Table of Contents I. Background II. Discussion III. Public Participation I. Background

The Energy Policy and Conservation Act, as amended (EPCA), 1 authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. (42 U.S.C. 6291-6317) Title III, Part B  2 of EPCA established the Energy Conservation Program for Consumer Products Other Than Automobiles. These products include consumer conventional cooking products, the subject of this NODA. (42 U.S.C. 6292(a)(10))

The currently applicable energy conservation standards for consumer conventional cooking products consist of a prescriptive prohibition on constant burning pilots for all gas cooking products ( i.e., gas cooking products both with or without an electrical supply cord) manufactured on and after April 9, 2012. These standards are set forth in DOE's regulations at title 10 of the Code of Federal Regulations (CFR) § 430.32(j)(1) and (2).

Consumer conventional cooking products comprise conventional cooking tops and conventional ovens, as defined in 10 CFR 430.2. Representations of energy use or energy efficiency of conventional cooking tops made on or after February 20, 2023, must be based on results generated using the test procedure for conventional cooking products at 10 CFR part 430, subpart B, appendix I1 (appendix I1). There are currently no DOE test procedures for conventional ovens.

On February 1, 2023, DOE published a supplemental notice of proposed rulemaking (February 2023 SNOPR) proposing to establish new and amended standards for consumer conventional cooking products, consisting of maximum integrated annual energy consumption (IAEC) levels, in kilowatt-hours per year (kWh/year) for electric cooking tops and thousand British thermal units per year (kBtu/year) for gas cooking tops. 88 FR 6818 through 6820. Compliance with the new and amended standards would be required 3 years after the publication date of final rule, should DOE finalize the proposed standards. Id. The technical support document (TSD) that presented the methodology and results of the SNOPR analysis is available at: www.regulations.gov/document/EERE-2014-BT-STD-0005-0090.

DOE held a public meeting on January 31, 2023, to discuss and receive comments on the February 2023 SNOPR (January 2023 public meeting). During the January 2023 public meeting, interested parties raised questions regarding the timing of DOE's cooking top testing, the current market availability of tested models, the existence of temperature-limiting controls on the tested electric open (coil) cooking tops, and the percentage of gas cooking tops currently available on the market that would meet the proposed standards as presented in DOE's analysis, among other questions. Although DOE provided verbal responses to these questions during the public meeting, upon further consideration, DOE believes that additional explanation regarding these topics would better assist interested parties in reviewing the analysis presented in the February 2023 SNOPR. In addition, following the January 2023 public meeting, the Association of Home Appliance Manufacturers (AHAM) submitted a comment  3 requesting that DOE share more complete data regarding the gas and electric cooking top test sample presented in the February 2023 SNOPR.

This NODA provides additional information to clarify the analysis for gas cooking tops. In response to other questions raised during the January 2023 public meeting and in AHAM's request, DOE is also providing further data on the gas and electric cooking top test sample used for the February 2023 SNOPR analysis in an attachment to this NODA, available in the docket for this rulemaking. 4

In accordance with EPCA, when establishing standards, DOE may not prescribe an amended or new standard if DOE finds (and publishes such finding) that interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United States in any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States at the time of such finding. (42 U.S.C. 6295(o)(4)) To satisfy this requirement, DOE conducts a “screening analysis” as part of its rulemaking process, as set forth in DOE's regulations at sections 6(b)(2) through (3) and 7(b) of 10 CFR part 430, subpart C, appendix A (appendix A). 5 One of the criteria of the screening analysis is to eliminate from consideration any design options that would adversely impact product utility or product availability. 6 Therefore, when DOE identifies potential efficiency levels for products ( i.e., efficiency levels which DOE may consider as the basis for a new or amended standard), DOE may not consider as design options certain features that may save energy but that might also adversely impact consumer utility.

As with most consumer products, gas cooking tops comprise a wide range of models with varying features and characteristics ( e.g., various burner input ratings, sealed versus open burner types, cast iron versus steel grate materials, continuous versus non-continuous grate configurations, etc. ) Of particular relevance to this NODA, are gas cooking tops with high input rate (HIR) burners (which DOE defined in the February 2023 SNOPR as burners with input rates greater than or equal to 14,000 British thermal units per hour (Btu/h) and continuous cast-iron grates. In the February 2023 SNOPR, DOE did not consider any efficiency levels that could not be achieved by gas cooking tops with HIR burners and continuous cast-iron grates because DOE is aware that some consumers derive utility from these features. 88 FR 6818, 6845. ( See section II of this document for additional discussion of the consumer utility of these features.) In this NODA, DOE is addressing the questions raised by commenters regarding the percentage of all gas cooking tops currently available on the market that would meet the proposed standards—because this market share was not explicitly stated in the February 2023 SNOPR—by clarifying that DOE has tentatively determined that gas cooking tops without these features, such as gas cooking tops with steel grates, non-continuous grates, and/or burners with input rates less than 14,000 Btu/h—many of which are entry-level models—would also be able to meet the efficiency levels described in the February 2023 SNOPR and therefore would not be impacted by the proposed standard, if finalized. The following paragraphs describe these clarifications in more detail.

In determining the maximum technologically feasible efficiency level for gas cooking tops in the February 2023 SNOPR, DOE evaluated the technology options used in gas cooking tops to achieve higher efficiencies to ascertain whether they meet the criteria for consideration as design options for achieving potential standard levels ( i.e., “screening criteria”), as set forth in sections 6(b)(3) and 7(b) of appendix A. 7

As discussed in section IV.C.1.a.i of the February 2023 SNOPR (88 FR 6818, 6845) and chapter 5 of the SNOPR TSD, for the gas cooking tops product class, DOE recognizes that HIR burners provide unique consumer utility and allow consumers to perform high heat cooking activities, such as searing and stir-frying. DOE is also aware that some consumers derive utility from continuous cast-iron grates, such as the ability to use heavy pans, or to shift cookware between burners without needing to lift them. In the February 2023 SNOPR, DOE screened out any optimized burner and grate designs that could reduce consumer utility associated with these features by only including in its analysis gas cooking tops that include at least one HIR burner and continuous cast-iron grates. 88 FR 6818, 6842. As a result, DOE did not consider any efficiency levels that are not already achieved by models on the current market with HIR burners and continuous cast-iron grates. Rather, DOE defined the efficiency levels for gas cooking tops such that all efficiency levels are achievable with continuous cast-iron grates and at least one HIR burner.

For gas cooking tops, DOE defined three efficiency levels (ELs) in the February 2023 SNOPR as follows:

In the February 2023 SNOPR, DOE tentatively determined all three of these efficiency levels to be achievable by gas cooking tops with continuous cast-iron grates and at least one HIR burner. Id. at 88 FR 6845. DOE used this analytical approach to ensure that the utility provided by these features can be maintained for those consumers that value them at each of the considered efficiency levels.

DOE is aware that gas cooking products exist on the market with efficiencies higher than the EL 2 level that DOE defined, but do not include HIR burners or continuous cast-iron grates. DOE's testing included three such gas cooking tops representing a range of manufacturers, brands, and burner/grate designs that do not include both HIR burners and continuous cast-iron grates. DOE believes that these three units are representative of the types of gas cooking tops excluded from the analysis. Table II.1 presents the characteristics of each of these units. Table II.2 presents the test results for each of these units, including the measured active mode annual energy consumption (AEC), annual combined low power mode energy consumption (E TLP ), and IAEC. Since these products had been screened out from the analysis, DOE did not present these testing results in the February 2023 SNOPR or the SNOPR TSD, nor included them in the engineering analysis.

DOE observes that these gas cooking tops all achieved efficiencies significantly higher than ( i.e., IAEC values lower than) EL 2, defined for gas cooking tops as 1,204 kBtu/year. From these testing results, DOE estimates that the portion of the market consisting of gas cooking tops without HIR burners and continuous cast-iron grates would all meet EL 2.

DOE presented a table in the SNOPR TSD that included DOE's estimate of the current market share of gas cooking tops that meet each efficiency level under consideration, which reflected the exclusion of higher-efficiency products that DOE had screened out ( i.e., excluded products that do not have at least one HIR burner and continuous cast-iron grates). ( See Table 8.2.43 in chapter 8 of the SNOPR TSD). This table indicates that, among the models not screened out of the analysis, 4 percent currently achieve EL 2. Based on its testing results and model counts of the burner/grate configurations of gas cooking top models currently available on the websites of major U.S. retailers, DOE estimates that the products that were screened out of the engineering analysis represent over 40 percent of the market. Together with the models included in the engineering analysis, DOE estimates that nearly half of the total gas cooking top market currently achieves EL 2 and therefore would not be impacted by the proposed standard, if finalized. The remaining portion of the total market is distributed equally between the baseline and EL 1, as indicated in Table 8.2.43 in chapter 8 of the SNOPR TSD.

DOE requests comment on these estimates for the no-new-standards case efficiency distribution of gas cooking products. In particular, DOE requests comment on its estimate that currently available gas cooking tops representing nearly half of the market would already meet the standards at EL 2 that were proposed in the February 2023 SNOPR, and therefore would not be impacted by the proposed standard, if finalized. DOE welcomes additional data and information regarding the efficiency of gas and electric cooking tops as measured by appendix I1, particularly gas cooking tops without HIR burners and/or continuous cast-iron grates. DOE additionally requests comment on the use of model-based market percentages to estimate conventional cooking product market share by efficiency level and invites stakeholders to provide shipments-based market share data.

DOE will accept comments, data, and information regarding this document, but no later than the date provided in the DATES section at the beginning of this document. Interested parties may submit comments, data, and other information using any of the methods described in the ADDRESSES section at the beginning of this document.

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I. Background A. Overview of Proposed Rule

The proposed rule would make nine changes to the Chartering and Field of Membership Manual (the Manual) to enhance consumer access to financial services, while reducing duplicative or unnecessary paperwork and administrative requirements. 1 The Board's goal in proposing these changes is to eliminate unnecessary burdens while enhancing the agency's focus on the core principles of credit union membership. The proposed changes cover underserved areas, community-based FOMs, and some more broadly applicable FOM provisions.

The proposed rule would make four changes on underserved areas that multiple common bond federal credit unions (FCUs) may seek to add to their FOMs. The changes would streamline existing application requirements and clarify the role of data and criteria that other federal agencies provide relating to underserved areas.

The proposed rule would also simplify application requirements for community-based FCUs by eliminating the need to submit redundant or less useful information and providing a standard form for business and marketing plans. The proposed rule would eliminate the business and marketing plan requirement for certain federally insured, state-chartered credit unions that seek to convert to a federal charter while serving the same community FOM. The proposed rule would also expand the community-based FOM affinities—relationships between a person and the geographic community—to recognize the growth of telecommuting and remote work for companies headquartered in a community and to better capture the ongoing bond between individuals within a field of membership and their immediate family members following the death of a member. 2

Finally, the Board is proposing a technical clarification and correction on the process for the NCUA to review and approve the character and fitness of a prospective FCU's management and officials.

The following sections include a legal overview and then a detailed discussion of the proposed regulatory changes.

In adopting the Credit Union Membership Access Act of 1998 (CUMAA), which amended the Federal Credit Union Act, Congress reiterated its longstanding support for credit unions, emphasizing their “specific mission of meeting the credit and savings needs of consumers, especially persons of modest means.”  3 In Section 2 of CUMAA, Congress set forth the following findings:

(1) The American credit union movement began as a cooperative effort to serve the productive and provident credit needs of individuals of modest means.

(2) Credit unions continue to fulfill this public purpose, and current members and membership groups should not face divestiture from the financial services institutions of their choice as a result of recent court action.

(3) To promote thrift and credit extension, a meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests, or activities, or the maintenance of an otherwise well understood sense of cohesion or identity is essential to fulfillment of credit unions' public mission.

(4) Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because they are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specific mission of meeting the credit and savings needs of consumers, especially persons of modest means.

(5) Improved credit union safety and soundness provisions will enhance the public benefit that citizens receive from these cooperative financial service institutions.

The congressional findings are bolstered by specific provisions of CUMAA. For instance, Title II of that law addresses “credit union membership,” including the express provision in section 109 for the Board to establish regulations to encourage the chartering of community and multiple common bond FCUs. This section includes provisions encouraging formation of FCUs to provide financial services to underserved communities and people of modest means. Section 109's provisions allowed multiple common bond credit unions to expand service opportunities to underserved communities. Title II of CUMAA mandates that the Board protect the National Credit Union Share Insurance Fund (NCUSIF) by issuing stricter safety-and-soundness provisions, including enhanced accounting standards in section 201. Title III of CUMAA includes capitalization and net worth requirements to “resolve the problems of the insured credit unions at the least possible long-term loss to the [NCUSIF].” Title III also sets forth specific mandates, including issuing regulations for prompt corrective action; capitalization requirements, including the submission of net worth restoration plans; earnings retention requirements, and prior written approval requirements for credit unions that are not adequately capitalized; certification of NCUSIF equity ratios; increased share insurance premiums; and periodic evaluation of access to liquidity. Title IV of CUMAA includes assurances for independent decision-making in connection with certain charter conversions.

As CUMAA indicates, Congress directed the Board to consider multiple responsibilities, including encouraging access to financial services for people of modest means, encouraging competition among providers of financial services, and protecting taxpayers by enhancing the safety and soundness of the credit union system and protecting the NCUSIF.

Under the FCU Act, seven or more individuals may charter an FCU by presenting a proposed charter (referred to in the FCU Act as the “organization certificate”) to the Board. 4 These individuals, referred to as “subscribers,” must state the number of shares subscribed by each and describe the FCU's proposed FOM. 5 An FOM consists of those persons and entities eligible for membership based on an FCU's type of charter. Before granting an FCU charter, the Board must complete an appropriate investigation and determine the character and fitness of the subscribers, the economic advisability of establishing the FCU, and the conformity of the proposed charter with the FCU Act. 6

The FCU Act provides a choice among several charter types: a single group sharing a single occupational or associational common bond;  7 a multiple common bond consisting of groups that each have a distinct occupational or associational common bond among members of the group;  8 and a community consisting of “persons or organizations within a well-defined local community, neighborhood, or rural district.”  9

The Manual, incorporated as Appendix B to Part 701 of the NCUA regulations, 10 implements the chartering and FOM requirements that the FCU Act establishes for FCUs. The Manual provides that the NCUA will grant a charter if the FOM requirements are met, the subscribers are of good character and fit to represent the proposed FCU, and the establishment of the FCU is economically advisable. 11 In addition, “[i]n unusual circumstances . . . [the] NCUA may examine other factors, such as other federal law or public policy, in deciding if a charter should be approved.”  12

Congress expressly delegated to the Board substantial authority in the FCU Act to define what constitutes each type of community charter, namely a well-defined local community, neighborhood, or rural district. 13 This authority assists the NCUA in “making any determination” regarding a community FCU, 14 and permits the Board to establish applicable criteria for any such determination. 15 To qualify as a well-defined local community, neighborhood, or rural district, the Board requires the proposed area to have “specific geographic boundaries,” such as those of “a city, township, county (single or multiple portions of a county) or a political equivalent, school districts, or a clearly identifiable neighborhood.”  16 The boundaries themselves may consist of political borders, streets, rivers, railroad tracks, or other static geographical features. 17

The Board has periodically amended the Manual to further the statutory goals set forth by Congress. 18 The Board's goals in revising and modernizing the Manual are as follows: (1) increasing access for underserved communities; (2) providing objective and easily administered criteria to potential applicants; (3) providing regulatory relief while balancing safety-and-soundness concerns; and (4) enhancing efficiency.

More recently, the Board has launched the Advancing Communities through Credit, Education, Stability and Support (ACCESS) initiative to increase the agency's focus on enabling credit unions to serve underserved, unserved, or disadvantaged communities. 19 A key tenet of this coordinated, multi-disciplinary initiative is that expanding access to safe, fair, and affordable credit allows more Americans to build wealth, achieve financial prosperity, and create strong and vibrant communities.

Based on these considerations, the Board has actively explored ways to enhance access to financial services for low- and moderate-income communities. The NCUA 2021 Annual Report, a February 2022 study by the Government Accountability Office (GAO), and a June 2022 report by the Federal Financial Institutions Examination Council (FFIEC) address the need for federal financial regulators and financial institutions to expand access to unserved and underserved communities. 20

These communities often comprise what have been called “banking or financial services deserts,” and can be found in both urban and rural areas. Such deserts often are home to communities high concentrations of minorities, including those comprised of significant populations of African Americans, Hispanic Americans, Native Americans, and Asian Americans. Facilitating additional opportunities to add underserved areas would allow FCUs to fill voids where no or few other local options are available. The proposed rule changes may help FCUs willing to reach out to the underserved and low- to moderate-income individuals and seek a broader membership base.

In addition to changes to enhance access for low- and moderate-income communities, the proposal includes potential improvements to the Manual to simplify requirements and procedures based on agency experience. Simplifying such requirements will facilitate more consumers having access to safe, fair, affordable, and reliable financial services at a federally insured credit union.

The Board has carefully considered the legal requirements underlying the proposed rule and believes that the changes are consistent with the FCU Act while reducing unnecessary requirements. The proposed rule offers several changes to reduce burden by simplifying the requirements for underserved area additions, conversions from federally insured, state-chartered credit unions (FISCUs) to FCUs, and community charter actions.

The rule would also correct multiple unintended consequences of prior rules. One proposed change corrects a provision that may prevent credit unions from expanding into underserved rural areas. Specifically, the change would eliminate a limitation in which a rural district, if an underserved area, must be in, or adjacent to, the state in which the FCU has its headquarters. Another change corrects a reference to a regulation addressing approval of credit union officials that does not apply in the chartering process.

