Medicaid Program; Clarification of Outpatient Hospital Facility (Including Outpatient Hospital Clinic) Services Definition, 66187-66198 [E8-26554]

Agencies

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

[Federal Register Volume 73, Number 217 (Friday, November 7, 2008)]
[Rules and Regulations]
[Pages 66187-66198]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-26554]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 440

[CMS-2213-F]
RIN 0938-AO17


Medicaid Program; Clarification of Outpatient Hospital Facility 
(Including Outpatient Hospital Clinic) Services Definition

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

ACTION: Final rule.

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SUMMARY: Outpatient hospital services are a mandatory part of the 
standard Medicaid benefit package. This final rule aligns the Medicaid 
definition of outpatient hospital services more

[[Page 66188]]

closely to the Medicare definition in order to: Improve the 
functionality of the applicable upper payment limits (which are based 
on a comparison to Medicare payments for the same services), provide 
more transparency in determining available hospital coverage in any 
State, and generally clarify the scope of services for which Federal 
financial participation (FFP) is available under the outpatient 
hospital services benefit category.

DATES: Effective Date: These regulations are effective December 8, 
2008.

FOR FURTHER INFORMATION CONTACT: Jeremy Silanskis, (410) 786-1592.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Definition of Outpatient Hospital Services

    Section 1905(a)(2)(A) of the Social Security Act (the Act) lists 
outpatient hospital services as a benefit that can be covered under a 
State Medicaid program, and it is a mandatory benefit for most eligible 
Medicaid populations under sections 1902(a)(10)(A) and 
1902(a)(10)(C)(iv) of the Act. Though the statute does not provide a 
definition for these services, federal regulations at 42 CFR 440.20 
were established to define: An outpatient hospital service, the 
circumstances under which outpatient services are delivered, and 
qualifications for Medicaid outpatient hospital service providers.
    As discussed in the proposed rule, the proposed changes would 
address ambiguity in the definition of outpatient hospital services 
which allowed for a high possibility of overlap between outpatient 
hospital facility services and other covered Medicaid benefits. CMS 
viewed the overlap in service definitions as problematic for several 
reasons. The broad definition of outpatient hospital services did not 
clearly limit the scope of the outpatient hospital service benefit to 
those services over which the outpatient hospital has oversight and 
control. The overlap could result in payment at the high levels 
customary for outpatient hospital facility services instead of at the 
lower levels associated with the other covered benefits. Also, the 
definition's ambiguity potentially allowed States to include services 
paid for under other Medicaid benefit categories in the State plan in 
the calculation for Medicaid and uncompensated care cost supplemental 
payments for outpatient hospital services. In addition, the definition 
was inconsistent with the applicable upper payment limit (UPL), which 
is based on the premise of some level of comparability between the 
Medicare and Medicaid definitions of outpatient hospital and clinic 
services.

B. Calculation of Outpatient Hospital and Clinic Upper Payment Limits

    Regulations at 42 CFR 447.321 define the UPLs for Medicaid 
outpatient hospital and clinic services. The UPLs for outpatient 
hospital and clinic facilities are based on the amount that would be 
paid under Medicare payment principles. We proposed to clarify this 
standard by incorporating into the regulatory text guidance concerning 
the methods for demonstrating compliance with the UPLs.
    In consideration of the Congressional moratorium on the proposed 
rule on Cost Limits for Governmentally-Operated Providers (the 
``Government Provider Payment Rule''), published on January 18, 2007 
(72 FR 2236), we are reserving action on the proposed provisions at 
Sec.  447.321. We may consider publication of the UPL guidance at a 
future date. If the UPL guidance is published in the future, we will 
respond to the public comments concerning those regulatory 
clarifications at that time. Since this final rule only concerns 
changes to the outpatient hospital service definition, we have modified 
the title of the final regulation to read: Clarification of Outpatient 
Hospital Facility Services Definition.

C. Proposed Regulation

    CMS published a proposed rule in the Federal Register on September 
28, 2007 (72 FR 55158), entitled ``Clarification of Outpatient Clinic 
and Hospital Facility Services Definition and Upper Payment Limit.'' We 
provided for a 30 day public comment period and received a total of 333 
timely comments from States, local government, providers, and health 
care associations. Brief summaries for each proposed provision, a 
summary of the public comments we received, and our responses to 
comments, are set forth below.

II. Provisions of the Proposed Rule and Response to Comments

General Comments

    Comment: A substantial number of commenters urged CMS to withdraw 
the proposed rule. They stated the regulatory changes are in violation 
with the Congressional Moratorium passed as part of the Troop 
Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability 
Appropriations Act of 2007. Nearly all of the comments concerning a 
violation of the moratorium focused on: The exclusion of graduate 
medical education costs and payment in the outpatient upper payment 
limit calculation, and the inclusion of certain terminology and 
citations in the proposed rule that were a part of the proposed rule on 
Cost Limits for Governmentally-Operated Providers (the ``Government 
Provider Payment Rule''), published on January 18, 2007 (72 FR 2236) 
and the proposed rule for Medicaid Graduate Medical Education (the 
``GME Rule'') published on May 23, 2007 (72 FR 28930).
    Response: The proposed rule addressed completely different policy 
concerns from those published in the proposed Government Provider 
Payments Rule and the GME Rule. Those rules concern the amount of the 
permissible payment for government providers or for institutions 
offering graduate medical education, rather than the scope of the 
outpatient hospital benefit.
    In our proposed rule, we integrated the proposed provisions in with 
the provisions of the Government Provider Payment Rule because that 
rule had been published in final form. Integrating this proposed rule 
with the provisions of the Government Provider Payment Rule misstated 
the existing regulatory framework. We regret any concern this may have 
caused.
    Therefore, we are reserving action on the proposed clarifications 
to the outpatient hospital and clinic upper payment limits at 42 CFR 
447.321. We may address these provisions at a future date, at which 
time we will respond to the public comments we received concerning the 
payment limit clarifications.
    Comment: A number of commenters asserted that the rule did more 
than clarify ambiguous regulatory language and formalize existing CMS 
policy. Many commenters stated that the proposed regulation was 
unwarranted and poor public policy. One commenter opined that ``CMS has 
(not) adequately demonstrated the need for the proposed changes to the 
regulations regarding the definition of outpatient hospital services.'' 
Another commenter stated: ``The proposed regulatory changes seem 
arbitrary, not developed with care and not fulfilling CMS's own 
purposes.'' Still, an additional commenter stated that the rule ``is 
neither transparent nor clarifying.'' Many commenters stated that the 
rule was not a minor clarification of CMS policy.
    Response: As discussed in the proposed rule, the purpose of the 
regulation is to establish consistency between the definition of 
Medicaid outpatient hospital services and the applicable upper payment 
limit for

