness of the allocations of expenses used in 
such reporting and whether the activities associated with the issuer's 
reported expenditures for quality improving activities meet the 
definition of such activities;
    (3) The State's audit reports on the accuracy of rebate calculations 
and the timeliness and accuracy of rebate payments;
    (4) The State submits final audit reports to HHS within 30 days of 
finalization; and
    (5) The State submits preliminary or draft audit reports to HHS 
within 6 months of the completion of audit field work unless they have 
already been finalized and reported under paragraph (a)(4) of this 
section.
    (b) If HHS accepts an audit conducted by a State, and if the issuer 
makes additional rebate payments as a result of the audit, then HHS 
shall accept those payments as satisfying the issuer's obligation to pay 
rebates pursuant to this part.



              Subpart E_Additional Requirements on Issuers



Sec. 158.501  Access to facilities and records.

    (a) Each issuer subject to the reporting requirement of this part 
must allow access and entry to its premises, facilities and records, 
including computer and other electronic systems, to HHS, the Comptroller 
General, or their designees to evaluate, through inspection, audit, or 
other means, compliance with the requirements for reporting and 
calculation of data submitted to HHS, and the timeliness and accuracy of 
rebate payments made under this part.
    (b) Each issuer must also allow access and entry to the facilities 
and records, including computer and other electronic systems, of its 
parent organization, subsidiaries, related entities, contractors, 
subcontractors, agents, or a transferee that pertain to any aspect of 
the data reported to HHS or to rebate payments calculated and made under 
this part. To the extent that the issuer does not control access to the 
facilities and records of its parent organization, related entities, or 
third parties, it will be the responsibility of the issuer to 
contractually obligate any such parent organization, related entities, 
or third parties to grant said access.
    (c) The Comptroller General, HHS, or their designees may inspect, 
evaluate, and audit through 6 years from the date of the filing of a 
report required by this part or through 3 years after the completion of 
the audit and for such longer period set forth below provided that any 
of the following occur:

[[Page 1121]]

    (1) HHS determines there is a special need to retain a particular 
record or group of records for a longer period and notifies the issuer 
at least 30 days before the disposition date.
    (2) There has been a dispute, or allegation of fraud or similar 
fault by the issuer, in which case the retention may be extended to 6 
years from the date of any resulting final resolution of the dispute, 
fraud, or similar fault.
    (3) HHS determines that there is a reasonable possibility of fraud 
or similar fault, in which case HHS may inspect, evaluate, and audit the 
issuer at any time.



Sec. 158.502  Maintenance of records.

    (a) Basic rule. Each issuer subject to the requirements of this part 
must maintain all documents and other evidence necessary to enable HHS 
to verify that the data required to be submitted in accordance with this 
part comply with the definitions and criteria set forth in this part, 
and that the MLR is calculated and any rebates owing are calculated and 
provided in accordance with this part. This includes but is not limited 
to all administrative and financial books and records used in compiling 
data reported and rebates provided under this part and in determining 
what data to report and rebates to provide under this part, 
electronically stored information, and evidence of accounting procedures 
and practices. This also includes all administrative and financial books 
and records used by others in assisting an issuer with its obligations 
under this part.
    (b) Length of time information must be maintained. All of the 
documents and other evidence required by this part must be maintained 
for the current year and six prior years, unless a longer time is 
required under Sec. 158.501 of this subpart.



                    Subpart F_Federal Civil Penalties



Sec. 158.601  General rule regarding the imposition of civil penalties.

    If any issuer fails to comply with the requirements of this part, 
civil penalties, as described in this subpart, may be imposed.



Sec. 158.602  Basis for imposing civil penalties.

    Civil penalties. For the violations listed in this paragraph, HHS 
may impose civil penalties in the amounts specified in Sec. 158.606 of 
this subpart on any issuer who fails to do the following:
    (a) Submit to HHS a report concerning the data required under this 
part by the deadline established by HHS.
    (b) Submit to HHS a substantially complete or accurate report 
concerning the data required under this part.
    (c) Timely and accurately pay rebates owing pursuant to this part.
    (d) Respond to HHS inquiries as part of an investigation of issuer 
non-compliance.
    (e) Maintain records as required under this part for the periodic 
auditing of books and records used in compiling data reported to HHS and 
in calculating and paying rebates pursuant to this Part.
    (f) Allow access and entry to premises, facilities and records that 
pertain to any aspect of the data reported to HHS or to rebates 
calculated and paid pursuant to this part.
    (g) Comply with corrective actions resulting from audit findings.
    (h) Accurately and truthfully represent data, reports or other 
information that it furnishes to a State or HHS.



Sec. 158.603  Notice to responsible entities.

    If HHS learns of a potential violation described in Sec. 158.602 of 
this subpart or if a State informs HHS of a potential violation prior to 
imposing any civil monetary penalty HHS must provide written notice to 
the issuer, to include the following:
    (a) Describe the potential violation.
    (b) Provide 30 days from the date of the notice for the responsible 
entity to respond and to provide additional information to refute an 
alleged violation.
    (c) State that a civil monetary penalty may be assessed if the 
allegations are not, as determined by HHS, refuted.



Sec. 158.604  Request for extension.

    In circumstances in which an entity cannot prepare a response to HHS

[[Page 1122]]

within the 30 days provided in the notice, the entity may make a written 
request for an extension from HHS detailing the reason for the extension 
request and showing good cause. If HHS grants the extension, the 
responsible entity must respond to the notice within the time frame 
specified in HHS's letter granting the extension of time. Failure to 
respond within 30 days, or within the extended time frame, may result in 
HHS's imposition of a civil monetary penalty based upon its 
determination of a potential violation described in Sec. 158.602 of 
this subpart.



Sec. 158.605  Responses to allegations of noncompliance.

    In determining whether to impose a civil monetary penalty, HHS may 
review and consider 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 Affordable 
Care Act requirements. The following are examples of documentation that 
a potential responsible entity may submit for HHS's consideration in 
determining whether a civil monetary penalty should be assessed and the 
amount of any civil monetary penalty:
    (a) Any evidence that refutes an alleged noncompliance.
    (b) Evidence that the entity did not know, and exercising due 
diligence could not have known, of the violation.
    (c) Evidence documenting the development and implementation of 
internal policies and procedures by an issuer to ensure compliance with 
the Affordable Care Act requirements regarding MLR. 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 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 Affordable Care Act requirements regarding MLRs 
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.
    (d) Evidence documenting the entity's record of previous compliance 
with Affordable Care Act requirements regarding MLRs.



Sec. 158.606  Amount of penalty--general.

    A civil monetary penalty for each violation of Sec. 158.602 of this 
subpart 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. 158.607  Factors HHS uses to determine the amount of penalty.

    In determining the amount of any penalty, HHS may take into account 
the following:
    (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(s), HHS or any State found the responsible entity liable for 
civil or administrative sanctions in connection with a violation of 
Affordable Care Act requirements regarding minimum loss ratios.
    (2) Evidence that the responsible entity has never had a complaint 
for noncompliance with Affordable Care Act requirements regarding MLRs 
filed with a State or HHS.
    (3) 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.

[[Page 1123]]



Sec. 158.608  Determining the amount of the penalty--mitigating 
circumstances.

    For every violation subject to a civil monetary 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. 158.606 of this subpart to reflect that fact. As 
guidelines for taking into account the factors listed in Sec. 158.607 
of this subpart, HHS 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. 158.603 of this 
subpart, implemented and followed a compliance plan as described in 
Sec. 158.605(c) of this subpart.
    (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 the requirements of this part so that the following 
occur:
    (i) Each enrollee adversely affected by the violation has been paid 
any amount of rebate owed so that, to the extent practicable, that 
enrollee is in the same position that he, she, or it would have been in 
had the violation not occurred.
    (ii) The rebate payments are completed in a timely manner.
    (2) Discovered areas of noncompliance without notice from HHS 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. 158.609  Determining the amount of penalty--aggravating 
circumstances.

    For every violation subject to a civil monetary penalty, if there 
are substantial or several aggravating circumstances, HHS may set the 
aggregate amount of the penalty at an amount sufficiently close to or at 
the maximum permitted by Sec. 158.606 of this subpart to reflect that 
fact. HHS 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. 158.610  Determining the amount of penalty--other matters as 
justice may require.

    HHS 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. 158.611  Settlement authority.

    Nothing in Sec. 158.606 through Sec. 158.610 of this subpart 
limits the authority of HHS to settle any issue or case described in the 
notice furnished in accordance with Sec. 158.603 of this subpart or to 
compromise on any penalty provided for in Sec. Sec. 158.606 through 
158.610 of this subpart.



Sec. 158.612  Limitations on penalties.

    (a) Circumstances under which a civil monetary penalty is not 
imposed. HHS does not impose any civil monetary penalty on any failure 
for the period of

[[Page 1124]]

time during which none of the responsible entities knew, or exercising 
reasonable diligence would have known, of the failure. HHS also may not 
impose a civil monetary 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 HHS's satisfaction that 
no responsible entity knew, or exercising reasonable diligence would 
have known, that the failure existed.



Sec. 158.613  Notice of proposed penalty.

    (a) Contents of notice. If HHS proposes to assess a penalty in 
accordance with this Part, it must provide the issuer written notice of 
its intent to assess a penalty, which includes the following:
    (1) A description of the requirements under this part that HHS has 
determined the issuer violated.
    (2) A description of the information upon which HHS based its 
determination, including the basis for determining the number of 
affected individuals and the number of days or weeks for which the 
violations occurred.
    (3) The amount of the proposed penalty as of the date of the notice.
    (4) Any considerations described in Sec. 158.607 through Sec. 
158.610 of this subpart that were taken into account in determining the 
amount of the proposed penalty.
    (5) A specific statement of the issuer's right to a hearing.
    (6) A statement that failure to request a hearing within 30 days 
after the date of the notice permits the assessment of the proposed 
penalty without right of appeal in accordance with Sec. 158.615 of this 
subpart.
    (b) Delivery of Notice. This notice must be either hand delivered, 
sent by certified mail, return receipt requested, or sent by overnight 
delivery service with signature upon delivery required.



Sec. 158.614  Appeal of proposed penalty.

    Any issuer against which HHS has assessed a penalty under this part 
may appeal that penalty in accordance with Sec. 150.400 et seq.



Sec. 158.615  Failure to request a hearing.

    If the issuer does not request a hearing within 30 days of the 
issuance of the notice described in Sec. 158.613 of this subpart, HHS 
may assess the proposed civil monetary penalty indicated in such notice 
and may impose additional penalties as described in Sec. 158.606 of 
this subpart. HHS must notify the issuer in writing of any penalty that 
has been assessed and of the means by which the issuer may satisfy the 
penalty. The issuer has no right to appeal a penalty with respect to 
which it has not requested a hearing in accordance with Sec. 150.405 of 
this subchapter, unless the responsible entity can show good cause, as 
determined at Sec. 150.405(b) of this subchapter, for failing to timely 
exercise its right to a hearing.



PART 159_HEALTH CARE REFORM INSURANCE WEB PORTAL--Table of Contents



Sec.
159.100 Basis and Scope.
159.110 Definitions.
159.120 Data Submission for the individual and small group markets.

    Authority: Section 1103 of the Patient Protection and Affordable 
Care Act (Pub. L. 111-148).

    Source: 75 FR 24482, May 5, 2010, unless otherwise noted.



Sec. 159.100  Basis and scope.

    This part establishes provisions governing a Web portal that will 
provide information on health insurance coverage options in each of the 
50 States and the District of Columbia. It sets forth data submission 
requirements for health insurance issuers. It covers the individual 
market and the small group market.



Sec. 159.110  Definitions.

    For purposes of part 159, the following definitions apply unless 
otherwise provided:

[[Page 1125]]

    Health Insurance Coverage: We adopt the Public Health Service Act 
(PHSA) definition of ``health insurance coverage'' found at section 
2791(b)(1) of the Public Health Service Act (PHSA).
    Health Insurance Issuer: We adopt the PHSA definition of ``health 
insurance issuer'' found at section 2791(b)(2) of the PHSA.
    Health Insurance Product: Means a package of benefits that an issuer 
offers that is reported to State regulators in an insurance filing.
    Individual Health Insurance Coverage: We adopt the PHSA definition 
of ``individual health insurance coverage'' found at section 2791(b)(5) 
of the PHSA.
    Individual Market: We adopt the Affordable Care Act definition of 
``individual market'' found at section 1304(a)(2) of the Affordable Care 
Act and 2791(e)(1)(A) of the PHSA.
    Portal Plan: Means the discrete pairing of a package of benefits and 
a particular cost sharing option (not including premium rates or premium 
quotes).
    Section 1101 High Risk Pools: We define section 1101 high risk pools 
as any entity described in regulations implementing section 1101 of the 
Affordable Care Act.
    Small Employer: We adopt the Affordable Care Act definition of 
``small employer'' found at section 1304(b)(2) and (3).
    Small Group Coverage: Means health insurance coverage offered to 
employees of small employers in the small group market.
    Small Group Market: We adopt the Affordable Care Act definition of 
``small group market'' found at section 1304(a)(3).
    State Health Benefits High Risk Pools: Means nonprofit organizations 
created by State law to offer comprehensive health insurance to 
individuals who otherwise would be unable to secure such coverage 
because of their health status.



Sec. 159.120  Data submission for the individual and small group markets.

    (a) Health insurance issuers (hereinafter referred to as issuers) 
must, in accordance with guidance issued by the Secretary, submit 
corporate and contact information; administrative information; 
enrollment data by health insurance product; product names and types; 
whether enrollment is currently open for each health insurance product; 
geographic availability information; customer service phone numbers; and 
Web site links to the issuer Web site, brochure documents, and provider 
networks; and financial ratings on or before May 21, 2010, and annually 
thereafter.
    (b) Issuers must, as determined by the Secretary, submit pricing and 
benefit information for their portal plans on or before September 3, 
2010, and annually thereafter.
    (c) Issuers must submit updated pricing and benefit data for their 
portal plans whenever they change premiums, cost-sharing, types of 
services covered, coverage limitations, or exclusions for one or more of 
their individual or small group portal plans.
    (d) Issuers must submit pricing and benefit data for portal plans 
associated with products that are newly open or newly reopened for 
enrollment within 30 days of opening for enrollment.
    (e) Issuers must annually verify the data submitted under paragraphs 
(a) through (d) of this section, and make corrections to any errors that 
are found.
    (f) Issuers must submit administrative data on products and portal 
plans, and these performance ratings, percent of individual market and 
small group market policies that are rescinded; the percent of 
individual market policies sold at the manual rate; the percent of 
claims that are denied under individual market and small group market 
policies; and the number and disposition of appeals on denials to 
insure, pay claims and provide required preauthorizations, for future 
releases of the Web portal in accordance with guidance issued by the 
Secretary.
    (g) The issuer's CEO or CFO must electronically certify to the 
completeness and accuracy of all data submitted for the October 1, 2010, 
release of the Web portal and for any future updates to these 
requirements.

[[Page 1126]]



   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.
160.105 Compliance dates for implementation of new or modified standards 
          and implementation specifications.

                    Subpart B_Preemption of State Law

160.201 Statutory basis.
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 Investigations

160.300 Applicability.
160.302 [Reserved]
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.
160.314 Investigational subpoenas and inquiries.
160.316 Refraining from intimidation or retaliation.

              Subpart D_Imposition of Civil Money Penalties

160.400 Applicability.
160.401 Definitions.
160.402 Basis for a civil money penalty.
160.404 Amount of a civil money penalty.
160.406 Violations of an identical requirement or prohibition.
160.408 Factors considered in determining the amount of a civil money 
          penalty.
160.410 Affirmative defenses.
160.412 Waiver.
160.414 Limitations.
160.416 Authority to settle.
160.418 Penalty not exclusive.
160.420 Notice of proposed determination.
160.422 Failure to request a hearing.
160.424 Collection of penalty.
160.426 Notification of the public and other agencies.

                    Subpart E_Procedures for Hearings

160.500 Applicability.
160.502 Definitions.
160.504 Hearing before an ALJ.
160.506 Rights of the parties.
160.508 Authority of the ALJ.
160.510 Ex parte contacts.
160.512 Prehearing conferences.
160.514 Authority to settle.
160.516 Discovery.
160.518 Exchange of witness lists, witness statements, and exhibits.
160.520 Subpoenas for attendance at hearing.
160.522 Fees.
160.524 Form, filing, and service of papers.
160.526 Computation of time.
160.528 Motions.
160.530 Sanctions.
160.532 Collateral estoppel.
160.534 The hearing.
160.536 Statistical sampling.
160.538 Witnesses.
160.540 Evidence.
160.542 The record.
160.544 Post hearing briefs.
160.546 ALJ's decision.
160.548 Appeal of the ALJ's decision.
160.550 Stay of the Secretary's decision.
160.552 Harmless error.

    Authority: 42 U.S.C. 1302(a); 42 U.S.C. 1320d-1320d-9; sec. 264, 
Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-2 (note)); 5 
U.S.C. 552; secs. 13400-13424, Pub. L. 111-5, 123 Stat. 258-279; and 
sec. 1104 of Pub. L. 111-148, 124 Stat. 146-154.

    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 1171-1180 of 
the Social Security Act (the Act), sections 262 and 264 of Public Law 
104-191, section 105 of Public Law 110-233, sections 13400-13424 of 
Public Law 111-5, and section 1104 of Public Law 111-148.

[78 FR 5687, Jan. 25, 2013]



Sec. 160.102  Applicability.

    (a) Except as otherwise provided, the standards, requirements, and 
implementation specifications adopted under

[[Page 1127]]

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) Where provided, the standards, requirements, and implementation 
specifications adopted under this subchapter apply to a business 
associate.
    (c) To the extent required under the Social Security Act, 42 U.S.C. 
1320a-7c(a)(5), 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.).

[65 FR 82798, Dec. 28, 2000, as amended at 67 FR 53266, Aug. 14, 2002; 
78 FR 5687, Jan. 25, 2013]



Sec. 160.103  Definitions.

    Except as otherwise provided, the following definitions apply to 
this subchapter:
    Act means the Social Security Act.
    Administrative simplification provision means any requirement or 
prohibition established by:
    (1) 42 U.S.C. 1320d-1320d-4, 1320d-7, 1320d-8, and 1320d-9;
    (2) Section 264 of Pub. L. 104-191;
    (3) Sections 13400-13424 of Public Law 111-5; or
    (4) This subchapter.
    ALJ means Administrative Law Judge.
    ANSI stands for the American National Standards Institute.
    Business associate: (1) Except as provided in paragraph (4) 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 this section) in which the covered entity 
participates, but other than in the capacity of a member of the 
workforce of such covered entity or arrangement, creates, receives, 
maintains, or transmits protected health information for a function or 
activity regulated by this subchapter, including claims processing or 
administration, data analysis, processing or administration, utilization 
review, quality assurance, patient safety activities listed at 42 CFR 
3.20, billing, benefit management, practice management, and repricing; 
or
    (ii) Provides, other than in the capacity of a member of the 
workforce of such covered entity, legal, actuarial, 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 protected 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 may be a business associate of another covered 
entity.
    (3) Business associate includes:
    (i) A Health Information Organization, E-prescribing Gateway, or 
other person that provides data transmission services with respect to 
protected health information to a covered entity and that requires 
access on a routine basis to such protected health information.
    (ii) A person that offers a personal health record to one or more 
individuals on behalf of a covered entity.
    (iii) A subcontractor that creates, receives, maintains, or 
transmits protected health information on behalf of the business 
associate.
    (4) Business associate does not include:
    (i) A health care provider, with respect to disclosures by a covered 
entity to the health care provider concerning the treatment of the 
individual.
    (ii) A plan sponsor, with respect to disclosures by a group health 
plan (or by 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) of this subchapter apply and are met.
    (iii) A government agency, with respect to determining eligibility 
for, or enrollment in, a government health plan that provides public 
benefits and is administered by another government agency, or collecting 
protected health information for such purposes, to the

[[Page 1128]]

extent such activities are authorized by law.
    (iv) 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 by virtue of such activities or services.
    Civil money penalty or penalty means the amount determined under 
Sec. 160.404 of this part and includes the plural of these terms.
    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 or business 
associate 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.
    Disclosure means the release, transfer, provision of access to, or 
divulging in any manner of information outside the entity holding the 
information.
    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.
    Electronic media means:
    (1) Electronic storage material on which data is or may be recorded 
electronically, including, for example, devices in computers (hard 
drives) and any removable/transportable digital memory medium, such as 
magnetic tape or disk, optical disk, or digital memory card;
    (2) Transmission media used to exchange information already in 
electronic storage media. Transmission media include, for example, the 
Internet, extranet or intranet, leased lines, dial-up lines, private 
networks, and the physical movement of removable/transportable 
electronic storage media. Certain transmissions, including of paper, via 
facsimile, and of voice, via telephone, are not considered to be 
transmissions via electronic media if the information being exchanged 
did not exist in electronic form immediately before the transmission.
    Electronic protected health information means information that comes 
within paragraphs (1)(i) or (1)(ii) of the definition of protected 
health information as specified in this section.
    Employer is defined as it is in 26 U.S.C. 3401(d).
    Family member means, with respect to an individual:
    (1) A dependent (as such term is defined in 45 CFR 144.103), of the 
individual; or
    (2) Any other person who is a first-degree, second-degree, third-
degree, or fourth-degree relative of the individual or of a dependent of 
the individual. Relatives by affinity (such as by marriage or adoption) 
are treated the same as relatives by consanguinity (that is, relatives 
who share a common biological ancestor). In determining the degree of 
the relationship, relatives by less than full consanguinity (such as 
half-siblings, who share only one parent) are treated the same as 
relatives by full consanguinity (such as siblings who share both 
parents).
    (i) First-degree relatives include parents, spouses, siblings, and 
children.
    (ii) Second-degree relatives include grandparents, grandchildren, 
aunts, uncles, nephews, and nieces.
    (iii) Third-degree relatives include great-grandparents, great-
grandchildren, great aunts, great uncles, and first cousins.
    (iv) Fourth-degree relatives include great-great grandparents, 
great-great

[[Page 1129]]

grandchildren, and children of first cousins.
    Genetic information means:
    (1) Subject to paragraphs (2) and (3) of this definition, with 
respect to an individual, information about:
    (i) The individual's genetic tests;
    (ii) The genetic tests of family members of the individual;
    (iii) The manifestation of a disease or disorder in family members 
of such individual; or
    (iv) Any request for, or receipt of, genetic services, or 
participation in clinical research which includes genetic services, by 
the individual or any family member of the individual.
    (2) Any reference in this subchapter to genetic information 
concerning an individual or family member of an individual shall include 
the genetic information of:
    (i) A fetus carried by the individual or family member who is a 
pregnant woman; and
    (ii) Any embryo legally held by an individual or family member 
utilizing an assisted reproductive technology.
    (3) Genetic information excludes information about the sex or age of 
any individual.
    Genetic services means:
    (1) A genetic test;
    (2) Genetic counseling (including obtaining, interpreting, or 
assessing genetic information); or
    (3) Genetic education.
    Genetic test means an analysis of human DNA, RNA, chromosomes, 
proteins, or metabolites, if the analysis detects genotypes, mutations, 
or chromosomal changes. Genetic test does not include an analysis of 
proteins or metabolites that is directly related to a manifested 
disease, disorder, or pathological condition.
    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 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, including genetic 
information, whether oral or recorded in any form or medium, that:

[[Page 1130]]

    (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) The Voluntary Prescription Drug Benefit Program under Part D of 
title XVIII of the Act, 42 U.S.C. 1395w-101 through 1395w-152.
    (vii) An issuer of a Medicare supplemental policy (as defined in 
section 1882(g)(1) of the Act, 42 U.S.C. 1395ss(g)(1)).
    (viii) An issuer of a long-term care policy, excluding a nursing 
home fixed indemnity policy.
    (ix) 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.
    (x) The health care program for uniformed services under title 10 of 
the United States Code.
    (xi) The veterans health care program under 38 U.S.C. chapter 17.
    (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 Advantage 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 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.

[[Page 1131]]

    Implementation specification means specific requirements or 
instructions for implementing a standard.
    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:
    (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.
    Manifestation or manifested means, with respect to a disease, 
disorder, or pathological condition, that an individual has been or 
could reasonably be diagnosed with the disease, disorder, or 
pathological condition by a health care professional with appropriate 
training and expertise in the field of medicine involved. For purposes 
of this subchapter, a disease, disorder, or pathological condition is 
not manifested if the diagnosis is based principally on genetic 
information.
    Modify or modification refers to a change adopted by the Secretary, 
through regulation, to a standard or an implementation specification.
    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 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.
    Person means a natural person, trust or estate, partnership, 
corporation, professional association or corporation, or other entity, 
public or private.
    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 electronic media; or
    (iii) Transmitted or maintained in any other form or medium.

[[Page 1132]]

    (2) Protected health information excludes individually identifiable 
health information:
    (i) In education records covered by the Family Educational Rights 
and Privacy Act, as amended, 20 U.S.C. 1232g;
    (ii) In records described at 20 U.S.C. 1232g(a)(4)(B)(iv);
    (iii) In employment records held by a covered entity in its role as 
employer; and
    (iv) Regarding a person who has been deceased for more than 50 
years.
    Respondent means a covered entity or business associate upon which 
the Secretary has imposed, or proposes to impose, a civil money penalty.
    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 protected 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, Guam, American Samoa, and the Commonwealth of the Northern 
Mariana Islands.
    Subcontractor means a person to whom a business associate delegates 
a function, activity, or service, other than in the capacity of a member 
of the workforce of such business associate.
    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) Health care electronic funds transfers (EFT) and remittance 
advice.
    (12) Other transactions that the Secretary may prescribe by 
regulation.
    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.
    Violation or violate means, as the context may require, failure to 
comply with an administrative simplification provision.
    Workforce means employees, volunteers, trainees, and other persons 
whose conduct, in the performance of work for a covered entity or 
business associate, is under the direct control of such covered entity 
or business associate, whether or not they are paid by the covered 
entity or business associate.

[65 FR 82798, Dec. 28, 2000, as amended at 67 FR 38019, May 31, 2002; 67 
FR 53266, Aug. 14, 2002; 68 FR 8374, Feb. 20, 2003; 71 FR 8424, Feb. 16, 
2006; 76 FR 40495, July 8, 2011; 77 FR 1589, Jan. 10, 2012; 78 FR 5687, 
Jan. 25, 2013]

[[Page 1133]]



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]



Sec. 160.105  Compliance dates for implementation of new or 
modified standards and implementation specifications.

    Except as otherwise provided, with respect to rules that adopt new 
standards and implementation specifications or modifications to 
standards and implementation specifications in this subchapter in 
accordance with Sec. 160.104 that become effective after January 25, 
2013, covered entities and business associates must comply with the 
applicable new standards and implementation specifications, or 
modifications to standards and implementation specifications, no later 
than 180 days from the effective date of any such standards or 
implementation specifications.

[78 FR 5689, Jan. 25, 2013]



                    Subpart B_Preemption of State Law



Sec. 160.201  Statutory basis.

    The provisions of this subpart implement section 1178 of the Act, 
section 262 of Public Law 104-191, section 264(c) of Public Law 104-191, 
and section 13421(a) of Public Law 111-5.

[78 FR 5689, Jan. 25, 2013]



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 or business associate 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, section 264 of Public Law 104-191, or sections 
13400-13424 of Public Law 111-5, 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 or business associate 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, regarding access to 
or amendment of individually identifiable health information, permits 
greater rights of access or amendment, as applicable.

[[Page 1134]]

    (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, 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.
    (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.

[65 FR 82798, Dec. 28, 2000, as amended at 67 FR 53266, Aug. 14, 2002; 
74 FR 42767, Aug. 24, 2009; 78 FR 5689, Jan. 25, 2013]



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 
individually identifiable 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 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.

[65 FR 82798, Dec. 28, 2000, as amended at 67 FR 53266, Aug. 14, 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:

[[Page 1135]]

    (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 Investigations

    Source: 71 FR 8424, Feb. 16, 2006, unless otherwise noted.



Sec. 160.300  Applicability.

    This subpart applies to actions by the Secretary, covered entities, 
business associates, and others with respect to ascertaining the 
compliance by covered entities and business associates with, and the 
enforcement of, the applicable provisions of this part 160 and parts 162 
and 164 of this subchapter.

[78 FR 5690, Jan. 25, 2013]



Sec. 160.302  [Reserved]



Sec. 160.304  Principles for achieving compliance.

    (a) Cooperation. The Secretary will, to the extent practicable and 
consistent with the provisions of this subpart, seek the cooperation of 
covered entities and business associates in obtaining compliance with 
the applicable administrative simplification provisions.
    (b) Assistance. The Secretary may provide technical assistance to 
covered entities and business associates to help them comply voluntarily 
with the applicable administrative simplification provisions.

[78 FR 5690, Jan. 25, 2013]



Sec. 160.306  Complaints to the Secretary.

    (a) Right to file a complaint. A person who believes a covered 
entity or business associate is not complying with the administrative 
simplification provisions 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 person that is the subject of the 
complaint and describe the acts or omissions believed to be in violation 
of the applicable administrative simplification provision(s).
    (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.

[[Page 1136]]

    (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. (1) The Secretary will investigate any complaint 
filed under this section when a preliminary review of the facts 
indicates a possible violation due to willful neglect.
    (2) The Secretary may investigate any other complaint filed under 
this section.
    (3) An investigation under this section may include a review of the 
pertinent policies, procedures, or practices of the covered entity or 
business associate and of the circumstances regarding any alleged 
violation.
    (4) At the time of the initial written communication with the 
covered entity or business associate about the complaint, the Secretary 
will describe the acts and/or omissions that are the basis of the 
complaint.

[71 FR 8424, Feb. 16, 2006, as amended at 78 FR 5690, Jan. 25, 2013]



Sec. 160.308  Compliance reviews.

    (a) The Secretary will conduct a compliance review to determine 
whether a covered entity or business associate is complying with the 
applicable administrative simplification provisions when a preliminary 
review of the facts indicates a possible violation due to willful 
neglect.
    (b) The Secretary may conduct a compliance review to determine 
whether a covered entity or business associate is complying with the 
applicable administrative simplification provisions in any other 
circumstance.

[78 FR 5690, Jan. 25, 2013]



Sec. 160.310  Responsibilities of covered entities and business associates.

    (a) Provide records and compliance reports. A covered entity or 
business associate 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 or business associate has complied 
or is complying with the applicable administrative simplification 
provisions.
    (b) Cooperate with complaint investigations and compliance reviews. 
A covered entity or business associate must cooperate with the 
Secretary, if the Secretary undertakes an investigation or compliance 
review of the policies, procedures, or practices of the covered entity 
or business associate to determine whether it is complying with the 
applicable administrative simplification provisions.
    (c) Permit access to information. (1) A covered entity or business 
associate 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 administrative 
simplification provisions. If the Secretary determines that exigent 
circumstances exist, such as when documents may be hidden or destroyed, 
a covered entity or business associate must permit access by the 
Secretary at any time and without notice.
    (2) If any information required of a covered entity or business 
associate 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 
or business associate 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 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 administrative 
simplification provisions, if otherwise required by law, or if permitted 
under 5 U.S.C. 552a(b)(7).

[78 FR 5690, Jan. 25, 2013]



Sec. 160.312  Secretarial action regarding complaints and c
ompliance reviews.

    (a) Resolution when noncompliance is indicated. (1) If an 
investigation of a complaint pursuant to Sec. 160.306 or a compliance 
review pursuant to Sec. 160.308

[[Page 1137]]

indicates noncompliance, the Secretary may attempt to reach a resolution 
of the matter satisfactory to the Secretary by informal means. Informal 
means may include demonstrated compliance or a completed corrective 
action plan or other agreement.
    (2) If the matter is resolved by informal means, the Secretary will 
so inform the covered entity or business associate and, if the matter 
arose from a complaint, the complainant, in writing.
    (3) If the matter is not resolved by informal means, the Secretary 
will--
    (i) So inform the covered entity or business associate and provide 
the covered entity or business associate an opportunity to submit 
written evidence of any mitigating factors or affirmative defenses for 
consideration under Sec. Sec. 160.408 and 160.410 of this part. The 
covered entity or business associate must submit any such evidence to 
the Secretary within 30 days (computed in the same manner as prescribed 
under Sec. 160.526 of this part) of receipt of such notification; and
    (ii) If, following action pursuant to paragraph (a)(3)(i) of this 
section, the Secretary finds that a civil money penalty should be 
imposed, inform the covered entity or business associate of such finding 
in a notice of proposed determination in accordance with Sec. 160.420 
of this part.
    (b) Resolution when no violation is found. If, after an 
investigation pursuant to Sec. 160.306 or a compliance review pursuant 
to Sec. 160.308, the Secretary determines that further action is not 
warranted, the Secretary will so inform the covered entity or business 
associate and, if the matter arose from a complaint, the complainant, in 
writing.

[78 FR 5690, Jan. 25, 2013]



Sec. 160.314  Investigational subpoenas and inquiries.

    (a) The Secretary may issue subpoenas in accordance with 42 U.S.C. 
405(d) and (e), 1320a-7a(j), and 1320d-5 to require the attendance and 
testimony of witnesses and the production of any other evidence during 
an investigation or compliance review pursuant to this part. For 
purposes of this paragraph, a person other than a natural person is 
termed an ``entity.''
    (1) A subpoena issued under this paragraph must--
    (i) State the name of the person (including the entity, if 
applicable) to whom the subpoena is addressed;
    (ii) State the statutory authority for the subpoena;
    (iii) Indicate the date, time, and place that the testimony will 
take place;
    (iv) Include a reasonably specific description of any documents or 
items required to be produced; and
    (v) If the subpoena is addressed to an entity, describe with 
reasonable particularity the subject matter on which testimony is 
required. In that event, the entity must designate one or more natural 
persons who will testify on its behalf, and must state as to each such 
person that person's name and address and the matters on which he or she 
will testify. The designated person must testify as to matters known or 
reasonably available to the entity.
    (2) A subpoena under this section must be served by--
    (i) Delivering a copy to the natural person named in the subpoena or 
to the entity named in the subpoena at its last principal place of 
business; or
    (ii) Registered or certified mail addressed to the natural person at 
his or her last known dwelling place or to the entity at its last known 
principal place of business.
    (3) A verified return by the natural person serving the subpoena 
setting forth the manner of service or, in the case of service by 
registered or certified mail, the signed return post office receipt, 
constitutes proof of service.
    (4) Witnesses are entitled to the same fees and mileage as witnesses 
in the district courts of the United States (28 U.S.C. 1821 and 1825). 
Fees need not be paid at the time the subpoena is served.
    (5) A subpoena under this section is enforceable through the 
district court of the United States for the district where the 
subpoenaed natural person resides or is found or where the entity 
transacts business.

[[Page 1138]]

    (b) Investigational inquiries are non-public investigational 
proceedings conducted by the Secretary.
    (1) Testimony at investigational inquiries will be taken under oath 
or affirmation.
    (2) Attendance of non-witnesses is discretionary with the Secretary, 
except that a witness is entitled to be accompanied, represented, and 
advised by an attorney.
    (3) Representatives of the Secretary are entitled to attend and ask 
questions.
    (4) A witness will have the opportunity to clarify his or her 
answers on the record following questioning by the Secretary.
    (5) Any claim of privilege must be asserted by the witness on the 
record.
    (6) Objections must be asserted on the record. Errors of any kind 
that might be corrected if promptly presented will be deemed to be 
waived unless reasonable objection is made at the investigational 
inquiry. Except where the objection is on the grounds of privilege, the 
question will be answered on the record, subject to objection.
    (7) If a witness refuses to answer any question not privileged or to 
produce requested documents or items, or engages in conduct likely to 
delay or obstruct the investigational inquiry, the Secretary may seek 
enforcement of the subpoena under paragraph (a)(5) of this section.
    (8) The proceedings will be recorded and transcribed. The witness is 
entitled to a copy of the transcript, upon payment of prescribed costs, 
except that, for good cause, the witness may be limited to inspection of 
the official transcript of his or her testimony.
    (9)(i) The transcript will be submitted to the witness for 
signature.
    (A) Where the witness will be provided a copy of the transcript, the 
transcript will be submitted to the witness for signature. The witness 
may submit to the Secretary written proposed corrections to the 
transcript, with such corrections attached to the transcript. If the 
witness does not return a signed copy of the transcript or proposed 
corrections within 30 days (computed in the same manner as prescribed 
under Sec. 160.526 of this part) of its being submitted to him or her 
for signature, the witness will be deemed to have agreed that the 
transcript is true and accurate.
    (B) Where, as provided in paragraph (b)(8) of this section, the 
witness is limited to inspecting the transcript, the witness will have 
the opportunity at the time of inspection to propose corrections to the 
transcript, with corrections attached to the transcript. The witness 
will also have the opportunity to sign the transcript. If the witness 
does not sign the transcript or offer corrections within 30 days 
(computed in the same manner as prescribed under Sec. 160.526 of this 
part) of receipt of notice of the opportunity to inspect the transcript, 
the witness will be deemed to have agreed that the transcript is true 
and accurate.
    (ii) The Secretary's proposed corrections to the record of 
transcript will be attached to the transcript.
    (c) Consistent with Sec. 160.310(c)(3), testimony and other 
evidence obtained in an investigational inquiry may be used by HHS in 
any of its activities and may be used or offered into evidence in any 
administrative or judicial proceeding.



Sec. 160.316  Refraining from intimidation or retaliation.

    A covered entity or business associate may not threaten, intimidate, 
coerce, harass, discriminate against, or take any other retaliatory 
action against any individual or other person for--
    (a) Filing of a complaint under Sec. 160.306;
    (b) Testifying, assisting, or participating in an investigation, 
compliance review, proceeding, or hearing under this part; or
    (c) Opposing any act or practice made unlawful by this subchapter, 
provided the individual or person has a good faith belief that the 
practice opposed is unlawful, and the manner of opposition is reasonable 
and does not involve a disclosure of protected health information in 
violation of subpart E of part 164 of this subchapter.

[71 FR 8424, Feb. 16, 2006, as amended at 78 FR 5691, Jan. 25, 2013]

[[Page 1139]]



              Subpart D_Imposition of Civil Money Penalties

    Source: 71 FR 8426, Feb. 16, 2006, unless otherwise noted.



Sec. 160.400  Applicability.

    This subpart applies to the imposition of a civil money penalty by 
the Secretary under 42 U.S.C. 1320d-5.



Sec. 160.401  Definitions.

    As used in this subpart, the following terms have the following 
meanings:
    Reasonable cause means an act or omission in which a covered entity 
or business associate knew, or by exercising reasonable diligence would 
have known, that the act or omission violated an administrative 
simplification provision, but in which the covered entity or business 
associate did not act with willful neglect.
    Reasonable diligence means the business care and prudence expected 
from a person seeking to satisfy a legal requirement under similar 
circumstances.
    Willful neglect means conscious, intentional failure or reckless 
indifference to the obligation to comply with the administrative 
simplification provision violated.

[74 FR 56130, Oct. 30, 2009, as amended at 78 FR 5691, Jan. 25, 2013]



Sec. 160.402  Basis for a civil money penalty.

    (a) General rule. Subject to Sec. 160.410, the Secretary will 
impose a civil money penalty upon a covered entity or business associate 
if the Secretary determines that the covered entity or business 
associate has violated an administrative simplification provision.
    (b) Violation by more than one covered entity or business associate. 
(1) Except as provided in paragraph (b)(2) of this section, if the 
Secretary determines that more than one covered entity or business 
associate was responsible for a violation, the Secretary will impose a 
civil money penalty against each such covered entity or business 
associate.
    (2) A covered entity that is a member of an affiliated covered 
entity, in accordance with Sec. 164.105(b) of this subchapter, is 
jointly and severally liable for a civil money penalty for a violation 
of part 164 of this subchapter based on an act or omission of the 
affiliated covered entity, unless it is established that another member 
of the affiliated covered entity was responsible for the violation.
    (c) Violation attributed to a covered entity or business associate. 
(1) A covered entity is liable, in accordance with the Federal common 
law of agency, for a civil money penalty for a violation based on the 
act or omission of any agent of the covered entity, including a 
workforce member or business associate, acting within the scope of the 
agency.
    (2) A business associate is liable, in accordance with the Federal 
common law of agency, for a civil money penalty for a violation based on 
the act or omission of any agent of the business associate, including a 
workforce member or subcontractor, acting within the scope of the 
agency.

[78 FR 5691, Jan. 25, 2013]



Sec. 160.404  Amount of a civil money penalty.

    (a) The amount of a civil money penalty will be determined in 
accordance with paragraph (b) of this section and Sec. Sec. 160.406, 
160.408, and 160.412.
    (b) The amount of a civil money penalty that may be imposed is 
subject to the following limitations:
    (1) For violations occurring prior to February 18, 2009, the 
Secretary may not impose a civil money penalty--
    (i) In the amount of more than $100 for each violation; or
    (ii) In excess of $25,000 for identical violations during a calendar 
year (January 1 through the following December 31);
    (2) For violations occurring on or after February 18, 2009, the 
Secretary may not impose a civil money penalty--
    (i) For a violation in which it is established that the covered 
entity or business associate did not know and, by exercising reasonable 
diligence, would not have known that the covered entity or business 
associate violated such provision,
    (A) In the amount of less than $100 or more than $50,000 for each 
violation; or

[[Page 1140]]

    (B) In excess of $1,500,000 for identical violations during a 
calendar year (January 1 through the following December 31);
    (ii) For a violation in which it is established that the violation 
was due to reasonable cause and not to willful neglect,
    (A) In the amount of less than $1,000 or more than $50,000 for each 
violation; or
    (B) In excess of $1,500,000 for identical violations during a 
calendar year (January 1 through the following December 31);
    (iii) For a violation in which it is established that the violation 
was due to willful neglect and was corrected during the 30-day period 
beginning on the first date the covered entity or business associate 
liable for the penalty knew, or, by exercising reasonable diligence, 
would have known that the violation occurred,
    (A) In the amount of less than $10,000 or more than $50,000 for each 
violation; or
    (B) In excess of $1,500,000 for identical violations during a 
calendar year (January 1 through the following December 31);
    (iv) For a violation in which it is established that the violation 
was due to willful neglect and was not corrected during the 30-day 
period beginning on the first date the covered entity or business 
associate liable for the penalty knew, or, by exercising reasonable 
diligence, would have known that the violation occurred,
    (A) In the amount of less than $50,000 for each violation; or
    (B) In excess of $1,500,000 for identical violations during a 
calendar year (January 1 through the following December 31).
    (3) If a requirement or prohibition in one administrative 
simplification provision is repeated in a more general form in another 
administrative simplification provision in the same subpart, a civil 
money penalty may be imposed for a violation of only one of these 
administrative simplification provisions.

[71 FR 8426, Feb. 16, 2006, as amended at 74 FR 56130, Oct. 30, 2009; 78 
FR 5691, Jan. 25, 2013]



Sec. 160.406  Violations of an identical requirement or prohibition.

    The Secretary will determine the number of violations of an 
administrative simplification provision based on the nature of the 
covered entity's or business associate's obligation to act or not act 
under the provision that is violated, such as its obligation to act in a 
certain manner, or within a certain time, or to act or not act with 
respect to certain persons. In the case of continuing violation of a 
provision, a separate violation occurs each day the covered entity or 
business associate is in violation of the provision.

[78 FR 5691, Jan. 25, 2013]



Sec. 160.408  Factors considered in determining the amount of a 
civil money penalty.

    In determining the amount of any civil money penalty, the Secretary 
will consider the following factors, which may be mitigating or 
aggravating as appropriate:
    (a) The nature and extent of the violation, consideration of which 
may include but is not limited to:
    (1) The number of individuals affected; and
    (2) The time period during which the violation occurred;
    (b) The nature and extent of the harm resulting from the violation, 
consideration of which may include but is not limited to:
    (1) Whether the violation caused physical harm;
    (2) Whether the violation resulted in financial harm;
    (3) Whether the violation resulted in harm to an individual's 
reputation; and
    (4) Whether the violation hindered an individual's ability to obtain 
health care;
    (c) The history of prior compliance with the administrative 
simplification provisions, including violations, by the covered entity 
or business associate, consideration of which may include but is not 
limited to:
    (1) Whether the current violation is the same or similar to previous 
indications of noncompliance;
    (2) Whether and to what extent the covered entity or business 
associate has attempted to correct previous indications of 
noncompliance;

[[Page 1141]]

    (3) How the covered entity or business associate has responded to 
technical assistance from the Secretary provided in the context of a 
compliance effort; and
    (4) How the covered entity or business associate has responded to 
prior complaints;
    (d) The financial condition of the covered entity or business 
associate, consideration of which may include but is not limited to:
    (1) Whether the covered entity or business associate had financial 
difficulties that affected its ability to comply;
    (2) Whether the imposition of a civil money penalty would jeopardize 
the ability of the covered entity or business associate to continue to 
provide, or to pay for, health care; and
    (3) The size of the covered entity or business associate; and
    (e) Such other matters as justice may require.

