Please refer to Docket ID NRC-2012-0308 when contacting the NRC about the availability of information for this proposed rule. You may access information related to this proposed rulemaking, which the NRC possesses and is publicly available by any of the following methods:

• Federal Rulemaking Web Site: Go to http://www.regulations.gov and search for Docket ID NRC-2012-0308.

• NRC's Agencywide Documents Access and Management System (ADAMS): You may access publicly-available documents online in the NRC Library at http://www.nrc.gov/reading-rm/adams.html. To begin the search, select “ADAMS Public Documents” and then select “Begin Web-based ADAMS Search.” For problems with ADAMS, please contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, 301-415-4737, or by email to pdr.resource@nrc.gov. An electronic copy of the proposed CoC, including appendices A and B of the TS, and the preliminary Safety Evaluation Report can be found in ADAMS under Package Accession No. ML12227A900. The ADAMS Accession No. for the MAGNASTOR® Cask System Amendment No. 3 dated August 26, 2012, is ML102420569.

• NRC's PDR: You may examine and purchase copies of public documents at the NRC's PDR, Room O1-F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852.

Please include Docket ID NRC-2012-0308 in the subject line of your comment submission, in order to ensure that the NRC is able to make your comment submission available to the public in this docket.

The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at http://www.regulations.gov as well as enter the comment submissions into ADAMS, and the NRC does not routinely edit comment submissions to remove identifying or contact information.

If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment submissions into ADAMS.

This rule is limited to the changes contained in Amendment No. 3 to CoC No. 1031 and does not include other aspects of the MAGNASTOR® Cask System design. Because the NRC considers this action noncontroversial and routine, the NRC is publishing this proposed rule concurrently with a direct final rule in the Rules and Regulations section of this issue of the Federal Register . Adequate protection of public health and safety continues to be ensured. The direct final rule will become effective on June 3, 2013. However, if the NRC receives significant adverse comments on this proposed rule by April 17, 2013, then the NRC will publish a document that withdraws the direct final rule. If the direct final rule is withdrawn, the NRC will address the comments received in response to these proposed revisions in a subsequent final rule. Absent significant modifications to the proposed revisions requiring republication, the NRC will not initiate a second comment period on this action in the event the direct final rule is withdrawn.

A significant adverse comment is a comment where the commenter explains why the rule would be inappropriate, including challenges to the rule's underlying premise or approach, or would be ineffective or unacceptable without a change. A comment is adverse and significant if:

(1) The comment opposes the rule and provides a reason sufficient to require a substantive response in a notice-and-comment process. For example, a substantive response is required when:

(a) The comment causes the NRC staff to reevaluate (or reconsider) its position or conduct additional analysis;

(b) The comment raises an issue serious enough to warrant a substantive response to clarify or complete the record; or

(c) The comment raises a relevant issue that was not previously addressed or considered by the NRC staff.

(2) The comment proposes a change or an addition to the rule, and it is apparent that the rule would be ineffective or unacceptable without incorporation of the change or addition.

(3) The comment causes the NRC staff to make a change (other than editorial) to the rule, CoC, or TS.

For additional procedural information and the regulatory analysis, see the direct final rule published in the Rules and Regulations section of this issue of the Federal Register .

For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; the Nuclear Waste Policy Act of 1982, as amended; and 5 U.S.C. 553; the NRC is proposing to adopt the following amendments to 10 CFR part 72.

We invite you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2013-0072; Directorate Identifier 2013-NE-04-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

We propose to adopt a new AD for all PW turbofan engine models PW4074, PW4074D, PW4077, PW4077D, PW4084D, PW4090, and PW4090-3 with 2nd-stage HPT air seal, P/N 54L041, installed. This proposed AD was prompted by cracks in 2nd-stage HPT air seals discovered during fluorescent-penetrant inspection (FPI). This proposed AD would require, for HPT air seals that meet certain CSN criteria, either on-wing eddy current inspection (ECI) or in-shop FPI, and removal from service of any HPT air seal that fails inspection. We are proposing this AD to prevent failure of the 2nd-stage HPT air seal. This condition, if not corrected, could lead to an uncontained engine failure, and damage to the airplane.

We reviewed PW Alert Service Bulletin (ASB) PW4G-112-A72-330, Revision 1, dated February 26, 2013. The ASB describes procedures for inspecting the integrity of 2nd-stage HPT air seals and criteria for their removal from service and replacement.

We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would require accomplishing the actions specified in the service information described previously.

We consider this proposed AD interim action. PW has not determined the root cause of the cracks discovered in 2nd-stage HPT air seals.

We estimate that this AD will affect 83 engines installed on airplanes of U.S. registry. We also estimate that it would take about 5 hours to perform the inspection required by this proposed AD. The costs of an ECI and an FPI are assumed to be equal. The average labor rate is $85 per hour. Based on these figures, we estimate the total cost of the AD to U.S. operators will be $35,275.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

The National Oceanic and Atmospheric Administration (NOAA) established Gulf of the Farallones National Marine Sanctuary (GFNMS) in 1981 to protect and preserve a unique, productive and fragile ecological community, including the largest seabird colony in the contiguous United States and diverse and abundant marine mammals. GFNMS lies off the coast of California, to the west and north of San Francisco, and is composed of 1,279 square statute miles (966 square nautical miles) of offshore waters and submerged lands thereunder. The sanctuary boundary extends out to and around the Farallon Islands and nearshore waters (up to the mean high water line) from Bodega Head to Rocky Point in Marin County. For more information about GFNMS, see http://farallones.noaa.gov.

NOAA established Monterey Bay National Marine Sanctuary (MBNMS) in 1992 for the purposes of protecting and managing the conservation, ecological, recreational, research, educational, historical, and esthetic resources and qualities of the area. MBNMS is located offshore of California's central coast, adjacent to and south of GFNMS. It spans a shoreline length of approximately 276 statute miles (240 nautical miles) between Rocky Point in Marin County and Cambria in San Luis Obispo County. The sanctuary encompasses approximately 6,094 square statute miles (4,602 square nautical miles) of ocean and coastal waters, and the submerged lands thereunder, extending an average distance of 30 statute miles (26 nautical miles) from shore. The Davidson Seamount is also part of the sanctuary, though it does not share a contiguous boundary. Supporting some of the world's most diverse and productive marine ecosystems, MBNMS is home to numerous mammals, seabirds, fishes, invertebrates, sea turtles and plants in a remarkably productive coastal environment. For more information about MBNMS, please see http://montereybay.noaa.gov.

Pursuant to section 304(e) of the National Marine Sanctuaries Act (16 U.S.C. 1434 et seq.; NMSA), NOAA conducted a joint review of the management plans for Gulf of the Farallones, Monterey Bay and Cordell Bank national marine sanctuaries (referred to here as the “Joint Management Plan Review (JMPR)”). This multi-year process updated the management plans and regulations for these sanctuaries and enabled NOAA to ensure consistency across the region. On November 20, 2008, NOAA published the final rule and terms of designations for the JMPR (73 FR 70488) and published the revised management plans.

One of the key issues that came up during this process was the threat posed by introduced species. As a result, NOAA changed the terms of designation for GFNMS and MBNMS to clearly allow regulation of introduced species. NOAA's regulations prohibited the introduction of introduced species into the sanctuaries with exceptions for striped bass caught and released during fishing and current state-permitted mariculture activities that cultivate introduced species in GFNMS's Tomales Bay. The regulations define introduced species as non-native species or any organism that has been genetically modified (15 CFR 922.81). This final rule, combined with a similar management plan and regulatory review for the Channel Islands National Marine Sanctuary (CINMS), resulted in the same, uniform regulation of introduced species in all four of the national marine sanctuaries off of California.

The proposed and final regulations for the JMPR were drafted with a significant level of input from State agency staff and commissions. For example, during consultations with the State of California, concern was expressed that striped bass would be defined as an introduced species and that an angler who catches and then releases a striped bass to comply with State-imposed size restrictions would be in violation of the proposed regulation. Because prohibiting such activity was not NOAA's intent, NOAA drafted the regulation to except striped bass, the only introduced species for which there is an active fishery.

During the comment period on the proposed rule for the JMPR, NOAA received comments from the California Department of Fish and Game (CDFG), the California Department of Boating and Waterways (CDBW), the California Coastal Commission (CCC), and the California State Lands Commission (CSLC). The CDFG and CDBW both expressed concerns with NOAA's proposed prohibition on the introduction of introduced species but the CCC was explicitly supportive of it. The CCC—exercising its authority under the Federal consistency provisions of the Coastal Zone Management Act (CZMA; 16 U.S.C. 1451 et seq. )—specifically rejected the position taken by CDFG and advised that NOAA must maintain the prohibition on introduced species as it was published in the proposed rule. If NOAA revised the regulations to address CDFG's concerns, the CCC indicated that the final regulations would not be consistent with the enforceable policies of the California Coastal Management Program. Under the CZMA and implementing regulations, federal agency actions (such as NOAA's proposed regulations) that affect any land or water use or natural resource of the coastal zone must be consistent to the maximum extent practicable with the enforceable policies of a state's coastal management program. 16 U.S.C. 1456(c). Therefore, NOAA concluded that its final action needed to retain the prohibition as set forth in the proposed rule in order to be consistent with the California Coastal Management Program. The position of the State of California overall on this regulation was inconsistent and not clear to NOAA until the Governor's objection letter was received after the final rule was issued.

Pursuant to section 304(b) of the NMSA, changes to a sanctuary's terms of designation and the associated regulations do not become effective until after forty-five days of continuous session of Congress. After forty-five days, in this case on March 9, 2009, the regulations would become final and take effect, except that any term of designation the Governor certified as unacceptable ( i.e., objected to) would not take effect in the area of a sanctuary lying within the seaward boundary of the state (“state waters”). If exercised, the effect of a gubernatorial objection is that the term(s) of designation does not become effective in state waters. Regulations that are based on the terms of designation that are certified as unacceptable by the governor also do not become effective in state waters.

On December 23, 2008, during the review period for the final rule, Governor Schwarzenegger objected to the terms of designation for MBNMS and GFNMS that would have allowed NOAA to regulate the “introduction of introduced species” in those sanctuaries. The governor's objection was conditional: it would not apply if NOAA were willing and able to modify its regulations to except ( i.e., allow) all state-permitted aquaculture activities in the two sanctuaries and research involving the introduction of introduced species in MBNMS. During that same time period, however, the Governor did not object to the term of designation for CINMS regarding introduced species, which remained applicable in the State waters of that sanctuary.

After receiving the Governor's objection, NOAA worked with staff from the California Natural Resources Agency and the California Department of Fish and Game to find solutions to the Governor's concerns that would also meet NOAA's goals. For GFNMS, NOAA proposed to modify the regulations on introduced species to except state-permitted aquaculture in all state waters of the sanctuary and also agreed to not enforce the introduced species provisions in the state waters of GFNMS until such new rulemaking could be conducted and public comment on the matter could be considered.

For MBNMS, NOAA was willing to amend the regulations to include the same exception for state-permitted aquaculture in state waters. NOAA could not agree, however, to also establish an exception for state-permitted research involving the introduction of introduced species in the MBNMS, as the Governor requested. Neither the Governor nor the state agencies with which NOAA worked provided any description of how this exception would be used, what types of research activities would qualify, or what its effect would be on sanctuary resources. Because no compromise was attained, the Governor's objection applied to the term of designation for the regulation of introduced species in the state waters of MBNMS. As indicated in the notice of effective date (March 23, 2009; 74 FR 12088), the regulation of the introduction of introduced species from within or into MBNMS does not apply in state waters of the sanctuary; it is valid and in effect only in the federal waters of the sanctuary ( i.e., the area lying beyond the seaward boundary of the state).

In response to the Governor's objection and based upon discussions with the state, on October 1, 2009, NOAA issued a proposed rule (74 FR 50740) to modify the introduced species regulations to allow all state-permitted aquaculture activities in the state waters of GFNMS, and to clarify that the prohibition against release of introduced species did not apply in state waters of MBNMS.

NOAA took this action because, as previously noted, the then-Governor's objection to the new terms of designation for GFNMS and MBNMS prevented the introduced species regulations from applying within state waters of the two sanctuaries. For GFNMS, the October 2009 proposed rule was NOAA's effort to meet the Governor's concerns while still meeting NOAA's goals. As also previously noted, NOAA was not able to reach an acceptable basis that would meet the Governor's demand for an exception to the prohibition that would allow research involving these species within state waters of MBNMS. As a result, the proposed rule restricted the application of the introduced species prohibition to the federal waters of the MBNMS.

No further information was provided to NOAA during the comment period for this rule making to address concerns over the introduction of introduced species into state waters or to specifically address research involving introduced species in MBNMS. For this and other reasons described in a related notice published elsewhere in today's Federal Register , NOAA has withdrawn the October 2009 proposed rule described above. The legal effect of this withdrawal action is that the Governor's letter of December 23, 2008, certifies as unacceptable the terms of designation for GFNMS and MBNMS regarding the regulation of introduced species in the two sanctuaries and modifies the terms of designation for each sanctuary by limiting the application of terms regarding introduced species to federal waters. By operation of law under the National Marine Sanctuaries Act, the Governor's certification as unacceptable revised the terms of these designations to read as, “Introducing or otherwise releasing from within or into the Federal waters of the sanctuary an introduced species.” As a result, the regulations implementing these terms do not apply in state waters in either GFNMS or MBNMS (15 CFR 922.82(a)(10) and 922.132(a)(12), respectively).

