[Federal Register Volume 62, Number 178 (Monday, September 15, 1997)]
[Notices]
[Pages 48292-48297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24281]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration
[MB-110-N]
RIN: 0938-AH93


Medicaid Program; Final Limitations on Aggregate Payments to 
Disproportionate Share Hospitals: Federal Fiscal Year 1997

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice.

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SUMMARY: This notice announces the final Federal fiscal year (FFY) 1997 
national target and individual State allotments for Medicaid payment 
adjustments made to hospitals that serve a disproportionate number of 
Medicaid recipients and low-income patients with special needs. We are 
publishing this notice in accordance with the provisions of section 
1923(f)(1)(C) of the Social Security Act and implementing regulations 
at 42 CFR 447.297 through 447.299. The final FFY 1997 State 
disproportionate share hospital (DSH) allotments published in this 
notice supersede the preliminary FFY 1997 DSH allotments that were 
published in the Federal Register on January 31, 1997.

EFFECTIVE DATE: The final DSH payment adjustment expenditure limits 
included

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in this notice apply to Medicaid DSH payment adjustments for FFY 1997.

FOR FURTHER INFORMATION CONTACT: Richard Strauss, (410) 786-2019

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1902(a)(13)(A) of the Social Security Act (the Act) 
requires States to ensure that their Medicaid payment rates include 
payment adjustments for Medicaid-participating hospitals that serve a 
large number of Medicaid recipients and other low-income individuals 
with special needs (referred to as disproportionate share hospitals). 
The DSH payment adjustments are calculated on the basis of formulas 
specified in section 1923 of the Act.
    Section 1923(f) of the Act and implementing Medicaid regulations at 
42 CFR 447.297 through 447.299 require us to estimate and publish in 
the Federal Register a national aggregate target and each State's 
allotment for DSH payments for each Federal fiscal year (FFY). The 
implementing regulations provide that the national DSH payment limit 
for a FFY specified in the Act is a target rather than an absolute cap 
when determining the amount that can be allocated for DSH payments. The 
national DSH payment target is 12 percent of the total amount of 
medical assistance expenditures (excluding total administrative costs) 
that are projected to be made under approved Medicaid State plans 
during the FFY.

    (Note: Whenever the phrases ``total medical assistance 
expenditures'' or ``total administrative costs'' are used in this 
notice, they mean both the State and Federal share of expenditures 
or costs.)

