Medicaid Program; Cost Limit for Providers Operated by Units of Government and Provisions To Ensure the Integrity of Federal-State Financial Partnership, 29748-29836 [07-2657]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 72, Number 102 (Tuesday, May 29, 2007)]
[Rules and Regulations]
[Pages 29748-29836]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-2657]



[[Page 29747]]

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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, and 457



Medicaid Program; Cost Limit for Providers Operated by Units of 
Government and Provisions To Ensure the Integrity of Federal-State 
Financial Partnership; Final Rule

Federal Register / Vol. 72, No. 102 / Tuesday, May 29, 2007 / Rules 
and Regulations

[[Page 29748]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 433, 447, and 457

[CMS-2258-FC]
RIN 0938-A057


Medicaid Program; Cost Limit for Providers Operated by Units of 
Government and Provisions To Ensure the Integrity of Federal-State 
Financial Partnership

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule with comment period.

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SUMMARY: This regulation clarifies that entities involved in the 
financing of the non-Federal share of Medicaid payments must be a unit 
of government; clarifies the documentation required to support a 
Medicaid certified public expenditure; limits Medicaid reimbursement 
for health care providers that are operated by units of government to 
an amount that does not exceed the health care provider's cost of 
providing services to Medicaid individuals; requires all health care 
providers to receive and retain the full amount of total computable 
payments for services furnished under the approved Medicaid State plan; 
and makes conforming changes to provisions governing the State Child 
Health Insurance Program (SCHIP) to make the same requirements 
applicable, with the exception of the cost limit on reimbursement.
    The Medicaid cost limit provision of this regulation does not apply 
to: Stand-alone SCHIP program payments made to governmentally-operated 
health care providers; Indian Health Service (IHS) facilities and 
tribal 638 facilities that are paid at the all-inclusive IHS rate; 
Medicaid Managed Care Organizations (MCOs), Prepaid Inpatient Health 
Plans (PIHPs), and Prepaid Ambulatory Health Plans (PAHPs); Federally 
Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs). 
Moreover, disproportionate share hospital (DSH) payments and payments 
authorized under Section 701(d) and Section 705 of the Benefits 
Improvement Protection Act of 2000 are not subject to the newly 
established Medicaid cost limit for governmentally-operated health care 
providers.
    Except as noted above, all Medicaid payments and SCHIP payments 
made under the authority of the State plan and under waiver and 
demonstration authorities, as well as associated State Medicaid and 
SCHIP financing arrangements, are subject to all provisions of this 
regulation. Finally, this regulation solicits comments from the public 
on issues related to the definition of the Unit of Government.

Dates: Effective Dates: This regulation is effective on July 30, 2007.
    Comment Date: Comments only on issues related to Unit of Government 
Definition (Sec.  433.50) will be considered if we receive them at one 
of the addresses provided below, no later than 5 p.m. on July 13, 2007.

ADDRESSES: In commenting, please refer to file code CMS-2258-FC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By mail. You may mail written comments (one original and two 
copies) to the following address ONLY: Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Attention: CMS-2258-
FC, P.O. Box 8014, Baltimore, MD 21244-8014.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-2258-FC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Aaron Blight, (410) 786-9560.

SUPPLEMENTARY INFORMATION: 
    Submitting Comments: We welcome comments from the public only on 
issues related to Unit of Government Definition (Sec.  433.50). You can 
assist us by referencing the file code CMS-2258-FC and the specific 
``issue identifier'' that precedes the section on which you choose to 
comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://
www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.
    This Federal Register document is also available from the Federal 
Register online database through Government Printing Office Access a 
service of the U.S. Government Printing Office. The Web site address 
is: https://www.access.gpo.gov/nara/.

I. Background

    [If you choose to comment only on issues related to Unit of 
Government Definition (Sec.  433.50) in this section, please include 
the caption ``Background'' at the beginning of your comments.]

[[Page 29749]]

    The Medicaid program is a cooperative Federal-State program 
established in 1965 for the purpose of providing Federal financial 
participation (FFP) to States that choose to reimburse certain costs of 
medical treatment for needy persons. It is authorized under title XIX 
of the Social Security Act (the Act), and is administered by each State 
in accordance with an approved Medicaid State plan. States have 
considerable flexibility in designing their programs, but must comply 
with Federal requirements specified in the Medicaid statute, 
regulations, and program guidance.
    FFP is available under section 1903(a)(1) of the Act only when 
there is a corresponding State expenditure for a covered Medicaid 
service to a Medicaid recipient. Federal payment is based on 
statutorily-defined percentages of total computable State expenditures 
for medical assistance provided to recipients under the approved 
Medicaid State plan, and of State expenditures related to the cost of 
administering the Medicaid State plan. CMS has the responsibility to 
ensure that Medicaid payment and financing arrangements comply with 
statutory intent.
    Sections 1902(a)(2), 1903(a) and 1905(b) of the Act require States 
to share in the cost of medical assistance and in the cost of 
administering the State plan. Under section 1905(b) of the Act, the 
Federal medical assistance percentage (FMAP) is defined as ``100 per 
centum less the State percentage,'' and section 1903(a) of the Act 
requires Federal reimbursement to the State of the FMAP of expenditures 
for medical assistance under the plan (and 50 percent of expenditures 
necessary for the proper and efficient administration of the plan). 
Section 1902(a)(2) of the Act and implementing regulations at 42 CFR 
433.50(a)(1) require States to share in the cost of medical assistance 
expenditures but permit the State to delegate some responsibility for 
the non-Federal share of medical assistance expenditures to local 
sources under some circumstances.
    Under Pub. L. 102-234, which inserted significant restrictions on 
States' use of provider related taxes and donations at section 1903(w) 
of the Act, the Congress made clear that participation by local sources 
was limited to: (1) Permissible taxes or donations and (2) 
intergovernmental transfers (IGTs) and certified public expenditures 
(CPEs) from units of government. Specifically, units of government were 
permitted to participate in the funding of the non-Federal share of 
Medicaid payments through an exemption from provider tax or donation 
restrictions at section 1903(w)(6)(A) of the Act that reads:

    Notwithstanding the provisions of this subsection, the Secretary 
may not restrict States' use of funds where such funds are derived 
from State or local taxes (or funds appropriated to State university 
teaching hospitals) transferred from or certified by units of 
government within a State as the non-Federal share of expenditures 
under this title, regardless of whether the unit of government is 
also a health care provider, except as provided in section 
1902(a)(2), unless the transferred funds are derived by the unit of 
government from donations or taxes that would not otherwise be 
recognized as the non-Federal share under this section.