The net result of the Governor's objections to terms of designation for GFNMS and MBNMS is that the four national marine sanctuaries offshore of California have an inconsistent patchwork of regulations controlling the introduction of introduced species. The natural resources of the two sanctuaries lacking such prohibitions in state waters—GFNMS and MBNMS—remain at risk. The original premise behind the regulatory controls on the introduction of introduced species remains valid and such regulations necessary.

NOAA now proposes to amend the terms of designations for both sanctuaries regarding introduced species and the associated regulations prohibiting the introduction of such species within or into both the federal and state waters of the sanctuaries. This action would reinstate the terms of designations and regulations as they were promulgated for both sanctuaries in the final rule published on November 20, 2008, with a minor adjustment to the spatial exception for GFNMS. The re-proposed GFNMS regulation on the introduction of introduced species would extend the geographic exception to allow introduced species mariculture projects in all of Tomales Bay, rather than restricting the geographic exception to leases for introduced species mariculture projects in Tomales Bay existing at the time the regulation takes effect. NOAA and the State of California have also agreed to develop a Memorandum of Agreement (MOA) to describe how the state will consult with GFNMS in the future should it consider any permit or lease agreement for a new or expanded introduced species mariculture project in Tomales Bay.

This action is supported by the administrative record and NEPA documentation compiled for the previous final rule. NOAA would amend the record of decision to address the minor change proposed in the action for GFNMS. (See discussion in section IV below)

The term “introduced species” is defined as: (1) Any species (including, but not limited to, any of its biological matter capable of propagation) that is non-native to the ecosystems of the Sanctuary; or (2) any organism into which altered genetic matter, or genetic matter from another species, has been transferred in order that the host organism acquires the genetic traits of the transferred genes. 15 CFR 922.81 (GFNMS) and 922.131 (MBNMS). These definitions would not be affected by this proposed action.

NOAA promulgated the restriction against introduced species due to the threats introduced species pose to endangered species, native species diversity and the composition and resilience of natural biological communities. For example, a number of non-native species now found in the Gulf of the Farallones and Monterey Bay regions were introduced elsewhere on the West Coast but have spread through vectors such as vessel hull-fouling, ballast water discharge, and accidental introductions. NOAA also believes that introduced species are a major economic and environmental threat to the living resources and habitats of a sanctuary as well as the commercial and recreational uses that depend on these resources. Once established, introduced species can be extremely difficult, if not impossible, to eradicate. Introduced species have become increasingly common in recent decades, and the rate of invasions continues at a rapid pace. Introduced species pose a significant threat to the natural biological communities and ecological processes of GFNMS and MBNMS and may have a particularly large impact on threatened and endangered species found in these sanctuaries.

The introduced species regulations were developed with considerable public review, as well as input from the Sanctuary Advisory Councils and an introduced species working group of the Sanctuary Advisory Council for MBNMS. NOAA has also worked closely with agencies of the State of California in controlling introduced species introductions. For example, the definition of an introduced species is modeled on regulations enforced by the California Department of Fish and Game (14 CA A.D.C. § 236.1). Additionally, NOAA originally crafted the regulation to be consistent with other state restrictions on introduced species. These include California State Lands Commission rules limiting ballast water exchange to reduce the risk of introducing non-native species in state waters.

The California Coastal Commission has consistently supported NOAA's regulations on introduced species as they were promulgated in 2008. The Coastal Commission concluded that the introduced species regulations, to which the Governor expressed opposition, were consistent with the California Coastal Management Plan. Therefore, NOAA believes that this proposed action would be more consistent with the implementation of the Coastal Management Plan by the California Coastal Commission than limiting the regulations to only the federal waters of the sanctuaries.

This action would make regulations regarding introduced species consistent in the four national marine sanctuaries off of California (Cordell Bank, Gulf of the Farallones, Monterey Bay, and Channel Islands) and would avoid a result in which release of introduced species would be allowed in California state waters of some sanctuaries but entirely prohibited throughout other sanctuaries. NOAA believes that this would improve public understanding and compliance with this restriction and that it would also facilitate enforcement efforts. Creating consistent regulatory language was one of the goals of the JMPR and this proposed rule would advance that important regulatory goal. After careful consideration and review, NOAA has determined that it is appropriate in this instance to modify the terms of designations for these sites and re-propose the regulations that would implement them.

As modified by Governor Schwarzenegger's objection, the terms of designation for MBNMS currently authorize the regulation of “introducing or otherwise releasing from within or into the federal waters of the Sanctuary an introduced species.” NOAA proposes to change the terms of designation of MBNMS to remove the geographic restriction, thereby including the state waters of the sanctuary. The revised term of designation under Article IV Scope of Regulations, Section 1 Activities Subject to Regulation, Activity (a)(1) would read as follows:

(a) * * *

(i) Introducing or otherwise releasing from within or into the Sanctuary an introduced species.

NOAA also re-proposes the regulation that would implement this revised term of designation for MBNMS. Because the Governor's objection revised and limited the geographic scope of the term of designation regarding introduced species, as explained above, the introduced species regulation for MBNMS prohibits releasing only from within or into the federal waters of the Sanctuary an introduced species, except striped bass ( Morone saxatilis ) released during catch and release fishing activity. By re-proposing the original regulation (issued in 2008), NOAA is ensuring that the regulation would apply throughout the entire Sanctuary, including the State waters in MBNMS.

The re-proposed regulatory language for MBNMS is identical to that published in the final rule of November 20, 2008 (74 FR 70488), and would read as follows:

“(12) Introducing or otherwise releasing from within or into the Sanctuary an introduced species except striped bass (Morone saxatilis) released during catch and release activity;”

For the same reasons explained above regarding the proposed changes to the MBNMS terms of designation and regulations, NOAA proposes to similarly amend the terms of designation and regulations for GFNMS regarding introduced species. Because the October 1, 2009 proposed rule was never made final and has now been withdrawn, the Governor's conditional objection to the term of designation regarding introduced species also applies to GFNMS. As a result of his objection, this term of designation for GFNMS currently reads, “introducing or otherwise releasing from within or into the federal waters of the Sanctuary an introduced species.” NOAA proposes to change the terms of designation of GFNMS to remove the geographic restriction and to include the state waters of the sanctuary. The revised term of designation under Article IV Scope of Regulations, Section 1 Activities Subject to Regulation, Activity (a)(1) would read as follows:

(a) * * *

(i) Introducing or otherwise releasing from within or into the Sanctuary an introduced species.

NOAA also re-proposes the regulation that would implement this revised term of designation for GFNMS. As in MBNMS, the Governor's objection limited the geographic scope of the term of designation regarding introduced species and the introduced species regulation for GFNMS prohibits releasing only from within or into the federal waters of the Sanctuary an introduced species, except striped bass ( Morone saxatilis ) released during catch and release fishing activity. The exception regarding mariculture activities in Tomales Bay currently has no application because the regulation does not apply in State waters. Through this action, NOAA is proposing that the regulation regarding introduced species would apply throughout the entire Sanctuary, including the State waters in GFNMS. The only modification NOAA proposes from the original (2008) regulation would be to provide an exception for introduced species cultivated by mariculture activities in Tomales Bay pursuant to a valid lease, permit, license or other authorization issued by the State of California.

Beyond the catch and release of striped bass, NOAA has always intended to have an exception in GFNMS for the continuation of mariculture projects within Tomales Bay, where presently triploid, non-native oysters are farmed on 12 leases that are held by 6 companies. NOAA believes that continuation of these operations, consistent with existing permits issued by the State of California, is acceptable and will not adversely harm sanctuary resources. NOAA is also proposing that other introduced species aquaculture projects approved by the State of California be allowed in Tomales Bay. The State has agreed to consult with NOAA about those projects in advance of any decision. This would allow small businesses to continue operations and grow oysters for sale, and to have this area within the sanctuary available for future related projects, with state approval. NOAA is developing a Memorandum of Agreement with the State of California to formalize the consultation requirement for any new permit decision in Tomales Bay related to introduced species mariculture. This will provide significant protection to Tomales Bay from the introduction of introduced species while minimizing economic impacts to local mariculture businesses.

NOAA does not believe the change in the proposed action—to provide a geographic exemption for introduced species mariculture within Tomales Bay—is substantial or relevant to environmental concerns for purposes of NEPA regulations at 40 CFR1502.9. NOAA notes that this change is within the range of alternatives considered in the September 2008 final environmental impact statement (FEIS) associated with the previous version of the regulation. Currently, there is no regulatory protection from the introduction of introduced species in the state waters of the sanctuary, including in Tomales Bay. This is discussed in the no-action alternative in the FEIS (Sections 3.3.6 (p. 3-54), 3.5.4 (p. 3-92), and 3.7.5 (p. 3-131)).

Presently 23.6 percent of GFNMS—all of the state waters (301.5 square statute miles)—is at risk from the introduction of an introduced species in GFNMS. With this new regulation, all of that area and hence all of the sanctuary would be protected from such introductions, except for less than 1 percent (10.3 square statute miles) in Tomales Bay where introduced species mariculture, approved by the state after consulting with GFNMS, would be allowed. However, under this proposed rule Tomales Bay would receive significant protection from all other vectors of introduction of introduced species.

In addition, the March 23, 2009, notice of effective date expresses NOAA's belief that the “state's existing review process for aquaculture projects provides NOAA with some level of assurance that NOAA has an opportunity to provide input and can minimize the potential for harm to sanctuary resources from an introduced species aquaculture project.” (74 FR 12089). The MOA that will be developed with the state requiring consultation with NOAA will ensure NOAA concerns within this portion of the GFNMS are properly addressed.

The proportion of activities involving introduction of introduced species through state-issued mariculture permits in Tomales Bay is only a small fraction of the activities that could potentially harm the resources in the sanctuary. The additional, suitable habitat in Tomales Bay that would be available for development under the proposed exception is limited; much of the shore is owned by Point Reyes National Seashore, and thus unavailable for development.

As discussed in the final rule and FEIS, broadening the exception beyond just the area of existing permits would allow the existing operations to expand their usable footprints if the need is warranted and permitted by the state (73 FR 70518-70519, and Chapter 7, Response to comments (p. 7-33, respectively). Those previous discussions acknowledged that the sanctuary prohibition could restrict business plans for expansion in Tomales Bay and potentially limit future operations, and the proposed exemption for that area would remedy that concern.

Therefore, the re-proposed regulatory language for GFNMS would be similar to that published in the final rule of November 20, 2008 (74 FR 70488), and would read as follows:

“(10) Introducing or otherwise releasing from within or into the Sanctuary an introduced species except:

(i) Striped bass (Morone saxatilis) released during catch and release activity; or

(ii) species cultivated by mariculture activities in Tomales Bay pursuant to a valid lease, permit, license or other authorization issued by the State of California. Tomales Bay is defined in § 922.80. The coordinates for the northern terminus of Tomales Bay are listed in appendix D to this subpart. Pursuant to the memorandum of agreement executed between the State of California and NOAA, the State will consult with the Director before issuing any permit, lease or other authorization for mariculture in Tomales Bay involving the cultivation of introduced species.”

In addition, NOAA proposes to codify the geographical extent of Tomales Bay for the purposes of this regulation, with the addition of an Appendix D to Subpart H of Part 922. NOAA proposes to use the same demarcation line for Tomales Bay that is already used in the International Regulations for Preventing Collision at Sea 1972 (COLREGS): the line would intersect the GFNMS boundary near Avila Beach (west) end at approximately 39.23165 N, 12.97545 W and intersect the GFNMS boundary at the mean high water line at the Sand Point (east) end at approximately 38.23165 N, 122.96955 W. Tomales Bay constitutes the approximately 10.3 square statutory miles of state waters, and submerged lands thereunder, that lie landward (south and east) of this demarcation line.

Last, NOAA will enter into a Memorandum of Agreement (MOA) with the State of California to implement the Department of Fish and Game's commitment to consult with NOAA whenever a future introduced species mariculture permit application within Tomales Bay is received and being considered by the State.

Section 301 of the NMSA (16 U.S.C. 1434) provides authority for comprehensive and coordinated conservation and management of national marine sanctuaries in coordination with other resource management authorities. When changing a term of designation of a National Marine Sanctuary, section 304 of the NMSA requires the preparation of a draft environmental impact statement (DEIS), as provided by the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq. ) and that the DEIS be made available to the public. NOAA prepared a Draft and Final Management Plan and a draft and final EIS on the initial proposal and final rule. Copies are available at the address and Web site listed in the Address section of this proposed rule. Responses to comments received on this proposed rule will be published in the preamble to the final rule, and discussed in the record of decision that will accompany this rulemaking, and supplement the original final EIS. NOAA will make available the 2008 final environmental impact statement (FEIS) for the JMPR that was previously made available to the public and which analyzes the environmental effects of the introduced species regulations as are re-proposed in this action.

Section 304 requires that the Secretary of Commerce submit to the Committee on Resources of the United States House of Representatives and the Committee on Commerce, Science, and Transportation of the United States Senate, no later than the same day as this notice is published, documents including a copy of this notice, the terms of the proposed designation (or, in this case, the proposed changes thereto), the proposed regulations, a draft management plan detailing the proposed goals and objectives, management responsibilities, research activities for the area, and a draft environmental impact statement. NOAA submitted all of these documents to the Committees when the changes to the terms of designations and the implementing regulations were originally proposed in 2008. These documents have not changed and NOAA continues to rely on them for this proposed action.

