[Federal Register Volume 73, Number 228 (Tuesday, November 25, 2008)]
[Rules and Regulations]
[Pages 71828-71855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-27717]



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Part IV





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 447 and 457



Medicaid Program; Premiums and Cost Sharing; Final Rule

  Federal Register / Vol. 73, No. 228 / Tuesday, November 25, 2008 / 
Rules and Regulations  

[[Page 71828]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 447 and 457

[CMS-2244-F]
RIN 0938-A047


Medicaid Program; Premiums and Cost Sharing

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements and interprets the provisions of 
sections 6041, 6042, and 6043 of the Deficit Reduction Act of 2005 
(DRA), and section 405(a)(1) of the Tax Relief and Health Care Act of 
2006 (TRHCA). The DRA was amended by the TRHCA which revised sections 
6041, 6042, and 6043 of the DRA including limitations on cost sharing 
for individuals with family incomes at or below 100 percent of the 
federal poverty line. These sections amended the Social Security Act 
(the Act) by adding a new section 1916A to provide State Medicaid 
agencies with increased flexibility to impose premium and cost sharing 
requirements on certain Medicaid recipients. This flexibility 
supplements the existing authority States have to impose premiums and 
cost sharing under section 1916 of the Act. The DRA provisions also 
specifically address cost sharing for non-preferred drugs and non-
emergency care furnished in a hospital emergency department.

DATES: Effective Date: These regulations are effective 60 days after 
the date of publication in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Donna Schmidt, (410) 786-5532.

SUPPLEMENTARY INFORMATION: 

I. Background

A. General

    For more than a decade, States have been asking for the tools to 
modernize their Medicaid programs. With the enactment of the Deficit 
Reduction Act of 2005 (DRA) (Pub. L. 109-171, enacted on February 8, 
2006), States now have new options to create programs that are aligned 
with today's Medicaid populations and the health care environment. The 
alternative cost sharing discussed in this issuance is one part of that 
modernization; other parts include benefit flexibility through 
benchmark plans, and the health opportunity accounts (HOA) 
demonstration projects. Together, these innovations provide the 
opportunities for States to modernize Medicaid by expanding coverage, 
making the overall cost of the program and health care more affordable, 
and providing a bridge to private insurance coverage. States will be 
able to reconnect families to the larger insurance system that serves 
most Americans and promote continuity of coverage. The sweeping DRA 
provisions on Medicaid include six chapters and 39 sections. Through a 
combination of new options for States and new requirements related to 
program integrity, the DRA will help to ensure the sustainability of 
the Medicaid program over time.

B. Statutory Authority

    Sections 6041, 6042, and 6043 of the DRA established a new section 
1916A of the Social Security Act (the Act), which was amended by 
section 405(a)(1) of the Tax Relief and Health Care Act of 2006 (TRHCA) 
(Pub. L. No. 109-432, enacted on December 20, 2006). Section 1916A of 
the Act sets forth options for alternative premiums and cost sharing, 
including options for higher cost sharing for non-preferred 
prescription drugs and for non-emergency use of a hospital emergency 
room.
    Section 6041 of the DRA established new subsections 1916A(a) and 
(b) of the Act, which allow States to amend their State plans to impose 
alternative premiums and cost sharing on certain groups of individuals, 
for items and services other than drugs (which are subject to a 
separate provision discussed below), and to enforce payment of the 
premiums and cost sharing. Subsections 1916A(a) and (b) of the Act set 
forth limitations on alternative premiums and cost-sharing that vary 
based on family income, and exclude some specific services from 
alternative cost sharing. Section 6041 of the DRA also created a new 
section 1916(h) of the Act, which requires the Secretary to increase 
the ``nominal'' cost sharing amounts under section 1916 of the Act for 
each year (beginning with 2006) by the annual percentage increase in 
the medical care component of the consumer price index for all urban 
consumers (CPI-U) as rounded up in an appropriate manner. Section 
405(a)(1) of the TRHCA modified subsections 1916A(a) and (b) of the 
Act.
    Section 6042 of the DRA created section 1916A(c) of the Act, which 
provides States with additional options for establishing cost sharing 
requirements for drugs to encourage the use of preferred drugs. Section 
405(a)(1) of the TRHCA also modified section 1916A(c) of the Act. Under 
section 1916A(c) of the Act, States may amend their State plans to 
require increased cost sharing by certain groups of individuals for 
non-preferred drugs and to waive or reduce the otherwise applicable 
cost sharing for preferred drugs. States may also permit pharmacy 
providers to require the receipt of a cost sharing payment from an 
individual before filling a prescription.
    Section 6043 of the DRA created section 1916A(e) of the Act, which 
permits States to amend their State plans to allow hospitals, after an 
appropriate medical screening examination under section 1867 (EMTALA) 
of the Act, to impose higher cost sharing upon certain groups of 
individuals for non-emergency care or services furnished in a hospital 
emergency department. Section 405(a)(1) of the TRHCA modified section 
1916A(e) of the Act. Under this option, if the hospital determines that 
an individual does not have an emergency medical condition, before 
providing the non-emergency services and imposing cost sharing, it must 
inform the individual that an available and accessible alternate non-
emergency services provider can provide the services without the 
imposition of the same cost sharing and that the hospital can 
coordinate a referral to that provider. After notice is given, the 
hospital may require payment of the cost sharing before providing the 
non-emergency services to the individual.

II. Provisions of the Proposed Rule and Analysis of and Response to 
Public Comments

    We published a proposed rule in the Federal Register on February 
22, 2008 (73 FR 9727) that proposed to implement sections 6041, 6042, 
and 6043 of the DRA. In response to the proposed rule, we received 
approximately 50 timely items of correspondence. Many of the commenters 
represented State and local advocacy groups, national associations that 
represent various aspects of beneficiary groups, physician and provider 
groups, medical associations and hospitals, and State Medicaid agency 
senior officials. The remaining comments were from individuals and 
human services agencies.

A. Public Comment Process

    On February 22, 2008, the date we published the Premiums and Cost 
Sharing proposed rule, we also published a proposed rule entitled, 
``State Flexibility for Medicaid Benefit Packages'' (73 FR 9714 through 
9727) that proposed to implement provisions of the DRA. The comment 
period for

[[Page 71829]]

both proposed rules closed on the same day and commenters submitted 
comments on both the State Flexibility for Medicaid Benefit Packages 
proposed rule, and Premiums and Cost Sharing (73 FR 9727 through 9740) 
proposed rule. To the extent that the comments relate to Premiums and 
Cost Sharing, we believe that the concerns expressed by commenters are 
addressed in the comments and responses presented below. We note that 
we will address comments related to the State Flexibility for Medicaid 
Benefit Packages proposed rule (73 FR 9714 through 9727) in a 
subsequent final rule.
    In this section, we briefly describe our proposed regulatory 
changes, followed by a discussion of the comments we received on each 
proposal. Comments related to the paperwork and other burdens are 
addressed in the Collection of Information Requirements section in this 
preamble.

B. Medicaid Regulations

1. Maximum Allowable and Nominal Charges (Sec.  447.54)
    We proposed to revise Sec.  447.54 to update the existing 
``nominal'' Medicaid cost sharing amounts, specifically the nominal 
deductible amount described at Sec.  447.54(a)(1) and the nominal 
copayment amounts described at Sec.  447.54(a)(3). We also proposed to 
add a new Sec.  447.54(a)(4) to establish a maximum copayment amount 
for services provided by a managed care organization (MCO).
    Section 6041(b)(2) of the DRA requires the Secretary to increase 
the nominal cost sharing amounts under section 1916 of the Act for each 
year (beginning with 2006) by the annual percentage increase in the 
medical care component of the consumer price index for all urban 
consumers (U.S. city average) as rounded up in an appropriate manner. 
In accordance with the statute, we proposed to increase the nominal 
amounts effective as of October 1 of each year, the beginning of the 
Federal fiscal year (FY), by the percentage increase in the medical 
care component of the Consumer Price Index for All Urban Consumers 
(CPI-U) for the period of September to September ending in the 
preceding calendar year. We use this period to update other amounts, 
such as the Medicaid spousal impoverishment standards, by inflation. 
The first adjustment would be for FY 2007, and would be based on the 
CPI-U increases during the period September 2004 to September 2005. The 
medical care component of the CPI-U increased by 3.9 percent between 
September 2004 and September 2005; therefore, we proposed to update the 
nominal amounts by that factor. We also proposed to round to the next 
higher 10-cent increment because it would simplify calculation and 
collection of the amounts involved. Based on this methodology, we 
proposed a maximum deductible for $2.10 per month per family for each 
period of Medicaid eligibility. In addition, we proposed the following 
copayment schedule for FY 2007:

------------------------------------------------------------------------
                                                               Maximum
               State payment for the service                  copayment
------------------------------------------------------------------------
$10 or less................................................         $.60
$10.01 to $25..............................................         1.10
$25.01 to $50..............................................         2.10
$50.01 or more.............................................         3.20
------------------------------------------------------------------------

    We proposed that these amounts would be updated each October 1 by 
the percentage increase in the medical care component of the CPI-U for 
the period of September to September ending in the preceding year, 
rounded to the next higher 10-cent increment.
    In addition, we proposed at 447.54(a)(4) to specify a maximum 
copayment amount for services provided by an MCO. When we published the 
final Medicaid managed care rules on June 14, 2002 (67 FR 40989), we 
also required at Sec.  447.60, that contracts with MCOs limit cost 
sharing charges an MCO may impose on Medicaid enrollees to the amounts 
that could be imposed if fee-for-service payment rates were applicable.
    Specific comments to this section and our responses to those 
comments are as follows:
    Comment: One commenter stated that the matrix of cost sharing 
requirements and exemptions established under the proposed rule is 
complex and the commenter requested a chart for clarification.
    Response: We agree with the commenter that the cost sharing matrix 
established under the proposed rule is complex. We believe it is 
sufficiently clear to establish a Federal framework defining the State 
flexibility available. Actual cost sharing will be specified in State 
plans and may vary based on circumstances. We expect States to clearly 
communicate applicable cost sharing responsibilities to affected 
beneficiaries in simple and understandable terms, consistent with the 
requirement in 42 CFR 435.905. We included in the proposed rule 
information for FY 2007: A chart of updated maximum levels for cost 
sharing, the maximum deductible level, and a chart of maximum allowable 
charges. The amounts for Federal FY 2008 increase by the percentage 
increase in the MCPI-U from September 2005 to September 2006 of 4.2 
percent, and, as we discuss below, we are including the FY 2008 updated 
levels in this final rule. Since we are currently in Federal FY 2009, 
we are also including the FY 2009 updated levels. The amount for 
Federal FY 2009 increased by the percentage increase in the MCPI-U from 
September 2006-2007 is 4.6 percent.
    Additionally, we set forth in other regulatory provisions the 
limitations that apply to alternative cost sharing under section 1916A 
of the Act that apply based on income level. We discuss these 
limitations in Sec.  447.70 of this final rule--General Cost Sharing 
Protections.
    Comment: Several commenters stated that the proposed rule did not 
give effect to the statutory provisions for lower cost sharing (10 
percent of the cost of the service) for those with family incomes above 
100 percent of the Federal poverty but below 150 percent of the FPL 
than for those with family incomes over 150 percent (20 percent of the 
cost of the service) in fee-for-service plans by varying the maximum 
copayment by income and setting lower managed care maximum copayments 
for those with lower incomes. Commenters believe this would be more 
consistent with Congressional intent.
    Response: The statute provides for variance of copayments by income 
level only when alternative copayments are imposed. The provision at 
Sec.  447.54 in this final rule defines nominal levels under section 
1916 of the Act. In section 1916A of the Act, the income related 
limitations apply to alternative cost sharing in addition to the 
definition of nominal levels, and are set forth in the regulations that 
directly apply to alternative cost sharing at Sec. Sec.  447.62 through 
447.82.
    Comment: Several commenters stated that clarification is needed on 
whether the ``per visit'' qualification on the MCO maximum co-payment 
restricts charging of co-payments by the MCO.
    Response: We have not defined what constitutes a ``visit'' in a 
managed care context because we wish to maintain State flexibility. 
However, we agree that it would be problematic if an MCO was generating 
excess ``visits'' for the purpose of extracting extra co-payments. We 
believe that States should not permit MCOs to impose more than one co-
payment for any service or services that could be furnished by a 
provider during one office visit, even if it actually delivered in 
multiple office visits.
    Comment: Some commenters stated that CMS should annually publish a 
notice in the Federal Register of the maximum cost sharing amounts by

[[Page 71830]]

March 31 for the upcoming Federal FY. Other commenters stated that 
there is no statutory basis for imposing this cost sharing.
    Response: We will publish annually the updated amounts, increased 
based on the medical care component of the consumer price index for 
urban consumers. We cannot commit to publication on or by March 31, 
since publication will be dependent on the availability of data. We may 
publish before or after that time, but will seek to give sufficient 
advance notice to facilitate timely adjustment of State cost sharing 
levels. Since the update methodology is detailed in the published rule 
and does not involve discretionary elements, the implementation of 
updated maximum levels should not depend upon CMS publication of 
specific figures. Nevertheless, we intend to publish updates either in 
the Federal Register or in some other form that ensures general 
availability. We do not wish to limit publication options in light of 
the increasing shift toward electronic media.
    To respond to the commenters concerning the statutory basis for 
imposing this cost sharing, as stated earlier, this final rule 
implements sections 6041 through 6043 of the DRA of 2005, which amended 
the Social Security Act to add section 1916A. The authority to set 
nominal levels for cost sharing is contained in sections 1916(a)(3) and 
(b)(3) of the Social Security Act, and the authority to update those 
amounts annually is section 6041(b)(2) of the DRA, which added section 
1916A(h) to the Social Security Act. We established the MCO nominal 
cost sharing levels based on these same authorities. The MCO nominal 
cost sharing levels are consistent with the longstanding levels for fee 
for service nominal cost sharing, and clarify how nominal levels are 
applied in a managed care context. The MCO nominal cost sharing levels 
are updated annually in the same manner as are fee-for-service nominal 
cost sharing levels.
    Comment: Several commenters believe that the proposed methodology 
to update the nominal cost sharing amounts would round up the amounts 
at a faster rate than Congress intended. Specifically, several 
individuals asserted that, under the proposed methodology, each year's 
new maximum co-payment amount would be calculated by applying the 
annual inflation adjustment to the previous year's cost sharing limit 
after it was rounded up. The new maximum would be higher than warranted 
if the inflation adjustment had been applied without the rounding 
increase. As a result, this would increase the nominal cost sharing 
limits at a rate faster than Congress intended.
    Response: We agree that to calculate each subsequent year's new 
maximum co-payment amount by applying the annual inflation adjustment 
to the previous year's cost sharing limit after it was rounded up would 
increase the nominal cost sharing limits at a rate faster than Congress 
intended. To round up the nominal Medicaid and SCHIP amounts based on 
the ``rounded'' values would provide that the nominal amounts would 
grow larger over time, thus, making the nominal Medicaid and SCHIP co-
payments charged by States increasingly onerous for the poorest 
beneficiaries.
    We clarify that it was always our intent that, for the purpose of 
increasing the nominal cost sharing for a future FY, we would increase 
the unrounded values underlying the previous FY's nominal amounts by 
the percentage increase in the MCPI-U for the 12-month period ending in 
September of the preceding calendar year.
    Comment: Commenters stated that the impact is exacerbated by the 
decision to also round up by a 10-cent increment rather than a 5-cent 
increment. The commenters noted that the DRA does not specify a 
rounding methodology, and pointed out that a 5-cent increment is used 
in the Medicare Part D program. They also questioned whether a 5-cent 
increment would be harder to collect and calculate, and asserted that 
consistency with Medicare would be simpler for both providers and for 
beneficiaries enrolled in both programs.
    Response: We agree with the commenters, and in this final rule, we 
provide that in calculating maximum nominal amounts for Medicaid and 
SCHIP, we will update the amounts by the annual percentage increase in 
the MCPI-U and round up to the next 5-cent increment. As discussed 
above, we will calculate the update each year without considering any 
rounding adjustment made in the previous year. The revised chart for FY 
2007 would therefore read as follows:

------------------------------------------------------------------------
                                                               Maximum
               State payment for the service                  copayment
------------------------------------------------------------------------
$10 or less................................................       $ 0.55
$10.01 to $25..............................................         1.05
$25.01 to $50..............................................         2.10
$50.01 or more.............................................         3.15
------------------------------------------------------------------------

    The amounts for Federal FY 2008 reflect an increase in the FY 2007 
levels set forth above based on the percentage increase in the MCPI-U 
from September 2005 to September 2006 of 4.2 percent, rounded up to the 
next highest 5-cent increment. The chart for Federal FY 2008 reads as 
follows:

------------------------------------------------------------------------
                                                               Maximum
               State payment for the service                  copayment
------------------------------------------------------------------------
$10 or less................................................       $ 0.55
$10.01 to $25..............................................         1.10
$25.01 to $50..............................................         2.20
$50.01 or more.............................................         3.25
------------------------------------------------------------------------

     In this final rule at 42 CFR 447.54 we are including the chart for 
FY 2009, since it will provide more immediate useful information for 
States.
    Comment: One commenter questioned if the requirement to increase 
the nominal cost sharing amounts annually also requires the State to 
adjust its amounts annually.
    Response: There is no requirement under Medicaid that States impose 
the maximum level of cost sharing. If the maximum nominal cost sharing 
levels increase as a result of updating, a State may nevertheless 
maintain a lower cost sharing level.
    Comment: Several individuals were concerned about the proposed 
$5.20 per visit maximum cost-sharing for Medicaid services provided by 
a MCO, stating that it could significantly increase the burden on 
Medicaid beneficiaries because it would permit imposition of the 
maximum cost sharing level regardless of the cost of the services 
provided. These commenters stated that beneficiaries with family 
incomes below the poverty line should not be subject to the new $5.20 
co-payment.
    Response: In proposing a maximum managed care co-payment under the 
Medicaid program, we looked to the SCHIP program for guidance. Under 
SCHIP rules at Sec.  457.555, promulgated in 2001, we established a 
maximum per visit copayment level for managed care services at the 
highest level for fee-for-service cost sharing under SCHIP, instead of 
applying the same copayment limitations applicable to services received 
on a fee-for-service basis. Based on that precedent, we proposed a 
similar structure in Medicaid to effectively replace limitations on 
managed care cost sharing that were tied to the same limitations as 
fee-for-service copayments. Instead of reflecting the proposed maximum 
Medicaid fee-for-service co-payment level of $3.20 (consistent with 
Sec.  447.54(a)(3)(i)), we proposed a maximum level per visit at the 
maximum SCHIP fee-for-service level at $5.20.
    Our reasoning in both SCHIP and Medicaid is related to the 
different way services are delivered under managed