    Subsequent regulations implementing Pub. L. 102-234 give effect to 
this statutory language. Amendments made to the regulations at 42 CFR 
part 433, at 47 FR 55119 (November 24, 1992) explained:

    Funds transferred from another unit of State or local government 
which are not restricted by the statute are not considered a 
provider-related donation or health care-related tax. Consequently, 
until the Secretary adopts regulations changing the treatment of 
intergovernmental transfer, States may continue to use, as the State 
share of medical assistance expenditures, transferred or certified 
funds derived from any governmental source (other than impermissible 
taxes or donations derived at various parts of the State government 
or at the local level).

    The above statutory and regulatory authorities clearly specify that 
in order for an intergovernmental transfer (IGT) or certified public 
expenditure (CPE) from a health care provider or other entity to be 
exempt from analysis as a provider-related tax or donation, it must be 
from a unit of State or local government. Section 1903(w)(7)(G) of the 
Act identifies the four types of local entities that, in addition to 
the State, are considered a unit of government: A city, a county, a 
special purpose district, or other governmental units in the State. The 
provisions of this final regulation conform our regulations to the 
aforementioned statutory language and further define the 
characteristics of a unit of government for purposes of Medicaid 
financing.

II. Provisions of the Proposed Rule

    In the January 18, 2007 proposed rule, we proposed to (1) clarify 
that only units of government are able to participate in the financing 
of the non-Federal share of Medicaid expenditures; (2) establish 
minimum requirements for documenting Medicaid cost when using a CPE; 
(3) limit health care providers operated by units of government to 
Medicaid reimbursement that does not exceed the cost of providing 
covered services to eligible Medicaid recipients; (4) explicitly 
require that all health care providers receive and retain the total 
computable amount of their Medicaid payments; and (5) make conforming 
changes to the SCHIP regulations to make the same requirements 
applicable, with the exception of the cost limit on reimbursement.
    We proposed that the Medicaid cost limit provision of this 
regulation would apply to Medicaid payments to all governmentally-
operated health care providers of Medicaid services, except Medicaid 
payments to governmentally-operated managed care organizations. We 
proposed that stand-alone SCHIP program payments made to 
governmentally-operated health care providers would not be subject to 
the Medicaid cost limit provision of this regulation. Except as noted 
above, we proposed that all Medicaid and SCHIP payments made to 
governmentally-operated providers under the authority of the State plan 
and under waiver and demonstration authorities would be subject to all 
provisions of the proposed regulation.
    Specifically, under the proposed regulation, we provided the 
following changes to our existing regulations:
     We proposed to add new language to Sec.  433.50 to define 
a unit of government to conform to the provisions of section 
1903(w)(7)(G) of the Act.
     We proposed to amend the provisions of Sec.  433.51 to 
conform the language to the provisions of sections 1903(w)(6)(A) and 
1903(w)(7)(G) of the Act and to clarify that the State share of 
Medicaid expenditures may be contributed only by units of government.
     We proposed to include provisions requiring auditable 
documentation of CPEs that are used as part of the State share of 
claimed expenditures.
     We proposed that the Secretary would issue a form (or 
forms) that would be required for governments using a CPE for certain 
types of Medicaid services where we have found improper claims.
     We proposed to limit reimbursement for governmentally-
operated health care providers to amounts consistent with economy and 
efficiency by establishing a limit of reimbursement not to exceed cost. 
The proposed Medicaid cost limit in Sec.  447.206 specified that the 
Secretary will determine a reasonable method for identifying allowable 
Medicaid costs that incorporates not only OMB Circular A-87 cost 
principles but also Medicare cost principles, as appropriate, and the

[[Page 29750]]

statutory requirements of sections 1902, 1903, and 1905 of the Act.
     We proposed a new regulatory provision at Sec.  447.207 
requiring that all health care providers receive and retain the full 
amount of the total computable payment provided to them for services 
furnished under the approved State plan (or the approved provisions of 
a waiver or demonstration, if applicable).
     We proposed to eliminate Sec.  447.271(b), as this 
provision would no longer be relevant due to the proposed Medicaid cost 
limit for units of government.
     We proposed a corresponding modification to the Medicaid 
upper payment limit (UPL) rules found at Sec.  447.272 for inpatient 
hospital, nursing facility and intermediate care facilities for the 
mentally retarded (ICFs/MR) services and Sec.  447.321 for outpatient 
hospital and clinic services, to incorporate by reference the proposed 
cost limit for providers operated by units of government and to make 
the defined UPL facility groups consistent with proposed Sec.  433.50. 
We proposed that formerly established UPL transition periods remain 
unchanged.
     We proposed to make conforming changes to Sec.  457.220 to 
mirror Sec.  433.51.
     We proposed to make conforming changes to Sec.  457.628 to 
incorporate Sec.  433.50.
     We proposed incorporating proposed Sec.  447.207 requiring 
retention of payments in Sec.  457.628 because this provision applies 
to SCHIP payments as well as Medicaid payments.
     We developed a form questionnaire to collect information 
necessary to determine whether or not individual health care providers 
are units of government.

III. Analysis of and Responses to Public Comments

    [If you choose to comment only on issues related to Unit of 
Government Definition (Sec.  433.50) in this section, please include 
the caption ``Analysis of and Responses to Public Comments'' at the 
beginning of your comments.]
    We received 422 items of timely public correspondence, containing 
over 1,000 public comments that raised over 260 individual issues, in 
response to the January 18, 2007 proposed rule (72 FR 2236 through 
2248). The comments came from a variety of correspondents, including 
professional associations, national and State organizations, 
physicians, hospitals, advocacy groups, State Medicaid programs, State 
and local government agencies, and members of the Congress. The 
majority of commenters urged us to reconsider the proposed criteria for 
defining a unit of government for purposes of Medicaid State financing 
and Medicaid reimbursement. The majority of commenters also expressed 
concern with the administrative burden and cost of properly documenting 
services to Medicaid individuals. The following is a summary of the 
comments received and our response to those comments.