In the 2008 FEIS for the JMPR, NOAA identified a preferred action which was to modify the terms of designation and regulations for GFNMS and MBNMS to, among other things, prohibit the introduction of introduced species (with a few exceptions) throughout the sanctuaries, and NOAA fully endorses that action as re-proposed, with minor modification, in this notice of proposed rulemaking. NOAA proposes a geographic exemption to allow ongoing and newly-permitted introduced species mariculture projects in Tomales Bay pursuant to a valid lease, permit, license or other authorization issued by the State of California. Pursuant to a memorandum of agreement, the state would consult with GFNMS prior to any new permit action. NOAA believes this is within the range of alternatives considered in the FEIS, and therefore, NOAA has determined that a supplement to the FEIS is not required for this action, as the proposed action/preferred alternative has not changed for MBNMS, nor has there been a significant change in the environmental conditions or the potential environmental effects of the preferred alternative in the GFNMS.

Copies of the FEIS other related materials that are specific to this action are available at http://sanctuaries.noaa.gov/jointplan/feis/feis.html , or by contacting NOAA at the address listed in the Addresses section of this proposed rule. Comments regarding the introduction of introduced species portion of the original FEIS are reopened for comment.

This rule has been determined to be not significant for purposes of Executive Order 12866.

NOAA has concluded that this regulatory action falls within the definition of “policies that have federalism implications” within the meaning of Executive Order 13132. NOAA's previous proposed rule and subsequent withdrawal were conducted in cooperation with the State of California, and pursuant to Section 304(b) of the NMSA. It is NOAA's view that, because no new information has been provided regarding the regulation of introduced species, the state will not object to the re-proposed changes in this action, which would not preempt state law, but would simply update and re-establish sanctuary regulations to comport with previously issued NOAA regulations. In keeping with the intent of the Executive Order, NOAA consulted with a number of entities within the state which participated in development of the initial rule, including but not limited to, the Governor of the State of California, the California Coastal Commission, the California Department of Fish and Game, and the California Natural Resources Agency.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration this rule would not have a significant economic impact on a substantial number of small entities. The factual basis for this certification is as follows:

Using the SBA's Small Business Size Standards, NOAA determined that the small business concerns operating within both of the sanctuaries include: Commercial fishermen who vary in number seasonally and annually from approximately 300 to 500 boats; twelve mariculture leaseholders in Tomales Bay (in GFNMS); approximately 25 recreational charterfishing businesses; and approximately 7 recreational charter businesses engaged in wildlife viewing. The small organizations, as defined under 5 U.S.C. 601(4), that would be impacted by this rule include approximately 3 small organizations operating within the waters of GFNMS, which include nongovernmental organizations (NGOs) or non-profit organizations (NPOs) dedicated to environmental education, research, restoration, and conservation concerning marine and maritime heritage resources. The small governmental jurisdictions, as defined under 5 U.S.C. 601(5), that would be impacted by this rule are the Tomales Bay settlements that are directly adjacent to GFNMS.

The prohibition on releasing or otherwise introducing from within or into GFNMS and MBNMS an introduced species is not expected to significantly adversely impact small entities because this activity is generally not part of their business or operational practices. As NOAA analyzed in more detail in 2008, small entities whose operational practices may include catch and release of striped bass ( Morone saxatilis ) ( i.e., consumptive recreational charter businesses), would not be affected because the prohibition would not apply to the catch and release of this fish species already present in the sanctuaries. In fact, the prohibition against introduced species may result in indirect benefits for certain small entities since their activities could potentially be negatively impacted by the spread of introduced species, which can severely affect populations of endangered species, native species diversity, and the composition and resilience of natural biological communities. Introduced species pose a major economic and environmental threat to the living resources and habitats of a sanctuary as well as the commercial and recreational uses that depend on these resources. Preventing their introduction will therefore help small entities by preventing such detrimental impacts.

The proposed prohibition is not expected to impact aquaculture leaseholders located adjacent to GFNMS. Existing leaseholders operating in Tomales Bay are excepted from the introduced species prohibition if they have active lease agreements from the State of California for cultivation of introduced species. Under the re-adoption of the 2008 final rule, as described in this proposed rule, in the GFNMS the exemption would now apply to all of Tomales Bay. Pursuant to a memorandum of agreement, the State of California would consult with NOAA prior to issuing any new leases or permits for mariculture operations in Tomales Bay involving the cultivation of introduced species. This prohibition would not put any current operations out of business, because they would not need to change anything about their current procedures to continue in their operations.

Comments received on the economic impacts of this proposed rule will be summarized and responded to in the final rule. As a result of this assessment, a regulatory flexibility analysis was not required and none was prepared.

This proposed rule does not contain information collections that are subject to the requirements of the Paperwork Reduction Act. Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number.

NOAA requests comments on this proposed rule for sixty (60) days after publication of this notice.

Accordingly, for the reasons set forth above, 15 CFR part 922 is proposed to be amended as follows:

Pursuant to section 304(e) of the National Marine Sanctuaries Act (16 U.S.C. 1434 et seq.; NMSA), the Office of National Marine Sanctuaries (ONMS) conducted a joint review of the management plans for Gulf of the Farallones, Monterey Bay and Cordell Bank national marine sanctuaries (hereafter referred to as the “Joint Management Plan Review (JMPR)”). This process updated the existing regulations for these sanctuaries and allowed ONMS to ensure consistency across the region. The range of alternatives NOAA considered was evaluated and made available to the public through the development of a draft and final environmental impact statement pursuant to the National Environmental Policy Act (NEPA). This review resulted in revised management plans, regulations, and terms of designations for all three sanctuaries. On November 20, 2008, NOAA published the associated final rule and terms of designation for the JMPR (73 FR 70488) and released the revised management plans. In the final rule, NOAA changed the terms of designation for GFNMS and MBNMS to clearly allow regulation of introduced species. NOAA's regulations prohibited the introduction of introduced species into the sanctuaries with exceptions for striped bass caught and released during fishing and current state-permitted mariculture activities in GFNMS's Tomales Bay.

Pursuant to section 304(b) of the NMSA, changes to a sanctuary's terms of designation and the associated regulations only become effective after forty-five days of continuous session of Congress. After forty-five days, in this case on March 9, 2009, the regulations were to become final and take effect, except that any term of designation the Governor certified as unacceptable (i.e., objected to) would not take effect in the area of a sanctuary lying within the seaward boundary of the state (“state waters”). If exercised, the effect of a gubernatorial objection is that the term(s) of designation does not become effective in state waters. Any regulations that rely on the change in terms of designation also do not become effective in state waters.

On December 23, 2008, Governor Schwarzenegger objected to certain terms of designation for MBNMS and GFNMS that would have allowed NOAA to regulate the “introduction of introduced species” into those sanctuaries. The Governor's objection was conditional: it would not apply if NOAA were willing and able to modify its regulations to except (i.e., allow) all state-permitted introduced species aquaculture activities in the two sanctuaries and also allow research involving the introduction of introduced species in MBNMS.

After receiving the Governor's objection, NOAA worked with staff from the California Natural Resources Agency and the California Department of Fish and Game to find solutions to the Governor's concerns that would also meet NOAA's goals. For GFNMS, NOAA proposed to conduct a process to modify the regulations on introduced species to except (allow) state-permitted aquaculture in state waters of that sanctuary and also agreed to not enforce the introduced species provisions in the state waters of GFNMS until such new rulemaking could be conducted and public comment on the matter could be considered.

For MBNMS, NOAA was willing and able to amend the regulations to include the same exception for state-permitted aquaculture in state waters. NOAA could not agree, however, to also create an exception for research involving the introduction of introduced species in the MBNMS, as the Governor requested. Despite discussions with the state, state officials never provided NOAA with a reason or scientific justification why such an exemption for research would be needed. Neither the Governor nor the state agencies with which NOAA worked provided any description of how this exception would be used, what types of research activities would qualify, or what the effect of it would be on sanctuary resources. Because no compromise was attained, the Governor's objection applied to the term of designation for the regulation of introduced species in the state waters of MBNMS. As indicated in the notice of effective date (March 23, 2009; 74 FR 12088), the regulation of the introduction of introduced species from within or into MBNMS does not apply in state waters of the sanctuary; it is valid and in effect only in the federal waters of the sanctuary, i.e., the area lying beyond the seaward boundary of the state.

In response to Governor Schwarzenegger's objection and based upon discussions with the state, on October 1, 2009, NOAA issued a proposed rule (74 FR 50740) to modify the introduced species regulations to allow all state-permitted aquaculture activities in the state waters of GFNMS, and to clarify that the prohibition against release of introduced species did not apply in state waters of MBNMS.

NOAA took this action because, as previously noted, the Governor's certification as unacceptable of the new terms of designation for GFNMS and MBNMS prevented the introduced species regulations from applying within state waters of the two sanctuaries. For GFNMS, the proposed rule was NOAA's effort to meet the Governor's concerns while still keeping most of the protections that would be realized by prohibiting the introduction or release of invasive or genetically altered species anywhere in the sanctuary. As also previously noted, NOAA was not able to reach an acceptable basis that would meet the Governor's demand for an exception to the prohibition that allows state-permitted research involving these species within state waters of MBNMS. In NOAA's view, the state was unable to provide necessary information to justify the exception. For MBNMS, the proposed rule restricted the application of the introduced species prohibition to the federal waters of the sanctuary.

No new information was received by NOAA during the public comment period from members of the public or the state that would support modifying the introduced species prohibitions as originally promulgated. NOAA received and considered five public comments in response to the NPRM. Several distinct issues were raised in these comments: (1) Support for the original regulations as promulgated for both sanctuaries; (2) support for the authority of the state regarding management of resources within state waters; (3) concern regarding the lack of protection to sanctuary resources that the then-Governor's objection would cause; and (4) concern over communication between the federal and state governments leading to the impasse on this issue.

Because there was never any valid reason or basis provided by the then-Governor, or received during the public comment period, for conducting research involving the introduction or release of introduced species, and because neither the state nor the public review process has identified why a patchwork of regulations and exemptions across the sanctuaries offshore California is beneficial, NOAA does not believe the resources of the sanctuaries would be adequately protected by the proposed rulemaking and notes the possibility of confusion among members of the public regarding different prohibitions in geographically close sanctuaries.

For these reasons, NOAA has concluded that the proposed rule is no longer warranted and is therefore withdrawing it. The legal effect of this action is that the Governor Schwarzenegger's letter of December 23, 2008, certifies as unacceptable the terms of designation for GFNMS and MBNMS regarding the regulation of introduced species in the two sanctuaries and modifies the terms of designation for each sanctuary by limiting the application of terms regarding introduced species to federal waters. As a result, the regulations implementing these terms do not apply in state waters in either GFNMS or MBNMS (15 CFR 922.82(a)(10) and 922.132(a)(12), respectively). NOAA will be publishing in the Federal Register a notice of proposed rulemaking to revise the terms of designation for these two sanctuaries regarding introduced species and regulations that would apply in both state and federal waters.

In consideration of the foregoing, NOAA has determined that the NPRM for NOAA Docket No. NOAA-NOS-2009-0105, as published in the Federal Register on October 1, 2009 (74 FR 50740), is hereby withdrawn.

On October 14, 2011, the United States and the Osage Nation (formerly known as the Osage Tribe) signed a Settlement Agreement to resolve litigation regarding alleged mismanagement of the Osage Nation's oil and gas mineral estate, among other claims. As part of the Settlement Agreement, the parties agreed that it would be mutually beneficial “to address means of improving the trust management of the Osage Mineral Estate, the Osage Tribal Trust Account, and Other Osage Accounts.” Settlement Agreement, Paragraph 1.i. The parties agreed that a review and revision of the existing regulations is warranted to better assist the Bureau of Indian Affairs (BIA) in managing the Osage Mineral Estate. The parties agreed to engage in a negotiated rulemaking for this purpose. Settlement Agreement, Paragraph 9.b. After the Committee submits its report, BIA will develop a proposed rule to be published in the Federal Register .

Meeting Agenda: The morning session will include: Final Committee thoughts on proposed final revised regulations and public comment on final proposed revised regulations. The afternoon session will include: Responses by the Committee on public comments and final vote by Committee on final proposed revised regulations. The final agenda will be posted on www.bia.gov/osagenegreg prior to each meeting.

Public Input: Committee meetings are open to the public. Interested members of the public may present, either orally or through written comments, information for the Committee to consider during the public meeting. Written comments should be submitted, prior to, during, or after the meeting, to Mr. Eddie Streater, Designated Federal Officer, preferably via email, at osagenegneg@bia.gov, or by U.S. mail to: Mr. Eddie Streater, Designated Federal Officer, Bureau of Indian Affairs, Wewoka Agency, P.O. Box 1540, Seminole, OK 74818. Due to time constraints during the meeting, the Committee is not able to read written public comments submitted into the record.

Individuals or groups requesting to make oral comments at the public Committee meeting will be limited to 5 minutes per speaker. Speakers who wish to expand their oral statements, or those who had wished to speak, but could not be accommodated during the public comment period, are encouraged to submit their comments in written form to the Committee after the meeting at the address provided above. There will be a sign-up sheet at the meeting for those wishing to speak during the public comment period.

The meeting location is open to the public. Space is limited, however, so we strongly encourage all interested in attending to preregister by submitting your name and contact information via email to Mr. Eddie Streater at osageregneg@bia.gov. Persons with disabilities requiring special services, such as an interpreter for the hearing impaired, should contact Mr. Streater at (405) 257-6250 at least seven calendar days prior to the meeting. We will do our best to accommodate those who are unable to meet this deadline.

Section 105 of the Clean Air Act (CAA) provides grant support for the continuing air programs of eligible state, local, and tribal agencies. In accordance with 40 CFR 35.145(a), the Regional Administrator may provide air pollution control agencies up to three-fifths of the approved costs of implementing programs for the prevention and control of air pollution. Section 105 contains two cost-sharing provisions which recipients must meet to qualify for a CAA section 105 grant. An eligible entity must meet a minimum 40% match. In addition, to remain eligible for section 105 funds, an eligible entity must continue to meet the minimum match requirement as well as meet a maintenance of effort (MOE) requirement under section 105(c)(1) of the CAA, 42 U.S.C. 7405.

Program activities relevant to the match consist of both recurring and non-recurring (unique,one-time only) expenses. The MOE provision requires that a state or local agency spend at least the same dollar level of funds as it did in the previous grant year, but only for the costs of recurring activities. Specifically, section 105(c)(1), 42 U.S.C. 7405(c)(1), provides that “No agency shall receive any grant under this section during any fiscal year when its expenditures of non-Federal funds for recurrent expenditures for air pollution control programs will be less than its expenditures were for such programs during the preceding fiscal year.” Pursuant to CAA section 105(c)(2), however, EPA may still award a grant to an agency not meeting the requirements of section 105(c)(1), “if the Administrator, after notice and opportunity for public hearing, determines that a reduction in expenditures is attributable to a non-selective reduction in the expenditures in the programs of all Executive branch agencies of the applicable unit of Government.” These statutory requirements are repeated in EPA's implementing regulations at 40 CFR 35.140-35.148. EPA issued additional guidance to recipients on what constitutes a nonselective reduction on September 30, 2011. In consideration of legislative history, the guidance clarified that a non-selective reduction does not necessarily mean that each Executive branch agency need be reduced in equal proportion. However, it must be clear to EPA, from the weight of evidence, that a recipient's CAA-related air program is not being disproportionately impacted or singled out for a reduction.

A section 105 recipient must submit a final financial status report no later than 90 days from the close of its grant period that documents all of its federal and non-federal expenditures for the completed period. The recipient seeking an adjustment to its MOE for that period must provide the rationale and the documentation necessary to enable EPA to make a determination that a nonselective reduction has occurred. In order to expedite that determination, the recipient must provide details of the budget action and the comparative fiscal impacts on all the jurisdiction's executive branch agencies, the recipient agency itself, and the agency's air program. The recipient should identify any executive branch agencies or programs that should be excepted from comparison and explain why. The recipient must provide evidence that the air program is not being singled out for a reduction or being disproportionately reduced. Documentation in two key areas will be needed: Budget data specific to the recipient's air program and comparative budget data between the recipient's air program, the agency containing the air program, and the other executive branch agencies. EPA may also request information from the recipient about how impacts on its program operations will affect its ability to meet its CAA obligations and requirements; and documentation which explains the cause of the reduction, such as legislative changes or the issuance of a new executive order.

In FY2012, EPA awarded the SCAQMD $5,234,193, which represented approximately 5% of the SCAQMD budget. In FY-2013, EPA will award the SCAQMD an estimate of $4,538,613, which represents approximately 4% of the SCAQMD budget.

SCAQMD's final Federal Financial Report for FY-2011 indicated that SCAQMD's maintenance of effort (MOE) level was $113,142,559. SCAQMD's final Federal Financial Report for FY-2012 indicates that SCAQMD's maintenance of effort (MOE) level is at $108,291,832.

The projected MOE is not sufficient to meet the MOE requirements under the CAA section 105 because it is not equal to or greater than the MOE for the previous fiscal year. In order for the SCAQMD to be eligible to receive its FY2013 CAA section 105 grant, EPA must make a determination (after notice and an opportunity for a public hearing) that the reduction in expenditures is attributable to a non-selective reduction in the expenditures in the programs of the South Coast Air Quality Management District. The shortfall stems from a decline of 12.4% in stationary sources revenue from FY2008-09 to FY-2011-12 as reflected in the table below:

The SCAQMD is a single-purpose agency whose primary source of funding is emission fee revenue. It is the “unit of government for section 105(c)(2) purposes.”

The decline in stationary source revenues would have been even more pronounced had it not been for the SCAQMD Governing Board-adopted fee increases totaling 5.9% over the last three years. The net loss of stationary revenues has given SCAQMD no choice but to reduce its budget and find less costly ways to meet its mandate. Over the past several years actions were undertaken by SCAQMD to balance its budget by reducing overall expenditures, including deleting or not funding vacant positions, implementing a hiring freeze, enacting pension reform, reducing services and supplies expenditures, and utilizing reserves.

Since FY2009-10, SCAQMD has supplemented revenues with $18.5 million in reserves to balance the budget and meet program requirements.

In addition to the conditions described above, an increase in expenditures relating to permitting activities under Title V of CAA, 42 U.S.C. 7661-7661-f and an increase in non-recurrent capital expenditures in the amount of $1,406,240 have resulted in a reduction in the non-federal share which also contributed to a decrease in the FY12 MOE level.

Based on: (1) SCAQMD's inability to levy taxes, (2) regulated and voluntary emissions reductions, (3) the general economic downturn, (4) voter approval of Proposition 26, (5) an overall decline in stationary source revenue, (6) expenditure cuts, (7) use of financial reserves to balance the budget, (8)increased Title V permitting activities, and (9) an increase in non-recurrent capital expenditures, the request for a reset of SCAQMD's MOE meets the criteria for a non-selective reduction determination.

Although SCAQMD receives less than 5 percent of its support from the section 105 grant, the loss of that funding would seriously impact SCAQMD's ability to carry out its clean air program. The revenue generated from Stationary Sources over the last 10 years is detailed below.

The SCAQMD's MOE reduction resulted from a loss of revenues due to circumstances beyond its control. EPA proposes to determine that the SCAQMD lower the FY2012 MOE level to $108,291,832 to meet the CAA section 105(c)(2) criteria as resulting from a non-selective reduction of expenditures.

This notice constitutes a request for public comment and an opportunity for public hearing as required by the Clean Air Act. All written comments received by April 17, 2013 on this proposal will be considered. EPA will conduct a public hearing on this proposal only if a written request for such is received by EPA at the address above by April 17, 2013. If no written request for a hearing is received, EPA will proceed to the final determination. While notice of the final determination will not be published in the Federal Register , copies of the determination can be obtained by sending a written request to Gary Lance at the above address.

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

In the Calendar Year (CY) 2013 Hospital Outpatient Prospective Payment System (OPPS)/Ambulatory Surgical Center (ASC) proposed rule (July 30, 2012, 77 FR 45155 through 45157) and final rule with comment period (November 15, 2012, 77 FR 68426 through 68433), we expressed our ongoing concern about recent increases in the length of time that Medicare beneficiaries spend as hospital outpatients receiving observation services. (In this proposed rule, “hospital” means hospital as defined at section 1861(e) of the Social Security Act (the Act), but includes critical access hospitals (CAHs) unless otherwise specified. Although the term “hospital” does not generally include CAHs, section 1861(e) of the Act provides that the term “hospital” includes CAHs if the context otherwise requires. In this case, we believe it is appropriate to propose to apply the same policies regarding payment for inpatient services under Part B in CAHs as apply in hospitals).

Observation services include short-term ongoing treatment and assessment for the purpose of determining whether a beneficiary can be discharged from the hospital or will require further treatment as an inpatient (Section 20.6, Chapter 6 of the Medicare Benefit Policy Manual (Pub. 100-02)). Beneficiaries who are treated for extended periods of time as outpatients receiving observation services may incur greater financial liability than if they were admitted as inpatients. They may incur financial liability for Medicare Part B copayments; the cost of self-administered drugs that are not covered under Part B; and the cost of post-hospital Skilled Nursing Facility (SNF) care, because section 1861(i) of the Act requires a prior 3-day hospital inpatient stay (toward which time spent receiving outpatient observation services does not count) for coverage of post-hospital SNF care under Medicare Part A. In the CY 2013 OPPS/ASC proposed and final rules, we discussed how the trend towards the provision of extended observation services may be attributable in part to hospitals' concerns about Medicare Part A to Part B billing policies when a hospital inpatient claim is denied because the inpatient admission was deemed not medically necessary. Under longstanding Medicare policy, in these situations hospitals can only receive payment for a limited set of largely ancillary inpatient services under Part B.

In the CY 2013 OPPS/ASC proposed rule (77 FR 45155 through 45157) and final rule with comment period (77 FR 68426 through 68433), we solicited and described the public comments received on potential clarifications or changes to our policies regarding patient status that may be appropriate to provide more clarity and consensus among providers, beneficiaries, and other stakeholders regarding the relationship between inpatient admission decisions and appropriate Medicare payment. We also provided an update on the Part A to Part B Rebilling (Part A/B) Demonstration that was slated to be in effect for CYs 2012 through 2014 and was designed to assist us in evaluating these issues. Having further considered the concerns raised in these comments as well as our experience with the Part A/B Demonstration, we are proposing to revise our Part B inpatient billing policy.

We propose that when a Medicare Part A claim for inpatient hospital services is denied because the inpatient admission was deemed not to be reasonable and necessary, or when a hospital determines under § 482.30(d) or § 485.641 after a beneficiary is discharged that his or her inpatient admission was not reasonable and necessary, the hospital may be paid for all the Part B services (except for services that specifically require an outpatient status) that would have been reasonable and necessary had the beneficiary been treated as a hospital outpatient rather than admitted as an inpatient, if the beneficiary is enrolled in Medicare Part B. We propose to continue applying the timely filing restriction to the billing of all Part B inpatient services, under which claims for Part B services must be filed within 1 year from the date of service. In this proposed rule, we also describe the beneficiary liability and other impacts of our proposals.

We estimate that the proposals in this proposed rule would result in an approximately $4.8 billion decrease in Medicare program expenditures over 5 years. In section V. of this proposed rule we set forth a detailed analysis of the regulatory and federalism impacts that the proposed changes would have on affected entities and beneficiaries.

Under section 1832 of the Act, when Part A payment cannot be made for a hospital inpatient claim because the inpatient admission is determined not reasonable and necessary under section 1862(a)(1)(A) of the Act, we believe Medicare should pay all for Part B services (except for services that specifically require an outpatient status) that would have been reasonable and necessary if the hospital had treated the beneficiary as a hospital outpatient rather than treating the beneficiary as an inpatient. We have previously addressed this issue in prior rulemaking through the proposed and final rules titled Prospective Payment System for Hospital Outpatient Services, (September 8, 1998, 63 FR 47560; and April 7, 2000, 65 FR 18444; respectively); the proposed and final rule titled, Changes to the Hospital Outpatient Prospective Payment System for Calendar Year 2002, (August 24, 2001, 66 FR 44698 through 44699) and (November 30, 2001, 66 FR 59891 through 59893 and 59915); and the final rule, titled Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2011; (November 29, 2010, 75 FR 73449 and 73627).

In the CY 2013 OPPS/ASC proposed rule and final rule with comment period (77 FR 45155 through 45157 and 77 FR 68426 through 68433, respectively), we discussed that when a Medicare beneficiary arrives at a hospital in need of medical or surgical care, the physician or other qualified practitioner may admit the beneficiary for inpatient care or treat him or her as an outpatient. In some cases, when the physician or other qualified practitioner admits the beneficiary and the hospital provides inpatient care, a Medicare claims review contractor, such as a Medicare Administrative Contractor (MAC), a Recovery Audit Contractor (RAC), or a Comprehensive Error Rate Testing (CERT) Contractor, subsequently determines that the inpatient admission was not reasonable and necessary under section 1862(a)(1)(A) of the Act, and therefore denies the associated hospital Part A claim for payment. To date, under Medicare's longstanding policy, in these cases hospitals may bill a subsequent Part B inpatient claim for only a limited set of medical and other health services, referred to as “Part B inpatient” or “Part B only” services, even if additional services furnished would have been medically necessary had the beneficiary been treated as an outpatient. Under current Medicare policy, these Part B inpatient claims are considered new claims subject to the time limits for filing claims described at sections 1814(a)(1), 1835(a), and 1842(b)(3)(B) of the Act and 42 CFR 424.44 (see section II.G. of this proposed rule). We do not consider these claims to be adjustments to the originally submitted Part A claim.

Medicare's policy to pay only a limited set of medical and other health services as inpatient services under Part B when payment cannot be made under Part A has been in place for many years. As early as 1968, the Medicare manuals provided for payment under Part B of only a limited list of ancillary medical and other health services furnished to inpatients of participating hospitals (see Section 3110 of the Medicare Intermediary Manual and Section 2255C of the Medicare Carriers Manual, replaced by Section 10, Chapter 6 of the Medicare Benefit Policy Manual (MBPM) (Pub. 100-02)), and under current policy, we continue to provide that the payable Part B inpatient services include only a limited set of ancillary services (66 FR 44698 through 44699; 66 FR 59891 through 59893, and 59915). Hospitals are required to submit a Part B inpatient claim (Type of Bill (TOB) 12x, or 85x for CAHs) within the usual timely filing requirements in order to be paid for these Part B inpatient services (75 FR 73449 and 73627).