In 1998, Congress enacted CUMAA, as discussed previously in this preamble, which amended the FCU Act to authorize the Board to allow multiple common bond FCUs to serve members residing in “underserved areas,” provided the FCU establishes and maintains a facility there. 21 The Act currently permits only multiple common bond FCUs to add underserved areas to their FOM beyond the common bond requirements specified in the FCU Act. This option is an exception to the FCU Act's general requirement that an FCU limit its membership to one of the three options in the FCU Act (single common bond, multiple common bond, or community). 22

The FCU Act defines an “underserved area” as (1) a “local community, neighborhood, or rural district” that (2) meets the definition of an “investment area” under section 103(16) of the Community Development Banking and Financial Institutions Act of 1994 (CDFI Act) and (3) is “underserved by other depository institutions” based on data of the NCUA Board and the federal banking agencies. 23

As noted, the first criterion for an “underserved area” established by CUMAA is that the area meets the CDFI Act's definition of an “investment area.” The CDFI Act defines an “investment area” as a geographic area that, unless it is presently designated an Empowerment Zone or Enterprise Community, “meets the objective criteria of economic distress developed by the [CDFI] Fund” and “has significant unmet needs for loans or equity investments.”  24   25 By regulation, the CDFI Fund adopted a definition of investment area that established criteria of economic distress and implemented the significant unmet needs criterion. 26 The regulation also dictates that “[a]n Investment Area shall meet specific geographic and other criteria” prescribed in the CDFI Fund's investment area definition. 27 Further, the regulation gives the CDFI Fund sole discretion to determine whether these criteria are fulfilled. 28

Under the CDFI Fund's distress criteria, a proposed investment area's location within or outside a designated Metropolitan Area (a Metro or Non-Metro area, respectively) determines the geographic unit(s) into which the area must be translated in order to apply the economic distress criteria. 29 For a Metro area, the permissible geographic units are limited to a census tract or an American Indian or Alaskan Native area. 30 For a Non-Metro area, the permissible geographic units are limited to a county (or equivalent area); minor civil division that is a unit of a local government; incorporated place; census tract; or an American Indian or Alaskan Native area. 31

The CDFI Fund's regulation designates as distressed a proposed area that meets the applicable economic distress criteria as reported by the most recent decennial U.S. Census. 32 How the distress criteria apply in each case depends on which geographic units are permitted (based on the area's designation as Metro or Non-Metro) and whether the area consists of a single geographic unit or multiple contiguous units. A proposed Metro area consisting of a single census tract, for example, must meet the distress criterion for either unemployment, poverty, or median family income. 33 A proposed Non-Metro area consisting of a single county, for example, must meet the distress criterion for either unemployment, poverty, median family income or, if the area is a county, population loss or migration loss. 34

A proposed area consisting of multiple contiguous geographic units (such as adjoining census tracts in a Metro area or adjoining counties in a Non-Metro area) may combine distressed and non-distressed units. But the area must satisfy a population threshold requiring the distressed units—those that “together meet one of the [applicable distress] criteria”—to represent at least 85 percent of the area's total population. 35

Finally, to qualify as an investment area, the proposed area must also “have significant unmet needs for loans or equity investments.”  36 The CDFI Fund regulation deems this criterion fulfilled when “a narrative analysis provided by the entity demonstrates a pattern of unmet needs” within the proposed area. 37

After Congress enacted CUMAA in 1998, the Board revised the Manual to implement the new authority to allow service to underserved areas. 38 The NCUA's regulations define eligible areas (well-defined local communities, neighborhoods, or rural districts) and how to test whether an area is underserved by other depository institutions. The investment area element draws from the CDFI Act, which the FCU Act cites for this element. The Board has sought to maintain consistency in the Manual with the CDFI Fund's economic distress criteria. 39 Anticipating periodic changes to the economic distress criteria, the Board included in the Manual a reference to revise or add additional criteria that the CDFI Fund might adopt in the future. 40 Interested readers may also refer to the Board's preamble to Interpretive Ruling and Policy Statement 2008-2, which contains additional information on underserved areas. 41

As noted in the preceding discussion, a multiple common bond FCU that seeks to add an underserved area to its FOM as an investment area must satisfy the CDFI Fund's economic distress criteria, among other requirements. 42 The current Manual essentially reiterates the economic distress criteria that the CDFI Fund adopted or had in place in 2008 and requires FCUs seeking to add underserved areas to satisfy these requirements. Despite the acknowledgment of the potential for the CDFI Fund to change the criteria over time, the NCUA has received numerous inquiries about perceived conflicts between the Manual and the CDFI Fund's current regulations and policies. A 2021 NCUA Legal Opinion Letter details some of these issues, including the use of decennial census data and the types of geographic units that may constitute an underserved area. 43

Based on this dynamic environment and on feedback the NCUA has received from stakeholders, the Board is proposing four changes to the requirements that apply to multiple common bond FCUs that seek to serve underserved areas. The proposed changes would accomplish the following:

(1) clarify the Board's intent to provide flexibility to multiple common bond FCUs serving underserved areas based on rural districts;

(2) clarify how the NCUA applies the CDFI Fund's economic distress criteria, as the FCU Act requires;

(3) eliminate census block groups as a geographic unit for composing underserved areas, in adherence to a regulatory change that the CDFI Fund has adopted; and

(4) simplify and reduce the burden for FCUs on the required statement of unmet needs that must accompany a request to serve an underserved area.

On October 27, 2016, the Board approved a final rule to Appendix B to Part 701 of NCUA's regulations to change the definition of a rural district, which is one subcategory of options for a community charter. These changes increased the population limit to one million persons. The final rule also added a restriction so that an area's boundaries would not exceed the outer boundaries of the states that are immediately contiguous to the state in which the credit union maintains its headquarters (that is, not to exceed the outer perimeter of the layer of states immediately surrounding the headquarters state).

The intent behind the headquarters restriction for a rural district's boundaries for community-chartered credit unions was to prevent areas from becoming overly broad, while at the same time affording FCUs the opportunity to achieve sufficient scale so that serving a sparsely populated area is economically viable. However, the change made by the final rule also applies to underserved areas, thus unintentionally curtailing the options available to multiple common bond credit unions interested in adding to their FOMs underserved areas consisting of rural districts. The change also created an inconsistency between eligibility to add underserved areas consisting of rural districts versus underserved areas consisting of communities or neighborhoods, which did not include a geographic restriction in relation to an FCU's headquarters.

The NCUA's objective to allow underserved area additions “without regard to location”  44 reflects the FCU Act's less restrictive language in this area. Also, the addition of an undeserved area without regard to location provides multiple common bond FCUs with the opportunity to increase access to financial services for those in underserved areas, particularly those of low- to-moderate income. Thus, the headquarters restriction was intended to apply only to community charter FCUs consisting of rural districts and not to underserved areas consisting of rural districts. The proposed rule removes this headquarters restriction for underserved areas.

Despite this proposed adjustment, the Board believes a number of inherent constraints will continue to prevent the addition of underserved rural districts from becoming overly broad. The underserved rural district must continue to meet all the requirements for economic distress to qualify as an investment area. This benchmark becomes more challenging as a contiguous area becomes larger and more affluent geographic units come in proximity with distressed geographic units. The FCU's business and marketing plan must also demonstrate an ability and intent to serve the entire area, which can be difficult for unduly large areas. The Board invites comments as to whether it should consider any additional requirements for an underserved area based on a rural district. For example, in finalizing the proposed rule, should the Board impose a new requirement that an underserved area based on a rural district not have boundaries exceeding the states immediately contiguous to the state in the geographic center of the underserved area, in addition to other limitations that presently apply? Depending on the feedback it receives from commenters, the Board may modify this provision in the final rule to incorporate such a requirement.

The Manual discusses the data an FCU and the NCUA will use to decide whether an area meets the investment area criteria for a proposed underserved area expansion. The Manual currently requires the use of the most recent decennial U.S. census data. This proposal would eliminate the term “decennial” and revise the applicable sections in Chapter 3, Section III.B.2 and Section III.B.2.a., to clarify that the census dataset should be consistent with the practices of the U.S. Department of the Treasury in overseeing the CDFI Fund.

Both the Manual and the CDFI regulation use the phrase “decennial census” when defining the term “investment area.” In a legal opinion letter dated July 9, 2021, 45 the NCUA communicated that for practical and legal reasons the agency has discontinued the use of decennial data and is currently using the U.S. Census Bureau's American Community Survey (ACS) data. The use of ACS data allows for a more current assessment of economic distress for geographic units under consideration. Further, the CDFI Fund now uses ACS data in place of decennial data for most of its programs.

The ACS functionally replaced the data the U.S. Census Bureau derived, up until the 2000 decennial census, from the long form distributed to a representative sample of citizens. Continuing to use decennial long form data from 2000 or before, or its functional equivalent ACS data designed to resemble the 2010 census as if derived from the long form, would result in relying on data that is more than 10 years old. Conversely, data from more recent ACS sampling would result in using the most contemporary census data, which according to CDFI Fund staff has effectively replaced the decennial data. 46

Further, continuing use of the stale decennial data would raise logistical issues because the CDFI Fund has decided to replace decennial data with the ACS. Most importantly, the CDFI Fund's staff has advised the NCUA that not only is the CDFI Fund solely relying on the ACS (except in certain geographic areas in which it is not available), but it views the ACS as functionally equivalent to the previous decennial data. CDFI Fund staff confirmed that the Fund changed its definition of decennial, explaining that in 2006 Congress directed the Census Bureau to replace the decennial census long form data with the 5-year ACS data. The first 5-year ACS data was released in 2010 (the 2006-2010 ACS), thereby replacing the decennial long form data which was last collected in the 2000 decennial census.

With the release of the 2010 decennial census tracts and the first full 5-year ACS data, the CDFI Fund adopted the 5-year ACS as the successor to the decennial census long form data. Thus, the CDFI Fund has determined that the statutory reference in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 to “decennial census data” has been functionally replaced by the Census Bureau with the 5-year ACS that provides the socioeconomic data used for determining program eligibility, such as investment areas. 47

The Board believes it can best address these developments by amending the Manual to cross-reference the CDFI Fund's economic distress criteria, as the CDFI Fund may amend them from time to time. This change would clarify that the NCUA defers to the CDFI Fund on these criteria, which is appropriate under the FCU Act because the CDFI Fund's economic distress criteria determine which areas are investment areas that can count as underserved areas. The Manual would no longer replicate these criteria, which the Board believes will reduce confusion and inconsistencies as these criteria may change over time. The Board notes that it would continue to make final determinations on underserved area applications, including whether an FCU meets the economic distress criteria. The proposed change would simply clarify that, by statute, an investment area must meet the CDFI Fund's economic distress criteria. The change would also better align the Manual with the reference resources the CDFI Fund makes available on its website.

The Board invites comments on this change and specifically on whether the Board should consider including a summary of the current CDFI Fund criteria in the Manual, despite the increased opportunity for inconsistencies, for reference along with a statement that FCUs must follow the CDFI Fund's criteria. The Board is interested in input on whether this approach would provide clearer information to FCUs on the NCUA's position on the CDFI Fund's criteria. Depending on the feedback it receives from commenters, the Board may include such a statement in the final rule regulatory text solely for the sake of clarity.

The Manual outlines acceptable geographic units, which includes census block groups, by a proposed underserved area's location for the purpose of meeting the definition of an investment area. 48 The Manual also indicates that the proposed area must meet the CDFI definition of investment area. 49

The CDFI Fund deleted references to block groups in its regulatory definition of geographic units that may constitute an investment area in an interim final rule it issued in 2015. 50 Specifically, in defining geographic units, the CDFI Fund ceased including the term “census block groups.” For regulatory consistency, the Board believes it is not appropriate to include a census block group as a geographic unit. The Board notes that the CDFI Act does not expressly state that geographic units for an investment area must be as defined by the CDFI Fund; however, these units are tied closely to the CDFI Fund's economic distress criteria and supplementary guidance and maps that the CDFI Fund issues. The Board, therefore, finds it can best implement the investment area provisions by following suit with the CDFI Fund's elimination of the census block group geographic unit.

The Board believes that the proposed change will adequately address this development by replacing outdated quotations and paraphrases of the CDFI Fund's criteria with a direct reference to the criteria, as the CDFI Fund may change them from time to time.

The Board is proposing changes to the current requirements on statements of unmet needs after assessing the agency's extensive experience in processing underserved area requests. The CDFI Act, as referenced in the FCU Act, requires an investment area to have “significant unmet needs for loans or equity investments.”  51 This element is separate from the economic distress criteria and the FCU Act requirement for the area to be underserved by other depository institutions. Currently, FCUs seeking to add an underserved area must submit a one-page narrative outlining that the proposed service area has significant unmet needs for credit union services (SUN statement). The SUN statement must include support in the form of objective reasons and/or accompanying documentation derived from an identified, authoritative source. The Manual further indicates that third-party documentation is most compelling.

While successful applicants generally have no difficulty in meeting the SUN statement requirements, the NCUA has found that in some instances FCUs view the requirement to submit a one-page document discussing characteristics of the investment areas as burdensome, especially when the NCUA can get this information from other sources. As detailed in this subsection, the Board is proposing to remove the length requirement and third-party data or support references that neither the FCU Act nor the CDFI Fund's criteria require.

As discussed previously, for an area to qualify as underserved, CUMAA requires the Board to determine that the area is (1) a local community, neighborhood, or rural district which (2) qualifies as an investment area as defined in the CDFI Act and (3) is underserved by other depository institutions. 52 By incorporating the CDFI Act's definition of an investment area, CUMAA's underserved area authority also incorporated the regulations implementing that definition. The CDFI Act defines an investment area as a geographic area that, unless it is presently designated an Empowerment Zone or Enterprise Community, meets the objective criteria of economic distress developed by the CDFI Fund and has significant unmet needs for loans or equity investments. 53 By regulation, the CDFI Fund adopted a definition of investment area that established criteria of economic distress and implemented the significant unmet needs criterion. 54

The Board emphasizes that while the statute provides that an investment area must meet the “objective criteria of economic distress developed by the [CDFI] Fund,” it does not include the same requirement for the significant unmet needs element of the definition. Instead, the statute states only that an investment area must have “significant unmet needs for loans and equity investments.” Thus, while the CDFI Fund's regulations and policies on this element are significant, the Board believes it is not required to have identical requirements if a different approach would meet the statutory standard. As explained in detail in the rest of this subsection, the Board believes a less prescriptive approach would continue to meet the statutory standard and would not conflict with the CDFI Fund's standards.

In a 2008 Interpretive Ruling and Policy Statement (IRPS) that amended the NCUA's chartering rules (titled IRPS 08-2), the Board updated and clarified the process of approving FCU service to an underserved area. In part, the IRPS updated the documentation and clarified the scope requirements for demonstrating that a proposed area has significant unmet needs for loans and financial services. It also provided a methodology to determine if an area is underserved by other depository institutions. The IRPS codified the current SUN statement requirement that the Board now proposes to change.

During the comment period for the Board's 2008 proposed rulemaking that resulted in issuance of IRPS 08-2, the NCUA received 14 comments addressing the proposal to require a narrative statement on significant unmet needs. 55 Nearly all commenters said the narrative statement was redundant of the CDFI Fund's distress criteria, contending that, by definition, a distressed area must have significant unmet needs for loans and financial services. They believed the requirement would be a costly, burdensome duplication of effort. The information to establish significant unmet needs, the commenters further maintained, is too difficult to find, too subjective to quantify, too difficult to organize by census tracts, and too difficult to document.

As noted in the preamble to the 2008 proposed IRPS, the CDFI Fund at that time accepted a one-page narrative statement describing the significant unmet capital or financial services needs within a proposed area. 56 IRPS 08-2 noted that the analysis must be supported by relevant, objective reasons or statistical data. The IRPS further noted there are no definitive standards of evaluation and SUN statements are evaluated on a case-by-case basis.

In the preamble to IRPS 08-2, the NCUA concluded that it could not interpret the distress criterion or the SUN criterion as redundant of each other because the CDFI Act sets forth both criteria independently in defining an investment area. To ensure a sound record, IRPS 08-2 required a one-page SUN statement in the business plan. The rule required the business plan to explain how the credit union planned to fulfill the unmet needs for loans and credit union services it identified in its statement.

The Board has reconsidered this issue and believes the SUN statement requirement, in its current form, duplicates other elements of the application and imposes undue burden without adding material value. The Board bases this conclusion on two separate findings, each of which is sufficient on its own to support the proposed changes.

First, the CDFI Fund does not require a one-page narrative and does not require third-party data or support. Thus, the Board sees no continuing need to require the one-page narrative. Second, the CDFI Fund considers the lack of financial institution branches in an investment area as part of the SUN criterion. The Board believes that its concentration of facilities test, which measures whether an area is underserved by other depository institutions, directly addresses this point and in most cases would support a finding of significant unmet needs in an investment area.

The Board notes that it would still require the application to cover significant unmet needs, which is consistent with the statement in IRPS 08-2 that the underserved and significant unmet needs criteria are separate by law and not redundant. And, in some cases, an area could theoretically meet the concentration of facilities test but not have significant unmet needs. The proposed rule change will not detract from this principle and will instead merely reduce paperwork requirements because a less prescriptive approach may still enable FCUs to meet these separate statutory criteria.

To determine whether the proposed changes may have unintended consequences for CDFI certification, NCUA staff inquired into the CDFI Fund's standards for certifying institutions as CDFIs. The Manual's current requirement that the business plan identify the credit and depository needs of the community and detail how the credit union plans to serve those needs can support a pattern of significant unmet needs for one or more authorized credit union services. 57 Therefore, the existing credit and depository needs standard is a reasonable measure of significant unmet needs, provided it addresses authorized credit union services.

The CDFI certification application requires the applicant to provide a narrative description of the unmet capital or financial services needs within each identified investment area but does not specify the length of the narrative. Moreover, the CDFI Fund's regulations do not require a separate section in the application for the SUN statement. On this basis alone, the Board believes that FCUs can demonstrate significant unmet needs without a strict one-page requirement.

Further, the CDFI certification application (referred to as the AMIS  58 Submission Guide, updated as of November 2018) requires simply that the applicant “provide [a] narrative description(s) of the significant unmet capital or financial service needs within each identified Investment Area.” The application requires no specific length and does not call for third-party data or support. Considering the CDFI Fund's requirements for this criterion, the Board finds it reasonable to eliminate the length requirement for the SUN statement as well as the third-party support reference.

The NCUA's separate concentration of facilities test for underserved areas, which the Board adopted in IRPS 08-2, substantially satisfies the CDFI Fund's standard when provided in a narrative analysis. This test is the NCUA's methodology, as outlined in the Manual, to determine whether an area is underserved by other insured depository institutions. 59 The requirement that an area be underserved by other insured depository institutions is unique to the FCU Act; the CDFI Act's investment area definition does not include this element.

The NCUA's test provides statistical data to support the proposition that an area is underserved by other depository institutions, namely that the area has fewer depository institution facilities as compared to a non-distressed area, which sets a benchmark level of adequate service. As the CDFI Fund's supplemental guidance shows, the CDFI Fund allows data showing a lack of financial institution branches in an investment area to help meet its significant unmet needs requirement. For this reason, the NCUA's separate requirement and test assure the agency that an area passing the test would be likely to meet the significant unmet needs standard.

The NCUA's experience in applying the test supports this conclusion. The NCUA has found that once an area meets the economic distress criteria and is underserved by other depository institutions, the area also has significant unmet needs. As a result, requiring FCUs to identify the significant unmet needs in the level of detail that the Manual currently requires often leads to redundant and time-consuming data gathering that does not add material value.

For each of these independent reasons, the Board proposes to amend the SUN statement requirement to eliminate any length requirement and the reference to third-party support and instead require a statement about the area's credit or depository needs and how the applicant will meet the needs. As amended, this provision would still require the business plan to address significant unmet needs. The Board believes that this change would reduce burden on applicants while still requiring compliance with the statutory standards. The provision would also continue to allow the applicant to decide which of the following needs to address in the statement: loans, share draft accounts, savings accounts, check cashing, money orders, certified checks, automated teller machines (ATMs), deposit taking, safe deposit box services, and similar services. The Board is not proposing any changes to the list of services.

This proposed rule would make three changes to reduce the regulatory burden for community charter applications or conversions. 60 Specifically, the proposed rule would (1) establish a simplified business and marketing plan for community charter applications, (2) provide a standardized, fillable application for community charter conversion or expansion requests, and (3) eliminate the requirement for FISCUs converting to a federal community charter to submit a business and marketing plan under certain conditions.