A. Unit of Government Definition (Sec.  433.50)

    1C. Comment: A number of commenters asserted that the proposed 
definition of a unit of government, when applied to specific health 
care providers, did not produce a definitive conclusion as to whether 
or not the health care provider qualifies as a unit of government.
    1R. Response: The regulation codifies existing statutory criteria 
for a unit of government that can participate in financing the non-
federal share of Medicaid expenditures. This codification of existing 
Federal statutory requirements was set forth in an effort to assist 
States in identifying the universe of governmentally-operated health 
care providers for this purpose.
    In this final rule, we are providing that States must apply the 
statutory and regulatory criteria to each individual health care 
provider to make initial determinations of governmental status. As we 
indicated in the proposed rule, we have developed a ``Tool to Evaluate 
the Governmental Status of Health Care Providers.'' In response to 
comments on this rule, we have modified that form to allow States to 
indicate their initial determination of a health care provider's 
governmental status.
    We recognize that there is considerable variation in organizational 
arrangements and financial relationships between health care providers 
and units of government, and their treatment under State law. 
Therefore, application of the statutory and regulatory criteria to 
specific health care providers will require careful evaluation of the 
circumstances and applicable State law. We believe the statutory and 
regulatory criteria provide a consistent framework and yet have 
sufficient flexibility to accommodate these differences. We see this 
flexibility as essential to ensuring accurate and consistent 
determinations within each State.
    Because we recognize that this is a complex determination that 
providers and States may rely upon, we agree that changes in the 
determination resulting either from a more careful evaluation, or from 
a change in circumstances, should be applied prospectively only (in the 
absence of fraud). Thus, to the extent that a State had previously 
applied the statutory and regulatory criteria to a health care 
provider's governmental status, in the absence of fraud, CMS intends to 
consider changes to that status on a prospective basis and does not 
intend to require retrospective changes in treatment of a provider.
    States will be required to maintain these determinations on file 
and will be required to submit these forms to CMS upon request, in 
connection with CMS review of Medicaid institutional and non-
institutional reimbursement State plan amendments involving 
governmental providers and with Medicaid or SCHIP financial management 
reviews. In addition, we intend to request, under our general authority 
to require supporting documentation for claimed expenditures, and the 
existing regulatory authority at 42 CFR Sec.  431.16, that States 
submit a complete list of governmentally-operated health care providers 
to the Associate Regional Administrator for Medicaid of each State's 
respective CMS Regional Office with the first quarterly expenditure 
report due after 90 days of the effective date of the regulation.
    If CMS disagrees with a State's initial determination of 
governmental status, CMS intends to request a timely change in the 
State's determination prior to pursuing any other measures including, 
but not limited to, denial of Medicaid reimbursement SPAs and/or 
disallowances of claims for Federal financial participation. States can 
appeal such actions through existing appeal processes.
    2C. Comment: A number of commenters asked CMS to clarify that the 
regulation does not affect the transfer of local governmental funding 
for non-provider specific Medicaid payments by the State and that the 
regulation allows local governmental entities to voluntarily transfer 
funds for the benefit of health care providers in their community.
    2R. Response: The Federal statute at section 1902(a)(2) of the Act 
allows States to share their fiscal obligation to the Medicaid program 
with local governments. Section 1903(w)(6)(A) of the Act specifically 
recognizes the use of local tax dollars as a permissible source of the 
non-Federal share of Medicaid payments.
    3C. Comment: One commenter expressed concern that CMS's view of 
what a ``unit of government'' is may evolve over time, thus resulting 
in inconsistent application of the provisions of the regulation to 
different health care providers. The commenter argued that the criteria 
used to

[[Page 29751]]

determine what is a ``unit of government'' should be standardized, 
impartial and result in consistent outcomes.
    3R. Response: The provisions of the regulation were designed to 
ensure a consistent framework to determine status as a unit of 
government. CMS recognizes that States play a major role in the 
administration of the Medicaid program and that legal and financial 
arrangements between health care providers and units of government vary 
on a case by case basis. Therefore, CMS has developed standardized 
regulatory criteria, based upon the provisions of Federal statute, that 
States must apply on a consistent basis to each health care provider 
within the State to determine whether or not the health care provider 
is a unit of government.
    A State's determination of governmental status must be applied in 
two ways, to ensure consistent treatment. First, a health care 
provider, determined by a State to be governmentally-operated, would be 
eligible to participate in financing the non-Federal share of Medicaid 
payments (that is, IGTs and CPEs). Second, Medicaid payments to a 
health care provider, determined by a State to be governmentally-
operated, would be limited to the cost of providing services to 
Medicaid individuals. States must apply the statutory and regulatory 
criteria regarding governmental status consistently to each health care 
provider and the initial State determination of governmental status 
must be consistent. In other words, States cannot consider a health 
care provider to be governmentally-operated for purposes of 
participation in IGTs or CPEs, but consider the health care provider 
non-governmentally operated for purposes of the Medicaid cost limit.
    4C. Comment: One commenter suggested that the determination of 
governmental status of health care providers be made by States, not the 
Federal government, to identify which health care providers within the 
State may be involved in IGT and CPE and are subject to the cost limit. 
The commenter stated that such deference to the States would allow them 
to make these determinations up front and ensure the continued 
operation of their Medicaid programs without the threat of retroactive 
disallowances.
    4R. Response: We agree that States should make the initial 
determination of governmental status by applying the statutory and 
regulatory criteria to each individual health care provider. We have 
modified the ``Tool to Evaluate the Governmental Status of Health Care 
Providers'' to allow States to indicate their initial determination of 
a health care provider's governmental status.
    CMS has responsibility to ensure that the determinations of 
governmental status made by States are consistent with the Federal 
statutory and regulatory criteria. To the extent that a State had 
previously applied the statutory and regulatory criteria to a health 
care provider's governmental status, absent fraud, CMS intends to 
consider changes to that status on a prospective basis and does not 
intend to require retroactive changes in treatment of the provider. If 
CMS disagrees with a State's initial determination of governmental 
status, CMS intends to request a timely change in the State's 
determination prior to pursuing other measures including, but not 
limited to, denial of Medicaid reimbursement SPAs and/or disallowances 
of claims for Federal financial participation. States can appeal such 
actions through existing appeal processes.
    5C. Comment: Many commenters recommended that CMS change the 
proposed definition of unit of government to provide deference to 
applicable State or local law.
    5R. Response: Application of State law in the determination of a 
health care provider's governmental status for Medicaid purposes must 
be consistent with the terms of the Federal statute and regulation. 
This rule would not limit State or local law from recognizing a health 
care provider as a governmental entity for other purposes.
    The provisions of the regulation were designed to ensure consistent 
application of the Federal statutory instructions regarding what 
constitutes a unit of government for purposes of Medicaid financing and 
payment. CMS recognizes that States play a major role in the 
administration of the Medicaid program and that legal and financial 
arrangements between health care providers and units of government vary 
on a case by case basis. Therefore, CMS has developed standardized and 
impartial regulatory criteria based upon the provisions of Federal 
statute that States must apply on a consistent basis to each health 
care provider within the State.
    6C. Comment: A number of commenters suggested that CMS allow health 
care providers currently involved in financing the non-Federal share 
via IGT or CPE to be grandfathered into the regulation's definition of 
``unit of government,'' thereby permitting these health care providers 
to continue to finance the non-Federal share after the effective date 
of the provisions of the regulation.
    6R. Response: CMS does not view grandfathering to be appropriate 
for several reasons. First, section 1903(w) contains clear statutory 
restrictions on States' receipt of funds from non-governmental health 
care providers to fund Medicaid payments. Indeed, there are severe 
penalties imposed for such practices. Second, There is nothing in the 
Medicaid statute that permits non-governmental units to finance the 
non-federal share of Medicaid payments, and severe statutory penalties. 
Second, we believe it is important to maintain consistent and 
equivalent treatment of all States and providers under a uniform 
regulatory framework.
    7C. Comment: Several commenters requested that CMS clarify that the 
definition of ``unit of government'' is for purposes outlined in the 
provisions of this regulation only and that CMS does not intend to 
place restrictions on public status elsewhere. This request was made 
because the use of the term ``public'' appears in several different 
contexts throughout the Medicaid statute, and many states employ their 
own definitions of public status within their Medicaid state plans. For 
example, federal financial participation is available at the rate of 75 
percent of the costs of skilled professional medical personnel of the 
state agency or ``any other public agency.'' A Medicaid managed care 
organization that is a ``public entity'' is exempt from certain 
otherwise applicable solvency standards. ``Public institutions'' that 
provide inpatient hospital services for free or at nominal charges are 
not subject to the charge limit otherwise applicable to inpatient 
services. Moreover, many states adopt special reimbursement provisions 
in their state plans for ``public hospitals,'' ``governmental 
hospitals'' or other types of public health care providers.
    7R. Response: This final regulation defines a unit of government 
for purposes of financing the non-Federal share of Medicaid payments 
and for the application of a new Medicaid upper payment limit on such 
governmental health care providers.
    The reference to ``any other public agency'' in Sec.  432.50 and 
the exemption from solvency standards for public entities are 
unaffected by this regulation. As part of this final regulation, the 
reference to public institutions that provide inpatient hospital 
services for free or at nominal charges has been deleted in light of 
the new upper payment limit structure. It is our understanding that 
virtually every health care provider has a customary charge structure 
used to bill patients who have sufficient resources and third

[[Page 29752]]

party payers, and so no exception to that limit is required. In the 
unlikely event that a health care provider does not customary charge 
either patients or liable third parties and thus does not have such a 
customary charge structure at all, then we would view the customary 
charge limit to be inapplicable.
    8C. Comment: One commenter asked if a health care provider that is 
operated by a local government which is required by ordinance to levy a 
tax to support its operations must actually use these tax revenues 
annually in order to meet the definition of a unit of government.
    8R. Response: We would not require that a health care provider use 
tax revenues in order to be considered a unit of government. Health 
care providers operated by a local government with taxing authority are 
always able to directly access tax revenue. This ability to directly 
access tax revenues through standard appropriation processes and 
without the need for a contractual arrangement to access such tax 
revenue is a characteristic that reflects a health care provider's 
governmental status.
    9C. Comment: Several commenters requested that CMS revise the 
proposed regulatory definition for unit of government. One commenter 
suggested that the criteria used to define a ``unit of government'' be 
modified as follows: ``A provider will be recognized as a unit of 
government if (1) more than twenty-five (25) percent of its services 
are provided to individuals eligible for Medicaid, the uninsured, or 
the underinsured; and (2) the provider can reasonably be expected to 
receive direct government subsidies to maintain operations should the 
provider be at risk for discontinuing operations.''
    Another commenter suggested that the criteria at Sec.  
433.50(a)(1)(i) used to define a ``unit of government'' be modified as 
follows: ``A unit of government is a State, a city, a county, a special 
district, a health authority, or other governmental unit in the State 
that has taxing authority, or is specifically established as a unit of 
government under the State's constitution.''
    Finally, another commenter suggested a new subsection (C) to the 
proposed Sec.  433.50(a)(1)(ii) to read: ``(C) The health care 
provider, although it does not meet the requirements of subparagraphs 
(A) or (B), is able to demonstrate to CMS that the sources of its 
funding are of a nature that would permit a finding that it is a unit 
of government for purposes of this section.''
    9R. Response: The suggested elements are not consistent with 
statutory criteria regarding the participation of a unit of government 
in financing the non-federal share of Medicaid expenditures. Section 
1903(w)(6) does not refer to entities that provide a particular level 
of Medicaid services, nor to the potential for general governmental 
subsidies. It uses the term ``unit of government'' and refers to the 
use of ``State or local tax revenues.'' While the term ``unit of 
government'' is not specifically defined, in section 1903(w)(7)(G), 
there is a definition of ``unit of local government'' that contains a 
list of entities that generally share the common characteristic of 
possessing taxing authority. The statutory list includes ``special 
purpose district'' and ``other governmental unit'' (which are not 
defined terms and are used to refer to a wide range of entities, some 
of which do not have taxing authority, direct access to tax revenues, 
or other indications of governmental status). We read these terms to 
permit flexibility to include such entities when they share the common 
characteristic of other listed governmental units of taxing authority 
(or direct access to tax revenues). We take this reading to ensure 
consistency with the required use of ``State or local tax revenues'' 
when a unit of government participates in financing the non-federal 
share of Medicaid expenditures.
    Moreover, we believe that it is essential to have a clear and 
uniform standard that can be consistently applied in every State and to 
every provider. Thus we do not see a justification to include open-
ended language in the regulatory definition. We have, however, made 
clear in the final rule our intent to permit flexibility to accommodate 
entities that do not have independent taxing authority but have direct 
access to tax revenues. We discuss this further below.
    In sum, our reading of the Medicaid statute is that the type of 
services provided by a health care provider, its reasonable expectation 
to receive direct government subsidies when at-risk for discontinuing 
operations, its specific establishment under State constitution, or its 
funding sources are not characteristics contemplated under the statute 
as representative of a unit of government that can participate in 
financing the non-federal share of Medicaid expenditures. The criteria 
we have set forth are based on our reading of the Medicaid statute, and 
are intended to permit flexibility to recognize different 
characterizations of arrangements that fall within a uniform, 
consistent framework.
    10C. Comment: A number of commenters asked CMS to expressly state 
that the provisions of the regulation have no effect on regulations 
pertaining to provider taxes.
    10R. Response: The provisions of the regulation clarify the 
statutory exception to the requirements governing health care related 
taxes and provider related donations. Nothing in this regulation is 
intended to impact the requirements on health care related taxes and 
provider related donations. All statutory and regulatory requirements 
governing health care related taxes and provider related donations 
still apply.
    11C. Comment: One commenter asked CMS to clarify what is meant by 
the term ``other governmental unit.''
    11R. Response: Section 1903(w)(7)(A) of the Act includes in the 
definition of the term ``unit of local government'' certain specified 
entities and ``other governmental unit[s] in the State.'' This term is 
undefined, and we are interpreting it to refer to entities that possess 
certain qualities that we believe are key to governmental status for 
purposes of Medicaid financing and payment. In the context of the list 
as a whole, CMS is interpreting this term to mean entities that are not 
cities, counties or special purpose districts, but have qualities that 
are generally shared by those specifically listed entities (and, as 
discussed below, CMS interprets the broad term ``special purpose 
district'' in a similar manner). In other words, entities may be 
considered as units of government for these Medicaid purposes even not 
specifically listed in the definition if the entities have the same 
basic qualities as those governmental units that are specifically 
listed in the statute.
    12C. Comment: One commenter observed that it appeared that CMS 
would determine whether or not a health care provider would be 
considered a unit of government under the provisions of the regulation. 
Due to the significant impact (positive or negative) such a 
determination may have on a health care provider, the commenter 
proposed that there should be a method of appeal.
    12R. Response: In the proposed rule, we anticipated that CMS would 
make final determinations of governmental status, but in this final 
rule, we are requiring that States apply the statutory and regulatory 
criteria to each individual health care provider to make initial 
determinations of governmental status. To the extent that governmental 
status affects Medicaid payment to a provider, the provider may have 
access to State appeal processes.
    With respect to the availability of federal financial 
participation, CMS is responsible to ensure that the

[[Page 29753]]