[[Page 71831]]

care. We believe that managed care services are typically less 
fragmented than services furnished on a fee-for-service basis, and, for 
virtually all services for which managed care entities charge cost 
sharing (for example, physician visits), the cost sharing would be at 
the maximum level. We also considered reducing the burden on managed 
care entities of justifying each individual cost sharing charge based 
on a comparison to fee-for-service levels when, in many States, there 
is no comparable fee-for-service program.
    After consideration of public comments, we have determined to alter 
our approach. In this final rule, the maximum MCO per visit rate would 
apply only when there is no comparable fee-for-service delivery system. 
When there is a comparable fee-for-service delivery system, managed 
care copayments must follow the same limitations applicable to fee-for-
service. Because it is important to align Medicaid and SCHIP, so that 
States can provide benefits seamlessly under either program to 
individuals referenced in the title XXI State child health plan, we 
include an exception applicable only to such individuals. For these 
individuals, the maximum MCO copayment level will be the same level 
permitted under the SCHIP program. The higher nominal levels permitted 
for individuals referenced in the title XXI State child health plan is 
consistent with the fact that such individuals would not be Medicaid-
eligible except for the SCHIP-related expansion of Medicaid.
    Therefore, this final rule provides for a managed care maximum 
copayment based on the applicable Medicaid fee-for-service maximum rate 
or, where there is no fee-for-service delivery system, at a per-visit 
maximum based on the highest fee-for-service level of $3.15 in FY 2007, 
$3.25 in FY 2008, and $3.40 in FY 2009. In addition, in this final 
rule, we provide for a specific exception to permit alignment with 
SCHIP levels for individuals in a Medicaid expansion referenced in the 
approved State child health plan, so that the maximum copayment level 
would be the maximum under the SCHIP program, which for FY 2007 is 
$5.20, for FY 2008 is $5.45, and for FY 2009 is $5.70.
    States that impose alternate cost sharing under 1916A of the Act, 
as implemented by this rule, are still required to comply with the 
other requirements under 1916A of the Act, such as the limits on cost 
sharing for populations under 100 percent of the FPL, and the aggregate 
maximum and the individual service limits.
2. Alternative Premiums and Cost Sharing: Basis, Purpose and Scope 
(Sec.  447.62)
    Section 1916A of the Act allows States to impose alternative 
premiums and cost sharing that are not subject to the limitations on 
premiums and cost sharing under section 1916 of the Act. Section 1916A 
of the Act does not affect the Secretary's existing waiver authority 
with regard to premiums and cost sharing. Section 447.62 of the 
regulations as stated in this final rule briefly describes this 
statutory provision which is the basis for Sec. Sec.  447.64 through 
447.82.
    Section 447.62 also makes clear, as specified in section 
1916A(b)(6) of the Act, that these regulations do not limit the 
Secretary's waiver authority, or affect existing waivers, concerning 
premiums or cost sharing.
    Section 405(a)(1) of the TRHCA amended section 1916A of the Act by 
explicitly providing certain exemptions from certain alternative cost 
sharing provisions for the population with family incomes at or below 
100 percent of the FPL. The statute also includes protections for 
individuals with family incomes between 100 and 150 percent of the FPL 
and individuals with family incomes above 150 percent of the FPL. CMS 
proposed to implement the protections outlined in the TRHCA including 
the imposition of nominal cost sharing for individuals with family 
income at or below 100 percent of the FPL.
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: Several commenters supported the proposed regulation. They 
believe that permitting cost sharing under an approved State plan 
provides States with increased flexibility, provides for States to 
better meet the health care needs of Medicaid enrollees, and provides 
States with the ability to contain the growth in the program. The 
commenters believe that the flexibilities approved in the DRA may lead 
to cost efficiencies over time; however, they also stated these 
flexibilities cannot, nor were they intended to, address broader 
economic downturns.
    Response: We agree with the commenters that alternative premiums 
and cost sharing can lead to cost-efficiencies and that these 
provisions can be used to sustain State Medicaid programs. If States 
submit State plan amendments to implement the flexibility outlined in 
the DRA to impose alternative premiums and cost sharing, we anticipate 
that Federal and State savings will be generated. The projected savings 
can be found in the Regulatory Impact Analysis section of this final 
rule and include savings through 2011. These savings are based on only 
those States that currently charge co-payments and/or premiums. If 
additional States choose to implement these flexibilities, these 
savings could be even more. Although CMS is not in a position to 
address future economic downturns, we do believe that savings can be 
generated beyond 2011 and that savings can be generated for more States 
if additional States choose to implement these provisions. We encourage 
States to consider these flexibilities and the potential savings that 
can be generated to help with a State's economic concerns.
    Comment: Other commenters believe these provisions will have 
negative consequences for beneficiaries and will cause individuals to 
delay or forgo needed care. These commenters requested that the 
regulation be withdrawn.
    Response: While it is possible that some individuals may choose to 
delay or forgo care rather than pay their cost sharing obligations, the 
Medicaid statute has been amended to permit State flexibility to impose 
cost sharing as outlined in this regulation. Because the rule 
implements these statutory provisions, withdrawal of the rule is not an 
option consistent with administration of the statutory Medicaid 
program. Moreover, we disagree with the commenter's suggestion that the 
impact of the rule will be wholly negative. States requested maximum 
flexibility in designing their Medicaid programs in order to expand and 
maintain health care coverage to our nation's most vulnerable 
populations and to maintain growth and control costs of Medicaid and 
SCHIP programs over the long term. This flexibility will help protect 
the program from cutbacks in a time of tight State budgets, and permit 
program expansion. Any adverse impact is mitigated by the fact that 
Congress has protected numerous Medicaid eligibility groups and 
services from the imposition of alternative premiums and cost sharing.
    Comment: One commenter believes that States should carefully 
evaluate their health care resources in order to identify and remedy 
problems with access to alternative care options for Medicaid 
recipients before imposing co-payments for non-emergency care furnished 
by emergency rooms. The commenter believes that CMS should undertake a 
national initiative to identify creative solutions to the lack of 
accessible routine medical services for

[[Page 71832]]

the poor. CMS should make a commitment by revising the rules of the DRA 
to protect the lives of some of our most vulnerable citizens.
    The commenter states that CMS should carefully monitor and evaluate 
the impact of the new Medicaid policies being rolled out so that the 
impact on cost and services can be analyzed and used for future policy-
making.
    Response: We believe that States are in the best position to 
evaluate their health care resources in order to identify and remedy 
problems with access to alternative care options for Medicaid 
recipients before imposing co-payments for non-emergency care furnished 
by emergency rooms.
    As for future policy-making and conducting a national initiative to 
identify creative solutions to the lack of accessible routine medical 
services for the poor, Section 6043 of the DRA of 2005 provides for $50 
million in grant funding to States to provide for the establishment of 
alternative non-emergency service providers or networks of such 
providers to address primary care access. CMS recently awarded the 
grant funding to 20 States to help in addressing this issue. State 
programs include providing education to beneficiaries on the benefits 
of a medical home, establishment of additional Federally qualified 
health centers in the State to provide for additional primary care 
access for beneficiaries, and extending the hours of operation of 
currently established Federally qualified health centers to include 
evenings and weekends when Medicaid beneficiaries are more prone to 
presenting in the emergency room with a non-emergent condition.
    We are always interested in working with States on initiatives to 
improve the delivery of services under the Medicaid program and better 
provide health care services to our nation's low-income populations. We 
have approved a number of demonstration projects under the authority of 
section 1115 of the Social Security Act for this purpose. In addition, 
we have worked with States to improve access to care through 
flexibility in payment methods.
    Comment: One commenter believes that a thorough analysis of the 
actual impact of cost sharing on Medicaid recipients and State revenues 
should be conducted before adoption of this rule.
    Response: This rule incorporates options for States that are 
contained in statutory provisions currently in effect. There is no 
basis to unduly delay issuance of this rule which could provide 
guidance on implementing these statutory provisions. Moreover, while we 
can make some estimates as to the impact, those estimates are 
speculative. We are required by Executive Order 12866 (September 1993, 
Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social 
Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), 
and Executive Order 13132 on Federalism, and the Congressional Review 
Act (5 U.S.C. 804(2)) to conduct a regulatory analysis of the impact of 
any regulatory revision to the Medicare, Medicaid, and/or SCHIP 
programs before adoption of any rule. We direct the commenter to the 
Regulatory Impact Analysis included in this rule. Specifically, we 
estimate that this rule is ``economically significant.'' The Regulatory 
Impact Analysis presents the estimated costs and benefits of the 
rulemaking. In the Regulatory Impact Analysis, CMS estimates the 
anticipated effects of this rule.
    Comment: Several commenters stated that the specifics of the 
statutory language have provided fairly narrow opportunities for 
implementing many of the new provisions. That is, many high cost 
populations are excluded from the flexible provisions, and the greatest 
flexibility is often targeted to higher income populations, which do 
not make up the bulk of Medicaid consumers in most States.
    Response: We agree. This rule provides some operational guidance in 
implementing the statutory provisions, but those provisions established 
a relatively comprehensive framework for State flexibility in premiums 
and cost sharing.
    Comment: One commenter indicated the belief that cost sharing, 
while one of several avenues provided to modernize Medicaid, can be 
used by the States in conjunction with other alternatives, such as 
flexibility in benefit packages, to be more cost effective. The 
commenter also recommended that this rule be revised to ensure that 
State election of alternative cost sharing would be cost-effective by 
itself.
    Response: We wish to clarify that Medicaid modernization options, 
such as alternative premiums and cost sharing, can be used separately, 
and do not have to be used jointly with benefit flexibility. States are 
in the best position to determine whether alternative cost sharing 
would be cost effective and whether it is appropriate to provide for 
alternative cost sharing in modernizing their Medicaid and SCHIP 
programs.
    Comment: Several commenters stated that imposing premiums and cost 
sharing on Medicaid services acts as a deterrent to individuals 
receiving care, including children. The commenters stated that imposing 
premiums and cost sharing could lead to higher costs overall, poorer 
health outcomes for beneficiaries, barriers to access and care, shifts 
in costs to providers, and higher rates of uninsured.
    In addition, commenters stated that individuals with low incomes 
will be faced with unreasonable financial burdens and are likely to 
forgo needed treatment. Several commenters stated that our most 
vulnerable populations, those with chronic medical needs and those 
below the poverty line, will be required to choose to provide for their 
basic needs like food and shelter rather than obtain necessary medical 
health care because of the rigor created by following a private health 
insurance model of premiums and co-pays.
    Commenters also stated that people with very low incomes will be 
required to pay more for their care. The commenters are concerned that 
individuals will be unable to pay premiums to enroll in Medicaid 
coverage, or that providers will deny necessary care to those who 
cannot afford to pay cost sharing. The commenters stated that this 
situation will invariably lead to increases in emergency room visits 
and hospitals, and should not be allowed within a program created to 
serve our country's neediest residents. The commenters also stated that 
any cost savings are outweighed because people who go without needed 
care will eventually present in the emergency room with complicated, 
costly conditions that could have been prevented with earlier medical 
attention.
    Several commenters also stated that any new premiums and cost 
sharing imposed on Medicaid recipients would result in negative 
consequences for the recipients who are the poorest individuals and 
families in this country, the providers of Medicaid services, and the 
Medicaid program. Cost sharing results in insurance coverage for fewer 
needy individuals and families. Further, the failure by Medicaid 
recipients to access care and prescription drugs in the community due 
to their inability to afford deductibles and co-payments could result 
in serious health problems and the need for costlier services (for 
example, hospitalization). The commenters further stated that, in turn, 
this could result in eventual higher expenditures by Medicaid and, for 
dually eligible individuals, by Medicare.
    Some commenters stated that other costs, which are more difficult 
to quantify, for example, school absences for children and missed work 
for parents when children are sick as well

[[Page 71833]]

as the adverse consequences of delayed treatment are also likely.
    Response: We acknowledge the commenters' concerns that the 
imposition of premiums and cost sharing can lead to individuals 
delaying or forgoing care and to higher costs in the long-term if 
individuals delay care and therefore, become sicker and costlier to 
treat. We assume that Congress considered these concerns when it passed 
the statutory provisions for alternative premiums and cost sharing at 
State option. Indeed, the statute seems to indicate these 
considerations when it provides protections for certain populations and 
income groups.
    The statutory framework appears to reflect the principle that 
States are in the best position to weigh the commenters' concerns and 
determine the appropriate levels and scope of alternative cost sharing. 
States have the statutory authority and option to impose lower cost 
sharing than the maximum levels permitted, or to exempt additional 
classes of individuals or additional items or services from cost 
sharing.
    In section V of this final rule, we recognized, among other 
possibilities, that increased cost sharing could result in declines in 
utilization as some enrollees subject to new cost sharing requirements 
choose to decrease their use of services.
    Comment: Several commenters stated that the cost sharing proposed 
rule would have a negative impact on community-based services. These 
individuals receiving community-based services require a multitude of 
services, including frequent physician visits, laboratory testing on a 
regular basis, medical equipment and supplies, and numerous 
prescription drugs in addition to their home health services. Although 
cost sharing for services would be limited to 5 percent of total family 
income, these individuals are disproportionately affected by the cost 
sharing and have other costs associated with their illness that are not 
reflected in Medicaid covered services. For example, many are 
prescribed special diets that carry with them higher food costs. 
Another example is the additional expenses they must incur for 
transportation to medical appointments. Elderly and severely disabled 
individuals with bowel and bladder problems require incontinence 
products that are not covered by Medicare or many Medicaid programs.
    Response: As indicated in the last response, the statutory 
framework appears to reflect the principle that States are in the best 
position to weigh the commenters' concerns and determine the 
appropriate levels and scope of alternative cost sharing. For 
community-based services, States have the option to impose lower cost 
sharing than the maximum levels permitted, or to exempt additional 
classes of individuals or additional items or services from alternative 
premiums or cost sharing.
    Comment: Some commenters stated that dual eligible consumers should 
be exempt from premium and cost sharing requirements. Without excluding 
dual eligible consumers from the premium protected lists, the 
commenters indicated that barriers to care would be established.
    Response: Dual eligible individuals (individuals eligible for both 
Medicare and Medicaid) are not a group specifically exempted by statute 
from alternative cost sharing. If States determine that this group 
should be exempted or protected from alternative premiums or cost 
sharing, States have the authority and the option to impose lower cost 
sharing than the maximum levels permitted, or to exempt the class of 
individuals from alternative premiums or cost sharing.
    Comment: Many commenters stated that each of these areas of the 
proposed rule has the potential to become the behavioral healthcare 
Medicaid Trojan horse: It appears harmless but it will reverse hard-
fought progress won over years of struggle that brought about 
equitable, decent care for Medicaid recipients experiencing mental 
illness or who have a developmental disability. They fear that these 
rules will have costlier results--and not the desired economizing--
while also negatively impacting peoples' lives, their well-being and 
care, and our society.
    Response: These concerns should be raised with States for 
consideration in designing their programs. If States determine that a 
group should be exempted or protected from alternative premiums or 
services exempted from cost sharing requirements, States have the 
option to impose lower cost sharing than the maximum levels permitted, 
or to exempt a class of individuals from alternative premiums or cost 
sharing.
    Comment: One commenter stated that health centers such as Federally 
Qualified Health Centers (FQHCs) or other health care centers (that is, 
title X family planning clinics) are statutorily required to care for 
patients who visit the health center regardless of their ability to 
pay. In addition, the commenter stated that any decrease in Medicaid 
coverage only results in increasing health centers' already growing 
population of uninsured. The commenter indicated that cost sharing 
should not apply to FQHC services or other health care centers (that 
is, title X family planning clinics) and should not affect health 
center reimbursements or their ability to provide quality care to their 
patients.
    Response: We note that this is a concern that should be raised with 
States. The Federal statute does not provide for any specific treatment 
of these health centers or their patients.
    Comment: One commenter stated that the proposed rule read together 
with other CMS rules (for example, the citizenship documentation 
requirement and the State Health Officials of August 17, 2007) create 
major barriers to access to health care. In addition, the commenter 
stated that the proposed rule has a devastating impact on the low 
income population who cannot afford cost sharing.
    Response: The citizenship and documentation requirements are part 
of the DRA but are not part of this rule. The August 17 State Health 
Officials letter is also not part of this rule.
    Comment: Many commenters stated that providing for new or increased 
cost sharing was a bad policy. They referred to the Congressional 
Budget Office analysis indicating that some 13 million people--a third 
of them children who could face new or increased cost sharing over the 
first 10 years the provision is in effect--and that 80 percent of the 
savings expected to result from the new cost sharing would be due to 
decreased use of services and/or because individuals are unable to pay 
the new premiums. In that analysis, some who were expected to lose 
coverage are children.
    Several commenters refer to recent experience with section 1115 
Medicaid waivers and the finding that premiums and cost sharing can 
create barriers to obtaining or maintaining coverage, increase the 
number of uninsured, reduce use of essential services, and increase 
financial strains on families who already devote a significant share of 
their incomes to out of pocket medical expenses. Some commenters cited 
studies that show that health insurance participation steadily declines 
when premiums are imposed, particularly at low levels of income and 
providers often faced additional administrative burdens related to 
attempts to collect co-payments and a reduction in payment levels if 
they were unable to do so.
    Response: We assume that Congress considered these concerns when it 
passed the statutory provisions for alternative premiums and cost 
sharing at State option. The materials cited by

[[Page 71834]]