We have provided in manual guidance that the limited set of Part B inpatient services could be paid if there was no Part A coverage for the following reasons:

• In prospective payment system (PPS) hospitals—

++ No Part A prospective payment is made at all for the hospital stay because of patient exhaustion of benefit days before admission;

++ The admission was disapproved as not reasonable and necessary (and waiver of liability payment was not made);

++ The day or days of the otherwise covered stay during which the services were provided were not reasonable and necessary (and no payment was made under waiver of liability);

++ The patient was not otherwise eligible for or entitled to coverage under Part A; or

++ For discharges before October 1997;

• In non-PPS hospitals, Part B payment may be made for services on any day for which Part A payment is denied (that is, benefit days are exhausted; services are not at the hospital level of care; or patient is not otherwise eligible or entitled to payment under Part A) (Section 10, Chapter 6 of the MBPM).

The services payable are as follows:

• Diagnostic x-ray tests, diagnostic laboratory tests, and other diagnostic tests.

• X-ray, radium, and radioactive isotope therapy, including materials and services of technicians.

• Surgical dressings, and splints, casts, and other devices used for reduction of fractures and dislocations.

• Prosthetic devices (other than dental) which replace all or part of an internal body organ (including contiguous tissue), or all or part of the function of a permanently inoperative or malfunctioning internal body organ, including replacement or repairs of such devices.

• Leg, arm, back, and neck braces, trusses, and artificial legs, arms, and eyes including adjustments, repairs, and replacements required because of breakage, wear, loss, or a change in the patient's physical condition.

• Outpatient physical therapy, outpatient speech-language pathology services, and outpatient occupational therapy (see the Medicare Benefit Policy Manual, Chapter 15, “Covered Medical and Other Health Services,” § 220 and § 230).

• Screening mammography services.

• Screening pap smears.

• Influenza, pneumococcal pneumonia, and hepatitis B vaccines.

• Colorectal screening.

• Bone mass measurements.

• Diabetes self-management.

• Prostate screening.

• Ambulance services.

• Hemophilia clotting factors for hemophilia patients competent to use these factors without supervision).

• Immunosuppressive drugs.

• Oral anti-cancer drugs.

• Oral drug prescribed for use as an acute anti-emetic used as part of an anti-cancer chemotherapeutic regimen.

• Epoetin Alfa (EPO).

To enable beneficiaries to make informed financial and other decisions prior to hospital discharge, Medicare allows the hospital to change a beneficiary's inpatient status to outpatient (using condition code 44 on a Part B outpatient claim) and bill all reasonable and necessary services that it provided to Part B as outpatient services, but only if these conditions are met: (1) The change in patient status is made prior to discharge; (2) the hospital has not submitted a Medicare claim for the admission; (3) both the practitioner responsible for the care of the patient and the utilization review committee concur with the decision; and (4) the concurrence is documented in the medical record (See Section 50.3, Chapter 1 of the Medicare Claims Processing Manual (MCPM) (Pub. 100-04); MLN Matters article SE0622, Clarification of Medicare Payment Policy When Inpatient Admission Is Determined Not To Be Medically Necessary, Including the Use of Condition Code 44: “Inpatient Admission Changed to Outpatient,” September 2004). The hospital conditions of participation (CoPs) provide similar patient protections. For example, in accordance with 42 CFR 482.13(b), patients have the right to participate in the development and implementation of their plan of care and treatment, to make informed decisions, and to accept or refuse treatment. Informed discharge planning between the patient and the physician is important for patient autonomy and for achieving efficient outcomes.

Hospitals have expressed concern that the policy allowing only limited billing for Part B inpatient services provides inadequate payment for resources they expended to take care of beneficiaries in need of medically necessary hospital care, although not necessarily inpatient care. Also, hospitals have indicated that often they do not have the necessary staff (for example, utilization review staff or case managers) available after normal business hours to confirm physicians' decisions to admit beneficiaries. Thus, for short-stay admissions, the hospitals may be unable to complete a timely review and change beneficiaries' status from inpatient to outpatient prior to discharge in accordance with the condition code 44 requirements.

In the CY 2013 OPPS/ASC proposed rule (77 FR 45156), we discussed that we have heard from various stakeholders that hospitals appear to be responding to the financial risk of admitting Medicare beneficiaries for inpatient stays that may later be determined not reasonable and necessary and denied upon contractor review by electing to treat beneficiaries as outpatients receiving observation services, often for longer periods of time, rather than admitting them as inpatients. In recent years, the number of cases of Medicare beneficiaries receiving observation services for more than 48 hours, while still small, has increased from approximately 3 percent in 2006 to approximately 8 percent in 2011. This trend is concerning because of its effect on Medicare beneficiaries. There could be significant financial implications for Medicare beneficiaries of being treated as outpatients rather than being admitted as inpatients, and we have published educational materials for beneficiaries to inform them of their respective liabilities. 1 As we discuss later in this proposed rule, the statute provides different cost sharing responsibilities for beneficiaries for Part A and Part B services. In addition, section 1861(i) of the Act requires a 3-day hospital inpatient stay (towards which any time spent receiving outpatient observation services prior to the calendar day of admission does not count) in order for a beneficiary to qualify for coverage of subsequent post-hospital care in a SNF. Therefore, treating beneficiaries as outpatients rather than inpatients or expanding the number of payable Part B inpatient services could impact the financial liability of some beneficiaries.

In light of concerns related to the impact of extended time as an outpatient on Medicare beneficiaries and the impact on hospitals of denials of hospital inpatient claims, we implemented a demonstration, the Part A to Part B (A/B) Rebilling Demonstration, for hospitals. The demonstration was initially slated to last for 3 years, from CYs 2012 through 2014. The demonstration allows a limited number of hospitals to rebill for additional Part B inpatient services outside the usual timely filing requirement, when Part A inpatient short-stay claims are denied because the inpatient admissions were determined not reasonable and necessary. Under the demonstration, hospitals may be eligible to receive 90 percent of payment for all Part B services that would have been reasonable and necessary had the beneficiaries been treated as outpatients rather than admitted as inpatients. We also solicited public comments in the CY 2013 OPPS/ASC proposed rule on various policy clarifications or changes that have been suggested by stakeholders to address these issues, including revising our Part B inpatient billing policy (77 FR 45155 through 45157).

In an increasing number of cases, hospitals that have appealed Part A inpatient claims that were denied because the inpatient admission was not reasonable and necessary have received partially favorable decisions from the Medicare Appeals Council or Administrative Law Judges (ALJs). While upholding the Medicare review contractor's determination that the inpatient admission was not reasonable and necessary, the Medicare Appeals Council and ALJ decisions have ordered payment of the services as if they were rendered at an outpatient or “observation level” of care. These decisions effectively require Medicare to issue payment for all Part B services that would have been payable had the beneficiary originally been treated as an outpatient (rather than an inpatient), instead of payment for only the limited set of Part B inpatient services that are designated in the MBPM. Moreover, these decisions have required such payment regardless of whether the subsequent hospital claim for payment under Part B is submitted within the otherwise applicable time limit for filing Part B claims. These Medicare Appeals Council and ALJ decisions providing for payment of all reasonable and necessary Part B services under the circumstances described previously are contrary to our longstanding policies that permit billing for only a limited list of Part B inpatient services and require that the services be billed within the usual timely filing restrictions (See Section 10, Chapter 6 of the MBPM (Pub. 100-02); 63 FR 47560; 65 FR 18444; 66 FR 44698 through 44699; 66 FR 59891 through 59893, and 59915; and 75 FR 73449, 73627). While decisions issued by the Medicare Appeals Council and ALJs do not establish Medicare payment policy, we are bound to effectuate each individual decision. The increasing number of these types of decisions has created numerous operational difficulties.

After reviewing the public comments we received in response to the CY 2013 OPPS/ASC proposed rule, considering the most efficient way to effectuate the Medicare Appeals Council and ALJ decisions referenced earlier in this section, and further assessing our Part B inpatient payment policy, we are concurrently issuing this proposed rule and CMS Ruling 1455-R (hereinafter referred to as the Ruling). The Ruling establishes a standard process for effectuating these Medicare Appeals Council and ALJ decisions and handling claims and appeals while CMS considers how to best address this issue going forward. The Ruling also addresses the scope of administrative review in these and other, similar cases. Until this proposed rule is finalized, CMS, through the Ruling, acquiesces in the approach taken in the aforementioned Medicare Appeals Council and ALJ decisions on the issue of subsequent Part B billing following the denial of a Part A hospital inpatient claim on the basis that the inpatient admission was not reasonable and necessary. The Ruling is intended as an interim measure until we can finalize a policy to address the issues raised by these decisions going forward.

Specifically, the Ruling provides that when a Part A claim for a hospital inpatient admission is denied by a Medicare review contractor because the inpatient admission was determined not reasonable and necessary, the hospital may submit a subsequent Part B inpatient claim for more services than just those listed in section 10, Chapter 6 of the MBPM, to the extent the services furnished were reasonable and necessary. The hospital may submit a Part B inpatient claim for payment for the Part B services that would have been payable to the hospital had the beneficiary originally been treated as an outpatient rather than admitted as an inpatient, except when those services specifically require an outpatient status. The Ruling only applies to denials of claims for inpatient admissions that were not reasonable and necessary; it does not apply to any other circumstances in which there is no payment under Part A, such as when a beneficiary exhausts Part A benefits for hospital services or is not entitled to Part A. Under the Ruling, Part B inpatient and Part B outpatient claims that are filed later than 1 calendar year after the date of service will not be rejected as untimely by Medicare's claims processing system as long as the corresponding denied Part A inpatient claim was filed timely in accordance with 42 CFR 424.44, consistent with the directives of the Medicare Appeals Council and ALJ decisions to which we are acquiescing.

The Ruling also provides that the A/B Rebilling Demonstration will be discontinued. We will communicate to hospitals and contractors the details regarding termination of the demonstration and implementation of Part B billing under the Ruling in future transmittals. As described in the Ruling, the Ruling is effective on its date of issuance. It applies to Part A hospital inpatient claims that were denied by a Medicare review contractor because the inpatient admission was determined not reasonable and necessary, as long as the denial was made: (1) While the Ruling is in effect; (2) prior to the effective date of the Ruling, but for which the timeframe to file an appeal has not expired; or (3) prior to the effective date of the Ruling, but for which an appeal is pending. The Ruling does not apply to Part A hospital inpatient claim denials for which the timeframe to appeal expired, and it does not apply to inpatient admissions determined by the hospital to be not reasonable and necessary (for example, through utilization review or other self-audit). The policy announced in the Ruling supersedes any other statements of policy on the issue of Part B inpatient billing following the denial by a Medicare review contractor of a Part A inpatient hospital claim because the inpatient admission was not reasonable and necessary (although hospital outpatient services would have been reasonable and necessary), and it remains in effect until the effective date of the regulations that finalize this proposed rule. This proposed rule proposes revisions to our Part B payment policy that would apply prospectively from the effective date of the final regulations and would differ in some respects from the provisions of the Ruling, the purpose of which is to effectuate the Medicare Appeals Council and ALJ decisions.

Having reviewed the statutory and regulatory basis of our current Part B inpatient payment policy, we believe that, under section 1832 of the Act, Medicare should pay all Part B services that would have been reasonable and necessary (except for services that require an outpatient status) if the hospital had treated the beneficiary as a hospital outpatient rather than treating the beneficiary as an inpatient, when Part A payment cannot be made for a hospital inpatient claim because the inpatient admission is determined not reasonable and necessary under section 1862(a)(1)(A) of the Act. Therefore, in this section, we propose to revise our current policy to allow payment for additional Part B inpatient services than Medicare currently allows when CMS, a Medicare review contractor, or a hospital determines after discharge that payment cannot be made under Part A because a hospital inpatient admission was not reasonable and necessary, provided the statutorily required timeframe for submitting claims is not expired, as discussed in section II.G. of this proposed rule. The hospital could re-code the reasonable and necessary services that were furnished as Part B services, and bill them on a Part B inpatient claim. This proposed policy would only apply to denials of claims for inpatient admissions that are not reasonable and necessary, and would not apply to any other circumstances in which there is no payment under Part A, such as when a beneficiary exhausts Part A benefits for hospital services or is not entitled to Part A.

Specifically, we propose to revise our Part B inpatient billing policy to allow payment of all hospital services that were furnished and would have been reasonable and necessary if the beneficiary had been treated as an outpatient, rather than admitted to the hospital as an inpatient, except for those services specifically requiring an outpatient status. We would exclude services that by statute, Medicare definition, or standard Healthcare Common Procedure Coding System (HCPCS) code are defined as outpatient services, including outpatient diabetes self-management training services (DSMT) defined in section 1861(qq) of the Act; outpatient physical therapy services, outpatient speech-language pathology services, and outpatient occupational therapy services (PT/SLP/OT or “therapy” services) defined in section 1833(a)(8) of the Act; and outpatient visits, emergency department visits, and observation services (G0378, Hospital observation service, per hour; and G0379, Direct referral for hospital observation care). These services are, by definition, provided to hospital outpatients and not inpatients. Hospitals could only submit claims for Part B inpatient services that were furnished to an inpatient in accordance with their Medicare and standard Healthcare Common Procedure Coding System (HCPCS) code definitions, and in accordance with Medicare coverage and payment rules.

In accordance with section 1833(e) of the Act, hospitals would be required to furnish information as may be necessary in order to determine the amounts due for the services billed on a Part B inpatient claim for services rendered during the inpatient stay. We would implement this provision in proposed new 42 CFR 414.5, entitled, “Hospital inpatient services paid under Medicare Part B when a Part A hospital inpatient claim is denied because the inpatient admission was not reasonable and necessary, but hospital outpatient services would have been reasonable and necessary in treating the beneficiary.” The claim for inpatient Part B services would have to be submitted within the timely filing period (we discuss the time limits for filing claims in section II.G. of this proposed rule). To ensure the accuracy and appropriateness of payment under Part A, we propose that this policy would apply when CMS or a Medicare review contractor determines that the hospital inpatient admission was not reasonable and necessary, and also when a hospital determines under Medicare's utilization review requirements in sections 1861(e)(6)(1) and 1861(k) of the Act and 42 CFR 482.30 (42 CFR 485.641 for CAHs) that a beneficiary should have received hospital outpatient rather than hospital inpatient services, but the beneficiary has already been discharged from the hospital (hereinafter referred to as hospital “self-audit” for purposes of this preamble). In this circumstance, we would continue requiring the hospital to submit a “no pay/provider liable” Part A claim indicating that the provider is liable under section 1879 of the Act for the cost of the Part A services (see section 40.2.2(E), Chapter 3 of the MCPM). Submission of this Part A claim indicates that the provider is assuming financial liability for the denied items or services on the Part A claim consistent with section 1879 of the Act (and acknowledging that the beneficiary is not financially liable under section 1879 of the Act) for the cost of the Part A items and services. The claim also ensures accurate cost reporting, reporting of utilization of inpatient days, and triggers refund requirements of the Part A cost sharing under sections 1866(a) and 1879(b) of the Act and 42 CFR 411.402 of the regulations (see sections II.E. and F. of this proposed rule). Submitting the provider-liable Part A claim also cancels any claim that may have already been submitted by the hospital for payment under Part A. The hospital could then submit an inpatient claim for payment under Part B for all services that would have been reasonable and necessary if the beneficiary had been treated as a hospital outpatient rather than admitted as a hospital inpatient, except for those services specifically requiring an outpatient status. This claim would have to be submitted within the timely filing period (we discuss the time limits for filing claims in section II.G. of this proposed rule). We believe that providing for additional payment under Part B when a hospital determines itself that an inpatient admission was not reasonable and necessary but hospital outpatient services would have been reasonable and necessary would reduce improper payments under Part A, and would reduce the administrative costs of appeals for both hospitals and the Medicare program.

We propose payment of services that are paid under the OPPS (except those requiring an outpatient status) under proposed new § 414.5(a)(1), “If a Medicare Part A claim for inpatient hospital services is denied because the inpatient admission was not reasonable and necessary, or if a hospital determines under § 482.30(d) or § 485.641 after a beneficiary is discharged that the beneficiary's inpatient admission was not reasonable and necessary, the hospital may be paid for the following Part B inpatient services that would have been reasonable and necessary if the beneficiary had been treated as a hospital outpatient rather than admitted as an inpatient, provided the beneficiary is enrolled in Medicare Part B: (1) Services described in § 419.21(a) that do not require an outpatient status.” We would exclude payment of services under the OPPS such as observation services and clinic visits that, by definition, require an outpatient status.

For the proposed Part B inpatient services furnished by the hospital that are not paid under the OPPS, but rather under some other Part B payment methodology, we propose that when the inpatient admission is determined not reasonable and necessary, Part B payment would be made pursuant to the respective Part B fee schedules or prospectively determined rates for which payment is made for these services when provided to hospital outpatients (see 65 FR 18442 and 18443). As provided in 42 CFR 419.22, the services for which payment is made under other payment methodologies are as follows:

• Ambulance services, as described in section 1861(v)(1)(U) of the Act, or, if applicable, the fee schedule established under section 1834(l) of the Act;

• Except as provided in 42 CFR 419.2(b)(11), prosthetic devices, prosthetics, prosthetic supplies, and orthotic devices;

• Except as provided in 42 CFR 419.2(b)(10), durable medical equipment supplied by the hospital for the patient to take home;

• Clinical diagnostic laboratory services;

• Effective December 8, 2003, screening mammography services and effective January 1, 2005, diagnostic mammography services (which would become paragraph (r) under our proposed redesignation, discussed in section II.C. of this proposed rule); and

• Effective January 1, 2011, annual wellness visit providing personalized prevention plan services as defined in 42 CFR 410.15 (which would become subparagraph (s) under our proposed re-designation, discussed in section II.C. of this proposed rule).

We propose to provide payment of these OPPS-excluded services in 42 CFR 414.5(a)(2) through (a)(7) as follows:

• Ambulance services, as described in section 1861(v)(1)(U) of the Act, or, if applicable, the fee schedule established under section 1834(l) of Act.

• Except as provided in § 419.2(b)(11), prosthetic devices, prosthetics, prosthetic supplies, and orthotic devices.

• Except as provided in § 419.2(b)(10), durable medical equipment supplied by the hospital for the patient to take home.

• Clinical diagnostic laboratory services.

• Effective December 8, 2003, screening mammography services and effective January 1, 2005, diagnostic mammography services.

• Effective January 1, 2011, annual wellness visit providing personalized prevention plan services as defined in § 410.15 of this chapter.

In our review of the current regulations governing payment of Part B inpatient services, we noted an oversight in 42 CFR 419.22 that outpatient DSMT services which are described in section 1861(qq) of the Act and 42 CFR 414.63 and are paid under the Medicare Physician Fee Schedule (MPFS), were never excluded from OPPS payment along with all other physician services. Since the statute defines these services as outpatient services, § 414.63(e)(2) stipulates that outpatient DSMT services can be paid only if the beneficiary “[i]s not receiving services as an inpatient in a hospital, SNF, hospice, or nursing home.” Therefore, under our proposal these services would not be payable Part B inpatient services. However, pursuant to our review of the regulations, we propose a technical correction to clarify that outpatient DSMT services are excluded from OPPS payment. This correction would appear in § 419.22(u).

In addition, we noted a typographical error in paragraph (j), which should cross reference § 419.2(b)(11) rather than § 419.22(b)(11). We propose a technical correction to delete the erroneous “§ 419.22(b)(11)” and replace with “§ 419.2(b)(11)”. Also we noted that § 419.22(h) excludes “outpatient” therapy services from coverage under the OPPS. Section 1833(t)(1)(B)(iv) of the Act specifically states that “the term `covered OPD services'* * *(iv) does not include any therapy services described in subsection (a)(8)” and section 1833(a)(8) describes outpatient therapy services furnished by a hospital to a hospital outpatient or a hospital inpatient who is entitled to benefits under Part A but has either exhausted or is not so entitled to such benefits. In order to more clearly follow the statutory language defining covered OPD services, we propose to replace the words “outpatient therapy” with “therapy” in § 419.22(h) so that it reads, “Therapy services described in section 1833(a)(8) of the Act.”

We further noted that the headings of § 419.21 and § 419.22 describe the “hospital outpatient” services that are subject to (in § 419.21) or excluded from payment under (in § 419.22) the OPPS. To more appropriately describe the services that are payable under these regulations under the OPPS, we propose to amend the titles of these sections by removing the term “outpatient.” The title of § 419.21 would then read, “Hospital services subject to the outpatient prospective payment system.” The title of § 419.22 would then read, “Hospital services excluded from payment under the hospital outpatient prospective payment system.”

The proposals in this proposed rule would not change the 3-day payment window policy, which requires payment for certain outpatient services provided to a beneficiary on the date of an inpatient admission or during the 3 calendar days (or 1 calendar day for a hospital that is not paid under the Inpatient Prospective Payment System (non-IPPS)) prior to the date of an inpatient admission to be bundled (that is, included) with the payment for the beneficiary's inpatient admission, if those outpatient services are provided by the admitting hospital or an entity that is wholly owned or wholly operated by the admitting hospital (Section 40.3, Chapter 3 and Section 10.12, Chapter 4 of the Medicare Claims Processing Manual (Pub. 100.04)). The current policy applies to all diagnostic outpatient services and non-diagnostic (that is, therapeutic) services that are related to the inpatient stay. As stated in Section 10.12, Chapter 4 of the Medicare Claims Processing Manual, in the event that there is no Part A coverage for the inpatient stay, services provided to the beneficiary prior to the point of admission may be separately billed to Part B as the outpatient services that they were. This policy would continue to apply where Part A payment is not available. The Part B outpatient claims for the outpatient services provided in the 3-day (or 1-day for a non-IPPS hospital) payment window would be subject to the usual timely filing restrictions and not be considered adjustment claims (see section II.G. in this proposed rule).

Hospitals may only submit claims for Part B outpatient services that are reasonable and necessary in accordance with Medicare coverage and payment rules. In accordance with section 1833(e) of the Act, hospitals must furnish information as may be necessary in order to determine the amounts due for the services billed on a Part B outpatient claim for services rendered in the 3-day payment window prior to the inpatient admission.

We propose that all hospitals billing Part A services be eligible to bill the proposed Part B inpatient services, including short-term acute care hospitals paid under the IPPS, hospitals paid under the OPPS, long-term care hospitals (LTCHs), inpatient psychiatric facilities (IPFs), inpatient rehabilitation facilities (IRFs), CAHs, children's hospitals, cancer hospitals, and Maryland waiver hospitals. We propose that hospitals paid under the OPPS would continue billing the OPPS for Part B inpatient services. Hospitals that are excluded from payment under the OPPS in 42 CFR 419.20(b) would be eligible to bill Part B inpatient services under their non-OPPS Part B payment methodologies.

In the CY 2002 OPPS proposed rule (66 FR 44698 through 44699) and final rule (66 FR 59891 through 59893), we recognized that certain hospitals do not submit claims for outpatient services under Medicare Part B, either because they do not have outpatient departments or because they have outpatient departments but submit no claims to Medicare Part B (for example, state psychiatric hospitals). When the OPPS was implemented, the only claims these hospitals would ever have submitted for Part B payment would have been for the ancillary services designated as `Part B Only' services. These hospitals were concerned about the administrative burden and prohibitive costs they would incur if they were to change their billing systems to accommodate OPPS requirements solely to receive payment for Part B Only (Part B inpatient) services. Under our current policy of limited Part B inpatient billing following a reasonable and necessary Part A claim denial, the cost to these hospitals of implementing claims systems to bill Part B inpatient services to the OPPS would have been greater than the payments they would have received for the services. In response to this concern, we revised 42 CFR 419.22 by adding paragraph (r), which provides that services defined in 42 CFR 419.21(b) that are furnished to inpatients of hospitals that do not submit claims for outpatient services under Medicare Part B are excluded from payment under the OPPS. We provided an exception under which, rather than billing Part B inpatient services under the OPPS, hospitals would bill these services under the hospital's pre-OPPS payment methodology, for example at reasonable cost or the per diem payment rate, unless the services were subject to a payment methodology that was established prior to the OPPS. As described in section II.B. of this proposed rule, services subject to pre-OPPS payment methodologies include PT/SLP/OT services; ambulance services; devices and supplies paid under the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) fee schedule; clinical diagnostic laboratory services; screening and diagnostic mammography services; and the annual wellness visit providing personalized plan prevention services.

We are soliciting public comments from these hospitals regarding the types of Part B inpatient services they anticipate billing Medicare under our proposal for payment of additional Part B services. If under our proposed policies, the Part B inpatient services payable to these hospitals would largely be limited to the ancillary services they currently bill Medicare, these hospitals would continue billing Part B inpatient services under the current exception. However, if we receive public comments indicating that hospitals subject to the exception in 42 CFR 419.22(r) would be eligible and seek payment for additional Part B inpatient services under this proposed rule, we would consider finalizing a policy to require these hospitals to bill the OPPS since unlike under existing policy, their eligible payments would likely outweigh the cost of implementing billing systems specific to the OPPS. To reflect such a policy, we would delete 42 CFR 419.22(r) and redesignate § 419.22(s) and § 419.22(t) as § 419.22(r) and § 419.22(s), respectively.

As discussed earlier in this proposed rule, our policy previously allowed for billing of only a limited set of Part B inpatient services rather than all Part B services following the reasonable and necessary denial of a Part A inpatient claim. We recognize the proposal would allow billing for additional Part B inpatient services, which could create a unique liability issue for Medicare beneficiaries that did not previously exist.

When a Part A inpatient admission is denied as not reasonable and necessary under section 1862(a)(1)(A) of the Act, or a hospital submits a “provider liable/no-pay” claim (following a self-audit as described in section II.B. of this proposed rule) indicating that the hospital has determined that an inpatient admission is not reasonable and necessary, a determination of financial liability for the non-covered inpatient admission is made in accordance with section 1879 of the Act. The Medicare contractor determines whether the hospital and the beneficiary knew, or could have reasonably been expected to know, that the services were not covered. If neither the hospital nor the beneficiary knew, or could reasonably have been expected to know, that the services were not covered, then Medicare makes payment for the denied services. However, because hospitals are expected to have knowledge of our coverage and payment rules, hospitals are often determined liable under section 1879 of the Act for the cost of the non-covered items and services furnished. In addition, unless the beneficiary had knowledge of non-coverage in advance of the provision of services (typically through a Hospital Issued Notice of Non-Coverage (HINN)), the beneficiary will not be financially liable for the denied Part A services in accordance with section 1879 of the Act.