[[Page 66189]]

those services, to provide more transparency in determining available 
hospital coverage in any State, and to generally clarify the scope of 
services for which Federal financial participation (FFP) is available 
under the outpatient hospital services benefit category.
    For example, in our review of State plan amendments, we found that 
one State was including numerous services defined under other Medicaid 
benefit categories and non-Medicaid covered services within the 
Medicaid outpatient hospital benefit category. Some or all of these 
services were provided in settings that did not involve the high 
overhead costs of a hospital facility. The State's apparent purpose in 
defining the services as part of the outpatient hospital services 
benefit was to include the services in the calculation of the 
outpatient hospital upper payment limit, in order to justify targeted 
supplemental payments to hospitals that would otherwise violate 
applicable upper payment limits.
    We are concerned that such arrangements increase the outpatient 
hospital upper payment limit without any justification based on any 
increased cost or service levels, and thus is not consistent with 
efficient and effective management of a Medicaid program.
    This regulation will clarify that such arrangements, in which 
higher payments are not justified by increased costs or service levels, 
are not permitted. Therefore, we respectfully disagree that the 
regulation does not provide additional clarification or that the 
proposed changes are arbitrary.
    Comment: One commenter requested that CMS ``clarify what UPL, if 
any, applies to each service that is provided in hospital outpatient 
facilities, but which would not be within the scope of the definition 
of outpatient hospital services under 42 CFR 440.20.''
    Response: The regulations at 42 CFR recognize facility services 
provided to outpatients in outpatient hospital and clinic setting. As 
of the publication of this final regulation, there are no upper payment 
limits for non-institutional practitioner services defined in 
regulation. As with any rate methodology, payments for other non-
institutional services must comply with section 1902(a)(30)(A) of the 
Act, which requires that State plans have methods and procedures to 
assure that payments are consistent with economy, efficiency and 
quality of care. To establish such compliance, CMS may ask a State to 
explain a reasonable basis for its rates. Within the scope of 
1902(a)(30)(A), CMS allows States to determine payment rate 
methodologies for non-institutional practitioner services consistent 
with regulations at 42 CFR 430.10 and 447.204.
    Comment: One commenter requested that CMS clarify how a State 
should account in its UPL calculation for mandatory outpatient hospital 
services that are not covered by Medicare as outpatient hospital 
services, or are specified in Medicaid regulations as a separate State 
Plan category of service. The commenter was under the impression that 
such services could be required outpatient hospital services pursuant 
to current 42 CFR 440.20(a)(4) (which would be moved to 42 CFR 
440.20(a)(5) under this rule).
    Response: The provisions at 42 CFR 440.20(a)(5) are generally 
intended to provide States with the discretion to limit the outpatient 
hospital service definition to exclude services that are not typically 
provided in hospitals within the State. We do not interpret this 
section of the regulation to expand the available scope of services 
beyond those recognized under the Medicare outpatient prospective 
payment system or paid by Medicare as an outpatient hospital services 
under an alternative payment methodology. Instead, the provision allows 
States to define the benefit category to exclude services that are not 
typically provided in hospitals within the State.
    Comment: One comment supported implementing the proposal into a 
final regulation and offered that ``using consistent definitions across 
these programs helps to simplify a very complex array of regulations 
and pricing policies.''
    Response: We thank the commenter for supporting the provisions of 
the proposed regulation.

Outpatient Hospital Service Definition

    We proposed to define Medicaid outpatient hospital services at 42 
CFR 440.20 to include those services recognized under the Medicare 
outpatient prospective payment system (defined under 42 CFR 419.2(b)) 
and those services paid by Medicare as an outpatient hospital service 
under an alternate payment methodology. Further, we have proposed to 
limit the definition to exclude services that are covered and 
reimbursed under the scope of another Medicaid service category under 
the Medicaid State plan and required that services be furnished by an 
outpatient hospital facility or a department of an outpatient hospital 
as described at 42 CFR 413.65.
    Comment: Several commenters stated that the proposed rule 
eliminates hospital overhead from many hospital and ambulatory 
services. Further, a number of commenters noted that the rule 
discourages safety net providers from providing community-based primary 
and preventive ambulatory care services that improve community health 
and reduce future health care costs.
    Response: This rule would not have such effects. There is nothing 
in this rule that precludes States from paying for community-based 
primary and preventive ambulatory care services at rates that fully 
account for costs to provide such services. This rule would, however, 
provide for greater transparency in paying for such costs because the 
payments would be made directly on a fee-for-service basis rather than 
indirectly through complex facility or supplemental payment programs. 
As a result, it will be easier to compare the cost-effectiveness of 
different providers.
    In other words, while this regulation would require that States 
distinctly reimburse hospitals for the facility expenses and separately 
reimburse for the practitioners who provide the Medicaid services 
within the facility, it would not eliminate any Medicaid benefit 
category, place reimbursement restrictions on those categories, or 
alter the qualifications that must be met to provide a Medicaid covered 
service. Any non-institutional Medicaid service covered under a State's 
plan may continue to be provided in a safety-net hospital, a clinic, or 
other non-institutional setting by a service practitioner who meets the 
provider qualifications for the service set forth in the State plan.
    Further, under section 1902(a)(32) of the Act, the hospital may 
collect payment on behalf of the practitioner if the practitioner is 
required to turn over the Medicaid fee on condition of employment or a 
contractual arrangement.
    Comment: Many commenters questioned whether the Medicare definition 
included in the proposed regulation considers the role of the Medicaid 
program in providing services to other populations. Commenters noted 
that the Medicare and Medicaid programs are different in both scope and 
the populations that they serve. In addition, the commenters pointed 
out that Medicare is a Federal program with national standards, whereas 
Medicaid is a State/Federal partnership with programmatic variations 
among the States. One commenter cited examples of services provided to 
children that are not covered under the Medicare programs, such as: 
Dental and vision services, annual check-ups, and immunizations. By 
restricting the scope of Medicaid services to those covered under 
Medicare, the commenter stated