The FCU Act and the Manual require the NCUA to consider the economic advisability of chartering a new FCU and expanding an existing FOM. 61 The business and marketing plan requirement in the Manual achieves this by allowing the NCUA to consider whether a new FCU has realistic assumptions that support its viability and plan to serve its entire FOM. For expansion, the business and marketing plans help the NCUA test an FCU's capacity to serve the new group or geographic area. The Board continues to acknowledge the importance of these plans in promoting economic advisability and service to the entire FOM that an FCU seeks to serve.

After studying the existing requirements and considering its substantial experience in processing and reviewing various applications, the Board is proposing targeted relief in this area. These changes would not undermine the important goals that the plans serve and would instead reduce or eliminate paperwork requirements while sharpening the agency's focus on the substantive merits of each application.

In implementing the economic advisability requirement of the FCU Act, the Manual requires the credit union to submit a business plan containing specified elements, which currently apply to new FCU charters and existing FCUs requesting a community charter conversion or expansion. 62

Chapter 2, Section V.A.4, of the Manual defines the business plan requirements specific to community charter actions. The current requirements are:

• Provide pro forma financial statements for a minimum of 24 months after the proposed conversion;

• Provide anticipated financial impact on the credit union, including the need for additional employees and fixed assets, and the associated costs;

• Provide a description of the current and proposed office/branch structure, including a general description of the location(s); parking availability, public transportation availability, drive-through service, lobby capacity, or any other service feature illustrating community access;

• Provide a marketing plan addressing how the community will be served for the 24-month period after the proposed conversion to a community charter, including detailing how the credit union will implement its business plan; the unique needs of the various demographic groups in the proposed community; how the credit union will market to each group, particularly underserved groups; which community-based organizations the credit union will target in its outreach efforts; the credit union's marketing budget projections dedicating greater resources to reaching new members; and the credit union's timetable for implementation, not just a calendar of events;

• Provide details, terms, and conditions of the credit union's financial products, programs, and services to be provided to the entire community; and

• Provide maps showing the current and proposed service facilities, ATMs, political boundaries, major roads, and other pertinent information.

The Manual also provides for a streamlined business and marketing plan for existing community charters applying to add bordering areas. 63 Existing community credit unions adding bordering areas may continue to use the streamlined business and marketing plan, as the proposed rule leaves this option intact. With respect to all other community charter requests, the specific proposed modifications to the existing plan requirements are discussed in the following paragraphs.

As noted, credit unions are currently required to provide a description of the current and proposed office/branch structure, including a general description of the location(s), parking availability, public transportation availability, drive-through service, lobby capacity, or any other service feature illustrating community access. Under the proposed rule, the credit union would be required to provide branch details to include how many service facilities are in the area, whether the credit union participates in shared branching, number of ATMs (owned and shared), any new branches planned, use of electronic delivery channels, and how the credit union will sign up low- and moderate-income individuals. By eliminating the need for providing granular details about the branch structure, the NCUA hopes to encourage applicants to spend more time determining how to best meet the evolving needs of their members and considering innovative service delivery channels like virtual banking.

The following is an example of a marketing budget that credit unions could use for a 24-month period. Under the proposed rule, a credit union may include all the various marketing media to set marketing expectations and demonstrate their intent to reach new members in the proposed community. The NCUA emphasizes that credit unions would not be required to use the marketing media set forth in the example.

The proposed rule would also remove the requirement that a credit union provide “details, terms, and conditions of the credit union's financial products, programs, and services to be provided to the entire community” and instead include a question on whether the credit union is full service, and if so, what unique or particularly interesting products or services it offers. 64 The NCUA believes there is no need to list every product or service because the regulation defines full service, and the agency wants credit unions to be able to focus their application on products tailored to the needs of their FOM, especially low-to-moderate income members. In addition, in most cases products and services are listed on the credit union's website.

The NCUA receives several requests each year for an application form for a community conversion or expansion request. The agency addressed this need in part by providing templates for business and marketing plans through NCUA Letters to FCUs 11-FCU-03 and 21-FCU-01. 65 However, because there is no NCUA form in the Manual for applicants to request community charter actions, credit unions' submissions can be voluminous and may not meet regulatory requirements. The proposed rule would require the use of a fillable, standardized application for all community charter actions. The standardized application should better focus credit unions on critical requirements and ensure uniform NCUA reviews across applications. The use of the standardized application form should reduce the number of follow-up requests from the NCUA for additional information. The proposed form is available for review within the Regulations.gov docket for this notice of proposed rulemaking.

The proposed changes will not hinder the NCUA's ability to assess a credit union's economic advisability and service to low-income members. Although the proposed changes adjust the current process to require less information in total, they better target the most useful information, thereby enhancing the efficiency and effectiveness of NCUA reviews.

The Board welcomes comments on all aspects of these proposed changes and specifically requests comment on whether the new fillable application should be mandatory. The Board's intention is to reduce burden on applicants and the agency by making the process simpler without sacrificing the quality of the information and analysis. The Board is interested in whether a free-form narrative option is preferrable and may consider making the form optional, depending on the feedback from commenters. The Board also requests comment on whether it should codify the new form in the Manual. The advantage of codifying it is making it more readily accessible, but the disadvantage is that even minor changes may require a new notice-and-comment rulemaking to avoid confusion. 66 The Board may decide not to codify the form or label the form as being subject to modification by CURE from time to time in the final rule, depending on the feedback it receives from commenters.

FISCUs converting to a federal community charter are currently also subject to the business and marketing plan requirements discussed in the preceding section of this preamble. 67 The proposed rule eliminates this requirement for FISCUs converting to a federal community charter if they will continue to serve the same community. The economic advisability of granting a community charter in a conversion to a federal credit union is more readily determinable because the applicant applying to convert is an existing insured credit union whose management and operations the NCUA has examined or supervised and that has an established history of serving the community.

The Manual defines the business and marketing plan requirements for a community credit union. The business and marketing plan must demonstrate the credit union's “ability and commitment to serve the entire community for which it seeks NCUA approval.”  68 The Board did not propose changes to the charter conversion requirements in the 2016 FOM rulemakings on community charters. The Board acknowledges that it relies on sound business and marketing plans to ensure that expanded community chartering options are reasonable and viable. 69

In addition, the Manual implements the statutory requirements governing the conversion of a state charter to a federal charter. 70 In general, conversions “are treated the same as any initial application for a federal charter.”  71 However, “[s]ince the applicant in a conversion is an ongoing credit union, the economic advisability of granting a charter is more readily determinable than in the case of an initial charter applicant.”  72

The Manual also requires that, “[i]f the converting credit union is a community charter and the new federal charter is community-based, it must meet the community field of membership requirements set forth in Chapter 2, Section V, of this manual.”  73 Among other requirements, this section notes how the NCUA will not approve an application for a community charter consisting of all or a portion of a combined statistical area or a core-based statistical area unless the applicant demonstrates in its business and marketing plan the credit union will (1) serve a community that is contiguous and (2) provide financial services to low- and moderate-income and underserved people. The NCUA must also ensure the credit union has not selected its service area to exclude low- and moderate-income and underserved people or to engage in illegal discrimination. 74

The proposed rule would amend the Manual's business and marketing plan requirement for FISCUs that already serve the community applying to become a federal community charter. In place of the plan, the NCUA would only require a FISCU to submit a statement addressing the following three topics:

1. Does the existing community consist of a portion of a Core Based Statistical area or Combined Statistical Area? If so, please explain the credit union's basis for selecting its service area.

2. Describe products and services you offer or plan to offer to low- and moderate-income and underserved members.

3. How will you market to the low- and moderate-income, and underserved (economically distressed) people, and those with unique needs, in the community?

The Board believes that the proposed removal of the business and marketing plan requirement for FISCU conversions will not hinder the NCUA's ability to assess the applicant's economic advisability and its capacity to provide services to low- and moderate-income members. This would be accomplished through the NCUA's review of the FISCU's Financial Performance Report, review of examination reports, including reports related to compliance with consumer financial protection and fair lending statutes and regulations. The proposed changes will reduce the time involved for both the credit union and NCUA staff. 75

A FISCU converting to an FCU community charter would not be subject to the NCUA's 3-year business and marketing plan review. 76 The NCUA believes it is able to review for non-discrimination through other means, such as the FISCU's track record, state examination results, including results related to any fair lending reviews, and other information available to the agency.

This proposed change would not apply to single or multiple common bond FISCUs converting to an FCU community charter. These credit unions would have to submit a business and marketing plan. This change would also not apply to non-federally insured credit unions. As stated previously, the NCUA has an opportunity to conduct ongoing reviews of FISCUs that provide insight into the credit union's management and operations. Because the NCUA does not have the same opportunity with non-federally insured credit unions, the Board believes that the basis for this change is not applicable. The Board specifically invites comments on whether to treat any conversions of non-federally insured credit unions differently in this respect. After reviewing any input from commenters on this issue, the Board may consider expanding this flexibility to non-federally insured credit unions in finalizing the proposed rule.

The Board is also proposing a targeted addition to the affinity groups eligible for membership in community FCUs. 77 The Manual defines an affinity as a relationship on which a community charter is based. The affinity concept, which the FCU Act does not set forth or restrict, complements the community FOM. The community FOM tells a prospective member which geographic area is relevant—a well-defined local community, neighborhood, or rural district. The affinities tell them which relationships to that area are enough to make a bond suitable for membership.

The Manual currently defines four types of affinity groups eligible for membership in FCUs serving communities or rural districts, namely persons who live in, worship in, attend school in, or work in the community or rural district. 78

While the current regulatory structure is generally effective, it imposes limits on credit unions serving, or desiring to serve, a community which has employers with staff located outside the community boundaries. This limitation potentially discourages credit unions from pursuing a federal community charter if they have an existing working relationship with the employees of an employer headquartered within its operational area, but would, upon converting, lose the ability to serve the employer's staff working from another location.

The Board is also concerned the current affinities permitted for community credit unions do not satisfactorily address changing trends in the workplace. Most significantly, the concept of employment location has changed over time, particularly in the post-COVID-19 world which increased the trend for telecommuting and decentralized workplaces. Advances in technology have significantly changed how employees conduct work and communicate with one another, and there is less of a need for persons working for the same entity to share a common work location. Although the concept of where people work is changing, especially through the increase in the number of persons working from remote locations, we also believe individuals in another locale who are employed by a company headquartered in the community still maintain important ties to their company's headquarters.

Since March 2020, the collective efforts of companies to adapt to the COVID-19 pandemic offer even more pronounced evidence of how a staff member's physical location has become less important in maintaining an employment affinity that enables an employer to accomplish its mission. Subsequent to the pandemic, employers may generally be more likely to structure operations to accommodate more geographically dispersed workforces. As a result, the current constraints affecting FCUs serving well-defined local communities, neighborhoods, or rural districts could have a more adverse impact as employees in many workplaces now work at home in remote locations which are not in a commutable distance from the company's physical location.

As of June 30, 2022, there were 1,009 community chartered FCUs with $253.7 billion in assets that provide service to over 17 million members. The overwhelming majority of existing community charters began as single or multiple common bond credit unions, and many had to sacrifice the ability to serve persons working for employers in the community if those employees resided outside the community. This change will permit these FCUs to maintain or expand their membership base, promote financial inclusion, and expand access to credit union services to more individuals.

To address this limitation, the Board proposes adding a fifth affinity to include a paid employee for a legal entity headquartered in the community, neighborhood, or rural district. The Board believes this rule change will help FCUs adapt to serve everyone with ties to a community by providing employees access to a community credit union with which they have a bond through their employer, even if they do not physically work in the well-defined local community or rural district.

The addition of the “paid employee for a legal entity headquartered in the well-defined local community, neighborhood or rural district” also has safety-and-soundness benefits to FCUs. It will allow community FCUs to reduce their risk to localized economic downturns and disasters. In addition, it will help address the reality that more employers are moving to a business model in which more staff members can work in remote locations.

The Board is also proposing an update to the groups of persons who may join an FCU based on a common bond with its members or the FCU. Many of these provisions, including those on spouses of persons who died while within the field of membership, volunteers, and pensioners, were in the NCUA's chartering regulations and policies before CUMAA and reflected the agency's judgment on which relationships show a common bond that supports extending membership eligibility. 79 The proposed update would modestly expand an existing option to reflect changes in society and alleviate logistical hurdles to funds transfer and succession for FCU members.

Under the current options available for FCUs to enroll secondary members, immediate family or household members of decedents are not eligible for membership unless the person was a spouse of a person who died while within the field of membership of the credit union. As a result of the survivors not retaining membership eligibility, the Board has learned FCUs may lose the funds the decedents held in the credit union to another financial institution, along with any goodwill associated with a longstanding relationship the credit union had with the decedent.

Immediate family or household members who are not surviving spouses may not have joined a federal credit union when the decedent was still living due to an oversight, lack of awareness regarding eligibility, or a perceived lack of need in cases where the decedent handled the finances of the family or household. Also, in the case of accounts established in joint tenancy, a survivor may have mistakenly believed he or she already is a member.

The Board proposes amending the Manual to address these concerns and minimize the potential for future confusion, especially when a consumer is undergoing a period of bereavement. The amendment will update the definition of secondary members for each common bond type to include every member of a decedent's immediate family or household for a6-month period following the decedent's passing.

In developing the proposed rule change, the Board patterned the agency's approach after the principles the NCUA already recognizes in its share insurance regulation, which allows a grace period of 6 months for survivors of a decedent to restructure accounts to maintain coverage after a member passes away. This provision allows survivors to act as if the decedent were still living for the purposes of maintaining an insured coverage relationship with the credit union when possible. 80

If the NCUA followed the same principle relative to general membership enrollment, it would allow a similar grace period after a member or individual who is within the field of membership passes away for survivors to exercise a right that existed while the member or potential member was still living. In addition to being consistent with language on insurance coverage, it would avoid a situation that allows eligibility for survivors in perpetuity even if they themselves are not otherwise within the field of membership. Allowing eligibility in perpetuity could create problems verifying eligibility and stretches the assertion that an individual is eligible based on his or her relationship to the decedent, which may have ended many years prior. While the Board believes the proposed rule offers a fair approach to handling a sensitive issue, it welcomes comments as to whether an alternative timeframe is appropriate.

The Board, while welcoming comments on any aspect of this proposed rule change, specifically requests comment on a potential variation on the proposal which would allow immediate family members, other than a surviving spouse, to join the FCU after a person's death only if the decedent was a member of the credit union, as opposed to being just a potential member, at the time of death. This option would preserve the right of a surviving spouse of a member or potential member to remain eligible for credit union membership as permitted under the current regulatory framework. It would, however, only allow eligibility for other members of the immediate family or household for 6 months if their ties were with an actual, not potential, member who passed away. The Board requests comments to better understand the membership succession needs of FCUs and consumers when faced with the loss of a member of the immediate family or household.

This proposed rule makes a technical clarification and correction to the Manual provision regarding the agency's evaluation and disapproval of directors and other management officials for applicants for NCUSIF coverage. The goal of the change is to reduce confusion for applicants and provide a clearer explanation of which authorities govern this review process.

Section 201(c) of the FCU Act requires the NCUA to ensure that the management of applicants for insurance are of good “general character and fitness.”  81 Chapter 1, Section IV.B., of the Manual implements this statutory requirement. Separately, section 104 of the FCU Act states “an investigation shall be made for the purpose of determining . . . the general character and fitness of subscribers” to the FCU organization certificate in the Board's approval of a new FCU charter. 82 An FCU's subscribers—the individuals who seek to charter a new FCU—often apply to serve as officials of the prospective FCU.

The present wording of the Manual incorrectly cites to the NCUA regulation in § 701.14, which does not pertain to sections 104 or 201(c) of the FCU Act. The regulation implements section 212 of the FCU Act, which provides separate statutory authority for disapproval of directors and management officials of certain federally insured credit unions. 83 The regulation only applies in cases of federally insured credit unions in troubled condition or newly chartered credit unions (defined in § 701.14(c)(1)(ii) as those chartered for less than 2 years). 84 These requirements, including time limitations for application review and approval, do not apply to credit unions that are applying for an FCU charter or insurance of member of accounts. The Manual and § 701.14 apply similar standards to prospective directors and management officials, but under the FCU Act and the NCUA's regulations, these procedures are distinct.

The proposed rule removes the reference to § 701.14 in Chapter 1, Section IV.B., of the Manual to clarify that the NCUA relies on the authority of section 201(c) of the FCU Act in disapproving a director or other management official of an applicant for NCUSIF coverage, as well as section 104 on the character and fitness of FCU subscribers. The proposed change does not alter the NCUA's current procedures for such disapprovals. By proposing this change, the Board intends solely to ensure the accuracy and clarity of the Manual.

The Board is also interested in seeking input from commenters to inform future policies or rulemaking outside the scope of this proposed rule. In addition to the specific requests for comment included with the discussion of proposed changes elsewhere in this preamble, the Board welcomes comments on the following topics, which the Board may address in future actions but not in connection with this proposed rule or any final rule based on the proposed rule.

Application of “well-defined” to underserved areas. Currently, the Manual applies the “well-defined” requirement to communities, neighborhoods, and rural districts that an applicant seeks to serve as an underserved area. 85 But, the FCU Act does not apply this term in the provision on underserved areas. The statute requires that these areas may include persons or organizations within a “local community, neighborhood, or rural district.” If the Board revisits the current requirement, how would commenters recommend the Board describe the required boundaries for a qualifying area? Currently, the “well-defined” requirement is defined as having specific geographic boundaries. How would commenters recommend that the Board distinguish a well-defined area from one that may not need to be well-defined? Should the Board consider amending the “well-defined” definition to provide a clear basis to distinguish such areas?

Concentration of facilities. Currently, the Manual provides three options for an applicant to establish that a proposed underserved area is underserved by other depository institutions, as the FCU Act requires. 86 First, the Manual provides for a specific calculation based on the non-distressed tracts within an area. This is the test the NCUA runs to see whether an area qualifies. Second, the Manual provides that an underserved county, as designated by the Consumer Financial Protection Bureau, will qualify as underserved for purposes of this test. Third, the Manual provides that an area may qualify based on a credit union's own “metric” if the credit union's measure is based on data from the NCUA or other federal banking agencies. Do commenters believe these options, including the current flexibility for an applicant to provide its own data and analysis, provide sufficient latitude to establish that an area is underserved? What additional measures or metrics do commenters recommend, and could they fit within the third option described in this paragraph? Alternatively, should the Board consider adopting an additional option based on a national benchmark of depository institution facilities? What sources do commenters recommend the Board consider in studying this issue?

Neighborhoods as a chartering option. Currently, the Manual does not include a detailed description and set of specific criteria to define a permissible charter based on a neighborhood, as 12 U.S.C. 1759(b) allows. In the agency's experience, communities (and likely rural districts) typically subsume neighborhoods. The proposed rule contains some minor elaboration and suggested clarifications on neighborhoods but is not proposing any substantive changes. Should the Board consider proposing or otherwise developing guidance or requirements for neighborhood-based charters? Do commenters believe that some neighborhoods may extend beyond or not be co-extensive with a community or rural district in some instances? Would development of this option assist FCUs in expanding access to financial services?

The Paperwork Reduction Act of 1995 (PRA) applies to rulemaking in which an agency creates a new or amends existing information collection requirements. 87 For purposes of the PRA, an information collection requirement may take the form of a reporting, recordkeeping, or a third-party disclosure requirement. The NCUA may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a valid Office of Management and Budget (OMB) control number. The current information collection requirements for the Chartering and Field of Membership Manual are approved under OMB control number 3133-0015.