[78 FR 5691, Jan. 25, 2013]



Sec. 160.410  Affirmative defenses.

    (a) The Secretary may not:
    (1) Prior to February 18, 2011, impose a civil money penalty on a 
covered entity or business associate for an act that violates an 
administrative simplification provision if the covered entity or 
business associate establishes that the violation is punishable under 42 
U.S.C. 1320d-6.
    (2) On or after February 18, 2011, impose a civil money penalty on a 
covered entity or business associate for an act that violates an 
administrative simplification provision if the covered entity or 
business associate establishes that a penalty has been imposed under 42 
U.S.C. 1320d-6 with respect to such act.
    (b) For violations occurring prior to February 18, 2009, the 
Secretary may not impose a civil money penalty on a covered entity for a 
violation if the covered entity establishes that an affirmative defense 
exists with respect to the violation, including the following:
    (1) The covered entity establishes, to the satisfaction of the 
Secretary, that it did not have knowledge of the violation, determined 
in accordance with the Federal common law of agency, and by exercising 
reasonable diligence, would not have known that the violation occurred; 
or
    (2) The violation is--
    (i) Due to circumstances that would make it unreasonable for the 
covered entity, despite the exercise of ordinary business care and 
prudence, to comply with the administrative simplification provision 
violated and is not due to willful neglect; and
    (ii) Corrected during either:
    (A) The 30-day period beginning on the first date the covered entity 
liable for the penalty knew, or by exercising reasonable diligence would 
have known, that the violation occurred; or
    (B) Such additional period as the Secretary determines to be 
appropriate based on the nature and extent of the failure to comply.
    (c) For violations occurring on or after February 18, 2009, the 
Secretary may not impose a civil money penalty on a covered entity or 
business associate for a violation if the covered entity or business 
associate establishes to the satisfaction of the Secretary that the 
violation is--
    (1) Not due to willful neglect; and
    (2) Corrected during either:
    (i) The 30-day period beginning on the first date the covered entity 
or business associate liable for the penalty knew, or, by exercising 
reasonable diligence, would have known that the violation occurred; or
    (ii) Such additional period as the Secretary determines to be 
appropriate based on the nature and extent of the failure to comply.

[78 FR 5692, Jan. 25, 2013]



Sec. 160.412  Waiver.

    For violations described in Sec. 160.410(b)(2) or (c) that are not 
corrected within the period specified under such paragraphs, the 
Secretary may waive the civil money penalty, in whole or in part, to the 
extent that the payment of the penalty would be excessive relative to 
the violation.

[8 FR 5692, Jan. 25, 2013]



Sec. 160.414  Limitations.

    No action under this subpart may be entertained unless commenced by 
the Secretary, in accordance with Sec. 160.420,

[[Page 1142]]

within 6 years from the date of the occurrence of the violation.



Sec. 160.416  Authority to settle.

    Nothing in this subpart limits the authority of the Secretary to 
settle any issue or case or to compromise any penalty.



Sec. 160.418  Penalty not exclusive.

    Except as otherwise provided by 42 U.S.C. 1320d-5(b)(1) and 42 
U.S.C. 299b-22(f)(3), a penalty imposed under this part is in addition 
to any other penalty prescribed by law.

[78 FR 5692, Jan. 25, 2013]



Sec. 160.420  Notice of proposed determination.

    (a) If a penalty is proposed in accordance with this part, the 
Secretary must deliver, or send by certified mail with return receipt 
requested, to the respondent, written notice of the Secretary's intent 
to impose a penalty. This notice of proposed determination must 
include--
    (1) Reference to the statutory basis for the penalty;
    (2) A description of the findings of fact regarding the violations 
with respect to which the penalty is proposed (except that, in any case 
where the Secretary is relying upon a statistical sampling study in 
accordance with Sec. 160.536 of this part, the notice must provide a 
copy of the study relied upon by the Secretary);
    (3) The reason(s) why the violation(s) subject(s) the respondent to 
a penalty;
    (4) The amount of the proposed penalty and a reference to the 
subparagraph of Sec. 160.404 upon which it is based.
    (5) Any circumstances described in Sec. 160.408 that were 
considered in determining the amount of the proposed penalty; and
    (6) Instructions for responding to the notice, including a statement 
of the respondent's right to a hearing, a statement that failure to 
request a hearing within 90 days permits the imposition of the proposed 
penalty without the right to a hearing under Sec. 160.504 or a right of 
appeal under Sec. 160.548 of this part, and the address to which the 
hearing request must be sent.
    (b) The respondent may request a hearing before an ALJ on the 
proposed penalty by filing a request in accordance with Sec. 160.504 of 
this part.

[71 FR 8426, Feb. 16, 2006, as amended at 74 FR 56131, Oct. 30, 2009]



Sec. 160.422  Failure to request a hearing.

    If the respondent does not request a hearing within the time 
prescribed by Sec. 160.504 of this part and the matter is not settled 
pursuant to Sec. 160.416, the Secretary will impose the proposed 
penalty or any lesser penalty permitted by 42 U.S.C. 1320d-5. The 
Secretary will notify the respondent by certified mail, return receipt 
requested, of any penalty that has been imposed and of the means by 
which the respondent may satisfy the penalty, and the penalty is final 
on receipt of the notice. The respondent has no right to appeal a 
penalty under Sec. 160.548 of this part with respect to which the 
respondent has not timely requested a hearing.



Sec. 160.424  Collection of penalty.

    (a) Once a determination of the Secretary to impose a penalty has 
become final, the penalty will be collected by the Secretary, subject to 
the first sentence of 42 U.S.C. 1320a-7a(f).
    (b) The penalty may be recovered in a civil action brought in the 
United States district court for the district where the respondent 
resides, is found, or is located.
    (c) The amount of a penalty, when finally determined, or the amount 
agreed upon in compromise, may be deducted from any sum then or later 
owing by the United States, or by a State agency, to the respondent.
    (d) Matters that were raised or that could have been raised in a 
hearing before an ALJ, or in an appeal under 42 U.S.C. 1320a-7a(e), may 
not be raised as a defense in a civil action by the United States to 
collect a penalty under this part.



Sec. 160.426  Notification of the public and other agencies.

    Whenever a proposed penalty becomes final, the Secretary will 
notify, in such manner as the Secretary deems appropriate, the public 
and the following organizations and entities thereof and the reason it 
was imposed: the appropriate State or local medical

[[Page 1143]]

or professional organization, the appropriate State agency or agencies 
administering or supervising the administration of State health care 
programs (as defined in 42 U.S.C. 1320a-7(h)), the appropriate 
utilization and quality control peer review organization, and the 
appropriate State or local licensing agency or organization (including 
the agency specified in 42 U.S.C. 1395aa(a), 1396a(a)(33)).



                    Subpart E_Procedures for Hearings

    Source: 71 FR 8428, Feb. 16, 2006, unless otherwise noted.



Sec. 160.500  Applicability.

    This subpart applies to hearings conducted relating to the 
imposition of a civil money penalty by the Secretary under 42 U.S.C. 
1320d-5.



Sec. 160.502  Definitions.

    As used in this subpart, the following term has the following 
meaning:
    Board means the members of the HHS Departmental Appeals Board, in 
the Office of the Secretary, who issue decisions in panels of three.



Sec. 160.504  Hearing before an ALJ.

    (a) A respondent may request a hearing before an ALJ. The parties to 
the hearing proceeding consist of--
    (1) The respondent; and
    (2) The officer(s) or employee(s) of HHS to whom the enforcement 
authority involved has been delegated.
    (b) The request for a hearing must be made in writing signed by the 
respondent or by the respondent's attorney and sent by certified mail, 
return receipt requested, to the address specified in the notice of 
proposed determination. The request for a hearing must be mailed within 
90 days after notice of the proposed determination is received by the 
respondent. For purposes of this section, the respondent's date of 
receipt of the notice of proposed determination is presumed to be 5 days 
after the date of the notice unless the respondent makes a reasonable 
showing to the contrary to the ALJ.
    (c) The request for a hearing must clearly and directly admit, deny, 
or explain each of the findings of fact contained in the notice of 
proposed determination with regard to which the respondent has any 
knowledge. If the respondent has no knowledge of a particular finding of 
fact and so states, the finding shall be deemed denied. The request for 
a hearing must also state the circumstances or arguments that the 
respondent alleges constitute the grounds for any defense and the 
factual and legal basis for opposing the penalty, except that a 
respondent may raise an affirmative defense under Sec. 160.410(b)(1) at 
any time.
    (d) The ALJ must dismiss a hearing request where--
    (1) On motion of the Secretary, the ALJ determines that the 
respondent's hearing request is not timely filed as required by 
paragraphs (b) or does not meet the requirements of paragraph (c) of 
this section;
    (2) The respondent withdraws the request for a hearing;
    (3) The respondent abandons the request for a hearing; or
    (4) The respondent's hearing request fails to raise any issue that 
may properly be addressed in a hearing.



Sec. 160.506  Rights of the parties.

    (a) Except as otherwise limited by this subpart, each party may--
    (1) Be accompanied, represented, and advised by an attorney;
    (2) Participate in any conference held by the ALJ;
    (3) Conduct discovery of documents as permitted by this subpart;
    (4) Agree to stipulations of fact or law that will be made part of 
the record;
    (5) Present evidence relevant to the issues at the hearing;
    (6) Present and cross-examine witnesses;
    (7) Present oral arguments at the hearing as permitted by the ALJ; 
and
    (8) Submit written briefs and proposed findings of fact and 
conclusions of law after the hearing.
    (b) A party may appear in person or by a representative. Natural 
persons who appear as an attorney or other representative must conform 
to the standards of conduct and ethics required of practitioners before 
the courts of the United States.

[[Page 1144]]

    (c) Fees for any services performed on behalf of a party by an 
attorney are not subject to the provisions of 42 U.S.C. 406, which 
authorizes the Secretary to specify or limit their fees.



Sec. 160.508  Authority of the ALJ.

    (a) The ALJ must conduct a fair and impartial hearing, avoid delay, 
maintain order, and ensure that a record of the proceeding is made.
    (b) The ALJ may--
    (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 at 
hearings and the production of documents at or in relation to hearings;
    (6) Rule on motions and other procedural matters;
    (7) Regulate the scope and timing of documentary discovery as 
permitted by this subpart;
    (8) Regulate the course of the hearing and the conduct of 
representatives, parties, and witnesses;
    (9) Examine witnesses;
    (10) Receive, rule on, exclude, or limit evidence;
    (11) Upon motion of a party, take official notice of facts;
    (12) Conduct any conference, argument or hearing in person or, upon 
agreement of the parties, by telephone; and
    (13) Upon motion of a party, decide cases, in whole or in part, by 
summary judgment where there is no disputed issue of material fact. A 
summary judgment decision constitutes a hearing on the record for the 
purposes of this subpart.
    (c) The ALJ--
    (1) May not find invalid or refuse to follow Federal statutes, 
regulations, or Secretarial delegations of authority and must give 
deference to published guidance to the extent not inconsistent with 
statute or regulation;
    (2) May not enter an order in the nature of a directed verdict;
    (3) May not compel settlement negotiations;
    (4) May not enjoin any act of the Secretary; or
    (5) May not review the exercise of discretion by the Secretary with 
respect to whether to grant an extension under Sec. 
160.410(b)(2)(ii)(B) or (c)(2)(ii) of this part or to provide technical 
assistance under 42 U.S.C. 1320d-5(b)(2)(B).

[71 FR 8428, Feb. 16, 2006, as amended at 78 FR 34266, June 7, 2013]



Sec. 160.510  Ex parte contacts.

    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. 160.512  Prehearing conferences.

    (a) The ALJ must schedule at least one prehearing conference, and 
may schedule additional prehearing conferences as appropriate, upon 
reasonable notice, which may not be less than 14 business days, to the 
parties.
    (b) The ALJ may use prehearing conferences to discuss the 
following--
    (1) Simplification 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 the 
other party) 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 of documents as permitted by this subpart;

[[Page 1145]]

    (9) The time and place for the hearing;
    (10) The potential for the settlement of the case by the parties; 
and
    (11) Other matters as may tend to encourage the fair, just and 
expeditious disposition of the proceedings, including the protection of 
privacy of individually identifiable health information that may be 
submitted into evidence or otherwise used in the proceeding, if 
appropriate.
    (c) The ALJ must issue an order containing the matters agreed upon 
by the parties or ordered by the ALJ at a prehearing conference.



Sec. 160.514  Authority to settle.

    The Secretary has exclusive authority to settle any issue or case 
without the consent of the ALJ.



Sec. 160.516  Discovery.

    (a) A party may make a request to another party for production of 
documents for inspection and copying that are relevant and material to 
the issues before the ALJ.
    (b) For the purpose of this section, the term ``documents'' includes 
information, reports, answers, records, accounts, papers and other data 
and documentary evidence. Nothing contained in this section may be 
interpreted to require the creation of a document, except that requested 
data stored in an electronic data storage system must be produced in a 
form accessible to the requesting party.
    (c) Requests for documents, requests for admissions, written 
interrogatories, depositions and any forms of discovery, other than 
those permitted under paragraph (a) of this section, are not authorized.
    (d) This section may not be construed to require the disclosure of 
interview reports or statements obtained by any party, or on behalf of 
any party, of persons who will not be called as witnesses by that party, 
or analyses and summaries prepared in conjunction with the investigation 
or litigation of the case, or any otherwise privileged documents.
    (e)(1) When a request for production of documents has been received, 
within 30 days the party receiving that request must either fully 
respond to the request, or state that the request is being objected to 
and the reasons for that objection. If objection is made to part of an 
item or category, the part must be specified. Upon receiving any 
objections, the party seeking production may then, within 30 days or any 
other time frame set by the ALJ, file a motion for an order compelling 
discovery. The party receiving a request for production may also file a 
motion for protective order any time before the date the production is 
due.
    (2) The ALJ may grant a motion for protective order or deny a motion 
for an order compelling discovery if the ALJ finds that the discovery 
sought--
    (i) Is irrelevant;
    (ii) Is unduly costly or burdensome;
    (iii) Will unduly delay the proceeding; or
    (iv) Seeks privileged information.
    (3) The ALJ may extend any of the time frames set forth in paragraph 
(e)(1) of this section.
    (4) The burden of showing that discovery should be allowed is on the 
party seeking discovery.



Sec. 160.518  Exchange of witness lists, witness statements, and exhibits.

    (a) The parties must exchange witness lists, copies of prior written 
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. 
160.538, not more than 60, and not less than 15, days before the 
scheduled hearing, except that if a respondent intends to introduce the 
evidence of a statistical expert, the respondent must provide the 
Secretarial party with a copy of the statistical expert's report not 
less than 30 days before the scheduled hearing.
    (b)(1) If, at any time, a party objects to the proposed admission of 
evidence not exchanged in accordance with paragraph (a) of this section, 
the ALJ must determine whether the failure to comply with paragraph (a) 
of this section should result in the exclusion of that evidence.
    (2) Unless the ALJ finds that extraordinary circumstances justified 
the failure timely to exchange the information

[[Page 1146]]

listed under paragraph (a) of this section, the ALJ must exclude from 
the party's case-in-chief--
    (i) The testimony of any witness whose name does not appear on the 
witness list; and
    (ii) Any exhibit not provided to the opposing party as specified in 
paragraph (a) of this section.
    (3) If the ALJ finds that extraordinary circumstances existed, the 
ALJ must then determine whether the admission of that evidence would 
cause substantial prejudice to the objecting party.
    (i) If the ALJ finds that there is no substantial prejudice, the 
evidence may be admitted.
    (ii) If the ALJ finds that there is substantial prejudice, the ALJ 
may exclude the evidence, or, if he or she does not exclude the 
evidence, must postpone the hearing for such time as is necessary for 
the objecting party to prepare and respond to the evidence, unless the 
objecting party waives postponement.
    (c) Unless the other party objects within a reasonable period of 
time before the hearing, documents exchanged in accordance with 
paragraph (a) of this section will be deemed to be authentic for the 
purpose of admissibility at the hearing.



Sec. 160.520  Subpoenas for attendance at hearing.

    (a) A party wishing to procure the appearance and testimony of any 
person at the hearing may make a motion requesting the ALJ to issue a 
subpoena if the appearance and testimony are reasonably necessary for 
the presentation of a party's case.
    (b) A subpoena requiring the attendance of a person in accordance 
with paragraph (a) of this section may also require the person (whether 
or not the person is a party) to produce relevant and material evidence 
at or before the hearing.
    (c) When a subpoena is served by a respondent on a particular 
employee or official or particular office of HHS, the Secretary may 
comply by designating any knowledgeable HHS representative to appear and 
testify.
    (d) A party seeking a subpoena must file a written motion not less 
than 30 days before the date fixed for the hearing, unless otherwise 
allowed by the ALJ for good cause shown. That motion must--
    (1) Specify any evidence to be produced;
    (2) Designate the witnesses; and
    (3) Describe the address and location with sufficient particularity 
to permit those witnesses to be found.
    (e) The subpoena must specify the time and place at which the 
witness is to appear and any evidence the witness is to produce.
    (f) Within 15 days after the written motion requesting issuance of a 
subpoena is served, any party may file an opposition or other response.
    (g) If the motion requesting issuance of a subpoena is granted, the 
party seeking the subpoena must serve it by delivery to the person 
named, or by certified mail addressed to that person at the person's 
last dwelling place or principal place of business.
    (h) The person to whom the subpoena is directed may file with the 
ALJ a motion to quash the subpoena within 10 days after service.
    (i) The exclusive remedy for contumacy by, or refusal to obey a 
subpoena duly served upon, any person is specified in 42 U.S.C. 405(e).



Sec. 160.522  Fees.

    The party requesting a subpoena must 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 must accompany the subpoena when served, 
except that, when a subpoena is issued on behalf of the Secretary, a 
check for witness fees and mileage need not accompany the subpoena.



Sec. 160.524  Form, filing, and service of papers.

    (a) Forms. (1) Unless the ALJ directs the parties to do otherwise, 
documents filed with the ALJ must include an original and two copies.
    (2) Every pleading and paper filed in the proceeding must contain a 
caption setting forth the title of the action, the case number, and a 
designation of the

[[Page 1147]]

paper, such as motion to quash subpoena.
    (3) Every pleading and paper must be signed by and must 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.
    (b) Service. A party filing a document with the ALJ or the Board 
must, at the time of filing, serve a copy of the document on the other 
party. Service upon any party of any document must be made by delivering 
a copy, or placing a copy of the document in the United States mail, 
postage prepaid and addressed, or with a private delivery service, to 
the party's last known address. When a party is represented by an 
attorney, service must be made upon the attorney in lieu of the party.
    (c) Proof of service. A certificate of the natural person serving 
the document by personal delivery or by mail, setting forth the manner 
of service, constitutes proof of service.



Sec. 160.526  Computation of time.

    (a) In computing any period of time under this subpart 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) When the period of time allowed is less than 7 days, 
intermediate Saturdays, Sundays, and legal holidays observed by the 
Federal Government must be excluded from the computation.
    (c) Where a document has been served or issued by placing it in the 
mail, an additional 5 days must be added to the time permitted for any 
response. This paragraph does not apply to requests for hearing under 
Sec. 160.504.



Sec. 160.528  Motions.

    (a) An application to the ALJ for an order or ruling must be by 
motion. Motions must state the relief sought, the authority relied upon 
and the facts alleged, and must 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 must be in writing. The ALJ may require that oral 
motions be reduced to writing.
    (c) Within 10 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 the 
motion.
    (d) The ALJ may not grant a written motion before the time for 
filing responses has expired, except upon consent of the parties or 
following a hearing on the motion, but may overrule or deny the motion 
without awaiting a response.
    (e) The ALJ must make a reasonable effort to dispose of all 
outstanding motions before the beginning of the hearing.



Sec. 160.530  Sanctions.

    The ALJ may sanction a person, including any party or attorney, for 
failing to comply with an order or procedure, for failing to defend an 
action or for other misconduct that interferes with the speedy, orderly 
or fair conduct of the hearing. The sanctions must reasonably relate to 
the severity and nature of the failure or misconduct. The sanctions may 
include--
    (a) In the case of refusal to provide or permit discovery under the 
terms of this part, drawing negative factual inferences or treating the 
refusal as an admission by deeming the matter, or certain facts, to be 
established;
    (b) Prohibiting a party from introducing certain evidence or 
otherwise supporting a particular claim or defense;
    (c) Striking pleadings, in whole or in part;
    (d) Staying the proceedings;
    (e) Dismissal of the action;
    (f) Entering a decision by default;
    (g) Ordering the party or attorney to pay the attorney's fees and 
other costs caused by the failure or misconduct; and
    (h) Refusing to consider any motion or other action that is not 
filed in a timely manner.



Sec. 160.532  Collateral estoppel.

    When a final determination that the respondent violated an 
administrative

[[Page 1148]]

simplification provision has been rendered in any proceeding in which 
the respondent was a party and had an opportunity to be heard, the 
respondent is bound by that determination in any proceeding under this 
part.



Sec. 160.534  The hearing.

    (a) The ALJ must conduct a hearing on the record in order to 
determine whether the respondent should be found liable under this part.
    (b) (1) The respondent has the burden of going forward and the 
burden of persuasion with respect to any:
    (i) Affirmative defense pursuant to Sec. 160.410 of this part;
    (ii) Challenge to the amount of a proposed penalty pursuant to 
Sec. Sec. 160.404-160.408 of this part, including any factors raised as 
mitigating factors; or
    (iii) Claim that a proposed penalty should be reduced or waived 
pursuant to Sec. 160.412 of this part; and
    (iv) Compliance with subpart D of part 164, as provided under Sec. 
164.414(b).
    (2) The Secretary has the burden of going forward and the burden of 
persuasion with respect to all other issues, including issues of 
liability other than with respect to subpart D of part 164, and the 
existence of any factors considered aggravating factors in determining 
the amount of the proposed penalty.
    (3) The burden of persuasion will be judged by a preponderance of 
the evidence.
    (c) The hearing must be open to the public unless otherwise ordered 
by the ALJ for good cause shown.
    (d)(1) Subject to the 15-day rule under Sec. 160.518(a) and the 
admissibility of evidence under Sec. 160.540, either party may 
introduce, during its case in chief, items or information that arose or 
became known after the date of the issuance of the notice of proposed 
determination or the request for hearing, as applicable. Such items and 
information may not be admitted into evidence, if introduced--
    (i) By the Secretary, unless they are material and relevant to the 
acts or omissions with respect to which the penalty is proposed in the 
notice of proposed determination pursuant to Sec. 160.420 of this part, 
including circumstances that may increase penalties; or
    (ii) By the respondent, unless they are material and relevant to an 
admission, denial or explanation of a finding of fact in the notice of 
proposed determination under Sec. 160.420 of this part, or to a 
specific circumstance or argument expressly stated in the request for 
hearing under Sec. 160.504, including circumstances that may reduce 
penalties.
    (2) After both parties have presented their cases, evidence may be 
admitted in rebuttal even if not previously exchanged in accordance with 
Sec. 160.518.

[71 FR 8428, Feb. 16, 2006, as amended at 74 FR 42767, Aug. 24, 2009; 78 
FR 5692, Jan. 25, 2013]



Sec. 160.536  Statistical sampling.

    (a) In meeting the burden of proof set forth in Sec. 160.534, the 
Secretary may introduce the results of a statistical sampling study as 
evidence of the number of violations under Sec. 160.406 of this part, 
or the factors considered in determining the amount of the civil money 
penalty under Sec. 160.408 of this part. Such statistical sampling 
study, if based upon an appropriate sampling and computed by valid 
statistical methods, constitutes prima facie evidence of the number of 
violations and the existence of factors material to the proposed civil 
money penalty as described in Sec. Sec. 160.406 and 160.408.
    (b) Once the Secretary has made a prima facie case, as described in 
paragraph (a) of this section, the burden of going forward shifts to the 
respondent to produce evidence reasonably calculated to rebut the 
findings of the statistical sampling study. The Secretary will then be 
given the opportunity to rebut this evidence.



Sec. 160.538  Witnesses.

    (a) Except as provided in paragraph (b) of this section, testimony 
at the hearing must be given orally by witnesses under oath or 
affirmation.
    (b) At the discretion of the ALJ, testimony of witnesses other than 
the testimony of expert witnesses may be admitted in the form of a 
written statement. The ALJ may, at his or her discretion, admit prior 
sworn testimony of experts that has been subject to adverse examination, 
such as a deposition

[[Page 1149]]

or trial testimony. Any such written statement must be provided to the 
other party, along with the last known address of the witness, in a 
manner that allows sufficient time for the other party to subpoena the 
witness for cross-examination at the hearing. Prior written statements 
of witnesses proposed to testify at the hearing must be exchanged as 
provided in Sec. 160.518.
    (c) The ALJ must 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 repetition or needless consumption of time; and
    (3) Protect witnesses from harassment or undue embarrassment.
    (d) The ALJ must permit the parties to conduct cross-examination of 
witnesses as may be required for a full and true disclosure of the 
facts.
    (e) The ALJ may order witnesses excluded so that they cannot hear 
the testimony of other witnesses, except that the ALJ may not order to 
be excluded--
    (1) A party who is a natural person;
    (2) In the case of a party that is not a natural person, the officer 
or employee of the party appearing for the entity pro se or designated 
as the party's representative; or
    (3) A natural person whose presence is shown by a party to be 
essential to the presentation of its case, including a person engaged in 
assisting the attorney for the Secretary.



Sec. 160.540  Evidence.

    (a) The ALJ must determine the admissibility of evidence.
    (b) Except as provided in this subpart, the ALJ is not 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 must exclude 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 must be excluded if it is privileged 
under Federal law.
    (f) Evidence concerning offers of compromise or settlement are 
inadmissible to the extent provided in Rule 408 of the Federal Rules of 
Evidence.
    (g) Evidence of crimes, wrongs, or acts other than those at issue in 
the instant case is admissible in order to show motive, opportunity, 
intent, knowledge, preparation, identity, lack of mistake, or existence 
of a scheme. This evidence is admissible regardless of whether the 
crimes, wrongs, or acts occurred during the statute of limitations 
period applicable to the acts or omissions that constitute the basis for 
liability in the case and regardless of whether they were referenced in 
the Secretary's notice of proposed determination under Sec. 160.420 of 
this part.
    (h) The ALJ must permit the parties to introduce rebuttal witnesses 
and evidence.
    (i) All documents and other evidence offered or taken for the record 
must be open to examination by both parties, unless otherwise ordered by 
the ALJ for good cause shown.



Sec. 160.542  The record.

    (a) The hearing must be recorded and transcribed. Transcripts may be 
obtained following the hearing from the ALJ. A party that requests a 
transcript of hearing proceedings must pay the cost of preparing the 
transcript unless, for good cause shown by the party, the payment is 
waived by the ALJ or the Board, as appropriate.
    (b) The transcript of the testimony, exhibits, and other evidence 
admitted at the hearing, and all papers and requests filed in the 
proceeding constitute the record for decision by the ALJ and the 
Secretary.
    (c) The record may be inspected and copied (upon payment of a 
reasonable fee) by any person, unless otherwise ordered by the ALJ for 
good cause shown.
    (d) For good cause, the ALJ may order appropriate redactions made to 
the record.

[[Page 1150]]



Sec. 160.544  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 must fix the 
time for filing the briefs. The time for filing may not exceed 60 days 
from the date the parties receive the transcript of the hearing or, if 
applicable, the stipulated record. The briefs may be accompanied by 
proposed findings of fact and conclusions of law. The ALJ may permit the 
parties to file reply briefs.



Sec. 160.546  ALJ's decision.

    (a) The ALJ must issue a decision, based only on the record, which 
must contain findings of fact and conclusions of law.
    (b) The ALJ may affirm, increase, or reduce the penalties imposed by 
the Secretary.
    (c) The ALJ must issue the decision to both parties within 60 days 
after the time for submission of post-hearing briefs and reply briefs, 
if permitted, has expired. If the ALJ fails to meet the deadline 
contained in this paragraph, he or she must notify the parties of the 
reason for the delay and set a new deadline.
    (d) Unless the decision of the ALJ is timely appealed as provided 
for in Sec. 160.548, the decision of the ALJ will be final and binding 
on the parties 60 days from the date of service of the ALJ's decision.



Sec. 160.548  Appeal of the ALJ's decision.

    (a) Any party may appeal the decision of the ALJ to the Board by 
filing a notice of appeal with the Board within 30 days of the date of 
service of the ALJ decision. The Board may extend the initial 30 day 
period for a period of time not to exceed 30 days if a party files with 
the Board a request for an extension within the initial 30 day period 
and shows good cause.
    (b) If a party files a timely notice of appeal with the Board, the 
ALJ must forward the record of the proceeding to the Board.
    (c) A notice of appeal must be accompanied by a written brief 
specifying exceptions to the initial decision and reasons supporting the 
exceptions. Any party may file a brief in opposition to the exceptions, 
which may raise any relevant issue not addressed in the exceptions, 
within 30 days of receiving the notice of appeal and the accompanying 
brief. The Board may permit the parties to file reply briefs.
    (d) There is no right to appear personally before the Board or to 
appeal to the Board any interlocutory ruling by the ALJ.
    (e) Except for an affirmative defense under Sec. 160.410(a)(1) or 
(2) of this part, the Board may not consider any issue not raised in the 
parties' briefs, nor any issue in the briefs that could have been raised 
before the ALJ but was not.
    (f) If any party demonstrates to the satisfaction of the Board that 
additional evidence not presented at such hearing is relevant and 
material and that there were reasonable grounds for the failure to 
adduce such evidence at the hearing, the Board may remand the matter to 
the ALJ for consideration of such additional evidence.
    (g) The Board may decline to review the case, or may affirm, 
increase, reduce, reverse or remand any penalty determined by the ALJ.
    (h) The standard of review on a disputed issue of fact is whether 
the initial decision of the ALJ is supported by substantial evidence on 
the whole record. The standard of review on a disputed issue of law is 
whether the decision is erroneous.
    (i) Within 60 days after the time for submission of briefs and reply 
briefs, if permitted, has expired, the Board must serve on each party to 
the appeal a copy of the Board's decision and a statement describing the 
right of any respondent who is penalized to seek judicial review.
    (j)(1) The Board's decision under paragraph (i) of this section, 
including a decision to decline review of the initial decision, becomes 
the final decision of the Secretary 60 days after the date of service of 
the Board's decision, except with respect to a decision to remand to the 
ALJ or if reconsideration is requested under this paragraph.
    (2) The Board will reconsider its decision only if it determines 
that the decision contains a clear error of fact or error of law. New 
evidence will not be a basis for reconsideration unless the party 
demonstrates that the evidence

[[Page 1151]]

is newly discovered and was not previously available.
    (3) A party may file a motion for reconsideration with the Board 
before the date the decision becomes final under paragraph (j)(1) of 
this section. A motion for reconsideration must be accompanied by a 
written brief specifying any alleged error of fact or law and, if the 
party is relying on additional evidence, explaining why the evidence was 
not previously available. Any party may file a brief in opposition 
within 15 days of receiving the motion for reconsideration and the 
accompanying brief unless this time limit is extended by the Board for 
good cause shown. Reply briefs are not permitted.
    (4) The Board must rule on the motion for reconsideration not later 
than 30 days from the date the opposition brief is due. If the Board 
denies the motion, the decision issued under paragraph (i) of this 
section becomes the final decision of the Secretary on the date of 
service of the ruling. If the Board grants the motion, the Board will 
issue a reconsidered decision, after such procedures as the Board 
determines necessary to address the effect of any error. The Board's 
decision on reconsideration becomes the final decision of the Secretary 
on the date of service of the decision, except with respect to a 
decision to remand to the ALJ.
    (5) If service of a ruling or decision issued under this section is 
by mail, the date of service will be deemed to be 5 days from the date 
of mailing.
    (k)(1) A respondent's petition for judicial review must be filed 
within 60 days of the date on which the decision of the Board becomes 
the final decision of the Secretary under paragraph (j) of this section.
    (2) In compliance with 28 U.S.C. 2112(a), a copy of any petition for 
judicial review filed in any U.S. Court of Appeals challenging the final 
decision of the Secretary must be sent by certified mail, return receipt 
requested, to the General Counsel of HHS. The petition copy must be a 
copy showing that it has been time-stamped by the clerk of the court 
when the original was filed with the court.
    (3) If the General Counsel of HHS received two or more petitions 
within 10 days after the final decision of the Secretary, the General 
Counsel will notify the U.S. Judicial Panel on Multidistrict Litigation 
of any petitions that were received within the 10 day period.

[71 FR 8428, Feb. 16, 2006, as amended at 78 FR 34266, June 7, 2013]



Sec. 160.550  Stay of the Secretary's decision.

    (a) Pending judicial review, the respondent may file a request for 
stay of the effective date of any penalty with the ALJ. The request must 
be accompanied by a copy of the notice of appeal filed with the Federal 
court. The filing of the request automatically stays the effective date 
of the penalty until such time as the ALJ rules upon the request.
    (b) The ALJ may not grant a respondent's request for stay of any 
penalty unless the respondent posts a bond or provides other adequate 
security.
    (c) The ALJ must rule upon a respondent's request for stay within 10 
days of receipt.



Sec. 160.552  Harmless error.

    No error in either the admission or the exclusion of evidence, and 
no error or defect in any ruling or order or in any act done or omitted 
by the ALJ or by any of the parties is ground for vacating, modifying or 
otherwise disturbing an otherwise appropriate ruling or order or act, 
unless refusal to take such action appears to the ALJ or the Board 
inconsistent with substantial justice. The ALJ and the Board at every 
stage of the proceeding must disregard any error or defect in the 
proceeding that does not affect the substantial rights of the parties.



PART 162_ADMINISTRATIVE REQUIREMENTS--Table of Contents



                      Subpart A_General Provisions

Sec.
162.100 Applicability.
162.103 Definitions.

Subparts B-C [Reserved]

  Subpart D_Standard Unique Health Identifier for Health Care Providers

162.402 [Reserved]

[[Page 1152]]

162.404 Compliance dates of the implementation of the standard unique 
          health identifier for health care providers.
162.406 Standard unique health identifier for health care providers.
162.408 National Provider System.
162.410 Implementation specifications: Health care providers.
162.412 Implementation specifications: Health plans.
162.414 Implementation specifications: Health care clearinghouses.

      Subpart E_Standard Unique Health Identifier for Health Plans

162.502 [Reserved]
162.504 Compliance requirements for the implementation of the standard 
          unique health plan identifier.
162.506 Standard unique health plan identifier.
162.508 Enumeration System.
162.510 Full implementation requirements: Covered entities.
162.512 Implementation specifications: Health plans.
162.514 Other entity identifier.

              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 [Reserved]
162.910 Maintenance of standards and adoption of modifications and new 
          standards.
162.915 Trading partner agreements.
162.920 Availability of implementation specifications and operating 
          rules.
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 transaction.

                 Subpart L_Eligibility for a Health Plan

162.1201 Eligibility for a health plan transaction.
162.1202 Standards for eligibility for a health plan transaction.
162.1203 Operating rules for eligibility for a health plan transaction.

           Subpart M_Referral Certification and Authorization

162.1301 Referral certification and authorization transaction.
162.1302 Standard for referral certification and authorization 
          transaction.

                   Subpart N_Health Care Claim Status

162.1401 Health care claim status transaction.
162.1402 Standards for health care claim status transaction.
162.1403 Operating rules for health care claim status transaction.

         Subpart O_Enrollment and Disenrollment in a Health Plan

162.1501 Enrollment and disenrollment in a health plan transaction.
162.1502 Standards for enrollment and disenrollment in a health plan 
          transaction.

 Subpart P_Health Care Electronic Funds Transfers (EFT) and Remittance 
                                 Advice

162.1601 Health care electronic funds transfers (EFT) and remittance 
          advice transaction.
162.1602 Standards for health care electronic funds transfers (EFT) and 
          remittance advice transaction.
162.1603 Operating rules for health care electronic funds transfers 
          (EFT) and remittance advice transaction.

                 Subpart Q_Health Plan Premium Payments

162.1701 Health plan premium payments transaction.
162.1702 Standards for health plan premium payments transaction.

[[Page 1153]]

                   Subpart R_Coordination of Benefits

162.1801 Coordination of benefits transaction.
162.1802 Standards for coordination of benefits information transaction.

                 Subpart S_Medicaid Pharmacy Subrogation

162.1901 Medicaid pharmacy subrogation transaction.
162.1902 Standard for Medicaid pharmacy subrogation transaction.

    Authority: Secs. 1171 through 1180 of the Social Security Act (42 
U.S.C. 1320d-1320d-9), as added by sec. 262 of Pub. L. 104-191, 110 
Stat. 2021-2031, sec. 105 of Pub. L. 110-233, 122 Stat. 881-922, and 
sec. 264 of Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-
2(note), and secs. 1104 and 10109 of Pub. L. 111-148, 124 Stat. 146-154 
and 915-917.

    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.
    Controlling health plan (CHP) means a health plan that--
    (1) Controls its own business activities, actions, or policies; or
    (2)(i) Is controlled by an entity that is not a health plan; and
    (ii) If it has a subhealth plan(s) (as defined in this section), 
exercises sufficient control over the subhealth plan(s) to direct its/
their business activities, actions, or policies.
    Covered health care provider means a health care provider that meets 
the definition at paragraph (3) of the definition of ``covered entity'' 
at Sec. 160.103.
    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.
    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.
    Operating rules means the necessary business rules and guidelines 
for the electronic exchange of information that are not defined by a 
standard or its implementation specifications as adopted for purposes of 
this part.

[[Page 1154]]

    Segment means a group of related data elements in a transaction.
    Stage 1 payment initiation means a health plan's order, instruction 
or authorization to its financial institution to make a health care 
claims payment using an electronic funds transfer (EFT) through the ACH 
Network.
    Standard transaction means a transaction that complies with an 
applicable standard and associated operating rules adopted under this 
part.
    Subhealth plan (SHP) means a health plan whose business activities, 
actions, or policies are directed by a controlling health plan.

[65 FR 50367, Aug. 17, 2000, as amended at 68 FR 8374, Feb. 20, 2003; 74 
FR 3324, Jan. 16, 2009; 76 FR 40495, July 8, 2011; 77 FR 1589, Jan. 10, 
2012; 77 FR 54719, Sept. 5, 2012]

Subparts B-C [Reserved]



  Subpart D_Standard Unique Health Identifier for Health Care Providers

    Source: 69 FR 3468, Jan. 23, 2004, unless otherwise noted.



Sec. 162.402  [Reserved]



Sec. 162.404  Compliance dates of the implementation of the 
standard unique health identifier for health care providers.

    (a) Health care providers. A covered health care provider must 
comply with the implementation specifications in Sec. 162.410 no later 
than May 23, 2007.
    (b) Health plans. A health plan must comply with the implementation 
specifications in Sec. 162.412 no later than one of the following 
dates:
    (1) A health plan that is not a small health plan--May 23, 2007.
    (2) A small health plan--May 23, 2008.
    (c) Health care clearinghouses. A health care clearinghouse must 
comply with the implementation specifications in Sec. 162.414 no later 
than May 23, 2007.

[69 FR 3468, Jan. 23, 2004, as amended at 77 FR 54719, Sept. 5, 2012]



Sec. 162.406  Standard unique health identifier for health care 
providers.

    (a) Standard. The standard unique health identifier for health care 
providers is the National Provider Identifier (NPI). The NPI is a 10-
position numeric identifier, with a check digit in the 10th position, 
and no intelligence about the health care provider in the number.
    (b) Required and permitted uses for the NPI. (1) The NPI must be 
used as stated in Sec. Sec. 162.410, 162.412, and 162.414.
    (2) The NPI may be used for any other lawful purpose.



Sec. 162.408  National Provider System.

    National Provider System. The National Provider System (NPS) shall 
do the following:
    (a) Assign a single, unique NPI to a health care provider, provided 
that--
    (1) The NPS may assign an NPI to a subpart of a health care provider 
in accordance with paragraph (g); and
    (2) The Secretary has sufficient information to permit the 
assignment to be made.
    (b) Collect and maintain information about each health care provider 
that has been assigned an NPI and perform tasks necessary to update that 
information.
    (c) If appropriate, deactivate an NPI upon receipt of appropriate 
information concerning the dissolution of the health care provider that 
is an organization, the death of the health care provider who is an 
individual, or other circumstances justifying deactivation.
    (d) If appropriate, reactivate a deactivated NPI upon receipt of 
appropriate information.
    (e) Not assign a deactivated NPI to any other health care provider.
    (f) Disseminate NPS information upon approved requests.
    (g) Assign an NPI to a subpart of a health care provider on request 
if the identifying data for the subpart are unique.



Sec. 162.410  Implementation specifications: Health care providers.

    (a) A covered entity that is a covered health care provider must:
    (1) Obtain, by application if necessary, an NPI from the National 
Provider System (NPS) for itself or for any subpart of the covered 
entity that would be a covered health care provider if it were a 
separate legal entity. A covered entity may obtain an NPI for

[[Page 1155]]

any other subpart that qualifies for the assignment of an NPI.
    (2) Use the NPI it obtained from the NPS to identify itself on all 
standard transactions that it conducts where its health care provider 
identifier is required.
    (3) Disclose its NPI, when requested, to any entity that needs the 
NPI to identify that covered health care provider in a standard 
transaction.
    (4) Communicate to the NPS any changes in its required data elements 
in the NPS within 30 days of the change.
    (5) If it uses one or more business associates to conduct standard 
transactions on its behalf, require its business associate(s) to use its 
NPI and other NPIs appropriately as required by the transactions that 
the business associate(s) conducts on its behalf.
    (6) If it has been assigned NPIs for one or more subparts, comply 
with the requirements of paragraphs (a)(2) through (a)(5) of this 
section with respect to each of those NPIs.
    (b) An organization covered health care provider that has as a 
member, employs, or contracts with, an individual health care provider 
who is not a covered entity and is a prescriber, must require such 
health care provider to--
    (1) Obtain an NPI from the National Plan and Provider Enumeration 
System (NPPES); and
    (2) To the extent the prescriber writes a prescription while acting 
within the scope of the prescriber's relationship with the organization, 
disclose the NPI upon request to any entity that needs it to identify 
the prescriber in a standard transaction.
    (c) A health care provider that is not a covered entity may obtain, 
by application if necessary, an NPI from the NPS.

[69 FR 3468, Jan. 23, 2004, as amended at 77 FR 54719, Sept. 5, 2012]



Sec. 162.412  Implementation specifications: Health plans.

    (a) A health plan must use the NPI of any health care provider (or 
subpart(s), if applicable) that has been assigned an NPI to identify 
that health care provider on all standard transactions where that health 
care provider's identifier is required.
    (b) A health plan may not require a health care provider that has 
been assigned an NPI to obtain an additional NPI.



Sec. 162.414  Implementation specifications: Health care clearinghouses.

    A health care clearinghouse must use the NPI of any health care 
provider (or subpart(s), if applicable) that has been assigned an NPI to 
identify that health care provider on all standard transactions where 
that health care provider's identifier is required.



      Subpart E_Standard Unique Health Identifier for Health Plans

    Source: 77 FR 54719, Sept. 5, 2012, unless otherwise noted.



Sec. 162.502  [Reserved]



Sec. 162.504  Compliance requirements for the implementation of the 
standard unique health plan identifier.

    (a) Covered entities. A covered entity must comply with the 
implementation requirements in Sec. 162.510 no later than November 7, 
2016.
    (b) Health plans. A health plan must comply with the implementation 
specifications in Sec. 162.512 no later than one of the following 
dates:
    (1) A health plan that is not a small health plan-- November 5, 
2014.
    (2) A health plan that is a small health plan-
    November 5, 2015.

[77 FR 54719, Sept. 5, 2012, as amended at 77 FR 60630, Oct. 4, 2012]



Sec. 162.506  Standard unique health plan identifier.

    (a) Standard. The standard unique health plan identifier is the 
Health Plan Identifier (HPID) that is assigned by the Enumeration System 
identified in Sec. 162.508.
    (b) Required and permitted uses for the HPID. (1) The HPID must be 
used as specified in Sec. Sec. 162.510 and 162.512.
    (2) The HPID may be used for any other lawful purpose.

[[Page 1156]]



Sec. 162.508  Enumeration System.

    The Enumeration System must do all of the following:
    (a) Assign a single, unique--
    (1) HPID to a health plan, provided that the Secretary has 
sufficient information to permit the assignment to be made; or
    (2) OEID to an entity eligible to receive one under Sec. 
162.514(a), provided that the Secretary has sufficient information to 
permit the assignment to be made.
    (b) Collect and maintain information about each health plan that 
applies for or has been assigned an HPID and each entity that applies 
for or has been assigned an OEID, and perform tasks necessary to update 
that information.
    (c) If appropriate, deactivate an HPID or OEID upon receipt of 
sufficient information concerning circumstances justifying deactivation.
    (d) If appropriate, reactivate a deactivated HPID or OEID upon 
receipt of sufficient information justifying reactivation.
    (e) Not assign a deactivated HPID to any other health plan or OEID 
to any other entity.
    (f) Disseminate Enumeration System information upon approved 
requests.



Sec. 162.510  Full implementation requirements: Covered entities.

    (a) A covered entity must use an HPID to identify a health plan that 
has an HPID when a covered entity identifies a health plan in a 
transaction for which the Secretary has adopted a standard under this 
part.
    (b) If a covered entity uses one or more business associates to 
conduct standard transactions on its behalf, it must require its 
business associate(s) to use an HPID to identify a health plan that has 
an HPID when the business associate(s) identifies a health plan in a 
transaction for which the Secretary has adopted a standard under this 
part.



Sec. 162.512  Implementation specifications: Health plans.

    (a) A controlling health plan must do all of the following:
    (1) Obtain an HPID from the Enumeration System for itself.
    (2) Disclose its HPID, when requested, to any entity that needs the 
HPID to identify the health plan in a standard transaction.
    (3) Communicate to the Enumeration System any changes in its 
required data elements in the Enumeration System within 30 days of the 
change.
    (b) A controlling health plan may do the following:
    (1) Obtain an HPID from the Enumeration System for a subhealth plan 
of the controlling health plan.
    (2) Direct a subhealth plan of the controlling health plan to obtain 
an HPID from the Enumeration System.
    (c) A subhealth plan may obtain an HPID from the Enumeration System.
    (d) A subhealth plan that is assigned an HPID from the Enumeration 
System must comply with the requirements that apply to a controlling 
health plan in paragraphs (a)(2) and (a)(3) of this section.



Sec. 162.514  Other entity identifier.

    (a) An entity may obtain an Other Entity Identifier (OEID) to 
identify itself if the entity meets all of the following:
    (1) Needs to be identified in a transaction for which the Secretary 
has adopted a standard under this part.
    (2) Is not eligible to obtain an HPID.
    (3) Is not eligible to obtain an NPI.
    (4) Is not an individual.
    (b) An OEID must be obtained from the Enumeration System identified 
in Sec. 162.508.
    (c) Uses for the OEID. (1) An other entity may use the OEID it 
obtained from the Enumeration System to identify itself or have itself 
identified on all covered transactions in which it needs to be 
identified.
    (2) The OEID may be used for any other lawful purpose.



              Subpart F_Standard Unique Employer Identifier

    Source: 67 FR 38020, May 31, 2002, unless otherwise noted.

[[Page 1157]]



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.
    (c) Required and permitted uses for the Employer Identifier.
    (1) The Employer Identifier must be used as stated in Sec. 
162.610(b).
    (2) The Employer Identifier may be used for any other lawful 
purpose.

[67 FR 38020, May 31, 2002, as amended at 69 FR 3469, Jan. 23, 2004]

Subparts G-H [Reserved]



              Subpart I_General Provisions for Transactions



Sec. 162.900  [Reserved]



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.
    (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 or operating rule,

[[Page 1158]]

except where necessary to implement State or Federal law, or to protect 
against fraud and abuse.
    (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).

[65 FR 50367, Aug. 17, 2000, as amended at 76 FR 40495, July 8, 2011]



Sec. 162.920  Availability of implementation specifications and 
operating rules.

    Certain material is incorporated by reference into this subpart with 
the approval of the Director of the Federal Register under 5 U.S.C. 
552(a) and 1 CFR part 51. To enforce any edition other than that 
specified in this section, the Department of Health and Human Services 
must publish notice of change in the Federal Register and the material 
must be available to the public. All approved material is available for 
inspection at the National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call (202) 
714-6030, or go to: http://www.archives.gov/federal_register/
code_of_federal_regulations/ibr_locations.html. The materials are also 
available for inspection by the public at the Centers for Medicare & 
Medicaid Services (CMS), 7500 Security Boulevard, Baltimore, Maryland 
21244. For more information on the availability on the materials at CMS, 
call (410) 786-6597. The materials are also available from the sources 
listed below.
    (a) ASC X12N specifications and the ASC X12 Standards for Electronic 
Data Interchange Technical Report Type 3. The implementation 
specifications for the ASC X12N and the ASC X12 Standards for Electronic 
Data Interchange Technical Report Type 3 (and accompanying Errata or 
Type 1 Errata) may be obtained from the ASC X12, 7600 Leesburg Pike, 
Suite 430, Falls Church, VA 22043; Telephone (703) 970-4480; and FAX 
(703) 970-4488. They are also available through the internet at http://
www.X12.org. A fee is charged for all implementation specifications, 
including Technical Reports Type 3. Charging for such publications is 
consistent with the policies of other publishers of standards. The 
transaction implementation specifications are as follows:
    (1) The ASC X12N 837--Health Care Claim: Dental, Version 4010, May 
2000, Washington Publishing Company, 004010X097 and Addenda to Health 
Care Claim: Dental, Version 4010, October 2002, Washington Publishing 
Company, 004010X097A1, as referenced in Sec. 162.1102 and Sec. 
162.1802.
    (2) The ASC X12N 837--Health Care Claim: Professional, Volumes 1 and 
2, Version 4010, May 2000, Washington Publishing Company, 004010X098 and 
Addenda to Health Care Claim: Professional, Volumes 1 and 2, Version 
4010, October 2002, Washington Publishing Company, 004010X098A1, as 
referenced in Sec. 162.1102 and Sec. 162.1802.
    (3) The ASC X12N 837--Health Care Claim: Institutional, Volumes 1 
and 2, Version 4010, May 2000, Washington Publishing Company, 004010X096 
and Addenda to Health Care Claim: Institutional, Volumes 1 and 2, 
Version 4010, October 2002, Washington Publishing Company, 004010X096A1 
as referenced in Sec. 162.1102 and Sec. 162.1802.
    (4) The ASC X12N 835--Health Care Claim Payment/Advice, Version 
4010, May 2000, Washington Publishing Company, 004010X091, and Addenda 
to Health Care Claim Payment/Advice, Version 4010, October 2002, 
Washington Publishing Company, 004010X091A1 as referenced in Sec. 
162.1602.
    (5) ASC X12N 834--Benefit Enrollment and Maintenance, Version 4010, 
May 2000, Washington Publishing Company, 004010X095 and Addenda to 
Benefit Enrollment and Maintenance, Version 4010, October 2002, 
Washington Publishing Company, 004010X095A1, as referenced in Sec. 
162.1502.
    (6) The ASC X12N 820--Payroll Deducted and Other Group Premium 
Payment for Insurance Products, Version 4010, May 2000, Washington 
Publishing Company, 004010X061, and Addenda to Payroll Deducted and 
Other Group Premium Payment for Insurance Products, Version 4010, 
October 2002, Washington

[[Page 1159]]

Publishing Company, 004010X061A1, as referenced in Sec. 162.1702.
    (7) The ASC X12N 278--Health Care Services Review--Request for 
Review and Response, Version 4010, May 2000, Washington Publishing 
Company, 004010X094 and Addenda to Health Care Services Review--Request 
for Review and Response, Version 4010, October 2002, Washington 
Publishing Company, 004010X094A1, as referenced in Sec. 162.1302.
    (8) The ASC X12N-276/277 Health Care Claim Status Request and 
Response, Version 4010, May 2000, Washington Publishing Company, 
004010X093 and Addenda to Health Care Claim Status Request and Response, 
Version 4010, October 2002, Washington Publishing Company, 004010X093A1, 
as referenced in Sec. 162.1402.
    (9) The ASC X12N 270/271--Health Care Eligibility Benefit Inquiry 
and Response, Version 4010, May 2000, Washington Publishing Company, 
004010X092 and Addenda to Health Care Eligibility Benefit Inquiry and 
Response, Version 4010, October 2002, Washington Publishing Company, 
004010X092A1, as referenced in Sec. 162.1202.
    (10) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim: Dental (837), May 2006, ASC X12N/
005010X224, and Type 1 Errata to Health Care Claim Dental (837), ASC X12 
Standards for Electronic Data Interchange Technical Report Type 3, 
October 2007, ASC X12N/005010X224A1, as referenced in Sec. 162.1102 and 
Sec. 162.1802.
    (11) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim: Professional (837), May 2006, ASC X12, 
005010X222, as referenced in Sec. 162.1102 and Sec. 162.1802.
    (12) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim: Institutional (837), May 2006, ASC 
X12/N005010X223, and Type 1 Errata to Health Care Claim: Institutional 
(837), ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3, October 2007, ASC X12N/005010X223A1, as referenced in 
Sec. 162.1102 and Sec. 162.1802.
    (13) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim Payment/Advice (835), April 2006, ASC 
X12N/005010X221, as referenced in Sec. 162.1602.
    (14) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Benefit Enrollment and Maintenance (834), August 2006, 
ASC X12N/005010X220, as referenced in Sec. 162.1502.
    (15) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Payroll Deducted and Other Group Premium Payment for 
Insurance Products (820), February 2007, ASC X12N/005010X218, as 
referenced in Sec. 162.1702.
    (16) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Services Review--Request for Review and 
Response (278), May 2006, ASC X12N/005010X217, and Errata to Health Care 
Services Review--Request for Review and Response (278), ASC X12 
Standards for Electronic Data Interchange Technical Report Type 3, April 
2008, ASC X12N/005010X217E1, as referenced in Sec. 162.1302.
    (17) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim Status Request and Response (276/277), 
August 2006, ASC X12N/005010X212, and Errata to Health Care Claim Status 
Request and Response (276/277), ASC X12 Standards for Electronic Data 
Interchange Technical Report Type 3, April 2008, ASC X12N/005010X212E1, 
as referenced in Sec. 162.1402.
    (18) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Eligibility Benefit Inquiry and Response 
(270/271), April 2008, ASC X12N/005010X279, as referenced in Sec. 
162.1202.
    (b) Retail pharmacy specifications and Medicaid subrogation 
implementation guides. The implementation specifications for the retail 
pharmacy standards and the implementation specifications for the batch 
standard for the Medicaid pharmacy subrogation transaction may be 
obtained from the National Council for Prescription Drug Programs, 9240 
East Raintree Drive, Scottsdale, AZ 85260. Telephone (480) 477-1000; FAX 
(480) 767-1042. They are also available through the Internet at http://
www.ncpdp.org. A fee is charged for all

[[Page 1160]]

NCPDP Implementation Guides. Charging for such publications is 
consistent with the policies of other publishers of standards. The 
transaction implementation specifications are as follows:
    (1) The Telecommunication Standard Implementation Guide Version 5, 
Release 1 (Version 5.1), September 1999, National Council for 
Prescription Drug Programs, as referenced in Sec. 162.1102, Sec. 
162.1202, Sec. 162.1302, Sec. 162.1602, and Sec. 162.1802.
    (2) The Batch Standard Batch Implementation Guide, Version 1, 
Release 1 (Version 1.1), January 2000, supporting Telecommunication 
Standard Implementation Guide, Version 5, Release 1 (Version 5.1) for 
the NCPDP Data Record in the Detail Data Record, National Council for 
Prescription Drug Programs, as referenced in Sec. 162.1102, Sec. 
162.1202, Sec. 162.1302, and Sec. 162.1802.
    (3) The National Council for Prescription Drug Programs (NCPDP) 
equivalent NCPDP Batch Standard Batch Implementation Guide, Version 1, 
Release 0, February 1, 1996, as referenced in Sec. 162.1102, Sec. 
162.1202, Sec. 162.1602, and Sec. 162.1802.
    (4) The Telecommunication Standard Implementation Guide, Version D, 
Release 0 (Version D.0), August 2007, National Council for Prescription 
Drug Programs, as referenced in Sec. 162.1102, Sec. 162.1202, Sec. 
162.1302, and Sec. 162.1802.
    (5) The Batch Standard Implementation Guide, Version 1, Release 2 
(Version 1.2), January 2006, National Council for Prescription Drug 
Programs, as referenced in Sec. 162.1102, Sec. 162.1202, Sec. 
162.1302, and Sec. 162.1802.
    (6) The Batch Standard Medicaid Subrogation Implementation Guide, 
Version 3, Release 0 (Version 3.0), July 2007, National Council for 
Prescription Drug Programs, as referenced in Sec. 162.1902.
    (c) Council for Affordable Quality Healthcare's (CAQH) Committee on 
Operating Rules for Information Exchange (CORE), 601 Pennsylvania 
Avenue, NW. South Building, Suite 500 Washington, DC 20004; Telephone 
(202) 861-1492; Fax (202) 861- 1454; E-mail [email protected]; and Internet 
at http://www.caqh.org/benefits.php.
    (1) CAQH, Committee on Operating Rules for Information Exchange, 
CORE Phase I Policies and Operating Rules, Approved April 2006, v5010 
Update March 2011.
    (i) Phase I CORE 152: Eligibility and Benefit Real Time Companion 
Guide Rule, version 1.1.0, March 2011, as referenced in Sec. 162.1203.
    (ii) Phase I CORE 153: Eligibility and Benefits Connectivity Rule, 
version 1.1.0, March 2011, as referenced in Sec. 162.1203.
    (iii) Phase I CORE 154: Eligibility and Benefits 270/271 Data 
Content Rule, version 1.1.0, March 2011, as referenced in Sec. 
162.1203.
    (iv) Phase I CORE 155: Eligibility and Benefits Batch Response Time 
Rule, version 1.1.0, March 2011, as referenced in Sec. 162.1203.
    (v) Phase I CORE 156: Eligibility and Benefits Real Time Response 
Time Rule, version 1.1.0, March 2011, as referenced in Sec. 162.1203.
    (vi) Phase I CORE 157: Eligibility and Benefits System Availability 
Rule, version 1.1.0, March 2011, as referenced in Sec. 162.1203.
    (2) ACME Health Plan, HIPAA Transaction Standard Companion Guide, 
Refers to the Implementation Guides Based on ASC X12 version 005010, 
CORE v5010 Master Companion Guide Template, 005010, 1.2, (CORE v 5010 
Master Companion Guide Template, 005010, 1.2), March 2011, as referenced 
in Sec. Sec. 162.1203, 162.1403, and 162.1603.
    (3) CAQH, Committee on Operating Rules for Information Exchange, 
CORE Phase II Policies and Operating Rules, Approved July 2008, v5010 
Update March 2011.
    (i) Phase II CORE 250: Claim Status Rule, version 2.1.0, March 2011, 
as referenced in Sec. 162.1403.
    (ii) Phase II CORE 258: Eligibility and Benefits 270/271 Normalizing 
Patient Last Name Rule, version 2.1.0, March 2011, as referenced in 
Sec. 162.1203.
    (iii) Phase II CORE 259: Eligibility and Benefits 270/271 AAA Error 
Code Reporting Rule, version 2.1.0, March 2011, as referenced in Sec. 
162.1203.
    (iv) Phase II CORE 260: Eligibility & Benefits Data Content (270/
271) Rule, version 2.1.0, March 2011, as referenced in Sec. 162.1203.
    (v) Phase II CORE 270: Connectivity Rule, version 2.2.0, March 2011, 
as referenced in Sec. 162.1203 and Sec. 162.1403.

[[Page 1161]]

    (4) Council for Affordable Quality Healthcare (CAQH) Phase III 
Committee on Operating Rules for Information Exchange (CORE) EFT & ERA 
Operating Rule Set, Approved June 2012, as specified in this paragraph 
and referenced in Sec. 162.1603.
    (i) Phase III CORE 380 EFT Enrollment Data Rule, version 3.0.0, June 
2012.
    (ii) Phase III CORE 382 ERA Enrollment Data Rule, version 3.0.0, 
June 2012.
    (iii) Phase III 360 CORE Uniform Use of CARCs and RARCs (835) Rule, 
version 3.0.0, June 2012.
    (iv) CORE-required Code Combinations for CORE-defined Business 
Scenarios for the Phase III CORE 360 Uniform Use of Claim Adjustment 
Reason Codes and Remittance Advice Remark Codes (835) Rule, version 
3.0.0, June 2012.
    (v) Phase III CORE 370 EFT & ERA Reassociation (CCD+/835) Rule, 
version 3.0.0, June 2012.
    (vi) Phase III CORE 350 Health Care Claim Payment/Advice (835) 
Infrastructure Rule, version 3.0.0, June 2012, except Requirement 4.2 
titled ``Health Care Claim Payment/Advice Batch Acknowledgement 
Requirements''.
    (d) The National Automated Clearing House Association (NACHA), The 
Electronic Payments Association, 1350 Sunrise Valle Drive, Suite 100, 
Herndon, Virginia 20171 (Phone) (703) 561-1100; (Fax) (703) 713-1641; 
Email: [email protected]; and Internet at http://www.nacha.org. The 
implementation specifications are as follows:
    (1) 2011 NACHA Operating Rules & Guidelines, A Complete Guide to the 
Rules Governing the ACH Network, NACHA Operating Rules, Appendix One: 
ACH File Exchange Specifications (Operating Rule 59) as referenced in 
Sec. 162.1602.
    (2) 2011 NACHA Operating Rules & Guidelines, A Complete Guide to the 
Rules Governing the ACH Network, NACHA Operating Rules Appendix Three: 
ACH Record Format Specifications (Operating Rule 78), Part 3.1, Subpart 
3.1.8 Sequence of Records for CCD Entries as referenced in Sec. 
162.1602.

[68 FR 8396, Feb. 20, 2003, as amended at 69 FR 18803, Apr. 9, 2004; 74 
FR 3324, Jan. 16, 2009; 76 FR 40495, July 8, 2011; 77 FR 1590, Jan. 10, 
2012; 77 FR 48043, Aug. 10, 2012]



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 that is required to 
comply with a transaction standard adopted under this part (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.

[65 FR 50367, Aug. 17, 2000, as amended at 74 FR 3325, Jan. 16, 2009]



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

[[Page 1162]]

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.
    (6) During the period from March 17, 2009 through December 31, 2011, 
a health plan may not delay or reject a standard transaction, or attempt 
to adversely affect the other entity or the transaction, on the basis 
that it does not comply with another adopted standard for the same 
period.
    (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.

[65 FR 50367, Aug. 17, 2000, as amended at 74 FR 3325, Jan. 16, 2009]



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

[[Page 1163]]

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.
    (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 maintaining organization's code 
sets as the standard medical data code sets:
    (a) For the period from October 16, 2002 through October 15, 2003:
    (1) 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:
    (i) Diseases.
    (ii) Injuries.
    (iii) Impairments.
    (iv) Other health problems and their manifestations.
    (v) Causes of injury, disease, impairment, or other health problems.

[[Page 1164]]

    (2) 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:
    (i) Prevention.
    (ii) Diagnosis.
    (iii) Treatment.
    (iv) Management.
    (3) National Drug Codes (NDC), as maintained and distributed by HHS, 
in collaboration with drug manufacturers, for the following:
    (i) Drugs
    (ii) Biologics.
    (4) Code on Dental Procedures and Nomenclature, as maintained and 
distributed by the American Dental Association, for dental services.
    (5) 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:
    (i) Physician services.
    (ii) Physical and occupational therapy services.
    (iii) Radiologic procedures.
    (iv) Clinical laboratory tests.
    (v) Other medical diagnostic procedures.
    (vi) Hearing and vision services.
    (vii) Transportation services including ambulance.
    (6) 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 items include, but are not limited to, the following:
    (i) Medical supplies.
    (ii) Orthotic and prosthetic devices.
    (iii) Durable medical equipment.
    (b) For the period on and after October 16, 2003 through September 
30, 2015:
    (1) The code sets specified in paragraphs (a)(1), (a)(2),(a)(4), and 
(a)(5) of this section.
    (2) National Drug Codes (NDC), as maintained and distributed by HHS, 
for reporting the following by retail pharmacies:
    (i) Drugs.
    (ii) Biologics.
    (3) The Healthcare 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, with the 
exception of drugs and biologics. These items include, but are not 
limited to, the following:
    (i) Medical supplies.
    (ii) Orthotic and prosthetic devices.
    (iii) Durable medical equipment.
    (c) For the period on and after October 1, 2015:
    (1) The code sets specified in paragraphs (a)(4), (a)(5), (b)(2), 
and (b)(3) of this section.
    (2) International Classification of Diseases, 10th Revision, 
Clinical Modification (ICD-10-CM) (including The Official ICD-10-CM 
Guidelines for Coding and Reporting), as maintained and distributed by 
HHS, for the following conditions:
    (i) Diseases.
    (ii) Injuries.
    (iii) Impairments.
    (iv) Other health problems and their manifestations.
    (v) Causes of injury, disease, impairment, or other health problems.
    (3) International Classification of Diseases, 10th Revision, 
Procedure Coding System (ICD-10-PCS) (including The Official ICD-10-PCS 
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:
    (i) Prevention.
    (ii) Diagnosis.
    (iii) Treatment.
    (iv) Management.

[65 FR 50367, Aug. 17, 2000, as amended at 68 FR 8397, Feb. 20, 2003; 74 
FR 3362, Jan. 16, 2009; 77 FR 54720, Sept. 5, 2012; 79 FR 45134, Aug. 4, 
2014]

[[Page 1165]]



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 transaction.

    The Secretary adopts the following standards for the health care 
claims or equivalent encounter information transaction:
    (a) For the period from October 16, 2003 through March 16, 2009:
    (1) Retail pharmacy drugs claims. The National Council for 
Prescription Drug Programs (NCPDP) Telecommunication Standards 
Implementation Guide, Version 5, Release 1, September 1999, and 
equivalent NCPDP Batch Standards Batch Implementation Guide, Version 1, 
Release 1, (Version 1.1), January 2000, supporting Telecomunication 
Version 5.1 for the NCPDP Data Record in the Detail Data Record. 
(Incorporated by reference in Sec. 162.920).
    (2) Dental, health care claims. The ASC X12N 837--Health Care Claim: 
Dental, Version 4010, May 2000, Washington Publishing Company, 
004010X097. and Addenda to Health Care Claim: Dental, Version 4010, 
October 2002, Washington Publishing Company, 004010X097A1. (Incorporated 
by reference in Sec. 162.920).
    (3) Professional health care claims. The ASC X12N 837--Health Care 
Claims: Professional, Volumes 1 and 2, Version 4010, may 2000, 
Washington Publishing Company, 004010X098 and Addenda to Health Care 
Claims: Professional, Volumes 1 and 2, Version 4010, October 2002, 
Washington Publishing Company, 004010x098A1. (Incorporated by reference 
in Sec. 162.920).
    (4) Institutional health care claims. The ASC X12N 837--Health Care 
Claim: Institutional, Volumes 1 and 2, Version 4010, May 2000, 
Washington Publishing Company, 004010X096 and Addenda to Health Care 
Claim: Institutional, Volumes 1 and 2, Version 4010, October 2002, 
Washington Publishing Company, 004010X096A1. (Incorporated by reference 
in Sec. 162.920).
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1)(i) The standards identified in paragraph (a) of this section; 
and
    (ii) For retail pharmacy supplies and professional services claims, 
the following: The ASC X12N 837--Health Care Claim: Professional, 
Volumes 1 and 2, Version 4010, May 2000, Washington Publishing Company, 
004010X096, October 2002 (Incorporated by reference in Sec. 162.920); 
and
    (2)(i) Retail pharmacy drug claims. The Telecommunication Standard 
Implementation Guide, Version D, Release 0 (Version D.0), August 2007 
and equivalent Batch Standard Implementation Guide, Version 1, Release 2 
(Version 1.2), National Council for Prescription Drug Programs. 
(Incorporated by reference in Sec. 162.920.)
    (ii) Dental health care claims. The ASC X12 Standards for Electronic 
Data Interchange Technical Report Type 3-- Health Care Claim: Dental 
(837), May 2006, ASC X12N/005010X224, and Type 1 Errata to Health Care 
Claim: Dental (837) ASC X12 Standards for Electronic Date Interchange 
Technical Report Type 3, October 2007, ASC X12N/005010X224A1. 
(Incorporated by reference in Sec. 162.920.)
    (iii) Professional health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Professional (837), May 2006, ASC X12N/005010X222. (Incorporated by 
reference in Sec. 162.920.)

[[Page 1166]]

    (iv) Institutional health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata to 
Health Care Claim: Institutional (837) ASC X12 Standards for Electronic 
Data Interchange Technical Report Type 3, October 2007, ASC X12N/
005010X223A1. (Incorporated by reference in Sec. 162.920.)
    (v) Retail pharmacy supplies and professional services claims. (A) 
The Telecommunication Standard, Implementation Guide Version 5, Release 
1, September 1999. (Incorporated by reference in Sec. 162.920.)
    (B) The Telecommunication Standard Implementation Guide, Version D, 
Release 0 (Version D.0), August 2007, and equivalent Batch Standard 
Implementation Guide, Version 1, Release 2 (Version 1.2), National 
Council for Prescription Drug Programs (Incorporated by reference in 
Sec. 162.920); and
    (C) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim: Professional (837), May 2006, ASC 
X12N/005010X222. (Incorporated by reference in Sec. 162.920.)
    (c) For the period on and after the January 1, 2012, the standards 
identified in paragraph (b)(2) of this section, except the standard 
identified in paragraph (b)(2)(v)(A) of this section.

[68 FR 8397, Feb. 20, 2003; 68 FR 11445, Mar. 10, 2003, as amended at 74 
FR 3325, Jan. 16, 2009]



                 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 transaction.

    The Secretary adopts the following standards for the eligibility for 
a health plan transaction:
    (a) For the period from October 16, 2003 through March 16, 2009:
    (1) Retail pharmacy drugs. The National Council for Prescription 
Drug Programs Telecommunication Standard Implementation Guide, Version 
5, Release 1 (Version 5.1), September 1999, and equivalent NCPDP Batch 
Standard Batch Implementation Guide, Version 1, Release 1 (Version 1.1), 
January 2000 supporting Telecommunications Standard Implementation 
Guide, Version 5, Release 1 (Version 5.1) for the NCPDP Data Record in 
the Detail Data Record. (Incorporated by reference in Sec. 162.920).
    (2) Dental, professional, and institutional health care eligibility 
benefit inquiry and response. The ASC X12N 270/271--Health Care 
Eligibility Benefit Inquiry and Response, Version 4010, May 2000, 
Washington Publishing Company, 004010X092 and Addenda to Health Care 
Eligibility Benefit Inquiry and Response, Version 4010, October 2002, 
Washington Publishing Company, 004010X092A1. (Incorporated by reference 
in Sec. 162.920).
    (b) For the period from March 17, 2009 through December 31, 2011 
both:
    (1) The standards identified in paragraph (a) of this section; and
    (2)(i) Retail pharmacy drugs. The Telecommunication Standard 
Implementation Guide Version D, Release 0 (Version D.0), August 2007, 
and equivalent Batch Standard Implementation Guide, Version 1, Release 2 
(Version 1.2), National Council for Prescription Drug Programs. 
(Incorporated by reference in Sec. 162.920.)
    (ii) Dental, professional, and institutional health care eligibility 
benefit inquiry and response. The ASC X12 Standards for Electronic Data 
Interchange Technical Report Type 3--Health Care Eligibility Benefit 
Inquiry and Response (270/271), April 2008, ASC X12N/005010X279. 
(Incorporated by reference in Sec. 162.920.)

[[Page 1167]]

    (c) For the period on and after January 1, 2012, the standards 
identified in paragraph (b)(2) of this section.

[68 FR 8398, Feb. 20, 2003; 68 FR 11445, Mar. 10, 2003, as amended at 74 
FR 3326, Jan. 16, 2009]



Sec. 162.1203  Operating rules for eligibility for a health plan 
transaction.

    On and after January 1, 2013, the Secretary adopts the following:
    (a) Except as specified in paragraph (b) of this section, the 
following CAQH CORE Phase I and Phase II operating rules (updated for 
Version 5010) for the eligibility for a health plan transaction:
    (1) Phase I CORE 152: Eligibility and Benefit Real Time Companion 
Guide Rule, version 1.1.0, March 2011, and CORE v5010 Master Companion 
Guide Template. (Incorporated by reference in Sec. 162.920).
    (2) Phase I CORE 153: Eligibility and Benefits Connectivity Rule, 
version 1.1.0, March 2011. (Incorporated by reference in Sec. 162.920).
    (3) Phase I CORE 154: Eligibility and Benefits 270/271 Data Content 
Rule, version 1.1.0, March 2011. (Incorporated by reference in Sec. 
162.920).
    (4) Phase I CORE 155: Eligibility and Benefits Batch Response Time 
Rule, version 1.1.0, March 2011. (Incorporated by reference in Sec. 
162.920).
    (5) Phase I CORE 156: Eligibility and Benefits Real Time Response 
Rule, version 1.1.0, March 2011. (Incorporated by reference in Sec. 
162.920).
    (6) Phase I CORE 157: Eligibility and Benefits System Availability 
Rule, version 1.1.0, March 2011. (Incorporated by reference in Sec. 
162.920).
    (7) Phase II CORE 258: Eligibility and Benefits 270/271 Normalizing 
Patient Last Name Rule, version 2.1.0, March 2011. (Incorporated by 
reference in Sec. 162.920).
    (8) Phase II CORE 259: Eligibility and Benefits 270/271 AAA Error 
Code Reporting Rule, version 2.1.0. (Incorporated by reference in Sec. 
162.920).
    (9) Phase II CORE 260: Eligibility & Benefits Data Content (270/271) 
Rule, version 2.1.0, March 2011. (Incorporated by reference in Sec. 
162.920).
    (10) Phase II CORE 270: Connectivity Rule, version 2.2.0, March 
2011. (Incorporated by reference in Sec. 162.920).
    (b) Excluding where the CAQH CORE rules reference and pertain to 
acknowledgements and CORE certification.

[76 FR 40496, July 8, 2011]



           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 from a health care provider to a health plan for the 
review of health care to obtain an authorization for the health care.
    (b) A request from a health care provider to a health plan to obtain 
authorization for referring an individual to another health care 
provider.
    (c) A response from a health plan to a health care provider to a 
request described in paragraph (a) or paragraph (b) of this section.

[74 FR 3326, Jan. 16, 2009]



Sec. 162.1302  Standards for referral certification and 
authorization transaction.

    The Secretary adopts the following standards for the referral 
certification and authorization transaction:
    (a) For the period from October 16, 2003 through March 16, 2009:
    (1) Retail pharmacy drug referral certification and authorization. 
The NCPDP Telecommunication Standard Implementation Guide, Version 5, 
Release 1 (Version 5.1), September 1999, and equivalent NCPDP Batch 
Standard Batch Implementation Guide, Version 1, Release 1 (Version 1.1), 
January 2000, supporting Telecommunications Standard Implementation 
Guide, Version 5, Release 1 (Version 5.1) for the NCPDP Data Record in 
the Detail Data Record. (Incorporated by reference in Sec. 162.920).
    (2) Dental, professional, and institutional referral certification 
and authorization. The ASC X12N 278--Health Care Services Review--
Request for Review and Response, Version 4010, May 2000, Washington 
Publishing Company, 004010X094 and Addenda to Health Care Services 
Review--Request for Review and Response, Version 4010, October 2002, 
Washington Publishing Company,

[[Page 1168]]

004010X094A1. (Incorporated by reference in Sec. 162.920).
    (b) For the period from March 17, 2009 through December 31, 2011 
both--
    (1) The standards identified in paragraph (a) of this section; and
    (2)(i) Retail pharmacy drugs. The Telecommunication Standard 
Implementation Guide Version D, Release 0 (Version D.0), August 2007, 
and equivalent Batch Standard Implementation Guide, Version 1, Release 2 
(Version 1.2), National Council for Prescription Drug Programs. 
(Incorporated by reference in Sec. 162.920.)
    (ii) Dental, professional, and institutional request for review and 
response. The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Services Review--Request for Review 
and Response (278), May 2006, ASC X12N/005010X217, and Errata to Health 
Care Services Review---Request for Review and Response (278), ASC X12 
Standards for Electronic Data Interchange Technical Report Type 3, April 
2008, ASC X12N/005010X217E1. (Incorporated by reference in Sec. 
162.920.)
    (c) For the period on and after January 1, 2012, the standards 
identified in paragraph (b)(2) of this section.

[68 FR 8398, Feb. 20, 2003, as amended at 74 FR 3326, Jan. 16, 2009]



                   Subpart N_Health Care Claim Status



Sec. 162.1401  Health care claim status transaction.

    The health care claim status transaction is the transmission of 
either of the following:
    (a) An inquiry from a health care provider to a health plan to 
determine the status of a health care claim.
    (b) A response from a health plan to a health care provider about 
the status of a health care claim.

[74 FR 3326, Jan. 16, 2009]



Sec. 162.1402  Standards for health care claim status transaction.

    The Secretary adopts the following standards for the health care 
claim status transaction:
    (a) For the period from October 16, 2003 through March 16, 2009: The 
ASC X12N-276/277 Health Care Claim Status Request and Response, Version 
4010, May 2000, Washington Publishing Company, 004010X093 and Addenda to 
Health Care Claim Status Request and Response, Version 4010, October 
2002, Washington Publishing Company, 004010X093A1. (Incorporated by 
reference in Sec. 162.920.)
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standard identified in paragraph (a) of this section; and
    (2) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim Status Request and Response (276/277), 
August 2006, ASC X12N/005010X212, and Errata to Health Care Claim Status 
Request and Response (276/277), ASC X12 Standards for Electronic Data 
Interchange Technical Report Type 3, April 2008, ASC X12N/005010X212E1. 
(Incorporated by reference in Sec. 162.920.)
    (c) For the period on and after January 1, 2012, the standard 
identified in paragraph (b)(2) of this section.

[74 FR 3326, Jan. 16, 2009]



Sec. 162.1403  Operating rules for health care claim status transaction.

    On and after January 1, 2013, the Secretary adopts the following:
    (a) Except as specified in paragraph (b) of this section, the 
following CAQH CORE Phase II operating rules (updated for Version 5010) 
for the health care claim status transaction:
    (1) Phase II CORE 250: Claim Status Rule, version 2.1.0, March 2011, 
and CORE v5010 Master Companion Guide, 00510, 1.2, March 2011. 
(Incorporated by reference in Sec. 162.920).
    (2) Phase II CORE 270: Connectivity Rule, version 2.2.0, March 2011. 
(Incorporated by reference in Sec. 162.920).
    (b) Excluding where the CAQH CORE rules reference and pertain to 
acknowledgements and CORE certification.

[76 FR 40496, July 8, 2011]

[[Page 1169]]



         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 from the sponsor of 
the insurance coverage, benefits, or policy, to a health plan to 
establish or terminate insurance coverage.

[74 FR 3327, Jan. 16, 2009]



Sec. 162.1502  Standards for enrollment and disenrollment in a health 
plan transaction.

    The Secretary adopts the following standards for enrollment and 
disenrollment in a health plan transaction.
    (a) For the period from October 16, 2003 through March 16, 2009: ASC 
X12N 834--Benefit Enrollment and Maintenance, Version 4010, May 2000, 
Washington Publishing Company, 004010X095 and Addenda to Benefit 
Enrollment and Maintenance, Version 4010, October 2002, Washington 
Publishing Company, 004010X095A1. (Incorporated by reference in Sec. 
162.920.)
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standard identified in paragraph (a) of this section; and
    (2) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Benefit Enrollment and Maintenance (834), August 2006, 
ASC X12N/005010X220 (Incorporated by reference in Sec. 162.920)
    (c) For the period on and after January 1, 2012, the standard 
identified in paragraph (b)(2) of this section.

[74 FR 3327, Jan. 16, 2009]



 Subpart P_Health Care Electronic Funds Transfers (EFT) and Remittance 
                                 Advice



Sec. 162.1601  Health care electronic funds transfers (EFT) and 
remittance advice transaction.

    The health care electronic funds transfers (EFT) 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:
    (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.

[65 FR 50367, Aug. 17, 2000, as amended at 77 FR 1590, Jan. 10, 2012; 77 
FR 48043, Aug. 10, 2012]



Sec. 162.1602  Standards for health care electronic funds transfers 
(EFT) and remittance advice transaction.

    The Secretary adopts the following standards:
    (a) For the period from October 16, 2003 through March 16, 2009: 
Health care claims and remittance advice. The ASC X12N 835--Health Care 
Claim Payment/Advice, Version 4010, May 2000, Washington Publishing 
Company, 004010X091, and Addenda to Health Care Claim Payment/Advice, 
Version 4010, October 2002, Washington Publishing Company, 004010X091A1. 
(Incorporated by reference in Sec. 162.920.)
    (b) For the period from March 17, 2009 through December 31, 2011, 
both of the following standards:
    (1) The standard identified in paragraph (a) of this section.
    (2) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim Payment/Advice (835), April 2006, ASC 
X12N/005010X221. (Incorporated by reference in Sec. 162.920.)
    (c) For the period from January 1, 2012 through December 31, 2013, 
the standard identified in paragraph (b)(2) of this section.
    (d) For the period on and after January 1, 2014, the following 
standards:
    (1) Except when transmissions as described in Sec. 162.1601(a) and 
(b) are contained within the same transmission, for Stage 1 Payment 
Initiation transmissions described in Sec. 162.1601(a), all of the 
following standards:
    (i) The National Automated Clearing House Association (NACHA) 
Corporate Credit or Deposit Entry with Addenda

[[Page 1170]]

Record (CCD+) implementation specifications as contained in the 2011 
NACHA Operating Rules & Guidelines, A Complete Guide to the Rules 
Governing the ACH Network as follows (incorporated by reference in Sec. 
162.920)--
    (A) NACHA Operating Rules, Appendix One: ACH File Exchange 
Specifications; and
    (B) NACHA Operating Rules, Appendix Three: ACH Record Format 
Specifications, Subpart 3.1.8 Sequence of Records for CCD Entries.
    (ii) For the CCD Addenda Record (``7''), field 3, of the standard 
identified in 1602(d)(1)(i), the Accredited Standards Committee (ASC) 
X12 Standards for Electronic Data Interchange Technical Report Type 3, 
``Health Care Claim Payment/Advice (835), April 2006: Section 2.4: 835 
Segment Detail: ``TRN Reassociation Trace Number,'' Washington 
Publishing Company, 005010X221 (Incorporated by reference in Sec. 
162.920).
    (2) For transmissions described in Sec. 162.1601(b), including when 
transmissions as described in Sec. 162.1601(a) and (b) are contained 
within the same transmission, the ASC X12 Standards for Electronic Data 
Interchange Technical Report Type 3, ``Health Care Claim Payment/Advice 
(835), April 2006, ASC X12N/005010X221. (Incorporated by reference in 
Sec. 162.920).

[77 FR 1590, Jan. 10, 2012]



Sec. 162.1603  Operating rules for health care electronic funds 
transfers (EFT) and remittance advice transaction.

    On and after January 1, 2014, the Secretary adopts the following for 
the health care electronic funds transfers (EFT) and remittance advice 
transaction:
    (a) The Phase III CORE EFT & ERA Operating Rule Set, Approved June 
2012 (Incorporated by reference in Sec. 162.920) which includes the 
following rules:
    (1) Phase III CORE 380 EFT Enrollment Data Rule, version 3.0.0, June 
2012.
    (2) Phase III CORE 382 ERA Enrollment Data Rule, version 3.0.0, June 
2012.
    (3) Phase III 360 CORE Uniform Use of CARCs and RARCs (835) Rule, 
version 3.0.0, June 2012.
    (4) CORE-required Code Combinations for CORE-defined Business 
Scenarios for the Phase III CORE 360 Uniform Use of Claim Adjustment 
Reason Codes and Remittance Advice Remark Codes (835) Rule, version 
3.0.0, June 2012.
    (5) Phase III CORE 370 EFT & ERA Reassociation (CCD+/835) Rule, 
version 3.0.0, June 2012.
    (6) Phase III CORE 350 Health Care Claim Payment/Advice (835) 
Infrastructure Rule, version 3.0.0, June 2012, except Requirement 4.2 
titled ``Health Care Claim Payment/Advice Batch Acknowledgement 
Requirements''.
    (b) ACME Health Plan, CORE v5010 Master Companion Guide Template, 
005010, 1.2, March 2011 (incorporated by reference in Sec. 162.920), as 
required by the Phase III CORE 350 Health Care Claim Payment/Advice 
(835) Infrastructure Rule, version 3.0.0, June 2012.

[77 FR 48043, Aug. 10, 2012]



                 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  Standards for health plan premium payments transaction.

    The Secretary adopts the following standards for the health plan 
premium payments transaction:
    (a) For the period from October 16, 2003 through March 16, 2009: The 
ASC X12N 820--Payroll Deducted and Other

[[Page 1171]]

Group Premium Payment for Insurance Products, Version 4010, May 2000, 
Washington Publishing Company, 004010X061, and Addenda to Payroll 
Deducted and Other Group Premium Payment for Insurance Products, Version 
4010, October 2002, Washington Publishing Company, 004010X061A1. 
(Incorporated by reference in Sec. 162.920.)
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standard identified in paragraph (a) of this section, and
    (2) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Payroll Deducted and Other Group Premium Payment for 
Insurance Products (820), February 2007, ASC X12N/005010X218. 
(Incorporated by reference in Sec. 162.920.)
    (c) For the period on and after January 1, 2012, the standard 
identified in paragraph (b)(2) of this section.

[74 FR 3327, Jan. 16, 2009]



                   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 information 
transaction.

    The Secretary adopts the following standards for the coordination of 
benefits information transaction.
    (a) For the period from October 16, 2003 through March 16, 2009:
    (1) Retail pharmacy drug claims. The National Council for 
Prescription Drug Programs Telecommunication Standard Implementation 
Guide, Version 5, Release 1 (Version 5.1), September 1999, and 
equivalent NCPDP Batch Standard Batch Implementation Guide, Version 1, 
Release 1 (Version 1.1), January 2000, supporting Telecommunications 
Standard Implementation Guide, Version 5, Release 1 (Version 5.1) for 
the NCPDP Data Record in the Detail Data Record. (Incorporated by 
reference in Sec. 162.920).
    (2) Dental health care claims. The ASC X12N 837--Health Care Claim: 
Dental, Version 4010, May 2000, Washington Publishing Company, 
004010X097 and Addenda to Health Care Claim: Dental, Version 4010, 
October 2002, Washington Publishing Company, 004010X097A1. (Incorporated 
by reference in Sec. 162.920).
    (3) Professional health care claims. The ASC X12N 837--Health Care 
Claim: Professional, Volumes 1 and 2, Version 4010, May 2000, Washington 
Publishing Company, 004010X098 and Addenda to Health Care Claim: 
Professional, Volumes 1 and 2, Version 4010, October 2002, Washington 
Publishing Company, 004010X098A1. (Incorporated by reference in Sec. 
162.920).
    (4) Institutional health care claims. The ASC X12N 837--Health Care 
Claim: Institutional, Volumes 1 and 2, Version 4010, May 2000, 
Washington Publishing Company, 004010X096 and Addenda to Health Care 
Claim: Institutional, Volumes 1 and 2, Version 4010, October 2002, 
Washington Publishing Company, 004010X096A1. (Incorporated by reference 
in Sec. 162.920).
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standards identified in paragraph (a) of this section; and
    (2)(i) Retail pharmacy drug claims. The Telecommunication Standard 
Implementation Guide, Version D, Release 0 (Version D.0), August 2007, 
and equivalent Batch Standard Implementation Guide, Version 1, Release 2 
(Version 1.2), National Council for Prescription Drug Programs. 
(Incorporated by reference in Sec. 162.920.)
    (ii) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim: Dental (837), May 2006, ASC X12N/
005010X224, and Type 1 Errata to Health Care Claim: Dental (837), ASC 
X12 Standards for Electronic Date Interchange Technical Report Type 3, 
October 2007, ASC X12N/005010X224A1. (Incorporated by reference in Sec. 
162.920.)
    (iii) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim: Professional (837), May 
2006, ASC X12N/005010X222. (Incorporated by reference in Sec. 162.920.)

[[Page 1172]]

    (iv) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim: Institutional (837), May 2006, ASC 
X12N/005010X223, and Type 1 Errata to Health Care Claim: Institutional 
(837), ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3, October 2007, ASC X12N/005010X223A1. (Incorporated by 
reference in Sec. 162.920.)
    (c) For the period on and after January 1, 2012, the standards 
identified in paragraph (b)(2) of this section.

[68 FR 8399, Feb. 20, 2003, as amended at 74 FR 3327, Jan. 16, 2009]



                 Subpart S_Medicaid Pharmacy Subrogation

    Source: 74 FR 3328, Jan. 16, 2009, unless otherwise noted.



Sec. 162.1901  Medicaid pharmacy subrogation transaction.

    The Medicaid pharmacy subrogation transaction is the transmission of 
a claim from a Medicaid agency to a payer for the purpose of seeking 
reimbursement from the responsible health plan for a pharmacy claim the 
State has paid on behalf of a Medicaid recipient.