Following a denial of a Part A inpatient admission as not reasonable and necessary and a determination that the beneficiary was not financially liable in accordance with section 1879 of the Act, the hospital is required to refund any amounts paid by the beneficiary (such as deductible and copayment amounts) for the services billed under Part A. (See, 42 CFR 411.402.) The beneficiary would have no out-of-pocket cost in this scenario. However, under the Part B inpatient billing policy proposed in this rule, if the hospital subsequently submits a timely Part B claim after the Part A claim is denied, the financial protections afforded under section 1879 of the Act to limit liability for the denied Part A claim cannot also be applied to limit liability for the covered services filed on the Part B claim. The beneficiary (who may previously have had no out-of-pocket costs for the denied Part A claim) is responsible for applicable deductible and copayment amounts for Medicare covered services, and for the cost of items or services never covered (or always excluded from coverage) under Part B of the program. (The beneficiary's responsibility for payment of deductible, cost-sharing, and items excluded from coverage under Part B is discussed further in section II.F. of this proposed rule.) If, however, a hospital does not bill under Part B in a timely manner, in accordance with section 1866(a)(1)(A)(i) of the Act, the hospital may not charge the beneficiary for any costs related to the Part B items and services furnished, if the beneficiary would otherwise be entitled to have Part B payment made on his/her behalf. Finally, in instances where the beneficiary is not enrolled in Medicare Part B, we encourage hospitals and beneficiaries to recognize the importance of billing supplemental insurers and pursuing an appeal of the Part A inpatient claim denial, as appropriate.

We do not believe that the existing beneficiary liability notices used in the Medicare fee-for-service program (the HINN and Advance Beneficiary Notice of Noncoverage (ABN)) are applicable or relevant for the Part B inpatient billing process described in this proposed rule to alert beneficiaries to the possible change in deductible and cost-sharing if a Part A inpatient claim is denied and a Part B claim is subsequently submitted. These notices must be given prior to the provision of an item or service that is expected to be denied, and cannot be issued retroactively (that is, after the receipt of the post-payment Part A inpatient claim denial). We would conduct an educational campaign and issue materials that address various aspects of this rulemaking, including raising beneficiary awareness that certain denied Part A inpatient hospital services may be covered under Part B of the program. We welcome public comment on recommendations for notification to beneficiaries in these situations, consistent with our current notice policies. (For additional information on beneficiary notices, see the CMS Web site at http://www.cms.gov/Medicare/Medicare-General-Information/BNI/index.html) .

As we note in section II.E. and section V. of this proposed rule, increasing the number of billable Part B inpatient services could affect beneficiary liability. In accordance with statute, beneficiary cost-sharing under Part A is different (and, in some cases, may be less) than under Part B. The CY 2013 Part A inpatient deductible and coinsurance amounts, which are set in accordance with statute, were recently announced in a notice published in the November 21, 2012 Federal Register (77 FR 69848 through 69850). Under Part A, a beneficiary pays a one-time deductible for all hospital inpatient services provided during the first 60 days in the hospital of the benefit period; therefore, an inpatient deductible does not necessarily apply to all hospitalizations. Part A coinsurance only applies after the 60th day in the hospital. A beneficiary would be entitled to refunds of any amounts he or she paid to the hospital for the Part A claim if the hospital, but not the beneficiary, is held financially responsible for denied services under section 1879 of the Act (42 CFR 411.402.) However, under our proposed policy, beneficiaries would continue to be liable for their usual Part B financial liability.

Beneficiaries would be liable for Part B copayments for each hospital Part B outpatient or Part B inpatient service and for the full cost of drugs that are usually self-administered, which section 1861(s)(2)(B) of the Act does not include. We note that self-administered drugs are typically covered under Medicare Part D, and beneficiaries who have Part D coverage may submit a claim to their Part D plan for reimbursement of these costs. If a beneficiary must receive the self-administered drug from a hospital, rather than a community pharmacy, he or she would likely be subject to higher out-of-pocket costs due to the hospital pharmacy's status as a non-network pharmacy. Hospital billing systems, Part D reimbursement rates, and drug utilization review requirements make it difficult for hospitals to participate as a Part D network provider for these drugs. Therefore, if coverage is available, consistent with 42 CFR 423.124(b), beneficiaries would be responsible for the difference between the Part D plan's plan allowance and the hospitals' charges, and the difference may be significant. Thus under our proposed Part B billing policy, some beneficiaries who are entitled to coverage under both Part A and Part B may have a greater financial liability for hospital services compared to current policy, as they would be liable for additional Part B services billed when the inpatient admission is determined not reasonable and necessary. We are soliciting comment on whether we should consider additional policies to mitigate or prevent this potential additional liability for beneficiaries.

Most supplemental insurers or benefit programs (this includes but is not limited to Medigap plans that market Medicare supplemental insurance policies, employer retiree plans, FEHBP, TRICARE, and Medicaid) participate in Medicare's coordination of benefits (COB) or claims crossover process. Such payers sign national agreements with Medicare to facilitate the automatic transfer of Medicare-adjudicated professional as well as facility claims to them. Most, if not all of these supplemental insurers elect to receive Medicare crossover claims if there is cost-sharing (that is, deductible or co-insurance amounts remains for the beneficiary to pay). The vast majority of insurers that pay after Medicare currently accept Part B physician claims as well as outpatient-oriented hospital claims as part of the Medicare crossover process. Therefore, if we finalize our proposal to allow for hospital billing of additional Part B services using claims whose National Uniform Billing Committee (NUBC) approved type of bill (TOB) designation is 12x (Hospital-Inpatient Part B), the vast majority of providers will find that their patients' claims will be automatically transferred to their supplemental insurance programs for further payment consideration. Additionally, to ensure that supplemental payers would coordinate benefits with Medicare successfully and pay benefits appropriately, Medicare would communicate with all supplemental payers to ensure they know: (1) What additional services beyond those traditionally termed “ancillary” would now be included under the TOB 12x designation; and (2) what new cost sharing this change in billing and payment methodology will impose. The Medicare crossover process currently in place will ensure that, for the most part, providers are not inconvenienced by having to bill their patients' supplemental insurance plans or programs for balances owed following Medicare's payment.

Sections 1814(a)(1), 1835(a), and 1842(b)(3)(B) of the Act establish time limits for filing Medicare Part A and B claims. Section 424.44 of the regulations implements those sections of the Act and requires that all claims for services furnished on or after January 1, 2010 be filed within 1 calendar year after the date of service unless an exception applies. In the November 29, 2010 final rule with comment period (75 FR 73627) titled, “Medicare Program; Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2011” modifying § 424.44, commenters requested that we create an exception to the time limits for filing claims so that hospitals are permitted to file inpatient Part B only claims for any inpatient cases that are retrospectively reviewed by a Medicare Recovery Audit Contractor (RAC) or other review entity and determined not to be medically necessary in an inpatient setting. Commenters requested that an exception be created at § 424.44(b) to allow for the billing of Part B inpatient and Part B outpatient claims when there is no coverage under Part A for a hospital stay. For the reasons discussed in the November 29, 2010 final rule, we declined to create such an exception and we continue to believe that was the correct decision.

Under CMS Ruling 1455-R (published concurrently elsewhere in this issue of the Federal Register ), we adopted (although we did not endorse) the views of the Medicare Appeals Council and many ALJs that subsequent Part B rebilling is allowed after the timely filing period has expired. The Ruling states that subsequent Part B inpatient and Part B outpatient claims that are filed later than 1 calendar year after the date of service are not to be rejected as untimely by Medicare's claims processing system as long as the original corresponding Part A inpatient claim was filed timely pursuant to 42 CFR 424.44. The Ruling remains in effect until the effective date of final regulations that result from this proposed rule. At that time, the final rule would supersede the Ruling's treatment of claims that providers file later than 1-calendar year after the date of service.

Accordingly, we propose a new § 414.5(b) that would require that claims for billed Part B inpatient services be rejected as untimely when those Part B claims are filed later than 1 calendar year after the date of service. Our proposal treats these Part B claims as new claims subject to the timely filing requirements, instead of as adjustment claims. This is consistent with longstanding Medicare policy because an adjustment claim supplements information on a claim that was previously submitted without changing the fundamental nature of that original claim. In these Part B claim situations, however, the fundamental nature of the originally filed claim is changed completely (from a Part A claim to a Part B claim).

Therefore, in order to remove any ambiguity, if this rule is finalized as proposed, billed Part B inpatient claims would be rejected as untimely when those Part B claims are filed later than 1-calendar year after the date of service. Moreover, because it is the responsibility of providers to correctly submit claims to Medicare by coding services appropriately, it is important to note that the exception located at § 424.44(b)(1), which extends the time for filing a claim if failure to meet the deadline was caused by error or misrepresentation of an employee, contractor or agent of HHS (commonly referred to as the “administrative error” exception), would not apply in situations where a provider bills the originally submitted Part A claim incorrectly. Finally, we remind providers that in accordance with 42 CFR 405.926(n), determinations that a provider failed to submit a claim timely are not appealable.

If a hospital is dissatisfied with an initial or revised determination by a Medicare contractor to deny a Part A claim for an inpatient admission as not reasonable and necessary, the hospital may either submit Part B inpatient or outpatient claims (consistent with this proposed rule) or file a request for appeal of the denied Part A claim in accordance with the procedures in 42 CFR Part 405 subpart I. In order to prevent duplicate billing and payment, a hospital may not have simultaneous requests for payment for the same services provided to a single beneficiary on the same dates of service. (See IOM Pub. 100-4, Chapter 1, section 120.) This includes requests for payment under both Part A and Part B. Thus, if a hospital chooses to submit a Part B claim for payment following the denial of an inpatient admission on a Part A claim, then the hospital cannot also maintain its request for payment for the same services on the Part A claim (including an appeal of the Part A claim). In this situation, before the hospital submits a Part B claim, it must ensure that there is no pending appeal request on the Part A claim. (A pending appeal means an appeal for which there is no final or binding decision or dismissal.) If the hospital has filed a Part A appeal, the appeal must be withdrawn, or the decision must be final or binding, before the Part B claim can be processed. If a hospital submits a Part B claim for payment without withdrawing its appeal request, the Part B claim would be denied as a duplicate. In addition, once a Part B claim is filed, there would be no further appeal rights available with respect to the Part A claim. However, the hospital and beneficiary would have appeal rights with respect to an initial determination made on the Part B claim under existing policies set forth at 42 CFR part 405 subpart I.

Additionally, if a beneficiary files an appeal of a Part A inpatient admission denial, a hospital cannot utilize the Part B billing process proposed in this rule to extinguish a beneficiary's appeal rights. Therefore, the hospital's submission of a Part B claim would not affect a beneficiary's pending appeal or right to appeal the Part A claim. If a beneficiary has a pending Part A appeal for an inpatient admission denial, then any claims rebilled under Part B by the hospital would be denied as duplicates by the Medicare contractor. As explained previously, in order for the Part B claim(s) to be processed, the Part A appeal must be final or binding or dismissed. For example, if a beneficiary receives an unfavorable reconsideration on a Part A inpatient claim and does not file a timely request for hearing before an ALJ, the reconsideration decision becomes binding. At that point, the hospital could submit a Part B claim, provided it is filed within 12 months from the date of service. (See proposed 42 CFR 414.5(b) and 42 CFR 424.44).

As discussed in sections II.E and F. of this proposed rule, beneficiaries who are not enrolled in Medicare Part B may be liable for the cost of items and services associated with a hospital stay when billed under the Part B billing process proposed in this rule. We believe that some beneficiaries who are not enrolled in Medicare Part B may have other health insurance that might pay for some or all of the Part B items and services. If a beneficiary is not enrolled in Part B of the program, we strongly encourage the hospital to submit a Part B claim to Medicare before billing the beneficiary so that, when appropriate, the beneficiary's supplemental insurer receives the claim.

We are also clarifying in this proposed rule the scope of review with respect to appeals of Part A inpatient admission denials in the context of the Part B billing policy. As explained in CMS Ruling 1455-R, a large number of recent appeal decisions for Part A inpatient admission claim denials by Medicare review contractors have affirmed the Part A inpatient admission denial, but ordered that payment be issued as if services were provided at the outpatient or “observation” level of care under Part B of the Medicare program. These decisions ordered payment under Part B (or consideration of payment for services furnished that the contractor determined to be covered and payable under Part B) even though a Part B claim had not been submitted for payment. Hospitals are solely responsible for submitting claims for items and services provided to beneficiaries and determining whether submission of a Part A or Part B claim is appropriate. Once a hospital submits a claim, the Medicare contractor can make an initial determination and determine any payable amount (42 CFR 405.904(a)(2)). Under existing Medicare policy, if such a determination is appealed, an appeals adjudicator's scope of review is limited to the claim(s) that are before them on appeal, and such adjudicators may not order payment for items or services that have not yet been billed or have not yet received an initial determination. (See 42 CFR 405.920, 405.940, 405.948, 405.954, 405.960, 405.968, 405.974, 405.1000, 405.1032, 405.1100, and 405.1128.) For example, if a hospital submits an appeal of a determination that a Part A inpatient admission was not reasonable and necessary, the only issue before the adjudicator is the propriety of the Part A claim, not an issue involving any potential Part B claim the hospital has not yet filed. In making a decision on that Part A claim, an appeals adjudicator may not develop information, or make a finding, with respect to a Part B claim that does not exist.

Thus, under the billing processes described in this proposed rule, if a hospital appeals a Part A inpatient admission denial and receives a decision indicating that payment may not be made under Part A, appeals adjudicators may not order payment for items and services not yet billed under Part B. Rather, payment for items and services that may be covered under Part B may only be made in response to a Part B claim submitted by the hospital that is timely filed under proposed 42 CFR 414.5(b) and 42 CFR 424.44.