The proposed rule would introduce a simplified application for community-based FCUs by eliminating duplicative and unused reporting and providing a standard format for business and marketing plans. The NCUA estimates that 50 percent of the respondents of the current application will use the new simplified version for an estimated reduction of 560 burden hours.

The proposed rule would also eliminate the one-page narrative and third-party data from FCUs seeking to add an underserved area. The elimination of this reporting requirement is estimated to reduce the burden by 2 hours per response to complete the application for a total reduction of 42 burden hours.

A FISCU converting to a federal community charter is currently subject to the business and marketing plan requirements. The proposed rule would eliminate this requirement for FISCUs when converting to a federal community charter if they already serve the same community. It is estimated that one FISCU would fall in this category. A reduction of 2 burden hours would be due to the elimination of this reporting requirement.

A program change attributed with this proposed rulemaking is estimated to reduce the overall burden hours by 604.

OMB Control Number: 3133-0015.

Title of information collection: Chartering and Field of Membership Manual, 12 CFR 701.1, App. B to Part 701.

Estimated number respondents: 8,245.

Estimated number of responses per respondent: 1.

Estimated total annual responses: 8,245.

Estimated total annual burden hours per response: 0.53.

Estimated total annual burden hours: 15,619.

The NCUA invites comments on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and cost of operation, maintenance, and purchase of services to provide information.

All comments are a matter of public record. Interested persons are invited to submit written comments to (1) www.reginfo.gov/public/do/PRAMain (find this particular information collection by selecting the agency under “Currently under Review”) or to (2) National Credit Union Administration, 1775 Duke Street, Suite 6032, Alexandria, Virginia 22314; or email at PRAComments@ncua.gov.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. The NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. This proposed rule only applies to FCUs and would not have substantial direct effects on the states, on the relationship between the National Government and the states, or on the distribution of power and responsibilities among the various levels of government. Although the rule, in part, streamlines some of the requirements for converting from a FISCU to an FCU, the NCUA's experience generally indicates the application process itself has not been a determinative factor in an existing credit union's choice of jurisdictional authority. Accordingly, the NCUA believes that the effect of this change on the states would be limited. The NCUA has therefore determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order.

The Board has determined that this proposed rule would not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999. 88 Although the provision on extending membership eligibility to surviving family members may affect members and their families by extending access to financial services, the Board does not believe that the change would affect family well-being as described in factors included in the legislation, which include the effect of the action on the stability and safety of the family; on parental authority and rights in the education, supervision, and nurture of their children; on the ability of families support their functions or substitutes governmental activity for these functions; and on increases or decreases to disposable income. The Board's proposed change would potentially affect where family members access funds after a members' death, but the proposal would not affect access to the funds themselves.

For the reasons stated in the preamble, the NCUA Board proposes to amend 12 CFR part 701, as follows:

The revisions and addition read as follows:

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. CMS will not post on Regulations.gov public comments that make threats to individuals or institutions or suggest that the individual will take actions to harm the individual. CMS continues to encourage individuals not to submit duplicative comments. We will post acceptable comments from multiple unique commenters even if the content is identical or nearly identical to other comments.

Section 1886(d)(5)(F) of the Social Security Act (the Act) provides for additional Medicare inpatient prospective payment system (IPPS) payments to subsection (d) hospitals  1 that serve a significantly disproportionate number of low-income patients. These payments are known as the Medicare disproportionate share hospital (DSH) adjustment, and the statute specifies two methods by which a hospital may qualify for the DSH payment adjustment.

• Under the first method, hospitals that are located in an urban area and have 100 or more beds may receive a DSH payment adjustment if the hospital can demonstrate that, during its cost reporting period, more than 30 percent of its net inpatient care revenues are derived from State and local government payments for care furnished to patients with low incomes. This method is commonly referred to as the “Pickle method.”

• The second method for qualifying for the DSH payment adjustment, which is the most common method, is based on a complex statutory formula under which the DSH payment adjustment is based on the hospital's geographic designation, the number of beds in the hospital, and the level of the hospital's disproportionate patient percentage (DPP). A hospital's DPP is the sum of two fractions: the “Medicare fraction” and the “Medicaid fraction.” The Medicare fraction (also known as the “SSI fraction” or “SSI ratio”) is computed by dividing the number of the hospital's inpatient days that are furnished to patients who were entitled to both Medicare Part A and Supplemental Security Income (SSI) benefits by the hospital's total number of patient days furnished to patients entitled to benefits under Medicare Part A. The Medicaid fraction is computed by dividing the hospital's number of inpatient days furnished to patients who, for such days, were eligible for Medicaid but were not entitled to benefits under Medicare Part A, by the hospital's total number of inpatient days in the same period.

Because the DSH payment adjustment is part of the IPPS, the statutory references to “days” in section 1886(d)(5)(F) of the Act have been interpreted to apply only to hospital acute care inpatient days. Regulations located at 42 CFR 412.106 govern the Medicare DSH payment adjustment and specify how the DPP is calculated as well as how beds and patient days are counted in determining the Medicare DSH payment adjustment. Under § 412.106(a)(1)(i), the number of beds for the Medicare DSH payment adjustment is determined in accordance with bed counting rules for the Indirect Medical Education (IME) adjustment under § 412.105(b). Section 1115(a) of the Act gives the Secretary the authority to approve a demonstration requested by a State which, “in the judgment of the Secretary, is likely to assist in promoting the objectives of [Medicaid.]” In approving a section 1115 demonstration, the Secretary may waive compliance with any Medicaid State plan requirement under section 1902 of the Act to the extent and for the period he finds necessary to enable the State to carry out such project. The costs of such project that would not otherwise be included as Medicaid expenditures eligible for Federal matching under section 1903 of the Act may, to the extent and for the period prescribed by the Secretary, be regarded as such federally matchable expenditures.

States use section 1115(a) demonstrations to test changes to their Medicaid programs that generally cannot be made using other Medicaid authorities, including to provide health insurance to groups that generally could not or have not been made “eligible for medical assistance under a State plan approved under title XIX” (Medicaid benefits). These groups, commonly referred to as expansion populations or expansion waiver groups, are specific, finite groups of people defined in the demonstration approval letter and special terms and conditions for each demonstration. (We note in the discussion that follows, we use the term “demonstration” rather than “project” and/or “waiver” and the term “groups” instead of “populations,” as this terminology is generally more consistent with the implementation of the provisions of section 1115 of the Act. Therefore, we refer in what follows to groups extended health insurance through a demonstration as “demonstration expansion groups.”)

Prior to 2000, some States had chosen to only cover Medicaid populations under their State plans when State plan coverage was mandatory under the statute, and they did not provide State plan coverage for populations for whom the statute made State plan coverage optional. Instead, coverage for these optional State plan coverage groups (as well as groups not eligible for even optional coverage) could be provided through demonstrations approved under section 1115 of the Act. We referred to these demonstration groups that could have been covered under optional State plan coverage as “hypothetical” groups—consisting of patients that could have been but were not covered under a State plan, but that received the same or very similar package of insurance benefits under a demonstration as did individuals eligible for those benefits under the State plan. Many other States, however, still elected to cover optional State plan coverage groups under their Medicaid State plans instead of through a demonstration. In order to avoid disadvantaging hospitals in States that covered such optional State plan coverage groups under a demonstration, CMS developed a policy of counting hypothetical group patients covered under a demonstration in the numerator of the Medicaid fraction of the Medicare DSH calculation (hereinafter, the DPP Medicaid fraction numerator) as if those patients were eligible for Medicaid.

Such demonstrations could also include individuals who could not have been covered under a State plan, such as childless adults for whom, at the time, State plan coverage was not mandatory under the statute, nor was optional State plan coverage available. We refer to these groups as “expansion” groups. Prior to 2000, CMS did not include expansion groups in the DPP Medicaid fraction numerator, even if they received the same package of hospital insurance benefits under a demonstration as hypothetical groups and those eligible under the State plan.

On January 20, 2000, we issued an interim final rule with comment period (65 FR 3136) (hereinafter, January 2000 interim final rule), followed by a final rule issued on August 1, 2000 (65 FR 47086 through 47087), that changed the Secretary's policy on how to treat the patient days of expansion groups that received Medicaid-like benefits under a section 1115 demonstration in calculating the Medicare DSH adjustment. The policy adopted in the January 2000 interim final rule (65 FR 3136) permitted hospitals to include in the DPP Medicaid fraction numerator all patient days of groups made eligible for title XIX matching payments through a section 1115 demonstration, whether or not those individuals were, or could be made, eligible for Medicaid under a State plan (assuming they were not also entitled to benefits under Medicare Part A). Speaking literally, neither expansion groups nor hypothetical groups were in fact “eligible for medical assistance under a State plan”—meaning neither group was eligible for Medicaid benefits. But, in CMS' view, certain section 1115 demonstrations introduced an ambiguity into the DSH statute that justified including both hypothetical and expansion groups in the DPP Medicaid fraction numerator. Specifically, CMS thought it appropriate to count the days of these demonstration groups because the demonstrations provided them the same or very similar benefits as the benefits provided to Medicaid beneficiaries under the State plan. As we explained in that rule (65 FR 3137), allowing hospitals to include patient days for section 1115 demonstration expansion groups in the DPP Medicaid fraction numerator is fully consistent with the Congressional goals of the Medicare DSH payment adjustment to recognize the higher costs to hospitals of treating low-income individuals covered under Medicaid. This policy was effective for discharges occurring on or after January 20, 2000.

In the FY 2004 IPPS final rule (68 FR 45420 and 45421), we further revised our regulations to limit the types of section 1115 demonstrations for which patient days could be counted in the DPP Medicaid fraction numerator. We explained that in allowing hospitals to include patient days of section 1115 demonstration expansion groups, our intention was to include patient days of those groups who under a demonstration receive benefits, including inpatient hospital benefits, that are similar to the benefits provided to Medicaid beneficiaries under a State plan. However, we had become aware that certain section 1115 demonstrations provided some expansion groups with benefit packages so limited that the benefits were unlike the relatively expansive health insurance (including insurance for inpatient hospital services) provided to beneficiaries under a Medicaid State plan. We explained that these limited section 1115 demonstrations extend benefits only for specific services and do not include similarly expansive benefits.

In the FY 2004 IPPS final rule we specifically discussed family planning benefits offered through a section 1115 demonstration as an example of the kind of demonstration days that should not be counted in the DPP Medicaid fraction numerator because the benefits granted to the expansion group are too limited, and therefore, unlike the package of benefits received as Medicaid benefits under a State plan. Our intention in discussing family planning benefits under a section 1115 demonstration was not to single out family planning benefits, but instead to provide a concrete example of how the changes being made in the FY 2004 IPPS final rule would refine the Secretary's policy (set forth in the January 2000 interim final rule (65 FR 3136)). This refinement was to allow only the days of those demonstration expansion groups who are provided benefits, and specifically inpatient hospital benefits, equivalent to the health care insurance that Medicaid beneficiaries receive under a State plan, to be included in the DPP Medicaid fraction numerator. Moreover, this example was intended to illustrate the kind of benefits offered through a section 1115 demonstration that are so limited that the patients receiving them should not be considered eligible for Medicaid for purposes of the DSH calculation.

Because of the limited nature of the Medicaid benefits provided to expansion groups under some demonstrations, as compared to the benefits provided to the Medicaid population under a State plan, we determined it was appropriate to exclude the patient days of patients provided limited benefits under a section 1115 demonstration from the determination of Medicaid days for purposes of the DSH calculation. Therefore, in the FY 2004 IPPS final rule (68 FR 45420 and 45421), we revised the language of §  412.106(b)(4)(i) to provide that for purposes of determining the DPP Medicaid fraction numerator, a patient is deemed eligible for Medicaid on a given day only if the patient is eligible for inpatient hospital services under an approved State Medicaid plan or under a section 1115 demonstration. Thus, under our current regulations, hospitals are allowed to count patient days in the DPP Medicaid fraction numerator only if they are days of patients made eligible for inpatient hospital services under either a State Medicaid plan or a section 1115 demonstration, and who are not also entitled to benefits under Medicare Part A.

In 2005, the United States Court of Appeals for the Ninth Circuit held that demonstration expansion groups receive care “under the State plan” and that, accordingly, our pre-2000 practice of excluding them from the DPP Medicaid fraction numerator was contrary to the plain language of the Act. Subsequently, the United States District Court for the District of Columbia reached the same conclusion, reasoning that if our policy after 2000 of counting the days of demonstration expansion groups was correct, then patients in demonstration expansion groups were necessarily “eligible for medical assistance under a State plan” (that is, eligible for Medicaid), and the Act had always required including their days in the Medicaid fraction.

Shortly after these court decisions, in early 2006, Congress enacted the Deficit Reduction Act of 2005 (the DRA) (Pub. L. 109-171, February 8, 2006). Section 5002 of the DRA amended section 1886(d)(5)(F)(vi) of the Act to clarify the Secretary's discretion to regard as eligible for Medicaid those not so eligible and to include in or exclude from the DPP Medicaid fraction numerator demonstration days of patients regarded as eligible for Medicaid. First, by distinguishing between “patients who . . . were eligible for medical assistance under a State plan approved under subchapter XIX” (that is, Medicaid) and “ patients not so eligible but who are regarded as such because they receive benefits under a demonstration project,” section 5002(a) of the DRA clarified that groups that receive benefits through a section 1115 demonstration are not “eligible for medical assistance under a State plan approved under title XIX.” This provision effectively overruled the earlier court decisions that held that expansion groups were made eligible for Medicaid under a State plan. Second, the DRA stated “the Secretary may, to the extent and for the period the Secretary determines appropriate, include patient days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved under title XI.” Thus, the statute provides the Secretary the discretion to determine “the extent” to which patients “not so eligible” for Medicaid benefits “may” be “regarded as” eligible “because they receive benefits under a demonstration project approved under title XI.” Third, this same language provides the Secretary with further authority to determine the days of which patients regarded as being eligible for Medicaid to include in the DPP Medicaid fraction numerator and for how long.

Having provided the Secretary with the discretion to decide whether and to what extent to include patients who receive benefits under a demonstration project, Congress expressly ratified in section 5002(b) of the DRA our prior and then-current policies on counting demonstration days in the Medicaid fraction. As stated before, our pre-2000 policy was not to include in the DPP Medicaid fraction numerator days of section 1115 demonstration expansion groups unless those patients could have been made eligible for Medicaid under a State plan. We changed that policy in 2000 to include in the DPP Medicaid fraction numerator all patient days of demonstration expansion groups made eligible for matching payments under title XIX, regardless of whether they could have been made eligible for Medicaid under a State plan. And for FY 2004, before the DRA was enacted, CMS had further refined this policy and included in the DPP Medicaid fraction numerator the days of only a small subset of demonstration expansion group patients regarded as eligible for Medicaid: those that were eligible to receive inpatient hospital insurance benefits under the terms of a section 1115 demonstration. By ratifying the Secretary's pre-2000 policy, the January 2000 interim final rule, and the FY 2004 IPPS final rule, the DRA further established that the Secretary had always had the discretion to determine which demonstration expansion group patients to regard as eligible for Medicaid and whether or not to include any of them in the DPP Medicaid fraction numerator.

Because at the time the DRA was passed the language of § 412.106(b)(4) already addressed the treatment of section 1115 days to exclude some expansion populations that received limited health insurance benefits through the demonstration, we did not believe it was necessary to update our regulations after the DRA explicitly granted us the discretion to include or exclude section 1115 days from the Medicaid fraction of the DSH calculation. We believed instead the language of § 412.106(b)(4) reflected our view that only those eligible to receive inpatient hospital insurance benefits under a demonstration project could be “regarded as” “eligible for medical assistance” under Medicaid. Thus, considering this history and the text of the DRA, we understand the Secretary to have broad discretion to decide (1) whether and the extent to which to “regard as” eligible for Medicaid because they receive benefits under a demonstration those patients “not so eligible” under the State plan, and (2) of such patients regarded as Medicaid eligible, the days of which types of these patients to count in the DPP Medicaid fraction numerator and for what period of time to do so.

We do not believe that either the statute or the DRA permit or require the Secretary to count in the DPP Medicaid fraction numerator days of just any patient who is in any way related to a section 1115 demonstration. Rather, section 1886(d)(5)(F)(vi) of the Act limits including days of expansion group patients to those who may be “regarded as” “eligible for medical assistance under a State plan approved under title XIX.”

CMS's overall policy for including section 1115 demonstration days in the DPP Medicaid fraction numerator rested on the presumption that the demonstration provided a package of health insurance benefits that were essentially the same as what a State provided to its Medicaid population. More recently, however, section 1115 demonstrations have been used to authorize funding a limited and narrowly circumscribed set of payments to hospitals. For example, some section 1115 demonstrations include funding for uncompensated/undercompensated care pools that help to offset hospitals' costs for treating uninsured and underinsured individuals. These pools do not extend health insurance to such individuals nor are they similar to the package of health insurance benefits provided to participants in a State's Medicaid program under the State plan. Rather, such funding pools “promote the objectives of Medicaid” as required under section 1115 of the Act, but they do so by providing funds directly to hospitals, rather than providing health insurance to patients. These pools help hospitals that treat the uninsured and underinsured stay financially viable so they can treat Medicaid patients.

By providing hospitals payment based on their uncompensated care costs, the pools directly benefit those providers, and, in turn, albeit less directly, the patients they serve. Unlike demonstrations that expand the group of people who receive health insurance beyond those groups eligible under the State plan and unlike Medicaid itself, however, uncompensated/undercompensated care pools do not provide inpatient health insurance to patients or, like insurance, make payments on behalf of specific, covered individuals. 2 In these ways, payments from these pools serve essentially the same function as Medicaid DSH payments under sections 1902(a)(13)(A)(iv) and 1923 of the Act, which are also title XIX payments to hospitals meant to subsidize the cost of treating the uninsured, underinsured, and low-income patients and that promote the hospitals' financial viability and ability to continue treating Medicaid patients. Notably, as numerous Federal courts across the country have universally held, the patients whose care costs are indirectly offset by such Medicaid DSH payments are not “eligible for medical assistance” under the Medicare DSH statute and are not included in the DPP Medicaid fraction numerator. See, for example, Adena Regional Medical Center v. Leavitt , 527 F.3d 176 (D.C. Cir. 2008); Owensboro Health, Inc. v. HHS, 832 F.3d 615 (6th Cir. 2016).

We also note that demonstrations can simultaneously authorize different programs within a single demonstration, thereby creating a group of people the Secretary regards as Medicaid eligible because they receive health insurance through the demonstration, while also creating a separate category of payments that do not provide health insurance to individuals, such as uncompensated/undercompensated care pools for providers.

Several hospitals challenged our policy of excluding uncompensated/undercompensated care days and premium assistance days from the DPP Medicaid fraction numerator, which the courts have recently decided in a series of cases. 3 These decisions held that the current language of the regulation at § 412.106(b)(4) requires CMS to count in the DPP Medicaid fraction numerator patient days for which hospitals have received payment from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration, as well as days of patients who received premium assistance under a section 1115 demonstration. Interpreting this regulatory language, that was adopted before the DRA was enacted, two courts concluded that if a hospital received payment for a patient's otherwise uncompensated inpatient hospital treatment, that patient is “eligible for inpatient hospital services” within the meaning of the current regulation, and therefore, his patient day must be included in the DPP Medicaid fraction. Likewise, a court concluded that patients who receive premium assistance to pay for private insurance that covers inpatient hospital services are “eligible for inpatient hospital services” within the meaning of the current regulation, and those patient days must be counted.

As discussed previously, it was never our intent when we adopted the current language of the regulation to include in the DPP Medicaid fraction numerator days of patients that benefitted so indirectly from a demonstration. In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25459) (hereinafter, the FY 2022 proposed rule), we stated that we continued to believe, as we have consistently believed since at least 2000, that it is not appropriate to include patient days associated with funding pools and premium assistance authorized by section 1115 demonstrations in the DPP Medicaid fraction numerator because the benefits provided patients under such demonstrations are not similar to Medicaid benefits provided beneficiaries under a State plan and may offset costs that hospitals incur when treating uninsured and underinsured individuals. In the FY 2022 proposed rule, we proposed to revise our regulations to more clearly state that in order for an inpatient day to be counted in the DPP Medicaid fraction numerator, the section 1115 demonstration must provide inpatient hospital insurance benefits directly to the individual whose day is being considered for inclusion. We specifically discussed that, under the proposed change, days of patients who receive premium assistance through a section 1115 demonstration and the days of patients for which hospitals receive payments from an uncompensated/undercompensated care pool created by a section 1115 demonstration would not be included in the DPP Medicaid fraction numerator. Because neither premium assistance nor uncompensated/undercompensated care pools are inpatient hospital insurance benefits directly provided to individuals, nor are they comparable to the breadth of benefits available under a Medicaid State plan, we stated that individuals associated with such assistance and pools should not be “regarded as” “eligible for medical assistance under a State plan.”

Commenters generally disagreed with our proposal, arguing that both premium assistance programs and uncompensated/undercompensated care pools are used to provide individuals with inpatient hospital services, either by reimbursing hospitals for the same services as the Medicaid program in the case of uncompensated/undercompensated care pools or by allowing individuals to purchase insurance with benefits similar to Medicaid benefits offered under a State plan in the case of premium assistance. Thus, they argued, those types of days should be included in the DPP Medicaid fraction numerator. Following review of these comments, in the final rule with comment period that appeared in the December 27, 2021 Federal Register , which finalized certain provisions of the FY 2022 proposed rule related to Medicare graduate medical education payments for teaching and Medicare organ acquisition payment, we stated that after further consideration of the issue we had determined not to move forward with our proposal and planned to revisit the issue of section 1115 demonstration days in future rulemaking (86 FR 73418).

After considering the comments we received in response to the FY 2022 proposed rule, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 28398) (hereinafter, the FY 2023 proposed rule), we proposed to revise our regulation to explicitly reflect our interpretation of the language “regarded as” “eligible for medical assistance under a State plan approved under title XIX” in section 1886(d)(5)(F)(vi) of the Act to mean patients who (1) receive health insurance authorized by a section 1115 demonstration or (2) patients who pay for all or substantially all of the cost of health insurance with premium assistance authorized by a section 1115 demonstration, where State expenditures to provide the health insurance or premium assistance may be matched with funds from title XIX. Moreover, of the groups we regarded as Medicaid eligible, we proposed to use our discretion under the Act to include in the DPP Medicaid fraction numerator only (1) the days of those patients who obtained health insurance directly or with premium assistance that provides essential health benefits (EHB) as set forth in 42 CFR part 440, subpart C, for an Alternative Benefit Plan (ABP), and (2) for patients obtaining premium assistance, only the days of those patients for which the premium assistance is equal to or greater than 90 percent of the cost of the health insurance, provided in either case that the patient is not also entitled to Medicare Part A. (87 FR 28398 through 28402).

In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49051), we noted that the agency received numerous, detailed comments on our proposal. We indicated that due to the number and nature of the comments that we received, and after further consideration of the issue, we had determined not to move forward with the FY 2023 proposal. We stated that we expected to revisit the treatment of section 1115 demonstration days for purposes of the DSH adjustment in future rulemaking (87 FR 49051).

Consistent with our interpretation of the Medicare DSH statute over more than 2 decades and the history of our policy on counting section 1115 demonstration days in the DPP Medicaid fraction numerator set forth in our regulations, considering the series of adverse cases interpreting the current regulation, and in light of what we proposed in the FY 2022 and FY 2023 proposed rules and our consideration of the comments we received thereon, we are again proposing to amend the regulation at § 412.106(b)(4). In order for days associated with section 1115 demonstrations to be counted in the DPP Medicaid fraction numerator, the statute requires those days to be of patients who can be “regarded as” eligible for Medicaid. Accordingly, and consistent with the proposed approach set forth in the FY 2023 proposed rule and with our longstanding interpretation of the statute and as amended by the DRA, and with the current language of § 412.106(b)(4), we are proposing to modify our regulations to explicitly state our long-held view that only patients who receive health insurance through a section 1115 demonstration where State expenditures to provide the insurance may be matched with funds from title XIX can be “regarded as” eligible for Medicaid.

Similar to our statements in the FY 2023 proposed rule, in further considering the comments regarding the treatment of the days of patients provided premium assistance through a section 1115 demonstration to buy health insurance, we are again proposing that such patients can also be regarded as eligible for Medicaid under section 1886(d)(5)(F)(vi) of the Act. Therefore, we propose for purposes of the Medicare DSH calculation in section 1886(d)(5)(F)(vi) of the Act to “regard as” “eligible for medical assistance under a State plan approved under title XIX” patients who (1) receive health insurance authorized by a section 1115 demonstration or (2) buy health insurance with premium assistance provided to them under a section 1115 demonstration, where State expenditures to provide the health insurance or premium assistance is matched with funds from title XIX. Furthermore, of these expansion groups we are proposing to regard as eligible for Medicaid, we propose to include in the DPP Medicaid fraction numerator only the days of those patients who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A. Finally, we propose stating specifically that patients whose inpatient hospital costs are paid for with funds from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration are not patients “regarded as” eligible for Medicaid, and the days of such patients may not be included in the DPP Medicaid fraction numerator.

As discussed previously, we continue to believe it is not appropriate to include in the DPP Medicaid fraction numerator days of all patients who may benefit in some way from a section 1115 demonstration. First, we do not believe the statute permits everyone receiving a benefit from a section 1115 demonstration to be “regarded as” “eligible for medical assistance under a State plan approved under title XIX” merely because they receive a limited benefit. Second, even if the statute were so to permit, as discussed herein, the Secretary believes the DRA provides him with discretion to determine which patients “not so eligible” for Medicaid under a State plan may be “regarded as” eligible. Thus, the Secretary proposes to regard as Medicaid eligible only those patients who receive as “benefits” from a demonstration health insurance or premium assistance to buy health insurance, because—at root—“medical assistance under a State plan approved under title XIX” provides Medicaid beneficiaries with health insurance, not simply medical care. Third, the DRA also gives the Secretary the authority to decide which days of patients “regarded as” Medicaid eligible to include in the DPP Medicaid fraction numerator. Using this discretion, we propose to include only the days of those patients who receive from a demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A.

We note this is a change from the proposal included in the FY 2023 proposed rule, which would have required that the insurance provide EHB and the premium assistance cover at least 90 percent of the cost of the insurance. The feedback we received on that proposal from interested parties included concerns regarding, among other issues, the burden associated with verifying whether a particular insurance program in which an individual was enrolled provided EHB, how to determine whether a particular premium assistance program covered at least 90 percent of the cost of the insurance, and the difficulty in receiving accurate information on those issues in a timely manner. In light of this feedback, this proposal maintains the policy established in the regulations at least as far back as FY 2004 that days associated with individuals who obtain health insurance from a demonstration that covers inpatient hospital services be included in the DPP Medicaid fraction numerator. We do not believe that it would be unduly difficult for providers to verify that a particular insurance program includes inpatient benefits. (We refer readers to section III. of this proposed rule for more information on the burden estimate associated with this proposal.)

For those individuals who buy health insurance covering inpatient hospital services using premium assistance received from a demonstration, we are now proposing that the premium assistance cover 100 percent of the individual's cost of the premium. Indeed, it may be difficult to distinguish between patients who, on the one hand, receive through a demonstration health insurance for inpatient hospital services or 100 percent premium assistance to purchase health insurance and patients who, on the other hand, are eligible for medical assistance under the State plan: all patients receive health insurance paid for with title XIX funds, and all may be enrolled in a Medicaid managed care plan. We also do not believe that it will be difficult for providers to verify that a particular demonstration covers 100 percent of the premium cost to the patient, as it is our understanding that all premium assistance demonstrations currently meet that standard. In other words, as a practical matter, if a hospital is able to document that a patient is in a demonstration that explicitly provides premium assistance, then that documentation would also document that a patient is in a demonstration that covers 100 percent of the individual's costs of the premium. We also believe our proposed standard of 100 percent of the premium cost to the beneficiary is appropriate because it encapsulates all current demonstrations as a practical matter. If in the future there is a demonstration that explicitly provides premium assistance that does not cover 100 percent of the individual's costs for the premium, we may revisit this issue in future rulemaking.

As we have consistently stated, individuals eligible for medical assistance under title XIX are eligible for, among other things, specific benefits related to the provision of inpatient hospital services (in the form of inpatient hospital insurance). Because funding pool payments to hospitals authorized by a section 1115 demonstration do not provide health insurance to any patient, nor do the payments inure to any specific individual, uninsured patients whose costs are subsidized by uncompensated/ undercompensated care pool payments to hospitals do not receive benefits to the extent that or in a manner similar to the full equivalent of “medical assistance” available to those eligible under a Medicaid State plan. Uninsured or underinsured individuals, whether or not they benefit from uncompensated/undercompensated care pool payments to hospitals, do not have health insurance provided by the Medicaid program. Thus, we continue to believe that patients whose costs are associated with uncompensated/undercompensated care pools may not be “regarded as” Medicaid-eligible, and we are proposing to use the Secretary's discretion to not regard them as such. Even if they could be so regarded and irrespective of whether the Secretary has the discretion not to regard them as such, the Secretary also is proposing to use his authority to not include the days of such patients in the DPP Medicaid fraction numerator: Such patients have not obtained insurance under the demonstration, and including all uninsured patients associated with uncompensated/undercompensated care pools could distort the Medicaid proxy in the Medicare DSH calculation that is used to determine the low-income, non-senior population a hospital serves. 4 An uninsured patient who does not pay their hospital bill (thereby creating uncompensated care for the hospital) is not necessarily a low-income patient.

Accordingly, in this proposed rule, we are proposing to revise our regulations at §  412.106(b)(4) to explicitly reflect our interpretation of the language “regarded as” “eligible for medical assistance under a State plan approved under title XIX” “because they receive benefits under a demonstration project approved under title XI” in section 1886(d)(5)(F)(vi) of the Act to mean patients provided health insurance benefits by a section 1115 demonstration. Specifically, we are proposing to regard as Medicaid eligible for purposes of the Medicare DSH payment adjustment patients (1) who receive health insurance through a section 1115 demonstration itself or (2) who purchase health insurance with the use of premium assistance provided by a section 1115 demonstration, where State expenditures to provide the insurance or premium assistance is matchable with funds from title XIX. In addition, even if the statute would permit a broader reading, the Secretary is exercising his discretion under section 1886(d)(5)(F)(vi) of the Act to “regard as” Medicaid eligible only those patients. Furthermore, whether or not the Secretary has discretion to determine who is “regarded as” Medicaid eligible, we propose to use the authority provided the Secretary to limit the days of those section 1115 demonstration group patients included in the DPP Medicaid fraction numerator to only those of individuals who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A. Finally, we are proposing to explicitly exclude from the DPP Medicaid fraction numerator the days of patients with uncompensated care costs for which a hospital is paid from a funding pool authorized by a section 1115 demonstration project.

Many commenters on the FY 2022 and FY 2023 proposed rules asserted that the statute requires CMS to “regard as” Medicaid eligible patients with uncompensated care costs for which a hospital is paid from a demonstration funding pool and to count those patients' days in the DPP Medicaid fraction numerator. These commenters draw support for these conclusions by asserting that uninsured patients “effectively” receive insurance from an uncompensated/undercompensated care pool, and thus, cannot be reasonably distinguished from patients who receive insurance from the Medicaid program. They also stated that the inpatient benefits uninsured patients receive are the same inpatient benefits that Medicaid beneficiaries receive because the inpatient care they receive is the same.

We continue to disagree with the commenters' factual predicates and the legal conclusions that the statute requires a patient receiving any benefit from a section 1115 demonstration to be “regarded as” a patient eligible for medical assistance under a State plan authorized by title XIX and that all days of such patients must be counted in the DPP Medicaid fraction numerator.

First, we disagree with the proposition that uninsured patients whose costs may be partially paid to hospitals by uncompensated/undercompensated care pools effectively have insurance, and therefore, are indistinguishable from Medicaid beneficiaries and expansion group patients whose days the Secretary includes in the DPP Medicaid fraction numerator. Uninsured patients, unlike Medicaid patients or expansion group patients, do not have health insurance. It is quite clear insurance that includes coverage for inpatient hospital services is beneficial in ways that uncompensated/undercompensated care pools are not or could not possibly be to individual patients. 5 Medicaid and other forms of health insurance are not merely mechanisms of payment to providers for costs of patient care: Health insurance provides a reasonable expectation on the part of the insurance holder that they can seek treatment without the risk of financial ruin. Hospitals may bill uninsured patients for the full cost of their care and refer their medical debts to collection agencies when they are unable to pay, even if some of their medical treatment costs may be paid to the provider by an uncompensated/undercompensated care pool. Thus, it remains the case that uninsured patients may avoid treatment for fear of being unable to pay for it. For example, if two patients receive identical care from a hospital that accepts government-funded insurance, but one of them has insurance as a Medicaid beneficiary or receives insurance through a section 1115 demonstration and therefore is financially protected, while the other patient is uninsured and spends years struggling to pay their hospital bill—even if the hospital receives partial payment from a demonstration-authorized uncompensated/undercompensated care pool for that patient's treatment—the two patients have not received the same benefit from the government or one that could reasonably be “regarded as” comparable. This distinction between insured and uninsured patients is meaningful in this context, and we believe it is a sound basis on which to distinguish the treatment of patient days in the DSH calculation of uninsured patients who may in some way benefit from a section 1115 demonstration-authorized uncompensated/undercompensated care pool and the days of patients provided health insurance as a Medicaid beneficiary under a State plan or through a demonstration.

Second, we also disagree with commenters who have stated that uninsured patients whose costs may be paid to hospitals by an uncompensated/undercompensated care pool receive the same benefits as patients eligible for Medicaid because the inpatient hospital care is likely the same for both groups. As stated above, within the meaning of section 1886(d)(5)(F)(vi) of the Act, the “benefits” provided to the individual by Medicaid and other forms of insurance a patient receives is the promise of a payment made on behalf of a specific patient to a provider of care for providing the care, not the care itself the hospital provides. Also, the provision of inpatient hospital services and payment for such services are two distinct issues, and simply because a hospital treats a patient presenting a need for medical care does not indicate anything about whether or how the hospital may be paid for providing that care. Thus, the similarity of care a patient receives is irrelevant to the question of whether the “benefits” provided “because” of a demonstration may be “regarded as” something akin to “medical assistance under a State plan approved under title XIX.”

Therefore, we continue to disagree, as we have explained both here and in previous rulemakings, that the statute allows us to regard uninsured patients as eligible for Medicaid, just because they in some way benefit from an uncompensated/undercompensated care pool authorized by a demonstration. We understand the statute to provide that we may only include patients who are regarded as being eligible for Medicaid, such as the expansion groups at issue in the Portland Adventist and Cookeville cases  6 who received from the demonstrations health insurance benefits that were like the “medical assistance” received by patients “under a State plan.” The Medicaid program can—and does (through Medicaid DSH payments)—subsidize the treatment of low-income, uninsured patients without making those individuals eligible for “medical assistance,” as that phrase is used in the statute. See, for example, Adena Regional Medical Center v. Leavitt, 527 F.3d 176 (D.C. Cir. 2008); Owensboro Health, Inc. v. HHS, 832 F.3d 615 (6th Cir. 2016). Therefore, we disagree that patients whose costs may be partially offset by an uncompensated/undercompensated care fund receive “medical assistance” as that phrase is used in the Medicare DSH provision at section 1886(d)(5)(F)(vi) of the Act.

As we explained in the FY 2023 proposed rule (87 FR 28108 and 28400) and reiterate again above, we believe that the statutory phrase “regarded as such” refers to patients who are regarded as eligible for medical assistance under a State plan approved under title XIX, and therefore, should be understood to refer to patients who get insurance coverage paid for with Medicaid funds, just as if they were actually Medicaid-eligible. In other words, they are people who are treated by the Medicaid program as if they are eligible for Medicaid because of a demonstration approved under title XI, not merely because they are people who might receive from a demonstration a benefit that is not health insurance (such as treatment at a hospital).

While it is true that a few courts have interpreted the regulation that we are proposing to replace to require including in the DPP Medicaid fraction numerator days associated with uncompensated/undercompensated care because they read the regulation to treat such days as those of patients regarded as eligible for Medicaid, we disagree with those holdings. As noted previously, the current regulation was drafted prior to the enactment of section 5002 of the DRA, and therefore, does not directly interpret the language the DRA added to the Medicare statute. Section 5002(b) of the DRA ratified CMS' pre-2000 policy of not including expansion groups, like those in Portland Adventist and Cookeville, in the DPP Medicaid fraction numerator. The DRA also ratified CMS' January 2000 policy, which reversed the pre-2000 policy and included all expansion group days; and it similarly ratified CMS's FY 2004 policy that limited the type of expansion days included in the DPP Medicaid fraction numerator. Therefore, it cannot be that section 5002 of the DRA requires that all days of patients that receive any benefit from a demonstration must be included in the DPP Medicaid fraction numerator, as some commenters have suggested. Rather, the DRA provides the Secretary with discretion to determine whether populations that receive benefits under a section 1115 demonstration should be “regarded as” eligible for Medicaid, and likewise provides the Secretary further discretion to determine “the extent” to which the days of those groups may be included in the DPP Medicaid fraction numerator.

For all of the reasons discussed herein and previously, to the extent commenters read the Forrest General case ( Forrest General Hospital v. Azar , 926 F.3d 221 (5th Cir. 2019)) as interpreting section 1886(d)(5)(F)(vi) of the Act to require that any patient who benefits from a demonstration is regarded as eligible for Medicaid and required to be included in the Medicaid fraction, we respectfully disagree with that reading. Rather, the better reading of Forrest General is that the court determined that any patient who is “regarded as” eligible for medical assistance under the regulation (which the court found uninsured patients to be under the current regulation) must be included in the Medicaid fraction. We also disagree with this conclusion, for the reasons already stated. Nevertheless, we are proposing the changes in this rule to clarify whom the Secretary regards as eligible for Medicaid because of benefits provided by a section 1115 demonstration, and which of those patient days the Secretary proposes to include in the DPP Medicaid fraction numerator.