determinations of governmental status made by States are consistent 
with the Federal statutory and regulatory criteria and may take 
appropriate action including, but not limited to, denial of Medicaid 
reimbursement State plan amendments and/or disallowances of claims for 
Federal financial participation, in the event of noncompliance with any 
provision of this regulation. States can appeal such actions through 
existing appeals processes.
    13C. Comment: One commenter pointed out that the regulation 
requires a demonstration that a health care provider is a unit of 
government in order to be involved in IGTs or CPEs. However, the 
commenter believes that the regulation exceeded this proposal by 
requiring a similar demonstration by all governmental health care 
providers, regardless of any use of IGTs or CPEs.
    13R. Response: Under the provisions of this regulation, Medicaid 
payments to all governmentally-operated health care providers are 
limited to the cost of providing services to Medicaid individuals. 
Therefore, all entities that meet the regulatory definition as 
governmentally-operated health care providers within the State must be 
identified.
    14C. Comment: One commenter asked what is the definition of a 
``component unit'' on the consolidated annual financial report 
referenced in the regulation's preamble, and whether or not an 
``enterprise fund'' entry on the consolidated annual financial report 
would qualify an entity as being considered a unit of government.
    14R. Response: The purpose of CMS' use of the term component unit 
was to assist States in identifying health care providers that are an 
integral part of a unit of government. A component unit that appears on 
the consolidated annual financial statement of a unit of government 
because the unit of government is responsible for the component unit's 
expenses, liabilities and deficits would be indicative that the 
component unit may be considered a unit of government. It is our 
understanding that enterprise funding is an accounting method used to 
account for operations intended to be financed and operated like 
private busineses, with costs covered primarily through user fees or 
otherwise kept on a distinct basis. To the extent that this accounting 
method is applied to an entity that would otherwise be accounted for as 
a component unit on the consolidated financial statement, the use of 
enterprise accounting should not make a difference in that status.
    15C. Comment: One commenter noted the regulation's language 
requiring that a unit of government must have a role in funding a 
health care provider's expenses, liabilities, and deficits in order for 
the health care provider to be considered a unit of government. 
However, the commenter indicated that it was not clear whether the unit 
of government must have full responsibility for all three of these 
areas or whether partial responsibility for some of these areas would 
be sufficient. The commenter opines that regardless of the answer to 
that question, CMS would still find it necessary to conduct 
individualized investigation and analysis, regardless of information 
collection, making the form unnecessary and duplicative. Therefore, the 
commenter recommends withdrawal of the form.
    15R. Response: For a health care provider to be considered as a 
unit of government, the operating unit of government must have full 
responsibility for funding a health care provider's expenses, 
liabilities, and deficits in order for the health care provider to be 
considered a unit of government. We do not intend this to preclude an 
enterprise funding accounting method, as discussed above, where the 
operation of the health care provider is intended to be primarily 
funded through user fees. But this definition would not include health 
care providers that are independent legal entities that contract with a 
unit of governnment, even if the contract includes partial funding 
among its terms.
    16C. Comment: A number of commenters argued that principles of 
federalism, rooted in the Tenth Amendment to the Constitution, support 
a State's right to determine what constitutes a unit of government 
within the State and argued that the provisions of this regulation 
would intrude upon the State's ability to organize itself as deemed 
necessary.
    16R. Response: The provisions of this regulation concern the 
question of whether, in determining the amount of federal funds to 
which a State is entitled under the Medicaid program, transfers of 
funds to the State government from a Medicaid health care provider that 
is an entity other than the State government will be exempt from 
consideration as a provider tax or donation, and when expenditures of 
such an entity can be certified as ``public expenditures'' that 
constitute the non-Federal share of Medicaid expenditures. It also sets 
forth a consistent definition of entities that must be treated as 
governmental in determining the reasonableness of Medicaid payment 
rates.
    The Tenth Amendment to the U.S. Constitution does not accord any 
special privileges with respect to Medicaid funding, and the provisions 
of this regulation would not affect a State's ability to organize 
itself for other purposes.
    Nevertheless, we have determined in response to comments to provide 
States with the primary role in identifying units of government using 
the criteria set forth under this regulation, as long as the 
identification is consistently applied. This responsibility falls 
within the overall duty to document claims for federal financial 
participation.
    17C. Comment: A number of commenters noted the distinction between 
the terms ``unit of local government,'' found at Section 1903(w)(7)(G), 
and the term ``units of government within a State,'' found at Section 
1903(w)(6)(A) of the Act. One such commenter identified a recent 
decision from the Departmental Appeals Board (Ga. Dept. of Comty. 
Health, DAB No. 1973 (2005)) in an effort to highlight the differences 
in these terms. These commenters assert that Congress deliberately left 
``units of government'' undefined in order to afford States discretion 
in how they choose to finance their Medicaid programs.
    17R. Response: We have considered both statutory terms in 
developing criteria to determine if an entity is a unit of government 
for purposes of transferring funds or certifying expenditures under 
Medicaid; we have looked at what characteristics were generally shared 
by the entities specifically referenced in the statute, and we have 
also considered what the underlying intent appears to be. In section 
1903(w)(6)(A) of the Social Security Act, Congress clearly expressed 
the intent that these entities must be able to use ``funds derived from 
State or local taxes (or funds appropriated to State university 
teaching hospitals) * * *'' Unlimited discretion is not consistent with 
the plain language of this provision. The cited DAB decision primarily 
rested on a different issue, not changed by this rule, the limitation 
on protected Medicaid financing by units of government to those ``in 
the State.''
    18C. Comment: One commenter suggested that the proposed changes in 
the provisions of this regulation are beyond mere clarifications of 
existing policy and therefore could not be implemented on a 
retrospective basis without violating the notice and comment 
requirements of the Administrative Procedure Act.

[[Page 29754]]

    18R. Response: The provisions of the regulation will be effective 
60 days after publication of the final regulation and therefore are not 
being implemented on a retrospective basis. Moreover, all requirements 
of the Administrative Procedure Act are being met. The publication as a 
notice of proposed rulemaking with a 60-day comment period afforded all 
interested parties the opportunity to provide input and comment. CMS 
has fully considered all public comments received during that 60-day 
period in the development of the final provisions of the regulation.
    19C. Comment: One commenter suggested that provisions of the 
regulation may violate the Spending Clause of the U.S. Constitution. 
This commenter argues that the regulatory change in the definition of 
``unit of government'' will dramatically and adversely affect a State's 
level of funding for Medicaid, which would effectively ``coerce'' the 
States in a manner that contradicts the Spending Clause (see South 
Dakota v. Dole, 483 U.S. 203, 207, 211 (1987)).
    19R. Response: The provisions of this regulation concern the 
question of whether, in determining the amount of federal funds to 
which a State is entitled under the Medicaid program, transfers of 
funds to the State government from a Medicaid health care provider that 
is an entity other than the State government will be entitled to 
exemption from consideration as a provider tax or donation, and when 
expenditures of such an entity can be certified as ``public 
expenditures'' that constitute the non-Federal share of Medicaid 
expenditures.
    This rule also sets forth a consistent definition of entities that 
must be treated as governmentally-operated in determining the 
reasonableness of Medicaid payment rates. It does not ``coerce'' the 
State to take any action outside of the scope of the Medicaid program 
enacted under the Spending Clause. Nor do the provisions of this 
regulation affect rights of others outside of the operation of the 
Medicaid program.
    20C. Comment: A number of commenters expressed that section 
1903(w)(6)(A) was a provision that Congress included in the Act which 
was intended to limit CMS' authority to regulate the financing sources 
for the non-Federal share of the Medicaid program. Commenters made this 
point to suggest that it is inappropriate for CMS to issue regulatory 
provisions governing sources of State or local funds used to satisfy 
the non-Federal share.
    20R. Response: Section 1903(w)(6)(A) of the Act carved out an 
exception to the financing restrictions that Congress itself enacted in 
section 1903(w). Section 1903(w)(6)(A) of the Act has very specific 
language and we believe that the provisions of this regulation give 
meaning to each of the terms used in that section. This regulation 
interprets and implements those terms. The language of section 
1903(w)(6)(A) of the Act cannot reasonably be read as a general 
prohibition on CMS review to determine if the criteria of section 
1903(w)(6)(A) of the Act have been met.
    21C. Comment: A number of commenters noted that by Executive Order 
binding on CMS, federal agencies must ``closely examine the 
constitutional and statutory authority supporting any action that would 
limit the policymaking discretion of the States and shall carefully 
assess the necessity for such action.'' Executive Order 13132, 64 FR at 
43256 (August 4, 1999). Similarly, wherever feasible, agencies must 
``seek views of appropriate State, local and tribal officials before 
imposing regulatory requirements that might significantly or uniquely 
affect those governmental entities'' and must ``seek to minimize those 
burdens that uniquely or significantly affect such governmental 
entities, consistent with regulatory objectives.'' Executive Order 
12866, Sec. l(b)(9), as amended 58 FR 51735 (February 26, 2002). The 
commenters assert that CMS has failed to respect those mandates here.
    21R. Response: We believe we have fully met the requirements of the 
cited Executive Orders. First, the provisions of this regulation have 
been the result of years of review and reflection on State submissions 
and financial reviews of State programs. Second, this regulation has 
been issued after advance notice of its general terms was issued in 
Presidential budget documents, and numerous discussions with State 
officials and other interested parties. Third, affected parties have 
had full opportunity for input through the informal rulemaking 
procedures under the Administrative Procedure Act. These processes have 
indeed significantly affected the proposed and final regulation. But 
these processes do not supersede CMS responsibilities to safeguard the 
integrity of the Medicaid program, and ensure that federal dollars are 
spent only when matched by actual, documented, expenditures from State 
or local non-federal funds that meet applicable criteria under the law.
    22C. Comment: Several commenters noted that many governments have 
organized or reorganized public hospitals into separate entities in 
order to provide them with the autonomy and flexibility to deliver more 
efficient and higher quality health care. It was asserted that because 
some of these hospitals would not be recognized as governmental under 
the regulation, they will not be as able to fulfill their mission of 
delivering accessible care in an efficient and effective manner, nor 
will they be permitted to finance the non-Federal share of Medicaid 
payments via IGT or CPE. Many commenters also expressed concern that 
existing financing arrangements involving IGTs or CPEs from certain 
health care providers would be undone because some of these health care 
providers may not be considered units of government under the 
regulation. To the extent such IGT or CPE arrangements need to change 
after the provisions of the regulation are effective, the funding for 
these health care providers will be at risk. This concern was 
particularly emphasized relative to any affected safety net health care 
providers because of their services to our nation's most vulnerable 
populations.
    22R. Response: A health care provider that is not recognized as 
governmentally-operated under the Federal statutory and regulatory 
criteria will not be subject to the cost limitation on Medicaid 
payments. Therefore, such health care providers may receive Medicaid 
payments up to the applicable regulatory upper payment limit, to the 
extent States use permissible sources of non-federal share funding to 
make such payments. Furthermore, such health care providers would not 
be subject to obligations to fund the non-federal share of a State's 
Medicaid program. To the extent that such a health care provider was 
previously obligated to fund certain Medicaid payments, total Medicaid 
revenues to that facility can be sustained through alternative 
permissible sources of non-federal share funding. These health care 
providers may realize significantly greater net Medicaid revenues if 
State or local government funding sources are utilized to fund the non-
federal share historically financed by the health care providers. 
Therefore, such health care providers will not necessarily be affected 
in their mission to deliver accessible care in an efficient and 
effective manner.
    Indeed, the provisions of the regulation were actually designed to 
protect health care providers. Non-governmentally operated health care 
providers, including many of the ``public'' safety net providers, are 
not affected by the cost limit provision of the regulation and 
therefore, may continue to receive Medicaid payments

[[Page 29755]]

