[Federal Register Volume 89, Number 37 (Friday, February 23, 2024)]
[Rules and Regulations]
[Pages 13916-13948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-03542]
[[Page 13915]]
Vol. 89
Friday,
No. 37
February 23, 2024
Part V
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 433, 447, 455, et al.
Medicaid Program; Disproportionate Share Hospital Third-Party Payer
Rule; Final Rule
Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 /
Rules and Regulations
[[Page 13916]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 433, 447, 455, and 457
[CMS-2445-F]
RIN 0938-AV00
Medicaid Program; Disproportionate Share Hospital Third-Party
Payer Rule
AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).
ACTION: Final rule.
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SUMMARY: This final rule primarily addresses recent legislative changes
to the Social Security Act as a result of the Consolidated
Appropriations Act, 2021 changes to the hospital-specific limit on
Medicaid disproportionate share hospital (DSH) payments. This final
rule affords States and hospitals more clarity on how the limit, the
changes that took effect on October 1, 2021, will be calculated.
Additionally, this final rule enhances administrative efficiency by
making technical changes and clarifications to the DSH program.
DATES:
Effective date: These regulations are effective on April 23, 2024.
Applicability date: Sections 447.295(b) and (d), 447.299(c)(6),
(7), (10), and (16), and 455.304(d)(1), (3), (4), and (6) are
applicable as of October 1, 2021 (see section III. of this final rule
for additional information).
FOR FURTHER INFORMATION CONTACT: Lia Adams, (410) 786-8258, Charlie
Arnold, (404) 562-7425, Richard Cuno, (410) 786-1111, Stuart Goldstein,
(410) 786-0694, Charles Hines, (410) 786-0252, and Mark Wong, (415)
744-3561, for Medicaid Disproportionate Share Hospital Payments and
Overpayments.
Jennifer Clark, (410) 786-2013, for Children's Health Insurance
Program (CHIP).
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview
Title XIX of the Social Security Act (the Act) established the
Medicaid program as a Federal-State partnership for the purpose of
providing and financing medical assistance to specified groups of
eligible individuals. States have considerable flexibility in designing
their programs but must abide by requirements specified in the Federal
Medicaid statute and regulations. Each State is responsible for
administering its Medicaid program in accordance with an approved State
plan, which specifies the scope of covered services, groups of eligible
individuals, payment methodologies, and all other information necessary
to assure the State plan describes a comprehensive and sound structure
for operating the Medicaid program, and ultimately, provides a clear
basis for claiming Federal matching funds.
Section 1902(a)(13)(A)(iv) of the Act requires that States consider
the situation of hospitals that serve a disproportionate share of low-
income patients with special needs, in a manner consistent with section
1923 of Act, in determining payments. The purpose of the proposed rule
\1\ and this final rule is to update the regulatory requirements of the
disproportionate share hospital (DSH) program in response to the
Consolidated Appropriations Act, 2021 (herein, referred to as the CAA
2021) (Pub. L. 116-260, December 27, 2020) and to further improve upon
the program. More specifically, the provisions of this final rule seek
to implement the DSH-related provisions of the CAA 2021 concerning the
treatment of third-party payments for purposes of calculating Medicaid
hospital-specific DSH limits. We note that the CAA 2021 also created
new supplemental payment reporting requirements through the addition of
section 1903(bb) of the Act; however, DSH payments were specifically
excluded from these requirements, and we have issued guidance on those
requirements.\2\
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\1\ 88 FR 11865.
\2\ ``New Supplemental Payment Reporting and Medicaid
Disproportionate Share Hospital Requirements under the Consolidated
Appropriations Act, 2021,'' State Medicaid Director Letter #21-006,
December 10, 2021. Available at https://www.medicaid.gov/federal-policy-guidance/downloads/smd21006.pdf.
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This final rule also revises regulatory payment and financing
definitions and other regulatory language that could be subject to
misinterpretation, refines administrative procedures used by States to
comply with Federal regulations, and removes regulatory requirements
that have been difficult to administer and do not further the program's
objectives.
We are finalizing all provisions as proposed, although we note that
the regulations have some minor phrasing changes for consistency with
current style guidelines. For the CAA 2021-related provisions of this
final rule, we are finalizing an applicability date of October 1, 2021,
to align with the effective date in the statute. This information is
noted in each of the CAA 2021-related provision sections and discussed
in section III. of this final rule. The remaining provisions of this
final rule are effective 60 days after publication of the final rule.
B. Disproportionate Share Hospital (DSH) Payments
1. Background
States are statutorily required to make DSH payments to qualifying
hospitals that serve patients who are uninsured and enrolled in the
Medicaid program, as described in section 1923(d) of the Act. States
generally have flexibility regarding the specific hospitals to which
they make payments and how they determine the amount of those payments,
within certain parameters. Section 1902(a)(13)(A)(iv) of the Act
requires that States consider the situation of hospitals that serve a
disproportionate number of low-income patients with special needs, in a
manner consistent with section 1923 of the Act. DSH payments are not
considered part of base payments or supplemental payments to providers,
as they are made under distinct statutory authority. Section 1923 of
the Act contains specific requirements related to DSH payments,
including aggregate annual State-specific DSH allotments that limit
Federal financial participation (FFP) for Statewide total DSH payments
under section 1923(f) of the Act, and hospital-specific limits on DSH
payments under section 1923(g) of the Act. Under the statutory
hospital-specific limits, a hospital's DSH payments may not exceed the
costs incurred by that hospital in furnishing inpatient and outpatient
hospital services during the year to certain Medicaid beneficiaries and
the uninsured, less payments received under title XIX (other than
section 1923 of the Act) and payments by uninsured patients. In
addition, section 1923(a)(2)(D) of the Act requires States to provide
an annual report to the Secretary describing the DSH payment
adjustments made to each DSH.
Section 1001(d) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. 108-173, December 8, 2003)
added section 1923(j) of the Act to require States to report additional
information about their DSH programs. Section 1923(j)(1) of the Act
requires States to submit an annual report including an identification
of each hospital that received a DSH payment adjustment during the
preceding fiscal year (FY) and the amount of such adjustment, and such
other information as the Secretary determines necessary to ensure the
appropriateness of the DSH payment
[[Page 13917]]
adjustments for such FY. Additionally, section 1923(j)(2) of the Act
requires States to submit an independent certified audit of the State's
DSH program, including specified content, annually to the Secretary.
2. Consolidated Appropriations Act, 2021 (CAA 2021) DSH Requirements
The CAA 2021 was enacted on December 27, 2020. It modified the
Medicaid statute in several ways, including by updating section 1923 of
the Act. Specifically, Division CC, Title II, section 203 of the CAA
2021 (herein referred to as section 203) amended section 1923(g) of the
Act, which describes the methodology for calculating hospital-specific
Medicaid DSH limits. This provision took effect October 1, 2021. For
purposes of calculating the hospital-specific DSH limit, section 203 of
the CAA 2021 modified the calculation of the Medicaid portion of the
hospital-specific DSH limit to include only costs and payments for
services furnished to beneficiaries for whom Medicaid is the primary
payer for such services, as specified in section 1923(g)(1)(B)(i) of
the Act. Accordingly, the limit excludes costs and payments for
services provided to Medicaid beneficiaries with other sources of
coverage, including Medicare and commercial insurance. Section 1923(g)
of the Act, as modified by the CAA 2021, includes an exception to this
methodology for hospitals in and above the 97th percentile of all
hospitals with respect to inpatient days made up of patients who, for
such days, were entitled to Medicare Part A benefits and to
supplemental security income (SSI) benefits (97th percentile
hospitals). This exception, as described in section 1923(g)(2)(B) of
the Act, applies to hospitals that are in or above the 97th percentile,
either with respect to the number of inpatient days or percentage of
total inpatient days that were made up of such days. The exception
provides qualifying hospitals with a hospital-specific limit that is
the higher of that calculated under the methodology in which costs and
payments for Medicaid patients are counted only for beneficiaries for
whom Medicaid is the primary payer, or the methodology in effect on
January 1, 2020. From June 2, 2017, to the passage of the CAA 2021,
payments made by all third-party payers (TPP), such as Medicare, other
insurers, and beneficiary cost sharing, would all be included in the
calculation of hospital-specific DSH limits, in accordance with the
``DSH Payments--Treatment of Third-Party Payers in Calculating
Uncompensated Care Costs'' final rule in the April 3, 2017, Federal
Register (82 FR 16114), which delineated the treatment of TPP and the
calculation of hospital-specific DSH limits.
We acknowledge there are data limitations, which we describe later
in this rule, that have delayed CMS' ability to clarify which hospitals
qualify for the exception for 97th percentile hospitals. We proposed
how we would determine which hospitals qualify for this exception and
are finalizing as proposed.
3. Annual DSH Audits and Overpayments
The ``Medicaid Program; Disproportionate Share Hospital Payments''
final rule published in the December 19, 2008, Federal Register (73 FR
77904) (and herein referred to as the 2008 DSH audit final rule) sets
forth the data elements necessary to comply with the requirements of
section 1923(j) of the Act related to auditing and reporting of DSH
payments under State Medicaid programs. The regulations at 42 CFR
447.299(c) finalized in the 2008 DSH audit final rule outline 18 data
elements States must submit to CMS, at the same time as the State
submits the completed audit required under 42 CFR 455.304, to permit
CMS verification of the appropriateness of such payments. One such data
element is the total uncompensated care cost, which equals the total
cost of care for furnishing inpatient hospital and outpatient hospital
services to Medicaid eligible individuals and to individuals with no
source of third-party coverage for the hospital services they receive,
less the sum of other payment sources listed in Sec. 447.299(c)(16).
Despite the robust data, potential data gaps may exist as a result of
an auditor identifying an area, or areas, in which documentation is
missing or unavailable for certain costs or payments that are required
to be included in the calculation of the total eligible uncompensated
care costs.
Consequently, at times we are unable to determine whether a DSH
overpayment to a provider has occurred, the root causes of any
overpayments, and the amount of the overpayments associated with each
cause. In current practice, an auditor may include a finding (or
``caveat'') in the audit, stating that the missing information may
impact the calculation of total eligible uncompensated care costs,
rather than making a determination of the actual financial impact of
the identified issue. This lack of transparency results in uncertainty
even if costs are ultimately correct and restricts CMS' and States'
ability to ensure proper recovery of all FFP associated with DSH
overpayments identified through annual DSH audits in instances where
errors did occur.
In the past, the Office of Inspector General (OIG) and the
Government Accountability Office (GAO) have raised concerns similar to
ours regarding oversight of the Medicaid DSH program. The 2008 DSH
audit final rule addressed concerns raised by OIG \3\ by implementing
in regulations the independent certified audit requirements under
section 1923(j) of the Act, by requiring States to include data
elements as specified in Sec. 447.299(c) with their annual audits. In
2012, GAO published the report ``Medicaid: More Transparency of and
Accountability for Supplemental Payments are Needed.'' \4\ Although
Medicaid DSH payments are not ``supplemental payments,'' as described
previously, they are akin to supplemental payments, and thus, GAO's
report did not focus on supplemental payments exclusively. As part of
the report, GAO analyzed the 2010 DSH audits for 2007 DSH payments and
found DSH payments that did not comply with the audit requirements
specified in part 455, subpart D. For each of the required DSH audit
elements, there were a number of hospitals for which GAO could not
determine compliance due to data reliability or documentation issues.
For example, GAO could not determine compliance with the requirement
that uncompensated care costs are accurately calculated for 33.7
percent of hospitals analyzed by GAO. The report highlights that,
although the independent certified audit requirements have allowed us
to identify various compliance issues and quantify some provider
overpayments, in some instances, findings remain unquantified.
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\3\ Audit of Selected States' Medicaid Disproportionate Share
Hospital Programs,'' March 2006 (A-06-03-00031), https://www.oig.hhs.gov/oas/reports/region6/60300031.pdf.
\4\ https://www.gao.gov/assets/660/650322.pdf.
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We agree with the report that more transparency is needed, but to
obtain the necessary overpayment amounts under current reporting
processes, CMS or the State would have to conduct a secondary review or
audit, which would be burdensome and largely redundant. By requiring
States to submit to CMS in the annual reports described in Sec.
447.299(c) a dollar estimate of any Medicaid DSH provider overpayments,
we ensure this calculation occurs with the primary audit and eliminates
redundancy in reviewing documentation. As discussed further in section
II. of this final rule, this is intended to further enhance our
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oversight to better ensure the integrity of hospital-specific limit
calculations.
Amounts in excess of the hospital-specific limit are regarded as
overpayments to providers, under 42 CFR part 433, subpart F. Section
1903(d)(2)(C) of the Act provides that, when an overpayment by a State
is discovered, the State has a 1-year period to recover or attempt to
recover the overpayment before an adjustment is made to FFP to account
for the overpayment. FFP is not available for DSH payments that are
found in the independent certified audit to exceed the hospital-
specific limit. Currently, regulations in Sec. 433.316 provide for
determining the date of discovery of an overpayment, which is necessary
to determine the statutory 1-year period, but it does not specify how
this relates to the independent certified DSH audits required under
section 1923(j)(2) of the Act and 42 CFR part 455, subpart D.
Accordingly, the discovery of overpayments necessitates the return
of the Federal share, or redistribution by the State of the overpaid
amounts to other qualifying hospitals, in accordance with the State's
approved Medicaid State plan. While the preamble to the 2008 DSH audit
final rule generally addressed the return or redistribution of provider
overpayments identified through DSH audits, it did not include specific
procedural requirements for returning or redistributing overpayments.
Therefore, we have identified this area as an opportunity to strengthen
program oversight and integrity protections, specifically with respect
to the overpayment and redistribution reporting process and
requirements for identifying the financial impact of audit findings. In
the proposed rule, we proposed requirements to enhance these areas,
which we are now finalizing as proposed.
4. DSH Health Reform Reduction Methodology
Section 2551 of the Affordable Care Act \5\ (ACA) amended section
1923(f) of the Act to require aggregate reductions to State Medicaid
DSH allotments annually from FY 2014 through FY 2020, to account for
the then-anticipated decrease in uncompensated care resulting from
expansions of coverage authorized by the ACA. The ACA specified in
section 1923(f)(7)(B) of the Act certain factors CMS must consider in
implementing these reductions and left certain components of the
methodology to the Secretary of Health and Human Services to define (as
described later in this section). The methodology is referred to as the
DSH Health Reform Methodology (DHRM). We published a final rule in
October 2013 that delineated a methodology to implement the annual
reductions only for FY 2014 and FY 2015 to accommodate data refinement
and methodology improvement for later reduction years. However,
Congress has since modified section 1923(f)(7) of the Act several times
such that the reductions have never taken effect. In the September 25,
2019, Federal Register, we published a final rule \6\ (2019 final rule)
delineating a revised methodology for the calculation of DSH allotment
reductions, which at that time were scheduled to begin in 2020.
Congress has since further delayed the start of these reductions until
FY 2024. The CAA 2021 modified section 1923(f) of the Act such that the
reductions occur from FY 2024 through FY 2027, in the amount of $8
billion each year.
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\5\ Patient Protection and Affordable Care Act of 2010, Public
Law 111-148, as amended by the Health Care and Education
Reconciliation Act of 2010, Public Law 111-152.
\6\ 84 FR 50308.
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Section 1923(f)(7) of the Act requires the Secretary to develop a
methodology to determine the annual, State-by-State DSH allotment
reduction amounts based on five factors: uninsured factor (UPF);
Medicaid volume factor (HMF); uncompensated care factor (HUF); low DSH
State factor (LDF); and the budget neutrality factor (BNF). The 2019
final rule assigned weights to the annual reduction amount for the
three core factors: UPF, HMF, and HUF. The remaining two factors, the
LDF and the BNF, affect the allocation of the reduction amounts within
the three core factors. The LDF accomplishes this allocation at the
front end of the calculations by shifting a portion of the reduction
amount specified under section 1923(f)(7)(A)(ii) of the Act to non-low
DSH States. Following this step, we determine the reduction
calculations prescribed by the three core factors. We then perform
additional reductions associated with the BNF within the HMF and HUF
for States that divert DSH allotment amounts under section 1115
demonstrations. We then reallocate these reduction amounts away from
States that do not divert DSH allotment amounts under section 1115
demonstrations, to comply with the aggregate reduction amounts
specified under statute at section 1923(f)(7)(A)(ii) of the Act. The
five factors are specified in section 1923(f)(7)(B) of the Act as
follows:
UPF--The statute requires that States with lower
uninsurance rates receive higher percentage DSH reductions.
Calculations performed under this factor utilize Census Bureau data
that is subject to a 1-year lag.
HMF--The statute requires that States that target DSH
payments to hospitals with high Medicaid volume receive a lower
percentage reduction in their DSH allotment. Calculations performed
under this factor utilize DSH audit data that is on a 3-year lag.
HUF--As required by statute, States that target DSH
payments to hospitals with high levels of uncompensated care receive a
lower percentage reduction in their DSH allotment. Calculations
performed under this factor utilize DSH audit data that is on a 3-year
lag.
Low DSH State factor--Section 1923(f)(7)(B)(ii) of the Act
requires that statutorily defined ``low DSH States'' \7\ receive a
lower overall DSH reduction percentage than non-low DSH States. To
accomplish this, low DSH States and non-low DSH States are separated
into two cohorts before applying the reduction methodology.
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\7\ Section 1923(f)(5)(B) describes low DSH States as ``State[s]
in which the total expenditures under the State plan (including
Federal and State shares) for [DSH] adjustments under this section
for fiscal year 2000, as reported to the Administrator of the
Centers for Medicare and Medicaid Services as of August 31, 2003, is
greater than 0 but less than 3 percent of the State's total amount
of expenditures under the State plan for medical assistance during
the fiscal year.''
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BNF--DSH allotment amounts diverted for coverage expansion
under section 1115 demonstrations approved as of July 31, 2009, receive
a limited protection from reduction.
5. Modernizing the Publication of Annual DSH and Children's Health
Insurance Program (CHIP) Allotments
Section 447.297 provides a process and timeline for us to publish
preliminary and final annual DSH allotments and national expenditure
targets in the Federal Register. The current requirements specify that
we publish DSH preliminary allotments and national expenditure targets
by October 1 of each Federal fiscal year (FFY) and publish the final
allotments and national expenditure targets by April 1 of that FFY. We
have found the current regulatory Federal Register publication process
to be time consuming and administratively burdensome for us, and
ultimately unnecessary in light of more timely notification practices
already taking place.
Similarly, section 2104 of the Act provides appropriations for FY
CHIP allotments for FYs 1998 through 2029. Regulations at 42 CFR
457.609 describe the process for calculating State CHIP
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allotments for a FY after FY 2008. Section 457.609(h) provides that
CHIP allotments for a FY may be published as preliminary or final
allotments in the Federal Register as determined by the Secretary.
Similar to the current DSH allotment publication process, we have found
the current FY CHIP allotment publication regulations administratively
burdensome and less efficient than other means of notification. We
proposed to codify the process already taking place while eliminating
inefficient and duplicative publication requirements, and we are
finalizing those proposals in this final rule.
II. Provisions of the Final Rule and Responses to Comments
A. When Discovery of Overpayment Occurs and Its Significance (Sec.
433.316)
Section 1903(d)(2)(C) of the Act provides that, when an overpayment
by a State is discovered, the State has a 1-year period to recover or
attempt to recover the overpayment before an adjustment is made to FFP
to account for the overpayment. Currently, regulations in Sec. 433.316
provide for determining the date of discovery of an overpayment to a
provider, which is necessary to determine the statutory 1-year period,
in three distinct cases: (1) when the overpayment results from a
situation other than fraud, under Sec. 433.316(c); (2) when the
overpayment results from fraud, under Sec. 433.316(d); and (3) when
the overpayment is identified through a Federal review, under Sec.
433.316(e). It is not explicitly clear in the current regulations how
the date of discovery is determined when an overpayment is discovered
through the annual DSH independent certified audit required under Sec.
455.304. Therefore, we believe a regulatory change is appropriate to
specify the date of discovery of overpayments, as it relates to the
annual DSH independent certified audit.
Accordingly, we proposed to redesignate paragraphs (f) through (h)
of Sec. 433.316 as paragraphs (g) through (i), respectively, and to
add a new paragraph (f). In the new paragraph (f), we proposed that, in
the case of an overpayment identified through the DSH independent
certified audit required under part 455, subpart D, we would consider
the overpayment as discovered on the earliest of either the date that
the State submits the DSH independent certified audit report required
under Sec. 455.304(b) to CMS, or of any of the dates specified in
Sec. 433.316(c): paragraph (c)(1) (the date on which any Medicaid
agency official or other State official first notifies a provider in
writing of an overpayment and specifies a dollar amount that is subject
to recovery); paragraph (c)(2) (the date on which a provider initially
acknowledges a specific overpaid amount in writing to the Medicaid
agency); and paragraph (c)(3) (the date on which any State official or
fiscal agent of the State initiates a formal action to recoup a
specific overpaid amount from a provider without having first notified
the provider in writing). We noted that this change would afford more
clarity concerning the independent certified DSH audit and the
requirements on States based on those audits.
We received public comments on this proposal. The following is a
summary of the public comments we received and our responses. Because
of its relationship with the proposed provisions at Sec. 447.299(f)
and (g), which pertain to the treatment of overpayments, these topics
overlapped in the comments received. Here, we specifically address
comments that referenced the date of discovery, the aspect specific to
this proposal, but recommend that the reader review and consider the
comments received and our responses on all three provisions (that is,
Sec. Sec. 433.316(f) and 447.299(f) and (g)) in tandem.
Comment: A couple commenters were opposed to the date an
overpayment is considered ``identified'' as being the date of audit
submission. They cited issues such as a need to perform additional
review and secondary auditing, or to adequately account for
redistributions of Medicaid DSH payments in excess of the hospital-
specific limit (if provided for under the State plan), or to compute
alternate payment methodologies for specialty hospitals that exceed the
hospital-specific DSH limit.
Response: We are finalizing this provision as proposed. We
understand the concern expressed by the commenters but disagree that
the method for determining the date of discovery of an overpayment
should be changed from the proposal. Finalizing the date of discovery
to include the date the audit is submitted is consistent with our
approach to determining the date that other overpayments are discovered
as described in Sec. 433.316(c). Specifically, Sec. 433.316(c)(1) and
(3) refer to the date on which a State official (or fiscal agent) first
notifies a provider in writing of a specific overpayment amount subject
to recovery or begins a formal action to recoup that amount without
prior written notification. Section 433.316(c)(2) refers to the date on
which a provider acknowledges a specific overpaid amount in writing to
the State Medicaid agency. Each of these focuses on the date the State
provides, or receives from a relevant third party, written notification
(or initiates a recoupment action without prior written notification to
the provider) of a specific overpaid amount. Similarly, the independent
certified audit formalizes the identification of a specific overpayment
amount when it is submitted.
We also note that finalizing the date of State submission of the
independent certified audit to CMS as an available date for discovery
of an overpayment, as opposed to the date the State's auditor first
identifies an amount to the State before the State submits the audit to
CMS, affords the State an opportunity to review and make appropriate
adjustments, as is typical with similar audit data. The State has up to
90 days after receipt of the independent certified audit to review it
before it must be submitted to CMS in accordance with Sec. 455.304(b)
which we believe is ample time to review DSH audit findings and resolve
any disagreement with the audit's contents and/or with overpayment
determinations by working with the State's auditor.