In light of our prior rulemakings on this subject, and Congress' intervention in enacting section 5002 of the DRA, we believe the Secretary has, and has always had, the discretion to regard as eligible for Medicaid—or not—populations provided benefits through a demonstration, and to include or exclude those regarded as eligible, as he deems appropriate. First, the statute clearly uses discretionary language. It specifies that “the Secretary may, to the extent and for the period the Secretary determines appropriate, include patient days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved under title XI.” As the Supreme Court recently explained, “may” is quintessentially discretionary language. The Supreme Court has repeatedly emphasized that the use of “may” in a statute is intended to confer discretion rather than establish a requirement. 7 “The use of the word `may' . . . thus makes clear that . . . the Secretary `has the authority, but not the duty.' ” Lopez v. Davis , 531 U.S. 230, 241 (2001). So while the DSH statute specifies the Secretary must count the days of patients “eligible for medical assistance under a State plan approved under title XIX” in the DPP Medicaid fraction numerator, the DRA provides that the Secretary may count the days of those “not so eligible” (that is, patients not eligible for Medicaid).

The additional clause “to the extent and for the period the Secretary determines appropriate” provides even more evidence that Congress sought to give the Secretary the authority to determine which “patient days of patients not so eligible [for Medicaid] but who are regarded as such” to count in the DPP Medicaid fraction numerator. In other words, the statute expressly contemplates that the Secretary may include the days of patients who are not actually eligible for medical assistance under a State plan approved under title XIX (eligible for Medicaid), but who are treated for all intents and purposes as if they were eligible for such “medical assistance.” But the Secretary is not commanded that he must count such patients. Accordingly, we disagree with commenters who stated that the statute requires we count in the DPP Medicaid fraction numerator all patients who benefit from a demonstration. Rather, the statute authorizes the Secretary to determine, as “the Secretary determines [is] appropriate,” whether patients are regarded as being eligible for Medicaid and, if so, “the extent” to which to include their days in the Medicaid fraction.

Furthermore, even if uninsured patients are regarded as eligible for Medicaid, we propose not including them in the DPP Medicaid fraction numerator for policy reasons. The DPP is intended to be a proxy calculation for the percentage of low income patients a hospital treats. Congress has defined the proxy to count in the Medicare fraction the days of patients entitled to Medicare Part A and SSI; the days of patients not entitled to Medicare but eligible for Medicaid are counted in the Medicaid fraction. Thus, not every low income patient is necessarily counted in the DPP proxy. If we counted all uninsured patients who could be said to have benefited from an uncompensated/undercompensated care pool (whether low income patients or not, because one need not be low-income to be uninsured and leave a hospital bill unpaid), we could potentially include in the DPP proxy not just all low-income patients in States with uncompensated/undercompensated care pools but also patients who are not low-income but who do not have insurance and did not pay their hospital bill. This would be a significant distortion from how Congress intended the DSH calculation to work, where the DPP is a proxy for the percentage of low-income patients hospitals serve based on patients covered by Medicare or Medicaid. We note that in contrast to an individual who could afford, but elects not to buy insurance, and lets bills go unpaid, an individual who receives insurance coverage under a section 1115 demonstration by definition must meet low income standards. By using our discretion to include in the DPP Medicaid fraction numerator only the days of those demonstration patients for which the demonstration provides health insurance that covers inpatient hospital care and the premium assistance that accounts for 100 percent of the premium cost to the patient, we believe we are hewing to Congress' intent to count some, but not necessarily all, low-income patients in the proxy.

Section 5002(b) of the DRA's ratification of the Secretary's prior policy and regulations on including or excluding demonstration group patient days from the DPP Medicaid numerator further supports our proposal here to exclude days of uninsured patients. By ratifying the Secretary's prior regulation that explicitly stated that our intent was to include in the fraction only the days of those that most looked like Medicaid-eligible patients, the limits we are proposing here to exclude days of uninsured patients whose costs are subsidized by uncompensated/undercompensated care pool funding fully align with Congress's amendment of the statute.

Also, counting all low-income patients in States with uncompensated/undercompensated care pools could drastically and unfairly increase DSH payments to hospitals located in States with broad uncompensated/undercompensated care pools in comparison to hospitals in States without uncompensated/undercompensated care pools, even though the cost burden on hospitals of treating low-income, uninsured patients might be higher in States without uncompensated/undercompensated care pools, precisely because they do not have uncompensated/undercompensated care pools. The purpose “of the DSH provisions is not to pay hospitals the most money possible; it is instead to compensate hospitals for serving a disproportionate share of low-income patients.”  8 We do not believe that purpose would be furthered by counting uninsured patients associated with uncompensated/undercompensated care pool funding as if they were patients eligible for Medicaid.

Thus, while we continue to believe that the statute does not permit patients who might indirectly benefit from uncompensated/undercompensated care pool funding to be “regarded as” eligible for Medicaid, if the statute permits us to regard such patients as eligible for medical assistance under title XIX, the statute also provides the Secretary with the discretion to determine whether to do so. We are electing to exercise the Secretary's discretion not to regard patients that may indirectly benefit from uncompensated/undercompensated funding pools as eligible for Medicaid. In any event, the statute also plainly provides the Secretary with the authority to determine whether to include patient days of patients regarded as eligible for Medicaid in the DPP Medicaid fraction numerator “to the extent and for the period” that the Secretary deems appropriate. Thus, we are also exercising the Secretary's discretion not to include in the DPP Medicaid fraction numerator patient days of patients associated with uncompensated/undercompensated care pool payments.

In summary, we are proposing to revise our regulations at §  412.106(b)(4) to explicitly reflect our interpretation of the language “regarded as” “eligible for medical assistance under a State plan approved under title XIX” “because they receive benefits under a demonstration project approved under title XI” in section 1886(d)(5)(F)(vi) of the Act to mean patients (1) who receive health insurance through a section 1115 demonstration itself or (2) who purchase health insurance with the use of premium assistance provided by a section 1115 demonstration, where State expenditures to provide the insurance or premium assistance may be matched with funds from title XIX. Alternatively, we are exercising the discretion the statute provides the Secretary to propose limiting to those two groups the patients the Secretary “regard[s] as” “eligible for medical assistance under a State plan” “because they receive benefits under a demonstration.” Moreover, using the Secretary's authority to determine the days of which demonstration groups “regarded as” Medicaid eligible to include in the DPP Medicaid fraction numerator, we propose that only the days of those patients who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, are to be included, provided in either case that the patient is not also entitled to Medicare Part A. Finally, we are exercising the Secretary's discretion to not regard as Medicaid eligible patients whose costs are paid to hospitals from uncompensated/undercompensated care pool funds authorized by a section 1115 demonstration; and we are similarly exercising the Secretary's authority to exclude the days of such patients from being counted in the DPP Medicaid fraction numerator, even if those patients could be “regarded as” “eligible for medical assistance under a State plan authorized by title XIX.” Thus, we are also proposing to explicitly exclude from counting in the DPP Medicaid fraction numerator any days of patients for which hospitals are paid from demonstration-authorized uncompensated/undercompensated care pools.

In developing the proposal above, we considered counting the days of patients in the DPP Medicaid fraction numerator whose inpatient hospital costs are paid for with funds from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration. However, after consideration, as discussed in greater detail above, because of the Secretary's interpretation of the statute and electing to exercise his discretion for policy reasons, we are not proposing to include counting patients whose inpatient hospital costs are paid for with funds from an uncompensated/undercompensated care pool authorized by a section 1115 demonstration in the DPP Medicaid fraction numerator. We invite public comments with regard to our statutory interpretation and our election to exercise the Secretary's authority discussed above, as well as our proposal not to count in the DPP Medicaid fraction numerator days of patients whose inpatient hospital costs are paid to hospitals from uncompensated/undercompensated care pool funds authorized by a section 1115 demonstration.

Finally, we propose that our revised regulation would be effective for discharges occurring on or after October 1, 2023. As has been our practice for more than two decades, we have made our periodic revisions to the counting of certain section 1115 patient days in the Medicare DSH calculation effective based on patient discharge dates. Doing so again here treats all providers similarly and does not impact providers differently depending on their cost reporting periods.

Under the Paperwork Reduction Act (PRA) of 1995, we are required to provide 60-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. To fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the PRA of 1995 requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

In this proposed rule, we are soliciting public comment on the following information collection requirement (ICR).

In the preamble of this proposed rule, we are proposing to revise the criteria for a hospital to count section 1115 demonstration inpatient days for which the patient is regarded as being eligible for Medicaid in the numerator of the Medicaid fraction: for the patient days of individuals who obtain benefits from a section 1115 demonstration, the demonstration must provide those patients with insurance that includes coverage of inpatient hospital services, or the insurance the patient purchased with premium assistance provided by the demonstration must include coverage of inpatient hospital service; and that for days of patients who have bought health insurance that provides inpatient hospital benefits using premium assistance obtained through a section 1115 demonstration, that assistance must be equal to 100 percent of the premium cost to the patient. We estimate 310 hospitals will be affected by this requirement, which is the total number of Medicare-certified subsection (d) hospitals in the seven States (Arkansas, Massachusetts, Oklahoma, Rhode Island, Tennessee, Utah, and Vermont) that currently operate approved premium assistance section 1115 demonstrations. The estimated total burden is $18,350,169 a year (1,736,883 inquiries a year × 0.25 hours per inquiry × (wages of $21.13/hour × 2 (fringe benefits)) = $18,350,169/year).

The number of inquiries is calculated by subtracting the total CY 2019 Medicare discharges from total CY 2019 discharges for all payers for all subsection (d) hospitals in each State with a currently approved premium assistance section 1115 demonstration. We used annualized discharges for both Medicare and all payer discharge figures rather than actual discharges, as some hospitals' cost reports do not provide data for an entire calendar year. To determine whether a patient's premiums for inpatient hospital services insurance are paid for by subsidies provided by a section 1115 demonstration, we believe hospitals would need to conduct inquiries for all patients with non-Medicare insurance for purposes of reporting on the Medicare cost report. 9 The estimated difference between all payer annualized discharges and annualized Medicare discharges was 1,736,883 in CY 2019.

We estimate that hospitals will use their existing communication methods that are in place to verify insurance information when collecting the information under this ICR. We estimate that verifying section 1115 demonstration waiver premium assistance status for private insurance for an individual will take 15 minutes. We believe that information clerks will be making these inquiries. Based on the most recent Bureau of Labor Statistics Occupational Employment Statistics data (May 2021) for Category 43-4199, 10 Information and Record Clerks, All Other, the mean hourly wage for an Information and Record Clerk is $21.13. We have added 100 percent for fringe and overhead benefits, which calculates to $42.26 per hour. We estimate the total annual cost is $18,350,159 (1,736,883 inquiries × 0.25 hours per inquiry × $42.26 per hour).

To obtain copies of a supporting statement and any related forms for the proposed collection summarized in this rulemaking document, please access the CMS PRA website by copying and pasting the following web address into your web browser and search the CMS-Form-2552-1: https://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.

If you wish to comment on this information collection with respect to reporting, recordkeeping, or third-party disclosure requirements, please submit your comments electronically as specified in the ADDRESSES section of this proposed rule.

Comments must be received by May 1, 2023.

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

This proposed rule is necessary to make payment policy changes governing the treatment of certain days associated with section 1115 demonstrations in the DPP Medicaid fraction numerator for the purposes of determining Medicare DSH payments to subsection (d) hospitals under section 1886(d)(5)(F) of the Act. Specifically, we are proposing to revise our regulations to reflect explicitly our interpretation of the language “patients . . . regarded as” “eligible for medical assistance under a State plan approved under title XIX” “because they receive benefits under a demonstration project approved under title XI” in section 1886(d)(5)(F)(vi) of the Act to mean patients who receive health insurance through a section 1115 demonstration itself or who purchase insurance with the use of premium assistance provided by a section 1115 demonstration, where State expenditures to provide the insurance or premium assistance may be matched with funds from title XIX. Alternatively, the Secretary proposes to use his discretion under the statute to limit to these two groups those he regards as Medicaid eligible for the purpose of being counted in the DPP Medicaid fraction numerator. Moreover, of the groups “regarded as” Medicaid eligible, we propose that only the days of those patients who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, be included, provided in either case that the patient is not also entitled to Medicare Part A. We are also proposing to revise our regulations to explicitly exclude days of patients for which hospitals are paid from uncompensated/undercompensated care pools authorized by section 1115 demonstrations for the cost of such patients' inpatient hospital services.

The primary objective of the IPPS is to create incentives for hospitals to operate efficiently and minimize unnecessary costs, while at the same time ensuring that payments are sufficient to adequately compensate hospitals for their legitimate costs in delivering necessary care to Medicare beneficiaries. In addition, we share national goals of preserving the Medicare Hospital Insurance Trust Fund.

We believe that the changes proposed in this rulemaking are needed to further each of these goals, while maintaining the financial viability of the hospital industry and ensuring access to high quality health care for Medicare beneficiaries. We expect that these proposed changes would ensure that the outcomes of the IPPS are reasonable and provide equitable payments, while avoiding or minimizing unintended adverse consequences.

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

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). 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 recipients 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.

A regulatory impact analysis (RIA) must be prepared for major rules with significant regulatory action/s and/or with economically significant effects ($100 million or more in any 1 year). Based on our estimates, OMB's Office of Information and Regulatory Affairs has determined that this rulemaking is “economically significant” as measured by the $100 million threshold. Accordingly, we have prepared a Regulatory Impact Analysis that to the best of our ability presents the costs and benefits of the rulemaking. Therefore, OMB has reviewed this proposed regulation, and the Department has provided the following assessment of its impact.

• Incentives for hospitals to operate efficiently and minimize unnecessary costs will be created, while at the same time ensuring that payments are sufficient to adequately compensate hospitals for their legitimate costs in delivering necessary care to Medicare beneficiaries;

• The Medicare Hospital Insurance Trust Fund will be preserved; and

• The financial viability of the hospital industry and access to high quality health care for Medicare beneficiaries will be maintained.

At this time, we are not able to quantify these benefits.

Reporting and recordkeeping costs incurred by the hospitals are presented in the Paperwork Reduction Act analysis, above. The costs of reviewing these regulations are discussed below.

In section II. of this proposed rule, we discuss our proposed policies related to counting certain days associated with section 1115 demonstrations in the Medicaid fraction. Specifically, we are proposing to revise our regulations to explicitly reflect our interpretation of the language “patients . . . regarded as” “eligible for medical assistance under a State plan approved under title XIX” “because they receive benefits under a demonstration project approved under title XI” in section 1886(d)(5)(F)(vi) of the Act to mean patients who receive health insurance authorized by a section 1115 demonstration or patients who pay for health insurance with premium assistance authorized by a section 1115 demonstration, where State expenditures to provide the health insurance or premium assistance may be matched with funds from title XIX. Alternatively, we are proposing to use the statutory discretion provided the Secretary to regard as eligible for Medicaid only these same groups of patients. Moreover, irrespective of which individuals are “regarded as” Medicaid eligible, the Secretary is exercising his discretion to include in the DPP Medicaid fraction numerator only the days of those patients who receive from the demonstration (1) health insurance that covers inpatient hospital services or (2) premium assistance that covers 100 percent of the premium cost to the patient, which the patient uses to buy health insurance that covers inpatient hospital services, provided in either case that the patient is not also entitled to Medicare Part A.

Seven States have section 1115 waivers that explicitly include premium assistance (we believe premium assistance in these States is 100 percent of the premium cost to the patients): Arkansas, Massachusetts, Oklahoma, Rhode Island, Tennessee, Utah, and Vermont. Hospitals in States that have section 1115 demonstration programs that explicitly include premium assistance (at 100 percent of the premium cost to the patient) would be allowed to continue to include these days in the numerator of the Medicaid fraction, provided the patient is not also entitled to Medicare Part A. Therefore, there would be no change to how these hospitals report Medicaid days and no impact on their Medicaid fraction as a result of our proposed revisions to the regulations regarding the counting of patient days associated with these section 1115 demonstrations.

For States that have section 1115 demonstrations that include uncompensated/undercompensated care pools, the patients whose care is subsidized by these section 1115 demonstration funding pools would not be “regarded as” “eligible for medical assistance under a State plan approved under title XIX” in section 1886(d)(5)(F)(vi) of the Act because the demonstration does not provide them with health insurance benefits. Even if they could be regarded as Medicaid eligible, the Secretary is proposing to use his authority to exclude the days of those patients from being counted in the DPP Medicaid fraction. Therefore, hospitals in the following six States would no longer be eligible to report days of patients for which they received payments from uncompensated/undercompensated care pools authorized by the States' section 1115 demonstration for use in the DPP Medicaid fraction numerator: Florida, Kansas, Massachusetts, New Mexico, Tennessee, and Texas.

To estimate the impact of the proposal to exclude uncompensated/undercompensated care pool days, we would need to know the number of these section 1115 demonstration days per hospital for the hospitals potentially impacted. We do not currently possess such data because the Medicare cost report does not include lines for section 1115 demonstration days separately from other types of days. Therefore, the number of demonstration-authorized uncompensated/undercompensated care pool days per hospital and the net overall savings of this proposal are especially challenging to estimate.

However, in light of public comments received in prior rulemakings recommending that we utilize plaintiff data in some manner to help inform this issue, we examined the unaudited figures claimed by plaintiffs in the most recent of the series of court cases on this issue, namely Bethesda Health, Inc. v. Azar, 980 F.3d 121 (D.C. Cir. 2020), as currently reflected in the System for Tracking Audit and Reimbursement (STAR or the STAR system) as of the time of this rulemaking. Of the Bethesda Health plaintiff data in the STAR system that listed reported section 1115 demonstration-approved uncompensated/undercompensated care pool days for purposes of effectuating the decision in that case, we utilized the reported unaudited amounts in controversy claimed by the plaintiffs for the more recent of their cost reports ending in FY 2016 or FY 2017. We then utilized the number of beds (2,490) reported in the March 2022 Provider Specific File to determine the average unaudited amount in controversy per bed ($2,477) for these plaintiffs. Based on the data as shown in Table 1, the average unaudited amount in controversy per bed for these plaintiffs is $2,477 (= $6,167,193/2,490). We note that there are Bethesda Health plaintiffs that do not have section 1115 demonstration program days listed in STAR, and one plaintiff that has section 1115 demonstration program days listed in STAR, but the most recent cost report with this data ends in FY 2012; therefore, these plaintiffs are not listed in Table 1.

In Table 2, we used the number of beds in DSH eligible hospitals in the six States with section 1115 demonstration programs that include uncompensated/undercompensated care pools to extrapolate the average unaudited amount in controversy per bed for the plaintiffs in Table 1 to all DSH eligible hospitals in those States. The resulting extrapolated unaudited amount in controversy is $348,749,215 (= 140,795 × $2,477).

Note, we caution against considering the extrapolated unaudited amount in controversy to be the estimated Trust Fund savings that would result from our proposal. For the reasons described earlier, the savings from our proposal are highly uncertain. The savings may be higher or lower than the extrapolated amount. However, we are providing the above transfer calculations in response to the public comments received on prior rulemaking on this issue, requesting that we utilize plaintiff data in some manner to help inform this issue.

If regulations impose administrative costs on private entities, such as the time needed to read and interpret this proposed rule, we should estimate the cost associated with regulatory review. Due to the uncertainty involved with accurately quantifying the number of entities that will review the rule, we assume that the total number of IPPS hospitals, the majority of which are DSH eligible, will be the number of reviewers of this proposed rule. We acknowledge that this assumption may understate or overstate the costs of reviewing this rule. It is possible that not all IPPS hospitals will review this rule (such as those hospitals that consistently are not eligible for DSH payments), while certain hospital associations and other interested parties will likely review this rule. For these reasons, we believe that the total number of IPPS hospitals (3,150) would be a fair estimate of the number of reviewers of this rule. We welcome any comments on the approach in estimating the number of entities that will review this proposed rule.

Using the wage information from the BLS for medical and health service managers (Code 11-9111), we estimate that the cost of reviewing this rule is $115.22 per hour, including overhead and fringe benefits https://www.bls.gov/oes/current/oes_nat.htm. Assuming an average reading speed, we estimate that it would take approximately 1.5 hours for the staff to review this proposed rule. For each entity that reviews the rule, the estimated cost is $172.83 (1.5 hours × $115.22). Therefore, we estimate that the total cost of reviewing this regulation is $544,414.50 ($172.83 × 3,150 reviewers).

This proposed rule would revise our regulations on counting days associated with individuals eligible for certain section 1115 demonstration programs in as hospital's DPP Medicaid fraction numerator. It also provides descriptions of the statutory provisions that are addressed, identifies the proposed policy, and presents rationales for our decisions and, where relevant, alternatives that were considered.

As discussed in section II. of this proposed rule, in the past we have received comments regarding the inclusion in the DPP Medicaid fraction numerator of the days of patients for which hospitals receive payments from an uncompensated/undercompensated care pool created by a section 1115 demonstration. We considered these comments for purposes of this rule. As we discussed in greater detail in section II. of this proposed rule, because uncompensated/undercompensated care pools are not inpatient hospital insurance benefits directly provided to individuals, nor are they comparable to the breadth of benefits available under a Medicaid State plan, we stated that the individuals whose costs may be subsidized by such pools should not be “regarded as” “eligible for medical assistance under a State plan” “because they receive benefits under a demonstration project approved under title XI.” Thus, while we continue to believe that the statute does not permit patients who might indirectly benefit from uncompensated/undercompensated care pool funding to be “regarded as” eligible for Medicaid, if the statute permits us to regard such patients as eligible for medical assistance under title XIX, the statute also provides the Secretary with ample discretion to determine whether to do so. As stated above, we are electing to exercise the Secretary's discretion not to regard patients that may indirectly benefit from uncompensated/undercompensated funding pools as so eligible. For a complete discussion, see section II. of this proposed rule.

As required by OMB Circular A-4 (available at https://obamawhitehouse.archives.gov/omb/circulars_a-004_a-4/ and https://georgewbush-whitehouse.archives.gov/omb/circulars/a004/a-4.html ), we are required to prepare an accounting statement showing the classification of the expenditures associated with the provisions of this proposed rule as they relate to acute care hospitals. As discussed above, to estimate the impact of the proposal to exclude uncompensated/undercompensated care pool days from the DPP Medicaid fraction numerator, we would need to know the number of these days per hospital for the hospitals potentially impacted. We do not currently possess such data because the Medicare cost report does not include lines for section 1115 demonstration days separately from other types of days. Therefore, the number of demonstration-authorized uncompensated/undercompensated care pool days per hospital and the net overall savings of this proposal are highly uncertain. However, for purposes of the accounting statement in Table 3, we have included the extrapolated unaudited amount in controversy (from Table 2) as the net cost to IPPS Medicare Providers associated with the policy proposed in this proposed rule.

The RFA requires agencies to analyze options for regulatory relief of small entities if a rule has a significant impact on a substantial number of small entities. For purposes of the RFA, we estimate that almost all hospitals are small entities as that term is used in the RFA. 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 1 year). (For details on the latest standards for health care providers, we refer readers to page 32 of the Table of Small Business Size Standards for Sector 62, Health Care and Social Assistance found on the SBA website at http://www.sba.gov/content/small-business-size-standards. )

Medicare Administrative contractors (MACs) are not considered to be small entities because they do not meet the SBA definition of a small business.

HHS's practice in interpreting the RFA is to consider effects economically “significant” if greater than 5 percent of providers reach a threshold of 3 to 5 percent or more of total revenue or total costs. We do not believe that the requirements in this proposed rule would reach this threshold. Specifically, based on data from the FY 2023 final rule, we estimate that DSH payments are approximately 2.8 percent of all payments under the IPPS for FY 2023. Therefore, the Secretary has certified that this proposed rule will not have a significant economic impact on a substantial number of small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a proposed 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, with the exception of hospitals located in certain New England counties, we define a small rural hospital as a hospital that is located outside of a metropolitan statistical area and has fewer than 100 beds. We are not preparing an analysis for section 1102(b) of the Act because we have determined, and the Secretary certifies, that this proposed rule would not have a significant impact on the operations of a substantial number of small rural hospitals.

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 by State, local, and tribal governments in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2023, that threshold is approximately $177 million. This proposed rule does not mandate any requirements for State, local, or tribal governments, or for the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. This proposed rule would not have a substantial direct effect on State or local governments, preempt States, or otherwise have a Federalism implication.

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:

The revisions and addition read as follows:

This is a summary of Commission's Ninth Further Notice in WP Docket No. 07-100; FCC 23-3, adopted and released on January 18, 2023. The full text of this document is available for public inspection online at https://docs.fcc.gov/public/attachments/FCC-23-3A1.pdf.

1. In this Ninth Further Notice, the Commission seeks comment on a range of questions related to the implementation of its new Band Manager model for the 4.9 GHz band adopted in the Seventh Report and Order. This model will preserve the essentially public safety nature of the band while decreasing access costs and expanding use to a variety of primary public safety and secondary non-public safety operations.

2. First, it seeks comment on the Band Manager's efforts in coordinating public safety operations, in particular mitigating harmful interference and modernizing operations. Next, it seeks comment on the Band Manager's role in facilitating leasing to non-public safety users; how to enable such leasing, how to manage the revenues that arise from it, and how to ensure preemption rights for public safety operations. It also seeks comment on the implementation of our committee-based selection process for the Band Manager, which mirrors the approach the Commission has taken for selecting clearinghouses and transition coordinators in a number of other bands. Finally, it seeks comment on oversight of the Band Manager and on other issues related to the implementation of the Band Manager model.

3. In particular, the Commission in this Ninth Further Notice builds off the record before it and seeks comment on specific criteria for protecting public safety licensees operating in the band from what it terms “harmful interference at 4.9 GHz.” It seeks comment on what role the Band Manager should play, as part of its frequency coordination duties, in mediating or deciding disputes if parties disagree about existing or proposed operations. It also seeks further comment on whether the Band Manager should be able to engage with any broadband network providers (public safety and/or commercial) to pursue opportunities for integrating operations in the 4.9 GHz band with broadband networks used by public safety in other spectrum bands and how best to incorporate the latest commercially available technologies, including 5G, into the 4.9 GHz band.

4. Furthermore, the Commission in this Ninth Further Notice seeks input on two possible means of enabling Band Manager-coordinated non-public safety leasing, as well as general considerations for creating an effective leased access model for the band, in particular, the need to ensure non-discriminatory treatment of potential lessees. Under either model, the Commission seeks to ensure that all potentially affected licensees are given the opportunity to consent to the leasing arrangements. It also proposes that the Band Manager be funded, at least partially, by leasing revenues, which will enable the Band Manager to be fully independent and equipped to engage in the kind of complex spectrum analysis needed to enable this leasing model. The Commission also seeks comment on how its rules should treat compensation to licensees, either directly from non-public safety operators or from the Band Manager.

5. The Commission in this Ninth Further Notice also seeks comment on how to ensure preemption rights for public safety licensees over non-public safety users in emergency circumstances. It also seeks comment on the nature of a selection committee for the Band Manager and tentatively concludes that the selection committee should include representatives from the public safety community.

6. The Commission also seeks comment in this Ninth Further Notice on the role it should play in overseeing the Band Manager's decisions, on how to address future licensing of the band, and on whether the new Band Manager framework presents new opportunities for unmanned aircraft systems (UAS) in the band.

7. Finally, the Commission, as part of its continuing effort to advance digital equity for all, including people of color, persons with disabilities, persons who live in rural or Tribal areas, and others who are or have been historically underserved, marginalized, or adversely affected by persistent poverty or inequality, invites comment on any equity-related considerations and benefits (if any) that may be associated with the proposals and issues discussed in this Ninth Further Notice. Specifically, it seeks comment on how our proposals may promote or inhibit advances in diversity, equity, inclusion, and accessibility, as well the scope of the Commission's relevant legal authority.

8. This Ninth Further Notice may contain new or modified information collection(s) subject to the Paperwork Reduction Act of 1995. If the Commission adopts any new or modified information collection requirements, they will be submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the general public, and other federal agencies are invited to comment on the new or modified information collection requirements contained in this proceeding. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, we seek specific comment on how we might “further reduce the information collection burden for small business concerns with fewer than 25 employees.”

9. The Regulatory Flexibility Act of 1980, as amended (RFA), requires that an agency prepare a regulatory flexibility analysis for notice and comment rulemakings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” Accordingly, the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) concerning potential rule and policy changes contained in the Ninth Further Notice. The IRFA is contained in Appendix D of the Ninth Further Notice.

10. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Commission has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on a substantial number of small entities by the policies and rules proposed in the Ninth Further Notice of Proposed Rulemaking (Ninth Further Notice). Written public comments are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments as specified in the Ninth Further Notice. The Commission will send a copy of the Ninth Further Notice, including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (SBA). In addition, the Ninth Further Notice and IRFA (or summaries thereof) will be published in the Federal Register .

11. Having decided in the Seventh Report and Order that a nationwide Band Manager for the 4.9 GHz band is the best option for moving forward on a comprehensive nationwide, coordinated approach to the band, in the Ninth Further Notice the Commission seeks comment on the tentative conclusions, proposals and inquiries we put forth addressing the rights and responsibilities of the nationwide Band Manager regarding public safety and non-public safety operations, selection of the Band Manager, Commission oversight of the Band Manager and other considerations involving licensing and use of the band. More specifically, we seek comment in the Ninth Further Notice on an interference criteria for the Band Manager to apply as part of its frequency coordination duties. We also seek comment on the Band Manager mediating disputes, evaluating potential integration of the 4.9 GHz band with broadband networks used by public safety in other frequency bands, and facilitating the leasing of unused spectrum rights to non-public safety entities which includes two possible leasing models that could be implemented. We further seek comment on our proposals regarding the applicable rules for leasing arrangements, the required consents for non-public safety use of the band, funding of the Band Manager primarily by leasing revenues, allowing the Band Manager to charge licensees and applicants reasonable rates for its coordination services and the eligibility criteria to be used by the selection committee in its evaluation process for Band Manager applicants.

12. Finally, we seek comment on ensuring preemption rights for public safety licensees over non-public safety users, qualifications for any entity seeking the Band Manager position, a selection committee to select the Band Manager, the role of the Commission in overseeing the Band Manager as well as the contents of annual reports from the Band Manager, on future public safety licensing of the band and on aeronautical mobile use of the band.

13. In seeking comment on these issues, we believe the Commission can implement a nationwide framework for the 4.9 GHz band which ensures public safety operations continue to be prioritized while opening the band to additional users which will facilitate increased use of the band, encourage a more robust market for equipment and greater innovation, and at the same time protect public safety users from harmful interference.

14. The proposed action is authorized pursuant to sections 1, 4(i), 4(j), 4(o), 301, 303(b), 303(g), 303(r), 316, 332, and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j), 154(o), 301, 303(b), 303(g), 303(r), 316, 332, and 403.

15. The RFA directs agencies to provide a description of, and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules and policies, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A “small business concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

16. Small Businesses, Small Organizations, Small Governmental Jurisdictions. Our actions, over time, may affect small entities that are not easily categorized at present. We therefore describe here, at the outset, three broad groups of small entities that could be directly affected herein. First, while there are industry specific size standards for small businesses that are used in the regulatory flexibility analysis, according to data from the Small Business Administration's (SBA) Office of Advocacy, in general a small business is an independent business having fewer than 500 employees. These types of small businesses represent 99.9% of all businesses in the United States, which translates to 32.5 million businesses.

17. Next, the type of small entity described as a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” The Internal Revenue Service (IRS) uses a revenue benchmark of $50,000 or less to delineate its annual electronic filing requirements for small exempt organizations. Nationwide, for tax year 2020, there were approximately 447,689 small exempt organizations in the U.S. reporting revenues of $50,000 or less according to the registration and tax data for exempt organizations available from the IRS.

18. Finally, the small entity described as a “small governmental jurisdiction” is defined generally as “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” U.S. Census Bureau data from the 2017 Census of Governments indicate that there were 90,075 local governmental jurisdictions consisting of general purpose governments and special purpose governments in the United States. Of this number there were 36,931 general purpose governments (county, municipal and town or township) with populations of less than 50,000 and 12,040 special purpose governments—independent school districts with enrollment populations of less than 50,000. Accordingly, based on the 2017 U.S. Census of Governments data, we estimate that at least 48,971 entities fall into the category of “small governmental jurisdictions.”

19. Private Land Mobile Radio Licensees. Private land mobile radio (PLMR) systems serve an essential role in a vast range of industrial, business, land transportation, and public safety activities. Companies of all sizes operating in all U.S. business categories use these radios. Wireless Telecommunications Carriers (except Satellite) which encompasses business entities engaged in radiotelephone communications, is the closest industry with an SBA small business size standard applicable to these services. The SBA small size standard for this industry classifies a business as small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2017 show that there were 2,893 firms that operated in this industry for the entire year. Of this number, 2,837 firms employed fewer than 250 employees. Thus, under the SBA size standard, the Commission estimates licensees in this industry can be considered small.

20. Based on Commission data as of December 14, 2021, there are approximately 387,370 active PLMR licenses. Active PLMR licenses include 3,577 licenses in the 4.9 GHz band; 19,011 licenses in the 800 MHz band; and 2,716 licenses in the 900 MHz band. Since the Commission does not collect data on the number of employees for licensees providing these services, at this time we are not able to estimate the number of licensees with active licenses that would qualify as small under the SBA's small business size standard. Nevertheless, the Commission believes that a substantial number of PLMR licensees are small entities.

21. Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. This industry comprises establishments primarily engaged in manufacturing radio and television broadcast and wireless communications equipment. Examples of products made by these establishments are: transmitting and receiving antennas, cable television equipment, GPS equipment, pagers, cellular phones, mobile communications equipment, and radio and television studio and broadcasting equipment. The SBA small business size standard for this industry classifies businesses having 1,250 employees or less as small. U.S. Census Bureau data for 2017 show that there were 656 firms in this industry that operated for the entire year. Of this number, 624 firms had fewer than 250 employees. Thus, under the SBA size standard, the majority of firms in this industry can be considered small.

22. Wireless Telecommunications Carriers (except Satellite). This industry comprises establishments engaged in operating and maintaining switching and transmission facilities to provide communications via the airwaves. Establishments in this industry have spectrum licenses and provide services using that spectrum, such as cellular services, paging services, wireless internet access, and wireless video services. The SBA size standard for this industry classifies a business as small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2017 show that there were 2,893 firms in this industry that operated for the entire year. Of that number, 2,837 firms employed fewer than 250 employees. Additionally, based on Commission data in the 2021 Universal Service Monitoring Report, as of December 31, 2020, there were 797 providers that reported they were engaged in the provision of wireless services. Of these providers, the Commission estimates that 715 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

23. The Ninth Further Notice may impose new or additional reporting or recordkeeping and/or other compliance obligations on small entities, if adopted. Based on Commission proposals in the Ninth Further Notice, small and other entities are likely to be subject to the requirement that all lease arrangements between public safety and non-public safety entities in the 4.9 GHz band comply with our secondary markets rules, if our proposal is adopted. Small and other entities are also likely to be subject to compliance with our proposed requirement that all relevant public safety licensees must to consent to non-public safety operator use, if adopted.

24. We also seek comment on what role, if any, public safety licensees should have in reviewing and approving lease agreements being negotiated by the Band Manager. In particular, we seek comment on the benefits and costs of different models of licensee involvement in the leasing process. Further, we seek comment whether the Commission should permit the Band Manager to limit the categories of entities eligible for leased access, or whether such limitations would be contrary to the Commission's goals of ensuring fair access and efficient use of spectrum. The resolution of each of these matters may result in additional compliance obligations for small and other entities operating in the 4.9 GHz band.

25. In assessing the cost of compliance for small entities, at this time the Commission is not in a position to determine whether, if adopted, the proposals and matters upon which we seek comment will require small entities to hire professionals to comply and cannot quantify the cost of compliance with any of the potential rule changes that may be adopted. We expect the information we received in comments including where requested, cost and benefit analyses, to help the Commission identify and evaluate relevant compliance matters for small entities, including compliance costs and other burdens that may result from the proposals and inquiries we make in the Ninth Further Notice.

26. The RFA requires an agency to describe any significant, specifically small business, alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): “(1) the establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for such small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.”

27. Parties in the proceeding uniformly supported the goal of protecting current and future public safety licensees from interference but differ on how to define interference and which interference protection approach is most appropriate. Therefore, rather than imposing a standard on its own which could adversely impact small entities, in the Ninth Further Notice the Commission seeks further comment on specific criteria for protecting public safety licensees operating in the band from interference. Based on comments, we considered and seek comment on these alternative approaches, the threshold degradation approach of TIA-10, a propagation modeling approach used by part 90 frequency coordination for TDMA systems operating in the VHF band or contour overlap analysis as the basis for determining interference to public safety licensees operating in the 4.9 GHz band. In each case, we seek comment on whether the interference protection criteria would strike the right balance between allowing robust use of the band while protecting critical public safety communications. Further, in the Ninth Further Notice we invite the submission of other approaches and proposals with cost and benefit analyses to establish protection for public safety licensees operating in the 4.9 GHz band.

28. In the Ninth Further Notice, we also seek comment on ways to enable the Band Manager to facilitate the leasing of unused spectrum rights to non-public safety entities. We propose that all relevant public safety licensees would be required to consent to this arrangement but considered and seek comment on alternatives such as whether we should have exceptions to this general requirement and allow leasing in the absence of a given licensee's consent, for example after a period of non-responsiveness or if the licensee has conditioned its consent in a manner which violates our rules on compensation. Or whether we should have an exception for lack of consent if, we require certain licensees whose license area does not overlap with the lease area to consent.

29. To safeguard small and other entities from discriminatory treatment, we seek comment in the Ninth Further Notice on what rules should be imposed on the Band Manager to ensure it administers leasing in a non-discriminatory manner. Our inquiry for non-discriminatory leasing rules explores specific lessees as well as the types of lessees and the nature of the operations they will conduct with the 4.9 GHz band. Finally, while we propose that the Band Manager fund itself from leasing revenue, to minimize the impact for small and other entities we considered and seek comment on whether there are any requirements we should put in place as to those fees, whether we should limit the fees charged by the Band Manager to public safety licensees and applicants, whether there are other funding sources for the Band Manager that our rules should contemplate, and how to approach revenues exceeding the Band Manager's costs for its services.

