[Federal Register Volume 84, Number 222 (Monday, November 18, 2019)]
[Proposed Rules]
[Pages 63722-63785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24763]
[[Page 63721]]
Vol. 84
Monday,
No. 222
November 18, 2019
Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 430, 433, et al.
Medicaid Program; Medicaid Fiscal Accountability Regulation; Proposed
Rule
Federal Register / Vol. 84 , No. 222 / Monday, November 18, 2019 /
Proposed Rules
[[Page 63722]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 430, 433, 447, 455, and 457
[CMS-2393-P]
RIN 0938-AT50
Medicaid Program; Medicaid Fiscal Accountability Regulation
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would promote transparency by establishing
new reporting requirements for states to provide CMS with certain
information on supplemental payments to Medicaid providers, including
supplemental payments approved under either Medicaid state plan or
demonstration authority, and applicable upper payment limits.
Additionally, the proposed rule would establish requirements to ensure
that state plan amendments proposing new supplemental payments are
consistent with the proper and efficient operation of the state plan
and with efficiency, economy, and quality of care. This proposed rule
addresses the financing of supplemental and base Medicaid payments
through the non-federal share, including states' uses of health care-
related taxes and bona fide provider-related donations, as well as the
requirements on the non-federal share of any Medicaid payment.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on January 17, 2020.
ADDRESSES: In commenting, please refer to file code CMS-2393-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
Comments, including mass comment submissions, must be submitted in
one of the following three 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-2393-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-2393-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Andrew Badaracco, (410) 786-4589,
Richard Kimball, (410) 786-2278, and Daniil Yablochnikov, (410) 786-
8912, for Medicaid Provider Payments, Supplemental Payments, Upper
Payment Limits, Provider Categories, Intergovernmental Transfers, and
Certified Public Expenditures.
Timothy Davidson, (410) 786-1167, Jonathan Endelman, (410) 786-
4738, and Stuart Goldstein, (410) 786-0694, for Health Care-Related
Taxes, Provider-Related Donations, and Disallowances.
Lia Adams, (410) 786-8258, Charlie Arnold, (404) 562-7425, Richard
Cuno, (410) 786-1111, and Charles Hines, (410) 786-0252, for Medicaid
Disproportionate Share Hospital Payments and Overpayments.
Jennifer Clark, (410) 786-2013, and Deborah McClure, (410) 786-
3128, for Children's Health Insurance Program (CHIP).
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 website as soon as possible after they have been
received: http://www.regulations.gov. Follow the search instructions on
that website to view public comments.
I. Background
A. Overview
Title XIX of the Social Security Act (the Act) established the
Medicaid program as a federal-state partnership for the purpose of
providing and financing medical assistance to specified groups of
eligible individuals. States have considerable flexibility in designing
their programs, but must abide by requirements specified in the federal
Medicaid statute and regulations. Each state is responsible for
administering its Medicaid program in accordance with an approved state
plan, which specifies the scope of covered services, groups of eligible
individuals, payment methodologies, and all other information necessary
to assure the state plan describes a comprehensive and sound structure
for operating the Medicaid program, and ultimately, provides a clear
basis for claiming federal matching funds.
As discussed in more detail below, the goal of this proposed rule
is to strengthen overall fiscal integrity of the Medicaid program. The
proposed rule focuses on four topic areas that are frequently discussed
as program vulnerabilities by federal oversight authorities, including
the Government Accountability Office (GAO), the Department of Health
and Human Services' Office of Inspector General (OIG), and the Medicaid
and CHIP Payment and Access Commission (MACPAC). These topics include:
Medicaid fee-for-service (FFS) provider payments; disproportionate
share hospital (DSH) payments; Medicaid program financing; supplemental
payments; and health care-related taxes and provider-related donations.
Due to the complex nature of these topic areas, we have organized this
proposed rule to separately discuss each topic and describe the
programmatic concerns that we seek to address through this proposed
rule. However, the proposed provisions would rely on similar strategies
to improve our and states' abilities to oversee fiscal integrity by
requiring transparency through better data reporting, clarifying
regulatory payment and financing definitions, refining administrative
procedures used by states to comply with federal regulations,
clarifying regulatory language that could be subject to
misinterpretation, and removing regulatory requirements that have been
difficult to administer and do not further our oversight objectives. As
a result, the provisions of the proposed rule aim to address multiple
topic areas as part of the overall strategy to improve fiscal
integrity.
While some of the proposed policies are new, there are policies
within the proposed rule that CMS has operationalized through our work
with states and interpretations of the statute in subregulatory
guidance and federal regulations. We have implemented this subset of
policies using existing legal authority. Some of the proposed policies
in the proposed rule, such as the non-bona fide provider related
donations provisions, have been reviewed and upheld by the Departmental
Appeals Board (DAB) and the courts. Therefore, we are clarifying the
regulatory language
[[Page 63723]]
in this proposed rule that may have been subject to misinterpretation
by states and other stakeholders, or that otherwise could benefit from
additional specificity. In these cases, as discussed below, we are not
proposing new statutory interpretations, but are merely proposing to
codify existing policies into the Code of Federal Regulations (CFR) to
improve guidance to states and other stakeholders and, to the extent
possible, help prevent states from implementing policies that do not
comport with applicable statutory requirements.
B. General Information on Certain Medicaid Financial Topics Addressed
in This Proposed Rule
1. Medicaid FFS Provider Payments
a. General Background
States are responsible for developing FFS rates to pay providers
for furnishing health care services to beneficiaries who receive
covered services through the FFS delivery system. In recognition of the
states' front line responsibility, the statute affords states
considerable flexibility by not prescribing any particular rate setting
approach or method (for most Medicaid services), but instead allows
states to develop their own approaches unique to their local
circumstances so long as they are consistent with applicable statutory
requirements and provide the public and interested parties an
opportunity to comment and offer input. In particular, section 4711 of
the Balanced Budget Act of 1997 (BBA 97) (Pub. L. 105-33, enacted
August 5, 1997) amended section 1902(a)(13)(A) of the Act to give
states greater flexibility to develop their own payment methods and
standards by replacing prescriptive rate setting requirements with the
present standard that rates for inpatient hospital, nursing facility,
and intermediate care facility for individuals with intellectual
disabilities (ICF/IID) services be established in accordance with a
public process. The public process emphasizes transparency in how
states approach rate setting by providing stakeholders with a
reasonable opportunity to review and comment on the proposed FFS rates,
rate setting methodologies, and justifications before states publish
final rates, underlying methodologies, and justifications. However, it
does not impose any constraints on states with respect to the payment
methodologies they may wish to adopt to purchase Medicaid services.
Similarly, states are free to develop their own approach to
establishing payment rates for other Medicaid services and, under
longstanding regulations at Sec. 447.205, generally must publish
public notice in advance to implement new, or change existing, methods
and standards for setting payment rates for services. For example,
states may decide to use a prospective payment or a retrospective
payment system and may elect to reimburse on a per unit, per day, or
per discharge basis. Whatever payment methodology or system a state
elects to implement, the state must describe the methodology or system
comprehensively in its Medicaid state plan and submit the proposed
methodology to CMS for review and approval in a manner consistent with
42 CFR part 430, subpart B.
State payment methodologies typically provide for a standard
payment to all Medicaid providers on a per claim basis for services
rendered to a Medicaid beneficiary in a FFS environment. We refer to
these payments as ``base payments.'' Base payments also include any
payment adjustments, add-ons, or other additional payments received by
the provider that can be attributed to services identifiable as having
been provided to an individual beneficiary, including those that are
made to account for a higher level of care or complexity or intensity
of services provided to an individual beneficiary.
Having established a base payment system, states may wish to offer
extra compensation to certain providers by establishing supplemental
payments within the state's overall approach to reimbursing Medicaid
providers. ``Supplemental payments'' are payments made to providers
that are in addition to the base payment the provider receives for
services furnished. They can be directed to all providers or directed
to a designated set of providers, with the amount of the payment
depending upon applicable upper payment limit (UPL) demonstration
requirements in Sec. Sec. 447.272 and 447.321 for inpatient and
outpatient settings, respectively. Unlike base FFS payments, which are
directly attributable to a covered service furnished to an individual
beneficiary, supplemental payments are often made to the provider in a
lump sum on a monthly, quarterly, or annual basis apart from payments
for a provider claim, and therefore, cannot be directly linked to a
provider claim for specific services provided to an individual Medicaid
beneficiary. Effectively, the supplemental payments serve to increase
total Medicaid payments to a provider for all Medicaid services
furnished over a set period of time as shown in the state's UPL
demonstration. The UPL demonstration is the means by which the state
documents that the Medicaid payments for the applicable services are
below the aggregate UPL amount. In general, supplemental payments are
recognized as service payments as they supplement base payments
previously made to purchase Medicaid services from providers.
Typically, they are made under FFS state plan authority but, more
recently, states have made similar types of payments through
demonstration and managed care authorities.
As discussed previously, for most services, the Medicaid statute
does not prescribe a particular payment approach; however, the statute
does contemplate that states will be prudent purchasers of health care
services. More specific to rate setting, section 1902(a)(30)(A) of the
Act requires states to have methods and procedures to assure Medicaid
payments for services, including any base and supplemental payments,
are consistent with efficiency, economy, and quality of care and are
sufficient to enlist enough providers so that care and services are
available under the plan at least to the extent that such care and
services are available to the general population in the geographic
area. Under section 1902(a)(30)(A) authority, implementing federal
regulations establish UPLs for certain services and rely on these
limits to help assure that state Medicaid payments are consistent with
``efficiency and economy.'' Federal financial participation (FFP) is
not available for state Medicaid expenditures that exceed an applicable
UPL.
Medicaid UPLs are codified in regulations at Sec. Sec. 447.272 and
447.321 and apply to payments for Medicaid inpatient hospital, nursing
facility and ICF/IID services, as well as for outpatient hospital and
clinic services. For each of these Medicaid benefits, the UPLs are
first constructed by categorizing providers into groups (``ownership
groups'') according to the ownership or operational interests: State
government-owned or operated, non-state government-owned or operated,
and privately-owned and operated. States are restricted, in the
aggregate for each ownership group, from paying more than a reasonable
estimate of the amount Medicare would pay for the services furnished by
the providers in the applicable ownership group. The aggregate
application of these UPLs has preserved state flexibility for setting
facility-specific payments while creating an overall payment ceiling as
a mechanism for determining economy and efficiency of payment for the
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services described above, consistent with section 1902(a)(30)(A) of the
Act.
Where Medicaid base payments are below the aggregate UPL
calculation, states have the ability to make supplemental payments to
providers, by ownership group, up to the calculated limit. With the
aggregate UPL calculations, states have the ability to pay some
providers in excess of a reasonable amount that Medicare would pay
those individual providers for their services furnished, so long as the
aggregate Medicaid payments are less than or equal to the aggregate UPL
amount for the ownership category. Should states wish to make payments
up to the UPL and have the non-federal share available to do so, after
giving public notice, they may modify their state plan payment
methodologies to provide for supplemental payments. We note that,
without a regulatory standard to govern UPLs for practitioner services,
CMS has allowed states to make Medicaid supplemental payments for
practitioner services up to Medicare payment amounts or, based on data
documentation, up to the average commercial rate (ACR) made to
providers. As discussed later in this proposed rule, ACRs are payments
developed using the average of some commercial payers' payment rates
for medical services to establish a supplemental Medicaid rate for
certain practitioners, typically physicians, under the state plan.
Unlike other supplemental payments subject to UPLs, some of these
practitioner supplemental payments have resulted in payments to
providers in excess of a reasonable estimate of what Medicare would
have paid for the services furnished, as the relevant ACRs generally
are higher than Medicare rates. This result is possible because there
currently is no UPL applicable to payments for practitioner services
based on a reasonable estimate of what Medicare would pay.
Under our current UPL regulations and CMS policy, approval of a
supplemental payment is not an indication that a state's proposal to
use supplemental payments within its payment system is the best
approach to setting Medicaid payments. Instead, our approvals have been
based on the state's documentation of UPL calculations, where
applicable, showing that the total Medicaid payments (base and
supplemental) paid to providers under the state plan are within the
federal limits. Beyond that test and a review of state plan amendments
(SPAs) which propose to add or amend supplemental payment methodologies
or aggregate supplemental payments, we have not closely examined how
states distribute Medicaid payments to individual providers as a matter
of routine oversight.
Through the policies proposed in this proposed rule, we are seeking
to better understand the relationship between and among the following:
Supplemental provider payments, costs incurred by providers, current
UPL requirements, state financing of the non-federal share of
supplemental payments, and the impact of supplemental payments on the
Medicaid program (such as improvements in the quality of, or access to,
care). It often appears to us that most of these payment methodologies
do not result in an equitable distribution of payments to improve
adequacy of rates across providers within the service class or
ownership group, or otherwise improve the Medicaid program in some
measurable, value-added way. Instead, many supplemental payment
strategies appear to target only those providers that can participate
in financing the non-federal share funding required to support a
state's claim for FFP. In certain circumstances, this practice may be
inconsistent with section 1902(a)(2) of the Act, which requires states
to assure that a lack of funds from local sources will not result in
lowering the amount, duration, scope, or quality of services or level
of administration under the plan, since the payments are only available
to providers with the means to provide the non-federal share.
For instance, states might use the entire UPL gap (the difference
between the amounts paid in base payments and the aggregate UPL) for
each service type and provider ownership group to make a supplemental
payment to only a small subset of providers in the group. In an example
of this type of supplemental payment structure, one state implemented
an inpatient hospital supplemental payment methodology to make payments
up to the UPL for non-state government operated hospitals. The
supplemental payment was funded by intergovernmental transfers (IGTs)
from a local (city) government. Although the total amount of the
supplemental payment was based on the available UPL room for 26 non-
state government operated hospitals, under the terms of the
methodology, only three hospitals qualified to receive the supplemental
payment. This resulted in total payments to those three hospitals that
far exceeded their reported total cost incurred for all Medicaid
services, which is inconsistent with section 1902(a)(30)(A) of the Act.
Supplemental payments now comprise a large and growing percentage
of total Medicaid payments. They are commonly paid both to
institutional providers (for example, inpatient hospitals, nursing
facilities, and ICF/IIDs) and for outpatient services (for example,
outpatient hospitals, clinics, and physician services). Currently, 48
states reported using at least one type of supplemental payment
methodology under the Medicaid state plan. As a percentage of total
Medicaid payments for institutional providers, data from the Medicaid
Budget and Expenditure System (MBES) indicate that supplemental
payments have steadily increased from 9.4 percent in FY 2010, the first
year in which states separately reported these payments, to 17.5
percent of all FFS payments to hospitals, nursing facilities, ICF/IIDs,
and physician service payments in FY 2017. Supplemental payments to
providers under demonstration authority, which can allow additional
flexibility to cover beneficiaries and services not usually permitted
under state plan authority, have also grown. In December 2018, MACPAC
released the ``Medicaid Inpatient Hospital Services Fee-for Service
Payment Policy'' issue brief where it noted that expenditures for
hospital UPL supplemental payments increased from 2 to 3 percent of
total expenditures for Medicaid benefits between 2001 and 2016.\1\ In
the MACPAC analysis, the totality of supplemental payments, DSH
payments, and uncompensated care payments made under demonstration
authority, as a share of the total computable Medicaid payments to
hospitals in FY 2016, was 27 percent. In all, the MACPAC analysis
concluded that the total expenditures in 2016 for DSH payments were
$16.5 billion, for UPL supplemental payments were $16.4 billion, and
for uncompensated care payments were $8.5 billion.
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\1\ https://www.macpac.gov/wp-content/uploads/2016/03/Medicaid-Inpatient-Hospital-Services-Fee-for-Service-Payment-Policy.pdf.
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b. Current CMS Review of Provider Payments and Oversight Concerns
The Medicaid statute and regulations require states to report
program-related information to CMS regarding their payment
methodologies and incurred expenditures that are claimed for federal
matching funds. Section 1902(a)(6) of the Act requires the Medicaid
agency to make reports as the Secretary of Health and Human Services
(the Secretary) may require and to comply with provisions the Secretary
finds necessary to assure the correctness and verification of such
reports. Implementing regulations at 42 CFR 431.107(b) require states
to ensure that providers maintain auditable
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documentation of the services furnished to beneficiaries for which the
state makes program expenditures and claims FFP, to allow the federal
government to ensure that all applicable federal requirements are met.
Additionally, 42 CFR 430.30(c) requires states to submit the Form CMS-
64, which is a quarterly accounting statement of the state's actual
recorded expenditures that serves as the primary basis for Medicaid
payments to states under section 1903(a)(1) of the Act.
The primary means to collect information on Medicaid program
eligibility, services, and expenditures has historically been through
CMS' Medicaid Statistical Information System (MSIS), which is populated
by FFS claims and managed care encounter data from states' Medicaid
Management Information Systems (MMIS), which are an integrated group of
procedures and computer processing operations (sub-systems) developed
at the general design level to meet principal objectives, and CMS'
MBES, which is the system through which states file quarterly Medicaid
expenditures on the Form CMS-64. These systems have been essential to
both the states and the federal government in operating Medicaid and
provide valuable program information. However, neither the modern
Transformed Medicaid Statistical Information System (T-MSIS), which has
replaced MSIS, discussed further below, nor MBES, separately or
together, provides the level of detail on the payment and financing of
supplemental payments necessary to effectively monitor and evaluate the
use and impact of those payments.
MSIS is an eligibility and claims data set that provides a summary
of services and payments linked to specific beneficiaries on the basis
of claims submitted to the states by providers. However, the MSIS data
include very little information about the providers furnishing
services. In addition, MSIS is unable to capture the providers'
supplemental payments since those payments are not directly tied to
specific beneficiaries, but rather, typically, are made based on the
volume of Medicaid services rendered and generally are paid to
providers as lump sums, separately from payments for service claims.
Another often cited problem with MSIS data is that, in spite of
regulations requiring timely reporting, there is generally a
considerable time lag between when the services are paid for by the
state and when data on those payments is furnished to CMS through MSIS.
To improve the completeness and timeliness of such data for the
purposes of program monitoring and oversight, we currently are working
with states to collect more robust data through an expansion and update
of MSIS, which is referred to as the T-MSIS. T-MSIS data improves our
ability to study utilization patterns and trends, identify high cost
and high needs populations, analyze expenditures by category of service
and provider type, monitor enrollment and expenditures within delivery
systems, assess the impact of different types of delivery system models
on beneficiary outcomes, and examine access to care issues. However,
although we are currently working to improve T-MSIS' reporting
capability for supplemental payments, T-MSIS will not capture
supplemental payments at the level of detail proposed under this
proposed rule. It should be noted that T-MSIS is capable of capturing
the non-federal share of base rate payments. Currently, there are
significant gaps in state reporting related to this particular data
element, which we also are working with states to correct.
MBES data include all state expenditures filed on the Form CMS-64.
The Form CMS-64 is a summary of a state's actual Medicaid expenditures,
for both state program administration and medical assistance (that is,
payments for services furnished to beneficiaries), derived from source
documents including invoices, payment vouchers, governmental funds
transfers, expenditure certifications, cost reports and settlements,
and eligibility records. This form shows the disposition of Medicaid
grant funds for the quarter being reported and any prior period
adjustments. It also accounts for any overpayments, underpayments,
refunds received by the state Medicaid agency, and income earned on
grant funds. With limited exceptions, MBES does not contain
beneficiary, provider, or claim-level information for the reported
expenditures, including supplemental payments. We can only obtain such
information by requesting separate supporting documentation from the
state. Attempting to improve oversight and transparency of supplemental
payments, we added expenditure reporting lines in MBES in 2010 for
states to separately report the amounts of supplemental payments made
for various types of services. This information is reported at the
aggregate service level and does not include details on which providers
receive those payments, the specific amount received by each, or the
source of the non-federal share that supports those expenditures. While
this reporting requirement slightly improved transparency, there were
large variations in the total payment amounts reported through MBES and
the total payment amounts through UPL demonstrations and we are
concerned that state reporting has not always been complete and
accurate and should be improved.
We also gather information on the nature and extent of proposed
supplemental payments during our review of SPAs. As part of the
documentation submitted with payment-related SPAs, states must describe
which providers would be eligible for the payments and how the payments
would be calculated and distributed, provide an estimate of the fiscal
impact, and disclose the source of the non-federal share of the
proposed expenditures. The opportunity to evaluate the permissibility
and potential impact of supplemental payments is presented when a state
submits a proposal. Current regulations do not contemplate that, once
we have approved a SPA, as described in part 430, subpart B, we would
routinely monitor the implementation and effects of the SPA in a
formal, systematic way. The opportunity to review state payments after
the agency has approved a SPA generally is limited to the submission of
SPAs to update or change the supplemental payment methodology. Our
other mechanisms for review are financial management reviews and audits
of state programs which may cover any area of the Medicaid program and
require advanced planning and are resource intensive for CMS and
states. We also have relied upon reviews conducted by other government
oversight bodies. These reviews are often resource intensive and
require a large amount of data sharing, consultation, discussions, and
policy reviews. As such, many years may pass before we are able to
finalize the reviews and revisit supplemental payment methodologies,
either through financial management review or the submission of a SPA.
Because of this, we are unable to periodically evaluate these payment
arrangements, including individual underlying provider payment amounts,
to determine if the payments have been consistent with economy,
efficiency, quality, access, and appropriate utilization, as required
by statute. We do not generally collect further information associated
with a SPA in a centralized manner, and such information generally is
not presented at the provider level.
In its March 2014 Report to the Congress on Medicaid and CHIP,
MACPAC noted that supplemental payments to hospitals, according to
their analysis of supplemental payments
[[Page 63726]]
in 5 states, accounted for more than 20 percent of total computable
Medicaid FFS payments to hospitals in those 5 states, and in some
states account for more than 50 percent of such payments.\2\ MACPAC has
recommended that the Secretary collect provider-level data on
supplemental payments to, among other things, provide greater
transparency regarding Medicaid payments and facilitate assessments of
Medicaid payments and analysis of the relationship between supplemental
payments and access to care, as well as the economy and efficiency of
Medicaid payments. In developing this proposed rule, we also considered
the findings reported by MACPAC in the March 2012 Report to the
Congress on Medicaid and CHIP, which identified data limitations
regarding lump-sum Medicaid supplemental payments as an impediment to
comparing payment levels across providers and states, determining the
total amount of Medicaid spending on specific services and populations,
and evaluating the impact of Medicaid payment policies.\3\
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\2\ Medicaid and CHIP Payment and Access Commission, Report to
the Congress on Medicaid and CHIP, March 14, 2014, 184 (2014),
https://www.macpac.gov/wp-content/uploads/2015/01/2014-03-14_Macpac_Report.pdf.
\3\ Medicaid and CHIP Payment and Access Commission, Report to
the Congress on Medicaid and CHIP, March 15, 2012, 167 (2012),
https://www.macpac.gov/wp-content/uploads/2015/01/State_Approaches_for_Financing_Medicaid_and_Update_on_Federal_Financing_of_CHIP.pdf.
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Without complete provider-level payment information, we do not have
sufficient information to evaluate whether rate methodologies result in
payments within a service type and provider ownership group that are
economic and efficient as required under section 1902(a)(30)(A) of the
Act. The GAO has issued a series of reports which note that the lack of
reliable CMS data about Medicaid payments to providers and state
financing of the non-federal share hinders our ability to adequately
oversee the Medicaid program. To help ensure that each state meets the
statutory and regulatory requirements regarding its oversight
responsibilities, data reporting, and financial participation, the GAO
has recommended that regulatory and legislative efforts be
strengthened. Specific to Medicaid supplemental payments, the GAO has
had longstanding concerns regarding the need for improved transparency
and accountability. For example, in 2015, the GAO issued a report
entitled, ``Medicaid: CMS Oversight of Provider Payments Is Hampered by
Limited Data and Unclear Policy,'' that stated, ``[w]ithout good data
on payments to individual providers, a policy and criteria for
assessing whether the payments are economical and efficient, and a
process for reviewing such payments, the federal government could be
paying states hundreds of millions, or billions, more than what is
appropriate.'' \4\ As a result, the GAO has recommended that to better
ensure the fiscal integrity of the program, we should establish
financial reporting at a provider-specific level and clarify
permissible methods for calculating Medicaid supplemental payment
amounts.
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\4\ U.S. Gov't Accountability Office, GAO-15-322, Medicaid: CMS
Oversight of Provider Payments Is Hampered by Limited Data and
Unclear Policy, 46 (2015), https://www.gao.gov/assets/670/669561.pdf.
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Since the availability of FFS supplemental payments under the
aggregate UPL is driven by the volume of services provided through the
FFS system, a shift to managed care or certain demonstration projects
results in a lowered UPL estimate and a corresponding decrease in the
level of FFS supplemental payments that a state can make. For example,
there are instances when pool payments established through a
demonstration authorized under section 1115(a) of the Act pay for
uncompensated care costs for the provision of health care services to
Medicaid beneficiaries, the underinsured, and the uninsured, or for
state projects that promote delivery system reforms. States have also
authorized pass-through payments or incentive arrangements to providers
under managed care contracts that can operate similarly to existing FFS
supplemental payments. We have authorized these payments within certain
requirements described in 42 CFR part 438 and demonstration terms and
conditions, as applicable, noting that the financing requirements in 42
CFR parts 430 and 433 and addressed in this proposed rule are
applicable to FFS, managed care, and demonstration authorities.
Given the growing prevalence of supplemental payments and concerns
raised by federal oversight agencies, we are concerned that our past
practice of basing approval of SPAs regarding supplemental payments
primarily on aggregate UPL compliance does not provide us with
sufficient information to adequately ensure that supplemental payments
are consistent with statutory requirements for economy and efficiency,
quality of care, and access, or otherwise with sound program management
principles. As a result, as discussed in greater detail in section II.
of this proposed rule, the Provisions of the Proposed Rule section, we
are proposing to gather additional information to better understand how
states distribute supplemental payments to individual providers and
whether there are benefits to the Medicaid program resulting from the
supplemental payments.
2. Disproportionate Share Hospital (DSH) Payments
a. Background
States have statutory authority to make DSH payments to qualifying
hospitals. Section 1902(a)(13)(A)(iv) of the Act requires that states
take into account the situation of hospitals that serve a
disproportionate share of low-income patients with special needs, in a
manner consistent with section 1923 of the Act. These are not
considered part of the base rate payments or supplemental payments, as
they are made under distinct statutory authority. Section 1923 of the
Act contains specific requirements related to DSH payments, including
aggregate annual state-specific DSH allotments that limit FFP for
statewide total DSH payments under section 1923(f) of the Act, and
hospital-specific limits on DSH payments under section 1923(g) of the
Act. Under the hospital-specific limits, a hospital's DSH payments may
not exceed the costs incurred by that hospital in furnishing inpatient
and outpatient hospital services during the year to Medicaid
beneficiaries and the uninsured, less payments received from or on
behalf of the Medicaid beneficiaries or uninsured patients. In
addition, section 1923(a)(2)(D) of the Act requires states to provide
an annual report to the Secretary describing the DSH payment
adjustments made to each DSH.
Section 1001(d) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted December 8,
2003) added section 1923(j) of the Act to require states to report
additional information about their DSH programs. Section 1923(j)(1) of
the Act requires states to submit an annual report including an
identification of each DSH that received a DSH payment adjustment
during the preceding fiscal year (FY) and the amount of such
adjustment, and such other information as the Secretary determines
necessary to ensure the appropriateness of the DSH payment adjustments
for such fiscal year. Additionally, section 1923(j)(2) of the Act
requires states to submit an independent certified audit of the state's
DSH program, including specified content, annually to the Secretary.
[[Page 63727]]
b. Concerns Raised Regarding Overpayments Identified Through Annual DSH
Audits
The ``Medicaid Program; Disproportionate Share Hospital Payments''
final rule published in the December 19, 2008 Federal Register (73 FR
77904) (and herein referred to as the 2008 DSH audit final rule)
requires state reports and audits to ensure the appropriate use of
Medicaid DSH payments and compliance with the hospital-specific DSH
limits under section 1923(g) of the Act.
The regulations at 42 CFR part 455, subpart D, implement section
1923(j)(2) of the Act. FFP is not available for DSH payments that are
found in the independent certified audit to exceed the hospital-
specific limit. Amounts in excess of the hospital-specific limit are
regarded as overpayments to providers, under 42 CFR part 433, subpart
F. The discovery of overpayments necessitates the return of the federal
share or redistribution by the state of the overpaid amounts to other
qualifying hospitals, in accordance with the state's approved Medicaid
state plan. The regulations in part 433, subpart F provide for
refunding of the federal share of Medicaid overpayments paid to
providers. While the preamble to the 2008 DSH audit final rule
generally addressed the return or redistribution of provider
overpayments identified through DSH audits, it did not include specific
procedural requirements for returning or redistributing overpayments.
As described below, we are proposing to incorporate into regulation
procedural requirements associated with the return and redistribution
of DSH overpayments.
While the information included in the independent certified audits
and associated reports provides CMS and states with robust data, we are
often unable to determine whether a DSH overpayment to a provider has
occurred, the root causes of any overpayments, and the amount of the
overpayments associated with each cause. Despite the robust data,
potential data gaps may exist as a result of an auditor identifying an
area, or areas, in which documentation is missing or unavailable for
certain costs or payments that are required to be included in the
calculation of the total eligible uncompensated care costs. Therefore,
in current practice, an auditor may include a finding (or ``caveat'')
in the audit stating that the missing information may impact the
calculation of total eligible uncompensated care costs, instead of
making a determination of the actual financial impact of the identified
issue. This lack of transparency results in uncertainty and restricts
CMS' and states' ability to ensure proper recovery of all FFP
associated with DSH overpayments identified through annual DSH audits.
For example, an audit may identify that a hospital was unable to
satisfactorily document the outpatient services it provided to
Medicaid-eligible patients, indicating that charges and payments were
not included in the DSH uncompensated care calculation. Based on this
lack of documentation, the audit includes a caveat of its finding
indicating that the hospital's uncompensated care cost may be misstated
as a result of this exclusion and that the impact is unknown. Given
this lack of quantification of the financial impact of this finding, we
are unable to determine whether an overpayment, if any, has resulted
from this audit finding. To obtain such information, either CMS and/or
the state would have to conduct a secondary review or audit, which
would be burdensome and largely redundant. Specifically, conducting a
secondary review or audit after the independent auditors have completed
theirs would lengthen the review process, and therefore, delay the
results of the audit. It would also require additional time, personnel,
and resources by CMS, states, and hospitals to participate in a
secondary review or audit.
The OIG and GAO have raised concerns similar to ours with respect
to our ability to adequately oversee the Medicaid DSH program.
Specifically, the OIG published the report, ``Audit of Selected States'
Medicaid Disproportionate Share Hospital Programs'' in March 2006,\5\
in which the OIG recommended that we establish regulations requiring
states to implement procedures to ensure that future DSH payments are
adjusted to actual incurred costs, incorporate these adjustment
procedures into their approved state plans, and include only allowable
costs as uncompensated care costs in their DSH calculations. The 2008
DSH audit final rule addressed the concerns raised by the OIG in
regulations implementing the independent certified audit requirements
under section 1923(j) of the Act, by requiring states to include data
elements as specified in Sec. 447.299(c) with their annual audits. In
2012, the GAO published the report, ``Medicaid: More Transparency of
and Accountability for Supplemental Payments are Needed,'' \6\ in which
the GAO examined how information on DSH audits facilitates our
oversight of DSH payments. In the report, GAO analyzed the 2010 DSH
audits submitted by states. Of the 2,953 audits submitted to CMS, 228
had data reliability or documentation issues that inhibited the
auditor's ability to determine compliance with DSH audit requirements.
While the independent certified audit requirements have allowed us to
identify various compliance issues and quantify some provider
overpayments, in some instances, audits have identified issues related
to incomplete or missing data and have failed to make a determination
regarding the financial impact of these issues. Therefore, we have
identified this area as an opportunity to strengthen program oversight
and integrity protections, specifically with respect to the overpayment
and redistribution reporting process and requirements for identifying
the financial impact of audit findings. In proposing an additional data
element, as discussed below, we hope to further enhance our oversight
to better ensure the integrity of hospital-specific limit calculations.
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\5\ Audit of Selected States' Medicaid Disproportionate Share
Hospital Programs,'' March 2006 (A-06-03-00031), https://www.oig.hhs.gov/oas/reports/region6/60300031.pdf.
\6\ https://www.gao.gov/assets/660/650322.pdf.
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The new data element we are proposing to add to annual DSH
reporting would require auditors to quantify the financial impact of
any finding, including those resulting from incomplete or missing data,
which may affect whether each hospital has received DSH payments for
which it is eligible within its hospital-specific DSH limit. We believe
that requiring the quantification of these findings would limit the
burden on both states and CMS of performing follow-up reviews or audits
and will help ensure appropriate recovery and redistribution, as
applicable, of all DSH overpayments.
To enhance federal oversight of the Medicaid DSH program and
improve the accuracy of DSH audit overpayments identified and collected
through annual DSH audits, we are also proposing to require states to
report overpayments identified through annual DSH audits and related
payment redistributions on the Form CMS-64 in a timely and transparent
manner. Specifically, we propose to clarify the reporting requirement
for overpayments identified through the annual DSH audits at Sec.
447.299(f), by directing states to return payments in excess of
hospital-specific cost limits to the federal government by reporting
the excess amount on Form CMS-64, as a decreasing adjustment. We are
proposing to require states to report these decreasing adjustments to
[[Page 63728]]
correspond with the fiscal year DSH allotment on the Form CMS-64.
Additionally, we are proposing to establish reporting requirements on
the redistribution of DSH overpayments, as determined under Sec.
447.299(g) of this chapter in accordance with a redistribution
methodology in the approved Medicaid state plan. We propose to require
states to report the redistribution of DSH overpayments to correspond
with the fiscal year DSH allotment and Medicaid state plan rate year,
on the Form CMS-64. This proposal memorializes our redistribution
policy in regulations and enhances proper oversight. We are proposing
that overpayment amounts be redistributed within 2 years from the date
of discovery, as proposed under Sec. 447.299(g).
c. Modernizing the Publication of Annual DSH Allotments
Section 447.297 provides a process and timeline for CMS to publish
preliminary and final annual DSH allotments and national expenditure
targets in the Federal Register. The current requirements specify that
we publish DSH allotments and national expenditure targets, in
preliminary and final formats, by October 1st (preliminary target and
allotments) and April 1st (final target and allotments) of each federal
fiscal year. We have found the current regulatory Federal Register
publication process to be time consuming and administratively
burdensome and are concerned that the information is not available to
states and other interested parties in a timely and easily accessible
manner. In this proposed rule, we propose to make allotment and
national expenditure targets available more timely by posting the
information on Medicaid.gov and in MBES, or its successor website or
system, instead of publishing this information in the Federal Register.
3. Medicaid Program Financing
a. Background
Medicaid expenditures are jointly funded by the federal and state
governments. Section 1903(a)(1) of the Act provides for payments to
states of a percentage of medical assistance expenditures authorized
under the approved state plan. FFP is available when there is a covered
Medicaid service provided to a Medicaid beneficiary, which results in a
federally matchable expenditure that is funded in part through non-
federal funds from the state or a non-state governmental entity (except
when the statute provides a 100 percent federal match rate for
specified expenditures). The percentage of federal funding is the
federal medical assistance percentage (FMAP) that is determined for
each state using a formula set forth in section 1905(b) of the Act, or
other applicable federal matching rates specified by the statute.
The foundation of federal-state shared responsibility for the
Medicaid program is that the state must participate in the financial
burdens and risks of the program, which provides the state with an
interest in operating and monitoring its Medicaid program in a manner
that results in receiving the best value for the funds expended.
Sections 1902(a), 1903(a), and 1905(b) of the Act require states to
share in the cost of medical assistance and in the cost of
administering the state plan. Section 1902(a)(2) of the Act and its
implementing regulation in part 433, subpart B require states to share
in the cost of medical assistance expenditures and permit other units
of state or local government to contribute to the financing of the non-
federal share of medical assistance expenditures. These provisions are
intended to safeguard the federal-state partnership, irrespective of
the Medicaid delivery system or authority (for example, FFS, managed
care, and demonstration authorities), by ensuring that states are
meaningfully engaged in identifying, assessing, mitigating, and sharing
in the risks and responsibilities inherent in a program as complex and
economically significant as Medicaid and are accordingly motivated to
administer their programs economically and efficiently.
Of the permissible means for financing the non-federal share of
Medicaid expenditures, the most common is through state general funds,
typically derived from tax revenue appropriated directly to the
Medicaid agency. Revenue derived from health care-related taxes can be
used to finance the non-federal share only when consistent with federal
statutory requirements at section 1903(w) of the Act and implementing
regulations at part 433, subpart B. The non-federal share may also be
funded in part from provider-related donations to the state, but these
donations must be ``bona fide'' in accordance with section 1903(w) of
the Act and implementing regulations, which means truly voluntary and
not part of a hold harmless arrangement that effectively repays the
donation to the provider (or to providers furnishing the same class of
items and services).
Non-federal share financing sources can also come from IGTs or
certified public expenditures (CPEs) from local units of government or
other units of state government in which non-state governmental
entities contribute funding of the non-federal share for Medicaid
either by transferring their own funds to and for the unrestricted use
of the Medicaid agency or by certifying to the state Medicaid agency
the amount of allowed expenditures incurred. In each instance,
allowable IGTs and CPEs, as with funds appropriated to the state
Medicaid Agency, must be derived from state or local tax revenue or
from funds appropriated to state university teaching hospitals. IGTs
may not be derived from impermissible health care-related taxes or
provider-related donations (discussed below); they are subject to all
applicable federal statutory and regulatory restrictions. Even when
using funds contributed by local governmental entities, the state must
meet the requirements at section 1902(a)(2) of the Act and Sec. 433.53
that obligate the state to fund at least 40 percent of the non-federal
share of total Medicaid expenditures (both service related and
administrative expenditures) with state funds. Additionally, these
authorities require states to assure that a lack of funds from local
sources will not result in lowering the amount, duration, scope, or
quality of services or level of administration under the plan in any
part of the state.
The extent to which private providers may participate in the
funding of any Medicaid payment (for example, managed care, FFS base,
or supplemental payments) is essentially restricted to the state's
authority to levy limited health care-related taxes and to rely on bona
fide provider-related donation in accordance with statutory and
regulatory requirements. Since the use of IGTs and CPEs are restricted
to governmental entities, states and providers increasingly have turned
to the use of health care-related taxes to enable the maintenance of,
or increases to, Medicaid payments to providers. In addition, several
states have explored the use of provider-related donation arrangements
to further leverage private provider funding.
b. Current CMS Review of Medicaid Financing and Oversight Concerns
We employ various oversight mechanisms to review state methods for
funding the non-federal share of Medicaid payments including, but not
limited to, reviews of proposed SPAs, quarterly financial reviews of
state expenditures reported on the Form CMS-64, focused financial
management reviews, and reviews of state health care-related tax and
provider-related donation proposals and waiver requests. As discussed
in detail above, states
[[Page 63729]]
must submit Medicaid SPAs to CMS for review and approval when adding or
changing FFS provider payment methodologies. We review the SPAs to
ensure the methodologies meet all federal requirements and the proposed
payments and sources of the non-federal share may be approved and serve
as the basis for FFP. In making approval decisions, we ask for certain
information from states to document the source of the non-federal share
during our SPA review process.
In response to our inquiries, states will typically describe
whether the non-federal share is sourced through funds appropriated by
the state legislature directly to the single state Medicaid agency, or
whether the state relies on state or local government units to
participate in funding the non-federal share through IGTs or CPEs.
Additionally, states are asked to disclose whether the underlying
financing involves a health care-related tax or a provider-related
donation. When states rely on IGTs and CPEs as the source of the non-
federal share, we request details on the transferring or certifying
entities that participate in funding expenditures, including assurances
that the entities are units of government, and the source of a unit of
government's IGT. Based on the information that we receive from states,
we may also ask for additional documentation to ensure the source of
non-federal share complies with all applicable federal laws,
regulations, and requirements, particularly those describing
permissible health care-related taxes and provider-related donations.
Though our current SPA review processes allow us to ensure states
identify a permissible source of non-federal share at the time that we
approve an amendment, we have no reliable mechanism to track and
understand whether the source of the non-federal share changes after a
SPA has been approved. Based on studies conducted by the GAO (see for
example, States' Increased Reliance on Funds from Health Care Providers
and Local Governments Warrants Improved CMS Data Collection, GAO-14-
627, July 29, 2014), we are aware that states are increasingly reliant
on non-state units of government to fund the non-federal share through
IGTs, CPEs, and health care-related taxes. In fact, the GAO cites
Medicaid supplemental payments and the associated non-federal share as
a Medicaid High Risk Issue (GAO Report to Congressional Committees
High-Risk Series Substantial Efforts Needed to Achieve Greater Progress
on High-Risk Areas, GAO-19-157SP, March 6, 2019) and has called for CMS
to implement improved oversight and data collection processes to track
sources of non-federal share.
It is important to acknowledge that section 1903(w)(6)(A) of the
Act specifically permits state and local units of government to share
in financing the Medicaid program through IGTs and CPEs. Such local
participation is inherent in the Medicaid program and recognizes the
shared role that state and local government units can play in
delivering Medicaid services. Nothing in this proposed rule would
result in limiting state and local government units from contributing
to the Medicaid program through allowable IGT and CPE funding sources.
However, as discussed in the GAO's studies, the increasing reliance on
Medicaid funding derived from units of state and local government may
serve to undermine the state and federal financing partnership, as
where states establish payment methodologies that favor certain
providers solely on the basis of whether a unit of state or local
government can provide the non-federal share to support Medicaid
supplemental payments. Notably, section 1902(a)(2) of the Act requires
states to assure that a lack of funds from local sources will not
result in lowering the amount, duration, scope, or quality of services
or level of administration under the plan. We have concerns that, in
certain circumstances, increased reliance on units of states or local
government to fund the non-federal share may result in conflicts with
section 1902(a)(30)(A) of the Act.
For example, we have identified and worked to address various
Medicaid financing arrangements that appear designed to increase the
federal share of Medicaid funding without a commensurate state or local
contribution as required by sections 1902(a), 1903(a), and 1905(b) of
the Act, which require states to share in the cost of medical
assistance and in the cost of administering the state plan. We have
identified manipulations of Medicaid UPL demonstration calculations
that would serve to increase a state's ability to make supplemental
payments above a reasonable Medicare estimate in states that have used,
or proposed to use, an unallowable IGT to fund the state share of a
Medicaid supplemental payment. We have also identified the manipulation
of cost identification data providers rely on to certify Medicaid
expenditures through a CPE process that, whether intentional or not,
results in the federal government paying for costs that are unallowable
under the Medicaid program.
Some of the more complicated, and unallowable, Medicaid financing
arrangements we have reviewed resulted from public-private partnership
arrangements between private entities and units of government. These
arrangements attempt to mask non-bona fide provider-related donations
as an allowable IGT and result in increased supplemental payments to
the donating private entity or entities. Discussed in detail in State
Medical Director Letter (SMDL) 14-004 and elsewhere in this preamble,
partnership arrangements between a private provider and a government
entity have involved the private provider providing cash, a service, or
other in-kind donation to the government entity that is seemingly
unrelated to the Medicaid program. In exchange for the private
provider's contribution, the government entity will make an IGT to the
Medicaid agency, which is then used as the non-federal share of
supplemental Medicaid payments which are then returned to the private
entity to repay them for the non-bona fide provider-related donation
consistent with the underlying hold harmless agreement. The IGT is
derived from funds that the government entity previously would have
spent on the medical services (or other obligation) that are now being
provided or paid for by the private entity. These funds would not be
available to use as state share of Medicaid expenditures, if not for
the public-private partnership arrangement, since the funds are derived
from the non-bona fide provider-related donation (and not derived from
state or local tax revenue or from funds appropriated to the state
university teaching hospitals).\7\
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\7\ Dep't of Health & Human Servs., CMS, State Medicaid Director
Letter 14-004, Accountability #2: Financing and Donations, 3,
(2014), https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/SMD-14-004.pdf.
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The provisions of this proposed rule seek to address these and
similar financing concerns through a number of strategies. Proposed
improvements to state reporting associated with supplemental payments
and sources of the non-federal share would allow CMS to monitor changes
in non-federal share funding after a SPA is approved and any associated
increases in federal expenditures for supplemental payments, relative
to state expenditures. Additional specificity in definitions relevant
to Medicaid financing arrangements and in requirements for information
states must provide to support various funding mechanisms and
supplemental payments would strengthen oversight of program
expenditures by us and the states. Finally, we propose to address
certain egregious funding schemes that mask
[[Page 63730]]
non-bona fide donations as allowable IGTs by clarifying where an
indirect hold harmless arrangement may exist and by expressly
prohibiting supplemental payments that support these schemes. Together,
proposed new policies and the proposed codification of existing
policies related to Medicaid financing aim to provide CMS and states
with better information and guidance to identify existing and emerging
financing issues, provide more clarity on allowable financing
arrangements, promote state accountability, and strengthen the fiscal
integrity of the Medicaid program.