[[Page 66190]]

that CMS would be lowering the reimbursement for these important 
services that hospitals provide to children insured by Medicaid, which 
fall below the cost of care. The commenter suggested that CMS delay 
implementation of the regulation and review the potential impact of the 
regulation on Medicaid eligible children and the providers that serve 
them.
    Response: We believe that the difference in populations served by 
Medicare and Medicaid has no impact on the nature and scope of 
outpatient hospital facility services recognized by Medicare under OPPS 
or an alternate fee schedule. We note that Medicare covers individuals 
under the age of 65 with disabilities and that the Medicare program 
recognizes procedures for a wide array of services that are not unique 
to individuals over age 65. We have examined the Medicare payment 
systems and are unable to identify hospital facility costs that are not 
recognized by the Medicare program that would be unique to children or 
other populations that are not covered under the Medicare program.
    To the extent that there are such services, however, we interpret 
the phrase ``would be included'' at 42 CFR 440.20(a)(4) of this rule to 
include services that are not actually paid by Medicare under OPPS or 
an alternate payment methodology, but that would be paid under those 
methodologies if furnished to a Medicare beneficiary.
    This is consistent with the goal of this regulation, which is to 
limit the scope of Medicaid State plan outpatient facility services to 
the type and scope of services that are generally recognized as actual 
hospital services. We believe that the outpatient services described in 
the proposed regulation represent the full and appropriate scope of 
services provided in outpatient hospital settings. The services 
mentioned in the comments are covered under other, distinct Medicaid 
service definitions. These services may continue to be provided and 
reimbursed by Medicaid within hospital settings under the coverage 
policies and reimbursement methodologies defined by States specific to 
those services.
    Comment: Several of the commenters stated that under the Medicare 
program, physical therapy is recognized as a separate benefit and the 
service providers are qualified to provide services without physician 
supervision. Under the Medicaid program, these commenters urged, many 
States exclusively offer physical therapy services within outpatient 
hospitals under the outpatient hospital benefit category.
    Response: The proposed regulation allows for services that are not 
covered under another Medical Assistance benefit category under the 
State plan to be included as part of the outpatient hospital facility 
benefit if the services are recognized under the Medicare OPPS or paid 
as outpatient hospital services under an alternate fee schedule. 
Therefore, if a State chooses to only cover and pay for these services 
as part of the outpatient hospital benefit and the services are 
recognized under the Medicare OPPS or paid as outpatient hospital 
services under an alternate fee schedule, the services may be part of 
the outpatient hospital Medicaid definition. However, if the services 
are covered as a non-institutional practitioner service under a 
separate benefit category, the State must pay for those services under 
the reimbursement methodology specific to that benefit category and may 
not define the services in the State plan as outpatient hospital 
facility services. Regardless, physical therapy services may continue 
to be paid under the Medicaid program in outpatient hospital settings.
    Comment: One commenter stated that free-standing outpatient 
rehabilitation facilities should be treated as outpatient hospitals and 
not be recognized as clinics. This commenter explained that, regardless 
of the setting, outpatient services should be paid the same 
reimbursement rate.
    Response: This regulation does not alter the requirements for 
participation in the Medicaid program as an outpatient hospital 
facility. For purposes of the Medicaid program, the regulation 
continues to require that a facility be licensed or formally approved 
as a hospital by an officially designated authority for State standard-
setting and meet the requirements for participation in Medicare as a 
hospital. Moreover, this regulation does not preclude a State from 
establishing identical payment rates for outpatient rehabilitation 
services whether furnished in an outpatient hospital setting or in a 
non-hospital clinic setting. Indeed, this regulation would encourage 
this practice because rehabilitation services that are covered under a 
non-hospital benefit category would be considered to be in that benefit 
category rather than an outpatient hospital service.
    Comment: One commenter stated that 8000 or more students will be 
negatively impacted by the proposed rule changes. The commenter 
suggested that the reimbursement dollars for outpatient hospital 
services should be used to fund services in schools.
    Response: We respectfully disagree. Under Title XIX of the Social 
Security Act, specific services are listed as coverable under the 
Medicaid program. The outpatient hospital benefit category recognizes 
the unique nature of services furnished by an outpatient hospital 
facility. Services furnished in schools or other non-hospital settings, 
or by non-hospital practitioners, can still be covered under other 
benefit categories.
    Therefore, this regulation does not prohibit States from covering 
services provided in schools under Medicaid benefit categories. Rather, 
the regulation would define services that may be covered under the 
outpatient hospital services benefit under a Medicaid State plan to 
focus on those services unique to an outpatient hospital.
    Further, federal Medicaid funds are not specifically allocated to 
outpatient hospital services, and thus a shift in coverage from one 
benefit category to another would not necessarily affect available 
funding for any particular service. In other words, this rule would not 
divert federal funding from schools. Federal funding is available to 
match State or local non-federal expenditures for covered Medicaid 
services in accordance with a State's federal medical assistance 
percentage and the reimbursement methodology described in the State's 
approved Medicaid plan.
    Comment: A commenter requested clarification of the impact on the 
provision of rehabilitation services in outpatient settings. The 
commenter noted that this impact could affect services in State 
psychiatric hospitals for patients over 64 and undermine progress on 
the President's New Freedom Initiative.
    Response: The regulation clarifies the scope of outpatient hospital 
facility services that are eligible for federal financial 
participation. To the extent that rehabilitative services are 
recognized under the Medicare outpatient prospective payment system or 
an alternate fee schedule for outpatient hospital services and are not 
defined in a State's Medicaid plan under another Medicaid benefit, the 
services may remain under the outpatient hospital benefit category. We 
note that the psychiatric hospitals in question are typically inpatient 
facilities, usually with little or no outpatient volume. These 
institutions provide care to Medicaid inpatients under a separate 
Medicaid benefit category for inpatient hospital services that would 
not be affected by this rule.
    Comment: One commenter suggested that the regulation could result 
in non-coverage of certain pathology services. This commenter 
recommended that a special provision be included in the regulation to 
allow pathology services