30. The Commission is hopeful that the comments it receives will specifically address matters impacting small entities and include data and analyses relating to these matters. Further, while the Commission believes the rules that are eventually adopted in this proceeding should benefit small entities, whether public safety licensees seeking interference protection in the band or non-public safety entities seeking access to valuable spectrum, the Commission expects to more fully consider the economic impact and alternatives for small entities following the review of comments filed in response to the Ninth Further Notice. The Commission's evaluation of this information will shape the final alternatives it considers, the final conclusions it reaches, and any final actions it ultimately takes in this proceeding to minimize any significant economic impact that may occur on small entities.

F. Federal Rules that May Duplicate, Overlap, or Conflict With the Proposed Rules

31. None.

I. Background

The General Services Administration (GSA) conducts routine reviews of its acquisition regulations to identify outdated content and to ensure there is no unnecessary duplication of or conflict with the Federal Acquisition Regulation (FAR), pursuant to FAR 1.304. Through one of these reviews in Fiscal Year (FY) 2022, GSA identified that General Services Administration Acquisition Regulation (GSAR) clause 552.232-1 Payments conflicts with FAR clause 52.232-1 Payments and should be removed. As this GSAR clause is over 10 years old, GSA does not have any historical information that explains why the GSAR clause was initially created. This rule seeks to rectify the issue.

GSA is proposing to amend the GSAR to remove GSAR Clause 552.232-1 Payments and any corresponding references to the clause.

First, this rule proposes to remove and reserve the GSAR clause 552.232-1 Payments because GSA has determined the existing FAR clause 52.232-1 Payments is sufficient, and it is no longer in the best interests of GSA to deviate from the FAR. The GSAR clause requires, in certain transactions, the Government to pay a contractor without submission of a proper invoice for non-commercial fixed price contracts for supplies or services; whereas the FAR currently requires that the Government pay a contractor only after receipt of the contractor's proper invoice or voucher. GSA has found that the GSAR clause is no longer necessary and is unaware of any situation in which this clause is used for any payments being processed.

Next, this rule proposes to remove the prescription for GSAR clause 552.232-1 at GSAR 532.111 and make conforming changes to subsequent text to improve consistency and readability of the GSAR.

Finally, this rule proposes to revise the prescription for GSAR clause 552.323-5: “As prescribed in 532.111(b), insert the following clause.” Because of the change discussed above, there is no part (b) of GSAR 532.111, so (b) should be removed from this statement.

This rule proposes to remove one conflicting GSAR clause regarding payments for non-commercial fixed price contracts for supplies or services. GSA believes the exception to invoicing in the GSAR clause is not currently followed, and applicable contractors are already following the invoice requirements of the FAR clause. However, we have conducted the analysis below demonstrating that the expected impact of this rule is not significant.

With this change, contractors with non-commercial, fixed-price, contracts for supplies or services will now have to submit proper invoices in order to receive payments in accordance with FAR 52.232-1 Payments . Information generated from the System for Award Management (SAM.gov) for FY 2022 reflects approximately 142,120 GSA contracts were awarded for non-commercial fixed price contracts for supplies or services across approximately 735 separate contractors.

Consistent with the methodology and analysis for the FAR clause information collection  1 , the affected contracts on average are estimated to have 6 invoices per contract per year, for a total of 852,720 total responses. Each response is estimated to require 0.25 hours, for a total of 213,180 hours of total burden. Applying a GS-12 pay rate, the total cost is estimated to be $12,517,930  2 , or approximately $17,031 per contractor which is not significant.

Executive Orders (E.O.s) 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). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. OIRA has determined that this rule is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

GSA does not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because this rule merely reverts back to the existing FAR clause for payments. However, an Initial Regulatory Flexibility Analysis (IRFA) has been prepared consistent with 5 U.S.C. 603. The analysis is summarized as follows:

The Regulatory Secretariat Division will be submitting a copy of the IRFA to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the IRFA may be obtained from the Regulatory Secretariat Division. GSA invites comments from small business concerns and other interested parties on the expected impact of this rule on small entities.

GSA will also consider comments from small entities concerning the existing regulations in subparts affected by this rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 610 (GSAR Case 2022-G513) in correspondence.

The Paperwork Reduction Act (44 U.S.C. chapter 35) does apply; however, these changes to the GSAR do not impose additional information collection requirements to the paperwork burden previously approved for FAR clause 52.232-1 Payments, under the Office of Management and Budget Control Number 9000-0073, Certain Federal Acquisition Regulation Part 32 Requirements.

Therefore, GSA proposes to amend 48 CFR parts 532 and 552 as set forth below:

The Gulf reef fish fishery, which includes red snapper, is managed under the FMP. The FMP was prepared by the Council and is implemented by NMFS through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Steven Act).

Unless otherwise noted, all weights in this proposed rule are in round weight.

The Magnuson-Stevens Act requires NMFS and regional fishery management councils to prevent overfishing and to achieve, on a continuing basis, the OY from federally managed fish stocks to ensure that fishery resources are managed for the greatest overall benefit to the nation, particularly with respect to providing food production and recreational opportunities, and protecting marine ecosystems.

Red snapper in the Gulf EEZ is harvested by both the commercial and recreational sectors. The stock ACL for red snapper is equal to the acceptable biological catch (ABC) recommended by the Council's Scientific and Statistical Committee (SSC), and each sector has its own ACL and associated management measures. The stock ACL is allocated 51 percent to the commercial sector and 49 percent to the recreational sector. In 2015, Amendment 40 to the FMP (80 FR 22422, April 22, 2015) divided the recreational ACL (quota) between the Federal charter vessel/headboat (for-hire) component (42.3 percent) and the private angling component (57.7 percent).

In 2020, NMFS implemented state management of red snapper for the private angling component as specified in Amendments 50 A-F to the FMP (85 FR 6819, February 6, 2020). Through these amendments, each Gulf state was allocated a portion of the red snapper private angling component ACL and was delegated the authority to set the private angling fishing season, bag limit, and size limit. However, each Gulf state was managing the harvest by its private anglers using estimates from its own state data collection program, which, except for Texas, was not directly comparable to the state's ACL. To address this issue, the Council, Gulf states, and NMFS worked to develop and implement calibration ratios that adjusted each state's private angling component ACL so that it could be directly compared to the landings estimates produced by that state's data collection program. (87 FR 74014, December 2, 2022).

In 2016, Congress awarded funding to researchers in an effort to independently estimate the population size of red snapper in the Gulf. Commonly known as the “Great Red Snapper Count” (GRSC), this project's primary goal was to provide a snapshot estimate of abundance and distribution of age 2 and older red snapper on artificial, natural, and uncharacterized bottom habitat across the northern Gulf through 2019.

The results of the GRSC and catch projections produced by the NMFS Southeast Fisheries Science Center (SEFSC) using the GRSC estimates of red snapper abundance were made available to the Council's SSC in 2021. The SSC expressed some concerns about using the GRSC findings to recommend catch levels. Specifically, the SSC noted the uncertainty associated with the GRSC biomass estimate, questions about the productivity of the red snapper stock that are raised by the GRSC findings (that the productivity of the stock appears to be lower than previously assumed), and the declining trend observed in the longstanding NMFS Bottom Longline (BLL) survey. Based on these concerns, and until additional information could be presented related to the SSC's questions about some aspects of the GRSC, the SSC determined that it was not appropriate to use the GRSC-based projections to recommend a new ABC, which constrains the total allowable catch that may be specified by the Council. Instead, the SSC used the GRSC-based projections to recommend a new OFL of 25,600,000 lb (11,611,965 kg) but used projections generated using information from the NMFS BLL survey to recommend a new ABC of 14,400,000 lb (6,531,730 kg). The Council adopted these recommendations and specified new commercial and recreational catch limits using the established allocations. These new catch limits were effective on January 1, 2023 (87 FR 74014, December 2, 2022).

At its March 2022 meeting, the Council's SSC reviewed new catch level projections based on an SEFSC analysis that used updated GRSC abundance data for Florida and included an independent study that provided an estimate of red snapper abundance for Louisiana. A detailed explanation of the information reviewed by the SSC is available in the framework action. In summary, the SSC determined that the SEFSC projections informed by the GRSC abundance data for Texas, Alabama, Mississippi, the updated abundance data for Florida, and new abundance data for Louisiana are based on the best scientific information available and should be used for new OFL and ABC recommendations. Therefore, the SSC recommended a new OFL of 18,910,000 lb (8,577,432 kg) and a new ABC of 16,310,000 lb (7,398,092 kg), which is reduced from the OFL based on 30 percent probability of overfishing. The SSC recommended a decrease in the OFL because the total estimate of red snapper (over the age of 2) abundance was reduced from 118 million fish to 85.6 million fish. The SSC recommended an increase in the ABC because the decrease in the scientific uncertainty in the new abundance estimates allowed for a smaller buffer between the OFL and ABC.

Consistent with the Council's practice of setting the red snapper stock ACL equal to the ABC, the SSC's recommendation would result in the red snapper stock ACL increasing from 15,400,000 lb (7,000,000 kg) to 16,310,000 lb (7,400,000 kg). The Council approved the framework action to revise the red snapper harvest limits at its August 2022 meeting.

The framework action and this proposed rule would revise the red snapper OFL and ABC as recommended by the Council's SSC and increase the red snapper commercial and recreational ACLs and ACTs.

The commercial ACL (commercial quota) would increase from 7,854,000 lb (3,562,514 kg) to 8,318,100 lb (3,773,026 kg), and the recreational ACL (recreational quota) would increase from 7,546,000 lb (3,422,808 kg) to 7,991,900 lb (3,625,065 kg). This proposed rule would also increase the Federal for-hire component ACL from 3,191,958 lb (1,447,848 kg) to 3,380,574 lb (1,533,403 kg) and increase the Federal for-hire component ACT from 2,904,682 lb (1,317,542 kg) to 3,076,322 lb (1,395,396 kg). In addition, this proposed rule would increase the private angling component ACL from 4,354,042 lb (1,974,960 kg) to 4,611,326 lb (2,091,662 kg) and increase the private angling component ACT from 3,483,234 lb (1,579,968 kg) to 3,689,061 lb (1,673,330 kg).

This proposed rule would increase the state specific private angling component ACLs for each of the Gulf states. Each state's ACL listed below is consistent with the allocation established in Amendment 50A and the state specific calibration ratio implemented in January 2023. Alabama's private angling component ACL would increase from 558,200 lb (253,195 kg) to 591,185 lb (268,157 kg). Florida's private angling component ACL would increase from 2,069,053 lb (938,507 kg) to 2,191,315 lb (993,964 kg). Louisiana's private angling component ACL would increase from 882,443 lb (400,269 kg) to 934,587 lb (423,922 kg). Mississippi's private angling component ACL would increase from 59,354 lb (26,923 kg) to 62,862 lb (28,514 kg). Finally, Texas's private angling component ACL would increase from 270,386 lb (122,645 kg) to 286,363 lb (129,892 kg).

In addition to modifying the Gulf red snapper harvest level as specified in the framework action, this proposed rule would revise language related to the red snapper Federal for-hire component quota (50 CFR 622.39(a)(2)(i)(B)) and the red snapper Federal for-hire component ACT (50 CFR 622.41(q)(2)(iii)(B)). Since 2015, when the recreational ACL (quota) was allocated between the Federal for-hire and private angling components, these provisions have specified that the Federal for-hire quota and ACT apply “to vessels that have been issued a valid Federal charter vessel/headboat permit for Gulf reef fish any time during the fishing year.” (84 FR 24832 May 1, 2015). This language was intended to prohibit persons with vessels issued Federal for-hire permits from transferring those permits off the vessels and then fishing for red snapper under the private-angling component catch limits during the same fishing year. To clarify this prohibition, NMFS added the following language in the final rule implementing Amendments 50A-F (85 FR 6819, February 6, 2020): “A person aboard a vessel that has been issued a charter vessel/headboat permit for Gulf reef fish any time during the fishing year may not harvest or possess red snapper in or from the Gulf EEZ when the Federal charter vessel/headboat component is closed.” However, in that final rule, NMFS mistakenly referred to “the Gulf EEZ,” which is inconsistent with the 2015 language because it improperly suggests that persons aboard these vessels could harvest red snapper from state waters when the for-hire component is closed and, thus, allow the type of activity that the prior sentence was intended to prohibit. This proposed rule would remove “EEZ” from that sentence in both 50 CFR 622.39(a)(2)(i)(B) and 50 CFR 622.41(q)(2)(iii)(B) to reflect that the harvest limitation applies to the entire Gulf (Federal and state waters).

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this proposed rule is consistent with the framework action, the FMP, other provisions of the Magnuson-Stevens Act, and other applicable law, subject to further consideration after public comment.

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

Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA), the Chief Counsel for Regulation of the Department of Commerce has certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The factual basis for this determination follows. NMFS notes that this analysis has been updated since the final rule implementing the red snapper calibration and harvest level framework actions published on December 2, 2022, and which is effective on January 1, 2023 (87 FR 74014, December 2, 2022). The revised red snapper catch limits contained in that final rule will now serve as the no action alternative (status quo) in the updated factual basis included for this proposed rule. The conclusions of the analysis have not changed.

A description of this proposed rule, why it is being considered, and the objectives of this proposed rule are contained in the preamble of this proposed rule. The Magnuson-Stevens Act provides the statutory basis for this proposed rule.

This proposed rule would apply to all federally-permitted commercial vessels, federally-permitted charter vessels and headboats (for-hire vessels), and recreational anglers that fish for or harvest red snapper in Federal waters of the Gulf. It would also apply to red snapper individual fishing quota (IFQ) shareholders within the commercial sector. It would not directly apply to federally-permitted dealers. Any change in the supply of red snapper available for purchase by dealers as a result of this proposed rule, and associated economic effects, would be an indirect effect of the proposed rule and would therefore fall outside the scope of the RFA. Although this rulemaking would apply to for-hire vessels, it would not be expected to have any direct effects on these entities. For-hire vessels sell fishing services to recreational anglers. The proposed changes to the red snapper management measures would not directly alter the services sold by these vessels. Any change in demand for these fishing services, and associated economic effects, as a result of this proposed rule would be a consequence of behavioral change by anglers, secondary to any direct effect on anglers and, therefore, an indirect effect of this proposed rule. Because the effects on for-hire vessels would be indirect, they fall outside the scope of the RFA. Furthermore, for-hire captains and crew are not permitted to retain red snapper under the recreational bag limit, so only recreational anglers would be directly affected by the proposed changes to the red snapper recreational ACLs and ACTs. The RFA does not consider recreational anglers to be small entities, so they are outside the scope of this analysis (5 U.S.C. 603). Small entities include small businesses, small organizations, and small governmental jurisdictions (5 U.S.C. 601(6) and 601(3)-(5)). Recreational anglers are not businesses, organizations, or governmental jurisdictions. In summary, only the impacts on commercial vessels and IFQ shareholders will be discussed.

As of July 8, 2021, there were 825 limited access valid or renewable commercial Gulf reef fish permits. In order to commercially harvest red snapper, a vessel permit must also be linked to an IFQ account and possess sufficient allocation for this species. IFQ accounts can be opened and valid permits can be linked to IFQ accounts at any time during the year. Eligible vessels can receive red snapper allocation from other IFQ participants. On average from 2016 through 2020, there were 637 IFQ accounts that held red snapper allocation and 355 that held red snapper shares. During the same period, there were 438 federally permitted commercial vessels, on average each year, with reported landings of red snapper in the Gulf. Their average annual vessel-level gross revenue from all species for 2016 through 2020 was approximately $146,000 (2021 dollars) and red snapper accounted for approximately half of this revenue. For commercial vessels that harvested Gulf red snapper, NMFS estimates that economic profits are approximately 34 percent of annual gross revenue, on average. The maximum annual revenue from all species reported by a single one of the commercial vessels that landed Gulf red snapper from 2016 through 2020 was approximately $3.3 million (2021 dollars).

For RFA purposes only, NMFS has established a small business size standard for businesses, including their affiliates, whose primary industry is commercial fishing (see 50 CFR 200.2). A business primarily engaged in commercial fishing (NAICS code 11411) is classified as a small business if it is independently owned and operated, is not dominant in its field of operation (including its affiliates), and has combined annual receipts not in excess of $11 million for all its affiliated operations worldwide. All of the commercial fishing businesses directly regulated by this proposed rule are believed to be small entities based on the NMFS size standard. No other small entities that would be directly affected by this proposed rule have been identified.

This proposed rule would modify the red snapper OFL, ABC, ACLs, and recreational ACTs for 2022 and subsequent years based on the OFL and ABC recommendations of the Gulf Council's SSC. As stated previously, this updated analysis utilizes the revised red snapper catch limits from the final rule that published on December 2, 2022 (87 FR 74014) as the no action alternative (status quo), which differs from those that were in place at the time final action was taken by the Council on the framework action. Under this proposed rule, the commercial ACL (quota) would increase by 464,100 lb (210,512 kg), which if harvested in full, would correspond to an estimated increase in annual ex-vessel revenue of approximately $2.28 million (2021 dollars). Divided by the average number of commercial vessels with reported landings of red snapper from 2016 through 2020, this would be an increase of approximately $5,205 (2021 dollars) in gross revenue and $1,770 in profits per vessel (4 percent of average annual gross revenue and profits). In addition to the expected increase in ex-vessel revenue, the proposed increase in the commercial red snapper quota would be expected to result in an annual increase in IFQ allocation value of approximately $1.55 million (2021 dollars). Finally, total red snapper IFQ share value would be expected to increase by approximately $16.15 million (2021 dollars). These estimates rely on average ex-vessel, IFQ allocation, and IFQ share price estimates from 2016 through 2020. Actual future prices could increase or decrease relative to this average because of market forces. NMFS expects that any negative price effects induced by this proposed rule, should they occur, would be outweighed by the benefits of the increased quota.

An additional item that is contained in the proposed rule that is not included in the framework action, are revisions to 50 CFR 622.41(q)(2)(iii)(B) and 50 CFR 622.39(a)(2)(i)(B), to remove the term “EEZ” from the following language, “A person aboard a vessel that has been issued a charter vessel/headboat permit for Gulf reef fish any time during the fishing year may not harvest or possess red snapper in or from the Gulf EEZ when the Federal charter vessel/headboat component is closed.” The term “EEZ” was inadvertently included in this language in the final rule implementing Amendments 50 A-F (85 FR 6819, February 6, 2020) and is inconsistent with the original language in those provisions that specify that Federal for-hire catch limits apply to vessels that have been issued the Federal for-hire permit at any time during the fishing year. This is an administrative change and is not expected to have any direct economic effects on any small entities. As such, this component of the proposed rule is outside the scope of the RFA.

In summary, the information provided above supports a determination that this proposed rule would not have a significant economic impact on a substantial number of small entities. As a result, an initial regulatory flexibility analysis is not required and none has been prepared.

No duplicative, overlapping, or conflicting Federal rules have been identified. In addition, no new reporting, record-keeping, or other compliance requirements are introduced by this proposed rule.

This proposed rule contains no information collection requirements under the Paperwork Reduction Act of 1995.

For the reasons set out in the preamble, NMFS proposes to amend 50 CFR part 622 as follows: