[Federal Register Volume 66, Number 64 (Tuesday, April 3, 2001)]
[Proposed Rules]
[Pages 17657-17659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8178]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 447

[HCFA-2100-P]
RIN 0938-AK89


Medicaid Program; Modification of the Medicaid Upper Payment 
Limit Transition Period for Inpatient Hospital Services, Outpatient 
Hospital Services, Nursing Facility Services, Intermediate Care 
Facility Services for the Mentally Retarded, and Clinic Services

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would modify the Medicaid upper payment 
(UPL) limit provisions to establish a new transition period for States 
that submitted plan amendments before March 13, 2001 that do not comply 
with the new UPLs effective on that date (but do comply with the prior 
UPLs) and were approved on or after January 22, 2001. This new 
transition period would apply to payments for inpatient hospital 
services, outpatient hospital services, nursing facility services, 
intermediate care facility services for the mentally retarded, and 
clinic services.

DATES: We will consider comments if we receive them at the appropriate 
address, as provided below, no later than 5 p.m. on May 3, 2001.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: HCFA-2100-P, P.O. Box 8016, 
Baltimore, MD 21244-8016
    To ensure that mailed comments are received in time for us to 
consider them, please allow for possible delays in delivering them.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses: Room 443-G, Hubert H. 
Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, 
or Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244.
    Comments mailed to the above addresses may be delayed and received 
too late for us to consider them.
    Because of staff and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code HCFA-2100-P. Comments received timely will be available 
for public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room C5-10-04 
of the headquarters of the Health Care Financing Administration, 7500 
Security Blvd., Baltimore, MD on Monday through Friday of each week 
from 8:30 a.m to 5 p.m. To schedule a time to view the public comments, 
please call (410) 786-7195.

FOR FURTHER INFORMATION CONTACT:

Robert Weaver, (410) 786-5914--Nursing facility services and 
intermediate care facility services for the mentally retarded.
Larry Reed, (410) 786-3325--Inpatient and outpatient hospital services 
and clinic services.

SUPPLEMENTARY INFORMATION:

I. Background

    In the final rule published on January 12, 2001 in the Federal 
Register (66 FR 3148), we specified transition periods for those States 
with State plan amendments (SPAs) approved before

[[Page 17658]]

the final rule effective date of March 13, 2001. In our March 13, 2001 
letter to State Medicaid Directors, we clarified that state plan 
amendments submitted on or after the effective date of the final rule 
would be subject to the new requirements of the final rule. We further 
explained that any state plan amendment that is submitted on or after 
that date, including modifications to existing state plans, that does 
not conform with the new upper payment limitations would be 
disapproved.
    The State Medicaid Directors letter did not address the amendments 
pending HCFA approval. After reviewing the legal and policy issues 
involved, the Administration now believes that each State's pending 
amendment should be reviewed under the criteria in place before March 
13, 2001, rather than applying the provisions of the January 12, 2001 
final rule. However, the Administration is also committed to phasing 
out the UPL loophole and assuring that tax dollars are spent properly. 
Absent modification of the UPL transition provisions, approval of these 
State plan amendments could trigger a 2-year transition period through 
September 30, 2002, which would have greater budget implications than 
anticipated. Therefore, we are proposing to limit the transition period 
to one year.

II. Provisions of the Proposed Rule

    As this administration takes additional steps to address the 
Medicaid UPL loophole, we are proposing to create a separate UPL 
transition period for those State plan amendments that were submitted 
to us before March 13, 2001 but were approved on or after January 22, 
2001. These State plan amendments would qualify for a transition period 
that would end on the later of March 13, 2001 or 1 year after the 
approved effective date of each State plan amendment. With respect to 
pending UPL plans that are expansions of previously approved plans, the 
separate transition period described in this rule would only apply to 
the portion of spending under the pending plan that is above the amount 
that was previously approved.
    This proposed rule does not include those State plan amendments 
that were actively (not deemed) approved after January 12, 2001 based 
on their compliance with the final rule of January 12, 2001. Because 
these amendments comply with the final rule, the amendments are not 
subject to the transition periods specified in the January 12, 2001 
final rule. Also, as noted in the State Medicaid Directors letter of 
March 13, 2001, any State plan amendments submitted on or after March 
13, 2001 would be reviewed and acted upon under the January 12, 2001 
final rule. We would also treat any material change submitted on or 
after March 13, 2001 to a State plan amendment pending on that date as 
a new State plan amendment. We would not be able to approve such a 
submission under the UPL requirements in effect, and it would not be 
eligible for the new transition period.

III. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the major comments in the preamble to that 
document.

IV. Collection of Information Requirements--Paperwork Reduction Act

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 35).

V. Regulatory Impact Analysis

A. Introduction

    We have examined the impact of this proposed rule as required by 
Executive Order (EO) 12866, the Unfunded Mandates Act of 1995, and the 
Regulatory Flexibility Act (RFA) (Pub. L. 96-354). Executive Order 
12866 directs agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). A regulatory impact analysis (RIA) must be 
prepared for major rules with economically significant effects ($100 
million or more in any one year). We consider this to be a major rule 
and we have provided an analysis below.

B. Overall Impact

    The estimates provided below are based on State-reported Federal 
fiscal year information submitted with State plan amendments and State 
expenditure information, where available.
    We have identified 11 States with pending rate proposals that would 
potentially qualify for the transition period in the final rule. Were 
these state plan amendments now to be approved, we estimate the 
increase in spending attributed to these amendments would total $1.1 
billion over fiscal years 2001 and 2002 as a result of the two-year 
transition period ending on September 30, 2002. Restricting the 
transition period to one year only, as proposed in this rule, would 
reduce the potential costs for expenditures by $0.6 billion over the 
same period.

C. Impact on Small Entities and Rural Hospitals

    The Regulatory Flexibility Act requires agencies to analyze options 
for regulatory relief of small entities. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations and 
government agencies. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $5 million to $25 million (see 65 FR 69432) or less 
annually. For purposes of the RFA, all hospitals, nursing facilities, 
intermediate care facilities for the mentally retarded, and clinics are 
considered to be small entities. Individuals and States are not 
included in the definition of a small entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds.
    We do not believe the 1-year transition policy proposed in this 
would have a significant impact on small entities, including small 
rural hospitals. Although the proposed transition policy would allow 
States to make higher payments to government providers than what 
otherwise would have been allowable under the rules that were effective 
on March 13, 2001, this flexibility would only be available for a year. 
Therefore, we would not expect small entities to develop any reliance 
on these payments.
    We invite public comments on the possible effects this proposed 
rule would have on small entities in general and on small rural 
hospitals in particular.

[[Page 17659]]

D. The Unfunded Mandates Act

    The Unfunded Mandates Reform Act of 1995 also requires (in section 
202) that agencies perform an assessment of anticipated costs and 
benefits before proposing any rule that may result in a mandated 
expenditure in any one year by State, local, or Tribal governments, in 
the aggregate, or by the private sector, of $100 million. Because this 
proposed rule does not mandate any new spending requirements or costs, 
but rather provides for a 1 year transition policy, we do not believe 
it has any unfunded mandate implications.

E. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct compliance costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We do not believe this proposed rule in any way imposes 
substantial direct compliance costs on State and local governments or 
preempts or supersedes State or local law.

F. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects Affected in 42 CFR Part 447

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

    For the reasons set forth in the preamble, the Health Care 
Financing Administration proposes to amend 42 CFR part 447 as follows:

PART 447--PAYMENTS FOR SERVICES

    1. The authority citation for part 447 continues to read as 
follows:

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

    2. In Sec. 447.272, revise paragraph (e)(2)(ii)(A) and add a new 
paragraph (e)(2)(ii)(D) to read as follows:


Sec. 447.272  Inpatient services: application of upper payment limits.

* * * * *
    (e) * * *
    (2) * * *
    (ii) * * *
    (A) For State plan provisions that are effective on or after 
October 1, 1999 and were approved before January 22, 2001, payments may 
exceed the upper payment limit in paragraph (b) of this section until 
September 30, 2002.
* * * * *
    (D) For State plan provisions that were effective on or after 
October 1, 1999 and were submitted to HCFA before March 13, 2001 (and 
were approved on or after January 22, 2001), payments may exceed the 
limit in paragraph (b) of this section until the later of March 13, 
2001, or 1 year from the approved effective date of each State plan 
provision.
* * * * *
    3. In Sec. 447.321, revise paragraph (e)(2)(ii)(A) and add a new 
paragraph (e)(2)(ii)(D) to read as follows:


Sec. 447.321  Outpatient hospital and clinic services: Application of 
upper payment limits.

* * * * *
    (e) * * *
    (2) * * *
    (ii) * * *
    (A) For State plan provisions that are effective on or after 
October 1, 1999 and were approved before January 22, 2001, payments may 
exceed the upper payment limit in paragraph (b) of this section until 
September 30, 2002.
* * * * *
    (D) For State plan provisions that were effective on or after 
October 1, 1999 and were submitted to HCFA before March 13, 2001 (and 
were approved on or after January 22, 2001), payments may exceed the 
limit in paragraph (b) of this section until the later of March 13, 
2001, or 1 year from the approved effective date of each State plan 
provision.
* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: March 27, 2001.
Michael McMullan,
Acting Deputy Administrator, Health Care Financing Administration.
[FR Doc. 01-8178 Filed 3-29-01; 3:47 pm]
BILLING CODE 4120-01-P