[Federal Register Volume 65, Number 101 (Wednesday, May 24, 2000)]
[Rules and Regulations]
[Pages 33616-33633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-12879]



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Part II





Department of Health and Human Services





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Health Care Financing Administration



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42 CFR Parts 447 and 457

45 CFR Parts 92 and 95



State Child Health; States Children's Health Insurance Program 
Allotments and Payments to States; Final Rule and Notices

  Federal Register / Vol. 65, No. 101 / Wednesday May 24, 2000 / Rules 
and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 92 and 95

Health Care Financing Administration

42 CFR Parts 447 and 457

[HCFA-2114-F]
RIN 0938-AI65


State Child Health; State Children's Health Insurance Program 
Allotments and Payments to States

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

ACTION: Final rule.

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SUMMARY: This rule sets forth the methodologies and procedures to 
determine the allotments of Federal funds for each Federal fiscal year 
(FY) available to individual States, Commonwealths and Territories 
under title XXI of the Social Security Act. This rule also specifies 
the allotment, payment, and grant award process that will be used for 
the States, the Commonwealths and Territories to claim and receive 
Federal financial participation (FFP) for expenditures under the State 
Children's Health Insurance Program (SCHIP) and related Medicaid 
program provisions.
    Established by section 4901 of the Balanced Budget Act of 1997 
(Public Law 105-33), amended by technical amendments (made by Public 
Law 105-100), and most recently amended by the Medicare, Medicaid and 
SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Public Law 106-
113, enacted November 29, 1999), the State Children's Health Insurance 
Program provides Federal matching funds to States to initiate and 
expand health insurance coverage to uninsured, low-income children. 
Aggregate Federal funding is limited to a fixed amount for each Federal 
fiscal year. This aggregate amount is divided into allotments for each 
State. State allotments are determined based on a statutory formula 
that divides the total available appropriation among all States with 
approved child health plans. Once determined, the amount of a State's 
allotment for a fiscal year is available for 3 years.
    We are publishing this final rule in accordance with the provisions 
of sections 2104 and 2105 of the Act that relate to allotments and 
payments to States under title XXI.

DATES: Effective Date: These regulations are effective on June 23, 
2000.

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

SUPPLEMENTARY INFORMATION:   

I. Background

    We published on March 4, 1999 a proposed rule in the Federal 
Register (64 FR 10412), that set forth the methodologies and procedures 
to determine allotments of federal funds for each federal fiscal year 
that will be available to individual States, Commonwealths and 
Territories under title XXI of the Social Security Act (the Act). This 
rule also specified the allotment, payment, and grant award process 
that would be used for the States, the Commonwealths and Territories to 
claim and receive Federal financial participation (FFP) for 
expenditures under SCHIP and related Medicaid program provisions.
    Section 4901 of the Balanced Budget Act of 1997 (BBA), Public Law 
105-33, as amended by Public Law 105-100, added title XXI to the Act, 
to assist State efforts to initiate and expand child health assistance 
to uninsured, low-income children. Under title XXI, child health 
assistance is provided primarily for obtaining health benefits coverage 
through (1) obtaining coverage that meets requirements specified in the 
law under Section 2103 of the Act; or (2) expanding benefits under the 
State's Medicaid plan under title XIX of the Act; or (3) a combination 
of both.
    Section 2104(a) of the Act appropriates funds for each of ten 
fiscal years and directs the Secretary to calculate allotments of these 
appropriated funds for each State that will be available to match the 
State expenditures for that fiscal year. Section 2104(b) of the Act 
sets forth a specific methodology for calculating allotments to the 
fifty States, while section 2104(c) of the Act sets forth a methodology 
for calculating allotments to the Commonwealths and Territories. 
Section 2104(d) of the Act requires the reduction of the title XXI 
allotment to account for Medicaid expansions funded through the 
enhanced rate authorized by title XXI. Section 2104(e) of the Act 
provides for a 3-year period of availability for each State's annual 
allotment, and section 2104(f) authorizes redistribution of unspent 
allotments at the end of that period of availability.
    Section 2105(a) and (b) of the Act requires the Secretary to make 
payments to each State with an approved State child health plan from 
its available allotment equal to a certain percentage (referred to as 
the enhanced Federal medical assistance percentage (enhanced FMAP)) of 
the State expenditures under the plan. These expenditures are primarily 
for child health assistance for targeted low-income children that meet 
the health benefits coverage requirements in section 2103 of the Act. 
Section 2105 of the Act authorizes the Secretary to establish a process 
for making payments to States for State expenditures under their title 
XXI programs. According to section 2105(c) of the Act, no more than 10 
percent of a State's total expenditures may be used for the total costs 
of: other child health assistance for targeted low-income children; 
health services initiatives; outreach; and administrative costs.
    This final rule implements these title XXI SCHIP and related title 
XIX Medicaid program financial provisions, including the allotment 
process, the payment process, financial reporting requirements, and the 
grant award process.

II. Provisions of the Proposed Rule

    Under our March 4, 1999 proposal, the new regulations for the State 
Children's Health Insurance Program would be set forth in regulations 
at 42 CFR part 457 subchapter D. The existing regulations for the 
Medicaid program containing similar general financial and related 
provisions were used as a model for SCHIP regulations. We note that 
some sections and subparts would be reserved for regulations currently 
under development related to other statutory requirements of the State 
Children's Health Insurance Program. We intend to address these and 
other statutory requirements in subsequent Federal Register documents. 
In particular, a SCHIP proposed rule was published on November 8, 1999 
in the Federal Register (64 FR 60882).
    We proposed a new subpart B in Part 457 that would address 
requirements for financial administration of the SCHIP plan. We also 
proposed a new subpart F that would specify the methodologies and 
procedures to determine the Federal allotments, and the grant award 
process that will be used for payment to States.
    Specifically, we proposed to add Secs. 457.200 through 457.238 in 
Subpart B to set forth financial administration requirements to govern 
the documentation of claims for Federal payment, the standard 
accounting practices to be used in determining claims, and the process 
for resolving disputes about those claims. We proposed to add 
Secs. 457.600 through 457.632, subpart F, that would implement the 
provisions of section 2104 of the Act, relating to the process for 
establishing the national total amounts available and the State 
specific

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allotments for a fiscal year, and section 2105 of the Act, relating to 
the process for making payments to States from their allotments. We 
also proposed to add a new section on Medicaid presumptive eligibility 
at Sec. 447.88 to subpart A.
    Certain existing general Departmental regulations in part 45 of the 
Code of Federal Regulations (CFR) subparts 92 and 95 were conformed to 
the title XXI program. We revised the sections in these subparts.

III. Analysis of and Responses to Public Comments

    We received one letter of comment on the March 4, 1999 proposed 
rule. A summary of the comments contained in that letter, and our 
responses follows.

A. Resubmission of Claims

    Comment: The commenter noted that the proposed regulations seem to 
confirm that States may carry forward SCHIP claims in excess of their 
allotments for particular fiscal years and have those claims satisfied 
out of the following year's allotments, once those funds become 
available. The commenter suggested that claims exceeding a fiscal 
year's allotment should not have to be resubmitted.
    Response: This commenter is concerned that a State should only have 
to report expenditures once, without having to resubmit them again in 
the case where the expenditures reported for a fiscal year are in 
excess of the SCHIP fiscal year allotments available in that fiscal 
year. This is already the case under the proposed rule as published in 
the Federal Register on March 4, 1999. Under Sec. 457.616(c)(2), a 
State's reported payments are applied against the State's allotment 
``based on the quarter in which the expenditures are claimed by the 
State.'' This provides the State with flexibility to decide the quarter 
in which a particular expenditure will be reported and claimed. As 
further provided in Sec. 457.616(c)(6), if the State reports 
expenditures in one fiscal year and these expenditures are in excess of 
the allotment(s) available in that fiscal year, the amount of the 
excess expenditures are carried over for application against the 
allotment(s) available in the following fiscal year when they become 
available. We designed the expenditure reporting system to 
automatically track and carry over the amounts of excess expenditures. 
Therefore, States do not need to resubmit expenditures once they are 
submitted.

B. Regulations Related to Provider Related Donations and Health Care 
Related Taxes

    Comment: The commenter suggested that HCFA should not issue SCHIP 
regulations in the area of provider-related donations and health care-
related taxes. This commenter indicated that: ``In the overview 
regarding the section, Public Funds as the State Share of Financial 
Participation (Sec. 457.220), a statement is made that HCFA is 
considering whether there is need to issue additional regulations for 
provider-related donations and health care-related taxes for SCHIP. It 
does not seem appropriate or warranted under the title XXI legislation 
to have different regulations regarding provider-related donations and 
health care-related taxes for various programs. Additions to the 
current regulations for provider-related donations and health care-
related taxes would bring unnecessary confusion and complication to 
SCHIP. We strongly urge HCFA against promulgating regulations in this 
area.''
    Response: We agree that there is the potential for confusion if 
different regulations on the provider-related donations and health 
care-related taxes provisions applied in the SCHIP and the Medicaid 
program. The quoted language was intended to reflect recognition that, 
after we have more experience with the SCHIP program, we may need to 
clarify how the basic tax and donation principles set forth in the 
Medicaid statute would apply to a SCHIP program. At this time, we do 
not intend to incorporate special provisions on provider-related 
donations and health care-related taxes into the SCHIP regulations. As 
indicated in the preamble to the proposed rule published on March 4, 
1999, in Secs. 457.220 and 457.628, we will retain the references to 
the Medicaid regulatory provisions on this issue contained in 42 CFR 
subpart B Secs. 433.51 through 433.74.

C. Carryover of Expenditures and the 10 Percent Limit

    Comment: The commenter notes that the 10 percent limit on certain 
categories of costs--administrative costs and costs of outreach, health 
services initiatives, and payment for services other than coverage--is 
applied on an annual fiscal year basis. The commenter further noted 
that SCHIP guidance documents prepared by HCFA would permit States to 
withhold submission of claims for expenditures, which would have the 
effect of allowing a carryover period for the 10 percent limit. The 
commenter requested that the final regulation expressly authorize such 
a carryover period for the 10 percent limit.
    Response: We are clarifying the regulation in this regard. While we 
agree with the commenter that we would permit States the flexibility to 
time the submission of claimed expenditures, we would not permit the 
carryover of claims for administrative costs once claimed in a 
particular fiscal year (even when no Federal payment is made based on 
those expenditures paid because they exceed the 10 percent limit for 
that fiscal year). HCFA believes its position faithfully adheres to the 
intent of the statute while permitting some administrative flexibility 
in the submission of claims and administrative simplicity in 
calculating whether the limit has been exceeded.
    As indicated in proposed Sec. 457.616(c)(2), for purposes of 
applying expenditures against the available fiscal year allotments, we 
intended to permit States flexibility in deciding the quarter in which 
they will submit the expenditures. We would make the same flexibility 
available to States with respect to the 10 percent limit referred to in 
Sec. 457.618. As specified below, in this final rule, we are amending 
Sec. 457.618 to make clear that both the expenditures used in 
calculating the 10 percent limit, and the expenditures applied against 
the 10 percent limit, are based on the quarter in which the 
expenditures are claimed by a State. We are also amending Sec. 457.616 
to make clear that the expenditures that are within a particular fiscal 
year's 10 percent limit may be applied against a subsequent fiscal 
year's available allotment or allotments for purposes of Federal 
reimbursement. This could occur when the available allotment or 
allotments for a fiscal year was exhausted. In that case, even though 
the amounts of the expenditures were within the 10 percent limit, and 
therefore, otherwise reimbursable, no Federal payment would be 
available for the expenditures because there would be no available 
allotment for that fiscal year. Therefore, we are clarifying that 
expenditures in excess of the 10 percent limit for the fiscal year 
during which they are claimed may not be applied against an allotment 
available only in a subsequent fiscal year.
    Consistent with this position that expenditures subject to the 
limits are counted in the fiscal year claimed, we are also clarifying 
that, for purposes of calculating the 10 percent limit, total program 
expenditures are counted in the fiscal year claimed as well. These 
expenditures cannot be used in more than one Federal fiscal year. For

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example, the amount of the expenditures referenced in section 
2105(a)(1) of the Act as claimed and reported by a State on the 4 
quarterly expenditure reports for FY 1998, would be used in calculating 
a State's 10 percent limit for FY 1998. These expenditures may not be 
used again for calculating a 10 percent limit for another fiscal year, 
such as for FY 1999. Similarly, the amount of the expenditures 
referenced in section 2105(a)(2) of the Act, as reported on the 4 
quarterly expenditure reports for FY 1998 would be applied against the 
10 percent limit for FY 1998; these expenditures may not be applied 
against a 10 percent limit for another fiscal year, such as for FY 
1999. Therefore, based on when they claim and report expenditures, 
States have the flexibility to determine the fiscal year 10 percent 
limit regarding which such expenditures will be applied.