In addition, we believe the concerns expressed by commenters are
mitigated by other provisions we are finalizing in this rule at Sec.
447.299(f) and (g). Specifically, by clarifying under Sec. 447.299(f)
that amounts identified in DSH audits that exceed the hospital-specific
DSH limit are to be treated as overpayments, States are afforded the
opportunities provided under other overpayment circumstances, which
includes the opportunity for a downward adjustment of an overpayment
amount under Sec. 433.320(c) as appropriate. This addresses concerns
about the fact that the overpayment amount identified in an audit may
be subject to change. In addition, we note that States have 2 years to
complete redistributions under the provision we are finalizing at Sec.
447.299(g), when in other circumstances, such as returning Federal
share, a State only has 1 year to take action on an overpayment. This
affords States ample time to compute and perform redistributions of
payments to particular hospitals in excess of the hospital-specific DSH
limit. Finally, if a State plans to utilize an alternate payment
methodology to address circumstances when a hospital may exceed its DSH
limit, such as by decreasing supplemental payments, this methodology
would need to be reflected in the State plan. Like DSH payment
redistribution methodologies, a State should have this methodology in
place
[[Page 13920]]
well in advance of identifying DSH overpayments for a given year. We
note that, in our experience, payment adjustments necessary to
implement an alternate payment methodology typically are performed far
in advance of the timing of the DSH audit for the relevant year.
Nevertheless, if a State intends to utilize an alternate payment
methodology in the event that overpayments are identified in a DSH
audit, and that State has this methodology reflected in its State plan,
we do not anticipate that the work necessary to implement the
alternative payment methodology would be any more complex or burdensome
than the work necessary to implement DSH overpayment redistribution
methodologies; as such, we do not agree the possible existence of an
alternate payment methodology would require more time for States once
an overpayment is identified.
B. DSH Health Reform Reduction Methodology (Sec. 447.294)
As discussed in section I.B.4. of this final rule, section
1923(f)(7)(B)(iii) of the Act requires that the methodology for
calculating each State's Medicaid DSH allotment reduction, as first
established by the ACA, consider the extent to which the DSH allotment
for a State was included in the budget neutrality calculation for a
coverage expansion approved under section 1115 (that is, a section 1115
demonstration to provide coverage to individuals not otherwise eligible
for Medicaid) as of July 31, 2009. In the 2019 final rule, we finalized
a policy to exclude from DSH allotment reductions the amount of DSH
allotment States had approved as of July 31, 2009, under a coverage
expansion section 1115 demonstration. Any DSH allotment amounts
included in budget neutrality calculations for non-coverage expansion
purposes (for example, where DSH allotment amounts included in budget
neutrality calculations have been used to match State expenditures for
approved delivery system reform initiatives) under approved section
1115 demonstrations are still subject to reduction regardless of when
they were approved. Further, the preamble to the 2019 final rule
indicates that for any section 1115 demonstrations not approved as of
July 31, 2009, these DSH allotment amounts included in budget
neutrality calculations, whether for coverage expansion or otherwise,
would also be subject to reduction. We note that all section 1115
demonstrations approved as of or before July 31, 2009, have expired and
the protection does not apply to renewals or extensions of those
section 1115 demonstrations. Therefore, there no longer exist any
amounts related to coverage expansion to be excluded from future DSH
allotment reductions scheduled to begin in FY 2024.
In the absence of DSH audit data relating to how States expend DSH
allotment amounts diverted under section 1115 demonstrations, we
propose to assign average HUF and HMF reduction percentages to these
amounts.\8\ We believe this approach is a reasonable method to
determine reductions for the HUF and HMF factors, given the absence of
relevant, hospital-specific DSH payment data for these payments. We
considered using alternative percentages higher or lower than the
average but settled on average percentages due to concerns that
alternative percentages might provide an unintended benefit or penalty
to these States for DSH diversions approved under a demonstration under
section 1115 of the Act.
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\8\ 84 FR 50308 at 50328, wherein we discuss the policy to
assign average amounts in the 2019 final rule.
---------------------------------------------------------------------------
While the provisions of Sec. 447.294(e)(12) are clear that we will
assign average reductions to amounts associated with non-coverage
expansion purposes in effect as of July 31, 2009, only the preamble to
the 2019 final rule addresses the amounts diverted under a section 1115
demonstration approved after July 31, 2009. Additionally, the
regulations are not specific regarding how these amounts are determined
and accounted for in the DSH allotment reduction methodology. As such,
we proposed to update the regulations at Sec. 447.294(e)(12) to
clearly specify that amounts diverted under a section 1115
demonstration approved after July 31, 2009, are subject to average
reductions under the HUF and HMF so that the regulation may better
reflect the policy finalized in the 2019 final rule preamble.
In addition, we proposed to remove the language, ``for the specific
fiscal year subject to reduction'' in Sec. 447.294(e)(12) introductory
text and (e)(12)(i), because we are concerned that the current
regulatory language could lead to anomalous results, as discussed later
in this section. We proposed that the determination of diverted amounts
that are subject to average reductions under the HUF and HMF would
align with the State plan rate year (SPRY) for the DSH audits utilized
in the DSH allotment reduction calculations, as specified in Sec.
447.294(d), rather than the fiscal year subject to reduction. For
example, when calculating the statutorily required DSH allotment
reductions for FY 2024 (the fiscal year subject to reduction), we would
utilize data from each State's SPRY 2019 DSH audit data because this
would be the most recent data available to us. For States that do not
divert their entire DSH allotment, we would include the amount of each
State's DSH allotment diverted under a section 1115 demonstration for
the time period that aligns with the associated SPRY (in this example,
SPRY 2019). A discussion of States that divert their entire DSH
allotment follows this discussion. Each State would then be assigned
the average HUF and HMF reduction amounts for the State's respective
State group based on this diverted amount.
Section 477.294(e)(12) introductory text and (e)(12)(i) currently
align the amount of DSH allotment diverted under a section 1115
demonstration for a fiscal year with the fiscal year of the DSH
allotment subject to reduction under section 1923(f)(7)(A)(ii) of the
Act. We recognize that this non-alignment between the SPRY 2019 DSH
audit data that we would use to determine the HUF and HMF, and the FY
2024 section 1115 demonstration budget neutrality calculation diversion
amount that would be used under the current regulation, could result in
inappropriate and illogical outcomes. For example, in a case where a
State claimed all or almost all of its DSH allotment amount for DSH
expenditures for the SPRY DSH audit utilized in the DHRM (here, SPRY
2019), but later diverted a large portion of its DSH allotment amount
under a section 1115 demonstration during a year subject to DSH
allotment reductions (here, FY 2024), the State could receive a
reduction on an amount (including both DSH payments and DSH allotment
diverted under a section 1115 demonstration) that is excess of the
amount available under its current DSH allotment subject to reductions.
Therefore, we stated our belief that our proposed approach is
reasonable because in the absence of DSH audit data relating to how
States expend DSH allotment amounts diverted under section 1115
demonstrations, CMS will assign average HUF and HMF reduction
percentages to these diverted amounts. As such, it is appropriate that
the amounts diverted under section 1115 demonstrations should align
with the SPRY of the DSH audit used in the DHRM and that the amounts
subject to reduction do not exceed what States could have expended,
either through DSH payments or diverted DSH allotment amounts, during
the associated SPRY. We considered leaving the current regulatory text
unchanged.
[[Page 13921]]
However, we stated our belief it is important to update the current
regulation in the interest of clarity and transparency and to avoid a
potential outcome wherein a State might receive an inappropriately
large reduction due to a misalignment of time periods for elements of
the reduction methodology. Accordingly, we proposed to revise Sec.
477.294(e)(12) introductory text to remove language indicating that the
BNF and budget neutrality calculations are applied to each State's
amount of DSH allotment diverted under a section 1115 demonstration
``for the specific fiscal year subject to reduction.'' Further, we
proposed to amend Sec. 477.294(e)(12)(ii) to specify that the budget
neutrality calculations are performed on the amount of each State's DSH
allotment diverted under an approved section 1115 demonstration during
the period that aligns with the associated SPRY DSH audit utilized in
the DSH allotment reductions.
For States that divert their entire DSH allotment, and as such do
not complete DSH audits, we are unable to use a DSH audit SPRY.
Therefore, we proposed to apply reductions under the HMF and HUF to the
DSH allotment that the State would have had available during the
demonstration year (DY) coinciding with the SPRY DSH audits utilized in
the DHRM. We also proposed to prorate the FFY allotment amount to
determine this reduction in cases where the DY of the section 1115
demonstration crosses two FFYs. For example, as stated previously we
would use SPRY 2019 DSH audit data for FFY 2024 DSH allotment
reductions. However, if a State that diverts its entire DSH allotment
has a DY that begins July 1, 2018, and ends June 30, 2019, we would
have to determine the reduction amount associated with the diverted DSH
allotment to reflect the amount of the FFY 2018 DSH allotment available
from July 1, 2018, through September 30, 2018, and the amount of FFY
2019 DSH allotment available from October 1, 2018, through June 30,
2019. We stated that we did not believe it would be appropriate to
calculate the reduction associated with the diverted DSH allotment
using the full FFY 2019 DSH allotment because the diverted DSH funds
would not have been available for the full DY ending June 30, 2019. For
a State that diverts part of its DSH allotment, it would have a SPRY
DSH audit already utilized in the DHRM. We would use the diverted DSH
amount from the same SPRY, which may also involve prorating diverted
DSH amounts from a DY, depending on whether the DY as specified in the
section 1115 demonstration aligns with the SPRY. In previous
rulemaking, we proposed and finalized a policy to utilize the most
recent year available for all data sources and to align the SPRY of
data sources whenever possible.\9\ Providing this clarification in
regulation through this rulemaking would accomplish this goal.
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\9\ 82 FR 35155 at 35157; 84 FR 50308 at 50322.
---------------------------------------------------------------------------
We received public comments on these proposals. The following is a
summary of the public comments we received and our responses.
Comment: One commenter suggested that CMS use hospital-specific
section 1115 supplemental payment data in measuring DSH targeting
factors for diversion funds as the commenter was concerned that using
averages would not encourage States to target DSH payments to the
hospitals that need them the most. The commenter also added that CMS is
statutorily required to collect hospital-specific data under section
1115 demonstrations in accordance with division CC, title II, section
202 of the CAA, 2021 (herein referred to as section 202). The commenter
appears to be under the impression that the supplemental payment
reporting requirement under section 202 applies to DSH payments.
Response: We thank the commenter for the suggestion. However, this
recommendation is outside the scope of the proposed rule, so
implementing it would require further rulemaking. Our current
regulations at Sec. 447.294(e)(12) and (13) specify that DSH diversion
amounts paid under a section 1115 demonstration will receive average
reduction amounts, for the respective State group (that is, low DSH and
non-low DSH), under the HMF and HUF. We did not propose to amend this
aspect of Sec. 447.294(e)(12) and (13), so changes to this calculation
are beyond the scope of this rule. Further, the detailed supplemental
reporting required under section 202 would not apply to the
demonstration year DSH diversion payments that we proposed to align
with the SPRY DSH audit data for use in the DHRM for DSH allotment
reductions for several years. The new reporting requirements in section
1903(bb)(1)(B) of the Act, as amended by section 202 of the CAA 2021,
do not apply to payments made before October 1, 2021. We will calculate
the statutorily required DSH allotment reductions utilizing the most
recently available DSH audit information and will align amounts
diverted under section 1115 demonstrations with the SPRY of the DSH
audit used in the DHRM. Therefore, the detailed supplemental payment
reporting data required under section 202 will be available starting
with the FY 2022, which would align with the SPRY 2022 DSH audit data.
Given the timelines associated with the submission of the independent
certified audit, which must be completed by September 30 of the year
ending three years from the respective Medicaid SPRY and submitted to
CMS by December 31 of that year, we could not utilize this required
data any earlier than to calculate the DSH allotment reductions
scheduled for FY 2027, the last year of currently scheduled DSH
allotment reductions. As such, we would not have this reporting
information available to calculate the DSH allotment reductions for FY
2024 through FY 2026. Moreover, the HUF calculations require additional
information which is not required under section 202 but that is
available in the SPRY DSH audits.
We are finalizing the provision as proposed, with a minor phrasing
change to Sec. 447.294(e)(12) replacing ``pursuant to'' with ``in
accordance with'' to align with current style guidelines.
C. Hospital-Specific Disproportionate Share Hospital Payment Limit
(Sec. 447.295)
From June 2, 2017 to October 1, 2021 (the effective date of the CAA
2021), costs and payments for hospital services furnished to
beneficiaries who were eligible for Medicaid, even when there was a
third-party payer such as Medicare or other insurer that pays primary
to Medicaid for inpatient and outpatient hospital services, would all
be included in the calculation of Medicaid shortfall portion of the
hospital-specific DSH limits in accordance with the ``DSH Payments--
Treatment of Third-Party Payers in Calculating Uncompensated Care
Costs'' final rule in the April 3, 2017, Federal Register. Since
October 1, 2021, the amendments to section 1923(g) of the Act made by
section 203 of the CAA 2021 changed the methodology for calculating the
Medicaid shortfall portion (Medicaid costs less Medicaid payments) of
the hospital-specific DSH limit to only include costs and payments for
hospital services furnished to beneficiaries for whom Medicaid is the
primary payer. Additionally, the CAA 2021 amended section 1923(g)(2) of
the Act to provide an exception for certain hospitals that are in the
97th percentile or above of all hospitals with respect to the number of
Medicare SSI days (that is, inpatient days made up of patients who, for
such days, were entitled to Medicare Part A benefits and to SSI
benefits) or percentage of Medicare SSI days to total inpatient
[[Page 13922]]
days. In Sec. 447.295(b), we proposed to add the definition of ``97th
percentile hospital'' to mean a hospital that is in at least the 97th
percentile of all hospitals nationwide with respect to the hospital's
number of Medicare SSI days or percentage of inpatient days that are
Medicare SSI days, for the hospital's most recent cost reporting
period. For hospitals that meet this criteria, section 1923(g)(2)(A) of
the Act specifies that the hospital-specific DSH limit is the higher of
the amount determined under the methodology as amended by section 203
of the CAA 2021 or the amount determined under the methodology in
effect on January 1, 2020 (described previously), which we proposed to
implement in paragraph (3) of the definition of hospital-specific DSH
limit calculation in Sec. 447.295(d). As further discussed later in
this section, we also proposed in the definition of 97th percentile
hospital that CMS would identify the 97th percentile hospitals, for
each Medicaid SPRY beginning on or after October 1, 2021, using
Medicare cost reporting and claims data sources, as well as
supplemental security income eligibility data provided by the Social
Security Administration. We stated that we would publish lists
identifying each 97th percentile hospital annually in advance of
October 1 of each year and would revise a published list only to
correct a mathematical or other similar technical error that is
identified to CMS during the one-year period beginning on the date the
lists are published.
We also explained in the preamble to the proposed rule that we
interpreted these new requirements to be applicable for SPRYs
``beginning on or after'' October 1, 2021, the effective date of the
CAA 2021. Previously, certain statutory references to ``fiscal year,''
such as in section 1923(g)(1) and (2) and (j)(1) of the Act, have also
been interpreted as referring to each State's SPRY, instead of the FFY,
when establishing requirements for the hospital-specific DSH limit (and
audit requirements to ensure that payments comply with hospital-
specific DSH limits). In the 2008 DSH audit final rule, CMS indicated
that this interpretation was in ``recognition of varying fiscal periods
between hospitals and States'' and that ``[t]he Medicaid [SPRY] is the
period which each State has elected to use for purposes of DSH payments
and other payments made in reference to annual limits.'' Further, we
stated our belief that interpreting this provision to be applicable on
an FFY basis would impose an excessive burden on States and hospitals.
In particular, we explained our belief that such an interpretation
would create a significant burden in situations when a hospital would
qualify to meet the exception for 97th percentile hospitals for a
portion of its SPRY, but not for the full SPRY, if qualification were
determined on the basis of the FFY. This result would be likely to
occur, given that the majority of States have SPRYs that do not align
with the FFY. In these instances, States would need to prorate the
uncompensated care costs, for affected hospitals, within a SPRY
accordingly since the methodology for calculating the Medicaid
shortfall portion of the hospital-specific DSH limit may not be
consistent for the entire SPRY if the hospital qualified as a 97th
percentile hospital for only a portion of the SPRY. As such, we
proposed that section 203 of the CAA 2021, including the 97th
percentile exception, be effective starting with each State's first
SPRY beginning on or after October 1, 2021. For example, if a State's
SPRY begins July 1, then the amendments made by section 203 of the CAA
2021 would be effective starting with the SPRY beginning July 1, 2022.
Conversely, if a State's SPRY begins each year on October 1, then such
amendments would be effective starting with the SPRY beginning October
1, 2021.
Hospitals meeting the definition of a 97th percentile hospital, and
therefore, qualifying for the 97th percentile exception will, by
statute, calculate their hospital-specific DSH limit using the higher
value of either the hospital-specific DSH limit amount determined for
the hospital under section 1923(g)(1)(A) of the Act as amended by
section 203 of the CAA 2021, or the amount determined for the hospital
under section 1923(g)(1)(A) of the Act as in effect on January 1, 2020.
Where section 1923(g)(2)(A)(ii) of the Act, as amended by section 203
of the CAA 2021, refers to ``the amount determined for the hospital
under paragraph (1)(A) as in effect on January 1, 2020,'' we interpret
this to refer to the hospital-specific limit calculation methodology
that was in effect on January 1, 2020, and not the specific dollar
amount that was applicable on that date.
We proposed to revise Sec. 447.295(d) to reflect the statutory
changes made by section 203 of the CAA 2021 to update the methodology
for the calculation of the hospital-specific DSH limit to only include
costs and payments for hospital services furnished to beneficiaries for
whom Medicaid is the primary payer. In addition, we proposed to revise
Sec. 447.295(d) to specify the methodology that hospitals meeting the
exception for 97th percentile hospitals would utilize in the
calculation of the hospital-specific DSH limit. Specifically, in Sec.
447.295(d)(1), we proposed to specify that for each State's Medicaid
SPRYs beginning prior to October 1, 2021 and subject to proposed
paragraph (d)(3), only costs incurred in providing inpatient hospital
and outpatient hospital services to Medicaid individuals, and revenues
received with respect to those services, and costs incurred in
providing inpatient hospital and outpatient hospital services, and
revenues received with respect to those services, for which a
determination has been made in accordance with Sec. 447.295(c) that
the services were furnished to individuals who have no source of third-
party coverage for the specific inpatient hospital or outpatient
hospital service are included when calculating the costs and revenues
for Medicaid individuals and individuals who have no health insurance
or other source of third-party coverage for purposes of section
1923(g)(1) of the Act.
In Sec. 447.295(d)(2), we proposed to specify the applicable costs
and revenues associated with services furnished to Medicaid individuals
and individuals who have no health insurance or other source of third-
party coverage for purposes of determining the hospital-specific DSH
limit under section 1923(g)(1) of the Act. We proposed that for each
State's first Medicaid SPRY beginning on or after October 1, 2021, and
thereafter, subject to proposed paragraph (d)(3), only costs incurred
in providing inpatient hospital and outpatient hospital services to
Medicaid individuals when Medicaid is the primary payer for such
services, and revenues received with respect to those services, would
be included in the Medicaid shortfall portion of the hospital-specific
DSH limit calculation. Furthermore, we proposed to specify that only
costs and revenues for which a determination has been made in
accordance with Sec. 447.295(c) that the services were furnished to
individuals who have no source of third-party coverage for the specific
inpatient hospital or outpatient hospital service would be included in
the uninsured shortfall portion of hospital-specific DSH limit
calculation.
As noted previously, we proposed to implement the 97th percentile
hospital exception in proposed Sec. 447.295(d)(3), which would specify
that, effective for each State's first Medicaid SPRY beginning on or
after October 1, 2021, and thereafter, the hospital-specific DSH limit
for a 97th percentile hospital defined in proposed paragraph (b) would
be the higher of the values from
[[Page 13923]]
the calculations described in proposed paragraphs (d)(1) and (2).
We also proposed to develop a data set (compiling cost report,
claims, and eligibility data) to determine which hospitals, ranked on a
national level, qualify to meet the statutory 97th percentile hospital
exception. We proposed to publish these data for use in determining
which hospitals qualify as a 97th percentile hospital on an annual
basis, electronically or in another format as determined by CMS, prior
to the SPRY to which the data would apply. We would determine which
hospitals qualify as a 97th percentile hospital on an annual basis
prior to each SPRY beginning on or after October 1. In this way, we
explained that we would be able to qualify hospitals on the basis of
SPRYs, while also accounting for non-alignment of SPRYs across States.
Again, this would not be done on the basis of the FFY, but rather would
be an annual process to qualify hospitals for each SPRY. We indicated
that we would publish these data once a year, prior to October 1. Each
State could then use these data to determine which hospitals qualify
for the 97th percentile hospital exception for the State's SPRY that
begins between that October 1 and September 30 of the following
calendar year.
We proposed to determine a hospital's qualification for the 97th
percentile exception for each SPRY on a prospective basis. We explained
our belief that this is a reasonable interpretation in that the statute
specifically refers to the ``most recent cost reporting period'' in
determining a hospital's qualification ``for the fiscal year,'' which,
as noted, we interpret to mean SPRY. That is, we believe it is
reasonable to interpret the reference to the ``most recent cost
reporting period'' in section 1923(g)(2)(B) of the Act to mean the most
recent cost reporting period for which there is a cost report available
before the beginning of the SPRY for which the 97th percentile
hospitals are being identified.
By applying this exception prospectively, we eliminate the need to
retroactively rank and qualify hospitals based on actual Medicare SSI
days and ratios for services furnished during the SPRY. This
application would allow for States and hospitals to know prior to the
beginning of the SPRY which hospitals qualify for the exception. That
knowledge would allow States and hospitals to gauge how payments should
be made and measured against hospital-specific DSH limits and provide
greater payment predictability than a retroactive application. We
believe this interpretation to also be the most feasible from an
operational standpoint for CMS, States, and hospitals.
To compile this source of data, we explained that we would use data
originating from various systems and sources, including the Healthcare
Cost Report Information System (HCRIS) and Medicare Provider Analysis
and Review (MEDPAR) files, and SSI eligibility data from the Social
Security Administration (SSA). Utilizing HCRIS, we would identify the
universe of hospitals that have filed a Medicare cost report and each
hospital's most recent cost reporting period, including acute care
hospitals paid under the inpatient prospective payment system (IPPS),
critical access hospitals, inpatient rehabilitation facilities, and
inpatient psychiatric facilities.
We explained that we would then determine each hospital's Medicare
SSI days for discharges occurring in the hospital's most recent cost
reporting period, regardless of the length of that cost reporting
period, using a data set that combines MEDPAR claims data and SSI
eligibility data. We would utilize Medicare SSI days for discharges
occurring in the cost reporting period, rather than Medicare SSI days
occurring within the cost reporting period because the MEDPAR data show
the Medicare SSI day count for each inpatient stay as a whole. This
approach is consistent with how Medicare uses these data to develop the
Medicare SSI days ratios for Medicare DSH purposes. Section
1886(d)(5)(F)(vi) of the Act, in describing the Medicare SSI percentage
within the Medicare ``disproportionate patient percentage,'' refers to
the ``number of such hospital's patient days for such period.'' Then,
the implementing regulations at 42 CFR 412.106 describe the Medicare
SSI days used for Medicare DSH as patient days that ``are associated
with discharges that occur during that period.'' This approach means if
an inpatient stay begins in one cost reporting period but ends in the
next cost reporting period, we would not count any of the inpatient
stay's days toward the day count for the first cost reporting period,
but instead count all of this inpatient stay's days toward the day
count for the second cost reporting period. This approach does not
favor the counting of days in one cost reporting period over others. On
average, exclusion of days for inpatient stays that straddle between
one cost reporting period and the hospital's next cost reporting period
would be offset by any inclusion of days for inpatient stays that
straddle between that one cost reporting period and the hospital's
previous cost reporting period. Therefore, we can ensure we do not
overinclude or underinclude Medicare SSI days for inpatient stays that
straddle two cost-reporting periods.
To determine each hospital's percentage of Medicare SSI days to
total inpatient days, we proposed that we would divide the Medicare SSI
days by each hospital's total inpatient days for that same cost
reporting period from HCRIS to obtain a percentage. We would then
compile two lists--one that ranks the hospitals based on the absolute
number of Medicare SSI days and another that ranks them by the
percentage of inpatient days that are Medicare SSI days, respectively.
A hospital may qualify to meet the 97th percentile exception based on
its rankings on either of the two lists.
We proposed to utilize the Medicare SSI days and total inpatient
days data to mathematically determine a threshold of acceptance to
identify hospitals meeting the 97th percentile exception. The array
includes either the values of Medicare SSI days or the percentage of
inpatient days that are Medicare SSI days, for the universe of
hospitals nationwide identified through this data process. For the
Medicare SSI days, the 97th percentile threshold would be rounded to
the nearest whole number, with x.5 or higher rounded up, and less than
x.5 rounded down. Any hospital with Medicare SSI days for its most
recent cost reporting period greater than or equal to the 97th
percentile threshold would qualify as a 97th percentile hospital. For
the percentage of inpatient days that are Medicare SSI days, all values
would be rounded to the fourth decimal place (0.xxxx, alternatively
stated as xx.xx percent), including each hospital's own percentage and
the 97th percentile threshold. Values of 0.xxxx5 or higher would be
rounded up, and less than 0.xxxx5 would be rounded down. Any hospital
that has a percentage of total inpatient days that are Medicare SSI
days from its most recent cost reporting period that is greater than or
equal to the 97th percentile threshold would qualify as a 97th
percentile hospital. We proposed that the ranking would be on a
national level, as the statutory language under section 203 of the CAA
2021 refers to ``97th percentile of all hospitals,'' which we believe
is most consistent with a national, rather than a State-level ranking.
To follow the statutory requirement to utilize information from the
most recent cost reporting period, we proposed to utilize each
hospital's most recent cost reporting period for which there is a filed
cost report in HCRIS, at a particular point in time in advance of the
SPRY to which the 97th percentile qualification would apply. A filed
cost
[[Page 13924]]
report would first have an ``as submitted'' status in HCRIS, which
subsequently would change to ``amended,'' ``settled without audit,''
``settled with audit,'' or ``reopened'' status, which indicates a final
report that was previously reopened and re-settled. We considered
utilizing the most recent settled cost reporting period, but we
explained that we had determined that the use of the as-submitted cost
report would result in the use of more current and more consistent
reporting periods across hospitals, consistent with the statutory
directive to rely on ``the most recent cost reporting period.''
Moreover, we explained that we had determined that the total inpatient
days seldom change between the as-submitted and the settled cost
reports. The total inpatient days count is the primary data element
needed from the cost report in order for us to determine which
hospitals meet the 97th percentile exception. However, if the most
recent cost reporting period for which there is an as-submitted cost
report happens to already have an amended cost report, a settled cost
report, or a reopened cost report as of the date that CMS obtains data
from HCRIS for use in determining which hospitals meet the 97th
percentile hospital exception, we proposed that we would use the total
inpatient day count from the amended cost report, settled cost report,
or reopened cost report for that period because that is the most
updated information available for that period.
In the proposed rule, we described the cost report status changes,
from the cost report's initial submission to its potential reopening
after settlement. Consistent with that expected workflow, when there is
more than one cost report for a hospital for its most recent cost
reporting period in the HCRIS database as of the snapshot date, we will
select the latest cost report based on the following order of the cost
report status codes as they appear in HCRIS, from earliest to latest: 1
(as submitted), 5 (amended), 2 (settled without audit) or 3 (settled
with audit), 4 (reopened). If there happens to be both a ``settled
without audit'' cost report record and a ``settled with audit'' cost
report record for a hospital for the same cost reporting period in the
HCRIS database, we will determine the later of the two based on the
date that record is processed into HCRIS, consistent with our stated
intention to use the most up-to-date information available as of the
snapshot date. We also noted that we have observed in rare cases that,
for a given cost reporting period, a hospital may have one or more
versions of the cost report (that is, ``amended,'' ``settled without
audit,'' ``settled with audit,'' and/or ``reopened'') without having
the initial version of the cost report (``as submitted'') in the HCRIS
database as of the snapshot date. Regardless, as long as the cost
reporting period is the most recent period for which a cost report
record exists for the hospital in the HCRIS database, we will follow
the sorting order described above in choosing the latest cost report
from the relevant cost reporting period.
We proposed to utilize both covered and non-covered Medicare Part A
days when collecting data and calculating hospital percentiles. The
statutory language in section 1923(g)(2)(B)(i) of the Act as modified
by section 203 of the CAA 2021 specifically refers to patients who were
entitled to benefits under part A of title XVIII. A patient's status as
entitled to benefits under part A of title XVIII does not depend on
whether payment for a particular inpatient day was available under
Medicare Part A payment principles, and a qualifying Medicare
beneficiary remains entitled to benefits under Part A even if Medicare
payment is not available with respect to a particular inpatient
day.\10\ As such, we believe the calculations must include all Medicare
Part A inpatient days, whether covered or non-covered. Further, this is
consistent with CMS' use of covered and non-covered days in the
Medicare SSI days ratio calculations for Medicare DSH payment purposes
under section 1886(d)(5)(F)(vi)(I) of the Act, which describes a
hospital's inpatient days for patients who were entitled to benefits
under part A of title XVIII and were entitled to SSI benefits under
title XVI of the Act.
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\10\ See Becerra v. Empire Health Found., for Valley Hosp. Med.
Ctr., 142 S. Ct. 2354 (2022).
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Hospitals may provide acute inpatient hospital services, as well as
other inpatient hospital services, in distinct part units of the
hospital. The distinct part units of a hospital that provide inpatient
hospital services, which are reported separately on the hospital's
Medicare cost report, are rehabilitation distinct part units and
psychiatric distinct part units. We proposed to include all inpatient
days for inpatient hospital services reported on each hospital's
Medicare cost report, including days furnished in distinct part units
of the hospital that provide inpatient hospital services, for purposes
of determining a hospital's Medicare SSI days and total inpatient days.
We note that Medicare pays for services furnished in these distinct
part units under different payment systems from the acute care
inpatient hospital services provided by the hospitals. However, for
Medicaid purposes, the DSH uncompensated care costs of the hospital are
inclusive of the costs of inpatient and outpatient hospital services
furnished by the hospital, including those furnished in these distinct
parts. Therefore, we believe the hospital's Medicare SSI days and total
inpatient days should be inclusive of these distinct part unit days and
not limited to acute inpatient hospital days. In this final rule, we
are also clarifying that days in which a swing bed in a hospital,
including a critical access hospital, is used for skilled nursing
facility or nursing facility services are not to be included in
determining a hospital's Medicare SSI days and total inpatient days,
because those days are for nursing facility services rather than
inpatient hospital services.
In determining when we can begin to collect and assemble the
necessary data prior to the beginning of each upcoming SPRY that begins
on or after October 1 each year, we proposed to use HCRIS data as it
exists as of March 31, in advance of October 1 of that same calendar
year. Using the HCRIS data as of March 31, we explained that we would
identify each hospital's most recent cost reporting period for which
the hospital has an available cost report and also identify the total
inpatient days from the latest cost report available for that most
recent cost reporting period. We also proposed to use the latest
available MEDPAR files and SSI eligibility data, as of the same March
31 date, to determine the Medicare SSI days data that correspond to
that same most recent cost reporting period for each hospital.
For example, for the 97th percentile determination applicable to
SPRYs beginning October 1, 2023, through September 30, 2024, (that is,
SPRYs beginning during FFY 2024), we explained that we would determine
a hospital's most recent cost reporting period in which it has a cost
report in HCRIS as of March 31, 2023. For instance, if a hospital's
most recent cost reporting period with a cost report in HCRIS as of
March 31, 2023, is from July 1, 2021, to June 30, 2022, we would take
the total inpatient day count from that cost report. Then we would
utilize the MEDPAR files and SSI eligibility data available as of March
31, 2023, to determine the hospital's Medicare SSI days for the
discharges occurring in that same cost reporting period of July 1,
2021, to June 30, 2022.
We explained that using the most recently available data as of
March 31 in
[[Page 13925]]
advance of October 1 each year would allow us a reasonable 6-month
timeframe to pull data from each of these data sources, address any
potential data issues, complete the necessary compiling and
calculations, perform any data integrity checks, determine the 97th
percentile and the hospitals meeting the threshold based either on the
Medicare SSI days or the percentage of total inpatient days that are
Medicare SSI days, and make the results available prior to October 1.
States would then have the 97th percentile results applicable to the
State's SPRY that begins between October 1 of that calendar year and
September 30 of the following calendar year. The March 31 date would
establish a snapshot for a point in time each year that is reasonably
close to October 1 of that same calendar year that we would use to
determine what is the ``most recent'' data available for application to
the upcoming SPRYs, while allowing us sufficient time to process the
data and make the results available before the start of those SPRYs. We
want to make clear that the March 31 snapshot date is not the actual
date we will be pulling the cost report data from HCRIS, but rather the
date by which a cost report must be processed into HCRIS to be
captured. Prospectively, we may pull the cost report data anytime over
the 6 months following the March 31 snapshot date. Similarly, for the
Medicare SSI days, we will use MEDPAR claims data with matched SSI
eligibility data for claims processed through the March 31 snapshot
date. Again, prospectively, we may pull the Medicare SSI days data from
this MEDPAR snapshot for each hospital's relevant cost reporting period
anytime over the 6 months following the March 31 snapshot date. Note,
for the 97th percentile determination for SPRYs beginning during FFYs
2022, 2023, and 2024, we are pulling the data at the time we are
finalizing this rule, to allow for public release of the 97th
percentile hospital lists shortly after the issuance of this final
rule.
Given the timing of this rulemaking and the October 1, 2021,
effective date of the amendments made by section 203 of the CAA 2021,
we proposed to produce the 97th percentile hospital data for both SPRYs
beginning during FFY 2022 and SPRYs beginning during FFY 2023 using the
necessary Medicare SSI days and cost report information as it would
have been available to us under the timelines in the proposed rule. For
example, for the data necessary to determine hospitals meeting the 97th
percentile exception for SPRYs beginning during FFY 2022, we proposed
that we would obtain a snapshot of the HCRIS, MEDPAR, and SSI
eligibility data as would have been available on March 31, 2021.
While we proposed to include all hospitals that provide Medicaid-
covered inpatient services and file a Medicare cost report in our data
set, we noted that there would be circumstances resulting in some
hospitals being omitted from the data set. We explained that we would
begin gathering all necessary data after March 31 of each year, based
on the data availability described previously, to develop the data set
to rank and indicate which hospitals qualify to meet the 97th
percentile hospital exception for each State's upcoming SPRY that
begins on or after October 1 of that year. In accordance with 42 CFR
413.24(f)(2), cost reports are generally due 5 months from the end of
each hospital's cost-reporting period. For example, a hospital with a
cost reporting year end of September 30 would generally be expected to
file a cost report by the end of February the following year, while a
hospital with a cost reporting year end of June 30 would generally be
expected to file its cost report by the end of November of that year.
However, we also wanted to build in a reasonable window for late filing
and cost report processing into HCRIS. Therefore, we proposed to
include in the data set any hospital that has filed a cost report
dating back to at least September 30, 3 years prior to capture as many
hospitals as possible in our data set. We explained that it is unlikely
that there would be a delay greater than 3 years from when a hospital's
cost report is generally due to when that cost report is captured in
HCRIS. For example, when we begin the data development process for data
available through March 2023, we would exclude a hospital from the data
set that does not have a cost report in HCRIS from a cost reporting
period ending by September 30, 2020, or later. We proposed this cutoff
to capture as many hospitals in our data set as possible, but to also
prevent significant variability in the cost-reporting periods by
excluding Medicare hospitals whose most recent cost-reporting period
for which there is a cost report in HCRIS dates back more than 3 years.
This cutoff is intended to help exclude hospitals that may be inactive
or terminated from our data set.
As noted earlier in this section, we also proposed to include in
the data set only hospitals that file a Medicare cost report. Because
the Medicare cost report data are the source of total inpatient days,
it is necessary for a hospital to file a Medicare cost report to
calculate a hospital's Medicare SSI day as a percentage of total
inpatient days. We explained that we cannot perform the calculations
without this cost report information. Therefore, we proposed to include
only hospitals that file a Medicare cost report in the data set.
Section 1923(g)(2)(B) of the Act recognizes the necessity of the
Medicare cost report for the implementation of the 97th percentile
exception by basing the qualification for the exception on the number
or percentage of Medicare SSI days for the ``most recent cost reporting
period.'' Therefore, we explained our belief that it is appropriate and
consistent with the statutory requirements to include only these
hospitals that have submitted Medicare cost reports in the data set for
both 97th percentile exception lists. We noted that we did not
anticipate this to be a problem, since any hospital serving Medicaid
patients but that does not file a Medicare cost report, would not
qualify for the 97th percentile hospital exception. In accordance with
Sec. 413.24(f), Medicare-participating hospitals are required to file
cost reports, which are generally due 5 months after the close of each
cost reporting period. In accordance with Medicare Provider
Reimbursement Manual, Part II, Section 110, hospitals with no Medicare
utilization do not need to file a cost report, and hospitals meeting
low Medicare utilization thresholds may file a less than full cost
report with limited information. Because a hospital would only qualify
for the 97th percentile hospital exception with a relatively high
volume of Medicare SSI days, a hospital with no or low Medicare
utilization, and therefore, with no cost report or with a less than
full cost report which would not have inpatient days data, would not
qualify for the 97th percentile hospital exception.
Given that we proposed to use snapshot cost report, claims, and
eligibility data in advance of October 1 each year to produce
nationwide lists applicable for each State's upcoming SPRY beginning on
or after that October 1, we proposed that we would not modify the 97th
percentile qualification results based on a request by one or more
individual hospitals (or by one or more States, with respect to one or
more individual hospitals) to update or reconsider hospital cost
report, claims, or eligibility data. The snapshot approach recognizes
that, at a given point in time, a hospital's most recent cost reporting
period for which there is a cost report available in HCRIS, as well as
the hospital's number of total
[[Page 13926]]
inpatient days as reported in that most recent cost report and number
of Medicare SSI days as determined from MEDPAR and SSI eligibility data
sources, may be subject to future revision. However, to determine
qualification for the 97th percentile hospital exception, we must
select a point in time to capture snapshot data, and the resulting
lists must provide reasonable certainty to hospitals and States
nationwide regarding which hospitals qualify for the exception. We do
not believe it would be prudent or reasonable to continuously revisit
the 97th percentile hospital qualifications based on changing cost
report, claims, or eligibility data, outside of the snapshot parameters
established in this final rule.
Nonetheless, we recognized in the proposed rule that there is a
possibility of a mathematical or other similar technical error by CMS
that could lead to a misidentification of the hospitals that qualify
for the 97th percentile exception. In such a circumstance, we noted our
belief that it would be appropriate for us to correct our error,
recognizing that this could result in some hospitals being determined
eligible for the 97th percentile hospital exception that previously
(erroneously) were not so listed, and other hospitals losing their
previous (erroneous) designation as qualifying for the exception. At
the same time, we observed that we must balance this consideration with
the recognition that the published lists will be relied upon by States
and hospitals for identifying which hospitals qualify for the
exception, hospital-specific limits will be set accordingly, and DSH
payments will be made; all interested parties (including hospitals, the
States, and CMS) have an interest in finality for these payments after
a reasonable time. Accordingly, we proposed to allow 1 year from the
posting of the 97th percentile hospital lists for States, hospitals,
CMS, or other interested parties to identify any mathematical or other
similar technical error made by CMS, according to instructions that
would appear on the published lists. Upon CMS verification that an
error occurred that affected the hospitals appearing on a list of 97th
percentile hospitals for a given year, we would determine and publish a
revised list as soon as practicable. We noted our belief that 1 year is
a reasonable timeline for identifying any mathematical or other similar
technical error made by CMS and would also allow a corrected qualifying
list to be available in advance of the start of the independent DSH
audit for the respective SPRY in most instances. For example, if we
publish the qualifying lists in 2023 for application retroactively to a
SPRY that begins October 1, 2021 (that is, SPRY 2022), we would post a
corrected qualifying list, if necessary, sometime in 2024. Then, when
the independent audit is performed for that SPRY in 2025, the final
97th percentile qualification lists would be available and not subject
to any further changes. Accordingly, in paragraph (2) of the proposed
definition of 97th percentile hospital in Sec. 447.295(b), we proposed
that CMS would publish lists identifying each 97th percentile hospital
annually in advance of October 1 of each year. We proposed that CMS
would revise a published list only to correct a mathematical or other
similar technical error made by CMS that is identified to CMS during
the one-year period beginning on the date the list is published.
We proposed that the effective date for this and other CAA 2021-
related proposals, noted in the respective sections, be applicable to
fiscal years beginning on or after October 1, 2021, to align with the
effective date of the CAA 2021.
We received public comments on these proposals. The following is a
summary of the public comments we received and our responses.
Comment: Many commenters expressed opposition to the statutory
changes required under section 203 of the CAA 2021. Commenters
expressed concerns regarding the financial impact to hospitals that
anticipated decreases in the hospital-specific DSH limits will have on
hospitals and their ability to provide services. Two commenters
indicated that the exception for 97th percentile hospitals was not
adequate to protect financially vulnerable hospitals. A commenter
indicated that they believe the 97th percentile threshold is arbitrary.
Another commenter expressed the opinion that the methodology specified
under section 203 of the CAA 2021 incorrectly assumes that hospitals
receive the entirety of a Medicare or Medicaid payment rate, and
explained that, due to how a particular State may limit Medicaid
payment of Medicare cost sharing amounts, hospitals are not paid the
full payment for care provided to patients dually eligible for Medicare
and Medicaid. A commenter noted the projected financial loss that would
be incurred under the new methodology in which costs and payments for
Medicaid patients are counted only for beneficiaries for whom Medicaid
is the primary payer for hospitals that care for a high number of
Medicaid/SSI-eligible beneficiaries with complicated health care needs.
The commenter pointed out that many of those Medicaid eligible
individuals who are disabled will also become eligible for Medicare
after a 2-year waiting period, making the costs associated with their
care ineligible for inclusion in the new hospital-specific DSH limit
calculation. Commenters urged CMS to monitor the financial impacts to
hospitals and to work with Congress to mitigate the potential negative
effects of section 203 of the CAA 2021.
Response: We appreciate the impact that the statutory changes made
by section 203 of the CAA 2021 may have on hospitals. States' policies
for Medicaid payment of Medicare cost sharing amounts for dually
eligible beneficiaries do vary, and we acknowledge that there could be
uncompensated care costs after all applicable Medicare and Medicaid
payments; with the statutory changes, such uncompensated care costs
would not be included in the hospital-specific DSH limit to the extent
that Medicare, not Medicaid, is the primary payer of such services.
However, we are required by statute to implement the new methodology
for determining hospital-specific DSH limits, including the exception
for 97th percentile hospitals, as specified under section 1923(g) of
the Act. We do note that, despite the statutory changes made by section
203 of the CAA 2021, there remains considerable flexibility for States
in setting DSH State plan payment methodologies to the extent that
these methodologies are consistent with section 1923(c) of the Act and
all other applicable statutes and regulations. However, we intend to
continue to monitor the financial impact that these statutory changes
have on hospitals and provide information and technical assistance as
Congress may request, as necessary to address any negative impact on
providers.
Comment: Several commenters expressed support for the proposals to
implement the amendments made by section 203 of the CAA 2021, to the
hospital-specific DSH limit calculations for the Medicaid shortfall
calculation to include only Medicaid costs and payments when Medicaid
is the primary payer. One commenter commended CMS for engaging in
rulemaking to address the statutory requirements.
Response: We appreciate the support.
Comment: Several commenters requested clarification regarding how
CMS defines ``primary payer'' and when Medicaid is considered to be the
primary payer for inpatient and
[[Page 13927]]
outpatient hospital services provided to Medicaid beneficiaries.
Response: This rule does not change existing rules related to
Medicaid's status as primary payer for a particular service. This rule
addresses the calculation of hospital-specific limits as amended by
section 203 of the CAA 2021. This limits the Medicaid shortfall to the
costs and payments associated with inpatient and outpatient services
where Medicaid is the primary payer, providing an exception for 97th
percentile hospitals. We will continue to rely on existing rules
governing third party liability and when Medicaid is a primary payer,
such as those at section 1902(a)(25)(A) of the Act and Sec. Sec.
433.135 through 433.154. Medicaid is generally the ``payer of last
resort,'' meaning that Medicaid only pays claims for covered items and
services if there are no other liable third-party payers for the same
items and services, which concept is implied in the above statute and
regulations.\11\
---------------------------------------------------------------------------
\11\ See discussion at pages 20-22 of the Coordination of
Benefits and Third-Party Liability In Medicaid Handbook: 2020,
available at: https://www.medicaid.gov/sites/default/files/2020-08/COB-TPL-Handbook.pdf.
---------------------------------------------------------------------------
In the proposed rule, we also stated that for purposes of
calculating the hospital-specific DSH limit, section 203 of the CAA
modified the calculation of the Medicaid portion of the hospital-
specific DSH limit to include only costs and payments for services
furnished to beneficiaries for whom Medicaid is the primary payer for
such services, as specified in section 1923(g)(1)(B)(i) of the Act.\12\
Accordingly, the limit generally excludes costs and payments for
services provided to Medicaid beneficiaries with other sources of
coverage, including Medicare and commercial insurance. Through previous
rulemaking, we established, for the purpose of the hospital-specific
DSH limit, how to determine whether third party coverage exists for a
hospital service. In the December 3, 2014, Federal Register, CMS
published the final rule entitled ``Medicaid Program; Disproportionate
Share Hospital Payments--Uninsured Definition'' (Uninsured Rule).\13\
In that final rule, we indicated that we would apply a single, service-
specific determination of third-party coverage status for an entire
hospital service for purposes of hospital-specific DSH limit
calculations.\14\ While the Uninsured Rule focused on the determination
of whether an individual is insured for a particular hospital service,
the statutory changes made by section 203 of the CAA now call for a
similar, single, service-specific determination to be made with respect
to services provided to individuals with Medicaid coverage, to
ascertain whether Medicaid is the primary payer for the service.
---------------------------------------------------------------------------
\12\ 88 FR 11865 at 11688.
\13\ 79 FR 71679.
\14\ 79 FR 71679 at 71683.
---------------------------------------------------------------------------
Before the statutory amendments made by section 203 of the CAA
2021, section 1923(g)(1)(A) of the Act included in the Medicaid
shortfall portion of the hospital-specific DSH limit calculation costs
and payments of individuals ``eligible for medical assistance under the
State plan.'' As discussed in the Uninsured Rule, costs and payments
associated with the provision of inpatient and outpatient hospital
services for all Medicaid eligible individuals would have been captured
in the Medicaid shortfall portion of the calculation, regardless of
whether that individual's Medicaid benefit was exhausted, or a Medicaid
coverage limit had been reached for the associated inpatient or
outpatient hospital service.\15\ Similarly, due to the previous
statutory language indicating that individuals need only to have
Medicaid eligibility without regard to Medicaid coverage for the
particular service, inpatient and outpatient hospital services for
Medicaid eligible individuals should have been captured in the Medicaid
shortfall, even where the individual's Medicaid benefits were limited
and did not extend to inpatient or outpatient hospital services at all.
Because the individual was eligible for some Medicaid coverage during
the service period, the individual would have been included in the
Medicaid shortfall portion of the hospital-specific DSH limit, not in
the uninsured shortfall portion.
---------------------------------------------------------------------------
\15\ 79 FR 71679 at 71682.
---------------------------------------------------------------------------
However, section 1923(g)(1)(B)(i) of the Act, as amended by section
203 of the CAA 2021, now specifies that the Medicaid shortfall portion
of the hospital-specific DSH limit will be limited to costs and
payments of furnishing hospital services to ``[i]ndividuals who are
eligible for medical assistance under the State plan or under a waiver
of such plan and for whom the State plan or waiver is the primary
pay[e]r for such services.'' We interpret the statutory change
specifying that Medicaid must be the primary payer ``for such
services'' to direct a service-specific approach to determining
Medicaid's status as primary payer, consistent with how, under the
Uninsured Rule, we determine an individual's status as uninsured for a
particular hospital service.
Following the service-specific approach to determining an
individual's insured status as outlined in the Uninsured Rule,\16\ to
similarly determine whether Medicaid is the primary payer for a given
hospital service furnished to a Medicaid beneficiary, the beneficiary
must have Medicaid coverage for the hospital service, and there must
not be any third-party coverage that is primary for the particular
hospital service, and Medicaid must be the primary payer for the
service. When Medicaid is determined to not be the primary payer for
that service, then the associated costs and payments for that specific
hospital service would not be included in the calculation of the
hospital-specific DSH limit (unless so provided for a qualifying
hospital under the 97th percentile exception).
---------------------------------------------------------------------------
\16\ 79 FR 71679 at 71683.
---------------------------------------------------------------------------
Comment: One commenter questioned whether Medicaid would be
considered the primary payer or if a patient would be considered
uninsured if the patient has some Medicaid coverage but does not have
Medicaid coverage for the particular inpatient and outpatient hospital
services.
Response: As discussed previously in this final rule, only costs
and payments for inpatient and outpatient hospital services for which
Medicaid is the primary payer under a single, service-specific
determination can be included in the Medicaid shortfall portion of the
hospital-specific DSH limit. Specifically, the statute now requires
that Medicaid be the ``primary pay[e]r for such services'' (meaning
``hospital services'' as stated in section 1923(g)(1)(A)(i) of the Act)
furnished to an individual eligible under the Medicaid State plan or
waiver, for costs and payments associated with the services to be
included in the Medicaid shortfall portion of the hospital-specific DSH
limit calculation. Medicaid would not be considered the primary payer
for hospital services, for purposes of the calculation of the hospital-
specific DSH limit, for an individual who had Medicaid coverage for
inpatient and/or outpatient hospital services but had reached coverage
limits or otherwise exhausted the Medicaid hospital benefit prior to
obtaining these services. As a result, such an individual, as long as
there is not third-party coverage for the inpatient and/or outpatient
hospital services, would be considered uninsured for those hospital
services and the associated costs and payments would be captured in the
uninsured portion of the hospital-specific DSH limit calculation.
Similarly, the costs
[[Page 13928]]
and payments associated with the provision of hospital services
provided to an individual with a limited Medicaid benefit package,
which does not cover such inpatient and/or outpatient hospital
services, would also be captured in the uninsured portion of the
hospital-specific DSH limit calculation, provided they do not have
third-party coverage for such services. Hospitals qualifying to meet
the exception for 97th percentile hospitals would calculate the
hospital-specific limit that is the higher value of that calculated
under the methodology in which costs and payments for Medicaid patients
are counted in the Medicaid shortfall calculation only for services
furnished to beneficiaries for whom Medicaid is the primary payer, or
the methodology in effect on January 1, 2020.
For purposes of the methodology in effect on January 1, 2020, costs
and payments associated with the universe of Medicaid eligible
individuals would be captured in the Medicaid portion of the hospital-
specific DSH limit calculation regardless of whether or not the
individual had Medicaid coverage for inpatient and/or outpatient
hospital services and regardless of whether any such coverage had been
exhausted. We note that while the change in policy as a result of the
amendments made by section 203 of the CAA 2021 results in different
treatment of some Medicaid eligible individuals for purposes of
calculating hospital-specific DSH limits (based on whether the
individual's Medicaid benefits include coverage of inpatient and/or
outpatient hospital services, and whether the individual's Medicaid
benefits for hospital services have been exhausted or coverage limits
have been reached), this change does not affect the costs and payments
captured in hospital-specific DSH limit calculations overall, provided
that the individual has no other health insurance or other source of
third-party coverage for inpatient and/or outpatient hospital services,
as relevant. Rather, the change merely affects whether particular costs
and payments are captured in the Medicaid or uninsured shortfall
portion of the hospital-specific DSH limit calculation.
Comment: Some commenters had specific questions regarding who is
considered the primary payer in cases involving dually eligible
individuals when coverage limits, whether through Medicare or private
insurance, have been reached or have otherwise been exhausted.
Commenters inquired about the scenarios when third-party coverage has
reached its limit or is exhausted prior to an individual obtaining an
inpatient or outpatient hospital service versus when the third-party
insurer's coverage limit is reached, or coverage otherwise exhausted at
some point during the provision of the service. One commenter
questioned if Medicaid would be considered the primary payer for
patients residing in an institution for mental diseases who are dually
eligible for Medicare and Medicaid whose Medicare benefits are
exhausted during the stay. Commenters questioned whether Medicaid
actually has to pay on the claim for Medicaid to be considered the
primary payer.
Response: As discussed in the Uninsured Rule, we determine whether
an individual is insured for a particular service based on whether that
individual has third party coverage for the single, specific inpatient
hospital service, regardless of whether that individual was insured for
the full service or service period or only a portion (for example, due
to coverage limits being reached or coverage otherwise exhausted).\17\
In the Uninsured Rule, we explained that the single, service-specific
approach means, for the purpose of the hospital-specific DSH limit,
third party coverage is determined for a given hospital stay, without
separating the component parts of the inpatient hospital services of
that hospital stay. The single, service-specific approach also applies
here to determine whether Medicaid is the primary payer for a
particular hospital stay; we will look to whether there is third party
coverage that pays primary over Medicaid for the inpatient hospital
services of the stay. For example, if an individual has Medicare or
private insurance that only provided coverage for the first 5 out of 10
days of a hospital inpatient stay (whether in a hospital that is an
institution for mental diseases or not), Medicaid would not be
considered the primary payer for any portion of that inpatient stay,
even after the Medicare or private insurance coverage limit has been
reached in the middle of the stay. However, if the dually eligible
individual is either not insured for or has exhausted their Medicare or
other third-party coverage prior to obtaining the inpatient or
outpatient hospital service, Medicaid may be considered the primary
payer for such services because there is no third-party coverage that
pays primary over Medicaid for the particular stay. As we stated in the
Uninsured Rule, services beyond health insurance coverage limits,
including annual lifetime limits, will not be considered to be within a
covered benefit package.\18\ We note that real-life cases can be much
more complex, and that States and providers should refer to existing
third party liability rules and policies, such as section
1902(a)(25)(A) of the Act and Sec. Sec. 433.135 through 433.154, when
determining third-party liability, and to existing DSH rules and
policies such as those described in the Uninsured Rule to determine how
each case should be evaluated for third party coverage for the purpose
of the hospital-specific DSH limit. Finally, as we stated in the
Uninsured Rule, the determination of which payer is primary with
respect to a single, specific hospital service is based on the
existence of coverage and does not depend on the hospital receiving
payment from a particular payer.\19\
---------------------------------------------------------------------------
\17\ 79 FR 71679 at 71683.
\18\ 79 FR 71679 at 71691.
\19\ Id.
---------------------------------------------------------------------------
Comment: Some commenters inquired about the treatment of third-
party payments related to services provided to Medicaid eligible
individuals. Some commenters wanted to know whether a claim associated
with a Medicaid eligible individual should have third-party payments
removed or if the entire claim should not be considered in the
calculation of the hospital-specific DSH limit. One commenter requested
that CMS provide an example of a third-party payment associated with
services furnished to a beneficiary with Medicaid as primary payer.
Additionally, commenters inquired about cases where an individual
had no Medicare Part A coverage but had certain charges covered and
paid by Medicare Part B during an inpatient stay. Similarly, commenters
also inquired if Medicaid would be considered the primary payer for an
inpatient stay in cases where the individual has third-party coverage
for ancillary services but no coverage for routine inpatient hospital
services, inquiring whether the inpatient routine portion of the stay
would be includable in the Medicaid shortfall calculation of the
hospital-specific DSH limit. Commenters questioned whether the
individuals in these scenarios would be considered to have third party
coverage, be uninsured, or if Medicaid could be considered the primary
payer for these inpatient hospital services.
Response: As discussed previously, based on section 1902(a)(25)(A)
of the Act and Sec. Sec. 433.135 through 433.154, Medicaid is
generally the payer of last resort. In general, an individual who has
third-party coverage for inpatient hospital services provided during a
hospital stay, with very limited
[[Page 13929]]
exceptions, would be considered to have third-party coverage that is
primary over Medicaid for the inpatient hospital services. Under the
single, service-specific determination, we do not separate out
components of the inpatient hospital services furnished during a
particular inpatient stay. As such, when it is determined that there is
third-party coverage for inpatient hospital services that is primary
over Medicaid for a particular inpatient stay, none of the inpatient
hospital service costs and payments associated with this inpatient
stay, including third-party payments, may be included in the Medicaid
shortfall calculation of the hospital-specific DSH limit.
Under existing third-party liability rules, there are limited
exceptions to the general rule that Medicaid is the payer of last
resort, and these exceptions typically apply to federally administered
health programs. For a federally administered health program to be an
exception to the general status of Medicaid as the payer of last
resort, the statute creating the program must expressly state that it
pays for a service after Medicaid, such as the Ryan White Fund under 42
U.S.C. 300ff et seq.\20\ If those other programs that are exceptions to
the general status of Medicaid as the payer of last resort do cover and
make payment for the same inpatient hospital services that Medicaid is
the primary payer for, then such payments from the other programs would
be treated as cost offsets when the costs and payments of the inpatient
hospital services are included in the calculation of the Medicaid
shortfall. This is an example of third-party payments associated with
services furnished to a beneficiary with Medicaid as the primary payer.
---------------------------------------------------------------------------
\20\ See, for example, 42 U.S.C. 300ff-15(a)(6), 42 U.S.C.
300ff-27(b)(7)(F), 42 U.S.C. 300ff-64(f), 42 U.S.C. 300ff-71(i). See
also discussion at pages 20-22 of the Coordination of Benefits and
Third-Party Liability In Medicaid Handbook: 2020, available at
https://www.medicaid.gov/sites/default/files/2020-08/COB-TPL-Handbook.pdf.
---------------------------------------------------------------------------
However, commenters also specifically inquired about unique
circumstances where, in addition to Medicaid, a hospital inpatient has
Medicare Part B only (that is, the patient is not also entitled to or
enrolled in Medicare Part A, or has already exhausted their Medicare
Part A benefits), which pays for limited services in certain
circumstances for a beneficiary who is an inpatient, or has other
third-party coverage that is only for ancillary services. In general,
we consider ancillary services to be services provided by a hospital
that are separate from routine services \21\ such as room and board,
nursing, and support services; ancillary services may include x-ray,
drug, laboratory, or other services, associated with an inpatient
hospital stay.\22\
---------------------------------------------------------------------------
\21\ The Medicare Provider Reimbursement Manual, Part I, Section
2202.6 defines ``routine services'' as, ``Inpatient routine services
in a hospital or skilled nursing facility generally are those
services included in by the provider in a daily service charge--
sometimes referred to as the ``room and board'' charge. Routine
services are composed of two board components: (l) general routine
services, and (2) special care units (SCU's), including coronary
care units (CCU's) and intensive care Units (ICU's). Included in
routine services are the regular room, dietary and nursing services,
minor medical and surgical supplies, medical social services,
psychiatric social services, and the use of certain equipment and
facilities for which a separate charge is not customarily made.''
\22\ The Medicare Provider Reimbursement Manual, Part I, Section
2202.8 defines ancillary services as, ``Ancillary services in a
hospital or SNF include laboratory, radiology, drugs, delivery room
(including maternity labor room), operating room (including
postanesthesia and postoperative recovery rooms), and therapy
services (physical, speech, occupational). Ancillary services may
also include other special items and services for which charges are
customarily made in addition to a routine service charge.''
---------------------------------------------------------------------------
Regardless of whether the ancillary services are covered by
Medicare Part B or another third-party payer, such as a private
insurance policy, we will defer to States to determine whether that
third-party coverage is considered coverage for inpatient hospital
services. The Medicare program generally is structured to pay for
inpatient hospital services under Part A, see section 1812(a)(1) of the
Act, whereas Part B generally pays for specified services other than
inpatient hospital services, see section 1832 of the Act. Given this
structure, even where a beneficiary with Medicaid and Medicare Part B
only coverage has payment made on their behalf by Part B for ancillary
services that fall within the State's Medicaid definition of inpatient
hospital services during an inpatient hospital stay, we believe that
the State reasonably could determine that Medicaid--not Medicare Part
B--will be considered to be the primary payer for the inpatient
hospital stay. This approach would avoid a potentially anomalous
outcome where Medicaid would pay for the majority of services, but a
small Medicare Part B payment for an ancillary service would result in
the exclusion of all costs and payments for the stay from the hospital-
specific DSH limit.
Regarding the comment inquiring about other third-party coverage
that only pays for ancillary services but not routine services, we do
not have enough information about who this payer would be or what it
would cover to give guidance on whether that third-party coverage would
be regarded as coverage for inpatient hospital services and therefore
would be considered primary to Medicaid. Again, in this case, we will
defer to the State to make a reasonable determination of whether such
third-party coverage provides coverage for inpatient hospital services
that will be considered to be the primary payer for the inpatient
hospital stay.
In this scenario, whether the payer in addition to Medicaid is
Medicare Part B or another third-party payer, we further note that
since individuals have coverage for inpatient hospital services
(whether Medicaid, Medicare, or another third party), they would not be
considered uninsured for purposes of inclusion in the hospital-specific
DSH limit. As mentioned, we acknowledge that, where a State does
determine that Medicare Part B or another third-party payer is the
primary payer for inpatient hospital services where it only makes
payments for ancillary services furnished during the stay, the
inpatient hospital service costs and payments for the entire inpatient
stay would be excluded from the hospital-specific DSH limit, and this
could result in the exclusion of some Medicaid costs and payments. We
will monitor for State handling of these scenarios once the rule is in
effect to ascertain whether the rule is resulting in unexpected
outcomes, and we may undertake additional rulemaking in the future if
necessary to address the issue.
Comment: One commenter inquired about the 2008 DSH audit final rule
and associated protocol's instructions to use MMIS paid claims data.
The commenter questioned whether States now will be required to change
their MMIS systems to provide reports that remove the Medicaid ``no-
pays'' for the DSH audits where there is a third-party payer.
Response: For any State plan rate year beginning or after October
1, 2021, States and hospitals must have procedures in place to ensure
the Medicaid data used in the hospital-specific DSH limit calculation
complies with the amendments made by section 203 of the CAA 2021 by
determining when Medicaid is the primary payer for inpatient and
outpatient hospital services. While the General DSH Audit and Reporting
Protocol released with the 2008 DSH audit final rule does call for MMIS
to be the source of Medicaid fee for service utilization and payment
data, CMS is not specifically requiring any changes to MMIS to
implement the amendments made by section 203 of the CAA 2021 or the
provisions of this final rule. We generally would expect States'
current MMIS would have the ability to support compliance with the
[[Page 13930]]
requirements. However, States with legacy systems may require some
configuration changes. For States that require MMIS system changes, CMS
is available to work with them. To the extent that MMIS data on its own
is not sufficient to identify Medicaid data needed to calculate the
hospital-specific DSH limit, States are able to supplement MMIS data
with other auditable data.
Comment: One commenter inquired about provisions of the February
28, 2023, proposed rule entitled ``Medicare Program; Medicare
Disproportionate Share Hospital (DSH) Payments: Counting Certain Days
Associated With Section 1115 Demonstrations in the Medicaid Fraction''
(88 FR 12623). The commenter referenced statements by CMS indicating
that section 1115 demonstration waivers that provide health insurance
or premium coverage for inpatient hospital services will be included in
Medicaid days for Medicare DSH calculations. As such, the commenter
questioned if CMS considers coverage provided under these section 1115
demonstrations for inclusion in the Medicaid hospital-specific DSH
limit calculations.
Response: We note the Medicare DSH program and the Medicaid DSH
program are separate programs authorized by different sections of the
statute and with different purposes and goals. However, as stated in
the February 2023 proposed rule, which appeared in the February 24,
2023, Federal Register (88 FR 11865) if an individual receives health
insurance for inpatient hospital care directly provided by a section
1115 demonstration, or if a patient buys insurance for inpatient
hospital care with premium assistance provided by a section 1115
demonstration for which the demonstration pays 100 percent of the
premium cost to the individual, and in either case the cost of the
insurance or premium assistance is paid for with title XIX dollars, the
individual is regarded as eligible for Medicaid under the Medicare DSH
statute. Similarly, this individual would be considered a Medicaid
eligible individual for Medicaid DSH purposes. As such, costs and
payments associated with covered inpatient and outpatient hospital
services provided to this individual may be considered in the
calculation of the hospital-specific DSH limit, depending on the
determination of primary payer status and the provisions of section
1923(g) of the Act.
Comment: Two commenters expressed support of our proposal of the
October 1, 2021, effective date of the amendments to section 1923(g) of
the Act made by section 203 of the CAA 2021, to be applicable for SPRYs
beginning on or after the October 1, 2021, effective date. One
commenter stated that the plain language of the law indicated that the
effective date should apply to services furnished on or after October
1, 2021. One commenter requested that CMS confirm whether the
application of the amendments to section 1923(g) of the Act made by
section 203 of the CAA 2021 will apply on the basis of the Federal
fiscal year or the SPRY. The commenter also urged CMS to allow an
effective date prior to October 1, 2021, by applying the statutory
changes to cost reporting periods beginning on or before the October 1,
2021, date and rebasing DSH using FY 2021 cost reports. This commenter
stated that this application would allow for a consistent way to gauge
how hospital systems benefited from the DSH program. The commenter also
indicated that CMS should be cognizant of the difference in State-to-
State distribution of DSH funds.
Response: We appreciate the commenters' support of our effective
date proposal and disagree with the other commenter that our
interpretation conflicts with the plain language of the statute. To
align the statutory amendments made by section 203 of the CAA 2021 with
how the Medicaid DSH program has been historically operationalized
across States, we proposed to interpret the October 1, 2021, effective
date to apply the statutory changes to SPRYs beginning on or after
October 1, 2021. As discussed in the proposed rule and earlier in this
final rule, this is consistent with past interpretations of statutory
provisions that have been codified in rulemaking, such as in the 2008
DSH final rule, and further explained in sub-regulatory guidance.
Moreover, CMS does not have the statutory authority to apply the
effective date of the amendments made by section 203 of the CAA 2021 to
periods before October 1, 2021. These provisions do not ``rebase'' DSH
payments, per se, but rather change the definition of the hospital-
specific limit for DSH payments.
We do not agree with the comment that changing the effective date
to coincide with hospitals' cost reporting periods would provide a
consistent view of how each hospital system benefits from DSH. We
acknowledge that hospital cost reports, and internal audits of such
cost reports, may not align with the State's SPRY. However, the DSH
independent certified audit requirement at section 1923(j) of the Act,
as implemented in the 2008 DSH final audit rule, requires States to
conduct an audit of their DSH programs and identify DSH payments made
against hospital-specific DSH limits on the basis of each State's
SPRY.\23\ As we indicated in the proposed rule, this was in
``recognition of varying fiscal periods between hospitals and States''
and that ``[t]he Medicaid [SPRY] is the period which each State has
elected to use for purposes of DSH payments and other payments made in
reference to annual limits.'' \24\ We believe that the DSH independent
certified audit, which within each State looks at all hospitals'
uncompensated care costs and DSH payments based on that State's SPRY,
provide for a consistent way to gauge how hospitals that receive DSH
payments benefit from the DSH program.
---------------------------------------------------------------------------
\23\ 42 CFR 455.304(d)(2).
\24\ 88 FR 11865 at 11870.
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Further, we believe interpreting this provision to be applicable on
a FFY basis would impose an excessive burden on States and hospitals,
in particular with the application of the exception for 97th percentile
hospitals. We note that the majority of States have SPRYs that do not
align with the FFY. In these instances, if we were to apply section 203
of the CAA 2021 to the FFY beginning on October 1, 2021, and
thereafter, States would need to prorate the uncompensated care costs
for affected hospitals within a SPRY accordingly, since the methodology
for calculating the Medicaid shortfall portion of the hospital-specific
DSH limit may not be consistent for the entire SPRY. If the hospital
qualified as a 97th percentile hospital for only a portion of the SPRY,
this proration would be on top of the proration that would already be
necessary to account for differences between a hospital's cost
reporting period and the State's SPRY.
Finally, we believe the commenter who requested that we be
cognizant of the difference in State-to-State distribution of DSH funds
was pointing out that each State operates its DSH program differently,
and that there is variation in how States distribute their DSH payments
to eligible providers within their State DSH allotments. We acknowledge
that States have flexibility in the operation of their DSH programs,
subject to Federal requirements, including section 1923(g) of the Act
on the hospital-specific DSH limit. This final rule does not affect the
existing flexibility each State has in how it operates its DSH program
or distributes its DSH payment in accordance with its State plan, but
this rule does address the changes to the hospital-specific DSH limit
as required by section 203 of the CAA. We also acknowledge that while
[[Page 13931]]
the statutory changes to the hospital-specific DSH limit are applicable
to all States, the actual impact on hospitals can vary by States based
on how DSH payments are distributed by each State. In developing this
rule, we considered that each State operates its own DSH program. For
example, we considered proposing to determine the 97th percentile
hospital exception qualification on a State-specific level, rather than
on a national level; however, as we explained in the proposed rule, we
do not believe this would be consistent with the statutory language
referring to ``97th percentile of all hospitals.'' Applying section
1923(g) of the Act, as amended, on a SPRY basis is aligned with how
States operate their DSH programs and distribute their DSH funds, which
are on a State-elected SPRY basis. As such, we are finalizing this
requirement to apply the October 1, 2021, effective date to the
applicable SPRY beginning on or after October 1, 2021, as proposed.
Comment: One commenter indicated that CMS should provide guidance
on a SPRY audit year that includes the October 1, 2021, effective date,
and direction on how hospital-specific DSH limits and associated
overpayments should be calculated.
Response: As indicated previously in this final rule, we are
finalizing this rule to apply the October 1, 2021, effective date to
the applicable SPRY beginning on or after the October 1, 2021,
effective date. To calculate hospital-specific DSH limits, hospitals
routinely utilize two separate cost reports to cover the entire period
associated with the applicable SPRY, in cases where the hospital's cost
reporting period does not correspond exactly to the SPRY. We have
released guidance to answer specific questions related to addressing
these misaligned periods.\25\
---------------------------------------------------------------------------
\25\ https://www.medicaid.gov/sites/default/files/2020-01/part-2-additional-info-on-dsh-reporting-and-auditing.pdf.
---------------------------------------------------------------------------
In the Additional Information on DSH Reporting and Auditing
Requirement Part 2--Question 21, we discussed cost report proration in
calculating a hospital's uncompensated care costs (UCC) for a SPRY
using more than one cost report, when a hospital's cost reporting
period does not align with the State's SPRY.\26\ Similar proration was
discussed when applying the ``DSH Payments--Treatment of Third-Party
Payers in Calculating Uncompensated Care Costs'' final rule (82 FR
16114) in the August 18, 2020, CMCS Informational Bulletin entitled
``Treatment of Third Party Payers (TPP) in Calculating Uncompensated
Care Costs (UCC).'' \27\
---------------------------------------------------------------------------
\26\ Id.
\27\ https://www.medicaid.gov/sites/default/files/2020-08/cib081820.pdf.
---------------------------------------------------------------------------
We expect that activities required for the implementation of the
amendments made by section 203 of the CAA 2021 to follow the same
proration approach to conform hospitals' cost reporting periods to the
SPRY. For example, if a SPRY is from July 1, 2022 to June 30, 2023, and
a hospital's cost report year end is December 31, regardless of the
amendments made by section 203 of the CAA 2021, there is a need to
prorate the hospital's cost report data from both its December 31, 2022
and December 31, 2023 cost reports to determine the hospital's
hospital-specific DSH limit for the SPRY from July 1, 2022 to June 30,
2023. In using the December 31, 2022, and December 31, 2023, cost
report data to prorate to this SPRY, which is the State's first SPRY
that begins on or after October 1, 2021, the hospital and the State
would need to follow section 1923(g) of the Act, as amended by section
203 of the CAA 2021, and this final rule in determining the hospital-
specific limit. As is consistent with 2008 DSH audit final rule, an
overpayment is identified when the DSH payment received by a hospital
for the SPRY is in excess of its hospital-specific limit for the same
SPRY.
Comment: Several commenters expressed support of our proposal to
determine a hospital's qualification for the 97th percentile exception
for each SPRY on a prospective basis.
Response: We appreciate the support and are finalizing the
determination of a hospital's qualification for the 97th percentile
exception for each SPRY on a prospective basis. This application allows
for States and hospitals to know prior to the beginning of the SPRY
which hospitals qualify for the exception. This allows States and
hospitals to gauge how payments should be made and measured against
hospital-specific DSH limits and provides greater payment
predictability than a retroactive application.
Comment: One commenter expressed support for the proposal that CMS
would produce two lists for qualifying hospitals to meet the exception
for 97th percentile hospitals, based on either the percentage or total
number of inpatient days for patients who were entitled to both
Medicare Part A benefits and SSI benefits. One commenter commended CMS
for determining the number of Medicare Part A SSI days for the most
recent cost reporting period based on the days associated with
discharges occurring during the cost reporting period.
Response: We appreciate the support. We have followed the statutory
language at section 1923(g)(2)(B)(i) and (ii) of the Act that specifies
that hospitals may qualify on the basis of total number of inpatient
days for patients who were entitled to both Medicare Part A benefits
and SSI benefits or the percentage of such days. Further, we appreciate
the support for our proposal to determine the number of Medicare Part A
SSI days for the most recent cost reporting period based on the days
associated with discharges occurring during the cost reporting period
and are finalizing the methodology as proposed.
Comment: Several commenters urged CMS to release the 97th
percentile exception lists, including those applicable to SPRY 2022, as
soon as possible. Several hospital associations and hospitals expressed
that delays in the release may impact their ability to plan for future
DSH payments with respect to anticipated decreased hospital-specific
DSH limits. Two commenters recommended that CMS release the 97th
percentile exception lists at least 60 days prior to the October 1 date
to which the exception lists will apply. Another commenter indicated
that releasing the list at least 60 days prior to the October 1 date
would allow the State and hospitals sufficient time to work within the
time frames established in the State laws that govern how interim DSH
payments are calculated and made to providers to make any necessary
adjustments to DSH payments based on the 97th percentile exception
lists.
Response: We understand the commenters' concerns. Unfortunately, we
cannot commit to publishing the 97th percentile exception lists at
least 60 days prior to the October 1 date to which the exception lists
will apply. Given the dates that the necessary data become available,
and the time needed for CMS to produce and publish the 97th percentile
hospital exception qualification lists, we cannot be certain of our
ability to meet this deadline. However, we are committed to releasing
the exception lists as soon as possible, after March 31 of each year,
in advance of the October 1 date. Due to the timing of this final rule,
we will be releasing the exception lists retroactively for the first
three years (that is, for SPRYs beginning on or after October 1, 2021,
to September 30, 2024). For SPRYs beginning on or after October 1,
2024, we will follow the established timeline so that States and
hospitals will have the exception lists prior to October 1 each year,
followed by a correction list
[[Page 13932]]
if needed, as discussed earlier in this final rule.
Comment: Many commenters requested that CMS release the rankings
and associated data for all hospitals in the universe of providers used
to determine the qualification for the exemption for 97th percentile
hospitals, rather than just those hospitals that qualify for the
exemption. Commenters indicated that this would provide for greater
transparency and also be informative to hospitals so that they know
where they stand in the rankings. One commenter inquired whether CMS
would release the underlying data used in compiling the 97th percentile
hospital exception lists to allow for validation of CMS's calculations.
One commenter indicated that the qualifying lists should be readily
accessible for use by State Medicaid agencies, hospitals, and other
interested parties.
Response: We intend to make available the data necessary for CMS to
calculate the rankings of hospitals in the dataset. This data may
include hospital names, Medicare provider numbers, cost report record
numbers, cost reporting period, cost report status, SSI/Part A days,
and total inpatient days for each hospital and its distinct part
psychiatric and rehabilitation units, if applicable, in this universe
of data. We will publish these data on an annual basis, electronically
or in another format as determined by CMS, prior to the SPRY to which
the associated 97th percentile hospital exception lists will apply.
Comment: Several commenters pointed to the ``all hospital''
language in section 203 of the CAA 2021 and opposed CMS' proposal to
exclude hospitals that do not file Medicare cost reports from the
dataset used to determine which hospitals meet the exception for 97th
percentile hospitals. Commenters indicated that this omission would
result in fewer hospitals qualifying to meet the 97th percentile
exception by merit of shrinking the pool of hospitals in the dataset.
Commenters requested that CMS include these hospitals in the datasets
using zero values in the calculations. Commenters indicated that
requiring the submission of the Medicare cost report to determine
qualification to meet the exception for 97th percentile hospitals would
be burdensome, urging CMS to consider less administratively burdensome
alternatives.
Response: We understand and appreciate the commenters' concerns. We
have worked to identify and include as many hospitals as possible in
the list of hospitals used to determine the 97th percentile hospital
exception. While we understand that the statute refers to hospitals
that are ``in at least the 97th percentile of all hospitals'' and that
not all hospitals submit a Medicare cost report, the statute directs us
to make the 97th percentile exception qualification determination based
on each hospital's ``most recent cost reporting period.'' We continue
to believe it is reasonable to interpret ``all hospitals'' in this
context to mean all hospitals with cost reports and to look to HCRIS,
an existing CMS cost report data source, to identify a hospital's
``most recent cost reporting period'' for which a hospital has a cost
report. We are not imposing any additional cost reporting requirements
on hospitals for the purpose of implementing the 97th percentile
hospital exception. Furthermore, we believe it is reasonable and
appropriate to use these data to build the hospital dataset and obtain
each hospital's total inpatient days, and to establish a cutoff for how
far back we would look within the HCRIS database to reduce the
inclusion of terminated, inactive hospitals. We again note that we
proposed to include any hospital that has in HCRIS a cost report with
an end date dating back to at least September 30, 3 years prior to the
snapshot date we are using to extract data. For example, for the 97th
percentile qualification for SPRYs beginning during FFY 2024, the
snapshot date is March 31, 2023, and we would include any hospital that
has in HCRIS a cost report with a cost reporting period end date of
September 30, 2020, or later.
We selected the 3-year cutoff based on timing of cost report
submissions but also considering cost report filing delays and HCRIS
processing lags. As long as a hospital has a cost report in the HCRIS
database that meets the criteria on March 31, the snapshot date we are
establishing to allow us to timely generate the 97th percentile
hospital exception lists each year, the hospital will be included in
the dataset. We are also including Medicare cost reports that are filed
as low- or no-Medicare utilization cost reports as long as they exist
in the HCRIS database and meet the specified timing criteria. Where
there is no total inpatient day information or the total patient day is
reported as zero in a cost report included in our dataset, we will use
a zero value for the percentage of total inpatient days that are
Medicare Part A SSI days for the purpose of the 97th percentile
hospital ranking.
As discussed in the proposed rule, even if we were to consider an
alternative mechanism outside of the existing Medicare cost report data
to collect total inpatient days from hospitals without Medicare cost
reports in HCRIS, there would not be a way to define the most recent
cost reporting period for those hospitals that would be consistent with
how we are defining it for hospitals that do have a cost report. As
such, we are finalizing the rule as proposed to exclude hospitals with
no Medicare cost report from the dataset we will use to determine the
lists of hospitals qualifying for the exception for 97th percentile
hospitals.
Comment: One commenter expressed support for the March 31 HCRIS
snapshot date. The commenter indicated this will provide CMS proper
time to ensure validity and uniformity of the database.
Response: We agree; we thank the commenter for their support and
are finalizing as proposed.
Comment: A commenter indicated that under certain circumstances,
there could be multiple hospitals that file under a single Medicare
cost report and provider number. The commenter questioned if a Medicare
hospital provider number qualified to meet the 97th percentile
exception, would all hospitals associated with that provider number
qualify to meet the 97th percentile exception.
Response: Yes, this would qualify all hospitals under this CMS
Certification Number (CCN) to meet the exception for 97th percentile
hospitals. Our 97th percentile hospital exception determination uses
each Medicare-participating hospital's cost report and the inpatient
days for the relevant cost reporting period, all associated with the
hospital's CCN as stated on the cost report and inclusive of the CCN of
any psychiatric and/or rehabilitation distinct parts that provide
hospital services. Therefore, the 97th percentile hospital exception
qualification would apply to the Medicare-participating hospital as a
whole. If there are circumstances where a State Medicaid agency
recognizes a Medicare-participating hospital, identified on our 97th
percentile hospital list as a single hospital, as multiple hospitals,
then the 97th percentile exception hospital qualification of the single
Medicare-participating hospital would apply to those multiple hospitals
recognized under Medicaid.
Comment: One commenter indicated support for broadening the 97th
percentile exception to a universe that includes all hospitals, despite
initially believing that the exception applied only to inpatient
prospective payment system (IPPS) hospitals.
Response: We appreciate the support. We recognize that not only
IPPS hospitals receive Medicaid DSH
[[Page 13933]]
payments, but critical access, rehabilitation, and psychiatric
hospitals also may qualify to receive DSH payments. Further, section
1923(g)(2)(B) of the Act, as amended by section 203 of the CAA 2021
statute specifies that a hospital must be in ``at least the 97th
percentile of all hospitals'' to qualify to meet the exception. As
such, we will produce the qualification lists inclusive of all hospital
types and all hospitals with a Medicare cost report in HCRIS that
satisfies the timing criteria discussed earlier in this final rule.
Comment: One commenter was supportive of CMS' proposal to allow
hospitals to identify data issues resulting from mathematical or other
similar technical errors. However, the commenter noted that the 1-year
period may not be sufficient, particularly given the retroactive
application of the initial datasets. Further, the commenter insisted
that the identification of issues should not be limited to mathematical
or other similar technical errors.
Response: We appreciate the support but disagree with the need to
extend the 1-year period to identify issues resulting from mathematical
or other similar technical errors. In addition, we disagree that the
scope should be broader than issues resulting from mathematical or
other similar technical errors. Any dispute over the underlying
Medicare cost report and claims data is outside of this process. We
will not attempt to resolve disputes on Medicare cost report and claims
data, nor amend the underlying cost report and claims data as they
existed in the database, as of the snapshot date.
The process and procedures that we are establishing for the 97th
percentile hospital exception relies on existing Medicare data in the
CMS cost report and claims systems as of a particular snapshot date
each year. We will ensure that we are extracting the correct values
from those systems and compiling them accurately in accordance with the
procedures we are establishing in this final rule and proposed to allow
for an opportunity to make corrections where mathematical or other
similar technical errors may occur in these steps. As such, we proposed
to give States and interested parties 1 year from the release of the
97th percentile hospital lists and dataset, including those for
retroactive periods back to the first SPRYs beginning on or after
October 1, 2021, to bring forward issues resulting from mathematical or
other similar technical errors made by CMS in the steps of extracting
and compiling the data and determining the 97th percentile hospital
exception qualification. We believe that not only is this timeframe
appropriate for addressing the narrow scope of errors we would expect
could arise in this process but also extending the timeframe out
further would extend the period of uncertainty for States and hospitals
relying on timely, finalized data.
Comment: One commenter requested that in instances where CMS issues
a revised qualifying list, any hospital that qualified to meet the
exception for 97th percentile hospitals on the initial list should
retain that status regardless of its ranking on the revised list. The
commenter indicated that this policy would mitigate any financial
disruption to hospitals.
Response: We understand the commenter's concern. However, in the
unlikely case that an initially qualified hospital would fall below the
97th percentile threshold upon issuance of a corrected list of
qualifying hospitals, that hospital would not qualify to meet the
exception for 97th percentile hospitals. The statutory language at
section 1923(g)(2)(B) of the Act is clear that to qualify to meet the
exception, the hospital must be in at least the 97th percentile of all
hospitals for the most recent cost reporting period with respect to the
total number of inpatient days for the period that were made up of
patients entitled to Medicare Part A and SSI benefits, or the
percentage of total inpatient days made up of such days. As such, we
have no authority to allow an unqualified hospital to receive the 97th
percentile hospital exception due to a mathematical or other similar
technical error that resulted in its erroneous inclusion on an initial
list of qualifying hospitals. We are finalizing all aspects of the
error correction process as proposed.
D. Limitations on Aggregate Payments for DSHs Beginning October 1, 1992
(Sec. 447.297)
We proposed to eliminate the Sec. 447.297(c) requirement to
publish annual DSH allotments in the Federal Register and to provide
that the Secretary would post preliminary and final national
expenditure targets and State DSH allotments in the Medicaid Budget and
Expenditure System/State Children's Health Insurance Program Budget and
Expenditure System (MBES/CBES) and at Medicaid.gov (or similar
successor system or website). Current regulations require us to publish
the annual DSH allotments in the Federal Register. We have found this
process to be time consuming and administratively burdensome for us and
are concerned that it makes providing the information to States and
other interested parties less timely and accessible. Additionally,
because we currently notify States directly regarding annual allotment
amounts and make such information publicly available outside of the
Federal Register on a routine basis, we find that it is duplicative and
unnecessary to go through the process of publishing in the Federal
Register. Therefore, by eliminating the Sec. 447.297(c) requirement to
publish annual DSH allotments in the Federal Register, we explained
that we would be removing the administratively burdensome task, which
would allow us to focus our efforts on providing the information in a
timely and easily accessible manner through the MBES/CBES and at
Medicaid.gov (or similar successor system or website).
Additionally, we proposed in Sec. 447.297(b) and (d)(1) to remove
the date on which final national targets and allotments are published,
currently specified as April 1, and revise this timeframe to as soon as
practicable. In Sec. 447.297(d)(1), we also proposed to remove the
phrase ``prior to the April 1 publication date,'' and to add in its
place the phrase, ``prior to the posting date'' for consistency with
the new timeframe. We proposed to remove the April 1 publication date
to allow for Medicaid expenditures associated with the FFY DSH
allotment to be finalized. CMS utilizes these amounts in the
calculations of the 12 percent limit under section 1923(f)(3)(B)(ii) of
the Act. Finally, we proposed to remove Sec. 447.297(c), which
consists of redundant publication requirements already identified in
Sec. 447.297(b), (c), and (d), in its entirety, to align with our
proposed changes Sec. 447.297(c).
We received public comments on these proposals. The following is a
summary of the public comments we received and our responses.
Comment: Several commenters commented on this proposal, and with
one exception, commenters were not supportive of this proposal. The
commenters cited concerns about transparency, as the MBES/CBES systems
where we would publish amounts are not accessible to the general
public. They also cited concerns about accountability, as Medicaid.gov
is less formal than a Federal Register publication, and the latter
ensures a static record for historicity.
Response: While we appreciate the concerns of commenters, we are
finalizing as proposed. We will ensure ongoing transparency by
publishing final amounts on a publicly accessible page on Medicaid.gov
instead of simply distributing to States through MBES/CBES. This step
ensures that hospitals, researchers, oversight entities, and others
will have timely access to the
[[Page 13934]]
data as well. We also believe posting to Medicaid.gov can provide
sufficient accountability regarding the accuracy of the final amounts.
We already publish many important documents and guidance on our
website, and we will ensure the postings are clear with respect to the
date they are published, and with versions for any necessary changes.
Comment: A couple commenters specifically opposed the removal of
the ``April 1'' date from the regulatory language and did not want the
final allotments published any later than that date.
Response: We are also finalizing as proposed the regulatory
language removing the ``April 1'' date specification and replacing it
with ``as soon as practical.'' Our reasoning is twofold. First, we
already currently send States information prior to when the Federal
Register publication occurs. This change will not alter our existing
practice of providing information to States as soon as we have it
available. Second, this change is important to allow us flexibility
when some States are late reporting their expenditure data, causing a
delay in calculating final allotments. By removing the April 1
language, we can ensure that the publicly available final report is
more accurate.
We acknowledge this change in publication location and uncertainty
of dates could make it difficult for non-State entities to know when
the final allocation report is available. We intend to communicate
through multiple channels, such as emails, list servs, and calls with
interested parties, when the Medicaid.gov publication will be
available, and once it is posted.
E. Reporting Requirements (Sec. 447.299)
1. Calculating Medicaid Shortfall
We proposed to revise Sec. 447.299(c)(6), (7), (10), and (16) to
reflect the statutory changes made by section 203 of the CAA 2021 to
update the methodology for calculating the Medicaid shortfall portion
(Medicaid costs less Medicaid payments) of the hospital-specific DSH
limit to only include costs and payments for hospital services
furnished to beneficiaries for whom Medicaid is the primary payer,
effective for the SPRY beginning on or after October 1, 2021, and
subsequent years, and to include the statutory exception for 97th
percentile hospitals. Hospitals meeting this exception will calculate
their hospital-specific DSH limit using the higher value of either the
hospital-specific DSH limit calculated per the methodology which
includes only costs and payments associated with beneficiaries for whom
Medicaid is the primary payer or the hospital-specific DSH limit
calculated per the methodology in effect on January 1, 2020. We
reviewed the other data elements in Sec. 447.299(c) to determine if
additional updates were necessary to account for the changes made by
section 203 of the CAA 2021. However, we noted our belief that these
are the only data elements requiring updates because these are the only
elements that will differ based on whether statutory requirements
provide for the consideration of all Medicaid eligible individuals or
only those for whom Medicaid is the primary payer. Therefore, we
explained that it was only necessary to revise Sec. 447.299(c)(6),
(7), (10), and (16) to account for the statutory changes made by
section 203 of the CAA 2021.
Accordingly, we proposed to revise Sec. 447.299(c)(6), which
specifies that this data element should include inpatient and
outpatient Medicaid fee-for-service (FFS) basic rate payments paid to
hospitals, ``not including DSH payments or supplemental/enhanced
Medicaid payments, for inpatient and outpatient services furnished to
Medicaid eligible individuals.'' We proposed this change because, for
most hospitals, for SPRYs beginning on or after October 1, 2021, only
those FFS payments for Medicaid eligible individuals for whom Medicaid
is the primary payer will be counted in the calculation of the
hospital-specific DSH limit. Therefore, we proposed to revise Sec.
447.299(c)(6) to remove the reference to Medicaid eligible individuals
and update the regulatory text to indicate that FFS payments for
inpatient and outpatient hospital services furnished to Medicaid
individuals in accordance with Sec. 447.295(d) should be included in
this data element.
We also proposed to revise Sec. 447.299(c)(7), which specifies
that this data element includes payments made to the hospitals ``by
Medicaid managed care organizations for inpatient hospital and
outpatient hospital services furnished to Medicaid eligible
individuals.'' We proposed this change because for most hospitals, for
SPRYs beginning on or after October 1, 2021, only payments made by
Medicaid managed care organizations for Medicaid eligible individuals
for whom Medicaid is the primary payer will be counted in the
calculation of the hospital-specific DSH limit. Therefore, we proposed
to revise Sec. 447.299(c)(7) to remove the reference to Medicaid
eligible individuals and update the regulatory text to indicate that
Medicaid managed care payments for inpatient and outpatient hospital
services furnished to Medicaid individuals in accordance with Sec.
447.295(d) should be included in this data element.
We also proposed to revise Sec. 447.299(c)(10), which specifies
that this data element includes ``costs incurred by each hospital for
furnishing inpatient hospital and outpatient hospital services to
Medicaid eligible individuals.'' We proposed this change because for
most hospitals, for SPRYs beginning on or after October 1, 2021, only
costs incurred on behalf of Medicaid eligible individuals for whom
Medicaid is the primary payer will be counted in the calculation of the
hospital-specific DSH limit. Therefore, we proposed to revise Sec.
447.299(c)(10) to remove the reference to Medicaid eligible individuals
and update the regulatory text to indicate that costs incurred by each
hospital for furnishing inpatient hospital and outpatient hospital
services to Medicaid individuals as determined in accordance with Sec.
447.295(d) should be included in this data element.
Finally, we proposed to revise Sec. 447.299(c)(16), which
currently specifies the calculation of uncompensated care costs to
include ``the total cost of care for furnishing inpatient hospital and
outpatient hospital services to Medicaid eligible individuals'' and the
uninsured, which are to be offset by ``Medicaid FFS rate payments,
Medicaid managed care organization payments, supplemental/enhanced
Medicaid payments, uninsured revenues, and section 1011 payments for
inpatient and outpatient hospital services.'' Therefore, we proposed to
revise Sec. 447.299(c)(16) to remove the reference to ``Medicaid
eligible individuals'' and update the regulatory text to indicate that
total annual uncompensated care cost equals the total cost of care for
furnishing inpatient hospital and outpatient hospital services to
``Medicaid individuals as determined in accordance with Sec.
447.295(d) and to individuals with no source of third-party coverage
for the hospital services they receive,'' less the sum of payments
received on their behalf, should be included in this data element.
We proposed that this and other CAA 2021-related proposals, noted
in the respective sections, be applicable to fiscal years beginning on
or after October 1, 2021, to align with the effective date of the
amendments made by section 203 of the CAA 2021.
We received public comments on these proposals. The following is a
[[Page 13935]]
summary of the public comments we received and our responses.
Comment: A few commenters indicated that the DSH audit should
indicate which hospitals met the exception for 97th percentile
hospitals and which methodology had a higher hospital-specific DSH
limit: the limit including only costs and payments for Medicaid
patients for whom Medicaid is the primary payer in the Medicaid portion
of the hospital-specific limit calculation, or the methodology in
effect on January 1, 2020. Commenters indicated that this information
would be beneficial for informing future policy decisions.
Response: We agree that this would be useful information and
suggest that auditors provide this information in the independent
certified audit. Because we did not propose to include this element as
a required part of the independent certified audit, future rulemaking
would be necessary to impose this as a requirement. We are finalizing
the provisions as proposed.
2. Reporting DSH Overpayments
To improve the accuracy of identification of provider overpayments
discovered through the DSH audit process, we proposed to add an
additional reporting requirement for annual DSH audit reporting
required by Sec. 447.299. We proposed to redesignate Sec.
447.299(c)(21) as paragraph (c)(22) of that section, and to add a
proposed new Sec. 447.299(c)(21) to require an additional data element
for the required annual DSH audit reporting. The new data element we
proposed would require auditors to quantify the financial impact of any
finding, including any impact resulting from incomplete or missing
data, lack of documentation, non-compliance with Federal statutes or
regulations, or other deficiencies identified in the independent
certified audit, which may affect whether each hospital has received
DSH payments for which it is eligible within its hospital-specific DSH
limit.
Currently, audits may include a caveat indicating the auditors are
unable to quantify the financial impact of an identified audit finding.
We proposed that, for purposes of Sec. 447.299, audit finding means an
issue identified in the independent certified audit required under
Sec. 455.304 concerning the methodology for computing the hospital-
specific DSH limit or the DSH payments made to the hospital, including
compliance with the hospital-specific DSH limit as defined in Sec.
447.299(c)(16). For example, an audit may identify that a hospital was
unable to satisfactorily document the outpatient services it provided
to Medicaid eligible patients, resulting in the exclusion of associated
costs and payments from the Medicaid shortfall calculation. Based on
this lack of documentation, the audit may include a caveat noting the
auditor's finding that the hospital's total uncompensated care cost may
be misstated as a result of this exclusion, with unknown impact on the
hospital-specific DSH limit. Given this lack of quantification of the
financial impact of this finding, CMS and the State would be unable to
determine whether an overpayment has resulted related to this audit
finding, and if so, the amount. We believe that requiring the
quantification of such findings would limit the burden on States and
CMS of performing follow-up reviews or audits. Specifically, conducting
a secondary review or audit after the independent auditors have
completed theirs would lengthen the review process, and therefore,
delay the results of the audit. It would also require additional time,
personnel, and resources by CMS, States, and hospitals to participate
in a secondary review or audit, which would largely duplicate aspects
of the audit already conducted by the independent auditor. If
finalized, the new data element would help ensure appropriate recovery
and redistribution, as applicable, of all DSH overpayments in excess of
the hospital-specific limit. Adding this requirement to the submission
would also ensure auditors provide the additional information at the
time they are already reviewing the applicable data, reducing the labor
burden as opposed to a later, secondary audit.
We explained that auditors would be afforded the professional
discretion and the flexibility to determine how to best quantify these
amounts in the audit findings. For example, auditors would be able to
use alternative source documentation, utilize a methodology to estimate
the financial impact in terms of the dollar amount at risk, or provide
an estimated range of financial impact if a determination of an exact
dollar amount is not possible. However, we also noted our understanding
that, due to the complexity of issues that may arise, the actual
financial impact of an audit finding may not always be calculable.
Therefore, we proposed that, in the expectedly rare event that the
actual financial impact cannot be calculated, a statement of the
estimated financial impact for each audit finding identified in the
independent certified audit that is not reflected in the other data
elements identified in Sec. 447.299(c) would be required. We proposed
that actual financial impact would mean the total amount associated
with audit findings calculated using the documentation sources
identified in Sec. 455.304(c). Estimated financial impact would mean
the total amount associated with audit findings calculated on the basis
of the most reliable available information to quantify the amount of an
audit finding in circumstances where complete and accurate information
necessary to determine the actual financial impact is not available
from the documentation sources identified in Sec. 455.304(c). The
estimated financial impact would use the most reliable available
information (for example, related source documentation such as data
from State systems, hospitals' audited financial statements, and
Medicare cost reports) to quantify an audit finding as accurately as
possible. We noted our belief that this additional data reporting
element is necessary to better enable our oversight of the Medicaid DSH
program to better ensure compliance with the hospital-specific DSH
limit in section 1923(g) of the Act.
Additionally, we proposed to add Sec. 447.299(f), which would
codify our existing policy for how overpayments identified through the
annual independent certified DSH audits required under part 455,
subpart D, must be handled and reported to CMS. Specifically, we
proposed that DSH payments found in the independent certified audit
process under part 455, subpart D, to exceed hospital-specific limits
are provider overpayments for which FFP must be returned to the Federal
Government in accordance with the requirements in 42 CFR part 433,
subpart F, or redistributed by the State to other qualifying hospitals,
if redistribution is provided for under the approved State plan. We
proposed that overpayment amounts returned to the Federal Government
must be separately reported on the Form CMS-64 as a decreasing
adjustment which corresponds to the fiscal year DSH allotment and
Medicaid SPRY of the original DSH expenditure claimed by the State.
We further proposed to add Sec. 447.299(g), which would establish
reporting requirements concerning the redistribution of DSH
overpayments in accordance with a State's redistribution methodology in
its Medicaid State plan, as applicable. Specifically, we proposed that,
as applicable, States would be required to report any overpayment
redistribution amounts on the Form CMS-64 within 2 years from the date
of discovery that a hospital-specific limit has been exceeded, as
determined under Sec. 433.316(f) in accordance with a
[[Page 13936]]
redistribution methodology in the approved Medicaid State plan. The
State would be required to report redistribution of DSH overpayments on
the Form CMS-64 as separately identifiable decreasing adjustments
reflecting the return of the overpayment as specified in Sec.
447.299(f) and increasing adjustments representing the redistribution
by the State. Both adjustments must correspond to the fiscal year DSH
allotment and Medicaid SPRY of the related original DSH expenditure
claimed by the State. These proposed additions of paragraphs (f) and
(g) to Sec. 447.299 would memorialize our current policy concerning
the return of FFP in or redistribution of Medicaid DSH payments in
excess of the hospital-specific limit in regulation, and thereby
promote clarity and transparency, avoid misunderstanding, and enhance
oversight of the Medicaid DSH program.
We explained that these proposals for the independent certified
audit and DSH-related claims reporting would enhance Federal oversight
of the Medicaid DSH program and improve the accuracy of DSH audit
overpayments identified and collected through annual DSH audits. We
invited comments on these proposals. The following is a summary of the
public comments we received and our responses.
Comment: A few commenters expressed concerns about the language
regarding auditors' ability to provide an estimate of the financial
impact. One commenter opposed the provision on the basis that
overpayment determinations would be based on estimates. Another
commenter sought clarity on how an auditor would be able to submit an
estimated range of impact.
Response: We want to clarify our language around the use of
estimates and financial impact ranges, and our expectation for how
States should handle estimated financial impacts. First and foremost,
we emphasize that we expect auditors to calculate an actual financial
impact of their audit findings wherever possible. Experience has shown
that currently, some States' contracts with auditors do not require any
quantification of overpayments, leaving this critical activity
incomplete following completion of the audit. By finalizing this new
data element proposal, we intend to require that State contracts with
auditors must require the auditor to take the extra step of quantifying
the financial impact of their findings, based on the audit work already
being performed. We intend to stop the practice of a State's acceptance
of auditor ``caveats'' unaccompanied by a statement of actual or
estimated financial impact, which leaves unnecessary duplicative and
burdensome work to the State and CMS to determine any associated
overpayment amount. We believe the additional cost and burden
associated with the new data element would be minimal given that
auditors are already engaged in a focused review of available
documentation to quantify the aggregate amounts that comprise each of
the existing data elements required under Sec. 447.299(c).
However, as stated in the proposed rule, we acknowledge that even
where State contracts with auditors require the auditor to quantify the
actual or estimated financial impact of any findings, there are rare
circumstances where the financial impact of an identified issue cannot
be quantified. As commenters noted, we would allow the auditor to
submit an estimated impact in these expectedly rare circumstances. We
want to clarify that the reference to an ``estimated range of financial
impact'' \28\ in the proposed rule was intended to refer to this
circumstance. We also want to clarify that we do not require that
States treat an estimate an auditor produces in this context as a
determination of an overpayment amount. Consistent with our
characterization of overpayments in Sec. 433.316(c)(1) through (3), an
estimate would reflect an inability to calculate a specific amount and
would not represent a quantified overpayment. It is our expectation
that more auditors, by employing appropriate methods at their
professional discretion, have the ability to quantify these amounts,
than are currently being required to do so under their contracts with
the relevant State. If an auditor is truly unable to quantify a finding
or caveat using its best professional efforts, the auditor should
recommend specific corrective action in its audit report. We expect
that the States will submit a corrective action plan as part of the
final audit report for CMS approval. Additionally, we remind States
that under 42 CFR 431.992, a corrective action plan may be required for
possible payment error in association with the Payment Error Rate
Measurement process described at 42 CFR 431.950 et seq. We realize that
given the independent certified DSH audit and report is not due to us
until the end of the calendar year 3 years following the end of each
SPRY, there may be a significant lag between when an auditor identifies
an issue and when the State and hospitals are able to implement
corrective action. We intend to take this lag into consideration in
determining whether the State's annual audit and DSH payments meet
Federal requirements. We may use the deferral and/or disallowance of
FFP per Sec. 447.299(e) to ensure timely compliance with Federal DSH
reporting requirements.
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\28\ 88 FR 11865 at 11876.
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Comment: One commenter requested that CMS provide standardized
guidance for how to calculate and quantify any errors and overpayment
amounts. They were concerned that variations in methodology would
result in disparate and possibly inequitable impacts from the new data
element.
Response: We understand the desire for standardized guidance, and
we did consider this option. However, we are finalizing as proposed and
will continue to evaluate the need for additional CMS guidance. We
expect auditors to utilize their professional discretion to determine
how to best quantify errors and overpayment amounts. Allowing this
flexibility acknowledges the potential variability in issues an auditor
may identify. In addition, auditors are not wholly without guidance on
this issue. Auditors should utilize the source documents discussed
throughout the 2008 DSH audit final rule to develop their
calculations.\29\ Finally, as always, we are available to assist any
States seeking to develop or enhance their instructions to auditors.
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\29\ See for example 73 FR 77904 at 77917 for types of source
documentation, which can include hospital cost reports, hospital
financial statements, and other hospital accounting records.
---------------------------------------------------------------------------
Comment: A few commenters expressed concerns on burden and
auditors' ability to quantify data caveats. Specifically, one commenter
opposed the proposed new data element because the requirement to
quantify data caveats would present a significant burden on States to
pay for that level of audit. They recommended that instead CMS should
target States with the highest DSH allotments for this new requirement
or that CMS should hire a vendor to perform all audits. Another
commenter stated that CMS lacked data supporting the assertion that
auditors could easily quantify their findings, or that it would be rare
for an auditor to need to provide an estimate.
Response: We disagree that this new requirement will constitute a
significant burden increase. If an auditor is already completing a full
review of DSH documentation, then the information needed to calculate
amounts should be readily available and the calculation of associated
amounts would not create a significantly burdensome additional step. In
other words, if an auditor is performing a review of all available
documentation in order to produce the
[[Page 13937]]
audit, then they have the documentation that will inform how payments
were made and whether claims for FFP are supported, which should allow
the auditor to identify and calculate any possible overpayments. If a
State is finding there is a significant change in effort to meet this
additional requirement, it could be an indication that previous audit
contracts were too limited to result in an independent certified audit
sufficient to identify whether DSH payments to hospitals were
consistent with each provider's hospital-specific DSH limit. In
addition, because we are allowing flexibility in methodology, an
auditor could (and should) utilize an approach that minimizes
unnecessary burden while still arriving at a mathematically valid final
calculation. As discussed in a previous response, experience has shown
that some States have limited contracts with their auditors to meet
minimum requirements, which results in audit reports that rely heavily
on data caveats and are limited in their usefulness for identifying
overpayment amounts.
The DSH audits are statutorily required under section 1923(j) of
the Act, which places the requirement on the States to perform the
audit. All States that make DSH payments must comply with the
independent certified audit requirements as a condition of receipt of
FFP in their DSH payments. We do not believe the statute contemplates
applying more stringent audit standards only to some States. We believe
this new requirement is important to ensuring that payments are being
made properly, regardless of the potential amount of overpayment that
could have occurred in a given State.
Additionally, section 1923(j) of the Act requires States, not CMS,
to submit an independent certified audit. We therefore established in
the 2008 DSH final rule the requirement for States to contract with an
independent auditor to meet this requirement; CMS does not have
authority to hire a vendor to perform all independent certified audits,
and to do so would duplicate a requirement that Congress has placed on
the States. We note that FFP is available in States' allowable
administrative expenditures for their audit contracts.
Lastly, regarding the comment stating CMS lacked data supporting
the assertion auditors could easily quantify their findings, we have
heard from various auditors directly that they can provide more data
but are not presently being requested by States to do so. This
information about auditors' experiences is why we are confident it
would be unlikely that an auditor would need to provide an estimated
financial impact amount in more than rare circumstances. Therefore, we
are finalizing this required data element with the expectation that
States will contract with auditors to take the appropriate steps to
quantify findings for which some States' auditors have been including
data caveats.
Comment: A few commenters expressed concern in regard to the
implementation of the new data element and its interplay with the other
data elements. One commenter requested that CMS clarify how the new
data element would be used. They specifically inquired if CMS would
calculate a new total annual UCC since the commenter perceived that the
new data element quantifying any overpayments would not necessarily be
reproducible from the other data elements already included in the
audit. On the other hand, another commenter questioned whether an
amount quantified under this new requirement would not be already
accounted for in other data elements of the audit and expressed concern
about duplication of effort.
Response: The intent of the new data element, to the extent an
auditor has provided actual calculations of impacts, is for States to
treat it as an identified overpayment amount. It relates to a
quantification of errors, and errors should not be represented in the
other data elements of the report, as amounts inclusive of errors would
presumably be unsupported by documentation, inaccurate, or otherwise
inappropriate. A State's calculated UCC or hospital-specific DSH limit
should not include errant or unsupported data, and therefore the
quantification included in the new data element should not impact the
UCC/hospital-specific DSH limit or necessitate a change.
If the State plan methodology allows for redistribution that would
result in changes to DSH audit data elements, we would expect the State
to reflect the redistribution-related changes to applicable data
elements in relevant CMS-64s and in revised data element reports. The
impacts calculated under the new data element should not duplicate any
other data elements in content, but should be consistent with and may
be calculated based on other required data elements, as determined by
the auditor. Additionally, we are finalizing at Sec. 447.299(c)(21)
language that specifically states the amount for the new data element
should include amounts ``not otherwise reflected in data elements
described in this paragraph (c).''
Comment: A few commenters express concern on the parameters of the
new data element. Specifically, one commenter questioned if
``disclosures'' should be regarded as the types of data caveats and
errors that an auditor would be required to quantify under this new
requirement. Another requested an exception to the requirement when a
State is aware an addendum is forthcoming on an audit.
Response: We are unsure precisely what the commenter meant by their
use of ``disclosure.'' If ``disclosure'' is being used synonymously
with data caveat and is included in lieu of providing a calculated
impact where it would be possible to state the actual or estimated
financial impact of an identified issue, then this information would be
covered by the new requirement we are finalizing in this rule. If the
``disclosure'' is merely to make CMS aware of a qualitative
circumstance that, by nature, could not be associated with a quantified
financial impact, we would not expect an auditor to attempt to produce
an actual or estimated impact.
There is no exception to this data requirement, or independent
certified audit deadlines in general, when a State or auditor knows a
change or addendum to the audit report is forthcoming. Existing
regulations at Sec. 433.320(c) contemplate scenarios where an
overpayment amount is subsequently adjusted and provides the
requirements and procedures for how to address those changes. In
addition, frequently asked question (FAQ) #17 of the ``Additional
Information on the DSH Reporting and Audit Requirements'' guidance \30\
explains that States have 3 years beyond the applicable FFY for ongoing
report and audit submission, in recognition of potential delays in
obtaining needed information. Based on the audit and reporting
deadlines, the requirement in Sec. 447.45(d) for provider claims to be
filed within a year from the date of service and promptly paid by the
State, and the 2-year timely claim filing requirement in 45 CFR 95.7,
we explained in FAQ #17 that there should not be a significant
adjustment to Medicaid payments that would warrant a corrected audit
and report. However, we acknowledge there is still a possibility that a
significant adjustment to Medicaid payment may occur for which the
State claims Federal matching dollars (or returns Federal matching
dollars) as a prior period adjustment, falling outside the timely
claims filings we would expect to be
[[Page 13938]]
reflected in original audit submissions. In these instances, the State
should submit corrected audits and data element reports in the same
manner as the originals, indicating post-audit adjustments to Medicaid
and DSH payments that are reflected in the audit or report (or
uncompensated care costs if Medicaid payment adjustments affect the
Medicaid shortfall) once those adjustments have been made.
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\30\ https://www.medicaid.gov/medicaid/downloads/part-1-additional-info-on-dsh-reporting-and-auditing.pdf.
---------------------------------------------------------------------------
Comment: One commenter expressed concern about the disparate impact
this requirement may have for hospitals that disproportionately
experience certain data issues outside of a State's or hospital's
control, such as a hospital with a high volume of out-of-State patients
that cause delays in obtaining necessary documentation.
Response: We want to emphasize that, although we hope this new
requirement will compel action by States to contract for, ensure the
completion of, and submit thorough DSH audits, there is still
flexibility for those limited scenarios where an auditor simply cannot
obtain the data or employ appropriate mathematical methods to quantify
the financial impact of an identified issue. We proposed that auditors
would be able to provide an estimated financial impact in these
situations. We also note that under existing policy and as finalized in
this section of this final rule, States have 3 years beyond the
applicable FFY to submit audits, and 2 years following the
identification of an overpayment to perform redistributions, as
applicable under the State plan. The regulations at Sec. 433.320, as
mentioned previously, also contemplate subsequent adjustments to
identified overpayment amounts.
Comment: A few commenters requested changes or sought clarity
around the scope of the overpayment policy in Sec. 447.299(f).
Specifically, one commenter requested an exception to the requirement
to recoup or redistribute an identified overpayment as described in
Sec. 447.299(f) if the State knows an audit modification is
forthcoming in the near future that would require a revised
redistribution or recoupment. Another comment requested clarification
about how States should handle an underpayment identified in the new
DSH data element if the State had not paid out its entire DSH allotment
initially and its approved DSH payment methodology called for
additional payments to one or more DSH hospitals with room under the
hospital-specific DSH limit.
Response: We are finalizing the Sec. 447.299(f) provision as
proposed and without an exception to this provision when a State knows
a change to the independent certified audit report is likely to be
forthcoming. As mentioned in a previous response, we already allow
States 3 years beyond the applicable FFY for ongoing report and audit
submission under Sec. 455.304(b). In addition, if an overpayment is
discovered later, then that overpayment would be subject to the same
requirements as any other State Medicaid overpayment, and should be
handled in accordance with part 433, subpart F. While we appreciate
that there may be rare circumstances when certain information is not
available in time to meet these deadlines, we think the time allowed is
more than adequate for the vast majority of cases and do not believe
that an extension or indefinite timeframe for the independent certified
audit and report would be appropriate.
States retain considerable flexibility to design a payment
adjustment methodology for DSH hospitals. If States choose to pay up to
a hospital's UCC (the full extent of its hospital-specific DSH limit,
subject to available funds within the State's Federal Medicaid DSH
allotment), in some instances, the DSH audit may identify hospitals
that were not paid up to their uncompensated care cost as provided in
the State's approved DSH payment methodology. If the State plan
outlines an interim payment methodology, the State may be able to make
additional DSH payments or redistribute amounts from hospitals that
received excess DSH payments (over their hospital-specific DSH limits)
to these hospitals with remaining uncompensated care costs through a
reconciliation process to address the ``underpayment.''
Comment: One commenter sought clarification regarding how the
effective date of the rule would impact States with respect to Sec.
447.299(g); for example, the commenter sought clarification on how this
new requirement would impact States currently performing
redistributions on amounts from more than 2 years prior. The commenter
also inquired from what date related to a discovered overpayment a
State would have 2 years to redistribute.
Response: We are finalizing Sec. 447.299(g) as proposed. The 2-
year policy for redistribution will apply for overpayments identified
from the effective date of this final rule, onward. However, this
policy has already been communicated directly to States, which have
been aware of the two-year timeframe for performing redistributions
provided for under the State's approved DSH payment methodology; this
final rule merely codifies this existing policy in regulation. If a
State is currently processing older redistributions, then the State
should make every effort to come into compliance within the timeframes
established in this final rule as expeditiously as possible. Regarding
the date of discovery of an overpayment, we intend the 2-year timeframe
for redistribution to be determined consistent with the policy we are
finalizing at Sec. 433.316(f), where we define the date of discovery
of a DSH audit overpayment.
Comment: One commenter was in favor of the redistribution
provisions in proposed Sec. 447.299(f) and (g) for the clarity they
would provide States on an issue that had multiple reasonable
interpretations, but suggested CMS collect hospital-specific data
following any redistributions.
Response: We thank the commenter for their suggestion. When our
analysts who perform reviews of State-submitted CMS-64s receive a CMS-
64 that indicates redistributions, and a State has not otherwise
provided updated hospital-specific data in a revised data elements
report after the submission of the independent certified audit for the
relevant year, we perform outreach to confirm the new hospital-specific
payment amounts and hospital-specific DSH limits and to instruct the
State to submit a revised data elements report reflecting these new
amounts.
We are finalizing the provisions to Sec. 447.299 as proposed, with
minor phrasing changes to Sec. 447.299(c)(6), (c)(10) introductory
text, (c)(10)(ii), and (c)(16) replacing ``pursuant to'' with ``in
accordance with'' to align with current style guidelines.