Under the Paperwork Reduction Act of 1995, we are required to provide 60-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 are soliciting public comment on each of these issues for the following sections of this document that contain information collection requirements (ICRs):

With regard to the proposed payment of Medicare Part B inpatient services as discussed in section II.B. of this proposed rule, the medical recordkeeping requirement associated with the services billed on Part B inpatient claims during the inpatient stay is exempt from the PRA in accordance with 5 CFR 1320.3(b)(2). The same holds for recordkeeping associated with the services billed on a Part B outpatient claim for services rendered in the 3-day payment window prior to the inpatient admission. We believe that the time, effort, and financial resources necessary to comply with the aforementioned recordkeeping requirements would be incurred by persons in the normal course of their activities; and therefore, considered to be usual and customary business practices.

With regard to the appeals of proposed payment of Medicare Part B inpatient services, the appeals information collection activity discussed in section II.H. of this proposed rule is exempt from the requirements of the Paperwork Reduction Act since it is associated with an administrative action (5 CFR 1320.4(a)(2) and (c)).

The aforementioned provisions would not impose any new or revised reporting or recordkeeping requirements and would not impose any new or revised burden estimates.

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 proposed rule; or

2. Submit your comments to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: CMS Desk Officer, [CMS-1455-P], Fax: (202) 395-6974; or Email: OIRA_submission@omb.eop.gov.

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

This proposed rule is needed to address Medicare Part A to Part B billing policies when a hospital inpatient claim is denied because the inpatient admission was not reasonable and necessary.

We have examined the impacts of this proposed rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), and the Contract with America Advancement Act of 1996 (Pub. L. 104-121) (5 U.S.C. 804(2)).

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated as an “economically” significant rule under section 3(f)(1) of Executive Order 12866 and a major rule under the Contract with America Advancement Act of 1996 (Pub. L. 104 121). Accordingly, the proposed rule has been reviewed by the Office of Management and Budget. We have prepared a regulatory impact analysis that, to the best of our ability, presents the costs and benefits of this proposed rule. In this proposed rule, we are soliciting public comments on the regulatory impact analysis provided. The RFA requires agencies to analyze options for regulatory relief of small entities, if a rule has a significant impact on a substantial number of small entities. For purposes of the RFA, we estimate that most hospitals are small entities as that term is used in the RFA. For purposes of the RFA, most hospitals are considered small businesses according to the Small Business Administration's size standards with total revenues of $34.5 million or less in any single year. We estimate that this proposed rule may have a significant impact on approximately 2,053 hospitals with voluntary ownership. For details, see the Small Business Administration's “Table of Small Business Size Standards” at http://www.sba.gov/content/table-small-business-size-standards.

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 metropolitan statistical area and has 100 or fewer beds. We estimate that this proposed rule may have a significant impact on approximately 708 small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2013, that threshold level is currently approximately $141 million. This proposed rule does mandate requirements for the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and a subsequent final rule) that imposes substantial direct costs on state and local governments, preempts state law, or otherwise has federalism implications. We have examined the provisions included in this proposed rule in accordance with Executive Order 13132, federalism, and have determined that they will not have a substantial direct effect on state, local or tribal governments, preempt state law, or otherwise have a federalism implication. As reflected in Table 1 of this proposed rule, we estimate that Medicare expenditures will increase for services furnished in governmental hospitals (including state and local governmental hospitals). The analyses we have provided in this section of the proposed rule, in conjunction with the remainder of this document, demonstrate that this proposed rule is consistent with the regulatory philosophy and principles identified in Executive Order 12866, the RFA, and section 1102(b) of the Act.

In this section, we provide the estimated impact of our proposal to provide payment for additional Part B inpatient services on Medicare benefit expenditures over the next 5 years. Column (3) of Table 1 shows the estimated impacts of this proposal, relative to an estimated increase in baseline expenditures that will result from the effectuation of recent decisions by the Medicare Appeals Council and ALJs on Medicare Part A to Part B “rebilling” (in this section referred to as the “appeal decisions”).

In section II.A. of this proposed rule, we discuss that in an increasing number of cases, hospitals that have appealed Part A inpatient claim denials to the ALJs and the Medicare Appeals Council have received decisions upholding the Medicare review contractor's determination that the inpatient admission was not reasonable and necessary, but ordering payment of the services as if they were rendered at an outpatient or “observation level” of care. These decisions effectively require Medicare to issue payment for all Part B services that would have been payable had the beneficiary originally been treated as an outpatient instead of limiting payment to only the set of Part B inpatient services designated in the Medicare Benefit Policy Manual. Further, the decisions have required payment regardless of whether the subsequent hospital bill for payment under Part B is submitted within the otherwise applicable time limit for filing Part B claims. The ALJ and Medicare Appeals Council decisions providing for payment of all reasonable and necessary Part B services under these circumstances are contrary to CMS' longstanding policies that permit billing for only a limited list of Part B inpatient services and require that the services be billed within the usual timely filing restrictions. While these appeal decisions do not establish Medicare payment policy, CMS' contractors are bound to effectuate each individual decision. Column (1) shows the estimated impacts of CMS' instructions to contractors for effectuating the decisions that have been issued. To resolve the discrepancy between current Medicare policy and the decisions being made by the Medicare Appeals Council and ALJs, we are issuing CMS Ruling 1455-R concurrent with this proposed rule. As we describe in section II.A. of this proposed rule, the Ruling provides a standard process for effectuation of these appeal decisions through payment of additional Part B inpatient (rather than Part B outpatient or “observation”) services than current policy allows, in order to address the approach taken by ALJs and the Medicare Appeals Council for Part A hospital claims denied because an inpatient admission was not reasonable and necessary, but ordering payment of services as if they were rendered at an outpatient or “observation level” of care. Under the Ruling, we will not apply the timely filing limitations in 42 CFR 424.44 to the subsequent claims for Part B services, but rather will afford the hospital 180 days from the date of receipt of a final or binding appeal decision, or 180 days from the date of receipt of the Part A initial determination or revised determination if there is no pending appeal, to file its Part B claim(s). Under the Ruling, hospitals are not required to appeal a claim denial prior to billing Part B; therefore, there is an added cost for the Ruling (shown in Column (2)) in addition to the cost of effectuating the appeal decisions (Column (1)).

The Ruling is in effect until this proposed rule titled, “Medicare Program; Part B Inpatient Billing in Hospitals”—is finalized, which will supersede the Ruling. The Ruling permits Part B inpatient billing as described previously for Part A hospital inpatient claims that were denied by a Medicare review contractor because the inpatient admission was determined not reasonable and necessary, as long as the denial was made: (1) While the Ruling is in effect; (2) prior to the effective date of the Ruling, but for which the timeframe to file an appeal has not expired; or (3) prior to the effective date of the Ruling, but for which an appeal is pending. In this proposed rule, we propose revisions to our Part B inpatient payment policy which would apply prospectively from the effective date of the finalized regulation for this proposed rule, and would differ in some respects from provisions of the Ruling, the purpose of which is to effectuate the appeal decisions. The key differences between the Ruling and the proposed policy are: (1) The proposed policy would apply the current timely filing restriction to the subsequent Part B inpatient claims rebilled after the Part A claim denial (that is, covered the Part B inpatient claims would only be paid if they are billed within 12 months of the date of service, which, as described previously, is not the case for the subsequent Part B inpatient claims rebilled under the Ruling); and (2) the proposed policy would apply when hospitals determine through self-audit that an inpatient admission is not reasonable and necessary (also subject to the timely filing limits).

The estimates for each column of Table 1 assume that the policy in the preceding column is already in place. Specifically, the estimated cost for the Ruling is relative to a baseline that includes the effect of the appeal decisions. Similarly, the estimated costs under this proposed rule are in relation to a baseline that includes both the appeal decisions and the Ruling in place. We assumed short-stay inpatient utilization would increase by 1 percent as a result of the appeal decisions because hospitals would be able to rebill after an appeal. (There are currently no controls in place to monitor hospitals for changes in their inpatient growth trend and/or error rate.) In addition, we assumed short-stay inpatient utilization would increase by an additional 3 percent under the Ruling, since hospitals could rebill under Part B without the expense of an appeal. Due to the timely filing restrictions and lower Part B payment rate for rebilling, we assumed there would be no increase in any inpatient utilization resulting from the proposed regulatory change to restrict inpatient Part B billing to the timely filing requirement of 12 months from the date of service, relative to circumstances prior to the appeal decisions. The 12-month timely filing restriction imposed by the proposed regulation would greatly limit the capacity in which a hospital could rebill and thereby substantially reduces the number of Part B inpatient claims rebilled by hospitals, largely offsetting the higher costs arising from the appeal decisions and the Ruling. The amounts are shown in millions for CYs 2013 through 2017.

Table 2 contains the aggregate impacts on beneficiary out-of-pocket expenses for Parts A and B, as a result of the appeal decisions, the Ruling, and this proposed rule. These changes are mainly the result of the changes in beneficiary cost-sharing when inpatient services are paid under Part B rather than under Part A. The amounts are shown in millions for CYs 2013 through 2017.

This proposed rule would not affect providers other than hospitals.

This proposed rule will not affect expenditures under the Medicaid program.

We are not proposing to make other changes in this proposed rule.

Under this proposed rule, hospitals would be able to file Part B inpatient claims when payment cannot be made for an inpatient admission under Part A. As discussed in section II.G of this proposed rule, hospitals must submit the Part B inpatient claim to the appropriate contractor within the timely filing limits set forth in 42 CFR 424.44. Based on recent data related to claim denials, we anticipate some situations where the reasonable and necessary denial of the Part A inpatient admission is issued within 1 calendar year from the dates of service, and therefore hospitals would be able to file the Part B claim timely. Based on the level of billing under Part B as a result of recent ALJ and Medicare Appeals Council decisions, we estimate that approximately 25 percent of the Part A inpatient admissions denied by contractors would result in the submission of a Part B inpatient claim within the timely filing limits.

In addition, we anticipate that hospitals would likely increase their efforts to proactively identify admissions that should be billed under Part B through self-audit, which would decrease the number of Part A inpatient claims submitted, while increasing the number of Part B inpatient claims submitted. Since we do not have data to estimate the number of Part A admissions that hospitals are likely to self-audit in order to determine if they should be billed under Part B, we are soliciting comments from hospitals regarding the frequency with which self-audits are currently done and the anticipated frequency with which they would self-audit their inpatient admissions to submit Part B claims in a timely manner.

For those cases in which hospitals would not be able to submit a timely Part B claim when the Part A inpatient claim is denied by a Medicare contractor on a post-payment basis, hospitals and beneficiaries may continue to file appeals of the Part A claim denial per 42 CFR part 405 subpart I. We believe the Part B billing provisions proposed in this rule have the potential to lower Part A appeals volume due to the expanded opportunities for billing under Part B. Consequently, we are not anticipating any additional appeals as a result of this proposal. There would be some administrative costs incurred by MACs in verifying there is no pending Part A appeal prior to processing a Part B inpatient claim, but we believe that this would be similar to the existing administrative burden MACs incur with receiving and effectuating the appeal decisions that would have to be processed had the hospitals pursued their Part A appeal.

The timely filing restrictions proposed on filing Part B claims will require hospitals to closely monitor the status of Part A claim denials so that they may submit Part B inpatient claims, when appropriate. While the timely filing limits would not always afford hospitals the opportunity to submit Part B claims, hospitals would still have the opportunity to appeal the Part A claim determination if they disagree with the contractor's decision. Also, since a Part B claim can only be processed if there is no pending Part A appeal, hospitals would be required to request withdrawal of pending appeals if they wish to submit any Part B claims. Hospitals are parties to claim appeals, and will be able to track pending appeals, including beneficiary appeals. They receive copies of decision letters when appeals have been completed, and receive copies of notices of hearing when an appeal gets to the ALJ level. Hospitals may also access the status of a claim appeal at the reconsideration level and hearing level through www.q2a.com by using the Medicare appeal number for the claim.

In addition, hospitals would have to refund amounts collected from the beneficiary (or third party insurer) for denied Part A claims if the hospital is determined to be liable under section 1879 of the Act for the denied items and services furnished to a beneficiary. This is not a new burden, as hospitals are required to make that refund absent any of the proposals in this rule. Hospitals that choose to submit Part B inpatient claims under the proposed process may also need to collect from the beneficiary the applicable deductible and copayment related to covered Part B items and services, and the cost of items excluded from Part B coverage. We believe that the burden to bill a Part B claim and collect any Part B copayments and deductibles is likely similar to or less than the burden hospitals currently face when appealing the denial of the Part A inpatient admission.

We proposed that all hospitals and CAHs would be eligible to bill additional Part B inpatient services when a Part A claim is denied because the admission was not reasonable and necessary but hospital outpatient services would have been reasonable and necessary. In section II.D. of this proposed rule, we proposed to require that hospitals currently not billing the OPPS for Part B inpatient services (those with no outpatient departments, or that have outpatient departments but submit no claims to Medicare Part B) would now bill the OPPS for these services. We considered allowing these hospitals to continue to bill Part B inpatient services for payment under their pre-OPPS payment methodology consistent with existing policy. We did not propose this policy because we believe their likely payments under the proposed Part B inpatient policy would outweigh their costs of implementing billing systems specific to the OPPS.

Whenever a rule is considered a significant rule under Executive Order 12866, we are required to develop an Accounting Statement. This statement must state that we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of this proposed rule. We present this information in Table 3 as follows:

The analysis provided in this section of this proposed rule, together with the remainder of this preamble, provides a Regulatory Impact Analysis. In accordance with the provisions of Executive Order 12866, this rule was reviewed by the Office of Management and Budget.

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

The revision and addition reads as follows: