[Federal Register Volume 82, Number 144 (Friday, July 28, 2017)]
[Proposed Rules]
[Pages 35155-35171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15962]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 447
[CMS-2394-P]
RIN 0938-AS63
Medicaid Program; State Disproportionate Share Hospital Allotment
Reductions
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: The Affordable Care Act requires aggregate reductions to state
Medicaid Disproportionate Share Hospital (DSH) allotments annually
beginning with fiscal year (FY) 2018. This proposed rule delineates a
methodology to implement the annual allotment reductions.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on August 28, 2017.
ADDRESSES: In commenting, please refer to file code CMS-2394-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-2394-P, P.O. Box 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-2394-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
[[Page 35156]]
[Note: This zip code for express mail or courier delivery only. This
zip code specifies the agency's physical location.]
4. By hand or courier. Alternatively, you may deliver (by hand or
courier) your written comments ONLY to the following addresses prior to
the close of the comment period:
a. For delivery in Washington, DC--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Room 445-G, Hubert
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC
20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850. [Note: This zip code for express
mail or courier delivery only. This zip code specifies the agency's
physical location.]
If you intend to deliver your comments to the Baltimore address,
call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments erroneously mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and received
after the comment period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Stuart Goldstein, (410) 786-0694 and
Richard Cuno, (410) 786-1111.
SUPPLEMENTARY INFORMATION:
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.
I. Executive Summary
A. Purpose
Section 2551 of the Affordable Care Act amended section 1923(f) of
the Social Security Act (the Act) by setting forth aggregate reductions
to state Medicaid disproportionate share hospital (DSH) allotments
annually from fiscal year (FY) 2014 through FY 2020. Subsequent
legislation delayed the start of these reductions until FY 2018. These
reductions will run through FY 2025. This proposed rule delineates the
DSH Health Reform Methodology (DHRM) to implement annual Medicaid
allotment reductions identified in the statute. This rule proposes a
DHRM that accounts for relevant data that was unavailable to CMS during
prior rulemaking for DSH allotment reductions originally set to take
place for FY 2014 and FY 2015.
B. Summary of the Major Provisions
The statute as amended by the Affordable Care Act directs the
Secretary to implement the annual DSH allotment reductions using a
DHRM. This rule proposes to amend 42 CFR part 447 by establishing the
DHRM, which incorporates factors identified in the statute.
C. Impacts
Taking the statutorily specified factors into account for each
state, the proposed DHRM would generate a state-specific DSH allotment
reduction amount for each fiscal year specified in statute. The total
of all DSH allotment reduction amounts in a specific year would equal
the aggregate annual reduction amount identified in statute for that
same year. To determine the effective annual DSH allotment for each
state, the state-specific annual DSH allotment reduction amount would
be applied to the unreduced DSH allotment amount for its respective
state.
II. Background
A. Introduction
In anticipation of lower uninsured rates and lower levels of
hospital uncompensated care, the Affordable Care Act modified the
amounts of funding available to states under the Medicaid program to
address the situation of hospitals that serve a disproportionate share
of low income patients and therefore may have uncompensated care costs.
Under sections 1902(a)(13)(A)(iv) and 1923 of the Act, states are
required to make payments to qualifying ``disproportionate share''
hospitals (DSH payments). Section 2551 of the Affordable Care Act
amended section 1923(f) of the Act, by adding paragraph (7), to provide
for aggregate reductions in federal funding under the Medicaid program
for such DSH payments for the 50 states and the District of Columbia.
DSH allotments are not provided for the five U.S. territories.
Section 1923(f)(7)(A)(i) of the Act requires that the Secretary of
Health and Human Services (the Secretary) implement the aggregate
reductions in federal funding for DSH payments through reductions in
annual state allotments of federal funding for DSH payments (state DSH
allotments), and accompanying reductions in payments to each state.
Since 1998, the amount of federal funding for DSH payments for each
state has been limited to an annual state DSH allotment in accordance
with section 1923(f) of the Act. The addition of section 1923(f)(7) of
the Act requires the use of a DHRM to determine the percentage
reduction in annual state DSH allotments to achieve the required
aggregate annual reduction in federal DSH funding. The statutory
reductions apply to all states and the District of Columbia except the
State of Tennessee. Under section 1923(f)(6)(A)(vi) of the Act,
notwithstanding any other provision of subsection 1923(f), or any other
provision of law, the DSH allotment for Tennessee is established at
$53.1 million per year for FY 2015 through FY 2025. Therefore,
Tennessee's DSH allotment is not subject to reduction under section
1923(f)(7) of the Act. For purposes of this rule, references to the
reduction for ``each state'' means ``each state subject to a DSH
allotment reduction'' (the 50 states and the District of Columbia,
except Tennessee).
Section 1923(f)(7)(B) of the Act establishes the following factors
that must be considered in the development of the DHRM. The methodology
must:
Impose a smaller percentage reduction on low DSH States;
Impose the largest percentage reductions on:
++ States that have the lowest percentages of uninsured individuals
during the most recent year for which such data are available;
++ States that do not target their DSH payments on hospitals with
high volumes of Medicaid inpatients;
[[Page 35157]]
++ States that do not target their DSH payments on hospitals with
high levels of uncompensated care; and
Take into account the extent to which the DSH allotment
for a state was included in the budget neutrality calculation for a
coverage expansion approved under section 1115 as of July 31, 2009.
We describe in section II.B. of this proposed rule, the principles
we intend to apply when calculating the annual DSH allotment reduction
amounts for each state through the DHRM.
B. Legislative History and Overview
The Omnibus Budget Reconciliation Act of 1981 (OBRA'81) (Pub. L.
97-35, enacted on August 13, 1981) amended section 1902(a)(13) of the
Act to require that Medicaid payment rates for hospitals take into
account the situation of hospitals that serve a disproportionate share
of low-income patients with special needs. Over the more than 35 years
since this requirement was first enacted, the Congress has set forth in
section 1923 of the Act payment targets and limits to implement the
requirement and to ensure greater oversight, transparency, and
targeting of funding to hospitals.
To qualify as a DSH under section 1923(b) of the Act, a hospital
must meet two minimum qualifying criteria in section 1923(d) of the
Act. The first criterion is that the hospital has at least two
obstetricians who have staff privileges at the hospital and who have
agreed to provide obstetric services to Medicaid individuals. This
criterion does not apply to hospitals in which the inpatients are
predominantly individuals under 18 years of age or hospitals that do
not offer nonemergency obstetric services to the general public as of
December 22, 1987. The second criterion is that the hospital has a
Medicaid inpatient utilization rate (MIUR) of at least 1 percent.
Under section 1923(b) of the Act, a hospital meeting the minimum
qualifying criteria in section 1923(d) of the Act is deemed as a DSH if
the hospital's MIUR is at least one standard deviation above the mean
MIUR in the state for hospitals receiving Medicaid payments, or if the
hospital's low-income utilization rate exceeds 25 percent. States have
the option to define DSHs under the state plan using alternative
qualifying criteria as long as the qualifying methodology comports with
the deeming requirements of section 1923(b) of the Act. Subject to
certain federal payment limits, states are afforded flexibility in
setting DSH state plan payment methodologies to the extent that these
methodologies are consistent with section 1923(c) of the Act.
Section 1923(f) of the Act limits federal financial participation
(FFP) for total statewide DSH payments made to eligible hospitals in
each federal FY to the amount specified in an annual DSH allotment for
each state. Although there have been some special rules for calculating
DSH allotments for particular years or sets of years, section
1923(f)(3) of the Act establishes a general rule that state DSH
allotments are calculated on an annual basis in an amount equal to the
DSH allotment for the preceding FY increased by the percentage change
in the consumer price index for all urban consumers for the previous
FY. The annual allotment, after the consumer price index increase, is
limited to the greater of the DSH allotment for the previous year or 12
percent of the total amount of Medicaid expenditures under the state
plan during the FY. Allotment amounts were originally established in
the Medicaid Voluntary Contribution and Provider Specific Tax
Amendments of 1991 based on each state's historical DSH spending.
Section 1923(g) of the Act also limits DSH payments by imposing a
hospital-specific limit on DSH payments. Specifically, a DSH payment
must not exceed a hospital's uncompensated care costs for that year
(i.e. it must not exceed the costs of providing inpatient hospital and
outpatient hospital services to Medicaid patients and the uninsured,
minus payments received by the hospital by or on the behalf of those
patients). FFP is not available for DSH payments that exceed the
hospital-specific limit.
The statute, as amended by the Affordable Care Act, required annual
aggregate reductions in federal DSH funding from FY 2014 through FY
2020. However, subsequent legislation extended the reductions, modified
the amount of the reductions, and delayed the start of the reductions
until FY 2018. The most recent related amendments to the statute were
through the Medicare Access and CHIP Reauthorization Act of 2015
(MACRA) (Pub. L. 114-10, enacted April 16, 2015). Currently, the
aggregate annual reduction amounts set to begin in FY 2018 are
specified in section 1923(f)(7)(A)(ii) of the Act:
$2,000,000,000 for FY 2018.
$3,000,000,000 for FY 2019.
$4,000,000,000 for FY 2020.
$5,000,000,000 for FY 2021.
$6,000,000,000 for FY 2022.
$7,000,000,000 for FY 2023.
$8,000,000,000 for FY 2024.
$8,000,000,000 for FY 2025.
To implement these annual reductions, the statute requires that the
Secretary reduce annual state DSH allotments, and payments to states,
based on a DHRM specified in section 1923(f)(7)(B) of the Act. The
proposed DHRM relies on statutorily identified factors collectively to
determine a state-specific DSH allotment reduction amount to be applied
to the allotment that is calculated under section 1923(f) of the Act
prior to the reductions under section 1923(f)(7) of the Act.
In the May 15, 2013 Federal Register (78 FR 28551), we published
the ``Medicaid Program; State Disproportionate Share Hospital Allotment
Reductions'' proposed rule. The rule proposed a DHRM that relied on the
statutory factors and solicited comments regarding whether state
decisions to extend Medicaid coverage to low-income adults under
section 1902(a)(10)(A)(i)(VIII) of the Act should be accounted for in
the reduction methodology. We received several comments in support of
accounting for Medicaid coverage expansion and numerous comments in
opposition.
In the September 18, 2013 Federal Register (78 FR 57293), we
published the ``Medicaid Program; State Disproportionate Share Hospital
Allotment Reductions'' final rule (herein referred to as the ``2013 DSH
allotment reduction final rule''). In the 2013 DSH allotment reduction
final rule, we decided to finalize a DHRM that would be in place only
for FY 2014 and FY 2015 to allow time for revaluation of the
methodology with improved and more recent data and information about
the impact of the Affordable Care Act on levels of coverage and
uncompensated care. As a result of our reevaluation, we are now
proposing to modify the DHRM factor weights and to use improved data
sources where possible, as discussed in this proposed rule.
C. DHRM Data Sources
The statute establishes parameters regarding data and data sources
for specific factors in the development of the DHRM. We are proposing
to utilize for the DHRM, wherever possible, data sources and metrics
that are consistent with the statute, transparent, and readily
available to CMS, states, and the public, such as: DSH Medicaid
Inpatient Utilization Rate (MIUR) data; Medicaid DSH data reported as
required by section 1923(j) of the Act; United States Census Bureau
data; existing state DSH allotments; and Form CMS-64 Medicaid Budget
and Expenditure System (MBES) data. We are proposing to utilize the
most recent year available for all data
[[Page 35158]]
sources and are proposing to align data sources whenever possible.
Selected data sources are discussed in greater detail below.
1. MIUR Data
To ensure that all hospitals are properly deemed disproportionate
share in accordance with section 1923(b) of the Act, states must
determine the mean MIUR for hospitals receiving Medicaid payments in
the state and the value of one standard deviation above the mean.
States are currently required to provide this data to CMS annually
under Sec. 447.294(d) (CMS-R-266, Office of Management and Budget
(OMB) 0938-0746). We will utilize MIUR data from the year that
corresponds to the DSH audit SPRY used in the calculation of each
state's DSH allotment reductions.
2. Medicaid DSH Audit and Reporting Data
We are also proposing to rely on data derived from Medicaid DSH
audit (CMS-R-266, OMB 0938-0746) and reporting data (CMS-R-266, OMB
0938-0746). The data is reported by states as required by section
1923(j) of the Act and the ``Medicaid Disproportionate Share Hospital
Payments'' final rule published on December 19, 2008 (73 FR 77904) (and
herein referred to as the 2008 DSH audit final rule) requiring state
reports and audits to ensure the appropriate use of Medicaid DSH
payments and compliance with the hospital-specific DSH limit imposed at
section 1923(g) of the Act. This is the only comprehensive data source
for DSH hospitals that identifies hospital-specific DSH payments and
uncompensated care costs in a manner consistent with Medicaid DSH
program requirements.\1\
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\1\ CMS published a final rule on April 3, 2017 (82 FR 16114)
revising the text of 42 CFR 447.299(c)(1). Effective June 2, 2017,
the rule amended paragraph (c)(1) to clarify that uncompensated care
costs are calculated using total cost of care for Medicaid inpatient
and outpatient services, net of third-party payments.
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To date, we have received rich, comprehensive audit and reporting
data from each state that makes Medicaid DSH payments. To facilitate
the provision of high quality data, we provided explicit parameters in
the 2008 DSH audit final rule and associated policy guidance for
calculating and reporting data elements. As the data elements are based
on hospital costs reports and are subject to audit, the data elements
are not due to CMS until the end of the calendar year 3 years following
the end of each state plan rate year (SPRY). Additionally, state
submitted audit and reporting data is subject to detailed CMS review to
ensure quality and accuracy and requires significant resources to
compile and prepare for use in the proposed DHRM. This means that the
data used for the methodology may not be the most recently submitted
data, but instead the most recent data available to us in usable form.
For FY 2018 we anticipate utilizing SPRY 2013 DSH audit and reporting
data, which was due from states to CMS on December 31, 2016. We
considered utilizing alternative uncompensated cost data and Medicaid
utilization data from sources such as the Medicare Form CMS-2552 (OMB
0938-0050). The DSH audit and reporting data, however, remains the only
comprehensive reported data available that is consistent with Medicaid
program requirements.