F. Definitions (Sec. 455.301)
We proposed to revise the definition of the ``independent certified
audit'' to include the requirement for auditors to quantify the
financial impact of each audit finding, or caveat, on an individual
basis, for each hospital, per the reporting requirement in proposed
Sec. 447.299(c)(21) and under section 1923(j)(1)(B) of the Act. We
explained that updating this definition is consistent with the goals of
the updates to Sec. 447.299(c)(21) to facilitate our determination of
whether the State made DSH payments that exceeded any hospital's
specific DSH limit in the Medicaid SPRY under audit. Specifically, as
discussed in item five of the proposed provisions, we proposed to add
to annual DSH reporting required under Sec. 447.299(c) a requirement
for States to report the financial impact of audit findings identified
by the State's independent auditor. To align with this proposal, we
proposed to revise the definition of the independent certified
[[Page 13939]]
audit under Sec. 455.301 to include the auditor's certification of ``a
quantification of the financial impact of each audit finding on a
hospital-specific basis.'' As previously discussed, based on current
independent certified DSH audit submissions, we are at times unable to
determine whether a DSH overpayment to a provider has occurred, the
underlying cause of any overpayment, and the amount of the
overpayment(s) associated with each cause. This is the result of an
auditor including audit findings or caveats indicating that missing
information or other issues may have an impact on the calculation of
total uncompensated care costs (that is, the hospital-specific DSH
limit), while not making a determination of the actual (or estimated)
financial impact of the identified issue. As such, we noted our belief
that revising the definition to include a quantification of the
financial impact of any issues identified in the audit is necessary to
better ensure proper oversight and integrity of the DSH program.
We solicited comments related to the proposed change. We did not
receive public comments on this provision and are finalizing as
proposed these changes to Sec. 455.301.
G. Condition for Federal Financial Participation (FFP) (Sec. 455.304)
We proposed to revise Sec. 455.304(d)(1), (3), (4), and (6) to
reflect the proposed revisions to the independent certified data
elements at Sec. 447.299(c)(6), (7), (10), and (16). The revisions
would reflect the statutory changes made by section 203 of the CAA
2021, updating the independent certified audit verifications as they
relate to the treatment of Medicaid eligibles and third-party payers.
We reviewed the other independent certified audit verifications in
Sec. 455.304(d) to determine if additional updates were necessary to
account for the changes made by section 203 of the CAA 2021. However,
we noted our belief that these are the only verifications requiring
updates because these are the verifications that consider the treatment
of Medicaid eligibles for purposes of the independent certified audit.
Therefore, it is only necessary to revise Sec. 455.304(d)(1), (3),
(4), and (6) to account for the statutory changes made by section 203
of the CAA 2021.
Accordingly, we proposed to revise Sec. 455.304(d)(1), which
specifies that auditors should verify that each qualifying hospital
that receives DSH payments, associated with the provisions of services
to ``Medicaid eligible individuals and individuals with no source of
third-party coverage,'' is allowed to retain that payment. We proposed
this change because for most hospitals, for SPRYs beginning on or after
October 1, 2021, the methodology by which these DSH payments are
calculated and paid will be reflective of Medicaid costs and payments
associated with Medicaid eligible individuals for whom Medicaid is the
primary payer. Therefore, we proposed to revise Sec. 455.304(d)(1) to
remove the reference to Medicaid eligible individuals and update the
regulatory text to indicate that the DSH payments are associated with
inpatient hospital and outpatient hospital services provided to
Medicaid individuals as determined in accordance with Sec. 447.295(d).
We also proposed to revise Sec. 455.304(d)(3), which specifies
that ``[o]nly uncompensated care costs of furnishing inpatient and
outpatient hospital services to Medicaid eligible individuals'' and the
uninsured should be included in the calculation of the hospital-
specific DSH limit. We proposed this change because for most hospitals,
for SPRYs beginning on or after October 1, 2021, only costs incurred on
behalf of Medicaid eligible individuals for whom Medicaid is the
primary payer will be counted in the calculation of the hospital-
specific DSH limit. Therefore, we proposed to revise Sec.
455.304(d)(3) to remove the reference to Medicaid eligible individuals
and update the regulatory text to indicate that uncompensated care
costs for furnishing inpatient hospital and outpatient hospital
services to Medicaid individuals is determined in accordance with Sec.
447.295(d). We also proposed to revise Sec. 455.304(d)(3) to
streamline this provision by removing a redundant reference to section
1923(g)(1)(A) of the Act.
Further, we proposed to revise Sec. 455.304(d)(4), which specifies
that Medicaid payments, including FFS, supplemental/enhanced, and
Medicaid managed care payments made to a hospital ``for furnishing
inpatient hospital and outpatient hospital services to Medicaid
eligible individuals,'' should be included in the calculation of the
hospital-specific DSH limit. We proposed this change because for most
hospitals, for SPRYs beginning on or after October 1, 2021, only costs
incurred on behalf of Medicaid eligible individuals for whom Medicaid
is the primary payer will be counted in the calculation of the
hospital-specific DSH limit. Therefore, we proposed to revise Sec.
455.304(d)(4) to remove the reference to Medicaid eligible individuals
and update the regulatory text to indicate that the DSH payments
associated with inpatient hospital and outpatient hospital services
provided to Medicaid individuals as determined in accordance with Sec.
447.295(d) are included in the calculation of hospital-specific DSH
limit.
Finally, we proposed to revise Sec. 455.304(d)(6), which requires
that auditors include a description of the methodology for calculating
each hospital's hospital-specific DSH limit, including ``how the State
defines incurred inpatient hospital and outpatient hospital costs for
furnishing inpatient hospital and outpatient hospital services to
Medicaid eligible individuals.'' We proposed this change because for
most hospitals, for SPRYs beginning on or after October 1, 2021, the
methodology by which these DSH payments were calculated and paid will
be reflective of Medicaid costs and payments associated with Medicaid
eligible individuals for whom Medicaid is the primary payer. Therefore,
we proposed to revise Sec. 455.304(d)(6) to remove the reference to
Medicaid eligible individuals and update the regulatory text to
indicate that inpatient hospital and outpatient hospital services
provided to Medicaid individuals are determined in accordance with
Sec. 447.295(d).
We proposed that these and other CAA 2021-related proposals, noted
in the respective sections, be applicable to fiscal years beginning on
or after October 1, 2021, to align with the effective date of the CAA
2021.
We solicited comments on these proposed changes. We did not receive
public comments on the proposed changes to Sec. 455.304 and are
finalizing them as proposed, with minor phrasing changes to Sec.
455.304(d)(1), (3), (4), and (6) replacing ``pursuant to'' with ``in
accordance with'' to align with current style guidelines.
H. Process and Calculation of State Allotments for FYs After FY 2008
(Sec. 457.609)
We have not published CHIP allotments in the Federal Register since
the FY 2013 CHIP allotments. Each year following FY 2013, States have
been notified of their CHIP allotments through email notifications or
MBES/CBES. We proposed to remove from Sec. 457.609(h), which
references our discretionary option to publish in the Federal Register
the national CHIP allotment amounts as determined on an annual basis
for the FYs specified in statute. Instead, we proposed to post CHIP
allotments in the MBES/CBES and at Medicaid.gov (or similar successor
systems or websites) annually. We noted our belief that posting the
CHIP
[[Page 13940]]
allotment amounts at Medicaid.gov and in the MBES/CBES is an efficient
way to increase transparency by making the information more easily
accessible to interested parties and would be less administratively
burdensome for us.
We solicited comments related to this proposed change and received
public comments. The following is a summary of the public comments we
received and our responses.
Comment: Several commenters mentioned the CHIP Federal Register
publication. Most of these comments were combined with the comments on
the DSH allotment publication proposal, discussed earlier in this final
rule. The concerns cited in those comments were related to the lack of
transparency of MBES/CBES publications because those are not available
to the public, and the accountability of a report being posted on
Medicaid.gov, because a website can be changed while the Federal
Register produces static, dated publications. One comment opposed the
removal of the April 1 target publication date for CHIP allotments.
Response: We are finalizing this policy as proposed. Although the
CHIP allotment publication proposal and the DSH allotment publication
proposal may appear similar, the CHIP proposal is distinct in that the
prior regulation already afforded CMS discretion whether or not to
publish the CHIP allotments in the Federal Register, which CMS has not
done since FFY 2013. Please refer to the response in section II.A.4. of
this rule, ``Limitations on Aggregate Payments for DSHs Beginning
October 1, 1992,'' for a response to the DSH allotment publication
comments. A couple comments received that referenced CHIP but requested
we continue to publish in the Federal Register are not actually
relevant to CHIP, since CHIP allotments have not been published in the
Federal Register in recent years.
We also note that the new regulation commits us to publishing final
CHIP allotments on Medicaid.gov, which is not currently done, thereby
increasing transparency for CHIP allotments. We also note that the
current CHIP allotment regulation does not include the April 1 date;
that was only part of the similar DSH allotment publication policy we
are finalizing in this rule. However, we note the lack of the target
date would not affect States receiving their necessary information, a
concern cited by the commenter. As with the DSH allotments, we inform
States as soon as information is available about their respective
allotment amounts. Removing the target date for a final, public report
simply affords CMS room to finalize data in instances where a State is
late submitting data to CMS.
III. Retroactive Application of the Rule
The amendments made by section division CC, title II, section 203
of the CAA 2021, require that the changes to the calculations of
Medicaid hospital-specific DSH limits take effect on October 1, 2021,
and apply to payment adjustments made under section 1923 of the Act
during fiscal years beginning on or after that date. Accordingly, the
CAA 2021 provisions finalized in this rule at Sec. Sec. 447.295(b) and
(d), 447.299(c)(6), (7), (10), and (16), and 455.304(d)(1), (3), (4),
and (6) will apply retroactively as set out in statute.
Comment: One commenter expressed concern on the retroactive
application of the rule. The commenter requested that we limit the
retroactive application to only those provisions that require such an
application by statute.
Response: As proposed, we are limiting the retroactive application
to those provisions related to the CAA 2021 changes.
IV. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.), 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. For the purpose of the PRA and this section of
the preamble, collection of information is defined under 5 CFR
1320.3(c) of the PRA's implementing regulations.
To fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the PRA 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.
Our effort to minimize the information collection burden
on the affected public, including the use of automated collection
techniques.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
In the February 24, 2023 (88 FR 11865) proposed rule, we solicited
public comment on each of the aforementioned issues for the sections of
the rule that contained information collection requirements. We did not
receive any such comments.
A. Wage Estimates
To derive average costs, we used data from the U.S. Bureau of Labor
Statistics' (BLS) May 2022 National Occupational Employment and Wage
Estimates for all salary estimates (https://www.bls.gov/oes/2022/may/oes_nat.htm). In this regard, Table 1 presents BLS' mean hourly wage,
our estimated cost of fringe benefits and other indirect costs
(calculated at 100 percent of salary), and our adjusted hourly wage.
[GRAPHIC] [TIFF OMITTED] TR23FE24.000
As indicated, we are adjusting our employee hourly wage estimates
by a factor of 100 percent. This is necessarily a rough adjustment,
both because fringe benefits and overhead costs vary significantly from
employer to employer, and because methods of estimating these costs
vary widely from study to study. Nonetheless, we believe
[[Page 13941]]
that doubling the hourly wage to estimate total cost is a reasonably
accurate estimation method.
B. Information Collection Requirements (ICR)
The following ICR section sets out requirements and burden that are
subject to OMB review and approval under the authority of the PRA.
The provisions that are not discussed in this section (IV) of the
preamble are not associated with any information collection
requirements. In that regard they are not subject to the requirements
of the PRA. For this rule's full burden implications, please see the
Regulatory Impact Analysis under section V. of this preamble.
1. ICRs Regarding DSH Reporting Requirements (Sec. 447.299)
The following changes will be submitted to OMB for approval under
control number 0938-0746 (CMS-R-266).
Under Sec. 447.299 as finalized in this rule, States will be
required to provide an additional data element as part of their annual
DSH audit reports. This additional element will require a State auditor
to quantify the financial impact of any audit finding not captured
within any other data element under Sec. 447.299(c), which may affect
whether each hospital has received DSH payments for which it is
eligible within its hospital-specific DSH limit.
The additional data element requires auditors to indicate the
financial impact of all findings rather than indicating that the
financial impact of any finding is unknown.
The burden consists of the time it would take each State to
quantify any audit finding identified during the independent certified
audit required under section 1923(j)(2) of the Act. As we rarely
receive audits with no identified findings, we assume (for the purposes
of this estimate) that all applicable States will complete this work.
The territories have been excluded from this requirement since they do
not receive a DSH allotment under section 1923(f) of the Act. We have
also excluded Massachusetts from the total burden estimate, as it
currently does not complete DSH audits because its entire DSH allotment
amount is diverted for payments under a section 1115 demonstration
project.
We believe the additional burden associated with the new data
element would be 2 hours given that auditors are already engaged in a
focused review of available documentation to quantify the aggregate
amounts that comprise each of the existing data elements required under
Sec. 447.299(c). We estimate that the 2 hours would consist of 1 hour
at $80.36/hr for a financial specialist to add the additional data to
the report and 1 hour at $135.76/hr for management and professional
staff to review the additional data in the report. In aggregate we
estimate an annual burden of 100 hours (50 States x 2 hr/response x 1
response/year) at a cost of $10,806 (50 States x [(1 hr x $135.76/hr) +
(1 hr x $80.36/hr)]).
If the auditor is unable to determine the actual financial impact
amount of an audit finding, the auditor would be required to provide a
statement of the estimated financial impact for each audit finding
identified in the independent certified audit. For the purposes of this
burden estimate, we assume that every State may have some quantifiable
findings and some unquantifiable findings. As such, we anticipate that
a State auditor would have to spend an additional 1 hour at $83.40/hr
quantifying the financial impact of DSH findings that are classified as
unknown. In aggregate, we estimate an annual burden of 50 hours (50
States x 1 hr) at a cost of $4,170 (50 hr x $83.40/hr).
When taking into account the 50 percent Federal administrative
match, we estimate an annual cost of $7,488 ([$10,806 + $4,170] x 0.5).
C. Summary of Annual Burden Estimates
Table 2 summarizes the burden for the provisions.
[GRAPHIC] [TIFF OMITTED] TR23FE24.001
In this rule our proposed burden estimates have been adjusted by
using BLS' most recent wage estimates (May 2022 vs May 2021) and by
accounting for 50 respondents, instead of the 51 respondents that was
accounted for in our proposed rule to remove Massachusetts as it
currently does not complete DSH audits because its entire DSH allotment
amount is diverted for payments under a section 1115 demonstration
project.
V. Regulatory Impact Analysis
A. Statement of Need
This final rule will codify in Federal regulations the statutory
requirements of division CC, title II, section 203 of the CAA 2021,
which relate to Medicaid shortfall and third-party payments. These
changes are necessary to align with Federal statute and to provide
States and hospitals an understanding of how qualifying hospitals' DSH
payments may be impacted by the CAA 2021. These changes are necessary
in order to reflect the statutory changes to section 1923(g) of the Act
to update the methodology for calculating the Medicaid shortfall
portion of the hospital-specific DSH limit to only include costs and
payments for hospital services furnished to beneficiaries for whom
Medicaid is the primary payer, and to codify the exception for certain
hospitals that are in the 97th percentile or above of all hospitals
with respect to the number of Medicare SSI days or percentage of
Medicare SSI days to total inpatient days.
Since we were required to engage in rulemaking to codify the
statutory
[[Page 13942]]
changes made under the CAA 2021, we also took the opportunity to update
certain DSH regulations to provide additional clarity and efficiency.
The changes to the BNF and associated calculations performed under the
DHRM will provide better clarity for States that divert all or a
portion of their DSH allotment under an approved section 1115
demonstration. We are also adding additional specificity to the
reporting requirements of the annual DSH audit conducted by an
independent auditor, which will enhance Federal oversight of the
Medicaid DSH program. Additionally, we will improve the accurate
identification and collection of overpayments identified through the
annual DSH independent certified audits by specifying the date of
discovery and standards for return of FFP or redistribution of DSH
payments made to providers in excess of the hospital-specific limit.
Finally, this final rule will alleviate the administrative burden of
publishing the annual DSH and CHIP allotments in the Federal Register,
of which we also notify States directly by providing notification
through other, more practical means.
B. Overall Impact
We have examined the impacts of this final 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). The
Executive Order 14094, entitled ``Modernizing Regulatory Review''
(hereinafter, the Modernizing E.O.), amends section 3(f)(1) of
Executive Order 12866 (Regulatory Planning and Review). The amended
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 $200 million or more in
any 1 year (adjusted every 3 years by the Administrator of OMB's Office
of Information and Regulatory Affairs (OIRA) for changes in gross
domestic product), or adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, territorial, or
tribal governments or communities; (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) raise legal or policy issues for which
centralized review would meaningfully further the President's
priorities or the principles set forth in this Executive order, as
specifically authorized in a timely manner by the Administrator of OIRA
in each case.
A regulatory impact analysis (RIA) must be prepared for major rules
with significant regulatory action/s and/or with significant effects as
per section 3(f)(1) ($200 million or more in any 1 year). Based on our
estimates using a ``no action'' baseline, OIRA has determined that this
rulemaking is ``significant'' under section 3(f)(1) and meets the
criteria set forth in 5 U.S.C. 804(2) under subtitle E of the Small
Business Regulatory Enforcement Fairness Act of 1996 (also known as the
Congressional Review Act)''.
C. Detailed Economic Analysis
Some amendments made by the CAA 2021 required us to propose
regulatory updates, but there are statutory changes that are effective
regardless of our actions. Typically, under OMB Circular A-4, our
analysis for instances such as this would utilize a ``pre-statute''
baseline. However, we are unable to assess the impact of the statutory
changes in a meaningful way due to the potential for variation in the
Medicare cost reporting and claims data, as well as supplemental
security income eligibility data, that inform the new standard.
Additionally, the ranking created by those data whereby an unknown 3
percent of entities would have the higher of two options, further
inhibited our ability to estimate the impact in a meaningful way.
Therefore, for the assessment of incremental economic impact that
appears below, we compare the effects of this rulemaking against a ``no
action'' baseline. This baseline incorporates the statutory changes
made by the CAA 2021 that do not require rulemaking to be in effect,
such as the change to the definition of Medicaid shortfall. This will
be the focus of our analysis. Similarly, for the non-CAA 2021-required
or related DSH provisions in the proposed rule, our analytical baseline
is a direct comparison between the proposed provisions and not
finalizing this rule.
Because the impact of our rule depends on downstream impacts of
changes created in statute unaffected by this rulemaking, such as the
change to only include Medicaid costs and payments in the hospital-
specific DSH limit when Medicaid is the primary payer, calculating
financial cost and transfer impacts specific to this rulemaking
presents challenges which we will discuss further in those sections.
1. Benefits
The policies in this final rule will enhance Federal oversight of
the Medicaid DSH program, improve the accuracy of DSH audit
overpayments identified through and collected as a result of annual DSH
audits, and provide clarity on certain existing Medicaid DSH policies.
This final rule will codify certain existing CMS policies, including
that the date of discovery of DSH overpayments is determined according
to the earliest of the date on which the State submits its annual DSH
independent certified audit to CMS, or any of the dates specified in
Sec. 433.316(c). Further, this final rule will provide additional
transparency regarding the DSH allotment reductions calculated under
the DHRM, specifically regarding the BNF, by updating the applicable
regulations to specify that amounts diverted under a section 1115
demonstration approved after July 31, 2009, or approved as of that date
but for a purpose other than coverage expansion, are subject to
reduction under the HMF and HUF. Further, these regulatory updates will
provide transparency regarding how the amounts diverted under a section
1115 demonstration are to be determined and applied in the DHRM. In
addition, this final rule includes specific details related to the
development and application of the data set used to determine the
qualification for the exception for 97th percentile hospitals. This
final rule details how hospital-specific DSH limits should be
calculated under section 1923(g) of the Act and reported in the
independent certified audit, as specified in Sec. 447.299(c). Further,
the additional data reporting element in Sec. 447.299(c)(21) will
strengthen CMS oversight of the Medicaid DSH program and better ensure
compliance with the hospital-specific DSH limit under section 1923(g)
of the Act. Finally, this final rule will
[[Page 13943]]
also allow CMS to provide annual DSH and CHIP allotment information in
a timely and accessible manner while reducing unnecessary
administrative burden by eliminating the Sec. Sec. 447.297(c) and
457.609 requirement and option, respectively, to publish these annual
allotments in a Federal Register notice.
2. Costs
Under Sec. 447.299, this final rule will require States to
determine the hospital-specific DSH limit for hospitals meeting the
exception for 97th percentile hospitals. For these hospitals, the
hospital-specific DSH limit is calculated using the higher value of
either the hospital-specific DSH limit amount determined for the
hospital under section 1923(g)(1)(A) of the Act as amended by section
203 of the CAA 2021 or the amount determined for the hospital under
section 1923(g)(1)(A) of the Act as in effect on January 1, 2020. This
amount will be captured under the reporting element at Sec.
447.299(c)(10). While we proposed that CMS will produce the source of
data used to identify hospitals qualifying to meet the exception for
97th percentile hospitals, this will require a State auditor to
calculate two separate hospital-specific DSH limits and determine the
higher value thereof for hospitals meeting this exception. Given this
exception applies to a limited number of hospitals and that the
identity of these hospitals and the information required to determine
their hospital-specific DSH limit amounts under both calculations would
be based on readily available information, we believe the additional
burden associated with determining the hospital-specific DSH limit for
hospitals qualifying under this exception to be minimal.
To estimate the overall burden of adding this requirement for the
calculation of the hospital-specific DSH limit for hospitals meeting
the exception for 97th percentile hospitals, we considered the number
of annual independent certified audits received by CMS in addition to
the limited number of hospitals that will qualify under this exception.
In order for States to assess which hospitals meet the exception, we
estimate that it would take approximately 2 hours, consisting of: 1
hour at $80.36/hr for a financial specialist to prepare the
aforementioned spreadsheet report, and 1 hour at $135.76/hr for
management and professional staff to review the report. In the
aggregate, we estimate an ongoing annual burden of 100 hours (50 States
x 2 hr/response x 1 response/year) at a cost of $10,806 (50 States x
[(1 hr $135.76/hr) + (1 hr x $80.36/hr)] or $216.12 per State [$10,806/
50 States]). Additionally, we anticipate that a State auditor would
have to spend an additional hour verifying the hospital-specific DSH
limits for hospitals meeting the exception for 97th percentile
hospitals. The estimated annual burden would be 1 hour per State (50
States x 1 hour) 50 hours x $83.40/hr for auditors to complete the
audit at a cost of $4,170 per year (50 States x 1 hour x $83.40 per
hour). The total cost of this provision of the proposed rule would be
$14,976 ($10,806 + $4,170) and 150 hours, or $299.52 and 3 hours per
State.
As described in section IV.C.1. of this final rule, the additional
DSH audit data reporting element creates a burden of 150 hours at a
cost of $14,976, with an average of 3 hours ($299.52 hr/50 States) at a
cost of $299.52 per State Medicaid agency per year ($14,976/50 States).
We do not estimate there will be a cost impact related to the DHRM
BNF proposal. This proposal merely provides clarification regarding how
amounts are determined, and the impact of the policy itself was
accounted for the in the 2019 final rule that finalized the factor
amounts. Therefore, the only costs would be associated with review of
this rule, which are accounted for in part 4 of this section.
Similarly, there will be no cost impact related to the proposals to
publish DSH and CHIP allotments through an alternative means. Under
current CMS practice, States are already informed of their allotment
amounts prior to the Federal Register publication, so the removal of
that step will not require a change in entities' practices or systems.
3. Transfers
Although the policies discussed in this final rule would affect the
calculation of the hospital-specific DSH limit established at section
1923(g) of the Act and some providers may see a decrease in their
historic hospital-specific DSH limits, these effects are a direct
result of statutory changes rather than the proposals in this rule. In
addition, some providers may see an increase in their historic
hospital-specific DSH limits, again as a result of the changes made by
statute. Further, lower hospital-specific DSH limits for some hospitals
may result in States choosing to distribute higher DSH payments to
hospitals that historically had not been paid at higher levels. We note
that this rule would not affect the considerable flexibility afforded
States in setting DSH State plan payment methodologies to the extent
that these methodologies are consistent with section 1923(c) of the Act
and all other applicable statutes and regulations. Therefore, we cannot
predict whether and how States would exercise their flexibility in
setting DSH payments to account for changes in historic hospital-
specific DSH limits and how this would affect individual providers or
specific groups of providers. We invited comments from State agencies
and hospitals providing information or data for the calculation of
these estimates. We did not receive any data that would aid in
calculating a more accurate estimate. We made minor adjustments to
correct the total number of States whose DSH programs would be impacted
by the provisions of this rule and to reflect the latest BLS wage data,
but otherwise and generally we are finalizing the estimates as
proposed.
4. Regulatory Review Cost Estimation
If regulations impose administrative costs on private entities,
such as the time needed to read and interpret this final rule, we
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 States, Medicaid DSH
hospitals, and independent auditors will likely be reviewers of this
final rule. We acknowledge that this assumption may understate or
overstate the costs of reviewing this rule. It is possible that not all
Medicaid DSH hospitals will choose to review individually, or that
State agencies will have multiple people in different roles review.
Nevertheless, we thought the entities directly or indirectly impacted
by this rule served as the best basis. As such, we will assume half of
the approximately 2,700 Medicaid DSH hospitals will review the rule, in
addition to at least one person from each of the 50 State agencies
impacted by this rule, and at least one person from the independent DSH
auditor for each of the 50 States, resulting in 1,450 total entities.
We welcomed comments on the approach in estimating the number of
entities which will review this final rule.
Although this rule has a number of provisions, they more or less
all relate to DSH, and we assume entities with DSH equities will review
the entire rule. Using the 2022 wage information from the BLS, https://www.bls.gov/oes/current/oes119111.htm, for medical and health service
managers (Code 11-9111), we estimate that the cost of reviewing this
rule is $123.06 per hour, including overhead and other indirect costs.
We estimate that it would take approximately 2 hours for the staff to
review this final rule. For each entity
[[Page 13944]]
that reviews the rule, the estimated cost is $246.12 (2 hours x
$123.06). Therefore, we estimate that the total one-time cost of
reviewing this regulation is $356,874 ($246.12 x 1,450).
D. Alternatives Considered
In developing this final rule, the following alternatives were
considered:
1. Not Finalizing the Rule
Despite the effort involved in developing a proposed rule, we still
consider whether the effort of finalizing the proposed rule, in
general, is worthwhile and necessary additional effort to meet policy
goals. As with the proposed rule, we concluded that, due to the changes
to regulatory language necessitated by the legislation, rulemaking was
necessary. Accordingly, once the decision to issue a final rule was
reached, the additional DSH-related provisions were discrete decisions
and not part of the calculus of whether to issue a final rule.
2. The Most Recent Cost Reporting Period Reports
As discussed in section II.A.3. of this final rule, we performed
additional work to consider where data anomalies that exist in the
status of available cost reports should impact our proposal to use the
total inpatient days from the cost report with the most updated cost
report status, for the most recent cost reporting period, available on
the day that the data are pulled, in determining the hospitals that
meet the 97th percentile threshold. However, through our additional
review we determined our proposal was most in line with the statutory
requirement to use the most recent cost reporting period and that
anomalies in the status of the most recent reports did not create
issues that would affect our decision.
3. Lookback Period for Cost Reporting
CMS considered various alternatives for making the determination
regarding how far back the time period of a hospital's cost report
could relate in order to be included in the data set for the
calculation of hospitals that meet the 97th percentile threshold
exception. We proposed not including any cost report ending earlier
than September 30, 3 years prior to the March 31 snapshot date for
compiling the data set. For the proposed rule, we considered a shorter
cutoff, such as excluding any cost report ending earlier than September
30, 2 years prior to the March 31 snapshot date. However, we were
concerned that establishing too short of a cutoff could exclude a
material number of hospitals due to either delays in hospitals filing
cost reports or delays in the transmitting and processing of cost
report files into HCRIS. At that time, we also considered a longer
cutoff than 3 years, but we were concerned this could create too much
variability in the cost reporting periods and would also capture in the
data set hospitals that are currently inactive or terminated. While the
proposed rule was out for comment, we continued assessing whether
expanding to 4 years would be a net positive for DSH hospitals.
However, our additional testing did not demonstrate a benefit in
expanding to 4 years and therefore we did not amend the proposal in
this final rule. We believe the 3-year cutoff is equitable in ensuring
there is general consistency in the cost reporting periods used,
conforms with the use of ``most recent cost reporting period,'' and is
practical for implementation purposes.
E. Accounting Statement and Table
As required by OMB Circular A-4 (available at https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf), we have prepared an accounting statement in
Table 3 showing the classification of the costs associated with the
provisions of this final rule.
[GRAPHIC] [TIFF OMITTED] TR23FE24.002
F. Regulatory Flexibility Act (RFA)
The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. The great majority of hospitals and most
other health care providers and suppliers are small entities, either by
being nonprofit organizations or by meeting the Small Business
Administration definition of a small business (having revenues of less
than $9.0 million to $47 million in any 1 year). Individuals and States
are not included in the definition of a small entity. As its measure of
significant economic impact on a substantial number of small entities,
HHS uses a change in revenue of more than 3 to 5 percent. We do not
believe that this threshold will be reached by the provisions in this
final rule.
This rule establishes requirements that are solely the
responsibility of State Medicaid agencies, which are not small
entities. Therefore, the Secretary certifies this final rule would not,
if issued, have a significant economic impact on a substantial number
of small entities.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. This rule will not have a
significant impact on the operations of a substantial number of small
rural hospitals.
G. Unfunded Mandates Reform Act (UMRA)
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
[[Page 13945]]
also requires that agencies assess anticipated costs and benefits
before issuing any rule whose mandates require spending in any 1 year
of $100 million in 1995 dollars, updated annually for inflation. In
2024, that threshold is approximately $183 million. This rule does not
contain mandates that will impose spending costs on State, local, or
tribal governments in the aggregate, or by the private sector, in
excess of the threshold.
H. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a proposed rule that imposes
substantial direct requirement costs on State and local governments,
preempts State law, or otherwise has federalism implications. This rule
does not impose substantial direct costs on State or local governments,
preempt State law, or otherwise have federalism implications.
I. Conclusion
The policies in this final rule will enable CMS to implement
statutory changes, strengthen financial oversight, clarify existing
financial management policies, and reduce unnecessary administrative
burden.
The analysis in this section V., together with the rest of this
preamble, provides a regulatory impact analysis. In accordance with the
provisions of Executive Order 12866, this final rule was reviewed by
the Office of Management and Budget.
Chiquita Brooks-LaSure, Administrator of the Centers for Medicare &
Medicaid Services, approved this document on February 15, 2024.
List of Subjects
42 CFR Part 433
Administrative practice and procedure, Child support, Claims, Grant
programs--health, Medicaid, Reporting and recordkeeping requirements.
42 CFR Part 447
Accounting, Administrative practice and procedure, Drugs, Grant
programs--health, Health facilities, Health professions, Medicaid,
Reporting and recordkeeping requirements, Rural areas.
42 CFR Part 455
Fraud, Grant programs--health, Health facilities, Health
professions, Investigations, Medicaid, Reporting and recordkeeping
requirements.
42 CFR Part 457
Administrative practice and procedure, Grant programs--health,
Health insurance, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services amends 42 CFR chapter IV as set forth below:
PART 433--STATE FISCAL ADMINISTRATION
0
1. The authority citation for part 433 continues to read as follows:
Authority: 42 U.S.C. 1302.
0
2. Amend Sec. 433.316 by--
0
a. Redesignating paragraphs (f) through (h) as paragraphs (g) through
(i), respectively; and
0
b. Adding a new paragraph (f).
The addition reads as follows:
Sec. 433.316 When discovery of overpayment occurs and its
significance.
* * * * *
(f) Overpayments identified through the disproportionate share
hospital (DSH) independent certified audit. In the case of an
overpayment identified through the independent certified audit required
under part 455, subpart D, of this chapter, CMS will consider the
overpayment as discovered on the earliest of the following:
(1) The date that the State submits the independent certified audit
report required under Sec. 455.304(b) of this chapter to CMS.
(2) Any of the dates specified in paragraph (c)(1), (2), or (3) of
this section.
* * * * *
PART 447--PAYMENTS FOR SERVICES
0
3. The authority citation for part 447 continues to read as follows:
Authority: 42 U.S.C. 1302 and 1396r-8.
0
4. Amend Sec. 447.294 by revising paragraphs (e)(12) introductory text
and (e)(12)(i) and (ii) to read as follows:
Sec. 447.294 Medicaid disproportionate share hospital (DSH) allotment
reductions.
* * * * *
(e) * * *
(12) Section 1115 budget neutrality factor (BNF) calculation. This
factor is only calculated for States for which all or a portion of the
DSH allotment was included in the calculation of budget neutrality
under a section 1115 demonstration in accordance with an approval on or
before July 31, 2009. CMS will calculate the BNF for qualifying States
by the following:
(i) For States in which the State's DSH allotment was included in
the budget neutrality calculation for a coverage expansion that was
approved under section 1115 as of July 31, 2009, determining the amount
of the State's DSH allotment included in the budget neutrality
calculation for coverage expansion. This amount is not subject to
reductions under the HMF and HUF calculations. DSH allotment amounts
included in the budget neutrality calculation for purposes other than
coverage expansion for a demonstration project under section 1115 that
was approved as of July 31, 2009, are subject to reduction as specified
in paragraphs (e)(12)(ii) through (iv) of this section. For States
whose DSH allotment was included in the budget neutrality calculation
for a demonstration project that was approved under section 1115 after
July 31, 2009, whether for coverage expansion or otherwise, the entire
DSH allotment amount that was included in the budget neutrality
calculation is subject to reduction as specified in paragraphs
(e)(12)(ii) through (iv) of this section.
(ii) Determining the amount of the State's DSH allotment included
in the budget neutrality calculation subject to reduction. The amount
to be assigned reductions under paragraphs (e)(12)(iii) and (iv) of
this section is the total of each State's DSH allotment diverted under
an approved 1115 demonstration during the period that aligns with the
associated State plan rate year DSH audit utilized in the DSH allotment
reductions.
* * * * *
0
5. Amend Sec. 447.295 by adding a definition for ``97th percentile
hospital'' in alphanumerical order in paragraph (b) and revising
paragraph (d) to read as follows:
Sec. 447.295 Hospital-specific disproportionate share hospital
payment limit: Determination of individuals without health insurance or
other third-party coverage.
* * * * *
(b) * * *
97th percentile hospital means a hospital that is in at least the
97th percentile of all hospitals nationwide with respect to the
hospital's number of inpatient days or the hospital's percentage of
total inpatient days, for the hospital's most recent cost reporting
period, made up of patients who were entitled to benefits under part A
of title XVIII and supplemental security income benefits under title
XVI (excluding any State supplementary benefits paid).
(i) CMS will identify the 97th percentile hospitals, for each
Medicaid
[[Page 13946]]
State plan rate year beginning on or after October 1, 2021, using
Medicare cost reporting and claims data sources, as well as
supplemental security income eligibility data provided by the Social
Security Administration.
(ii) CMS will publish lists identifying each 97th percentile
hospital annually in advance of October 1 of each year. CMS will revise
a published list only to correct a mathematical or other similar
technical error that is identified to CMS during the one-year period
beginning on the date the list is published.
* * * * *
(d) Hospital-specific DSH limit calculation. (1) For each State's
Medicaid State plan rate years beginning prior to October 1, 2021 and
subject to paragraph (d)(3) of this section, only costs incurred in
providing inpatient hospital and outpatient hospital services to
Medicaid individuals, and revenues received with respect to those
services, and costs incurred in providing inpatient hospital and
outpatient hospital services, and revenues received with respect to
those services, for which a determination has been made in accordance
with paragraph (c) of this section that the services were furnished to
individuals who have no source of third-party coverage for the specific
inpatient hospital or outpatient hospital service are included when
calculating the costs and revenues for Medicaid individuals and
individuals who have no health insurance or other source of third-party
coverage for purposes of section 1923(g)(1) of the Act.
(2) For each State's first Medicaid State plan rate year beginning
on or after October 1, 2021, and thereafter, subject to paragraph
(d)(3) of this section, only costs incurred in providing inpatient
hospital and outpatient hospital services to Medicaid individuals when
Medicaid is the primary payer for such services, and revenues received
with respect to those services, and costs incurred in providing
inpatient hospital and outpatient hospital services, and revenues
received with respect to those services, for which a determination has
been made in accordance with paragraph (c) of this section that the
services were furnished to individuals who have no source of third-
party coverage for the specific inpatient hospital or outpatient
hospital service are included when calculating the costs and revenues
for Medicaid individuals and individuals who have no health insurance
or other source of third-party coverage for purposes of section
1923(g)(1) of the Act.
(3) Effective for each State's first Medicaid State plan rate year
beginning on or after October 1, 2021, and thereafter, the hospital-
specific DSH limit for a 97th percentile hospital defined in paragraph
(b) of this section is the higher of the values from the calculations
described in paragraphs (d)(1) and (2) of this section.
Sec. 447.297 [Amended]
0
6. Amend Sec. 447.297 by:
0
a. In paragraph (b), removing the phrase ``published by April 1 of each
Federal fiscal year,'' and adding in its place the phrase ``posted as
soon as practicable,'';
0
b. In paragraph (c)--
0
i. Removing the phrase ``publish in the Federal Register'' and adding
in its place the phrase ``post in the Medicaid Budget and Expenditure
System/State Children's Health Insurance Program Budget and Expenditure
System and at Medicaid.gov (or similar successor system or website)'';
and
0
ii. Removing the phrase ``publish final State DSH allotments by April 1
of each Federal fiscal year,'' and adding in its place the phrase
``post final State DSH allotments as soon as practicable for each
Federal fiscal year,''; and
0
c. In paragraph (d)(1)--
0
i. Removing the phrase ``by April 1 of each Federal fiscal year'' and
adding in its place the phrase ``as soon as practicable for each
Federal fiscal year''; and
0
ii. Removing the phrase ``prior to the April 1 publication date'' and
adding in its place the phrase ``prior to the posting date''; and
0
d. Removing paragraph (e).
0
7. Amend Sec. 447.299 by--
0
a. Revising paragraphs (c)(6) and (7), (c)(10) introductory text,
(c)(10)(ii), and (c)(16);
0
b. Redesignating paragraph (c)(21) as paragraph (c)(22); and
0
c. Adding new paragraph (c)(21) and paragraphs (f) and (g).
The revisions and additions read as follows:
Sec. 447.299 Reporting requirements.
* * * * *
(c) * * *
(6) IP/OP Medicaid fee-for-service (FFS) basic rate payments. The
total annual amount paid to the hospital under the State plan,
including Medicaid FFS rate adjustments, but not including DSH payments
or supplemental/enhanced Medicaid payments, for inpatient and
outpatient hospital services furnished to Medicaid individuals, as
determined in accordance with Sec. 447.295(d).
(7) IP/OP Medicaid managed care organization payments. The total
annual amount paid to the hospital by Medicaid managed care
organizations for inpatient hospital and outpatient hospital services
furnished to Medicaid individuals, as determined in accordance with
Sec. 447.295(d).
* * * * *
(10) Total cost of care for Medicaid IP/OP services. The total
annual costs incurred by each hospital for furnishing inpatient
hospital and outpatient hospital services to Medicaid individuals as
determined in accordance with Sec. 447.295(d). The total annual costs
are determined on a hospital-specific basis, not a service-specific
basis. For purposes of this section, costs--
* * * * *
(ii) Must capture the total burden on the hospital of treating
Medicaid patients as determined in accordance with Sec. 447.295(d),
not including payment by Medicaid. Thus, costs must be determined in
the aggregate and not by estimating the cost of individual patients.
For example, if a hospital treats two Medicaid patients at a cost of
$2,000 and receives a $500 payment from a third party for each
individual, the total cost to the hospital for purposes of this section
is $1,000, regardless of whether the third-party payment received for
one patient exceeds the cost of providing the service to that
individual.
* * * * *
(16) Total annual uncompensated care costs. The total annual
uncompensated care cost equals the total cost of care for furnishing
inpatient hospital and outpatient hospital services to Medicaid
individuals as determined in accordance with Sec. 447.295(d), and to
individuals with no source of third-party coverage for the hospital
services they receive, less the sum of regular Medicaid FFS rate
payments, Medicaid managed care organization payments, supplemental/
enhanced Medicaid payments, uninsured revenues, and section 1011
payments for inpatient and outpatient hospital services. This should
equal the sum of paragraphs (c)(9), (12), and (13) of this section
subtracted from the sum of paragraphs (c)(10) and (14) of this section.
* * * * *
(21) Financial impact of audit findings. The total annual amount
associated with each audit finding. If it is not practicable to
determine the actual financial impact amount, state the estimated
financial impact for each audit finding identified in the independent
certified audit that is not otherwise reflected in data elements
described in this paragraph (c). For
[[Page 13947]]
purposes of this paragraph (c), audit finding means an issue identified
in the independent certified audit required under Sec. 455.304 of this
chapter concerning the methodology for computing the hospital-specific
DSH limit or the DSH payments made to the hospital, including, but not
limited to, compliance with the hospital-specific DSH limit as defined
in paragraph (c)(16) of this section. Audit findings may be related to
missing or improper data, lack of documentation, non-compliance with
Federal statutes or regulations, or other deficiencies identified in
the independent certified audit. Actual financial impact means the
total amount associated with audit findings calculated using the
documentation sources identified in Sec. 455.304(c) of this chapter.
Estimated financial impact means the total amount associated with audit
findings calculated on the basis of the most reliable available
information to quantify the amount of an audit finding in circumstances
where complete and accurate information necessary to determine the
actual financial impact is not available from the documentation sources
identified in Sec. 455.304(c) of this chapter.
* * * * *
(f) DSH payments found in the independent certified audit process
under part 455, subpart D, of this chapter to exceed hospital-specific
cost limits are provider overpayments which must be returned to the
Federal Government in accordance with the requirements in part 433,
subpart F, or redistributed by the State to other qualifying hospitals,
if redistribution is provided for under the approved State plan.
Overpayment amounts returned to the Federal Government must be
separately reported on the Form CMS-64 as a decreasing adjustment which
corresponds to the fiscal year DSH allotment and Medicaid State plan
rate year of the original DSH expenditure claimed by the State.
(g) As applicable, States must report any overpayment
redistribution amounts on the Form CMS-64 within 2 years from the date
of discovery that a hospital-specific limit has been exceeded, as
determined under Sec. 433.316(f) of this chapter in accordance with a
redistribution methodology in the approved Medicaid State plan. The
State must report redistribution of DSH overpayments on the Form CMS-64
as separately identifiable decreasing adjustments reflecting the return
of the overpayment as specified in paragraph (f) of this section and
increasing adjustments representing the redistribution by the State.
Both adjustments must correspond to the fiscal year DSH allotment and
Medicaid State plan rate year of the related original DSH expenditure
claimed by the State.
PART 455--PROGRAM INTEGRITY: MEDICAID
0
8. The authority citation for part 455 continues to read as follows:
Authority: 42 U.S.C. 1302.
0
9. Amend Sec. 455.301 by revising the definition of ``Independent
certified audit'' to read as follows:
Sec. 455.301 Definitions.
* * * * *
Independent certified audit means an audit that is conducted by an
auditor that operates independently from the Medicaid agency or subject
hospitals and is eligible to perform the DSH audit. Certification means
that the independent auditor engaged by the State reviews the criteria
of the Federal audit regulation and completes the verification,
calculations and report under the professional rules and generally
accepted standards of audit practice. This certification includes a
review of the State's audit protocol to ensure that the Federal
regulation is satisfied, an opinion for each verification detailed in
the regulation, a determination of whether or not the State made DSH
payments that exceeded any hospital's hospital-specific DSH limit in
the Medicaid State plan rate year under audit, and a quantification of
the financial impact of each audit finding on a hospital-specific
basis. The certification also identifies any data issues or other
caveats or deficiencies that the auditor identified as impacting the
results of the audit.
* * * * *
0
10. Amend Sec. 455.304 by revising paragraphs (d)(1), (3), (4), and
(6) to read as follows:
Sec. 455.304 Condition for Federal financial participation (FFP).
* * * * *
(d) * * *
(1) Verification 1. Each hospital that qualifies for a DSH payment
in the State is allowed to retain that payment so that the payment is
available to offset its uncompensated care costs for furnishing
inpatient hospital and outpatient hospital services during the Medicaid
State plan rate year to Medicaid individuals as determined in
accordance with Sec. 447.295(d) of this chapter, and individuals with
no source of third-party coverage for the services, in order to reflect
the total amount of claimed DSH expenditures.
* * * * *
(3) Verification 3. Only uncompensated care costs of furnishing
inpatient and outpatient hospital services to Medicaid individuals as
determined in accordance with Sec. 447.295(d) of this chapter, and
individuals with no third-party coverage for the inpatient and
outpatient hospital services they received are eligible for inclusion
in the calculation of the hospital-specific disproportionate share
limit payment limit, as described in section 1923(g)(1)(A) of the Act.
(4) Verification 4. For purposes of this hospital-specific limit
calculation, any Medicaid payments (including regular Medicaid fee-for-
service rate payments, supplemental/enhanced Medicaid payments, and
Medicaid managed care organization payments) made to a disproportionate
share hospital for furnishing inpatient hospital and outpatient
hospital services to Medicaid individuals as determined in accordance
with Sec. 447.295(d) of this chapter, which are in excess of the
Medicaid incurred costs of such services, are applied against the
uncompensated care costs of furnishing inpatient hospital and
outpatient hospital services to individuals with no source of third-
party coverage for such services.
* * * * *
(6) Verification 6. The information specified in paragraph (d)(5)
of this section includes a description of the methodology for
calculating each hospital's payment limit under section 1923(g)(1) of
the Act. Included in the description of the methodology, the audit
report must specify how the State defines incurred inpatient hospital
and outpatient hospital costs for furnishing inpatient hospital and
outpatient hospital services to Medicaid individuals as determined in
accordance with Sec. 447.295(d) of this chapter, and individuals with
no source of third-party coverage for the inpatient hospital and
outpatient hospital services they received.
* * * * *
PART 457--ALLOTMENTS AND GRANTS TO STATES
0
11. The authority for part 457 continues to read as follows:
Authority: 42 U.S.C. 1302.
0
12. Amend Sec. 457.609 by revising paragraph (h) to read as follows:
[[Page 13948]]
Sec. 457.609 Process and calculation of State allotments for a fiscal
year after FY 2008.
* * * * *
(h) CHIP fiscal year allotment process. The national CHIP allotment
and State CHIP allotments will be posted in the Medicaid Budget and
Expenditure System/State Children's Health Insurance Program Budget and
Expenditure System and at Medicaid.gov (or similar successor system or
website) as soon as practicable after the allotments have been
determined for each Federal fiscal year.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2024-03542 Filed 2-20-24; 4:15 pm]
BILLING CODE 4120-01-P