the commenters were available to Congress at the time. Indeed, the 
statute appears to reflect such consideration when it provides specific 
protections for certain populations and income groups.
    The statutory framework appears to reflect the principle that 
States are in the best position to weigh the commenters' concerns and 
determine the appropriate levels and scope of alternative cost sharing. 
States have the discretion under the statute and the option to impose 
lower cost sharing than the maximum levels permitted, or to exempt 
additional classes of individuals and/or additional items or services 
from cost sharing.
    Comment: Several commenters stated that the accelerated pace of 
this short comment period, given the broad implications, would lead to 
a short-sighted, onerous rule that has dangerous health impacts for the 
poor. The commenters stated that this proposed rule was published in 
the Federal Register on February 22, 2008 and the deadline for 
submission of comments was March 24, 2008. The commenter indicated that 
other rulemaking has taken a longer period and that given the impact of 
the discussion in this rule, a longer comment period is warranted.
    Response: We disagree with the commenters suggesting that 30 days 
is too short of a time period to respond to the regulation. Neither 
section 553(c) of the Administrative Procedures Act nor the Social 
Security Act specify a time period for submission of comments. (While 
section 1871(b) of the Act requires a 60-day comment period for 
Medicare proposed rules, there is no specified time period for Medicaid 
rules.) Thus, for Medicaid rules, we allow 30 days or 60 days based on 
the complexity and size of the rule, or the need to publish the final 
rule quickly. Since the statute was fairly prescriptive and the 
proposed rule contains little policy interpretation, we have chosen a 
30-day comment period in the interest of quickly getting guidance to 
States on the DRA flexibilities contained herein. Moreover, none of the 
commenters identified any specific inability to effectively comment on 
the proposed rule in the 30-day time period.
    Comment: Several comments were provided by organizations that have 
an interest in how the premiums and cost sharing impact American 
Indians and Alaskan Natives (AI/ANs). They believe they are like other 
low-income groups; cost sharing requirements serve as a substantial 
barrier to AI/AN enrollment in the Medicaid program. Because of the 
Federal government's trust responsibility to provide health care to AI/
ANs, cost sharing requirements have specific tribal implications that 
have not been addressed in this rule.
    Several commenters believe that the imposition by States of cost 
sharing requirements on Medicaid beneficiaries would have serious 
adverse consequences on Indian Health Service and tribally operated 
health programs in at least three ways: (1) An AI/AN beneficiary who is 
eligible to enroll in Medicaid may be dissuaded from doing so where a 
cost is imposed on him or her for such enrollment; (2) the Indian 
Health Service or tribal operated health program who services an AI/AN 
patient would lose Medicaid reimbursement for that patient; and (3) 
even if the eligible AI/AN does enroll in Medicaid, the Indian Health 
Service or tribally operated health program would have to use scarce 
IHS-appropriated funds to pay the cost share amount.
    Response: We recognize that AI/ANs may have special concerns 
because of their eligibility for services through the Indian Health 
Service (IHS) or tribal health programs without charge. In addition, 
IHS and tribal providers may have special concerns. Nevertheless, the 
statute does not provide for special treatment of this group and these 
concerns should be raised to States for consideration in designing 
their programs. We encourage States to consider these issues fully when 
they design their programs.
    Comment: Several commenters believe that AI/ANs should be exempt 
from premiums and cost sharing requirements entirely.
    Response: We are not aware of any provision in the Medicaid statute 
that authorizes CMS to adopt a position providing for special treatment 
of AI/AN individuals. In contrast, section 2103(b)(3)(D) of the SCHIP 
statute provides for special treatment of such individuals, when it 
requires procedures to ensure that AI/AN targeted low-income children 
receive child health assistance. We have interpreted that SCHIP 
requirement to authorize the position at Sec.  457.535 requiring 
exemption of AI/AN children from premiums, deductibles, coinsurance, 
co-payments, or any other cost sharing charges. In light of the absence 
of a similar statutory authorization, we are unable to adopt a similar 
policy under Medicaid.
    Comment: One commenter indicated that according to the DRA, AI/ANs 
are required to prove both citizenship and identity in order to obtain 
Medicaid services. The commenter stated that Native Americans have been 
told that tribal documentation is insufficient to prove eligibility for 
Medicaid services. The commenters also stated that many Navajo elders 
were born at home and do not have birth certificates and it is a 
substantial burden to obtain birth certificates in this situation. 
Hence, this new rule limits the Navajo elders ability to access 
Medicaid. Further, the commenter stated that CMS issued the August 17 
State Officials letter that restricts States from requesting health 
care expansions for SCHIP up to 250 percent limit until the State can 
prove enrollment of 95 percent of children under the 200 percent of the 
poverty line. The August 17 directive is unrealistic in obtaining this 
type of proof of participation. All of these CMS efforts have the 
collective effect of limiting health care for the poor and AI/AN 
populations, and present barriers to receiving health care.
    Response: The citizenship documentation and identity requirements 
and the August 17 State Health Officials letter are not part of this 
rule.
    Comment: Several commenters stated that this rule is contrary to 
the Department of Health and Human Services Tribal Consultation policy 
since CMS did not consult with Tribes in the development of these 
regulations before they were promulgated. The commenters indicated that 
CMS did not obtain advice and input from the CMS Tribal Technical 
Advisory Group (TTAG) even though the TTAG meets on a monthly basis via 
conference calls and holds quarterly face to face meetings. In 
addition, the commenter stated that CMS did not consult with the CMS 
TTAG Policy Subcommittee which was specifically established by CMS for 
the very purpose of obtaining advice and input in the development of 
policy guidance and regulations.
    Furthermore the commenter stated that the proposed rule does not 
contain a Tribal summary impact statement describing the extent of the 
tribal consultation or lack thereof; or an explanation of how the 
concerns of Tribal officials have been met. Several commenters request 
that these regulations not be made applicable to AI/AN Medicaid 
beneficiaries until Tribal consultation is conducted.
    Response: We follow the Department of Health and Human Services' 
Tribal Consultation Policy. The Departmental guidelines provide for 
determination of critical events that require special consultation 
efforts. This action was not considered as a critical event under the 
Departmental guidelines and thus special consultation efforts were not 
undertaken. Tribes have had an opportunity to review the proposed rule 
and submit comments either directly or through the CMS TTAG that has 
been

[[Page 71835]]

established to facilitate consultation. We are currently developing our 
own consultation guidelines to better serve its tribal stakeholders, 
consistent with the Departmental guidelines. Even under those draft CMS 
consultation guidelines, we would not routinely require consultation 
before notice and comment rulemaking on policies that do not 
specifically refer to AI/ANs, or tribes. In this instance, it appears 
that tribes are not directly affected by the provisions of greater 
flexibility to States, but only by the manner in which individual 
States choose to exercise that flexibility. We encourage States which 
decided to implement alternative premiums and cost sharing to consult 
with tribes and notify them whenever possible on implementation 
policies that will directly affect the Tribes.
    Comment: Several commenters indicated that in the event CMS 
proceeds to make these regulations effective on Indian tribes, the CMS 
TTAG should strongly encourage that the proposed rule be modified to 
require State Medicaid programs to consult with Indian Tribes before 
the development of any policy that would impose any premium or cost 
sharing requirements on AI/ANs served by Indian Health Service or 
tribal health programs similar to the way consultation takes place with 
Indian Tribes in the development of waiver proposals.
    Response: This rule is not ``effective on Indian tribes''. The rule 
will implement a statutory provision that affects federal review of 
State Medicaid plans. While we recognize that the resulting changes in 
State Medicaid programs may have an impact on Indian tribes, we believe 
these concerns should be raised on a State level. The statutory 
framework appears to reflect the principle that States are in the best 
position to weigh the commenters' concerns and determine the 
appropriate levels and scope of alternative cost sharing. States have 
the option to impose lower cost sharing than the maximum levels 
permitted, and/or to exempt additional classes of individuals or 
additional items or services from cost sharing.
    Comment: One commenter stated that it is laudable that the proposed 
rule would not affect existing waiver authority with respect to 
premiums and cost sharing but, in the interest of consistency, using 
similar methodologies under waivers and the State plan should be 
allowable. For automated eligibility systems and tracking purposes, 
having one method of charging and defining co-payments would simplify 
the process for all providers.
    Response: We agree that similar methodologies for calculating 
premiums and cost sharing should be allowable. For example, States can 
use similar methodologies for determining family income and 
eligibility. States can use similar methodologies for tracking cost 
sharing as under approved waivers, or can use the methods that SCHIP 
programs use to track cost sharing. States can program their automated 
systems to track and compute recipients' cost sharing.
    We note that the DRA provides States with flexibility to choose not 
to use the same methodologies in determining family income and 
eligibility. It is up to the States to determine what methodologies 
work best for them in providing health care coverage to their Medicaid 
beneficiaries and in imposing alternative premiums and cost sharing. 
The DRA provisions provide States with unprecedented flexibilities and 
we have maintained that flexibility in promulgating this rule.
    Comment: One commenter appreciates and supports making explicit the 
Secretary's authority to waive the limitations on premiums and cost 
sharing.
    Response: The DRA did not expand or contract the Secretary's waiver 
authority with respect to premiums and cost sharing. We note that 
States may no longer need waivers from the Secretary for certain 
programmatic options. This could be particularly advantageous for 
States since waivers need to be periodically renewed.
    Comment: One commenter stated that the collection of co-payments 
and deductibles is especially problematic when health care services 
(for example, home health) are delivered in the community. The barriers 
that exist to the collection of fees by clinicians during home visits 
are the potential negative impact on the clinician/patient relationship 
and safety concerns for clinicians collecting and transporting cash, 
despite the fact that the amounts may be small.
    Several commenters stated that States would experience increased 
costs because States would be required to develop new accounting 
systems in order to reflect cost sharing payments timely, disenroll 
recipients for failure to pay premiums, identify and transfer 
individuals in and out of exception groups, and hear and adjudicate 
exception eligibility decisions. In addition, several commenters stated 
that cost sharing responsibilities that are shifted to the provider of 
service may discourage participation, thereby increasing access 
problems.
    Response: In response to the burden to develop systems to track 
premiums and cost sharing, we are not requiring that States develop 
electronic or new accounting systems to track Medicaid beneficiaries' 
cost sharing obligations. We only require that States indicate the 
method they will use in tracking cost sharing. We believe that using 
electronic systems to comply with the requirement is ideal, however, it 
is not a requirement under this rule.
    We note that this provision is at the State option. States are not 
required to impose premiums and cost sharing on Medicaid beneficiaries 
and providers have the statutory authority under 1916A(d)(2) of the Act 
to waive or reduce cost sharing if they believe imposing cost sharing 
produces a negative relationship between providers and clients. Safety 
for providers collecting co-payments should be a consideration by 
States before choosing to adopt the flexibilities outlined in this 
rule.
3. Alternative Premiums, Enrollment Fees, or Similar Fees: State Plan 
Requirements (Sec.  447.64)
    Section 1916A(a)(1) of the Act requires that the State plan specify 
the group or groups of individuals upon which it will impose alternate 
premiums. In accordance with the statute, at Sec.  447.64(a), we 
proposed that the State plan describe the group or groups of 
individuals that may be subject to such premiums, enrollment fees, or 
similar charges. We further proposed in Sec.  447.64(b) that the State 
plan must include a schedule of the premiums, enrollment fees, or 
similar charges and the process for informing recipients, applicants, 
providers, and the public of the schedule. States may vary the 
premiums, enrollment fees, or similar charges among the groups of 
individuals.
    Section 1916A(b)(4) of the Act requires that the State plan specify 
the manner and the period for which the State determines family income. 
In accordance with the statute, at Sec.  447.64(c), we proposed that 
the State plan describe the methodology used to determine family 
income, including the period and periodicity of those determinations. 
We also proposed in Sec.  447.64(d) that the State plan describe the 
methodology the State would use to ensure that the aggregate amount of 
premiums and cost sharing imposed for all individuals in the family 
does not exceed 5 percent of family income as applied during the 
monthly or quarterly period specified by the State.
    Section 1916A(d)(1) of the Act requires that the State specify the 
group

[[Page 71836]]

or group of individuals for whom payment of premiums is a condition of 
eligibility. In accordance with the statute, at Sec.  447.64(e), we 
proposed that the State plan list the group or groups of individuals. 
We further propose in Sec.  447.64(f) that the State plan describe the 
premium payment terms for the group or groups.
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: One commenter stated that States should be required to 
notify pharmacists, providers, recipients, and the public no later than 
60 days before the effective date of any changes in cost sharing 
requirements under the State plan.
    Response: We proposed at Sec.  447.76 to require issuance of a 
public schedule that includes current cost sharing requirements. We 
required contemporaneous but not advance notice of any change in that 
schedule. As we discuss below, we have revised the proposed provision 
to require at least 1 month before notice of any change in premiums or 
cost sharing, to permit individuals and providers an opportunity to 
plan for the increased financial responsibility.
    Comment: Several commenters stated that States should be required 
to include in their State plan amendment a schedule of prescription 
drug cost sharing for the various covered populations and indicate in 
this schedule whether these cost sharing amounts must be paid by the 
Medicaid patient in order to receive the prescription. The commenters 
stated that the schedule should be posted to the State Medicaid program 
Web site and to the CMS Web site. This information should be 
distributed to patients and include a statement regarding the 
expectation that patients would pay the cost sharing amounts. Other 
commenters stated that the State plans should indicate how the State 
would communicate to providers that some individuals are exempt from 
co-payment obligations.
    Response: We agree that any changes to cost sharing should be made 
available to pharmacists, providers, recipients, and the general 
public. Section 447.76 requires that a public schedule be prepared and 
made available that includes a current listing of cost sharing charges. 
We also require that the public schedule be made available to 
recipients, at the time of enrollment and reenrollment, and when 
charges are revised.
    We plan to include an assurance concerning the public schedule 
requirement in the State plan.
    In terms of the commenter's recommendation to post the public 
schedule to the State Web site and the CMS Web site, we have not 
prescribed that public schedules or State plans be posted to the State 
Web site or CMS Web site because we wish to maintain State flexibility 
in this regard.
    Comment: Several commenters complained that the proposed rule 
contained no requirement that the State facilitate pharmacy providers' 
attempts at point-of-sale to determine whether specific patients are 
subject to cost sharing for a transaction at hand. Some commenters 
stated that it is necessary for States to set up systems for tracking 
and computing recipients' co-payments at point-of-sale and to adopt 
policies that support electronic identification of non-preferred drugs 
to minimize confusion for recipients and providers. The commenters 
stated that the information should include the level of cost sharing 
imposed, whether the recipient has met his or her aggregate limit for 
the month or quarter, and whether the co-payment is enforceable.
    Response: Section 447.68(d) requires that the State plan must 
specify the method for tracking cost sharing. If the state is tracking 
cost sharing electronically, cost sharing information regarding the 
appropriate levels, whether the beneficiary has met his or her 5 
percent aggregate cap and whether the co-payment is enforceable could 
all be available. However, States can use other methods to track cost 
sharing; thus, information at point-of-sale may not be available in all 
States.
4. General Alternative Premium Protections (Sec.  447.66)
    Section 1916A(b)(3)(A) of the Act specifies that the State plan may 
not impose premiums on certain groups. In accordance with Sec.  
447.66(a), we proposed that the State exclude these classes of 
individuals from the imposition of premiums.
    Section 1916A(b)(3)(C) of the Act clarifies that a State may exempt 
additional classes of individuals from premiums. We proposed to 
implement this provision at Sec.  447.66(b).
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: One commenter requests clarification of proposed Sec.  
447.66, which States that premiums cannot be imposed on disabled 
children who are receiving medical assistance because of the Family 
Opportunity Act. The commenter questioned at what age premiums can be 
imposed upon these children.
    Response: We clarify that in Sec.  447.66, we specified that 
disabled children who are receiving medical assistance because of the 
Family Opportunity Act (sections 1902(a)(10)(A)(ii)(XIX) and 1902(cc) 
of the Act) cannot have alternative premiums nor cost sharing imposed 
upon them under section 1916A of the Act. Neither the Family 
Opportunity Act nor the DRA specify an age for children. The age for 
qualification as a child is determined by each State individually, thus 
it would vary as to when premiums could be imposed under the authority 
of the Family Opportunity Act.
    Comment: One commenter indicated that women who choose to delay or 
prevent pregnancy should be exempt from premiums, regardless of their 
ability to pay a premium, just like pregnant women are exempt. 
Additionally, the commenter stated that CMS should exempt individuals 
eligible for family planning services pursuant to a section 1115 family 
planning waiver from the imposition of premiums.
    Response: Section 1916A(b)(3)(A)(ii) of the Act provides that 
pregnant women are exempt from premiums, but there is no statutory 
exemption for women who choose to receive family planning supplies to 
prevent unintended pregnancies, nor individuals who receive family 
planning services pursuant to a section 1115 demonstration explicitly 
exempt from premiums. While States may elect to exempt such groups in 
designing alternative cost sharing, the regulations do not require 
States to do so, which is consistent with the DRA statutory language.
5. Alternative Copayments, Coinsurance, Deductibles, or Similar Cost 
Sharing Charges: State Plan Requirements (Sec.  447.68)
    Section 1916A(a)(1) of the Act requires that the State plan specify 
the group or groups of individuals upon which it opts to impose cost 
sharing. In accordance with the statute, at Sec.  447.68(a), we 
proposed that the State plan describe the group or groups of 
individuals that may be subject to cost sharing. We further proposed 
that the State plan must include a schedule of the copayments, 
coinsurance, deductibles, or similar cost sharing charges, the items or 
services for which the charges apply, and the process for informing 
recipients, applicants, providers, and the public of the schedule. We 
note that States may vary cost sharing among the types of items and 
services.
    Section 1916A(b)(4) of the Act requires that the State plan specify 
the

[[Page 71837]]

manner and the period for which the State determines family income. In 
accordance with the statute, at Sec.  447.68(b), we proposed that the 
State plan describe the methodology used to determine family income, 
including the period and periodicity of these determinations.
    We also proposed that the State plan describe the methodology the 
State would use to ensure that the aggregate amount of premiums and 
cost sharing imposed for all individuals in the family does not exceed 
5 percent of family income as applied during the monthly or quarterly 
period specified by the State. We further proposed that the State plan 
describe the State's methods for tracking cost sharing charges, 
informing recipients and providers of their liability, and notifying 
recipients and providers when individual recipients have reached their 
aggregate limit on premiums and cost sharing. States can use the same 
methods that SCHIP programs use to track cost sharing. For example, 
States can program their automated systems to track and compute 
recipients' cost sharing.
    Finally, we proposed that the State plan specify whether the State 
permits a provider participating under the State plan, to require 
payment of authorized cost sharing as a condition for the provision of 
covered care, items, or services.
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: One commenter expressed concern that States would be 
unable to identify transition Medicaid recipients who develop a 
terminal illness in a timely manner to ensure that they are exempted 
from premiums and co-payments when they access hospice services.
    The commenter also stated that States should be required to 
institute expedited processes for transition of recipients that have 
been diagnosed as having a terminal illness to the exclusion group.
    Response: We agree with the commenter's suggestion that it is 
important that individuals who have been diagnosed with a terminal 
illness should not have to worry about premiums and co-payments and 
States should promptly identify these individuals as exempt from these 
obligations. Congress clearly identified in section 1916A(b)(3) of the 
Act individuals with a terminal illness receiving hospice care as 
individuals exempt from premiums and cost sharing. We included these 
exemptions in Sec.  447.66--General Premium Protections and Sec.  
447.70--General Cost Sharing Protections.
    Beyond the State plan requirements required by this section, we 
believe it is important to provide flexibility to States and therefore, 
have not prescribed methods for States to follow to ensure that 
exempted individuals are not charged premiums and/or cost sharing. If 
an individual is part of a population for which no premiums and/or cost 
sharing can be imposed, it is incumbent upon the State to ensure that 
procedures are in place so that there is no routine reliance on a 
refund for overpayments. If premiums or co-payments are imposed in 
error on these individuals, the State should take prompt corrective 
action to ensure full and continuing compliance with applicable 
requirements.
    Comment: One commenter stated that co-payments should apply to 
broader coverage groups and was concerned that this would not be 
possible because a significant number of Medicaid recipients, cutting 
across usual coverage groups are still exempt from cost sharing.
    Response: This rule reflects statutory exemptions and exclusions, 
and does not expand or contract the list of items or services for which 
no cost sharing can be imposed, the level of cost sharing that could be 
imposed, the premiums that could be imposed, the populations for which 
premiums and cost sharing could be imposed, or the enforceability of 
premiums and/or cost sharing.
    Even though a significant number of Medicaid recipients are 
protected from alternate premiums and cost sharing, there are still 
important opportunities for States to exercise flexibility in this 
area. Also, while some of the groups cut across traditional Medicaid 
eligibility groups (that is, there could be terminally ill individuals 
accessing hospice care in almost any traditional Medicaid eligibility 
group), States can implement systems to identify these exempt 
individuals.
6. General Alternative Cost Sharing Protections (Sec.  447.70)
    Section 1916A(b)(3)(B) of the Act specifies that the State plan may 
not impose alternative cost sharing under 1916A(a) of the Act for 
certain services including emergency services and family planning 
services. We proposed to implement this provision at Sec.  
447.70(a)(1).
    In addition, section 1916A(c)(1)(B) of the Act prohibits the State 
plan from imposing otherwise applicable cost sharing for preferred 
drugs for individuals ``for whom cost sharing may not otherwise be 
imposed under subsection (a) due to the application of 1916A(b)(3)(B) 
of the Act.'' Therefore, in accordance with the statute, at Sec.  
447.70(a)(1)(x), we proposed that the State plan exclude these classes 
of individuals from the imposition of cost sharing for preferred drugs 
within a class.
    Section 1916A(b)(3)(C) of the Act clarifies that a State may exempt 
additional individuals or services from cost sharing. We proposed to 
implement this provision at Sec.  447.70(c).
    Finally, section 1916A(c)(3) of the Act requires a State to charge 
cost sharing applicable to a preferred drug in the case of a non-
preferred drug if the prescribing physician determines that the 
preferred drug would not be as effective for the individual or would 
have adverse effects for the individual or both. We proposed to 
implement this section at Sec.  447.70(b). We further proposed at Sec.  
447.70(b) that the overrides meet State criteria for prior 
authorization and be approved through the State before the 
authorization process.
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: Several commenters stated that family planning services 
and supplies should be exempt from cost sharing entirely. Other 
commenters stated that family planning services and supplies have 
consistently been treated as a package, and have been exempt from cost 
sharing entirely. Futhermore, commenters stated that CMS' own 
guidelines including the State Medicaid Manual and the title XIX 
Financial Management Review Guide confirm this.
    Commenters also stated that the DRA expanded State authority to 
impose cost sharing for non-preferred prescription drugs, limiting cost 
sharing to nominal amounts for a clearly defined list of services and 
recipients, including family planning services and supplies. In 
addition, some commenters expressed that States may interpret the 
provisions of the DRA to permit some cost sharing for non-preferred 
drugs and may interpret this as cost sharing for oral contraceptives. 
The commenters stated that if this were an acceptable interpretation, 
the statute would require that cost sharing be limited to no more than 
a nominal amount and the rule should be revised accordingly.
    Response: Family planning services and supplies are exempt from 
cost sharing, except that States have the option under 1916A(c) of the 
Act to impose nominal cost sharing on non-preferred drugs, including 
contraceptive drugs. Congress was clear to indicate