3. United States Census Bureau Data
As required by the statute, the DHRM must impose the largest
percentage DSH allotment reductions on the states that have the lowest
percentages of uninsured individuals. Although other sources of this
information could be considered for this purpose, the statute
explicitly refers to the use of data from the Census Bureau for
determining the percentage of uninsured for each state. As with the
2013 DSH allotment reduction final rule, we identified and considered
two Census Bureau data sources for this purpose: The American Community
Survey (ACS); and the Annual Social and Economic Supplement to the
Current Population Survey (CPS). In consultation with the Census
Bureau, we are proposing to use the data from the ACS for the following
reasons. First, the ACS is the largest household survey in the United
States; in that regard, the annual sample size for the ACS is over 30
times larger than that for the CPS--about 3 million for the ACS versus
100 thousand for the CPS. The ACS is conducted continuously each month
throughout the year, with the sample for each month being roughly \1/
12\th of the annual total, while the CPS is conducted in the first 4
months following the end of the survey year.
Finally, although the definition of uninsured and insured status is
the same for the ACS and the CPS, the CPS considers the respondents as
uninsured if they are uninsured at any time during the year whereas the
ACS makes this determination based on whether the respondent has
coverage at the time of the interview, which are conducted at various
times throughout the year. For these reasons, and with the
recommendation of the Census Bureau, we determined that the ACS is the
appropriate source for establishing the percentage of uninsured for
each state for purpose of the proposed DHRM.
III. Provisions of the Proposed Rule
This proposed rule proposes to amend 42 CFR 447.294 by establishing
the DHRM for FY 2018 and subsequent fiscal years, which incorporates
factors identified in the statute. We are proposing in Sec. 447.294(a)
and (e) to remove language referring to specific federal fiscal years
(FY 2014 and FY 2015) when calculating state annual DSH allotment
reductions.
We are proposing in Sec. 447.294(b) to add the definition of
``Total hospital cost.''
We are proposing in Sec. 447.294(d) to clarify state data
submission requirements by simplifying the language and removing
language related to the submission of data for previous state plan rate
years (SPRY) already provided to CMS.
We are also proposing to revise Sec. 447.294(e)(3)(i) to clarify
that the total Medicaid service expenditures used in the calculation of
the Low DSH adjustment factor (LDF) must be for the applicable year. We
are proposing to revise Sec. 447.294(e)(5)(i) through (iii) to adjust
the weighting of statutorily defined factors.
In addition, we are proposing in Sec. 447.294(f) to update the
paragraph to remove references to specific fiscal years.
A. DHRM Overview
The statute requires aggregate annual reduction amounts to be
implemented through a DHRM designed by the Secretary consistent with
statutorily-established factors. Taking these factors into account for
each state, the proposed DHRM would generate a state-specific DSH
allotment reduction amount for the specified fiscal years for all
states and the District of Columbia with the exception of Tennessee
whose DSH allotment is defined in section 1923(f)(6)(A)(vi) of the Act
to be $53.1 million, notwithstanding DSH allotment reductions in
section 1923(f)(7), for each FY from 2015 through 2025. The total of
all DSH allotment reduction amounts would equal the aggregate annual
reduction amounts identified in statute for each fiscal year. To
determine the effective annual DSH allotment for each state, the state-
specific annual DSH allotment reduction amount would be applied to the
unreduced DSH allotment amount for its respective state.
We would calculate an unreduced DSH allotment for each state prior
to the beginning of each FY, as we do currently. This unreduced
allotment is
[[Page 35159]]
determined by calculating the allotment in section 1923(f) of the Act
prior to the application of the DHRM under section 1923(f)(7) of the
Act. The unreduced allotment would serve as the base amount for each
state to which the state-specific DSH allotment reduction amount would
apply annually. In this proposed rule, we are utilizing estimated
unreduced DSH allotments for FY 2017 for illustrative purposes. Please
note that this illustrative estimate may rely on different data than
what is proposed to be used when calculating annual DSH allotment
reductions for FY 2018. Specifically, we anticipate that more recent
data will be available when calculating the final allotment reductions.
For purposes of this illustrative example, we have utilized the most
recent available data to CMS.
We propose to apply the DHRM to the unreduced DSH allotment amount
on an annual basis for the fiscal years specified in statute. Under the
DHRM, we consider the factors identified in the statute to determine
each state's annual state-specific DSH allotment reduction amount.
The proposed DHRM utilizes the best available data at the time of
calculation and would not recalculate reductions based on revised or
late DSH audit reports, MIUR data, or other relevant data. The DHRM
would also rely on a series of interacting calculations that result in
the identification of state-specific reduction amounts that, when
summed, equal the aggregate DSH allotment reduction amount identified
by the statute for each applicable year. The proposed DHRM accomplishes
this through the following summarized steps:
(1) Separate states into two overall groups, non-low DSH states and
low DSH states, to give effect to the statutory low-DSH criterion.
(States falling into each category are listed in Table 1.)
(2) Proportionately allocate aggregate DSH funding reductions to
each of these two state groups based on each state group's proportion
of the total national unreduced DSH allotment amount.
(3) Apply a low DSH adjustment percentage to adjust the non-low DSH
and low DSH state groups' DSH funding reduction amount. This step
maintains the combined aggregate DSH funding reduction for the low DSH
and non-low DSH state groups by distributing a portion of the
unadjusted low DSH state DSH funding reduction amount across the non-
low DSH state group, as described in greater detail below.
(4) Divide each state group's DSH allotment reduction amount among
three statutorily identified factors, the Uninsured Percentage Factor
(UPF), the High Level of Uncompensated Care Factor (HUF), and the High
Volume of Medicaid Inpatients Factor (HMF). We are proposing to assign
a 50 percent weight to the UPF and a 50 percent combined weight for the
two DSH payment targeting factors (a 25 percent weight for the HUF, and
a 25 percent weight for the HMF). This approach would assign equal
weights based on the statutory structure under which the UPF is
presented separately, in section 1923(f)(7)(B)(i)(I) of the Act, while
the HMF and HUF are grouped together in section 1923(f)(7)(B)(i)(II) of
the Act, at items (aa) and (bb). Additionally, compared to the approach
taken in the 2013 DSH allotment reduction final rule, this weight
assignment would place greater emphasis on the UPF to:
Reduce the impact of the DSH allotment reduction for
states with greater DSH need due to high uninsurance rates.
Give greater weight to more recent data, since the UPF
data relies on more recent data than the HUF and HMF.
We considered various alternative weight assignments prior to
proposing equal weights to the requirement at section
1923(f)(7)(B)(i)(I) of the Act and to the combined requirements at
section 1923(f)(7)(B)(i)(II) of the Act. We have decided upon the 50
percent weight to the UPF and a 50 percent combined weight for the two
DSH payment targeting factors in order to reduce the impact of the DSH
allotment reductions for states with high uninsurance rates, place a
greater weight to more recent data, and reflect how these factors are
specified in statute.
(5) Limit the reduction to be applied to each state's total
unreduced DSH allotment to 90 percent of its original unreduced
allotment. Any excess reduction amounts called for under the DHRM which
are limited by this reduction cap will be factored back into the
reduction model and be redistributed among the remaining states that do
not exceed the reduction cap based on the proportion of each remaining
state's allotment reduction amount to the aggregate allotment reduction
amount for its respective state group. This operation would be
performed separately for each state group such that, for example, an
excess reduction amount attributable to a low DSH state would be
reapportioned only among other low DSH states and would not be
reapportioned among any states in the non-low DSH state group. By
limiting the overall amount by which each state's allotment may be
decreased, we propose to preserve at least 10 percent of each state's
unreduced DSH allotment, thereby allowing all states to continue to
making DSH payments. Placing limits on the reductions applied to each
state's original unreduced allotments is a new proposal that was not
considered in the 2013 DSH allotment reduction final rule. In view of
the then-required aggregate DSH allotment reduction amounts and the
DHRM under the 2013 DSH allotment reduction final rule, no state was in
jeopardy of having its entire DSH allotment eliminated for FY 2014 or
FY 2015 at the time that rule was promulgated. However, with the larger
reduction amounts currently scheduled for FYs 2018 through 2025 under
the statute, which are as high as $8 billion annually, states may
experience the elimination of their entire DSH allotment without the
inclusion of a reduction cap methodology in the DHRM. As such, we are
soliciting comments on alternative methodologies that would limit the
allotment reduction amount that states may receive through the DHRM,
specifically on how excess reduction amounts are factored back into the
reduction model and on what to use as the maximum reduction percentage.
Although we did consider different reduction cap percentages, we
believe the proposed 10 percent reduction cap strikes a balance between
ensuring reduction amounts are determined based on the statutory DHRM
factors and ensuring states maintain the ability to make [an
appreciable amount of] DSH payments. Higher reduction caps would cause
the reductions to be evenly distributed among all states, instead of
being based on the statutory DHRM factors. No cap might result in the
complete elimination of some states' DSH allotments and lower caps
might result in states with an insignificant amount of DSH allotment
with which to make DSH payments.
(6) For each state group, determine state-specific DSH allotment
reduction amounts relating to the UPF. To accomplish this, we will
compare each state's uninsurance rate to the uninsurance rates of all
states in relation to each state's unreduced allotment in proportion to
its respective state group's total allotment in order to calculate each
state's reduction. As required by statute, states with lowest
uninsurance rates will receive largest percentage DSH reductions.
(7) For each state group, determine state-specific DSH allotment
reduction amounts relating to the HUF. By utilizing the most recently
available Medicaid DSH audit and reporting data, we will determine the
mean uncompensated care level for each state in order to determine the
total payments each state makes to non-high
[[Page 35160]]
uncompensated care level hospitals. We will then determine the HUF by
dividing the total of each state's total payments made to non-high
uncompensated care level hospitals by the total payments made non-high
uncompensated care level hospitals for its respective state group.
(8) For each state group, determine state-specific DSH allotment
reduction amounts relating to the HMF. Again, by utilizing the most
recently available Medicaid DSH audit and reporting data, we will
determine the mean MIUR for each state in order to determine the amount
of DSH payments each state makes to non-high Medicaid volume hospitals.
We will then determine the HMF by dividing each state's total payments
made to non-high volume Medicaid hospitals by the total payments made
non-high volume Medicaid hospitals for its respective state group.
(9) Apply a section 1115 Budget Neutrality Factor for each
qualifying state. To apply this factor, we will not reduce any portion
of a state's DSH allotment which was included in the budget neutrality
calculation for a coverage expansion that was approved under section
1115 of the Act as of July 31, 2009. We will assign any qualifying
states an average percentage reduction amount within its respective
state group for diverted DSH allotment amounts that are not related to
a coverage expansion in effect as of July 31, 2009 and for which the
state does not have complete and/or relevant DSH payment data .
(10) Identify the state-specific DSH allotment reduction amount.
(11) Subtract each state's state-specific DSH allotment reduction
amount from each state's unreduced DSH allotment to determine the
state's available DSH allotment for the applicable year.
The manner in which each of the five factors are considered and
calculated in the proposed DHRM is described in greater detail below.
The proposed DHRM recognizes the variations in DSH allotments among
states and the application of the methodology generates a lesser impact
on low DSH states. The DHRM is designed to determine DSH reductions in
an equitable manner by grouping similar states into groups for purposes
of applying the statutory reduction factors. Reductions assigned
through the HMF and HUF would lessen the impact on states that have
targeted DSH payments to hospitals that have high volumes of Medicaid
inpatients and to hospitals that have high levels of uncompensated
care, respectively, while incentivizing payment targeting for future
DSH payments. As specified in statute, the DHRM would also take into
account the extent to which the DSH allotment for a state was included
in part or in whole in the budget neutrality calculation for a coverage
expansion approved under section 1115 of the Act as of July 31, 2009 by
excluding from DSH allotment reduction the amount of DSH that
qualifying states continue to divert specifically for coverage
expansion in the budget neutrality calculation. Any amount of DSH
diverted for other purposes under the demonstration would still be
subject to reduction by automatically assigning qualifying states an
average percentage reduction amount within its respective state group
for factors for which the state does not have complete and/or relevant
DSH payment data.
B. Low DSH Adjustment Factor (LDF)
Section 1923(f)(7)(B)(ii) of the Act requires the DHRM to impose a
smaller percentage reduction on ``low DSH states'' that meet the
criterion described in section 1923(f)(5)(B) of the Act. To qualify as
a low DSH state, total expenditures under the state plan for DSH
payments for FY 2000, as reported to us as of August 31, 2003, had to
have been greater than zero but less than 3 percent of the state's
total Medicaid state plan expenditures during the FY. Historically, low
DSH states (identified in Table 1) have received lower DSH allotments
relative to their total Medicaid expenditures than non-low DSH states.
To meet the statutory requirement to impose a smaller percentage
reduction on low DSH states, the DHRM would create two state groups
(low DSH states and non-low DSH states), then would apply the LDF when
allocating reduction amounts to each state group. The LDF is calculated
and applied as follows:
(1) Separate states into two groups, non-low DSH states and low DSH
states.
(2) Divide each state's unreduced preliminary DSH allotment for the
year for which the reduction is calculated by estimated Medicaid
service expenditures for that same year. Currently, we create a
preliminary DSH allotment based on the estimates available in August of
the prior year and we issue a final DSH allotment once the federal FY
ends.
(3) For each state group, calculate the non-weighted mean of the
value calculated in step 2 for states in the group.
(4) Divide the average calculated in step 3 for the low DSH state
group by the average calculated in step 3 for the non-low DSH state
group.
(5) Convert this number to a percentage. This percentage is the
LDF.
(6) Multiply the proportionately allocated DSH funding reductions
for the low-DSH state group by the LDF percentage to determine the
aggregate DSH reduction amount that would be distributed across the low
DSH state group.
(7) Subtract the aggregate DSH reduction amount determined in step
6 from the proportionately allocated DSH funding reduction for the low-
DSH state group, and add the remainder to the aggregate DSH reduction
amount that would be distributed across the non-low DSH state group.
We considered using various alternative proportional relationships
to establish the LDF, including the proportion of each state group's
annual Medicaid DSH expenditures to total Medicaid expenditures.
However, we believe that this may benefit non-low DSH states that are
unable to or otherwise do not spend their existing DSH allotment
amount. Therefore, we are proposing to calculate the LDF based on the
proportion of each state group's DSH allotments to total Medicaid
expenditures.
C. Factor 2--Uninsured Percentage Factor (UPF)
The second factor considered in the proposed DHRM is the UPF
identified at section 1923(f)(7)(B)(i)(I) of the Act, which requires
that the DHRM impose the largest percentage DSH allotment reductions on
states that have the lowest percentages of uninsured individuals. The
statute also requires that the percentage of uninsured individuals is
determined on the basis of data from the Census Bureau, audited
hospital cost reports, and other information likely to yield accurate
data, during the most recent year for which such data are available.