in excess of the cost of providing services to Medicaid individuals 
within existing Federal requirements. Governmentally operated health 
care providers may receive the full cost of furnishing Medicaid 
services, which could mean rates that substantially exceed those 
available to other classes of facilities.
    Moreover, Sec.  447.207 protects health care providers because it 
requires that health care providers be allowed to fully retain their 
Medicaid payments. This requirement assures that payments to providers 
are actual expenditures and are available to support the provision of 
services to Medicaid beneficiaries. These requirements demonstrate the 
Federal government's intent to protect the nation's public safety net 
providers and the ability of those providers to serve our nation's most 
vulnerable populations.
    23C. Comment: Many commenters pointed out that there are public 
hospitals that have been involved in financing the non-Federal share 
via IGT or CPE for years without any objection from CMS. Under the 
provisions of the regulation, however, certain public hospitals would 
no longer be permitted to finance the non-Federal share via IGT or CPE 
because they would not qualify as units of government. These commenters 
found it unreasonable that CMS would eliminate long-standing funding 
arrangements for Medicaid services provided at these hospitals, saying 
that the elimination of Federal funding for such hospitals could be 
catastrophic. These commenters asserted that the loss of Federal 
funding could result in increased costs to State or local government, 
increased provider taxes, cuts in Medicaid eligibility, or reductions 
in Medicaid coverage or reimbursement.
    23R. Response: The numerous comments regarding particular health 
care provider's inability to continue financing the non-Federal share 
of Medicaid payments through IGTs, or CPEs, indicates that States have 
been ignoring the statutory limitation to ``units of government'' in 
the provision permitting IGTs or CPEs without regard to provider tax 
and donation rules. Instead, it appears many States relied on a health 
care provider's ``public'' mission as sufficient evidence of 
eligibility to make IGTs or CPEs. By doing so, the States imposed an 
additional burden on these non-governmental safety net providers to 
shoulder the fiscal responsibility of state and local units of 
government under the Medicaid statute.
    In other words, the provisions of the regulation were actually 
designed to protect health care providers, including the safety net 
providers. Under the provisions of the regulation, governmentally-
operated health care providers are assured opportunity to receive full 
cost reimbursement for serving Medicaid individuals. Non-
governmentally-operated health care providers, including many of the 
``public'' safety net hospitals, are not affected by the Medicaid cost 
limit provision of the regulation and therefore, may continue to 
receive Medicaid payments in excess of the cost of providing services 
to Medicaid individuals within existing Federal requirements. Moreover, 
the final rule provides that payments to these health care providers 
cannot be diverted, but must be retained by the providers and available 
to support provider services.
    24C. Comment: One hospital that would be considered a unit of 
government under the provisions of the regulation suggested that even 
though it qualifies as a unit of government, it would be adversely 
affected by the unit of government definition because the regulation 
would disqualify other hospitals in the State from participating in 
IGTs and CPEs. This disqualification, the commenter asserts, would 
jeopardize the fiscal health of the hospital that qualifies as a unit 
of government.
    24R. Response: This final rule would permit States to pay 
governmental providers the full cost of furnishing covered services to 
Medicaid beneficiaries, and thus a governmental hospital need not incur 
any loss from participation in the Medicaid program. To the extent 
certain health care providers are no longer eligible to participate in 
the IGT process, no loss of Federal funds will occur for such affected 
health care provider if State and/or local government satisfy the non-
Federal share of the Medicaid payments historically funded by non-
governmentally-operated health care providers. Moreover, nothing in 
statute or regulation requires States to increase a governmentally-
operated hospital's fiscal obligation to Medicaid in order to supplant 
non-Federal obligations historically satisfied by non-governmentally-
operated hospitals.
    25C. Comment: One commenter noted that recently CMS has expanded 
financial controls over the CPE process by requiring reconciliations to 
a cost report and instruction on how a certified public expenditure is 
calculated. This commenter questioned how converting ownership status 
to private-owned for those health care providers who have been 
historically considered as public-owned by CMS under the regulation's 
provisions would increase financial controls.
    25R. Response: CMS is not ``converting'' ownership status of any 
facilities as a result of the provisions of this regulation but this 
final rule will ensure more accurate determinations of governmental 
status based on the underlying facts and the statutory and regulatory 
requirements. These determinations will identify the universe of 
governmentally-operated health care providers for purposes of the new 
upper payment limit and of participation in financing of the non-
Federal share of Medicaid payments. The final rule will ensure that 
claims for federal expenditures are supported by actual state and local 
expenditures.
    26C. Comment: Some commenters suggested that the regulation's 
definition of a unit of government will undermine marketplace 
incentives to operate public health care providers through independent 
entities. This argument postulates that public hospitals, which fill a 
unique role in serving the poor and uninsured, were historically 
operated as a department of the state or local government, with 
associated bureaucratic controls. Over time, however, many governments 
that had previously operated public hospitals as integrated 
governmental agencies began searching for new ways to organize and 
operate these entities to provide them more autonomy and equip them to 
better control costs and compete in a managed care environment. 
Acknowledging the wide variance in the structure of these public 
hospitals today, the commenters suggest that the provisions of the 
regulation would only permit health care providers following the most 
traditional model to be considered units of government, thus reversing 
incentives to make operating enhancements resulting from the devolution 
of provider control from a government to a non-governmental entity.
    26R. Response: The provisions of the regulation were not designed 
to undermine marketplace incentives to give ``public'' health care 
providers increased autonomy. We recognize, however, that some changes 
in organizational structure may require adjustment of arrangements to 
finance Medicaid expenditures.
    For example, a provider that is truly independent of any 
governmental unit (for example, a former county hospital leased by a 
private corporation) would not be permitted to contribute the non-
federal share of Medicaid expenditures. To the extent that such a 
provider had claims for covered services to Medicaid eligible 
individuals, a governmental

[[Page 29756]]

unit such as the county) that pays for such care can certify a public 
expenditure (at rates under the approved State plan) to support a claim 
for federal financial participation.
    We believe the uniform regulatory definition of a unit of 
government in this final rule will guide States, localities and 
providers in arranging their relationships to comply with the Medicaid 
statute. At the same time, as discussed above, the uniform regulatory 
definition will protect the fiscal integrity of the program by ensuring 
that claims for federal financial participation are supported by actual 
non-federal expenditures that meet statutory requirements. And this 
rule will protect health care providers and ensure that Medicaid 
payments are available for covered care to eligible individuals.
    27C. Comment: Multiple commenters requested that CMS clarify the 
unit of government definition's applicability to other areas of 
Medicaid.
    27R. Response: This regulation directly concerns only the treatment 
of financial transactions that involve entities that meet the 
definition of a unit of government. This rule attempts to set forth a 
consistent definition for that purpose. But this rule does not address 
the definition of a unit of government or public agency for other 
purposes. Whether we would interpret other requirements similarly may 
depend on the context and circumstances of those requirements.
    28C. Comment: Many commenters stated that specific entities within 
a State would not qualify as units of government under the provisions 
of the regulation. Other commenters requested that CMS affirmatively 
specify that certain named health care providers could continue to fund 
the non-federal share of Medicaid payments through IGTs and/or CPEs. To 
the extent such entities have been involved in financing the non-
Federal share of Medicaid payments, such entities would be required to 
change financing arrangements and would be at risk of losing Medicaid 
funding for their services.
    One commenter observed that Local Education Agencies (LEAs) without 
taxing authority may be currently involved in certified public 
expenditures (CPEs) but may also be fiscally independent from county 
governments. The commenter is concerned that such a LEA would not 
qualify as a unit of government under the provisions of the regulation, 
eliminating existing CPE practices and placing school based services or 
school-based administrative claims at risk. Several commenters stated 
that the definition of ``unit of government'' would no longer permit 
many public health care providers that operate under public benefit 
corporations from helping States finance the non-Federal share of 
Medicaid funding.
    Several commenters stated that the definition of ``unit of 
government'' would no longer permit many State universities from 
helping States finance the non-Federal share of Medicaid funding.
    One commenter opined that under the regulation's definition of 
governmental providers, Regional Councils of Governments would not be 
eligible to provide matching funds for the non-Federal share of 
Medicaid payments. The commenter states that the Federal government 
created Councils of Governments to assist in the implementation of 
programs such as Medicaid, that State and local governments should have 
the prerogative of decision making with respect to operational 
responsibility for Medicaid, and that the unit of government definition 
compromises such arrangements at the State and local levels. One 
commenter made a suggestion that CMS modify the provisions of the 
regulation to recognize the public status of public community hospitals 
o