IV. Provisions of the Final Regulations

    After consideration of the comments reviewed and further analysis 
of specific issues, we are adopting the March 4, 1999 proposed rule as 
final with minor editorial clarification and revisions discussed and 
identified in Section III of this preamble.
    In addition, the Medicare, Medicaid and SCHIP Balanced Budget 
Refinement Act (BBRA) of 1999 (Public Law 106-113, enacted on November 
29, 1999) contained certain provisions which are being implemented in 
this final regulation. As detailed below, these provisions are 
explicit, clear and straightforward in the statute, and we believe, 
self-implementing. Therefore, we are implementing the new provisions of 
BBRA of 1999 discussed below in this final regulation as final without 
need for public comment.

A. Inapplicability of Enhanced Match Under the SCHIP to Medicaid DSH 
Payments

    Section 605(a) of the BBRA of 1999 amends section 1905(b) of the 
Act to preclude the availability of the enhanced Federal medical 
assistance percentage (enhanced FMAP) for disproportionate share 
hospital (DSH) payments made by States under section 1923 of the Act. 
Under section 606(b) of Public Law 106-113, this amendment ``takes 
effect on October 1, 1999, and applies to expenditures made on or after 
such date.'' In general, the Federal matching rate available for 
expenditures described in sections 1905(u)(2) and (3) of the Act, 
relating to the Medicaid SCHIP expansion groups, is the enhanced FMAP 
specified in section 2105(b) of the Act and by reference in section 
1905(b) of the Act. However, section 605(a) of the BBRA of 1999 amended 
section 1905(b) of the Act to specifically preclude the availability of 
the enhanced FMAP for DSH payments made under section 1923 of the Act.
    Sections 457.616(a)(1) and (2) of this final regulation refer to 
the reduction of a State's Title XXI allotment by the amount of 
Medicaid payments made to the State on the basis of the enhanced FMAP. 
As indicated above, enhanced FMAP is no longer available for DSH 
expenditures under section 1923 of the Act, regardless of whether the 
expenditures meet other conditions for enhanced FMAP. Therefore, there 
is no need to modify these SCHIP regulations, as contained in this 
Federal Register publication. However, we also note that the proposed 
SCHIP regulations published on November 8, 1999 in the Federal Register 
at sections 42 CFR 433.10 and 433.11 would have provided for the 
availability of the enhanced FMAP under the Medicaid program. These 
proposed regulations will need to be revised to reflect the provisions 
of section 605(a) of the BBRA of 1999, which precludes enhanced match 
for DSH expenditures under section 1923 of the Act.

B. Stabilizing the SCHIP Allotment Formula

1. Acceleration of the Phase-in of Low-Income Children.
    Section 701(a)(1) of the BBRA of 1999 amended section 2104(b) of 
the Act to accelerate the phase-in of the blend of the numbers of 
uninsured low-income children and low-income children specified in the 
statute, which are used in determining the Number of Children factor. 
Prior to this legislative change, the Number of Children for FYs 1998 
through 2000 would have been based on the total number of low-income 
uninsured children in the State. As a result of the legislative change, 
the total number of uninsured low-income children in the State is only 
used for determining the Number of Children factor for FYs 1998 and 
1999. Under section 2104(b) of the Act, as amended by section 701(a)(1) 
of the BBRA of 1999, for FY 2000 the Number of Children is now 
calculated as the sum of 75 percent of the low-income, uninsured 
children in the State, and 25 percent of the number of low-income 
children in the State. Furthermore, for FY 2001 and succeeding fiscal 
years through FY 2007, the Number of Children is calculated as the sum 
of 50 percent of the low-income, uninsured children in the State, and 
50 percent of the number of low-income children in the State. Section 
457.608 of the final regulation incorporates this change.
2. Floors and Ceiling in State Allotments.
    Section 701(a)(2) of the BBRA of 1999 significantly amended and 
revised section 2104(b)(4) of the Act to impose floors and ceilings in 
the determination of the SCHIP allotments for a fiscal year, for the 
purpose of providing increased stability in SCHIP funding from fiscal 
year to fiscal year and cumulatively over a number of fiscal years, as 
compared to FY 1999. For purposes of this provision, the floors and 
ceilings are only applicable to a ``Subsection (b) State,'' which as 
defined in section 2104(b)(4)(D)(ii) of the Act, ``means one of the 50 
States or the District of Columbia.'' More specifically, the floors and 
ceilings apply only to the determination of the ``Allotments to 50 
States and District of Columbia'' under section 2104(b) of the Act, as 
distinguished from the determination of the ``Allotments to 
Territories'' under section 2104(c) of the Act. The floors and ceilings 
imposed by section 701(a)(2) of the BBRA of 1999 do not apply with 
respect to the determinations of allotments for the Commonwealths or 
Territories as prescribed in section 2104(c) of the Act.
    Under section 2104(b)(4)(D) of the Act, as amended by section 
701(a)(2) of the BBRA of 1999, for a fiscal year each State is allotted 
a ``proportion'' of the total amount available for funding under title 
XXI to all States for the fiscal year. The term ``proportion,'' as 
defined in section 2104(b)(4)(D)(i) of the Act, refers to the amount of 
the allotment for a State for a fiscal year divided by the total amount 
available nationally for all States for the fiscal year. The proportion 
for each State is the State's percentage share of the total amount 
available nationally for that fiscal year to all States. Therefore, in 
order for the entire total amount available nationally to be allotted 
to the States, the sum of the proportions for all States must exactly 
equal one; in other words, the sum of each State's percentage share, 
must exactly equal 100 percent. The determination of the proportion for 
each State is in accordance with the provisions of section 2104(b) of 
the Act, and as amended by section 701(a)(2) of the BBRA of 1999, the 
proportions will reflect the application of floors, ceilings, and a 
reconciliation process, if appropriate.
    In general, a State's allotment for a fiscal year is calculated by 
multiplying the State's proportion for the fiscal year by the national 
total amount available for allotment for that fiscal year. In

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accordance with the statutory formula for determining allotments, the 
State proportions are determined under two steps, which are described 
below in further detail.
    Under the first step, each State's proportion is calculated by 
multiplying the State's Number of Children and the State Cost Factor to 
determine a ``product'' for each State. The determination of the Number 
of Children and the State Cost Factor are described in other sections. 
The resulting products for all States are then summed. Finally, the 
product for a State is divided by the sum of the products for all 
States, thereby yielding that State's preadjusted proportion, referring 
to the State's proportion before the imposition of the floors and 
ceilings and related reconciliation provisions.
    Under the second step, the preadjusted proportions are subject to 
the application of the floors and ceilings provisions. The amended 
SCHIP statute specifies three proportion floors, or minimum 
proportions, that apply in determining States' allotments. The first 
proportion floor is equal to $2,000,000 divided by the total of the 
amount available nationally. The second proportion floor is equal to 90 
percent of the allotment proportion for the State for the previous 
fiscal year; that is, a State's proportion for a fiscal year must not 
be lower than 10 percent below the previous fiscal year's proportion. 
The third proportion floor is equal to 70 percent of the proportion for 
the State for FY 1999; that is, the proportion for a fiscal year must 
not be lower than 30 percent below the State's FY 1999 proportion.
    Each State's proportion for a fiscal year is limited by a maximum 
ceiling amount, equal to 145 percent of the State's proportion for FY 
1999; that is, a State's proportion for a fiscal year must not be 
higher than 45 percent above the State's proportion for FY 1999. The 
floors and ceilings are intended to minimize the fluctuation of State 
allotments from year to year and over the life of the program.
    As determined under the first step, which is applied prior to the 
application of any floors or ceilings, the sum of these preadjusted 
proportions for all the States will be exactly equal to one. However, 
the application of the floors and ceilings under the second step may 
change the proportions for certain States; that is, some States' 
proportions may need to be raised to the proportion floors, while other 
States' proportions may need to be lowered to the maximum proportion 
ceiling. After application of the fixed floors and ceilings, the sum of 
the (adjusted) proportions for all States may not exactly equal one. In 
that case, section 2104(b)(4)(B) of the Act requires a further 
``reconciliation'' of the proportions, under which the proportions will 
be adjusted to make the sum of the proportions exactly equal to one. 
This reconciliation process is determined in accordance to whether the 
sum of the proportions after application of the fixed floors and 
ceiling, but before reconciliation, is greater than or less than one.
    The sum of the proportions would be greater than one if the 
application of the fixed floors and ceilings resulted in the raising of 
the proportions of States (due to the floors) to a greater degree than 
the lowering of the proportions of other States (due to the ceilings). 
The sum of the proportions would be lower than one, if the application 
of the fixed floors and ceilings resulted in the lowering of the 
proportions of States (due to the ceilings) to a greater degree than 
the raising of the proportions of other States (due to the floors). It 
is at least theoretically possible, though highly unlikely, that the 
sum of the States' proportions would still exactly equal one after the 
application of the fixed floors and ceilings. In that case, no further 
reconciliation would be necessary, and the proportions would be the 
same as the preadjusted proportions.
    Finally, section 2104(b)(4)(C) of the Act, requires that the floors 
and ceilings provisions under section 2104(b)(4) of the Act, must not 
apply or take into account the amounts of allotments that might be 
redistributed in accordance with section 2104(f) of the Act. Therefore, 
the total amount available to States nationally in a fiscal year, would 
not include any redistributed amounts in that year.
    Under the reconciliation process, if the application of the fixed 
floors and ceilings results in the sum of the States' proportions being 
greater than one, section 2104(b)(4)(B)(i) of the Act requires the 
Secretary to establish a maximum percentage increase in States' 
proportions, such that when applied to the State proportions the sum of 
the proportions would exactly equal one. If the application of the 
fixed floors and ceilings results in the sum of the States' proportions 
being less than one, section 2104(b)(4)(B)(ii) of the Act requires the 
Secretary to increase States' proportions (as computed before the 
application of the fixed floors) in a pro rata manner (but not to 
exceed the 145 percent ceiling), such that when applied to the State 
proportions the sum of the proportions would exactly equal one.
    These final regulations are revised to conform to the provisions of 
section 701(a)(2) of BBRA of 1999 discussed above, specifically:
    Section 457.608(e)(3)(A) specifies the provisions in section 
2104(b)(4)(A) of the Act related to the fixed floors and ceilings.
    Section 457.608(e)(3)(B) specifies the provisions in section 
2104(b)(4)(B) of the Act related to the reconciliation process.
    Section 457.608(b) specifies the provision in section 2104(b)(4)(D) 
of the Act related to the definition of proportion.
    Section 457.608(a)(3) specifies the provisions in section 
2104(b)(4)(C) of the Act related to the redistribution process.
3. Availability of Data From the Bureau of the Census
    Under section 2104(b)(2)(B) of the Act, as amended by section 
701(a)(3) of the BBRA of 1999, the Number of Children for each State 
(provided in thousands) for a fiscal year is determined and provided by 
the Bureau of the Census based on the arithmetic average of the number 
of low-income children and low-income children with no health insurance 
as calculated from the three most recent March supplements to the 
Current Population Survey (CPS) officially available from the Bureau of 
the Census before the beginning of the calendar year in which the 
fiscal year begins. For example, FY 2000 begins on October 1, 1999; 
that is, FY 2000 begins during calendar year 1999. Therefore, the 
Number of Children for each State for FY 2000 would be based on the 
most recent 3 years of the Bureau of the Census CPS data officially 
available before January 1, 1999 (the beginning of the calendar year in 
which FY 2000 begins), that is, it would be based on the Bureau of the 
Census CPS data officially available through December 31, 1998. Section 
457.608(e)(2) of the final regulation in the discussion for ``Number of 
Children'' incorporates this change.
4. Availability of Data From the Bureau of Labor Statistics
    Under section 2104(b)(3)(B) of the Act, as amended by section 
701(a)(4) of the BBRA of 1999, the State Cost Factor for each State for 
a fiscal year is calculated based on the average of the annual wages 
for employees in the health industry for each State as reported, 
determined, available as final, and provided to HCFA by the Bureau of 
Labor Statistics (BLS) in the Department of Labor for each of the most 
recent 3 years available before the beginning of the calendar year in 
which the fiscal year begins. For example, FY 2000

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begins on October 1, 1999, that is, FY 2000 begins during calendar year 
1999. Therefore, the State cost factor for FY 2000 would be based on 
the most recent 3 years of BLS data available as final before January 
1, 1999 (the beginning of the calendar year in which FY 2000 begins); 
that is, it would be based on the BLS data available as final through 
December 31, 1998. Section 457.608(e)(2) of the final regulation in the 
discussion for ``State Cost Factor for a State'' incorporates this 
change.

C. Increased Allotments for Territories Under SCHIP

    Section 702 of the BBRA of 1999, provides for additional funds 
available for allotment only to the Commonwealths and Territories. 
Under this new provision, an additional $34.2 million is made available 
for allotment to the Commonwealths and Territories in fiscal years 2000 
and 2001; $25.2 million in FYs 2002 through 2004; $32.4 million for 
fiscal years 2005 and 2006; and $40 million for FY 2007. These amounts 
would be added to the amounts previously available for allotment to the 
Commonwealths and Territories, that is, the amount determined as .25 
percent of the appropriation amount for the fiscal year specified at 
section 2104(a) of the Act. Section 457.608(d) of these final 
regulations contains the amounts available for allotment to the 
Commonwealths and Territories.

D. References to SCHIP and State Children's Health Insurance Program

    Section 704 of the BBRA of 1999 requires the Secretary of the U.S. 
Department of Health and Human Services or any other Federal officer or 
employee, with respect to any reference to the program under title XXI 
of the Act in any publication or official communication, to use the 
term ``SCHIP'' instead of the term ``CHIP,'' and the term ``State 
children's health insurance program'' instead of ``children's health 
insurance program.'' This final regulation incorporates the application 
of these terms, as required by section 704 of the BBRA of 1999.

V. Regulatory Impact Statement

    We have examined the impacts of this final rule as required by 
Executive Order 12866, the Unfunded Mandate Reform Act of 1995 (Public 
Law 104-4), and the Regulatory Flexibility Act (RFA) (Public Law 96-
354). Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, when regulations are 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic environments, public health and safety, 
other advantages, distributive impacts, and equity). In addition, a 
Regulatory Impact Analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more annually).
    The Unfunded Mandates Reform Act of 1995 requires that agencies 
prepare an assessment of anticipated costs and benefits before 
proposing any rule that may result in an expenditure in any year by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100,000,000 or more (adjusted each year for 
inflation). Because participation in the SCHIP program on the part of 
States is voluntary, any payments and expenditures States make or incur 
on behalf of the program that are not reimbursed by the federal 
government are made voluntarily. These regulations will implement 
narrowly defined statutory language on the allocation of funds for 
SCHIP and will not create unfunded mandate on States, tribal or local 
governments. Therefore, we are not required to perform an assessment of 
the costs and benefits of these regulations.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any final rule that 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. With the exception of hospitals located in 
certain rural counties adjacent to urban areas, 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.
    This final rule sets forth the methodologies and procedures to 
determine the Federal fiscal year allotments of Federal funds available 
to individual States, Commonwealths and Territories for the new State 
Children's Health Insurance Program established under title XXI of the 
Act. This rule also establishes in regulations the payment and grant 
award process that will be used for the States, the Commonwealths and 
Territories to claim and receive FFP for expenditures under the SCHIP 
and related Medicaid program provisions.
    Budget authority for title XXI is statutorily specified in Section 
2104(a) of the BBA with additional money authorized in Public Law 105-
100. The total national amount available for allotment to the 50 
States, the District of Columbia, and the Commonwealths and Territories 
for the life of SCHIP, is established as follows:

                       Total Amount of Allotments
------------------------------------------------------------------------
                         Year                                Amount
------------------------------------------------------------------------
1998.................................................     $4,235,000,000
1999.................................................      4,247,000,000
2000.................................................      4,249,200,000
2001.................................................      4,249,200,000
2002.................................................      3,115,200,000
2003.................................................      3,175,200,000
2004.................................................      3,175,200,000
2005.................................................      4,082,400,000
2006.................................................      4,082,400,000
2007.................................................      5,040,000,000
------------------------------------------------------------------------

    The spending levels shown in the table above are based entirely on 
the spending and allocation formulas contained in the statute. The 
Secretary has no discretion over these spending levels and initial 
allotments of funds allocated to States. In addition, under Public Law 
105-277, an additional $32 million was appropriated for allotment only 
to the Commonwealths and Territories, and only for FY 1999, and is 
included in the amount listed for FY 1999 in the chart above. Section 
702 of the BBRA of 1999 also provided for additional funds available 
for allotment only to the Commonwealths and Territories. Under this new 
provision, an additional $34.2 million is made available for allotment 
to the Commonwealths and Territories in fiscal years 2000 and 2001; 
$25.2 million in fiscal years 2002 through 2004; $32.4 million for 
fiscal years 2005 and 2006; and $40 million for fiscal year 2007.
    Furthermore, under sections 4921 and 4922 of Public Law 105-33, the 
total amount available for allotment to the 50 States and the District 
of Columbia is reduced by an additional total of $60,000,000; 
$30,000,000 each for a special diabetes research program for Type I 
diabetes and special diabetes programs for Indians. The diabetes 
programs are funded from FYs 1998 through 2002 only.
    Administrative resources needed in HCFA's Program Management 
account to carry out the new responsibilities of the State Children's 
Health Insurance Program have been estimated at $10.1 million.
    For these reasons, we are not preparing an analysis for either the 
RFA or Section 1102(b) of the Act because we have determined, and we 
certify, that this rule will not have a significant economic impact on 
a substantial number of small entities or a significant impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

[[Page 33621]]

IV. Federalism

    Under Executive Order 13132, this regulation will not significantly 
affect the States beyond what is required by title XXI of the Act. It 
follows the intent and letter of the law and does not preempt State 
authority beyond what title XXI requires. This regulation describes 
only the methodologies and procedures to determine the Federal fiscal 
year allotments of Federal funds and proposes the allotment, payment, 
and grant award processes applicable to individual States, 
Commonwealths, and Territories for SCHIP, established under title XXI 
of the Act.
    We have included various provisions throughout this regulation that 
demonstrate our intention to cooperate with the States. For example, in 
the implementation of title XXI and the development of these 
regulations, we established a process under which, during the period 
when States were developing their programs, SCHIP allotments were 
determined and ``reserved'' for each State for the fiscal year, 
regardless of whether the State had submitted and had an approved State 
child health plan. Accordingly, for FYs 1998 and 1999, we published 
``reserved'' allotments at the beginning of each fiscal year; the 
``final'' allotments to be published at a later date. By publishing the 
``reserved'' allotments during the early stages of title XXI 
implementation, our intention was to provide States with the 
flexibility and time needed to develop their programs and to submit 
their State child health plans. Every State, Commonwealth and Territory 
qualified for an allotment by having an approved State child health 
plan prior to the start of FY 2000. As a result, so long as all States, 
Commonwealths, and Territories continue to qualify for allotments, the 
allotments for FY 2000 and future years can be published as ``final'' 
rather than ``reserved.''
    In addition, training sessions led by HCFA were held throughout the 
country in 1998, with almost all States in attendance, on the financial 
and reporting aspects of title XXI. These presentations were designed 
to initiate a dialogue with the States and to obtain their input. 
States also provided substantial input following distribution of a 
December 8, 1998, all State letter intended to provide guidance to 
States on reporting for purposes of program monitoring and evaluation, 
including the submission of quarterly expenditure and financial/
statistical reports and the Federal fiscal year 1998 annual reports. 
States were among those who provided comments on the March 4, 1999, 
proposed rule, as well as the Federal Register notices of September 12, 
1997 (62 FR 48098), and February 8, 1999 (64 FR 6102), both of which 
listed reserved allotments for the States, District of Columbia, and 
Commonwealth and Territories.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, agencies are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved, Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 
requires that we solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of the agency's estimate of the information 
collection burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.

Section 457.226  Fiscal Policies and Accountability

    A State plan must provide that the SCHIP agency and, where 
applicable, local agencies administering the plan will; (a) Maintain 
supporting fiscal records to assure that claims for Federal funds are 
in accord with applicable Federal requirements, (b) retain records for 
3 years from date of submission of a final expenditure report, (c) 
maintain records beyond the 3-year period if audit findings have not 
been resolved, and (d) retain certain records for nonexpendable 
property acquired under a Federal grant for 3 years from the date of 
final disposition of that property.
    We have determined that these record keeping requirements meet the 
criteria set forth in 5 CFR 1320.3, (b)(2) and (b)(3) (usual and 
customary burden). Therefore, there is no burden imposed by these 
requirements.

Section 457.234  State Plan Requirements

    A State plan must describe the policy and the methods to be used in 
setting payment rates for each type of service included in the State's 
SCHIP program.
    The burden associated with this requirement is captured pursuant to 
the completion of HCFA collection, HCFA-R-211, approved under OMB 
number 0938-0707.

Section 457.238  Documentation of Payment Rates

    The SCHIP agency must maintain documentation of payment rates and 
make it available to HHS upon request.
    We have determined that these record keeping requirements meet the 
criteria forth in 5 CFR 1320.3, (b)(2) and (b)(3) (usual and customary 
burden). Therefore, there is no burden imposed by these requirements.

Section 457.606  Conditions for State Allotments and Federal Payments 
for a Fiscal Year

    In order to receive a State allotment for a fiscal year, a State 
must have a State child health plan submitted in accordance with 
Section 2106 of the Act and approved by the end of the fiscal year.
    The burden associated with the submission of the State Child Health 
Plan is currently captured in accordance with the completion of the 
HCFA-R-211, approved under OMB number 0938-0707.

Section 457.614  General Payment Process

    In order to receive FFP for a State's claims for payment for the 
State's expenditures, a State must submit budget estimates of quarterly 
funding requirements for Medicaid and the State Children's Health 
Insurance Programs and submit an expenditure report.
    The burden associated with these reporting requirements are 
currently captured in accordance with the completion of HCFA 
collections, HCFA-21, HCFA-37, and HCFA-64. The OMB control numbers for 
these collections are 0938-0731, 0938-0101, and 0938-0067, 
respectively.

Section 457.630  Grants procedures

    A State must submit a budget request in an appropriate format for 
the first 3 quarters of the fiscal year. In addition a State must 
submit a budget request for the fourth quarter of the fiscal year.
    The State Children's Health Insurance Program Agency must submit 
Form HCFA-21B (State Children's Health Insurance Program Budget Report 
for State Children's Health Insurance Program State expenditures) to 
the HCFA central office (with a copy to the HCFA regional office) 45 
days before the beginning of each quarter.
    The State must submit Form HCFA-64 (Quarterly Medicaid Statement of 
Expenditures for the Medical Assistance Program) and Form HCFA-21 
(Quarterly State Children's Health Insurance

[[Page 33622]]

Program Statement of Expenditures for title XXI), to central office 
(with a copy to the regional office) not later than 30 days after the 
end of the quarter.
    The burden associated with these reporting requirements are 
currently captured in accordance with the completion of HCFA 
collections, HCFA-21, HCFA-37, and HCFA-64. The OMB control numbers for 
these collections are 0938-0731, 0938-0101, and 0938-0067, 
respectively.
    We have submitted a copy of this final rule to OMB for its review 
of the information collection requirements in Secs. 457.226, 457.234, 
457.238, 457.606, 457.614, and 457.630.
    If you comment on any of these information collection and 
recordkeeping requirements, please mail 3 copies directly to the 
following:

Health Care Financing Administration, Office of Information Services, 
Information Technology Investment Management Group, Division of HCFA 
Enterprise Standards, Room N2-14-16, 7500 Security Boulevard, 
Baltimore, MD 21244-1850. ATTN: John Burke, HCFA-2114-F, and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503. ATTN: Allison Herron Eydt, HCFA Desk Officer

List of Subjects

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs-health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.

42 CFR Part 457

    Administrative practice and procedure, Grant programs-health, State 
Children's Health Insurance Program, Reporting and record keeping 
requirements.

42 CFR Part 92

    Accounting, Grant Programs, Indians, Intergovernmental Relations, 
Reporting & record keeping requirements.

42 CFR Part 95

    Claims, Computer technology, Grant programs--Health, Grant 
programs--Social programs, Reporting and recordkeeping requirements.

    42 CFR chapter IV, and 45 CFR subtitle A are amended as set forth 
below:
    A. 45 CFR part 447 is amended as follows:

PART 447--PAYMENTS FOR SERVICES

    1. The authority citation continues to read as follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 447.88 is added to read as follows:

Subpart A--Payments: General Provisions


Sec. 447.88  Options for claiming FFP payment for section 1920A 
presumptive eligibility medical assistance payments.

    (a) The FMAP rate for medical assistance payments made available to 
a child during a presumptive eligibility period under section 1920A of 
the Act is the regular FMAP under title XIX, based on the category of 
medical assistance; that is, the enhanced FMAP is not available for 
section 1920A presumptive eligibility expenditures.
    (b) States have the following 3 options for identifying Medicaid 
section 1920A presumptive eligibility expenditures and the application 
of payments for those expenditures:
    (1) A State may identify Medicaid section 1920A presumptive 
eligibility expenditures in the quarter expended with no further 
adjustment based on the results of a subsequent actual eligibility 
determination (if any).
    (2) A State may identify Medicaid section 1920A presumptive 
eligibility expenditures in the quarter expended but may adjust 
reported expenditures based on results of the actual eligibility 
determination (if any) to reflect the actual eligibility status of the 
individual, if other than presumptively eligible.
    (3) A State may elect to delay submission of claims for payments of 
section 1920A presumptive eligibility expenditures until after the 
actual eligibility determination (if any) is made and, at that time 
identify such expenditures based on the actual eligibility status of 
individuals if other than presumptively eligible. At that time, the 
State would, as appropriate, recategorize the medical assistance 
expenditures made during the section 1920A presumptive eligibility 
period based on the results of the actual eligibility determination, 
and claim them appropriately.

    B. A new subchapter D--CHILDREN'S HEALTH INSURANCE PROGRAMS is 
added, to read as follows:

SUBCHAPTER D--STATE CHILDREN'S HEALTH INSURANCE PROGRAMS (SCHIPs)

PART 457--ALLOTMENTS AND GRANTS TO STATES

Subpart A--[Reserved]
Subpart B--General Administration--Reviews and Audits; Withholding for 
Failure to Comply; Deferral and Disallowance of Claims; Reduction of 
Federal Medical Payments
Sec.
457.200   Program reviews.
457.202   Audits.
457.204   Withholding of payment for failure to comply with Federal 
requirements.
457.206   Administrative appeals under SCHIP.
457.208   Judicial review.
457.210   Deferral of claims for FFP.
457.212   Disallowance of claims for FFP.
457.216   Treatment of uncashed or canceled (voided SCHIP checks).
457.218   Repayment of Federal funds by installments.
457.220   Public funds as the State share of financial 
participation.
457.222   FFP for equipment.
457.224   FFP: Conditions relating to cost sharing.
457.226   Fiscal policies and accountability.
457.228   Cost allocation.
457.230   FFP for State ADP expenditures.
457.232   Refunding of Federal share of SCHIP overpayments to 
providers and referral of allegations of waste, fraud or abuse of 
the Office of Inspector General.
457.234   State plan requirements.
457.236   Audit of records.
457.238   Documentation of payment rates.
Subparts C through E--[Reserved]
Subpart F--Payment to States
457.600   Purpose and basis of this subpart.
457.602   Applicability.
457.606   Conditions for State allotments and Federal payments for a 
fiscal year.
457.608   Process and calculation of State allotments for a fiscal 
year.
457.610   Period of availability for State allotments for a fiscal 
year.
457.614   General payment process.
457.616   Application and tracking of payments against the fiscal 
year allotments.
457.618   Ten percent limit on certain State Children's Health 
Insurance Program expenditures.
457.622   Rate of FFP for State expenditures.
457.624   Limitations on certain payments for certain expenditures.
457.626   Prevention of duplicate payments.
457.628   Other applicable Federal regulations.
457.630   Grants procedures.

    Authority: Section 1102 of the Social Security Act (42 U.S.C. 
1302).

[[Page 33623]]

Subpart A--[Reserved]

Subpart B--General Administration--Reviews and Audits; Withholding 
for Failure to Comply; Deferral and Disallowance of Claims; 
Reduction of Federal Medical Payments


Sec. 457.200  Program reviews.

    (a) Review of State and local administration of the SCHIP plan. In 
order to determine whether the State is complying with the Federal 
requirements and the provisions of its plan, HCFA reviews State and 
local administration of the SCHIP plan through analysis of the State's 
policies and procedures, on-site reviews of selected aspects of agency 
operation, and examination of samples of individual case records.
    (b) Action on review findings. If Federal or State reviews reveal 
serious problems with respect to compliance with any Federal or State 
plan requirement, the State must correct its practice accordingly.


Sec. 457.202  Audits.

    (a) Purpose. The Department's Office of Inspector General (OIG) 
periodically audits State operations in order to determine whether --
    (1) The program is being operated in a cost-efficient manner; and
    (2) Funds are being properly expended for the purposes for which 
they were appropriated under Federal and State law and regulations.
    (b) Reports. (1) The OIG releases audit reports simultaneously to 
State officials and the Department's program officials.
    (2) The reports set forth OIG opinion and recommendations regarding 
the practices it reviewed, and the allowability of the costs it 
audited.
    (3) Cognizant officials of the Department make final determinations 
on all audit findings.
    (c) Action on audit exceptions. (1) Concurrence or clearance. The 
State agency has the opportunity of concurring in the exceptions or 
submitting additional facts that support clearance of the exceptions.
    (2) Appeal. Any exceptions that are not disposed of under paragraph 
(c)(1) of this section are included in a disallowance letter that 
constitutes the Department's final decision unless the State requests 
reconsideration by the Appeals Board. (Specific rules are set forth in 
Sec. 457.212.)
    (3) Adjustment. If the decision by the Board requires an adjustment 
of FFP, either upward or downward, a subsequent grant award promptly 
reflects the amount of increase or decrease.


Sec. 457.204  Withholding of payment for failure to comply with Federal 
requirements.

    (a) Basis for withholding. HCFA withholds payments to the State, in 
whole or in part, only if, after giving the State notice, a reasonable 
opportunity for correction, and an opportunity for a hearing, the 
Administrator finds--
    (1) That the plan is in substantial noncompliance with the 
requirements of title XXI of the Act; or
    (2) That the State is conducting its program in substantial 
noncompliance with either the State plan or the requirements of title 
XXI of the Act. (Hearings are generally not called until a reasonable 
effort has been made to resolve the issues through conferences and 
discussions. These efforts may be continued even if a date and place 
have been set for the hearing.)
    (b) Noncompliance of the plan. A question of noncompliance of a 
State plan may arise from an unapprovable change in the approved State 
plan or the failure of the State to change its approved plan to conform 
to a new Federal requirement for approval of State plans.
    (c) Noncompliance in practice. A question of noncompliance in 
practice may arise from the State's failure to actually comply with a 
Federal requirement, regardless of whether the plan itself complies 
with that requirement.
    (d) Notice, reasonable opportunity for correction, and 
implementation of withholding. If the Administrator makes a finding of 
noncompliance under paragraph (a) of this section, the following steps 
apply:
    (1) Preliminary notice. The Administrator provides a preliminary 
notice to the State--
    (i) Of the findings of noncompliance;
    (ii) The proposed enforcement actions to withhold payments; and
    (iii) If enforcement action is proposed, that the State has a 
reasonable opportunity for correction, described in paragraph (d)(2) of 
this section, before the Administrator takes final action.
    (2) Opportunity for corrective action. If enforcement actions are 
proposed, the State must submit evidence of corrective action related 
to the findings of noncompliance to the Administrator within 30 days 
from the date of the preliminary notification.
    (3) Final notice. Taking into account any evidence submitted by the 
State under paragraph (d)(2) of this section, the Administrator makes a 
final determination related to the findings of noncompliance, and 
provides a final notice to the State--
    (i) Of the final determination on the findings of noncompliance;
    (ii) If enforcement action is appropriate--
    (A) No further payments will be made to the State (or that payments 
will be made only for those portions or aspects of the programs that 
are not affected by the noncompliance); and
    (B) The total or partial withholding will continue until the 
Administrator is satisfied that the State's plan and practice are, and 
will continue to be, in compliance with Federal requirements.
    (4) Hearing. An opportunity for a hearing will be provided to the 
State prior to withholding under paragraph (d)(5) of this section.
    (5) Withholding. HCFA withholds payments, in whole or in part, 
until the Administrator is satisfied regarding the State's compliance.


Sec. 457.206  Administrative appeals under SCHIP.

    Three distinct types of determinations are subject to Departmental 
reconsideration upon request by a State.
    (a) Compliance with Federal requirements. A determination that a 
State's plan or proposed plan amendments, or its practice under the 
plan do not meet (or continue to meet) Federal requirements are subject 
to the hearing provisions of 42 CFR part 430, subpart D of this 
chapter.
    (b) FFP in State SCHIP expenditures. Disallowances of FFP in State 
SCHIP expenditures (mandatory grants) are subject to Departmental 
reconsideration by the Departmental Appeals Board (the Board) in 
accordance with procedures set forth in 45 CFR part 16.
    (c) Discretionary grants disputes. Determinations listed in 45 CFR 
part 16, appendix A, pertaining to discretionary grants, such as grants 
for special demonstration projects under Section 1115 of the Act, that 
may be awarded to an SCHIP agency, are subject to reconsideration by 
the Departmental Grant Appeals Board.


Sec. 457.208  Judicial review.

    (a) Right to judicial review. Any State dissatisfied with the 
Administrator's final determination on approvability of plan material 
or compliance with Federal requirements (Sec. 457.204) has a right to 
judicial review.
    (b) Petition for review. (1) The State must file a petition for 
review with the U.S. Court of Appeals for the circuit in which the 
State is located, within 60 days after it is notified of the 
determination.
    (2) After the clerk of the court files a copy of the petition with 
the Administrator, the Administrator files in the court the record of 
the proceedings on which the determination was based.

[[Page 33624]]

    (c) Court action. (1) The court is bound by the Administrator's 
findings of fact, if they are supported by substantial evidence.
    (2) The court has jurisdiction to affirm the Administrator's 
decision, to set it aside in whole or in part, or, for good cause, to 
remand the case for additional evidence.
    (d) Response to remand. (1) If the court remands the case, the 
Administrator may make new or modified findings of fact and may modify 
his or her previous determination.
    (2) The Administrator certifies to the court the transcript and 
record of the further proceedings.
    (e) Review by the Supreme Court. The judgment of the appeals court 
is subject to review by the U.S. Supreme Court upon certiorari or 
certification, as provided in 28 U.S.C. 1254.


Sec. 457.210  Deferral of claims for FFP.

    (a) Requirements for deferral. Payment of a claim or any portion of 
a claim for FFP is deferred only if--
    (1) The Regional Administrator or the Administrator questions its 
allowability and needs additional information in order to resolve the 
question; and
    (2) HCFA takes action to defer the claim (by excluding the claimed 
amount from the grant award) within 60 days after the receipt of a 
Quarterly Statement of Expenditures (prepared in accordance with HCFA 
instructions) that includes that claim.
    (b) Notice of deferral and State's responsibility. (1) Within 15 
days of the action described in paragraph (a)(2) of this section, the 
Regional Administrator sends the State a written notice of deferral 
that--
    (i) Identifies the type and amount of the deferred claim and 
specifies the reason for deferral; and
    (ii) Requests the State to make available all the documents and 
materials the HCFA regional office believes are necessary to determine 
the allowability of the claim.
    (2) It is the responsibility of the State to establish the 
allowability of a deferred claim.
    (c) Handling of documents and materials. (1) Within 60 days (or 
within 120 days if the State requests an extension) after receipt of 
the notice of deferral, the State must make available to the HCFA 
regional office, in readily reviewable form, all requested documents 
and materials except any that it identifies as not being available.
    (2) HCFA regional office staff initiates review within 30 days 
after receipt of the documents and materials.
    (3) If the Regional Administrator finds that the materials are not 
in readily reviewable form or that additional information is needed, he 
or she promptly notifies the State that it has 15 days to submit the 
readily reviewable or additional materials.
    (4) If the State does not provide the necessary materials within 15 
days, the Regional Administrator disallows the claim.
    (5) The Regional Administrator has 90 days, after all documentation 
is available in readily reviewable form, to determine the allowability 
of the claim.
    (6) If the Regional Administrator cannot complete review of the 
material within 90 days, HCFA pays the claim, subject to a later 
determination of allowability.
    (d) Effect of decision to pay a deferred claim. Payment of a 
deferred claim under paragraph (c)(6) of this section does not preclude 
a subsequent disallowance based on the results of an audit or financial 
review. (If there is a subsequent disallowance, the State may request 
reconsideration as provided in paragraph (e)(2) of this section.)
    (e) Notice and effect of decision on allowability. (1) The Regional 
Administrator or the Administrator gives the State written notice of 
his or her decision to pay or disallow a deferred claim.
    (2) If the decision is to disallow, the notice informs the State of 
its right to reconsideration in accordance with 45 CFR part 16.


Sec. 457.212  Disallowance of claims for FFP.

    (a) Notice of disallowance and of right to reconsideration. When 
the Regional Administrator or the Administrator determines that a claim 
or portion of claim is not allowable, he or she promptly sends the 
State a disallowance letter that includes the following, as 
appropriate:
    (1) The date or dates on which the State's claim for FFP was made.
    (2) The time period during which the expenditures in question were 
made or claimed to have been made.
    (3) The date and amount of any payment or notice of deferral.
    (4) A statement of the amount of FFP claimed, allowed, and 
disallowed and the manner in which these amounts were computed.
    (5) Findings of fact on which the disallowance determination is 
based or a reference to other documents previously furnished to the 
State or included with the notice (such as a report of a financial 
review or audit) that contain the findings of fact on which the 
disallowance determination is based.
    (6) Pertinent citations to the law, regulations, guides and 
instructions supporting the action taken.
    (7) A request that the State make appropriate adjustment in a 
subsequent expenditure report.
    (8) Notice of the State's right to request reconsideration of the 
disallowance and the time allowed to make the request.
    (9) A statement indicating that the disallowance letter is the 
Department's final decision unless the State requests reconsideration 
under paragraph (b)(2) of this section.
    (b) Reconsideration of FFP disallowance. (1) The Departmental 
Appeals Board reviews disallowances of FFP under title XXI.
    (2) A State may request reconsideration with a request to the 
Chair, Departmental Appeals Board, within 30 days after receipt of the 
disallowance letter, which must include--
    (i) A copy of the disallowance letter;
    (ii) A statement of the amount in dispute; and
    (iii) A brief statement of why the disallowance is wrong.
    (c) Reconsideration procedures. The reconsideration procedures are 
those set forth in 45 CFR part 16.
    (d) Implementation of decisions. If the reconsideration decision 
requires an adjustment of FFP, either upward or downward, a subsequent 
grant award promptly reflects the amount of increase or decrease.


Sec. 457.216  Treatment of uncashed or canceled (voided SCHIP checks).

    (a) Purpose. This section provides rules to ensure that States 
refund the Federal portion of uncashed or canceled (voided) checks 
under title XXI.
    (b) Definitions. As used in this section--
    Canceled (voided) check means an SCHIP check issued by a State or 
fiscal agent that prior to its being cashed is canceled (voided) by the 
State or fiscal agent, thus preventing disbursement of funds.
    Fiscal agent means an entity that processes or pays vendor claims 
for the SCHIP agency.
    Uncashed check means an SCHIP check issued by a State or fiscal 
agent that has not been cashed by the payee.
    Warrant means an order by which the SCHIP agency or local agency 
without the authority to issue checks recognizes a claim. Presentation 
of a warrant by the payee to a State officer with authority to issue 
checks will result in release of funds due.
    (c) Refund of Federal financial participation (FFP) for uncashed 
checks--(1) General provisions. If a check remains uncashed beyond a 
period of 180 days from the date it was

[[Page 33625]]

issued; that is, the date of the check, it is no longer regarded as an 
allowable program expenditure. If the State has claimed and received 
FFP for the amount of the uncashed check, it must refund the amount of 
FFP received.
    (2) Report of refund. At the end of each calendar quarter, the 
State agency must identify those checks that remain uncashed beyond a 
period of 180 days after issuance. The SCHIP agency must refund all FFP 
that it received for uncashed checks by adjusting the Quarterly 
Statement of Expenditures for that quarter. If an uncashed check is 
cashed after the refund is made, the State may file a claim. The claim 
will be considered to be an adjustment to the costs for the quarter in 
which the check was originally claimed. This claim will be paid if 
otherwise allowed by the Act and the regulations issued in accordance 
with the Act.
    (3) If the State does not refund the appropriate amount as 
specified in paragraph (c)(2) of this section, the amount will be 
disallowed.
    (d) Refund of FFP for canceled (voided) checks--(1) General 
provisions. If the State has claimed and received FFP for the amount of 
a canceled (voided) check, it must refund the amount of FFP received.
    (2) Report of refund. At the end of each calendar quarter, the 
SCHIP agency must identify those checks that were canceled (voided). 
The State must refund all FFP that it received for canceled (voided) 
checks by adjusting the Quarterly Statement of Expenditures for that 
quarter.
    (3) If the State does not refund the appropriate amount as 
specified in paragraph (d)(2) of this section, the amount will be 
disallowed.


Sec. 457.218  Repayment of Federal funds by installments.

    (a) Basic conditions. When Federal payments have been made for 
claims that are later found to be unallowable, the State may repay the 
Federal Funds by installments if the following conditions are met:
    (1) The amount to be repaid exceeds 2\1/2\ percent of the estimated 
or actual annual State share for the State SCHIP program; and
    (2) The State has given the Regional Administrator written notice, 
before total repayment was due, of its intent to repay by installments.
    (b) Annual State share determination. HCFA determines whether the 
amount to be repaid exceeds 22 percent of the annual State share as 
follows:
    (1) If the State SCHIP program is ongoing, HCFA uses the annual 
estimated State share of State SCHIP expenditures. This is the sum of 
the estimated State shares for four consecutive quarters, beginning 
with the quarter in which the first installment is to be paid, as shown 
on the State's latest HCFA-21B form.
    (2) If the State SCHIP program has been terminated by Federal law 
or by the State, HCFA uses the actual State share. The actual State 
share is that shown on the State's Quarterly Statement of Expenditures 
reports for the last four quarters before the program was terminated.
    (c) Repayment amounts, schedules, and procedures--(1) Repayment 
amount. The repayment amount may not include any amount previously 
approved for installment repayment.
    (2) Repayment schedule. The number of quarters allowed for 
repayment is determined on the basis of the ratio of the repayment 
amount to the annual State share of State SCHIP expenditures. The 
higher the ratio of the total repayment amount is to the annual State 
share, the greater the number of quarters allowed, as follows:

------------------------------------------------------------------------
                                                             Number of
 Total repayment amount as percentage of State share of     quarters to
           annual expenditures for State SCHIP            make repayment
------------------------------------------------------------------------
2.5 pct. or less........................................               1
Greater than 2.5, but not greater than 5................               2
Greater than 5, but not greater than 7.5................               3
Greater than 7.5, but not greater than 10...............               4
Greater than 10, but not greater than 15................               5
Greater than 15, but not greater than 20................               6
Greater than 20, but not greater than 25................               7
Greater than 25, but not greater than 30................               8
Greater than 30, but not greater than 47.5..............               9
Greater than 47.5, but not greater than 65..............              10
Greater than 65, but not greater than 82.5..............              11
Greater than 82.5, but not greater than 100.............              12
------------------------------------------------------------------------

    (3) Quarterly repayment amounts. The quarterly repayment amounts 
for each of the quarters in the repayment schedule may not be less than 
the following percentages of the estimated State share of the annual 
expenditures for SCHIP:

------------------------------------------------------------------------
                                                             Repayment
                                                            installment
                                                            may not be
           For each of the following quarters                less than
                                                               these
                                                            percentages
------------------------------------------------------------------------
1 to 4..................................................             2.5
5 to 8..................................................             5.0
9 to 12.................................................            17.5
------------------------------------------------------------------------

    (4) Extended schedule. The repayment schedule may be extended 
beyond 12 quarterly installments if the total repayment amount exceeds 
100 percent of the estimated State share of annual expenditures. In 
these circumstances, the repayment schedule in paragraph (c)(2) of this 
section is followed for repayment of the amount equal to 100 percent of 
the annual State share. The remaining amount of the repayment is in 
quarterly amounts equal to not less than 17.5 percent of the estimated 
State share of annual expenditures.
    (5) Repayment process. Repayment is accomplished through adjustment 
in the quarterly grants over the period covered by the repayment 
schedule. If the State chooses to repay amounts representing higher 
percentages during the early quarters, any corresponding reduction in 
required minimum percentages is applied first to the last scheduled 
payment, then to the next to the last payment, and so forth as 
necessary.
    (6) Offsetting of retroactive claims. The amount of a retroactive 
claim to be paid a State is offset against any amounts to be, or 
already being, repaid by the State in installments. Under this 
provision, the State may choose to:
    (A) Suspend payments until the retroactive claim due the State has, 
in fact, been offset; or
    (B) Continue payments until the reduced amount of its debt 
(remaining after the offset), has been paid in full. This second option 
would result in a shorter payment period.
    (ii)A retroactive claim for the purpose of this regulation is a 
claim applicable to any period ending 12 months or more before the 
beginning of the quarter in which HCFA would pay that claim.


Sec. 457.220  Public funds as the State share of financial 
participation.

    (a) Public funds may be considered as the State's share in claiming 
FFP if they meet the conditions specified in paragraphs (b) and (c) of 
this section.
    (b) The public funds are appropriated directly to the State or 
local SCHIP agency, or transferred from other public agencies 
(including Indian tribes) to the State or local agency and under its 
administrative control, or certified by the contributing public agency 
as representing expenditures eligible for FFP under this section.

[[Page 33626]]

    (c) The public funds are not Federal funds, or are Federal funds 
authorized by the Federal law to be used to match other Federal funds.


Sec. 457.222  FFP for equipment.

    Claims for Federal financial participation in the cost of equipment 
under SCHIP are determined in accordance with subpart G of 45 CFR part 
95. Requirements concerning the management and disposition of equipment 
under SCHIP are also prescribed in subpart G of 45 CFR part 95.


Sec. 457.224  FFP: Conditions relating to cost sharing.

    (a) No FFP is available for the following amounts, even when 
related to services or benefit coverage which is or could be provided 
under a State SCHIP program--
    (1) Any cost sharing amounts that beneficiaries should have paid as 
enrollment fees, premiums, deductibles, coinsurance, copayments, or 
similar charges.
    (2) Any amounts paid by the agency for health benefits coverage or 
services furnished to individuals who would not be eligible for that 
coverage or those services under the approved State child health plan, 
whether or not the individual paid any required premium or enrollment 
fee.
    (b) The amount of expenditures under the State child health plan 
must be reduced by the amount of any premiums and other cost-sharing 
received by the State.


Sec. 457.226  Fiscal policies and accountability.

    A State plan must provide that the SCHIP agency and, where 
applicable, local agencies administering the plan will--
    (a) Maintain an accounting system and supporting fiscal records to 
assure that claims for Federal funds are in accord with applicable 
Federal requirements;
    (b) Retain records for 3 years from date of submission of a final 
expenditure report;
    (c) Retain records beyond the 3-year period if audit findings have 
not been resolved; and
    (d) Retain records for nonexpendable property acquired under a 
Federal grant for 3 years from the date of final disposition of that 
property.


Sec. 457.228  Cost allocation.

    A State plan must provide that the single or appropriate SCHIP 
Agency will have an approved cost allocation plan on file with the 
Department in accordance with the requirements contained in subpart E 
of 45 CFR part 95. Subpart E also sets forth the effect on FFP if the 
requirements contained in that subpart are not met.


Sec. 457.230  FFP for State ADP expenditures.

    FFP is available for State ADP expenditures for the design, 
development, or installation of mechanized claims processing and 
information retrieval systems and for the operation of certain systems. 
Additional HHS regulations and HCFA procedures regarding the 
availability of FFP for ADP expenditures are in 45 CFR part 74, 45 CFR 
part 95, subpart F, and part 11, State Medicaid Manual.


Sec. 457.232  Refunding of Federal Share of SCHIP overpayments to 
providers and referral of allegations of waste, fraud or abuse to the 
Office of Inspector General.

    (a) Quarterly Federal payments to the States under title XXI 
(SCHIP) of the Act are to be reduced or increased to make adjustment 
for prior overpayments or underpayments that the Secretary determines 
have been made.
    (b) The Secretary will consider the pro rata Federal share of the 
net amount recovered by a State during any quarter to be an 
overpayment.
    (c) Allegations or indications of waste fraud and abuse with 
respect to the SCHIP program shall be referred promptly to the Office 
of Inspector General.


Sec. 457.234  State plan requirements.

    The State plan is a comprehensive written statement submitted by 
the agency describing the nature and scope of its State Children's 
Health Insurance Program and giving assurance that it will be 
administered in conformity with the specific requirements of title XXI, 
the applicable regulations in chapter IV, and other applicable official 
issuance of the Department. The State plan contains all information 
necessary for HCFA to determine whether the plan can be approved to 
serve as a basis for FFP in the State plan program.


Sec. 457.236  Audits.

    The SCHIP agency must assure appropriate audit of records on costs 
of provider services.


Sec. 457.238  Documentation of payment rates.

    The SCHIP agency must maintain documentation of payment rates and 
make it available to HHS upon request.

Subparts C through E--[Reserved]

Subpart F Payments to States


Sec. 457.600  Purpose and basis of this subpart.

    This subpart interprets and implements--
    (a) Section 2104 of the Act which specifies the total allotment 
amount available for allotment to each State for child health 
assistance for fiscal years 1998 through 2007, the formula for 
determining each State allotment for a fiscal year, including the 
Commonwealth and Territories, and the amounts of payments for 
expenditures that are applied to reduce the State allotments.
    (b) Section 2105 of the Act which specifies the provisions for 
making payment to States, the limitations and conditions on such 
payments, and the calculation of the enhanced Federal medical 
assistance percentage.


Sec. 457.602  Applicability.

    The provisions of this subpart apply to the 50 States and the 
District of Columbia, and the Commonwealths and Territories.


Sec. 457.606  Conditions for State allotments and Federal payments for 
a fiscal year.

    (a) Basic conditions. In order to receive a State allotment for a 
fiscal year, a State must have a State child health plan submitted in 
accordance with section 2106 of the Act, and
    (1) For fiscal years 1998 and 1999, the State child health plan 
must be approved before October 1, 1999;
    (2) For fiscal years after 1999, the State child health plan must 
be approved by the end of the fiscal year;
    (3) An allotment for a fiscal year is not available to a State 
prior to the beginning of the fiscal year; and
    (4) Federal payments out of an allotment are based on State 
expenditures which are allowable under the approved State child health 
plan.
    (b) Federal payments for States' Children's Health Insurance 
Program (SCHIP) expenditures under an approved State child health plan 
are --
    (1) Limited to the amount of available funds remaining in State 
allotments calculated in accordance with the allotment process and 
formula specified in Secs. 457.608 and 457.610, and payment process in 
Secs. 457.614 and 457.616.
    (2) Available based on a percentage of State SCHIP expenditures, at 
a rate equal to the enhanced Federal medical assistance percentage 
(FMAP) for each fiscal year, calculated in accordance with 
Sec. 457.622.
    (3) Available through the grants process specified in Sec. 457.630.

[[Page 33627]]

Sec. 457.608  Process and calculation of State allotments for a fiscal 
year.

    (a) General--(1) State allotments for a fiscal year are determined 
by HCFA for each State and the District of Columbia with an approved 
State child health plan, as described in paragraph (e) of this section, 
and for each Commonwealth and Territory, as described in paragraph (f) 
of this section.
    (2) In order to determine each State allotment, HCFA determines the 
national total allotment amount for each fiscal year available to the 
50 States and the District of Columbia, as described in paragraph (c) 
of this section, and the total allotment amount available for each 
fiscal year for allotment to the Commonwealths and Territories, as 
described in paragraph (d) of this section.
    (3) The amount of allotments redistributed under section 2104(f) of 
the Act will not be applied or taken into account in determining the 
amounts of a fiscal year allotment for a State and the District of 
Columbia under this section.
    (b) Definition of Proportion. As used in this section, proportion 
means the amount of the allotment for a State or the District of 
Columbia for a fiscal year, divided by the national total allotment 
amount available for allotment to all States and the District of 
Columbia, as specified in paragraph (c) of this section, for that 
fiscal year.
    (c) National total allotment amount for the 50 States and the 
District of Columbia. (1) The national total allotment amount available 
for allotment to the 50 States and the District of Columbia is 
determined by subtracting the following amounts in the following order 
from the total appropriation specified in section 2104(a) of the Act 
for the fiscal year --
    (i) The total allotment amount available for allotment for each 
fiscal year to the Commonwealths and Territories, as determined in 
paragraph (d)(1) of this section;
    (ii) The total amount of the grant for the fiscal year for children 
with Type I Diabetes under Section 4921 of Public Law 105-33. This is 
$30,000,000 for each of the fiscal years 1998 through 2002; and
    (iii) The total amount of the grant for the fiscal year for 
diabetes programs for Indians under Section 4922 of Public Law 105-33. 
This is $30,000,000 for each of the fiscal years 1998 through 2002.
    (2) The following formula illustrates the calculation of the 
national total allotment amount available for allotment to the 50 
States and the District of Columbia for a fiscal year:

ATA = 
S2104(a)-T2104(c)-D4921-D4922


ATA = National total allotment amount available for 
allotment to the 50 States and the District of Columbia for the fiscal 
year.
S2104(a) = Total appropriation for the fiscal year indicated 
in Section 2104(a) of the Act.
T2104(c) = Total allotment amount for a fiscal year 
available for allotment to the Commonwealths and Territories; as 
determined under paragraph (d)(1) of this section.
D4921 = Amount of total grant for children with Type I 
Diabetes under Section 4921 of Public Law 105-33. This is $30,000,000 
for each of the fiscal years 1998 through 2002.

    (d) Total allotment amount available to the Commonwealths and 
Territories. (1) General. The total allotment amount available to all 
the Commonwealths and Territories for a fiscal year is equal to .25 
percent of the total appropriation for the fiscal year indicated in 
section 2104(a) of the Act, plus the additional amount for the fiscal 
year specified in paragraph (d)(2) of this section.
    (2) Additional amounts for allotment to the Commonwealths and 
Territories. The following amounts are available for allotment to the 
Commonwealths and Territories for the indicated fiscal years in 
addition to the amount specified in paragraph (d)(1) of this section: 
For FY 1999, $32 million; for each of FY 2000 and FY 2001, $34.2 
million; for each fiscal year FY 2002 through 2004, $25.2 million; for 
each fiscal year FY 2005 and FY 2006, $32.4 million; and for FY 2007, 
$40 million. The additional amount for allotment for FY 1999 for the 
Commonwealths and Territories was provided under Public Law 105-277. 
The additional amounts for allotment for FY 2000 through FY 2007 were 
provided for the Commonwealths and Territories under section 702 of 
Public Law 106-113.
    (e) Determination of State allotments for a fiscal year. (1) 
General. The allotment for a State and the District of Columbia for a 
fiscal year is the product of:
    (i) The proportion for the State or the District of Columbia for 
the fiscal year, as defined in paragraph (b) of this section, and 
determined after application of the provisions of paragraphs (e)(2) and 
(3), related to the preadjusted proportion, and the floors, ceilings, 
and reconciliation process, respectively; and
    (ii)(A) The national total allotment amount available for allotment 
for the fiscal year, as specified in paragraph (c) of this section. The 
State and the District of Columbia's allotment for a fiscal year is 
determined in accordance with the following general formula:

SAi = Pi  x  ATA

SAi = Allotment for a State or District of Columbia for a 
fiscal year.
Pi = Proportion for a State or District of Columbia for a 
fiscal year.
ATA = Total amount available for allotment to the 50 States 
and the District of Columbia for the fiscal year.

    (B) There are two steps for determining the proportion for a State 
and the District of Columbia. The first step determines the preadjusted 
proportions, and is described under paragraph (e)(2) of this section. 
The first step applies in determining the proportion for all fiscal 
years. The second step applies floors and ceilings and, if necessary, 
applies a reconciliation to the preadjusted proportion. The second step 
is described in paragraph (e)(3) of this section. The second step 
applies in determining the proportion only for FY 2000 and subsequent 
fiscal years. For FY 1998 and FY 1999, the preadjusted proportion is 
the State or District of Columbia's proportion for the fiscal year.
    (2) Determination of the Preadjusted Proportions for a Fiscal Year. 
(i)The methodology for determining the State preadjusted proportion, 
referring to the determination of the proportion before the application 
of floors and ceilings and reconciliation for a fiscal year is in 
accordance with the following formula:

PPi = (Ci  x  SCFi)/ 
(Ci  x x SCFi)

PPi = Preadjusted proportion for a State or District of 
Columbia for a fiscal year.
Ci = Number of children in a State (section 2104(b)(1)(A)(I) 
of the Act) for a fiscal year. This number is based on the number of 
low-income children for a State for a fiscal year and the number of 
low-income children for a State for a fiscal year with no health 
insurance coverage for the fiscal year determined on the basis of the 
arithmetic average of the number of such children as reported and 
defined in the 3 most recent March supplements to the Current 
Population Survey (CPS) of the Bureau of the Census, and for FY 2000 
and subsequent fiscal years, officially available before the beginning 
of the calendar year in which the fiscal year begins. For FY 1998 and 
FY 1999, the availability of the CPS data obtained from the Bureau of 
the Census is as specified in paragraphs (e)(4) and (5) of this

[[Page 33628]]

section, respectively. (section 2104(b)(2)(B) of the Act).

    (ii)For each of the fiscal years 1998 and 1999, the number of 
children is equal to the number of low-income children in the State for 
the fiscal year with no health insurance coverage. For fiscal year 
2000, the number of children is equal to the sum of 75 percent of the 
number of low-income children in the State for the fiscal year with no 
health insurance coverage and 25 percent of the number of low-income 
children in the State for the fiscal year. For fiscal years 2001 and 
thereafter, the number of children is equal to the sum of 50 percent of 
the number of low-income children in the State for the fiscal year with 
no health insurance coverage and 50 percent of the number of low-income 
children in the State for the fiscal year. (section 2104(b)(2)(A) of 
the Act).

    SCFi = State cost factor for a State (section 
2104(b)(1)(A)(ii) of the Act). For a fiscal year, this is equal to: .15 
+ .85  x  (Wi/WN) (section 2104(b)(3)(A) of the 
Act).
Wi = The annual average wages per employee for a State for 
such year (section 2104(b)(3)(A)(ii)(I) of the Act).
WN = The annual average wages per employee for the 50 States 
and the District of Columbia (section 2104(b)(3)(A)(ii)(II) of the 
Act). The annual average wages per employee for a State or for all 
States and the District of Columbia for a fiscal year is equal to the 
average of such wages for employees in the health services industry 
(SIC 80), as reported by the Bureau of Labor Statistics of the 
Department of Labor for each of the most recent 3 years, and for FY 
2000 and subsequent fiscal years, finally available before the 
beginning of the calendar year in which the fiscal year begins. For FY 
1998 and FY 1999, the availability of the wage data obtained from the 
Bureau of Labor Statistics is as specified in paragraphs (e)(4) and 
(5), respectively. (section 2104(b)(3)(B) of the Act).
(Ci  x  SCFi) = The sum of the products 
of (Ci  x  SCFi) for each State (section 
2104(b)(1)(B) of the Act).
ATA = Total amount available for allotment to the 50 States 
and the District of Columbia for the fiscal year as determined under 
paragraph (c) of this section.

    (3) Application of floors and ceilings and reconciliation in 
determining proportion. (i) Floors and ceilings in proportions. The 
preadjusted State proportions for a fiscal year are subject to the 
application of floors and ceilings in paragraphs (e)(3)(i)(A) and (B) 
of this section..
    (A) The proportion floors, or minimum proportions, that apply in 
determining a State's proportion for the fiscal year are:
    (1) $2,000,000 divided by the total of the amount available 
nationally;
    (2) 90 percent of the State's proportion for the previous fiscal 
year; and
    (3) 70 percent of the State's proportion for FY 1999.
    (B) The proportion ceiling, or maximum proportion, for a fiscal 
year that applies in determining the State's fiscal year proportion is 
145 percent of the State's proportion for FY 1999.
    (ii) Reconciliation of State proportions. If, after the application 
of the floors and ceilings in paragraph (e)(3)(i), the sum of the 
States' proportions is not equal to one, the Secretary will reconcile 
the States' proportions by applying either paragraph (e)(3)(i)(A) or 
(B) of this paragraph, as appropriate, such that the sum of the 
proportions after reconciliation equals one. If, after the application 
of the floors and ceilings in paragraph (e)(3)(i), the sum of the 
States' proportions is equal to one, no reconciliation is necessary, 
and the States' proportions will be the same as the preadjusted 
proportions determined under paragraph (e)(2) of this section.
    (A) If, after the application of the floors and ceilings under 
paragraphs (e)(3)(i)(A) and (B) of this section, the sum of the States' 
proportions is greater than one, the Secretary will establish a maximum 
percentage increase in States' proportions, such that when applied to 
the States' proportions, the sum of the proportions is exactly equal to 
one.
    (B) If, after the application of the floors and ceilings under 
paragraphs (e)(3)(i)(A) and (B), the sum of the proportions is less 
than one, the Secretary will increase States' proportions (as computed 
before the application of the floors under paragraph (e)(3)(i)(A)) in a 
pro rata manner (but not to exceed the 145 percent ceiling computed 
under paragraph (e)(3)(i)(B)), such that when applied to the States' 
proportions, the sum of the proportions is exactly equal to one.
    (4) Data used for calculating the FY 1998 SCHIP allotments. The FY 
1998 SCHIP allotments were calculated in accordance with the 
methodology described in paragraphs (e)(1) and (2) of this section, 
using the most recent official and final data that were available from 
the Bureau of the Census and the Bureau of Labor Statistics, 
respectively, prior to the September 1 before the beginning of FY 1998 
(that is, through August 31, 1997). In particular, through August 31, 
1997, the only official data available on the numbers of children were 
data from the 3 March CPSs conducted in March 1994, 1995, and 1996 that 
reflected data for the 3 calendar years 1993, 1994, and 1995.
    (5) Data used for calculating the FY 1999 SCHIP allotments. In 
accordance with section 101(f) of Public Law 105-277, the FY 1999 
allotments were calculated in accordance with the methodology described 
in paragraph (e)(2) of this section, using the same data as were used 
in calculating the FY 1998 SCHIP allotments.
    (f) Methodology for determining the Commonwealth and Territory 
allotments for a fiscal year. The total amount available for the 
Commonwealths and Territories for each fiscal year, as determined under 
paragraph (d) of this section, is allotted to each Territory and 
Commonwealth below which has an approved State child health plan. These 
allotments are in the proportion that the following percentages for 
each Commonwealth Territory bear to the sum of such percentages, as 
specified in section 2104(c)(2) of the Act:

Puerto Rico--91.6%
Guam--3.5%
Virgin Islands--2.6%
American Samoa--1.2%
Northern Mariana Islands--1.1%

    (g) Reserved State allotments for a fiscal year. (1) For FY 2000 
and subsequent fiscal years, HCFA determines and publishes the State 
reserved allotments for a fiscal year for each State, the District of 
Columbia, and Commonwealths and Territories in the Federal Register 
based on the most recent official and final data available before the 
beginning of the calendar year in which the fiscal year begins for the 
number of children and the State cost factor.
    (2) For FY 1998 and FY 1999, HCFA determined and published the 
State reserved allotments using the available data described in 
paragraphs (e)(4) and (e)(5) of this section, respectively, on the 
basis of the statutory allotment formula as it existed prior to the 
enactment of Public Law 106-113.
    (3) If all States, the District of Columbia, and the Commonwealths 
and Territories have approved State child health plans in place prior 
to the beginning of the fiscal year, as appropriate, HCFA may publish 
the allotments as final in the Federal Register, without the need for 
publication as reserved allotments.

[[Page 33629]]

    (h) Final allotments. (1) Final State allotments for FY 1998 and FY 
1999 for each State, the District of Columbia, and the Commonwealths 
and Territories are determined by HCFA based only on those States, the 
District of Columbia, and the Commonwealths and Territories that have 
approved State child health plans by the end of fiscal year 1999, in 
accordance with the formula and methodology specified in paragraphs (a) 
through (g) of this section.
    (2) Final State allotments for a fiscal year after FY 1999 for each 
State, the District of Columbia, and the Commonwealths and Territories 
are determined by HCFA based only on those States, the District of 
Columbia, and the Commonwealths and Territories that have approved 
State child health plans by the end of the fiscal year, in accordance 
with the formula and methodology specified in paragraphs (a) through 
(g) of this section.
    (3) HCFA determines and publishes the States' final fiscal year 
allotments in the Federal Register based on the same data, with respect 
to the number of children and State cost factor, as were used in 
determining the reserved allotments for the fiscal year.


Sec. 457.610  Period of availability for State allotments for a fiscal 
year.

    The amount of a final allotment for a fiscal year, as determined 
under Sec. 457.608(h) and reduced to reflect certain Medicaid 
expenditures in accordance with Sec. 457.616, remains available until 
expended for Federal payments based on expenditures claimed during a 3-
year period of availability, beginning with the fiscal year of the 
final allotment and ending with the end of the second fiscal year 
following the fiscal year.


Sec. 457.614  General payment process.

    (a) A State may make claims for Federal payment based on 
expenditures incurred by the State prior to or during the period of 
availability related to that fiscal year.
    (b) In order to receive Federal financial participation (FFP) for a 
State's claims for payment for the State's expenditures, a State must 
--
    (1) Submit budget estimates of quarterly funding requirements for 
Medicaid and the State Children's Health Insurance Programs; and
    (2) Submit an expenditure report.
    (c) Based on the State's quarterly budget estimates, HCFA --
    (1) Issues an advance grant to a State as described in 
Sec. 457.630;
    (2) Tracks and applies Federal payments claimed quarterly by each 
State, the District of Columbia, and each Commonwealth and Territory to 
ensure that payments do not exceed the applicable allotments for the 
fiscal year; and
    (3) Track and apply relevant State, District of Columbia, 
Commonwealth and Territory expenditures reported each quarter against 
the 10 percent limit on expenditures other than child health assistance 
for standard benefit package, on a fiscal year basis as specified in 
Sec. 457.618.


Sec. 457.616  Application and tracking of payments against the fiscal 
year allotments.

    (a) Categories of payments applied to reduce the State allotments. 
In accordance with the principles described in paragraph (c) of this 
section, the following categories of payments are applied to reduce the 
State allotments for a fiscal year:
    (1) Payments made to the State for expenditures claimed during the 
fiscal year under its title XIX Medicaid program, to the extent the 
payments were made on the basis of the enhanced FMAP described in 
sections 1905(b) and 2105(b) of the Act for expenditures attributable 
to children described in section 1905(u)(2) of the Act.
    (2) Payments made to the State for expenditures claimed during the 
fiscal year under its title XIX Medicaid program, to the extent the 
payments were made on the basis of the enhanced FMAP described in 
sections 1905(b) and 2105(b) of the Act for expenditures attributable 
to children described in section 1905(u)(3) of the Act.
    (3) Payments made to a State under section 1903(a) of the Act for 
expenditures claimed by the State during a fiscal year that are 
attributable to the provision of medical assistance to a child during a 
presumptive eligibility period under section 1920A of the Act.
    (4) Payments made to a State under its title XXI State Children's 
Health Insurance Program with respect to section 2105(a) of the Act for 
expenditures claimed by the State during a fiscal year.
    (b) Application of principles. HCFA applies the principles in 
paragraph (c) of this section to --
    (1) Coordinate the application of the payments made to a State for 
the State's expenditures claimed under the Medicaid and State 
Children's Health Insurance programs against the State allotment for a 
fiscal year;
    (2) Determine the order of these payments in that application; and
    (3) Determine the application of payments against multiple State 
Child Health Insurance Program fiscal year allotments.
    (c) Principles for applying Federal payments against the allotment. 
HCFA--
    (1) Applies the payments attributable to Medicaid expenditures 
specified in paragraphs (a)(1) through (a)(3) of this section, against 
the State child health plan allotment for a fiscal year before State 
child health plan expenditures specified in paragraph (a)(4) of this 
section are applied.
    (2) Applies the payments attributable to Medicaid and State child 
health plan expenditures specified in paragraph (a) of this section 
against the applicable allotments for a fiscal year based on the 
quarter in which the expenditures are claimed by the State.
    (3) Applies payments against the State allotments for a fiscal year 
in a manner that is consistent for all States.
    (4) Applies payments attributable to Medicaid expenditures 
specified in paragraphs (a)(1) through (a)(3) of this section, in an 
order that maximizes Federal reimbursement for States. Expenditures for 
which the enhanced FMAP is available are applied before expenditures 
for which the regular FMAP is available.
    (5) Applies payments for expenditures against State Child Health 
Insurance Program fiscal year allotments in the least administratively 
burdensome, and most effective and efficient manner; payments are 
applied on a quarterly basis as they are claimed by the State, and are 
applied to reduce the earliest fiscal year State allotments before the 
payments are applied to reduce later fiscal year allotments.
    (6) Subject to paragraphs (c)(6)(i) and (ii) of this section, 
applies payments for expenditures for a fiscal year's allotment against 
a subsequent fiscal year's allotment; however, the subsequent fiscal 
year's allotment must be available at the time of application. For 
example, if the allotment for fiscal year 1998 has been fully expended, 
payments for expenditures claimed in fiscal year 1998 are carried over 
for application against the fiscal year 1999 allotment when it becomes 
available.
    (i) In accordance with Sec. 457.618, the amount of non-primary 
expenditures that are within the 10 percent limit for the fiscal year 
for which they are claimed may be applied against a fiscal year 
allotment or allotments available in a subsequent fiscal year.
    (ii) In accordance with Sec. 457.618, the amounts of non-primary 
expenditures that exceed the 10 percent limit for the fiscal year for 
which they are claimed may not be applied against a fiscal year 
allotment or allotments available in a subsequent fiscal year.

[[Page 33630]]

    (7) Carries over unexpended amounts of a State's allotment for a 
fiscal year for use in subsequent fiscal years through the end of the 
3-year period of availability. For example, if the amounts of the 
fiscal year 1998 allotment are not fully expended by the end of fiscal 
year 1998, these amounts are carried over to fiscal year 1999 and are 
available to provide FFP for expenditures claimed by the State for that 
fiscal year.
    (d) Amount of Federal payment for expenditures claimed. The amount 
of the Federal payment for expenditures claimed by a State, District of 
Columbia, or the Commonwealths and Territories is determined by the 
enhanced FMAP applicable to the fiscal year in which the State paid the 
expenditure. For example, Federal payment for an expenditure paid by a 
State in fiscal year 1998 that was carried over to fiscal year 1999 (in 
accordance with paragraph(c)(6) of this section), because the State 
exceeded its fiscal year 1998 allotment, is available at the fiscal 
year 1998 enhanced FMAP rate.


Sec. 457.618  Ten percent limit on certain State Children's Health 
Insurance Program expenditures.

    (a) Expenditures. (1) Primary expenditures are expenditures under a 
State plan for child health assistance to targeted low-income children 
in the form of a standard benefit package, and Medicaid expenditures 
claimed during the fiscal year to the extent Federal payments made for 
these expenditures on the basis of the enhanced FMAP described in 
sections 1905(b) and 2105(b) of the Act that are used to calculate the 
10 percent limit.
    (2) Non-primary expenditures are other expenditures under a State 
plan. Subject to the 10 percent limit described in paragraph (c) of 
this section, a State may receive Federal funds at the enhanced FMAP 
for 4 categories of non-primary expenditures:
    (i) Administrative expenditures;
    (ii) Outreach;
    (iii) Health initiatives; and
    (iv) Certain other child health assistance.
    (b) Federal payment. Federal payment will not be available based on 
a State's non-primary expenditures for a fiscal year which exceed the 
10 percent limit of the total of expenditures under the plan, as 
specified in paragraph (c) of this section.
    (c) 10 Percent Limit. The 10 percent limit is --
    (1) Applied on an annual fiscal year basis;
    (2) Calculated based on the total computable expenditures claimed 
by the State on quarterly expenditure reports submitted for a fiscal 
year. Expenditures claimed on a quarterly report for a different fiscal 
year may not be used in the calculation; and
    (3) Calculated using the following formula:

    L10% = (a1+ u2+ u3)/9;

L10% = 10 Percent Limit for a fiscal year
a1 = Total computable amount of expenditures for the fiscal year under 
section 2105(a)(1) of the Act for which Federal payments are available 
at the enhanced FMAP described in Section 2105(b) of the Act;
u2 = Total computable expenditures for medical assistance for which 
Federal payments are made during the fiscal year based on the enhanced 
FMAP described in sections 1905(b) and 2105(b) of the Act for 
individuals described in section 1905(u)(2) of the Act; and
u3 = Total computable expenditures for medical assistance for which 
Federal payments are made during the fiscal year based on the enhanced 
FMAP described in sections 1905(b) and 2105(b) of the Act for 
individuals described in section 1905(u)(3) of the Act.

    (d) The expenditures under section 2105(a)(2) of the Act that are 
subject to the 10 percent limit are applied --
    (1) On an annual fiscal year basis; and
    (2) Against the 10 percent limit in the fiscal year for which the 
State submitted a quarterly expenditure report including the 
expenditures. Expenditures claimed on a quarterly report for one fiscal 
year may not be applied against the 10 percent limit for any other 
fiscal year.
    (e)(1) The 10 percent limit for a fiscal year, as calculated under 
paragraph (c)(3) of this section, may be no greater than 10 percent of 
the total computable amount (determined under paragraph (e)(2) of this 
section) of the State allotment or allotments available in that fiscal 
year. Therefore, the 10 percent limit is the lower of the amount 
calculated under paragraph (c)(3) of this section, and 10 percent of 
the total computable amount of the State allotment available in that 
fiscal year.
    (2) As used in paragraph (e)(1) of this section, the total 
computable amount of a State's allotment for a fiscal year is 
determined by dividing the State's allotment for the fiscal year by the 
State's enhanced FMAP for the year. For example, if a State allotment 
for a fiscal year is $65 million and the enhanced FMAP rate for the 
fiscal year is 65 percent, the total computable amount of the allotment 
for the fiscal year is $100 million ($65 million/.65). In this example, 
the 10 percent limit may be no greater than a total computable amount 
of $10 million (10 percent of $100 million).


Sec. 457.622  Rate of FFP for State expenditures.

    (a) Basis. Sections 1905(b), 2105(a) and 2105(b) of the Act 
provides for payments to States from the States' allotments for a 
fiscal year, as determined under Sec. 457.608, for part of the cost of 
expenditures for services and administration made under an approved 
State child health assistance plan. The rate of payment is generally 
the enhanced Federal medical assistance percentage described below.
    (b) Enhanced Federal medical assistance percentage (Enhanced 
FMAP)-- Computations. The enhanced FMAP is the lower of the following:
    (1) 70 percent of the regular FMAP determined under section 1905(b) 
of the Act, plus 30 percentage points; or
    (2) 85 percent.
    (c) Conditions for availability of enhanced FMAP based on a State's 
expenditures--The enhanced FMAP is available for payments based on a 
State's expenditures claimed under the State's title XXI program from 
the State's fiscal year allotment only under the following conditions:
    (1) The State has an approved title XXI State child health plan;
    (2) The expenditures are allowable under the State's approved title 
XXI State child health plan;
    (3) State allotment amounts are available in the fiscal year, that 
is, the State's allotment or allotments (as reduced in accordance with 
Sec. 457.616) remain available for a fiscal year and have not been 
fully expended.
    (4) Expenditures claimed against the 10 percent limit are within 
the State's 10 percent limit for the fiscal year.
    (5) The State is in compliance with the maintenance of effort 
requirements of Section 2105(d)(1) of the Act.
    (d) Categories of expenditures for which enhanced FMAP are 
available. Except as otherwise provided below, the enhanced FMAP is 
available with respect to the following States' expenditures:
    (1) Child health assistance under the plan for targeted low-income 
children in the form of providing health benefits coverage that meets 
the requirements of section 2103 of the Act; and
    (2) Subject to the 10 percent limit provisions under 
Sec. 457.618(a)(2), the following expenditures:
    (i) Payment for other child health assistance for targeted low-
income children;
    (ii) Expenditures for health services initiatives under the State 
child health assistance plan for improving the health

[[Page 33631]]

of children (including targeted low-income children);
    (iii) Expenditures for outreach activities; and
    (iv) Other reasonable costs incurred by the State to administer the 
State child health assistance plan.
    (e) SCHIP administrative expenditures and SCHIP related title XIX 
administrative expenditures. (1) General rule. Allowable title XXI 
administrative expenditures should support the operation of the State 
child health assistance plan. In general, FFP for administration under 
title XXI is not available for costs of activities related to the 
operation of other programs.
    (2) Exception. FFP is available under title XXI, at the enhanced 
FFP rate, for Medicaid administrative expenditures attributable to the 
provision of medical assistance to children described in sections 
1905(u)(2) and 1905(u)(3), and during the presumptive eligibility 
period described in section 1920A of the Act, to the extent that the 
State does not claim those costs under the Medicaid program.
    (3) FFP is not available in expenditures for administrative 
activities for items or services included within the scope of another 
claimed expenditure.
    (4) FFP is available in expenditures for activities defined in 
sections 2102(c)(1) and 2105(a)(2)(C) of the Act as outreach to 
families of children likely to be eligible for child health assistance 
under the plan or under other public or private health coverage 
programs to inform these families of the availability of, and to assist 
them in enrolling their children in such a program.
    (5) FFP is available in administrative expenditures for activities 
specified in sections 2102(c)(2) of the Act as coordination of the 
administration of the State Children's Health Insurance Program with 
other public and private health insurance programs. FFP would not be 
available for the costs of administering the other public and private 
health insurance programs. Coordination activities must be 
distinguished from other administrative activities common among 
different programs.


Sec. 457.624  Limitations on certain payments for certain expenditures.

    (a) Abortions. (1) General rule. Payment is not made for any State 
expenditures to pay for abortions or to assist in the purchase, whole 
or in part, of health benefit coverage that includes coverage of 
abortion.
    (2) Exception. Payment may be made for expenditures for health 
benefits coverage and services that include abortions that are 
necessary to save the life of the mother or if the pregnancy is the 
result of rape or incest.
    (b) Waiver for purchase of family coverage. Payment may be made to 
a State with an approved State child health plan for the purchase of 
family coverage under a group plan or health insurance coverage that 
includes coverage of targeted low-income children only if the State 
establishes to the satisfaction of HCFA that --
    (1) Purchase of this coverage is cost-effective relative to the 
amounts that the State would have paid to obtain comparable coverage 
only of the targeted low-income children involved; and
    (2) This coverage will not be provided if it would otherwise 
substitute for health insurance coverage that would be provided to such 
children but for the purchase of family coverage.


Sec. 457.626  Prevention of duplicate payments.

    (a) General rule. No payment shall be made to a State for 
expenditures for child health assistance under its State child health 
plan to the extent that:
    (1) A non-governmental health insurer would have been obligated to 
pay for those services but for a provision of its insurance contract 
that has the effect of limiting or excluding those obligations based on 
the actual or potential eligibility of the individual for child health 
assistance under the State child health insurance plan.
    (2) Payment has been made or can reasonably be expected to be made 
promptly under any other Federally operated or financed health 
insurance or benefits program, other than a program operated or 
financed by the Indian Health Service.
    (b) Definitions. As used in paragraph (a) of this section --
    Non-governmental health insurer includes any health insurance 
issuer, group health plan, or health maintenance organization, as those 
terms are defined in 45 CFR 144.103, which is not part of, or wholly 
owned by, a governmental entity.
    Prompt payment can reasonably be expected when payment is required 
by applicable statute, or under an approved State plan.
    Programs operated or financed by the Indian Health Service means 
health programs operated by the Indian Health Service, or Indian tribe 
or tribal organization pursuant to a contract, grant, cooperative 
agreement or compact with the Indian Health Service under the authority 
of the Indian Self-Determination and Education Assistance Act (25 
U.S.C. 450, et seq.), or by an urban Indian organization in accordance 
with a grant or contract with the Indian Health Service under the 
authority of title V of the Indian Health Care Improvement Act (25 
U.S.C. 1601, et seq.).


Sec. 457.628  Other applicable Federal regulations.

    Other regulations applicable to SCHIP programs include the 
following:
    (a) HHS regulations in 42 CFR Subpart B--433.51-433.74 sources of 
non-Federal share and Health Care-Related Taxes and Provider-Related 
Donations; these regulations apply to States' SCHIPs in the same manner 
as they apply to States' Medicaid programs.
    (b) HHS Regulations in 45 CFR subtitle A:

Part 16--Procedures of the Departmental Appeals Board.
Part 74--Administration of Grants (except as specifically excepted).
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.
Part 81--Practice and Procedure for Hearings Under 45 CFR part 80.
Part 84--Nondiscrimination on the Basis of Handicap in Programs and 
activities Receiving or Benefiting From Federal Financial Assistance.
Part 95--General Administration--grant programs (public assistance and 
medical assistance).


Sec. 457.630  Grants procedures.

    (a) General provisions. Once HCFA has approved a State child health 
plan, HCFA makes quarterly grant awards to the State to cover the 
Federal share of expenditures for child health assistance, other child 
health assistance, special health initiatives, outreach and 
administration.
    (1) For fiscal year 1998, a State must submit a budget request in 
an appropriate format for the 4 quarters of the fiscal year. HCFA bases 
the grant awards for the 4 quarters of fiscal year 1998 based on the 
State's budget requests for those quarters.
    (2) For fiscal years after 1998, a State must submit a budget 
request in an appropriate format for the first 3 quarters of the fiscal 
year. HCFA bases the grant awards for the first 3 quarters of the 
fiscal year on the State's budget requests for those quarters.
    (3) For fiscal years after 1998, a State must also submit a budget 
request for the fourth quarter of the fiscal year. The amount of this 
quarter's grant award is based on the difference between a

[[Page 33632]]

State's final allotment for the fiscal year, and the total of the 
grants for the first 3 quarters that were already issued in order to 
ensure that the total of all grant awards for the fiscal year are equal 
to the State's final allotment for that fiscal year.
    (4) The amount of the quarterly grant is determined on the basis of 
information submitted by the State (in quarterly estimate and quarterly 
expenditure reports) and other pertinent information. This information 
must be submitted by the State through the Medicaid Budget and 
Expenditure System (MBES) for the Medicaid program, and through the 
Child Health Budget and Expenditure System (CBES) for the title XXI 
program.
    (b) Quarterly estimates. The State Children's Health Insurance 
Program agency must submit Form HCFA-21B (State Children's Health 
Insurance Program Budget Report for State Children's Health Insurance 
Program State expenditures) to the HCFA central office (with a copy to 
the HCFA regional office) 45 days before the beginning of each quarter.
    (c) Expenditure reports. (1) The State must submit Form HCFA-64 
(Quarterly Medicaid Statement of Expenditures for the Medical 
Assistance Program) and Form HCFA-21 (Quarterly State Children's Health 
Insurance Program Statement of Expenditures for title XXI), to central 
office (with a copy to the regional office) not later than 30 days 
after the end of the quarter.
    (2) This report is the State's accounting of actual recorded 
expenditures. This disposition of Federal funds may not be reported on 
the basis of estimates.
    (d) Additional required information. A State must provide HCFA with 
the following information regarding the administration of the title XXI 
program:
    (1) Name and address of the State Agency/organization administering 
the program;
    (2) The employer identification number (EIN); and
    (3) A State official contact name and telephone number.
    (e) Grant award. (1) Computation by HCFA. Regional office staff 
analyzes the State's estimates and sends a recommendation to the 
central office. Central office staff considers the State's estimates, 
the regional office recommendations and any other relevant information, 
including any adjustments to be made under paragraph (e)(2) of this 
section, and computes the grant.
    (2) Content of award. The grant award computation form shows the 
estimate of expenditures for the ensuing quarter, and the amounts by 
which that estimate is increased or decreased because of an increase or 
overestimate for prior quarters, or for any of the following reasons:
    (i) Penalty reductions imposed by law.
    (ii) Deferrals or disallowances.
    (iii) Interest assessments.
    (iv) Mandated adjustments such as those required by Section 1914 of 
the Act.
    (3) Effect of award. The grant award authorizes the State to draw 
Federal funds as needed to pay the Federal share of disbursements.
    (4) Draw procedure. The draw is through a commercial bank and the 
Federal Reserve system against a continuing letter of credit certified 
to the Secretary of the Treasury in favor of the State payee. (The 
letter of credit payment system was established in accordance with 
Treasury Department regulations--Circular No.1075.)
    (f) General administrative requirements. With the following 
exceptions, the provisions of 45 CFR part 74, that establish uniform 
administrative requirements and cost principles, apply to all grants 
made to States under this subpart:
    (1) Subpart G--Matching and Cost Sharing; and
    (2) Subpart I--Financial Report Requirement.

    C. 45 CFR part 92 is amended as follows:

PART 92--UNIFORM ADMINISTRATION REQUIREMENTS FOR GRANTS AND 
COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS

    1. The authority citation for part 92 continues to read as follows:

    Authority: 42 U.S.C. 301.

    2. Section 92.4 is amended by revising paragraphs (a)(3)(iv) and 
(a)(3)(v), and adding a new paragraph (a)(3)(vi) to read as follows:


Sec. 92.4  Applicability.

    (a) * * *
    (3) * * *
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act);
    (v) Medical Assistance (Medicaid) (title XIX of the Act) not 
including the State Medicaid Fraud Control program authorized by 
Section 1903(a)(6)(B); and
    (vi) State Children's Health Insurance Program (title XXI of the 
Act).
* * * * *

    D. 45 CFR part 95 is amended as follows:
    1. The title of part 95 is revised to read as follows:

PART 95--GENERAL ADMINISTRATION--GRANT PROGRAMS (PUBLIC ASSISTANCE, 
MEDICAL ASSISTANCE AND STATE CHILDREN'S HEALTH INSURANCE PROGRAMS)

    2. The authority citation for part 95 is revised to read as 
follows:

    Authority: Sec. 452(a), 83 Stat. 2351, 42 U.S.C. 652(a); sec. 
1102, 49 Stat. 647, 42 U.S.C. 1302; sec. 7(b), 68 Stat. 658, 29 
U.S.C. 37(b); sec. 139, 84 Stat. 1323, 42 U.S.C. 2577b; sec. 144, 81 
Stat. 529, 42 U.S.C. 2678; sec. 1132, 94 Stat. 530, 42 U.S.C. 1320b-
2; sec. 306(b), 94 Stat. 530, 42 U.S.C. 1320b-2note, unless 
otherwise noted.

Subpart A--Time Limits for States To File Claims

    3. In Sec. 95.1(a), title XXI is added in numerical order 
immediately following title XX as follows:


Sec. 95.1  Scope.

    (a) * * *

Title XXI--Grants to States for State Children's Health Insurance 
Programs.

    4. In Sec. 95.4, the definition of ``State agency'' is revised to 
read as follows:


Sec. 95.4  Definitions.

* * * * *
    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.
* * * * *

    5. In Sec. 95.13, paragraph (b) and the first sentence of paragraph 
(d) are revised to read as follows:


Sec. 95.13  In which quarter we consider an expenditure made.

* * * * *
    (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 33633]]

    (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. * * *

Subpart E--Cost Allocation Plans

    6. Section 95.503 is revised to read as follows:


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.

    7. Section 95.507(a)(3) is revised to read as follows:


Sec. 95.507  Plan requirements.

    (a) * * * (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
* * * * *

Subpart F--Automatic Data Processing Equipment and Services--
Conditions for Federal Financial Participation (FFP)

    8. Section 95.601 is revised to read as follows:


Sec. 95.601  Scope and applicability.

    This subpart prescribes part of the conditions under which the 
Department of Health and Human Services will approve Federal financial 
participation (FFP) at the applicable rates for the costs of automatic 
data processing incurred under an approved State plan for titles I, IV-
A, IV-B, IV-D, IV-E, X, XIV, XVI(AABD), XIX, or XXI of the Social 
Security Act and title IV chapter 2 of the Immigration and Nationality 
Act. The conditions of approval of this subpart add to the statutory 
and regulatory requirements for acquisition of ADP equipment and 
services under the specified titles of the Social Security Act.
    9. In Sec. 95.605, the definitions of ``approving component'', 
``operation'', ``regular matching rate'', and ``State agency'' are 
revised to read as follows:


Sec. 95.605  Definitions.

* * * * *
    Approving component means an organization within the Department 
that is authorized to approve requests for the acquisition of ADP 
equipment or ADP services. Family Support Administration (FSA) for cash 
assistance for titles I, IV-A, X, XIV, and XVI(AABD); Office of Human 
Development Services (OHDS) for social services for titles IV-B (child 
welfare services) and IV-E (foster care and adoption assistance); 
Family Support Administration (FSA) for title IV-D; and Health Care 
Financing Administration (HCFA) for titles XIX and XXI of the Social 
Security Act.
* * * * *
    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.
    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.
* * * * *
    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.
* * * * *

    10. In Sec. 95.703 the definition of ``Public Assistance Programs'' 
is revised to read as follows:


Sec. 95.703  Definitions.

* * * * *
    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).
* * * * *


(Section 1102 of the Social Security Act (42 U.S.C. 1302)

(Catalog of Federal Domestic Assistance Program No. 00.000, State 
Children's Health Insurance Program)


    Dated: March 22, 2000.
Nancy Ann-Min DeParle,
Administrator, Health Care Financing Administration.
    Dated: March 28, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 00-12879 Filed 5-23-00; 8:45 am]
BILLING CODE 4120-01-P