To determine the percentage of uninsured individuals in each state,
the proposed DHRM relies on the total population and uninsured
population as identified in the most recent ``1-year estimates'' data
available from the ACS conducted by the Census Bureau. The Census
Bureau generates ACS ``1-year estimates'' data annually based on a
point-in-time survey of approximately 3 million individuals. For
purposes of the proposed DHRM, we would utilize the most recent ACS
data available at the time of the calculation of the annual DSH
allotment reduction amounts.
The UPF, as applied through the proposed DHRM, has the effect of
imposing the lowest relative DSH
[[Page 35161]]
allotment reductions on states that have the highest percentage of
uninsured individuals. The UPF would mitigate the DSH reduction for
states with the highest percentage of uninsured individuals.
The proposed UPF is determined separately for each state group as
follows:
(1) Uninsured Value--Using United States Census Bureau data,
calculate each state's uninsured value by dividing the total state
population by the uninsured in the state. (This is different than the
percentage rate of uninsurance; the rate of uninsurance can be obtained
by dividing 100 by this number.)
(2) Uninsured Allocation Component--Determine the relative
uninsured value for each state compared to other states in the state
group by dividing the value in step one by the state group total of
step one values. The result should be a percentage, and the total of
the percentages for all states in the state group should total 100
percent.
(3) Allocation Weighting Factor--To ensure that larger and smaller
states are given fair weight in the final UPF, divide each state's
preliminary unreduced DSH allotment by the sum of all unreduced
preliminary DSH allotments in the respective state group to obtain
allocation weighting factor, expressed as a percentage. The sum of all
weighting factors should equal 100 percent. Then, take this percentage
for each state and multiply it by the state's uninsured allocation
component determined in step 2. The result is the allocation weighting
factor.
(4) UPF--For each state group, divide each state's allocation
weighting factor by the sum of all allocation weighting factors. The
resulting percentage is the UPF.
We would determine the UPF portion of the proposed aggregate DSH
allotment reduction allocation for each state by multiplying the
state's UPF by the aggregate DSH allotment reduction allocated to the
UPF factor for the respective state group. As with the prior factor, we
propose to utilize preliminary DSH allotment estimates to develop the
DSH reduction factors.
D. Factor 3--High Volume of Medicaid Inpatients Factor (HMF)
The third factor considered in the proposed DHRM is the High Volume
of Medicaid Inpatients Factor (HMF) identified at section
1923(f)(7)(B)(i)(II)(aa) of the Act, which requires that the DHRM
impose the largest percentage DSH allotment reductions on states that
do not target DSH payments to hospitals with high volumes of Medicaid
inpatients. For purposes of the DHRM, the statute defines hospitals
with high volumes of Medicaid patients as those defined in section
1923(b)(1)(A) of the Act. These hospitals must meet minimum qualifying
requirements at section 1923(d) of the Act and have an MIUR that is at
least one standard deviation above the mean MIUR for hospitals
receiving Medicaid payments in the state. Every hospital that meets
that definition is deemed a disproportionate share hospital and is
statutorily required to receive a DSH payment.
States that have been, and continue to, target a large percentage
of their DSH payments to hospitals that are federally deemed as a DSH
based on their MIUR would receive the lowest reduction amounts relative
to their total spending. States that target the largest amounts of DSH
payments to hospitals that are not federally deemed based on MIUR would
receive the largest reduction amounts under this factor. The current
DSH allotment amounts are unrelated to the amounts of MIUR-deemed
hospitals and their DSH-eligible uncompensated care costs. By basing
the HMF reduction on the amounts that states do not target to hospitals
with high volumes of Medicaid inpatients as described below in section
(4), this proposed methodology incentivizes states to target DSH
payments to such hospitals.
To ensure that all deemed disproportionate share hospitals receive
a required DSH payment, states are already required to determine the
mean MIUR for hospitals receiving Medicaid payments in the state and
the value of one standard deviation above the mean. This rule proposes
to rely on MIUR information for use in the DHRM that CMS collects from
states on an annual basis under Sec. 447.294(d). When a state or
states do not submit this required MIUR information timely, for
purposes of this factor, we would assume that the state(s) have the
highest value of one standard deviation above the mean reported among
all other states that did submit this information timely.
The calculation of the HMF would rely on extant data that should be
readily available to states. The following data elements are used in
the proposed HMF calculation: The preliminary unreduced DSH allotment
for each state; the DSH hospital payment amount reported for each DSH
in accordance with Sec. 447.299(c)(17); the MIUR for each DSH reported
in accordance with Sec. 447.299(c)(3); and the value of one standard
deviation above the mean MIUR for hospitals receiving Medicaid payments
in the state reported separately.
The proposed HMF is a state-specific percentage that would be
calculated separately for each state group (low DSH and non-low DSH) as
follows:
(1) For each state, classify each DSH that has an MIUR at least one
standard deviation above the mean MIUR for hospitals receiving Medicaid
payments in the state as a High Medicaid Volume hospital.
(2) For each state, determine the amount of DSH payments to non-
High Medicaid Volume DSH hospitals. This data element should come from
the most recently submitted and accepted DSH audit template.
(3) For each state, determine a percentage by dividing the state's
total DSH payments made to non-High Medicaid Volume hospitals by the
aggregate amount of DSH payments made to non-High Medicaid Volume
hospitals for the entire state group. The result of step 3 is the HMF.
(4) Determine each state's HMF reduction amount by applying the HMF
percentage to the aggregate reduction amount allocated to this factor
for each state group.
As a result of this methodology, there are a number of interactions
that may occur for states among DSH payment methodologies, DSH
allotments, and DSH allotment reductions. Most of these scenarios work
in concert with this factor's established reduction relationship. For
example, if a state paid out its entire DSH allotment to hospitals with
high volumes of Medicaid inpatients, it would receive no reduction
associated with this factor because all DSH payments were made only to
hospitals that qualify as high volume. The results of this scenario
would be consistent with the methodology because the state is
incentivized to target DSH payments to high Medicaid volume hospitals.
Another example is a state that makes DSH payments up to the
hospital-specific DSH limit to all hospitals with high Medicaid volume
but also uses its remaining allotment to make DSH payments to hospitals
that do not qualify as high volume. In this example, the state would
receive a reduction under this factor based on the amount of DSH
payments it made to non-high Medicaid volume hospitals. Though the
state targeted DSH payments to hospitals with high Medicaid volume, the
existing size of its DSH allotment permitted it to make DSH payments to
hospitals that did not meet the statutory definition of high Medicaid
volume. In that situation, this allotment reduction would effectively
reduce a state's existing DSH allotment to the extent that the
allotment exceeded the
[[Page 35162]]
maximum amount that the state could pay to hospitals that are high
Medicaid volume. The resulting HMF reduction would be greater for
states with DSH allotments large enough to pay significant amounts to
non-high Medicaid volume hospitals. This ensures that states target DSH
payments to high Medicaid volume hospitals and distribute the
reductions in such a way as to promote the ability of all states to
provide DSH funds to high Medicaid volume hospitals.
We seek comments on the proposed DHRM with respect to whether the
proposed implementation of this factor is expected to be effective in
tying the level of DSH reductions to the targeting of DSH payments to
high Medicaid volume hospitals.
E. Factor 4--High Level of Uncompensated Care Factor (HUF)
The fourth factor considered in the DHRM is the HUF identified at
section 1923(f)(7)(B)(i)(II)(bb) of the Act, which requires that the
DHRM impose the largest percentage DSH allotment reductions on states
that do not target DSH payments to hospitals with high levels of
uncompensated care. We are proposing to rely on the existing statutory
definition of uncompensated care cost used in determining the hospital-
specific limit on FFP for Medicaid DSH payments.