Sec. 162.1902  Standard for Medicaid pharmacy subrogation transaction.

    The Secretary adopts the Batch Standard Medicaid Subrogation 
Implementation Guide, Version 3, Release 0 (Version 3.0), July 2007, 
National Council for Prescription Drug Programs, as referenced in Sec. 
162.1902 (Incorporated by reference at Sec. 162.920):
    (a) For the period on and after January 1, 2012, for covered 
entities that are not small health plans;
    (b) For the period on and after January 1, 2013 for small health 
plans.

                           PART 163 [RESERVED]



PART 164_SECURITY AND PRIVACY--Table of Contents



                      Subpart A_General Provisions

Sec.
164.102 Statutory basis.
164.103 Definitions.
164.104 Applicability.
164.105 Organizational requirements.
164.106 Relationship to other parts.

Subpart B [Reserved]

Subpart C_Security Standards for the Protection of Electronic Protected 
                           Health Information

164.302 Applicability.
164.304 Definitions.
164.306 Security standards: General rules.
164.308 Administrative safeguards.
164.310 Physical safeguards.
164.312 Technical safeguards.
164.314 Organizational requirements.
164.316 Policies and procedures and documentation requirements.
164.318 Compliance dates for the initial implementation of the security 
          standards.

Appendix A to Subpart C of Part 164--Security Standards: Matrix

  Subpart D_Notification in the Case of Breach of Unsecured Protected 
                           Health Information

164.400 Applicability.
164.402 Definitions.
164.404 Notification to individuals.
164.406 Notification to the media.
164.408 Notification to the Secretary.
164.410 Notification by a business associate.
164.412 Law enforcement delay.
164.414 Administrative requirements and burden of proof.

    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 Uses and disclosures to carry out treatment, payment, or 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 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.

[[Page 1173]]

164.528 Accounting of disclosures of protected health information.
164.530 Administrative requirements.
164.532 Transition provisions.
164.534 Compliance dates for initial implementation of the privacy 
          standards.

    Authority: 42 U.S.C. 1302(a); 42 U.S.C. 1320d-1320d-9; sec. 264, 
Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-2(note)); and 
secs. 13400-13424, Pub. L. 111-5, 123 Stat. 258-279.

    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 
specifications under part C of title XI of the Act, section 264 of 
Public Law 104-191, and sections 13400-13424 of Public Law 111-5.

[78 FR 5692, Jan. 25, 2013]



Sec. 164.103  Definitions.

    As used in this part, the following terms have the following 
meanings:
    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.
    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.
    Health care component means a component or combination of components 
of a hybrid entity designated by the hybrid entity in accordance with 
Sec. 164.105(a)(2)(iii)(D).
    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 Sec. 164.105(a)(2)(iii)(D).
    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.
    Plan sponsor is defined as defined at section 3(16)(B) of ERISA, 29 
U.S.C. 1002(16)(B).
    Required by law means a mandate contained in law that compels an 
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.

[68 FR 8374, Feb. 20, 2003, as amended at 74 FR 42767, Aug. 24, 2009; 78 
FR 34266, June 7, 2013]



Sec. 164.104  Applicability.

    (a) Except as otherwise provided, the standards, requirements, and 
implementation specifications adopted under this part 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) Where provided, the standards, requirements, and implementation 
specifications adopted under this part apply to a business associate.

[68 FR 8375, Feb. 20, 2003, as amended at 78 FR 5692, Jan. 25, 2013]

[[Page 1174]]



Sec. 164.105  Organizational requirements.

    (a)(1) Standard: Health care component. If a covered entity is a 
hybrid entity, the requirements of this part, other than the 
requirements of this section, Sec. Sec. 164.314, and 164.504, apply 
only to the health care component(s) of the entity, as specified in this 
section.
    (2) Implementation specifications:
    (i) Application of other provisions. In applying a provision of this 
part, other than the requirements of this section, Sec. Sec. 164.314, 
and 164.504, to a hybrid entity:
    (A) A reference in such provision to a ``covered entity'' refers to 
a health care component of the covered entity;
    (B) 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;
    (C) 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; and
    (D) A reference in such provision to ``electronic protected health 
information'' refers to electronic protected health information that is 
created, received, maintained, or transmitted by or on behalf of the 
health care component of the covered entity.
    (ii) 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 part. In particular, and 
without limiting this requirement, such covered entity must ensure that:
    (A) Its health care component does not disclose protected health 
information to another component of the covered entity in circumstances 
in which subpart E of this part would prohibit such disclosure if the 
health care component and the other component were separate and distinct 
legal entities;
    (B) Its health care component protects electronic protected health 
information with respect to another component of the covered entity to 
the same extent that it would be required under subpart C of this part 
to protect such information if the health care component and the other 
component were separate and distinct legal entities;
    (C) 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 
subpart E of this part.
    (iii) Responsibilities of the covered entity. A covered entity that 
is a hybrid entity has the following responsibilities:
    (A) For purposes of subpart C of part 160 of this subchapter, 
pertaining to compliance and enforcement, the covered entity has the 
responsibility of complying with this part.
    (B) The covered entity is responsible for complying with Sec. Sec. 
164.316(a) and 164.530(i), pertaining to the implementation of policies 
and procedures to ensure compliance with applicable requirements of this 
part, including the safeguard requirements in paragraph (a)(2)(ii) of 
this section.
    (C) The covered entity is responsible for complying with Sec. Sec. 
164.314 and 164.504 regarding business associate arrangements and other 
organizational requirements.
    (D) 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 in accordance with paragraph (c) 
of this section, provided that, if the covered entity designates one or 
more health care components, it must include any component that would 
meet the definition of a covered entity or business associate if it were 
a separate legal entity. Health care component(s) also may include a 
component only to the extent that it performs covered functions.
    (b)(1) Standard: Affiliated covered entities. Legally separate 
covered entities

[[Page 1175]]

that are affiliated may designate themselves as a single covered entity 
for purposes of this part.
    (2) Implementation specifications--(i) Requirements for designation 
of an affiliated covered entity--(A) 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 
this part, if all of the covered entities designated are under common 
ownership or control.
    (B) The designation of an affiliated covered entity must be 
documented and the documentation maintained as required by paragraph (c) 
of this section.
    (ii) Safeguard requirements. An affiliated covered entity must 
ensure that it complies with the applicable requirements of this part, 
including, if the affiliated covered entity combines the functions of a 
health plan, health care provider, or health care clearinghouse, 
Sec. Sec. 164.308(a)(4)(ii)(A) and 164.504(g), as applicable.
    (c)(1) Standard: Documentation. A covered entity must maintain a 
written or electronic record of a designation as required by paragraphs 
(a) or (b) of this section.
    (2) Implementation specification: Retention period. A covered entity 
must retain the documentation as required by paragraph (c)(1) of this 
section for 6 years from the date of its creation or the date when it 
last was in effect, whichever is later.

[68 FR 8375, Feb. 20, 2003, as amended at 78 FR 5692, Jan. 25, 2013]



Sec. 164.106  Relationship to other parts.

    In complying with the requirements of this part, covered entities 
and, where provided, business associates, are required to comply with 
the applicable provisions of parts 160 and 162 of this subchapter.

[78 FR 5693, Jan. 25, 2013]

Subpart B [Reserved]



Subpart C_Security Standards for the Protection of Electronic Protected 
                           Health Information

    Authority: 42 U.S.C. 1320d-2 and 1320d-4; sec. 13401, Pub. L. 111-5, 
123 Stat. 260.

    Source: 68 FR 8376, Feb. 20, 2003, unless otherwise noted.



Sec. 164.302  Applicability.

    A covered entity or business associate must comply with the 
applicable standards, implementation specifications, and requirements of 
this subpart with respect to electronic protected health information of 
a covered entity.

[78 FR 5693, Jan. 25, 2013]



Sec. 164.304  Definitions.

    As used in this subpart, the following terms have the following 
meanings:
    Access means the ability or the means necessary to read, write, 
modify, or communicate data/information or otherwise use any system 
resource. (This definition applies to ``access'' as used in this 
subpart, not as used in subparts D or E of this part.)
    Administrative safeguards are administrative actions, and policies 
and procedures, to manage the selection, development, implementation, 
and maintenance of security measures to protect electronic protected 
health information and to manage the conduct of the covered entity's or 
business associate's workforce in relation to the protection of that 
information.
    Authentication means the corroboration that a person is the one 
claimed.
    Availability means the property that data or information is 
accessible and useable upon demand by an authorized person.
    Confidentiality means the property that data or information is not 
made available or disclosed to unauthorized persons or processes.
    Encryption means the use of an algorithmic process to transform data 
into a form in which there is a low probability of assigning meaning 
without use of a confidential process or key.
    Facility means the physical premises and the interior and exterior 
of a building(s).
    Information system means an interconnected set of information 
resources

[[Page 1176]]

under the same direct management control that shares common 
functionality. A system normally includes hardware, software, 
information, data, applications, communications, and people.
    Integrity means the property that data or information have not been 
altered or destroyed in an unauthorized manner.
    Malicious software means software, for example, a virus, designed to 
damage or disrupt a system.
    Password means confidential authentication information composed of a 
string of characters.
    Physical safeguards are physical measures, policies, and procedures 
to protect a covered entity's or business associate's electronic 
information systems and related buildings and equipment, from natural 
and environmental hazards, and unauthorized intrusion.
    Security or Security measures encompass all of the administrative, 
physical, and technical safeguards in an information system.
    Security incident means the attempted or successful unauthorized 
access, use, disclosure, modification, or destruction of information or 
interference with system operations in an information system.
    Technical safeguards means the technology and the policy and 
procedures for its use that protect electronic protected health 
information and control access to it.
    User means a person or entity with authorized access.
    Workstation means an electronic computing device, for example, a 
laptop or desktop computer, or any other device that performs similar 
functions, and electronic media stored in its immediate environment.

[68 FR 8376, Feb. 20, 2003, as amended at 74 FR 42767, Aug. 24, 2009; 78 
FR 5693, Jan. 25, 2013]



Sec. 164.306  Security standards: General rules.

    (a) General requirements. Covered entities and business associates 
must do the following:
    (1) Ensure the confidentiality, integrity, and availability of all 
electronic protected health information the covered entity or business 
associate creates, receives, maintains, or transmits.
    (2) Protect against any reasonably anticipated threats or hazards to 
the security or integrity of such information.
    (3) Protect against any reasonably anticipated uses or disclosures 
of such information that are not permitted or required under subpart E 
of this part.
    (4) Ensure compliance with this subpart by its workforce.
    (b) Flexibility of approach. (1) Covered entities and business 
associates may use any security measures that allow the covered entity 
or business associate to reasonably and appropriately implement the 
standards and implementation specifications as specified in this 
subpart.
    (2) In deciding which security measures to use, a covered entity or 
business associate must take into account the following factors:
    (i) The size, complexity, and capabilities of the covered entity or 
business associate.
    (ii) The covered entity's or the business associate's technical 
infrastructure, hardware, and software security capabilities.
    (iii) The costs of security measures.
    (iv) The probability and criticality of potential risks to 
electronic protected health information.
    (c) Standards. A covered entity or business associate must comply 
with the applicable standards as provided in this section and in 
Sec. Sec. 164.308, 164.310, 164.312, 164.314 and 164.316 with respect 
to all electronic protected health information.
    (d) Implementation specifications. In this subpart:
    (1) Implementation specifications are required or addressable. If an 
implementation specification is required, the word ``Required'' appears 
in parentheses after the title of the implementation specification. If 
an implementation specification is addressable, the word ``Addressable'' 
appears in parentheses after the title of the implementation 
specification.
    (2) When a standard adopted in Sec. 164.308, Sec. 164.310, Sec. 
164.312, Sec. 164.314, or Sec. 164.316 includes required 
implementation specifications, a covered entity or

[[Page 1177]]

business associate must implement the implementation specifications.
    (3) When a standard adopted in Sec. 164.308, Sec. 164.310, Sec. 
164.312, Sec. 164.314, or Sec. 164.316 includes addressable 
implementation specifications, a covered entity or business associate 
must--
    (i) Assess whether each implementation specification is a reasonable 
and appropriate safeguard in its environment, when analyzed with 
reference to the likely contribution to protecting electronic protected 
health information; and
    (ii) As applicable to the covered entity or business associate--
    (A) Implement the implementation specification if reasonable and 
appropriate; or
    (B) If implementing the implementation specification is not 
reasonable and appropriate--
    $(1) Document why it would not be reasonable and appropriate to 
implement the implementation specification; and
    $(2) Implement an equivalent alternative measure if reasonable and 
appropriate.
    (e) Maintenance. A covered entity or business associate must review 
and modify the security measures implemented under this subpart as 
needed to continue provision of reasonable and appropriate protection of 
electronic protected health information, and update documentation of 
such security measures in accordance with Sec. 164.316(b)(2)(iii).

[68 FR 8376, Feb. 20, 2003; 68 FR 17153, Apr. 8, 2003; 78 FR 5693, Jan. 
25, 2013]



Sec. 164.308  Administrative safeguards.

    (a) A covered entity or business associate must, in accordance with 
Sec. 164.306:
    (1)(i) Standard: Security management process. Implement policies and 
procedures to prevent, detect, contain, and correct security violations.
    (ii) Implementation specifications:
    (A) Risk analysis (Required). Conduct an accurate and thorough 
assessment of the potential risks and vulnerabilities to the 
confidentiality, integrity, and availability of electronic protected 
health information held by the covered entity or business associate.
    (B) Risk management (Required). Implement security measures 
sufficient to reduce risks and vulnerabilities to a reasonable and 
appropriate level to comply with Sec. 164.306(a).
    (C) Sanction policy (Required). Apply appropriate sanctions against 
workforce members who fail to comply with the security policies and 
procedures of the covered entity or business associate.
    (D) Information system activity review (Required). Implement 
procedures to regularly review records of information system activity, 
such as audit logs, access reports, and security incident tracking 
reports.
    (2) Standard: Assigned security responsibility. Identify the 
security official who is responsible for the development and 
implementation of the policies and procedures required by this subpart 
for the covered entity or business associate.
    (3)(i) Standard: Workforce security. Implement policies and 
procedures to ensure that all members of its workforce have appropriate 
access to electronic protected health information, as provided under 
paragraph (a)(4) of this section, and to prevent those workforce members 
who do not have access under paragraph (a)(4) of this section from 
obtaining access to electronic protected health information.
    (ii) Implementation specifications:
    (A) Authorization and/or supervision (Addressable). Implement 
procedures for the authorization and/or supervision of workforce members 
who work with electronic protected health information or in locations 
where it might be accessed.
    (B) Workforce clearance procedure (Addressable). Implement 
procedures to determine that the access of a workforce member to 
electronic protected health information is appropriate.
    (C) Termination procedures (Addressable). Implement procedures for 
terminating access to electronic protected health information when the 
employment of, or other arrangement with, a workforce member ends or as 
required by determinations made as specified in paragraph (a)(3)(ii)(B) 
of this section.
    (4)(i) Standard: Information access management. Implement policies 
and procedures for authorizing access to

[[Page 1178]]

electronic protected health information that are consistent with the 
applicable requirements of subpart E of this part.
    (ii) Implementation specifications:
    (A) Isolating health care clearinghouse functions (Required). If a 
health care clearinghouse is part of a larger organization, the 
clearinghouse must implement policies and procedures that protect the 
electronic protected health information of the clearinghouse from 
unauthorized access by the larger organization.
    (B) Access authorization (Addressable). Implement policies and 
procedures for granting access to electronic protected health 
information, for example, through access to a workstation, transaction, 
program, process, or other mechanism.
    (C) Access establishment and modification (Addressable). Implement 
policies and procedures that, based upon the covered entity's or the 
business associate's access authorization policies, establish, document, 
review, and modify a user's right of access to a workstation, 
transaction, program, or process.
    (5)(i) Standard: Security awareness and training. Implement a 
security awareness and training program for all members of its workforce 
(including management).
    (ii) Implementation specifications. Implement:
    (A) Security reminders (Addressable). Periodic security updates.
    (B) Protection from malicious software (Addressable). Procedures for 
guarding against, detecting, and reporting malicious software.
    (C) Log-in monitoring (Addressable). Procedures for monitoring log-
in attempts and reporting discrepancies.
    (D) Password management (Addressable). Procedures for creating, 
changing, and safeguarding passwords.
    (6)(i) Standard: Security incident procedures. Implement policies 
and procedures to address security incidents.
    (ii) Implementation specification: Response and reporting 
(Required). Identify and respond to suspected or known security 
incidents; mitigate, to the extent practicable, harmful effects of 
security incidents that are known to the covered entity or business 
associate; and document security incidents and their outcomes.
    (7)(i) Standard: Contingency plan. Establish (and implement as 
needed) policies and procedures for responding to an emergency or other 
occurrence (for example, fire, vandalism, system failure, and natural 
disaster) that damages systems that contain electronic protected health 
information.
    (ii) Implementation specifications:
    (A) Data backup plan (Required). Establish and implement procedures 
to create and maintain retrievable exact copies of electronic protected 
health information.
    (B) Disaster recovery plan (Required). Establish (and implement as 
needed) procedures to restore any loss of data.
    (C) Emergency mode operation plan (Required). Establish (and 
implement as needed) procedures to enable continuation of critical 
business processes for protection of the security of electronic 
protected health information while operating in emergency mode.
    (D) Testing and revision procedures (Addressable). Implement 
procedures for periodic testing and revision of contingency plans.
    (E) Applications and data criticality analysis (Addressable). Assess 
the relative criticality of specific applications and data in support of 
other contingency plan components.
    (8) Standard: Evaluation. Perform a periodic technical and 
nontechnical evaluation, based initially upon the standards implemented 
under this rule and, subsequently, in response to environmental or 
operational changes affecting the security of electronic protected 
health information, that establishes the extent to which a covered 
entity's or business associate's security policies and procedures meet 
the requirements of this subpart.
    (b)(1) Business associate contracts and other arrangements. A 
covered entity may permit a business associate to create, receive, 
maintain, or transmit electronic protected health information on the 
covered entity's behalf only if the covered entity obtains satisfactory 
assurances, in accordance with Sec. 164.314(a), that the business 
associate

[[Page 1179]]

will appropriately safeguard the information. A covered entity is not 
required to obtain such satisfactory assurances from a business 
associate that is a subcontractor.
    (2) A business associate may permit a business associate that is a 
subcontractor to create, receive, maintain, or transmit electronic 
protected health information on its behalf only if the business 
associate obtains satisfactory assurances, in accordance with Sec. 
164.314(a), that the subcontractor will appropriately safeguard the 
information.
    (3) Implementation specifications: Written contract or other 
arrangement (Required). Document the satisfactory assurances required by 
paragraph (b)(1) or (b)(2) of this section through a written contract or 
other arrangement with the business associate that meets the applicable 
requirements of Sec. 164.314(a).

[68 FR 8376, Feb. 20, 2003, as amended at 78 FR 5694, Jan. 25, 2013]



Sec. 164.310  Physical safeguards.

    A covered entity or business associate must, in accordance with 
Sec. 164.306:
    (a)(1) Standard: Facility access controls. Implement policies and 
procedures to limit physical access to its electronic information 
systems and the facility or facilities in which they are housed, while 
ensuring that properly authorized access is allowed.
    (2) Implementation specifications:
    (i) Contingency operations (Addressable). Establish (and implement 
as needed) procedures that allow facility access in support of 
restoration of lost data under the disaster recovery plan and emergency 
mode operations plan in the event of an emergency.
    (ii) Facility security plan (Addressable). Implement policies and 
procedures to safeguard the facility and the equipment therein from 
unauthorized physical access, tampering, and theft.
    (iii) Access control and validation procedures (Addressable). 
Implement procedures to control and validate a person's access to 
facilities based on their role or function, including visitor control, 
and control of access to software programs for testing and revision.
    (iv) Maintenance records (Addressable). Implement policies and 
procedures to document repairs and modifications to the physical 
components of a facility which are related to security (for example, 
hardware, walls, doors, and locks).
    (b) Standard: Workstation use. Implement policies and procedures 
that specify the proper functions to be performed, the manner in which 
those functions are to be performed, and the physical attributes of the 
surroundings of a specific workstation or class of workstation that can 
access electronic protected health information.
    (c) Standard: Workstation security. Implement physical safeguards 
for all workstations that access electronic protected health 
information, to restrict access to authorized users.
    (d)(1) Standard: Device and media controls. Implement policies and 
procedures that govern the receipt and removal of hardware and 
electronic media that contain electronic protected health information 
into and out of a facility, and the movement of these items within the 
facility.
    (2) Implementation specifications:
    (i) Disposal (Required). Implement policies and procedures to 
address the final disposition of electronic protected health 
information, and/or the hardware or electronic media on which it is 
stored.
    (ii) Media re-use (Required). Implement procedures for removal of 
electronic protected health information from electronic media before the 
media are made available for re-use.
    (iii) Accountability (Addressable). Maintain a record of the 
movements of hardware and electronic media and any person responsible 
therefore.
    (iv) Data backup and storage (Addressable). Create a retrievable, 
exact copy of electronic protected health information, when needed, 
before movement of equipment.

[68 FR 8376, Feb. 20, 2003, as amended at 78 FR 5694, Jan. 25, 2013]



Sec. 164.312  Technical safeguards.

    A covered entity or business associate must, in accordance with 
Sec. 164.306:
    (a)(1) Standard: Access control. Implement technical policies and 
procedures for electronic information systems that maintain electronic 
protected health information to allow access

[[Page 1180]]

only to those persons or software programs that have been granted access 
rights as specified in Sec. 164.308(a)(4).
    (2) Implementation specifications:
    (i) Unique user identification (Required). Assign a unique name and/
or number for identifying and tracking user identity.
    (ii) Emergency access procedure (Required). Establish (and implement 
as needed) procedures for obtaining necessary electronic protected 
health information during an emergency.
    (iii) Automatic logoff (Addressable). Implement electronic 
procedures that terminate an electronic session after a predetermined 
time of inactivity.
    (iv) Encryption and decryption (Addressable). Implement a mechanism 
to encrypt and decrypt electronic protected health information.
    (b) Standard: Audit controls. Implement hardware, software, and/or 
procedural mechanisms that record and examine activity in information 
systems that contain or use electronic protected health information.
    (c)(1) Standard: Integrity. Implement policies and procedures to 
protect electronic protected health information from improper alteration 
or destruction.
    (2) Implementation specification: Mechanism to authenticate 
electronic protected health information (Addressable). Implement 
electronic mechanisms to corroborate that electronic protected health 
information has not been altered or destroyed in an unauthorized manner.
    (d) Standard: Person or entity authentication. Implement procedures 
to verify that a person or entity seeking access to electronic protected 
health information is the one claimed.
    (e)(1) Standard: Transmission security. Implement technical security 
measures to guard against unauthorized access to electronic protected 
health information that is being transmitted over an electronic 
communications network.
    (2) Implementation specifications:
    (i) Integrity controls (Addressable). Implement security measures to 
ensure that electronically transmitted electronic protected health 
information is not improperly modified without detection until disposed 
of.
    (ii) Encryption (Addressable). Implement a mechanism to encrypt 
electronic protected health information whenever deemed appropriate.

[68 FR 8376, Feb. 20, 2003, as amended at 78 FR 5694, Jan. 25, 2013]



Sec. 164.314  Organizational requirements.

    (a)(1) Standard: Business associate contracts or other arrangements. 
The contract or other arrangement required by Sec. 164.308(b)(3) must 
meet the requirements of paragraph (a)(2)(i), (a)(2)(ii), or (a)(2)(iii) 
of this section, as applicable.
    (2) Implementation specifications (Required).
    (i) Business associate contracts. The contract must provide that the 
business associate will--
    (A) Comply with the applicable requirements of this subpart;
    (B) In accordance with Sec. 164.308(b)(2), ensure that any 
subcontractors that create, receive, maintain, or transmit electronic 
protected health information on behalf of the business associate agree 
to comply with the applicable requirements of this subpart by entering 
into a contract or other arrangement that complies with this section; 
and
    (C) Report to the covered entity any security incident of which it 
becomes aware, including breaches of unsecured protected health 
information as required by Sec. 164.410.
    (ii) Other arrangements. The covered entity is in compliance with 
paragraph (a)(1) of this section if it has another arrangement in place 
that meets the requirements of Sec. 164.504(e)(3).
    (iii) Business associate contracts with subcontractors. The 
requirements of paragraphs (a)(2)(i) and (a)(2)(ii) of this section 
apply to the contract or other arrangement between a business associate 
and a subcontractor required by Sec. 164.308(b)(4) in the same manner 
as such requirements apply to contracts or other arrangements between a 
covered entity and business associate.
    (b)(1) Standard: Requirements for group health plans. Except when 
the only electronic protected health information disclosed to a plan 
sponsor is disclosed pursuant to Sec. 164.504(f)(1)(ii) or (iii), or as 
authorized under Sec. 164.508, a group health plan must ensure that its 
plan documents provide that the plan

[[Page 1181]]

sponsor will reasonably and appropriately safeguard electronic protected 
health information created, received, maintained, or transmitted to or 
by the plan sponsor on behalf of the group health plan.
    (2) Implementation specifications (Required). The plan documents of 
the group health plan must be amended to incorporate provisions to 
require the plan sponsor to--
    (i) Implement administrative, physical, and technical safeguards 
that reasonably and appropriately protect the confidentiality, 
integrity, and availability of the electronic protected health 
information that it creates, receives, maintains, or transmits on behalf 
of the group health plan;
    (ii) Ensure that the adequate separation required by Sec. 
164.504(f)(2)(iii) is supported by reasonable and appropriate security 
measures;
    (iii) Ensure that any agent to whom it provides this information 
agrees to implement reasonable and appropriate security measures to 
protect the information; and
    (iv) Report to the group health plan any security incident of which 
it becomes aware.

[68 FR 8376, Feb. 20, 2003, as amended at 78 FR 5694, Jan. 25, 2013; 78 
FR 34266, June 7, 2013]



Sec. 164.316  Policies and procedures and documentation requirements.

    A covered entity or business associate must, in accordance with 
Sec. 164.306:
    (a) Standard: Policies and procedures. Implement reasonable and 
appropriate policies and procedures to comply with the standards, 
implementation specifications, or other requirements of this subpart, 
taking into account those factors specified in Sec. 164.306(b)(2)(i), 
(ii), (iii), and (iv). This standard is not to be construed to permit or 
excuse an action that violates any other standard, implementation 
specification, or other requirements of this subpart. A covered entity 
or business associate may change its policies and procedures at any 
time, provided that the changes are documented and are implemented in 
accordance with this subpart.
    (b)(1) Standard: Documentation. (i) Maintain the policies and 
procedures implemented to comply with this subpart in written (which may 
be electronic) form; and
    (ii) If an action, activity or assessment is required by this 
subpart to be documented, maintain a written (which may be electronic) 
record of the action, activity, or assessment.
    (2) Implementation specifications:
    (i) Time limit (Required). Retain the documentation required by 
paragraph (b)(1) of this section for 6 years from the date of its 
creation or the date when it last was in effect, whichever is later.
    (ii) Availability (Required). Make documentation available to those 
persons responsible for implementing the procedures to which the 
documentation pertains.
    (iii) Updates (Required). Review documentation periodically, and 
update as needed, in response to environmental or operational changes 
affecting the security of the electronic protected health information.

[68 FR 8376, Feb. 20, 2003, as amended at 78 FR 5695, Jan. 25, 2013]



Sec. 164.318  Compliance dates for the initial implementation of 
the security standards.

    (a) Health plan. (1) A health plan that is not a small health plan 
must comply with the applicable requirements of this subpart no later 
than April 20, 2005.
    (2) A small health plan must comply with the applicable requirements 
of this subpart no later than April 20, 2006.
    (b) Health care clearinghouse. A health care clearinghouse must 
comply with the applicable requirements of this subpart no later than 
April 20, 2005.
    (c) Health care provider. A covered health care provider must comply 
with the applicable requirements of this subpart no later than April 20, 
2005.

[[Page 1182]]



  Sec. Appendix A to Subpart C of Part 164--Security Standards: Matrix

----------------------------------------------------------------------------------------------------------------
                                                                                   Implementation Specifications
                 Standards                                 Sections                    (R) = Required, (A) =
                                                                                            Addressable
----------------------------------------------------------------------------------------------------------------
                                            Administrative Safeguards
----------------------------------------------------------------------------------------------------------------
Security Management Process................  164.308(a)(1)                        Risk Analysis (R)
                                             ...................................  Risk Management (R)
                                             ...................................  Sanction Policy (R)
                                             ...................................  Information System Activity
                                                                                   Review (R)
Assigned Security Responsibility...........  164.308(a)(2)                        (R)
Workforce Security.........................  164.308(a)(3)                        Authorization and/or
                                                                                   Supervision (A)
                                             ...................................  Workforce Clearance Procedure
                                             ...................................  Termination Procedures (A)
Information Access Management..............  164.308(a)(4)                        Isolating Health care
                                                                                   Clearinghouse Function (R)
                                             ...................................  Access Authorization (A)
                                             ...................................  Access Establishment and
                                                                                   Modification (A)
Security Awareness and Training............  164.308(a)(5)                        Security Reminders (A)
                                             ...................................  Protection from Malicious
                                                                                   Software (A)
                                             ...................................  Log-in Monitoring (A)
                                             ...................................  Password Management (A)
Security Incident Procedures...............  164.308(a)(6)                        Response and Reporting (R)
Contingency Plan...........................  164.308(a)(7)                        Data Backup Plan (R)
                                             ...................................  Disaster Recovery Plan (R)
                                             ...................................  Emergency Mode Operation Plan
                                                                                   (R)
                                             ...................................  Testing and Revision Procedure
                                                                                   (A)
                                             ...................................  Applications and Data
                                                                                   Criticality Analysis (A)
Evaluation.................................  164.308(a)(8)                        (R)
Business Associate Contracts and Other       164.308(b)(1)                        Written Contract or Other
 Arrangement.                                                                      Arrangement (R)
----------------------------------------------------------------------------------------------------------------
                                               Physical Safeguards
----------------------------------------------------------------------------------------------------------------
Facility Access Controls...................  164.310(a)(1)                        Contingency Operations (A)
                                             ...................................  Facility Security Plan (A)
                                             ...................................  Access Control and Validation
                                                                                   Procedures (A)
                                             ...................................  Maintenance Records (A)
Workstation Use............................  164.310(b)                           (R)
Workstation Security.......................  164.310(c)                           (R)
Device and Media Controls..................  164.310(d)(1)                        Disposal (R)
                                             ...................................  Media Re-use (R)
                                             ...................................  Accountability (A)
                                             ...................................  Data Backup and Storage (A)
----------------------------------------------------------------------------------------------------------------
                                    Technical Safeguards (see Sec. 164.312)
----------------------------------------------------------------------------------------------------------------
Access Control.............................  164.312(a)(1)                        Unique User Identification (R)
                                             ...................................  Emergency Access Procedure (R)
                                             ...................................  Automatic Logoff (A)
                                             ...................................  Encryption and Decryption (A)
Audit Controls.............................  164.312(b)                           (R)
Integrity..................................  164.312(c)(1)                        Mechanism to Authenticate
                                                                                   Electronic Protected Health
                                                                                   Information (A)
Person or Entity Authentication............  164.312(d)                           (R)
Transmission Security......................  164.312(e)(1)                        Integrity Controls (A)
                                             ...................................  Encryption (A)
----------------------------------------------------------------------------------------------------------------



  Subpart D_Notification in the Case of Breach of Unsecured Protected 
                           Health Information

    Source: 74 FR 42767, Aug. 24, 2009, unless otherwise noted.



Sec. 164.400  Applicability.

    The requirements of this subpart shall apply with respect to 
breaches of protected health information occurring on or after September 
23, 2009.



Sec. 164.402  Definitions.

    As used in this subpart, the following terms have the following 
meanings:
    Breach means the acquisition, access, use, or disclosure of 
protected health information in a manner not permitted under subpart E 
of this part which compromises the security or privacy of the protected 
health information.

[[Page 1183]]

    (1) Breach excludes:
    (i) Any unintentional acquisition, access, or use of protected 
health information by a workforce member or person acting under the 
authority of a covered entity or a business associate, if such 
acquisition, access, or use was made in good faith and within the scope 
of authority and does not result in further use or disclosure in a 
manner not permitted under subpart E of this part.
    (ii) Any inadvertent disclosure by a person who is authorized to 
access protected health information at a covered entity or business 
associate to another person authorized to access protected health 
information at the same covered entity or business associate, or 
organized health care arrangement in which the covered entity 
participates, and the information received as a result of such 
disclosure is not further used or disclosed in a manner not permitted 
under subpart E of this part.
    (iii) A disclosure of protected health information where a covered 
entity or business associate has a good faith belief that an 
unauthorized person to whom the disclosure was made would not reasonably 
have been able to retain such information.
    (2) Except as provided in paragraph (1) of this definition, an 
acquisition, access, use, or disclosure of protected health information 
in a manner not permitted under subpart E is presumed to be a breach 
unless the covered entity or business associate, as applicable, 
demonstrates that there is a low probability that the protected health 
information has been compromised based on a risk assessment of at least 
the following factors:
    (i) The nature and extent of the protected health information 
involved, including the types of identifiers and the likelihood of re-
identification;
    (ii) The unauthorized person who used the protected health 
information or to whom the disclosure was made;
    (iii) Whether the protected health information was actually acquired 
or viewed; and
    (iv) The extent to which the risk to the protected health 
information has been mitigated.
    Unsecured protected health information means protected health 
information that is not rendered unusable, unreadable, or indecipherable 
to unauthorized persons through the use of a technology or methodology 
specified by the Secretary in the guidance issued under section 
13402(h)(2) of Public Law 111-5.

[78 FR 5695, Jan. 25, 2013]



Sec. 164.404  Notification to individuals.

    (a) Standard--(1) General rule. A covered entity shall, following 
the discovery of a breach of unsecured protected health information, 
notify each individual whose unsecured protected health information has 
been, or is reasonably believed by the covered entity to have been, 
accessed, acquired, used, or disclosed as a result of such breach.
    (2) Breaches treated as discovered. For purposes of paragraph (a)(1) 
of this section, Sec. Sec. 164.406(a), and 164.408(a), a breach shall 
be treated as discovered by a covered entity as of the first day on 
which such breach is known to the covered entity, or, by exercising 
reasonable diligence would have been known to the covered entity. A 
covered entity shall be deemed to have knowledge of a breach if such 
breach is known, or by exercising reasonable diligence would have been 
known, to any person, other than the person committing the breach, who 
is a workforce member or agent of the covered entity (determined in 
accordance with the federal common law of agency).
    (b) Implementation specification: Timeliness of notification. Except 
as provided in Sec. 164.412, a covered entity shall provide the 
notification required by paragraph (a) of this section without 
unreasonable delay and in no case later than 60 calendar days after 
discovery of a breach.
    (c) Implementation specifications: Content of notification--(1) 
Elements. The notification required by paragraph (a) of this section 
shall include, to the extent possible:
    (A) A brief description of what happened, including the date of the 
breach and the date of the discovery of the breach, if known;
    (B) A description of the types of unsecured protected health 
information that were involved in the breach (such as whether full name, 
social security number, date of birth, home address,

[[Page 1184]]

account number, diagnosis, disability code, or other types of 
information were involved);
    (C) Any steps individuals should take to protect themselves from 
potential harm resulting from the breach;
    (D) A brief description of what the covered entity involved is doing 
to investigate the breach, to mitigate harm to individuals, and to 
protect against any further breaches; and
    (E) Contact procedures for individuals to ask questions or learn 
additional information, which shall include a toll-free telephone 
number, an e-mail address, Web site, or postal address.
    (2) Plain language requirement. The notification required by 
paragraph (a) of this section shall be written in plain language.
    (d) Implementation specifications: Methods of individual 
notification. The notification required by paragraph (a) of this section 
shall be provided in the following form:
    (1) Written notice. (i) Written notification by first-class mail to 
the individual at the last known address of the individual or, if the 
individual agrees to electronic notice and such agreement has not been 
withdrawn, by electronic mail. The notification may be provided in one 
or more mailings as information is available.
    (ii) If the covered entity knows the individual is deceased and has 
the address of the next of kin or personal representative of the 
individual (as specified under Sec. 164.502(g)(4) of subpart E), 
written notification by first-class mail to either the next of kin or 
personal representative of the individual. The notification may be 
provided in one or more mailings as information is available.
    (2) Substitute notice. In the case in which there is insufficient or 
out-of-date contact information that precludes written notification to 
the individual under paragraph (d)(1)(i) of this section, a substitute 
form of notice reasonably calculated to reach the individual shall be 
provided. Substitute notice need not be provided in the case in which 
there is insufficient or out-of-date contact information that precludes 
written notification to the next of kin or personal representative of 
the individual under paragraph (d)(1)(ii).
    (i) In the case in which there is insufficient or out-of-date 
contact information for fewer than 10 individuals, then such substitute 
notice may be provided by an alternative form of written notice, 
telephone, or other means.
    (ii) In the case in which there is insufficient or out-of-date 
contact information for 10 or more individuals, then such substitute 
notice shall:
    (A) Be in the form of either a conspicuous posting for a period of 
90 days on the home page of the Web site of the covered entity involved, 
or conspicuous notice in major print or broadcast media in geographic 
areas where the individuals affected by the breach likely reside; and
    (B) Include a toll-free phone number that remains active for at 
least 90 days where an individual can learn whether the individual's 
unsecured protected health information may be included in the breach.
    (3) Additional notice in urgent situations. In any case deemed by 
the covered entity to require urgency because of possible imminent 
misuse of unsecured protected health information, the covered entity may 
provide information to individuals by telephone or other means, as 
appropriate, in addition to notice provided under paragraph (d)(1) of 
this section.



Sec. 164.406  Notification to the media.

    (a) Standard. For a breach of unsecured protected health information 
involving more than 500 residents of a State or jurisdiction, a covered 
entity shall, following the discovery of the breach as provided in Sec. 
164.404(a)(2), notify prominent media outlets serving the State or 
jurisdiction.
    (b) Implementation specification: Timeliness of notification. Except 
as provided in Sec. 164.412, a covered entity shall provide the 
notification required by paragraph (a) of this section without 
unreasonable delay and in no case later than 60 calendar days after 
discovery of a breach.
    (c) Implementation specifications: Content of notification. The 
notification required by paragraph (a) of this section shall meet the 
requirements of Sec. 164.404(c).

[74 FR 42767, Aug. 24, 2009, as amended at 78 FR 5695, Jan. 25, 2013]

[[Page 1185]]



Sec. 164.408  Notification to the Secretary.

    (a) Standard. A covered entity shall, following the discovery of a 
breach of unsecured protected health information as provided in Sec. 
164.404(a)(2), notify the Secretary.
    (b) Implementation specifications: Breaches involving 500 or more 
individuals. For breaches of unsecured protected health information 
involving 500 or more individuals, a covered entity shall, except as 
provided in Sec. 164.412, provide the notification required by 
paragraph (a) of this section contemporaneously with the notice required 
by Sec. 164.404(a) and in the manner specified on the HHS Web site.
    (c) Implementation specifications: Breaches involving less than 500 
individuals. For breaches of unsecured protected health information 
involving less than 500 individuals, a covered entity shall maintain a 
log or other documentation of such breaches and, not later than 60 days 
after the end of each calendar year, provide the notification required 
by paragraph (a) of this section for breaches discovered during the 
preceding calendar year, in the manner specified on the HHS web site.

[74 FR 42767, Aug. 24, 2009, as amended at 78 FR 5695, Jan. 25, 2013]



Sec. 164.410  Notification by a business associate.

    (a) Standard--(1) General rule. A business associate shall, 
following the discovery of a breach of unsecured protected health 
information, notify the covered entity of such breach.
    (2) Breaches treated as discovered. For purposes of paragraph (a)(1) 
of this section, a breach shall be treated as discovered by a business 
associate as of the first day on which such breach is known to the 
business associate or, by exercising reasonable diligence, would have 
been known to the business associate. A business associate shall be 
deemed to have knowledge of a breach if the breach is known, or by 
exercising reasonable diligence would have been known, to any person, 
other than the person committing the breach, who is an employee, 
officer, or other agent of the business associate (determined in 
accordance with the Federal common law of agency).
    (b) Implementation specifications: Timeliness of notification. 
Except as provided in Sec. 164.412, a business associate shall provide 
the notification required by paragraph (a) of this section without 
unreasonable delay and in no case later than 60 calendar days after 
discovery of a breach.
    (c) Implementation specifications: Content of notification. (1) The 
notification required by paragraph (a) of this section shall include, to 
the extent possible, the identification of each individual whose 
unsecured protected health information has been, or is reasonably 
believed by the business associate to have been, accessed, acquired, 
used, or disclosed during the breach.
    (2) A business associate shall provide the covered entity with any 
other available information that the covered entity is required to 
include in notification to the individual under Sec. 164.404(c) at the 
time of the notification required by paragraph (a) of this section or 
promptly thereafter as information becomes available.

[74 FR 42767, Aug. 24, 2009, as amended at 78 FR 5695, Jan. 25, 2013]



Sec. 164.412  Law enforcement delay.

    If a law enforcement official states to a covered entity or business 
associate that a notification, notice, or posting required under this 
subpart would impede a criminal investigation or cause damage to 
national security, a covered entity or business associate shall:
    (a) If the statement is in writing and specifies the time for which 
a delay is required, delay such notification, notice, or posting for the 
time period specified by the official; or
    (b) If the statement is made orally, document the statement, 
including the identity of the official making the statement, and delay 
the notification, notice, or posting temporarily and no longer than 30 
days from the date of the oral statement, unless a written statement as 
described in paragraph (a) of this section is submitted during that 
time.



Sec. 164.414  Administrative requirements and burden of proof.

    (a) Administrative requirements. A covered entity is required to 
comply with the administrative requirements of

[[Page 1186]]

Sec. 164.530(b), (d), (e), (g), (h), (i), and (j) with respect to the 
requirements of this subpart.
    (b) Burden of proof. In the event of a use or disclosure in 
violation of subpart E, the covered entity or business associate, as 
applicable, shall have the burden of demonstrating that all 
notifications were made as required by this subpart or that the use or 
disclosure did not constitute a breach, as defined at Sec. 164.402.



    Subpart E_Privacy of Individually Identifiable Health Information

    Authority: 42 U.S.C. 1320d-2, 1320d-4, and 1320d-9; sec. 264 of Pub. 
L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-2 (note)); and secs. 
13400-13424, Pub. L. 111-5, 123 Stat. 258-279.



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;
    (v) Section 164.512 relating to uses and disclosures for which 
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) Where provided, the standards, requirements, and implementation 
specifications adopted under this subpart apply to a business associate 
with respect to the protected health information of a covered entity.
    (d) 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.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53266, Aug. 14, 2002; 
68 FR 8381, Feb. 20, 2003; 78 FR 5695, Jan. 25, 2013]



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.

[[Page 1187]]

    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.
    Health care operations means any of the following activities of the 
covered entity to the extent that the activities are related to covered 
functions:
    (1) Conducting quality assessment and improvement activities, 
including 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; patient 
safety activities (as defined in 42 CFR 3.20); 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) Except as prohibited under Sec. 164.502(a)(5)(i), underwriting, 
enrollment, premium rating, and other activities related 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) 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

[[Page 1188]]

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.
    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.
    Inmate means a person incarcerated in or otherwise confined to a 
correctional institution.
    Marketing:
    (1) Except as provided in paragraph (2) of this definition, 
marketing means to make a communication about a product or service that 
encourages recipients of the communication to purchase or use the 
product or service.
    (2) Marketing does not include a communication made:
    (i) To provide refill reminders or otherwise communicate about a 
drug or biologic that is currently being prescribed for the individual, 
only if any financial remuneration received by the covered entity in 
exchange for making the communication is reasonably related to the 
covered entity's cost of making the communication.
    (ii) For the following treatment and health care operations 
purposes, except where the covered entity receives financial 
remuneration in exchange for making the communication:
    (A) For treatment of an individual by a health care provider, 
including 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;
    (B) 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; or
    (C) For case management or care coordination, contacting of 
individuals with information about treatment alternatives, and related 
functions to the extent these activities do not fall within the 
definition of treatment.
    (3) Financial remuneration means direct or indirect payment from or 
on behalf of a third party whose product or service is being described. 
Direct or indirect payment does not include any payment for treatment of 
an individual.
    Payment means:
    (1) The activities undertaken by:
    (i) Except as prohibited under Sec. 164.502(a)(5)(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 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

[[Page 1189]]

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.
    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 granted authority, that is 
responsible for public health matters as part of its official mandate.
    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.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53266, Aug. 14, 2002; 
68 FR 8381, Feb. 20, 2003; 74 FR 42769, Aug. 24, 2009; 78 FR 5695, Jan. 
25, 2013]



Sec. 164.502  Uses and disclosures of protected health information: 
General rules.