[[Page 66191]]

provided by outpatient hospitals to be reimbursed under the outpatient 
hospital benefit category using the appropriate State plan fee 
schedule.
    Response: The intention of the regulation is to appropriately 
recognize the unique nature of outpatient hospital services. Pathology 
services are typically delivered by physicians and in some instances 
are an integral part of a hospital service. To the extent that the 
pathology services in question are recognized under the Medicare 
outpatient prospective payment system or an alternate Medicare fee 
schedule for outpatient hospital services and are not defined in a 
State's Medicaid plan under another Medicaid benefit, the services may 
be included by the State under the outpatient hospital benefit 
category. To the extent that the services would be covered by the State 
plan under the physician services benefit, they should not be included 
in the Medicaid outpatient hospital services benefit.
    Comment: A commenter requested that CMS include a provision in the 
final rule that would allow reimbursement of clinical diagnostic lab 
services as an outpatient hospital services as long as there is not 
duplicative payment for the services. The commenter noted that CMS 
should make clear that outpatient hospitals and free-standing clinics 
may continue to receive payment for these services.
    Response: We did not accept this comment because we believe it is 
more consistent with statutory requirements for clinical diagnostic 
laboratory services to be claimed under the Medicaid benefit category 
for laboratory services. Laboratory services are a mandatory benefit 
category, and thus the services would remain covered even though not 
included as outpatient hospital services. Only when reported separately 
can CMS and States ensure consistency with the unique requirements 
applicable to laboratory services. Laboratories are subject to a 
different regulatory review than outpatient hospitals, under the 
Clinical Laboratory Improvement Amendments of 1988 (CLIA), Public Law 
100-578, implemented in part by regulations at 42 CFR part 493. 
Moreover, section 1903(i) of the Act limits Medicaid reimbursement for 
clinical diagnostic laboratory services to the amount of the Medicare 
fee schedule for the services on a per test basis. Implementation of 
these provisions will be improved by ensuring that laboratory services 
are claimed under the benefit category specifically for such services.
    Comment: One commenter stated that excluding rehabilitative, 
school-based and practitioner services from the definition of 
outpatient hospital services cuts funding and the availability of 
services.
    Response: As previously explained, federal Medicaid funds are not 
specifically allocated to outpatient hospital services. The Centers for 
Medicare and Medicaid Services matches expenditures for covered 
Medicaid services in accordance with a State's federal medical 
assistance percentage and the reimbursement methodology described in 
the State's Medicaid plan. The purpose of the regulation is to define 
the scope of outpatient hospital services unique to the outpatient 
hospital setting and for which a hospital may receive a facility 
payment, and not to limit the availability of services under other 
benefit categories. The above services are provided by Medicaid 
qualified professionals and are reimbursed on a fee-for-service basis 
regardless of the setting in which the services are performed.
    Comment: One commenter stated that CMS's decision to eliminate 
reimbursement for Medicaid services covered in the State Plan is not 
consistent with the Medicaid statute.
    Response: The regulation does not eliminate any Medicaid benefit 
category recognized under the Social Security Act or the settings in 
which those services may be rendered. By clarifying the scope of 
outpatient hospital facility services available for Federal financial 
participation, CMS intends to recognize the nature of services that are 
uniquely furnished by outpatient hospitals, including the high overhead 
facility costs associated with such services. At the same time, we do 
not believe it is effective and efficient to include other services 
that do not have those unique characteristics in the outpatient 
hospital services benefit category. These other services are more 
appropriately included in other benefit categories, and paid at rates 
warranted by the nature of the service regardless of the setting. Thus, 
we believe that this rule is consistent with the Medicaid statute and 
CMS's charge to preserve the fiscal integrity of the program.
    Comment: One commenter stated that the definition of Medicare 
criteria for ``provider-based status'' is a complicated standard. The 
commenter suggested that some hospitals that have the authority to 
claim a facility fee under the preceding Medicaid rules would only 
receive payments for professional services under the proposed rule.
    Response: The intention of the regulation is to recognize the high 
facility overhead expenses that are associated with the delivery of 
services unique to an outpatient hospital or a department of an 
outpatient hospital that, according to 42 CFR 413.65, ``is either 
created by, or acquired by, a main provider for the purpose of 
furnishing health care services of the same type as those furnished by 
the main provider under the name, ownership, and financial and 
administrative control of the main provider.'' The commenter is correct 
in that only a provider-based entity that is providing outpatient 
hospital services as defined under the regulation may receive Medicaid 
payment under the outpatient hospital benefit category.
    This final regulation would not permit Medicaid payment under the 
outpatient hospital service benefit for services furnished in settings 
that are not within the scope of the certified hospital, even if the 
setting is owned by the hospital and provider-based. In other words, 
the services must be furnished by the main hospital or the department 
of the hospital (a provider-based entity furnishing the same type of 
care as the hospital). However, States may cover and pay for such a 
service under other appropriate State plan benefit categories.
    Comment: One commenter stated that excluding physician, physical, 
occupational and speech therapy, clinical diagnostic laboratory 
services, ambulance services, durable medical equipment and outpatient 
audiology services from the definition of outpatient hospital services 
does not represent the reality of the scope of care provided in 
hospital settings. The commenter notes that CMS did not demonstrate 
that access to these services is available in the community and outside 
of a hospital outpatient department.
    Response: We are not discouraging hospitals from providing primary 
and preventive care services in hospital settings. The proposed rule 
makes a distinction between outpatient services that are billed by a 
recognized hospital facility in which services are furnished and those 
billed by physicians and other professionals. Under Medicaid, States 
generally pay a fee schedule rate for physician and other professional 
services and a separate rate to hospitals providing outpatient 
services. Physicians and other professionals cited in the example, who 
provide services in a hospital facility, will be reimbursed at the 
professional rate.
    Comment: One commenter noted that overlap in Medicaid service 
categories is a long-standing Medicaid policy and cited a CMS response 
to comments on

[[Page 66192]]

a nurse-midwife regulation: ``While we view each category of service as 
separate and distinct, the categories are not mutually exclusive. Some 
services * * * can be classified in more than one category. It is also 
possible that a service provided may meet the requirements under one 
category and not another even though, as a general rule, the service 
could be classified under either category. The specific circumstances 
under which a service is provided and how the provider bills for the 
service determines how the service is categorized and which regulatory 
requirements apply.''
    Response: Through this regulation, we are seeking to clearly 
distinguish between services unique to an outpatient hospital facility 
and services of practitioners to permit targeting of coverage and 
payment. The regulation would assist in avoiding duplicative or 
excessive payments that could result from the overlap of the outpatient 
hospital service definition and a professional service definition.
    Comment: A commenter stated that by ``limiting the locations where 
services may be provided and requiring separation of professional and 
other charges, the proposed regulation will result in the reduction of 
the quality of care provided to consumers,'' particularly any aspects 
of care for behavioral health clients who require services in settings 
outside the walls of the clinic and require professional and non-
professional efforts which address aspects of behavioral health 
problems that are not directly treatment of the client. Further, the 
commenter noted that providing the services outside of the clinic 
historically allowed for a high quality of care.
    Response: As previously stated, the intention of the regulation is 
not to limit or prescribe the location where a Medicaid service may be 
rendered. Any qualified Medicaid provider may render a Medicaid covered 
service in a non-institutional setting, including a hospital. The 
regulation does not impact the definition of a clinic service (42 CFR 
440.90). A behavioral health client who is Medicaid eligible may 
receive a service, from a qualified Medicaid provider, defined under 
the State plan within a clinic or in the community. We do not 
understand the comment that professional and non-professional efforts 
may be required to provide Medicaid services to an individual because 
only a Medicaid qualified provider may render and receive payment for a 
non-institutional professional service.
    Comment: A commenter noted that the proposed rule change does not 
define the terms ``traditional,'' ``non-traditional,'' ``facility 
services,'' or ``non-facility services.''
    Response: In issuing this regulation, we have looked to the plain 
language of the statutory Medicaid benefit categories to distinguish 
between services uniquely furnished by an outpatient hospital facility 
and those furnished by individual practitioners or other providers. We 
note that both outpatient hospitals and clinics are eligible for 
facility payments, but they are included in the statute as separate 
benefit categories. When we used the terms ``traditional'' and ``non-
traditional'' in the preamble, we meant to distinguish between those 
services generally recognized as outpatient hospital services.
    As discussed in the proposed rule, we did not consider services to 
be appropriately included in the outpatient hospital services category 
solely for purposes of including those services in the outpatient 
hospital upper payment limit.
    Comment: One commenter referenced CMS's comments in the 1983 
revised definition of outpatient hospital services ``States would still 
be required to cover the other mandatory services (such as physician 
services) and some optional services when they are provided in the 
outpatient hospital setting * * *'' The commenter argued that CMS is 
not concerned with an overlap in service definitions. Instead, the 
commenter contended, CMS's concern is with reimbursing hospitals higher 
rates for Medicaid services, such as physician services. The commenter 
maintained that the regulation represents new policy and not a simple 
clarification of the outpatient hospital service definition.
    Further, the commenter stated that CMS's contention that the 
overlap in service definitions may not have been the intent of the 
Congress and that the Medicaid statute was enacted over forty years 
ago, yet CMS never took issue with varied payment rates in service 
setting or required consistent service definitions between Medicare and 
Medicaid.
    Response: As previously discussed we are not restricting the 
settings in which Medicaid covered services may be provided to covered 
individuals by qualified Medicaid providers. The purpose of the 
regulation is to define the scope of outpatient hospital services 
unique to the outpatient hospital setting and for which a hospital may 
receive a facility payment, and not to limit the availability of 
outpatient services under other benefit categories. The rule does not 
prohibit the provision of any covered Medicaid physician service in an 
outpatient setting.
    The commenter is correct that CMS has not previously restricted 
State flexibility to include services under the outpatient hospital 
benefit, even when the sole purpose was to affect the outpatient 
hospital upper payment limit. This rule represents a new initiative to 
preserve the fiscal integrity of the Medicaid program.
    We do not intend through this regulation to deny coverage of any 
Medicaid covered service to an individual eligible for Medicaid or deny 
payment to a qualified Medicaid provider. The provisions of this 
regulation help to ensure that coverage and payment under State plans 
will be consistent with economy, efficiency and quality of care.
    Comment: A commenter cited services that are excluded from Medicare 
coverage that may be covered by a state under its Medicaid program: 
Dental services, vision care, foot care and immunizations. The 
commenter noted that these services are not paid by Medicare under the 
Outpatient Prospective Payment System (OPPS) or under an alternative 
payment methodology, and therefore would have to be excluded from 
hospital outpatient services for Medicaid purposes.
    Response: As previously discussed, the services included in the 
comment are covered under a distinct Medicaid benefit category and 
would have specific provider qualifications, coverage provisions and 
payment policies. The services may continue to be provided to a 
Medicaid beneficiary in any non-institutional setting, including 
outpatient hospitals, by a qualified Medicaid provider. In addition, 
CMS allows States discretion in setting payment rates that meet the 
requirements of section 1902(a)(30)(A) of the Act and regulations at 42 
CFR 430.10 and 447.204.
    Comment: One commenter stated that Medicare does not recognize 
dental services under OPPS or an alternative payment methodology, 
whereas the service is a covered benefit under the Medicaid program. To 
be consistent with the Medicare program, the commenter suggested that 
CMS remove the statement that outpatient hospital services may be 
furnished ``by or under the direction of a dentist'' from the 
regulatory language.
    Response: Medicare does recognize a number of dental procedures 
provided in hospital settings. In addition, the regulation does not 
prohibit the provision of a covered Medicaid dental procedure in an 
outpatient hospital. However, the regulation will require

[[Page 66193]]

that the payments for dental services be reimbursed under the Medicaid 
dental benefit category, which is distinct from the outpatient hospital 
benefit category. Again, States have discretion in setting payment 
rates for dental services within the authority of section 
1902(a)(30)(A) of the Act and regulations at 42 CFR 430.10 and 447.204.
    Comment: A commenter explained that the regulation may be at odds 
with State flexibility in establishing payment methodologies and rates, 
noting that one of CMS' rationales is to prevent States from paying 
higher rates in hospitals for the same services paid at lesser rates in 
other facilities. The commenter noted that CMS did not provide a basis 
that the services provided in the hospital setting are the same as 
services provided in other settings or a basis for paying the same 
amount regardless of the setting. The commenter stated that it is 
appropriate to pay hospitals higher amounts for services provided in 
hospital settings because of the higher costs associated with the 
hospital. Further, the commenter suggested that CMS is attempting to 
re-define the coverage rules for outpatient hospital services in order 
to place limitations on the payment for those services.
    Response: We distinguish in this regulation between coverage of 
services that are uniquely furnished by an outpatient hospital and 
coverage of services furnished by practitioners or other providers. We 
do not understand the comment that services rendered by professionals, 
or qualified Medicaid practitioners, would be different in outpatient 
hospital settings than those provided by the same professional in a 
private practice or other community setting. But, if so, a State has 
flexibility to vary the payment rate for practitioner or other provider 
services furnished in an outpatient hospital setting.
    As previously discussed, one impetus for this regulation was that 
the ambiguous coverage definition in the Medicaid regulations for 
outpatient hospital services allowed States to artificially increase 
the outpatient hospital upper payment limit and direct supplemental 
payments to a select group of hospitals. Therefore, to prevent this 
artificial inflation of the upper payment limit we must clarify the 
covered facility services that may be defined as part of the outpatient 
hospital benefit category and, thus, may be included in the applicable 
UPL calculation.
    Comment: Several commenters noted that some hospitals treat the 
hospital facility payment as an all-inclusive rate and pay physicians 
furnishing services to hospital outpatients. These commenters stated 
that the Medicare program recognizes this unique reimbursement 
methodology and waives requirements under OPPS for certain facilities.
    Response: We considered whether it would be warranted to permit an 
exception for those facilities with a waiver of Medicare OPPS 
requirements. Since the purpose of this regulation is to align the 
definition of Medicaid outpatient hospital facility services with 
Medicare's definition, we interpret the phrases ``would be included, in 
the setting delivered'' and ``paid by Medicare as an outpatient 
hospital services under an alternate payment methodology'' at 42 CFR 
440.20(a)(4) of this rule to recognize those hospitals that receive the 
exception to the OPPS requirements under the Medicaid definition. 
Therefore, States may define the outpatient benefit to include an 
exception for these hospitals, limited to the all-inclusive services 
that are recognized by Medicare. However, the State must furnish to CMS 
documentation that a hospital provider has received the Medicare 
exception and include a reasonable estimate of Medicare payment for the 
providers in the upper payment limit demonstration by using alternate 
data sources recognized by Medicare specifically for those providers.
    Comment: Several commenters were concerned that moving reimbursable 
services out of outpatient hospital settings would reduce access to 
services. One commenter noted that Medicaid practitioner fees are 
inadequate and do not promote access of primary care outside of 
hospital-based physician practices. The commenter noted that most 
primary care physician practices within her state have converted to 
provider-based entities in order to receive higher payment rates.
    Response: States have considerable flexibility under federal law to 
establish payment rates for Medicaid services that are sufficient to 
ensure access to services while meeting the requirements of section 
1902(a)(30)(A) of the Act and regulations at 42 CFR 430.10 and 447.204. 
CMS does not have the authority to require States to increase payment 
rates for Medicaid services. The outpatient hospital benefit provides 
for coverage of those services unique to outpatient hospitals and 
payments can take into account the overhead costs in hospital settings. 
To the extent that providers are ``converting'' to provider-based 
entities with the sole intention of receiving increased reimbursement, 
we do not view this as an appropriate means of receiving higher 
reimbursement under the Medicaid program.
    Comment: Several commenters stated that CMS' concerns with 
duplicative payments were baseless because State claims processing 
systems screen for duplicative payments.
    Response: The potential for duplicative payments is merely one 
reason for implementing this regulation. In addition, we are attempting 
to align the Medicaid definition of outpatient hospital services with 
the applicable UPL, provide transparency to the services covered under 
the benefit, and clarify the appropriate services under the benefit 
that may be claimed for federal financial participation.
    Comment: One commenter stated that CMS did not present an adequate 
justification for the regulation and that State Plan Amendment reviews 
allow CMS to address the requirements authorized under the proposed 
rule.
    Response: As discussed in the proposed regulation, the ambiguous 
definition of outpatient hospital services does not clearly prevent 
including in the benefit non-hospital facility services that would not 
be included in the benefit under the Medicare program. Therefore, we 
disagree that the provisions of the regulation may be carried out 
through State plan review.
    Comment: One commenter stated that the intent of the Congress was 
to separate the Medicaid and Medicare program and not ``equate'' 
Medicaid services to Medicare.
    Response: One purpose of this amendment is to align the Medicaid 
definition more closely to the Medicare definition in order to improve 
the functionality of the applicable upper payment limits under 42 CFR 
447.321 (which are based on a comparison to Medicare payments for the 
same services), provide more transparency in determining available 
coverage in any State, and generally clarify the scope of services. 
While we understand the difference between the populations served under 
the Medicare and Medicaid programs, we believe that the services 
recognized under the Medicare OPPS and the alternate fee schedules for 
outpatient hospital services encompass outpatient hospital facility 
services that are typically provided to the general public.
    Comment: Several commenters stated that the regulation is 
inconsistent and confusing because allowable services under the 
Medicaid State plan overlap with some of the services paid for under 
the Medicare OPPS. For instance, one commenter noted that OPPS pays for 
prosthetic devices, prosthetics, supplies, and orthotic devices, 
durable medical

[[Page 66194]]