As defined in section 1923(g)(1) of the Act, the state must
calculate for each hospital, for each FY, the difference between the
costs incurred by that hospital for furnishing inpatient hospital and
outpatient hospital services during the applicable state FY to Medicaid
individuals and individuals who have no health insurance or other
source of third party coverage for the inpatient hospital and
outpatient hospital services they receive, less all applicable revenues
received for these hospital services. This difference, if any, between
incurred inpatient hospital and outpatient hospital costs and
associated revenues is considered a hospital's uncompensated care
costs, or hospital-specific DSH limit.
For purposes of this rule, we are proposing to rely on this
definition of uncompensated care costs for the calculation of the HUF,
as reported by states on the most recent available Medicaid DSH audit
and reporting data. For the proposed DHRM, hospitals with high levels
of uncompensated care costs are defined based on a comparison with
other Medicaid DSH hospitals in their state. Any hospital that exceeds
the mean ratio of uncompensated care costs to total Medicaid and
uninsured inpatient and outpatient hospital service costs within its
state is considered a hospital with a high level of uncompensated care.
This data is consistent with the existing Medicaid DSH program
definition of uncompensated care and is readily available to states and
CMS.
The following data elements would be used in the HUF calculation:
The preliminary unreduced DSH allotment for each state;
DSH hospital payment amounts reported for each DSH in
accordance with Sec. 447.299(c)(17);
Uncompensated care cost amounts reported for each DSH in
accordance with Sec. 447.299(c)(16);
Total Medicaid cost amounts reported for each DSH in
accordance with Sec. 447.299(c)(10); and
Total uninsured cost amounts reported for each DSH in
accordance with Sec. 447.299(c)(14).
Total hospital cost amounts reported for each DSH in
accordance with Sec. 447.299(c)(20).
The statute also requires that uncompensated care costs used in
this factor of the DHRM exclude bad debt. The proposed rule relies on
the uncompensated care cost data derived from Medicaid DSH audit and
reporting required by section 1923(f) of the Act and implementing
regulations. This uncompensated care data excludes bad debt, including
unpaid co-pays and deductibles, associated with individuals with a
source of third party coverage for the service received during the
year.
The HUF is a state-specific percentage that is calculated
separately for each state group (low DSH and non-low DSH) as follows:
(1) Determine each disproportionate share hospital's uncompensated
care level by dividing its uncompensated care cost by total hospital
cost. This data element would come from the most recently submitted and
accepted Medicaid DSH audit and associated reporting.
(2) For each state, calculate the weighted mean uncompensated care
level.
(3) Identify all hospitals that meet or exceed the mean
uncompensated care level as high uncompensated care level hospitals. We
are also considering identifying a metric higher than the mean for
purposes of identifying hospitals as high uncompensated care level
hospitals and are specifically soliciting comments on alternative
methodologies.
(4) For each state, determine the total amount of DSH payments to
non-high uncompensated care level hospitals.
(5) For each state, determine a percentage by dividing the state's
total DSH payments made to non-high uncompensated care level hospitals
by the aggregate amount of DSH payments made to non-high uncompensated
care level hospitals for the entire state group. The result would be
the HUF.
(6) Determine each state's HUF reduction amount by applying the HUF
percentage to the aggregate reduction amount allocated to this factor
for each state group.
In previous rulemaking, we identified some potential scenarios
where the interactions may have been inconsistent with the intent of
this methodology. Under the 2013 DSH allotment reduction final rule, it
was possible for a hospital not to have been considered to have a
higher level of uncompensated care even though it provided a higher
percentage of services to Medicaid and uninsured individuals and had
greater total qualifying uncompensated care costs than another hospital
that did qualify as having a high level of uncompensated care. This was
due to the previous formula determining the level of uncompensated care
by dividing uncompensated care by the sum of total Medicaid costs and
total uninsured costs. We propose to resolve this problem discussed in
earlier rulemaking by determining the level of uncompensated care by
dividing uncompensated care costs by total hospital costs.
We seek comments on the proposed DHRM with respect to whether the
proposed implementation of this factor is expected to be effective in
tying the level of DSH reductions to the targeting of DSH payments to
hospitals with high levels of uncompensated care. We believe that the
proposed methodology, in using the mean uncompensated care cost level
as the measure to identify hospitals with high levels of uncompensated
care, captures the best balance in tying the level of DSH reductions to
the targeting of DSH payments to such high level uncompensated care
hospitals. Understanding potential data limitations and that the
proposed methodology does not precisely distinguish how states direct
DSH payments among hospitals that are identified as at or above the
mean uncompensated care level, we are specifically soliciting comments
on alternative methodologies regarding state targeting of DSH payments
to hospitals with high levels of uncompensated care.
F. Factor 5--Section 1115 Budget Neutrality Factor (BNF)
The statute requires that we take into account the extent to which
a state's
[[Page 35163]]
DSH allotment was included in the budget neutrality calculation for a
coverage expansion that was approved under section 1115 demonstration
authority as of July 31, 2009. These states possess full annual DSH
allotments as calculated under section 1923(f) of the Act. Under an
approved section 1115 demonstration, however, some states have limited
authority to make DSH payments under section 1923 of the Act because
all or a portion of their DSH allotment was included in the budget
neutrality calculation for a coverage expansion under an approved
section 1115 demonstration or to fund uncompensated care pools and/or
safety net care pools. For applicable states, DSH payments under
section 1923 of the Act are limited to the DSH allotment calculated
under section 1923(f) of the Act less the allotment amount included in
such a budget neutrality calculation. If a state's entire DSH allotment
is included in such a budget neutrality calculation, it would have no
available DSH funds with which to make DSH payments under section 1923
of the Act for the period of the demonstration.
Consistent with the statute, for states that include DSH allotment
in budget neutrality calculations for coverage expansion under an
approved section 1115 demonstration as of July 31, 2009, we propose to
exclude from the DSH allotment reduction, for the HMF and the HUF
factors, the amount of DSH allotment that each state currently
continues to divert specifically for coverage expansion in the budget
neutrality calculation. DSH allotment amounts included in budget
neutrality calculations for non-coverage expansion purposes under
approved demonstrations would still be subject to reduction.
Uncompensated care pools and safety net care pools are considered non-
coverage expansion purposes for the budget neutrality factor. For
section 1115 demonstrations not approved as of July 31, 2009, any DSH
allotment amounts included in budget neutrality calculations, whether
for coverage expansion or otherwise, under a later approval would also
be subject to reduction.
We are proposing to determine for each reduction year if any
portion of a state's DSH allotment qualifies for consideration under
this factor. To qualify annually, CMS and the state would have to have
included the state's DSH allotment in the budget neutrality calculation
for a coverage expansion that was approved under section 1115 of the
Act as of July 31, 2009, and the coverage expansion would have to still
exist in the approved section 1115 demonstration at the time that
reduction amounts are calculated for each FY. If a state had an amount
for coverage expansion approved under a section 1115 of the Act as of
July 31, 2009 but subsequently reduced this amount, the approved amount
remaining under the section 1115 would not be subject to reduction.