    (a) Standard. A covered entity or business associate 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) Covered entities: Permitted uses and disclosures. A covered 
entity is permitted to use or disclose protected health information as 
follows:
    (i) To the individual;
    (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. Sec. 164.502(b), 164.514(d), 
and 164.530(c) with respect to such otherwise permitted or required use 
or disclosure;
    (iv) Except for uses and disclosures prohibited under Sec. 
164.502(a)(5)(i), 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

[[Page 1190]]

    (vi) As permitted by and in compliance with this section, Sec. 
164.512, Sec. 164.514(e), (f), or (g).
    (2) Covered entities: 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 subchapter.
    (3) Business associates: Permitted uses and disclosures. A business 
associate may use or disclose protected health information only as 
permitted or required by its business associate contract or other 
arrangement pursuant to Sec. 164.504(e) or as required by law. The 
business associate may not use or disclose protected health information 
in a manner that would violate the requirements of this subpart, if done 
by the covered entity, except for the purposes specified under Sec. 
164.504(e)(2)(i)(A) or (B) if such uses or disclosures are permitted by 
its contract or other arrangement.
    (4) Business associates: Required uses and disclosures. A business 
associate is required to disclose protected health information:
    (i) When required by the Secretary under subpart C of part 160 of 
this subchapter to investigate or determine the business associate's 
compliance with this subchapter.
    (ii) To the covered entity, individual, or individual's designee, as 
necessary to satisfy a covered entity's obligations under Sec. 
164.524(c)(2)(ii) and (3)(ii) with respect to an individual's request 
for an electronic copy of protected health information.
    (5) Prohibited uses and disclosures.
    (i) Use and disclosure of genetic information for underwriting 
purposes: Notwithstanding any other provision of this subpart, a health 
plan, excluding an issuer of a long-term care policy falling within 
paragraph (1)(viii) of the definition of health plan, shall not use or 
disclose protected health information that is genetic information for 
underwriting purposes. For purposes of paragraph (a)(5)(i) of this 
section, underwriting purposes means, with respect to a health plan:
    (A) Except as provided in paragraph (a)(5)(i)(B) of this section:
    (1) Rules for, or determination of, eligibility (including 
enrollment and continued eligibility) for, or determination of, benefits 
under the plan, coverage, or policy (including changes in deductibles or 
other cost-sharing mechanisms in return for activities such as 
completing a health risk assessment or participating in a wellness 
program);
    (2) The computation of premium or contribution amounts under the 
plan, coverage, or policy (including discounts, rebates, payments in 
kind, or other premium differential mechanisms in return for activities 
such as completing a health risk assessment or participating in a 
wellness program);
    (3) The application of any pre-existing condition exclusion under 
the plan, coverage, or policy; and
    (4) Other activities related to the creation, renewal, or 
replacement of a contract of health insurance or health benefits.
    (B) Underwriting purposes does not include determinations of medical 
appropriateness where an individual seeks a benefit under the plan, 
coverage, or policy.
    (ii) Sale of protected health information:
    (A) Except pursuant to and in compliance with Sec. 164.508(a)(4), a 
covered entity or business associate may not sell protected health 
information.
    (B) For purposes of this paragraph, sale of protected health 
information means:
    (1) Except as provided in paragraph (a)(5)(ii)(B)(2) of this 
section, a disclosure of protected health information by a covered 
entity or business associate, if applicable, where the covered entity or 
business associate directly or indirectly receives remuneration from or 
on behalf of the recipient of the protected health information in 
exchange for the protected health information.
    (2) Sale of protected health information does not include a 
disclosure of protected health information:
    (i) For public health purposes pursuant to Sec. 164.512(b) or Sec. 
164.514(e);

[[Page 1191]]

    (ii) For research purposes pursuant to Sec. 164.512(i) or Sec. 
164.514(e), where the only remuneration received by the covered entity 
or business associate is a reasonable cost-based fee to cover the cost 
to prepare and transmit the protected health information for such 
purposes;
    (iii) For treatment and payment purposes pursuant to Sec. 
164.506(a);
    (iv) For the sale, transfer, merger, or consolidation of all or part 
of the covered entity and for related due diligence as described in 
paragraph (6)(iv) of the definition of health care operations and 
pursuant to Sec. 164.506(a);
    (v) To or by a business associate for activities that the business 
associate undertakes on behalf of a covered entity, or on behalf of a 
business associate in the case of a subcontractor, pursuant to 
Sec. Sec. 164.502(e) and 164.504(e), and the only remuneration provided 
is by the covered entity to the business associate, or by the business 
associate to the subcontractor, if applicable, for the performance of 
such activities;
    (vi) To an individual, when requested under Sec. 164.524 or Sec. 
164.528;
    (vii) Required by law as permitted under Sec. 164.512(a); and
    (viii) For any other purpose permitted by and in accordance with the 
applicable requirements of this subpart, where the only remuneration 
received by the covered entity or business associate is a reasonable, 
cost-based fee to cover the cost to prepare and transmit the protected 
health information for such purpose or a fee otherwise expressly 
permitted by other law.
    (b) Standard: Minimum necessary-- Minimum necessary applies. When 
using or disclosing protected health information or when requesting 
protected health information from another covered entity or business 
associate, a covered entity or business associate 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 or as required by paragraph 
(a)(2)(i) of this section;
    (iii) Uses or disclosures made pursuant to an authorization under 
Sec. 164.508;
    (iv) Disclosures made to the Secretary in accordance with subpart C 
of part 160 of this subchapter;
    (v) Uses or disclosures that are required by law, as described by 
Sec. 164.512(a); and
    (vi) 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:
    (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.

[[Page 1192]]

    (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, receive, maintain, or 
transmit protected health information on its behalf, if the covered 
entity obtains satisfactory assurance that the business associate will 
appropriately safeguard the information. A covered entity is not 
required to obtain such satisfactory assurances from a business 
associate that is a subcontractor.
    (ii) A business associate may disclose protected health information 
to a business associate that is a subcontractor and may allow the 
subcontractor to create, receive, maintain, or transmit protected health 
information on its behalf, if the business associate obtains 
satisfactory assurances, in accordance with Sec. 164.504(e)(1)(i), that 
the subcontractor will appropriately safeguard the information.
    (2) Implementation specification: Documentation. The satisfactory 
assurances required by paragraph (e)(1) of this section must be 
documented 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 for a period of 50 years 
following the death of the 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)(i) 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:
    (A) 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;
    (B) 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
    (C) 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.
    (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

[[Page 1193]]

    (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.
    (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).

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53267, Aug. 14, 2002; 
78 FR 5696, Jan. 25, 2013]

[[Page 1194]]



Sec. 164.504  Uses and disclosures: Organizational requirements.

    (a) Definitions. As used in this section:
    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.
    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)-(d) [Reserved]
    (e)(1) Standard: Business associate contracts. (i) The contract or 
other arrangement required by Sec. 164.502(e)(2) must meet the 
requirements of paragraph (e)(2), (e)(3), or (e)(5) of this section, as 
applicable.
    (ii) A covered entity is not in compliance with the standards in 
Sec. 164.502(e) and this paragraph, 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, terminated the 
contract or arrangement, if feasible.
    (iii) A business associate is not in compliance with the standards 
in Sec. 164.502(e) and this paragraph, if the business associate knew 
of a pattern of activity or practice of a subcontractor that constituted 
a material breach or violation of the subcontractor's obligation under 
the contract or other arrangement, unless the business associate took 
reasonable steps to cure the breach or end the violation, as applicable, 
and, if such steps were unsuccessful, terminated the contract or 
arrangement, if feasible.
    (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 
protected health 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 and comply, where applicable, with 
subpart C of this part with respect to electronic protected health 
information, 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, 
including breaches of unsecured protected health information as required 
by Sec. 164.410;
    (D) In accordance with Sec. 164.502(e)(1)(ii), ensure that any 
subcontractors that create, receive, maintain, or transmit protected 
health information on behalf of the business associate agree 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;

[[Page 1195]]

    (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) To the extent the business associate is to carry out a covered 
entity's obligation under this subpart, comply with the requirements of 
this subpart that apply to the covered entity in the performance of such 
obligation.
    (I) 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
    (J) 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 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 this paragraph and Sec. 
164.314(a)(1), if applicable, 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 and Sec. 
164.314(a)(2), if applicable.
    (B) The covered entity may comply with this paragraph and Sec. 
164.314(a)(1), if applicable, 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 and Sec. 164.314(a)(2), 
if applicable.
    (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 and Sec. 164.314(a)(1), if applicable, 
provided that the covered entity attempts in good faith to obtain 
satisfactory assurances as required by paragraph (e)(2) of this section 
and Sec. 164.314(a)(1), if applicable, 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.
    (iv) A covered entity may comply with this paragraph and Sec. 
164.314(a)(1) if the covered entity discloses only a limited data set to 
a business associate for the business associate to carry out a health 
care operations function and the covered entity has a data use agreement 
with the business associate that complies with Sec. Sec. 164.514(e)(4) 
and 164.314(a)(1), if applicable.
    (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 protected health 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

[[Page 1196]]

business associate to disclose the protected health 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 purposes 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.
    (5) Implementation specifications: Business associate contracts with 
subcontractors. The requirements of Sec. 164.504(e)(2) through (e)(4) 
apply to the contract or other arrangement required by Sec. 
164.502(e)(1)(ii) between a business associate and a business associate 
that is a subcontractor in the same manner as such requirements apply to 
contracts or other arrangements between a covered entity and business 
associate.
    (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 plan sponsor consistent with the 
requirements of this subpart.
    (ii) Except as prohibited by Sec. 164.502(a)(5)(i), 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 requests the summary health information for 
purposes 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.
    (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.
    (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 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;

[[Page 1197]]

    (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 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.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53267, Aug. 14, 2002; 
68 FR 8381, Feb. 20, 2003; 78 FR 5697, Jan. 25, 2013]



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) through (4) or that are prohibited under Sec. 
164.502(a)(5)(i), a covered entity may use or disclose protected health 
information for treatment, payment, or

[[Page 1198]]

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 other participants in the organized health care 
arrangement for any health care operations activities of the organized 
health care arrangement.

[67 FR 53268, Aug. 14, 2002, as amended at 78 FR 5698, Jan. 25, 2013]



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:

[[Page 1199]]

    (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 financial remuneration, as defined in 
paragraph (3) of the definition of marketing at Sec. 164.501, to the 
covered entity from a third party, the authorization must state that 
such remuneration is involved.
    (4) Authorization required: Sale of protected health information. 
(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 disclosure of protected health information which 
is a sale of protected health information, as defined in Sec. 164.501 
of this subpart. (ii) Such authorization must state that the disclosure 
will result in remuneration to the covered entity.
    (b) Implementation specifications: General requirements--(1) Valid 
authorizations. (i) A valid authorization is a document that meets the 
requirements in paragraphs (a)(3)(ii), (a)(4)(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.
    (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 or another research study. This 
exception includes combining an authorization for the use or disclosure 
of protected health information for a research study with another 
authorization for the same research study, with an authorization for the 
creation or maintenance of a research database or repository, or with a 
consent to participate in research. Where a covered health care provider 
has conditioned the provision of research-related treatment on the 
provision of one of the authorizations, as permitted under paragraph 
(b)(4)(i) of this section, any compound authorization created under this 
paragraph must clearly differentiate between the conditioned and 
unconditioned components and provide the individual with an opportunity 
to opt in to the research activities described in the unconditioned 
authorization.
    (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. The prohibition in this paragraph on combining 
authorizations where one authorization conditions the provision of 
treatment, payment, enrollment in a health plan, or eligibility for 
benefits under paragraph (b)(4) of this section does not apply to a 
compound authorization created in accordance with paragraph (b)(3)(i) of 
this section.
    (4) Prohibition on conditioning of authorizations. A covered entity 
may not

[[Page 1200]]

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:
    (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

[[Page 1201]]

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.

[67 FR 53268, Aug. 14, 2002, as amended at 78 FR 5699, Jan. 25, 2013]



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. 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) Use or 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 notification purposes--(1) Permitted uses and 
disclosures. (i) A covered entity may, in accordance with paragraphs 
(b)(2), (b)(3), or (b)(5) 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

[[Page 1202]]

health information directly relevant to such person's involvement with 
the individual's health 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), 
(b)(3), (b)(4), or (b)(5) 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 on 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, 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 care or payment 
related to the individual's health care or needed for notification 
purposes. 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) Uses 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), (b)(3), or (b)(5) of this section 
apply to such uses and disclosures 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.
    (5) Uses and disclosures when the individual is deceased. If the 
individual is deceased, a covered entity may disclose to a family 
member, or other persons identified in paragraph (b)(1) of this section 
who were involved in the individual's care or payment for health care 
prior to the individual's death, protected health information of the 
individual that is relevant to such person's involvement, unless doing 
so is inconsistent with any prior expressed preference of the individual 
that is known to the covered entity.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53270, Aug. 14, 2002; 
78 FR 5699, Jan. 25, 2013]



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. When 
the covered entity is required by this section to inform 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.

[[Page 1203]]

    (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 uses and disclosures. A covered entity may use or 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 (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;
    (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 
provides 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; and
    (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 the location where the 
health care is provided.
    (vi) A school, about an individual who is a student or prospective 
student of the school, if:

[[Page 1204]]

    (A) The protected health information that is disclosed is limited to 
proof of immunization;
    (B) The school is required by State or other law to have such proof 
of immunization prior to admitting the individual; and
    (C) The covered entity obtains and documents the agreement to the 
disclosure from either:
    (1) A parent, guardian, or other person acting in loco parentis of 
the individual, if the individual is an unemancipated minor; or
    (2) The individual, if the individual is an adult or emancipated 
minor.
    (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

[[Page 1205]]

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 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 
protected 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

[[Page 1206]]

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) Notwithstanding 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 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)(v) 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:
    (i) The individual agrees to the disclosure; or

[[Page 1207]]

    (ii) 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 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 to 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

[[Page 1208]]

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;
    (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 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 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.
    (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 institutional review board or privacy 
board, pursuant to paragraph (i)(2)(ii)(C) 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

[[Page 1209]]

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 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)

[[Page 1210]]

Military and veterans activities--(i) Armed Forces personnel. A covered 
entity may use and disclose the protected health information of 
individuals who are 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 Homeland Security 
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 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 12968;
    (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

[[Page 1211]]

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; 
or
    (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.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53270, Aug. 14, 2002; 
78 FR 5699, Jan. 25, 2013; 78 FR 34266, June 7, 2013]



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

[[Page 1212]]

    (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, 
except as permitted by paragraph (c) of this section; and
    (ii) The covered entity does not have actual knowledge that the 
information could be used alone or in combination 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. 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.
    (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:

[[Page 1213]]

    (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:
    (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.
    (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, disclose 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: 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.

[[Page 1214]]

    (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;
    (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 to whom it provides the limited data set 
agree 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.
    (f) Fundraising communications--(1) Standard: Uses and disclosures 
for fundraising. Subject to the conditions of paragraph (f)(2) of this 
section, 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, including 
name, address, other contact information, age, gender, and date of 
birth;
    (ii) Dates of health care provided to an individual;
    (iii) Department of service information;
    (iv) Treating physician;
    (v) Outcome information; and
    (vi) Health insurance status.
    (2) Implementation specifications: Fundraising requirements. (i) A 
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)(A) is 
included in the covered entity's notice of privacy practices.
    (ii) With each fundraising communication made to an individual under 
this paragraph, a covered entity must provide the individual with a 
clear and conspicuous opportunity to elect not to receive any further 
fundraising communications. The method for an individual to elect not to 
receive further fundraising communications may not cause the individual 
to incur an undue burden or more than a nominal cost.

[[Page 1215]]

    (iii) A covered entity may not condition treatment or payment on the 
individual's choice with respect to the receipt of fundraising 
communications.
    (iv) A covered entity may not make fundraising communications to an 
individual under this paragraph where the individual has elected not to 
receive such communications under paragraph (f)(2)(ii) of this section.
    (v) A covered entity may provide an individual who has elected not 
to receive further fundraising communications with a method to opt back 
in to receive such communications.
    (g) Standard: Uses and disclosures for underwriting and related 
purposes. If a health plan receives protected health 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 only use or 
disclose such protected health information for such purpose or as may be 
required by law, subject to the prohibition at Sec. 164.502(a)(5)(i) 
with respect to genetic information included in the protected health 
information.
    (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,

[[Page 1216]]

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).

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53270, Aug. 14, 2002; 
78 FR 5700, Jan. 25, 2013; 78 FR 34266, June 7, 2013]



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 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 
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

[[Page 1217]]

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 description of the types of uses and disclosures that require 
an authorization under Sec. 164.508(a)(2)-(a)(4), a statement that 
other uses and disclosures not described in the notice will be made only 
with the individual's written authorization, and a statement that the 
individual may revoke an 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 informing the individual of such 
activities, as applicable:
    (A) In accordance with Sec. 164.514(f)(1), the covered entity may 
contact the individual to raise funds for the covered entity and the 
individual has a right to opt out of receiving such communications; (B) 
In accordance with Sec. 164.504(f), the 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; or
    (C) If a covered entity that is a health plan, excluding an issuer 
of a long-term care policy falling within paragraph (1)(viii) of the 
definition of health plan, intends to use or disclose protected health 
information for underwriting purposes, a statement that the covered 
entity is prohibited from using or disclosing protected health 
information that is genetic information of an individual for such 
purposes.
    (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, except in case of a 
disclosure restricted under Sec. 164.522(a)(1)
    (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, to provide 
individuals with notice of its legal duties and privacy practices with 
respect to protected health information, and to notify affected 
individuals following a breach of unsecured 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

[[Page 1218]]

file a complaint with the covered entity, and a statement that the 
individual 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)(3) of this section, as applicable.
    (1) Specific requirements for health plans. (i) A health plan must 
provide the 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.
    (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.
    (v) If there is a material change to the notice:
    (A) A health plan that posts its notice on its web site in 
accordance with paragraph (c)(3)(i) of this section must prominently 
post the change or its revised notice on its web site by the effective 
date of the material change to the notice, and provide the revised 
notice, or information about the material change and how to obtain the 
revised notice, in its next annual mailing to individuals then covered 
by the plan.
    (B) A health plan that does not post its notice on a web site 
pursuant to paragraph (c)(3)(i) of this section must provide the revised 
notice, or information about the material change and how to obtain the 
revised notice, to individuals then covered by the plan within 60 days 
of the material revision to 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:
    (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

[[Page 1219]]

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 such 
acknowledgment and the reason why the acknowledgment was not obtained;
    (iii) 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
    (iv) 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)(iii) 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.
    (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. The requirements in paragraph (c)(2)(ii) of 
this section apply to electronic notice.
    (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.

[[Page 1220]]

    (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.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53271, Aug. 14, 2002; 
78 FR 5701, Jan. 25, 2013]



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) Except as provided in paragraph (a)(1)(vi) of this section, 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 Sec. 164.502(a)(2)(ii), Sec. 
164.510(a) or Sec. 164.512.
    (vi) A covered entity must agree to the request of an individual to 
restrict disclosure of protected health information about the individual 
to a health plan if:
    (A) The disclosure is for the purpose of carrying out payment or 
health care operations and is not otherwise required by law; and
    (B) The protected health information pertains solely to a health 
care item or service for which the individual, or person other than the 
health plan on behalf of the individual, has paid the covered entity in 
full.
    (2) Implementation specifications: Terminating a restriction. A 
covered entity may terminate 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:
    (A) Not effective for protected health information restricted under 
paragraph (a)(1)(vi) of this section; and
    (B) 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 
must document a restriction in accordance with Sec. 160.530(j) of this 
subchapter.
    (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

[[Page 1221]]

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:
    (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.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53271, Aug. 14, 2002; 
78 FR 5701, Jan. 25, 2013]



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; and
    (ii) Information compiled in reasonable anticipation of, or for use 
in, a civil, criminal, or administrative action or proceeding.
    (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 1222]]

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 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) 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) 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 and format requested by the individual, if it is readily producible 
in such form and format; or, if not, in a readable hard copy form or 
such other form and format as agreed to by the covered entity and the 
individual.
    (ii) Notwithstanding paragraph (c)(2)(i) of this section, if the 
protected health information that is the subject of a request for access 
is maintained in one or more designated record sets electronically and 
if the individual requests an electronic copy of such information, the 
covered entity must provide the individual with access to the protected 
health information in the electronic form and format requested

[[Page 1223]]

by the individual, if it is readily producible in such form and format; 
or, if not, in a readable electronic form and format as agreed to by the 
covered entity and the individual.
    (iii) The covered entity may provide the individual with a summary 
of the 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. (i) 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.
    (ii) If an individual's request for access directs the covered 
entity to transmit the copy of protected health information directly to 
another person designated by the individual, the covered entity must 
provide the copy to the person designated by the individual. The 
individual's request must be in writing, signed by the individual, and 
clearly identify the designated person and where to send the copy of 
protected health information.
    (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) Labor for copying the protected health information requested by 
the individual, whether in paper or electronic form;
    (ii) Supplies for creating the paper copy or electronic media if the 
individual requests that the electronic copy be provided on portable 
media;
    (iii) Postage, when the individual has requested the copy, or the 
summary or explanation, be mailed; and
    (iv) Preparing an explanation or summary of the protected health 
information, if agreed to by the individual as required by paragraph 
(c)(2)(iii) 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

[[Page 1224]]

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):
    (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.

[65 FR 82802, Dec. 28, 2000, as amended at 78 FR 5701, Jan. 25, 2013; 78 
FR 34266, June 7, 2013; 79 FR 7316, Feb. 6, 2014]



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

[[Page 1225]]

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 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

[[Page 1226]]

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 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. 164.506;
    (ii) To individuals of protected health information about them as 
provided in Sec. 164.502;
    (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;
    (v) For the facility's directory or to persons involved in the 
individual's care or other notification purposes as provided in Sec. 
164.510;
    (vi) For national security or intelligence purposes as provided in 
Sec. 164.512(k)(2);
    (vii) To correctional institutions or law enforcement officials as 
provided in Sec. 164.512(k)(5);
    (viii) As part of a limited data set in accordance with Sec. 
164.514(e); or
    (ix) 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

[[Page 1227]]

of the request for an accounting, including disclosures to or by 
business associates of the covered entity.
    (2) Except as otherwise provided by paragraphs (b)(3) or (b)(4) of 
this section, 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 copy of a written request for a disclosure 
under Sec. 164.502(a)(2)(ii) or Sec. 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 Sec. 
164.502(a)(2)(ii) or Sec. 164.512, 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;
    (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.
    (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;
    (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.
    (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

[[Page 1228]]

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.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53271, Aug. 14, 2002]



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 and subpart D of 
this part, as necessary and appropriate for the members of the workforce 
to carry out their functions 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 or subpart D of this part, 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)(i) 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.
    (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.
    (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 and 
subpart D of this part or its compliance with such policies and 
procedures or the requirements of this subpart or subpart D of this 
part.
    (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

[[Page 1229]]

workforce who fail to comply with the privacy policies and procedures of 
the covered entity or the requirements of this subpart or subpart D of 
this part. This standard does not 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--
    (1) May not intimidate, threaten, coerce, discriminate against, or 
take other retaliatory action against any individual for the exercise by 
the individual of any right established, or for participation in any 
process provided for, by this subpart or subpart D of this part, 
including the filing of a complaint under this section; and
    (2) Must refrain from intimidation and retaliation as provided in 
Sec. 160.316 of this subchapter.
    (h) Standard: Waiver of rights. A covered entity may not require 
individuals to waive their rights under Sec. 160.306 of this 
subchapter, this subpart, or subpart D of this part, 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 and 
subpart D of this part. The policies and procedures must be reasonably 
designed, taking into account the size and the type of activities that 
relate to protected health information undertaken by a 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 and 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 or 
subpart D of this part.
    (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 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

[[Page 1230]]

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 specifications 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.
    (iv) Maintain documentation sufficient to meet its burden of proof 
under Sec. 164.414(b).
    (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).

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53272, Aug. 14, 2002; 
71 FR 8433, Feb. 16, 2006; 74 FR 42769, Aug. 24, 2009]



Sec. 164.532  Transition provisions.

    (a) Standard: Effect of prior authorizations. Notwithstanding 
Sec. Sec. 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

[[Page 1231]]

in research, a waiver of informed consent by an IRB, or a waiver of 
authorization in accordance with Sec. 164.512(i)(1)(i).
    (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 Sec. Sec. 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;
    (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; or
    (4) A waiver of authorization in accordance with Sec. 
164.512(i)(1)(i).
    (d) Standard: Effect of prior contracts or other arrangements with 
business associates. Notwithstanding any other provisions of this part, 
a covered entity, or business associate with respect to a subcontractor, 
may disclose protected health information to a business associate and 
may allow a business associate to create, receive, maintain, or transmit 
protected health information on its behalf pursuant to a written 
contract or other written arrangement with such business associate that 
does not comply with Sec. Sec. 164.308(b), 164.314(a), 164.502(e), and 
164.504(e), only in accordance with paragraph (e) of this section.
    (e) Implementation specification: Deemed compliance. (1) 
Qualification. Notwithstanding other sections of this part, a covered 
entity, or business associate with respect to a subcontractor, is deemed 
to be in compliance with the documentation and contract requirements of 
Sec. Sec. 164.308(b), 164.314(a), 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 January 25, 2013, such covered entity, or business 
associate with respect to a subcontractor, has entered into and is 
operating pursuant to a written contract or other written arrangement 
with the business associate that complies with the applicable provisions 
of Sec. 164.314(a) or Sec. 164.504(e) that were in effect on such 
date; and
    (ii) The contract or other arrangement is not renewed or modified 
from March 26, 2013, until September 23, 2013.
    (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:
    (i) The date such contract or other arrangement is renewed or 
modified on or after September 23, 2013; or
    (ii) September 22, 2014.
    (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 Sec. Sec. 164.524, 164.526, 164.528, 
and 164.530(f) with respect to protected health information held by a 
business associate.
    (f) Effect of prior data use agreements. If, prior to January 25, 
2013, a covered

[[Page 1232]]

entity has entered into and is operating pursuant to a data use 
agreement with a recipient of a limited data set that complies with 
Sec. 164.514(e), notwithstanding Sec. 164.502(a)(5)(ii), the covered 
entity may continue to disclose a limited data set pursuant to such 
agreement in exchange for remuneration from or on behalf of the 
recipient of the protected health information until the earlier of:
    (1) The date such agreement is renewed or modified on or after 
September 23, 2013; or
    (2) September 22, 2014.

[65 FR 82802, Dec. 28, 2000, as amended at 67 FR 53272, Aug. 14, 2002; 
78 FR 5702, Jan. 25, 2013; 78 FR 34266, June 7, 2013]



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 than 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	169 [RESERVED]



[[Page 1233]]



               SUBCHAPTER D_HEALTH INFORMATION TECHNOLOGY





 PART 170_HEALTH INFORMATION TECHNOLOGY STANDARDS, IMPLEMENTATION 
 SPECIFICATIONS, AND CERTIFICATION CRITERIA AND CERTIFICATION PROGRAMS 
 
 FOR HEALTH INFORMATION TECHNOLOGY--Table of Contents



                      Subpart A_General Provisions

Sec.
170.100 Statutory basis and purpose.
170.101 Applicability.
170.102 Definitions.

    Subpart B_Standards and Implementation Specifications for Health 
                         Information Technology

170.200 Applicability.
170.202 Transport standards.
170.204 Functional standards.
170.205 Content exchange standards and implementation specifications for 
          exchanging electronic health information.
170.207 Vocabulary standards for representing electronic health 
          information.
170.210 Standards for health information technology to protect 
          electronic health information created, maintained, and 
          exchanged.
170.299 Incorporation by reference.

   Subpart C_Certification Criteria for Health Information Technology

170.300 Applicability.
170.302-170.306 [Reserved]
170.314 2014 Edition electronic health record certification criteria.

Subpart D [Reserved]

                 Subpart E_ONC HIT Certification Program

170.500 Basis and scope.
170.501 Applicability.
170.502 Definitions.
170.503 Requests for ONC-AA status and ONC-AA ongoing responsibilities.
170.504 Reconsideration process for requests for ONC-AA status.
170.505 Correspondence.
170.510 Types of certification.
170.520 Application.
170.523 Principles of proper conduct for ONC-ACBs.
170.525 Application submission.
170.530 Review of application.
170.535 ONC-ACB application reconsideration.
170.540 ONC-ACB status.
170.545 Complete EHR certification.
170.550 EHR Module certification.
170.553 Certification of health information technology other than 
          Complete EHRs and EHR Modules.
170.555 Certification to newer versions of certain standards.
170.557 Authorized certification methods.
170.560 Good standing as an ONC-ACB.
170.565 Revocation of ONC-ACB status.
170.570 Effect of revocation on the certifications issued to Complete 
          EHRs and EHR Modules.
170.575 Removal of the ONC-AA.
170.599 Incorporation by reference.

    Authority: 42 U.S.C. 300jj-11; 42 U.S.C 300jj-14; 5 U.S.C. 552.

    Source: 75 FR 2042, Jan. 13, 2010, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 170.100  Statutory basis and purpose.

    The provisions of this subchapter implement sections 3001(c)(5) and 
3004 of the Public Health Service Act.

[75 FR 36203, June 24, 2010]



Sec. 170.101  Applicability.

    The standards, implementation specifications, and certification 
criteria adopted in this part apply to Complete EHRs and EHR Modules and 
the testing and certification of such Complete EHRs and EHR Modules.



Sec. 170.102  Definitions.

    For the purposes of this part:
    2014 Edition EHR certification criteria means the certification 
criteria at Sec. 170.314.
    Base EHR means an electronic record of health-related information on 
an individual that:
    (1) Includes patient demographic and clinical health information, 
such as medical history and problem lists;
    (2) Has the capacity:
    (i) To provide clinical decision support;
    (ii) To support physician order entry;
    (iii) To capture and query information relevant to health care 
quality;
    (iv) To exchange electronic health information with, and integrate 
such information from other sources;

[[Page 1234]]

    (v) To protect the confidentiality, integrity, and availability of 
health information stored and exchanged; and
    (3) Has been certified to the certification criteria adopted by the 
Secretary:
    (i) For at least one of the four criteria adopted at Sec. 
170.314(a)(1), (a)(18), (a)(19), or (a)(20);
    (ii) At Sec. 170.314(a)(3);
    (iii) At Sec. Sec. 170.314(a)(5) through 170.314(a)(8);
    (iv) Both Sec. 170.314(b)(1) and (2); or, both Sec. Sec. 
170.314(b)(8) and 170.314(h)(1); or Sec. 170.314(b)(1) and (2) combined 
with either Sec. 170.314(b)(8) or Sec. 170.314(h)(1), or both 
Sec. Sec. 170.314(b)(8) and 170.314(h)(1);
    (v) At Sec. 170.314(b)(7);
    (vi) At Sec. Sec. 170.314(c)(1) through 170.314(c)(3);
    (vii) At Sec. Sec. 170.314(d)(1) through 170.314(d)(8);
    (4) Has been certified to the certification criteria at Sec. 
170.314(c)(1) and (2):
    (i) For no fewer than 9 clinical quality measures covering at least 
3 domains from the set selected by CMS for eligible professionals, 
including at least 6 clinical quality measures from the recommended core 
set identified by CMS; or
    (ii) For no fewer than 16 clinical quality measures covering at 
least 3 domains from the set selected by CMS for eligible hospitals and 
critical access hospitals.
    Certification criteria means criteria:
    (1) To establish that health information technology meets applicable 
standards and implementation specifications adopted by the Secretary; or
    (2) That are used to test and certify that health information 
technology includes required capabilities.
    Certified EHR Technology means:
    (1) For any Federal fiscal year (FY) or calendar year (CY) up to and 
including 2014:
    (i) A Complete EHR that meets the requirements included in the 
definition of a Qualified EHR and has been tested and certified in 
accordance with the certification program established by the National 
Coordinator as having met all applicable certification criteria adopted 
by the Secretary for the 2011 Edition EHR certification criteria or the 
equivalent 2014 Edition EHR certification criteria;
    (ii) A combination of EHR Modules in which each constituent EHR 
Module of the combination has been tested and certified in accordance 
with the certification program established by the National Coordinator 
as having met all applicable certification criteria adopted by the 
Secretary for the 2011 Edition EHR certification criteria or the 
equivalent 2014 Edition EHR certification criteria, and the resultant 
combination also meets the requirements included in the definition of a 
Qualified EHR; or
    (iii) EHR technology that satisfies the definition for FY and CY 
2015 and subsequent years specified in paragraph (2) of this definition;
    (2) For FY and CY 2015 and subsequent years, the following: EHR 
technology certified under the ONC HIT Certification Program to the 2015 
Edition EHR certification criteria that has:
    (i) The capabilities required to meet the Base EHR definition; and
    (ii) All other capabilities that are necessary to meet the 
objectives and associated measures under 42 CFR 495.6 and successfully 
report the clinical quality measures selected by CMS in the form and 
manner specified by CMS (or the States, as applicable) for the stage of 
meaningful use that an eligible professional, eligible hospital, or 
critical access hospital seeks to achieve.
    Common MU Data Set means the following data expressed, where 
indicated, according to the specified standard(s):
    (1) Patient name.
    (2) Sex.
    (3) Date of birth.
    (4) Race--the standard specified in Sec. 170.207(f).
    (5) Ethnicity--the standard specified in Sec. 170.207(f).
    (6) Preferred language--the standard specified in Sec. 170.207(g).
    (7) Smoking status--the standard specified in Sec. 170.207(h).
    (8) Problems--at a minimum, the version of the standard specified in 
Sec. 170.207(a)(3).
    (9) Medications--at a minimum, the version of the standard specified 
in Sec. 170.207(d)(2).
    (10) Medication allergies--at a minimum, the version of the standard 
specified in Sec. 170.207(d)(2).

[[Page 1235]]

    (11) Laboratory test(s)--at a minimum, the version of the standard 
specified in Sec. 170.207(c)(2).
    (12) Laboratory value(s)/result(s).
    (13) Vital signs--height, weight, blood pressure, BMI.
    (14) Care plan field(s), including goals and instructions.
    (15) Procedures--
    (i)(A) At a minimum, the version of the standard specified in Sec. 
170.207(a)(3) or Sec. 170.207(b)(2); or
    (B) For EHR technology primarily developed to record dental 
procedures, the standard specified in Sec. 170.207(b)(3).
    (ii) Optional. The standard specified at Sec. 170.207(b)(4).
    (16) Care team member(s).
    Complete EHR, 2014 Edition means EHR technology that meets the Base 
EHR definition and has been developed to meet, at a minimum, all 
mandatory 2014 Edition EHR certification criteria for either an 
ambulatory setting or inpatient setting.
    Disclosure is defined as it is in 45 CFR 160.103.
    EHR Module means any service, component, or combination thereof that 
can meet the requirements of at least one certification criterion 
adopted by the Secretary.
    Human readable format means a format that enables a human to read 
and easily comprehend the information presented to him or her regardless 
of the method of presentation.
    Implementation specification means specific requirements or 
instructions for implementing a standard.
    Qualified EHR means an electronic record of health-related 
information on an individual that:
    (1) Includes patient demographic and clinical health information, 
such as medical history and problem lists; and
    (2) Has the capacity:
    (i) To provide clinical decision support;
    (ii) To support physician order entry;
    (iii) To capture and query information relevant to health care 
quality; and
    (iv) To exchange electronic health information with, and integrate 
such information from other sources.
    Standard means a technical, functional, or performance-based rule, 
condition, requirement, or specification that stipulates instructions, 
fields, codes, data, materials, characteristics, or actions.

[75 FR 2042, Jan. 13, 2010, as amended at 75 FR 36203, June 24, 2010; 75 
FR 44649, July 28, 2010; 77 FR 54283, Sept. 4, 2012; 78 FR 65887, Nov. 
4, 2013; 79 FR 52933, Sept. 4, 2014; 79 FR 54477, 54478, Sept. 11, 2014]



    Subpart B_Standards and Implementation Specifications for Health 
                         Information Technology

    Source: 75 FR 44649, July 28, 2010, unless otherwise noted.



Sec. 170.200  Applicability.

    The standards and implementation specifications adopted in this part 
apply with respect to Complete EHRs and EHR Modules.



Sec. 170.202  Transport standards.

    The Secretary adopts the following transport standards:
    (a) Standard. ONC Applicability Statement for Secure Health 
Transport (incorporated by reference in Sec. 170.299).
    (b) Standard. ONC XDR and XDM for Direct Messaging Specification 
(incorporated by reference in Sec. 170.299).
    (c) Standard. ONC Transport and Security Specification (incorporated 
by reference in Sec. 170.299).
    (d) Standard. ONC Implementation Guide for Direct Edge Protocols 
(incorporated by reference in Sec. 170.299).

[77 FR 54284, Sept. 4, 2012, as amended at 79 FR 54478, Sept. 11, 2014]



Sec. 170.204  Functional standards.

    The Secretary adopts the following functional standards:
    (a) Accessibility. Standard. Web Content Accessibility Guidelines 
(WCAG) 2.0, Level A Conformance (incorporated by reference in Sec. 
170.299).
    (b) Reference source. Standard. HL7 Version 3 Standard: Context-
Aware Retrieval Application (Infobutton) (incorporated by reference in 
Sec. 170.299). (1) Implementation specifications. HL7 Version 3 
Implementation Guide: URL-Based Implementations of the Context-Aware 
Information Retrieval (Infobutton) Domain, (incorporated by reference in 
Sec. 170.299).

[[Page 1236]]

    (2) Implementation specifications. HL7 Version 3 Implementation 
Guide: Context-Aware Knowledge Retrieval (Infobutton) Service-Oriented 
Architecture Implementation Guide, (incorporated by reference in Sec. 
170.299).
    (c) Clinical quality measure-by-measure data. Data Element Catalog, 
(incorporated by reference in Sec. 170.299).

[77 FR 54284, Sept. 4, 2012]



Sec. 170.205  Content exchange standards and implementation 
specifications for exchanging electronic health information.

    The Secretary adopts the following content exchange standards and 
associated implementation specifications:
    (a) Patient summary record--(1) Standard. Health Level Seven 
Clinical Document Architecture (CDA) Release 2, Continuity of Care 
Document (CCD) (incorporated by reference in Sec. 170.299). 
Implementation specifications. The Healthcare Information Technology 
Standards Panel (HITSP) Summary Documents Using HL7 CCD Component HITSP/
C32 (incorporated by reference in Sec. 170.299).
    (2) Standard. ASTM E2369 Standard Specification for Continuity of 
Care Record and Adjunct to ASTM E2369 (incorporated by reference in 
Sec. 170.299).
    (3) Standard. HL7 Implementation Guide for CDA[supreg] Release 2: 
IHE Health Story Consolidation, (incorporated by reference in Sec. 
170.299). The use of the ``unstructured document'' document-level 
template is prohibited.
    (b) Electronic prescribing. (1) [Reserved]
    (2) Standard. NCPDP SCRIPT Standard, Implementation Guide, Version 
10.6 (incorporated by reference in Sec. 170.299).
    (c) [Reserved]
    (d) Electronic submission to public health agencies for surveillance 
or reporting. (1) [Reserved]
    (2) Standard. HL7 2.5.1 (incorporated by reference in Sec. 
170.299).
    (3) Standard. HL7 2.5.1 (incorporated by reference in Sec. 
170.299). Implementation specifications. PHIN Messaging Guide for 
Syndromic Surveillance (incorporated by reference in Sec. 170.299) and 
Conformance Clarification for EHR Certification of Electronic Syndromic 
Surveillance, Addendum to PHIN Messaging Guide for Syndromic 
Surveillance (incorporated by reference in Sec. 170.299).
    (e) Electronic submission to immunization registries. (1) [Reserved]
    (2) [Reserved]
    (3) Standard. HL7 2.5.1 (incorporated by reference in Sec. 
170.299). Implementation specifications. HL7 2.5.1 Implementation Guide 
for Immunization Messaging, Release 1.4, (incorporated by reference in 
Sec. 170.299).
    (f) [Reserved]
    (g) Electronic transmission of lab results to public health 
agencies. Standard. HL7 2.5.1 (incorporated by reference in Sec. 
170.299). Implementation specifications. HL7 Version 2.5.1 
Implementation Guide: Electronic Laboratory Reporting to Public Health, 
Release 1 (US Realm) (incorporated by reference in Sec. 170.299) with 
Errata and Clarifications, (incorporated by reference in Sec. 170.299) 
and ELR 2.5.1 Clarification Document for EHR Technology Certification, 
(incorporated by reference in Sec. 170.299).
    (h) Clinical quality measure data import, export, and electronic 
submission. Standard. HL7 Implementation Guide for CDA[supreg] Release 
2: Quality Reporting Document Architecture, (incorporated by reference 
in Sec. 170.299).
    (i) Cancer information. Standard. HL7 Clinical Document Architecture 
(CDA), Release 2.0, Normative Edition (incorporated by reference in 
Sec. 170.299). Implementation specifications. Implementation Guide for 
Ambulatory Healthcare Provider Reporting to Central Cancer Registries, 
HL7 Clinical Document Architecture (CDA), (incorporated by reference in 
Sec. 170.299).
    (j) Electronic incorporation and transmission of lab results. 
Standard. HL7 Version 2.5.1 Implementation Guide: S&I Framework Lab 
Results Interface, (incorporated by reference in Sec. 170.299).
    (k) Clinical quality measure aggregate electronic submission. 
Standard. Quality Reporting Document Architecture Category III, 
Implementation Guide for CDA Release 2 (incorporated by reference in 
Sec. 170.299).

[75 FR 44649, July 28, 2010, as amended at 75 FR 62690, Oct. 13, 2010; 
77 FR 54284, Sept. 4, 2012; 79 FR 54478, Sept. 11, 2014]

[[Page 1237]]



Sec. 170.207  Vocabulary standards for representing electronic health information.

    The Secretary adopts the following code sets, terminology, and 
nomenclature as the vocabulary standards for the purpose of representing 
electronic health information:
    (a) Problems. (1) [Reserved]
    (2) [Reserved]
    (3) Standard. IHTSDO SNOMED CT[supreg] International Release July 
2012 (incorporated by reference in Sec. 170.299) and US Extension to 
SNOMED CT[supreg] March 2012 Release (incorporated by reference in Sec. 
170.299).
    (b) Procedures. (1) [Reserved]
    (2) Standard. The code set specified at 45 CFR 162.1002(a)(5).
    (3) Standard. The code set specified at 45 CFR 162.1002(a)(4).
    (4) Standard. The code set specified at 45 CFR 162.1002(c)(3) for 
the indicated procedures or other actions taken.
    (c) Laboratory tests. (1) [Reserved]
    (2) Standard. Logical Observation Identifiers Names and Codes 
(LOINC[supreg]) Database version 2.40, a universal code system for 
identifying laboratory and clinical observations produced by the 
Regenstrief Institute, Inc. (incorporated by reference in Sec. 
170.299).
    (d) Medications. (1) [Reserved]
    (2) Standard. RxNorm, a standardized nomenclature for clinical drugs 
produced by the United States National Library of Medicine, August 6, 
2012 Release (incorporated by reference in Sec. 170.299).
    (e) Immunizations. (1) [Reserved]
    (2) Standard. HL7 Standard Code Set CVX--Vaccines Administered, 
updates through July 11, 2012 (incorporated by reference in Sec. 
170.299).
    (f) Race and Ethnicity. Standard. The Office of Management and 
Budget Standards for Maintaining, Collecting, and Presenting Federal 
Data on Race and Ethnicity, Statistical Policy Directive No. 15, as 
revised, October 30, 1997 (see ``Revisions to the Standards for the 
Classification of Federal Data on Race and Ethnicity,'' available at 
http://www.whitehouse.gov/ omb/fedreg_1997standards).
    (g) Preferred language. Standard. As specified by the Library of 
Congress, ISO 639-2 alpha-3 codes limited to those that also have a 
corresponding alpha-2 code in ISO 639-1. (incorporated by reference in 
Sec. 170.299).
    (h) Smoking status. Standard. Smoking status must be coded in one of 
the following SNOMED CT[supreg] codes:
    (1) Current every day smoker. 449868002
    (2) Current some day smoker. 428041000124106
    (3) Former smoker. 8517006
    (4) Never smoker. 266919005
    (5) Smoker, current status unknown. 77176002
    (6) Unknown if ever smoked. 266927001
    (7) Heavy tobacco smoker. 428071000124103
    (8) Light tobacco smoker. 428061000124105
    (i) Encounter diagnoses. Standard. The code set specified at 45 CFR 
162.1002(c)(2) for the indicated conditions.
    (j) Family health history. HL7 Version 3 Standard: Clinical 
Genomics; Pedigree, (incorporated by reference in Sec. 170.299).

[75 FR 44649, July 28, 2010, as amended at 77 FR 54284, Sept. 4, 2012; 
79 FR 54478, Sept. 11, 2014]



Sec. 170.210  Standards for health information technology to 
protect electronic health information created, maintained, and exchanged.

    The Secretary adopts the following standards to protect electronic 
health information created, maintained, and exchanged:
    (a) Encryption and decryption of electronic health information--(1) 
General. Any encryption algorithm identified by the National Institute 
of Standards and Technology (NIST) as an approved security function in 
Annex A of the Federal Information Processing Standards (FIPS) 
Publication 140-2, (January 27, 2010) (incorporated by reference in 
Sec. 170.299).
    (2) [Reserved]
    (b) [Reserved]
    (c) Verification that electronic health information has not been 
altered in transit. Standard. A hashing algorithm with a security 
strength equal to or greater than SHA-1 (Secure Hash Algorithm (SHA-1) 
as specified by the National Institute of Standards and Technology 
(NIST) in FIPS PUB 180-4 (March 2012)) must be used to verify that 
electronic

[[Page 1238]]

health information has not been altered.
    (d) Record treatment, payment, and health care operations 
disclosures. The date, time, patient identification, user 
identification, and a description of the disclosure must be recorded for 
disclosures for treatment, payment, and health care operations, as these 
terms are defined at 45 CFR 164.501.
    (e) Record actions related to electronic health information, audit 
log status, and encryption of end-user devices. (1)(i) The audit log 
must record the information specified in sections 7.2 through 7.4, 7.6, 
and 7.7 of the standard specified at Sec. 170.210(h) when EHR 
technology is in use.
    (ii) The date and time must be recorded in accordance with the 
standard specified at Sec. 170.210(g).
    (2)(i) The audit log must record the information specified in 
sections 7.2 and 7.4 of the standard specified at Sec. 170.210(h) when 
the audit log status is changed.
    (ii) The date and time each action occurs in accordance with the 
standard specified at Sec. 170.210(g).
    (3) The audit log must record the information specified in sections 
7.2 and 7.4 of the standard specified at Sec. 170.210(h) when the 
encryption status of electronic health information locally stored by EHR 
technology on end-user devices is changed. The date and time each action 
occurs in accordance with the standard specified at Sec. 170.210(g).
    (f) Encryption and hashing of electronic health information. Any 
encryption and hashing algorithm identified by the National Institute of 
Standards and Technology (NIST) as an approved security function in 
Annex A of the FIPS Publication 140-2 (incorporated by reference in 
Sec. 170.299).
    (g) Synchronized clocks. The date and time recorded utilize a system 
clock that has been synchronized following (RFC 1305) Network Time 
Protocol, (incorporated by reference in Sec. 170.299) or (RFC 5905) 
Network Time Protocol Version 4, (incorporated by reference in Sec. 
170.299).
    (h) Audit log content. ASTM E2147-01(Reapproved 2009), (incorporated 
by reference in Sec. 170.299)

[75 FR 44649, July 28, 2010, as amended at 77 FR 54285, Sept. 4, 2012; 
79 FR 54478, Sept. 11, 2014]



Sec. 170.299  Incorporation by reference.

    (a) Certain material is incorporated by reference into this subpart 
with the approval of the Director of the Federal Register under 5 U.S.C. 
552(a) and 1 CFR part 51. To enforce any edition other than that 
specified in this section, the Department of Health and Human Services 
must publish notice of change in the Federal Register and the material 
must be available to the public. All approved material is available for 
inspection at the National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030 or go to http://www.archives.gov/federal_ register/
code_of_federal_ regulations/ibr_locations.html. Also, it is available 
for inspection at U.S. Department of Health and Human Services, Office 
of the National Coordinator for Health Information Technology, Hubert H. 
Humphrey Building, Suite 729D, 200 Independence Ave., SW., Washington, 
DC 20201, call ahead to arrange for inspection at 202-690-7151, and is 
available from the sources listed below.
    (b) American National Standards Institute, Health Information 
Technology Standards Panel (HITSP) Secretariat, 25 West 43rd Street--
Fourth Floor, New York, NY 10036, http://www.hitsp.org.
    (1) HITSP Summary Documents Using HL7 Continuity of Care Document 
(CCD) Component, HITSP/C32, July 8, 2009, Version 2.5, IBR approved for 
Sec. 170.205.
    (2) [Reserved]
    (c) ASTM International, 100 Barr Harbor Drive, PO Box C700, West 
Conshohocken, PA, 19428-2959 USA; Telephone (610) 832-9585 or http://
www.astm.org/.
    (1) ASTM E2147-01 (Reapproved 2009) Standard Specification for Audit 
and Disclosure Logs for Use in Health Information Systems, approved 
September 1, 2009, IBR approved for Sec. 170.210.

[[Page 1239]]

    (2) ASTM E2369-05: Standard Specification for Continuity of Care 
Record (CCR), year of adoption 2005, ASTM approved July 17, 2006, IBR 
approved for Sec. 170.205.
    (3) ASTM E2369-05 (Adjunct to E2369): Standard Specification 
Continuity of Care Record,--Final Version 1.0 (V1.0), November 7, 2005, 
IBR approved for Sec. 170.205.
    (d) Centers for Disease Control and Prevention, 2500 Century 
Parkway, Mailstop E-78, Atlanta, GA 30333, USA (800-232-4636); http://
www.cdc.gov/ehrmeaningfuluse/.
    (1) HL7 Standard Code Set CVX--Vaccines Administered, July 30, 2009, 
IBR approved for Sec. 170.207.
    (2) IIS: HL7 Standard Code Set CVX--Vaccines Administered, updates 
through July 11, 2012, IBR approved for Sec. 170.207.
    (3) Implementation Guide for Immunization Data Transactions using 
Version 2.3.1 of the Health Level Seven (HL7)Standard Protocol 
Implementation Guide Version 2.2, June 2006, IBR approved for Sec. 
170.205.
    (4) HL7 2.5.1 Implementation Guide for Immunization Messaging 
Release 1.0, May 1, 2010, IBR approved for Sec. 170.205.
    (5) PHIN Messaging Guide for Syndromic Surveillance: Emergency 
Department and Urgent Care Data, ADT Messages A01, A03, A04, and A08, 
HL7 Version 2.5.1 (Version 2.3.1 Compatible), Release 1.1, August 2012, 
IBR approved for Sec. 170.205.
    (6) Conformance Clarification for EHR Certification of Electronic 
Syndromic Surveillance, ADT MESSAGES A01, A03, A04, and A08, HL7 Version 
2.5.1, Addendum to PHIN Messaging Guide for Syndromic Surveillance: 
Emergency Department and Urgent Care Data (Release 1.1), August 2012, 
IBR approved for Sec. 170.205.
    (7) HL7 2.5.1 Implementation Guide for Immunization Messaging, 
Release 1.4, August 1, 2012, IBR approved for Sec. 170.205.
    (8) Implementation Guide for Ambulatory Healthcare Provider 
Reporting to Central Cancer Registries, HL7 Clinical Document 
Architecture (CDA), Release 1.0, August 2012, IBR approved for Sec. 
170.205.
    (9) ELR 2.5.1 Clarification Document for EHR Technology 
Certification, July 16, 2012, IBR approved for Sec. 170.205.
    (e) Centers for Medicare & Medicaid Services, Office of Clinical 
Standards and Quality, 7500 Security Boulevard, Baltimore, Maryland 
21244; Telephone (410) 786-3000
    (1) CMS PQRI 2009 Registry XML Specifications, IBR approved for 
Sec. 170.205.
    (2) 2009 Physician Quality Reporting Initiative Measure 
Specifications Manual for Claims and Registry, Version 3.0, December 8, 
2008 IBR approved for Sec. 170.205.
    (f) Health Level Seven, 3300 Washtenaw Avenue, Suite 227, Ann Arbor, 
MI 48104; Telephone (734) 677-7777 or http://www.hl7.org/
    (1) Health Level Seven Standard Version 2.3.1 (HL7 2.3.1), An 
Application Protocol for Electronic Data Exchange in Healthcare 
Environments, April 14, 1999, IBR approved for Sec. 170.205.
    (2) Health Level Seven Messaging Standard Version 2.5.1 (HL7 2.5.1), 
An Application Protocol for Electronic Data Exchange in Healthcare 
Environments, February 21, 2007, IBR approved for Sec. 170.205.
    (3) Health Level Seven Implementation Guide: Clinical Document 
Architecture (CDA) Release 2--Continuity of Care Document (CCD), April 
01, 2007, IBR approved for Sec. 170.205.
    (4) HL7 Version 2.5.1 Implementation Guide: Electronic Laboratory 
Reporting to Public Health, Release 1 (US Realm) HL7 Version 2.5.1: 
ORU[supcaret]R01, HL7 Informative Document, February, 2010, IBR approved 
for Sec. 170.205.
    (5) HL7 Version 3 Standard: Context-Aware Retrieval Application 
(Infobutton); Release 1, July 2010, IBR approved for Sec. 170.204.
    (6) HL7 Version 3 Implementation Guide: URL-Based Implementations of 
the Context-Aware Information Retrieval (Infobutton) Domain, Release 3, 
December 2010, IBR approved for Sec. 170.204.
    (7) HL7 Version 3 Implementation Guide: Context-Aware Knowledge 
Retrieval (Infobutton) Service-Oriented Architecture Implementation 
Guide, Release 1, HL7 Draft Standard for Trial Use, March 2011, IBR 
approved for Sec. 170.204.

[[Page 1240]]

    (8) HL7 Implementation Guide for CDA[supreg] Release 2: IHE Health 
Story Consolidation, DSTU Release 1.1 (US Realm) Draft Standard for 
Trial Use July 2012, IBR approved for Sec. 170.205.
    (9) HL7 Clinical Document Architecture, Release 2.0, Normative 
Edition, May 2005, IBR approved for Sec. 170.205.
    (10) HL7 Version 2.5.1 Implementation Guide: S&I Framework Lab 
Results Interface, Release 1--US Realm [HL7 Version 2.5.1: ORU-R01] 
Draft Standard for Trial Use, July 2012, IBR approved for Sec. 170.205.
    (11) HL7 Version 3 Standard: Clinical Genomics; Pedigree, Release 1, 
Edition 2011, March 2012, IBR approved for Sec. 170.207.
    (12) HL7 Implementation Guide for CDA[supreg] Release 2: Quality 
Reporting Document Architecture, DTSU Release 2 (Universal Realm), Draft 
Standard for Trial Use, July 2012, IBR approved for Sec. 170.205.
    (13) HL7 v2.5.1 IG: Electronic Laboratory Reporting to Public Health 
(US Realm), Release 1 Errata and Clarifications, September, 29, 2011, 
IBR approved for Sec. 170.205.
    (14) HL7 Implementation Guide for CDA[supreg] Release 2: Quality 
Reporting Document Architecture--Category III, DSTU Release 1 (US Realm) 
Draft Standard for Trial Use, November 2012, IBR approved for Sec. 
170.205.
    (g) Internet Engineering Task Force (IETF), University of Delaware, 
Newark, DE 19716, Telephone (302) 831-8247, http://www.ietf.org/
rfc.html.
    (1) Network Time Protocol (Version 3) Specification, Implementation 
and Analysis, March 1992, IBR approved for Sec. 170.210.
    (2) Network Time Protocol Version 4: Protocol and Algorithms 
Specification, June 2010, IBR approved for Sec. 170.210.
    (h) Library of Congress, Network Development and MARC Standards 
Office, Washington, DC 20540-4402, Tel: (202) 707-6237 or http://
www.loc.gov/standards/iso639-2/.
    (1) ISO 639-2. Codes for the Representation of Names of Languages 
Part 2: Alpha-3 Code, April 8, 2011, IBR approved for Sec. 170.207.
    (2) [Reserved]
    (i) National Council for Prescription Drug Programs, Incorporated, 
9240 E. Raintree Drive, Scottsdale, AZ 85260-7518; Telephone (480) 477-
1000; and Facsimile (480) 767-1042 or http://www.ncpdp.org.
    (1) National Council for Prescription Drug Programs Prescriber/
Pharmacist Interface SCRIPT Standard, Implementation Guide, Version 8, 
Release 1, October 2005, IBR approved for Sec. 170.205.
    (2) SCRIPT Standard, Implementation Guide, Version 10.6, October, 
2008, (Approval date for ANSI: November 12, 2008), IBR approved for 
Sec. 170.205.
    (j) National Institute of Standards and Technology, Information 
Technology Laboratory, National Institute of Standards and Technology, 
100 Bureau Drive, Gaithersburg, MD 20899-8930, http://csrc.nist.gov/
groups/ STM/cmvp/standards.html.
    (1) Annex A: Approved Security Functions for FIPS PUB 140-2, 
Security Requirements for Cryptographic Modules, Draft, January 27, 
2010, IBR approved for Sec. 170.210.
    (2) Annex A: Approved Security Functions for FIPS PUB 140-2, 
Security Requirements for Cryptographic Modules, Draft, May 30, 2012, 
IBR approved for Sec. 170.210.
    (k) Office of the National Coordinator for Health Information 
Technology (ONC), 200 Independence Avenue SW., Suite 729-D, Washington, 
DC 20201, http://healthit.hhs.gov.
    (1) Applicability Statement for Secure Health Transport, Version 
1.1, July 10, 2012, IBR approved for Sec. 170.202; available at http://
healthit.hhs.gov/portal/ server.pt/community/healthit_ 
hhs_gov__direct_project/3338.
    (2) XDR and XDM for Direct Messaging Specification, Version 1, March 
9, 2011, IBR approved for Sec. 170.202; available at http://
healthit.hhs.gov/portal/ server.pt/community/healthit_ 
hhs_gov__direct_project/3338.
    (3) Transport and Security Specification, Version 1.0, June 19, 
2012, IBR approved for Sec. 170.202.
    (4) ONC Implementation Guide for Direct Edge Protocols, Version 1.1, 
June 25, 2014, IBR approved for Sec. 170.202; available at http://
www.healthit.gov/sites/ default/files/implementationguide 
fordirectedgeprotocolsv1_1.pdf.
    (l) Regenstrief Institute, Inc., LOINC[supreg] c/o Medical 
Informatics The Regenstrief Institute, Inc 410 West 10th Street, Suite 
2000 Indianapolis, IN

[[Page 1241]]

46202-3012; Telephone (317) 423-5983 or http://loinc.org/.
    (1) Logical Observation Identifiers Names and Codes (LOINC[supreg]) 
version 2.27, June 15, 2009, IBR approved for Sec. 170.207.
    (2) Logical Observation Identifiers Names and Codes (LOINC[supreg]) 
Database version 2.40, Released June 2012, IBR approved for Sec. 
170.207.
    (m) U.S. National Library of Medicine, 8600 Rockville Pike, 
Bethesda, MD 20894; Telephone (301) 594-5983 or http://www.nlm.nih.gov/.
    (1) International Health Terminology Standards Development 
Organization Systematized Nomenclature of Medicine Clinical Terms 
(SNOMED CT[supreg]), International Release, July 2009, IBR approved for 
Sec. 170.207.
    (2) International Health Terminology Standards Development 
Organisation (IHTSDO) Systematized Nomenclature of Medicine Clinical 
Terms (SNOMED CT[supreg]) International Release July 31, 2012, IBR 
approved for Sec. 170.207.
    (3) US Extension to SNOMED CT[supreg] March 2012 Release, IBR 
approved for Sec. 170.207.
    (4) RxNorm, August 6, 2012 Full Release Update, IBR approved for 
Sec. 170.207.
    (5) Data Element Catalog, Version 1.1, October 2012, IBR approved 
for Sec. 170.204.
    (n) World Wide Web Consortium (W3C)/MIT, 32 Vassar Street, Room 32-
G515, Cambridge, MA 02139 USA, http://www.w3.org/standards/
    (1) Web Content Accessibility Guidelines (WCAG) 2.0, December 11, 
2008, IBR approved for Sec. 170.204.
    (2) [Reserved]

[75 FR 44649, July 28, 2010, as amended at 75 FR 62690, Oct. 13, 2010; 
77 FR 54285, Sept. 4, 2012; 77 FR 72991, Dec. 7, 2012; 79 FR 54478, 
Sept. 11, 2014]



   Subpart C_Certification Criteria for Health Information Technology

    Source: 75 FR 44651, July 28, 2010, unless otherwise noted.



Sec. 170.300  Applicability.

    (a) The certification criteria adopted in this subpart apply to the 
testing and certification of Complete EHRs and EHR Modules.
    (b) When a certification criterion refers to two or more standards 
as alternatives, use of at least one of the alternative standards will 
be considered compliant.
    (c) Complete EHRs and EHR Modules are not required to be compliant 
with certification criteria or capabilities specified within a 
certification criterion that are designated as optional.
    (d) In Sec. 170.314, all certification criteria and all 
capabilities specified within a certification criterion have general 
applicability (i.e., apply to both ambulatory and inpatient settings) 
unless designated as ``inpatient setting only'' or ``ambulatory setting 
only.''
    (1) ``Inpatient setting only'' means that the criterion or 
capability within the criterion is only required for certification of 
EHR technology designed for use in an inpatient setting.
    (2) ``Ambulatory setting only'' means that the criterion or 
capability within the criterion is only required for certification of 
EHR technology designed for use in an ambulatory setting.

[75 FR 44649, July 28, 2010, as amended at 77 FR 54286, Sept. 4, 2012]



Sec. Sec. 170.302-170.306  [Reserved]



Sec. 170.314  2014 Edition electronic health record certification 
criteria.

    The Secretary adopts the following certification criteria for 
Complete EHRs or EHR Modules. Complete EHRs or EHR Modules must include 
the capability to perform the following functions electronically, unless 
designated as optional, and in accordance with all applicable standards 
and implementation specifications adopted in this part:
    (a) Clinical--(1) Computerized provider order entry. Enable a user 
to electronically record, change, and access the following order types, 
at a minimum:
    (i) Medications;
    (ii) Laboratory; and
    (iii) Diagnostic imaging.
    (2) Drug-drug, drug-allergy interaction checks--(i) Interventions. 
Before a medication order is completed and acted upon during 
computerized provider order entry (CPOE), interventions must 
automatically and electronically indicate to a user drug-drug and drug-
allergy contraindications based on a

[[Page 1242]]

patient's medication list and medication allergy list.
    (ii) Adjustments. (A) Enable the severity level of interventions 
provided for drug-drug interaction checks to be adjusted.
    (B) Limit the ability to adjust severity levels to an identified set 
of users or available as a system administrative function.
    (3) Demographics. (i) Enable a user to electronically record, 
change, and access patient demographic data including preferred 
language, sex, race, ethnicity, and date of birth.
    (A) Enable race and ethnicity to be recorded in accordance with the 
standard specified in Sec. 170.207(f) and whether a patient declines to 
specify race and/or ethnicity.
    (B) Enable preferred language to be recorded in accordance with the 
standard specified in Sec. 170.207(g) and whether a patient declines to 
specify a preferred language.
    (ii) Inpatient setting only. Enable a user to electronically record, 
change, and access preliminary cause of death in the event of a 
mortality.
    (4) Vital signs, body mass index, and growth charts--(i) Vital 
signs. Enable a user to electronically record, change, and access, at a 
minimum, a patient's height/length, weight, and blood pressure. Height/
length, weight, and blood pressure must be recorded in numerical values 
only.
    (ii) Calculate body mass index. Automatically calculate and 
electronically display body mass index based on a patient's height and 
weight.
    (iii) Optional--Plot and display growth charts. Plot and 
electronically display, upon request, growth charts for patients.
    (5) Problem list. Enable a user to electronically record, change, 
and access a patient's active problem list:
    (i) Ambulatory setting. Over multiple encounters in accordance with, 
at a minimum, the version of the standard specified in Sec. 
170.207(a)(3); or
    (ii) Inpatient setting. For the duration of an entire 
hospitalization in accordance with, at a minimum, the version of the 
standard specified in Sec. 170.207(a)(3).
    (6) Medication list. Enable a user to electronically record, change, 
and access a patient's active medication list as well as medication 
history:
    (i) Ambulatory setting. Over multiple encounters; or
    (ii) Inpatient setting. For the duration of an entire 
hospitalization.
    (7) Medication allergy list. Enable a user to electronically record, 
change, and access a patient's active medication allergy list as well as 
medication allergy history:
    (i) Ambulatory setting. Over multiple encounters; or
    (ii) Inpatient setting. For the duration of an entire 
hospitalization.
    (8) Clinical decision support--(i) Evidence-based decision support 
interventions. Enable a limited set of identified users to select (i.e., 
activate) one or more electronic clinical decision support interventions 
(in addition to drug-drug and drug-allergy contraindication checking) 
based on each one and at least one combination of the following data:
    (A) Problem list;
    (B) Medication list;
    (C) Medication allergy list;
    (D) Demographics;
    (E) Laboratory tests and values/results; and
    (F) Vital signs.
    (ii) Linked referential clinical decision support. (A) EHR 
technology must be able to:
    (1) Electronically identify for a user diagnostic and therapeutic 
reference information; or
    (2) Electronically identify for a user diagnostic and therapeutic 
reference information in accordance with the standard specified at Sec. 
170.204(b) and the implementation specifications at Sec. 170.204 (b)(1) 
or (2).
    (B) For paragraph (a)(8)(ii)(A) of this section, EHR technology must 
be able to electronically identify for a user diagnostic or therapeutic 
reference information based on each one and at least one combination of 
the data referenced in paragraphs (a)(8)(i)(A) through (F) of this 
section.
    (iii) Clinical decision support configuration. (A) Enable 
interventions and reference resources specified in paragraphs (a)(8)(i) 
and (ii) of this section to be configured by a limited set of identified 
users (e.g., system administrator) based on a user's role.

[[Page 1243]]

    (B) EHR technology must enable interventions to be electronically 
triggered:
    (1) Based on the data referenced in paragraphs (a)(8)(i)(A) through 
(F) of this section.
    (2) When a patient's medications, medication allergies, and problems 
are incorporated from a transition of care/referral summary received 
pursuant to paragraph (b)(1)(iii) of this section.
    (3) Ambulatory setting only. When a patient's laboratory tests and 
values/results are incorporated pursuant to paragraph (b)(5)(i)(A)(1) of 
this section.
    (iv) Automatically and electronically interact. Interventions 
triggered in accordance with paragraphs (a)(8)(i) through (iii) of this 
section must automatically and electronically occur when a user is 
interacting with EHR technology.
    (v) Source attributes. Enable a user to review the attributes as 
indicated for all clinical decision support resources:
    (A) For evidence-based decision support interventions under 
paragraph (a)(8)(i) of this section:
    (1) Bibliographic citation of the intervention (clinical research/
guideline);
    (2) Developer of the intervention (translation from clinical 
research/guideline);
    (3) Funding source of the intervention development technical 
implementation; and
    (4) Release and, if applicable, revision date(s) of the intervention 
or reference source.
    (B) For linked referential clinical decision support in paragraph 
(a)(8)(ii) of this section and drug-drug, drug-allergy interaction 
checks in paragraph(a)(2) of this section, the developer of the 
intervention, and where clinically indicated, the bibliographic citation 
of the intervention (clinical research/guideline).
    (9) Electronic notes. Enable a user to electronically record, 
change, access, and search electronic notes.
    (10) Drug-formulary checks. EHR technology must automatically and 
electronically check whether a drug formulary (or preferred drug list) 
exists for a given patient and medication.
    (11) Smoking status. Enable a user to electronically record, change, 
and access the smoking status of a patient in accordance with the 
standard specified at Sec. 170.207(h).
    (12) Image results. Electronically indicate to a user the 
availability of a patient's images and narrative interpretations 
(relating to the radiographic or other diagnostic test(s)) and enable 
electronic access to such images and narrative interpretations.
    (13) Family health history. Enable a user to electronically record, 
change, and access a patient's family health history according to:
    (i) At a minimum, the version of the standard specified in Sec. 
170.207(a)(3); or
    (ii) The standard specified in Sec. 170.207(j).
    (14) Patient list creation. Enable a user to electronically and 
dynamically select, sort, access, and create patient lists by: date and 
time; and based on each one and at least one combination of the 
following data:
    (i) Problems;
    (ii) Medications;
    (iii) Medication allergies;
    (iv) Demographics;
    (v) Laboratory tests and values/results; and
    (vi) Ambulatory setting only. Patient communication preferences.
    (15) Patient-specific education resources. EHR technology must be 
able to electronically identify for a user patient-specific education 
resources based on data included in the patient's problem list, 
medication list, and laboratory tests and values/results:
    (i) In accordance with the standard specified at Sec. 170.204(b) 
and the implementation specifications at Sec. 170.204(b)(1) or (2); and
    (ii) By any means other than the method specified in paragraph 
(a)(15)(i) of this section.
    (16) Inpatient setting only--electronic medication administration 
record. (i) In combination with an assistive technology that provides 
automated information on the ``rights'' specified in paragraphs 
(a)(16)(i)(A) through (E) of this section, enable a user to 
electronically verify the following before administering medication(s):
    (A) Right patient. The patient to whom the medication is to be 
administered matches the medication to be administered.

[[Page 1244]]

    (B) Right medication. The medication to be administered matches the 
medication ordered for the patient.
    (C) Right dose. The dose of the medication to be administered 
matches the dose of the medication ordered for the patient.
    (D) Right route. The route of medication delivery matches the route 
specified in the medication order.
    (E) Right time. The time that the medication was ordered to be 
administered compared to the current time.
    (ii) Right documentation. Electronically record the time and date in 
accordance with the standard specified in Sec. 170.210(g), and user 
identification when a medication is administered.
    (17) Inpatient setting only--advance directives. Enable a user to 
electronically record whether a patient has an advance directive.
    (18) Optional--computerized provider order entry--medications. 
Enable a user to electronically record, change, and access medication 
orders.
    (19) Optional--computerized provider order entry--laboratory. Enable 
a user to electronically record, change, and access laboratory orders.
    (20) Optional--computerized provider order entry--diagnostic 
imaging. Enable a user to electronically record, change, and access 
diagnostic imaging orders.
    (b) Care coordination--(1) Transitions of care--receive, display, 
and incorporate transition of care/referral summaries--(i) Receive. EHR 
technology must be able to electronically receive transition of care/
referral summaries in accordance with:
    (A) The standard specified in Sec. 170.202(a).
    (B) Optional. The standards specified in Sec. 170.202(a) and (b).
    (C) Optional. The standards specified in Sec. 170.202(b) and (c).
    (ii) Display. EHR technology must be able to electronically display 
in human readable format the data included in transition of care/
referral summaries received and formatted according to any of the 
following standards (and applicable implementation specifications) 
specified in: Sec. 170.205(a)(1), Sec. 170.205(a)(2), and Sec. 
170.205(a)(3).
    (iii) Incorporate. Upon receipt of a transition of care/referral 
summary formatted according to the standard adopted at Sec. 
170.205(a)(3), EHR technology must be able to:
    (A) Correct patient. Demonstrate that the transition of care/
referral summary received is or can be properly matched to the correct 
patient.
    (B) Data incorporation. Electronically incorporate the following 
data expressed according to the specified standard(s):
    (1) Medications. At a minimum, the version of the standard specified 
in Sec. 170.207(d)(2);
    (2) Problems. At a minimum, the version of the standard specified in 
Sec. 170.207(a)(3);
    (3) Medication allergies. At a minimum, the version of the standard 
specified in Sec. 170.207(d)(2).
    (C) Section views. Extract and allow for individual display each 
additional section or sections (and the accompanying document header 
information) that were included in a transition of care/referral summary 
received and formatted in accordance with the standard adopted at Sec. 
170.205(a)(3).
    (2) Transitions of care--create and transmit transition of care/
referral summaries--(i) Create. Enable a user to electronically create a 
transition of care/referral summary formatted according to the standard 
adopted at Sec. 170.205(a)(3) that includes, at a minimum, the Common 
MU Data Set and the following data expressed, where applicable, 
according to the specified standard(s):
    (A) Encounter diagnoses. The standard specified in Sec. 170.207(i) 
or, at a minimum, the version of the standard specified Sec. 
170.207(a)(3);
    (B) Immunizations. The standard specified in Sec. 170.207(e)(2);
    (C) Cognitive status;
    (D) Functional status; and
    (E) Ambulatory setting only. The reason for referral; and referring 
or transitioning provider's name and office contact information.
    (F) Inpatient setting only. Discharge instructions.
    (ii) Transmit. Enable a user to electronically transmit the 
transition of care/referral summary created in paragraph (b)(2)(i) of 
this section in accordance with:
    (A) The standard specified in Sec. 170.202(a).

[[Page 1245]]

    (B) Optional. The standards specified in Sec. 170.202(a) and (b).
    (C) Optional. The standards specified in Sec. 170.202(b) and (c).
    (3) Electronic prescribing. Enable a user to electronically create 
prescriptions and prescription-related information for electronic 
transmission in accordance with:
    (i) The standard specified in Sec. 170.205(b)(2); and
    (ii) At a minimum, the version of the standard specified in Sec. 
170.207(d)(2).
    (4) Clinical information reconciliation. Enable a user to 
electronically reconcile the data that represent a patient's active 
medication, problem, and medication allergy list as follows. For each 
list type:
    (i) Electronically and simultaneously display (i.e., in a single 
view) the data from at least two list sources in a manner that allows a 
user to view the data and their attributes, which must include, at a 
minimum, the source and last modification date.
    (ii) Enable a user to create a single reconciled list of 
medications, medication allergies, or problems.
    (iii) Enable a user to review and validate the accuracy of a final 
set of data and, upon a user's confirmation, automatically update the 
list.
    (5) Incorporate laboratory tests and values/results--(i) Receive 
results--(A) Ambulatory setting only. (1) Electronically receive and 
incorporate clinical laboratory tests and values/results in accordance 
with the standard specified in Sec. 170.205(j) and, at a minimum, the 
version of the standard specified in Sec. 170.207(c)(2).
    (2) Electronically display the tests and values/results received in 
human readable format.
    (B) Inpatient setting only. Electronically receive clinical 
laboratory tests and values/results in a structured format and 
electronically display such tests and values/results in human readable 
format.
    (ii) Electronically display all the information for a test report 
specified at 42 CFR 493.1291(c)(1) through (7).
    (iii) Electronically attribute, associate, or link a laboratory test 
and value/result with a laboratory order or patient record.
    (6) Inpatient setting only--transmission of electronic laboratory 
tests and values/results to ambulatory providers. EHR technology must be 
able to electronically create laboratory test reports for electronic 
transmission in accordance with the standard specified in Sec. 
170.205(j) and with laboratory tests expressed in accordance with, at a 
minimum, the version of the standard specified in Sec. 170.207(c)(2).
    (7) Data portability. Enable a user to electronically create a set 
of export summaries for all patients in EHR technology formatted 
according to the standard adopted at Sec. 170.205(a)(3) that represents 
the most current clinical information about each patient and includes, 
at a minimum, the Common MU Data Set and the following data expressed, 
where applicable, according to the specified standard(s):
    (i) Encounter diagnoses. The standard specified in Sec. 170.207(i) 
or, at a minimum, the version of the standard at Sec. 170.207(a)(3);
    (ii) Immunizations. The standard specified in Sec. 170.207(e)(2);
    (iii) Cognitive status;
    (iv) Functional status; and
    (v) Ambulatory setting only. The reason for referral; and referring 
or transitioning provider's name and office contact information.
    (vi) Inpatient setting only. Discharge instructions.
    (8) Optional--Transitions of care--(i) Send and receive via edge 
protocol. EHR technology must be able to electronically:
    (A) Send transitions of care/referral summaries through a method 
that conforms to the standard specified at Sec. 170.202(d) and that 
leads to such summaries being processed by a service that has 
implemented the standard specified in Sec. 170.202(a); and
    (B) Receive transitions of care/referral summaries through a method 
that conforms to the standard specified at Sec. 170.202(d) from a 
service that has implemented the standard specified in Sec. 170.202(a).
    (ii)(A) Display. EHR technology must be able to electronically 
display in human readable format the data included in transition of 
care/referral

[[Page 1246]]

summaries received and formatted according to any of the following 
standards (and applicable implementation specifications) specified in: 
Sec. 170.205(a)(1) through (3).
    (B) Section views. Extract and allow for individual display each 
additional section or sections (and the accompanying document header 
information) that were included in a transition of care/referral summary 
received and formatted in accordance with the standard adopted at Sec. 
170.205(a)(3).
    (iii) Create. Enable a user to electronically create a transition of 
care/referral summary formatted according to the standard adopted at 
Sec. 170.205(a)(3) that includes, at a minimum, the Common MU Data Set 
and the following data expressed, where applicable, according to the 
specified standard(s):
    (A) Encounter diagnoses. The standard specified in Sec. 170.207(i) 
or, at a minimum, the version of the standard specified Sec. 
170.207(a)(3);
    (B) Immunizations. The standard specified in Sec. 170.207(e)(2);
    (C) Cognitive status;
    (D) Functional status;
    (E) Ambulatory setting only. The reason for referral; and referring 
or transitioning provider's name and office contact information; and
    (F) Inpatient setting only. Discharge instructions.
    (9) Optional--clinical information reconciliation and 
incorporation--(i) Correct patient. Upon receipt of a transition of 
care/referral summary formatted according to the standard adopted at 
Sec. 170.205(a)(3), EHR technology must be able to demonstrate that the 
transition of care/referral summary received is or can be properly 
matched to the correct patient.
    (ii) Reconciliation. Enable a user to electronically reconcile the 
data that represent a patient's active medication, problem, and 
medication allergy list as follows. For each list type:
    (A) Electronically and simultaneously display (i.e., in a single 
view) the data from at least two list sources in a manner that allows a 
user to view the data and their attributes, which must include, at a 
minimum, the source and last modification date;
    (B) Enable a user to create a single reconciled list of medications, 
medication allergies, or problems;
    (C) Enable a user to review and validate the accuracy of a final set 
of data; and
    (D) Upon a user's confirmation, automatically update the list, and 
electronically incorporate the following data expressed according to the 
specified standard(s):
    (1) Medications. At a minimum, the version of the standard specified 
in Sec. 170.207(d)(2);
    (2) Problems. At a minimum, the version of the standard specified in 
Sec. 170.207(a)(3);
    (3) Medication allergies. At a minimum, the version of the standard 
specified in Sec. 170.207(d)(2).
    (c) Clinical quality measures--(1) Clinical Quality Measures--
capture and export--(i)--Capture. For each and every CQM for which the 
EHR technology is presented for certification, EHR technology must be 
able to electronically record all of the data identified in the standard 
specified at Sec. 170.204(c) that would be necessary to calculate each 
CQM. Data required for CQM exclusions or exceptions must be codified 
entries, which may include specific terms as defined by each CQM, or may 
include codified expressions of ``patient reason,'' ``system reason,'' 
or ``medical reason.''
    (ii) Export. EHR technology must be able to electronically export a 
data file formatted in accordance with the standards specified at Sec. 
170.205(h) that includes all of the data captured for each and every CQM 
to which EHR technology was certified under paragraph (c)(1)(i) of this 
section.
    (2) Clinical quality measures--import and calculate--(i) Import. EHR 
technology must be able to electronically import a data file formatted 
in accordance with the standard specified at Sec. 170.205(h) and use 
such data to perform the capability specified in paragraph (c)(2)(ii) of 
this section. EHR technology presented for certification to all three of 
the certification criteria adopted in paragraphs (c)(1) through (3) of 
this section is not required to meet paragraph (c)(2)(i).
    (ii) Calculate. EHR technology must be able to electronically 
calculate each

[[Page 1247]]

and every clinical quality measure for which it is presented for 
certification.
    (3) Clinical quality measures--electronic submission. Enable a user 
to electronically create a data file for transmission of clinical 
quality measurement data:
    (i) In accordance with the standards specified at Sec. 170.205(h) 
and (k); and
    (ii) That can be electronically accepted by CMS.
    (d) Privacy and security--(1) Authentication, access control, and 
authorization. (i) Verify against a unique identifier(s) (e.g., username 
or number) that a person seeking access to electronic health information 
is the one claimed; and
    (ii) Establish the type of access to electronic health information a 
user is permitted based on the unique identifier(s) provided in 
paragraph (d)(1)(i) of this section, and the actions the user is 
permitted to perform with the EHR technology.
    (2) Auditable events and tamper-resistance--(i) Record actions. EHR 
technology must be able to:
    (A) Record actions related to electronic health information in 
accordance with the standard specified in Sec. 170.210(e)(1);
    (B) Record the audit log status (enabled or disabled) in accordance 
with the standard specified in Sec. 170.210(e)(2) unless it cannot be 
disabled by any user; and
    (C) Record the encryption status (enabled or disabled) of electronic 
health information locally stored on end-user devices by EHR technology 
in accordance with the standard specified in Sec. 170.210(e)(3) unless 
the EHR technology prevents electronic health information from being 
locally stored on end-user devices (see 170.314(d)(7) of this section).
    (ii) Default setting. EHR technology must be set by default to 
perform the capabilities specified in paragraph (d)(2)(i)(A) of this 
section and, where applicable, paragraphs (d)(2)(i)(B) or (C), or both 
paragraphs (d)(2)(i)(B) and (C).
    (iii) When disabling the audit log is permitted. For each capability 
specified in paragraphs (d)(2)(i)(A) through (C) of this section that 
EHR technology permits to be disabled, the ability to do so must be 
restricted to a limited set of identified users.
    (iv) Audit log protection. Actions and statuses recorded in 
accordance with paragraph (d)(2)(i) of this section must not be capable 
of being changed, overwritten, or deleted by the EHR technology.
    (v) Detection. EHR technology must be able to detect whether the 
audit log has been altered.
    (3) Audit report(s). Enable a user to create an audit report for a 
specific time period and to sort entries in the audit log according to 
each of the data specified in the standards at Sec. 170.210(e).
    (4) Amendments. Enable a user to electronically select the record 
affected by a patient's request for amendment and perform the 
capabilities specified in paragraphs (d)(4)(i) or (ii) of this section.
    (i) Accepted amendment. For an accepted amendment, append the 
amendment to the affected record or include a link that indicates the 
amendment's location.
    (ii) Denied amendment. For a denied amendment, at a minimum, append 
the request and denial of the request to the affected record or include 
a link that indicates this information's location.
    (5) Automatic log-off. Prevent a user from gaining further access to 
an electronic session after a predetermined time of inactivity.
    (6) Emergency access. Permit an identified set of users to access 
electronic health information during an emergency.
    (7) End-user device encryption. Paragraph (d)(7)(i) or (ii) of this 
section must be met to satisfy this certification criterion.
    (i) EHR technology that is designed to locally store electronic 
health information on end-user devices must encrypt the electronic 
health information stored on such devices after use of EHR technology on 
those devices stops.
    (A) Electronic health information that is stored must be encrypted 
in accordance with the standard specified in Sec. 170.210(a)(1).
    (B) Default setting. EHR technology must be set by default to 
perform this capability and, unless this configuration cannot be 
disabled by any user, the ability to change the configuration

[[Page 1248]]

must be restricted to a limited set of identified users.
    (ii) EHR technology is designed to prevent electronic health 
information from being locally stored on end-user devices after use of 
EHR technology on those devices stops.
    (8) Integrity. (i) Create a message digest in accordance with the 
standard specified in Sec. 170.210(c).
    (ii) Verify in accordance with the standard specified in Sec. 
170.210(c) upon receipt of electronically exchanged health information 
that such information has not been altered.
    (9) Optional--accounting of disclosures. Record disclosures made for 
treatment, payment, and health care operations in accordance with the 
standard specified in Sec. 170.210(d).
    (e) Patient engagement--(1) View, download, and transmit to 3rd 
party. (i) EHR technology must provide patients (and their authorized 
representatives) with an online means to view, download, and transmit to 
a 3rd party the data specified below. Access to these capabilities must 
be through a secure channel that ensures all content is encrypted and 
integrity-protected in accordance with the standard for encryption and 
hashing algorithms specified at Sec. 170.210(f).
    (A) View. Electronically view in accordance with the standard 
adopted at Sec. 170.204(a), at a minimum, the following data:
    (1) The Common MU Data Set (which should be in their English (i.e., 
non-coded) representation if they associate with a vocabulary/code set).
    (2) Ambulatory setting only. Provider's name and office contact 
information.
    (3) Inpatient setting only. Admission and discharge dates and 
locations; discharge instructions; and reason(s) for hospitalization.
    (B) Download. (1) Electronically download an ambulatory summary or 
inpatient summary (as applicable to the EHR technology setting for which 
certification is requested) in human readable format or formatted 
according to the standard adopted at Sec. 170.205(a)(3) that includes, 
at a minimum, the following data (which, for the human readable version, 
should be in their English representation if they associate with a 
vocabulary/code set):
    (i) Ambulatory setting only. All of the data specified in paragraph 
(e)(1)(i)(A)(1) and (2) of this section.
    (ii) Inpatient setting only. All of the data specified in paragraphs 
(e)(1)(i)(A)(1) and (3) of this section.
    (2) Inpatient setting only. Electronically download transition of 
care/referral summaries that were created as a result of a transition of 
care (pursuant to the capability expressed in the certification 
criterion adopted at paragraph (b)(2) of this section).
    (C) Transmit to third party. (1) Electronically transmit the 
ambulatory summary or inpatient summary (as applicable to the EHR 
technology setting for which certification is requested) created in 
paragraph (e)(1)(i)(B)(1) of this section in accordance with at least 
one of the following:
    (i) The standard specified in Sec. 170.202(a).
    (ii) Through a method that conforms to the standard specified at 
Sec. 170.202(d) and that leads to such summary being processed by a 
service that has implemented the standard specified in Sec. 170.202(a).
    (2) Inpatient setting only. Electronically transmit transition of 
care/referral summaries (as a result of a transition of care/referral) 
selected by the patient (or their authorized representative) in 
accordance with at least one of the following:
    (i) The standard specified in Sec. 170.202(a).
    (ii) Through a method that conforms to the standard specified at 
Sec. 170.202(d) and that leads to such summary being processed by a 
service that has implemented the standard specified in Sec. 170.202(a).
    (ii) Activity history log. (A) When electronic health information is 
viewed, downloaded, or transmitted to a third-party using the 
capabilities included in paragraphs (e)(1)(i)(A) through (C) of this 
section, the following information must be recorded and made accessible 
to the patient:
    (1) The action(s) (i.e., view, download, transmission) that 
occurred;
    (2) The date and time each action occurred in accordance with the 
standard specified at Sec. 170.210(g); and
    (3) The user who took the action.

[[Page 1249]]

    (B) EHR technology presented for certification may demonstrate 
compliance with paragraph (e)(1)(ii)(A) of this section if it is also 
certified to the certification criterion adopted at Sec. 170.314(d)(2) 
and the information required to be recorded in paragraph (e)(1)(ii)(A) 
is accessible by the patient.
    (2) Ambulatory setting only--clinical summary--(i) Create. Enable a 
user to create a clinical summary for a patient in human readable format 
and formatted according to the standards adopted at Sec. 170.205(a)(3).
    (ii) Customization. Enable a user to customize the data included in 
the clinical summary.
    (iii) Minimum data from which to select. EHR technology must permit 
a user to select, at a minimum, the following data when creating a 
clinical summary:
    (A) Common MU Data Set (which, for the human readable version, 
should be in their English representation if they associate with a 
vocabulary/code set)
    (B) The provider's name and office contact information; date and 
location of visit; reason for visit; immunizations and/or medications 
administered during the visit; diagnostic tests pending; clinical 
instructions; future appointments; referrals to other providers; future 
scheduled tests; and recommended patient decision aids.
    (3) Ambulatory setting only--secure messaging. Enable a user to 
electronically send messages to, and receive messages from, a patient in 
a manner that ensures:
    (i) Both the patient (or authorized representative) and EHR 
technology user are authenticated; and
    (ii) The message content is encrypted and integrity-protected in 
accordance with the standard for encryption and hashing algorithms 
specified at Sec. 170.210(f).
    (f) Public health--(1) Immunization information. Enable a user to 
electronically record, change, and access immunization information.
    (2) Transmission to immunization registries. EHR technology must be 
able to electronically create immunization information for electronic 
transmission in accordance with:
    (i) The standard and applicable implementation specifications 
specified in Sec. 170.205(e)(3); and
    (ii) At a minimum, the version of the standard specified in Sec. 
170.207(e)(2).
    (3) Transmission to public health agencies--syndromic surveillance. 
EHR technology must be able to electronically create syndrome-based 
public health surveillance information for electronic transmission in 
accordance with:
    (i) Ambulatory setting only. (A) The standard specified in Sec. 
170.205(d)(2).
    (B) Optional. The standard (and applicable implementation 
specifications) specified in Sec. 170.205(d)(3).
    (ii) Inpatient setting only. The standard (and applicable 
implementation specifications) specified in Sec. 170.205(d)(3).
    (4) Inpatient setting only--transmission of reportable laboratory 
tests and values/results. EHR technology must be able to electronically 
create reportable laboratory tests and values/results for electronic 
transmission in accordance with:
    (i) The standard (and applicable implementation specifications) 
specified in Sec. 170.205(g); and
    (ii) At a minimum, the versions of the standards specified in Sec. 
170.207(a)(3) and (c)(2).
    (5) Optional--ambulatory setting only--cancer case information. 
Enable a user to electronically record, change, and access cancer case 
information.
    (6) Optional--ambulatory setting only--transmission to cancer 
registries. EHR technology must be able to electronically create cancer 
case information for electronic transmission in accordance with:
    (i) The standard (and applicable implementation specifications) 
specified in Sec. 170.205(i); and
    (ii) At a minimum, the versions of the standards specified in Sec. 
170.207(a)(3) and (c)(2).
    (7) Optional--Ambulatory setting only--Transmission to public health 
agencies--syndromic surveillance. EHR technology must be able to 
electronically create syndrome-based public health surveillance 
information for electronic transmission.
    (i) Optional. That contains the following data:
    (A) Patient demographics;

[[Page 1250]]

    (B) Provider specialty;
    (C) Provider address;
    (D) Problem list;
    (E) Vital signs;
    (F) Laboratory test values/results;
    (G) Procedures;
    (H) Medication list; and
    (I) Insurance.
    (ii) [Reserved]
    (g) Utilization--(1) Optional--Automated numerator recording. For 
each meaningful use objective with a percentage-based measure, EHR 
technology must be able to create a report or file that enables a user 
to review the patients or actions that would make the patient or action 
eligible to be included in the measure's numerator. The information in 
the report or file created must be of sufficient detail such that it 
enables a user to match those patients or actions to meet the measure's 
denominator limitations when necessary to generate an accurate 
percentage.
    (2) Automated measure calculation. For each meaningful use objective 
with a percentage-based measure that is supported by a capability 
included in an EHR technology, electronically record the numerator and 
denominator and create a report including the numerator, denominator, 
and resulting percentage associated with each applicable meaningful use 
measure.
    (3) Safety-enhanced design. User-centered design processes must be 
applied to each capability an EHR technology includes that is specified 
in the following certification criteria: Sec. 170.314(a)(1), (2), (6) 
through (8), (16) and (18) through (20) and (b)(3), (4), and (9).
    (4) Quality management system. For each capability that an EHR 
technology includes and for which that capability's certification is 
sought, the use of a Quality Management System (QMS) in the development, 
testing, implementation and maintenance of that capability must be 
identified.
    (i) If a single QMS was used for applicable capabilities, it would 
only need to be identified once.
    (ii) If different QMS were applied to specific capabilities, each 
QMS applied would need to be identified. This would include the 
application of a QMS to some capabilities and none to others.
    (iii) If no QMS was applied to all applicable capabilities such a 
response is acceptable to satisfy this certification criterion.
    (h) Transport methods--(1) Optional--Applicability Statement for 
Secure Health Transport. Enable health information to be electronically 
sent and electronically received in accordance with the standard 
specified in Sec. 170.202(a).
    (2) Optional--Applicability Statement for Secure Health Transport 
and XDR/XDM for Direct Messaging. Enable health information to be 
electronically sent and electronically received in accordance with the 
standards specified in Sec. 170.202(a) and (b).
    (3) Optional--SOAP Transport and Security Specification and XDR/XDM 
for Direct Messaging. Enable health information to be electronically 
sent and electronically received in accordance with the standards 
specified in Sec. 170.202(b) and (c).

[77 FR 54287, Sept. 4, 2012, as amended at 79 FR 54478, Sept. 11, 2014]

Subpart D [Reserved]



                 Subpart E_ONC HIT Certification Program

    Source: 76 FR 1325, Dec. 7, 2011, unless otherwise noted.



Sec. 170.500  Basis and scope.

    This subpart implements section 3001(c)(5) of the Public Health 
Service Act and sets forth the rules and procedures related to the ONC 
HIT Certification Program for health information technology (HIT) 
administered by the National Coordinator for Health Information 
Technology.

[76 FR 1325, Dec. 7, 2011, as amended at 77 FR 54291, Sept. 4, 2012]



Sec. 170.501  Applicability.

    (a) This subpart establishes the processes that applicants for ONC-
ACB status must follow to be granted ONC-ACB status by the National 
Coordinator; the processes the National Coordinator will follow when 
assessing applicants and granting ONC-ACB status; the requirements that 
ONC-ACBs must follow to maintain ONC-ACB status; and the requirements of 
ONC-ACBs for

[[Page 1251]]

certifying Complete EHRs, EHR Module(s), and other types of HIT in 
accordance with the applicable certification criteria adopted by the 
Secretary in subpart C of this part. It also establishes the processes 
accreditation organizations must follow to request approval from the 
National Coordinator and that the National Coordinator in turn will 
follow to approve an accreditation organization under the ONC HIT 
Certification Program as well as certain ongoing responsibilities for an 
ONC-AA.
    (b) References to the term Complete EHR and Complete EHR 
certification throughout this subpart do not apply to certification in 
accordance with any edition of certification criteria that is adopted by 
the Secretary under subpart C after the 2014 Edition EHR certification 
criteria.

[76 FR 1325, Dec. 7, 2011, as amended at 77 FR 54291, Sept. 4, 2012; 79 
FR 54479, Sept. 11, 2014]



Sec. 170.502  Definitions.

    For the purposes of this subpart:
    Applicant means a single organization or a consortium of 
organizations that seeks to become an ONC-ACB by submitting an 
application for ONC-ACB status to the National Coordinator.
    Deployment site means the physical location where a Complete EHR, 
EHR Module(s) or other type of HIT resides or is being or has been 
implemented.
    Development site means the physical location where a Complete EHR, 
EHR Module(s) or other type of HIT was developed.
    Gap certification means the certification of a previously certified 
Complete EHR or EHR Module(s) to:
    (1) All applicable new and/or revised certification criteria adopted 
by the Secretary at subpart C of this part based on the test results of 
a NVLAP-accredited testing laboratory; and
    (2) All other applicable certification criteria adopted by the 
Secretary at subpart C of this part based on the test results used to 
previously certify the Complete EHR or EHR Module(s).
    ONC-Approved Accreditor or ONC-AA means an accreditation 
organization that the National Coordinator has approved to accredit 
certification bodies under the ONC HIT Certification Program.
    ONC-Authorized Certification Body or ONC-ACB means an organization 
or a consortium of organizations that has applied to and been authorized 
by the National Coordinator pursuant to this subpart to perform the 
certification of Complete EHRs, EHR Module(s), and/or other types of HIT 
under the ONC HIT Certification Program.
    Providing or provide an updated certification means the action taken 
by an ONC-ACB to ensure that the developer of a previously certified EHR 
Module(s) shall update the information required by Sec. 
170.523(k)(1)(i), after the ONC-ACB has verified that the certification 
criterion or criteria to which the EHR Module(s) was previously 
certified have not been revised and that no new certification criteria 
are applicable to the EHR Module(s).
    Remote certification means the use of methods, including the use of 
web-based tools or secured electronic transmissions, that do not require 
an ONC-ACB to be physically present at the development or deployment 
site to conduct certification.

[76 FR 1325, Dec. 7, 2011, as amended at 77 FR 54291, Sept. 4, 2012]



Sec. 170.503  Requests for ONC-AA status and ONC-AA ongoing 
responsibilities.

    (a) The National Coordinator may approve only one ONC-AA at a time.
    (b) Submission. The National Coordinator will publish a notice in 
the Federal Register to announce the 30-day period during which requests 
for ONC-AA status may be submitted. In order to be considered for ONC-AA 
status, an accreditation organization must submit a timely request in 
writing to the National Coordinator along with the following information 
to demonstrate its ability to serve as an ONC-AA:
    (1) A detailed description of the accreditation organization's 
conformance to ISO/IEC17011 (incorporated by reference in Sec. 170.599) 
and experience evaluating the conformance of certification bodies to 
ISO/IEC 17065 (incorporated by reference in Sec. 170.599).
    (2) A detailed description of the accreditation organization's 
accreditation, requirements as well as how those requirements would 
complement the Principles of Proper Conduct for ONC-

[[Page 1252]]

ACBs and ensure the surveillance approaches used by ONC-ACBs include the 
use of consistent, objective, valid, and reliable methods;
    (3) Detailed information on the accreditation organization's 
procedures that would be used to monitor ONC-ACBs;
    (4) Detailed information, including education and experience, about 
the key personnel who review organizations for accreditation; and
    (5) Procedures for responding to, and investigating, complaints 
against ONC-ACBs.
    (c) Preliminary selection. (1) The National Coordinator is permitted 
up to 60 days from the end of the submission period to review all timely 
submissions that were received and determine which accreditation 
organization is best qualified to serve as the ONC-AA.
    (2) The National Coordinator's determination will be based on the 
information provided, the completeness of an accreditation 
organization's description of the elements listed in paragraph (b) of 
this section, and each accreditation organization's overall 
accreditation experience.
    (3) The accreditation organization that is determined to be the best 
qualified will be notified that it has been selected as the ONC-AA on a 
preliminary basis, subject to the resolution of the reconsideration 
process in Sec. 170.504. All other accreditation organizations will be 
notified that their requests for ONC-AA status have been denied. The 
accreditation organization that is selected on a preliminary basis shall 
not represent itself as the ONC-AA or perform accreditation(s) under the 
ONC HIT Certification Program unless and until it receives written 
notice from the National Coordinator that it has been approved as the 
ONC-AA on a final basis pursuant to paragraph (d) of this section.
    (4) Any accreditation organization that submits a timely request for 
ONC-AA status and is denied may request reconsideration in accordance 
with Sec. 170.504.
    (d) Final approval. (1) If the National Coordinator determines that 
an accreditation organization has met the standard specified in Sec. 
170.504(b), then that organization will be approved as the ONC-AA on a 
final basis. The accreditation organization that was selected as the 
ONC-AA on a preliminary basis pursuant to paragraph (c) of this section 
will be notified of this final decision and cannot request 
reconsideration or further review.
    (2) If the National Coordinator determines that no accreditation 
organization has met the standard specified in Sec. 170.504(b), then 
the organization that was selected as the ONC-AA on a preliminary basis 
pursuant to paragraph (c) of this section will be approved as the ONC-AA 
on a final basis.
    (e) ONC-AA ongoing responsibilities. An ONC-AA must:
    (1) Maintain conformance with ISO/IEC 17011 (incorporated by 
reference in Sec. 170.599);
    (2) Verify that the certification bodies it accredits and ONC-ACBs 
conform to, at a minimum:
    (i) For fiscal years 2014 and 2015, ISO/IEC Guide 65 (incorporated 
by reference in Sec. 170.599); and
    (ii) For fiscal year 2016 and subsequent years, ISO/IEC 17065 
(incorporated by reference in Sec. 170.599).
    (3) Ensure the surveillance approaches used by ONC-ACBs include the 
use of consistent, objective, valid, and reliable methods;
    (4) Verify that ONC-ACBs are performing surveillance in accordance 
with their respective annual plans; and
    (5) Review ONC-ACB surveillance results to determine if the results 
indicate any substantive non-conformance by ONC-ACBs with the conditions 
of their respective accreditations.
    (f) ONC-AA status. (1) An accreditation organization has not been 
granted ONC-AA status unless and until it is notified by the National 
Coordinator that it has been approved as the ONC-AA on a final basis 
pursuant to paragraph (d) of this section.
    (2) An ONC-AA's status will expire not later than 3 years from the 
date its status was granted by the National Coordinator.

[[Page 1253]]

    (3) The National Coordinator will accept requests for ONC-AA status, 
in accordance with paragraph (b) of this section, at least 180 days 
before the current ONC-AA's status is set to expire.

[76 FR 1325, Dec. 7, 2011, as amended at 76 FR 72642, Nov. 25, 2011; 77 
FR 54291, Sept. 4, 2012; 79 FR 54479, Sept. 11, 2014]



Sec. 170.504  Reconsideration process for requests for ONC-AA status.

    (a) An accreditation organization that submits a timely request for 
ONC-AA status in accordance with Sec. 170.503 and is denied may request 
reconsideration of the decision to deny its request for ONC-AA status.
    (b) Submission requirement. To request reconsideration, an 
accreditation organization is required to submit to the National 
Coordinator, within 15 days of receipt of a denial notice, a written 
statement with supporting documentation contesting the decision to deny 
its request for ONC-AA status. The submission must demonstrate that 
clear, factual errors were made in the review of its request for ONC-AA 
status and that the accreditation organization would have been selected 
as the ONC-AA pursuant to Sec. 170.503(c) if those errors had been 
corrected. If the National Coordinator does not receive an accreditation 
organization's submission within the specified timeframe, then its 
request for reconsideration may be denied.
    (c) Review of submissions. The National Coordinator is permitted up 
to 30 days to review all timely submissions that were received and 
determine whether an accreditation organization has met the standard 
specified in paragraph (b) of this section.
    (d) Decision. (1) If the National Coordinator determines that an 
accreditation organization has met the standard specified in paragraph 
(b) of this section, then that organization will be approved as the ONC-
AA on a final basis. All other accreditation organizations will be 
notified that their requests for reconsideration have been denied.
    (2) Final decision. A reconsideration decision issued by the 
National Coordinator is final and not subject to further review.



Sec. 170.505  Correspondence.

    (a) Correspondence and communication with the National Coordinator 
shall be conducted by e-mail, unless otherwise necessary. The official 
date of receipt of any e-mail between the National Coordinator and an 
accreditation organization requesting ONC-AA status, the ONC-AA, an 
applicant for ONC-ACB status, or an ONC-ACB is the date on which the e-
mail was sent.
    (b) In circumstances where it is necessary for an accreditation 
organization requesting ONC-AA status, the ONC-AA, an applicant for ONC-
ACB status, or an ONC-ACB to correspond or communicate with the National 
Coordinator by regular or express mail, the official date of receipt 
will be the date of the delivery confirmation.



Sec. 170.510  Types of certification.

    Applicants may seek authorization from the National Coordinator to 
perform the following types of certification:
    (a) Complete EHR certification; and/or
    (b) EHR Module certification; and/or
    (c) Certification of other types of HIT for which the Secretary has 
adopted certification criteria under subpart C of this part.



Sec. 170.520  Application.

    Applicants must include the following information in an application 
for ONC-ACB status and submit it to the National Coordinator for the 
application to be considered complete.
    (a) The type of authorization sought pursuant to Sec. 170.510. For 
authorization to perform EHR Module certification, applicants must 
indicate the specific type(s) of EHR Module(s) they seek authorization 
to certify. If qualified, applicants will only be granted authorization 
to certify the type(s) of EHR Module(s) for which they seek 
authorization.
    (b) General identifying, information including:
    (1) Name, address, city, state, zip code, and Web site of applicant; 
and
    (2) Designation of an authorized representative, including name, 
title, phone number, and e-mail address of the person who will serve as 
the applicant's point of contact.

[[Page 1254]]

    (c) Documentation that confirms that the applicant has been 
accredited by the ONC-AA.
    (d) An agreement, properly executed by the applicant's authorized 
representative, that it will adhere to the Principles of Proper Conduct 
for ONC-ACBs.



Sec. 170.523  Principles of proper conduct for ONC-ACBs.

    An ONC-ACB shall:
    (a) Maintain its accreditation, or if a new ONC-AA is approved by 
the National Coordinator, obtain accreditation from the new ONC-AA 
within 12 months or a reasonable period specified by the National 
Coordinator and maintain such accreditation;
    (b) Attend all mandatory ONC training and program update sessions;
    (c) Maintain a training program that includes documented procedures 
and training requirements to ensure its personnel are competent to 
certify HIT;
    (d) Report to ONC within 15 days any changes that materially affect 
its:
    (1) Legal, commercial, organizational, or ownership status;
    (2) Organization and management including key certification 
personnel;
    (3) Policies or procedures;
    (4) Location;
    (5) Personnel, facilities, working environment or other resources;
    (6) ONC authorized representative (point of contact); or
    (7) Other such matters that may otherwise materially affect its 
ability to certify HIT.
    (e) Allow ONC, or its authorized agent(s), to periodically observe 
on site (unannounced or scheduled), during normal business hours, any 
certifications performed to demonstrate compliance with the requirements 
of the ONC HIT Certification Program;
    (f) Provide ONC, no less frequently than weekly, a current list of 
Complete EHRs and/or EHR Modules that have been certified, which 
includes, at a minimum:
    (1) The Complete EHR or EHR Module developer name (if applicable);
    (2) The date certified;
    (3) The product version;
    (4) The unique certification number or other specific product 
identification;
    (5) The clinical quality measures to which a Complete EHR or EHR 
Module has been certified;
    (6) Where applicable, any additional software a Complete EHR or EHR 
Module relied upon to demonstrate its compliance with a certification 
criterion or criteria adopted by the Secretary; and
    (7) Where applicable, the certification criterion or criteria to 
which each EHR Module has been certified.
    (8) A hyperlink to the test results used to certify the Complete 
EHRs and/or EHR Modules that can be accessed by the public.
    (g) Retain all records related to the certification of Complete EHRs 
and/or EHR Module(s) for a minimum of 5 years;
    (h) Only certify HIT, including Complete EHRs and/or EHR Module(s), 
that has been tested, using test tools and test procedures approved by 
the National Coordinator, by a/an:
    (1) NVLAP-accredited testing laboratory; or
    (2) ONC-ATCB when:
    (i) Certifying previously certified EHR Module(s) if the 
certification criterion or criteria to which the EHR Module(s) was 
previously certified have not been revised and no new certification 
criteria are applicable to the EHR Module(s); or
    (ii) Performing gap certification.
    (i) Submit an annual surveillance plan to the National Coordinator 
and annually report to the National Coordinator its surveillance 
results; and
    (j) Promptly refund any and all fees received for:
    (1) Requests for certification that are withdrawn while its 
operations are suspended by the National Coordinator;
    (2) Certifications that will not be completed as a result of its 
conduct; and
    (3) Previous certifications that it performed if its conduct 
necessitates the recertification of Complete EHRs and/or EHR Module(s);
    (k) Ensure adherence to the following requirements when issuing a 
certification to a Complete EHR and/or EHR Module(s):
    (1) A Complete EHR or EHR Module developer must conspicuously 
include the following on its Web site and in all marketing materials, 
communications

[[Page 1255]]

statements, and other assertions related to the Complete EHR or EHR 
Module's certification:
    (i) ``This [Complete EHR or EHR Module] is [specify Edition of EHR 
certification criteria] compliant and has been certified by an ONC-ACB 
in accordance with the applicable certification criteria adopted by the 
Secretary of Health and Human Services. This certification does not 
represent an endorsement by the U.S. Department of Health and Human 
Services'';
    (ii) The information an ONC-ACB is required to report to the 
National Coordinator under paragraph (f) of this section for the 
specific Complete EHR or EHR Module at issue; and
    (iii) Any additional types of costs that an EP, EH, or CAH would pay 
to implement the Complete EHR's or EHR Module's capabilities in order to 
attempt to meet meaningful use objectives and measures. EHR technology 
self-developers are excluded from this requirement.
    (2) A certification issued to a pre-coordinated, integrated bundle 
of EHR Modules shall be treated the same as a certification issued to a 
Complete EHR for the purposes of paragraph (k)(1) of this section, 
except that the certification must also indicate each EHR Module that is 
included in the bundle; and
    (3) A certification issued to a Complete EHR or EHR Module based 
solely on the applicable certification criteria adopted by the Secretary 
at subpart C of this part must be separate and distinct from any other 
certification(s) based on other criteria or requirements.
    (l) Display the ONC Certified HIT Certification and Design Mark on 
all certifications issued under the ONC HIT Certification Program in a 
manner that complies with the Criteria and Terms of Use for the ONC 
Certified HIT Certification and Design Mark, and ensure that use of the 
mark by HIT developers whose products are certified under the ONC HIT 
Certification Program is compliant with the Criteria and Terms of Use 
for the ONC Certified HIT Certification and Design Mark.

[76 FR 1325, Dec. 7, 2011, as amended at 76 FR 72642, Nov. 25, 2011; 77 
FR 54291, Sept. 4, 2012; 79 FR 54479, Sept. 11, 2014]



Sec. 170.525  Application submission.

    (a) An applicant for ONC-ACB status must submit its application 
either electronically via e-mail (or web submission if available), or by 
regular or express mail.
    (b) An application for ONC-ACB status may be submitted to the 
National Coordinator at any time.



Sec. 170.530  Review of application.

    (a) Method of review and review timeframe. (1) Applications will be 
reviewed in the order they are received.
    (2) The National Coordinator is permitted up to 30 days from receipt 
to review an application that is submitted for the first time.
    (b) Application deficiencies. (1) If the National Coordinator 
identifies an area in an application that requires the applicant to 
clarify a statement or correct an error or omission, the National 
Coordinator may contact the applicant to make such clarification or 
correction without issuing a deficiency notice. If the National 
Coordinator has not received the requested information after five days, 
the National Coordinator may issue a deficiency notice to the applicant.
    (2) If the National Coordinator determines that deficiencies in the 
application exist, the National Coordinator will issue a deficiency 
notice to the applicant and return the application. The deficiency 
notice will identify the areas of the application that require 
additional information or correction.
    (c) Revised application. (1) An applicant is permitted to submit a 
revised application in response to a deficiency notice. An applicant may 
request from the National Coordinator an extension for good cause of the 
15-day period provided in paragraph (c)(2) of this section to submit a 
revised application.
    (2) In order for an applicant to continue to be considered for ONC-
ACB status, the applicant's revised application must address the 
specified deficiencies and be received by the National Coordinator 
within 15 days of the applicant's receipt of the deficiency notice, 
unless the National Coordinator grants an applicant's request for an 
extension of the 15-day period based on a finding of good cause. If a 
good cause extension is granted, then

[[Page 1256]]

the revised application must be received by the end of the extension 
period.
    (3) The National Coordinator is permitted up to 15 days to review a 
revised application once it has been received and may request 
clarification of statements and the correction of errors or omissions in 
a revised application during this time period.
    (4) If the National Coordinator determines that a revised 
application still contains deficiencies, the applicant will be issued a 
denial notice indicating that the applicant cannot reapply for ONC-ACB 
status for a period of six months from the date of the denial notice. An 
applicant may request reconsideration of this decision in accordance 
with Sec. 170.535.
    (d) Satisfactory application. (1) An application will be deemed 
satisfactory if it meets all the application requirements, as determined 
by the National Coordinator.
    (2) The National Coordinator will notify the applicant's authorized 
representative of its satisfactory application and its successful 
achievement of ONC-ACB status.
    (3) Once notified by the National Coordinator of its successful 
achievement of ONC-ACB status, the applicant may represent itself as an 
ONC-ACB and begin certifying health information technology consistent 
with its authorization.



Sec. 170.535  ONC-ACB application reconsideration.

    (a) An applicant may request that the National Coordinator 
reconsider a denial notice only if the applicant can demonstrate that 
clear, factual errors were made in the review of its application and 
that the errors' correction could lead to the applicant obtaining ONC-
ACB status.
    (b) Submission requirement. An applicant is required to submit, 
within 15 days of receipt of a denial notice, a written statement to the 
National Coordinator contesting the decision to deny its application and 
explaining with sufficient documentation what factual error(s) it 
believes can account for the denial. If the National Coordinator does 
not receive the applicant's reconsideration request within the specified 
timeframe, its reconsideration request may be rejected.
    (c) Reconsideration request review. If the National Coordinator 
receives a timely reconsideration request, the National Coordinator is 
permitted up to 15 days from the date of receipt to review the 
information submitted by the applicant and issue a decision.
    (d) Decision. (1) If the National Coordinator determines that clear, 
factual errors were made during the review of the application and that 
correction of the errors would remove all identified deficiencies, the 
applicant's authorized representative will be notified of the National 
Coordinator's determination and the applicant's successful achievement 
of ONC-ACB status.
    (2) If, after reviewing an applicant's reconsideration request, the 
National Coordinator determines that the applicant did not identify 
factual errors or that the correction of the factual errors would not 
remove all identified deficiencies in the application, the National 
Coordinator may reject the applicant's reconsideration request.
    (3) Final decision. A reconsideration decision issued by the 
National Coordinator is final and not subject to further review.



Sec. 170.540  ONC-ACB status.

    (a) Acknowledgement and publication. The National Coordinator will 
acknowledge and make publicly available the names of ONC-ACBs, including 
the date each was authorized and the type(s) of certification each has 
been authorized to perform.
    (b) Representation. Each ONC-ACB must prominently and unambiguously 
identify the scope of its authorization on its Web site and in all 
marketing and communications statements (written and oral) pertaining to 
its activities under the ONC HIT Certification Program.
    (c) Renewal. An ONC-ACB is required to renew its status every three 
years. An ONC-ACB is required to submit a renewal request, containing 
any updates to the information requested in Sec. 170.520, to the 
National Coordinator 60 days prior to the expiration of its status.
    (d) Expiration. An ONC-ACB's status will expire three years from the 
date it

[[Page 1257]]

was granted by the National Coordinator unless it is renewed in 
accordance with paragraph (c) of this section.

[76 FR 1325, Dec. 7, 2011, as amended at 77 FR 54291, Sept. 4, 2012]



Sec. 170.545  Complete EHR certification.

    (a) When certifying Complete EHRs, an ONC-ACB must certify in 
accordance with all applicable certification criteria adopted by the 
Secretary at subpart C of this part.
    (b) An ONC-ACB must provide the option for a Complete EHR to be 
certified solely to the applicable certification criteria adopted by the 
Secretary at subpart C of this part.
    (c) Gap certification. An ONC-ACB may provide the option for and 
perform gap certification of previously certified Complete EHRs.
    (d) Inherited certified status. An ONC-ACB must accept requests for 
a newer version of a previously certified Complete EHR to inherit the 
certified status of the previously certified Complete EHR without 
requiring the newer version to be recertified.
    (1) Before granting certified status to a newer version of a 
previously certified Complete EHR, an ONC-ACB must review an attestation 
submitted by the developer of the Complete EHR to determine whether any 
change in the newer version has adversely affected the Complete EHR's 
capabilities for which certification criteria have been adopted.
    (2) An ONC-ACB may grant certified status to a newer version of a 
previously certified Complete EHR if it determines that the capabilities 
for which certification criteria have been adopted have not been 
adversely affected.
    (e) An ONC-ACB that has been authorized to certify Complete EHRs is 
also authorized to certify all EHR Modules under the ONC HIT 
Certification Program.

[76 FR 1325, Dec. 7, 2011, as amended at 77 FR 54291, Sept. 4, 2012]



Sec. 170.550  EHR Module certification.

    (a) When certifying EHR Module(s), an ONC-ACB must certify in 
accordance with the applicable certification criteria adopted by the 
Secretary at subpart C of this part.
    (b) An ONC-ACB must provide the option for an EHR Module(s) to be 
certified solely to the applicable certification criteria adopted by the 
Secretary at subpart C of this part.
    (c) Gap certification. An ONC-ACB may provide the option for and 
perform gap certification of previously certified EHR Module(s).
    (d) An ONC-ACB may provide an updated certification to a previously 
certified EHR Module(s).
    (e) [Reserved]
    (f) When certifying an EHR Module to the 2014 Edition EHR 
certification criteria, an ONC-ACB must certify the EHR Module in 
accordance with the certification criteria at:
    (1) Section 170.314(g)(1) or (2) if the EHR Module has capabilities 
presented for certification that would support a meaningful use 
objective with a percentage-based measure;
    (2) Section 170.314(g)(3) if the EHR Module is presented for 
certification to one or more listed certification criteria in Sec. 
170.314(g)(3); and
    (3) Section 170.314(g)(4).
    (g) Inherited certified status. An ONC-ACB must accept requests for 
a newer version of a previously certified EHR Module(s) to inherit the 
certified status of the previously certified EHR Module(s) without 
requiring the newer version to be recertified.
    (1) Before granting certified status to a newer version of a 
previously certified EHR Module(s), an ONC-ACB must review an 
attestation submitted by the developer(s) of the EHR Module(s) to 
determine whether any change in the newer version has adversely affected 
the EHR Module(s)' capabilities for which certification criteria have 
been adopted.
    (2) An ONC-ACB may grant certified status to a newer version of a 
previously certified EHR Module(s) if it determines that the 
capabilities for which certification criteria have been adopted have not 
been adversely affected.

[76 FR 1325, Dec. 7, 2011, as amended at 77 FR 54291, Sept. 4, 2012; 79 
FR 54480, Sept. 11, 2014]

[[Page 1258]]



Sec. 170.553  Certification of health information technology other 
than Complete EHRs and EHR Modules.

    An ONC-ACB authorized to certify health information technology other 
than Complete EHRs and/or EHR Modules must certify such health 
information technology in accordance with the applicable certification 
criterion or certification criteria adopted by the Secretary at subpart 
C of this part.



Sec. 170.555  Certification to newer versions of certain standards.

    (a) ONC-ACBs may certify Complete EHRs and/or EHR Module(s) to a 
newer version of certain identified minimum standards specified at 
subpart B of this part, unless the Secretary prohibits the use of a 
newer version for certification.
    (b) Applicability of a newer version of a minimum standard. (1) ONC-
ACBs are not required to certify Complete EHRs and/or EHR Module(s) 
according to newer versions of standards identified as minimum standards 
in subpart B of this part, unless and until the incorporation by 
reference of a standard is updated in the Federal Register with a newer 
version.
    (2) A certified Complete EHR or certified EHR Module may be upgraded 
to comply with newer versions of standards identified as minimum 
standards in subpart B of this part without adversely affecting its 
certification status, unless the Secretary prohibits the use of a newer 
version for certification.

[77 FR 54291, Sept. 4, 2012]



Sec. 170.557  Authorized certification methods.

    An ONC-ACB must provide remote certification for both development 
and deployment sites.



Sec. 170.560  Good standing as an ONC-ACB.

    An ONC-ACB must maintain good standing by:
    (a) Adhering to the Principles of Proper Conduct for ONC-ACBs;
    (b) Refraining from engaging in other types of inappropriate 
behavior, including an ONC-ACB misrepresenting the scope of its 
authorization, as well as an ONC-ACB certifying Complete EHRs and/or EHR 
Module(s) for which it does not have authorization; and
    (c) Following all other applicable Federal and State laws.



Sec. 170.565  Revocation of ONC-ACB status.

    (a) Type-1 violations. The National Coordinator may revoke an ONC-
ACB's status for committing a Type-1 violation. Type-1 violations 
include violations of law or ONC HIT Certification Program policies that 
threaten or significantly undermine the integrity of the ONC HIT 
Certification Program. These violations include, but are not limited to: 
False, fraudulent, or abusive activities that affect the ONC HIT 
Certification Program, a program administered by HHS or any program 
administered by the Federal government.
    (b) Type-2 violations. The National Coordinator may revoke an ONC-
ACB's status for failing to timely or adequately correct a Type-2 
violation. Type-2 violations constitute noncompliance with Sec. 
170.560.
    (1) Noncompliance notification. If the National Coordinator obtains 
reliable evidence that an ONC-ACB may no longer be in compliance with 
Sec. 170.560, the National Coordinator will issue a noncompliance 
notification with reasons for the notification to the ONC-ACB requesting 
that the ONC-ACB respond to the alleged violation and correct the 
violation, if applicable.
    (2) Opportunity to become compliant. After receipt of a 
noncompliance notification, an ONC-ACB is permitted up to 30 days to 
submit a written response and accompanying documentation that 
demonstrates that no violation occurred or that the alleged violation 
has been corrected.
    (i) If the ONC-ACB submits a response, the National Coordinator is 
permitted up to 30 days from the time the response is received to 
evaluate the response and reach a decision. The National Coordinator 
may, if necessary, request additional information from the ONC-ACB 
during this time period.
    (ii) If the National Coordinator determines that no violation 
occurred or that the violation has been sufficiently corrected, the 
National Coordinator will issue a memo to the ONC-ACB confirming this 
determination.
    (iii) If the National Coordinator determines that the ONC-ACB failed 
to

[[Page 1259]]

demonstrate that no violation occurred or to correct the area(s) of non-
compliance identified under paragraph (b)(1) of this section within 30 
days of receipt of the noncompliance notification, then the National 
Coordinator may propose to revoke the ONC-ACB's status.
    (c) Proposed revocation. (1) The National Coordinator may propose to 
revoke an ONC-ACB's status if the National Coordinator has reliable 
evidence that the ONC-ACB has committed a Type-1 violation; or
    (2) The National Coordinator may propose to revoke an ONC-ACB's 
status if, after the ONC-ACB has been notified of a Type-2 violation, 
the ONC-ACB fails to:
    (i) To rebut the finding of a violation with sufficient evidence 
showing that the violation did not occur or that the violation has been 
corrected; or
    (ii) Submit to the National Coordinator a written response to the 
noncompliance notification within the specified timeframe under 
paragraph (b)(2) of this section.
    (d) Suspension of an ONC-ACB's operations. (1) The National 
Coordinator may suspend the operations of an ONC-ACB under the ONC HIT 
Certification Program based on reliable evidence indicating that:
    (i) The ONC-ACB committed a Type-1 or Type-2 violation; and
    (ii) The continued certification of Complete EHRs, EHR Module(s), 
and/or other types of HIT by the ONC-ACB could have an adverse impact on 
the health or safety of patients.
    (2) If the National Coordinator determines that the conditions of 
paragraph (d)(1) of this section have been met, an ONC-ACB will be 
issued a notice of proposed suspension.
    (3) Upon receipt of a notice of proposed suspension, an ONC-ACB will 
be permitted up to 3 days to submit a written response to the National 
Coordinator explaining why its operations should not be suspended.
    (4) The National Coordinator is permitted up to 5 days from receipt 
of an ONC-ACB's written response to a notice of proposed suspension to 
review the response and make a determination.
    (5) The National Coordinator may make one of the following 
determinations in response to the ONC-ACB's written response or if the 
ONC-ACB fails to submit a written response within the timeframe 
specified in paragraph (d)(3) of this section:
    (i) Rescind the proposed suspension; or
    (ii) Suspend the ONC-ACB's operations until it has adequately 
corrected a Type-2 violation; or
    (iii) Propose revocation in accordance with Sec. 170.565(c) and 
suspend the ONC-ACB's operations for the duration of the revocation 
process.
    (6) A suspension will become effective upon an ONC-ACB's receipt of 
a notice of suspension.
    (e) Opportunity to respond to a proposed revocation notice. (1) An 
ONC-ACB may respond to a proposed revocation notice, but must do so 
within 10 days of receiving the proposed revocation notice and include 
appropriate documentation explaining in writing why its status should 
not be revoked.
    (2) Upon receipt of an ONC-ACB's response to a proposed revocation 
notice, the National Coordinator is permitted up to 30 days to review 
the information submitted by the ONC-ACB and reach a decision.
    (f) Good standing determination. If the National Coordinator 
determines that an ONC-ACB's status should not be revoked, the National 
Coordinator will notify the ONC-ACB's authorized representative in 
writing of this determination.
    (g) Revocation. (1) The National Coordinator may revoke an ONC-ACB's 
status if:
    (i) A determination is made that revocation is appropriate after 
considering the information provided by the ONC-ACB in response to the 
proposed revocation notice; or
    (ii) The ONC-ACB does not respond to a proposed revocation notice 
within the specified timeframe in paragraph (e)(1) of this section.
    (2) A decision to revoke an ONC-ACB's status is final and not 
subject to further review unless the National Coordinator chooses to 
reconsider the revocation.

[[Page 1260]]

    (h) Extent and duration of revocation. (1) The revocation of an ONC-
ACB is effective as soon as the ONC-ACB receives the revocation notice.
    (2) A certification body that has had its ONC-ACB status revoked is 
prohibited from accepting new requests for certification and must cease 
its current certification operations under the ONC HIT Certification 
Program.
    (3) A certification body that has had its ONC-ACB has its status 
revoked for a Type-1 violation, is not permitted to reapply for ONC-ACB 
status under the ONC HIT Certification Program for a period of 1 year.
    (4) The failure of a certification body that has had its ONC-ACB 
status revoked to promptly refund any and all fees for certifications of 
Complete EHRs and EHR Module(s) not completed will be considered a 
violation of the Principles of Proper Conduct for ONC-ACBs and will be 
taken into account by the National Coordinator if the certification body 
reapplies for ONC-ACB status under the ONC HIT Certification Program.

[76 FR 1325, Dec. 7, 2011, as amended at 77 FR 54291, Sept. 4, 2012]



Sec. 170.570  Effect of revocation on the certifications issued to 
Complete EHRs and EHR Module(s).

    (a) The certified status of Complete EHRs and/or EHR Module(s) 
certified by an ONC-ACB that had its status revoked will remain intact 
unless a Type-1 violation was committed that calls into question the 
legitimacy of the certifications issued by the former ONC-ACB.
    (b) If the National Coordinator determines that a Type-1 violation 
occurred that called into question the legitimacy of certifications 
conducted by the former ONC-ACB, then the National Coordinator would:
    (1) Review the facts surrounding the revocation of the ONC-ACB's 
status; and
    (2) Publish a notice on ONC's Web site if the National Coordinator 
believes that Complete EHRs and/or EHR Module(s) were improperly 
certified by the former ONC-ACB.
    (c) If the National Coordinator determines that Complete EHRs and/or 
EHR Module(s) were improperly certified, the certification status of 
affected Complete EHRs and/or EHR Module(s) would only remain intact for 
120 days after the National Coordinator publishes the notice. The 
certification status of affected Complete EHRs and/or EHR Module(s) can 
only be maintained thereafter by being re-certified by an ONC-ACB in 
good standing.



Sec. 170.575  Removal of the ONC-AA.

    (a) Conduct violations. The National Coordinator may remove the ONC-
AA for committing a conduct violation. Conduct violations include 
violations of law or ONC HIT Certification Program policies that 
threaten or significantly undermine the integrity of the ONC HIT 
Certification Program. These violations include, but are not limited to: 
false, fraudulent, or abusive activities that affect the ONC HIT 
Certification Program, a program administered by HHS, or any program 
administered by the Federal government.
    (b) Performance violations. The National Coordinator may remove the 
ONC-AA for failing to timely or adequately correct a performance 
violation. Performance violations constitute a failure to adequately 
perform the ONC-AA's responsibilities as specified in Sec. 170.503(e).
    (1) Noncompliance notification. If the National Coordinator obtains 
reliable evidence that the ONC-AA may no longer be adequately performing 
its responsibilities specified in Sec. 170.503(e), the National 
Coordinator will issue a noncompliance notification with reasons for the 
notification to the ONC-AA requesting that the ONC-AA respond to the 
alleged violation and correct the violation, if applicable.
    (2) Opportunity to become compliant. The ONC-AA is permitted up to 
30 days from receipt of a noncompliance notification to submit a written 
response and accompanying documentation that demonstrates that no 
violation occurred or that the alleged violation has been corrected.
    (i) If the ONC-AA submits a response, the National Coordinator is 
permitted up to 60 days from the time the response is received to 
evaluate the response and reach a decision. The National Coordinator 
may, if necessary,

[[Page 1261]]

request additional information from the ONC-AA during this time period.
    (ii) If the National Coordinator determines that no violation 
occurred or that the violation has been sufficiently corrected, the 
National Coordinator will issue a memo to the ONC-AA confirming this 
determination. Otherwise, the National Coordinator may propose to remove 
the ONC-AA in accordance with paragraph (c) of this section.
    (c) Proposed removal. (1) The National Coordinator may propose to 
remove the ONC-AA if the National Coordinator has reliable evidence that 
the ONC-AA has committed a conduct violation; or
    (2) The National Coordinator may propose to remove the ONC-AA if, 
after the ONC-AA has been notified of an alleged performance violation, 
the ONC-AA fails to:
    (i) Rebut the alleged violation with sufficient evidence showing 
that the violation did not occur or that the violation has been 
corrected; or
    (ii) Submit to the National Coordinator a written response to the 
noncompliance notification within the specified timeframe under 
paragraph (b)(2) of this section.
    (d) Opportunity to respond to a proposed removal notice. (1) The 
ONC-AA may respond to a proposed removal notice, but must do so within 
20 days of receiving the proposed removal notice and include appropriate 
documentation explaining in writing why it should not be removed as the 
ONC-AA.
    (2) Upon receipt of the ONC-AA's response to a proposed removal 
notice, the National Coordinator is permitted up to 60 days to review 
the information submitted by the ONC-AA and reach a decision.
    (e) Retention of ONC-AA status. If the National Coordinator 
determines that the ONC-AA should not be removed, the National 
Coordinator will notify the ONC-AA in writing of this determination.
    (f) Removal. (1) The National Coordinator may remove the ONC-AA if:
    (i) A determination is made that removal is appropriate after 
considering the information provided by the ONC-AA in response to the 
proposed removal notice; or
    (ii) The ONC-AA does not respond to a proposed removal notice within 
the specified timeframe in paragraph (d)(1) of this section.
    (2) A decision to remove the ONC-AA is final and not subject to 
further review unless the National Coordinator chooses to reconsider the 
removal.
    (g) Extent and duration of removal. (1) The removal of the ONC-AA is 
effective upon the date specified in the removal notice provided to the 
ONC-AA.
    (2) An accreditation organization that is removed as the ONC-AA must 
cease all activities under the ONC HIT Certification Program, including 
accepting new requests for accreditation under the ONC HIT Certification 
Program.
    (3) An accreditation organization that is removed as the ONC-AA is 
prohibited from being considered for ONC-AA status for a period of 1 
year from the effective date of its removal as the ONC-AA.

[76 FR 72643, Nov. 25, 2011, as amended at 77 FR 54291, Sept. 4, 2012]



Sec. 170.599  Incorporation by reference.

    (a) Certain material is incorporated by reference into this subpart 
with the approval of the Director of the Federal Register under 5 U.S.C. 
552(a) and 1 CFR part 51. To enforce any edition other than that 
specified in this section, the Department of Health and Human Services 
must publish notice of change in the Federal Register and the material 
must be available to the public. All approved material is available for 
inspection at the National Archives and Records Administration (NARA). 
For information on the availability of this material at NARA, call 202-
741-6030 or go to http://www.archives.gov/federal_ register/
code_of_federal_ regulations/ibr_locations.html. Also, it is available 
for inspection at U.S. Department of Health and Human Services, Office 
of the National Coordinator for Health Information Technology, Hubert H. 
Humphrey Building, Suite 729D, 200 Independence Ave., SW., Washington, 
DC 20201, call ahead to arrange for inspection at 202-690-7151, and is 
available from the source listed below.
    (b) International Organization for Standardization, Case postale 56,

[[Page 1262]]

CH[middot]1211, Geneve 20, Switzerland, telephone +41-22-749-01-11, 
http://www.iso.org.
    (1) ISO/IEC 17011:2004 Conformity Assessment--General Requirements 
for Accreditation Bodies Accrediting Conformity Assessment Bodies 
(Corrected Version), February 15, 2005, ``ISO/IEC 17011,'' IBR approved 
for Sec. 170.503.
    (2) ISO/IEC GUIDE 65:1996--General Requirements for Bodies Operating 
Product Certification Systems (First Edition), 1996, ``ISO/IEC Guide 
65,'' IBR approved for Sec. 170.503.
    (3) ISO/IEC 17065:2012(E)--Conformity assessment--Requirements for 
bodies certifying products, processes and services (First Edition), 
2012, ``ISO/IEC 17065,'' IBR approved for Sec. 170.503.

[76 FR 1325, Dec. 7, 2011, as amended at 79 FR 54480, Sept. 11, 2014]

                        PARTS 171	199 [RESERVED]

[[Page 1263]]



                              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.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 1265]]



                    Table of CFR Titles and Chapters




                     (Revised as of October 1, 2015)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)

[[Page 1266]]

    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   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)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         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 (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)
    XXVIII  Department of Justice (Parts 3800--3899)

[[Page 1267]]

      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 (Parts 4300--
                4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)

[[Page 1268]]

    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
     XCVII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Partys 10000--10049)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         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)
        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)

[[Page 1269]]

        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)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      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 Policy and New Uses, 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  National Institute of Food and Agriculture (Parts 
                3400--3499)
      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  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)

[[Page 1270]]

         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 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)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      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)
         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)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)

[[Page 1271]]

        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      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--1199)
         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)
       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)

[[Page 1272]]

       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  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599)

                     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)

[[Page 1273]]

         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, 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 Service, 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)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       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)

                          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)

[[Page 1274]]

       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)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 1275]]

                           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 (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       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)

[[Page 1276]]

        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        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  Employee Benefits Security 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  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 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)

[[Page 1277]]

      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)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      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)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     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 Homeland Security (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)

[[Page 1278]]

        IV  Office of Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--
                599)[Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799)[Reserved]
            Subtitle C--Regulations Relating to Education
        XI  [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             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)
        VI  [Reserved]
       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 (Parts 1500--
                1599)
       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  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

[[Page 1279]]

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        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)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            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)
   62--100  [Reserved]
            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)
  103--104  [Reserved]
       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)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [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)

[[Page 1280]]

       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (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--599)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   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 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (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)

[[Page 1281]]

        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)
     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 Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (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)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)

[[Page 1282]]

         3  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  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)
        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)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        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) 
                [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (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)

[[Page 1283]]

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                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 Homeland Security (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)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   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)

[[Page 1285]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of October 1, 2015)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  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
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 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
  National Institute of Food and Agriculture      7, XXXIV
  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
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII

[[Page 1286]]

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
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
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
Career, Technical and Adult Education, Office of  34, IV
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
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                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  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
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       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 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 Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I

[[Page 1287]]

Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 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          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical and Adult Education, Office   34, IV
       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
  Career, Technical, and Adult Education, Office  34, IV
       of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
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                             2, IX; 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                   2, XV; 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
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99

[[Page 1288]]

  National Drug Control Policy, Office of         2, XXXVI; 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           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
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                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
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 Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
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
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
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

[[Page 1289]]

Forest Service                                    36, II
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 Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  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 Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 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
Homeland Security, Department of                  2, XXX; 6, I; 8, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 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 Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII

[[Page 1290]]

Independent Counsel, Offices of                   28, VI
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, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  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
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  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 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
Investment Security, Office of                    31, VIII
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                                2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  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 Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  2, XXIX; 5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V

[[Page 1291]]

  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
  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, VII
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 Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Local Television Loan Guarantee Board             7, XX
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, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
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
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     22, XVIII; 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   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
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                    5, C; 34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I

[[Page 1292]]

National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 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, IV
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
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                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
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
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 5, IV; 45, 
                                                  VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory 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
Privacy and Civil Liberties Oversight Board       6, X
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
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
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
Safety and Environmental Enforcement, Bureau of   30, II

[[Page 1293]]

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                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 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                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
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
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                     2, XII; 5, L
  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
  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; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  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                               2, X;5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, 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
[[Page 1294]]

U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 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
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1295]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2010 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, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.fdsys.gov. For changes to this volume of the CFR 
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The 
``List of CFR Sections Affected 1986-2000'' is available at 
www.fdsys.gov.

                                  2010

45 CFR
                                                                   75 FR
                                                                    Page
Subtitle A
60 Authority citation revised.......................................4676
60.1 Revised........................................................4676
60.2 Amended........................................................4676
60.3 Amended........................................................4676
60.4--60.11 (Subpart B) Revised.....................................4677
60.12--60.16 (Subpart C) Revised....................................4680
89 Revised.........................................................18763
95 Authority citation revised......................................66336
95.4 Amended.......................................................66336
95.31 (a) revised..................................................66336
95.505 Amended.....................................................66336
95.601--95.641 (Subpart F) Authority citation removed..............66336
95.601 Revised.....................................................66336
95.605 Amended.....................................................66336
95.610 Added.......................................................66337
95.611 (a), (b)(1)(iii), (iv), (2)(iii), (iv), (c)(1)(i), 
        (2)(ii)(A) and (d) revised; (b)(1)(v), (vi) and (e) added 
                                                                   66338
95.612 Revised.....................................................66339
95.613 (a) revised.................................................66339
95.615 Revised.....................................................66340
95.617 (c) revised.................................................66340
95.621 (d) and (e) revised.........................................66340
95.623 Heading, introductory text and (b) revised..................66340
95.624 Introductory text, (a) introductory text and (b)(2) revised
                                                                   66340
95.626 Added.......................................................66340
95.627 Added.......................................................66341
95.635 Added.......................................................66341
95.705 (a) revised.................................................66341
95.707 (a) and (b) introductory text revised.......................66341
144.101 (a) revised; (b), (c) and (d) redesignated as (c), (d) and 
        (e); new (b) added; new (c) and (d) amended; interim.......27137
144.103 Amended; interim...........................................27138
    Amended........................................................37235
146.101 (a) amended; (b)(4) revised; interim.......................27138
146.111 (a)(1)(i) revised..........................................37235
146.115 (a)(6) amended; interim....................................27138
146.130 (e) and (f) amended; interim...............................27138
146.136 Revised; interim............................................5444
147 Added; interim.................................................27138
147.108 Added......................................................37235
147.120 (h) revised................................................34566
147.126 Added......................................................37236
147.128 Added......................................................37238
147.130 Added; interim.............................................41759
147.136 Added; interim.............................................43358
147.138 Added......................................................37238
147.140 Added......................................................34566
    (a)(5) and (f)(2) removed; (a)(3), (i), (ii) and (f)(1) 
redesignated as (a)(3)(i), (A), (B) and (f); (a)(1) and (g)(4) 
Example 9 revised; new (a)(3)(ii) added; new (f) amended; interim 
                                                                   70121

[[Page 1296]]

149 Added; interim.................................................24466
152 Added..........................................................45029
158 Added; interim.................................................74921
158.101 (b) corrected; interim.....................................82278
158.120 (d)(1) and (4) corrected; interim..........................82278
158.140 (a)(1) corrected; interim..................................82278
    (a)(3), (b)(2), (4) and (5)(i) corrected; (b)(2)(iv) correctly 
added; interim.....................................................82279
158.150 (c)(8) corrected; interim..................................82279
158.161 Correctly designated as 158.162; new 158.161 (a) and (b) 
        correctly added; interim...................................82279
158.162 Correctly designated from 158.161; (b)(1)(vii)(B) 
        corrected; interim.........................................82279
158.231 (c)(2) corrected; interim..................................82279
158.232 (c)(2) Table 2 corrected; interim..........................82279
159 Added; interim.................................................24482
162 Technical correction...........................................62684
170 (Subchapter D) Added; interim...................................2042
    Authority citation revised.....................................36203
170.100 Revised....................................................36203
170.102 Amended....................................................36203
170.102 Amended....................................................44649
170.200--170.299 (Subpart B) Revised...............................44649
170.205 (d)(2) revised; interim....................................62690
170.299 (g) revised; interim.......................................62690
170.300--170.306 (Subpart C) Revised...............................44651
170.302 (l) revised; interim.......................................62690
170.400--170.499 (Subpart D) Added.................................36203

                                  2011

45 CFR
                                                                   76 FR
                                                                    Page
Subtitle A
5b.11 (b)(2)(ii)(L) added..........................................72327
88 Authority citation and heading revised...........................9976
88.1 Revised........................................................9976
88.2 Removed; new 88.2 redesignated from 88.6 and revised...........9976
88.3 Removed........................................................9976
88.4 Removed........................................................9976
88.5 Removed........................................................9976
88.6 Redesignated as 88.2...........................................9976
94 Revised.........................................................53288
147.130 (a)(1)(iv) revised; interim................................46626
147.136 (b)(2)(ii)(B), (E)(1), (F), (c)(2)(xi), (3), (d)(1), 
        (2)(iv) and (e) revised; (b)(2)(ii)(E)(2), (3) and (4) 
        redesignated as (b)(2)(ii)(E)(3), (4) and (5); new 
        (b)(2)(ii)(E)(2) added; interim............................37232
    (b)(3)(ii)(B), (E)(1) and (F) correctly revised; 
(b)(3)(ii)(E)(2), (3) and (4) correctly redesignated as 
(b)(3)(ii)(E)(3), (4) and (5); new (b)(3)(ii)(E)(2) correctly 
added..............................................................44492
154 Added..........................................................29985
154.102 Amended; eff. 11-1-11......................................54976
156 Added..........................................................77411
158.110 (b)(1) amended; (b)(1) designation and (2) removed.........76592
158.120 (d)(3) and (4) revised.....................................76592
158.150 (b)(2)(i)(A)(6) added; (c)(5) revised......................76592
158.162 (b)(1)(vii) and (c) revised................................76593
158.221 (b)(3) and (4) revised.....................................76593
158.241 (b) revised................................................76593
158.242 (b) revised................................................76593
    (b)(1) and (2) added; (b)(3) revised; interim..................76599
158.243 (a)(1) revised.............................................76593
158.250 Revised....................................................76593
158.260 (c)(1) through (5) revised.................................76594
160 Authority citation revised.....................................40495
160.101 Amended; interim...........................................40495
160.103 Amended; interim...........................................40495
162 Authority citation revised.....................................40495
162.103 Amended; interim...........................................40495
162.915 (a) revised; interim.......................................40495
162.920 Heading and introductory text revised; (c) added; interim 
                                                                   40495
162.1203 Added; interim............................................40496
162.1403 Added; interim............................................40496
170.500--170.599 (Subpart E) Added..................................1325
170.503 (e)(2) revised; (e)(3) and (4) redesignated as (e)(4) and 
        (5); new (e)(3) added......................................72642
170.523 (a) revised................................................72642
170.575 Added......................................................72643

[[Page 1297]]

                                  2012

45 CFR
                                                                   77 FR
                                                                    Page
Subtitle A
1--100 (Subch. A) Policy statement.................................58301
5b.11 (b)(2)(vii)(C) added; eff. 1-10-13...........................51912
    (b)(2)(vii)(D) added; eff. 1-10-13.............................51935
144.103 introductory text revised; amended.........................16468
147 Policy statement................................................8706
147.130 Regulation at 76 FR 44426 confirmed.........................8730
147.145 Added......................................................16468
147.200 Added.......................................................8702
152.2 Amended; interim.............................................52616
153 Added..........................................................17245
153.220 (d) corrected..............................................29236
155 Added..........................................................11718
    Heading and authority citation revised.........................18444
155.10--155.20 (Subpart A) Added...................................18444
155.100--155.160 (Subpart B) Added.................................18444
155.200--155.270 (Subpart C) Added.................................18444
155.260 (a)(3)(i) through (vii) and (d) introductory text 
        corrected..................................................31515
155.300--155.355 (Subpart D) Added.................................18444
155.315 (f)(5)(i) corrected........................................31515
155.345 (g)(3) corrected...........................................31515
155.400--155.430 (Subpart E) Added.................................18444
155.430 (c)(2) corrected...........................................31515
155.700--155.730 (Subpart H) Added.................................18464
155.1000--155.1080 (Subpart K) Added...............................18467
155.1020 (a) corrected.............................................31515
155.1080 (b) corrected.............................................31515
156 Heading revised................................................18468
    Authority citation revised.....................................42670
156.10--156.50 (Subpart A) Added...................................18468
156.120 (Subpart B) Added..........................................42670
156.200--156.295 (Subpart C) Added.................................18469
156.275 (c) added..................................................42671
156.505 Amended....................................................18474
156.510 (b)(2)(i) revised..........................................18474
156.520 (e)(1) removed; (e)(2), (3) and (4) redesignated as new 
        (e)(1), (2) and (3)........................................18474
157 Added..........................................................18474
158.103 Amended....................................................16469
    Correctly amended..............................................28790
158.120 (d)(5) added...............................................16469
    (d)(1) and (2) correctly revised...............................28790
158.130 (b)(3) correctly amended...................................28790
158.140 (b)(3)(iv) added...........................................16469
    (a) introductory text and (5) correctly revised................28790
158.150 (b)(2)(i)(A)(1) and (c)(14) correctly amended..............28790
158.220 (b) introductory text amended; (d) added...................16469
158.221 (b)(5) added...............................................16469
158.231 (d) and (e) added..........................................16469
158.232 (e) added..................................................16469
    (c)(1)(i) correctly revised....................................28790
158.251 Added......................................................28797
160.103 Amended; interim............................................1589
162.103 Amended; interim............................................1589
162.103 Amended; eff. 11-5-12......................................54719
162.402 Removed; eff. 11-5-12......................................54719
162.404 (a) redesignated as (a)(1); (a)(2) added; eff. 11-5-12.....54719
162.410 (b) redesignated as (c); new (b) added; eff. 11-5-12.......54719
162.502--162.514 (Subpart E) Added; eff. 11-5-12...................54719
162.504 (a), (b)(1) and (2) corrected..............................60630
162.920 (d) added; interim..........................................1590
    (c)(2) amended; (c)(4) added; interim..........................48043
162.1002 (b) introductory text and (c) introductory text revised; 
        eff. 11-5-12...............................................54720
162.1601--162.1602 (Subpart P) Heading revised; interim.............1590
162.1601 (a) introductory text amended; interim.....................1590
    Heading and introductory text revised; interim.................48043
162.1602 Revised; interim...........................................1590
162.1603 Added; interim............................................48043
170.102 Amended; eff. 10-4-12......................................54283
170.202 Added; eff. 10-4-12........................................54284
170.204 Added; eff. 10-4-12........................................54284
170.205 (a)(3), (d)(3), (e)(3) and (g) through (k) added; eff. 10-
        4-12.......................................................54284
170.207 (a)(3), (b)(3), (b)(4) and (g) through (j) added; (c) 
        through (f) revised; eff. 10-4-12..........................54284
170.210 (a)(1) and (c) amended; (e) through (h) added; eff. 10-4-
        12.........................................................54285

[[Page 1298]]

170.299 (b) through (j) revised; (k) through (n) added; eff. 10-4-
        12.........................................................54285
    (f)(14) and (m)(5) revised; interim............................72991
170.300 (c) revised; (d) added; eff. 10-4-12.......................54286
170.314 Added; eff. 10-4-12........................................54287
170.500--170.599 (Subpart E) Amended; eff. 10-4-12.................54291
170.502 Amended; eff. 10-4-12......................................54291
170.523 (f)(8) and (k)(1)(iii) added; (k)(1)(i) and (ii) revised; 
        eff. 10-4-12...............................................54291
170.550 (e) revised; (f) redesignated as (g); (f) added; eff. 10-
        4-12.......................................................54291
170.555 Revised; eff. 10-4-12......................................54292

                                  2013

45 CFR
                                                                   78 FR
                                                                    Page
Subtitle A
Subtitle A Policy statement........................................53964
5b.11 Regulation at 77 FR 51912 withdrawn...........................2892
    Regulation at 77 FR 51935 withdrawn.............................2892
    (b)(2)(vii)(C) added...........................................39186
    (b)(2)(vii)(D) added...........................................39188
    (b)(2)(ii)(L) correctly revised................................47211
60 Revised.........................................................20484
60.1 Correctly amended.............................................25860
60.2 Correctly amended.............................................25860
60.3 Correctly amended.............................................25860
60.5 (g) correctly amended.........................................25860
60.6 Heading, (a) and (d)(2) correctly amended.....................25860
60.7 (b)(1)(viii) correctly amended................................25860
60.13 (c)(2)(ii) and (3)(vi) correctly amended.....................25860
60.15 Heading correctly amended....................................25860
    Heading, (a), (c)(2)(ii) and (3)(vi) correctly amended.........25861
60.17 (a)(1) and (2) correctly amended.............................25861
60.18 (a)(2)(i), (iii), (vi), (vii) and (b) correctly amended......25861
61 Removed.........................................................20495
144.101 (d)(1) and (2) revised.....................................13435
144.102 Revised....................................................13435
    (c) amended....................................................65091
144.103 Introductory text revised; amended.........................65091
146.121 (f) revised................................................33187
146.136 Revised....................................................68286
146.145 (b) removed; (c), (d) and (e) redesignated as new (b), (c) 
        and (d); new (b)(1), (3)(i), (ii), (4)(i), (ii), (iii), 
        concluding text, (5)(ii), concluding text, new (c)(1) and 
        (3) amended................................................65092
147.102 Added......................................................13436
    (a) introductory text revised; (a)(1)(ii) amended..............54133
147.103 Added......................................................13437
147.104 Added......................................................13437
    (a), (c)(2), (d)(1)(ii) and (2) introductory text revised; 
(b)(2) amended.....................................................65092
    (b)(1)(i) and (ii) amended; (b)(1)(iii) added; interim.........76217
147.106 Added......................................................13438
    (a) and (d)(1) introductory text revised.......................65092
147.110 Added......................................................33192
147.130 (a)(1) introductory text and (iv) revised..................39896
147.131 Added......................................................39896
147.136 (d) introductory text amended; (d)(1)(i) amended...........68296
147.145 (b)(1) revised; (b)(3) added...............................13439
147.150 Added......................................................12865
147.160 Added......................................................68296
150 Amended........................................................13440
150.101 (a) and (b)(2) revised.....................................13439
150.103 Amended....................................................13439
152.21 (c) added; interim..........................................30226
152.35 (c) added; interim..........................................30226
153 Authority citation revised..............................54133, 65093
153.20 Amended.......................................15525, 54133, 65093
153.100 (a)(2), (5), (d)(2) and (5) removed; (a)(3), (4), (d)(3), 
        (4), (6) redesignated as (a)(2), (3), (d)(2), (3) and (4); 
        (a)(1), new (2), (d)(1) and new (2) revised................15525
153.110 (c), (3), (6), (d) and (f) redesignated as (b), (c)(2), 
        (3), (c) and (d); (b), (c)(2), (4), (5) and (e) removed; 
        (a) and new (b) revised....................................15525
153.210 (a)(2) revised; (e) added..................................15525
153.220 (b), (d), (f) and (h) removed; (c), (e) and (g) 
        redesignated as (b), (c) and (d); (a), new (c)(2) and new 
        (d) revised................................................15526
    (c)(2) correctly amended.......................................66655
153.230 Revised....................................................15526

[[Page 1299]]

    (a) correctly amended..........................................66655
153.232 Added......................................................15526
153.234 Added......................................................15527
153.235 Added......................................................15527
153.240 (a) and (b) revised; (d) added.............................15527
    (c) revised....................................................65093
153.260 Added......................................................65093
153.265 Added......................................................65093
153.310 (c) and (d) redesignated as (e) and (f); (a)(4), new (c) 
        and new (d) added..........................................15527
    (c)(4), (d)(3) and (4) added; (d) heading revised; (f) removed
                                                                   65093
153.320 (a)(1) and (2) revised.....................................15528
153.330 (b) redesignated as (c); new (b) added.....................15528
153.340 (b)(3) revised.............................................15528
153.360 Added......................................................15528
153.365 Added......................................................65094
153.400 Revised....................................................15528
    (a)(1)(i) revised; (a)(3) added................................65094
153.405 Added......................................................15529
    (h) added......................................................65094
    (b) correctly amended..........................................66655
153.410 (a) revised................................................15530
    (c) added......................................................65094
153.420 Added......................................................15530
153.500 Amended.............................................15530, 54133
    Amended; interim...............................................15551
153.510 (d) added..................................................15531
    (e) added......................................................65094
153.520 (d) revised................................................15531
    (a) and (b) revised; interim...................................15551
    (a), (b) and (e) revised.......................................65094
153.530 (a), (b) introductory text, (1), (2)(iii) and (c) revised; 
        (d) added..................................................15531
    (b) and (c) revised............................................65094
153.610 (f) added..................................................15531
153.620 (b) revised................................................65095
153.630 Added......................................................15531
153.700--153.730 (Subpart H) Added.................................15531
153.740 Added......................................................65095
154.200 (a)(2) amended; (b) revised................................13440
154.215 Revised....................................................13440
154.220 Revised....................................................13441
154.225 (a) introductory text amended..............................13441
154.230 (b) and (c)(1) amended.....................................13441
154.301 (a)(3)(i), (xi), (4)(i), (ii) and (vi) through (x) 
        amended; (a)(4)(iii), (iv), (v) and (b) revised; 
        (a)(3)(iii), (iv), (4)(xiii), (xiv) and (xv) added.........13441
155 Authority citation revised.......................12865, 42313, 65095
155.20 Amended................................15532, 39523, 42313, 54134
155.100 (a) revised; (b) redesignated as (c); new (b) added........54134
155.105 (b)(2) revised.............................................42313
    (b)(1), (2) and (f) revised....................................54134
155.140 (c)(2)(ii) revised.........................................54134
155.170 Added......................................................12865
155.200 (a) revised.........................................39524, 54134
155.205 (d) revised................................................42859
155.210 (c)(1)(iii), (d)(1), (2) and (4) revised...................42859
155.215 Added......................................................42859
155.220 (b) revised................................................15533
    (c)(3)(i) and (d)(3) revised; (c)(3)(v) and (vi) amended; 
(c)(3)(vii), (4), (f), (g) and (h) added...........................54134
155.225 Added......................................................42861
155.227 Added......................................................42313
155.230 (a) revised; (d) added.....................................42314
155.270 (a) revised................................................54135
155.280 Added......................................................54135
155.300 (a) amended................................................42314
155.302 (a), (b) and (d) revised...................................42314
155.305 (g)(3) revised.............................................15533
    (f)(1)(i), (ii)(B), (2)(ii), (iii), (3) and (5) revised; 
(a)(3)(v) and (h) added............................................42315
155.310 (i) redesignated as (j); new (i) added; new (j) revised....42315
    (k) added......................................................54136
155.315 (b)(2), (f) introductory text, (4) introductory text and 
        (5) revised; (f)(6) and (j) added..........................42316
155.320 (c)(1)(i) heading, (A), (ii), (3)(i)(D), (ii)(A), 
        (iii)(A), (B), (vi), (vii), (viii) and (d) revised; 
        (c)(3)(i)(E) and (iii)(C) added; (e) removed; (f) 
        redesignated as new (e)....................................42316
    Heading and (b) revised........................................54136
155.330 (g) added..................................................15533
    (d)(1)(ii), (e)(2) and (f) revised; (e)(3) removed.............42318
155.335 (a), (b), (e) through (h), (k)(1) and (l) revised; (m) 
        added......................................................42319
155.340 (e), (f) and (g) added.....................................15533
    (b) heading, (1) and (c) revised...............................42320
    (h) added......................................................65095

[[Page 1300]]

155.345 (a) introductory text, (2), (f) introductory text, (g) 
        introductory text and (2) through (5) revised; (a)(3), (h) 
        and (i) redesignated as (a)(4), (i) and (j); (g)(6) and 
        new (h) added..............................................42320
    (i) and (j) revised............................................54136
155.350 (a)(1)(ii) revised.........................................42321
155.400 (b)(3) added...............................................42321
155.410 (c)(1) revised; interim....................................76218
155.415 Added......................................................54136
155.420 (a), (b)(2), (3) and (d) revised; (b)(4) added.............42321
    (d)(10) added..................................................65095
155.430 (b)(1), (d)(1), (2)(iii), (iv) and (3) revised; (d)(7) 
        added......................................................42322
155.500--155.555 (Subpart F) Added.................................54136
155.600--155.635 (Subpart G) Added.................................39524
155.615 (f)(1)(i) revised..........................................42322
155.700 (b) amended................................................54141
155.705 (b)(3), (10) and (11) revised..............................15534
    (b)(2), (3) and (4) revised....................................33239
    (c) and (d) added..............................................54141
    (a) introductory text correctly amended........................79620
155.725 (a)(1) and (2) amended; (a)(3) removed; (j) added..........33239
    (j)(2)(i) revised..............................................65095
155.730 (f) revised................................................54141
155.735 Added......................................................54141
155.740 Added......................................................54141
155.1030 Added.....................................................15534
155.1045 Revised...................................................12865
155.1200--155.1210 (Subpart M) Added...............................65095
156 Authority citation revised.......................12865, 15535, 39528
156.20 Amended................................12865, 15535, 54142, 65096
156.50 (b) revised; (c) added......................................15535
    (d) added......................................................39897
156.80 Added.......................................................13441
    (d)(1) revised.................................................39898
    (d)(1) amended; (d)(3) added...................................65096
156.100--156.150 (Subpart B) Revised...............................12866
156.155 Added......................................................13442
    (a)(3) revised.................................................65096
156.200 (f) and (g) added..........................................15535
156.215 Added......................................................15535
    (d) revised; interim...........................................76218
156.270 (b) revised................................................42322
    (b) introductory text revised..................................54143
156.275 (c)(1), (4) introductory text and (i) revised..............12869
156.285 (c)(7) added...............................................15536
    (b)(2) revised.................................................33240
    (d)(1)(i) and (iii) revised....................................54143
156.330 Added......................................................65096
156.340 (Subpart D) Added..........................................54143
156.400--156.470 (Subpart E) Added.................................15535
156.400 Amended....................................................65097
156.410 (c) and (d) added..........................................65097
156.430 (c)(3) and (4) added; interim..............................15551
    (c)(3) introductory text, (iii), (iv) and (4) revised..........65097
156.460 (c) added..................................................65100
156.480 Added......................................................65100
156.600--156.606 (Subpart G) Added.................................39529
156.705--156.715 (Subpart H) Added.................................65100
156.800--156.810 (Subpart I) Added.................................54143
156.901--156.963 (Subpart J) Added.................................65101
156.1010 (Subpart K) Added.........................................54145
156.1105 (Subpart L) Added.........................................65105
156.1210 Added.....................................................65105
156.1230--156.1240 (Subpart M) Added...............................54145
157.20 Amended.....................................................15539
158.110 (b) revised................................................15539
158.130 (b)(5) added...............................................15539
158.140 (b)(4)(ii) added; (b)(5)(i) revised........................15539
158.161 (a) revised................................................15539
158.162 (b)(1)(vii) revised; (b)(1)(viii) added....................15540
158.221 (c) revised................................................15540
158.232 (c)(1)(i) and (d) introductory text revised................15540
    (d) introductory text correctly amended........................66655
158.240 (c) and (d) revised........................................15540
158.241 (a)(2) revised.............................................15540
160 Authority citation revised......................................5687
160.101 Revised.....................................................5687
160.102 (b) redesignated as (c); new (b) added......................5687
160.103 Amended.....................................................5687
160.105 Added.......................................................5689
160.201 Revised.....................................................5689
160.202 Amended.....................................................5689
160.300 Revised.....................................................5690
160.302 Removed.....................................................5690
160.304 Revised.....................................................5690

[[Page 1301]]

160.306 (a) and (c) revised.........................................5690
160.308 Revised.....................................................5690
160.310 Revised.....................................................5690
160.312 Revised.....................................................5690
160.316 Introductory text revised...................................5691
160.401 Amended.....................................................5691
160.402 Revised.....................................................5691
160.404 (b)(2)(i) introductory text, (iii) introductory text and 
        (iv) introductory text revised..............................5691
160.406 Revised.....................................................5691
160.408 Revised.....................................................5691
160.410 Revised.....................................................5692
160.412 Revised.....................................................5692
160.418 Revised.....................................................5692
160.508 (c)(5) correctly amended...................................34266
160.534 (b)(1)(iii) and (2) revised; (b)(1)(iv) added...............5692
160.548 (e) correctly amended......................................34266
164 Authority citation revised......................................5692
164.102 Revised.....................................................5692
164.103 Correctly amended..........................................34266
164.104 (b) revised.................................................5692
164.105 (a)(2)(iii)(C) redesignated as (a)(2)(iii)(D); new 
        (a)(2)(iii)(C) added; (a)(1) introductory text, (2)(i) 
        introductory text, (ii), (iii) introductory text, 
        (iii)(A), new (D) and (b) revised...........................5692
164.106 Revised.....................................................5693
164.302--164.318 (Subpart C) Authority citation revised.............5693
164.302 Revised.....................................................5693
164.304 Amended.....................................................5693
164.306 (a) introductory text, (1), (b)(1), (2) introductory text, 
        (i), (ii), (c), (d)(2), (3) introductory text, (i), (ii) 
        introductory text and (e) revised...........................5693
164.308 (a) introductory text, (1)(ii)(A), (C), (2), (3)(ii)(C), 
        (4)(ii)(C), (6)(ii), (8) and (b) revised....................5694
164.310 Introductory text revised...................................5694
164.312 Introductory revised........................................5694
164.314 (a) and (b)(2)(iii) revising................................5694
    (a)(1) correctly amended.......................................34266
164.316 Introductory text revised; (a) amended......................5695
164.402 Revised.....................................................5695
164.406 (a) revised.................................................5695
164.408 (c) revised.................................................5695
164.410 (a) revised.................................................5695
164.500--164.534 (Subpart E) Authority citation revised.............5695
164.500 (c) redesignated as (d); new (c) added......................5695
164.501 Amended.....................................................5695
164.502 (a), (b)(1), (e) and (f) revised............................5696
164.504 (e), (f)(1)(ii) introductory text and (2)(ii)(B) revised 
                                                                    5697
164.506 (a) and (c)(5) revised......................................5698
164.508 (a) heading, (1) heading, (2) heading, (a)(3)(ii), 
        (b)(1)(i) and (3) revised; (a)(4) added.....................5699
164.510 (a)(1)(ii) introductory text, (b)(1)(i), (2)(iii) and (4) 
        revised; (b)(1)(ii) and (3) amended; (b)(5) added...........5699
164.512 (b) heading, (1) introductory text, (v)(A) introductory 
        text, (e)(1)(iii) introductory text, (vi), (i)(2)(iii), 
        (k)(1)(ii), (3) and (5)(i)(E) revised; (b)(1)(vi) added.....5699
    (k)(4)(i) correctly amended....................................34266
164.514 (e)(4)(ii)(C)(4), (f) and (g) revised.......................5700
    (f)(2)(iv) correctly amended...................................34266
164.520 (b)(1)(ii)(E), (iii), (iv)(A), (v)(A), (c)(1)(i) 
        introductory text and (B) revised; (c)(1)(i)(C) removed; 
        (c)(1)(v) added.............................................5701
164.522 (a)(1)(ii), (2) introductory text, (iii) and (3) revised; 
        (a)(1)(vi) added............................................5701
164.524 (b)(2)(ii) removed; (b)(2)(iii), (c)(2)(ii), (4)(ii) and 
        (iii) redesignated as new (b)(2)(ii), (c)(2)(iii), 
        (4)(iii) and (iv); new (b)(2)(ii), (c)(2)(i), (3) and 
        (4)(i) revised; new (c)(2)(ii) and (4)(ii) added............5701
    (c)(4)(iv) correctly amended...................................34266
164.532 (a), (c)(2), (3), (d), (e)(1) and (2) revised; (c)(4) and 
        (f) added...................................................5702
    (f) introductory text correctly amended........................34266
170.102 Amended; interim...........................................65887

                                  2014

45 CFR
                                                                   79 FR
                                                                    Page
Subtitle A
18 Added...........................................................20801

[[Page 1302]]

    Removed........................................................32170
74 Removed; interim................................................75889
75 Added; interim..................................................75889
89 Policy statement; interim.......................................55367
92 Removed; interim................................................75981
144.103 Amended......................................10313, 13833, 30335
    Amended; eff. 1-1-15...........................................14151
146.101 (b)(1) revised.............................................10313
146.111 Heading, (a) heading and (b) revised; (a)(1) heading, (2), 
        (3), (c), (d), (e), (f) removed; (a)(1)(i) and (ii) 
        redesignated as (a)(1) and (2); new (a)(2) amended.........10313
146.113 (a)(3) and (c) removed; (b) revised........................10314
146.115 Revised....................................................10314
146.117 (a)(3)(i)(E) removed; (a)(3)(i)(C), (D), (4)(i) and (d)(2) 
        revised....................................................10314
146.119 Revised....................................................10314
146.121 (b)(1)(i) and (B) revised; (b)(3) removed; (b)(2)(i)(D), 
        (d)(4), (e)(2)(i)(B) and (g)(1)(ii) amended................10314
146.143 (c)(2) revised.............................................10315
146.145 (b)(3)(i) and (ii) revised; (b)(3)(vi) added; eff. 12-1-14
                                                                   59136
146.152 (b)(4), (c)(1) and (f) revised; (h) added..................30335
    (b)(5) revised; eff. 10-6-14...................................53004
146.180 Revised....................................................30336
147.102 (c)(3) revised.............................................13834
147.104 (b)(1)(i) revised; (h) added...............................30339
    (b)(1)(i)(B) correctly amended.................................59138
147.106 (b)(4), (c)(1) and (e) revised; (f), (g) and (h) 
        redesignated as (h), (i) and (j); new (f) and (g) added....30339
    (f)(2) corrected...............................................42985
    (b)(5) revised; eff. 10-6-14...................................53004
147.116 Added......................................................10315
    (c)(3)(iii) and (f) Example 11 added...........................35948
147.130 (a)(1)(iv)(A) and (B) correctly removed; CFR correction....17896
147.131 (c)(1) and (2)(i) introductory text revised; interim.......51101
147.145 (b)(1)(ii) revised.........................................13834
148 Authority citation revised.....................................30340
148.101 Revised....................................................30340
148.102 Revised....................................................30340
148.103 Removed....................................................30340
148.120 Revised....................................................30340
148.122 (a), (c)(3), (d)(1) and (g) revised; (i) added.............30340
    (g)(3)(v) corrected............................................42986
    (c)(4) revised; eff. 10-6-14...................................53004
148.124 Revised....................................................30341
148.126 Revised....................................................30341
148.128 Revised....................................................30341
148.220 Introductory text and (b)(3) revised; (b)(4), (5) and (6) 
        redesignated as (b)(5), (6) and (7); new (b)(4) added......30341
153.20 Amended.....................................................13834
    Correctly amended..............................................36432
153.230 (d) revised................................................13835
153.270 Added......................................................13835
153.400 (a)(1) introductory text revised; (a)(1)(v) and (vi) added
                                                                   13835
153.405 (c) and (e)(3) revised; (i) added..........................13835
153.410 (d) added..................................................13835
153.500 Amended.............................................13835, 30341
153.510 (f) added..................................................13836
153.530 (d) revised; (e) added.....................................13836
    (b)(1)(i) and (ii) correctly removed...........................37662
153.540 Added......................................................13836
153.620 (c) added..................................................13836
153.630 (b)(1) revised; (b)(5) through (10) added..................13836
153.710 (d) through (g) added......................................13837
154.102 Amended....................................................30342
155.106 (a)(2) revised.............................................13837
155.120 (c) revised................................................30342
155.206 Added......................................................30342
155.210 (c)(1)(iii), (d)(4) and (e)(2) revised; (d)(3) amended; 
        (d)(5) through (9), (e)(6) and (7) added...................30344
    (d)(6), (8), (e)(2) and (6)(iii) corrected; (e)(4) and (5) 
correctly amended..................................................42986
155.215 (f) through (i) added......................................30344
155.220 (i) added..................................................13837
155.225 (b)(3), (d)(7) and (8) added; (c)(1), (f)(1), (2) and (g) 
        revised; (d)(5) and (6) amended............................30345
    (c)(1), (d)(8)(iv) and (g)(4) corrected........................42986
155.240 (e) added..................................................30346
155.260 (a)(1), (2) and (b) revised................................13837
    (g) revised....................................................30346
155.285 Added......................................................30346
155.320 Heading revised; (d)(4) removed............................30347

[[Page 1303]]

155.330 (d)(2)(ii) revised.........................................30347
    (b)(4) revised; eff. 10-6-14...................................53005
155.335 (a), (e) and (j) revised; eff. 10-6-14.....................53005
155.400 (e) and (f) added..........................................30348
155.410 (e) and (f) revised........................................13838
    (d) revised....................................................30348
155.420 (b)(2)(i), (ii), (iii), (c), (d)(1), (6)(iii), (e) heading 
        and introductory text revised..............................30348
    (b)(2)(iv) corrected...........................................42986
    (b)(2)(iv) correctly revised...................................59138
155.430 (d)(6) revised; (e) added..................................30348
155.505 (b)(4) amended.............................................30349
155.530 (a)(1) revised.............................................30349
155.555 (d) introductory text, (1), (2) introductory text, (i), 
        (ii), (iii), (3) and (4) redesignated as (d)(1) 
        introductory text, (i), (ii) introductory text, (A), (B), 
        (C), (iii) and (2); new (d)(2) introductory text revised 
                                                                   30349
155.600 (a) amended................................................30349
155.605 (g)(5) revised.............................................30349
155.625 Revised....................................................30349
155.705 (b)(4)(ii) redesignated as (b)(4)(iii); (b)(3)(v) and new 
        (4)(ii) added; (b)(1), (6)(i) and (11)(ii)(C) revised......13838
    (b)(2), (3)(ii) introductory text and (iv) introductory text 
revised; (b)(3)(vi) and (vii) added................................30349
    (b)(3)(vi) correctly amended...................................59138
155.715 (c)(4), (d)(1) introductory text and (2) introductory text 
        revised....................................................13839
155.725 (c) and (e) revised........................................30350
    (c)(1) corrected...............................................42986
155.730 (g) revised................................................13839
155.740 (g) introductory text, (1)(i), (ii), (2) and (3) 
        redesignated as (g)(1) introductory text, (i) introductory 
        text, (A), (B), (ii) and (2); (i)(1)(i) revised............30350
155.1030 (b)(1), (3) and (4) revised...............................13839
155.1400--155.1405 (Subpart O) Added...............................30350
156 Authority citation revised.....................................30350
156.122 (c) revised................................................30350
156.130 (b) removed; (c) and (d) revised...........................30350
156.135 (a) revised; (g) added.....................................13839
156.150 (a) revised................................................13840
156.200 (b)(5) revised; (h) added..................................30351
156.265 (d) revised................................................30351
156.270 (j) added..................................................30351
156.285 (a)(4) added; (c)(7) revised...............................13840
156.298 Added......................................................13840
156.420 (c), (d) and (e) revised...................................13840
156.430 (a) removed; (b)(1) revised................................13840
156.470 (a) revised................................................13840
156.604 (a)(2) heading, introductory text and (d) revised..........30351
156.800 (d) added..................................................30351
156.805 (a)(1) revised; interim....................................15245
    (d)(3) added; (e)(2) revised...................................30351
156.806 Added......................................................30351
156.810 (a)(6), (12) and (13) added; (a)(9), (10) and (11) 
        amended; (d) introductory text revised.....................30351
156.1105 (d) and (e) added.........................................30351
156.1110 Added.....................................................13841
156.1120 Added.....................................................30352
156.1125 Added.....................................................30352
156.1210 (c) added.................................................13841
156.1215 Added.....................................................13841
156.1220 Added.....................................................13841
156.1250 Added; interim............................................15245
156.1255 Added; eff. 10-6-14.......................................53006
158 Authority citation revised.....................................30352
158.130 (b)(5) revised.............................................13842
158.140 (b)(4)(ii) revised.........................................13842
158.150 (b)(2)(i)(A)(6) revised....................................30352
158.211 (a) revised................................................30352
158.220 (a) revised................................................30352
158.221 (b)(6) and (7) added.......................................30352
158.231 (a) revised................................................30353
158.240 (c)(2) revised.............................................13842
160.103 Correctly amended; CFR correction..........................36432
162.1002 (b) introductory text and (c) introductory text amended 
                                                                   45134
164.524 (a)(1)(i) and (ii) revised; (a)(1)(iii) amended.............7316
170.102 Amended....................................................52933
    Amended; eff. 10-14-14.........................................54477
    Amended; eff. 3-1-15...........................................54478
170.202 (d) added; eff. 10-14-14...................................54478
170.205 (b)(1), (c), (d)(1), (e)(1), (2) and (f) removed; eff. 3-
        1-15.......................................................54478
170.207 (a)(1), (2), (b)(1), (c)(1), (d)(1) and (e)(1) removed; 
        eff. 3-1-15................................................54478
170.210 (a)(2) and (b) removed; eff. 3-1-15........................54478
170.299 (k)(4) added; eff. 10-14-14................................54478

[[Page 1304]]

170.302 Removed; eff. 3-1-15.......................................54478
170.304 Removed; eff. 3-1-15.......................................54478
170.306 Removed; eff. 3-1-15.......................................54478
170.314 (a)(1)(iii), (e)(1)(i)(C)(1), (2), (g)(1) and (3) revised; 
        (a)(18), (19), (20), (b)(8), (9), (f)(7) and (h) added; 
        eff. 10-14-14..............................................54478
170.400--170.499 (Subpart D) Removed; eff. 10-14-14................54479
170.501 Existing text designated as (a); (b) added; eff. 10-14-14 
                                                                   54479
170.503 (b)(1), (e)(1) and (2) revised; eff. 10-14-14..............54479
170.523 (l) added; eff. 10-14-14...................................54479
170.550 (f)(1) revised; eff. 10-14-14..............................54480
    (e) removed; eff. 3-1-15.......................................54480
170.599 (b)(1) and (2) revised; (b)(3) added; eff. 10-14-14........54480

                                  2015

  (Regulations published from January 1, 2015, through October 1, 2015)

45 CFR
                                                                   80 FR
                                                                    Page
Subtitle A
1 Removed..........................................................34838
18 Added...........................................................13252
101 Added; interim.................................................42413
144.103 Amended....................................................10861
146.145 (b)(3)(vii) added..........................................14007
147.104 (b)(1)(i)(C), (2) and (4) revised; (f), (g) and (h) 
        redesignated as (g), (h) and (i); new (f) added............10862
147.106 (g) through (j) redesignated as (h) through (k); new (g) 
        added......................................................10862
147.130 Regulation at 75 FR 41759 confirmed; (a)(3), (4) and 
        (b)(2) revised.............................................41346
147.131 Regulation at 75 FR 51101 confirmed; (b) and (f) revised 
                                                                   41346
147.200 Revised....................................................34310
153.100 (c) revised................................................10862
153.210 (a)(2)(i), (ii) and (iii) removed; CFR correction..........33198
153.400 (a)(1)(iii) revised; (c) added.............................10862
153.405 (c)(2) removed; (c)(3) redesignated as new (c)(2); (b), 
        (c)(1), new (2), (d) introductory text, (g)(4)(i) 
        introductory text and (ii) introductory text revised.......10862
153.500 Amended....................................................10863
153.740 (a) revised; (c) added.....................................10863
154.102 Amended....................................................10863
154.200 (a) and (c) revised........................................10863
154.215 (a) revised................................................10864
154.220 Revised....................................................10864
154.301 (b) revised................................................10864
155.20 Amended.....................................................10864
155.205 (c)(2)(i) and (iii) revised; (c)(2)(iv) added..............10864
155.215 (h) revised................................................10865
155.220 (i) revised................................................10865
155.222 Added......................................................10865
155.400 (e) revised................................................10866
155.410 (e) and (f) revised........................................10866
155.420 (b)(2)(i), (iv), (c)(2), (3), (d)(1)(ii), (2) and (4) 
        revised; (b)(2)(v), (vi) and (d)(6)(iv) revised; (d)(10) 
        removed....................................................10866
    (d)(2)(ii) correctly revised...................................38653
155.430 Heading, (a), (b)(1), (2) introductory text, (c), (d) 
        heading, (2) introductory text, (iv), (3) through (7), 
        (e)(1) and (2) revised; (b)(2)(vi), (d)(2)(v) and (8) 
        added......................................................10867
155.605 (g)(3) and (6)(i) revised; (g)(6)(iii) added...............10868
155.700 (b) amended................................................10868
155.705 (b)(4)(i)(B), (7) and (10) revised; (b)(4)(ii)(A) and (B) 
        redesignated as (b)(4)(ii)(B) and (C); new (b)(4)(ii)(A) 
        added......................................................10868
155.710 (e) revised................................................10869
155.720 (b)(5) and (6) amended; (b)(7) removed; (e) revised........10869
155.725 (a), (b), (g), (h), (i) and (j)(5) revised; (k) added......10869
155.735 Heading, (a), (b), (c)(2)(ii), (iii), (d) heading, (1) 
        introductory text, (iii) and (e) heading revised; 
        (c)(2)(iv), (3) and (g) added..............................10870
155.1000 (d) added.................................................10870
155.1075 (b) revised...............................................10870
156.20 Amended.....................................................10871
156.100 (c) revised................................................10871
156.110 (c)(4) and (5) revised; (c)(6) removed.....................10871

[[Page 1305]]

156.115 (a)(5)(i) and (ii) revised; (a)(5)(iii) and (6) added......10871
156.120 Added......................................................10871
156.122 (a)(1), (2) and (c) revised; (a)(3), (d) and (e) added.....10871
156.130 (c) revised................................................10872
156.145 (a) introductory text revised..............................10872
156.200 (b)(7) revised.............................................10873
156.230 (a) introductory text and (b) revised; (c) added...........10873
156.235 Revised; eff. 1-1-16.......................................10873
156.250 Revised....................................................10874
156.265 (d) revised................................................10874
156.270 Heading, (a), (b), (c) introductory text, (g) and (i) 
        revised....................................................10874
156.285 (b)(1), (4), (d) introductory text, (1) introductory text, 
        (i) and (iii) revised; (c)(3) through (7) redesignated as 
        (c)(4) through (8); new (c)(3) added.......................10874
    (d)(1)(ii) revised; eff. 1-1-16................................10875
    (d)(2) correctly reinstated; CFR correction....................24223
156.290 (a)(1), (2), (5) and (c) introductory text revised.........10875
156.410 Second (d)(4)(ii) removed; (d)(4)(iii) added...............10875
156.420 (h) added..................................................10875
156.425 (c) added..................................................10875
156.430 (c)(2)(i) added............................................10875
156.602 (d) revised................................................10875
156.800 (c) revised................................................10875
156.815 Added......................................................10875
156.1130 Added.....................................................10876
156.1220 (c) revised...............................................10876
158.140 (b)(1)(iii) added..........................................10876
158.162 (a)(2) revised; (b)(2)(iv) added; eff. 1-1-16..............10876
158.242 (b)(1)(iii) revised; (b)(1)(iv) amended; (b)(1)(v) added 
                                                                   10876
170 Policy statement...............................................32477


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