equipment, and clinical diagnostic laboratory services and prosthetic 
devices and durable medical equipment are ``separate'' Medicaid State 
plan service categories.
    In addition, the commenter remarked that OPPS coverage definition 
for prosthetics and DME are more restrictive than what is allowable 
under the Medicaid State plan. Several commenters requested that CMS 
specify whether as service covered under the Medicaid regulations as a 
separate State plan category of services is considered an outpatient 
hospital service when furnished in an outpatient hospital facility and 
included in OPPS. One commenter requested that CMS justify treating a 
service recognized under Medicare as a hospital service differently 
under the Medicaid program.
    Response: As we indicated in the proposed rule, services provided 
under a distinct Medicaid benefit category will operate under the 
coverage and reimbursement provisions for those services under the 
Medicaid State plan. If a service is described under a separate benefit 
category in the State plan that service may still be provided in an 
outpatient hospital setting. Coverage and payment for that service will 
be governed by the relevant provisions in the State plan for the 
service, and any applicable federal restrictions. For example, clinical 
diagnostic laboratory services are subject to a statutory limit 
regardless of setting, described at section 1903(i) of the Act, up to 
the amount that Medicare pays on a per test basis. Further, outpatient 
DME under Medicaid is paid under the home health benefit, as medical 
equipment. There is a separate benefit category that includes 
prosthetic devices.
    Comment: One commenter stated that 42 CFR 419.2(b) does not contain 
an all-inclusive list of costs allowable within OPPS.
    Response: In this rule, we allow coverage of all of the outpatient 
hospital services recognized under the Medicare OPPS or an alternate 
fee schedule paid for outpatient services provided in hospitals that 
are not included in another benefit category under the State plan. The 
referenced regulations are the authority under the Medicare program for 
OPPS and the alternate fee schedule for outpatient services. Services 
or costs that are allowable under that authority, whether specifically 
listed or not, would be allowable if not otherwise covered.
    Comment: One commenter questioned the impact of the regulation on 
EPSDT services or services that are difficult for Medicaid recipients 
to access (such as dental services). Specifically, the commenter 
requested that CMS clarify if any upper payment limits apply to these 
services and suggested that the payment rates in hospitals should not 
be limited to community rates because the community rates do not 
recognize outpatient overhead expenses. The commenter explained that 
limiting the outpatient hospital scope of services ``to reduce payments 
to hospitals'' undermines the Congressional intent and creates access 
issues.
    Response: CMS is not discouraging hospitals from providing certain 
services in the hospital setting; this regulation addresses only the 
benefit category under which such services should be claimed. EPSDT and 
dental services are distinct Medicaid benefit categories and the 
coverage and payment provisions for those services are described 
separately from outpatient hospital services in the Medicaid State 
plan.
    As previously discussed, States have discretion in defining the 
payment methodology for non-institutional services within the authority 
of section 1902(a)(30)(A) of the Act and regulations at 42 CFR 430.10 
and 447.204. As of the publication of this regulation, there are no 
upper payment limits for services provided to Medicaid outpatients 
other than in clinics and outpatient hospital settings. Again, the 
purpose of the regulation is not to reduce payments, but to clarify 
those services that are uniquely provided in outpatient hospital 
settings.
    Comment: A commenter requested that CMS explain the rationale 
behind eliminating a State's ability to pay hospitals' bundled rates. 
The commenter argued that since OPPS is a bundled methodology designed 
to promote efficiency and discourage over-utilization, States should 
have the ability to continue to bundle hospital services in an effort 
to promote efficiencies beyond those provided for under OPPS.
    Response: The regulation does not define how States may structure 
base Medicaid payments for outpatient hospital services, but removes 
from that bundle services that are not unique to the outpatient 
hospital. States continue to have the ability to ``bundle'' all covered 
outpatient hospital services and make payments within the applicable 
upper payment limit for those services. To the extent that the 
commenter is referring to ``bundling'' facility and professional 
services, we do not view such bundles as efficient or economical and 
note that the majority of private payers make distinct payments for 
facility and professional costs.
    Comment: One commenter requested clarification as to the impact on 
clinic services based on the inclusion of clinics under title of the 
proposed regulation.
    Response: In response to this comment, we determined that it was 
confusing to add the word ``clinic'' without the entire phrase 
``outpatient hospital clinic.'' The intent was to clarify that 
outpatient hospital services include outpatient services provided 
either in a hospital facility itself or in a clinic that meets the 
standards for provider-based status as a department of the hospital. We 
have thus revised the title of the final regulation to clarify that the 
service clarifications in the final rule apply only to outpatient 
hospital services.
    Comment: One commenter noted that the proposed definition of 
outpatient hospital services will remove services from State DSH 
calculations and further cut hospital Medicaid reimbursement.
    Response: One of the purposes of the regulation is to clarify the 
services that are available for federal financial participation under 
the outpatient hospital benefit category. We believe the services 
included in the proposed rule described those services that are unique 
to outpatient hospital settings. To the extent that States are 
currently defining additional services as outpatient hospital services 
in order to include their costs in calculating the hospital-specific 
limit under the disproportionate share hospital (DSH) program, those 
services would no longer be allowable in the DSH calculation under the 
final rule. On the other hand, payment for those services would not be 
subject to outpatient hospital upper payment limits.
    Comment: One commenter urged CMS to specify that outpatient 
hospital services must be provided in provider-based settings.
    Response: As Sec.  440.20(4)(ii) explains, outpatient hospital 
clinic and hospital facility services ``are furnished by an outpatient 
hospital facility, including an entity that meets the standards for 
provider-based status as a department of an outpatient hospital as set 
forth in Sec.  413.65 of this chapter.'' As mentioned previously, the 
outpatient hospital services benefit includes only services of 
hospitals and departments of hospitals, not services provided in other 
settings, even if hospital-owned and provider-based. All other Medicaid 
covered services provided in a hospital-owned setting must be covered 
and paid for under a distinct Medicaid State plan benefit category and 
reimbursement methodology.
    Comment: One commenter requested additional clarification on the 
scope of services paid under alternate Medicare

[[Page 66195]]

payment methodologies as outpatient hospital services that would be 
included under this proposed definition.
    Response: The final rule allows for coverage of any service that 
may be claimed as an outpatient hospital institutional service under 
the Medicare program with the exception of those services that are 
covered under another Medicaid benefit category in the State plan. 
Please refer to Medicare rules and guidance for further information on 
the scope of the Medicare outpatient hospital benefit.
    Comment: One commenter requested that CMS ``confirm that costs for 
services not explicitly excluded from the OPPS are therefore includable 
(assuming that these services meet the other proposed criteria).''
    Response: Only those services that are included in OPPS or an 
alternate Medicare fee schedule may be included as part of the Medicaid 
outpatient hospital benefit category.
    Comment: One commenter stated that Title 42, Sec.  410.20(b) of the 
CFR also excludes certain categories of hospitals from the Medicare 
OPPS. The commenter requested that CMS clarify that services included 
under this provision may be defined as Medicaid outpatient hospital 
services.
    Response: The commenter was apparently referring to 42 CFR 419.20, 
since 42 CFR 410.20 refers to coverage of physician services. This rule 
does not require that States apply the OPPS payment system, but only 
that the definition of outpatient hospital services be consistent with 
the scope of services included under OPPS. In other words, whether a 
hospital is excluded from OPPS or not, the scope of outpatient hospital 
services would be uniform for both Medicare and Medicaid.
    Comment: Many commenters stated that the rule would eliminate rural 
health clinics (RHCs) as eligible providers for DSH payments, even 
though their RHCs are largely an extension of a hospital, wherein the 
hospital: ``employs the RHC's personnel, pays its bills, performs 
quality assurance, credentials the physicians and physician assistants 
employed by the RHC, and provides medical supplies to the RHC.'' These 
commenters stated that eliminating RHCs from State DSH calculations 
would ``impede care'' in rural areas and create ``financial incentives 
to use scarce and expensive emergency department services'' rather than 
less costly RHC facilities. Many of these commenters referred to a 
Fifth Circuit Court of Appeals decision which allowed for the inclusion 
of services rendered in RHCs to be part of the outpatient hospital DSH 
calculation. Several commenters opined that CMS does not have the 
authority to overturn the decision.
    Response: The Fifth Circuit Court of Appeals decision was based in 
large part on an interpretation that, under then-current regulations, 
services rendered in hospital-based RHCs meet the definition of 
outpatient hospital services (and may be included in a hospital's DSH 
calculation even though paid as RHC services). The decision relied on 
the ambiguity in those regulations permitting an overlap between 
services that meet the definition of outpatient hospital services and 
also meet the definition of a service under another benefit category. 
Under this final rule, there would be no such overlap, and the services 
at issue in the Fifth Circuit case would have to be treated 
consistently for all purposes. This means: that unless the services 
provided in the RHCs meet the new definition of Medicaid outpatient 
hospital services, because the RHCs are provider-based outpatient 
departments of a hospital in accordance with 42 CFR 413.65, and the 
Medicaid agency recognizes the RHCs consistently as Medicaid outpatient 
hospital service providers, the services provided in rural health 
clinics could no longer be recognized as outpatient hospital services.
    This makes sense because the payment systems for hospitals and for 
RHCs are completely different. Hospital payments are not required to 
reflect actual costs, but must include an adjustment to take into 
account the situation of hospitals that serve a disproportionate share 
of low income patients. In contrast, RHCs are paid through a 
prospective payment system based on actual costs that should reflect 
essentially the full cost of Medicaid services. There is no need for 
adjustments to reflect higher costs for RHCs, because the payment level 
is on a full cost basis.
    Comment: Many commenters opposed the proposed rule because the 
upper payment limit references to the Medicare cost report (CMS 2552) 
do not recognize graduate medical education (GME) costs. Several of 
these commenters remarked that restricting GME payments violates the 1-
year congressional moratorium, passed as part of the U.S. Troop 
Readiness, Veterans Care, Katrina Recovery, and Iraq Appropriations Act 
of 2007, stating that the regulation presents ``restrictions on 
Medicaid graduate medical education (GME) payments.'' One commenter 
noted that GME costs ``are included on hospital cost reports and 
Medicare pays them,'' while another commenter stated that GME costs are 
located on the Medicare cost report at Worksheet B, Part 1, Column 25. 
Several commenters stated that the exclusion of GME from the cost 
report references used to calculate outpatient upper payment limits 
will have a tremendous financial impact on teaching hospitals.
    Response: This regulation does not prohibit States from covering or 
paying for GME and thus does not address the issues set forth in the 
proposed rule that was subject to a congressional moratorium. In 
addition, the provisions of the proposed regulation at 42 CFR 
447.321(b)(1)(i)(B) have not been included in this final regulation.
    However, regardless of whether a Medicaid program determines to 
make a GME payments or adjustments for outpatient hospital services, 
the Medicare program does not make GME payments for outpatient hospital 
services. As we explained in the proposed rule, the aggregate UPL based 
on Medicare is reasonable only when there is a consistent definition of 
outpatient hospital services between Medicare and Medicaid.
    Comment: One commenter requested additional information regarding 
the overlap between the proposed changes to 42 CFR 440.20(d) and 
diagnostic services under the proposed rehabilitative services 
regulation under 42 CFR 440.130(d) particularly, how States should 
reconcile the provisions.
    Response: We have reviewed the changes proposed to 42 CFR 
440.130(d) and do not see a conflict with the regulatory changes 
implemented in this final regulation. Rehabilitative services fall 
under a distinct Medicaid benefit category and are defined and paid 
under the Medicaid State plan provisions for rehabilitative services.

III. Provisions of the Final Regulations

    As a result of our review of the comments we received during the 
public comment period, we are making revisions to the proposed 
regulation published on September 28, 2007. The title of the proposed 
regulation is revised to make it clear that the definition of 
outpatient hospital services also applies to services provided in 
outpatient hospital clinics. The title will now read: ``Outpatient 
hospital facility (including outpatient hospital clinic) services.'' In 
addition, we have modified the phrase ``a department of an outpatient 
hospital'' at Sec.  440.20(a)(4)(ii) to read ``a department of a 
provider'' as this exact terminology is used in the referenced Medicaid 
provider-based definition at 42 CFR 413.65. We are also reserving 
action on the proposed changes to 42 CFR 447.321, the

[[Page 66196]]

outpatient hospital and clinic upper payment limits. We may address 
these provisions at a future date. All other provisions are adopted as 
proposed.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

V. Regulatory Impact Statement

A. Overall Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993, as 
further amended, the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
04), and Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 (as amended by Executive Order 13258 directs 
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). A regulatory impact analysis (RIA) must be prepared for 
rules with economically significant effects ($100 million or more in 
any 1 year). This is not a significant or economically significant rule 
because the size of the anticipated reduction in Federal financial 
participation is not estimated to have an economically significant 
effect of more than $100 million in each of the Federal fiscal years 
2008 through 2012.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, we estimate that 
small entities include small businesses, non-profit organizations, and 
small governmental jurisdictions. Most hospitals and most other 
providers and suppliers are small entities, either by being non-profit 
organizations or by meeting the SBA definition of a small business of 
having revenues of less than $7.0 million to $34.5 million in any 1 
year. The Secretary has determined that this final rule would not have 
a direct impact on providers of outpatient hospital services that 
furnish services pursuant to section 1905(a)(2)(A) of the Act. This 
rule will directly affect States and we do not know nor can we predict 
the manner in which States will adjust or respond to the provisions of 
this rule.
    CMS is unable to determine the percentage of providers of 
outpatient hospital services that are considered small businesses 
according to the Small Business Administration's size standards with 
total revenues of $7.0 million to $34.5 million or less in any 1 year. 
Individuals and States are not included in the definition of a small 
entity. 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 defined a small rural 
hospital as a hospital that is located outside of a Core Based 
Statistical Area for Medicaid payment regulations and has fewer than 
100 beds. We are not preparing an analysis for section 1102(b) of