    In addition to the national DSH payment target, there is a specific 
State DSH payment limit for each State for each FFY. The State DSH 
payment limit is a specified amount of DSH payment adjustments 
applicable to a FFY above which FFP will not be available. This is 
called the ``State DSH allotment.''
    Each State's DSH allotment for FFY 1997 is calculated by first 
determining whether the State is a ``high-DSH State'' or a ``low-DSH 
State.'' This is determined by using the State's ``base allotment.'' A 
State's base allotment is the greater of the following amounts: (1) The 
total amount of the State's actual and projected DSH payment 
adjustments made under the State's approved State plan applicable to 
FFY 1992, as adjusted by HCFA; or (2) $1,000,000.
    A State whose base allotment exceeds 12 percent of the State's 
total medical assistance expenditures (excluding administrative costs) 
projected to be made in FFY 1997 is referred to as a ``high-DSH State'' 
for FFY 1997. The FFY 1997 State DSH allotment for a high-DSH State is 
limited to the State's base allotment.
    A State whose base allotment is equal to or less than 12 percent of 
the State's total medical assistance expenditures (excluding 
administrative costs) projected to be made in FFY 1997 is referred to 
as a ``low-DSH State.'' The FFY 1997 State DSH allotment for a low-DSH 
State is equal to the State's DSH allotment for FFY 1996 increased by 
growth amounts and supplemental amounts, if any. However, the FFY 1997 
DSH allotment for a low-DSH State cannot exceed 12 percent of the 
State's total medical assistance expenditures for FFY 1997 (excluding 
administrative costs).
    The growth amount for FFY 1997 is equal to the projected percentage 
increase (the growth factor) in a low-DSH State's total Medicaid 
program expenditures between FFY 1996 and FFY 1997 multiplied by the 
State's final DSH allotment for FFY 1996. Because the national DSH 
payment limit is considered a target, low-DSH States whose programs 
grow from one year to the next can receive a growth amount that would 
not be permitted if the national DSH payment limit was viewed as an 
absolute cap.
    There is no growth factor and no growth amount for any low-DSH 
State whose Medicaid program does not grow (that is, stayed the same or 
declined) between FFY 1996 and FFY 1997. Furthermore, because a low-DSH 
State's FFY 1997 DSH allotment cannot exceed 12 percent of the State's 
total medical assistance expenditures for FFY 1997, it is possible for 
its FFY 1997 DSH allotment to be lower than its FFY 1996 DSH allotment. 
This occurs when the State's prior FFY DSH allotment is greater than 12 
percent of the total projected medical assistance expenditures for the 
current FFY. For FFY 1997, this is the case for the States of 
California and Hawaii. For the State of California, even though the 
State projected Medicaid program growth from FFY 1996 to FFY 1997, its 
FFY 1996 DSH allotment was greater than its FFY 1997 12 percent limit. 
For the State of Hawaii, the State projected a decrease in its FFY 1997 
medical assistance expenditures such that its FFY 1997 12 percent limit 
was lower than its FFY 1996 DSH allotment.
    When we published the preliminary State DSH allotments for FFY 1997 
in the Federal Register on January 31, 1997, for the first time since 
we began publishing the DSH allotments, there were State supplemental 
amounts available for redistribution to low-DSH States for FFY 1997. 
However, in the final FFY 1997 State DSH allotments published in this 
notice, there are no State supplemental amounts. This is due to changes 
in the States' estimated expenditures for FFY 1997, and from the use of 
the actual Medicaid expenditures for FFY 1996 in these final allotments 
from those used in determining the preliminary FFY 1997 State DSH 
allotments.
    Under section 1923(f)(3) of the Act and implementing regulations at 
42 CFR 447.298(e), the State supplemental amount, if any, is equal to a 
low-DSH State's relative share of a pool of funds (the redistribution 
pool). The redistribution pool is equal to the national 12-percent DSH 
payment target reduced by the sum of: the total of the base allotments 
for high-DSH States, the total of the State DSH allotments for the 
previous FFY for low-DSH States, and the total of the low-DSH State 
growth amounts. However, in determining the final FFY 1997 State DSH 
allotments published in this notice, the projected FFY 1997 national 
12-percent DSH payment target is less than the sum of these amounts. 
Therefore, there is no redistribution pool and no supplemental amounts 
available for low-DSH States for FFY 1997.
    In accordance with section 1923(f)(3) of the Act and 42 CFR 
447.298(e), we determine each low-DSH State's supplemental amount by 
determining the State's relative share of the national redistribution 
pool, if available, on the basis of the State's total medical 
assistance expenditures for FFY 1997 compared to the sum of the medical 
assistance expenditures for the year for all low-DSH States. However, 
we will not provide any low-DSH State with a supplemental amount that 
would result in the State's total DSH allotment exceeding 12 percent of 
the State's projected medical assistance expenditures. Any supplemental 
amounts that cannot be allocated to a low-DSH State because of this 
limitation will be reallocated to other low-DSH States whose allotment 
does not exceed this 12-percent limit.
    As prescribed in the law and regulations, no State's DSH allotment 
will be below a minimum of $1,000,000.
    As an exception to the above requirements, under section 
1923(f)(1)(A)(i)(II) of the Act and regulations at 42 CFR 447.296(b)(5) 
and 447.298(f), a State may make DSH payments for a FFY in accordance 
with the minimum payment adjustments required by Medicare methodology 
described in section 1923(c)(1) of the

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Act. The final FFY 1997 State DSH allotments for the District of 
Columbia, Iowa, and Nebraska have been determined in accordance with 
this exception.
    We are publishing in this notice the final FFY 1997 national DSH 
payment target and State DSH allotments based on the best available 
data we received to date from the States, as adjusted by HCFA. These 
data are taken from each State's actual Medicaid expenditures for FFY 
1996 as reported on the States' quarterly expenditure report Form HCFA-
64 submissions and the FFY 1997 projected Medicaid expenditures as 
reported on the February 15, 1997 Medicaid Budget Report (Form HCFA-37) 
submission. All data are adjusted as necessary.

II. Calculations of the Final FFY 1997 DSH Limits

    The total of the final State DSH allotments for FFY 1997 is equal 
to the sum of: the base allotments for all high-DSH States, the FFY 
1996 State DSH allotments for all low-DSH States (including any 
adjustments required because of the 12 percent limitation), the growth 
amounts for all low-DSH States, and the supplemental amounts for all 
low-DSH States. A State-by-State breakdown is presented in section III 
of this notice.
    We classified States as high-DSH or low-DSH States. If a State's 
base allotment exceeded 12 percent of its total unadjusted medical 
assistance expenditures (excluding administrative costs) projected to 
be made under the State's approved plan under title XIX of the Act in 
FFY 1997, we classified that State as a ``high-DSH'' State. If a 
State's base allotment was 12 percent or less of its total unadjusted 
medical assistance expenditures projected to be made under the State's 
approved plan under title XIX of the Act in FFY 1997, we classified 
that State as a ``low-DSH'' State. Based on this classification, there 
are 37 low-DSH States and 13 high-DSH States for FFY 1997.
    Using the most recent data from the States' February 1997 budget 
projections (Form HCFA-37), we estimate the States' FFY 1997 national 
total medical assistance expenditures to be $169,259,338,000. Thus, the 
overall final FFY 1997 national DSH payment target is $20,311,121,000 
(12 percent of $169,259,338,000).
    In the final FFY 1997 State DSH allotments, we provide a total of 
$873,722,000 ($461,188,000 Federal share) in growth amounts for 35 of 
the 37 low-DSH States. The FFY 1997 growth amounts for low-DSH States 
are determined by multiplying the low-DSH States' final FFY 1996 State 
DSH allotments by the growth factor percentage for those States. The 
growth factor percentage for each of the low-DSH States is determined 
by calculating the States' percentage change in Medicaid program 
expenditures (including administrative expenditures) between FFY 1996 
and FFY 1997. To compute this percentage, we first ascertained each 
low-DSH State's total FFY 1996 actual medical assistance and 
administrative expenditures as reported on the State's four quarterly 
Medicaid expenditure reports (Form HCFA-64) for FFY 1996. Next, we 
compared those expenditures to each low-DSH State's total estimated 
unadjusted FFY 1997 medical assistance and administrative expenditures, 
as reported to HCFA on the State's February 15, 1997 Form HCFA-37 
through the ``cutoff'' date of March 26, 1997. The cutoff date is the 
date through which the State's budget estimates reported on the 
February 15, 1997 Form HCFA-37 are accepted and applied in preparing 
the State's Medicaid grant award for the upcoming quarter (in this 
case, April through June 1997).
    No final FFY 1997 redistribution pool is available, since the final 
FFY 1997 national DSH payment target of $20,311,121,000 is less than 
$20,335,510,000, representing the sum of: the total of the base 
allotments for high-DSH States ($7,375,265,000), the total of the State 
DSH allotments for the previous FFY for low-DSH States 
($12,091,807,000), and the growth amounts for low DSH States 
($873,722,000) and the negative adjustment for the States of California 
and Hawaii due to the 12 percent limitation requirement ($3,003,000 and 
$2,281,000, respectively). That is, this sum exceeds the national 
target by $24,390,000.
    The supplemental amount for each low-DSH State is the low-DSH 
State's relative share of the redistribution pool, determined by 
allocating the redistribution pool on the basis of the low-DSH State's 
medical assistance expenditures compared to the national total medical 
assistance expenditures for low-DSH States.
    A low-DSH State's growth amount and supplemental amounts, if any, 
are added to the low-DSH State's final FFY 1996 DSH allotment amount to 
establish the final total low-DSH State's DSH allotment for FFY 1997. 
If a low-DSH State's growth amount and supplemental amount (if any), 
when added to its final FFY 1996 DSH allotment amount, exceed 12 
percent of its FFY 1997 estimated medical assistance expenditures, the 
State can only receive a partial growth amount that, when added to its 
final FFY 1996 allotment, limits its total State DSH allotment for FFY 
1997 to 12 percent of its estimated FFY 1997 medical assistance 
expenditures. Eleven of the low-DSH States were affected by the 12 
percent limitation requirement. Nine of these low-DSH States received 
partial growth amounts, and two low-DSH States' (California and Hawaii) 
final FFY 1997 State DSH allotment are lower than their final FFY 1996 
State DSH allotments.
    Also, in accordance with the minimum payment adjustments required 
by Medicare methodology, the final FFY 1997 State DSH allotments for 
the District of Columbia, Iowa, and Nebraska are $79,920,000, 
$16,910,000, and $13,366,000, respectively.
    In summary, the total of all final State DSH allotments for FFY 
1997 is $20,335,510,000 ($11,475,206,000 Federal share). This total is 
composed of the high-DSH States' base allotments ($7,375,265,000), the 
low-DSH States' prior FFY's final State DSH allotments 
($12,091,807,000), and the growth amounts for all low-DSH States 
($873,722,000), and the negative adjustment for the States of 
California and Hawaii due to the 12 percent limitation requirement 
($3,003,000 and $2,281,000, respectively), plus supplemental amounts 
for low-DSH States ($0). The total of all final FFY 1997 State DSH 
allotments is 12.0 percent of the total medical assistance expenditures 
(excluding administrative costs) projected to be made by these States 
in FFY 1997.
    Each State should monitor and make any necessary adjustments to its 
DSH spending during FFY 1997 to ensure that its actual FFY 1997 DSH 
payment adjustment expenditures do not exceed its State DSH allotment 
for FFY 1997 published in this notice. As the ongoing reconciliation 
between actual FFY 1997 DSH payment adjustment expenditures and the FFY 
1997 DSH allotments takes place, each State should amend its plan as 
may be necessary to make any adjustments to its FFY 1997 DSH payment 
adjustment expenditure patterns so that the State will not exceed its 
FFY 1997 DSH allotment.
    The FFY 1997 reconciliation of DSH allotments to actual 
expenditures will take place on an ongoing basis as States file 
expenditure reports with HCFA for DSH payment adjustment expenditures 
applicable to FFY 1997. Additional DSH payment adjustment expenditures 
made in succeeding FFYs that are applicable to FFY 1997 will continue 
to be reconciled with each State's FFY 1997 DSH allotment as additional

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expenditure reports are submitted to ensure that the FFY 1997 DSH 
allotment is not exceeded. As a result, any DSH payment adjustment 
expenditures for FFY 1997 in excess of the FFY 1997 DSH allotment will 
be disallowed, and therefore, subject to the normal Medicaid 
disallowance procedures.

III. Final FFY 1997 DSH Allotments

Key to Chart:

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                       Column                                                 Description                       
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Column A =..........................................  Name of State                                             
Column B =..........................................  High or Low DSH State Designation for FFY 1997. ``High''  
                                                       indicates the State is a high-DSH State and ``Low''      
                                                       indicates the State is a low-DSH State.                  
Column C =..........................................  Final FFY 1996 DSH Allotments for All States. These were  
                                                       published in the Federal Register on September 23, 1996  
                                                       (61 FR 49781).                                           
Column D =..........................................  Base Allotments for High-DSH States. The base allotment is
                                                       the greater of the high-DSH State's FFY 1992 allowable   
                                                       DSH payment adjustment expenditures applicable to FFY    
                                                       1992, or $1,000,000. ``NA, LOW DSH'' entries in this     
                                                       column refer to low-DSH States.                          
Column E =..........................................  Growth Amounts for Low-DSH States. The growth amount is an
                                                       increase in a low-DSH State's final FFY 1996 DSH         
                                                       allotment to the extent that the State's Medicaid program
                                                       grew between FFY 1996 and FFY 1997. ``NA, HIGH DSH''     
                                                       entries in this column refer to high-DSH States, which   
                                                       receive no growth. ``NONE, NO GROWTH'' entries in this   
                                                       column refer to low-DSH States whose Medicaid program had
                                                       no increase or a decrease from FFY 1996 to FFY 1997.     
Column F =..........................................  Supplemental Amounts for Low-DSH States. The supplemental 
                                                       amount is the low-DSH State's relative share of the      
                                                       national redistribution pool. ``NA, HIGH DSH'' entries in
                                                       this column refer to high-DSH States, which do not       
                                                       receive supplemental amounts. ``NONE, LOW AT 12%''       
                                                       entries in this column refer to low-DSH States which do  
                                                       not receive any supplemental amounts because their DSH   
                                                       allotments are already at the State specific 12 percent  
                                                       limit.                                                   
Column G =..........................................  Final FFY 1997 State DSH Allotments. For a high-DSH State,
                                                       this is equal to the base allotment from column D. For a 
                                                       low-DSH State, this is equal to the final State DSH      
                                                       allotment for FFY 1996 from column C plus, if any, the   
                                                       growth amount from column E and the supplemental amount  
                                                       from column F.                                           
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IV. Regulatory Impact Statement

    The Regulatory Flexibility Act, 5 U.S.C. 601 through 612, requires 
a regulatory flexibility analysis for every rule subject to proposed 
rulemaking procedures under the Administrative Procedure Act, 5 U.S.C. 
552, unless we certify that the rule will not have a significant 
economic impact on a substantial number of small entities. For purposes 
of a RFA, States and individuals are not considered small entities. 
However, providers are considered small entities. Additionally, section 
1102(b) of the Act requires us to prepare a regulatory impact analysis 
if a notice may have a significant impact on the operations of a 
substantial number of small rural hospitals. Such an analysis must 
conform to the provisions of section 604 of the RFA. For purposes of 
section 1102(b) of the Act, we define a small rural hospital as a 
hospital that is located outside of a Metropolitan Statistical Area and 
has fewer than 50 beds.
    We do not believe that this notice will have a significant economic 
impact on a substantial number of small entities because it reflects no 
new policies or procedures, and should have an overall positive impact 
on payments to disproportionate share hospitals by informing States of 
the extent to which DSH payments may be increased without violating 
statutory limitations. This notice sets forth no changes in our 
regulations; rather, it reflects the DSH allotments for each State as 
determined in accordance with 42 CFR 447.297 through 447.299.
    We have discussed the method of calculating the preliminary FFY 
1997 national DSH payment target and the preliminary FFY 1997 
individual State DSH allotments in the previous sections of this 
preamble. These calculations should have a positive impact on payments 
to disproportionate share hospitals. Allotments will not be reduced for 
high-DSH States since we interpret the 12-percent limit as a target. 
Low-DSH States' allotments are equal to their prior FFY DSH allotments 
plus their growth and supplemental amounts, if any.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.
(Catalog of Federal Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: June 5, 1997.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
    Dated: July 24, 1997.
Donna E. Shalala,
Secretary.
[FR Doc. 97-24281 Filed 9-12-97; 8:45 am]
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