The proposed DHRM would take into account the extent to which the
DSH allotment for a state was included in the budget neutrality
calculation for a demonstration approved under section 1115 of the Act
as of July 31, 2009 by excluding from reduction under the HMF and HUF
amounts diverted specifically for a coverage expansion and
automatically assigning qualifying states an average reduction amount
(that is, the average HUF and HMF of the state's respective state
group) for any DSH allotment diverted for non-coverage expansion
purposes and any amounts diverted for coverage expansion if the section
1115 demonstration was not approved as of July 31, 2009. DSH allotment
reductions relating to two DHRM factors (the HUF and the HMF) are
determined based on how states target DSH payments to certain
hospitals. Since states that diverted all or a portion of their DSH
allotments would have limited or no relevant data for these two
factors, we would be unable to evaluate how they spent the diverted
portion of their DSH allotment for these targeting criteria.
Accordingly, for diversion amounts subject to reduction, we are
proposing to maintain the HUF and HMF formula for DSH payments for
which qualifying states would have available data. Because we would not
have DSH payment data for DSH allotment amounts diverted for non-
coverage expansion (or for coverage expansions not approved as of July
31, 2009), we are proposing to assign average HUF and HMF reduction
percentages for the portion of the DSH allotment that a state diverted
for non-coverage expansion (or for coverage expansions not approved as
of July 31, 2009) that it was consequently unable to use to target
payments to disproportionate share hospitals. Instead of assigning the
average percentage reduction to non-qualifying amounts, we considered
using alternative percentages higher or lower than the average.
However, these alternative percentages might provide an unintended
benefit or penalty to these states for DSH diversions approved under
section 1115 of the Act. We are seeking comment regarding the use of
different percentages for the reductions to diversion amounts that do
not qualify under the BNF and regarding alternative BNF methodologies
that may provide preferable alternatives.
G. Illustration of DSH Health Reform Methodology (DHRM)
Table 1 and the values contained therein are provided only for
purposes of illustrating the application of the DHRM and the associated
DSH reduction factors described in this proposed rule to determine each
state's DSH allotment reduction.
BILLING CODE 4120-01-P
[[Page 35164]]
[GRAPHIC] [TIFF OMITTED] TP28JY17.006
[[Page 35165]]
[GRAPHIC] [TIFF OMITTED] TP28JY17.007
[[Page 35166]]
[GRAPHIC] [TIFF OMITTED] TP28JY17.008
[[Page 35167]]
[GRAPHIC] [TIFF OMITTED] TP28JY17.009
[[Page 35168]]
[GRAPHIC] [TIFF OMITTED] TP28JY17.010
[[Page 35169]]
BILLING CODE 4120-01-C
IV. Collection of Information Requirements
Beginning with each state's Medicaid state plan for rate year 2005,
each state must submit to CMS (at the same time as it submits the
completed DSH audit as required under Sec. 455.304) the data specified
under Sec. 447.299 for each DSH hospital to which the state made a DSH
payment. While the reported information will allow CMS to verify the
appropriateness of such payments, the reporting requirements and burden
are currently approved by OMB under control number 0938-0746 (CMS-R-
266). Importantly, this rule does not propose any new/revised
information collection requirements or burden pertaining to Sec.
447.299.
Although mentioned earlier in this preamble, this rule does not
propose any new/revised SPA or auditing requirements or burden nor any
new/revised information collection requirements or burden associated
with CMS-64 (control number 0938-1265) or CMS-2552 (control number
0938-0050).
Since this rule does not propose any new or revised information
collection requirements or burden, it need not be reviewed by OMB under
the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et
seq.).
V. Response to Comments
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.
VI. Regulatory Impact Analysis
A. Statement of Need
The Affordable Care Act amended the Act by requiring aggregate
reductions to state Medicaid DSH allotments annually from FY 2014
through FY 2020. Subsequent legislation extended the reductions,
modified the amount of the reductions, and delayed the start of the
reductions until FY 2018. The most recent related amendments to the
statute were through the Medicare Access and CHIP Reauthorization Act
of 2015 (MACRA) (Pub. L. 114-10, enacted April 16, 2015). This proposed
rule delineates the DHRM to implement the annual reductions for FY 2018
through FY 2025.
B. Overall Impact
We have examined the impact of this 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 Act, section 202 of the
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4),
Executive Order 13132 on Federalism (August 4, 1999), the Congressional
Review Act (5 U.S.C. 804(2)), and Executive Order 13771 on Reducing
Regulation and Controlling Regulatory Costs (January 30, 2017).
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). This rule
has been designated an ``economically significant'' rule measured by
the $100 million threshold, under section 3(f)(1) of Executive Order
12866. Accordingly, we have prepared a Regulatory Impact Analysis (RIA)
that, to the best of our ability, presents the costs and benefits of
the rulemaking.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 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 2017, that
threshold is approximately $148 million. This final rule would not
mandate any requirements for state, local, or tribal governments, nor
would it affect private sector costs.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on state
and local governments, preempts state law, or otherwise has Federalism
implications. Since this rule does not impose any costs on state or
local governments, the requirements of Executive Order 13132 are not
applicable.
The RFA requires agencies to analyze options for regulatory relief
of small entities, and to prepare an Initial Regulatory Flexibility
Analysis (IRFA), for proposed rules that would have a ``significant
economic impact on a substantial number of small entities.'' For
purposes of the RFA, small entities include small businesses, nonprofit
organizations, and small governmental jurisdictions. Most hospitals and
most other providers and suppliers are small entities, either by
nonprofit status or by having revenues of less than $7.5 million to
$38.5 million in any 1 year. Individuals and states are not included in
the definition of a small entity.
We are not preparing an IRFA because we have determined, and the
Secretary certifies, that this proposed rule would not have a
significant economic impact on a substantial number of small entities
(including hospitals and providers) because states still have
considerable flexibility to determine DSH state plan payment
methodologies.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area for Medicare payment regulations and has fewer than
100 beds. We are not preparing an analysis for section 1102(b) of the
Act because we have determined, and the Secretary certifies, that this
proposed rule would not have a significant impact on the operations of
a substantial number of small rural hospitals.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a proposed rule (and subsequent final
rule) that imposes substantial direct requirement costs on state and
local governments, preempts state law, or otherwise has Federalism
implications. Since this regulation does not impose any costs on state
or local governments, the requirements of Executive Order 13132 are not
applicable.
Executive Order 13175 directs agencies to consult with Tribal
officials prior to the formal promulgation of regulations having tribal
implications. This proposed rule has tribal implications, and in
accordance with E.O. 13175 and the CMS Tribal Consultation Policy
(December, 2015), CMS will consult with Tribal officials prior to the
formal promulgation of this regulation.
C. Anticipated Effects
1. Effects on State Medicaid Programs
We anticipate, effective for FY 2018, that the proposed DSH
allotment reductions would have a direct effect on the ability for some
or all states to
[[Page 35170]]
maintain state-wide Medicaid DSH payments at FY 2017 levels. Federal
share DSH allotments, which are published by CMS in an annual Federal
Register notice, limit the amount of federal financial participation
(FFP) in the aggregate that states can pay annually in DSH payments to
hospitals. This proposed rule would reduce state DSH allotment amounts,
and therefore, would limit the states' ability to make DSH payments and
claim FFP for DSH payments at FY 2017 levels. By statute, the rule
would reduce state DSH allotments by $43,000,000,000 for FY 2018
through FY 2025. We anticipate that the rule would reduce total federal
financial participation claimed by states by similar amounts, although
it may not equal the exact amount of the allotment reductions. Due to
the complexity of the interaction among the proposed DHRM methodology,
state DSH allotments, DHRM data, future state DSH payment levels and
methodologies for these years, we cannot provide a specific estimate of
the total federal financial impact for each year.
The proposed rule utilizes a DHRM that would mitigate the negative
impact on states that continue to have high percentages of uninsured
and are targeting DSH payments to hospitals that have a high volume of
Medicaid patients and to hospitals with high levels of uncompensated
care.
2. Effects on Providers
We anticipate that the final rule would affect certain providers
through the reduction of state DSH payments. We cannot, however,
estimate the impact on individual providers or groups of providers.
This proposed rule would not affect the considerable flexibility
afforded states in setting DSH state plan payment methodologies to the
extent that these methodologies are consistent with section 1923(c) of
the Act and all other applicable statutes and regulations. States would
retain the ability to preserve existing DSH payment methodologies or to
propose modified methodologies by submitting state plan amendments to
us. Some states may determine that implementing a proportional
reduction in DSH payments for all qualifying hospitals is the preferred
method to account for the reduced allotment. Alternatively, states
could determine that the best action is to propose a methodology that
would direct DSH payments reductions to hospitals that do not have high
Medicaid volume and do not have high levels of uncompensated care.
Regardless, the rule would incentivize states to target DSH payments to
hospitals that are most in need of Medicaid DSH funding based on their
serving a high volume of Medicaid inpatients and having a high level of
uncompensated care.
This proposed rule also does not affect the calculation of the
hospital-specific DSH limit established at section 1923(g) of the Act.
This hospital-specific limit requires that Medicaid DSH payments to a
qualifying hospital not exceed the costs incurred by that hospital for
providing inpatient and outpatient hospital services furnished during
the year to Medicaid patients and individuals who have no health
insurance or other source of third party coverage for the services
provided during the year, less applicable revenues for those services.
Although this rule would reduce state DSH allotments, the
management of the reduced allotments still largely remains with the
states. Given that states would retain the same flexibility to design
DSH payment methodologies under the state plan and that individual
hospital-specific DSH payment limits would not be affected, we cannot
predict whether and how states would exercise their flexibility in
setting DSH payments to account for their reduced DSH allotment and how
this would affect individual providers or specific groups of providers.
D. Alternatives Considered
The statute specifies the annual DSH allotment reduction amounts.
Therefore, we were unable to consider alternative reduction amounts.
However, we did consider various methodological alternatives to the
DHRM throughout each individual section in detail. These proposed
alternatives relate to various weight assignments to reduction factors
identified in the statute, utilizing various alternative data sources
for uncompensated cost and uninsured data, and proposing a reduction
cap methodology in order to limit the reduction amount to be applied to
each state's total unreduced DSH allotment.
E. Accounting Statement and Table
As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf), we have prepared
an accounting statement table showing the classification of the impacts
associated with implementation of this proposed rule.
Table 2--Accounting Statement
----------------------------------------------------------------------------------------------------------------
Units
-----------------------------------------------
Category Estimates Discount rate Period
Year dollar % covered
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Reductions in Disproportionate Share -5,049.1 2017 7 2018-2025
Hospital Allotment (in millions)...............
-5,232.5 2017 3 2018-2025
----------------------------------------------------------------------------------------------------------------
From Whom to Whom............................... Federal Government to the States due to assumed reduced number
of uninsured and uncompensated care.
----------------------------------------------------------------------------------------------------------------
F. Reducing Regulation and Controlling Regulatory Costs
Executive Order 13771, titled Reducing Regulation and Controlling
Regulatory Costs, was issued on January 30, 2017. Section 2(a) of
Executive Order 13771 requires an agency, unless prohibited by law, to
identify at least two existing regulations to be repealed when the
agency publicly proposes for notice and comment, or otherwise
promulgates, a new regulation. In furtherance of this requirement,
section 2(c) of Executive Order 13771 requires that the new incremental
costs associated with new regulations shall, to the extent permitted by
law, be offset by the elimination of existing costs associated with at
least two prior regulations. OMB's implementation guidance, issued on
April 5, 2017, explains that ``Federal spending regulatory actions that
cause only income transfers between taxpayers and
[[Page 35171]]
program beneficiaries (for example, regulations associated with . . .
Medicare spending) are considered `transfer rules' and are not covered
by E.O. 13771 . . . . However . . . such regulatory actions may impose
requirements apart from transfers. . . In those cases, the actions
would need to be offset to the extent they impose more than de minimis
costs. Examples of ancillary requirements that may require offsets
include new reporting or recordkeeping requirements.'' It has been
determined that this proposed rule is a transfer rule that does not
impose more than de minimis costs as described previously and thus is
not a regulatory action for the purposes of E.O. 13771.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 447
Accounting, Administrative practice and procedure, Drugs, Grant
programs--health, Health facilities, Health professions, Medicaid,
Reporting and recordkeeping requirements, Rural areas.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth
below:
PART 447--PAYMENTS FOR SERVICES
0
1. The authority citation for part 447 continues to read as follows:
Authority: Sec. 1102 of the Social Security Act (42 U.S.C.
1302).
0
2. Section 447.294 is amended by--
0
a. Revising the section heading;
0
b. Revising paragraph (a);
0
c. Amending paragraph (b) by adding the definition of ``Total hospital
cost''; and
0
d. Revising paragraphs (d), (e) introductory text, (e)(3)(i) and (5)(i)
through (iii), and (f).
The revisions and addition reads as follows:
Sec. 447.294 Medicaid disproportionate share hospital (DSH) allotment
reductions.
* * * * *
(a) Basis and purpose. This section sets forth the DSH health
reform methodology (DHRM) for calculating State-specific annual DSH
allotment reductions as required under section 1923(f) of the Act.
(b) * * *
Total hospital cost means the total annual costs incurred by a
hospital for furnishing inpatient and outpatient hospital services.
* * * * *
(d) State data submission requirements. States are required to
submit the mean MIUR, determined in accordance with section
1923(b)(1)(A) of the Act, for all hospitals receiving Medicaid payments
in the State and the value of one standard deviation above such mean.
The State must provide this data to CMS by June 30 of each year. To
determine which state plan rate year's data the state must submit,
subtract 3 years from the calendar year in which the data is due.
(e) DHRM methodology. Section 1923(f)(7) of the Act requires
aggregate annual reduction amounts as specified in paragraph (f) of
this section to be reduced through the DHRM. The DHRM is calculated on
an annual basis based on the most recent data available to CMS at the
time of the calculation. The DHRM is determined as follows:
* * * * *
(3) * * *
(i) Dividing each State's preliminary unreduced DSH allotment by
their respective total estimated Medicaid service expenditures for the
applicable fiscal year.
* * * * *
(5) * * *
(i) UPF--50 percent.
(ii) HMF--25 percent.
(iii) HUF--25 percent.
* * * * *
(f) Annual DSH allotment reduction application. For each fiscal
year identified in section 1923(f)(7)(A)(ii) of the Act, CMS will
subtract the State-specific DSH allotment amount determined in
paragraph (e)(14) of this section from that State's final unreduced DSH
allotment. This amount is the State's final DSH allotment for the
fiscal year.
May 26, 2017.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
Dated: July 24, 2017.
Thomas Price,
Secretary, Department of Health and Human Services.
[FR Doc. 2017-15962 Filed 7-27-17; 8:45 am]
BILLING CODE 4120-01-P