[[Page 71838]]

that family planning services and supplies were exempt from alternate 
cost sharing as a service (see section 1916A(b)(3)(B)(vii) of the Act), 
and Congress clarified in section 405(a)(2) of TRHCA that this 
exemption extends to preferred prescription drugs within a class of 
drugs. Nominal cost sharing for non-preferred drugs, including 
contraceptive drugs, is permitted subject to the limitations by income 
group and the aggregate cap. In this rule, we neither expand nor 
contract these protections.
    Comment: One commenter requested clarification of proposed 
Sec. Sec.  447.70 and 447.71 in which cost sharing for non-emergency 
use of the hospital emergency room can be imposed. The commenter 
indicated that these proposed sections read as if emergency room 
physicians cannot impose co-payments against any beneficiary at or 
below 100 percent, or over 100 percent of the Federal poverty level, 
unless the regular outpatient provider charges no cost sharing payment 
for the same service in the same geographic area.
    The commenter also asked that we clarify how a State can ensure 
compliance with this particular requirement and what mechanism a State 
would use to demonstrate such compliance.
    Response: We agree that clarification is needed in terms of cost 
sharing for non-emergency use of the hospital emergency room, and we 
have revised this final rule accordingly. Specifically, as directed by 
the DRA for individuals with family incomes at or below 100 percent of 
the Federal poverty line (FPL), cost sharing for non-emergency use of 
the hospital emergency room can be imposed at nominal amounts only so 
long as no cost sharing is imposed to receive the same services from an 
alternate outpatient provider in the same geographic area. For 
individuals with family incomes from 100 to 150 percent of the FPL, 
cost sharing can be imposed at up to two times the nominal amount. For 
individuals with family incomes that exceed 150 percent of the FPL cost 
sharing there is no limit as to the amount of cost sharing that can be 
imposed; however, States must ensure that cost sharing does not exceed 
the 5 percent total aggregate cap. The 5 percent total aggregate cap 
also applies to individuals with incomes at or below 100 percent of the 
FPL and to individuals with family incomes from 100 to at or below 150 
percent of the FPL.
    The limitation that cost sharing may be imposed only so long as no 
other cost sharing has been imposed in the same geographic area applies 
only to individuals with family incomes at or below 100 percent of 
poverty and to individuals exempt from cost sharing.
    In response to the request for clarification as to how States can 
comply with this limitation, we believe that the hospital will need to 
document that it has provided a referral to an alternate provider who 
can provide the services without imposition of such cost sharing.
    Comment: Some commenters stated that in considering the experience 
of a large majority of emergency physicians, imposing cash co-payments 
on many Medicaid recipients in the emergency department is just not 
practical. The commenters noted that medical conditions are not easy to 
ascertain in an episodic setting when doctors have little or no 
knowledge of the patient. The commenters also asserted that emergency 
rooms do not typically have separate ``screening services'' and 
``management/treatment service.'' The commenters further asserted that 
by the time the emergency physician and the emergency department team 
have completed the EMTALA-required medical screening examination, 90 
percent of the resources are expended and most of the work is complete. 
The commenters thought it would be unpalatable to many doctors to 
inform the patient that his or her condition is not emergent and he or 
she has to make a payment before receiving a prescription or some minor 
additional treatment. The commenters indicated that it is unethical to 
withhold treatment while the patient is in front of them and even 
harder to justify when the potential financial gain is so tiny. 
Commenters also stated that these new requirements would put an 
excessive burden on hospitals and would be extremely costly to States, 
with little apparent benefit if any at all.
    Response: Section 1916A(e) of the Act, as amended by the DRA, 
provided a State option to impose higher cost sharing for non-emergency 
care furnished in a hospital emergency department without a waiver. If 
such cost-sharing is imposed, providers also have the option to waive 
or reduce cost sharing on a case-by-case basis in accordance with 
section 1916A(d)(2) of the Act.
    The EMTALA screening is an existing statutory requirement and is 
not particular to this rule.
    Comment: Several commenters stated that hospitals would have to 
compile an ever changing roster of available medical care sites that 
would not charge co-payments. In addition, they stated that it is not 
clear how the terms in the proposed rule, ``available and accessible,'' 
would be defined in order to quantify time and distance. They further 
stated that it would be nearly impossible for hospitals to keep up-to-
date records on these providers.
    Response: The statute provides that the hospital is responsible for 
providing a referral to such a provider. We are leaving to States 
flexibility to determine whether each hospital must maintain a list of 
available providers, or whether the State or other governmental entity 
assists in this responsibility.
    Comment: Several commenters stated that none of these requirements 
do anything to address the real problem, which is that a significant 
amount of those that utilize the emergency department are chronically 
ill patients with poor control of their illness(es)--individuals who 
will benefit most by having a medical home. The commenters also stated 
that a State's ability to impose cost sharing amounts for non-emergency 
services provided in an emergency department merely shifts financial 
burdens to hospitals and would not address the problem of access to a 
regular source of care. They also stated that this should be addressed 
by broadening health care coverage and access to needed services. 
Furthermore, they stated that to date, the systems designed to increase 
access to urgent, episodic care have only addressed the systems of the 
``illness'' of an increasingly inadequate primary care system in which 
there is a growing number of physicians who do not take Medicaid 
patients because of inadequate payment. They believe that the hospital 
emergency departments serve as the ``safety net'' and are often the 
only source of primary medical care for Medicaid beneficiaries. They 
also stated that imposing further burdens on the safety net is not the 
solution.
    Response: We agree that there is a need to address the problem that 
some individuals may use the hospital emergency room as their primary 
care provider and that these individuals will benefit most from a 
medical home. The DRA provided for $50 million in grant funding to 
States to establish alternative non-emergency service providers or 
networks of these providers. CMS recently awarded the grant funding to 
20 States for projects that include innovative programs for providing 
primary care access to Medicaid beneficiaries. Many of the States' 
projects include components that will focus on educating beneficiaries 
on the benefits of care coordination and of having a medical home. Many 
also focus on case management strategies and disease management. We 
require, as part of the State applications, a plan for

[[Page 71839]]

sustainability so that these State projects for alternative providers 
and primary care access will continue well into the future.
    Comment: Several commenters questioned the logic of the 
prescription drug co-payment structure for patients with income from 
100 to 150 percent of the Federal poverty level. They stated that the 
proposed rule provided that cost sharing for this group cannot exceed 
10 percent of the payment the agency makes for the service, but cannot 
exceed the nominal amounts for non-preferred drugs. They also stated 
that given that the average Medicaid reimbursement for a brand name 
drug is $155, the proposed rule appears to allow the State to charge up 
to almost $16 for a preferred brand name drug (10 percent of the 
payment) but only $3.30 for a non-preferred brand name drug (which is 
the maximum nominal co-payment amount). The commenters stated that this 
appears to encourage the use of non-preferred drugs rather than 
preferred drugs.
    Response: This comment is based on a misunderstanding of the cost 
sharing which may be imposed on ``preferred drugs.'' Section 1916A(c) 
of the Act provides authority for alternate cost sharing (other than 
the level permitted under section 1916 of the Act) only for non-
preferred drugs. There is no provision in section 1916A(c) of the Act 
authorizing cost sharing for preferred drugs that would exceed the 
nominal levels that could be permitted under section 1916 of the Act. 
In the example given, cost sharing for the preferred drug would be at 
or below nominal levels, and there would be no financial disincentive 
for use of the preferred drug.
    Comment: Commenters stated that the cost sharing permitted for 
higher income individuals would be excessive. For individuals with 
incomes above 150 percent of the Federal poverty level, the cost 
sharing amount would increase to 20 percent, potentially increasing the 
cost of a medication to $32, some or all of which the pharmacy would 
have to absorb if the State doesn't condition payment on the cost of 
the service, and the patient cannot pay.
    Response: The statutory framework appears to reflect that States 
are in the best position to weigh the commenters' concerns and 
determine the appropriate levels and scope of alternative cost sharing. 
States have the option to impose lower cost sharing than the maximum 
levels permitted by the statute, or to exempt additional classes of 
individuals or additional items or services from cost sharing.
    Comment: Some commenters stated that the proposed requirement at 
Sec.  447.70(c)(2) for requesting prior authorization as a condition 
for an exception to non-preferred drug cost sharing exceeds the scope 
of the statute and CMS should delete this requirement. Other commenters 
stated that the prior authorization process should be at the State 
option, rather than a requirement.
    Response: We disagree with the commenter that the prior 
authorization requirement should be deleted. The DRA indicates that a 
prescribing physician can impose cost sharing for non-preferred drugs 
at the level of a preferred drug if it is determined that the non-
preferred drug would better meet the needs of the beneficiary (that is, 
a preferred drug for treatment of the same condition either would not 
be as effective for the individual or would have adverse effects for 
the individual or both). We have further required that this activity be 
part of the prior authorization process since States should be aware of 
these determinations and be part of the approval process. States are 
responsible for administering their Medicaid programs.
    Comment: One commenter stated that given the proposed rule would 
not mandate that the Medicaid patient pay the cost sharing, even for 
non-preferred drugs, it does not appear that physicians would have 
incentives to obtain prior authorization for the non-preferred drugs if 
the patient can simply say they cannot afford the cost sharing on the 
non-preferred drug.
    Response: In terms of incentives to obtain prior authorization for 
non-preferred drugs even if the patient cannot afford cost sharing on 
the non-preferred drug, the DRA specifies that a physician can impose 
cost sharing at the level of a preferred drug on a non-preferred drug 
if it is determined that the non-preferred drug would be more effective 
in the treatment of the condition and that the non-preferred drug 
prevents adverse effects for the beneficiary. We require that this 
process conform to the States' prior authorization process. We note 
that an incentive exists for beneficiaries since cost sharing can be 
imposed at the level of the preferred drug. For individuals exempt from 
cost sharing, this level is $0; therefore, the beneficiary would be 
required to pay no cost sharing for the non-preferred drug.
    Comment: One commenter stated that States should be given the 
option to allow physicians to use a ``dispense as written'' process to 
reduce cost sharing for certain non-preferred drugs.
    Response: Our proposed rule did not preclude a State from accepting 
a process to document a physician's finding that the preferred drug 
would be less effective or would have adverse effects for the 
individual or both, (the statutory standard). In addition, our proposed 
rule did not preclude a State from requiring compliance with a prior 
authorization process, or a more detailed documentation process.
    Comment: Several commenters request that CMS require States to 
publish the preferred drug list, just as they are required to make 
available a public schedule for other cost sharing information. The 
commenters recommended this requirement since lists are not easily 
available in a logical section on the State or plan's Web site and it 
is difficult to access particularly when there are multiple formularies 
by different managed care plans.
    Response: We interpreted the proposed rule at Sec.  447.76 
requiring States to publish a public schedule of cost sharing charges 
to implicitly include a reference to schedules of preferred drugs. We 
envisioned the preferred drug schedule as part of, or as a supplement 
to, the required public schedule. In response to the comment, we are 
including in this final rule an express requirement to make available 
either the preferred drug list itself, or a method to obtain the list 
upon request.
    Comment: Several commenters want CMS to define preventive services, 
well child care, and immunizations and what qualifies as a preventive 
service under proposed Sec.  447.70. They also stated that this section 
fails to define terms and provides no other reference to services found 
in the statute or the proposed rule. In addition, commenters stated 
that the Bright Futures guidelines, which provide an explanation of the 
AAP-recommended periodicity schedule for preventive visits and 
appropriate immunizations should be the appropriate reference and 
should be included in the rule as the standard by which preventive 
services should be judged.
    One commenter recommended that CMS add a definition for medically 
frail.
    Response: We wish to maintain the flexibilities Congress granted in 
the DRA. We have not defined these terms or what qualifies as a 
preventive service under Sec.  447.70. States may choose to use the 
Bright Futures guidelines as a reference, which provide an explanation 
of the American Academy of Pediatrics-recommended periodicity schedule 
for preventive visits and appropriate immunizations. We note that we 
find the States' use of these guidelines to be appropriate. These 
guidelines are used

[[Page 71840]]

as guidelines for well baby and well child care services in the SCHIP 
program.
7. Alternative Premium and Cost Sharing Exemptions and Protections for 
Individuals With Family Income At or Below 100 Percent of the FPL 
(Sec.  447.71)
    Under section 1916A(a)(2)(A) of the Act, the State plan may not 
impose premiums on individuals whose family income is at or below 100 
percent of the FPL. In accordance with the statute, at Sec.  447.71(a) 
we proposed that the State plan exclude these individuals from the 
imposition of premiums.
    Under section 1916A(a)(2)(A) of the Act, the State plan may not 
impose cost sharing on individuals whose family income is at or below 
100 percent of the FPL, with the exception of cost sharing for non-
preferred drugs and for non-emergency services furnished in a hospital 
emergency department. However, section 1916A(c)(2)(A)(i) of the Act 
prohibits a State from imposing, with respect to a non-preferred drug, 
cost sharing that exceeds the nominal amount as otherwise determined 
under section 1916 of the Act and described at Sec.  447.54(a)(3) or 
Sec.  447.54(4) for those individuals. In addition, section 
1916A(e)(2)(B) of the Act prohibits a State from imposing, with respect 
to non-emergency services furnished in a hospital emergency department, 
cost sharing that exceeds the nominal amount as otherwise determined 
under section 1916 of the Act and described at Sec.  447.54(a)(3) or 
Sec.  447.54(4). Furthermore, a State may only impose nominal cost 
sharing with respect to non-emergency services as long as no cost 
sharing is imposed to receive such care through an outpatient 
department or other alternative health care provider in the geographic 
area of the hospital emergency department involved.
    In accordance with the statute, we proposed at Sec.  447.71(b)(1), 
(now Sec.  447.71(b)(2)) that cost sharing for non-preferred drugs for 
those individuals not exceed the nominal cost sharing amount. In 
addition, we proposed at Sec.  447.71(b)(2), (now Sec.  447.71(b)(3)) 
that cost sharing for non-emergency services furnished in a hospital 
emergency department for those individuals not exceed the nominal cost 
sharing amount and be imposed only as long as no cost sharing is 
imposed on those individuals to receive care through an outpatient 
department or other alternative non-emergency services provider in the 
geographic area of the hospital emergency department involved.
    Section 1916A(a)(2)(B) of the Act provides that the total aggregate 
amount of cost sharing imposed under sections 1916A(c), 1916A(e), and/
or 1916 of the Act upon individuals whose family income is at or below 
100 percent of the FPL may not exceed 5 percent of the family income of 
the family involved, as applied on a quarterly or monthly basis as 
specified by the State. In accordance with the statute, we proposed at 
Sec.  447.71(c) that aggregate cost sharing for individuals whose 
family income is at or below 100 percent of the FPL applicable to a 
family of the size involved not exceed the maximum permitted under 
Sec.  447.78(b). At Sec.  447.78(b), we proposed that the total 
aggregate amount of cost sharing may not exceed 5 percent of such 
family's income for the monthly or quarterly period, as specified in 
the State plan.
    A comment on this section and our response to the comment is as 
follows:
    Comment: Commenters stated that the matrix of cost-sharing is 
complex and request clarifying information on cost sharing 
requirements, limitation, and exemptions, as well as cost sharing for 
non-preferred and preferred prescription drugs, and for non-emergency 
use of the hospital emergency room.
    Response: In considering the complexity of the cost-sharing 
limitations and requirements, we are clarifying that in Sec.  447.71, 
we indicated in the proposed rule that individuals with family incomes 
at or below 100 percent of the poverty line were exempt from cost 
sharing. The Tax Relief and Health Care Act amended the DRA and 
indicated that for individuals with family incomes at or below 100 
percent of the FPL cost sharing cannot be imposed under section 
1916A(a) of the Act but can be imposed at nominal amounts under section 
1916 of the Act. Consequently, we are updating Sec.  447.71 to insert a 
new paragraph (b)(1) indicating that the State may impose cost-sharing 
under the State plan on individuals whose family income is at or below 
100 percent of the FPL under the authority provided in section 1916 of 
the Act and consistent with such section. We are also redesignating 
Sec.  447.71(b)(1) as Sec.  447.71(b)(2) and Sec.  447.71(b)(2) as 
Sec.  447.71(b)(3).
    This completes the specific comments submitted to this section in 
terms of cost sharing imposed upon individuals at or below 100 percent 
of the Federal poverty level. We note, that we did receive comments on 
prescription drugs and non-emergency use of the hospital emergency room 
which we addressed in Sec.  447.70--General alternative cost sharing 
protections.
8. Alternative Premium and Cost Sharing Exemptions and Protections for 
Individuals With Family Income Is Above 100 Percent but At or Below 150 
Percent of the FPL (Sec.  447.72)
    Under section 1916A(b)(1)(A) of the Act, the State plan may not 
impose premiums on individuals whose family income exceeds 100 percent, 
but does not exceed 150 percent of the FPL applicable to a family of 
the size involved. In accordance with the statute, at Sec.  447.72(a), 
we proposed that the State plan exclude these individuals from the 
imposition of premiums.
    Section 1916A(b)(1)(B)(i) of the Act provides that, in the case of 
individuals whose family income exceeds 100 percent, but does not 
exceed 150 percent of the FPL applicable to a family of the size 
involved, cost sharing imposed under the State plan may not exceed 10 
percent of the cost of such item or service. However, section 
1916A(c)(2)(A)(i) of the Act prohibits a State from imposing, with 
respect to a non-preferred drug, cost sharing that exceeds the nominal 
amount as otherwise determined under section 1916 of the Act and 
described at Sec.  447.54(a)(3) for those individuals. In addition, 
section 1916A(e)(2)(A) of the Act prohibits a State from imposing, with 
respect to non-emergency services furnished in a hospital emergency 
department, cost sharing that exceeds twice the nominal amount as 
otherwise determined under section 1916 of the Act and described at 
Sec.  447.54(a)(3) for those individuals.
    Therefore, in accordance with the statute, we proposed at Sec.  
447.72(b) that cost sharing for those individuals under the State plan 
not exceed 10 percent of the payment the agency makes for that item or 
service, with the exception that it not exceed the nominal cost sharing 
amount for non-preferred drugs or twice the nominal cost sharing amount 
for non-emergency services furnished in a hospital emergency 
department. In the case of States that do not have fee-for-service 
payment rates, we proposed that any copayment that the State imposes 
for services provided by an MCO may not exceed $5.20 for FY 2007. 
Thereafter, any copayment that the State imposes for services provided 
by an MCO may not exceed this amount as updated each October 1 by the 
percentage increase in the medical care component of the CPI-U for the 
period of September to September ending in the preceding calendar year 
and then rounded to the next highest 10-cent increment.
    Section 1916A(b)(1)(B)(ii) of the Act provides that the total 
aggregate amount

[[Page 71841]]

of cost sharing imposed under section 1916 and 1916A of the Act may not 
exceed 5 percent of the family income of the family involved, as 
applied on a quarterly or monthly basis as specified by the State. In 
accordance with the statute, we proposed at Sec.  447.72(c) that 
aggregate cost sharing for individuals whose family income exceeds 100 
percent, but does not exceed 150 percent of the FPL applicable to a 
family of the size involved, not exceed the maximum permitted under 
Sec.  447.78(a). At Sec.  447.78(a), we proposed that the total 
aggregate amount of cost sharing may not exceed 5 percent of such 
family's income for the monthly or quarterly period, as specified in 
the State plan.
    We did not receive any specific comments on this proposal as it 
relates to cost sharing imposed upon individuals with incomes from 100 
to 150 percent of the Federal poverty level, therefore, we are adopting 
it in this final rule. We note that we have revised the copayment that 
the State may impose for services by an MCO not to exceed from $5.20 
per visit for FY 2007 to $3.15 for FY 2007, to $3.25 for FY 2008, and 
$3.40 for FY 2009. However, we received comments on the rounding up the 
nominal amounts by the next highest 10-cent increment, the managed care 
maximum amount, and the cost sharing that can be imposed for 
prescription drugs and non-emergency use of the hospital emergency 
room. For comments related to the 10-cent increment and the managed 
care maximum, we addressed these in Sec.  447.54 in the preamble of 
this final rule. As noted earlier, for comments related to cost sharing 
for prescription drugs and non-emergency use of the hospital emergency 
room, we addressed these in Sec.  447.70 in the preamble of this final 
rule.
9. Alternative, Premium and Cost Sharing Protections for Individuals 
With Family Income Above 150 Percent of the FPL (Sec.  447.74)
    Under section 1916A(b)(2) of the Act, the State plan may impose 
premiums upon individuals whose family income exceeds 150 percent of 
the FPL applicable to a family of the size involved provided that, as 
described at section 1916A(b)(2)(A) of the Act, the total aggregate 
amount of premiums and cost sharing imposed under section 1916 and 
1916A of the Act not exceed 5 percent of the family income. In 
accordance with the statute, at Sec.  447.74(a), we proposed that the 
State plan can impose premiums upon individuals with family income 
above 150 percent of the FPL subject to the aggregate limit on premiums 
and cost sharing.
    Section 1916A(b)(2)(B) of the Act provides that, in the case of 
individuals whose family income exceeds 150 percent of the FPL 
applicable to a family of the size involved, cost sharing imposed under 
the State plan may not exceed 20 percent of the cost of that item 
(including a non-preferred drug) or service. Therefore, in accordance 
with the statute, we proposed at Sec.  447.74(b) that cost sharing for 
those individuals under the State plan not exceed 20 percent of the 
payment the agency makes for that item or service. In the case of 
States that do not have fee-for-service payment rates, we proposed that 
any copayment that the State imposes for services provided by an MCO 
may not exceed $5.20 for FY 2007. This proposal would provide greater 
flexibility to State Medicaid programs consistent with that provided to 
State SCHIP programs. Thereafter, any copayment that the State imposes 
for services provided by an MCO may not exceed this amount as updated 
each October 1 by the percentage increase in the medical care component 
of the CPI-U for the period of September to September ending in the 
preceding calendar year and then rounded to the next highest 10-cent 
increment.
    Section 1916A(b)(2)(A) of the Act provides that the total aggregate 
amount of cost sharing imposed under section 1916 and 1916A of the Act 
may not exceed 5 percent of the family income of the family involved, 
as applied on a quarterly or monthly basis as specified by the State. 
In accordance with the statute, we proposed at Sec.  447.74(c) that 
aggregate cost sharing for individuals whose family income exceeds 150 
percent of the FPL applicable to a family of the size involved, not 
exceed the maximum permitted under Sec.  447.78(a). At Sec.  447.78(a), 
we proposed that the total aggregate amount of premiums and cost 
sharing may not exceed 5 percent of the family's income for the monthly 
or quarterly period, as specified in the State plan.
    We did not receive any specific comments on this proposal; 
therefore, we are adopting it in this final rule, without change. We 
note that we did receive comments on rounding up the nominal amounts by 
the next highest 10-cent increment, the managed care maximum amount and 
the cost sharing that can be imposed for prescription drugs and non-
emergency use of the hospital emergency room. For comments related to 
the 10-cent increment and the managed care maximum, we addressed these 
in Sec.  447.54 in this preamble. As noted earlier, for comments 
related to cost sharing for prescription drugs and non-emergency use of 
the hospital emergency room, we addressed these in Sec.  447.70 in this 
preamble. We note that we revised the copayment that the state may 
impose for services provided by on MCO not to exceed from $5.20 per 
visit for FY 2007 to $3.15 for FY 2007, $3.25 for FY 2008 and $3.40 for 
FY 2009.
10. Public Schedule (Sec.  447.76)
    As previously discussed, section 1916 and 1916A of the Act provides 
authority for States to impose premiums and cost sharing for items and 
services, including prescription drugs and non-emergency use of a 
hospital emergency department. In addition, it requires a group or 
groups of individuals to make payment as a condition of eligibility or 
of receiving that item or service. In Sec.  447.76(a), we proposed that 
State plans provide for schedules of premiums and cost sharing. In 
Sec.  447.76(a), we proposed that the public schedule contain the 
following information: (1) Current premiums, enrollment fees, or 
similar fees; (2) current cost sharing charges; (3) the aggregate 
limits on premiums and cost sharing or only cost sharing; (4) 
mechanisms for making payments for required premiums and charges; (5) 
the consequences for an applicant or recipient who does not pay a 
premium or charge; and (6) a list of hospitals charging alternative 
cost sharing for non-emergency use of the emergency department. In 
addition, at Sec.  447.76(b), we proposed that the State make the 
public schedule available to recipients, at the time of enrollment and 
reenrollment and when charges are revised, to applicants, all 
participating providers, and the general public.
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: One commenter requested that CMS provide for adequate 
notice to providers and beneficiaries.
    Response: We agree with the commenter that adequate notice should 
be provided to providers and beneficiaries. We note that Sec.  447.76 
requires that the State make available to recipients, applicants, all 
participating providers, and the general public, a public schedule that 
includes, for example, the groups for which premiums and cost sharing 
will apply, the levels of current cost sharing and the populations for 
which cost sharing and premiums will be enforceable.
    Comment: Several commenters believe that education would be 
imperative for Medicaid beneficiaries. The commenters stated that 
Medicaid patients are not accustomed to yearly

[[Page 71842]]

changes in their co-payments, and it is incumbent upon State Medicaid 
agencies and providers to educate beneficiaries so that the Medicaid 
patients know the co-payment amounts that should be paid.
    Response: In terms of education to beneficiaries, we agree that it 
is important for individuals to be educated and informed as to the 
yearly changes and the premiums and cost sharing amounts they could be 
obligated to pay. In Sec.  447.76 in this final rule, we require that 
States make available to recipients, applicants, all participating 
providers, and the general public, among other things, the current 
premiums, enrollment fees, or similar fees and the current cost sharing 
charges.
11. Aggregate Limits on Alternative Premiums and Cost Sharing (Sec.  
447.78)
    Section 1916A(b)(1)(B)(ii) of the Act provides that the total 
aggregate amount of cost sharing imposed under section 1916 and 1916A 
of the Act upon individuals with family income above 100 percent but at 
or below 150 percent of the FPL may not exceed 5 percent of the family 
income, as applied on a quarterly or monthly basis as specified by the 
State. Section 1916A(c)(2)(C) of the Act reiterates that this aggregate 
limit includes cost sharing for prescription drugs and section 
1916A(e)(2)(C) of the Act reiterates that this aggregate limit includes 
cost sharing for non-emergency use of a hospital emergency department. 
Section 1916A(b)(2)(A) of the Act provides that the total aggregate 
amount of premiums and cost sharing imposed under section 1916 and 
1916A of the Act upon individuals with family income above 150 percent 
of the FPL may not exceed 5 percent of the family income, as applied on 
a quarterly or monthly basis as specified by the State. Again, section 
1916A(c)(2)(C) of the Act reiterates that this aggregate limit includes 
cost sharing for prescription drugs, and section 1916A(e)(2)(C) of the 
Act reiterates that this aggregate limit includes cost sharing for non-
emergency use of a hospital emergency department. Finally, section 
1916A(a)(2)(B) of the Act provides that to the extent that cost sharing 
under section 1916A(c) of the Act for prescription drugs, cost sharing 
under section 1916A(e) of the Act for non-emergency use of a hospital 
emergency department, and/or cost sharing under section 1916 of the Act 
is imposed upon individuals whose family income is at or below 100 
percent of the FPL, the total aggregate amount of premiums and cost 
sharing imposed may not exceed 5 percent of the family income.
    In accordance with these provisions, at Sec.  447.78(a), we 
proposed that for individuals with family income above 100 percent of 
the FPL the aggregate amount of premiums (when applicable) and cost 
sharing under section 1916 and 1916A of the Act not exceed 5 percent of 
a family's income for the monthly or quarterly period, as specified by 
the State in the State plan. At Sec.  447.78(b), we proposed that for 
individuals whose family income is at or below 100 percent of the FPL 
the aggregate amount of cost sharing under sections 1916, 1916A(c), 
and/or 1916A(e) of the Act not exceed 5 percent of a family's income 
for the monthly or quarterly period, as specified by the State in the 
State plan. We also proposed at Sec.  447.78(c) that family income 
shall be determined in a manner and for that period as specified by the 
State in the State plan. We clarified that States may use gross income 
to compute family income and that they may use a different methodology 
for computing family income for purposes of determining the aggregate 
limits than for determining income eligibility.
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: Several commenters stated that Medicaid patients may not 
be able to track their cost sharing spending and premiums for a month, 
and it should not be the responsibility of the pharmacy or provider to 
have to keep track. The commenters stated that Medicaid patients may 
not use the same pharmacy and other non-pharmacy Medicaid cost sharing 
applies to the limits. They further indicated that most States require 
families in SCHIP to track their own out of pocket spending to prove 
they have met the 5 percent income limit. Presumably States would also 
use this ``shoebox'' method with any Medicaid cost sharing changes. 
Therefore, the commenters stated that States should be required to 
track out of pocket spending for families, who will already be under 
enough burden having to come up with the additional money for cost 
sharing and premiums.
    Response: We agree with the commenter's suggestion that States 
should be required to track premiums and cost sharing. We do not 
prescribe the way States ensure that the total aggregate amount of 
premiums and cost sharing for all individuals in the family does not 
exceed 5 percent of the family income as applied during the monthly or 
quarterly period specified by the State. We have maintained the 
flexibility granted to States by the DRA. However, we require at Sec.  
447.68 that the State plan describe the methodology the State will use 
to ensure that the aggregate amount of premiums and cost sharing 
imposed for individuals does not exceed 5 percent of the family income. 
We also require that the State plan describe the State's methods for 
tracking cost sharing charges, informing recipients and providers of 
their liability, and notifying recipients and providers when individual 
recipients have reached their aggregate limit on premiums and cost 
sharing. States have the flexibility to use the ``shoebox'' method for 
tracking the aggregate 5 percent cap. This would require a collection 
of receipts by beneficiaries and a validation process by the State to 
ensure that individuals have met their aggregate limits. States may use 
any other method to track the aggregate 5 percent cap (that is, States 
can program their automated systems to track and compute recipients' 
cost sharing).
    Comment: Several commenters stated that CMS should provide for 
enhanced administrative match available to States that implement a 
system to track cost sharing. Commenters believe that CMS should offer 
states Federal financial participation at the 90/10 match rate to 
implement Medicaid Management Information System (MMIS) modifications/
enhancements to accommodate the tracking of cost sharing.
    Response: For modifications/enhancements to the MMIS to accommodate 
the tracking of cost sharing are eligible for MMIS rates 90 percent 
Federal financial participation (FFP) for design, development and 
installation of the enhancements, and 75 percent FFP for operation of 
the system are currently available. The approach States choose to track 
these costs is left to each State's discretion. Should they elect to 
make changes to their MMIS, the previously mentioned rates are 
applicable. Other electronic solutions outside of the MMIS are eligible 
for a 50 percent FFP administrative match.
    Comment: Other commenters feel that this information can be 
generated electronically and should be an important element in the 
Federal government's efforts to make patient records, e-prescribing, 
and claims billing inter-operative electronically.
    Response: States should have systems that best meet their needs in 
terms of electronic billing, electronic patient records and electronic 
prescribing for prescription drugs and States are in the best position 
to determine what best meets their needs. We note that the Federal 
government is also interested in ways to improve the Medicaid program 
and Congress provided for $150 million in grant funds to be awarded to 
States

[[Page 71843]]

for Medicaid transformation. We awarded the funds in 2007 for projects 
which presented innovative ideas in operating their Medicaid programs 
and provided for replication and sustainability well into the future. 
Several of these projects include health information technology 
components; for example, e-prescribing, electronic patient health 
records and Web-based patient information for clients that emphasize 
interoperability. We are not aware of State components that 
specifically address electronically tracking premiums and cost sharing, 
however, this activity is not precluded from either the grant awards or 
as a result of the requirements in the rule at Sec.  447.68.
    Comment: Some commenters believe that States should not seek to 
collect payments from pharmacists or providers that provided items and 
services in good faith if the provider believes that the patient has 
not yet met their monthly or quarterly aggregate cap. Since States use 
varying methods to calculate family income and the resulting cost 
sharing obligations, beneficiaries should not be expected to track 
their expenses. Individuals with such low incomes should not be 
expected to recoup money later because it will be very burdensome to 
them. Commenters stated that this requirement places a large burden on 
low income families. In addition, it places a burden on Medicaid 
providers which will need to rely on self-reporting by Medicaid 
beneficiaries to determine whether to charge a co-payment.
    Response: We are not attempting to prescribe the way in which 
States administer their Medicaid programs. However, if overpayments 
have been made because individuals have reached their 5 percent 
aggregate cap, and/or co-payments have been collected in error, States 
are responsible for ensuring that individuals are made whole. As 
mentioned previously, we require in Sec.  447.68 that States describe 
the method that will be used for tracking cost sharing and for 
notifying recipients and providers when individual recipients have 
reached their 5 percent aggregate cap.
    Comment: One commenter requests clarification of the total 
aggregate amount of cost sharing and the provider's discretion to waive 
or reduce the cost sharing. The commenter stated that Sec.  447.80 in 
the proposed rule indicates that a provider may waive or reduce cost 
sharing imposed under section 1916A of the Act on a case-by-case basis. 
The commenter wonders how or if the waived or reduced co-payment will 
be factored or counted towards the 5 percent family income cap even 
though it was waived. Many commenters agree that providers should be 
able to decide when to reduce or waive cost sharing on a case-by-case 
basis.
    Response: In terms of providers waiving or reducing cost sharing 
and the calculation of the 5 percent aggregate cap, we note that in 
order to meet the 5 percent aggregate cap, individuals must have out of 
pocket spending. If a co-payment is waived, there is no out of pocket 
spending. In tracking the cost sharing, if a provider chooses to waive 
the cost sharing obligation, there is no receipt--no payment has been 
made; thus, the 5 percent cap remains constant and no cost sharing is 
applied to the cap.
    Again, the ability to waive or reduce cost sharing is at provider 
discretion on a case-by-case basis.
    Comment: One commenter stated that the proposed rule would 
implement aggregate cost sharing restrictions by placing percentage-of-
income caps ``on the total aggregate amount of premiums and cost 
sharing under section 1916, 1916A(c), or 1916A(e) of the Act.'' The 
commenter stated that the language should be revised to include cost 
sharing that may apply under any provision of law, including those 
imposed by a State benchmark or benchmark-equivalent plan adopted under 
section 1937 of the Act.
    Response: We agree with the commenter recommending that the cost 
sharing permissible by the DRA should also apply to the benchmark 
flexibility also added by the DRA.
    We promulgated a proposed rule for State Flexibility for Medicaid 
Benefit Packages (73 FR 9714 through 9727). The proposed rule was 
published on February 22, 2008 and, similar to this rule, comments were 
due on March 24, 2008. In that proposed rule, we require that if 
premiums and/or cost sharing are imposed under one of the benchmark or 
benchmark-equivalent plans authorized by the DRA, cost sharing and 
premiums for recipients may not exceed cost sharing limits under the 
State's plan with respect to Sections 1916 and/or 1916A of the Act.
    Comment: In determining family income and the resulting cost 
sharing obligations, commenters believe that the proposed rule 
encourages States to use gross income standards or methods which will 
result in more cost sharing. The DRA specifies that ``family income 
shall be determined in a manner specified by the State * * *, including 
the use of such disregards as the State may provide.'' Commenters 
stated that Congress intended that States could be more generous and 
apply additional disregards for calculating income to lessen the amount 
of income and the aggregate level of permissible cost sharing. The 
commenters stated that CMS should allow States to use the same 
methodology that States use in determining family income for purposes 
of determining Medicaid eligibility (including the use of disregards) 
or a different methodology that results in more disregards, and 
therefore, less cost sharing for Medicaid beneficiaries.
    Response: States should have the flexibility to use the same 
methodology in determining family income as they do in determining 
eligibility or a different methodology that results in more disregards. 
We specify in Sec.  447.78 that family income shall be determined in a 
manner and for the period specified by the State in the State plan, 
including the use of such disregards as the State may provide. In 
addition, we specifically provided that States may use gross income or 
any other methodology to compute family income.
    We note that two different tests have been set out in law. For cost 
sharing, the law provides that family income shall be determined in a 
manner specified by the State (including the use of State-specified 
disregards) for purposes of the cost sharing provision. The State is 
entitled by law to determine family income using a methodology other 
than the one it uses for eligibility purposes, and the use of 
disregards is a State option. In this respect, the rule reflects the 
law and does not contain new discretionary policy. For eligibility 
determinations, there is a more specific test in Section 1902(r)(2) of 
the Act which provides that income eligibility for purposes of 
determining eligibility shall be no more restrictive than the 
methodologies used by the cash assistance programs (primary SSI for the 
aged, blind, and disabled, and AFDC for families and children). The use 
of methodologies that are no more restrictive than cash assistance 
methodologies (including the cash assistance disregards) is a mandatory 
requirement under title XIX of the Act and is not at State discretion.
    The DRA does not tie the cost sharing family income determinations 
to the mandatory statutory requirements for determining Medicaid 
eligibility.
    In practice, the impact to beneficiaries for eligibility purposes 
is in applying a methodology for determining eligibility based on 
income and the use of income disregards (that is, individuals that may 
not have previously been determined eligible for Medicaid may now be 
determined eligible). The impact to beneficiaries for cost sharing 
purposes is dependent upon how the State exercises

[[Page 71844]]

the flexibility the law provides to determine income for purposes of 
cost sharing. If income disregards are used, the cost sharing amounts 
would be computed based on a lower income threshold, and, therefore, 
individuals would pay less cost sharing relative to their total income. 
If income disregards are not used, individuals are paying cost sharing 
amounts that are consistent with total income. The DRA does not provide 
the authority to mandate the use of the eligibility methodologies for 
determining family income for cost sharing. We note that States have 
the option to use the same methodologies for determining family income 
as they do for determining eligibility or to use a different 
methodology.
    We believe it would have been an intrusion on the flexibility given 
to States for cost sharing to tie the methodologies for determining 
family income to the eligibility methodologies.
12. Enforceability of Alternative Premiums and Cost Sharing (Sec.  
447.80)
    Section 1916A(d)(1) of the Act permits a State to condition 
Medicaid eligibility upon the prepayment of premiums imposed under 
section 1916A of the Act or to terminate Medicaid eligibility for the 
failure to pay a premium for 60 days or more.
    In accordance with the statute, we proposed at Sec.  447.80(a), to 
permit a State to condition eligibility for a group or group of 
individuals upon prepayment of premiums, to terminate the eligibility 
of an individual from a group or groups of individuals for failure to 
pay for 60 days or more, and to waive payment in any case where 
requiring the payment would create undue hardship.
    Section 1916A(d)(2) of the Act permits a State to allow a provider 
to require that an individual, as a condition of receiving an item or 
service, pay the cost sharing charge imposed under section 1916A of the 
Act. The provider is not prohibited by this authority from choosing to 
reduce or waive cost sharing on a case-by-case basis. However, section 
1916A(a)(2)(A) of the Act specifies that section 1916A(d)(2) of the Act 
shall not apply in the case of an individual whose family income does 
not exceed 100 percent of the FPL applicable to a family of the size 
involved.
    In accordance with the statute, at Sec.  447.80(b), we proposed 
that a State may permit a provider, including a pharmacy, to require an 
individual to pay cost sharing imposed under section 1916A of the Act 
as a condition of receiving an item or service. However, at Sec.  
447.80(b)(1), we specified that a provider, including a pharmacy or 
hospital, may not require an individual whose family income is at or 
below 100 percent of the FPL to pay the cost sharing charge as a 
condition of receiving the item or service. In addition, at Sec.  
447.80(b)(2), we proposed that a hospital that has determined after an 
appropriate medical screening under section 1867 of the Act that an 
individual does not have an emergency medical condition must first 
provide the name and location of an available and accessible alternate 
non-emergency services provider, the fact that the alternate provider 
can provide the services without the imposition of that cost sharing, 
and a referral to coordinate scheduling of treatment before it can 
require payment of the cost sharing. Finally, at Sec.  447.80(b)(3), we 
proposed that a provider may reduce or waive cost sharing imposed under 
section 1916A of the Act on a case-by-case basis.
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: Several commenters stated that increasing cost sharing 
amounts without making them enforceable does little to encourage the 
use of more cost-effective medications, but potentially shifts the 
economic burden to the pharmacy.
    Response: To the extent that pharmacies are precluded from 
conditioning services on the payment of cost sharing for individuals 
with family incomes at or below 100 percent of the FPL, this rule 
reflects the unambiguous provisions of the statute. Congress was clear 
to protect certain Medicaid beneficiaries from enforceability of 
premiums and cost sharing. We believe Congress intended to protect our 
Nation's most vulnerable low-income beneficiaries. For higher income 
individuals, the law and as specified in this final rule, gives States 
and providers new tools to enforce cost sharing obligations.
    Comment: Some commenters request clarification as to whether the 
refusal of service to individuals who do not pay co-payments also apply 
to SCHIP and Medicaid managed care enrollees.
    Response: The only revision to the SCHIP program made by this rule 
is to update the nominal amounts and the maximum allowable charges 
imposed (see Sec.  457.555). We do not address the SCHIP program in any 
other way. If any provision regarding enforceability exists, it would 
be as a result of the SCHIP statutory and regulatory provisions and not 
as part of this rule.
    Since Medicaid managed care enrollees are participants in the 
Medicaid program and these rules apply to Medicaid programs, the 
enforceability provisions will apply. The specific enforceability 
provisions apply to beneficiaries enrolled in Medicaid managed plans 
with family incomes above 100 percent of the FPL if the State has opted 
to apply the enforceability provisions under section 1916A of the Act.
13. Restrictions on Payments to Providers (Sec.  447.82)
    Proposed Sec.  447.82 requires States to reduce the amount of State 
payments to providers by the amount of recipients' cost sharing 
obligations under section 1916A of the Act. However, States have the 
ability to increase total State plan rates to providers to maintain the 
same level of State payment when cost sharing is introduced.
    Specific comments on this section and our responses to those 
comments are as follows:
    Comment: Some commenters stated that CMS has exceeded its authority 
by interpreting the DRA to mean that States must reduce provider 
reimbursement rates irrespective of whether the provider has 
successfully collected the co-payments. The commenters indicated that 
the statute does not suggest that Congress intended to mandate how 
states set their reimbursement rates. They also indicated that the 
statutory provision could set a dangerous precedent, the proposed Sec.  
447.82 creates an additional, unnecessary barrier to beneficiary access 
to services. In addition, they indicated that this provision would 
require States to reduce their provider reimbursement rates by co-
payment amounts, irrespective of whether the co-payments were actually 
collected by the provider. This would severely impact providers' 
ability to limit cost sharing and ensure that Medicaid beneficiaries 
receive needed drugs and services.
    Some commenters stated that this section should be completely 
removed from the proposed rule.
    Other commenters stated that because of Sec.  447.82, the 
possibility of providers waiving or reducing the required co-payment is 
minor since any unpaid amounts would ultimately be borne by the 
provider. The commenters stated that this is essentially a shift from 
the States to our nation's safety net providers (including health 
centers, title X family planning clinics, home health agencies, home 
and community based service providers), many of whom are already 
struggling to make ends meet with inadequate Medicaid payment rates. 
These providers should not be financially penalized further because of

[[Page 71845]]

an inability to collect a co-payment from the neediest of patients.
    One commenter also stated that, to require States to cut 
reimbursement rates by cost sharing amounts, but allow them to increase 
their overall reimbursement rate to providers to offset the cut is 
insufficient in alleviating the harm to providers as states facing 
their own budget constraints would unlikely provide an overall rate 
increase.
    Response: We disagree that this section of the rule should be 
deleted in its entirety. We are not intending to prescribe the way 
States set their provider rates. However, we are ensuring that 
duplicate payment is not made (that is, Medicaid should not be 
responsible for paying amounts for which the beneficiary is liable). We 
have always required in regulations that provider rates, in considering 
cost sharing obligations, are net of the cost sharing obligations of 
Medicaid beneficiaries.

C. SCHIP Regulations

1. Maximum Allowable Cost Sharing Charges on Targeted Low-Income 
Children in Families With Incomes From 101 to 150 Percent of the FPL 
(Sec.  457.555)
    We proposed in Sec.  457.555, to update the existing ``nominal'' 
SCHIP cost sharing amounts, specifically the copayment amounts 
described at Sec.  457.555(a)(1) and (2), (c), and (d) and the 
deductible amount described at Sec.  447.555(a)(4). In the proposed 
rule, we discussed in detail the statutory basis and the proposed 
methodology for updating the nominal amounts (73 FR 9727 through 9740). 
Based on this methodology, we proposed the following copayment maximum 
amounts:

------------------------------------------------------------------------
                                                               Maximum
                Total cost of services * * *                  amount * *
                                                                  *
------------------------------------------------------------------------
$15.00 or less.............................................        $1.10
$15.01 to $40..............................................         2.10
$40.01 to $80..............................................         3.20
$80.01 or more.............................................         5.20
------------------------------------------------------------------------

    We also proposed that the copayments for services provided by an 
MCO and for emergency services provided by an institution not exceed 
$5.20 per visit and that the copayment for non-emergency services 
furnished in a hospital emergency room to targeted low-income children 
with family income from 101 to 150 percent of the FPL not exceed 
$10.40. Finally, we proposed that a deductible not exceed $3.20 per 
family per month.
    We proposed that States should use these updated nominal amounts 
during FY 2007. Thereafter, we proposed to update these amounts each 
October 1 by the percentage increase in the medical care component of 
the CPI-U for the period of September to September ending in the 
preceding calendar year and then rounding to the next higher 10-cent 
increment.
    CMS received comments regarding the updating of the nominal amounts 
for both Medicaid and SCHIP by the MCPI-U and addressed the issues 
related to both Medicaid and the specific updates to the SCHIP 
regulations in our discussion above related to Sec.  447.54. As 
discussed in that section, in response to comments, we have revised our 
rounding increment to the next higher 5-cent increment.

III. Provisions of the Final Rule

    In this final rule, we are adopting the proposed provisions as set 
forth in the February 22, 2008, proposed rule, subject to the following 
changes.

Section 447.54--Maximum Allowable and Nominal Charges by--

    + Revised paragraph (a)(1) by updating the nominal deductible 
amount for Federal FY 2009 to not exceed $2.30 per month per family for 
each period of Medicaid eligibility. We also updated the nominal 
amounts for Medicaid, rounded to the next highest 5-cent increment 
rather than 10 cents to be consistent with the Medicare Part D program.
    + Revised paragraph (a)(3)(i) by updating the maximum copayments 
for FY 2009 that are imposed under a fee-for-service delivery system, 
rounded to the next highest 5-cent increment rather than 10 cents to be 
consistent with the Medicare Part D program. The copayments will not 
exceed the amounts specified in the table below.

------------------------------------------------------------------------
                                                               Maximum
               State payment for the service                  copayment
------------------------------------------------------------------------
$10 or less................................................       $ 0.60
$10.01 to $25..............................................         1.15
$25.01 to $50..............................................         2.30
$50.01 or more.............................................         3.40
------------------------------------------------------------------------

    + Revised paragraph (a)(3)(ii) to clarify that in updating the 
nominal amounts for Medicaid, we rounded to the next highest 5-cent 
increment rather than 10 cents to be consistent with the Medicare Part 
D program. In addition, we clarify that we calculate the update each 
year without considering any rounding adjustment made in the previous 
year.
    + Added a new paragraph (a)(4) to update the Federal FY 2009 
maximum Medicaid managed care amount to be aligned with the Medicaid 
fee-for-service amount and the Federal FY 2009 maximum Medicaid 
expansion SCHIP managed care amount to be aligned with the SCHIP fee-
for-service amount. We note that paragraph (a)(4) now reads: ``For 
Federal FY2009, any copayment for services provided by an MCO may not 
exceed the copayment permitted under subparagraph (3)(i) for comparable 
services under a fee-for-service delivery system, except as provided in 
this paragraph. When there is no fee-for-service delivery system, the 
copayment may not exceed $3.40 per visit or for individuals referenced 
in an approved State child health plan under title XXI of the Act 
pursuant to Sec.  457.70(c), $5.70 per visit. In succeeding years * * * 
ending in the preceding calendar year and then rounded to the next 
higher 5-cent increment''.

Section 447.71--Alternative Premium and Cost-Sharing Exemptions and 
Protections for Individuals With Family Income At or Below 100 Percent 
of the FPL

    + Redesignated paragraph (b)(1) as paragraph (b)(2), and paragraph 
(b)(2) as paragraph (b)(3).
    + Added a new paragraph (b)(1) to clarify that States may impose 
cost sharing under the State plan on individuals whose family income is 
at or below 100 percent of the FPL in accordance with section 1916 of 
the Act and consistent with Sec.  447.54.

Section 447.72--Alternative Premium and Cost Sharing Exemptions and 
Protections for Individuals With Family Incomes Above 100 Percent but 
At or Below 150 Percent of the FPL

    + Revised paragraph (b)(3) by updating the copayment amount to not 
exceed $3.40 per visit for Federal FY 2009. We also state that 
individuals referenced in an approved State child health plan under 
title XXI of the Act in accordance with Sec.  457.70(c), the copayment 
is not to exceed $5.70 per visit for Federal FY 2009. In addition, we 
updated the nominal amounts for Medicaid, rounded to the next highest 
5-cent increment rather than 10 cents to be consistent with the 
Medicare Part D program.

Section 447.74--Alternative Premium and Cost Sharing Protections for 
Individuals With Family Incomes Above 150 Percent of the FPL

    + Revised paragraph (b) by updating the copayment amount to not 
exceed $3.40 per visit for Federal FY 2009. We also stated that 
individuals referenced

[[Page 71846]]

in an approved State child health plan under title XXI of the Act 
pursuant to Sec.  457.70(c), the copayment is not to exceed $5.70 for 
Federal FY 2009. In addition, we updated the nominal amounts for 
Medicaid, rounded to the next highest 5-cent increment rather than 10 
cents to be consistent with the Medicare Part D program.

Section 447.76--Public Schedule

    Added a new paragraph (a)(7) to specify that the State must make 
available a public schedule that contains either a list of preferred 
drugs or a method to obtain such a list upon request.

Section 447.78--Aggregate Limits on Alternative Premiums and Cost 
Sharing

    Added to the end of paragraph (c) of this section the phrase, ``* * 
* including the use of such disregards as the State may provide.''

Section 457.555--Maximum Allowable Cost Sharing Charges on Targeted 
Low-Income Children in Families With Income From 101 To 150 Percent of 
the FPL

    + Revised paragraph (a)(1)(i) by updating the copayment amounts for 
Federal FY 2009. Any copayment or similar charge the State imposes 
under a fee-for-service delivery system may not exceed the following 
amounts:

------------------------------------------------------------------------
                                                               Maximum
                         Total cost                             amount
------------------------------------------------------------------------
$15 or less................................................        $1.15
$15.01 to $40..............................................         2.30
$40.01 to $80..............................................         3.40
$80.01 or more.............................................         5.70
------------------------------------------------------------------------

    + Revised paragraph (a)(1)(ii) by updating the nominal amounts for 
Medicaid, rounded to the next highest 5-cent increment rather than 10 
cents to be consistent with the Medicare Part D program.
    + Revised paragraph (a)(2) by updating the copayment amount to not 
exceed $5.70 per visit for Federal FY 2009. We also updated the nominal 
amounts for Medicaid, rounded to the next highest 5-cent increment 
rather than 10 cents to be consistent with the Medicare Part D program.
    + Revised paragraph (a)(4) by updating the deductible amount to not 
exceed $3.40 per month, per family for each period of eligibility for 
Federal FY 2009. We also updated the nominal amounts for Medicaid, 
rounded to the next highest 5-cent increment rather than 10 cents to be 
consistent with the Medicare Part D program.
    + Revised paragraph (c) ``Institutional emergency services,'' by 
updating the copayment amount to not exceed $5.70 for Federal FY 2009. 
We also updated the nominal amounts for Medicaid, rounded to the next 
highest 5-cent increment rather than 10 cents to be consistent with the 
Medicare Part D program.
    + Revised paragraph (d) ``Non-emergency use of the emergency 
room,'' by updating the maximum amount that the State can charge for 
non-institutional services to $11.35 for Federal FY 2009. We also 
updated the nominal amounts for Medicaid, rounded to the next highest 
5-cent increment rather than 10 cents to be consistent with the 
Medicare Part D program.

VI. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we 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 by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We solicited public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements:

Section 447.64 Premiums, Enrollment Fees, or Similar Fees: State Plan 
Requirements

    Section 447.64 requires a State imposing premiums, enrollment fees, 
or similar fees on individuals to describe in the State plan:
     The group or groups of individuals that may be subject to 
the premiums, enrollment fees, or similar charges.
     The schedule of the premiums, enrollment fees, or similar 
fees imposed.
     The methodology used to determine family income for 
purposes of the limitations related to family income level that are 
described below, including the period and periodicity of those 
determinations.
     The methodology used to ensure compliance with the 
requirements of Sec.  447.78 that the aggregate amount of premiums and 
cost sharing imposed for all individuals in the family does not exceed 
5 percent of the family income of the family involved.
     The process for informing the recipients, applicants, 
providers, and the public of the schedule of premiums, enrollment fees, 
or similar fees for a group or groups of individuals in accordance with 
Sec.  447.76.
     The notice of, timeframe for, and manner of required 
premium payments for a group or groups of individuals and the 
consequences for an individual who does not pay.
    The burden associated with this requirement is the time and effort 
it would take for a State to include this detailed description in the 
State plan. We estimate it would take one State approximately 20 
minutes to incorporate this information in their plan. We believe 56 
States will be affected by this requirement for a total annual burden 
of 18.67 hours.

Section 447.68 Copayments, Coinsurance, Deductibles, or Similar Cost 
Sharing Charges: State Plan Requirements

    Section 447.68 requires a State imposing copayments, coinsurance, 
deductibles, or similar cost sharing charges on individuals to describe 
in the State plan:
     The group or groups of individuals that may be subject to 
the cost sharing charge.
     The methodology used to determine family income, for 
purposes of the limitations on cost sharing related to family income 
that are described below, including the period and periodicity of those 
determinations.
     The item or service for which the charge is imposed.
     The methods, such as the use of integrated automated 
systems, for tracking cost sharing charges, informing recipients and 
providers of their liability, and notifying recipients and providers 
when individual recipients have paid the maximum cost sharing charges 
permitted for the period of time.
     The process for informing recipients, applicants, 
providers, and the public of the schedule of cost sharing charges for 
specific items and services for a group or groups of individuals in 
accordance with Sec.  447.76.
     The methodology used to ensure that:
    [cir] The aggregate amount of premiums and cost sharing imposed for 
all individuals with family income above 100 percent of the FPL does 
not exceed 5 percent of the family income of the family involved.

[[Page 71847]]

    [cir] The aggregate amount of cost sharing under sections 1916, 
1916A(c), and/or 1916A(e) of the Act for individuals with family income 
at or below 100 percent of the FPL does not exceed 5 percent of the 
family income of the family involved.
    [cir] The notice of, timeframe for, and manner of required cost 
sharing and the consequences for failure to pay.
    The burden associated with this requirement is the time and effort 
it would take for a State to include this detailed description in the 
State plan. We estimate it would take one State approximately 20 
minutes to incorporate this information in their plan. We believe 56 
States will be affected by this requirement for a total annual burden 
of 18.67 hours.
    Comment: Some commenters stated that this regulation poses a much 
greater administrative burden than that estimated by CMS and believe 
that the State plan requirements are quite burdensome and CMS' estimate 
of 20 minutes per state is inaccurate. Among other things, States would 
need to change State law, State policy would need to be changed, 
systems would need to be changed, workers would need to be trained, 
providers would need to be notified, and most importantly, 
beneficiaries and their families, caretakers, and advocates would need 
to be informed. The commenter also indicated that the Regulatory Impact 
Analysis section of the proposed rule makes no reference to such costs 
on the States. In fact, the only estimate of the administrative burden 
on the States is in the Collection of Information Requirements where 
CMS estimates that it will take 20 minutes for a State to incorporate 
these requirements into a Medicaid State Plan. The commenters strongly 
disagree with this estimated time. The extensiveness of the 
requirements means that whenever a state might wish to change even a 
small portion of its plan, then a State Plan Amendment (SPA) would be 
required. This would be excessively burdensome on the States. Even with 
a State plan ``pre-print'' each State has unique processes for 
considering and requesting SPAs. In addition, each SPA must be 
accompanied by a CMS 179. The commenter also stated that CMS often asks 
one or more round of questions or requests more information, requiring 
additional State time and resources. Thus CMS' 20 minute estimate is in 
reality almost always more like tens of hours of staff time.
    Response: In terms of the commenter's suggestion that the State 
plan requirements are quite burdensome and the estimate of 20 minutes 
per State is inaccurate, we considered these comments and believe that 
the estimate is accurate. In order to minimize the amount of time 
needed to complete a SPA imposing alternative premiums and cost 
sharing, we provided guidance to States in two State Medicaid 
Director's letters and we designed three State plan preprints that 
allow States to complete almost all of the sections by checking a box 
next to each answer. We expect that before completing the CMS 179 and 
State plan preprint, a State will have fully developed the information 
that describes the way in which States will provide for alternative 
premiums and cost sharing and can insert or attach this information to 
the preprint. With that assumption in mind, we estimated that it would 
take no more than 20 minutes to check off the appropriate boxes and to 
insert or attach any already created information concerning the 
imposition of premiums and cost sharing that is necessary to the 
completion of the State plan amendment. In this regard, we have made no 
revisions to the regulatory impact analysis.
    Comment: Several commenters stated that Medicaid providers would be 
required to assume a large administrative burden to collect co-payments 
from Medicaid beneficiaries or take a financial loss if they choose to 
forgo collection of cost sharing. Hospitals would be placed in a 
situation in which the hospital must pursue patients for small, unpaid 
amounts, and at the same time, face lower payments by the State 
Medicaid program because the state assumes that the hospital has 
collected the co-payments. Ultimately, hospitals would be forced to 
write-off these uncollected co-payments as bad debt.
    Response: We disagree that there will be additional administrative 
burden and administrative costs associated with imposing premiums and 
cost sharing. Prior to the DRA, section 1916 of the Act authorized the 
imposition of premiums and cost sharing and Federal rules on this 
subject have been in existence since 1974. Several States have already 
taken advantage of the premiums and cost sharing provision outlined in 
Section 1916 of the Act. States and providers are already aware of the 
effort to implement and impose premiums and cost sharing for Medicaid 
beneficiaries. In fact, we recognize in the regulatory impact analysis 
that savings will occur because we believe that States that already 
impose cost sharing will opt to impose the alternative cost sharing 
permitted under this rule. Thus, no additional administrative costs 
will be borne. If additional States choose to implement this option, 
more savings can accrue. We provide in Federal regulations that 
administrative costs are matched at 50 percent.

Section 447.76 Public schedule

    Section 447.76(a) requires States to make available to the groups 
in paragraph (b) of Sec.  447.76 a public schedule that contains the 
following information:
     Current premiums, enrollment fees, or similar fees.
     Current cost sharing charges.
     The aggregate limit on premiums and cost sharing.
     Mechanisms for making payments for required premiums and 
charges.
     The consequences for an applicant or recipient who does 
not pay a premium or charge.
     A list of hospitals charging alternative cost sharing for 
non-emergency use of the emergency department.
    The burden associated with this requirement is the time and effort 
it would take the State to prepare and make available to appropriate 
parties a public schedule. We estimate that it would take 20 minutes 
per State. We believe 56 States will be affected by this requirement 
for an annual burden of 18.67 hours.

Section 447.80 Enforceability of premiums and cost sharing

    Section 447.80(b)(2) states that a hospital that has determined 
after an appropriate medical screening pursuant to Sec.  489.24, that 
an individual does not have an emergency medical condition before 
imposing cost sharing on an individual must provide the name and 
location of an available and accessible alternate non-emergency 
services provider as defined in section 1916A(e)(4)(B) of the Act, the 
fact that the alternate provider can provide the services with the 
imposition of a lesser cost sharing amount or no cost sharing, and a 
referral to coordinate scheduling of treatment by this provider before 
requiring payment of cost sharing.
    The burden associated with this requirement is the time and effort 
it would take for a hospital to provide the name and location of an 
alternate provider who can provide services of a lesser cost sharing 
amount or no cost sharing and a referral. We estimate the burden on a 
hospital to be 30 minutes. We believe the number of hospital visits 
will be 4 million; therefore, the total annual burden is 2 million 
hours.
    Specific comments on the burden associated with this requirement, 
and

[[Page 71848]]

our responses to those comments are as follows.
    Comment: Several commenters stated that the Department has 
determined that this rule would not have a significant impact on the 
operations of a substantial number of small rural hospitals. Commenters 
stated the Department is plainly mistaken and that an impact analysis 
must be performed. Under proposed Sec.  447.80, if a State imposes a 
co-payment for a beneficiary's non-emergency use of the hospital 
emergency room, the hospital must ``provide the beneficiary the name 
and location of an available and accessible alternate non-emergency 
services provider'', inform the beneficiary ``that the alternate 
provider can provide the services with the imposition of a lesser cost 
sharing amount or no cost sharing,'' and provide ``a referral to 
coordinate scheduling of treatment by'' the non-emergency care 
provider. Presumably, a State may withhold payment from or otherwise 
penalize a hospital that fails to take these steps. The Department 
recognizes the requirement would impose a ``burden'' on hospitals 
because CMS estimates the burden on a hospital to be 30 minutes. CMS 
estimated the response burden for these information requirements to be 
2 million hours.
    One commenter stated that in a hospital emergency room, anything 
that requires an additional 30 minutes of staff time per patient and 
that implicates compliance with Medicaid rules would almost certainly 
have a significant impact on the hospital's operations.
    Response: We are required by Executive Order 12866 (September 1993, 
Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social 
Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), 
and Executive Order 13132 on Federalism, and the Congressional Review 
Act (5 U.S.C. 804(2)) to conduct a regulatory analysis of the impact of 
any regulatory revision to the Medicare, Medicaid, and/or the SCHIP 
program before adoption of any rule. A Regulatory Impact Analysis was 
completed for this rule and estimates in the proposed rule that 2 
million hours will be the annual burden in considering cost sharing for 
non-emergency use of the hospital emergency room.
    We agree that the initial estimate of 30 minutes in the proposed 
rule is incorrect. Upon further review, we have determined that on 
average, it is estimated that for each patient triaged at the hospital 
emergency room and found by the hospital emergency room physician to 
have a non-emergency medical condition which does not require emergency 
room treatment or stabilization, approximately five additional minutes 
will be required by staff to properly implement the requirements 
included in this rule. Our justification is that it will take no 
additional time for the emergency room physician or other health care 
provider to inform the beneficiary that he or she does not have an 
emergency medical condition which requires (further) care or 
stabilization in the hospital emergency room. The EMTALA legislation 
currently includes language that requires that individuals who present 
to the emergency room are screened for an emergency medical condition. 
Thus, this information is currently being conveyed to patients.
    Since the State plan requirements under Sec.  447.76 provide that 
the State must have, and make available, a public schedule that 
includes a listing of hospitals that charge alternative cost sharing 
for non-emergency use of the hospital emergency room and the current 
cost sharing charges, we believe hospitals will have the information 
available to inform Medicaid beneficiaries. We agree that it will not 
take 30 minutes to provide this information, but rather closer to five 
additional minutes. This information can and should be provided by the 
hospital emergency room registrar (that is, the person responsible for 
taking the information needed from patients to be seen in the emergency 
room) to inform the beneficiary that because the emergency room 
physician did not find that the patient has an emergency medical 
condition which requires (further) treatment (or stabilization) in the 
hospital emergency room and because the patient is a Medicaid 
beneficiary, the individual has a choice to go to a nearby alternate 
Medicaid provider or to receive treatment for the non-emergency medical 
condition at the emergency room but a higher co-pay can be imposed.
    Consequently, we update the Collection of Information Requirements 
to indicate a revision in the annual burden from 2 million hours to 
approximately 300,000 hours. In considering this revision, we continue 
to believe that there is no significant impact on small rural 
hospitals.
    We have updated the Collection of Information Requirements as 
follows:

Section 447.80 Enforceability of Premiums and Cost Sharing

    Section 447.80(b)(2) states that a hospital that has determined 
after an appropriate medical screening pursuant to Sec.  489.24, that 
an individual does not have an emergency medical condition before 
imposing cost sharing on an individual must provide: The name and 
location of an available and accessible alternate non-emergency 
services provider as defined in section 1916A(e)(4)(B) of the Act; the 
fact that the alternate provider can provide the services with the 
imposition of a lesser cost sharing amount or no cost sharing; and a 
referral to coordinate scheduling of treatment by this provider before 
requiring payment of cost sharing.
    The burden associated with this requirement is the time and effort 
it would take for a hospital to provide the name and location of an 
alternate provider who can provide services of a lesser cost sharing 
amount or no cost sharing and a referral. We estimate the burden on a 
hospital to be 5 minutes. We believe the number of hospital visits will 
be 4,077,000; therefore, the total annual burden is 339,750 hours.
    We have submitted a copy of this final rule to OMB for its review 
of the information collection requirements described above. These 
requirements are currently approved under OMB number 0938-0993.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this rule; or
    2. Mail copies to the address specified in the ADDRESSES section of 
this rule and to the Office of Information and Regulatory Affairs, 
Office of Management and Budget, Room 10235, New Executive Office 
Building, Washington, DC 20503, Attn:, CMS Desk Officer, [email protected].
Fax (202) 395-6974.

Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 (as amended by Executive Order 13258), 
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

[[Page 71849]]

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 1 year). We estimated that this rule is 
``economically significant'' as measured by the $100 million threshold, 
and hence is also a major rule under the Congressional Review Act. 
Accordingly, we have prepared a Regulatory Impact Analysis that to the 
best of our ability presents the costs and benefits of the rulemaking.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has a significant impact on a 
substantial number of small entities. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and small 
governmental jurisdictions. The great majority of hospitals and most 
other health care providers and suppliers are small entities, either by 
being nonprofit organizations or by meeting the Small Business 
Administration definition of a small business (having revenues of less 
than $6.5 million to $31.5 million in any 1 year). Individuals and 
States are not included in the definition of a small entity. We have 
determined, and the Secretary certifies, that this rule would not have 
a significant economic impact on a substantial number of small 
entities.
    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 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Core-Based 
Statistical Area and has fewer than 100 beds. We have determined, and 
the Secretary certifies, that this rule would not have a significant 
impact on the operations of a substantial number of small rural 
hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
(Pub. L. 104-4) also requires that agencies assess anticipated costs 
and benefits before issuing any rule that may result in expenditures in 
any 1 year by State, local, or tribal governments, in the aggregate, or 
by the private sector, of $100 million in 1995, updated annually for 
inflation. In 2008, that threshold level is approximately $130 million. 
We have determined that this rule would likely result in new spending 
by Medicaid enrollees in excess of the threshold. Table 2 outlines the 
total increase to Medicaid enrollees cost sharing as a result of all 
the provisions of the DRA. This includes an estimated cost increase to 
Medicaid recipients of $105 million in 2007, $155 million in 2008, $255 
million in 2009, $375 million in 2010, and $455 million in 2011.
    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 requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have determined that this rule would not impose 
substantial direct requirement costs on State and local governments.

B. Anticipated Effects

    The following chart summarizes our estimate of the anticipated 
effects of this final rule.

                          Table 1--Estimated Savings of the Cost Sharing Provisions of the Deficit Reduction Act (DRA) of 2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Savings in millions of dollars                           Total savings
                                                         --------------------------------------------------------------------------------   over 5 year
                                                               2007            2008            2009            2010            2011           period
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Federal Share
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 6041 Optional alternative premiums/cost sharing....              65              85             135             190             220             695
Sec. 6042 Cost sharing for prescription drugs...........              40              65             120             185             240             650
Sec. 6043(a) Copays for non-emergency care in ER........               5              10              15              20              25              75
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               State Share
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 6041 Optional alternative premiums/cost sharing....              50              65             105             145             165             530
Sec. 6042 Cost sharing for prescription drugs...........              30              50              90             140             180             490
Sec. 6043(a) Copays for non-emergency care in ER........               5               5              10              15              20              55
--------------------------------------------------------------------------------------------------------------------------------------------------------


                Table 2--Medicaid Enrollees Cost Sharing Impact as a Result of the Provisions of the Deficit Reduction Act (DRA) of 2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Costs in millions of dollars                           Total increase
                                                         --------------------------------------------------------------------------------     in cost
                                                                                                                                          sharing over 5
                                                               2007            2008            2009            2010            2011         year period
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Medicaid Enrollee Share
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total increase in Medicaid enrollee cost sharing for all             105             155             255             375             455            1345
 provisions.............................................
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 71850]]

    These estimates are based on data regarding copayments in the 
Medicaid program derived from a 2004 Kaiser Family Foundation survey, 
and data on premiums from a 2004 report by the U.S. Government 
Accountability Office. In addition, we have used enrollment data from 
the Medicaid Statistical Information System and utilization data from 
the 2002 Medicaid Expenditure Panel Survey conducted by the Agency for 
Healthcare Research and Quality.
    We assume that only states that currently charge copayments and/or 
premiums for some groups will take advantage of the option to expand 
the use of premiums and copayments under the DRA provisions. States now 
charging copayments are assumed to increase them on average to 75 
percent of maximum possible levels by 2011, and States currently 
charging premiums are assumed to add premium requirements for some 
groups not currently allowed, also reaching 75 percent of the maximum 
possible by 2011.
    In addition to direct savings from increased cost sharing, we 
assume there would be declines in utilization as some enrollees subject 
to new cost sharing requirements choose to decrease their use of 
services. The decline is assumed to create additional savings of 75 
percent of direct savings for physician and outpatient hospital 
services, 100 percent for drugs, and 125 percent for dental services. 
These additional savings are assumed to be reduced somewhat as a result 
of some providers failing to collect copayments. Savings are split 
between Federal and State governments using an average matching rate of 
57 percent.
    Table 2 illustrates that the estimated impact for Medicaid 
enrollees as a result of all of the cost sharing provisions of the DRA 
are $105 million for 2007, $155 million for 2008, $255 million for 
2009, $375 million for 2010, and $455 million for 2011. Although these 
estimates reflect an increase of costs to beneficiaries, we do not 
believe this will pose a barrier to accessing health care. The law 
provides that States can impose alternative cost sharing. We believe 
through the use of alternative cost sharing, States will help 
recipients become more educated and efficient health care consumers.
    We did not receive any comments on this section.

C. Alternatives Considered

    This final rule is necessary to implement section 1916A of the 
Social Security Act, which was established by the Deficit Reduction Act 
of 2005 (DRA) and amended by the Tax Relief and Health Care Act of 2006 
(TRHCA). Therefore, we were not able to consider any alternatives.

D. Accounting Statement and Table

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in the table below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this rule. This table 
provides our best estimate of the decrease in Medicaid payment as a 
result of the changes presented in this final rule. All savings are 
classified as transfers to the Federal government.

        Table 2--Accounting Statement: Classification of Estimated Expenditures, From FY 2007 to FY 2011
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                          Category                                                 TRANSFERS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers..............................   3% Units Discount Rate    7% Units Discount Rate
                                                                               $278.2                    $270.7
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?..........................................          Beneficiaries to Federal Government
----------------------------------------------------------------------------------------------------------------
                          Category                                                 TRANSFERS
----------------------------------------------------------------------------------------------------------------


 
                        Year                             2007        2008        2009        2010        2011
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers......................       $110        $160        $270        $395        $485
----------------------------------------------------------------------------------------------------------------
From Whom to Whom?..................................              Beneficiaries to Federal Government
----------------------------------------------------------------------------------------------------------------


                          Category                                                 TRANSFERS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers..............................   3% Units Discount Rate    7% Units Discount Rate
                                                                               $210.6                    $205.0
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?..........................................          Beneficiaries to State Governments
----------------------------------------------------------------------------------------------------------------
                          Category                                                 TRANSFERS
----------------------------------------------------------------------------------------------------------------


 
                        Year                             2007        2008        2009        2010        2011
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers......................        $85        $120        $205        $300        $365
----------------------------------------------------------------------------------------------------------------
From Whom to Whom?..................................              Beneficiaries to State Governments
----------------------------------------------------------------------------------------------------------------

E. Conclusion

    We expect that this final rule will promote the modernization of 
the Medicaid program. This final rule will also provide a new option to 
States to create programs that are aligned with today's Medicaid 
populations and the health care environment. Through alternative cost 
sharing, States will help recipients become more educated and efficient 
health care consumers.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs--

[[Page 71851]]

health, Health facilities, Health professions, Medicaid, Reporting and 
recordkeeping requirements, Rural areas.

42 CFR Part 457

    Administrative practice and procedure, Grant programs--health, 
Health insurance, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 447--PAYMENTS FOR SERVICES

0
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).


0
2. Section 447.54 is amended by--
0
A. Revising the section heading.
0
B. Adding a new introductory text.
0
C. Revising paragraph (a) introductory text.
0
D. Revising paragraph (a)(1) and paragraph (a)(3).
0
E. Adding a new paragraph (a)(4).
    The additions and revisions read as follows.


Sec.  447.54  Maximum allowable and nominal charges.

    Except as provided at Sec. Sec.  447.62 through 447.82 of this 
part, the following requirements must be met:
    (a) Non-institutional services. Except as specified in paragraph 
(b) of this section, for non-institutional services, the plan must 
provide that the following requirements are met:
    (1) For Federal FY 2009, any deductible it imposes does not exceed 
$2.30 per month per family for each period of Medicaid eligibility. For 
example, if Medicaid eligibility is certified for a 3-month period, the 
maximum deductible which may be imposed on a family is $6.90. 
Thereafter, any deductible should not exceed these amounts as updated 
each October 1 by the percentage increase in the medical care component 
of the CPI-U for the period of September to September ending in the 
preceding calendar year, and then rounded to the next higher 5-cent 
increment.
* * * * *
    (3)(i) For Federal FY 2009, any co-payments it imposes under a fee-
for-service delivery system do not exceed the amounts shown in the 
following table:

------------------------------------------------------------------------
                                                               Maximum
               State payment for the service                  copayment
------------------------------------------------------------------------
$10 or less................................................        $0.60
$10.01 to $25..............................................         1.15
$25.01 to $50..............................................         2.30
$50.01 or more.............................................         3.40
------------------------------------------------------------------------

    (ii) Thereafter, any copayments should not exceed these amounts as 
updated each October 1 by the percentage increase in the medical care 
component of the CPI-U for the period of September to September ending 
in the preceding calendar year and then rounded to the next higher 5-
cent increment.
    (4) For Federal FY 2009, any copayment for services provided by an 
MCO may not exceed the copayment permitted under paragraph (a)(3)(i) of 
this section for comparable services under a fee-for-service delivery 
system, except as provided in this paragraph. When there is no fee-for-
service delivery system, the copayment may not exceed $3.40 per visit 
or for individuals referenced in an approved State child health plan 
under title XXI pursuant to Sec.  457.70(c), $5.70 per visit. In 
succeeding years, any copayment should not exceed these amounts as 
updated each October 1 by the percentage increase in the medical care 
component of the CPI-U for the period of September to September ending 
in the preceding calendar year and then rounded to the next higher 5-
cent increment.
* * * * *
0
3. Section 447.55 is amended by revising paragraph (b) to read as 
follows:


Sec.  447.55  Standard co-payment.

* * * * *
    (b) This standard copayment amount for any service may be 
determined by applying the maximum copayment amounts specified in Sec.  
447.54(a) and (b) to the agency's average or typical payment for that 
service. For example, if the agency's typical payment for prescribed 
drugs is $4 to $5 per prescription, the agency might set a standard 
copayment of $.60 per prescription. This standard copayment may be 
adjusted based on updated copayments as permitted under Sec.  
447.54(a)(3).
0
4. Add a new undesignated center heading immediately following Sec.  
447.60 and add new Sec. Sec.  447.62, 447.64, 447.66, 447.68, 447.71, 
447.72, 447.74, 447.76, 447.78, 447.80, and 447.82 to read as follows:
* * * * *
Sec.

Alternative Premiums and Cost Sharing Under Section 1916A

447.62 Alternative premiums and cost sharing: Basis, purpose and 
scope.
447.64 Alternative premiums, enrollment fees, or similar fees: State 
plan requirements.
447.66 General alternative premium protections.
447.68 Alternative copayments, coinsurance, deductibles, or similar 
cost sharing charges: State plan requirements.
447.70 General alternative cost sharing protections.
447.71 Alternative premium and cost sharing exemptions and 
protections for individuals with family incomes at or below 100 
percent of the FPL.
447.72 Alternative premium and cost sharing exemptions and 
protections for individuals with family incomes above 100 percent 
but at or below 150 percent of the FPL.
447.74 Alternative premium and cost sharing protections for 
individuals with family incomes above 150 percent of the FPL.
447.76 Public schedule.
447.78 Aggregate limits on alternative premiums and cost sharing.
447.80 Enforceability of alternative premiums and cost sharing.
447.82 Restrictions on payments to providers.
* * * * *

Alternative Premiums and Cost Sharing Under Section 1916A


Sec.  447.62  Alternative premiums and cost sharing: Basis, purpose and 
scope.

    (a) Section 1916A of the Act sets forth options for alternative 
premiums and cost sharing, which are premiums and cost sharing that are 
not subject to the limitations under section 1916 of the Act as 
described in Sec. Sec.  447.51 through 447.56. For States that impose 
alternative premiums, Sec. Sec.  447.64 through 447.66, 447.72, 447.74, 
447.78, and 447.80 prescribe State plan requirements and options for 
alternative premiums and the standards and conditions under which 
States may impose them. For States that impose alternative cost 
sharing, Sec. Sec.  447.68 through 447.72, 447.74, 447.78, and 447.80 
prescribe State plan requirements and options for alternative cost 
sharing and the standards and conditions under which States may impose 
alternative cost sharing. For other individuals, premiums and cost 
sharing must comply with the requirements described in Sec. Sec.  
447.50 through 447.60.
    (b) Neither section 1916A of the Act nor the regulations referenced 
in paragraph (a) of this section affect the following:
    (1) The Secretary's authority to waive limitations on premiums and 
cost sharing under this subpart.

[[Page 71852]]

    (2) Existing waivers with regard to the imposition of premiums and 
cost sharing.


Sec.  447.64  Alternative premiums, enrollment fees, or similar fees: 
State plan requirements.

    When a State imposes alternative premiums, enrollment fees, or 
similar fees on individuals, the State plan must describe the 
following:
    (a) The group or groups of individuals that may be subject to the 
premiums, enrollment fees, or similar charges.
    (b) The schedule of the premiums, enrollment fees, or similar fees 
imposed.
    (c) The methodology used to determine family income for purposes of 
the limitations related to family income level that are described 
below, including the period and periodicity of those determinations.
    (d) The methodology used to ensure compliance with the requirements 
of Sec.  447.78 that the aggregate amount of premiums and cost sharing 
imposed for all individuals in the family do not exceed 5 percent of 
the family income of the family involved.
    (e) The process for informing the recipients, applicants, 
providers, and the public of the schedule of premiums, enrollment fees, 
or similar fees for a group or groups of individuals in accordance with 
Sec.  447.76.
    (f) The notice of, time frame for, and manner of required premium 
payments for a group or groups of individuals and the consequences for 
an individual who does not pay.


Sec.  447.66  General alternative premium protections.

    (a) States may not impose alternative premiums upon the following 
individuals:
    (1) Individuals under 18 years of age that are required to be 
provided medical assistance under section 1902(a)(10)(A)(i) of the Act, 
and including individuals with respect to whom child welfare services 
are made available under Part B of title IV of the Act on the basis of 
being a child in foster care and individuals with respect to whom 
adoption or foster care assistance is made available under Part E of 
that title, without regard to age.
    (2) Pregnant women.
    (3) Any terminally ill individual receiving hospice care, as 
defined in section 1905(o) of the Act.
    (4) Any individual who is an inpatient in a hospital, nursing 
facility, intermediate care facility, or other medical institution, if 
the individual is required, as a condition of receiving services in 
that institution under the State plan, to spend for costs of medical 
care all but a minimal amount of the individual's income required for 
personal needs.
    (5) Women who are receiving Medicaid on the basis of the breast or 
cervical cancer eligibility group under sections 
1902(a)(10)(A)(ii)(XVIII) and 1902(aa) of the Act.
    (6) Disabled children who are receiving medical assistance by 
virtue of the application of sections 1902(a)(10)(A)(ii)(XIX) and 
1902(cc) of the Act.
    (b) States may exempt additional classes of individuals from 
premiums.


Sec.  447.68  Alternative copayments, coinsurance, deductibles, or 
similar cost sharing charges: State plan requirements.

    When a State imposes alternative copayments, coinsurance, 
deductibles, or similar cost sharing charges on individuals, the State 
plan must describe the following:
    (a) The group or groups of individuals that may be subject to the 
cost sharing charge.
    (b) The methodology used to determine family income, for purposes 
of the limitations on cost sharing related to family income that are 
described below, including the period and periodicity of those 
determinations.
    (c) The item or service for which the charge is imposed.
    (d) The methods, such as the use of integrated automated systems, 
for tracking cost sharing charges, informing recipients and providers 
of their liability, and notifying recipients and providers when 
individual recipients have paid the maximum cost sharing charges 
permitted for the period of time.
    (e) The process for informing recipients, applicants, providers, 
and the public of the schedule of cost sharing charges for specific 
items and services for a group or groups of individuals in accordance 
with Sec.  447.76.
    (f) The methodology used to ensure that:
    (1) The aggregate amount of premiums and cost sharing imposed under 
section 1916 or section 1916A of the Act for individuals with family 
income above 100 percent of the FPL does not exceed 5 percent of the 
family income of the family involved.
    (2) The aggregate amount of cost sharing under sections 1916, 
1916A(c), and/or 1916A(e) of the Act for individuals with family income 
at or below 100 percent of the FPL does not exceed 5 percent of the 
family income of the family involved.
    (g) The notice of, time frame for, and manner of required cost 
sharing and the consequences for failure to pay.


Sec.  447.70  General alternative cost sharing protections.

    (a)(1) States may not impose alternative cost sharing for the 
following items or services. Except as indicated, these limits do not 
apply to alternative cost sharing for non-preferred prescription drugs 
within a class of such drugs or non-emergency use of the emergency 
room.
    (i) Services furnished to individuals under 18 years of age who are 
required to be provided Medicaid under section 1902(a)(10)(A)(i) of the 
Act, and including services furnished to individuals with respect to 
whom child welfare services are made available under Part B of title IV 
of the Act on the basis of being a child in foster care and individuals 
with respect to whom adoption or foster care assistance is made 
available under Part E of that title, without regard to age.
    (ii) Preventive services (for example, well baby and well child 
care and immunizations) provided to children under 18 years of age 
regardless of family income.
    (iii) Services furnished to pregnant women, if those services 
relate to pregnancy or to any other medical condition which may 
complicate the pregnancy.
    (iv) Services furnished to a terminally ill individual who is 
receiving hospice care (as defined in section 1905(o) of the Act).
    (v) Services furnished to any individual who is an inpatient in a 
hospital, nursing facility, intermediate care facility for the mentally 
retarded, or other medical institution, if the individual is required, 
as a condition of receiving services in that institution under the 
State plan, to spend for costs of medical care all but a minimal amount 
of the individual's income required for personal needs.
    (vi) Emergency services as defined at Sec.  447.53(b)(4), except 
charges for services furnished after the hospital has determined, based 
on the screening and any other services required under Sec.  489.24 of 
this chapter, that the individual does not have an emergency medical 
condition consistent with the requirements of paragraph (a)(2) of this 
section and Sec.  447.80(b)(1).
    (vii) Family planning services and supplies described in section 
1905(a)(4)(C) of the Act.
    (viii) Services furnished to women who are receiving medical 
assistance by virtue of the application of sections 
1902(a)(10)(A)(ii)(XVIII) and 1902(aa) of the Act (breast or cervical 
cancer provisions).
    (ix) Services furnished to disabled children who are receiving 
medical

[[Page 71853]]

assistance by virtue of the application of sections 
1902(a)(10)(A)(ii)(XIX) and 1902(cc) of the Act.
    (x) Preferred drugs within a class for individuals for whom cost 
sharing may not otherwise be imposed as described in paragraphs 
(a)(1)(i) through (ix) of this section.
    (2) A State may impose nominal cost sharing as defined in Sec.  
447.54 for services furnished in a hospital emergency department, other 
than those required under Sec.  489.24 of this chapter, if the hospital 
has determined based on the screening required under Sec.  489.24 that 
the individual does not have an emergency medical condition, the 
requirements of Sec.  447.80(b)(1) are met, and no cost sharing is 
imposed to receive the care through an outpatient department or another 
alternative health care provider in the geographic area of the hospital 
emergency department involved.
    (b) In the case of a drug that is a preferred drug within a class, 
cost sharing may not exceed the levels permitted under section 1916 of 
the Act. Cost sharing can be imposed that exceeds section 1916 of the 
Act levels only for drugs that are not preferred drugs within a class 
in accordance with section 1916A(c) of the Act.
    (c) In the case of a drug that is not a preferred drug, the cost 
sharing is limited to the amount imposed for a preferred drug if the 
following conditions are met:
    (1) The prescribing physician determines that the preferred drug 
would be less effective or would have adverse effects for the 
individual or both.
    (2) State criteria for prior authorization, if any, are met.
    (d) States may exempt additional individuals, items, or services 
from cost sharing.


Sec.  447.71  Alternative premium and cost sharing exemptions and 
protections for individuals with family incomes at or below 100 percent 
of the FPL.

    (a) The State may not impose premiums under the State plan on 
individuals whose family income is at or below 100 percent of the FPL.
    (b) The State may not impose cost sharing under the State plan on 
individuals whose family income is at or below 100 percent of the FPL, 
with the following exceptions:
    (1) The State may impose cost sharing under the State plan on 
individuals whose family income is at or below 100 percent of the FPL 
under authority provided under section 1916 of the Act and consistent 
with the levels described in such section and Sec.  447.54.
    (2) The State may impose cost sharing for non-preferred drugs that 
does not exceed the nominal amount as defined in Sec.  447.54.
    (3) The State may impose cost sharing for non-emergency services 
furnished in a hospital emergency department that does not exceed the 
nominal amount as defined in Sec.  447.54 as long as no cost sharing is 
imposed to receive such care through an outpatient department or other 
alternative non-emergency services provider in the geographic area of 
the hospital emergency department involved.
    (c) Aggregate cost sharing of the family under sections 1916, 
1916A(c), and/or 1916A(e) of the Act may not exceed the maximum 
permitted under Sec.  447.78(b).


Sec.  447.72  Alternative premium and cost sharing exemptions and 
protections for individuals with family incomes above 100 percent but 
at or below 150 percent of the FPL.

    (a) The State may not impose premiums under the State plan on 
individuals whose family income exceeds 100 percent, but does not 
exceed 150 percent, of the FPL.
    (b) Cost sharing may not exceed 10 percent of the payment the 
agency makes for the item or service, with the following exceptions:
    (1) Cost sharing for non-preferred drugs cannot exceed the nominal 
amount as defined in Sec.  447.54.
    (2) Cost sharing for non-emergency services furnished in the 
hospital emergency department cannot exceed twice the nominal amount as 
defined in Sec.  447.54. A hospital must meet the requirements 
described at Sec.  447.80 before the cost sharing can be imposed.
    (3) In the case of States that do not have fee-for-service payment 
rates, any copayment that the State imposes for services provided by an 
MCO may not exceed $3.40 per visit for Federal FY 2009 or for 
individuals referenced in an approved State child health plan under 
title XXI of the Act pursuant to Sec.  457.70(c), $5.70 per visit for 
Federal FY 2009. Thereafter, any copayment may not exceed this amount 
as updated each October 1 by the percentage increase in the medical 
care component of the CPI-U for the period of September to September 
ending in the preceding calendar year and then rounded to the next 
highest 5-cent increment.
    (c) Aggregate cost sharing of the family may not exceed the maximum 
permitted under Sec.  447.78(a).


Sec.  447.74  Alternative premium and cost sharing protections for 
individuals with family incomes above 150 percent of the FPL.

    (a) States may impose premiums consistent with the aggregate limits 
set forth in Sec.  447.78(a).
    (b) Cost sharing may not exceed 20 percent of the payment the 
agency makes for the item (including a non-preferred drug) or service, 
with the following exception: In the case of States that do not have 
fee-for-service payment rates, any copayment that the State imposes for 
services provided by an MCO may not exceed $3.40 per visit for Federal 
FY 2009 or for individuals referenced in an approved State child health 
plan under title XXI of the Act pursuant to Sec.  457.70(c), $5.70 for 
Federal FY 2009. Thereafter, any copayment may not exceed this amount 
as updated each October 1 by the percentage increase in the medical 
care component of the CPI-U for the period of September to September 
ending in the preceding calendar year and then rounded to the next 
highest 5-cent increment.
    (c) Aggregate premiums and cost sharing of the family may not 
exceed the maximum permitted under Sec.  447.78(a).


Sec.  447.76  Public schedule.

    (a) The State must make available to the groups in paragraph (b) of 
this section a public schedule that contains the following information:
    (1) Current premiums, enrollment fees, or similar fees.
    (2) Current cost sharing charges.
    (3) The aggregate limit on premiums and cost sharing or just cost 
sharing.
    (4) Mechanisms for making payments for required premiums and 
charges.
    (5) The consequences for an applicant or recipient who does not pay 
a premium or charge.
    (6) A list of hospitals charging alternative cost sharing for non-
emergency use of the emergency department.
    (7) Either a list of preferred drugs or a method to obtain such a 
list upon request.
    (b) The State must make the public schedule available to the 
following:
    (1) Recipients, at the time of their enrollment and reenrollment 
after a redetermination of eligibility, and when premiums, cost sharing 
charges, and the aggregate limits are revised.
    (2) Applicants, at the time of application.
    (3) All participating providers.
    (4) The general public.

[[Page 71854]]

Sec.  447.78  Aggregate limits on alternative premiums and cost 
sharing.

    (a) If a State imposes alternative premiums or cost sharing, the 
total aggregate amount of premiums and cost sharing under section 1916, 
1916A(a), 1916A(c) or 1916A(e) of the Act for individuals with family 
income above 100 percent of the FPL may not exceed 5 percent of the 
family's income for the monthly or quarterly period, as specified by 
the State in the State plan.
    (b) The total aggregate amount of cost sharing under sections 1916, 
1916A(c), and/or 1916A(e) of the Act for individuals with family income 
at or below 100 percent of the FPL may not exceed 5 percent of the 
family's income for the monthly or quarterly period, as specified in 
the State plan.
    (c) Family income shall be determined in a manner and for that 
period as specified by the State in the State plan including the use of 
such disregards as the State may provide.
    (1) States may use gross income or any other methodology.
    (2) States may use a different methodology for determining the 
aggregate limits than they do for determining income eligibility.


Sec.  447.80  Enforceability of alternative premiums and cost sharing.

    (a) With respect to alternative premiums, a State may do the 
following:
    (1) Require a group or groups of individuals to prepay.
    (2) Terminate an individual from medical assistance on the basis of 
failure to pay for 60 days or more.
    (3) Waive payment of a premium in any case where it determines that 
requiring the payment would create an undue hardship.
    (b) With respect to alternative cost sharing, a State may permit a 
provider, including a pharmacy to require an individual, as a condition 
for receiving the item or service, to pay the cost sharing charge, 
except as specified in paragraphs (b)(1) through (3) of this section.
    (1) A provider, including a pharmacy and a hospital, may not 
require an individual whose family income is at or below 100 percent of 
the FPL to pay the cost sharing charge as a condition of receiving the 
service.
    (2) A hospital that has determined after an appropriate medical 
screening pursuant to Sec.  489.24, that an individual does not have an 
emergency medical condition, before imposing cost sharing on an 
individual, must provide the name and location of an available and 
accessible alternate non-emergency services provider as defined in 
section 1916A(e)(4)(B) of the Act, the fact that the alternate provider 
can provide the services with the imposition of a lesser cost sharing 
amount or no cost sharing, and a referral to coordinate scheduling of 
treatment by this provider before requiring payment of cost sharing.
    (3) The provider is not prohibited by this authority from choosing 
to reduce or waive cost sharing on a case-by-case basis.


Sec.  447.82  Restrictions on payments to providers.

    The plan must provide that the agency reduces the payment it makes 
to any provider by the amount of a recipient's cost sharing obligation, 
regardless of whether the provider successfully collects the cost 
sharing.

PART 457--ALLOTMENTS AND GRANTS TO STATES

0
5. The authority citation for part 457 continues to read as follows:

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

0
6. Section 457.555 is amended by--
0
A. Revising paragraphs (a) introductory text, and (a)(1), (2), and (4).
0
B. Revising paragraph (c).
0
C. Revising paragraph (d).
    The revisions read as follows:


Sec.  457.555  Maximum allowable cost sharing charges on targeted low-
income children in families with income from 101 to 150 percent of the 
FPL.

    (a) Non-institutional services. For targeted low-income children 
whose family income is from 101 to 150 percent of the FPL, the State 
plan must provide that for non-institutional services, including 
emergency services, the following requirements must be met:
    (1)(i) For Federal FY 2009, any co-payment or similar charge the 
State imposes under a fee-for-service delivery system may not exceed 
the following amounts:

------------------------------------------------------------------------
                                                               Maximum
                         Total cost                             amount
------------------------------------------------------------------------
$15 or less................................................        $1.15
$15.01 to $40..............................................         2.30
$40.01 to $80..............................................         3.40
$80.01 or more.............................................         5.70
------------------------------------------------------------------------

    (ii) Thereafter, any copayments may not exceed these amounts as 
updated each October 1 by the percentage increase in the medical care 
component of the CPI-U for the period of September to September ending 
in the preceding calendar year and then rounded to the next higher 5-
cent increment.
    (2) For Federal FY 2009, any co-payment that the State imposes for 
services provided by a managed care organization may not exceed $5.70 
per visit. Thereafter, any copayment may not exceed this amount as 
updated each October 1 by the percentage increase in the medical care 
component of the CPI-U for the period of September to September ending 
in the preceding calendar year and then rounded to the next higher 5-
cent increment.
* * * * *
    (4) For Federal FY 2009, any deductible the State imposes may not 
exceed $3.40 per month, per family for each period of eligibility. 
Thereafter, any deductible may not exceed this amount as updated each 
October 1 by the percentage increase in the medical care component of 
the CPI-U for the period of September to September ending in the 
preceding calendar year and then rounded to the next higher 5-cent 
increment.
* * * * *
    (c) Institutional emergency services. For Federal FY 2009, any 
copayment that the State imposes on emergency services provided by an 
institution may not exceed $5.70. Thereafter, any copayment may not 
exceed this amount as updated each October 1 by the percentage increase 
in the medical care component of the CPI-U for the period of September 
to September ending in the preceding calendar year and then rounded to 
the next higher 5-cent increment.
    (d) Non-emergency use of the emergency room. For Federal FY 2009, 
for targeted low-income children whose family income is from 101 to 150 
percent of the FPL, the State may charge up to twice the charge for 
non-institutional services, up to a maximum amount of $11.35 for 
services furnished in a hospital emergency room if those services are 
not emergency services as defined in Sec.  457.10. Thereafter, any 
charge may not exceed this amount as updated each October 1 by the 
percentage increase in the medical care component of the CPI-U for the 
period of September to September ending in the preceding calendar year 
and then rounded to the next higher 5-cent increment.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)


[[Page 71855]]


    Dated: July 24, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: August 25, 2008.
 Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received in the Office of the 
Federal Register on November 18, 2008.

[FR Doc. E8-27717 Filed 11-19-08; 11:15 am]
BILLING CODE 4120-01-P