4. Health Care-Related Taxes and Provider-Related Donations
a. Background
States first began to use health care-related taxes and provider-
related donations in the mid-1980s as a way to finance the non-federal
share of Medicaid payments (Congressional Research Service, ``Medicaid
Provider Taxes'', August 5, 2016, p.2). Providers would agree to make a
donation or would support (or not oppose) a tax upon their activities
or revenues, and these mechanisms would generate funds that could then
be used to raise Medicaid payment rates to the providers. Frequently,
these programs were designed to hold Medicaid providers ``harmless''
for the cost of their donation or tax payment. As a result, federal
expenditures rapidly increased without any corresponding increase in
state expenditures, since the funds used to increase provider payments
came from the providers themselves and were matched with federal funds.
In 1991, the Congress passed the Medicaid Voluntary Contribution and
Provider-Specific Tax Amendments (Pub. L. 102-234, enacted December 12,
1991) to curb the use of provider-related donations and health care-
related taxes to finance the non-federal share of Medicaid
expenditures. Section 1903(w)(1)(A) of the Act specifies that, for
purposes of determining the federal matching funds to be paid to a
state, the total amount of the state's Medicaid expenditures must be
reduced by the amount of revenue the state collects from impermissible
health care-related taxes and non-bona fide provider-related donations.
The statute requires that taxes be imposed on a permissible class
of health care items or services; and be broad based, meaning that all
non-federal, nonpublic providers and all items and services within a
class of health care items or services would be taxed, as well as
uniform, meaning that the tax rate would be the same for all health
care items or services in a class, as well as providers of such items
or services. The statute prohibits hold harmless arrangements in which
collected taxes are returned directly or indirectly to taxpayers. The
Secretary is required by section 1903(w)(3)(E) of the Act to waive
either the broad based and/or uniformity requirements as long as the
state establishes, to the Secretary's satisfaction, that the net impact
of the tax and associated expenditures is generally redistributive in
nature, and the amount of the tax is not directly correlated to
Medicaid payments for items and services with respect to which the tax
is imposed.
Section 1903(w)(2)(A) of the Act defines a provider-related
donation as any donation or other voluntary payment (in-cash or in-
kind) made directly or indirectly to a state or unit of a local
government by a health care provider, an entity related to a health
care provider, or an entity providing goods or services under the state
plan for which payment is made under section 1903(a)(2), (3), (4), (6),
or (7) of the Act (generally, administrative goods and services).
Section 1903(w)(2)(B) of the Act defines a bona fide provider-related
donation as a provider-related donations that has no direct or indirect
relationship (as determined by the Secretary) to payments made under
title XIX to that provider, to providers furnishing the same class of
items and services as the donating provider, or to any related entity,
as established to the satisfaction of the Secretary. The statute gives
the Secretary the authority to specify, by regulation, types of
provider-related donations that will be considered to be ``bona fide.''
Regulations at part 433, subpart B describe the requirements necessary,
irrespective of the Medicaid delivery system authority (for example,
FFS, managed care, or demonstration authorities), for a donation to be
considered bona fide.
In response to the Medicaid Voluntary Contribution and Provider-
Specific Tax Amendments of 1991, we published the ``Medicaid Program;
Limitations on Provider-Related Donations and Health Care-Related
Taxes; Limitations on Payments to Disproportionate Share Hospitals''
interim final rule with comment period in the November 24, 1992 Federal
Register (57 FR 55118) (November 1992 interim final rule) and the
subsequent final rule published in the August 13, 1993 Federal Register
(58 FR 43156) (August 1993 final rule) establishing when states may
receive funds from provider-related donations and health care-related
taxes without a reduction in medical assistance expenditures for the
purposes of calculating FFP. These rules established the statistical
tests used to judge requests for waivers of the broad-based and
uniformity requirements and defined bona fide provider-related
donations.
After the publication of the August 1993 final rule, we revisited
the issue of health care-related taxes and provider-related donations
in the ``Medicaid Program; Health-Care Related Taxes'' final rule (73
FR 9685) which published in the February 22, 2008 Federal Register
(February 2008 final rule). The February 2008 final rule, in part,
implemented section 1903(w)(7)(A)(viii) of the Act by expanding the
Medicaid managed care organization (MCO) class of health care items and
services (73 FR 9698) to include all MCOs specified in section 6051 of
the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171, enacted
February 8, 2006). Specifically, it amended the class of health care
services and providers specified in Sec. 433.56(a)(8) from services of
Medicaid MCOs to services of MCOs including health maintenance
organizations (HMOs) and preferred provider organizations (PPOs). As a
result of this change, states could no longer impose a tax solely on
MCOs providing services to only Medicaid beneficiaries.
The regulation also made explicit that certain practices would
constitute a hold harmless arrangement, in response to certain state
tax programs that we believed contained hold harmless provisions. Five
states had imposed a tax on nursing homes and simultaneously created
programs that awarded grants or tax credits to private pay residents of
nursing facilities that enabled these residents to pay increased
charges imposed by the facilities, which thereby recouped their own tax
costs. We believed that these payments held the taxpayers (the nursing
facilities) harmless for the cost of the tax, as the tax program
compensated the facilities indirectly, through the intermediary of the
nursing facility residents. However, in 2005, the DAB (Decision No.
1981) ruled that such an arrangement did not constitute a hold harmless
arrangement under the regulations then in place. To clarify agency
interpretation that this practice does constitute a hold harmless
arrangement, the February 2008 final rule clarified the direct
guarantee test found at Sec. 433.68(f) by specifying that a direct
guarantee to hold the taxpayer harmless for the cost of the tax through
a direct or indirect payment will be found when, ``a payment is made
available to a taxpayer or party related
[[Page 63731]]
to a taxpayer'' so that a reasonable expectation exists that the
taxpayer will be held harmless for all or part of the cost of the tax
as a result of the payment (73 FR 9694). As an example of a party
related to the taxpayer, the preamble cited the example of, ``as a
nursing home resident is related to a nursing home (73 FR 9694). As a
result, whenever there existed a ``reasonable expectation'' (73 FR
9695) that the taxpayer would be held harmless for the cost of the tax,
a hold harmless situation would exist and the tax would be
impermissible.
b. Concerns Relating to Health Care-Related Tax Waivers
States and their units of local government have the ability to
impose broad-based and uniform health care-related taxes without
explicit CMS approval. However, if the tax implemented by the state or
unit of local government is not broad-based and/or uniform, the state
must apply to CMS for a waiver of the applicable tax requirements. As
part of these requirements, the state must demonstrate to the
satisfaction of the Secretary that the tax passes a statistical test
specified in regulation to waive either the broad-based requirement, or
the uniformity requirement, or both, as specified in Sec. 433.68(e)(1)
or (2). These tests were designed to evaluate whether or not a proposed
tax would be ``generally redistributive,'' as required by section
1903(w)(3)(E)(ii)(I) of the Act. The preamble to the November 1992
interim final rule indicated that, in interpreting the statutory phrase
``generally redistributive,'' we ``attempted to balance our desire to
give states some degree of flexibility in designing tax programs with
our need to preclude use of revenues derived from taxes imposed
primarily on Medicaid providers and activities'' (57 FR 55128). In the
preamble of August 1993 final rule, we interpreted ``generally
redistributive'' to mean ``the tendency of a state's tax and payment
program to derive revenues from taxes imposed on non-Medicaid services
in a class and to use these revenues as the state's share of Medicaid
payments'' (57 FR 55128).
At the time of these rules, we anticipated the two mathematical
tests in Sec. 433.68(e)(1) and (2) would be sufficient to ensure that
a proposed tax would be ``generally redistributive,'' as we interpret
that statutory language. Specifically, the first test known as the
``P1/P2 test'' in Sec. 433.68(e)(1) is required for taxes that are
uniform, but not broad based. At the time of these rules, we
anticipated the two mathematical tests in Sec. 433.68(e)(1) and (2)
would be sufficient to ensure that a proposed tax would be ``generally
redistributive,'' as we interpret that statutory language.
Specifically, the first test known as the ``P1/P2 test'' in Sec.
433.68(e)(1) is required for taxes that are uniform, but not broad
based. As described in the November 1992 interim final rule (57 FR
55128), the test requires the State to calculate the proportion of the
tax applicable to Medicaid under a broad-based tax (designated as P1),
and the proportion applicable to Medicaid under the tax as imposed by
the State (called P2). By dividing P1 by P2, the test was intended to
measure whether or not the uniform, but non-broad based tax was
redistributive. Resulting values higher than one indicated the tax was
more redistributive than a broad-based and uniform tax, while values
less than one would indicate it was less redistributive and placed a
disproportionate share of the tax burden on the Medicaid program (57 FR
55128).
The November 1992 interim final rule (57 FR 55128) also described
the second test known as the ``B1/B2 test,'' applying in situations
when the state requests a waiver of the uniformity requirement whether
or not the tax is broad-based. In this test, the State would calculate
the slope of two linear regressions: One for the tax program for which
waiver is requested, and one for the tax if it were applied uniformly
and as a broad-based tax where the slope (that is, the X coefficient)
of the linear regression applicable to the hypothetical broad-based
uniform tax (called B1) is divided by the slope of the linear
regression applicable to the tax for which a waiver is sought (called
B2) (57 FR 55128). Similar to the P1/P2 test for uniform taxes that are
not broad based, the B1/B2 test was designed to show that values higher
than one indicate the non-uniform tax was more redistributive than a
broad-based and uniform tax, while values less than one would indicate
that it was less redistributive and disproportionately burdened the
Medicaid program (57 FR 55128).
However, subsequent experience has proven that the two mathematical
tests do not ensure, in all cases, that proposed taxes that pass the
applicable test are generally redistributive. Certain states have
identified a loophole where taxes can pass the statistical test(s)
despite their imposition of undue burden on the Medicaid program. For
example, several states have imposed taxes on managed care entities
that, by design, clearly impose a greater and undue tax burden on the
Medicaid program than other payers. States have structured the taxes by
dividing the universe of entities subject to taxation into smaller
taxpayer groups based on various attributes, such as annual member-
months by payer. In this example, states have imposed significantly
higher rates on some taxpayer groups defined by a relatively higher
number of Medicaid member-months than on commercial payer member-
months, with some Medicaid activity (member-months in this example)
subject to taxation at a rate more than 25 times higher than the rate
for otherwise similar commercial activity. Counterintuitively, these
taxes are able to pass the statistical tests designed to ensure that
the tax is generally redistributive, despite the states' own
information indicating, in one state, that plan revenue from Medicaid
paid 88 percent of the assessed tax even though only 45 percent of the
member months subject to the tax were attributable to Medicaid
beneficiaries. Under these tax conditions, the proposed rule would give
CMS the authority to determine that the tax is not generally
redistributive, despite the fact that it could pass the applicable
statistical test under current regulations, because it places an undue
burden on the Medicaid program (as indicated in the example by the
disproportionate share of the tax attributable to Medicaid relative to
Medicaid's share of total member months). The August 1993 final rule
noted that, ``to the extent a tax is imposed more heavily on low
Medicaid utilization than high Medicaid providers, the tax would be
considered redistributive,'' in that case, there would be a ``tendency
of a state's tax and payment program to derive revenues from taxes
imposed on non-Medicaid services in a class and to use these revenues
as the state's share of Medicaid payments'' (57 FR 55128). However, in
the situations involving the type of statistical manipulation described
above, the exact opposite is the case. In these instances, states are
imposing taxes that place a greater tax burden on Medicaid-reimbursed
health care items and services, and providers of such items and
services, than on comparable entities not reimbursed by Medicaid. Such
a tax is not generally redistributive in nature.
In an effort to more effectively prohibit tax arrangements that are
not generally redistributive, for us to approve a waiver of the broad
based and/or uniformity requirements, this proposed rule would require
that a tax must not impose undue burden on health care items or
services paid for by Medicaid or on providers of such items and
services that are reimbursed by
[[Page 63732]]
Medicaid. Generally, as discussed in greater detail below, we would
provide that the tax may not be structured in a way that places a
greater tax burden on taxpayer groups that have a greater level of
Medicaid activity, as proposed to be defined below, than those that
have less or no Medicaid activity.
Some states have designed non-broad based and/or non-uniform tax
structures that exclude, or lower tax rates on, taxpayers grouped
together on the basis of their lack of or low levels of Medicaid
activity compared to other taxpayers in the class. We believe that such
tax structures inherently impose undue burden on the Medicaid program,
and therefore, do not meet the statutory generally redistributive
requirement. Similarly, we are concerned that some states might provide
tax relief to taxpayers grouped together ostensibly on a basis other
than Medicaid activity, but that the specific basis for the grouping is
designed to obscure a true purpose to define the group based on lack of
or relatively low Medicaid activity. For example, a state could attempt
to exclude from taxation or place a lower tax rate on all hospitals
within a certain geographic area that has certain demographic
characteristics, such as all counties with populations between 40,000
and 85,000 residents. Under the particular conditions in the state, it
could result that this commonality serves as a substitute for the
included hospitals having low or no Medicaid activity. In this example,
the commonality could be viewed as a substitute for Medicaid activity
if only two counties in the state met this criteria, and the hospitals
in these two counties had relatively low Medicaid activity compared to
hospitals in the other counties in the state, as might occur in the
case of a county with relatively low Medicaid enrollment in the county
and surrounding counties. Such a tax program likely would result in the
Medicaid program funding a disproportionate share of tax revenues, as
counties containing hospitals with low levels of Medicaid activity
would be excluded by the structure of the tax. In that case, the burden
of the tax would fall upon hospitals with higher Medicaid activity.
Therefore, as discussed below, we are proposing to consider tax
structures not to be generally redistributive when taxpayers are
grouped together in a manner that isolates taxpayers with relatively
higher or lower levels of Medicaid activity and when taxpayers with
relatively higher Medicaid activity are taxed relatively more heavily.
We propose to consider the totality of the circumstances when deciding
whether the tax program involves taxpayer groupings that, by proxy,
have the effect of sorting taxpayers by relatively higher or lower
levels of Medicaid activity. The proposed rule would retain the two
statistical tests currently at Sec. 433.68 when determining whether or
not the proposed tax waiver would be generally redistributive as
required by statute. However, in determining whether or not a tax
program is generally redistributive, consideration would also be given
to examine the totality of the circumstances in addition to the
applicable statistical test.
We aim to balance preserving state flexibility in designing tax
programs with ensuring health care-related taxes meet statutory
generally redistributive requirements. We do not intend to interfere
with states' ability to exclude from taxation or impose lower tax rates
on health care items and services or on providers based on genuine
commonalities that meet legitimate policy objectives. However, it is
incumbent upon us to prevent tax structures designed to impose an undue
burden on the Medicaid program, including on participating providers
and/or health care items and services for which Medicaid pays, in
contravention of federal statutory requirements.
c. Concerns Relating to the Definition of a Health Care-Related Tax
Section 1903(w)(3)(A)(i) of the Act defines a health care-related
tax using multiple tests that must be applied to tax proposals. Section
1903(w)(3)(A)(i) of the Act stipulates health care-related taxes are
related to: (1) Health care items or services; (2) the provision of, or
the authority to provide, health care items or services; or (3) payment
for health care items or services. Section 1903(w)(3)(A)(ii) of the Act
further stipulates that a tax is a health care-related tax when it is
not limited to health care-related items or services, but provides for
treatment of individuals or entities that provide or pay for health
care-related items or services that is different than treatment of
``other individuals or entities.'' Any tax must be fully evaluated
against all components of the statutory definition to determine whether
it qualifies as a health care-related tax.
In determining whether a tax is related to health care items or
services, section 1903(w)(3)(A) of the Act also specifies that if at
least 85 percent of the tax burden falls on health care providers, it
is considered to be related to health care items or services. However,
this provision does not establish a safe harbor for any tax on health
care providers that falls below the threshold. Section 433.55(c)
specifies that if less than 85 percent of the tax burden falls on
health care items or services, the tax may still be considered to be
health care-related if differential treatment exists for entities
providing or paying for health care items or services relative to other
entities. If less than 85 percent of the tax burden falls on health
care items or services, the treatment of those entities must still be
analyzed to determine if the tax treats them equally.
Outside oversight bodies have raised concerns that states have
attempted to subvert federal regulations regarding health care-related
taxes by masking them as part of larger non-health care-related taxes.
States may do so by including impermissible health care-related taxes
inside larger tax programs that include non-health care-related taxes
in such a way so as to avoid being considered a health care-related tax
in accordance with Sec. 433.55. The OIG identified one such attempt in
a May 2014 report (A-03-13-00201),\8\ in which the OIG described a
state that appeared to be taxing only income from Medicaid MCO services
by incorporating only Medicaid MCOs into larger (often existing) state
and local taxes otherwise unrelated to Medicaid, despite the DRA
provisions which prohibited taxation of only Medicaid MCOs.
Specifically, section 6051 of the DRA amended section 1903(w)(7)(A) of
the Act to change the relevant permissible class of health care items
and services from ``[M]edicaid managed care organizations'' to MCOs
generally. In its report, the OIG recommended that CMS issue
clarification to states regarding its interpretation of statute and
regulations regarding health care-related taxes as soon as possible and
warned that failure to do so could result in a proliferation of similar
Medicaid MCO taxes if states believed that it was permissible to
incorporate otherwise impermissible health care-related taxes into pre-
existing, non-health care-related tax programs as long as less than 85
percent of the tax burden fell on health care providers. Absent
clarifying guidance, we were also concerned that states could
mistakenly believe that selectively incorporating a tax on health care
items or services for which Medicaid is a significant payer, like home
and community-based services (HCBS), into a broader state tax program
would result in the HCBS tax not being defined as health-care related.
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\8\ https://oig.hhs.gov/oas/reports/region3/31300201.pdf.
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[[Page 63733]]
In July 2014, we issued State Health Official (SHO) letter #14-001
(SHO #14-001) on health care-related taxes. This guidance clarified
that even in cases where less than 85 percent of a tax falls on health
care items or services, the tax can be considered health care-related.
If a tax treats health care items or services differently, the tax is
still considered a health care-related tax. Specifically, SHO #14-001
stated that taxing a subset of health care services or providers at the
same rate as a statewide sales tax, for example, does not result in
equal treatment if the tax is applied specifically to a subset of
health care services or providers (such as only Medicaid MCOs), since
the providers or users of those health care services are being treated
differently than others who are not within the specified universe.
Despite this guidance, some states have continued to selectively
incorporate health care items or services into larger tax programs that
also levy taxes on goods and services unrelated to health care in an
apparent attempt to circumvent the statutory restrictions on health
care-related taxes. These impermissible tax arrangements have not been
limited to states incorporating only Medicaid MCOs into broader state
or local taxes, but have included other health care items or services,
such as private non-medical institution services.
Often, the health care items and services (or providers) subject to
such taxes are subsets of health care items and services (or providers)
highly utilized by Medicaid beneficiaries and/or do not meet the
permissible class definition in Sec. 433.56. For example, a state may
try to impose a tax on a service that is mostly (if not entirely)
reimbursed by Medicaid, which does not fall under an existing
permissible class at Sec. 433.56, such as HCBS. A state may include a
service like this among other goods and services that are taxed under a
larger tax program that is not explicitly related to health care, such
as a tax program principally concerned with natural resources or
telecommunications. The proposed rule clarifies that by targeting a
specific type of health care-related item or service and incorporating
it into a larger tax (the HCBS portion of this tax to continue with the
above example) would be considered health care-related--even if 85
percent of the revenue from the tax overall did not come from health
care-related items or services or providers of such items or services.
The preamble to the November 1992 interim final rule with comment
period discussed the circumstances in which health care items and
services included within a larger non-health care related-tax would
cause the tax to be considered health care-related in situations where
they did not constitute 85 percent of the tax revenue. To illustrate
when such taxes would or would not be considered health care-related,
the preamble gave the hypothetical example of a 5 percent tax on the
gross revenues of hospitals and gas stations that generated $100
million dollars in tax revenue. The preamble stated that if the
hospitals paid $90 million of the tax, then the tax would be considered
to be health care-related because this would exceed the 85 percent
threshold. However, if the hospitals paid only $60 million dollars,
then the tax would not be considered health care-related because the
tax rate is the same for health care items or services and non-health
care items or services and the hospitals would be taxed at under the 85
percent threshold established in regulation.
We are aware that this example may not have been as clear as
possible and could have led to confusion as to what different treatment
for health care items and services means in the context of Sec.
433.55(c). Specifically, we are concerned some parties misinterpreted
this example as indicating approval of states selecting specific health
care-related items and services for inclusion within a broader tax
program without the tax being considered health care-related as long as
less than 85 percent of the tax burden falls on such items and
services. We believe this potential misinterpretation is inconsistent
with section 1903(w)(3)(A)(ii) of the Act, Sec. 433.55(c), and the
preamble to the August 1993 final rule, which stated in response to a
commenter, ``We believe section 1903(w)(3)(A)(ii) [of the Act] prevents
the state from implementing a tax that may be masked by an existing
non-health care-related tax'' (58 FR 43160). In the aforementioned
preamble example, a tax in which hospitals paid $60 million and gas
stations paid $40 million under a flat 5 percent gross revenues tax was
not necessarily considered health care-related because the burden on
providers of health care items and services is less than 85 percent.
While Sec. 433.55(c) states that in situations where less than 85
percent of the tax burden falls on health care items or services the
tax may still be considered health care-related if differential
treatment exists for entities providing or paying for health care items
or services. However, Sec. 433.55(c) does not specify the reference
group against which one should measure differential treatment.
While statute and regulation specify that differential treatment
results in a tax being considered health care-related, existing law and
regulations do not explicitly describe what constitutes differential
treatment. Therefore, we are proposing to clarify what constitutes
differential treatment to clarify when taxes are health care-related
and when they are not. We believe this clarification would assist in
prohibiting state or local units of government from incorporating an
impermissible tax on health care items or services into a larger
existing tax, such as a state-wide sales tax, or creating a new tax
that treats health care items or services differently to avoid federal
statutory and regulatory requirements related to health care-related
taxes. Therefore, we are proposing to clarify that differential
treatment occurs when a tax program treats some individuals or entities
that are providing or paying for health care items or services
differently than (1) individuals or entities that are providers or
payers of any health care items or services that are not subject to the
tax or (2) other individuals or entities that are subject to the tax.
Due to the complexity of this issue, we are providing a few
illustrative examples of when a tax program does or does not constitute
differential treatment. First, we are providing examples relating to
evaluating differential treatment of individuals or entities that are
providing or paying for health care items or services that are subject
to the tax compared to individuals or entities that are providers or
payers of any health care items or services that are not subject to the
tax. For example, if the state imposes a tax on telecommunication
services, but also includes inpatient hospital services, this would
constitute differential treatment. Given that inpatient hospital
services are not reasonably related to the other services subject to
taxation (that is, telecommunication services), as discussed below, we
would consider the tax to be treating inpatient hospital services
differently than other individuals or entities providing or paying for
health care items or services, which are not included in the tax. While
some might consider this example as being similar to the example
involving a tax on gas stations and hospitals in the November 1992
interim final rule, we are taking this opportunity to clarify our
interpretation of section 1903(w)(3)(A)(ii) of the Act. We have never
ruled out the extistence of differential treatment in all instances
where health care items or services are included in a larger non-health
care-related tax program, even where less than 85 percent of the tax
burden falls on health care providers and all entities
[[Page 63734]]
and services are subject to the same tax rate. As we emphasized in the
2014 SHO letter, taxes where less than 85 percent of the tax burden
falls on health care items or services may still be considerd health
care-related if only a subset of health care items or services are
taxed, even if they are taxed at the same rate as items or services not
related to health care that are also included in the tax. Prior to the
issuance of the 2014 SHO letter, several states attempted to mask taxes
on such subsets, including Medicaid-only MCOs, by including them within
larger, non-exclusively health care-related tax programs. Notably, the
taxes on Medicaid-only MCOs would not have been approvable on their
own, if implemented by the state separately from the taxation of items
and services unrelated to health care. States included taxes on
Medicaid-only MCOs within larger, non-exclusively health care-related
tax programs, such as sales taxes and gross receipts taxes, in an
attempt to bypass federal statutory and regulatory prohibitions by
effectively masking the health care-related component of the tax. We
have worked with the OIG to ensure that these and similar practices
that ran counter to the letter and spirit of federal statute and
regulation were stopped. We view this proposed rule as a continuation
of our efforts to ensure that health care-related taxes follow all
applicable requirements.
In instances where a state or other unit of government imposes a
tax on reasonably related items or services that includes some non-
health care items or services and some health care items or services,
we would not consider differential treatment to occur if all health
care items or services that are reasonably related to the taxed
universe are included in the tax and all health care items and services
subject to the tax are taxed at the same rate as the non-health care
items or services subject to the tax. We will consider items or
services within the tax to be reasonably related if there exists a
logical or thematic connection between the items or services or
individuals or entities being taxed. Examples of such a connection
could include, but would not be not limited to, industry, such as
electronics; geographical area, such as city or county; net revenue
volume; or number of employees. When determining whether or not
individuals, entities, items, or services are reasonably related, we
will examine the parameters of the given tax. In this context, the
parameters of the tax means the grouping of individuals, entities,
items or services, on which the tax is imposed. For example, if a state
or unit of government imposed a one percent tax on all revenue from
licensed professional services (for example, accounting services, legal
services, etc.), including revenue from services provided by medical
professionals, this would not constitute differential treatment,
because all health care items or services reasonably related to the
universe of items and services subject to the tax are themselves
subject to the tax, and such services are taxed at the same rate as the
included non-health care items or services. Provided that less than 85
percent of the tax burden falls on health care providers, the tax in
this example would not be considered a health care-related tax.
However, if the state or unit of government imposing the tax structures
the parameters of the tax in such a way to include items or services
that are not reasonably related and only selected health care items or
services are included in the tax while others are excluded, the tax
would be considered health care-related, as in the above example of a
tax on telecommunications services and inpatient hospital services.
When determining whether or not differential treatment occurs, we
evaluate the totality of the circumstances of the arrangement. For
example, under some circumstances, it could be permissible for the
state or unit of government to impose a tax on businesses employing 50
to 500 full-time equivalent (FTE) employees; such that the tax likely
would include a number of entities providing or paying for health care
items and services, and a number of entities selling non-health care
items and services, within its parameters. However, it could be that,
within a certain geographical area of the state, most businesses
employing 50 to 500 FTE employees are entities providing or paying for
health care items and services. If the tax were geographically targeted
to include this area but not other areas of the state or unit of
government's jurisdiction with a more diverse mix of businesses
employing 50 to 500 FTE employees, this targeting could be evidence
that the state or unit of government is using the numeric FTE employee
parameter as a proxy to concentrate the tax burden on certain entities
providing or paying for health care items or services.
While the examples given above illustrate hypothetical taxes we
would consider to be health care-related where less than 85 percent of
the tax falls on providers of health care items or services, they do
not represent an exhaustive list of all possible forms of differential
treatment, as we cannot foresee every possible arrangement.
Differential treatment may still exist even in situations other than
those described previously and identified in proposed Sec.
433.55(c)(1) and (2). Therefore, we are also proposing to examine the
parameters of the tax as defined by the state or other unit of
government, as well as the totality of the circumstances relevant to
which individuals, entities, items, or services are subject (and not
subject) to the tax, and the tax rate applicable to each, in
determining whether the tax program involves differential treatment as
provided in section 1903(w)(3)(A)(ii) of the Act. The proposed rule
aims to preserve appropriate state flexibility on tax and health care
policy, while clarifying what constitutes differential treatment within
the meaning of section 1903(w)(3)(A)(ii) of the Act and Sec. 433.55(c)
and helping ensure that states do not design tax structures to
circumvent statutory requirements.
d. Concerns About Hold Harmless and Health Care-Related Taxes
We have become aware of impermissible arrangements that exist where
a state or other unit of government imposes a health-care related tax,
then uses the tax revenue to fund the non-federal share of Medicaid
payments back to the taxpayers. The taxpayers enter into an agreement,
which may or may not be written, to redistribute these Medicaid
payments to ensure that taxpayers, when accounting for both the
original Medicaid payment (from the state, unit of local government, or
MCO) and any redistribution payment from another taxpayer or taxpayers,
receive all or any portion of their tax amount back. The net effect of
the arrangement is clear evidence that taxpayers have a reasonable
expectation that their forthcoming Medicaid payment (including any
redistribution), which results in participating taxpayers being held
harmless for all or a portion of the tax amount. Regardless of whether
the taxpayers participate voluntarily, whether the taxpayers receive
the Medicaid payments from a MCO, or whether taxpayers themselves make
redistribution payments from funds other than Medicaid to other
taxpayers, the net effect of the arrangement is the same: The taxpayers
have a reasonable expectation to be held harmless for all or a portion
of their tax amount.
Such arrangements undermine the fiscal integrity of the Medicaid
program and are inconsistent with existing statutory and regulatory
requirements prohibiting hold harmless arrangements. The February 2008
final rule on health
[[Page 63735]]
care-related taxes and provider-related donations specified that hold
harmless arrangements prohibited by Sec. 433.68(f)(3) exist ``. . .
when a state payment is made available to a taxpayer or a party related
to the taxpayer (for example, as a nursing home resident is related to
a nursing home), in the reasonable expectation that the payment would
result in the taxpayer being held harmless for any part of the tax''
(73 FR 9694). Despite the statutory and regulatory prohibitions, we are
concerned that states, local units of government, and/or providers
continue to design and execute hold harmless practices that are
antithetical to federal law and regulation. To aid in preventing and
ending such complex financing arrangements, the proposed rule would add
clarifying language to the hold harmless definition in Sec.
433.68(f)(3) to specify that CMS considers a ``net effect'' standard in
determining whether or not a hold harmless arrangement exists.
In the example cited above involving some taxpayers that received
more in Medicaid reimbursement (from the state, unit of local
government, or MCO) than the amount of tax paid which they then
transfered to other taxpayers that did not, we would consider such an
arrangement to include a hold harmless arrangement because the
taxpayers had a reasonable expectation to be held harmless from all or
a portion of the cost of their tax through either or both of the
Medicaid payments from the state or other unit of government or from
MCOs, and redistribution payments from other taxpayers participating in
the arrangement whose payments from the state or other unit of
government or from MCOs met or exceeded their own tax cost. The fact
that a private entity makes the redistribution payment does not change
the essential nature of the payment, which constitutes an indirect
payment from the state or unit of government to the entity being taxed
that holds it harmless for the cost of the tax. As noted in the
February 2008 final rule, ``An indirect payment to the taxpayer would
also constitute a direct guarantee'' (73 FR 9896). When looking for the
presence or absence of a hold harmless arrangement in health care-
related taxes, conclusive evidence lies not in the presence or absence
of individual elements, but the sum total of all the elements when
viewed collectively. While the presence or absence of a single
individual factor may not be sufficient to establish conclusively that
such an arrangement exists, the cumulative effect of many such factors
may be sufficient to make such a determination. Only after reviewing
the totality of the circumstances and making a judgment about how the
overall arrangement operates are we able to determine whether or not
the state provides for a direct or indirect payment, offset, or waiver
that holds the taxpayer harmless for any portion of the tax. This
proposal does not reflect any change in policy or approach, but merely
codifies currently prohibited practices, and would provide further
clarification to states regarding how they may finance the non-federal
share of Medicaid expenditures.
e. Concerns Regarding Permissible Tax Classes of Health Care Services
and Providers
Over the past several years, we have become aware that several
states have instituted taxes on health insurers or health insurance
premiums. In an effort to maintain consistent federal oversight of
health care-related taxes, modernize the permissible class definitions,
and permit states additional flexibility to implement health care-
related taxes, this rule proposes to add services of health insurers,
other than MCOs listed in Sec. 433.56 (a)(8), as permissible classes
of health care items or services under Sec. 433.56, under section
1903(w)(7)(A)(ix) of the Act. In an effort to avoid being overly
prescriptive, we have decided against proposing a narrow definition of
the term ``health insurer.'' However, the definition of ``health
insurance issuer'' at 45 CFR 144.103 provides a helpful point of
reference. That regulation defines a health insurance issuer as an
insurance company, insurance service, or insurance organization
(including an HMO) that is required to be licensed to engage in the
business of insurance in a state and that is subject to state law that
regulates insurance (within the meaning of section 514(b)(2) of ERISA).
However, the term health insurer in the proposed additional class at
Sec. 433.56, explicitly excludes MCOs such as HMOs because these
organizations are already included under section 1903(w)(7)(A)(viii) of
the Act, unlike the term health insurance issuer at Sec. 144.103. The
proposed class would include insurers that issue policies for the group
market and/or the individual market, including such coverage with high-
deductible or ``catastrophic'' plans. The proposed class would also
include issuers of short-term limited-duration policies as defined in
Sec. 144.103, as well as issuers of coverage for ``excepted benefits''
defined in 45 CFR 146.145 in the group market and the individual market
at 45 CFR 148.220, such as dental-only and vision-only policies. Such a
health care-related tax could include, but need not be limited to, an
assessment on health insurance premiums, covered lives, or revenue. The
class may include cost sharing measures, including premiums, from
Medicare, such as private FFS plans under Medicare Advantage offered as
part of Medicare Part C or prescription drug insurance plans as part of
Medicare Part D, as well as any premiums paid by individuals as part of
a section 1115 waiver where Medicaid funding is used for premium
assistance to help beneficiaries purchase commercial health insurance
plans. Such a tax cannot include CMS or any state agencies involved in
administering title XVIII, title XIX, or title XXI, including state
Medicaid agencies. We are soliciting comments on the definition of this
permissible class to ensure that the appropriate entities and services
are included.
f. Concerns Regarding Non-Bona Fide Provider-Related Donations
We are concerned that certain states, localities, and private
health care providers have designed complex financing structures to
mask non-bona fide, provider-related donations used to fund the non-
federal share of Medicaid payments. States, localities, and private
providers appear to be utilizing these complex arrangements to
obfuscate the source of non-federal share and avoid the statutorily-
required reduction to state medical assistance expenditures. They also
appear to violate a variety of requirements in section 1903(w) of the
Act and its implementing regulations, which mandate that the state's
Medicaid expenditures for which FFP is provided shall be reduced by the
sum of any revenues resulting from provider-related donations received
by the state during the fiscal year other than bona fide provider-
related donations. Such practices may also run afoul of section
1902(a)(30)(A) of the Act, which requires that payments be made
consistent with efficiency, economy and quality of care. Additionally,
they may result in payments that are inconsistent with the proper and
efficient operation of the state plan (see section 1902(a)(4) of the
Act) and its design for a cooperative state-federal partnership by
generating increases in federal spending without a corresponding
increase in state financial participation, with no direct link to
additional services furnished, beneficiaries assisted, or other benefit
to the Medicaid program.
Often, these arrangements involve a transfer of value of some kind
from a private provider to a governmental entity and the governmental
entity does
[[Page 63736]]
not reimburse the private entity at fair market value. For example, the
transfer may involve the private provider assuming an obligation
previously performed by a governmental entity without being reimbursed
fair market value, performing services previously performed by a
governmental entity without being reimbursed at fair market value, or
renting real property from a governmental entity at a price above fair
market value. In such cases, the difference between the fair market
value of the assumption of the obligation, performance of the services,
or rental value of the property and the value actually transferred is
in effect a donation by the private provider to the governmental
entity. The governmental entity then executes an IGT, funded by the
donation, to the state Medicaid agency, which is then used to fund the
non-federal share of Medicaid expenditures. The Medicaid agency then
makes a supplemental payment to the private donating provider, which
effectively compensates it for the value it transferred to the
governmental entity (the assumption of an obligation, performance of
services, or excess rent paid). Often, this arrangement will not be
executed as a contract or other formal business arrangement, or
otherwise reduced to writing of which evidence is available to us.
Instead, it will be based on a series of reciprocal actions performed
by each party. As a result of such an arrangement, the private provider
makes a direct or indirect donation, and the state returns all or a
portion of the value of the donation to the private provider
effectively using only federal dollars without a corresponding outlay
in state expenditures, and such an arrangement constitutes a non-bona
fide donation becase there is a pre-existing hold harmless agreement.
The net effect of such an arrangement is to artificially inflate the
state Medicaid expenditures eligible for FFP, sometimes up to 100
percent, in a manner inconsistent with statute and regulation.
Recently, we have identified and taken action to prevent or end
impermissible financing practices in which states have attempted to
mask non-bona fide provider-related donations. Some of these
arrangements include instances where transfers of licenses occur
without consideration of, or below, fair market value from a private
provider to a unit of government to enable formerly private providers
to receive certain supplemental payments available to governmental
providers. In other situations, governmental entities have leased the
same facilities back to private providers at rents above fair market
value as a way of allowing the private facilities to make non-bona fide
donations to the governmental entity, which then transfers the funds to
the state Medicaid agency through IGTs. Ultimately, these schemes have
the net effect of reducing the overall percentage of total computable
Medicaid expenditures funded with state dollars, while at the same time
causing a corresponding increase in federal funding.
We have taken several steps to curtail public-private partnerships
that lead to non-bona fide provider-related donations. In 2014, we
issued SMDL #14-004, the second in a series of two SMDLs that discuss
mutual obligations and accountability with respect to the Medicaid
program for the federal government and states. SMDL #14-004 addressed
the deleterious impact that public-private partnerships designed to
skirt federal requirements concerning provider-related donations can
have on fiscal integrity. In 2016, we issued a disallowance to recover
FFP associated with impermissible provider-related donations where
private providers assumed financial obligations of local governmental
entities to free up government funds, and the freed up funds were then
used as the state's share of supplemental payments to the donating
provider. The CMS disallowance was upheld when the state appealed to
the DAB (DAB No. 2886, Texas Health and Human Services Commission
(2018)).
This proposed rule would clarify the hold-harmless definition
related to donations to account for the net effect of complex donation
arrangements, including where the donation takes the form of the
assumption of governmental responsibilities. In the provisions of Sec.
433.54 addressing when a guarantee would exist to hold the provider
harmless for value related to a donation to the governmental entity,
this proposed rule would establish a net effect standard. Any exchange
of value that constitutes a governmental entity reimbursing a private
entity for value related to the private entity's donation need not
arise to the level of a legally enforceable obligation, but must be
considered in terms of its net effect, thus incorporating the language
in DAB No. 2886, Texas Health and Human Services Commission (2018). In
that case, the DAB held that ``the net effect of the arrangements under
review amounted to impermissible provider donations'' and that as a
result, the supplemental payments made by state Medicaid agency to the
private provider were impermissible (p.25). The DAB also found that it
is not necessary for a legally enforceable obligation to exist, such as
under a statute or contract, for a donation to be found. In line with
the Board's reasoning, we are proposing to establish a net effect
standard to look at the overall arrangement in terms of the totality of
the circumstances to judge if a non-bona fide donation of cash,
services or other transfer of value to a unit of government has
occurred. In Sec. 433.52, the proposed definition of ``provider-
related donation'' would clarify that the assumption by a private
entity of an obligation formerly performed by a unit of government
where the unit of government fails to compensate the private entity at
fair market value would be considered an indirect donation made from
the private entity to the unit of government. This proposed rule would
also clarify that such an exchange need not arise to the level of a
legally enforceable obligation.
C. Previous CMS Efforts To Understand and Monitor Medicaid Payments and
Financing
We have already taken action to strengthen our approach to
authorizing, monitoring, and evaluating Medicaid payments and financing
to ensure that statutory and regulatory requirements are satisfied. To
monitor supplemental payments made under state plan authority, in 2010,
we began requiring states to separately report through MBES amounts
paid for the most common and largest supplemental payments in
accordance with Sec. 430.30(c). States report statewide aggregate
amounts for only some supplemental payments and do not include
provider-level detail. In 2013, we issued SMDL #13-003, which discussed
a submission process to comply with the UPL requirements in Sec. Sec.
447.272 and 447.321. This SMDL discussed methods of complying with
these two regulations through annual UPL submissions apart from the
normal state plan process, as the regulations do not specify time
frames for the submission of UPL demonstrations. The SMDL also provided
further guidance regarding UPL calculation methodologies and requested
that states identify the source of non-federal funding for the payments
described in the UPL demonstration. This guidance improved our ability
to analyze supplemental payments and validate that aggregate
supplemental payments for each class of provider ownership group do not
exceed what Medicare would have paid for the services or, in an
alternative approach that may be selected by the states, do not exceed
the cost of providing those services.
[[Page 63737]]
We have also intensified our examination of SPAs proposing
supplemental payments, and their associated funding arrangements, and
have developed a greater understanding of how to ensure that payment
and financing arrangements comply with statutory requirements. These
reviews focus on ensuring more transparency for supplemental payments
by requiring more comprehensive SPA language so that providers and
other stakeholders can fully understand how providers will receive
payment and any conditions on those payments. We are also asking more
questions regarding states' assumptions about the value that proposed
supplemental payments would bring to the Medicaid program, including in
terms of improving access and quality of care outcomes, in our efforts
to ensure that states' payment systems are consistent with section
1902(a)(30)(A) of the Act.
Although we made improvements to the parameters around aggregate
payment levels as reflected in UPL demonstrations, there have been
concerns from oversight entities, noted elsewhere in the preamble,
regarding payments to individual providers, including concern that some
governmental providers were being paid Medicaid payments far in excess
of the costs incurred in providing the underlying services. In response
to those concerns, we issued the ``Medicaid Program; Cost Limit for
Providers Operated by Units of Government and Provisions to Ensure the
Integrity of Federal-State Financial Partnership'' final rule with
comment period in the May 29, 2007 Federal Register (72 FR 29748),
which limited payments to any governmentally operated provider to the
cost incurred for delivery of Medicaid services. The May 29, 2007 final
rule with comment period was challenged by states and health care
providers. After a series of Congressional moratoria against its
implementation, Congress stated its sense that it should not be
implemented. In 2010, the final rule was rescinded (75 FR 73972) and we
have not moved forward with this or any similar approach.
We have previously recognized the need in other instances to obtain
provider-level payment reporting. Section 1923(j) of the Act and its
implementing regulations delineate annual DSH audit and reporting
requirements. To ensure that Medicaid DSH payments are in compliance
with federal statutory requirements, we published the 2008 DSH audit
rule, which requires that states report and account for certain
provider-level information on the hospitals receiving these payments.
The rule also requires states to have their DSH payment programs
independently audited to verify that the payments comply with
applicable hospital-specific DSH limits. Such information includes
reporting of supplemental payments and ensuring that such payments are
factored into the hospital-specific DSH limit. However, this data set
is limited in that it only includes reporting for those hospitals that
receive Medicaid DSH payments and are due to us more than 3 years after
the completion of each state plan rate year. Therefore, in Sec.
447.288 of this proposed rule, to help ensure timely and comprehensive
reporting on the Medicaid financing for all payments to hospitals, we
are proposing to require the annual amount of total Medicaid DSH
payments made to any provider be reported in the annual provider-level
payment data report for this regulation, along with all Medicaid
supplemental payments.
II. Provisions of the Proposed Rule
A. Proposed Provisions
1. Disallowance of Claims for FFP (Sec. 430.42)
Section 1116(d) and (e)(1) of the Act outline the disallowance
reconsideration process and provide that a state may request
administrative reconsideration of a disallowance if such a request is
made within a 60-day period that begins on the date the state receives
notice of the disallowance. However, the statute does not specify the
format of the notice of disallowance or request for reconsiderations.
We are proposing to amend Sec. 430.42 to alter the means of
communication with regard to the disallowance reconsideration process
from one based on registered or certified mail to one based on
electronic mail or another electronic system as specified by the
Secretary. When Sec. 430.42 as now in effect was finalized, certified
mail was considered to be the optimal way to establish the dates on
which a communication was sent and received, which is important to
establish compliance with timeframes specified in regulation. However,
email is a preferred form of communication today in the normal course
of agency business and can be used to establish the time when a
communication is sent and received, since email messages typically are
transmitted near-instantaneously. Further, by eliminating mailing and
paper costs, the use of email could slightly reduce the administrative
burden associated with the disallowance process under Sec. 430.42. As
a result, we are proposing to revise all of the references to
registered or certified mail or to ``written requests'' to make clear
that such requests need not be in a physical, as opposed to an
electronic format in Sec. 430.42(b)(2)(i)(A) introductory text,
(b)(2)(i)(B) and (C), (c)(3), (c)(4)(i), (c)(6), and (d)(1) to replace
references to registered or certified mail with references to
electronic mail (email) or another electronic system as specified by
the Secretary. In addition, we propose to remove the word ``written''
from Sec. 430.42(b)(2)(i)(A) and (B) to avoid a possible
misunderstanding that the request must be in the form of a physical
writing, since we propose to adopt an electronic process. The date that
the communication is successfully sent or received by electronic mail
(email) or electronic system as specified by the Secretary would be
substituted for current references to the date that the communication
was sent or received by registered or certified mail.
2. State Share of Financial Participation (Sec. 433.51)
We are proposing to amend Sec. 433.51 to more clearly define the
allowable sources of the non-federal share to more closely align with
the provisions in section 1903(w) of the Act. In Sec. 433.51(a) and
(c), we are proposing to replace the current reference to ``public
funds'' with ``state or local funds'' which is consistent with
statutory language as in section 1903(w)(6)(A) of the Act. Public funds
is not a phrase used in section 1903(w) of the Act, and the use of this
phrase in regulation has caused confusion with respect to permissible
sources of non-federal share. We are proposing to revise Sec.
433.51(b) by similarly replacing the current reference to public funds
and by specifying more precisely the funds that states may use as state
share. Although we have applied the statutory language to our review
and approval of state financing mechanisms, the term public funds in
the regulatory text has created confusion among states, and has led to
state requests to derive IGTs from sources other than state or local
tax revenue (or funds appropriated to state university teaching
hospitals), which is not permitted under the statute in section
1903(w)(6)(A) of the Act. The proposed amendment to paragraph (b) would
clearly limit permissible state or local funds that may be considered
as the state share to state general fund dollars appropriated by the
state legislature directly to the state or local Medicaid agency; IGTs
from units of government (including Indian tribes), derived from state
or local taxes (or funds appropriated to state university
[[Page 63738]]
teaching hospitals), and transferred to the state Medicaid Agency and
under its administrative control, except as provided in proposed Sec.
433.51(d); or CPEs, which are certified by the contributing unit of
government as representing expenditures eligible for FFP and reported
to the state as provided in proposed Sec. 447.206.
We are proposing these revisions to specifically align the
allowable sources of the non-federal share with the statute. The
proposed provisions would make clear that allowable state general fund
appropriations under Sec. 433.51(b)(1) are those made directly to the
state or local Medicaid agency, and are differentiated from
appropriations made to other units of government that otherwise may be
tangentially involved in financing Medicaid payments through IGTs or
CPEs. We would describe allowable IGTs and CPEs in proposed Sec.
433.51(b)(2) and (3), respectively. The statute clearly differentiates
between these sources of funds. Specifically, section 1903(w)(6)(A) of
the Act provides that states generally may finance the state share
using funds derived from state or local taxes (or funds appropriated to
state university teaching hospitals) transferred from or certified by
units of government within a state as the non-federal share of Medicaid
expenditures. The phrase ``transferred from or certified by'' refers to
the IGT and CPE, respectively, and the statute clearly indicates that
those funding mechanisms must be derived from state or local taxes (or
funds appropriated to state university teaching hospitals). The
inclusion of the above reference to ``funds appropriated to state
university teaching hospitals'' in Sec. 433.51(b)(2) is a direct
reference to language in section 1903(w)(6)(A) of the Act to more
precisely implement the Act in this regulatory provision.
We are proposing to identify ``certified public expenditures''
specifically in regulation as an allowable source of state share in a
manner consistent with section 1903 of the Act, and to describe the
protocols states may use to identify allowable Medicaid expenditures
associated with the use of a CPE as the source of non-federal share.
Thus, we propose to include a reference in Sec. 433.51(b)(3) to
proposed Sec. 447.206 to require that, for a state to use a CPE as a
source of state share, the state must meet the requirements of proposed
Sec. 447.206, discussed in detail below, with respect to payments
funded by the CPE. In particular, in Sec. 447.206(b)(1), we propose
that such payments, to a provider that is a unit of government, would
be limited to the state or non-state government provider's actual,
incurred cost of providing covered services to Medicaid beneficiaries
using reasonable cost allocation methods.
Lastly, we are proposing to add paragraph (d) to this section to
clearly indicate that state funds provided as an IGT from a unit of
government but that are contingent upon the receipt of funds by, or are
actually replaced in the accounts of, the transferring unit of
government from funds from unallowable sources, would be considered to
be a provider-related donation that is non-bona fide under Sec. Sec.
433.52 and 433.54. This language is intended to implement the
preclusion under section 1903(w)(6)(A) of the Act on the use of IGTs
where the IGT is derived from a non-bona fide provider-related donation
by making it abundantly clear that, as indicated in the statute, the
IGT must come from state or local tax revenue (or funds appropriated to
state university teaching hospitals), and any IGTs that are derived
from, or are related to, non-bona fide provider-related donations would
be prohibited.
3. General Definitions (Sec. 433.52)
The terms ``Medicaid activity'' and ``non-Medicaid activity'' are
used in the proposed Sec. 433.68(e)(3), discussed in detail below, in
determining whether a health care-related tax program is generally
redistributive in nature in accordance with section
1903(w)(3)(E)(ii)(I) of the Act. The definitions for ``Medicaid
activity'' and ``non-Medicaid activity'' in this proposed rule would
apply only to determining whether a state or other unit of government
tax program is generally redistributive as required in section
1903(w)(3)(E)(ii)(I) of the Act. We are proposing to define ``Medicaid
activity'' to mean any measure of the degree or amount of health care
items or services related to the Medicaid program or utilized by
Medicaid beneficiaries, including, but not limited to, Medicaid patient
bed days, the percentage of an entity's net patient revenue
attributable to Medicaid, Medicaid utilization, units of medical
equipment sold to individuals utilizing Medicaid to pay for or supply
such equipment or Medicaid member months covered by a health plan.
We are proposing to define ``non-Medicaid activity'' to mean any
measure of the degree or amount of health care items or services not
related to the Medicaid program or utilized by Medicaid beneficiaries.
Such a measure could include, but would not necessarily be limited to,
non-Medicaid patient bed days, percentage of an entity's net patient
revenue not attributable to Medicaid, the percentage of patients not
utilizing Medicaid to pay for health care items or services, units of
medical equipment sold to individuals not utilizing Medicaid funds to
pay for or supply such equipment, or non-Medicaid member months covered
by a health plan.
We are proposing to define the term ``net effect'' to mean the
overall impact of an arrangement, considering the actions of all of the
entities participating in the arrangement, including all relevant
financial transactions or transfers of value, in cash or in kind, among
participating entities. The net effect of an arrangement is determined
in consideration of the totality of the circumstances, including the
reasonable expectations of the participating entities, and may include
consideration of reciprocal actions without regard to whether the
arrangement or a component of the arrangement is reduced to writing or
is legally enforceable by any entity.
The term ``parameters of a tax'' is used in the proposed Sec.
433.55(c), discussed in detail below, in determining whether a tax is
health care-related as provided in section 1903(w)(3)(A) of the Act. We
are proposing to define ``parameters of a tax'' to mean the grouping of
individuals, entities, items or services, on which a state or unit of
government imposes a tax.
Currently, Sec. 433.52 specifies a definition of ``Provider-
related donation'' that includes an introductory paragraph and three
numbered paragraphs. We propose to redesignate paragraphs (2) and (3)
as paragraphs (3) and (4), respectively, and to add a new paragraph
(2). Proposed paragraph (2) would specify that any transfer of value
where a health care provider or provider-related entity assumes an
obligation previously held by a governmental entity and the
governmental entity does not compensate the private entity at fair
market value would be considered a donation made indirectly to the
governmental entity. We are proposing that such an assumption of
obligation need not rise to the level of a legally enforceable
obligation to be considered a donation, but would be considered by
examining the totality of the circumstances and judging the
arrangement's net effect. For example, if a private provider assumes
any contractual obligation, such as staffing costs for accounting
services, of a non-state governmental entity without a corresponding
transfer of value at market value, we would consider that to
[[Page 63739]]
be a provider-related donation from the private provider to the unit of
government.
This proposal does not represent a new policy, but a clarification
of current law designed to aid in preventing and, where they currently
may exist, terminating impermissible financing practices involving
provider-related donations. The current definition does not explicitly
address circumstances involving the assumption of a governmental
obligation, or our policy to determine the net effect of an arrangement
in determining whether or not a donation has occurred.
We are also proposing to revise newly redesignated paragraphs (3)
and (4) by changing the term ``health care related'' to ``provider-
related'' to align with usage where provider-related donations are
addressed throughout part 433, subpart B, and by changing the language
in newly redesignated paragraph (4) from ``the percentage of donations
the organization received from the providers during that period'' to
``the percentage of the organization's revenue during that period that
was received as donations from providers or provider-related
entities.'' We are proposing this change because we believe that this
language is clearer and more transparent for states.
Some health care-related tax programs exclude certain items,
services, or providers from taxation or impose variable rates. To do
so, states or non-state units of government often divide the universe
of entities subject to taxation into groups based on various
attributes. We are proposing to define ``taxpayer group'' to mean one
or more entities grouped together based on one or more common
characteristics for purposes of imposing a tax on a class of items or
services specified under Sec. 433.56. This term is used in proposed
Sec. 433.56(e)(3), which is discussed in detail below, in determining
whether or not a tax program is generally redistributive in nature, in
accordance with section 1903(w)(3)(E)(ii)(I) of the Act.
4. Bona Fide Donations (Sec. 433.54)
Section 1903(w)(2)(B) of the Act provides that the Secretary may by
regulation specify types of provider-related donations described in
that subparagraph that will be considered to be bona fide provider-
related donations. The statute requires that bona fide provider-related
donations may have no direct or indirect relationship (as determined by
the Secretary) to Medicaid payments to the provider, providers
furnishing the same class of items and services as the provider, or to
any related entity, as established by the state to the satisfaction of
the Secretary. Accordingly, implementing regulations in Sec. 433.54(b)
require that bona fide provider-related donations must not be returned
to the individual provider, provider class, or related entity under a
hold harmless provision or practice as described in Sec. 433.54(c). We
are proposing to revise Sec. 433.54(c)(3) to clarify the standard used
to determine whether the state (or other unit of government) receiving
a donation provides for any direct or indirect payment, offset, or
waiver, such that the provision of that payment, offset, or waiver
directly or indirectly guarantees the return of any portion of the
donation to the provider (or other party or parties responsible for the
donation). The clarification would make express our current policy of
examining the totality of the circumstances that determine the net
effect of an arrangement between the state (or other unit of
government) and the provider, provider class, or provider-related
entity responsible for the donation. Specifically, we are proposing
that a direct guarantee of the return of all or part of a donation
would be found to exist where, considering the totality of the
circumstances, the net effect of an arrangement between the state (or
other unit of government) and the provider (or other party or parties
responsible for the donation) results in a reasonable expectation that
the provider, provider class, or related entity will receive a return
of all or a portion of the donation either directly or indirectly. As
noted in the 2008 final rule on Health Care-Related Taxes, ``An
indirect payment to the taxpayer would also constitute a direct
guarantee'' (73 FR 9698). Section 433.68 at paragraphs (f)(1), (2) and
(3) describe the three situations that constitute a direct hold
harmless arrangement. Paragraphs (f)(3)(i)(A) and (B) detail the two
``prongs'' of the indirect hold-harmless guarantee test. These two
``prongs'' constitute the ``safe harbor threshold'' of 6 percent and
the ``75/75'' test. The safe harbor threshold states that taxes that
are under 6 percent of net patient revenue attributable to an assessed
permissible class pass the indirect hold harmless test. If a tax
collection exceeds the 6 percent net patient revenue threshold, the
second prong is applied. This prong is known as the ``75/75'' test and
states that CMS will consider an indirect hold harmless arrangement to
exist if 75 percent or more of the taxpayers receive 75 percent or more
of their total tax costs back in enhanced Medicaid payments or other
state payments. If the tax fails this prong, CMS considers an indirect
hold harmless arrangement to exist. Direct and indirect payments are
used in the proposed rule in the same way as they are used currently in
Sec. 433.68(f). This clarification is designed to aid in preventing
and, where they may currently exist, eliminating complex financing
arrangements designed to obfuscate the fact that non-bona fide
provider-related donations are the source of the non-federal share of
certain Medicaid payments. This is consistent with our current policy,
which we have applied in the past and discussed in SMDL 14-004 on
impermissible provider-related donations. We are also proposing to
revise paragraph (c)(3) to clarify that a singular party, not just
multiple ``parties,'' could be responsible for a provider-related
donation described in this paragraph.
5. Health Care-Related Taxes Defined (Sec. 433.55)
Section 1903(w)(3)(A) of the Act defines a health care-related tax
as a tax that is (1) related to health care items or services, or to
the provision of, the authority to provide, or payment for, such items
or services; or (2) is not limited to such items or services but
provides for treatment of individuals or entities that are providing or
paying for such items or services that is different from the treatment
provided to other individuals or entities. In the case of (1), a tax is
considered related to health care items or services if at least 85
percent of the tax burden falls on health care providers. Implementing
regulations are codified in Sec. 433.55(c). This proposed rule would
amend Sec. 433.55(c) by clarifying that differential treatment occurs
when a tax program treats some individuals or entities that are
providing or paying for health care items or services differently than
(1) individuals or entities that are providers or payers of any health
care items or services not subject to the tax or (2) other individuals
or entities subject to the tax. Additionally, we would amend Sec.
433.55(c) to clarify that we examine the parameters of the tax as
defined by the state or other unit of government, as well as the
totality of the circumstances relevant to which individuals, entities,
items, or services are subject (and not subject) to the tax and at
which rate, in determining whether the tax program involves
differential treatment as provided in section 1903(w)(3)(A)(ii) of the
Act. Finally, the proposed rule would also add paragraphs (c)(1) and
(2) to clarify when CMS would consider the treatment of individuals or
entities providing or paying for health care
[[Page 63740]]
items or services to be different from the treatment provided to other
individuals or entities.
In the proposed Sec. 433.55(c)(1), we propose to clarify that
differential treatment for providers of health care items or services
would occur where the state or other unit of government imposing the
tax makes some individuals or entities providing or paying for health
care items or services subject to the tax, but excludes others. For
example, a state imposing a tax on telecommunication services and
inpatient hospital services would constitute differential treatment
because some providers or payers of health care items or services
subject to the tax are being treated differently than providers or
payers of health care items or services not subject to the tax. States
or local units of government imposing a tax cannot structure the
parameters of the tax in such a way as to include items or services
that are not reasonably related so that only selected health care items
or services are included in the tax while others are excluded.
Selective incorporation would also occur when the state or other unit
of government imposing the tax structures the parameters of the tax in
a way that has the effect of specifically excluding or including
certain providers of health care items or services from the tax. This
would constitute differential treatment because it would have the same
effect as selecting certain health care items or services for inclusion
in the tax when such items or services are not reasonably related to
the other items being taxed.
Additionally, we propose in Sec. 433.55(c)(2) to specify that
differential treatment would result when entities providing or paying
for health care items or services are treated differently than other
entities also included in the tax. For example, if the state taxes all
businesses in the state, but places a higher tax rate on hospitals and
nursing facilities than on other businesses, this would result in
differential treatment.
We are concerned that taxes of the sort described in proposed Sec.
433.55(c)(1) and (2) are not consistent with applicable statutory (and
current regulatory) requirements because they may include individuals
or entities providing or paying for health care items or services that
receive high levels of reimbursement from Medicaid for such items or
services, and that may receive a return of their tax costs in the form
of increased Medicaid payments. In particular, we are concerned about
tax programs that treat health care items or services that are mostly
reimbursed by Medicaid differently than other health care items or
services with low Medicaid reimbursement. For example, a statewide
revenue tax of 5 percent of net revenue on all businesses in the state
that includes only a subset of health care items or services that
happens to be reimbursed heavily by Medicaid, such as HCBS, but which
is designed to exclude other providers of health care items or services
with lower rates of Medicaid reimbursement such as continuing care
retirement facilities (CCRCs), would result in differential treatment.
Any time a tax structure selectively incorporates a subset of health
care items or services for inclusion in a tax and excludes others, we
would consider this differential treatment, as reflected in proposed
Sec. 433.55(c)(1). Selective incorporation generally occurs in two
situations: First, when the state or unit of government includes some,
but not all, health care-related items or services and those items or
services are not reasonably related to the other items being taxed.
Second, when the state or other unit of government structures the
parameters of the tax in such a way that has the effect of such
selective incorporation described above. Reasonably related means there
exists a logical or thematic connection between the items or services
being taxed. Examples of such a connection include, but are not limited
to, industry, such as electronics; geographical area, such as city or
county; net revenue volume; or number of employees.
Additionally, any time the tax treats individuals or entities
providing or paying for health care items or services differently than
other entities also included in the tax, we would also consider this to
be differential treatment, as reflected in proposed Sec. 433.55(c)(2).
We note that the examples provided in these proposed paragraphs do not
constitute an exhaustive list of all possible manifestations of
differential treatment. Other circumstances constituting differential
treatment for health care items or services, or entities providing or
paying for health care items or services, would result in the tax being
considered health care-related based on the differential treatment
provisions in Sec. 433.55(c).
The proposed language related to selective incorporation does not
mean that the state or other unit of government must tax every provider
of health care items or services within its jurisdiction to avoid its
tax being considered health-care related in situations where less than
85 percent of the tax burden falls on health care items or services. It
does mean that the state or other unit of government cannot include in
or exclude from the tax only certain providers, or a class or classes
of providers, by its own specification of the parameters of the tax. In
addition, the state cannot structure the parameters of the tax in such
a way so as to have the same effect of carving out or in only certain
providers, or a class or classes of provider.
6. Classes of Health Care Services and Providers Defined (Sec. 433.56)
Section 1903(w)(7)(A)(ix) of the Act provides that the permissible
classes of health care items and services include such other
classifications consistent with section 1903(w)(7)(A) of the Act as the
Secretary may establish by regulation. In addition to the specific
classifications that Congress identified in statute, current
regulations in Sec. 433.56(a) specify certain additional classes
established by the Secretary. We are proposing to add a new class of
health care items and services to the list of permissible classes at
Sec. 433.56(a) by redesignating paragraph (a)(19) as paragraph
(a)(20), revising paragraph (a)(18), and adding a new paragraph
(a)(19). We propose to strike ``and'' from paragraph (a)(18), to
accommodate the proposed paragraph (a)(20). In new proposed paragraph
(a)(19), we would permit states and units of local government to impose
taxes on services of health insurers beside those already identified in
paragraph (a)(8) of the same section.
We have become aware that a number of states may be imposing taxes
on health insurers in the form of a tax on health insurance premiums or
volume of services. Section 1903(w)(7)(A)(ix) of the Act delegates to
the Secretary the power to specify such other classification of health
care items and services consistent with the paragraph as the Secretary
may establish by regulation. We are proposing to expand the permissible
class list to provide states with additional flexibility, while
maintaining the fiscal integrity of the Medicaid program by ensuring
that the proposed new permissible class would not be limited to items
or services that are primarily or exclusively provided or paid for by
the Medicaid program. Taxes imposed on health care items or services or
providers of such items or services financed primarily or exclusively
by Medicaid would harm the fiscal integrity of the Medicaid program by
imposing a higher tax burden on the program and would not be generally
redistributive as required by section 1903(w)(3)(E)(ii)(I) of the Act.
Specifically, we are proposing to establish services of health
insurers,
[[Page 63741]]
besides services of MCOs (including HMOs and PPOs), as a new
permissible class. Services of MCOs (including HMOs and PPOs) are
already a permissible class of services identified in Sec.
433.56(a)(8). Some examples of possible metrics that could be used to
assess a tax on services of health insurers include health care
premiums, covered lives, or revenue. The proposed class would include
health insurers offering plans to Medicaid beneficiaries under a
section 1115 demonstration for a premium assistance program to such
beneficiaries to purchase qualified health plans through the Health
Insurance Exchange. We are seeking comment on the exact scope of this
permissible class to ensure all appropriate services of health insurers
are included within this class. As with other permissible classes,
taxes imposed on this proposed category of health care services would
be subject to applicable legal requirements, including the broad-based
requirements in Sec. 433.68(b)(1), the uniformity requirements in
Sec. 433.68(b)(2), and the hold harmless provisions in Sec.
433.68(f).
The preamble of the August 1993 final rule listed criteria that
should be met by any additional class of health care items and services
under consideration to be added to the permissible classes under
section 1903(w)(7)(A) of the Act. The preamble stated three criteria:
The revenue of the class is not predominantly from Medicaid and
Medicare (not more than 50 percent from Medicaid and not more than 80
percent from Medicaid, Medicare, and other federal programs combined);
the class must be clearly identifiable, such as through designation for
state licensing purposes, recognition for federal statutory purposes,
or being included as a provider in state plans; and the class must be
nationally recognized and not be unique to a state (58 FR 43162). We
believe that the class of providers of health care items or services
which we are proposing to add to Sec. 433.56 meets all of these
requirements. First, according to the most recent data available from
the U.S. Census Bureau (See Health Insurance Coverage in the United
States, September 12, 2018, Report Number P-60 264, Edward R. Berchick,
Emily Hood, and Jessica C. Barnett, p. 1-2), 67.2 percent of
individuals in the United States that are insured have private health
insurance, whereas 37.7 percent have government coverage including 19.3
percent that have Medicaid and 17.2 percent that have Medicare. In
addition, not all Medicaid or Medicare beneficiaries must pay premiums
or cost sharing, and the amounts that they do pay, when required, are
generally limited by federal statute and regulation and typically are
lower than premiums and cost sharing amounts paid by enrollees in
private insurance coverage. As a result, we do not believe that revenue
from the proposed class, services of health insurers besides services
of MCOs (including HMOs and PPOs) is predominantly from Medicaid and
Medicare. Specifically, we believe that such revenue is not more than
50 percent from Medicaid and not more than 80 percent from Medicaid,
Medicare, and other federal programs combined. Second, each state
already defines and regulates health insurers in the state, through
state law. As a result, the class is clearly identifiable. To the
extent that state law specifically includes or excludes certain types
of issuers of health insurance policies as health insurers, we propose
deferring to the state in determining which such entities are included
within the proposed class and which are not. For example, certain
groups of businesses may band together to offer health insurance plans
to their employees, a practice known as association health plans under
section 3(5) of the Employee Retirement Income and Security Act (ERISA)
(Pub. L. 93-406, enacted September 2, 1974). The degree to which an
issuer of an association health plan is considered to be a health
insurer depends on state law. Finally, health insurers exist
nationwide, and are not particular to any individual state. Neither we
(that is, CMS, either with respect to our administration of Medicare or
Medicaid), the state Medicaid agency, or any agency involved in
administering title XVIII, title XIX, or title XXI is considered to be
a health insurer in terms of the proposed class to be added at Sec.
433.56. As a result, the proposed class meets all of the criteria
specified in the 1993 final rule and is appropriate to add to the
classes of health care items and services upon which states may impose
health care-related taxes without a reduction in FFP, subject to all
applicable federal statutory and regulatory requirements.
7. Permissible Health Care-Related Taxes (Sec. 433.68(e) and (f))
Section 1903(w)(3)(E)(ii)(I) of the Act provides that the Secretary
shall approve a state's application for a waiver of the broad based
and/or uniformity requirements for a health care-related tax, if the
state demonstrates to the Secretary's satisfaction that the tax meets
specified criteria, including that the net impact of the tax and
associated Medicaid expenditures as proposed by the state is generally
redistributive in nature. Implementing regulations in Sec. 433.68(e)
specify a statistical test for evaluating whether a proposed tax is
generally redistributive: If the state is seeking only a waiver of the
broad based requirement, paragraph (e)(1) specifies a test referred to
as ``P1/P2'' described above, while a state seeking a waiver of the
uniformity requirement or both the broad-based and uniformity
requirements must meet the test specified in paragraph (e)(2), referred
to as ``B1/B2'', also described above. Although these tests were
designed to ensure that a proposed tax is generally redistributive in
accordance with section 1903(w)(3)(E)(ii)(I) of the Act, we have found
that these tests alone have been insufficient in some circumstances as
described above. As a result, we are proposing to add Sec.
433.68(e)(3), to ensure that a proposed tax is truly generally
redistributive.
Specifically, we are proposing to amend Sec. 433.68(e) to provide
that a proposed tax must satisfy both paragraph (e)(3) of this section,
and, as applicable, paragraph (e)(1) or (2) of this section. At
paragraph (e)(3), we propose that a tax must not impose undue burden on
health care items or services paid for by Medicaid or on providers of
such items and services that are reimbursed by Medicaid. We would
consider a tax to impose undue burden under this paragraph if taxpayers
are divided into taxpayer groups and any one or more of the following
conditions apply: (1) The tax excludes or places a lower tax rate on
any taxpayer group defined by its level of Medicaid activity than on
any other taxpayer group defined by its relatively higher level of
Medicaid activity; (2) within each taxpayer group, the tax rate varies
based on the level of Medicaid activity, and the tax rate imposed on
any Medicaid activity is higher than the tax rate imposed on any non-
Medicaid activity (except as a result of excluding from taxation
Medicare revenue or payments as described in Sec. 433.68(d)); (3) the
tax excludes or imposes a lower tax rate on a taxpayer group with no
Medicaid activity than on any other taxpayer group, unless all entities
in the taxpayer group with no Medicaid activity meet at least one of
four specified exceptions; or (4) the tax excludes or imposes a lower
tax rate on a taxpayer group defined based on any commonality that,
considering the totality of the circumstances, CMS reasonably
determines to be used as a proxy for the taxpayer group having no
Medicaid
[[Page 63742]]
activity or relatively lower Medicaid activity than any other taxpayer
group. These four conditions represent specific parameters of tax
structures that, in addition to those identified through the P1/P2 and
B1/B2 test, inherently result in undue burden on the Medicaid program.
CMS considers taxes that pose an undue burden on the Medicaid program
to be inherently not generally redistributive because they impose a
higher tax burden on health care items or services, or providers of
such items and services, that are financed by Medicaid than those not
financed by Medicaid, as explained in the preamble to the August 1993
final rule, discussed above.
We are proposing to require states to ensure compliance with the
proposed requirement at paragraph (e)(3) to avoid placing an undue
burden on the Medicaid program beginning on the effective date of any
final rule for tax waivers that have not yet been approved before the
effective date of any final rule. For tax waivers approved before the
effective date of any final rule, we are proposing that states must
come into compliance with this requirement when submitting a new waiver
request. As described below, in Sec. 433.72, we are proposing to add
new paragraphs (c)(3) and (4) to specify the date on which a waiver
approved under Sec. 433.72(b) will no longer be effective. We are
proposing that an approved waiver would have a 3-year term; for a
waiver approved before the effective date of the final rule the 3-year
term would run from the effective date of the final rule. A state would
be free to apply for renewal of an expired or expiring waiver, subject
to the same approval criteria applicable to an initial waiver request
under Sec. 433.72(b). As a result, for existing tax waivers, we are
proposing to require states to come into compliance with proposed Sec.
433.68(e)(3) when they submit a new tax waiver request, which we are
proposing would be no later than 3 years after the effective date of
any final rule, depending on whether the state makes any substantial
changes to the health care-related tax as specified in proposed Sec.
433.72(d). We believe that this time frame would ensure our goal of
supporting the fiscal integrity of the Medicaid program while giving
states the necessary time to comply with the proposed regulatory
amendments.
It is important to note that nothing in this proposed rule would
interfere with states' permissible use of tax revenues to fund provider
payments or reliance on such use of tax revenues to justify or explain
the tax in the legislative process, as provided in section 1903(w)(4)
of the Act. Tax structures that place an undue burden on Medicaid,
however, would not be considered to be generally redistributive for the
purposes of Sec. 433.68(e). We seek comment on our proposed amendments
to Sec. 433.68(e), and on additional conditions that could result in a
tax program imposing undue burden on the Medicaid program, and
therefore, failing to be generally redistributive in nature that are
not included in this proposed list.
Section 1903(w)(1)(A)(iii) of the Act states that the total amount
expended during the fiscal year as medical assistance under the state
plan shall be reduced by the sum of any revenues received by the state
during the fiscal year from a broad-based health care-related tax if
there is in effect a hold harmless provision with respect to the tax.
Section 1903(w)(4)(C) of the Act states that there is in effect a hold
harmless provision with respect to a health care-related tax if the
state or other unit of government imposing the tax provides directly or
indirectly for any payment, offset, or waiver that guarantees to hold
the taxpayer harmless for any portion of the costs of the tax. Section
433.68(f)(3) echoes this language. The proposed rule would add a net
effect standard to Sec. 433.68(f)(3). This proposed change represents
a clarification of existing policy and would not impose any new
obligations or place any new restrictions on states that do not
currently exist. The language added by the proposed rule would specify
that a direct or indirect hold harmless guarantee will be found to
exist where, considering the totality of the circumstances, the net
effect of an arrangement between the state (or other unit of
government) and the taxpayer results in a reasonable expectation that
the taxpayer will receive a return of all or any portion of the tax
amount as discussed above. We propose that the net effect of such an
arrangement may result in the return of all or any portion of the tax
amount, regardless of whether the arrangement is reduced to writing or
is legally enforceable by any party to the arrangement.
Proposed Sec. 433.68(f)(3) aims to thwart efforts by states to
skirt hold harmless provisions by paying supplemental payments to
private entities, who then pass these funds on to other private
entities that have lost gross revenue due to a health care-related tax.
The use of an intermediary does not change the essential nature of the
transaction: That it is a payment made by a state or unit of government
to a provider that holds that provider harmless for the cost of the
tax. While states are free to impose broad-based and uniform health
care-related taxes, or generally redistributive health care-related
taxes that meet applicable requirements for a waiver of either or both
of these requirements, to fund the non-federal share of Medicaid
expenditures, states may not do so in a way that guarantees to return
all or part of the cost of the tax to the taxpayers. The proposed
language adding the net effect standard to the direct hold harmless
guarantee test at Sec. 433.68(f)(3) clarifies to states the range of
permissible tax and reimbursement arrangements for health care-related
taxes. Such clarifying language allows states and CMS to work more
harmoniously together by solidifying a shared understanding regarding
what constitutes a guarantee to hold taxpayers harmless for the cost of
a health care-related tax and reduces the likelihood of disagreement
concerning the interpretation of the regulation. As such, the proposed
amendment would allow states to operate their Medicaid financing
programs with greater clarity and consistency than before.
We seek comment on our proposed amendments to Sec. 433.68(f)(3).
Additionally, we are soliciting comments on other qualitative or
quantitative measures that could further safeguard the fiscal health
and integrity of the Medicaid program through modifications to the
provisions of Sec. 433.68.
8. Waiver Provisions Applicable to Health Care-Related Taxes (Sec.
433.72)
In Sec. 433.72, we are proposing to add new paragraphs (c)(3) and
(4) to specify the date on which a waiver approved under paragraph (b)
of this section would no longer be effective. We are proposing that an
approved waiver should have a 3-year term; for a waiver already
approved before the effective date of the final rule, if this proposal
is finalized, the 3-year term would run from the effective date of the
final rule. A state would be free to apply for renewal of an expired or
expiring waiver, subject to the same approval criteria applicable to an
initial waiver request under Sec. 433.72(b). We are proposing a 3-year
limit to ensure the tax program continues to meet all applicable
requirements under part 433, subpart B, including whether or not the
tax program continues to meet generally redistributive requirements at
Sec. 433.68(e)(1) and (2) and proposed paragraph (e)(3).
We are proposing to limit waiver approvals to 3 years because the
provider data that states provide to CMS for use in the statistical
tests at Sec. 433.68 and the providers in the class subject to the
waiver change over time. As a result,
[[Page 63743]]
while a tax may be generally redistributive when the state first
requests the waiver, it may cease to be so as the composition of the
providers or payers, or the volume of items or services subject to the
tax changes. In an effort to ensure consistent fiscal oversight of the
non-federal share of Medicaid expenditures and to ensure that health
care items and services, and providers of health care items or
services, financed by Medicaid are not taxed more heavily than those
not financed by Medicaid, we believe that this proposed time period
would aid in ensuring state tax programs are and remain consistent with
section 1903(w)(3)(E)(ii) of the Act. This provision establishes that
the Secretary will approve waivers if the state establishes to the
satisfaction of the Secretary that the net impact of the tax is
generally redistributive in nature and the amount of the tax is not
directly correlated to Medicaid payments. We believe it is necessary
for the proper and efficient operation of the Medicaid program to
establish that a tax for which a state seeks a waiver meets statutory
requirements not just when the waiver is initially approved, but on an
ongoing basis as well. We propose to allow states with already existing
health care-related tax waivers 3 years from the effective date of the
final rule, as stated in proposed Sec. 433.72(c)(4), to seek
reapproval of their waivers, in an effort to provide states with
sufficient time to evaluate and, as may be necessary, modify existing
tax programs to comply with applicable requirements.
We are proposing to add new Sec. 433.72(d), to ensure ongoing
compliance of tax waivers with the original conditions of the waiver
approval. In this proposed paragraph, we would specify that, for a
state to continue to receive tax revenue (within specified limitations)
under an approved waiver without a reduction in FFP as would otherwise
be required under section 1903(w)(1)(A)(ii) of the Act and Sec.
433.70, the state must: (1) Ensure that the tax program for which CMS
approved the waiver continues to meet the waiver conditions identified
in Sec. 433.72(b)(1) through (3) at all times during which the waiver
is in effect; and (2) request a new waiver if the state or other unit
of government imposing the tax modifies the tax program in specified
ways. We propose that, if the state or other unit of government
imposing the tax modifies the tax in a non-uniform manner, meaning the
change in tax or tax rate does not apply in an equal dollar amount or
percentage change to all taxpayers, the state would be required to
request a new waiver subject to effective date requirements in Sec.
433.72(c). If the state or other unit of government imposing the tax
modifies the criteria for defining the taxpayer group or groups subject
to the tax, the state would be required to request a new waiver subject
to effective date requirements in Sec. 433.72(c). As with the 3-year
waiver validity period at proposed Sec. 433.72(c)(3) and (4), the
proposed new requirements at paragraph (d) would help ensure that the
tax remains generally redistributive while the waiver is in effect,
since these changes could affect the determination whether it meets
applicable requirements. States would be permitted to make changes that
would not affect the compliance of the tax with all applicable broad-
based and uniformity standards (including waiver standards) without
receiving a new approval of a tax waiver from CMS. However, states
wishing to make changes to their tax structures that modify any of the
proposed, specified elements would be required to submit a new tax
waiver request and obtain approval from us before beginning to collect
such a tax. States may not make changes to the tax structure that
result in taxpayers being held harmless for some or all of the cost of
the tax without experiencing a reduction in their amount of medical
assistance expenditures for purposes of claiming FFP as specified by
section 1903(w)(1)(A) of the Act.
9. When Discovery of Overpayment Occurs and its Significance (Sec.
433.316)
Section 1903(d)(2)(C) of the Act provides that, when an overpayment
by a state is discovered, the state has a 1-year period to recover or
attempt to recover the overpayment before an adjustment is made to FFP
to account for the overpayment. Currently, regulations in Sec. 433.316
provide for determining the date of discovery of an overpayment, which
is necessary to determine the statutory 1-year period, in three
distinct cases: When the overpayment results from a situation other
than fraud, under Sec. 433.316(c); when the overpayment results from
fraud, under Sec. 433.316(d); and when the overpayment is identified
through a federal review, under Sec. 433.316(e). It is not explicitly
clear in the current regulations how the date of discovery is
determined when an overpayment is discovered through the annual DSH
independent certified audit required under Sec. 455.304. Therefore, we
believe an amendment is appropriate to specify the date of discovery of
overpayments as it relates to the annual DSH independent certified
audit. Accordingly, we are proposing to redesignate paragraphs (f),
(g), and (h) as paragraphs (g), (h), and (i), respectively, and to add
new proposed paragraph (f). In new paragraph (f), we are proposing that
in the case of an overpayment identified through the DSH independent
certified audit required under part 455, subpart D, we will consider
the overpayment as discovered on the earliest of the date that the
state submits the DSH independent certified audit report required under
Sec. 455.304(b) to CMS, or any of the dates specified in Sec.
433.316: Paragraph (c)(1) (the date on which any Medicaid agency
official or other state official first notifies a provider in writing
of an overpayment and specifies a dollar amount that is subject to
recovery); paragraph (c)(2) (the date on which a provider initially
acknowledges a specific overpaid amount in writing to the Medicaid
agency); and paragraph (c)(3) (the date on which any state official or
fiscal agent of the state initiates a formal action to recoup a
specific overpaid amount from a provider without having first notified
the provider in writing).
10. State Plan Requirements (Sec. 447.201)
We are proposing to add new Sec. 447.201(c) to specify that the
state plan may not provide for variation in FFS payment for a Medicaid
service on the basis of a beneficiary's Medicaid eligibility category,
enrollment under a waiver or demonstration, or federal matching rate
available for services provided to a beneficiary's eligibility category
under the plan. As discussed below, this provision would implement
sections 1902(a)(4) and (a)(30)(A) of the Act, and codify our current
practice, by prohibiting variations in service payments on the basis of
available FFP.
States seeking to increase payments only on the basis of a higher
available FFP for the relevant beneficiary population creates inequity
in the Medicaid program. By approving Medicaid state plan payments, we
are making an administrative decision that the payment rates are
consistent with section 1902(a)(30)(A) of the Act; specifically, that
such payments are consistent with efficiency, economy, and quality of
care and are sufficient to enlist enough providers so that care and
services are available under the plan at least to the extent that such
care and services are available to the general population in the
geographic area. In the absence of an access issue, it would not be
consistent with efficiency and economy to pay providers more, only
because the federal matching rate is increased with respect to certain
categories of beneficiaries. In addition,
[[Page 63744]]
where payment rates under the state plan do result in insufficient
access for Medicaid beneficiaries, the state must increase rates to
rectify the access problem for all Medicaid beneficiaries, not only
those for whom the statute provides for an increased FMAP.
We have allowed states to set payment rates based on higher costs
for the delivery of care (for example, difference in acuity or
particular health needs); however, we have not allowed states to pay
higher rates based on policies that are unrelated to actual increases
in the cost of furnishing services to the relevant beneficiaries. For
example, we have allowed states to pay higher rates to a provider based
upon a higher provider qualifications, which may be equated with a
higher cost of furnishing services, but that payment difference is for
all Medicaid beneficiaries that receive services provided by that
provider. Similarly, we have not allowed states to target higher
payments based on eligibility status or enhanced matching rates, since
those factors are not established to have any relationship to the cost
of delivering care. Rates that are structured without regard to service
costs and care delivery are not economic and efficient and are
inconsistent with section 1902(a)(30)(A) of the Act. This proposed
provision is intended to make clear that variation in payment rates
solely on the basis of FFP is prohibited, as it would be inconsistent
with efficiency and economy to allow states to pay providers more, only
because such payments can be funded by drawing down additional federal
dollars at a marginally increased cost to the state (and at net savings
to the state, versus the costs the state would incur if the relevant
beneficiary population qualified for standard FMAP). We believe that
this proposed provision is necessary to ensure the proper and efficient
operation of the Medicaid state plan, in a manner that complies with
the requirements of section 1902(a)(4) and (a)(30)(A) of the Act.
This proposed approach would be consistent across both FFS and
managed care. Specifically, in the 2016 Medicaid managed care final
rule, we articulated in Sec. 438.4(b)(1) that any differences among
capitation rates according to covered populations must be based on
valid rate development standards and not be based on the FFP associated
with the covered populations (81 FR 27566).
We also considered proposing a rule that would require states to
pay the same rate to a facility for all beneficiaries, unless the state
could demonstrate that different case mixes or health care needs, or
other reasons consistent with economy, efficiency, quality of care, and
access justified paying a different rate for a different group of
beneficiaries. We decided instead to propose that the plan must provide
for no variation in FFS payment for a Medicaid service on the basis of
a beneficiary's Medicaid eligibility category, enrollment under a
waiver or demonstration project, or FMAP rate available for services
provided to an individual in the beneficiary's eligibility category,
because, as stated above, where payment rates under the state plan do
result in insufficient access for Medicaid beneficiaries, the state
must increase rates to rectify the access problem for all Medicaid
beneficiaries, not only those for whom the statute provides for an
increased FMAP. We seek comment on proposed Sec. 447.201.
11. Payments Funded by Certified Public Expenditures Made to Providers
That are Units of Government (Sec. 447.206)
We are proposing to add Sec. 447.206 to codify longstanding
policies implementing the following sections of the statute: Section
1902(a)(4) for proper and efficient operation of the state plan;
section 1902(a)(30)(A) requiring that payments be economic and
efficient; and section 1903(w)(6)(A) permitting states to use CPEs,
which are expenditures certified by units of government within a state,
as a source of non-federal share. The specific standards for states to
document Medicaid expenditures that units of government may certify
through a CPE for a claim for FFP has not previously been defined in
regulation. While CPEs are not necessarily ``payments'' in the usual
sense of the term, instead they are transactions which take the place
of regular FFS payment. However, we refer to payments generally to mean
the total computable amount the provider receives for performing
Medicaid services. We are proposing in Sec. 447.206(a) to specifiy
that Sec. 447.206 applies only to payments made to providers that are
state government providers or Non-state government providers, as
defined in proposed Sec. 447.286, where such payments to such
providers are funded by a CPE, as specified in Sec. 433.51(b)(3), as
proposed by this rule. Further, we are proposing in Sec. 447.206(b)(1)
that CPE-funded payments made to state government providers or non-
state government providers would be limited to reimbursement not in
excess of the provider's actual, incurred cost of providing covered
services to Medicaid beneficiaries using reasonable cost allocation
methods as specified in 45 CFR part 75 and 2 CFR part 200, or, as
applicable, to Medicare cost principles specified in 42 CFR part 413.
In the case of CPEs, states allow providers that are state or local
government entities to expend funds in order to provide services to
Medicaid beneficiaries. These providers document that the monies were
spent furnishing covered services to Medicaid beneficiaries and certify
their expenditures to the state. Without any funds actually changing
hands between the state or local government entity that is the
provider, and the Medicaid agency (such as via an IGT), and without the
state appropriating associated funds directly to the Medicaid agency,
the state uses the amount of the CPE as non-federal share to claim FFP.
To document the expenditure, we are proposing to add new Sec.
447.206(b), which would define general rules for these CPE cost
protocols. We are proposing to codify our practice of relying upon the
cost allocation principles in federal regulations in 45 CFR part 75, 2
CFR part 200, and, as applicable, Medicare cost principles specified in
part 413, as the methods and principles to identify Medicaid program
expenditures eligible to support a CPE. First, we propose that Medicaid
payments funded by a CPE would be limited to reimbursement not in
excess of the provider's actual, incurred cost of providing covered
services to Medicaid beneficiaries using reasonable methods of
identifying and allocating costs to Medicaid, as stated above. We
recommend that states use the Medicare cost reports as the basis for
determining Medicaid cost where available for an applicable service
(for example, Medicare 2552-10 Hospital Cost Report or the Medicare
2540-10 Skilled Nursing Facility Cost Report). However, since a number
of states already have developed and currently use a state-developed
cost report that is based on the Medicare cost report, meaning that the
state cost report uses data taken from the calculations in the Medicare
cost report, we are not requiring that states only use the Medicare
cost report as we do not desire to increase state burden in this area.
Section 447.206(b)(2), as proposed, would provide that the state
must establish and implement documentation and audit protocols, which
must include an annual cost report to be submitted by the state
government provider or non-state government provider to the state
agency that documents the provider's costs incurred in furnishing
services to Medicaid beneficiaries during the provider's fiscal
[[Page 63745]]
year. Section 447.206(b)(3) would provide that only the certified
amount of the expenditure may be claimed for FFP. The claimed amount is
limited because the CPE must only represent amounts that were spent
providing the Medicaid services, as authorized by sections 1903(a)(1)
and (w)(6)(A) of the Act, which authorize federal matching funds for
state Medicaid expenditures and allows funds certified by units of
government within a state as the non-federal share of expenditures,
respectively.
Proposed Sec. 447.206(b)(4) would require the certifying entity of
the CPE to receive and retain the full FFP associated with the Medicaid
payment, consistent with the cost identification protocols in the
Medicaid state plan and in accordance with proposed Sec. 447.207. We
are proposing to require that certifying entities receive and retain
the FFP a state claims from CMS to prevent inappropriate recycling of
federal funds and any other potential redirection of federal funds that
would be prohibited under the statute. In recent years, we have found
that states have been drawing down FFP to match CPEs, retaining the
federal share and using these federal funds as the non-federal share
for other Medicaid payments. This practice is not consistent with the
existing Sec. 433.51(c), which generally prohibits the use of federal
funds to match other federal funds. When a state makes a claim for FFP
on a medical assistance expenditure, that claim for the FFP is
singularly for that medical assistance expenditure and a recognition of
the state and federal partnership of the Medicaid program. To claim and
receive FFP for an expenditure, and to reuse that FFP to claim
additional federal matching funds or to otherwise redirect the FFP to
pay costs unrelated to the expenditure for which the FFP was claimed
results, in effect, in the federal government alone funding the full
Medicaid payment to the provider that originally certified the CPE, or,
viewed another way, covering costs ineligible for FFP. Such a result is
not consistent with sections 1902(a)(2), 1902(a)(4), and 1903 of the
Act.
Proposed Sec. 447.206(c) would specify other criteria for states
when a CPE is used to fund a Medicaid payment. Under paragraph (c)(1),
the state would be required to implement processes by which all claims
for medical assistance would be processed through the MMIS in a manner
that identifies the specific Medicaid services provided to specific
enrollees. Paragraph (c)(2) would provide that the state is required to
utilize most recently filed cost reports as specified in proposed
paragraph (b)(2) to develop interim payments rates, which may be
trended by an applicable health care-related index. Interim rates are
rates that reflect the provider's expected cost of providing services
throughout the year. Requiring states to establish interim rates
ensures that providers would receive payments throughout the year,
calculated to closely reflect the provider's expenditures in furnishing
services to Medicaid beneficiaries. This would provide cash flow to
support the provider's ongoing operations, and, with the interim rates
based on the provider's most recent filed cost reports (trended forward
by an applicable health care-related index, at state option), would
potentially minimize reconciliation payments to providers (in the case
of underpayment) or collections from providers (in the case of
overpayments) at the end the year during the reconciliation process.
The term ``health care-related index'' means a trend factor which would
project increases or decreases in expected costs, so as to minimize
potential over- or under-payments to the provider certifying the CPE.
One such index is the CMS Market Basket, which we publish for purposes
related to the Medicare program. However, states could also propose to
use an alternative health-care related index, provided the state
demonstrates that the alternative is likely to reliably project
increases or decreases in providers' costs of furnishing covered
services to Medicaid beneficiaries in the upcoming year. In reviewing a
state-proposed health-care related index, we would require the state to
identify the index in the state plan and provide a justification for
the use of this index rather than other national indices, such as the
CMS Market Basket.
We propose that reconciliations would be performed by reconciling
payments made during the year based on the interim Medicaid payment
rates, to the provider's filed cost report for the state plan rate year
in which interim payments were made. Section 455.301 defines the state
plan rate year as the 12-month period defined by a state's approved
Medicaid state plan in which the state estimates eligible uncompensated
care costs and determines corresponding DSH payments, as well as all
other Medicaid payment rates. The period usually corresponds with the
state's fiscal year or the federal fiscal year but can correspond to
any 12-month period defined by the state as the Medicaid state plan
rate year (73 FR 77951). Proposed paragraph (c)(3) would require that
final settlement be performed annually by reconciling any interim
payments to the finalized cost report for the state plan rate year in
which any interim payment rates were made. Final settlement would be
required to be made no more than 24 months from the relevant cost
report year end, except under circumstances identified in 45 CFR 95.19.
The 24-month period was chosen to comply with the generally applicable
2-year time limit for claiming payment for expenditures in 45 CFR 95.7.
During the reconciliation and final settlement process, we expect
that the state would receive the provider's cost report and review the
reported expenditures via a desk review process. As part of the desk
review, the state would gather, organize, and analyze the provider's
cost report, including by comparing current period expenditures to
prior period expenditures to identify audit risks. During the desk
review, we expect that the state may request explanations of or
adjustments to the reported cost based upon generally accepted
accounting principles (GAAP). Upon finalization of the desk review, the
state would notify the provider of the final determination of total
cost. Once the state has made a final determination of the provider's
final cost, if the provider's actual total cost is not equal to the sum
of its interim rate payments for the period, one of two actions may
occur. If the provider has been underpaid, meaning the total interim
rate payments were less than the total calculated cost amount, the
state may draw down and pay to the provider FFP associated with the
total computable expenditure certified by the provider as a prior
period adjustment to the CMS 64, equal to the difference between the
total interim payments and total cost. In the event the provider was
overpaid, meaning the interim rate payments exceeded the provider's
total cost, the state would calculate the overpayment, which would be
equal to the difference between the total interim payments and the
provider's total cost, and return the federal share of that amount to
CMS as a prior period adjustment under part 433 subpart F. In the event
of an overpayment, the state is obligated to return the FFP whether or
not the state seeks a return of payment from the provider as
articulated in Sec. 433.316. All of these steps would establish an
auditable basis for the state's claims for FFP associated with the
CPEs, as contemplated under section 1902(a)(42)(A) of the Act, which
requires that the state plan must provide that the records of any
entity participating in the plan and providing
[[Page 63746]]
services reimbursable on a cost-related basis will be audited as the
Secretary determines to be necessary to insure that proper payments are
made under the plan.
Proposed Sec. 447.206(d) would specify requirements for the state
plan when the state proposes to use a CPE to fund a Medicaid payment.
We propose that, if CPEs are used as a source of non-federal share
under the state plan, the state plan would be required to specify cost
protocols in the service payment methodology applicable to the
certifying provider, such protocols would be required to meet all of
the following criteria: (1) Identify allowable cost using either a
Medicare cost report, or a state-developed Medicaid cost report
prepared in accordance with the cost principles in 45 CFR part 75 and 2
CFR part 200; (2) define an interim rate methodology that would be used
to pay a provider on an interim basis; (3) describe an attestation
process by which the certifying entity would attest that the costs are
accurate and consistent with 45 CFR part 75 and 2 CFR part 200; (4)
include, as necessary, a list of the covered Medicaid services being
furnished by each provider certifying a CPE; and (5) define a
reconciliation and settlement process consistent with proposed Sec.
447.206(c)(3) and (4). Regarding the inclusion in paragraph (d)(4) of a
list of the covered Medicaid services being furnished by each provider,
CMS is referring to instances where the services included in a cost
report either extend across multiple Medicaid benefit categories or do
not encompass all services within a benefit category. In such
circumstances, we believe that this information is necessary to
determine the services for which FFP is available. For example, in a
setting where some but not all services within a Medicaid benefit
category are furnished, such as a residential rehabilitation hospital
that does not furnish all inpatient hospital services, the state would
be required to document the services for which the state will be
claiming FFP with respect to the provider. In most settings where the
provider certifies a CPE, this step is not necessary, since the
services furnished by the provider certifying the CPE will be
coextensive with a Medicaid benefit category (for example, the
``inpatient hospital services'' Medicaid benefit category typically is
coextensive with the services furnished by an inpatient hospital that
might certify a CPE).
We are soliciting comment on our overall proposal, including the
proposed cost reporting and process requirements, state plan
requirements, and whether to require the use of the Medicare cost
report where one exists for an applicable service for which the
provider certifies a CPE. We believe requiring the use of a Medicare
cost report where one exists for CPE protocols would allow for a
consistent application of allowable cost principles, however, Medicare
cost reports only exist for a relatively small number of services that
states may cover in their Medicaid programs and requiring the use of
Medicare cost reports would remove some state flexibility in
determining the appropriate cost reporting mechanism for providers
certifying CPEs in the state's Medicaid program.
12. Retention of Payments (Sec. 447.207)
In Sec. 447.207, we propose to require that payment methodologies
must permit the provider to receive and retain the full amount of the
total computable payment for services furnished under the approved
state plan (or the approved provisions of a waiver or demonstration, if
applicable). This provision is intended to implement sections
1902(a)(4) and (a)(32) of the Act. These provisions respectively
require that the state plan for medical assistance provide such methods
of administration as are found by the Secretary to be necessary for the
proper and efficient operation of the plan, and generally provide that
no payment under the plan for any care or service provided to an
individual shall be made to anyone other than such individual or the
person or institution providing such care or service, under an
assignment or power of attorney or otherwise, unless certain enumerated
exceptions apply as described in more detail below. Payment
arrangements that comply with an exception in section 1902(a)(32) of
the Act and the implementing regulation in Sec. 447.10 would not be
deemed out of compliance with this proposed provision.
The Secretary would determine compliance with this provision by
examining any associated transactions that are related to the
provider's total computable Medicaid payment to ensure that the state's
claimed expenditure, which serves as the basis for FFP, is consistent
with the state's net expenditure, and that the full amount of the non-
federal share of the payment has been satisfied. The term ``state's net
expenditure'' in this section means a state's Medicaid expenditure,
less any returned funds or contributions from the provider to the
state, related to the Medicaid payment. This view of a return of any
portion of a Medicaid payment is consistent with the treatment of
provider-related donations in Sec. 433.54, particularly paragraph (e)
of that section which states CMS will deduct the amount of an
impermissible provider-related donation from a state's medical
assistance expenditures before calculating FFP (73 FR 9698).
Consideration for the state's net expenditure would include a review of
potential ``hold harmless'' arrangements as described in Sec.
433.54(c), which provides that an impermissible hold harmless practice
exists if the Medicaid payment is positively correlated to a donation,
varies based only on the amount of a donation (including if payment is
conditioned upon the receipt of a donation), or directly or indirectly
guarantees to return any portion of a donation to the donating provider
(or other party responsible for the donation), which implements section
1903(w)(2)(B) of the Act. We have noted circumstances in some states
where participation in a Medicaid supplemental payment under the state
plan is conditioned upon the state receiving a portion of that payment
back, whether as a direct payment from the provider or netted from
payments to the provider where the state retains a portion of the
provider's payment before sending the remaining payment to the
provider.
We anticipate that ``associated transactions'' may include, but
would not necessarily be limited to, the payment of an administrative
fee to the state as a fee for processing provider payments or IGTs. For
example, in some states, we have found that the Medicaid agency has
charged a percentage administrative fee for each Medicaid claim that
was processed. Essentially, the state was charging providers for
submitting claims to the Medicaid program, and since the administrative
charge was based on claims volume and amount of Medicaid payment, this
practice amounted to a tax on Medicaid claims for services. States are
already able to, and often do, claim administrative match for Medicaid
claims processing costs; states should be using the appropriate
mechanisms for claiming where authority exists and not unnecessarily
shifting costs to the Medicaid providers. We propose that in no event
could administrative fees be calculated based on the amount a provider
receives through Medicaid payments or amounts a unit of government
contributes through an IGT as funds for the state share of Medicaid
payments. Structuring an administrative fee in this way would be
tantamount to a Medicaid-only provider tax, which is not allowable
under Sec. 433.55, and would be expressly prohibited under the
proposed Sec. 447.207(a). Conversely, if
[[Page 63747]]
a state charged a flat fee for claims processing that did not vary
based on the volume of claims or amount of Medicaid payments processed,
the payment of such a fee would not be considered an associated
transaction. Likewise, the use of Medicaid revenues to fund payments
that are normal operating expenses of conducting business, such as
payments related to taxes (including permissible health-care-related
taxes), fees, or business relationships with governments unrelated to
Medicaid in which there is no connection to Medicaid payment would not
be considered an associated transaction.
We are soliciting comment on all of Sec. 447.207, including
comments on the types of transactions that we propose would and would
not be considered ``associated transactions'' for the purpose of this
section.
13. State Plan Requirements (Sec. 447.252)
We are proposing to add paragraphs (d) and (e) to Sec. 447.252
regarding state plan requirements for payments for inpatient hospital
and long-term care facility services, to implement new approval
requirements for state plans and any SPAs proposing to make
supplemental payments to providers of these services and to define a
transition period for currently authorized supplemental payments to
begin to meet the proposed new requirements. In Sec. 447.302, we
propose similar requirements for supplemental payments proposed for
outpatient hospital services, as described in more detail below. We are
proposing to limit approval for any Medicaid supplemental payments to a
period of not more than 3 years, and to require states to monitor a
supplemental payment program during the term of its approval to ensure
that the supplemental payment remains consistent with section
1902(a)(30)(A) of the Act. As discussed in this section and other
sections of this preamble, the proposed revisions to Sec. Sec.
447.252, 447.288(b), and 447.302 include considerable data reporting
requirements which would implement section 1902(a)(6) of the Act which
provide that the state agency will make such reports, in such form and
containing such information, as the Secretary may from time to time
require, and comply with such provisions as the Secretary may from time
to time find necessary to assure the correctness and verification of
such reports. We believe the robust payment data we propose to require
is necessary to ensure the proper and efficient administration of the
plan; to ensure that payments are consistent with efficiency, economy,
and quality of care; and otherwise to assist us in appropriately
overseeing the Medicaid program.
Specifically, we propose in Sec. 447.252(d) that CMS may approve a
supplemental payment, as defined in Sec. 447.286, provided for under
the state plan or a SPA for a period not to exceed 3 years. A state
whose supplemental payment approval period has expired or is expiring
may request a SPA to renew the supplemental payment for a subsequent
period not to exceed 3 years, consistent with the requirements of Sec.
447.252. A time-limited supplemental payment allows CMS and the state
an opportunity to revisit state plan supplemental payments to ensure
that they remain consistent with efficiency, economy, and quality of
care, as required under section 1902(a)(30)(A) of the Act. Over the
years, CMS and various oversight bodies conducting financial management
reviews and audits have identified areas where unchecked supplemental
payments have resulted in payments that appeared to be excessive, and
CMS had little recourse to take action. Such audits and financial
reviews conducted by CMS or other oversight agencies could take years
and require a large number of state and federal resources to complete,
and ultimately resolve. As noted earlier in this preamble, in 2015, the
GAO issued a report entitled, ``Medicaid: CMS Oversight of Provider
Payments Is Hampered by Limited Data and Unclear Policy,'' in which it
concluded that, ``[w]ithout good data on payments to individual
providers, a policy and criteria for assessing whether the payments are
economical and efficient, and a process for reviewing such payments,
the federal government could be paying states hundreds of millions, or
billions, more than what is appropriate.'' \9\ As a result, the GAO has
recommended that, to better ensure the fiscal integrity of the program,
we should establish financial reporting at a provider-specific level
and clarify permissible methods for calculating Medicaid supplemental
payment amounts. Based on this and other oversight entity
recommendations, and CMS' experience administering the Medicaid program
at the federal level, we believe that the time-limited approval of
supplemental payments is necessary for the proper and efficient
administration of state Medicaid plans to ensure the continuing
consistency of supplemental payments with applicable statutory
requirements and generally to ensure appropriate oversight.
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\9\ U.S. Gov't Accountability Office, GAO-15-322, Medicaid: CMS
Oversight of Provider Payments Is Hampered by Limited Data and
Unclear Policy, 46 (2015), https://www.gao.gov/assets/670/669561.pdf.
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We are not proposing to limit the number of times a state may
request, and receive approval for renewal of, a supplemental payment
program, provided that each request meets all applicable requirements.
We propose that a state plan or SPA that would provide for a
supplemental payment would be required to include: (1) An explanation
of how the state plan or SPA will result in payments that are
consistent with section 1902(a)(30)(A) of the Act, including that
provision's standards with respect to efficiency, economy, quality of
care, and access, along with the stated purpose and intended effects of
the supplemental payment, for example, with respect to the Medicaid
program, providers, and beneficiaries; (2) the criteria to determine
which providers are eligible to receive the supplemental payment; (3) a
comprehensive description of the methodology used to calculate the
amount of, and distribute, the supplemental payment to each eligible
provider, including specified content; (4) the duration of the
supplemental payment authority (not to exceed 3 years); (5) a
monitoring plan to ensure that the supplemental payment remains
consistent with the requirements of section 1902(a)(30)(A) of the Act
and to enable evaluation of the effects of the supplemental payment on
the Medicaid program, for example, with respect to providers and
beneficiaries; and (6) for a SPA proposing to renew a supplemental
payment for a subsequent approval period, an evaluation of the impacts
on the Medicaid program during the current or most recent prior
approval period, for example, with respect to providers and
beneficiaries, and including an analysis of the impact of the
supplemental payment on compliance with section 1902(a)(30)(A) of the
Act. For the state's comprehensive description of the methodology used
to calculate the amount of, and distribute, the supplemental payment to
each eligible provider as required under item (3), we would require the
state to provide all of the following: (i) The amount of the
supplemental payment made to each eligible provider, if known, or, if
the total amount is distributed using a formula based on data from one
or more fiscal years, the total amount of the supplemental payments for
the fiscal year or years available to all providers eligible to receive
a supplemental payment; (ii) if applicable, the specific criteria with
respect to Medicaid
[[Page 63748]]
service, utilization, or cost data from the proposed state plan rate
year to be used as the basis for calculations regarding the amount and/
or distribution of the supplemental payment; (iii) the timing of the
supplemental payment to each eligible provider; (iv) an assurance that
the total Medicaid payment to an inpatient hospital provider, including
the supplemental payment, will not exceed the upper limits specified in
Sec. 447.271; and (v) if not already submitted, an UPL demonstration
as required by Sec. 447.272 and described in proposed Sec. 447.288.
We already request the information specified in items (1) through
(3), above, from states when a state makes a state plan submission that
includes a supplemental payment. Currently, we request this information
either informally, by seeking assurances from the state in connection
with the request for a SPA, or more formally, by requesting changes to
the language of the proposed SPA itself. These requirements also are
consistent with Sec. 430.10, which requires a state plan to be a
comprehensive written statement which serves as the basis for FFP; as
such, we are proposing to specify in regulation the essential elements
of a comprehensive written methodology for a Medicaid supplemental
payment. Consistent with longstanding policy, for a state plan to be
comprehensive, it must include the detailed methodologies by which the
state makes payments, such that we and the state have the information
necessary to determine which providers qualify for a payment, the
amount of each provider's payment, and the manner in which payments are
distributed to the qualifying providers.
While items (1) through (3), above, would codify our current
practice in the regulation, items (4) through (6) would be new
requirements. Item (4) would require the state to identify an
expiration date, or sunset date, for the supplemental payment, not to
exceed a duration of 3 years. A 3-year approval period would also be
consistent with our general approach with respect to demonstration
projects under section 1115 of the Act, which often are approved for 3-
year periods to allow for adequate time for the implementation and
testing, supported by ongoing monitoring, and which culminate in an
evaluation of the effects of the demonstration. Each time a state
submits a SPA to renew a supplemental payment, the state would be able
to request a new approval period of up to 3 years. The state could
submit a SPA for CMS consideration to renew a supplemental payment at
any point during the 3-year approval period, according to the state's
chosen timeframe, which the state should determine to allow sufficient
time for our review and approval. We considered using a tiered approval
time period, such as an initial approval period of up to 5 years
followed by renewal periods of up to 3 years, but decided not to
propose this policy due to the increased burden that it could cause.
We have found that supplemental payments that are established under
the state plan and not reviewed for a long period of time may result in
issues of compliance with applicable statutory and regulatory
requirements that do not promptly come to our, or the state's,
attention. For example, as discussed elsewhere in this preamble,
particularly with respect to proposed Sec. 447.288, the issue of
fluidity of provider ownership can result in issues involving UPL
supplemental payments, and where payments are made improperly, can
require extensive federal and state resources to resolve. In the
example discussed in connection with proposed Sec. 447.288, the
qualifying criteria for providers made all ``non-state government owned
or operated'' facilities eligible for supplemental payments up to the
UPL for those providers. A few years after this supplemental payment
structure was approved, the state was approached by providers who
wanted to change their ownership or operational categorization to meet
the ``non-state government'' criteria, apparently so that they could
qualify for the UPL supplemental payments under the state plan. The
state allowed the providers to make the change without prior CMS review
or approval, and subsequently began making UPL supplemental payments to
the newly recategorized providers. Upon review of the supplemental
payment program in question, CMS found that none of the asserted
changes in ownership or operations supported the providers'
recategorization, and that the providers therefore were ineligible for
the UPL supplemental payments the state had been making. In this
example, the state was also using funds impermissibly transferred from
private entities, which the state characterized as IGTs as a result of
the asserted recategorization of the provider as non-state government-
owned or operated. To resolve the identified issue, CMS had to undergo
a thorough financial management review, which involved numerous CMS
staff reviewing financial statements, provider payments, provider
records, and interviewing numerous state and provider staff members to
determine the provider's eligibility for the payment under the approved
state plan. CMS formally issued the financial management review in
November 2015 for claims for services provided in state FYs 2010 and
2011, and ultimately issued a disallowance in September 2018. If CMS
had the ability routinely to re-review state supplemental payment
programs, we would not have approved the expansion of this payment to
non-qualifying providers under the plan because the private providers
were also funding the non-federal share of a Medicaid payment, which is
unallowable under the statute. Because of situations like this and
related concerns, we believe it is necessary for the proper and
efficient administration of state Medicaid plans to require that
supplemental payment programs be submitted for CMS review and approval
at least every 3 years, to ensure they are and remain consistent with
the efficiency, economy, and quality requirements under section
1902(a)(30)(A) of the Act and the parameters concerning permissible
sources of non-federal share under section 1903(w) of the Act.
In our experience, a number of states that seem to effectively use
supplemental payments re-submit their supplemental payment programs to
CMS on an annual basis, as the pools funded by the supplemental
payments are annually re-authorized by the state legislature. Such
supplemental payment programs would not be impacted by the proposed 3-
year limit. States submitting annual updates to supplemental payment
programs, like other states with supplemental payment programs, would
however newly be required to comply with the other proposed
requirements, including items (5) and (6), discussed above. Proposed
Sec. 447.252(d)(5) and (6) concern monitoring and evaluation
requirements to assess the effects of the state's supplemental payment
program. Specifically, paragraph (d)(5) would require the state to
submit a monitoring plan to ensure the supplemental payment remains
consistent with the requirements of section 1902(a)(30)(A) of the Act
and to enable evaluation of the supplemental payment's effects on the
Medicaid program, for example, with respect to providers and
beneficiaries. For a SPA proposing to renew a supplemental payment for
a subsequent approval period, paragraph (d)(6) would require the state
to submit such an evaluation and to include an analysis of the impact
of the supplemental payment on the state's compliance with section
1902(a)(30)(A)
[[Page 63749]]
of the Act. For example, a state could seek a 3-year approval period
for a supplemental payment to increase payments to rural hospitals,
with the goal of increasing beneficiary access to services provided by
rural hospitals. Over the next 3 years, the state would monitor the
effects of the program, to determine whether the supplemental payment
is meeting its goals and remains consistent with applicable
requirements. At the end of the 3-year period, if the state wished to
renew the supplemental payment, it would submit its evaluation and
analysis with its renewal request to us, which would inform our
determination of whether payments under a renewed supplemental payment
program would be consistent with applicable requirements, including
those in section 1902(a)(30)(A) of the Act. We anticipate that there
may be cases in which the state's evaluation of a supplemental payment
program's effectiveness in meeting its stated goals requires more time
to evaluate; in such cases, provided we are able to determine that the
supplemental payment meets all applicable statutory and regulatory
requirements, we would anticipate approving the renewal. Notably, even
for a state requesting to renew a supplemental payment program with no
changes, we would require the state to submit the evaluation and
analysis required under proposed Sec. 447.252(d)(6) as part of our
review of the supplemental payment for consistency with applicable
statutory and regulatory requirements.
Finally, in considering the 3-year approval period for supplemental
payments, we developed a transition plan to provide states with an
adequate opportunity to come into compliance with the proposed
requirements. To accomplish the policy objectives described above, we
believe we must begin to apply the proposed policies to current state
plan provisions that authorize supplemental payments that are approved
as of the effective date of the final rule. It is no less necessary to
ensure the proper and efficient administration of the state plan and
ensure that applicable requirements continue to be met, to rigorously
evaluate currently existing supplemental payment programs, as it is to
do so for new supplemental payment programs that may be approved
prospectively. Accordingly, in proposed Sec. 447.252(e), for state
plan provisions approved 3 or more years prior to the effective date of
the final rule, we propose that the state plan authority would expire 2
calendar years following the effective date of the final rule. For
state plan provisions approved less than 3 years prior to the effective
date of the final rule, we propose that the state plan authority would
expire 3 years following the effective date of the final rule. We
believe this is a generous timeline for transitioning to the proposed
3-year time limit for supplemental payments under the state plan. This
timeline provides states with currently approved supplemental payment
programs with at least 2 years, and as many as 3 years, before a state
wishing to continue the supplemental payment program would need to seek
renewal or a new approval.
We are soliciting comment on this entire section, including the
proposed state plan elements for supplemental payments and the proposed
provisions that would place a limited approval timeframe on state's
proposed supplemental payments. For the timeframes, we are seeking
input on both the length of 3-year approval period and the length of
the proposed transition period for currently approved supplemental
payments. We considered proposing a 5-year compliance transition period
instead of the proposed 3-year compliance transition period in Sec.
447.252(e). This would have extended the amount of time states would
have to bring existing, approved supplemental payment methodologies
into compliance with the provisions of the proposed rule in Sec. Sec.
447.252 and 447.302, but determined that the shortened timeframe would
be easier to administer as many states already submit annual
supplemental payment proposals. We decided to propose a 3-year
transition period to account for states where changes may require
legislative action as some legislatures meet on a biennial basis and
such a timeframe would provide an opportunity for all legilslatures to
address existing supplemental payment programs. We are requesting
comment on whether or not to pursue this or a lengthier transition and
approval/renewal timeline for supplemental payments.
14. Inpatient Services: Application of UPLs (Sec. 447.272)
To promote improved oversight of Medicaid program FFS expenditures
for services subject to the UPL, we are proposing changes to Sec.
447.272. Many of the proposed changes to Sec. 447.272 would formally
codify our current policy in regulation text, while others are newly
proposed standards. We have long relied upon the UPL requirements in
Sec. 447.272, and the related review of total inpatient hospital
Medicaid payments in relation to a provider's cost or a reasonable
estimate of what Medicare payment amounts would have been, as
implementing section 1902(a)(30)(A) of the Act, which requires that
states assure that payments are consistent with efficiency, economy,
and quality of care. As stated earlier in the preamble, the aggregate
application of these UPLs has preserved state flexibility for setting
provider-specific payments while creating an overall payment ceiling as
a mechanism for determining economy and efficiency of payment for
services, consistent with section 1902(a)(30)(A) of the Act.
We are proposing to amend paragraph (a) to revise the current
ownership groups (state government-owned or operated, non-state
government owned or operated, and privately-owned and operated
facilities) used to establish the UPL. We propose to replace these
provider designations with ``state government providers,'' ``non-state
government providers,'' and ``private providers.'' We propose to codify
the substantive definitions of these provider designations in proposed
Sec. 447.286. As discussed below, we would define ``state government
provider'' to refer to a health care provider as defined in Sec.
433.52, including those defined in Sec. 447.251, that is a unit of
state government or state university teaching hospital. In determining
whether a provider is a unit of state government, we would consider the
totality of the circumstances, including but not limited to specific
considerations identified in proposed Sec. 447.286. Similarly, we
would define ``non-state government provider'' to refer to a health
care provider as defined in Sec. 433.52, including those defined in
Sec. 447.251, that is a unit of local government in a state, including
a city, county, special purpose district, or other governmental unit in
the state that is not the state, which has access to and exercises
administrative control over state funds appropriated to it by the
legislature and/or local tax revenue, including the ability to expend
such appropriated or tax revenue funds. In determining whether a
provider is non-state government provider, we would consider the
totality of the circumstances, including but not limited to specific
considerations identified in proposed Sec. 447.286. We would define a
``private provider'' to mean a health care provider as defined in Sec.
433.52, including those defined in Sec. 447.251, that is not a state
government provider or a non-state government provider.
The proposed changes in provider designations would reinforce the
[[Page 63750]]
relationship between a provider's designation and its ability (or
inability) to provide the source of non-federal share for Medicaid
payments. Under the current system of categorization by ownership or
operational interests, there can be ambiguity with respect to the
appropriate category for a provider when certain responsibilities of
ownership or operation are divided between more than one entity. For
example, there is currently the possibility that a private nursing
facility could transfer the deed to its real property to the county
government, but the private entity would continue to administer all
functions of the provider as though it were the actual owner, leaving
the county government as the owner only in name but not any function.
For the provider to make an IGT, the private entity would give funds to
the county government, such as through a lease payment for the real
property, to be used as the source of the non-federal share of Medicaid
payments that the state could then make back to the provider in the
form of supplemental payments. This effective self-funding of the non-
federal share of the supplemental payments by the provider would not
have been possible if the provider were categorized as privately owned
and operated, since it would have been unable to make the IGT to
support the supplemental payments back to it. In this situation, we
view this transferred amount (for example, the lease payment) as an
impermissible source of the non-federal share, since the funds used to
support the IGT are not obtained from state or local tax revenue and,
as discussed elsewhere in this preamble, would constitute a non-bona
fide provider-related donation.
Through the state plan review process and our review of UPL
demonstrations, we have observed that some states have re-categorized a
number of providers from privately-owned or operated facilities to a
governmentally owned or operated designation, either state government-
owned or operated facilities or non-state government-owned or operated
facilities. In some instances, the change in ownership category appears
to be only a device to permit the state to make supplemental payments
to a provider and demonstrate compliance with the UPL, rather than
reflective of an actual change in the provider's true ownership or
operational interests, in view of the apparent continuity of the
provider's business structure and activities. We believe this shift in
designation has facilitated higher supplemental payments to certain
providers, without the state incurring additional cost to fund the non-
federal share of payment where the private operator passes funds to the
new governmental owner and those funds are either used: (1) To make an
IGT or (2) supplant funds that are otherwise used to make an IGT to the
state in order to make a supplemental payment targeted toward the
private entity. We are concerned that this type of arrangement is not
consistent with the basic construct of the Medicaid program as a
cooperative federal-state partnership where each party shares in the
cost of providing medical assistance to beneficiaries.
We propose to amend Sec. 447.272(b) by clarifying that the UPL
refers to a reasonable estimate of the amount that would be paid for
the services furnished by the group of facilities under Medicare
payment principles in 42 CFR, chapter IV, subchapter B; or allowed
costs established in accordance with Medicaid cost principles as
specified in 45 CFR part 75 and 2 CFR part 200, or, as applicable,
Medicare cost principles specified in part 413. The specific data
sources, methodology parameters, and acceptable UPL demonstration
methodologies are specified in proposed Sec. 447.288(b).
The existing regulations simply state that the UPL refers to a
reasonable estimate of the amount that would be paid for the services
furnished by the group of facilities under Medicare payment principles
in subchapter B of this chapter, pursuant to which we have defined UPLs
as a payment limit set at the aggregate amount that Medicare would have
paid for the same Medicaid services, using either a Medicare payment
methodology or Medicare cost principles. These two methods are employed
because these are the two methods that Medicare has historically used
to pay for services as authorized in chapter 42, subchapter B. In
establishing these UPL methodologies, we have required that states set
the UPL using the Medicare equivalent payment or cost amount, then
compare the aggregate Medicaid payments for the defined period to the
UPL. For purposes of this proposed rule and to be consistent with prior
regulatory action, the term ``Medicare equivalent'' means the Medicare
equivalent to the Medicaid payment, data, or services. For example, the
Medicare equivalent payment means the amount that would be paid for
Medicaid services furnished by the group of providers if those services
were provided to Medicare beneficiaries and paid under Medicare payment
principles. We are proposing to codify our existing policy related to
the use of the two methods of demonstrating the Medicaid UPL, by using
the Medicare equivalent payment amount or cost amount, and the process
for establishing and demonstrating compliance with the UPL in Sec.
477.288(b) of this proposed rule.
We considered proposing to define specific methods by which states
would be required to demonstrate compliance with the UPL in each of
Sec. Sec. 447.272 and 447.321, but determined that the proposed Sec.
447.288 would allow us to define necessary data elements, parameters,
and methodologies for demonstrating compliance with UPLs in one
location, for purposes of both the inpatient and outpatient UPLs under
Sec. Sec. 447.272 and 447.321, respectively. To summarize briefly,
proposed Sec. 447.288 describes the data sources, data parameters, and
methodologies that must be considered and used in demonstrating
compliance with the UPL. It describes the appropriate Medicare data and
the creation of ratios using either cost or payment data calculations,
the Medicaid charge data to be multiplied by a ratio either of Medicare
costs-to-charges or of Medicare payments-to-charges to calculate the
UPL amount, any associated considerations (such as inflation
adjustments, utilization adjustments, or other cost adjustments), and
the Medicaid payment data. For a detailed discussion of these proposed
UPL requirements, please refer to the discussion below related to Sec.
447.288.
We invite comment on all proposed new provisions and proposed
amendments in this section.
15. Basis and Purpose (Sec. 447.284)
We are proposing to add subpart D to part 447 to implement sections
1902(a)(6) and (a)(30)(A) of the Act, which require, respectively, that
a state plan for medical assistance must provide that the state agency
will make such reports, in such form and containing such information,
as the Secretary may from time to time require, and comply with such
provisions as the Secretary may from time to time find necessary to
assure the correctness and verification of such reports, and to assure
that payments are consistent with efficiency, economy, and quality of
care. As discussed in detail above and in subsequent sections below,
this information would improve the transparency of Medicaid payments
and provide us with more information to understand the basis of
Medicaid supplemental payments at the individual provider level in a
manner consistent with the recommendations of the oversight bodies as
mentioned
[[Page 63751]]
elsewhere in this preamble. Moreover, this information would be used in
concert with annual UPL demonstrations and state expenditure data to
improve our oversight of state expenditures and FFP. Accordingly, we
are proposing to require states to submit quarterly and annual reports
which detail the total provider payments, including base and
supplemental payments, authorized under the state plan and
demonstration authority. We are also proposing that the states submit
an additional annual report disclosing the amount of provider
contributions provided to the state to support the non-federal share of
the Medicaid payments along with the total payments received by the
contributing providers. The provider contributions include all provider
taxes, IGTs, CPEs, and any provider-related donations as described in
part 433, subpart B. This new subpart would provide definitions for
terms critical to the requirements for supplemental payment programs,
including with respect to UPL demonstrations (Sec. 447.286), establish
new data submission requirements for supplemental payments under the
state plan (Sec. 447.288), and specify the consequences that would
apply when a state fails to report required information (Sec.
447.290). We believe these proposed provisions are necessary to ensure
the proper and efficient administration of state Medicaid plans with
respect to supplemental payment programs, and generally to better
enable us to perform our oversight function with respect to the
Medicaid program.
We have a long history of establishing data reporting requirements
for states. For financial data reports such as the UPL data
demonstrations, we have long relied upon the current language in
Sec. Sec. 447.272 and 447.321, which we have discussed in
subregulatory guidance in the form of SMDLs, particularly SMDL 13-003,
to provide additional information regarding required data and the
timeline and manner in which such data is to be reported. We have also
defined reporting requirements regarding the Medicaid DSH program
through regulations in Sec. 447.299. Since codifying the DSH reporting
requirements in regulation, we have found that data reporting by states
has become far more consistent, and as a result, we have been able to
quickly identify areas where DSH payments have been made
inappropriately or when the state has made a payment outside of the
state plan methodology, and thus we have been able to more efficiently
focus our resources to those problematic areas. We have also been able
to work with states to update state plan language so that the
distribution methodology for their DSH payments is comprehensively
described in the state plan, in accordance with federal requirements.
Based in part on this experience with the usefulness of comprehensive
data reporting about state payments to providers, we are proposing
uniform reporting requirements for additional state Medicaid payments,
including supplemental payments made under the UPL. Our expectation is
that such reporting would allow CMS to focus our resources to areas
where there appear to be issues, either in the payment methodology or
the underlying financing, and provide states with technical assistance
to the extent that the issues identified may be resolved through
strengthening the state plan language so that it accurately and
comprehensively describes the state's payment rates and methodologies.
In proposed Sec. 447.284(a), we would specify that proposed new
subpart D would set forth additional requirements for supplemental
payments made under the state plan, and implement section 1902(a)(6)
and (a)(30) of the Act. Section 447.284(b) would provide that the
reporting requirements in subpart D are applicable to supplemental
payments to which a UPL applies under Sec. Sec. 447.272 or 447.321.
We are soliciting comments on the statement of basis and purpose as
proposed in Sec. 447.284.
16. Definitions (Sec. 447.286)
We are proposing to add Sec. 447.286 to define the following
terms, as they are used in proposed part 447, subpart D: Base payment,
Non-state government provider, Private provider, state government
provider, and Supplemental payment. Clear definitions of these terms
are needed so that states and other stakeholders can have a clear
understanding of what is required with respect to the proposed
reporting requirements for supplemental payments and UPL
demonstrations, and to allow us to clearly track supplemental payments
and ensure a consistent reporting and UPL demonstration process.
Specifically, we propose to define the term ``base payment'' to
mean a payment, other than a supplemental payment, made to a provider
in accordance with the payment methodology authorized in the state plan
or is paid to the provider through its participation with a Medicaid
MCO entity under the authority in part 438. Base payments are
documented at the beneficiary level in MSIS or T-MSIS and include all
payments made to a provider for specific Medicaid services rendered to
individual Medicaid beneficiaries, including any payment adjustments,
add-ons, or other additional payments received by the provider that can
be attributed to a particular service provided to the beneficiary, such
as payment adjustments made to account for a higher level of care or
complexity of services provided to the beneficiary. We believe that, in
defining a base payment to a provider, it is appropriate to start with
the most fundamental component of the payment that reimburses the
provider for furnishing a specific service to a particular beneficiary.
In some cases, the base payment may be the only payment the provider
receives. We considered not including payment adjustments, which are
payments made to providers based on certain provider-specific criteria,
add-on payments, and other per service payments apart from the most
basic payment, but we determined that it would be more appropriate to
include all payments made to a provider for specific Medicaid services
rendered to individual Medicaid beneficiaries in the proposed
definition. When states pay providers based on patient acuity,
complexity of services, characteristics of the provider, or add-on
payments, including but not limited to add-on payments for quality of
services, such payments can be directly tied to the provision of a
service to an individual Medicaid beneficiary and are available to all
providers within the Medicaid benefit category. The base payment,
including add-on amounts, includes all payment amounts intended to
fully reimburse the provider for furnishing a specific service to a
particular beneficiary, whereas supplemental payments are made as a
lump sum intended to reimburse for Medicaid services generally, rather
than particular services furnished to an individual beneficiary. We are
soliciting comment on this proposed definition and on the alternative
we considered of not including payment adjustments such as incentive
payments and other add-on payments that are paid on a per claim basis.
We propose to define non-state government provider to mean a health
care provider, as defined in Sec. 433.52, including those defined in
Sec. 447.251, that is a unit of local government in a state, including
a city, county, special purpose district, or other governmental unit in
the state that is not the state, which has access to and exercises
administrative control over state-appropriated funds from the
legislature
[[Page 63752]]
or local tax revenue, including the ability to dispense such funds. We
propose to consider the entity's access to and administrative control
over state-appropriated funds from the legislature or local tax revenue
in this definition to link the provider category to the ability of the
provider to supply the non-federal share funds in a manner consistent
with section 1903(w)(6)(A) of the Act. We anticipate that questions may
arise about whether a provider is a governmental or a private entity,
for purposes of this definition. To resolve such questions, we propose
that we would consider the totality of the circumstances, including,
but not limited to, the identity and character of any entity or
entities other than the provider that share responsibilities of
ownership or operation of the provider, and including the nature of any
relationship among such entities and the relationship between such
entity or entities and the provider. In determining whether an entity
shares responsibilities of ownership or operation of the provider, our
consideration would include, but would not be limited to, whether the
entity: (1) Has immediate authority to make decisions regarding the
operation of the provider; (2) bears the legal responsibility for risk
from losses from operations of the provider; (3) has immediate
authority over the disposition of revenue from operations of the
provider; (4) has immediate authority with regard to hiring, retention,
payment, and dismissal of personnel performing functions related to the
operation of the provider; (5) bears legal responsibility for payment
of taxes on provider revenues and real property, if any are assessed;
or (6) bears the responsibility of paying any medical malpractice
premiums or other premiums to insure the real property or other
operations, activities, or assets of the provider.
In determining whether a relevant entity (that is, the provider and
any entity or entities other than the provider that share
responsibilities of ownership or operation of the provider) is a unit
of a non-state government, we would consider the character of the
entity which would include, but would not be limited to, whether the
entity: (1) Is described in its communications to other entities as a
unit of non-state government, or otherwise; (2) is characterized as a
unit of non-state government by the state solely for the purposes of
Medicaid financing and payments, and not for other purposes (for
example, taxation); and (3) has access to and exercises administrative
control over state funds appropriated to it by the legislature and/or
local tax revenue, including the ability to expend such appropriated or
tax revenue funds, based on its characterization as a governmental
entity.
In recent years, states have proposed a number of SPAs which sought
to re-designate the UPL ownership category of a provider and to allow
that provider to make an IGT, up to the applicable UPL, to fund the
non-federal portion of a new Medicaid supplemental payment. Oftentimes,
a hallmark of these proposals has been the sale of some asset of the
provider (such as the provider's license or the facility's
certification) for some nominal fee, with the private entity (the
``seller'') otherwise retaining critical responsibilities of ownership,
and with the IGT, in practical reality, coming from the private
entity's funds. This approach is inconsistent with the statute and
regulations, particularly sections 1902(a)(30)(A) and 1903(w)(6)(A) of
the Act and implementing regulations at Sec. Sec. 433.51, 447.272 and
447.321.
Based on our experience with such SPAs, it appears that some states
have sought to manipulate the characterization of providers' ownership
to achieve problematic Medicaid financing arrangements. In arrangements
we have observed, the operator essentially functioned as the owner and
the operator of the facility. Accordingly, we believe a more effective
approach to appropriately categorizing providers for purposes of the
UPL would be to consider the totality of the circumstances relevant to
the character of the provider, rather than attempting to parse more
narrowly whether features of particular entities purported to be the
provider's owner and/or operator mean that the provider is properly
categorized as a unit of non-state government, which our experience has
borne out may be more susceptible to manipulation. We understand that
the business models of health care providers and their facilities are
layered and complex. However, as discussed above, we are troubled by
instances we have observed in which some states have attempted to re-
characterize facilities as non-state government owned or operated,
where such characterization was not supported by the actual structure
and operation of the facility, in an ultimate effort to generate more
federal Medicaid revenue without corresponding financial participation
from the state. We believe such arrangements violate applicable
statutes and regulations, are inconsistent with the fiscal integrity of
the Medicaid program, and are generally abusive of the federal-state
partnership that Congress has prescribed for the Medicaid program.
We propose to define private provider to mean a health care
provider as defined in Sec. 433.52, including those defined in Sec.
447.251, that is not a state government provider or a non-state
government provider. This is intended to be a catch-all for remaining
health care providers in the state, that are not state government
providers or non-state government providers, for purposes of this
section. We are soliciting comments on this proposed definition of
private provider.
We propose to define state government provider to mean a health
care provider, as defined in Sec. 433.52, including those defined in
Sec. 447.251, that is a unit of state government or a state university
teaching hospital. Similar to the proposed definition of non-state
government provider, we propose that, in determining whether a provider
is a state government provider, we would consider the totality of the
circumstances, including, but not limited to, the identity and
character of any entity or entities other than the provider that share
responsibilities of ownership or operation of the provider, and
including the nature of any relationship among such entities and the
relationship between such entity or entities and the provider. The
factors that we propose to consider, without limitation, include those
discussed above regarding the proposed definition of non-state
government provider. And similar to that proposed definition, in
determining whether a relevant entity is a state government or state
university teaching hospital, we propose that our consideration would
include, without limitation, the factors discussed above in connection
with the proposed definition of non-state government provider.
Regarding the proposed definitions of non-state government
provider, private provider, and state government provider, we
understand that health care facilities often enter into business
relationships with other entities to perform various functions,
including, but not limited to, the care of beneficiaries. We recognize,
and do not wish to interfere with, legitimate business relationships
between providers and other entities, or among such other entities in
relation to the provider. In fact, we believe that the current
definitions of non-state government-owned or operated, state
government-owned or operated, and privately-owned and operated may have
inadvertently distorted such relationships by encouraging new or
[[Page 63753]]
different business relationships between providers and other entities,
or among such other entities in relation to a provider, with no useful
purpose other than to manipulate Medicaid financing in problematic
ways. As such, we are proposing to identify a provider as a non-state
government provider or state government provider in consideration of
the totality of the circumstances, including, but not limited to, the
identity and character of any entity or entities other than the
provider that share responsibilities of ownership or operation of the
provider, and including the nature of any relationship among such
entities and the relationship between such entity or entities and the
provider. These proposed definitions are intended to work together with
the UPL rules and the provisions governing non-federal share financing
and provider-related donations to safeguard the fiscal integrity of the
Medicaid program.
We propose to define ``supplemental payment'' to mean a Medicaid
payment to a provider that is in addition to the base payments to the
provider, other than DSH payments under part 447, subpart E, made under
state plan authority or demonstration authority. Supplemental payments
cannot be attributed to a particular provider claim for specific
services provided to an individual recipient and are often made to the
provider in a lump sum on a monthly, quarterly, or annual basis apart
from payments for a provider claim, and therefore, cannot be directly
linked to a provider claim for specific services provided to an
individual Medicaid beneficiary. In short, supplemental payments are
any payments to a provider other than Base payments or DSH payments
under part 447, subpart E. Supplemental payments are lump sum payments
made to the provider at various intervals depending on the state
program, including supplemental payments made through section 1115
demonstrations such as uncompensated care pools and delivery system
reform incentive payments (DSRIP). We are not making determinations
about those particular intervals at which payments are distributed to
providers other than to require that states specify such information as
proposed in Sec. 447.252(d) of this proposed rule. We have
historically considered DSH payments under part 447, subpart E as being
distinct payments authorized separately in the statute in section 1923
of the Act which are separate from Medicaid supplemental payments. The
DSH payments serve the specific purpose of taking into account the
situation of hospitals that serve a disproportionate number of low-
income patients with special needs, including Medicaid beneficiaries
and the uninsured. Serving these patients may cause hospitals to incur
higher costs, including significant uncompensated care costs for
serving low income populations. Supplemental payments and DSH payments
are paid under separate authorities in the Act. Supplemental payments
are authorized in section 1902(a)(30)(A) of the Act, which requires
that the state plan provide methods and procedures to assure that
payments are consistent with efficiency, economy, and quality of care
and DSH payments are authorized in section 1923 of the Act. Therefore,
supplemental payments and DSH payments are not required to be tied to
the same statutory purpose.
We are requesting comment on the revisions to Sec. 447.272,
including each of the revised provider category definitions included in
this section.
17. Reporting Requirements for UPL Demonstrations and Supplemental
Payments (Sec. 447.288)
We are proposing to add Sec. 447.288 to define documentation
requirements for UPL demonstrations and for states that make
supplemental payments. As noted several times elsewhere in this
preamble, the GAO has frequently cited the lack of adequate Medicaid
provider payment data as a deficiency that compromises CMS oversight
and recommended we take concrete steps to ensure the timely submission
of accurate state payment data. In 2015, one GAO report concluded that
``[w]ithout good data on payments to individual providers, a policy and
criteria for assessing whether the payments are economical and
efficient, and a process for reviewing such payments, the federal
government could be paying states hundreds of millions, or billions,
more than what is appropriate'' (U.S. Gov't Accountability Office, GAO-
15-322, Medicaid: CMS Oversight of Provider Payments Is Hampered by
Limited Data and Unclear Policy, 46 (2015)). Accordingly, this
proposals represents an effort to address the concerns raised by GAO
and to create a more robust audit trail for state payments to providers
to allow for better CMS oversight. We believe that this proposed
provision is necessary to ensure the proper and efficient operation of
the Medicaid state plan, in a manner that complies with the
requirements of sections 1902(a)(4), (a)(6) and (a)(30)(A) of the Act.
In new Sec. 447.288(a), we propose that, beginning October 1, of the
first year following the year in which the final rule may take effect,
and annually thereafter, by October 1 of each year, in accordance with
the requirements of Sec. 447.288 and in the manner and format
specified by the Secretary, each state would be required to submit a
demonstration of compliance with the applicable UPL for each of the
following services for which the state makes payment: Inpatient
hospital, as specified in Sec. 447.272; outpatient hospital, as
specified in Sec. 447.321; nursing facility, as specified in Sec.
447.272; ICF/IID, as specified in Sec. 447.272; and institution for
mental diseases (IMD), as specified in Sec. 447.272. The submission of
UPLs for these facilities and services is consistent with existing CMS
regulations in Sec. Sec. 447.272 and 447.321, as well as CMS guidance
document SMDL #13-003. Under these regulations and policy guidance,
states are already providing UPL demonstrations for the above
referenced services to demonstrate that payments are consistent with
economy, efficiency, and quality of care as required in section
1902(a)(30)(A) of the Act. These demonstrations are submitted annually,
or any time a state submits a SPA that proposes to amend the payment
rate or methodology for one of the aforementioned facilities or service
categories. Of note, as discussed in greater detail below, we are
proposing to remove the psychiatric residential treatment facilities
(PRTF) and clinic UPLs, which would not be included in the annual
reporting requirements.
We are proposing to add Sec. 447.288(b) to define UPL
demonstration standards. When demonstrating the UPL, states would be
required to use the data sources and adhere to the data standards, and
acceptable UPL methodologies specified in this section. We believe that
these proposed requirements would assist CMS and states in determining
the Medicaid inpatient and outpatient facility payment rates are
consistent with economy, efficiency and quality of care under section
1902(a)(30)(A) of the Act.
Over time, we have received numerous requests for feedback on the
use of specific data elements and on acceptable UPL methodologies. We
are hopeful these proposed provisions, which, except as noted below,
would codify current policy, would enhance states' understanding of
acceptable UPL demonstration standards, as well as improve the quality
of UPL submissions.
We are proposing no longer to require states to submit UPL
demonstrations for PRTFs and clinics. PRTFs are facilities subject to
the payment limits defined in
[[Page 63754]]
Sec. 447.325, which states that the state Medicaid agency may pay the
customary charges of the provider but must not pay more than the
prevailing charges in the locality for comparable services under
comparable circumstances. The reason for this proposed change is two-
fold. First, the payment limit in Sec. 447.325 limits the state's
payment to a provider to the provider's customary charges or, if less,
the prevailing charges in the locality for comparable services under
comparable circumstances. Providers determine what they will charge for
items and services furnished. To pay a provider's charge under the
state plan, a state plan could simply provide that its payments will
not exceed the provider's customary charge, provided the state plan
also describes a comprehensive methodology for ensuring that payments
do not exceed the prevailing charges in the locality for comparable
services under comparable circumstances. Second, in our experience,
states do not make supplemental payments to these facilities, and such
provider's base payments are generally equal to the provider's charge.
As such, the UPL is less of a calculation, as with other inpatient-type
services, and more of a confirmation the state pays no more than the
provider's charge under the state plan, which can be accomplished
through a review of the state plan. We will continue to review
compliance with the Sec. 447.325 through a review of the SPA
submissions as has been our historical practice. The removal of the
clinic UPL is discussed in more detail below under Sec. 447.321 of
this preamble.
In proposed Sec. 447.288(b), we propose to specify detailed UPL
demonstration standards for demonstrating that Medicaid FFS payments
are made in aggregate amounts that are less than or equal to the
aggregate cost or Medicare payment amounts. The purpose of the proposed
provisions is to ensure uniform reporting of UPL data and a full
picture of Medicaid payments within each provider category for each
category of services subject to a UPL in a given year. The proposed
provisions are intended to specify that states may not pick-and-choose
the most beneficial data for each provider within a provider category,
but instead to select a UPL methodology and apply a single methodology
to all providers within a UPL provider category and service type.
In proposed paragraph (b)(1), we propose defining the data sources
for the UPL calculations, which is the Medicare-equivalent cost and
charge data and Medicare-equivalent payment and charge data for
purposes of the UPL as our primary data sources for the UPL. As noted
elsewhere in this proposed rule, the term ``Medicare equivalent'' means
the Medicare equivalent to the Medicaid data, payment, or services.
Therefore, the term Medicare equivalent payment means the amount that
would be paid for Medicaid services furnished by the group of providers
if those services were provided to Medicare beneficiaries and paid
under Medicare payment principles. Likewise, a reference to Medicare
equivalent charges in reference to a UPL calculation means the Medicare
charges for the same Medicaid services subject to the UPL.
In proposed paragraph (b)(1)(i), we would require that cost and
charge data for all providers must be from either Medicare cost
reports, or state-developed cost reports using either Medicare cost
reporting principles specified in part 413 or the cost allocation
requirements specified in 45 CFR part 75, which implements requirements
in 2 CFR part 200, as specified in 2 CFR 200.106. Cost and charge data
must: Include only data with dates of service that are no more than 2
years prior to the dates of service covered by the UPL demonstration;
and represent costs and charges specifically related to the service
subject to the UPL demonstration. As such, each UPL must use costs and
charges related to the relevant category of Medicaid services listed in
paragraph (a) of Sec. 447.288; and include either Medicare costs and
Medicare charges, or total provider costs and total charges, in order
to develop a cost-to-charge ratio as described in paragraph (b)(3)(i).
The selection must be consistently applied for all providers within the
provider category subject to the UPL so that all costs and charges for
all providers within a provider category are uniform in the UPL
demonstration to ensure uniformity in reporting as discussed above.
These requirements are consistent with historical practices related to
the collection of information for UPLs and were part of the CMS UPL
templates submitted to OMB for approval under control number 0938-1148
(CMS-10398 #13 and #24).
At paragraph (b)(1)(ii), we propose to define Medicare payment
demonstrations as using Medicare payment and charge data for all
providers from either Medicare cost reports, Medicare payment systems
for the specific provider type specified in title 42, chapter IV,
subchapter B of the CFR, as applicable, or imputed per diem rates based
on Medicare provider payments. ``Imputed'' per diem rates, as discussed
in more detail in paragraph (b)(3)(ii)(C), are payments that are
calculated by dividing total Medicare payments by Medicare days from
the provider census data to calculate an estimated Medicare price per
day. The state then is able to multiply this Medicare price per day for
each provider by the provider's Medicaid days (also from the provider
census), and then sum these products within a service class and
provider category to calculate a Medicaid UPL.
The proposed provision goes on to specify that when using Medicare
payment and charge data, the data must: Include only data with dates of
service that are no more than 2 years prior to the dates of service
covered by the UPL demonstration; include only Medicare payments and
charges, or Medicare payment and the provider's Medicare census data,
specifically related to the service subject to the UPL demonstration;
and use either gross Medicare payments and Medicare charges, which
includes deductibles and co-insurance but excludes reimbursable bad
debt from the Medicare payment, or net Medicare payments and Medicare
charges, which excludes deductibles and coinsurance and includes
reimbursable bad debt, as reported on a Medicare cost report. The
selection of gross or net Medicare payment must be consistent within
the ratio for each provider category subject to the UPL. These
requirements are consistent with historical practices related to the
collection of information for UPLs and were part of the CMS UPL
templates submitted to OMB for approval under control number 0938-1148
(CMS-10398 #13 and #24).
For the Medicare payment systems for the specific provider type, we
are referring to the prospective payment systems (PPS) in effect for
the Medicare program such as the inpatient prospective payment system
(IPPS), outpatient prospective payment system (OPPS), skilled nursing
facility (SNF) PPS, and any future applicable Medicare PPSs such as the
patient driven payment model (PDPM) for SNFs. The requirement that the
payment data use data with dates of service that are no more than 2
years prior to the dates of service covered by the UPL demonstration
would allow states to use Medicare payment data from a prior period to
demonstrate the UPL, particularly in years where Medicare is
transitioning to a new payment system. Because states have the
flexibility to use data that is no more than 2 years old, states using
Medicare payment-based demonstrations would not be required to
immediately switch over to using data from a newly implemented Medicare
payment system, such as PDPM, to demonstrate
[[Page 63755]]
compliance with the UPL if the state is not in a position to do so, but
would be able to transition to using that system over a 2-year period.
There is no requirement in statute or regulations that mandates states
use specific Medicare payment systems in Medicaid for provider
payments. Since the UPL is an estimate of the amount that Medicare
would have paid for the service, we have always offered states some
flexibility to determine UPLs using recent data that is no more than 2
years old, which, in years where Medicare has transitioned to a new
payment system, means that states could use data from the prior payment
system for up to 2 years after the Medicare transition for purposes of
the Medicaid UPL compliance demonstration.
In paragraph (b)(1)(iii), we propose to require that the Medicaid
charge data used in calculating the UPL must be derived from the
state's Medicaid billing system for services provided during the same
dates of service as the Medicare cost or Medicare payment data, as
defined above. The Medicare cost and charge or payment and charge data,
as applicable, is used to create a ratio with the Medicare cost or
payment being the numerator and the Medicare charges are the
denominator. Once that ratio is created, the Medicaid charges are
multiplied by that ratio. This is discussed in more detail below, but
the requirement that the time period of the Medicaid charge data be
from the same time period of the Medicare-equivalent data, as defined
above, is due to the fact that providers determine what they will
charge for items and services furnished to patients, which may change
from time to time. If the charges are the same for all payers, then a
reasonable estimate of the amount that Medicare would pay for the
service would require the use of the Medicaid charge data from the same
time period as the Medicare data to calculate the UPL. As discussed in
connection with paragraph (b)(3)(i), we propose that a cost-based
methodology could only be used for services where a provider applies
uniform charges to all payers.
At paragraph (b)(1)(iv), we propose to require Medicaid payment
data from a state's Medicaid billing system for services provided
during the same dates of service as the Medicare cost or Medicare
payment data, as specified in paragraph (b)(1)(i) or (ii) of this
section, as applicable, or from the most recent state plan rate year
for which a full 12 months of data are available. As with the data
requirements in paragraphs (b)(1)(i) and (ii), Medicaid payment data
must: Include only data with dates of service that are no more than 2
years prior to the dates of service covered by the UPL; include all
actual payments, as well as all projected base and supplemental
payments, excluding any payments made for services for which Medicaid
is not the primary payer, expected to be made during the time period
covered by the UPL demonstration to the providers within the provider
category, as applicable; and only be trended by an amount equal to the
changes in the Medicaid state plan payment for the applicable service.
Using either the most recent Medicaid payment data for the time period
subject to the UPL or the payment data from the same time period as the
Medicaid charge data (meaning also from the same time period as the
Medicare data) is up to the state. Under all circumstances, the
Medicaid payment data must include all payments made to the providers,
including any proposed payments or projected payments that have not yet
been made. This way, the UPL will reflect an accurate depiction of the
state's Medicaid payments during the period of the UPL demonstration.
In paragraph (b)(2), we propose to require states to apply certain
UPL methodology parameters in calculating the UPL. Specifically, the
proposed UPL methodology parameters include the following
considerations. First, projected changes in utilization must be
accounted for and reflected in the demonstration. If no service-
specific utilization projections are available, then projections for
enrollment must reflect programmatic changes such as reasonable
utilization changes due to managed care enrollment projections. For
example, a state may be aware that in the upcoming state-fiscal year,
there will be a shift to increase beneficiary enrollment in managed
care plans. Projected utilization changes to account for such large
programmatic shifts may be used instead of individually determined,
service-specific utilization changes, such as inpatient hospital
utilization, which may result in a percentage increase or decrease in
expected utilization for the relevant services undergoing a shift to
managed care. Medicare data may also be projected using Medicare trend
factors appropriate to the service and demonstration methodology, which
are Medicare payment- or cost-based, with such trend factors being
uniformly applied to all providers within a provider category. In this
way, states can anticipate and project program changes or changes in
expected costs or payments in the UPL that may either increase or
decrease the UPL or expected Medicaid payments. For example, an
appropriate trend factor with respect to inpatient hospital services,
outpatient hospital services, and SNFservices could be the CMS Market
Basket rate. This proposed change, which represents a departure from
current policy, is proposed in paragraph (b)(2)(ii), which would
require uniform application of the trending factor within the provider
category. Prior to this proposed rule, we had not formally articulated
an expectation of uniform trending of data within a provider category
and had accepted UPL demonstrations that did not apply trend factors in
a uniform manner. CMS could not determine whether the applied inflation
adjustments in those UPLs were always appropriate based on our review.
This proposed provision is intended to establish the requirements in
regulation for uniform inflation adjustments to the UPLs.
Additionally, we propose that when calculating the aggregate UPL
using a cost-based demonstration as described in paragraph (b)(3)(i),
the state may include the cost of provider assessments (such as health
care-related taxes) paid by each provider in the provider category that
is reasonably allocated to Medicaid as an adjustment to the UPL, to the
extent that such costs were not already included in the cost-based UPL.
For example, many states calculate their provider taxes on inpatient
services as a per day payment amount or a per discharge payment amount.
The state would calculate the portion of such a tax allocable to
Medicaid by multiplying the per day or per discharge tax amount by
Medicaid days or Medicaid discharges, as applicable, and include the
product of that amount in the UPL for each provider in the provider
category. When calculating the aggregate UPL using a cost-based
demonstration, states may include the Medicaid-allocated cost of health
care related taxes as an adjustment to the UPL amount on a per provider
basis. The Medicare cost report does not require states to account for
expenses related to health care related taxes as an allowable cost, as
this reporting is optional. In the Medicaid program, such expenditures
may be included as an allowable cost provided that the portion of the
cost allocated to Medicaid can be isolated from the aggregate health
care related tax payment.
For example, if a provider has 100 total bed days of which 85 were
Medicaid bed days and the provider paid $100 in health care related
taxes, the provider could account for $85 of the total tax payment. Our
current policy permits states to include the cost
[[Page 63756]]
of Medicaid's portion of health care related taxes as an allowed cost
for cost based demonstrations, but not payment based demonstrations; we
are proposing to codify that existing policy in regulation because,
historically, the Medicaid taxes have not been specifically included in
the Medicare cost report calculations. The Medicare 2552 (Hospital Cost
Report) now includes an option to include provider taxes paid under the
authority in section 1903(w) of the Act. To the extent that such taxes
are not included in the cost calculation in the Medicare cost report,
those costs should be included in the UPL. If the provider taxes are
included in the Medicare cost report, the state should not add these
costs back into the UPL calculation, which would result in double-
counting the tax payments. Our goal in allowing Medicaid provider tax
costs to be added back into the cost-based UPL calculations is to
ensure that allowable costs incurred by the providers when furnishing
services to Medicaid beneficiaries are applied to the UPL calculations
to the extent that they were not already captured in the Medicare cost
report data, but we do not want such costs to be duplicated through the
UPL and the Medicare cost report. This provision only applies to cost-
based UPL demonstrations because cost-based demonstration are
reflections of the provider's expenses related to the provision of
medical services and such amounts may vary based upon factors including
health care related-taxes in the state or other relevant jurisdiction,
while payment-based UPL demonstrations reflect only the Medicare
payment for services under the specific Medicare payment system, and
therefore, only adjustments which affect the overall payment under the
Medicare payment system can be factored into the UPL demonstration.
Finally, we propose codifying the current policy that the Medicaid
payments, in paragraph (b)(1)(iv), included in the UPL calculation must
only include payments made for Medicaid services under the specific
Medicaid service type at issue in the UPL. For example, the state must
not include payments for services other than inpatient hospital
services in the inpatient hospital UPL calculation.
In paragraph (b)(3), we propose acceptable methods of demonstrating
the UPL. First, we propose that to make a cost-based demonstration in
compliance with an applicable UPL, Medicaid covered charges are
multiplied by a cost-to-charge ratio developed for the period covered
by the UPL demonstration. The state may use a ratio of Medicare costs
to Medicare charges, or total provider costs to total provider charges
in developing the cost-to-charge ratio, but the selection must be
applied consistently to each provider within a provider type, which
references the listing of provider types in paragraph (a) of the
section. The product of Medicaid covered charges and the cost-to-charge
ratio for each provider is summed to determine the aggregate UPL. The
demonstration must show that Medicaid payments will not exceed this
aggregate UPL for the demonstration period. As explained in more detail
below, this methodology may only be used for services where a provider
applies uniform charges to all payers. Reported cost must be
appropriately allocated between payers so that only costs properly
allocated to Medicaid services are included in the demonstration.
In paragraph (b)(3)(i)(A), we propose that states may make a
retrospective, cost-based demonstration showing that aggregate Medicaid
payments paid to the providers within the provider category during the
prior state plan rate year did not exceed the costs incurred by the
providers furnishing Medicaid services within the prior state plan rate
year period. The term ``retrospective'' simply refers to Medicaid
payments that have already been paid for the prior state plan rate year
that has already ended, and for which the state does not anticate
making any new Medicaid payments. Most often these demonstrations come
from states where providers are paid using a reconciled cost
methodology under the approved Medicaid state plan, in which case the
Medicaid provider payments would be equal to those providers' cost of
Medicaid services, and the UPL would demonstrate that payments to
providers did not exceed their costs.
In paragraph (b)(3)(i)(B), we propose that states may make a
prospective, cost-based demonstration showing that prospective Medicaid
payments would not exceed the estimated, prospective cost of furnishing
the services for the upcoming state plan rate year period. As explained
in more detail below, this methodology may only be used for services
where a provider applies uniform charges to all payers. The prospective
cost demonstration is a common UPL methodology reviewed by CMS and is
often used by states to demonstrate that proposed or projected Medicaid
payments are less than a provider cost trended forward from a prior
period.
In addition to these cost-based demonstrations, we also propose
that states could use payment-based demonstrations to show compliance
with an applicable UPL, including retrospective and prospective
methodologies and including flexibility for the state to determine an
imputed Medicare payment rate to apply in either a retrospective or
prospective payment-based demonstration. We propose that the payment-
based demonstration data sources would be those identified in
paragraphs (b)(1)(ii), (iii), and (iv), and the data standards defined
in paragraph (b)(2) would apply. States could make a retrospective
payment-to-charge UPL demonstration, where Medicaid covered charges are
multiplied by a ratio of Medicare payments to Medicare charges
developed for the period covered by the UPL demonstration. The product
of Medicaid covered charges and the Medicare payment-to-charge ratio
for each provider would be summed to determine the aggregate UPL, and
the demonstration must show that Medicaid payments did not exceed this
aggregate UPL. Alternatively, we propose that states could make a
prospective payment-to-charge UPL demonstration, where Medicaid covered
charges are multiplied by a ratio of Medicare payments to Medicare
charges developed for the period covered by the UPL demonstration. The
product of Medicaid covered charges and the Medicare payment-to-charge
ratio for each provider would be summed to determine the aggregate UPL.
The demonstration must show that proposed Medicaid payments would not
exceed this aggregate UPL within the next state plan rate year
immediately following the demonstration period. Regardless of whether a
state is using a retrospective or prospecftive payment-to-charge
demonstration methodology, we propose that states could use an imputed
Medicare per diem payment rate determined by dividing total Medicare
prospective payments paid to the provider by the provider's total
Medicare patient days, which are derived from the provider's Medicare
census data. Each provider's imputed Medicare per diem payment rate
would be multiplied by the total number of Medicaid patient days for
the provider for the period. The products of this operation for each
provider are summed to determine the aggregate UPL. The demonstration
must show that Medicaid payments are not in excess of the aggregate
UPL, calculated on either a retrospective or prospective basis,
consistent with the applicable proposed methodology. This imputed
Medicare payment rate methodology is commonly used by long-term care
facilities in Medicaid, such as SNFs and IMDs, or in
[[Page 63757]]
states whose Medicaid payments are based upon existing Medicare payment
systems. For example, a state which uses the Medicare SNF PPS to
demonstrate a SNF UPL would divide total Medicare payments by total
Medicare SNF bed days. That product, per facility, would be multiplied
by the Medicaid bed days, the aggregate of which would be the aggregate
UPL. The Medicaid payments for the same time period must not exceed the
aggregate UPL.
It is important to note that any UPL methodology that requires the
use of a provider's charges to calculate the UPL may only be used to
the extent that the provider applies uniform charges to all payers.
This is because when developing a cost to charge ratio or a payment to
charge ratio, the initial ratio is multiplied by Medicaid charges to
determine the UPL amount. ``Charges'' are the amount a hospital or
provider bills for medical services, and should be the same for all
patients regardless of payer. If the charges used in the cost to charge
or Medicare payment to charge ratio are not the same as the Medicaid
charges, the calculation of the UPL would be either over- or under-
stated. We intend the UPL demonstrations to accurately depict the
Medicare cost, or what Medicare would have paid, for the same services,
and that is diminished when the underlying data is not accurate.
In new Sec. 447.288(c)(1), we propose that, at the time the state
submits its quarterly CMS-64 under Sec. 430.30(c), the state would be
required to report certain information for each supplemental payment
included on the CMS-64. The proposed reporting elements would not be
reported on the CMS-64 itself, but would accompany that submission on a
separate, supplemental report. We propose to require states to report
information sufficient to identify which providers receive which
supplemental payments under the state plan and any demonstration
authority, and to enable us to ensure that such payments to the
providers are consistent with economy, efficiency, and quality of care,
as required under section 1902(a)(30)(A) of the Act. These data
submission requirements would include provider-level data on base and
supplemental payments made under state plan and demonstration authority
by service type. This data would also be required to include the
following: The SPA transaction number or demonstration authority number
which authorizes the supplemental payment; a listing of each provider
that received a supplemental payment under state plan and/or
demonstration authority, and, for each: The provider's legal name; the
primary physical address of the location or facility where services are
provided, including street address, city, state, and ZIP code; the
National Provider Identifier (NPI); the Medicaid identification number;
the employer identification number (EIN); the service type for which
the reported payment was made; the provider specialty type (if
applicable, for example, critical access hospital (CAH), pediatric
hospital, or teaching hospital); the provider category (that is, state
government provider, non-state government provider, or private
provider); and the specific amount of the supplemental payment paid to
each provider, including the total supplemental payment made to the
provider authorized under the specified state plan and the total
Medicaid supplemental payment made to the provider under the specified
demonstration authority, as applicable.
The specific data elements described above are intended to identify
the individual providers receiving payments, the authority for the
payments, and the sum of all payments received by the individual
providers. Information such as the provider's legal name, primary
physical location or facility location where services were provided,
NPI, Medicaid identification number, and EIN are needed to identify the
specific provider accurately. When the regulation refers to the
``legal'' name, it means the business name of the facility which
appears on the provider's license and other legal documentation
authorizing the health care operations of the provider. The NPI is
required for providers, and EINs are assigned to all businesses by the
Internal Revenue Service, and must be on all Health Insurance
Portability and Accountability Act (HIPAA) electronic transactions. An
NPI is a unique 10-digit number used to identify health care providers.
The Medicaid identification number is assigned by the state and is a
unique identifier for providers participating in the Medicaid program.
In addition to the provider-identifying information, proposed Sec.
447.288(c)(1) would require the state to report the service type,
provider specialty type, and provider category. These data elements are
intended to be linked to the payment methodology in the state plan.
This information follows how states must describe supplemental payments
in the state plan, which is, first, organized by service type, then by
provider-specific information, such as specialty type and provider
category. If a state establishes a specific methodology or proposes to
make a supplemental payment to a specific ``type'' of hospital using
specified criteria, such as a non-state government teaching hospital or
CAH, such information must appear in the state plan. As the proposed
data elements are aligned with how analogous information is recorded in
the state plan, we anticipate that this information will help us ensure
that supplemental payments are being made to providers in accordance
with the qualifying criteria as established in the state plan. Finally,
we propose to require the state to report the specific amount of the
supplemental payment made to the provider, including the total
supplemental payment amount authorized under the specified state plan,
as applicable, and the total supplemental payment amount authorized
under the demonstration authority, as applicable.
In Sec. 447.288(c)(2), we propose that not later than 60 days
after the end of the state fiscal year, each state must annually report
aggregate expenditure data for all data elements included in Sec.
447.288(c)(1) plus the following: The state reporting period (state
fiscal year start and end dates); the specific amount of Medicaid
payments made to each provider, including, as applicable: The total FFS
base payments made to the provider authorized under the state plan, the
total Medicaid payments made to the provider under demonstration
authority, the total amount received from Medicaid beneficiary cost-
sharing requirements, donations, and any other funds received from
third parties to support the provision of Medicaid services, the total
supplemental payment made to the provider authorized under the
specified state plan, the total Medicaid supplemental payment made to
the provider under the specified demonstration authority, and an
aggregate total of Medicaid payments listed above made to the provider.
Section 447.288(c)(2)(iii) would also require the aggregate
reporting of the total DSH payments made to the provider, and the
Medicaid units of care furnished by the provider (for example, on a
provider-specific basis, total Medicaid discharges, days of care, or
any other unit of measurement as specified by the Secretary). This
proposed data collection effort is designed to allow us to conduct
efficient oversight of all payments made to providers on an annual
aggregate basis. The data, as reported, would be used to conduct
quarterly and annual reviews of state payments as related to payments
reported under UPL demonstrations and under the Medicaid state plan.
[[Page 63758]]
In Sec. 447.288(c)(3), we propose that, not later than 60 days
after the end of the state fiscal year, each state must annually report
aggregate and provider-level information on each provider contributing
to the state or any unit of local government any funds that are used as
a source of non-federal share for any Medicaid supplemental payment.
This proposed data submission requirement would include all of the data
elements listed in Sec. 447.288(c)(1) and (2), but would also require
information related to financial contributions to the state Medicaid
program, specifically including: The total of each health care-related
tax collected from the provider by any state authority or unit of local
government; the total of any costs certified as a CPE by the provider;
the total amount contributed by the provider to the state or a unit of
local government in the form of an IGT; the total of provider-related
donations made by the provider or entity related to a health care
provider, as defined in Sec. 433.52, including in-cash and in-kind
donations, to the state or a unit of local government, including state
university teaching hospitals; and the total funds contributed by the
provider (that is, health care-related taxes, CPEs, IGTs, provider-
related donations, and any other funds contributed to the state as the
non-federal share of a Medicaid payment). When a provider-related
entity is related to more than one entity, the state should report the
total amount of the related entity's donation for each associated
provider. These proposed data elements are intended to be itemized
based on all the various payments to a provider and contributions from
the provider, as applicable. For example, if a provider receives base
and multiple supplemental payments under various SPA authorities and
makes a provider tax contribution and an IGT as a means of funding the
non-federal share, the state must list each payment and each provider
contribution among the proposed required data reporting elements. If
there is more than one payment or more than one type of provider
contribution (for example, more than one tax or more than one IGT), the
state would be required to itemize each payment and each contribution,
as applicable. The purpose of such information from states is to
determine the totality of provider payments under the Medicaid program
and the extent of provider contributions to the non-federal share of
such Medicaid payments under the approved state plan.
We are seeking comment on all aspects of the proposals in this
section. We are soliciting comment on the proposed reporting
requirements in Sec. 447.288(c), including the specific proposed data
elements in Sec. 447.288(c)(1) through (3). In particular, we invite
comment on whether any of the proposed data elements are duplicative,
and on ways we might be able to obtain this necessary information in a
manner that appropriately balances administrative burden on states and
on us while generating the most accurate data possible.
18. Failure To Report Required Information (Sec. 447.290)
To effectively ensure that states comply with applicable federal
statutory and regulatory requirements, we must have adequate
enforcement mechanisms in place. The remedy for issues related to state
compliance with regulations is often the withholding of federal funds
to compel compliance with applicable federal requirements. We are
proposing to add Sec. 447.290 to specify an appropriate avenue of
enforcement in the event that a state does not comply with the proposed
data reporting requirements in Sec. 447.288. As discussed above, we
believe the proposed information reporting requirement under Sec.
447.288 is necessary for the proper and efficient administration of the
state Medicaid plan, especially with respect to the plan's compliance
with section 1902(a)(30)(A) of the Act, and would be properly required
under section 1902(a)(6) of the Act. Therefore, in proposed Sec.
447.290(a), we propose that the state must maintain the underlying
information supporting base and supplemental payments, including the
information required to be reported under proposed Sec. 447.288,
consistent with the requirements of Sec. 433.32, and must provide such
information for federal review upon request to facilitate program
reviews or OIG audits conducted under Sec. Sec. 430.32 and 430.33. In
proposed Sec. 447.290(b), we propose that if a state fails to timely,
completely and accurately report information required under Sec.
447.288 of this chapter, we may reduce future grant awards through
deferral in accordance with Sec. 430.40, by the amount of FFP we
estimate is attributable to payments made to the provider or providers
as to which the state has not reported properly, until such time as the
state complies with the reporting requirements. We propose that we may
defer FFP if a state submits the required report but the report fails
to comply with applicable requirements. Otherwise allowable FFP for
expenditures deferred in accordance with this proposed section would be
released when we determine that the state has complied with all
reporting requirements under proposed Sec. 447.288. The enforcement
mechanism proposed in Sec. 447.290 is similar in structure to the
mechanism that applies with respect to the DSH reporting requirements,
in Sec. 447.299(e). We are soliciting comments on the enforcement
mechanism proposed in Sec. 447.290.
19. Limitations on Aggregate Payments for DSHs Beginning October 1,
1992 (Sec. 447.297)
Current regulations require CMS to publish the annual DSH
allotments in a Federal Register. This process is not only
administratively burdensome, but is unnecessary as we routinely notify
states directly regarding annual allotment amounts and make such
information publicly available. Therefore, we are proposing to
eliminate the Sec. 447.297(c) requirement to publish annual DSH
allotments in a Federal Register notice and to provide that the
Secretary will post preliminary and final national expenditure targets
and state DSH allotments in the MBES and at Medicaid.gov (or similar
successor system or website). Additionally, we are proposing to remove
the date in which final national target and allotments are published
from April 1st to as soon as practicable. We are also proposing to
remove Sec. 447.297(e), which consists of redundant publication
requirements already identified in Sec. 447.297(b), (c), and (d), in
its entirety to align with our proposed changes Sec. 447.297(c). We
are soliciting comments related to these proposed changes.
20. Reporting Requirements (Sec. 447.299)
To improve the accuracy of identification of provider overpayments
discovered through the DSH audit process, we are proposing in Sec.
447.299 to add an additional reporting requirement for annual DSH audit
reporting required by Sec. 447.299 and to provide clarifying guidance
on the reporting of overpayments identified by the annual DSH audits
required under part 455 subpart D. We are proposing to redesignate
Sec. 447.299(c)(21) as paragraph (c)(22) of that section, and to add a
proposed new Sec. 447.299(c)(21) to require an additional data element
for the required annual DSH audit reporting. This new data element
would require auditors to quantify the financial impact of any finding
which may affect whether each hospital has received DSH payments for
which it is eligible within its hospital-specific DSH limit. If it is
not practicable to determine the actual
[[Page 63759]]
financial impact amount, we propose to require a statement of the
estimated financial impact for each audit finding identified in the
independent certified audit that is not reflected in the data elements
identified in Sec. 447.299(c)(6) through (15). For purposes of this
paragraph, audit finding means an issue identified in the independent
certified audit required under Sec. 455.304 concerning the methodology
for computing the hospital specific DSH limit and/or the DSH payments
made to the hospital, including, but not limited to, compliance with
the hospital-specific DSH limit as defined in Sec. 447.299(c)(16).
Audit findings may be related to missing or improper data, lack of
documentation, non-compliance with federal statutes and/or regulations,
or other deficiencies identified in the independent certified audit.
Actual financial impact means the total amount associated with audit
findings calculated using the documentation sources identified in Sec.
455.304(c) of this chapter. Estimated financial impact means the total
amount associated with audit findings calculated on the basis of the
most reliable available information to quantify the amount of an audit
finding in circumstances where complete and accurate information
necessary to determine the actual financial impact is not available
from the documentation sources identified in Sec. 455.304(c) of this
chapter. We understand that due to the complexity of issues that may
arise, the actual financial impact may not always be calculable;
therefore, we propose that, in the expectedly rare event that the
actual financial impact cannot be calculated, an estimated financial
impact would be required. The estimated financial impact would use the
most reliable available information (for example, related source
documentation such as data from state systems, hospitals' audited
financial statements, and Medicare cost reports) to quantify an audit
finding. We believe this additional data reporting element is necessary
to better enable our oversight of the Medicaid DSH program to better
ensure compliance with the hospital specific DSH limit in section
1923(g) of the Act. Moreover, we believe this requirement would limit
the burden on both states and CMS of performing follow-up reviews or
audits and will help ensure appropriate recovery and redistribution, as
applicable, of all DSH overpayments.
The addition of Sec. 447.299(f) would clarify reporting
requirements of DSH overpayments identified in the audit process in
accordance with part 433 subpart F, including specifying that states
must return DSH payments in excess of hospital-specific cost limits to
the federal government identified through annual DSH audits through
quarterly reporting on the Form CMS-64 as a decreasing adjustment, or
redistributed by the state to other qualifying hospitals, if
redistribution is provided for under the approved state plan. Section
447.299(g) would require states to report overpayment redistribution
amounts corresponding with the fiscal year DSH allotment, as applicable
and consistent with other federal requirements, on the Form CMS-64
within 2 years from the date of discovery and report such
redistributions through quarterly reporting on the Form CMS-64 as an
increasing adjustment. We solicit comments on the proposed rule.
21. State Plan Requirements (Sec. 447.302)
We are proposing to revise Sec. 447.302 by adding proposed new
paragraphs (a) through (d), which would establish state plan
requirements for payments for outpatient hospital services, to
implement new approval requirements for state plans and any SPAs
proposing to make supplemental payments to providers of these services
and to define a transition period for currently authorized supplemental
payments to begin to meet the proposed new requirements. These
proposals are similar to those we are making in Sec. 447.252(d) with
respect to supplemental payments for inpatient hospital, nursing
facility, and ICF/IID services. We are proposing to limit approval for
state plan supplemental payments for outpatient hospital services to a
period of not more than 3 years, and to require states to monitor a
supplemental payment program during the term of its approval to ensure
that the supplemental payment remains consistent with section
1902(a)(30)(A) of the Act. As discussed in this section and other
sections of this preamble, the proposed revisions to Sec. Sec.
447.252, 447.288(b) and 447.302 include considerable data reporting
requirements which would implement section 1902(a)(6) of the Act,
requiring the state agency to make such reports, in such form and
containing such information, as the Secretary may from time to time
require, and comply with such provisions as the Secretary may from time
to time find necessary to assure the correctness and verification of
such reports. The submission of more robust payment data would assist
us in providing proper oversight of the Medicaid program in determining
that state Medicaid payments are made in a manner consistent with
federal statute and regulations, including section 1902(a)(30)(A) of
the Act and applicable UPL requirements.
Specifically, we are proposing in Sec. 447.302(a) and (b) to
codify existing state plan requirements that the plan must provide that
the requirements of subpart F are met and that the plan must specify
comprehensively the methods and standards used by the agency to set
payment rates. We propose in Sec. 447.302(c) that CMS may approve a
supplemental payment, as defined in Sec. 447.286, provided for under
the state plan or a SPA for a period not to exceed 3 years. A state
whose supplemental payment approval period has expired or is expiring
may request a SPA to renew the supplemental payment for a subsequent
period not to exceed 3 years, consistent with the requirements of Sec.
447.302. A time limited supplemental payment allows CMS and the state
an opportunity to revisit state plan supplemental payments to ensure
that they remain consistent with efficiency, economy, and quality of
care, as required under section 1902(a)(30)(A) of the Act. Over the
years, CMS and various oversight bodies conducting financial management
reviews and audits have identified areas where unchecked supplemental
payments have resulted in payments that appeared to be excessive, and
CMS had little recourse to take action. Such audits and financial
reviews conducted by CMS or other oversight agencies can take years and
require a large number of state and federal resources to complete, and
ultimately resolve. As noted earlier in this preamble, in 2015, the GAO
issued a report entitled, ``Medicaid: CMS Oversight of Provider
Payments Is Hampered by Limited Data and Unclear Policy,'' in which it
concluded that, ``[w]ithout good data on payments to individual
providers, a policy and criteria for assessing whether the payments are
economical and efficient, and a process for reviewing such payments,
the federal government could be paying states hundreds of millions, or
billions, more than what is appropriate.'' \10\ As a result, the GAO
has recommended that, to better ensure the fiscal integrity of the
program, we should establish financial reporting at a provider-specific
level and clarify permissible methods for calculating Medicaid
supplemental payment amounts. Based on this and other oversight entity
recommendations, and
[[Page 63760]]
CMS' experience administering the Medicaid program at the federal
level, we believe that the time-limited approval of supplemental
payments is necessary for the proper and efficient operation of state
Medicaid plans to ensure the continuing consistency of supplemental
payments with applicable statutory requirements and generally to ensure
appropriate oversight.
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\10\ U.S. Gov't Accountability Office, GAO-15-322, Medicaid: CMS
Oversight of Provider Payments Is Hampered by Limited Data and
Unclear Policy, 46 (2015), https://www.gao.gov/assets/670/669561.pdf.
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We are not proposing to limit the number of times a state may
request, and receive approval for renewal of a supplemental payment
program, provided that each request meets all applicable requirements.
We propose that a state plan or SPA that would provide for a
supplemental payment would be required to include: (1) An explanation
of how the state plan or SPA will result in payments that are
consistent with section 1902(a)(30)(A) of the Act, including that
provision's standards with respect to efficiency, economy, quality of
care, and access along with the stated purpose and intended effects of
the supplemental payment, for example, with respect to the Medicaid
program, providers, and beneficiaries; (2) the criteria to determine
which providers are eligible to receive the supplemental payment; (3) a
comprehensive description of the methodology used to calculate the
amount of, and distribute, the supplemental payment to each eligible
provider, including specified content; (4) the duration of the
supplemental payment authority (not to exceed 3 years); (5) a
monitoring plan to ensure that the supplemental payment remains
consistent with the requirements of section 1902(a)(30)(A) of the Act
and to enable evaluation of the effects of the supplemental payment on
the Medicaid program, for example, with respect to providers and
beneficiaries; and (6) for a SPA proposing to renew a supplemental
payment for a subsequent approval period, an evaluation of the impacts
on the Medicaid program during the current or most recent prior
approval period, for example, with respect to providers and
beneficiaries, and including an analysis of the impact of the
supplemental payment on compliance with section 1902(a)(30)(A) of the
Act. For the state's comprehensive description of the methodology used
to calculate the amount, and distribution, of the supplemental payment
to each eligible provider as required under item (3), we would require
the state to provide all of the following: (1) The amount of the
supplemental payment made to each eligible provider, if known, or, if
the total amount is distributed using a formula based on data from one
or more fiscal years, the total amount of the supplemental payments for
the fiscal year or years available to all providers eligible to receive
a supplemental payment; (2) if applicable, the specific criteria with
respect to Medicaid service, utilization, or cost data from the
proposed state plan rate year to be used as the basis for calculations
regarding the amount and/or distribution of the supplemental payment;
(3) the timing of the supplemental payment to each eligible provider;
(4) an assurance that the total Medicaid payment to other inpatient and
outpatient facilities, including the supplemental payment, will not
exceed the upper limits specified in Sec. 447.325; and (5) if not
already submitted, an UPL demonstration as required by Sec. 447.321
and described in proposed Sec. 447.288.
The justification for including the state plan requirements in
Sec. 447.302 are the same as those justifications and explanations
included in the discussion with regard to Sec. 447.252. We are
proposing to require states to provide information necessary to
determine that the supplemental payments proposed in the state plan
are, and remain, consistent with the efficiency, economy, and quality
requirements under section 1902(a)(30)(A) of the Act and the parameters
concerning permissible sources of non-federal share under section
1903(w) of the Act.
Finally, in considering the 3-year approval period for supplemental
payments, we developed a transition plan to provide states with an
adequate opportunity to come into compliance with the proposed
requirements. To accomplish the policy objectives described above, we
believe we must begin to apply the proposed policies, if they are
finalized, to current state plan provisions that authorize supplemental
payments that are approved as of the effective date of the final rule.
It is no less necessary to ensure the proper and efficient operation of
the state plan and ensure that applicable requirements continue to be
met, to rigorously evaluate currently existing supplemental payment
programs, as it is to do so for new supplemental payment programs
approved prospectively. Accordingly, in proposed Sec. 447.302(d), for
state plan provisions approved 3 or more years prior to the effective
date of the final rule, we propose that the state plan authority would
expire 2 calendar years following the effective date of the final rule.
For state plan provisions approved less than 3 years prior to the
effective date of the final rule, we propose that the state plan
authority would expire 3 years following the effective date of the
final rule. We believe this is a generous timeline for transitioning to
the proposed 3-year time limit for supplemental payments under the
state plan. This timeline provides states with currently approved
supplemental payment programs with at least 2, and as many as 3 years
before a state wishing to continue the supplemental payment program
would need to seek renewal or a new approval.
We are soliciting comment on this entire section, including the
proposed state plan elements for supplemental payments, and the
proposed approval timeframe for a state's proposed supplemental
payments. For the timeframes, we are seeking input on both the 3-year
approval period and the proposed transition period for currently
approved supplemental payments. We considered proposing a 5-year
compliance transition period instead of the proposed 3-year compliance
transition period in Sec. 447.302(d). This would have increased the
amount of time states would have to bring existing, approved
supplemental payment methodologies into compliance with the provisions
of the proposed rule in Sec. Sec. 447.252 and 447.302. We decided to
propose a 3-year transition period to account for states where changes
may require legislative action as some legislatures meet on a biennial
basis and such a timeframe would provide an opportunity for all
legilslatures to address existing supplemental payment programs. We are
requesting comment on whether or not to pursue this or a lengthier
transition and approval timeline for supplemental payments.
22. Outpatient Hospital Services: Application of UPLs (Sec. 447.321)
To promote improved oversight of Medicaid program FFS expenditures
for services subject to the UPL, we are proposing changes to Sec.
447.321. Some of the proposed changes to Sec. 447.321 would formally
codify current policy, while others are newly proposed. We solicit
comment on all proposed provisions.
CMS has long regarded the UPL requirements in Sec. 447.321 and the
review of total outpatient hospital Medicaid payments in relation to a
provider's cost or the Medicare payment amounts as implementing section
1902(a)(30)(A) of the Act, which requires that states assure that
payments are consistent with efficiency, economy, and quality of care.
As stated earlier in the preamble, the aggregate application of these
UPLs has preserved state flexibility for setting provider-specific
payments while creating an overall payment ceiling as a mechanism for
[[Page 63761]]
determining economy and efficiency of payment for the services
described above, consistent with section 1902(a)(30)(A) of the Act.
We are proposing to change the title of this section to
``Outpatient Hospital Services: Application of upper payment limits''
to remove clinic services from the UPL requirements in Sec. 447.321.
The absence of benefit category in the Medicare program similar to
Medicaid ``clinic services'' has made establishing and verifying
compliance with a UPL for clinic services an overly burdensome task.
Without equivalent comparison data from Medicare, it is difficult or
impossible to establish a reasonable estimate of what Medicare would
pay for Medicaid clinic services, which otherwise would supply the UPL
for such services under Sec. 447.321. Additionally, most often,
clinics are reimbursed according to the practitioner fee schedule in
the same manner as other practitioners under the Medicaid state plan.
In these circumstances, we have determined that such payments are not
subject to the clinic UPL in any event, because these provider payments
are made under the relevant practitioner benefit in the Medicaid
program, such as physician services or dental services under sections
1905(a)(5) and (a)(10) of the Act, respectively, rather than clinic
services under section 1905(a)(9) of the Act. As with all other
inpatient and outpatient facility services, state agencies must
continue to apply Sec. 447.325 under which the agency may pay the
customary charges of the provider but must not pay more than the
prevailing charges in the locality for comparable services under
comparable circumstances.
We have proposed to revise this regulation in the past through
other proposed rules, but were unable to finalize those proposals.
Particularly, in 2007 with the proposed rule Medicaid Program;
Clarification of Outpatient Clinic and Hospital Facility Services
Definition and Upper Payment Limit (72 FR 55166), we proposed several
practical options for states to comply with clinic UPL requirements.
Namely, these options included paying at the Medicare non-facility
Resource-Based Relative Value Units System (RBRVS) FFS rate for
practitioner services in a clinic setting, or setting the rates for
services provided in the clinic at the Medicaid state plan rate for the
same services when provided by a practitioner under the state plan
where there was no Medicare comparable rate. The difficulty in applying
the proposals in that particular proposed rule, and difficulties
setting and establishing compliance with clinic UPLs since, has been
related to the subjectivity of establishing appropriate comparison
prices for services where there is no Medicare equivalent, or limiting
Medicaid providers to cost when Medicare does not collect or mandate
clinic cost reports for free-standing clinics, as is done with other
inpatient and outpatient facilities. For these reasons, we are
proposing to remove clinic services from Sec. 447.321 so the
requirements of the outpatient UPL will no longer apply to these
providers and we are requesting comment on this proposed change.
Importantly, this proposal does not mean that the requirements of
section 1902(a)(30)(A) of the Act do not continue to apply to clinic
payments--emphatically, they do. We simply are proposing to no longer
use the clinic UPL as the formal metric of compliance with the
efficiency, economy, and quality of care requirements under the
statute. We will continue to compare the Medicare RBRVS to Medicaid
clinic reimbursement rates, where applicable, to inform administrative
decisions about the state's payment rates under section 1902(a)(30)(A)
of the Act, much like we do with physician reimbursement under the
Medicaid state plan. We are soliciting comment on this particular
change in the proposed rule.
We are proposing to amend paragraph (a) to revise the current
ownership groups (state government-owned or operated, non-state
government owned or operated, and privately-owned and operated
facilities) used to establish the UPL. We propose to replace these
provider designations with ``state government providers,'' ``non-state
government providers,'' and ``private providers.'' We propose to codify
the substantive definitions of these provider designations in proposed
Sec. 447.286. As discussed below, we would define ``state government
provider'' to refer to a health care provider as defined in Sec.
433.52, including those defined in Sec. 447.251, that is a unit of
state government or state university teaching hospital; in determining
whether a provider is a unit of state government, we would consider the
totality of the circumstances, including but not limited to specific
considerations identified in proposed Sec. 447.286. Similarly, we
would define ``non-state government provider'' to refer to a health
care provider as defined in Sec. 433.52, including those defined in
Sec. 447.251, that is a unit of local government in a state, including
a city, county, special purpose district, or other governmental unit in
the state that is not the state, which has access to and exercises
administrative control over state funds appropriated to it by the
legislature and/or local tax revenue, including the ability to expend
such appropriated or tax revenue funds; in determining whether a
provider is non-state government provider, we would consider the
totality of the circumstances, including but not limited to specific
considerations identified in proposed Sec. 447.286. We would define a
``private provider'' to mean a health care provider as defined in Sec.
433.52, including those defined in Sec. 447.251, that is not a state
government provider or a non-state government provider.
The proposed changes in provider designations would reinforce the
relationship between a provider's designation and its ability (or
inability) to provide the source of non-federal share for Medicaid
payments. Under the current system of categorization by ownership or
operational interests, there can be ambiguity with respect to the
appropriate category for a provider when certain responsibilities of
ownership or operation are divided between more than one entity. For
example, there is currently the possibility that a private nursing
facility could transfer the deed to its real property to the county
government, but the private entity would continue to administer all
functions of the provider as though it were the actual owner, leaving
the county government as the owner only in name but not any function.
For the provider to make an IGT, the private entity would give funds to
the county government, such as through a lease payment for the facility
real property, to be used as the source of the non-federal share of
Medicaid payments that the state could then make back to the provider
in the form of supplemental payments. This effective self-funding of
the non-federal share of the supplemental payments by the provider
would not have been possible if the provider were categorized as
privately owned and operated, since it would have been unable to make
the IGT to support the supplemental payments back to it. In this
situation, we view this transferred amount as an impermissible source
of the non-federal share, since the funds used to support the IGT are
not obtained from state or local tax revenue and, as discussed
elsewhere in this preamble, would constitute a non-bona fide provider-
related donation.
Through the state plan review process and our review of UPL
demonstrations, we have observed that some states have re-categorized a
number of providers from privately-owned or operated facilities to a
governmentally owned or
[[Page 63762]]
operated designation, either state government-owned or operated
facilities or non-state government-owned or operated facilities. In
some instances, the change in ownership category appears to be both a
non-bona fide provider-related donation, as well as a device to permit
the state to make supplemental payments to a provider and demonstrate
compliance with the UPL, rather than reflective of an actual change in
the provider's true ownership or operational interests, in view of the
apparent continuity of the provider's business structure and
activities. We believe this shift in designation has facilitated higher
supplemental payments to certain providers, without the state incurring
additional cost to fund the non-federal share of payment where the
private operator passes funds to the new governmental owner, which
constitutes a non-bona fide provider-related donation, and those funds
are either used to make an IGT or supplant funds that are otherwise
used to make an IGT to the state to make a supplemental payment
targeted toward the private entity. We are concerned that this type of
arrangement is not consistent with the basic construct of the Medicaid
program as a cooperative federal-state partnership where each party
shares in the cost of providing medical assistance to beneficiaries.
Similar to our proposal in Sec. 447.272, we propose to amend Sec.
447.321(b) to clarify that the UPL refers to a reasonable estimate of
the amount that would be paid for the services furnished by the group
of facilities under Medicare payment principles in 42 CFR chapter IV,
subchapter B, or allowed costs established in accordance with the cost
principles as specified in 45 CFR part 75 and 2 CFR part 200, or, as
applicable, Medicare cost principles specified in 42 CFR part 413. The
specific data elements, methodology parameters, and acceptable UPL
demonstration methodologies are specified in proposed Sec. 447.288(b).
The existing regulations simply state that the UPL refers to a
reasonable estimate of the amount that would be paid for the services
furnished by the group of facilities under Medicare payment principles
in subchapter B of title 42, chapter IV, of the CFR, which provided CMS
with the ability to define UPLs as a payment limit set at the aggregate
amount that Medicare would have paid for the same Medicaid services
using either a Medicare payment methodology or Medicare cost
principles. These two methods are employed because these are the two
methods that Medicare has historically used to pay for services as
authorized under title 42, chapter IV, subchapter B, of the CFR. In
establishing this limit, we have required that states set the UPL using
these principles, then compare the aggregate Medicaid payments for the
defined period to the UPL, which is the Medicare equivalent payment or
cost amount. We are proposing to codify our existing policy related to
the use of the two methods of demonstrating the Medicaid UPL, by using
the Medicare equivalent payment amount or cost amount, and the process
for establishing and demonstrating compliance with the UPL in Sec.
477.288(b) of this proposed rule. As noted elsewhere in this proposed
rule, the term ``Medicare equivalent'' means the Medicare equivalent to
the Medicaid data, payment, or services. Therefore, the term Medicare
equivalent payment means the amount that would be paid for Medicaid
services furnished by the group of providers if those services were
provided to Medicare beneficiaries and paid under Medicare payment
principles. Likewise, a reference to Medicare equivalent charges in
reference to a UPL calculation means the Medicare charges for the same
Medicaid services subject to the UPL.
We considered proposing to define specific methods by which states
would be required to demonstrate compliance with the UPL in each of
Sec. Sec. 447.272 and 447.321, but determined that the proposed Sec.
447.288 would allow us to define necessary data elements, parameters,
and methodologies for demonstrating compliance with UPLs in one
location, for purposes of both the inpatient and outpatient UPLs under
Sec. Sec. 447.272 and 447.321, respectively. To summarize briefly,
proposed Sec. 447.288 describes the data sources, data parameters, and
methodologies that must be considered and used in demonstrating
compliance with the UPL. It describes the appropriate Medicare data and
the creation of ratios using either cost or payment data calculations,
the Medicaid charge data which multiplied by the either a ratio of
cost-to-charge (total cost or Medicare cost) or the ratio of Medicare
payment-to-charge to calculate the UPL amount and any associated
considerations (inflation adjustments, utilization adjustments, or
other cost adjustments), and the Medicaid payment data. For a detailed
discussion of these proposed UPL requirements, please refer to the
discussion above related to Sec. 447.288.
We invite comment on all proposed new and revised provisions in
this section.
23. Medicaid Practitioner Supplemental Payments (Sec. 447.406)
For a number of years, states have been making supplemental
payments that are targeted to certain practitioners, such as physicians
and other licensed professionals, under the Medicaid state plan. Most
commonly, states have targeted supplemental payments to practitioners
affiliated with and furnishing services in academic medical centers and
safety net hospitals. These payments have used what is commonly
described as an ACR calculation. The ACR is a method of calculating an
average rate paid by commercial third party payers for specific medical
service codes (usually Current Procedural Terminology (CPT) codes) to
providers and multiplying that average rate by the Medicaid claims for
each code to establish an upper limit for these practitioner
supplemental payments.
Predominantly, such ACR payments are funded by IGTs from local
government sources or state university teaching hospitals and are
generally made without consideration of improvements in access to or
quality of care. When payment is made up to the ACR, states submit data
to CMS from the top (generally five) commercial payers and provide an
explanation of the data that was extracted from providers' accounts
receivable systems. The state compares payment by Medicaid for each
billing code to the average payment amount allowed by commercial payers
for the same services. Data from each of the practitioners, group
practices, or hospital-based practitioner groups eligible to receive
the supplement payment is included in the submitted ACR calculation.
These calculations are usually completed by the provider(s) and sent to
CMS by the states through the submission of SPAs. We are proposing to
end the practically unrestricted use of ACR supplemental payments based
on concerns that the payments are not economic and efficient,
consistent with section 1902(a)(30)(A) of the Act, and that they
present a clear oversight risk because they are based on proprietary
commercial payment data and thus not verifiable or auditable. As
discussed in detail below, we are proposing to limit Medicaid
practitioner supplemental payments to 50 percent of FFS base payments
to the eligible provider for practitioner services, or 75 percent of
such payments for services provided within HHS' Health Resources and
Services Administration (HRSA)-designated geographic health
professional shortage areas (HPSAs) or
[[Page 63763]]
Medicare-defined rural areas, as specified in 42 CFR 412.64(b), as
discussed below.
When ACR-based payments were first approved in 2000, we found that
state ACR amounts were between 150 percent and 165 percent of the
Medicare rates for the same services. In recent years, however, states
have sought to make Medicaid practitioner supplemental payments based
on calculations reflecting amounts of approximately 300 percent to 400
percent of the Medicare rate. While these percentage are outliers among
states making ACR payments, those amounts were considerably larger than
we had otherwise seen. In federal FY 2018, the most recent full fiscal
year for which data was reported, states claimed approximately $1.32
billion in (total computable) expenditures for supplemental payments
made to physicians and other licensed practitioners. As states and
practitioners realized that Medicaid payments could be increased
through the use of ACR-based supplemental payment methodologies and
with funding from IGTs, states began to explore expanding the ACR-based
supplemental payments to other Medicaid participating practitioners.
Although we questioned whether making Medicaid payments at up to
400 percent of Medicare rates was consistent with economy and
efficiency as required under section 1902(a)(30)(A) of the Act, we
continued to approve ACR methodologies submitted by states consistent
with our historic view that such methodologies that relied on
commercial data were permissible under the relevant statutory
standards, and because we had not established an upper bound for
practitioner supplemental payments through rulemaking.
In this rule, except as discussed below, we are proposing to apply
the definitions applicable to base and supplemental payments defined
under newly proposed Sec. 447.286--Definitions and the proposed new
requirements in Sec. 447.302--State plan requirements. By aligning
these definitions and requirements, we are ensuring that the
terminology for base and supplemental payments for practitioner
services is consistent with other service types and that states apply
the same comprehensive descriptions and time limits to practitioner
supplemental payments as would be applied to other Medicaid service
supplemental payments. Further, we are proposing, within Sec.
447.406(c), to limit Medicaid practitioner supplemental payments
relative to base payments set under the Medicaid state plan. Notably,
lump sum provider quality incentive supplemental payments that are
targeted to a subset of providers within the state as part of a state's
delivery system reform initiative and paid based on improvements to
reported quality measures are included in the definition of
``Supplemental payment'' under proposed Sec. 447.286, for purposes of
newly proposed Sec. 447.406, and therefore, would be subject to the
limit proposed in Sec. 447.406. To the extent that value-based payment
methodologies that are part of a state's delivery system reform
initiative and that are available to all providers under a Medicaid
benefit category, including as an alternative to FFS payment rates (for
example, bundled payment methodologies, payments for episodes of care,
Medicaid shared savings methodologies), and otherwise align with the
definition of base payments in Sec. 447.286 (for example, the payment
can be attributed to a particular service provided to a Medicaid
beneficiary), we propose such payments to be base payments as defined
in Sec. 447.286. This consideration is consistent with the proposed
definitions of base and supplemental payments and will allow states
sufficient flexibility to promote quality improvement which may result
in better care and reduced program cost over time.
The proposed new limits would allow states to target supplemental
payments to practitioners: (1) Up to 50 percent of the FFS base
payments authorized under the state plan for the practitioner services
paid to the eligible provider during the period covered by the
supplemental payment, or (2) for services provided within HRSA-
designated geographic HPSA or Medicare-defined rural areas as defined
in Sec. 412.64(b), Medicaid practitioner supplemental payments could
be made up to 75 percent of the FFS base payments authorized under the
state plan for the practitioner services paid to the eligible provider
during the period covered by the supplemental payment. We are proposing
to permit additional payment for practitioner services in geopgraphic
HPSAs to allow states flexibility to increase payment rates and address
professional shortages and access to care concerns in areas where HHS
has determined such shortages exist. Likewise, we are proposing to
include Medicare-defined rural areas as defined in Sec. 412.64(b)
because states have frequently identified rural areas, some of which
may not be included in the geographic HPSAs, as having issues related
to access to care and we want to provide states with the flexibility to
make increased practitioner supplemental payments if the state
determines that such increases are needed in those areas as well.
We believe these percentages are appropriate because the ACR data
from 2016 and 2017 show that, nationally, among providers receiving an
ACR supplemental payment, total supplemental payments equaled
approximately 75 percent of the base payment rates in 2016 to
approximately 93 percent of the base payment rates in 2017 (total
supplemental payment divided by total base payments to qualifying
provider) based on data received through the state UPL demonstration
submissions. By limiting the total practitioner payment, base and
supplemental payment, to 150 percent of the base Medicaid practitioner
payment, or 175 percent of the base Medicaid practitioner payment for
services provided in a HRSA-designated geographic HPSA or a Medicare-
defined rural area, we believe that the proposed policy would not
diverge excessively from ACR supplemental payments that we historically
have approved. However, under the prior structure, the supplemental
payment was not related to the base Medicaid payment and could only be
increased based on changes to the commercial payer rates. Therefore, an
increase in the base Medicaid payment could not result in an increase
in a supplemental payment to eligible providers, as would be possible
under our proposal. If a state wants to increase a provider's
supplemental payment beyond the maximum amount that would be
permissible under the proposed provision, the state could increase
Medicaid base payment rates, which could enable the state to pay a
further 50 percent (or 75 percent) of the increase in FFS base payments
to eligible providers. We believe this approach is, first, consistent
with section 1902(a)(30)(A) of the Act, and, second, is sufficiently
consistent with the previously approved Medicaid ACRs amounts not to
excessively disturb total provider payments being made today under
previously approved ACR supplemental payment arrangements.
To provide an example of the application of the proposed Medicaid
practitioner supplemental payment limit, assume the state has proposed
to make a supplemental payment to a group of practitioners within an
area of the state that is not a HRSA-designated geographic HPSA or
Medicare-defined rural area. One of the qualifying providers received
total Medicaid FFS base payments for practitioner services of $100,000
and the state wishes to make a supplemental payment to that provider.
The proposed ceiling
[[Page 63764]]
methodology results in the following calculation: $100,000 total
Medicaid base payments x 0.50 = $50,000, which could allow the state to
make a Medicaid practitioner supplemental payment to the provider of up
to $50,000, in addition to the Medicaid FFS base payment of $100,000,
for a total payment to the provider of up to $150,000. However, if the
Medicaid practitioner supplemental payment were made to a provider for
services furnished in one of the HRSA-designated geographic HPSAs or a
Medicare-defined rural area, the supplemental payment ceiling would be
75 percent of the total base payment amount of $100,000, which would
result in the following ceiling calculation: $100,000 total Medicaid
base payment x 0.75 = $75,000, which could allow the state to make a
Medicaid practitioner supplemental payment of up to $75,000, in
addition to the Medicaid FFS base payment of $100,000, for a total
payment to the provider of up to $175,000.
In this proposed rule, we propose definitions of the terms ``base
payment'' and ``supplemental payment'' in Sec. 447.286. Per those
proposed definitions, we consider Medicaid practitioner supplemental
payments as ``supplemental'' payments under the proposed definitions.
The reason is that the base payments are payments made to a provider
for specific services provided to an individual beneficiary. While
Medicaid practitioner supplemental payments could be tied to individual
services, the calculation of the final payment amount is not dependent
upon specific services furnished to any individual beneficiary, or any
beneficiary's acuity or complexity of care received, nor is the
practitioner supplemental payment made only for complex cases. Base
payments for all practitioner services furnished by the eligible
provider are supplemented by the supplemental payment, regardless of
the level of beneficiary acuity or complexity (as typically would be
relevant to payment adjustments or add-ons that would be considered
part of the base payment). The eligible provider qualifies for these
payments based on state-developed criteria that target certain
providers, and the supplemental payments are often paid as lump sum at
the end of a quarter or at the end of year.
In proposing these requirements, we are seeking to establish an
appropriate and auditable upper bound to better ensure that
practitioner payments are consistent with economy and efficiency by
ensuring the supplemental payments have a reasonable relationship to
the base rate methodologies that have been approved by CMS on the basis
of our determination that such base rate methodologies are consistent
with statutory requirements. The ACR supplemental payments historically
have been established based on the negotiating power of various actors
in the private market and without regard to the unique circumstances of
the Medicaid program, including statutory requirements to ensure
efficiency and economy. That is, higher reported commercial payment
rates are a function of practitioners' ability to negotiate higher
rates from certain commercial payers, rather than a result of
prevailing rates generally paid to practitioners by all commercial
payers, or all payers generally, and without any necessary analysis of
economy and efficiency.
In contrast, the proposed provisions intend to tie the highest
practitioner payments in the state to the lowest (that is, payments to
practitioners that are limited to the state plan FFS base payment).
States have already determined and declared as part of their rate-
setting processes that base payments are consistent with economy and
efficiency, quality of care, and access to care requirements, as
required under section 1902(a)(30)(A) of the Act. Therefore, we believe
that setting the upper limit for targeted practitioner supplemental
payments at 50 percent or 75 percent more than the base amounts is
reasonably sufficient to allow states with flexibility, when needed, to
target payment increases while providing a basis to gauge that payments
are consistent with efficiency, economy, and quality of care and are
sufficient to enlist enough providers so that care and services are
available under the plan at least to the extent that such care and
services are available to the general population in the geographic
area. State payments must meet both tests of section 1902(a)(30)(A) of
the Act in that a base payment may be economic and efficient, but if it
is not sufficient to enlist sufficient providers in a particular area
of the state, then an increase in payments may be needed to ensure that
the rates are sufficient to enlist adequate numbers of providers in the
Medicaid program. Further, this proposed policy may encourage states to
evaluate whether Medicaid payment rates are generally consistent with
section 1902(a)(30)(A) of the Act across all practitioners within a
geographic region and evaluate whether rate increases for all
practitioners may be necessary to improve access or quality, rather
than targeting payments to certain practitioners that may be in a
position to provide the non-federal share in exchange for supplemental
payments.
Our concerns over the growing scope of practitioner supplemental
payments relate to both the payment amounts relative to Medicare rates
and the practitioners to which the states are providing the payments,
which appears to be largely driven by the source of non-federal share
used to fund the payments. As states typically rely on the providers
that receive the supplemental payments to fund the non-federal share
through IGTs, there is less incentive for the states to properly
oversee the payments and ensure that the amounts are economic and
efficient. Typically when states use appropriated funds as the source
of non-federal share there is a meaningful state interest in ensuring
value to maintain state budgets; however, when the non-federal share is
provided by the service provider (and returned with matched federal
funds through the supplemental payments) there is an inherent incentive
to maximize the amount of the payments to providers in the state. In
almost all instances, the providers were supplying the state with the
non-federal share of the Medicaid physician supplemental payments.
Without the supplemental payments, it is likely that the arrangements
through which the providers have been transferring the state share to
the state Medicaid agency to support current high levels of Medicaid
practitioner supplemental payments would cease, and therefore, the net
impact on the providers would be far less than the projected amount of
decrease in practitioner supplemental payments.
The incentive to maximize federal funds to providers and lack of
oversight interest from states is particularly problematic in the case
of practitioner supplemental payments because of the data sources used
for ACR demonstrations. The data currently used to determine
supplemental payment amounts is based entirely on proprietary
commercial payment data supplied by the practitioners who themselves
stand to benefit from the supplemental payment. In our reviews, we have
not been able to verify that the commercial payment data is correct or
genuinely representative of rates that the commercial market will bear.
We have also found, in several instances, that the data has been
manipulated to increase the potential supplemental payments by, for
instance, using comparisons to Medicaid rates paid for services within
facilities (which are generally lower than office settings) compared to
non-facility commercial rates, or by
[[Page 63765]]
foregoing appropriate adjustments to ensure that the time and
associated payments for procedures are equivalent for Medicaid and
commercial data. Since the data within the ACR demonstrations are
produced by providers (and masked to protect proprietary information),
the demonstrations are impossible to validate, difficult to interpret
and ultimately may not be auditable in accordance with Sec. 430.33. By
setting a limit based on Medicaid-based rates, as proposed under this
rule, data is readily available within state and CMS claims systems to
validate and audit the supplemental payment amounts.
We recognize that states that are already making ACR-based
supplemental payments may need time to come into compliance with the
proposed new limits, if they are finalized. For states whose state
plans currently provide for Medicaid practitioner supplemental
payments, we are proposing in Sec. 447.406(d) to provide a transition
period consistent with the one defined in Sec. 447.302(d) for the
state to submit a SPA to bring its currently approved Medicaid
supplemental practitioner payment program into compliance with the
requirements proposed in this section, including the cross-referenced
requirements in Sec. 447.302. Specifically, we propose that, for
Medicaid practitioner supplemental payments that were approved on or
before the effective date of any final rule, the state would be
required to submit and obtain CMS approval for a SPA to comply with the
requirements of this section in order to continue making such
supplemental payments. Otherwise, the authority for state plan
provisions that authorize the Medicaid practitioner supplemental
payments that are approved as of the effective date of any final rule
would be limited according to the timeframe described in Sec.
447.302(d). By the end of the transition period, a state without an
approved SPA bringing the Medicaid practitioner supplemental payment
program into compliance with the requirements of this section (and, as
incorporated by cross reference, of Sec. 447.302) would not be
authorized to continue making the supplemental payments. We believe
this approach to a transition period would help minimize burden on
states, as states with Medicaid practitioner supplemental payment
programs would have a generous period of time to bring their state
plans into compliance with the proposed new requirements. Additionally,
we propose that states would no longer be required to submit annual ACR
demonstrations for the annual UPL submission requirements outlined in
the SMDL 13-003 for states that make targeted physician supplemental
payments for physician services, further reducing the associated state
burden. Instead, CMS expects that the state plan would include a
comprehensive written statement of the Medicaid FFS base payment and
Medicaid practitioner supplemental payment methodologies, in a manner
consistent with Sec. Sec. 447.302, 447.406, and all other applicable
requirements.
We are seeking comment on all elements of this proposal, including
the level of the proposed ceiling percentages (and whether they should
be higher or lower), the option of using the Medicare rural areas and/
or HRSA-designated geographic HPSA to target eligible providers for
supplemental payments, the language regarding value-based payment
methodologies, and whether there would be other appropriate means to
give states flexibility to offer special consideration for providers in
underserved areas.
24. Definitions (Sec. 455.301)
We are proposing to revise the definition of the ``independent
certified audit'' to include the requirement for auditors to quantify
the financial impact of each audit finding, or caveat, on an individual
basis, for each hospital, per the reporting requirement in Sec.
447.299(c)(21) and under section 1923(j)(1)(B) of the Act.
Additionally, we propose to include in the definition how a
certification of the audit would include a determination of whether or
not the state made DSH payments that exceeded any hospital's specific
DSH limit in the Medicaid state plan rate year under audit.
Specifically, we are proposing to add to annual DSH reporting a
requirement for auditors to quantify the financial impact of any
finding, including those resulting from incomplete or missing data,
which may affect whether each hospital has received DSH payments for
which it is eligible within its hospital-specific DSH limit. As
previously discussed, based on the audit results we are often unable to
determine whether a DSH overpayment to a provider has occurred, the
underlying causes of the overpayments, and the amount of the
overpayments associated with each cause. This is the result of an
auditor including an audit finding indicating that the missing
information may have an impact on the calculation of total eligible
uncompensated care costs while not making a determination of the actual
financial impact of the identified issue. As a result of this lack of
quantification of the financial impact of this finding, we are unable
to determine whether an overpayment, if any, has resulted from this
audit finding. As such, revising the definition is necessary in
promoting oversight and integrity of the DSH program and ensuring the
audit and report results allow us to calculate accurate hospital-
specific limits. We are soliciting comments related to this proposed
change.
25. Process and Calculation of State Allotments for Fiscal Year After
FY 2008 (Sec. 457.609)
We are using the opportunity within this regulation to revise the
method for notifying states and the public of national CHIP allotments.
Section 2104 of the Act provides appropriations for fiscal year CHIP
allotments for FYs 1998-2027 as determined under the methodologies
provided in sections 2104(b), 2104(c), and 2104(m) of the Act as
applicable for payments to states as described in section 2105 of the
Act. Section 457.609 describes the process and calculation of state
allotments for a fiscal year after FY 2008. Section 457.609(h) provides
that CHIP Allotments for a fiscal year may be published as preliminary
or final allotments in the Federal Register as determined by the
Secretary. We have not published CHIP allotments in the Federal
Register since the FY 2013 CHIP allotments. Each year following FY
2013, states have been notified of their CHIP allotments through either
email notifications and/or through MBES/CBES. We propose to remove from
Sec. 457.609 the reference to our discretionary option to publish in
the Federal Register the national CHIP allotment amounts as determined
on an annual basis for the fiscal years specified in statute. Instead,
we are proposing to post CHIP allotments in the Medicaid and CHIP
Budget and Expenditure System (MBES/CBES) and at Medicaid.gov (or
similar successor systems or websites) annually. We believe that
posting the CHIP allotment amounts at Medicaid.gov and in the MBES/CBES
is an efficient way to make the information more easily accessible to
interested stakeholders and would be less administratively burdensome
for CMS. We are soliciting any comments related to these proposed
changes.
III. 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 would consider all comments we receive
by the date and time specified in the DATES section of
[[Page 63766]]
this preamble, and, when we proceed with a subsequent document, we
would respond to the comments in the preamble to that document.
IV. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.), we are required to publish a 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. For the purposes of the PRA and
this section of the preamble, collection of information is defined
under 5 CFR 1320.3(c) of the PRA's implementing regulations.
To fairly evaluate whether an information collection should be
approved by OMB, PRA section 3506(c)(2)(A) 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 burden estimates.
The quality, utility, and clarity of the information to be
collected.
Our effort to minimize the information collection burden
on the affected public, including the use of automated collection
techniques.
We are soliciting public comment on each of the section
3506(c)(2)(A)-required issues for the following information collection
requirements (ICRs).
A. Wage Estimates
To derive average costs, we used data from the U.S. Bureau of Labor
Statistics' May 2018 National Occupational Employment and Wage
Estimates for all salary estimates (http://www.bls.gov/oes/current/oes_nat.htm). In this regard, Table 1 presents the mean hourly wage,
the cost of fringe benefits and overhead (calculated at 100 percent of
salary), and the adjusted hourly wage.
Table 1--National Occupational Employment and Wage Estimates
----------------------------------------------------------------------------------------------------------------
Fringe
Occupation Mean hourly benefits and Adjusted
Occupation title code wage ($/hr) overhead ($/ hourly wage ($/
hr) hr)
----------------------------------------------------------------------------------------------------------------
Accountants and auditors........................ 13-2011 37.89 37.89 75.78
Data Entry Keyers............................... 43-9021 16.22 16.22 32.44
Financial Specialist all other.................. 13-2099 37.30 37.30 74.60
General and Operations Managers................. 11-1021 59.56 59.56 119.12
Healthcare Support Workers all other............ 31-9099 18.80 18.80 37.60
Managers all other.............................. 11-9199 55.57 55.57 111.14
Social Science Research Assistants.............. 19-4061 24.24 24.24 48.48
----------------------------------------------------------------------------------------------------------------
As indicated, we are adjusting our employee hourly wage estimates
by a factor of 100 percent. This is necessarily a rough adjustment,
both because fringe benefits and overhead costs vary significantly from
employer to employer, and because methods of estimating these costs
vary widely from study to study. Nonetheless, we believe that doubling
the hourly wage to estimate total cost is a reasonably accurate
estimation method.
B. Proposed Information Collection Requirements (ICRs)
The following regulatory sections of this rule contain proposed
collection of information requirements (or ``ICRs'') that are subject
to OMB approval under the authority of the PRA: Sec. Sec. 433.72
(Waiver provision applicable to health care related taxes), 447.252 and
447.302 (State plan requirements), 447.288 (Reporting requirements for
UPL demonstrations and supplemental payments), and 447.299 (DSH
reporting requirements). Our analysis of the proposed requirements and
burden follow.
1. ICRs Regarding Tax Waiver Requirements (Sec. 443.72)
The following proposed changes will be submitted to OMB for
approval under control number 0938-0618 (CMS-R-148). Subject to
renewal, the control number is currently set to expire on February 28,
2021. It was last approved on February 9, 2018, and remains active.
Section 433.72 of this rule proposes to add a period of validity
for tax waivers of the broad-based and/or uniformity requirements,
which states that waivers will cease to be effective 3 years from CMS'
approval in the case of tax programs commencing on or after the rule's
effective date or 3 years from the rule's effective date in the case of
waivers approved before the rule's effective date. This change is
necessary because the provider data submitted by states to CMS, for use
in the statistical tests described at Sec. 433.68, may change over
time. As a result, the tax may be generally redistributive as required
by statute and regulation when the state requests the waiver, but may
subsequently cease to be so. Currently there are approximately 35
states that have broad based or uniformity waivers. We propose to allow
states with existing health care-related tax waivers up to 3-years from
the effective date of the final rule before they must seek re-approval.
This will provide states sufficient time to evaluate and, if necessary,
modify existing tax programs.
The ongoing burden associated with the proposed requirements
consists of the time it would take each state that has an existing tax
waiver to submit an updated version within 3-years after the effective
date of the final rule and to update the waiver every 3 years. Of the
35 states with tax waivers, we estimate that there are approximately 60
tax waivers that will have to be renewed every 3 years, or about 20 tax
waivers renewed per year by various states (0.4 tax waiver renewals per
year per state). Please note that the proposed waiver requirements are
minimal, as states are already required to monitor and update their tax
waivers to ensure compliance with federal requirements.
We estimate it would take 2 hours at $37.60/hr for a healthcare
support worker to prepare and submit an updated tax waiver. In
aggregate we estimate an ongoing annual burden of 40 hours (20 tax
waiver renewals per year x 2 hr/renewal) at a cost of $1,504 (40 hr x
$37.60/hr) or $30 per state ($1,504/51).
2. ICRs Regarding State Plan Requirements (Sec. Sec. 447.252 and
447.302)
The following proposed changes will be submitted to OMB for
approval under control number 0938-0193 (CMS-179). Subject to renewal,
the control number is currently set to expire on April 30, 2022. It was
last approved on April 9, 2019, and remains active.
[[Page 63767]]
The proposed changes to Sec. Sec. 447.252 and 447.302 would
require that states provide additional descriptors for any proposed
supplemental payments and would put a 3-year limit on the duration of
all prospectively approved supplemental payments, with a transition
period for states to seek renewal of currently approved supplemental
payments in accordance with the proposed requirements, if the state
desires to continue the supplemental payment. States would need to
provide the additional descriptors to receive state plan authority to
disburse their proposed supplemental payments. Consequently, currently
approved supplemental payment-related SPAs would have to be updated by
adding the descriptors, as outlined in section II.A.13. of this
proposed rule, state plan requirements (Sec. 447.252), and in Sec.
447.252(d) of the regulatory text. Supplemental payments are presently
authorized through the SPA process with CMS.
The ongoing burden associated with the proposed requirements
consists of the time it would take each of the 50 state Medicaid
programs, the District of Columbia, and the territories Puerto Rico, US
Virgin Islands, and Guam (hereinafter, ``states'') to specify six (6)
descriptors for all applicable SPAs that provide or would provide for a
supplemental payment. The territories the Commonwealth of the Northern
Mariana Islands (CNMI) and American Samoa have been excluded to the
extent that Medicaid services are provided under section 1902(j)
waiver. The additional SPA descriptors include: (1) An explanation of
how the state plan or SPA will result in payments that are consistent
with section 1902(a)(30)(A) of the Act; (2) the criteria to determine
which providers are eligible to receive the supplemental payment; (3) a
comprehensive description of the methodology used to calculate the
amount of, and distribute, the supplemental payment to each eligible
provider, including all of the following: The amount of the
supplemental payment made to each eligible provider, if known, or, if
the total amount is distributed using a formula based on data from one
or more fiscal years, the total amount of the supplemental payments for
the fiscal year or years available to all providers eligible to receive
a supplemental payment, if applicable, the specific criteria with
respect to Medicaid service, utilization, or cost data from the
proposed SPA year to be used as the basis for calculations regarding
the amount and/or distribution of the supplemental payment, the timing
of the supplemental payment to each eligible provider, an assurance
that the total Medicaid payment to an inpatient hospital provider,
including the supplemental payment, will not exceed the upper limits
specified in Sec. 447.271, and if not already submitted, a UPL
demonstration as required by Sec. 447.272 and described in Sec.
447.288; (4) the duration of the supplemental payment authority (not to
exceed 3 years); (5) a monitoring plan to ensure that the supplemental
payment remains consistent with the requirements of section
1902(a)(30)(A) of the Act and to enable evaluation of the effects of
the supplemental payment on the Medicaid program, for example, with
respect to providers and beneficiaries; and (6) for a SPA proposing to
renew a supplemental payment for a subsequent approval period, an
evaluation of the impacts on the Medicaid program during the current or
most recent prior approval period, for example, with respect to
providers and beneficiaries, and including an analysis of the impact of
the supplemental payment on compliance with section 1902(a)(30)(A) of
the Act.
We have attempted to mitigate any new burden by identifying the
essential descriptors that are necessary during a SPA review of
proposed state supplemental payments. The more information and
transparency provided with the SPA to implement new, or renew existing,
supplemental payments will reduce the number of questions and requests
for additional information from CMS, and therefore, could result in
more expedited approval along with increased economy and efficiency of
the Medicaid program.
To estimate the overall burden of adding the descriptors to all
supplemental payment-related SPAs we considered the total nationwide
number of active supplemental payments by states reporting for the
current 8 UPL demonstration service types for the period 2015-2017 (3
years) in the proposed 6 UPL service types (see Table 2, line A): (1)
Nursing facility; (2) outpatient hospital; (3) inpatient hospital; (4)
ICF/IID; (5) IMD; and (6) physician services excluding PRTF and clinic.
As indicated, the total number of states reporting supplemental
payment methodologies in the UPL demonstrations in the Medicaid program
for the following service types are: 37 for inpatient hospital services
(IP); 29 for outpatient facility services (OP); 49 for nursing facility
services (NF); 8 for ICF/IIDs (ICF); 0 for IMDs (IMD); and 17 for
physician services (Phys). We recognize that there are often more than
one supplemental payment SPA per state for each service type,
especially for states with more providers and service types like
inpatient hospitals and nursing facilities, while IMDs have no
supplemental payments, and therefore, no SPAs to renew or submit. To
account for this we multiplied the number of states reporting each
service type by 2 (approximately 2 SPAs per year for each service type)
to estimate the total number of SPAs submitted by the states.
In this regard, the total number of SPAs is estimated to be 280
(Table 2, line B) or 5.19 (line C) per state (280 SPAs/54 states and
territories). We estimate that each SPA is renewed every 2.5 years
(half of the time required in this proposed rule), for 2.08 (5.19 SPAs
per state/1 SPA renewal every 2.5 years) SPA renewals per state per
year.
Table 2--State Reporting of Supplemental Payment Methodologies in the UPL Demonstrations
--------------------------------------------------------------------------------------------------------------------------------------------------------
UPL demonstration types IP OP NF ICF IMD Phys Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
A. Supplemental Payment Methodologies reported by States..... 37 29 49 8 0 17 140
B. SPA multiplier x 2........................................ 74 58 98 16 0 34 280
C. SPAs needed to be renewed per year per state (B/54 states) 1.37 1.07 1.81 0.30 0.00 0.67 5.19
--------------------------------------------------------------------------------------------------------------------------------------------------------
We estimate it would take 30 additional minutes (0.5 hr) at $48.48/
hr for a social science research assistant (technical staff) to add all
6 supplemental payment SPA components from Sec. Sec. 447.252 and
447.302 for each SPA submission, noting that a comprehensive payment
methodology is currently required for all SPA submissions. In
aggregate, we estimate an annual burden of 56.2 hours (2.08 SPA
renewals per state per year x 0.5 hr for additional descriptors x 54
states and territories) at a cost of $2,725 (56.2 hr x $48.48/hr). This
estimate
[[Page 63768]]
factors in the burden associated with supplemental payment SPAs for the
6 service types mentioned above and summarized in Table 2. Per state,
we estimate an average annual burden of 1.0 hours (56.2 hr/54 states
and territories) at a cost of $50 ($2,725/54 states and territories).
3. ICRs Regarding Reporting for UPL Demonstrations and Supplemental
Payments (Sec. 447.288)
The following proposed changes will be submitted to OMB for
approval under control number 0938-1148 (CMS-10398 #13 and #24).
Subject to renewal, the control number is currently set to expire on
March 31, 2021. It was last approved on March 1, 2018, and remains
active.
Section 447.288 of this rule proposes to codify our current policy
of requiring states and territories to submit annual UPL
demonstrations.
While the territories Puerto Rico, US Virgin Islands, and Guam are
included in this estimate, the Commonwealth of the Northern Mariana
Islands (CNMI) and American Samoa have been excluded from this estimate
because they provide Medicaid services under section 1902(j) waivers.
The proposed rule would also add quarterly reporting requirements
(Sec. 447.288(c)(1)) that would provide data on each provider
receiving a supplemental payment, the amount of payment(s), and the
state plan/demonstration authority authorizing the payment. The
proposed rule would also require an aggregate report (Sec.
447.288(c)(2)) of all providers receiving supplemental payments that
totals all of the supplemental payments providers receive during the
year plus all Medicaid payments, and Medicaid utilization data. Lastly,
the rule would also require a report (Sec. 447.288(c)(3)) of all of
those providers contributing to the state's non-federal share for any
supplemental payment, the state plan/demonstration authority
authorizing the payment, and the amount of the payment(s).
(1) UPL Demonstrations
The currently approved burden associated with the requirements we
are revising and putting into regulation in this proposed rule,
consists of the time it would take each of the 56 Medicaid programs (50
states, 5 territories, and the District of Columbia) to submit annual
UPL demonstrations and report supplemental payments for: Inpatient
hospital; outpatient hospital; nursing facilities; PRTF; clinic
services; other inpatient & outpatient facility providers (commonly
known as physician services); ICF/IID; and institutions for mental
disease (IMD) on the currently approved (hereinafter, ``active'') UPL
templates that are set out under CMS-10398 #13 and #24.
This proposed rule would reduce burden by eliminating the UPL
demonstrations for three service types PRTF, clinic services, and other
inpatient & outpatient facility providers (physician services) and by
eliminating 2 territories from reporting any of the items required
under Sec. 447.288. It also proposes to codify the requirements for
states to annually report UPL demonstrations as discussed in SMDL #13-
003 (March 18, 2013),\11\ which was associated with OMB approved
templates (OMB Control Number 0938-1148) and collection of information
requirements approved by OMB under control number 0938-1148 (CMS-10398
#13 and 24).
---------------------------------------------------------------------------
\11\ Center for Medicaid and CHIP Services, RE: Federal and
State Oversight of Medicaid Expenditures, State Medicaid Director's
letter SMD #13-003, accessed 4/9/2019: https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/SMD-13-003-02.pdf.
---------------------------------------------------------------------------
For CMS-10398 #13 (Medicaid Accountability--Nursing Facility,
Outpatient Hospital and Inpatient Hospital Upper Payment Limits)
eliminating 2 territories from this reporting would reduce our active
burden estimates by -80 hours (40 hr/response x -2 responses) for a
burden reduction of $3,057 ([30 hr x -2 responses x $32.44/hr for a
data entry keyer] + [9 hr x -2 responses x $48.48/hr for a social
science research assistant] + [1 hr x -2 responses x $119.12/hr for a
general and operations manager]).
For CMS-10398 #24 (Medicaid Accountability--Upper Payment Limits
ICF/IID, Clinic Services, Medicaid Qualified Practitioner Services and
Other Inpatient & Outpatient Facility Providers) this would reduce our
active burden by -80 hours (40 hr/response x -2 responses) at a cost of
-$3,057 ([30 hr x -2 responses x $32.44/hr for a data entry keyer] + [9
hr x -2 responses x $48.48/hr for a social science research assistant]
+ [1 hr x -2 responses x $119.12/hr for a general and operations
manager]).
For CMS-10398 #24 this rule would also reduce our active burden by
eliminating 3 of the 5 UPL demonstrations for the service types PRTF,
Clinic Services, and Medicaid Qualified Practitioner Services and Other
Inpatient & Outpatient Facility Providers (commonly referred to as the
physician ACR). This would reduce our active burden estimates by -1,296
hours (8 hr/response x 3 service types x 54 states) for a savings of
$49,528 ([18 hr x -54 states x $32.44/hr for a data entry keyer] + [5.4
hr x -54 states x $48.48/hr for a social science research assistant] +
[0.6 hr x -54 states x $119.12/hr for a general and operations
manager]). This proposed action would thereby eliminate the PRTF,
Clinic Services, and Medicaid Qualified Practitioner Services and Other
Inpatient & Outpatient Facility Providers (commonly referred to as
physician ACR) templates along with the guidance and instruction
documents that are associated with the templates.
As indicated, the proposed burden changes will be submitted to OMB
for approval under control number 0938-1148 (CMS-10398 #13 and #24).
Since the proposed requirements impact two information collection
requests (#13 and #24), we estimate a total burden reduction of -1,456
hours (-80 hr -80 hr -1,296 hr) for a savings of $55,642 (-$3,057 -
$3,057 -$49,528).
(2) Quarterly Reporting of Expenditures Claimed for Each Supplemental
Payment (Sec. 447.288(c)(1))
In addition to the data already collected in the aggregate for all
supplemental payments and required annually for UPL demonstrations
under the CMS-10398 #13 and #24, this proposed rule would require that
states report information quarterly on expenditures claimed for each
supplemental payment made under state plan or demonstration authority
including: (1) The SPA transaction number or demonstration authority
number which authorizes the payment; (2) a listing of each provider
that received a payment under each authority by the specialty type (if
applicable, for example, CAH, pediatric hospital, or teaching
hospital); (3) the specific amount of the supplemental payment paid to
each provider including the total payment made to the provider
authorized under the specified state plan; and (4) the total Medicaid
payment made to the provider under the specified demonstration
authority.
This rule would add quarterly data reported to CMS in the form of 5
new templates mirroring the UPL demonstrations reporting by service
type of the provider. For CMS-10398 #13, this would consist of
quarterly report templates for: Nursing facilities, outpatient
hospitals, and inpatient hospitals. For CMS-10398 #24, quarterly report
templates would be added for: ICF/IID and IMD.
The quarterly reports would be required at the time the state
submits its quarterly CMS-64 (OMB control number 0938-1265) pursuant to
Sec. 430.30(c), consisting of provider level information on all
providers receiving supplemental payments, including 11
[[Page 63769]]
data elements consisting of 8 demographic elements and 3 elements
specific to supplemental payments (see (Sec. 447.288(c)(1))). The 8
demographic elements of each provider that received a supplemental
payment under each authority consist of: (1) The provider's legal name;
(2) the physical address of the location or facility where services are
provided, including street address, city, state, and ZIP code; (3) the
NPI; (4) the Medicaid identification number; (5) the EIN; (6) the
service type for which the reported payment was made;(7) the provider
specialty type (if applicable, for example, CAH, pediatric hospital, or
teaching hospital); and (8) the provider category (that is, state
government, non-state government, or private). The 3 supplemental
payment elements for payments paid to each provider consist of the
specific amount of the supplemental payment made to the provider,
including: (1) SPA transaction number or demonstration authority number
which authorizes the supplemental payment; (2) the total supplemental
payment made to the provider authorized under the specified state plan;
(3) the total Medicaid supplemental payment made to the provider under
the specified demonstration authority, as applicable.
For the supplemental payment quarterly reports, annually we
estimate it will take 20 seconds at $32.44/hr for a data entry keyer to
query states' MMIS system and/or copy and paste each data element into
the required format for reporting. The initial quarterly report would
require the full set of 11 data elements for each provider receiving a
supplemental payment with a burden of 449 hours (7,341 providers with
supplemental payments x 11 data elements x 1 report/year x 20 seconds/
3,600 seconds in an hour) and a cost of $14,566 (449 hr x $32.44/hr).
The three (3) subsequent quarterly reports would only require
reporting of the three (3) supplemental payment data elements since the
eight (8) demographic data elements would have already been reported in
the initial quarterly report. The burden associated with the subsequent
reports consists of 367 hours (7,341 providers with supplemental
payment x 3 data elements x 3 reports/year x 20 seconds/3,600) at a
cost of $11,906 (367 hr x $32.44/hr).
In aggregate, we estimate a burden of 816 hours (449 hr + 367 hr)
at a cost of $26,472 ($14,566 + $11,906).
We also expect oversight by social science research assistants and
general operations managers for each of the supplemental payment
quarterly reports. We estimate it would take 1 hour at $48.48/hr for a
social science research assistant and 30 minutes (0.5 hr) for a general
operations manager at $119.12/hr to review each of the reports. In this
regard we estimate an annual burden of 306 hours ([1 hr x 4 reports x
51 states] + [0.5 hr x 4 reports x 51 states]) at a cost of $22,040 ([1
hr x 4 reports x 51 states x $48.48/hr] + [0.5 hr x 4 reports x 51
states x $119.12/hr]).
Given the aforementioned burden estimates, we estimate a total of
1,140 hours (816 hr + 324 hr) at a cost of $49,797 ($26,460 + $23,337)
for all of the information collection requests with quarterly
reporting, including all 5 new templates. Per state we estimate 21.1
hours (1,140 hrs/54 states) and $922 (49,797/54 states) for all
quarterly reporting.
As indicated, the proposed requirements and burden will be
submitted to OMB for approval under control number 0938-1148 (CMS-10398
#13 and #24). Since the proposed requirements would impact two
information collection requests (CMS-10398 #13 and #24), the annual
quarterly reporting burden for each is broken down here: For CMS-10398
#13 (new quarterly report templates for inpatient hospitals, outpatient
hospitals, and nursing facilities) it is 1,108 hours (1,122 hr x 0.97
\12\) at a cost of $48,433 ($49,797 x 0.97); for CMS-10398 #24 (new
quarterly report templates for ICF/IID and IMD) the burden is 31.2
hours (1,122 hr x 0.027 \13\) at a cost of $1,363 ($49,797 x 0.027).
---------------------------------------------------------------------------
\12\ 97% of UPL providers receiving supplemental payments are
IP, OP, and NF provider types.
\13\ 2.7% of UPL providers receiving supplemental payments are
ICF and IMD provider types.
---------------------------------------------------------------------------
(3) Utilization Reporting Template and Guidance Documents (Sec.
447.288(b)(2))
Annually, the proposed reporting of the specific amount of Medicaid
payments made to each provider would include: (1) The total FFS base
payments made to the provider authorized under the state plan; (2) the
total Medicaid payments made to the provider under demonstration
authority; (3) the total payment or funds received from Medicaid
beneficiary cost-sharing requirements, donations, and any other funds
received from third parties to support the provision of Medicaid
services; (4) the total supplemental payment made to the provider
authorized under the specified state plan; (5) the total Medicaid
supplemental payment made to the provider under the specified
demonstration authority, and the total Medicaid payments made to the
provider as reported in the above areas; (6) the total DSH payments
made to the provider; and (7) the Medicaid units of care (for example,
on a provider-specific basis, total Medicaid discharges, days of care,
or any other measures as specified by the Secretary).
A utilization report by provider service type would be required
annually by states in this proposed rule, which includes all of the
providers reported in the Supplemental Payments Reporting Templates
(that is, all providers receiving supplemental payments), and reports
all base payments, DSH payments, and additional utilization data from
those providers. This Utilization Report includes all base payments
made to each provider in the state, with the addition of DSH and
Medicaid utilization data (23 data elements consisting of 9 demographic
elements previously reported in the quarterly reports, 10 new elements
specific to supplemental and other payments, and 4 new utilization
elements).
The 9 demographic elements, linked to the same 8 elements in the
quarterly reports plus 1 element stating the dates of the supplemental
payment period, all covering the same providers in each service type,
that received a supplemental payment under each authority listed in
Sec. 447.288(c)(1) including: (1) The provider's legal name; (2) the
physical address of the location or facility where services are
provided, including street address, city, state, and ZIP code; (3) the
NPI; (4) the Medicaid identification number; (5) the EIN; (6) the
service type for which the reported payment was made; (7) the provider
specialty type (if applicable, for example, CAH, pediatric hospital, or
teaching hospital); (8) the provider category (that is, state
government, non-state government, or private); and (9) the state
reporting period (state fiscal year start and end dates).
The 14 supplemental payment elements for Medicaid payments made to
each provider consist of the following, as applicable: (1) The SPA
transaction number or demonstration authority number which authorizes
the supplemental payment; The specific amount of Medicaid payments made
to each provider, including, as applicable; (2) the total FFS base
payments made to the provider authorized under the state plan; (3) the
total Medicaid payments made to the provider under demonstration
authority; (4) the total payment or funds received from Medicaid
beneficiary cost-sharing requirements; (5) the total payment or funds
received from Medicaid donations; (6) the total of any other funds
received from third parties to
[[Page 63770]]
support the provision of Medicaid services; (7) the total supplemental
payment made to the provider authorized under the specified state plan;
(8) the total Medicaid supplemental payment made to the provider under
the specified demonstration authority; (9) the total Medicaid payments
made to the provider as reported above (summation of 2-8 above); and
(10) the total DSH payments made to the provider. The 4 utilization
elements are comprised of: Up to four (11. through 14.) Medicaid unit
of care metrics (for example, on a provider-specific basis, total
Medicaid discharges, days of care, or any other measures as specified
by the Secretary).
There are a total of 14 new data elements. The eight demographic
elements and the SPA transaction number or demonstration authority
number which authorizes the supplemental payment were reported during
the previous quarterly CMS-64 reports submitted during the year, and
therefore, are not counted in the collection of information here.
For the annual utilization report we estimate it would take 20
seconds at $32.44/hr for a data entry keyer to query states' MMIS
system and/or copy and paste each data element into the required format
for reporting. The burden associated with preparing and submitting the
annual report consists of 571 hours (7,341 providers reported with
supplemental payments in the UPL demonstration x 14 new data elements x
1 report/year x 20 seconds/3,600 seconds per hour) at a cost of $18,523
(571 hr x $32.44/hr).
Additionally, we estimate oversight by social science research
assistants and general operations managers for the utilization annual
report. We estimate it would take 1.5 hours at $48.48/hr for a social
science research assistant and 1 hour at $119.12/hr for a general
operations manager to review the report. In this regard we estimate an
annual burden of 135 hours ([1.5 hr x 1 report x 54 states] + [1 hr x 1
report x 54 states]) at a cost of $10,359 ([1.5 hr x 1 report x 54
states x $48.48/hr] + [1 hr x 1 report x 54 states x $119.12/hr]).
Given the aforementioned burden estimates, we estimate a total of
706 hours (571 hr + 135 hr) at a cost of $28,882 ($18,522 + $10,359)
for all information collection for the utilization report. Per state,
this amounts to 13.1 hours (706 hrs/54 states) at a cost of $535
($28,882/54 states).
Since the proposed requirements impact two information collection
requests (CMS-10398 #13 and #24), we break down the cost to each, as
above. The burden for CMS-10398 #13 is 687 hours (706 hr x 0.97) at a
cost of $28,091 ($28,882 x 0.97). For CMS-10398 #24 the burden is 19.3
hours (706 hr x 0.027) at a cost of $791 ($28,882 x 0.027).
(4) Annual Non-Federal Share Reporting (Sec. 447.288(c)(3))
Section 447.288(c)(3), proposes to require that each state submit
an annual report of the aggregate and provider-level information on
each provider contributing to the state or any local unit of government
any funds that are used as a source of the non-federal share for any
Medicaid supplemental payment, including 17 data elements consisting
of: 8 new demographic elements; 8 new supplemental and other payment
elements; and 1 new summation element.
The 8 demographic elements of each provider that received a non-
federal share for any Medicaid supplemental payment under each
authority listed in Sec. 447.288(a) include: (1) The service type for
which the reported payment was made; (2) the provider specialty type
(if applicable, for example, CAH, pediatric hospital, or teaching
hospital) (3) the provider's legal name; (4) the physical address of
the location or facility where services are provided, including street
address, city, state, and ZIP code; (5) the NPI; (6) the Medicaid
identification number; (7) the EIN; and (8) the provider category (that
is, state government, non-state government, or private).
The 8 supplemental and other payment elements are comprised of: (1)
The total FFS base payments made to the provider authorized under the
state plan; (2) the total FFS supplemental payments made to the
provider authorized under the state plan; (3) the total Medicaid
payments made to the provider under demonstration authority; (4) the
total DSH payments made to the provider; (5) the total of each health
care-related tax collected from the provider by any state authority or
local unit of government; (6) the total of any costs certified as a CPE
by the provider; (7) the total amount contributed by the provider to
the state or a unit of local government entity in the form of an IGT;
and (8) the total of provider-related donations made by the provideror
by entities related to a health care provider, including in-cash and
in-kind donations, to the state or unit of local government, including
state university teaching hospitals.
The summation element would require: (1) The total funds
contributed by the provider (that is, CPEs, IGTs, provider taxes,
donations, and any other funds contributed) as reported under the
supplemental and other payment elements.
For the annual non-federal share report we estimate that all
providers will contribute to the non-federal share. We believe this to
be an overestimate, but this is the only estimate we have at this time
using the UPL demonstration data that we have available. We also
estimate that it would take 20 seconds at $32.44/hr for a data entry
keyer to query states' MMIS system and/or copy and paste each of the 17
data elements into the required format for reporting. The burden
associated with preparing and submitting the annual report consists of
2,666 hours (28,232 total providers x 17 data elements x 1 report/year
x 20 seconds/3,600 seconds per hour) at a cost of $86,485 (2,666 hr x
$32.44/hr).
Additionally, we estimate oversight by social science research
assistants and general operations managers for the non-federal share
annual report. We estimate it would take 4 hours at $48.48/hr for a
social science research assistant and 2 hours at $119.12/hr for a
general operations manager to review the report. In this regard we
estimate an annual burden of 324 hours ([4 hr x 1 report x 54 states] +
[2 hr x 1 report x 54 states]) at a cost of $23,337 ([4 hr x 1 report x
54 states x $48.48/hr] + [2 hr x 1 report x 54 states x $119.12/hr]).
Given the aforementioned burden estimates, we estimate a total of
2,990 hours (2,666 hr + 324 hr) at a cost of $109,833 ($86,497 +
$23,337) for all information collection requests for the non-federal
share report. Per state, this amounts to 55.4 hours (2,990 hr/54
states) at a cost of $2,034 ($109,833/54 states).
Since the proposed requirements impact two information collection
requests (CMS-10398 #13 and #24), the burden for CMS-10398 #13 is 2,617
hours (2,990 hr x 0.875 \14\) at a cost of $94,427 ($109,833 x 0.875).
For CMS-10398 #24 the burden is 373.5 hours (2,990 hr x 0.125 \15\) at
a cost of $13,717 ($109,833 x 0.13).
---------------------------------------------------------------------------
\14\ 87.5% of all UPL providers reported are IP, OP, and NF
provider types.
\15\ 12.5% of all UPL providers reported are ICF & IMD.
---------------------------------------------------------------------------
4. ICRs Regarding DSH Reporting Requirements (Sec. 447.299)
The following proposed changes will be submitted to OMB for
approval under control number 0938-0746 (CMS-R-266). Subject to
renewal, the control number is currently set to expire on April 30,
2022. It was last approved on April 9, 2019, and remains active.
Under Sec. 447.299 this proposed rule would require states to
provide an
[[Page 63771]]
additional data element as part of its annual DSH audit report. This
additional element would require a state auditor to quantify the
financial impact of any audit finding not captured within any other
data element under Sec. 447.299(c), which may affect whether each
hospital has received DSH payments for which it is eligible within its
hospital-specific DSH limit.
If the auditor is unable to determine the actual financial impact
amount of an audit finding, the auditor would be required to provide a
statement of the estimated financial impact for each audit finding
identified in the independent certified audit.
The proposed additional data element requires auditors to indicate
the financial impact of all findings rather than indicating that the
financial impact of any finding is unknown. We believe the additional
burden associated with the new data element would be minimal given that
auditors are already engaged in a focused review of available
documentation to quantify the aggregate amounts that comprise each of
the existing data elements required under Sec. 447.299(c).
The burden consists of the time it would take each of the states to
quantify any audit finding identified during the independent certified
audit required under section 1923(j)(2) of the Act. The territories
have been excluded from this proposed requirement since they do not
receive a DSH allotment under section 1923(f) of the Act.
To estimate the overall burden of adding this new data element to
the reporting requirement, we considered the number of annual
independent certified audits received by CMS in addition to the number
of unquantified audit findings.
This rule would require the submission of data in an electronic
spreadsheet format that would take approximately 2 hours, consisting
of: 1 hour at $111.14/hr for management and professional staff to
review the report and 1 hour at $74.60/hr for a financial specialist to
prepare the report. In aggregate we estimate an ongoing annual burden
of 102 hours (51 states x 2 hr/response x 1 response/year) at a cost of
$9,473 ((51 states x [(1 hr $111.14/hr) + (1 hr x $74.60/hr)] or $186
per state ($9,473/51 states). Additionaly we anticipate that a state
auditor would have to spend an additional hour quantifying the
financial impact of DSH findings that are classified as unknown. The
estimated annual burden would be 1 hour per state (51 states x 1 hour)
51 hours x 75.78/hr for auditors to complete the audit at a cost of
$3,865 per year (51 states x 1 hour x $75.78 per hour). The total cost
of this proposed rule would be $13,338 ($9,473 + $3,865) and 153 hours
or $262 per state and 3 hours per state.
C. Summary of Annual Burden Estimates for Proposed Requirements
Table 3 summarizes the burden for the aforementioned proposed
provisions
Table 3--Proposed Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
Regulation section(s) under OMB control No. Responses Total Burden per annual Labor costs
title 42 of the CFR (CMS ID No.) Respondents (per state) responses response burden of Total cost ($)
(hours) (hours) reporting
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 443.72 tax waiver........ 0938-0618 (CMS-R- 51 0.4 20 2 40 37.60 1,504
148).
Sec. Sec. 447.252 and 447.302 0938-0193 (CMS- 54 1.9 126 0.5 63.2 48.48 3,064
179).
Sec. 447.288 UPL demo. (IP, 0938-1148 (CMS- 5 -5 -10 8 -80 varies -3,057
OP, NF). 10398 #13).
Sec. 447.288 UPL demo. (ICF, 0938-1148 (CMS- 5/51 -5/-3 -10/-162 8/8 -80/-1296 varies -3,057/-49,528
IMD). 10398 #24).
Sec. 447.288 SP quarterly 0938-1148 (CMS- 54 20 1,080 varies 1108 varies 48,433
reports (IP, OP, NF). 10398 #13).
Sec. 447.288 SP quarterly 0938-1148 (CMS- 54 20 1,080 varies 31 varies 1,363
reports (ICF, IMD). 10398 #24).
Sec. 447.288 Utilization 0938-1148 (CMS- 54 14 756 varies 687 varies 28,091
annual report (IP, OP, NF). 10398 #13).
Sec. 447.288 Utilization 0938-1148 (CMS- 54 14 756 varies 19 varies 791
annual report (ICF, IMD). 10398 #24).
Sec. 447.288 Non-federal share 0938-1148 (CMS- 54 17 918 varies 2,617 varies 94,427
annual report (IP, OP, NF). 10398 #13).
Sec. 447.288 Non-federal share 0938-1148 (CMS- 54 17 918 varies 374 varies 13,717
annual report (ICF, IMD). 10398 #24).
Sec. 447.299 DSH audit........ 0938-0746 (CMS-R- 51 1 51 3 153 varies 13,338
266).
---------------------------------------------------------------------------------------------------
Total....................... .................. varies 95 5,787 varies 3,637 varies 145,221
--------------------------------------------------------------------------------------------------------------------------------------------------------
For all parts of this proposed rule, we estimate there would be a
total nationwide burden of 3,637 hours at a cost of $145,221 and an
average of 67 hours (3,637 hr/54 states) at a cost of $2,847 per state
Medicaid agency per year ($145,221/54 states).
D. Requirements Not Subject to the PRA
The following regulatory sections propose changes to definitions,
policy guidance, and clarifications of existing statutes or regulatory
provisions. The changes do not have any collection of information
implications, and therefore, are not subject to the requirements of the
PRA: Sec. Sec. 430.42 (Disallowance of claims for FFP), 433.51 (State
share of financial participation), 433.52 (General definitions), 433.54
(Bona fide donations), 433.55 (Health care-related taxes defined),
433.56 (Classes of health care services and providers defined), 433.68
(Permissible health care-related taxes), 433.72 (Waiver provisions
applicable to health care-related taxes), 433.316 (When Discovery of
Overpayment occurs and its Significance), 447.201 (State plan
requirements), 447.207 (Retention of payments), 447.272 (Inpatient
services: Application of UPLs), 447.284 (Basis and purpose), 447.286
(Definitions), 447.290 (Failure to Report Required Information),
447.297 (Limitations on aggregate payments for DSHs beginning October
1, 1992), 447.321 (Outpatient hospital services: Application of UPLs),
455.301 (Definitions), 455.304 (Condition for FFP), and 457.609
[[Page 63772]]
(Process and calculation of state allotments for a fiscal year after FY
2008).
E. Submission of PRA-Related Comments
We have submitted a copy of this proposed rule to OMB for its
review of the rule's ICRs. The requirements are not effective until
they have been approved by OMB.
To obtain copies of the supporting statement and any related forms
for the proposed collections discussed above, please visit the CMS
website at www.cms.hhs.gov/PaperworkReductionActof1995, or call the
Reports Clearance Office at 410-786-1326.
We invite public comments on these potential ICRs. If you wish to
comment, please submit your comments electronically as specified in the
DATES and ADDRESSES section of this proposed rule and identify the rule
(CMS-2393-P) the ICR's CFR citation, and OMB control number.
V. Regulatory Impact Analysis
A. Statement of Need
This proposed rule would impact states' reporting on payment
methods and procedures to assure consistency with efficiency, economy,
and quality of care as required by section 1902(a)(30)(A) of the Act.
CMS, and other federal oversight entities, have found that current
regulations and guidance do not adequately assure that states are
complying with the efficiency, economy and quality of care requirements
of section 1902(a)(30)(A) of the Act, and this rule is intended to
address those deficiencies. We view this proposed rule as one approach
to add additional accountability and transparency for Medicaid
payments, and to provide CMS with certain information on supplemental
payments to Medicaid providers, including supplemental payments
approved under either Medicaid state plan or demonstration authority,
establish new state plan requirements for amendments proposing
supplemental payments, and otherwise ensure the proper and efficient
operation of the Medicaid state plan. This proposed rule would address
the funding of these supplemental and other Medicaid payments through
states' uses of health care-related taxes and bona fide provider-
related donations.
Medicaid DSH payments and requirements are addressed in this
proposed rule. We propose to add additional specificity to the
reporting requirements of the annual DSH audit conducted by an
independent auditor to enhance federal oversight of the Medicaid DSH
program. Additionally, we seek to improve the accurate identification
of and collection efforts related to overpayments identified through
the annual DSH independent certified audits by specifying the date of
discovery and standards for redistribution of DSH payments made to
providers in excess of the hospital-specific limit.
The proposed rule also seeks to alleviate the administrative burden
of publishing the annual DSH and CHIP allotments in the Federal
Register, of which we simultaneously notify states directly by
providing notification through other, more practical means. Finally, we
propose changes to the disallowance reconsideration procedures in order
to modernize the process by relying on an electronic, rather than a
hard-copy paper process.
B. Overall Impact
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 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), 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). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) Having an
annual effect on the economy of $100 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or state, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of beneficiaries thereof; or (4) raising novel legal or
policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
We estimate these provisions to meet the criteria for economic
significance based upon the analysis of certain provisions in the
proposed rule, as discussed in more detail below. The proposed
reporting requirements largely contain data already available to states
in their own fiscal management and claims processing systems, and
merely requires states to report the data to us. Additional information
on setting goals for supplemental payments and evaluating the positive
and negative aspects of these goals over time, while these requirements
are consistent and necessary to ensure compliance with section
1902(a)(30)(A) of the Act, which requires payments be consistent with
efficiency, economy, and quality of care, they will require state
Medicaid programs to develop and consider various compliance options.
Moreover, the reporting requirements and supplemental payment
evaluations are generally consistent with current state oversight and
review activities of each state's Medicaid program, and states have the
flexibility within their reviews to use their existing data or build
upon that data when reviewing supplemental payments to providers, in
order to formulate goals and evaluate the effectiveness of these
payments. In fact, the policies in this proposed rule are intended to
focus on state efforts in monitoring and overseeing data and
methodologies concerning supplemental and other payments as well as
sources of non-federal share to enhance states' ability to comply with
section 1902(a)(30)(A) of the Act and our ability to ensure such
compliance.
C. Anticipated Effects
1. Effects of Reporting Requirements on State Medicaid Programs
For all parts of this proposed rule we estimate there would be a
total nationwide burden of 3,637 hours at a cost of $145,221 and an
average of 67 hours (3,637 hr/54 states) at a cost of $2,847 per state
Medicaid agency per year ($145,221/54 states) per state and District of
Columbia Medicaid agency per year (see section IV. of this proposed
rule, Collection of Information Requirements, for details on this cost
assessment and a breakdown of the burden from the various parts of this
proposed rule).
The proposed rule adds several reporting requirements, including:
[[Page 63773]]
Sec. Sec. 447.252 and 447.302, which would add goals, evaluations, and
3-year renewable authorizations on any supplemental payment
methodology, providing a transition schedule for SPAs to be updated.
Section 447.288, would add 4 quarterly reports with data on
expenditures claimed for each supplemental payment made under state
plan or demonstration authority by provider, and an annual report with
2 sections--one section with a roll up of the quarterly data with added
Medicaid utilization measures and one section with information on all
providers contributing to the state or any other governmental entity
any portion of the non-federal share of the supplemental payment and
the total of their contributions.
This regulation codifies states reporting annual UPL demonstrations
that CMS discussed in an SMDL issued on March 18, 2013 (SMDL #13-003)
regarding annual submission of Medicaid UPLs. In this proposed rule,
Sec. 447.288(a) would decrease burden by eliminating the UPL
demonstrations for three service types--PRTF, clinic services, and
other inpatient & outpatient facility providers (physician services),
note that the UPL demonstrations for the territories the Commonwealth
of the Northern Mariana Islands (CNMI) and American Samoa are excluded
from this estimate because they provide Medicaid services under section
1902(j) waivers. This OMB approved UPL demonstration (OMB Control
Number: 0938-1148, CMS-10398 (#13) (#24)) will be updated accordingly.
For Sec. 447.206 on Payments funded by CPEs made to providers that
are units of government, states would be required to develop processes
that are already used by CMS and routinely asked of states to comply
with section 1902(a)(30)(A) of the Act that requires Medicaid state
plan methods and procedures relating to the payment for services that
are consistent with efficiency, economy, and quality of care. These
collections of information are already routinely asked of states under
existing OMB control numbers, so no additional burden or economic
impact is anticipated.
2. Effects on Small Businesses and Other Providers
This rule establishes requirements that are solely the
responsibility of state Medicaid agencies, which are not small
entities. Therefore, the Secretary certifies this proposed rule would
not, if promulgated, have a significant economic impact on a
substantial number of small entities.
3. Effects on the Medicaid Program
The fiscal impact on the Medicaid program from the implementation
of the policies in the proposed rule is unknown. The provision that
would have the most direct impact on current provider payments is the
Medicaid practitioner supplemental payment requirements proposed in
Sec. 447.406. To summarize, this provision would limit Medicaid
practitioner base plus supplemental payments to 150 percent of the FFS
base payments authorized under the state plan for the practitioner
services within a defined geographic area that would otherwise be paid
to the targeted practitioners, or for services provided within HRSA-
designated geographic HPSA or Medicare-defined rural geographical
areas, Medicaid practitioner base plus supplemental payments may not
exceed 175 percent of the FFS base payments authorized under the state
plan for the practitioner services within a defined geographic area
that would otherwise be paid to the targeted practitioners.
To analyze the impact of this proposed change, CMS reviewed the
2017 Medicaid physician UPL demonstrations which were submitted by
states that make supplemental payments to physicians and other
practitioners. In 2017, 21 states made approximately $478 million in
physician supplemental payments compared with $512 million in Medicaid
FFS base payments to the practitioners eligible to receive the
supplemental payments, which equals $990 million in total payments for
the qualifying providers that received a supplemental payment. To
measure the impact, we would multiply the total Medicaid FFS base
payments ($512 million) by 150 percent which would equal $768 million
in total Medicaid FFS payments with the net Medicaid physician
supplemental payment amount of $256 million. The estimated impact of
this proposed provision is a reduction in payments of $222 million in
total computable Medicaid reimbursement ($478 million minus $256
million equals $222 million). However, this potential decrease in
Medicaid reimbursements could be mitigated if states take action to
increase Medicaid provider base payments, which would thereby increase
the amount that could be paid out in Medicaid practitioner supplemental
payments. Depending on state action in response to this provision, we
estimate that the impact on Medicaid reimbursements could range from $0
to $222 million. Similarly, we do not have sufficient data to predict
or quantify the impact of the proposed provisions on health-care
related taxes, although we would expect that states may modify existing
state tax policy or arrangements where those taxes or arrangements
would be newly be considered health-care related under the proposed
provisions. We invite comments from states, providers, and other
stakeholders on the estimates and potential state responses to these
provisions. There are some considerations that limit the effect of the
proposed change. First, the proposed rule phases out these supplemental
payments over a 5 to 7-year period based on when the supplemental
payment was last approved. The supplemental payments, as currently
approved in the plan, would begin to be incrementally removed from the
state plan after the provision is finalized. Second, Medicaid
practitioner supplemental payments would only be limited by the amount
of the Medicaid FFS base payments. If a state wanted to increase the
amount of the supplemental payment, the state would have the option
under the proposed rule to increase the base payment that is paid to
all providers within a geographic area of the state and thereby also
increase what the state could pay in supplemental payments to targeted
providers under the state plan. Third, in almost all instances, the
providers were supplying the state with the non-federal share of the
Medicaid practitioner supplemental payments. Without the supplemental
payments, it is likely that the arrangements through which the
providers have been transferring the state share to the state Medicaid
agency to support current high levels of Medicaid practitioner
supplemental payments would cease, and therefore, the net impact on the
providers would be far less than the projected amount of decrease in
practitioner supplemental payments. Finally, the projected impact does
not include any consideration for Medicaid physician base plus
supplemental payments that could be paid under the proposal in HRSA-
designated geographic HPSA or in Medicare's rural geographic areas up
to 175 percent of the Medicaid FFS base payment rate. If any of the
providers included in the state's physician UPL demonstrations are in
those areas, the net impact of the proposed change would be reduced.
We would also point out that the data obtained from the quarterly
and annual reports would support the evaluation of varying payment
streams impacting providers' services and quality and would allow for
greater oversight on supplemental payments, including
[[Page 63774]]
payments that could exceed the UPL; DSH payments; and generally provide
better fiduciary oversight of the Medicaid program.
D. Alternatives Considered
In developing this proposed rule, the following alternatives were
considered:
1. Not Proposing the Rule
We considered not proposing this rule and maintaining the status
quo. However, we believe this proposed rule would lead to better
accountability and transparency for supplemental payments. We do not
currently have the necessary data at the state and provider level to
perform adequate analysis and oversight of supplemental payments, and
this proposed rule would allow us to do so.
2. Eliminating Supplemental Payments
We considered proposing a rule that would eliminate supplemental
payments. However, this option could have been a huge burden on states
to revise payment methodologies, cost reports, and fee schedules. Also,
this option would have eliminated an important avenue for states
potentially to reward providers that show improvement in performance or
quality metrics, and to address urgent access problems that may arise.
At this time, we believe our concerns about accountability and
transparency around supplemental payments may be addressed through the
proposed policies and do not require the draconian step of eliminating
state flexibility by prohibiting such payments altogether.
3. Requiring Equal Distribution of Supplemental Payments
We considered proposing to require equal distribution of
supplemental payments to all providers of the relevant class of
services. This option would have eliminated states' ability to target
supplemental payments to one or a small number of providers, and thus
could have more closely linked supplemental payments to services
provided. However, we opted to not propose this provision at this time
as this proposal would have increased burden on state Medicaid agencies
by requiring revision of payment methodologies and tracking
supplemental payments for all providers of services within the relevant
class.
4. Requiring DSH-Like Audits of Supplemental Payments
We considered proposing to require independent certified audits of
all Medicaid supplemental payments, similar to the audit requirement
for all DSH payments. Under this alternative, for states to receive FFP
for supplemental payments, an independent certified audit would be
required to verify that all supplemental payments were appropriate.
However, we decided not to propose this alternative at this time, due
to the need for more and better data to understand the complex nature
of supplemental payments so that we may better understand the
particular audit structure and requirements needed to effectively
monitor supplemental payment programs.
5. Mandating a Provider-Specific UPL
We considered proposing a provider-specific UPL for certain
services. However, imposing such a provision at this time could have
disrupted current public financing methods and would also have imposed
a burden on states to revise longstanding payment methodologies.
6. Setting 5-Year Renewable Authorizations for Supplemental Payments
and a 5-Year Compliance Transition Period
Another alternative we considered was to propose 5-year renewable
authorizations for supplemental payments, instead of the proposed 3-
year renewable authorizations. The 5-year renewal period for
supplemental payments would have decreased administrative burden on
both the states and federal government, as opposed to the 3-year
renewal period, as we would expect to see less frequent SPA re-
submissions and CMS SPA reviews, respectively; in our judgment, the
effort spent on reviewing, evaluating, and working with states to
improve supplemental payment SPAs is a worthwhile effort toward the end
of more fiscal accountability in the Medicaid program. Also, the 3-year
renewal period is consistent with the 3-year approval period for
health-care related tax waivers proposed in Sec. 433.72 of this
proposed rule.
We also considered proposing a 5-year compliance transition period
instead of the proposed 3-year compliance transition period in
Sec. Sec. 447.252(e) and 447.302(d). This would have increased the
amount of time states would have to bring existing, approved
supplemental payment methodologies into compliance with the provisions
of the proposed rule in these two sections. We decided to propose a 3-
year transition period to account for states where changes may require
legislative action as some legislatures meet on a biennial basis, and
therefore, would make compliance with a 3-year transition period
compatible. We are requesting comment on whether or not to pursue an
expanded transition period of 5 years instead of the proposed 3-year
transition period.
7. Setting 5-Year or 1-Year Deadline for Tax Waiver Renewals
We considered proposing 5 years, or 1 year, as the length of the
approval period for tax waivers before states would need to submit
another request. However, we settled on 3 years because we believe that
it would help ensure fiscal accountability and the fiscal integrity of
the Medicaid program by ensuring that provider data for the classes to
be taxed is up to date, while at the same time avoiding undue
regulatory burden on states.
8. Requiring Both the P1/P2 and the B1/B2 Tests for Non-Uniform Health
Care-Related Taxes
In evaluating how to eliminate tax structures that are problematic
because they place an undue burden on the Medicaid program, we
considered requiring the P1/P2 statistical test in Sec. 433.68(e)(1)
in addition to the B1/B2 statistical test in Sec. 433.68(e)(2), for
states requesting a waiver of the uniformity requirement (whether or
not the state is also requesting a waiver of the broad-based
requirement). Under this alternative, a state that requests a waiver of
the uniformity requirement would need to have its tax pass both the P1/
P2 test in addition to the B1/B2 test currently required. We believe
that this statistical test could serve as a broad tool to prohibit tax
structures that would inappropriately burden the Medicaid program in
ways not explicitly prohibited in current regulation. However, we
decided against this approach to balance preserving an appropriate
degree of flexibility for states in designing tax programs with
ensuring that state taxes are not imposed primarily on Medicaid
providers and services. We believe that the categorical prohibitions
against tax structures that unduly burden Medicaid which we are
proposing to add in Sec. 433.68(e)(3) offer sufficient protection to
the financial health of the title XIX program.
In addition, we considered proposing a list of acceptable
commonalities that states could permissibly use to define taxpayer
groups. However, we believe that this could be overly restrictive to
states and impede their flexibility to structure their tax programs in
ways that suit local circumstances while still complying with all
applicable federal requirements. We are soliciting comment on
additional prohibitions
[[Page 63775]]
against unduly burdening the Medicaid program that might also be added
to this section to avoid such arrangements.
9. Audit Requirement To Quantify Financial Impact of Audit Findings
We considered proposing to require auditors to clarify the impact
of audit findings and caveats within the existing data element report
by incorporating finding amounts into existing data elements (for
example, Total Medicaid Uncompensated Care). However, this option may
not enable auditors to effectively capture financial impacts of
specific issues and such finding might not be readily transparent to
states, CMS, and hospitals; therefore, we opted to include this as an
additional data element on the DSH report.
10. Clarifying the Discovery Date for DSH Overpayments and
Redistribution Requirements
We considered proposing to use the date that the auditor submits
the independent certified audit to the state as the date of discovery
for DSH overpayments identified through the independent certified
audit, but ultimately decided to consider the date that a state submits
the independent certified audit to CMS as the discovery date. The
earlier date would start the clock for state repayment of FFP without
regard to possible work that may need to occur between states and
auditors to finalize the audit and associated reporting prior to
submission to CMS.
11. Technical Changes to Publishing DSH and CHIP Allotments
We considered continuing the requirement to publish the DSH and
CHIP allotments in the Federal Register. However, we believe this is
unnecessary as states are already informed regarding their annual DSH
and CHIP allotments prior to the publication of the Federal Register
notice that we now provide and, in our experience, we have not received
public comment regarding the notice.
12. Accounting Statement
As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4), we have prepared an
accounting statement in Table 1 showing the classifaction of the
transfers associated with the provisions of this proposed rule.
Table 1--Accounting Statement: Classification of Estimated Transfers
[$ In millions]
----------------------------------------------------------------------------------------------------------------
Units
-----------------------------------------------
Category Lower bound Upper bound Discount rate Period
Year dollars (%) covered
----------------------------------------------------------------------------------------------------------------
Transfers.......................
-------------------------------------------------------------------------------
Annualized Monetized reductions 0 -222 2017 7 2020
in Costs.......................
0 -222 2017 3 2020
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
From Whom to Whom............... Medicaid to Medicaid Providers.
----------------------------------------------------------------------------------------------------------------
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. The great majority of hospitals and most
other health care providers and suppliers are small entities, either by
being nonprofit organizations or by meeting the SBA definition of a
small business (having revenues of less than $8.0 million to $41.5
million in any one year). Individuals and states are not included in
the definition of a small entity. As its measure of significant
economic impact on a substantial number of small entities, HHS uses a
change in revenue of more than 3 to 5 percent. We do not believe that
this threshold will be reached by the provisions in this proposed rule.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. This rule will not have a
significant impact on the operations of a substantial number of small
rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 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 2018, that
threshold is approximately $150 million. This rule does not contain
mandates that will impose spending costs on state, local, or tribal
governments in the aggregate, or by the private sector, in excess of
the threshold.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a proposed rule that imposes
substantial direct requirement costs on state and local governments,
preempts state law, or otherwise has Federalism implications. This rule
does not impose substantial direct costs on state or local governments
or preempt state law.
Executive Order 13771, titled Reducing Regulation and Controlling
Regulatory Costs, was issued on January 30, 2017, requires that the
costs associated with significant new regulations ``to the extent
permitted by law, be offset by the elimination of existing costs
associated with at least two prior regulations.'' This rule, if
promulgated, is not expected to be subject to the requirements of E.O.
13771 because it is expected to result in no more than de minimis
costs.
E. Conclusion
If the policies in this proposed rule are finalized, states would
be required to send us more detailed data on payments, including
supplemental and DSH payments, Medicaid utilization data, provider
taxes and donations, and CPEs and IGTs; implement new reviews of
supplemental payment methodologies and tax waivers and periodically
seek authorization for their renewal (if desired by the state); and
provide a narrative to be sent in along
[[Page 63776]]
with supplemental payment SPA submissions on the goals and evaluation
of the payments.
In addition, states would also be allowed to tax services of health
insurers excluding services of MCOs, as a permitted class without
experiencing a reduction in medical assistance expenditures, be
prohibited from unduly burdening Medicaid with taxes that are not
generally redistributive, and be required to renew tax waivers every 3
years, with updated provider data, or sooner if the state changes the
definitions of taxpayer groups or tax rates in a non-uniform manner.
The analysis above, together with the remainder of this preamble,
provides a regulatory impact analysis. In accordance with the
provisions of Executive Order 12866, this proposed rule was reviewed by
the Office of Management and Budget.
List of Subjects
42 CFR Part 430
Administrative practice and procedure, Grant programs-health,
Medicaid, Reporting and recordkeeping requirements.
42 CFR Part 433
Administrative practice and procedure, Child support, Claims, Grant
programs--health, Medicaid, Reporting and recordkeeping requirements.
42 CFR Part 447
Accounting, Administrative practice and procedure, Drugs, Grant
programs-health, Health facilities, Health professions, Medicaid,
Reporting and recordkeeping requirements, Rural areas.
42 CFR Part 455
Fraud, Grant programs--health, Health facilities, Health
professions, Investigations, Medicaid, Reporting and recordkeeping
requirements.
42 CFR Part 457
Administrative practice and procedure, Grant programs--health,
Health insurance, Reporting and recordkeeping requirements.
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 430--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS
0
1. The authority citation for part 430 is revised to read as follows:
Authority: 42 U.S.C. 1302.
0
2. Section 430.42 is amended by revising paragraphs (b)(2)(i)(A)
introductory text, (b)(2)(i)(B) and (C), (c)(3), (c)(4)(i), (c)(6), and
(d)(1) to read as follows:
Sec. 430.42 Disallowance of claims for FFP.
* * * * *
(b) * * *
(2) * * *
(i) * * *
(A) A request to the Administrator that includes the following:
* * * * *
(B) A copy of the request to the Regional Office.
(C) Send all requests for reconsideration via electronic mail
(email) or electronic system specified by the Administrator.
Submissions are considered made on the date they are received by the
Administrator via email or electronic system specified by the
Administrator.
* * * * *
(c) * * *
(3) At the Administrator's option, CMS may request from the State
any additional information or documents necessary to make a decision.
The request for additional information must be sent via email or
electronic system specified by the Administrator. Submissions are
considered made on the date they are received by the Administrator via
email or electronic system specified by the Administrator.
(4) * * *
(i) If the Administrator finds that the materials are not in
readily reviewable form or that additional information is needed, he or
she must notify the State via email or electronic system specified by
the Administrator that it has 15 business days from the date of receipt
of the notice to submit the readily reviewable or additional materials.
Notifications are considered made and received on the date they are
sent by the Administrator via email or electronic system specified by
the Administrator.
* * * * *
(6) The final written decision shall constitute final CMS
administrative action on the reconsideration and shall be (within 15
business days of the decision) sent to the State agency via email or
electronic system specified by the Secretary. Notification is
considered made on the date it is sent by the Administrator via email
or electronic system specified by the Administrator.
* * * * *
(d) * * *
(1) A State may withdraw the request for reconsideration at any
time before the notice of the reconsideration decision is made without
affecting its right to submit a notice of appeal to the Board. The
request for withdrawal must be in writing and sent to the
Administrator, with a copy to the Regional Office, via email or
electronic system specified by the Administrator. Notification of the
State's withdrawal of its request for reconsideration is considered
made on the date it is received by the Administrator via email or
electronic system specified by the Administrator.
* * * * *
PART 433--STATE FISCAL ADMINISTRATION
0
3. The authority citation for part 433 is revised to read as follows:
Authority: 42 U.S.C. 1302.
0
4. Section 433.51 is revised to read as follows:
Sec. 433.51 State share of financial participation.
(a) State or local funds may be considered as the State's share in
claiming Federal financial participation (FFP) if they meet the
conditions specified in paragraphs (b) and (c) of this section.
(b) State or local funds that may be considered as the State's
share are any of the following:
(1) State General Fund dollars appropriated by the State
legislature directly to the State or local Medicaid agency.
(2) Intergovernmental transfer of funds from units of government
within a State (including Indian tribes), derived from State or local
taxes (or funds appropriated to State university teaching hospitals),
to the State Medicaid Agency and under its administrative control,
except as provided in paragraph (d) of this section.
(3) Certified Public Expenditures, which are certified by a unit of
government within a State as representing expenditures eligible for FFP
under this section, and which meet the requirements of Sec. 447.206 of
this chapter.
(c) The State or local funds are not Federal funds, or are Federal
funds authorized by Federal law to be used to match other Federal
funds.
(d) State funds that are provided as an intergovernmental transfer
from a unit of government within a State that are contingent upon the
receipt of funds by, or are actually replaced in the accounts of, the
transferring unit of government from funds from unallowable sources,
would be considered to be a provider-related donation that is non-bona
fide under Sec. Sec. 433.52 and 433.54.
0
5. Section 433.52 is amended--
[[Page 63777]]
0
a. By adding the definitions of ``Medicaid activity'', ``Net effect'',
``Non-Medicaid activity'', and ``Parameters of a tax'' in alphabetical
order;
0
b. In the definition of ``Provider-related donation'' by revising
paragraphs (2) and (3) and adding paragraph (4); and
0
c. By adding the definition of ``Taxpayer group'' in alphabetical
order.
The additions and revision read as follows:
Sec. 433.52 General definitions.
* * * * *
Medicaid activity means any measure of the degree or amount of
health care items or services related to the Medicaid program or
utilized by Medicaid beneficiaries. Such a measure could include, but
would not necessarily be limited to, Medicaid patient bed days, the
percentage of an entity's net patient revenue attributable to Medicaid,
Medicaid utilization, units of medical equipment sold to individuals
utilizing Medicaid to pay for or supply such equipment or Medicaid
member months covered by a health plan.
Net effect means the overall impact of an arrangement, considering
the actions of all of the entities participating in the arrangement,
including all relevant financial transactions or transfers of value, in
cash or in kind, among participating entities. The net effect of an
arrangement is determined in consideration of the totality of the
circumstances, including the reasonable expectations of the
participating entities, and may include consideration of reciprocal
actions without regard to whether the arrangement or a component of the
arrangement is reduced to writing or is legally enforceable by any
entity.
Non-Medicaid activity means the degree or amount of health care
items or services not related to the Medicaid program or utilized by
Medicaid beneficiaries. Such a measure could include, but would not
necessarily be limited to, non-Medicaid patient bed days, percentage of
an entity's net patient revenue not attributable to Medicaid, the
percentage of patients not utilizing Medicaid to pay for health care
items or services, units of medical equipment sold to individuals not
utilizing Medicaid funds to pay for or supply such equipment, or non-
Medicaid member months covered by a health plan.
Parameters of a tax means the grouping of individuals, entities,
items or services, on which the State or unit of government imposes a
tax.
Provider-related donation * * *
(2) Any transfer of value where a health care provider or provider-
related entity assumes an obligation previously held by a governmental
entity and the governmental entity does not compensate the private
entity at fair market value will be considered a donation made
indirectly to the governmental entity. Such an assumption of obligation
need not rise to the level of a legally enforceable obligation to be
considered a donation, but will be considered by examining the totality
of the circumstances and judging the arrangement's net effect.
(3) When an organization receives less than 25 percent of its
revenues from providers and/or provider-related entities, its donations
will not generally be presumed to be provider-related donations. Under
these circumstances, a provider-related donation to an organization
will not be considered a donation made indirectly to the State.
However, if the donations from a provider or entities related to a
provider to an organization are subsequently determined to be indirect
donations to the State or unit of local government for administration
of the State's Medicaid program, then such donations will be considered
to be provider-related donations.
(4) When the organization receives more than 25 percent of its
revenue from donations from providers or provider-related entities, the
organization always will be considered as acting on behalf of health
care providers if it makes a donation to the State. The amount of the
organization's donation to the State, in a State fiscal year, that will
be considered to be a provider-related donation will be based on the
percentage of the organization's revenue during that period that was
received as donations from providers or provider-related entities.
Taxpayer group means one or more entities grouped together based on
one or more common characteristics for purposes of imposing a tax on a
class of items or services specified under Sec. 433.56.
0
6. Section 433.54 is amended by revising paragraph (c)(3) to read as
follows:
Sec. 433.54 Bona fide donations.
* * * * *
(c) * * *
(3) The State (or other unit of government) receiving the donation
provides for any direct or indirect payment, offset, or waiver, such
that the provision of that payment, offset, or waiver directly or
indirectly guarantees to return any portion of the donation to the
provider (or other party or parties responsible for the donation). Such
a guarantee will be found to exist where, considering the totality of
the circumstances, the net effect of an arrangement between the State
(or other unit of government) and the provider (or other party or
parties responsible for the donation) results in a reasonable
expectation that the provider, provider class, or a related entity will
receive a return of all or a portion of the donation. The net effect of
such an arrangement may result in the return of all or a portion of the
donation, regardless of whether the arrangement is reduced to writing
or is legally enforceable by any party to the arrangement.
* * * * *
0
7. Section 433.55 is amended by revising paragraph (c) to read as
follows:
Sec. 433.55 Health care-related taxes defined.
* * * * *
(c) A tax is considered to be health care-related if the tax is not
limited to health care items or services, but the treatment of
individuals or entities providing or paying for those health care items
or services is different than the tax treatment provided to individuals
or entities that are providers or payers of any health care items or
services that are not subject to the tax, or other individuals or
entities that are subject to the tax. In determining whether
differential treatment exists, consideration will be given to the
parameters of the tax, as well as the totality of the circumstances
relevant to which individuals, entities, items, or services are subject
and not subject to the tax, and the tax rate applicable to each.
Differential treatment includes, but is not limited to:
(1) Tax programs in which some individuals or entities providing or
paying for health care items or services are selectively incorporated,
but others are excluded. Selective incorporation means that the State
or other unit of government includes some, but not all, health care-
related items or services and these items or services are not
reasonably related to the other items or services being taxed.
Reasonably related means that there exists a logical or thematic
connection between the items or services being taxed. Examples of such
a connection include, but are not limited to, industry, such as
electronics; geographical area, such as city or county; net revenue
volume; or number of employees. For example, if the State imposes a tax
on all telecommunication services and inpatient hospital services, this
would constitute differential treatment as inpatient hospital services
are selectively incorporated. However, if the State imposes a tax on
revenue from
[[Page 63778]]
all professional services, which includes medical professional service
revenue, this alone would not constitute differential treatment.
(2) Differential treatment of individuals or entities providing or
paying for health care items or services included in the tax, and other
entities also included in the tax. For example, if the State taxes all
businesses in the State, but places a higher tax rate on hospitals and
nursing facilities than on other businesses, this would result in
differential treatment.
* * * * *
0
8. Section 433.56 is amended--
0
a. In paragraph (a)(18), removing the phrase ``services; and'' and
adding in its place the phrase ``services;'';
0
b. Redesignating paragraph (a)(19) as paragraph (a)(20); and
0
c. Adding a new paragraph (a)(19).
The addition reads as follows:
Sec. 433.56 Classes of health care services and providers defined.
(a) * * *
(19) Services of health insurers (other than services of managed
care organizations as specified in paragraph (a)(8) of this section);
and
* * * * *
0
9. Section 433.68 is amended by--
0
a. Revising paragraph (e) introductory text;
0
b. Adding paragraph (e)(3); and
0
c. Revising paragraph (f)(3).
The revisions and addition read as follows:
Sec. 433.68 Permissible health care-related taxes.
* * * * *
(e) Generally redistributive. A tax will be considered to be
generally redistributive if it meets the requirements of this paragraph
(e). If the State requests waiver of only the broad-based tax
requirement, it must demonstrate compliance with paragraphs (e)(1) and
(3) of this section. If the State requests waiver of the uniform tax
requirement, whether or not the tax is broad-based, it must demonstrate
compliance with paragraphs (e)(2) and (3) of this section.
* * * * *
(3) Requirement to avoid imposing undue burden on health care items
or services reimbursed by Medicaid, as well as providers of such items
or services. This paragraph (e)(3) applies on a per class basis. A tax
must not impose undue burden on health care items or services paid for
by Medicaid or on providers of such items and services that are
reimbursed by Medicaid. A tax is considered to impose undue burden
under this paragraph if taxpayers are divided into taxpayer groups and
any one or more of the following conditions apply:
(i) The tax excludes or places a lower tax rate on any taxpayer
group defined by its level of Medicaid activity than on any other
taxpayer group defined by its relatively higher level of Medicaid
activity.
(ii) Within each taxpayer group, the tax rate imposed on any
Medicaid activity is higher than the tax rate imposed on any non-
Medicaid activity (except as a result of excluding from taxation
Medicare or Medicaid revenue or payments as described in paragraph (d)
of this section).
(iii) The tax excludes or imposes a lower tax rate on a taxpayer
group with no Medicaid activity than on any other taxpayer group,
unless all entities in the taxpayer group with no Medicaid activity
meet at least one of the following:
(A) Furnish no services within the class in the State.
(B) Do not charge any payer for services within the class.
(C) Are Federal provider of services within the meaning of Sec.
411.6 of this chapter.
(D) Are a unit of government.
(iv) The tax excludes or imposes a lower tax rate on a taxpayer
group defined based on any commonality that, considering the totality
of the circumstances, CMS reasonably determines to be used as a proxy
for the taxpayer group having no Medicaid activity or relatively lower
Medicaid activity than any other taxpayer group.
(f) * * *
(3) The State (or other unit of government) imposing the tax
provides for any direct or indirect payment, offset, or waiver such
that the provision of that payment, offset, or waiver directly or
indirectly guarantees to hold taxpayers harmless for all or any portion
of the tax amount. A direct guarantee will be found to exist where,
considering the totality of the circumstances, the net effect of an
arrangement between the State (or other unit of government) and the
taxpayer results in a reasonable expectation that the taxpayer will
receive a return of all or any portion of the tax amount. The net
effect of such an arrangement may result in the return of all or any
portion of the tax amount, regardless of whether the arrangement is
reduced to writing or is legally enforceable by any party to the
arrangement.
0
10. Section 433.72 is amended by adding paragraphs (c)(3) and (4) and
(d) to read as follows:
Sec. 433.72 Waiver provisions applicable to health care-related
taxes.
* * * * *
(c) * * *
(3) For waivers approved on or after [final rule effective date] a
waiver will cease being effective 3 years from the date that the waiver
was approved by CMS.
(4) For waivers approved before [final rule effective date] a
waiver will cease to be effective [3 years from final rule effective
date].
(d) Ongoing compliance with waiver conditions. For a State to
continue to receive tax revenue (within specified limitations) without
a reduction in FFP under a waiver approved under paragraph (b) of this
section, the State must meet all of the following requirements:
(1) Ensure that the tax program for which CMS approved the waiver
under paragraph (b) of this section continues to meet the waiver
conditions identified in paragraphs (b)(1) through (3) of this section
at all times during which the waiver is in effect.
(2) Request and receive approval for a new waiver, subject to
effective date requirements in paragraph (c) of this section, if either
of the following tax program modifications occurs:
(i) The State or other unit of government imposing the tax modifies
the tax in a non-uniform manner, meaning the change in tax or tax rate
does not apply in an equal dollar amount or percentage change to all
taxpayers.
(ii) The State or other unit of government imposing the tax
modifies the criteria for defining the taxpayer group or groups subject
to the tax.
0
11. Section 433.316 is amended by--
0
a. Redesignating paragraphs (f) through (h) as paragraphs (g) through
(i), respectively; and
0
b. Adding a new paragraph (f).
The addition reads as follows:
Sec. 433.316 When discovery of overpayment occurs and its
significance.
* * * * *
(f) Overpayments identified through the disproportionate share
hospital (DSH) independent certified audit. In the case of an
overpayment identified through the independent certified audit required
under part 455, subpart D, of this chapter, CMS will consider the
overpayment as discovered on the earliest of the following:
(1) The date that the State submits the independent certified audit
report required under Sec. 455.304(b) of this chapter to CMS.
[[Page 63779]]
(2) Any of the dates specified in paragraphs (c)(1) through (3) of
this section.
* * * * *
PART 447--PAYMENTS FOR SERVICES
0
12. The authority citation for part 447 is revised to read as follows:
Authority: 42 U.S.C. 1302 and 1396r-8.
0
13. Section 447.201 is amended by adding paragraph (c) to read as
follows:
Sec. 447.201 State plan requirements.
* * * * *
(c) The plan must provide for no variation in fee-for-service
payment for a Medicaid service on the basis of a beneficiary's Medicaid
eligibility category, enrollment under a waiver or demonstration
project, or FMAP rate available for services provided to an individual
in the beneficiary's eligibility category.
0
14. Section 447.206 is added to subpart B to read as follows:
Sec. 447.206 Payments funded by certified public expenditures made
to providers that are units of government.
(a) Scope. This section applies only to payments made to providers
that are State government providers or non-State government providers,
as defined in Sec. 447.286, where such payments to such providers are
funded by a certified public expenditure, as specified in Sec.
433.51(b)(3) of this chapter.
(b) General rules. (1) Payments are limited to reimbursement not in
excess of the provider's actual, incurred cost of providing covered
services to Medicaid beneficiaries using reasonable cost allocation
methods as specified in 45 CFR part 75 and 2 CFR part 200, or, as
applicable, to Medicare cost principles specified in part 413 of this
chapter.
(2) The State must establish and implement documentation and audit
protocols, which must include an annual cost report to be submitted by
the State government provider or non-State government provider to the
State agency that documents the provider's costs incurred in furnishing
services to beneficiaries during the provider's fiscal year.
(3) Only the certified amount of the expenditure may be claimed for
Federal financial participation.
(4) The certifying entity of the certified public expenditure must
receive and retain the full amount of Federal financial participation
associated with the payment, consistent with the cost identification
protocols in the Medicaid State plan and in accordance with Sec.
447.207.
(c) Other criteria for the use of certified public expenditures.
(1) A State must implement processes by which all claims for medical
assistance are processed through Medicaid management information
systems in a manner that identifies the specific Medicaid services
provided to specific enrollees.
(2) The most recently filed cost reports as specified in paragraph
(b)(2) of this section must be used to develop interim payments rates,
which may be trended by an applicable health care-related index.
(3) Final settlement must be performed annually by reconciling any
interim payments to the finalized cost report for the State plan rate
year in which any interim payment rates were made, and final settlement
must be made no more than 24 months from the cost report year end,
except under circumstances identified in 45 CFR 95.19.
(4) If the final settlement establishes that the provider received
an overpayment, the Federal share in recovered overpayment amounts must
be credited to the Federal Government, in accordance with part 433,
subpart F, of this chapter.
(d) State plan requirements. If certified public expenditures are
used as a source of non-Federal share under the State plan, the State
plan must specify cost protocols in the service payment methodology
applicable to the certifying provider that meet all of the following:
(1) Identify allowable cost, using either of the following:
(i) A Medicare cost report, as described in part 413 of this
chapter.
(ii) A State-developed Medicaid cost report prepared in accordance
with the cost principles in 45 CFR part 75 and 2 CFR part 200.
(2) Define an interim rate methodology for interim payments to
providers for services furnished.
(3) Describe an attestation process by which the certifying entity
will attest that the costs are accurate and consistent with 45 CFR part
75 and 2 CFR part 200.
(4) Include, as necessary, a list of the covered Medicaid services
being furnished by each provider certifying a certified public
expenditure.
(5) Define a reconciliation and final settlement process consistent
with paragraphs (c)(3) and (4) of this section.
0
15. Section 447.207 is added to subpart B to read as follows:
Sec. 447.207 Retention of payments.
(a) Payments. Payment methodologies must permit the provider to
receive and retain the full amount of the total computable payment for
services furnished under the approved State plan (or the approved
provisions of a waiver or demonstration, if applicable). The Secretary
will determine compliance with this paragraph (a) by examining any
associated transactions that are related to the provider's total
computable Medicaid payment to ensure that the State's claimed
expenditure, which serves as the basis for Federal financial
participation, is consistent with the State's net expenditure, and that
the full amount of the non-Federal share of the payment has been
satisfied. Associated transactions may include, but are not necessarily
limited to, the payment of an administrative fee to the State for
processing provider payments or, in the case of a non-State government
provider, for processing intergovernmental transfers. In no event may
such administrative fees be calculated based on the amount a provider
receives through Medicaid payments or amounts a unit of government
contributes through an intergovernmental transfer as funds for the
State share of Medicaid service payments.
(b) [Reserved]
0
16. Section 447.252 is amended by adding paragraphs (d) and (e) to read
as follows:
Sec. 447.252 State plan requirements.
* * * * *
(d) CMS may approve a supplemental payment, as defined in Sec.
447.286, provided for under the State plan or a State plan amendment
(SPA) for a period not to exceed 3 years. A State whose supplemental
payment approval period has expired or is expiring may request a SPA to
renew the supplemental payment for a subsequent period not to exceed 3
years, consistent the requirements of this section. For any State plan
or SPA that provides or would provide for a supplemental payment, the
plan or plan amendment must specify all of the following:
(1) An explanation of how the State plan or SPA will result in
payments that are consistent with section 1902(a)(30)(A) of the Act,
including that provision's standards with respect to efficiency,
economy, quality of care, and access, along with the stated purpose and
intended effects of the supplemental payment, for example, with respect
to the Medicaid program, providers, and beneficiaries.
(2) The criteria to determine which providers are eligible to
receive the supplemental payment.
(3) A comprehensive description of the methodology used to
calculate the
[[Page 63780]]
amount of, and distribute, the supplemental payment to each eligible
provider, including all of the following:
(i) The amount of the supplemental payment made to each eligible
provider, if known, or, if the total amount is distributed using a
formula based on data from one or more fiscal years, the total amount
of the supplemental payments for the fiscal year or years available to
all providers eligible to receive a supplemental payment.
(ii) If applicable, the specific criteria with respect to Medicaid
service, utilization, or cost data from the proposed State plan rate
year to be used as the basis for calculations regarding the amount and/
or distribution of the supplemental payment.
(iii) The timing of the supplemental payment to each eligible
provider.
(iv) An assurance that the total Medicaid payment to an inpatient
hospital provider, including the supplemental payment, will not exceed
the upper limits specified in Sec. 447.271.
(v) If not already submitted, an upper payment limit demonstration
as required by Sec. 447.272 and described in Sec. 447.288.
(4) The duration of the supplemental payment authority (not to
exceed 3 years).
(5) A monitoring plan to ensure that the supplemental payment
remains consistent with the requirements of section 1902(a)(30)(A) of
the Act and to enable evaluation of the effects of the supplemental
payment on the Medicaid program, for example, with respect to providers
and beneficiaries.
(6) For a SPA proposing to renew a supplemental payment for a
subsequent approval period, an evaluation of the impacts on the
Medicaid program during the current or most recent prior approval
period, for example, with respect to providers and beneficiaries, and
including an analysis of the impact of the supplemental payment on
compliance with section 1902(a)(30)(A) of the Act.
(e) The authority for State plan provisions that authorize
supplemental payments that are approved as of [effective date of the
final rule], are limited as follows--
(1) For State plan provisions approved 3 or more years prior to
[effective date of the final rule], the State plan authority will
expire [date that is 2 calendar years following the effective date of
the final rule].
(2) For State plan provisions approved less than 3 years prior to
[effective date of the final rule], the State plan authority will
expire [date that is 3 calendar years following the effective date of
the final rule].
* * * * *
0
17. Section 447.272 is amended by revising paragraphs (a)(1) through
(3) and (b)(1) to read as follows:
Sec. 447.272 Inpatient services: Application of upper payment
limits.
(a) * * *
(1) State government provider as defined using the criteria set
forth in Sec. 447.286.
(2) Non-State government provider as defined using the criteria set
forth at Sec. 447.286.
(3) Private provider as defined in Sec. 447.286.
(b) * * *
(1) Upper payment limit refers to a reasonable estimate of the
amount that would be paid for the services furnished by the group of
facilities under Medicare payment principles in subchapter B of this
chapter, or allowed costs established in accordance with the cost
principles as specified in 45 CFR part 75 and 2 CFR part 200, or, as
applicable, Medicare cost principles specified in part 413 of this
chapter. Data elements, methodology parameters, and acceptable upper
payment limit demonstration methodologies are specified in Sec.
447.288(b).
* * * * *
0
18. Subpart D is added to read as follows:
Subpart D--Payments for Services
Sec.
447.284 Basis and purpose.
447.286 Definitions.
447.288 Reporting requirements for upper payment limit
demonstrations and supplemental payments.
447.290 Failure to report required information.
Subpart D--Payments for Services
Sec. 447.284 Basis and purpose.
(a) This subpart sets forth additional requirements for
supplemental payments made under the State plan and implements sections
1902(a)(6) and (a)(30) of the Act.
(b) The reporting requirements in this subpart are applicable to
supplemental payments to which an upper payment limit applies under
Sec. 447.272 or Sec. 447.321.
Sec. 447.286 Definitions.
For purposes of this subpart--
Base payment means a payment, other than a supplemental payment,
made to a provider in accordance with the payment methodology
authorized in the State plan or that is paid to the provider through
its participation with a Medicaid managed care organization. Base
payments are documented at the beneficiary level in MSIS or T-MSIS and
include all payments made to a provider for specific Medicaid services
rendered to individual Medicaid beneficiaries, including any payment
adjustments, add-ons, or other additional payments received by the
provider that can be attributed to a particular service provided to the
beneficiary, such as payment adjustments made to account for a higher
level of care or complexity of services provided to the beneficiary.
Non-State government provider means a health care provider, as
defined in Sec. 433.52 of this chapter, including those defined in
Sec. 447.251, that is a unit of local government in a State, including
a city, county, special purpose district, or other governmental unit in
the State that is not the State, which has access to and exercises
administrative control over State funds appropriated to it by the
legislature or local tax revenue, including the ability to dispense
such funds. In determining whether an entity is a non-State government
provider, CMS will consider the totality of the circumstances,
including, but not limited to, the following:
(1) The identity and character of any entity or entities other than
the provider that share responsibilities of ownership or operation of
the provider, and including the nature of any relationship among such
entities and the relationship between such entity or entities and the
provider. In determining whether an entity shares responsibilities of
ownership or operation of the provider, our consideration would
include, but would not be limited to, whether the entity:
(i) Has the immediate authority for making decisions regarding the
operation of the provider;
(ii) Bears the legal responsibility for risk from losses from
operations of the provider;
(iii) Has immediate authority for the disposition of revenue from
operations of the provider;
(iv) Has immediate authority with regard to hiring, retention,
payment, and dismissal of personnel performing functions related to the
operation of the provider;
(v) Bears legal responsibility for payment of taxes on provider
revenues and real property, if any are assessed; or
(vi) Bears the responsibility of paying any medical malpractice
premiums or other premiums to insure the real property or operations,
activities, or assets of the provider.
[[Page 63781]]
(2) In determining whether a relevant entity is a unit of a non-
State government, we would consider the character of the entity which
would include, but would not be limited to, whether the entity:
(i) Is described in its communications to other entities as a unit
of non-State government, or otherwise.
(ii) Is characterized as a unit of non-State government by the
State solely for the purposes of Medicaid financing and payments, and
not for other purposes (for example, taxation).
(iii) Has access to and exercises administrative control over State
funds appropriated to it by the legislature and/or local tax revenue,
including the ability to expend such appropriated or tax revenue funds,
based on its characterization as a governmental entity.
Private provider means a health care provider, as defined in Sec.
433.52 of this chapter, including those defined in Sec. 447.251 of
this chapter, that is not a State government provider or a non-State
government provider.
State government provider means a health care provider, as defined
in Sec. 433.52 of this chapter, including those defined in Sec.
447.251 of this chapter, that is a unit of State government or a State
university teaching hospital, which has access to and exercises
administrative control over State-appropriated funds from the
legislature or State tax revenue, including the ability to dispense
such funds. In determining whether a provider is a State government
provider, CMS will consider the totality of the circumstances,
including, but not limited to, the following:
(1) The identity and character of any entity or entities other than
the provider that share responsibilities of ownership or operation of
the provider, and including the nature of any relationship among such
entities and the relationship between such entity or entities and the
provider. In determining whether an entity shares responsibilities of
ownership or operation of the provider, our consideration would
include, but would not be limited to, whether the entity:
(i) Has the immediate authority for making decisions regarding the
operation of the provider;
(ii) Bears the legal responsibility for risk from losses and
litigation from operations of the provider;
(iii) Has immediate authority for the disposition of revenue and
profit from operations of the provider;
(iv) Has immediate authority with regard to acquisition, retention,
payment, and dismissal of personnel performing functions related to the
operation of the provider;
(v) Bears legal responsibility for payment of taxes on provider
revenues and real property, if any are assessed; or
(vi) Bears the responsibility of paying any medical malpractice
premiums or other premiums to insure the real property or operations,
activities, or assets of the provider;
(2) In determining whether a relevant entity is a unit of a State
government, we would consider the character of the entity which would
include, but would not be limited to, whether the entity:
(i) Is described in its communications to other entities as a unit
of State government, or otherwise;
(ii) Is characterized as a unit of State government by the State
solely for the purposes of Medicaid financing and payments, and not for
other purposes (for example, taxation); and
(iii) Has access to and exercises administrative control over State
funds appropriated to it by the legislature and/or local tax revenue,
including the ability to expend such appropriated or tax revenue funds,
based on its characterization as a governmental entity.
Supplemental payment means a Medicaid payment to a provider that is
in addition to the base payments to the provider, other than
disproportionate share hospital (DSH) payments under subpart E of this
part, made under State plan authority or demonstration authority.
Supplemental payments cannot be attributed to a particular provider
claim for specific services provided to an individual beneficiary and
are often made to the provider in a lump sum.
Sec. 447.288 Reporting requirements for upper payment limit
demonstrations and supplemental payments.
(a) Upper payment limit demonstration reporting requirements.
Beginning October 1, [first year following the year the final rule
takes effect] and annually thereafter, by October 1 of each year, in
accordance with the requirements of this section and in the manner and
format specified by the Secretary, each State must submit a
demonstration of compliance with the applicable upper payment limit for
each of the following services for which the State makes payment:
(1) Inpatient hospital, as specified in Sec. 447.272.
(2) Outpatient hospital, as specified in Sec. 447.321.
(3) Nursing facility, as specified in Sec. 447.272.
(4) Intermediate care facility for individuals with intellectual
disabilities (ICF/IID), as specified in Sec. 447.272.
(5) Institution for mental diseases (IMD), as specified in Sec.
447.272.
(b) Upper payment limit demonstration standards. When demonstrating
the upper payment limit (UPL), States must use the data sources
identified in paragraph (b)(1) of this section, adhere to the data
standards specified in paragraph (b)(2) of this section, and use the
acceptable methods of demonstrating the UPL specified in paragraph
(b)(3) of this section.
(1) UPL methodology data sources. The data sources identified in
this paragraph (b)(1) are as follows:
(i) Medicare cost demonstrations. Medicare cost demonstrations use
cost and charge data for all providers, from either a Medicare cost
report or a State-developed cost report which uses either Medicare cost
reporting principles specified in part 413 of this chapter or the cost
allocation requirements specified in 45 CFR part 75. Cost and charge
data must:
(A) Include only data with dates of service that are no more than 2
years prior to the dates of service covered by the upper payment limit
demonstration;
(B) Represent costs and charges specifically related to the service
subject to the UPL demonstration; and
(C) Include either Medicare costs and Medicare charges, or total
provider costs and total provider charges, to develop a cost-to-charge
ratio as described in paragraph (b)(3)(i) of this section. The
selection must be consistently applied for all providers within the
provider category subject to the upper payment limit.
(ii) Medicare payment demonstrations. Medicare payment
demonstrations use Medicare payment and charge data for all providers
from Medicare cost reports; Medicare payment systems for the specific
provider type specified in subchapter B of this chapter, as applicable;
or imputed provider payments, specified in paragraph (b)(3)(ii)(C) of
this section. When using Medicare payment and charge data, the data
must:
(A) Include only data with dates of service that are no more than 2
years prior to the dates of service covered by the upper payment limit
demonstration;
(B) Include only Medicare payment and charges, or Medicare payment
and Medicare census data, specifically related to the service subject
to the UPL demonstration; and
(C) Use either gross Medicare payments and Medicare charges, which
includes deductibles and co-insurance in but excludes reimbursable bad
debt from the Medicare payment, or net Medicare payments and Medicare
charges, which excludes deductibles
[[Page 63782]]
and coinsurance from and includes reimbursable bad debt in the Medicare
payment, as reported on a Medicare cost report. The selection must be
consistently applied for all providers within the provider category
subject to the upper payment limit.
(iii) Medicaid charge data and Medicaid census data from a State's
Medicaid billing system for services provided during the same dates of
service as the Medicare cost or Medicare payment data, as specified in
paragraph (b)(1)(i) or (ii) of this section, as applicable.
(iv) Medicaid payment data from a State's Medicaid billing system
for services provided during the same dates of service as the Medicare
cost or Medicare payment data, as specified in paragraph (b)(1)(i) or
(ii) of this section, as applicable, or from the most recent State plan
rate year for which a full 12 months of data are available. Such
Medicaid payment data must:
(A) Include only data with dates of service that are no more than 2
years prior to the dates of service covered by the upper payment limit
demonstration;
(B) Include all actual payments and all projected base and
supplemental payments, excluding any payments made for services for
which Medicaid is not the primary payer, expected to made during the
time period covered by the upper payment limit demonstration to the
providers within the provider category, as applicable, during the State
plan rate year; and
(C) Only be trended to account for changes in relevant Medicaid
State plan payments, except as provided in paragraph (b)(2)(i) of this
section.
(2) UPL methodology data standards. The data standards specified in
this paragraph (b)(2) are as follows:
(i) Projected changes in Medicaid enrollment and utilization must
be reflected in the demonstration. At a minimum, the demonstration must
be adjusted to account for projected changes in Medicaid enrollment and
utilization to reflect programmatic changes, such as reasonable
utilization changes due to managed care enrollment projections.
(ii) Medicare cost or payment data may be projected using Medicare
trend factors appropriate to the service and demonstration methodology,
with such trend factors being uniformly applied to all providers within
a provider category.
(iii) When calculating the aggregate upper payment limit using a
cost-based demonstration as described in paragraph (b)(3)(i) of this
section, the State may include the cost of health care-related taxes
paid by each provider in the provider category that is reasonably
allocated to Medicaid as an adjustment to the upper payment limit, to
the extent that such costs were not already included in the cost-based
UPL.
(iv) Medicaid payment data described in paragraph (b)(1)(iv) of
this section that is included in the upper payment limit demonstration
must only include payments made for the applicable Medicaid services
under the specific Medicaid service type at issue in the upper payment
limit.
(3) Acceptable UPL demonstration methods. The State must
demonstration compliance with an applicable UPL using a method
described in this paragraph (b)(3).
(i) Cost-based demonstrations. Cost-based demonstration data
sources are identified in paragraphs (b)(1)(i), (iii), and (iv) of this
section and data standards defined in paragraph (b)(2) of this section.
To make a cost-based demonstration of compliance with an applicable
upper payment limit, Medicaid covered charges are multiplied by a cost-
to-charge ratio developed for the period covered by the upper payment
limit demonstration. The State may use a ratio of Medicare costs to
Medicare charges, or total provider costs to total provider charges in
developing the cost-to-charge ratio, but the selection must be applied
consistently to each provider within a provider type identified in
paragraph (a) of this section. The product of Medicaid covered charges
and the cost-to-charge ratio for each provider is summed to determine
the aggregate upper payment limit. The demonstration must show that
Medicaid payments will not exceed this aggregate upper payment limit
for the demonstration period. This methodology may only be used for
services where a provider applies uniform charges to all payers. This
demonstration may use one of the following demonstration types:
(A) A retrospective demonstration showing that aggregate Medicaid
payments paid to the providers within the provider category during the
prior State plan rate year did not exceed the costs incurred by the
providers furnishing Medicaid services within the prior State plan rate
year period.
(B) A prospective demonstration showing that prospective Medicaid
payments would not exceed the estimated cost of furnishing the services
for the upcoming State plan rate year period.
(ii) Payment-based demonstrations. Payment-based demonstration data
sources are identified in paragraphs (b)(1)(ii), (iii), and (iv) of
this section and data standards defined in paragraph (b)(2) of this
section. To make a payment-based demonstration of compliance with an
applicable UPL, the State may use one of the following demonstration
types:
(A) A retrospective payment-to-charge UPL demonstration where
Medicaid covered charges are multiplied by a ratio of Medicare payments
to Medicare charges developed for the period covered by the UPL
demonstration. The product of Medicaid covered charges and the Medicare
payment-to-charge ratio for each provider is summed to determine the
aggregate UPL. The demonstration must show that Medicaid payments did
not exceed this aggregate UPL;
(B) A prospective payment-to-charge UPL demonstration where
Medicaid covered charges are multiplied by a ratio of Medicare payments
to Medicare charges developed for the period covered by the UPL
demonstration. The product of Medicaid covered charges and the Medicare
payment-to-charge ratio for each provider is summed to determine the
aggregate UPL. The demonstration must show that proposed Medicaid
payments would not exceed this aggregate UPL within the next State plan
rate year immediately following the demonstration period; or
(C) A payment-based UPL demonstration using an imputed Medicare per
diem payment rate determined by dividing total Medicare prospective
payments paid to the provider by the provider's total Medicare patient
days, which are derived from the provider's Medicare census data. Each
provider's imputed Medicare per diem payment rate is multiplied by the
total number of Medicaid patient days for the provider for the period.
The products of this operation for each provider are summed to
determine the aggregate UPL. The demonstration must show that Medicaid
payments are not excess of the aggregate UPL, calculated on either a
retrospective or prospective basis, consistent with the methodology
described in paragraph (b)(3)(ii)(A) or (B) of this section, as
applicable.
(c) Supplemental payment reporting requirements. (1) At the time
the State submits its quarterly CMS-64 under Sec. 430.30(c) of this
chapter, the State must report all of the following information for
each supplemental payment included on the CMS-64 on a supplemental
report to accompany the CMS-64:
(i) The State plan amendment transaction number or demonstration
authority number which authorizes the supplemental payment.
(ii) A listing of each provider that received a supplemental
payment under
[[Page 63783]]
the SPA or demonstration authority, and for each provider, under each
authority listed in paragraph (a) of this section:
(A) The provider's legal name.
(B) The physical address of the location or facility where services
are provided, including street address, city, State, and ZIP code.
(C) The National Provider Identifier (NPI).
(D) The Medicaid identification number.
(E) The employer identification number (EIN).
(F) The service type for which the reported payment was made.
(G) The provider specialty type (if applicable, for example,
critical access hospital (CAH), pediatric hospital, or teaching
hospital).
(H) The provider category (that is, State government provider, Non-
state government provider, or Private provider).
(iii) The specific amount of the supplemental payment made to the
provider, including:
(A) The total supplemental payment made to the provider authorized
under the specified State plan, as applicable.
(B) The total Medicaid supplemental payment made to the provider
under the specified demonstration authority, as applicable.
(2) Not later than 60 days after the end of the State fiscal year,
each State must annually report aggregate and provider-level
information on base and supplemental payments made under State plan and
demonstration authority, as applicable, by service type. This reporting
must include all of the following:
(i) The SPA transaction number or demonstration authority number
which authorizes the supplemental payment, as applicable.
(ii) A listing of each provider that received a supplemental
payment under each authority listed in paragraph (a) of this section
by:
(A) The provider's legal name.
(B) The physical address of the location or facility where services
are provided, including street address, city, State, and ZIP code.
(C) The NPI.
(D) The Medicaid identification number.
(E) The EIN.
(F) The service type for which the reported payment was made.
(G) The provider specialty type (if applicable, for example, CAH,
pediatric hospital, or teaching hospital).
(H) The provider category (that is, State government provider, non-
State government provider, or Private provider).
(I) The State reporting period (State fiscal year start and end
dates).
(iii) The specific amount of Medicaid payments made to each
provider, including, as applicable:
(A) The total fee-for-service base payments made to the provider
authorized under the State plan.
(B) The total Medicaid payments made to the provider under
demonstration authority.
(C) The total amount received from Medicaid beneficiary cost-
sharing requirements, donations, and any other funds received from
third parties to support the provision of Medicaid services.
(D) The total supplemental payment made to the provider authorized
under the specified State plan.
(E) The total Medicaid supplemental payment made to the provider
under the specified demonstration authority.
(F) The total Medicaid payments made to the provider as reported
under paragraphs (c)(2)(iii)(A) through (E) of this section.
(G) The total disproportionate share hospital (DSH) payments made
to the provider.
(H) The Medicaid units of care furnished by the provider, as
specified by the Secretary (for example, on a provider-specific basis,
total Medicaid discharges, days of care, or any other unit of
measurement as specified by the Secretary).
(3) Not later than 60 days after the end of the State fiscal year,
each State must annually report aggregate and provider-level
information on each provider contributing to the State or any unit of
local government any funds that are used as a source of non-Federal
share for any Medicaid supplemental payment, by:
(i) The service type for which the reported payment was made.
(ii) The provider specialty type (if applicable, for example, CAH,
pediatric hospital, or teaching hospital).
(iii) The provider's legal name.
(iv) The physical address of the location or facility where
services are provided, including street address, city, State, and ZIP
code.
(v) The NPI.
(vi) The Medicaid identification number.
(vii) The EIN.
(viii) The provider category (that is, State government, non-State
government, or private).
(ix) The total fee-for-service base payments made to the provider
authorized under the State plan.
(x) The total fee-for-service supplemental payments made to the
provider authorized under the State plan.
(xi) The total Medicaid payments made to the provider under
demonstration authority.
(xii) The total DSH payments made to the provider.
(xiii) The total of each health care-related tax collected from the
provider by any State authority or unit of local government.
(xiv) The total of any costs certified as a certified public
expenditures (CPE) by the provider.
(xv) The total amount contributed by the provider to the State or a
unit of local government in the form of an intergovernmental transfers
(IGT).
(xvi) The total of provider-related donations made by the provider
or by entities related to a health care provider, including in-cash and
in-kind donations, to the State or a unit of local government,
including State university teaching hospitals.
(xvii) The total funds contributed by the provider reported in
paragraphs (c)(3)(xiii) through (xvi) of this section.
Sec. 447.290 Failure to report required information.
(a) The State must maintain the underlying information supporting
base and supplemental payments, including the information required to
be reported under Sec. 447.288, consistent with the requirements of
Sec. 433.32 of this chapter, and must provide such information for
Federal review upon request to facilitate program reviews or Department
of Health and Human Services' Office of Inspector General (OIG) audits
conducted under Sec. Sec. 430.32 and 430.33 of this chapter.
(b) If a State fails to timely, completely and accurately report
information required under Sec. 447.288, CMS may reduce future grant
awards through deferral in accordance with Sec. 430.40 of this
chapter, by the amount of Federal financial participation (FFP) CMS
estimates is attributable to payments made to the provider or providers
as to which the State has not reported properly, until such time as the
State complies with the reporting requirements. CMS may defer FFP if a
State submits the required report but the report fails to comply with
applicable requirements. Otherwise allowable FFP for expenditures
deferred in accordance with this section will be released when CMS
determines that the State has complied with all reporting requirements
under Sec. 447.288.
Sec. 447.297 [Amended]
0
19. Section 447.297 is amended--
0
a. In paragraph (b) by removing the phrase ``published by April 1 of
each Federal fiscal year,'' and adding in its
[[Page 63784]]
place the phrase ``posted as soon as practicable''
0
b. In paragraph (c) by removing the phrase ``publish in the Federal
Register'' and adding in its place the phrase ``post in the Medicaid
Budget and Expenditure System and at Medicaid.gov (or similar successor
system or website)'' and by removing the phrase ``publish final State
DSH allotments by April 1 of each Federal fiscal year,'' and adding in
its place the phrase ``post final State DSH allotments as soon as
practicable in each Federal fiscal year,''
0
c. In paragraph (d)(1) by removing the phrase ``by April 1 of each
Federal fiscal year'' and adding in its place the phrase ``as soon as
practicable for each Federal fiscal year'' and by removing the phrase
``prior to the April 1 publication date'' and adding in its place the
phrase ``prior to the posting date''
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20. Section 447.299 is amended by--
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a. Redesignating paragraph (c)(21) as paragraph (c)(22)
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b. Adding new paragraph (c)(21) and paragraphs (f) and (g).
The additions read as follows:
Sec. 447.299 Reporting requirements.
* * * * *
(c) * * *
(21) Financial impact of audit findings. The total annual amount
associated with each audit finding. If it is not practicable to
determine the actual financial impact amount, state the estimated
financial impact for each audit finding identified in the independent
certified audit that is not reflected in data elements described in
paragraphs (c)(6) through (15) of this section. For purposes of this
paragraph (c)(21), audit finding means an issue identified in the
independent certified audit required under Sec. 455.304 of this
chapter concerning the methodology for computing the hospital specific
DSH limit and/or the DSH payments made to the hospital, including, but
not limited to, compliance with the hospital-specific DSH limit as
defined in paragraph (c)(16) of this section. Audit findings may be
related to missing or improper data, lack of documentation, non-
compliance with Federal statutes and/or regulations, or other
deficiencies identified in the independent certified audit. Actual
financial impact means the total amount associated with audit findings
calculated using the documentation sources identified in Sec.
455.304(c) of this chapter. Estimated financial impact means the total
amount associated with audit findings calculated on the basis of the
most reliable available information to quantify the amount of an audit
finding in circumstances where complete and accurate information
necessary to determine the actual financial impact is not available
from the documentation sources identified in Sec. 455.304(c) of this
chapter.
* * * * *
(f) DSH payments found in the independent certified audit process
under part 455, subpart D, of this chapter to exceed hospital-specific
cost limits are provider overpayments which must be returned to the
Federal Government in accordance with the requirements in part 433,
subpart F, of this chapter or redistributed by the State to other
qualifying hospitals, if redistribution is provided for under the
approved State plan. Overpayment amounts returned to the Federal
Government must be separately reported on the Form CMS-64 as a
decreasing adjustment which corresponds to the fiscal year DSH
allotment and Medicaid State plan rate year of the original DSH
expenditure claimed by the State.
(g) As applicable, States must report any overpayment
redistribution amounts on the Form CMS-64 within 2 years from the date
of discovery that a hospital-specific limit has been exceeded, as
determined under Sec. 433.316(f) of this chapter in accordance with a
redistribution methodology in the approved Medicaid State plan. The
State must report redistribution of DSH overpayments on the Form CMS-64
as separately identifiable decreasing adjustments reflecting the return
of the overpayment as specified in paragraph (f) of this section and
increasing adjustments representing the redistribution by the State.
Both adjustments should correspond to the fiscal year DSH allotment and
Medicaid State plan rate year of the related original DSH expenditure
claimed by the State.
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21. Section 447.302 is revised to read as follows:
Sec. 447.302 State plan requirements.
(a) The plan must provide that the requirements of this subpart are
met.
(b) The plan must specify comprehensively the methods and standards
used by the agency to set payment rates.
(c) CMS may approve a supplemental payment, as defined in Sec.
447.286, provided for under the State plan or a State plan amendment
for a period not to exceed 3 years. A State whose supplemental payment
approval period has expired or is expiring may request a State plan
amendment to renew the supplemental payment for a subsequent period not
to exceed 3 years, consistent the requirements of this section. For any
State plan or State plan amendment that provides or would provide for a
supplemental payment, the plan or plan amendment must specify all of
the following:
(1) An explanation of how the State plan or State plan amendment
will result in payments that are consistent with section 1902(a)(30)(A)
of the Act, including that provision's standards with respect to
efficiency, economy, quality of care, and access along with the stated
purpose and intended effects of the supplemental payment, for example,
with respect to the Medicaid program, providers and beneficiaries.
(2) The criteria to determine which providers are eligible to
receive the supplemental payment.
(3) A comprehensive description of the methodology used to
calculate the amount of, and distribute, the supplemental payment to
each eligible provider, including all of the following:
(i) The amount of the supplemental payment made to each eligible
provider, if known, or, if the total amount is distributed using a
formula based on data from one or more fiscal years, the total amount
of the supplemental payments for the fiscal year or years available to
all providers eligible to receive a supplemental payment.
(ii) If applicable, the specific criteria with respect to Medicaid
service, utilization, or cost data from the proposed State plan payment
year to be used as the basis for calculations regarding the amount and/
or distribution of the supplemental payment.
(iii) The timing of the supplemental payment to each eligible
provider.
(iv) An assurance that the total Medicaid payment to other
inpatient and outpatient facilities, including the supplemental
payment, will not exceed the upper limits specified in Sec. 447.325.
(v) If not already submitted, an upper payment limit demonstration
as required by Sec. 447.321 and described in Sec. 447.288.
(4) The duration of the supplemental payment authority (not to
exceed 3 years).
(5) A monitoring plan to ensure that the supplemental payment
remains consistent with the requirements of section 1902(a)(30)(A) of
the Act and to enable evaluation of the effects of the supplemental
payment on the Medicaid program, for example, with respect to providers
and beneficiaries.
(6) For a SPA proposing to amend or renew a supplemental payment
for a subsequent approval period, an evaluation of the impacts on the
Medicaid program during the current or most recent prior approval
period, for
[[Page 63785]]
example, with respect to providers and beneficiaries, and including an
analysis of the impact of the supplemental payment on compliance with
section 1902(a)(30)(A) of the Act.
(d) The authority for State plan provisions that authorize
supplemental payments that are approved as of [effective date of the
final rule], is limited as follows--
(1) For State plan provisions approved 3 or more years prior to
[effective date of the final rule], the State plan authority will
expire [date that is 2 calendar years following the effective date of
the final rule].
(2) For State plan provisions approved less than 3 years prior to
[effective date of the final rule], the State plan authority will
expire [date that is 3 calendar years following the effective date of
the final rule].
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22. Section 447.321 is amended by revising the section heading and
paragraphs (a) and (b)(1) to read as follows:
Sec. 447.321 Outpatient hospital services: Application of upper
payment limits.
(a) Scope. This section applies to rates set by the agency to pay
for outpatient services furnished by hospitals within one of the
following categories:
(1) State government provider, as defined using the criteria set
forth at Sec. 447.286.
(2) Non-State government provider, as defined using the criteria
set forth at Sec. 447.286.
(3) Private provider, as defined using the criteria set forth at
Sec. 447.286.
(b) * * *
(1) Upper payment limit refers to a reasonable estimate of the
amount that would be paid for the services furnished by the group of
facilities under Medicare payment principles in subchapter B of this
chapter, or allowed costs established in accordance with the cost
principles as specified in 45 CFR part 75 and 2 CFR part 200, or, as
applicable, Medicare cost principles specified at 42 CFR part 413. Data
elements, methodology parameters, and acceptable upper payment limit
demonstration methodologies are defined in Sec. 447.288(b).
* * * * *
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23. Section 447.406 is added to read as follows:
Sec. 447.406 Medicaid practitioner supplemental payment.
(a) General. This section applies to Medicaid practitioner
supplemental payments, which, for purposes of this section, are
supplemental payments as defined in Sec. 447.286 that are authorized
under the State plan for practitioner services and targeted to specific
practitioners under a methodology specified in the State plan. This
section does not apply to value-based payment methodologies that are
part of a State's delivery system reform initiative, are attributed to
a particular service provided to a Medicaid beneficiary, and that are
available to all providers, including as an alternative to fee-for-
service payment rates.
(b) Medicaid practitioner supplemental payment standards. A
Medicaid practitioner supplemental payment must meet the requirements
specified in Sec. 447.302, including the transition period
requirements in paragraph (d) of that section, as well as the
requirements specified in this section.
(c) Medicaid practitioner supplemental payment limit. Medicaid
practitioner supplemental payments may not exceed--
(1) 50 percent of the total fee-for-service base payments
authorized under the State plan paid to an eligible provider for the
practitioner services during the relevant period; or
(2) For services provided within HRSA-designated geographic health
professional shortage areas (HPSA) or Medicare-defined rural areas as
specified in 42 CFR 412.64(b), 75 percent of the total fee-for-service
base payments authorized under the State plan paid to the eligible
provider for the practitioner services during the relevant period.
PART 455--PROGRAM INTEGRITY: MEDICAID
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24. The authority citation for part 455 continues to read as follows:
Authority: 42 U.S.C 1302.
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25. Section 455.301 is amended by revising the definition of
``Independent certified audit'' to read as follows:
Sec. 455.301 Definitions.
* * * * *
Independent certified audit means an audit that is conducted by an
auditor that operates independently from the Medicaid agency or subject
hospitals and is eligible to perform the disproportionate share
hospital (DSH) audit. Certification means that the independent auditor
engaged by the State reviews the criteria of the Federal audit
regulation and completes the verification, calculations and report
under the professional rules and generally accepted standards of audit
practice. This certification includes a review of the State's audit
protocol to ensure that the Federal regulation is satisfied, an opinion
for each verification detailed in the regulation, a determination of
whether or not the State made DSH payments that exceeded any hospital's
hospital-specific DSH limit in the Medicaid State plan rate year under
audit, and the financial impact of each audit finding on a hospital-
specific basis. The certification also identifies any data issues or
other caveats or deficiencies that the auditor identified as impacting
the results of the audit.
* * * * *
PART 457--ALLOTMENTS AND GRANTS TO STATES
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26. The authority for part 457 continues to read as follows:
Authority: 42 U.S.C. 1302.
0
27. Section 457.609 is amended by revising paragraph (h) to read as
follows:
Sec. 457.609 Process and calculation of State allotments for a fiscal
year after FY 2008.
* * * * *
(h) CHIP fiscal year allotment process. The national CHIP allotment
and State CHIP allotments will be posted in the Medicaid Budget and
Expenditure System and at Medicaid.gov (or similar successor system or
website) as soon as practicable after the allotments have been
determined for each Federal fiscal year.
Dated: September 12, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
Dated: November 7, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-24763 Filed 11-12-19; 4:15 pm]
BILLING CODE 4120-01-P