Medicaid and Children's Health Insurance Programs; Disallowance of Claims for FFP and Technical Corrections, 46684-46701 [2011-19528]

Agencies

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

[Federal Register Volume 76, Number 149 (Wednesday, August 3, 2011)]
[Proposed Rules]
[Pages 46684-46701]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19528]



[[Page 46684]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 430, 433, 447, and 457

[CMS-2292-P]
RIN 0938-AQ32


Medicaid and Children's Health Insurance Programs; Disallowance 
of Claims for FFP and Technical Corrections

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule reflects the Centers for Medicare and 
Medicaid Services' commitment to the general principles of the 
President's Executive Order 13563 released January 18, 2011, entitled 
``Improving Regulation and Regulatory Review,'' as this rule would: 
implement a new reconsideration process for administrative 
determinations to disallow claims for Federal financial participation 
(FFP) under title XIX of the Act (Medicaid); lengthen the time States 
have to credit the Federal Government for identified but uncollected 
Medicaid provider overpayments and provide that interest will be due on 
amounts not credited within that time period; make conforming changes 
to the Medicaid and Children's Health Insurance Program (CHIP) 
disallowance process to allow States the option to retain disputed 
Federal funds through the new administrative reconsideration process; 
revise installment repayment standards and schedules for States that 
owe significant amounts; provide that interest charges may accrue 
during the new administrative reconsideration process if a State 
chooses to retain the funds during that period. This proposed rule 
would also make a technical correction to reporting requirements for 
disproportionate share hospital payments, revise internal delegations 
of authority to reflect current CMS structure, remove obsolete 
language, and correct other technical errors.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on September 2, 
2011.

ADDRESSES: In commenting, please refer to file code CMS-2292-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-2292-P, P.O. Box 8016, 
Baltimore, MD 21244-8016 .
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2292-P, 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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey 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.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    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.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Robert Lane, (410) 786-2015, or Lisa Carroll, (410) 786-2696, for 
general information.
Edgar Davies, (410) 786-3280, for Overpayments.
Claudia Simonson, (312) 353-2115, for Overpayments resulting from 
Fraud.
Rory Howe, (410) 786-4878, for Upper Payment Limit and Disproportionate 
Share Hospital.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://regulations.gov. Follow the search instructions 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.

I. Background

    Title XIX of the Social Security Act (the Act) authorizes Federal 
grants to States to jointly fund programs that provide medical 
assistance to low-income families, the elderly, and persons with 
disabilities. This Federal-State partnership is administered by each 
State in accordance with an approved State plan. States have 
considerable flexibility in designing their programs, but must comply 
with Federal requirements specified in the Medicaid statute, 
regulations, and interpretive agency guidance. Federal financial 
participation (FFP) is available for State medical assistance 
expenditures, and administrative expenditures related to operating the 
State Medicaid program, that are authorized under Federal law and the 
approved State plan.
    Section 490l of the Balanced Budget Act of 1997 (Pub. L. 105-33, 
enacted on August 5, 1997) (BBA), added title XXI

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to the Social Security Act (the Act) which authorizes the Children's 
Health Insurance Program (CHIP) to jointly fund State efforts to 
initiate and expand the provision of child health assistance to 
uninsured, low-income children. Such assistance is primarily provided 
by obtaining health benefits coverage through (1) a separate child 
health program that meets the requirements specified under section 2103 
of the Act; (2) expanded eligibility for benefits under the State's 
Medicaid plan under title XIX of the Act; or (3) a combination of the 
two approaches. Available Federal funding is limited to an annual 
allotment. To be eligible for Federal funds under title XXI of the Act, 
States must submit a State child health plan, which must be approved by 
the Secretary.
    Prior to the passage of the Medicare Improvement for Patients and 
Providers Act of 2008 (Pub. L. 110-275, enacted on July 15, 2008) 
(MIPPA) in 2008, the administrative review of Medicaid claims for FFP 
that CMS has disallowed (disallowances) was governed by section 1116(d) 
of the Act, which provided simply that States were entitled to a 
reconsideration of any disallowance. The current regulations, as 
discussed below, delegated that reconsideration to the HHS Departmental 
Appeals Board (Board).
    Section 2107(e)(2)(B) of the Act makes section 1116 of the Act 
applicable to CHIP, to the same extent as it is applicable to Medicaid, 
with respect to administrative review, unless inconsistent with the 
CHIP statute. As a result, the same basic administrative review 
process, with reconsideration through the Board process, was made 
applicable by regulation to CHIP.
    In section 204 of the MIPPA, section 1116(d) of the Act was amended 
to remove Medicaid (and by implication CHIP) from the section 1116(d) 
process, and a new section 1116(e) of the Act was added to set forth a 
Medicaid-specific (and by implication CHIP) administrative review 
process.
    This new section 1116(e) of the Act added by MIPPA provides that 
the State shall be entitled to and, upon request, shall receive a 
reconsideration of the disallowance, provided that such request is made 
during the 60-day period that begins on the date the State receives 
notice of the disallowance. In addition, a State may appeal, in whole 
or in part, a disallowance by the Secretary, or an unfavorable 
reconsideration of a disallowance, to the Board by filing a notice of 
appeal with the Board during the 60-day period that begins on the date 
the State receives notice of the disallowance or of the unfavorable 
reconsideration.
    The current rules setting forth the process for administrative 
review for determinations that State claims for Federal funding are not 
allowable (disallowances) are set out in the Medicaid program at Sec.  
430.42 and for the CHIP program at Sec.  457.212. Those rules set out a 
process for disallowance of FFP and provide for reconsideration of 
disallowances by the HHS Board using procedures set forth in 45 CFR 
part 16. The rules provide a framework, which has been used by the 
Department for resolution of an increasing range of disputes.
    Section 6506 of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148, enacted on March 23, 2010) (the Affordable Care Act) 
amended section 1903(d)(2) of the Act to extend the period from 60 days 
to 1 year for which a State may collect an overpayment from providers 
before having to return the Federal funds. This section also provides 
for additional time beyond the 1 year for States to recover debts due 
to fraud when a final judgment (including a final determination on an 
appeal) is pending.

II. Provisions of the Proposed Rule

    This proposed rule would revise regulatory provisions in 42 CFR 
parts 430, 433, 447, and 457.

A. Administrative Review of Determinations to Disallow Claims for FFP

    Section 204 of the MIPPA (Review of Administrative Claim 
Determination) amended section 1116 of the Act by striking ``title 
XIX'' from section 1116(d) of the Act and adding section 1116(e) of the 
Act which provides language that States may obtain review by the Board 
of an agency decision or reconsidered agency decision. Therefore, we 
are proposing to revise Sec.  430.42 to set forth new procedures to 
review administrative determinations to disallow claims for FFP. These 
new procedures would provide for the availability of an informal agency 
reconsideration and a formal adjudication by the HHS Board.
    Specifically, Sec.  430.42(b) would provide States the option to 
request administrative reconsideration of an initial determination of a 
Medicaid disallowance. These revisions identify timeframes for the 
reconsideration process. The timeframes that we are proposing are short 
because we view this reconsideration process to be a quick and 
efficient process for States to point out clear errors or omissions in 
disallowance determinations, relating either to facts or policy 
interpretations, that can be corrected before the parties incur further 
time and expense in an appeal to the Board. Disputes that involve 
complex fact-finding or issues of legal authority are not appropriate 
for this expedited review process.
    Section 430.42(c) describes the procedures for such a 
reconsideration, Sec.  430.42(d) describes the option for a State to 
withdraw a reconsideration request, and Sec.  430.42(e) describes the 
procedures for issuing reconsideration decisions and implementing such 
decisions. We propose that neither the State nor CMS will be limited to 
a record developed in the reconsideration process in any further appeal 
of the matter. This is consistent with the provisions of section 
1116(e)(2)(B) of the Act which provides for the Board to consider 
``such documentation as the State may submit and as the Board may 
require'' including ``all relevant evidence.''
    Because section 1116(e)(2)(B) of the Act clarifies that the Board 
decision (and by implication the reconsideration decision) is to be 
based on documentation submitted by the State, we include a statement 
in the proposed regulations reflecting the existing principle that the 
State is responsible for documenting the allowability of its claims for 
FFP. Because the Medicaid program is State-administered, the State is 
in possession of the underlying factual information on its claims, and 
therefore, has the responsibility of documenting submitted claims. This 
is not a new principle, and is currently applied by the Board in 
reviewing disallowance determinations, but it is important to reiterate 
this point to make clear how the reconsideration and review process 
will operate.
    Section 430.42(f) provides States the option of appeal to the Board 
of either an initial determination of a Medicaid disallowance, or the 
reconsideration of such a determination under Sec.  430.42(b). The 
procedures for such an appeal are set forth in Sec.  430.42(g). For 
this purpose, we have proposed that the Board shall follow the 
procedures set forth in its regulations at 45 CFR part 16, but we have 
included language from section 1116(e)(2)(B) of the Act to describe the 
scope of the Board review to include ``a thorough review of the issues, 
taking into account all relevant evidence, including such documentation 
as the State may submit and as the Board may require.'' In Sec.  
430.42(h), we set forth the procedure for issuance and implementation 
of the final decision.

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B. State Option To Retain Federal Funds Pending Administrative Review 
and Interest Charges on Properly Disallowed Funds Retained by the State

    Section 204 of the MIPPA (Review of Administrative Claim 
Determination) amended section 1116 of the Act by striking ``title 
XIX'' from section 1116(d) of the Act and adding section 1116(e) of the 
Act which provides language that the States may obtain review by the 
Board of an agency decision or reconsidered agency decision. Section 
1903(d)(5) of the Act gives a State the option of retaining the amount 
of Federal payment in controversy when such payment has been disallowed 
by the Secretary pending a final administrative determination upon 
review. In other words, the statute provides a State the option of 
retaining (or returning) the entire amount of Federal payment that has 
been disallowed, while that disallowance is being reconsidered by the 
agency, or under appeal to the Board. If a final administrative 
determination has been made upholding the disallowance, the State must 
return all disallowed amounts with interest ``for the period beginning 
on the date such amount was disallowed and ending on the date of such 
final determination.''
    Specifically, we propose to revise Sec.  433.38 to clarify the 
application of interest when the State opts to retain Federal funds. 
These regulations specify the procedures that CMS and a State must 
follow when the State chooses to retain the funds pending a final 
administrative determination. The current regulations provide that a 
State that chooses to retain the disallowed funds during an appeal to 
the Board is required to pay interest on any portion of the 
disallowance that is ultimately sustained by the Board. Section 433.38 
would be revised to add language clarifying that interest would accrue 
on disallowed claims of FFP during both the reconsideration process and 
the Board appeal process. We are also providing clarifying language 
regarding interest charged on disallowed claims during the repayment of 
Federal funds by installments. If a State chooses to retain the FFP 
when a claim is disallowed and appeals the disallowance, the interest 
will continue to accrue through the reconsideration and the Board 
decision. If the disallowance is upheld, the State may request a 
repayment of FFP by installments.
    We are also proposing two options for the repayment of interest 
that accrues from the date of the disallowance notice until the final 
Board decision when a State elects repayment by installments. It has 
consistently been our policy that once the State has exhausted all of 
its administrative appeal rights and the disallowance has been upheld, 
the principal overpayment amount plus interest through the date of 
final determination becomes the new overpayment amount. We are 
proposing to provide States with an additional option for repaying that 
interest during a repayment schedule. Given States' current fiscal 
situation, we believe that allowing some flexibility in the repayment 
of interest during the repayment schedule may further assist States 
with their budgetary concerns.
    If a State chooses to repay the overpayment by installments, the 
State may choose the option of:
    (1) Dividing the new overpayment amount (principal plus initial 
interest) by the 12-quarters of repayment. The initial interest is 
interest from the date of the disallowance notice until the first 
payment. The State will still be required to pay interest per quarter 
on the remaining balance of the overpayment until the final payment. To 
clarify how this option would work, we provide an example in Table 3; 
or
    (2) Paying the first installment of the principal plus all interest 
accrued from the date of the disallowance notice through the first 
payment. The first installment would include the principal payment plus 
interest calculated from the date of the disallowance notice. Each 
subsequent payment would include the principal payment plus interest 
calculated on the remaining balance of the overpayment amount.
    Under section 1903(d)(5) of the Act, a State that wishes to retain 
the Federal share of a disallowed amount will be charged interest, 
based on the average of the bond equivalent of the weekly 90-day 
treasury bill auction rates, from the date of the disallowance to the 
date of a final determination.
    A State that has given a timely written notice of its intent to 
repay by installments to CMS will accrue interest during the repayment 
schedule on a quarterly basis at the Treasury Current Value Fund Rate 
(CVFR), from:
    (1) The date of the disallowance notice, if the State requests a 
repayment schedule during the 60-day review period and does not request 
reconsideration by CMS or appeal to the Board within the 60-day review 
period.
    (2) The date of the final determination of the administrative 
reconsideration, if the State requests a repayment schedule during the 
60-day review period following the CMS final determination and does not 
appeal to the Board.
    (3) The date of the final determination by the Board, if the State 
requests a repayment schedule during the 60-day review period following 
the Board's final determination.
    The initial installment will be due by the last day of the quarter 
in which the State requests the repayment schedule. If the request is 
made during the last 30 days of the quarter, the initial installment 
will be due by the last day of the following quarter. Subsequent 
repayment amounts plus interest will be due by the last day of each 
subsequent quarter.
    The CVFR is based on the Treasury Tax and Loan (TT&L) rate and is 
published annually in the Federal Register, usually by October 31st 
(effective on the first day of the next calendar year), at the 
following Web site: https://www.fms.treas.gov/cvfr/.
    We are soliciting comments related to these approaches and the best 
application of interest when a State chooses repayment of FFP by 
installments. We are also interested in any suggestions on alternative 
approaches with respect to the repayment of interest during the 
repayment schedule.

C. Repayment of Federal Funds by Installments

    Currently, Sec.  430.48 provides that States with significant 
repayment obligations in proportion to the size of their Medicaid 
programs may repay that liability in installments. Current regulations 
provide a 12-quarter time period for repayment similar to the time 
period implemented by the Federal Claims Collection Act. The State must 
meet two basic conditions for a repayment of Federal funds by 
installment. The amount to be repaid must exceed 2.5 percent of the 
estimated or actual annual State share of the Medicaid program and the 
State must provide written notice of intent to repay by installments 
before the total repayment is due.
    Currently, the number of quarters allowed for a repayment schedule 
is determined on the basis of the ratio of repayment amounts to the 
annual State share of Medicaid expenditures. The percentages of the 
annual State amounts used to determine the proposed amounts of 
quarterly installments are: 2\1/2\; percent for each of the first 4 
quarters; 5 percent for each of the second 4 quarters; and 17\1/2\; 
percent for each of the last 4 quarters.
    This proposed rule would amend Sec.  430.48 to revise the repayment 
schedule, providing more options for States electing a repayment 
schedule for

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the payment of Federal funds by installment. We are proposing three 
schedules including schedules that recognize the unique fiscal 
pressures of States that are experiencing economic distress, and to 
make technical corrections.
    The rationale for the installment repayment schedule is to enable 
States to continue to operate their programs effectively while repaying 
the Federal share. HHS has determined that the current provision is not 
sufficiently flexible to meet that goal. Therefore, we are revising the 
general provision to provide States with additional options for 
repayment.
    Current regulations provide an exception to the 12-quarter time 
period for repayment when amounts due exceed the State's share of 
annual expenditures for the program to which the disallowance applies. 
We are not proposing to amend this provision.
    We are proposing to replace the existing repayment schedule and 
qualifying criteria for States with significant repayment obligations 
(repayment amounts of at least 2.5 percent of total annual Medicaid 
expenditures) with three new repayment options to assist States in 
repayment of Federal funds. Two of the options are available to States 
at the time that the disallowance is established, either at the 
issuance of a disallowance letter or issuance of the administrative 
appeal decision.
    The first option is a new standard repayment schedule. Any State 
would have the option of electing this standard repayment schedule 
which would allow the State to repay on a quarterly basis over a 3-year 
period, subject to a minimum repayment amount of at least 0.25 percent 
of total annual State share of Medicaid expenditures.
    The second new option would be available to States experiencing a 
period of economic distress as defined in this proposed regulation. 
This option would also allow States to return funds over a 3-year 
period; however, States would have smaller payments in the first 2 
years when their fiscal circumstances are more difficult and larger 
payments in the final year to ensure payment in full.
    The third option is available for States who experience a period of 
economic distress that occurs or continues during an existing repayment 
plan. This third option allows the State an additional period of time 
to repay owed amounts dependent upon the ongoing economic health of the 
State. We describe each new option in this section. Furthermore, to 
clarify how the various proposed revised standard and alternative 
repayment schedules would work, we provide an example in Table 1.
1. Standard Repayment Schedule
    In Sec.  430.48, we propose to replace the current 2.5 percent 
threshold for determining whether a State would qualify for a repayment 
schedule. Therefore, all States that meet the new proposed 0.25 percent 
threshold would be eligible to choose the new standard repayment 
schedule (option 1). We propose a quarterly repayment schedule in which 
the State would repay the total overpayment amount in no more than a 
12-quarter period (3 years). The amounts of the quarterly installments 
and the total quarters of the repayment schedule will be determined by 
dividing the total overpayment amount by a minimum proposed amount of 
quarterly installments. In this repayment schedule, the State must pay 
at least a minimum repayment amount per quarter of 0.25 percent of the 
annual State share (plus any calculated interest). The State would be 
required to repay not less than this amount each quarter for up to a 
12-quarter period. The total repayment amount must be fully repaid 
within the 12-quarter period. In many instances, due to the minimum 
quarterly payment requirement, the repayment amount will be paid in 
full in less than 12 quarters.
    Except in times when economic distress occurs during an existing 
repayment plan (option 3), as described below, the standard repayment 
period may not exceed 12 quarters unless the total repayment amount 
exceeds 100 percent of the State's estimated State share of annual 
expenditures.
    Current regulations require that the remaining amount of the 
repayment be in quarterly amounts equal to not less than 17.5 percent 
of the estimated State share of annual expenditures. If the total 
repayment amount exceeds 100 percent of the State's estimated State 
share of annual expenditures, we are proposing a change that would 
allow the remaining amount of the repayment to be in quarterly amounts 
equal to not less than 8\1/3\ percent of the overpayment amount. This 
change would allow for repayment of the total amount that exceeds 100 
percent of the State's estimated State share of annual expenditures to 
be repaid in 12 quarters.
    The proposed 12-quarter time period for repayment is similar to the 
time period implemented in the Federal Claims Collection Act (Pub. L. 
89-508), which generally limits the repayment of a debt due the Federal 
Government to 3 years. The Department's implementing regulations at 45 
CFR 30.17, provide that the size and frequency of the payments should 
reasonably relate to the size of the debt and the debtor's ability to 
pay. Additionally, the installment agreement will provide for full 
payment of the debt, including interest and charges, in 3 years or 
less, when feasible. We believe that the proposed 12-quarter standard 
timeframe for repayment aligns with the intent of the Federal Claims 
Collection Act and implementing regulations. We are interested in 
comments related to the use of a minimum quarterly repayment amount 
allowing up to a 12-quarter repayment timeline.
    We have also proposed to eliminate the requirement for offsetting 
of retroactive claims. This provision would undermine the purpose of 
the revised repayment schedule. Offsetting currently requires that 
prior period increasing adjustments claimed by States that are over 1-
year old would be applied against the repayment amount. This would have 
the effect of altering (shortening) the repayment schedule by the 
amount of prior period claims for unrelated expenditures.
    We are soliciting comments on the modifications to the standardized 
repayment schedule. We are particularly interested in receiving 
comments on our use of 0.25 percent of the State share as a minimum 
required repayment amount.
2. Alternate Repayment Schedule During Periods of Economic Distress
    States owing the Federal Government significant amounts of Federal 
funds during a period of State economic downturn have requested 
recognition of the realities of their fiscal constraints through more 
flexibility in repayment by installment plan. We share the concern of 
States with respect to repayment of Federal funds during periods of 
State economic distress. We realize that immediate repayment of the 
entire amount or even repayment by installments under the new proposed 
regulations in certain instances could result in hardship for the 
health programs being administered by the State and have an adverse 
effect on the beneficiaries of these programs. Therefore, we are 
proposing an option (option 2) for States that have been experiencing 
economic distress. This option is an alternate to the standard 
repayment schedule for States experiencing economic distress at the 
time that a repayment schedule is initially developed. We are seeking 
comments not only on the creation of an alternate repayment schedule 
but also on all elements of the alternate schedule.

[[Page 46688]]

    We are proposing at Sec.  430.48(d) that if a State has been 
experiencing periods of economic distress, defined as a negative 
percentage change in the State's coincident index as determined by the 
Philadelphia Federal Reserve Bank, within the 6 months immediately 
prior to the start of a repayment schedule, the State may elect this 
alternate repayment schedule instead of the proposed standard repayment 
schedule. It still provides States up to 12 quarters to repay the full 
amount, but allows for lower payments in the earlier quarters to 
provide relief to States beginning to repay Federal funds in a time of 
economic hardship for the State. The entire overpayment amount will be 
repaid at the end of the 12-quarter period unless the State qualifies 
for an extension as discussed in option 3.
    In Sec.  430.48(c)(3),we propose that quarterly required repayment 
amounts will depend upon the total amount owed. If the total amount 
owed divided by 12 is less than 0.25 percent of the State share, the 
State would make 12 equal quarterly payments of the lesser amount. If 
the amount divided by 12 is greater than 0.25 percent of the State 
share, the quarterly repayment amount for the first 8 quarters will not 
be more than 0.25 percent of the estimated annual State share plus 
interest. The remaining balance of the overpayment amount would be 
divided equally over the remaining 4 quarters. This 12-quarter time 
period for repayment during periods of State economic distress was used 
because it is in accordance with the time period implemented by the 
Federal Claims Collection Act. The Federal Claims Collection Act 
generally limits the repayment of a debt due the Federal Government to 
3 years.
3. Extended Repayment Schedule During Periods of Economic Distress
    Additionally, we are proposing at Sec.  430.48(e), an option 
(option 3) to extend a repayment schedule if a State has entered into a 
standard repayment schedule or the alternative schedule described above 
and enters into or continues to experience a period of economic 
distress. The State may only request to enter into the economic 
distress extension plan once per repayment; a State may not repeatedly 
request to begin new repayment periods based on the status of its 
economic health. This extension would create a new repayment period, 
beginning the quarter directly following a State's request (for 
example, 9th quarter), for the outstanding balance of the repayment 
amount calculated for the remaining quarters and any additional 
extension quarters.
    We are proposing that a State which is already repaying amounts 
using the standard repayment schedule may request a new 3-year 
extension period for economic distress. A State that is currently 
repaying funds under a standard repayment schedule may request an 
economic distress extension if at any time during the repayment period, 
the State experiences 6 consecutive months of economic distress.
    We are proposing to define ``economic distress'' as a negative 
percentage change in the State's coincident index as determined by the 
Philadelphia Federal Reserve Bank. As we discuss below, this index is 
based on four different State-level indicators that together reflect 
each State's overall economic health.
    The consecutive period that forms the basis for such a request can 
include months immediately prior to the start of the standard repayment 
schedule as long as they create a consecutive 6-month period reaching 
into the repayment period. For example, when determining the initial 
repayment schedule, a State cannot qualify for the alternative payment 
schedule (option 2) because it has only experienced 4 consecutive 
months of economic distress. If the State continues to experience 
economic distress during the first 2 months of its standard repayment 
plan, it may request an economic distress extension because it has 
experienced 6 consecutive months of economic distress, 4 months prior 
to the repayment schedule and 2 months during the first months of the 
repayment schedule.
    For States in a standard repayment schedule that qualify for the 
economic distress extension, the outstanding balance, including 
interest, will be used to recalculate a new 12-quarter repayment 
schedule using the same methodology as in option 2, the alternate 
repayment schedule; the remaining balance, including interest will be 
divided by 12. The first 8 quarterly payments will be the lesser of the 
quotient or 0.25 percent of the estimated annual State share. As in 
option 2, the remainder owed will be divided over the final 4 quarters 
of the extension period. Interest will continue to accrue during the 
new 12-quarters repayment schedule at the CVFR.
    For States initially beginning repayment through an alternate 
repayment schedule, we propose to allow an extension of the repayment 
period to provide additional time to repay the overpayment amount if 
the State continues to find itself in economic distress during the 
original repayment period. If a State initially has an alternate 
repayment schedule in place (because it was in economic distress before 
the repayment schedule began) and has any qualifying periods of 
economic distress during the first 8 quarters of the alternate 
repayment schedule, the State may request that we extend the alternate 
repayment period by the number of such qualifying quarters. For 
purposes of this additional relief, qualifying periods of economic 
distress would include those quarters in which the State experienced at 
least 1 month of economic distress. In other words, for at least 1 
month in that quarter, the State experienced economic distress as 
defined below.
    This extension, beyond the original 12 quarters, would extend the 
number of quarters of qualifying periods of economic distress by the 
number of quarters in which the State experiences economic distress. We 
are proposing that the extension would allow a State to recalculate 
their payment amounts before the increased (ballooned payments) became 
due and would allow for no more than 8 additional quarters. For 
example, a State experiencing economic distress for 3 quarters of the 
first 8 quarters would receive an extension of 3 additional quarters 
for a total of 15 quarters to fully repay funds owed.
    Continuing the example above, the State qualifying for 15 quarters 
would pay 0.25 percent of the State share for the first 8 quarters. For 
the remaining 7 quarters, the State would pay the balance of the 
repayment amount divided by 7 (the number of remaining quarters).
    In Table 2, we provide an example to demonstrate and compare a 
State that repays using the current repayment schedule, the proposed 
standard repayment schedule, the proposed alternate repayment schedule 
begun during a period of economic distress, the proposed standard 
repayment schedule with an economic distress extension, and the 
proposed alternate repayment schedule initiated in a period of economic 
distress and extended for continued economic distress. For simplicity 
and clarity, Table 2 does not include interest that would be charged 
during the repayment process, but we have provided Table 3 to 
illustrate the application of interest charges.

[[Page 46689]]



                            Table 1--Example
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total FY Medicaid State Share.......................      $3,500,000,000
Overpayment Amount..................................         220,200,000
Current Minimum Payment--2.5% of State Share........          87,500,000
Proposed Standard Minimum Payment: Higher of:
    0.25% of State Share OR.........................           8,750,000
    Disallowed amount (D/A)/12 qtrs.................          18,350,000
Alternate Economic Distress:
    0.25% of State Share--8 qtrs....................           8,750,000
    D/A balance/4 qtrs..............................          37,550,000
    D/A balance/7 qtrs..............................          21,457,143
------------------------------------------------------------------------


                                                                    Table 2--Example
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                      Proposed alternate
                                                                                                                  Proposed alternate  repayment schedule
                                                                                              Proposed alternate  repayment schedule     (State begins
                                                                                              repayment schedule    (State begins in     with standard
                                                       Current repayment   Proposed standard    (State begins in  economic distress)       repayment
                      Quarters                             schedule        payment schedule    economic distress     requests and     schedule, requests
                                                                                                 amount)  (no        qualifies for     and qualifies for
                                                                                                  continuing       economic distress   economic distress
                                                                                                   distress)      extension for Qtrs   extension in Qtr.
                                                                                                                     1, 2, and 6)             4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...................................................          87,500,000          18,350,000           8,750,000           8,750,000          18,350,000
2...................................................          87,500,000          18,350,000           8,750,000           8,750,000          18,350,000
3...................................................          45,200,000          18,350,000           8,750,000           8,750,000          18,350,000
4...................................................  ..................          18,350,000           8,750,000           8,750,000          18,350,000
5...................................................  ..................          18,350,000           8,750,000           8,750,000           8,750,000
6...................................................  ..................          18,350,000           8,750,000           8,750,000           8,750,000
7...................................................  ..................          18,350,000           8,750,000           8,750,000           8,750,000
8...................................................  ..................          18,350,000           8,750,000           8,750,000           8,750,000
9...................................................  ..................          18,350,000          37,550,000          21,457,143           8,750,000
10..................................................  ..................          18,350,000          37,550,000          21,457,143           8,750,000
11..................................................  ..................          18,350,000          37,550,000          21,457,143           8,750,000
12..................................................  ..................          18,350,000          37,550,000          21,457,143           8,750,000
13..................................................  ..................  ..................  ..................          21,457,143          19,200,000
14..................................................  ..................  ..................  ..................          21,457,143          19,200,000
15..................................................  ..................  ..................  ..................          21,457,142          19,200,000
16..................................................  ..................  ..................  ..................  ..................          19,200,000
17..................................................  ..................  ..................  ..................  ..................  ..................
18..................................................  ..................  ..................  ..................  ..................  ..................
19..................................................  ..................  ..................  ..................  ..................  ..................
20..................................................  ..................  ..................  ..................  ..................  ..................
                                                     ---------------------------------------------------------------------------------------------------
    Total Repaid....................................         220,200,000         220,200,000         220,200,000         220,200,000         220,200,000
--------------------------------------------------------------------------------------------------------------------------------------------------------


                            Table 3--Example
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Principal Overpayment...........         220,000,000  ..................
Interest........................             200,000  ..................
Total Overpayment...............         220,200,000  ..................
Current Value Fund Rate.........                  3%  ..................
------------------------------------------------------------------------


 
                                                       Proposed standard   Proposed standard   Proposed standard
                      Quarters                         payment schedule    payment schedule    payment schedule
                                                           principal           interest              total
----------------------------------------------------------------------------------------------------------------
1...................................................          18,350,000           1,628,877          19,978,877
2...................................................          18,350,000           1,481,088          19,831,088
3...................................................          18,350,000           1,348,113          19,698,113
4...................................................          18,350,000           1,198,682          19,548,682
5...................................................          18,350,000           1,026,191          19,376,191
6...................................................          18,350,000             889,932          19,239,932
7...................................................          18,350,000             750,389          19,100,389
8...................................................          18,350,000             600,958          18,950,958
9...................................................          18,350,000             441,603          18,791,603
10..................................................          18,350,000             298,776          18,648,776
11..................................................          18,350,000             152,665          18,502,665
12..................................................          18,350,000               3,234          18,353,234
13..................................................  ..................  ..................  ..................
14..................................................  ..................  ..................  ..................
15..................................................  ..................  ..................  ..................
16..................................................  ..................  ..................  ..................

[[Page 46690]]

 
17..................................................  ..................  ..................  ..................
18..................................................  ..................  ..................  ..................
19..................................................  ..................  ..................  ..................
20..................................................  ..................  ..................  ..................
                                                     -----------------------------------------------------------
    Total Repaid....................................         220,200,000           9,820,508         230,020,508
----------------------------------------------------------------------------------------------------------------

    We are proposing that the determination of economic distress would 
be made on a State-specific basis as opposed to a national index. We 
believe this will ensure that States experiencing economic difficulty 
may avail themselves of this option regardless of whether the nation as 
a whole is facing a recession or time of growth. We believe that it is 
an equitable way of handling situations in which individual States are 
experiencing severe fiscal hardship.
    We reviewed several different data sources to develop qualifying 
criteria for States seeking an alternate repayment schedule due to 
economic distress. We looked for indicators which were readily 
available to the States and CMS, transparent to the public, robust in 
its measurement of economic health, based on the most recent data 
possible, consistent across States, and predictably available on a 
regular basis in a timely manner. We also attempted to find a measure 
that mirrored as closely as possible the criteria used by the National 
Bureau of Economic Research (NBER) to determine a national recession.
    We researched several potential economic distress measures and 
consulted various entities including the National Association of State 
Budget Officers, the Rockefeller Institute, the Philadelphia Federal 
Reserve Bank, and the Government Accountability Office (GAO). The main 
options we considered were a model used by the GAO, the Philadelphia 
Federal Reserve Bank State coincident index, and the measure of whether 
a State qualifies for extended benefits in the Unemployment Insurance 
program overseen by the U.S. Department of Labor. The GAO index is used 
to provide information to Congress on State level economic health. It 
provided much of what we believed would be necessary to accurately 
measure overall economic health. However, it is not publicly available 
nor is it replicated on a predictable basis. The Unemployment Insurance 
program provided data that was timely, accurate, and publicly 
available. However, it did not appear to be the most robust measure of 
total economic health in a State, nor did it closely reflect the type 
of information used by the NBER.
    We are proposing to adopt the State coincident index as determined 
by the Philadelphia Federal Reserve Bank. Unlike the other indicators 
we reviewed, this measure met all of the criteria we established. It is 
publicly available on the Philadelphia Federal Reserve Web site 
(www.philadelphiafed.org), based on recent data, published in a timely 
manner, and published monthly. The index represents a robust measure of 
economic health. In addition, the Philadelphia Federal Reserve Bank 
State coincident index data compilation best approximated the type of 
information NBER reviews in determining a national recession. We are 
inviting comments on this choice of measures.
    The coincident index combines four State-level indicators to 
summarize current economic conditions in a single statistic: nonfarm 
payroll employment; average hours worked in manufacturing; the 
unemployment rate; and wage and salary disbursements deflated by the 
consumer price index (U.S. city average). The trend for each State's 
index is set to the trend of its gross domestic product (GDP), so long-
term growth in the State's index matches long-term growth in its GDP. 
The model and the input variables are consistent across the 50 States, 
so the State indexes are comparable to one another.
    We are proposing that a State (including the District of Columbia 
and the territories) would be eligible to utilize the economic distress 
option for repayment if the State had a period of continuous distress 
as demonstrated by negative percent changes in the Philadelphia Federal 
Reserve Bank State coincident index for the immediate prior 6 months 
for which data is available. That is, if the State's index were 
negative for each of the 6 months preceding the beginning of the 
repayment period, then the State would be deemed to be experiencing a 
period of economic distress for purposes of the repayment schedule 
options and could request the alternative repayment schedule.
    We performed an analysis to determine how frequently States would 
qualify for an alternate repayment schedule using the 6-month period as 
a trigger. Using data from NBER, we identified when the last 4 
recession periods occurred and their duration. The most recent NBER 
declared national recession started in December of 2007 and continued 
through June 2009. The previous recession was from March 2001 through 
November 2001. Our objective was to compare the measures and to 
determine if any State would qualify for an alternate repayment 
schedule when the nation is not in a recession.
    We then turned to data from the Philadelphia Federal Reserve Bank 
State coincident indexes to determine negative growth by State for the 
period of January 2005 through May 2010. We found that one State would 
have qualified for an alternate repayment schedule as early as October 
2005 for a 2-month period (for example, for each of those 2 months, the 
immediate previous 6 months demonstrated economic distress). 
Additionally, we found other States that qualified as early as November 
2007 and some that would qualify as late as April 2010. We only found 
one State that would not have met the requirements to qualify for the 
alternate repayment schedule.
    We are particularly interested in receiving input on the 
Philadelphia Federal Reserve State coincident index as the criteria for 
State economic health. We are soliciting comments on our use of this 
index as well as suggestions for other potential measures of State 
economic health and/or distress. We welcome comments on the GAO model 
and the Unemployment Insurance determination as well as other potential 
indicators that are not specifically discussed.
    We are also soliciting comments on whether the correct measure, if 
using the Philadelphia Federal Reserve Bank State coincident index, is 
a negative percent change for each of the previous 6 months in the 
immediate prior 6-month period. We considered using a 3-month look back 
period, as well as to look only at the current months within

[[Page 46691]]

a given quarter. We encourage comments on this as well as suggestions 
for alternate measures.

D. Refunding of Federal Share of Overpayments to Providers

    We are proposing to revise Sec.  433.300 through Sec.  433.322 in 
accordance with section 6506 of the Patient Protection and Affordable 
Care Act (Pub. L. 111-148, enacted on March 23, 2010) (the Affordable 
Care Act). These provisions amended section 1903(d)(2) of the Act to 
provide an extension of the period for collection of provider 
overpayments. Under the new provisions, States have up to 1 year from 
the date of discovery of an overpayment made to a Medicaid provider to 
recover or to attempt to recover such an overpayment. At the end of the 
1 year period, the State is required to return to the Federal 
Government the Federal share of any unrecovered amount.
    In addition, for overpayments due to fraud, when a State is unable 
to recover the overpayment (or any portion thereof) within 1 year of 
discovery because no final determination of the amount of the 
overpayment has been made under an administrative or judicial process 
(as applicable), including as a result of a judgment being under 
appeal, the State will have until 30 days after the date on which a 
final judgment (including, if applicable, a final determination on an 
appeal) is made in the judicial or administrative process to recover 
such overpayment before being required to make the adjustment to the 
Federal share. Previously, States had up to 60 days to recover an 
overpayment and make an adjustment to the Federal share. There was also 
no specific statutory basis set forth in the Act for a State to recover 
or seek to recover an overpayment made to a Medicaid provider due to 
fraud. This rule replaces ``60-calendar day'' and ``60-day'' in Sec.  
433.316 with ``1-year'' to bring the regulatory language into alignment 
with the provisions of the Affordable Care Act.
    We are also proposing to amend the Departmental regulations at 
Sec.  433.304 by adding language that defines what constitutes ``final 
written notice''; when a Medicaid agency may treat an overpayment made 
to a Medicaid provider as resulting from fraud under Sec.  433.316(d); 
and that the State is not required to return the Federal share of 
overpayments until 30 days after a final judgment (including a final 
determination on appeal) when a State has not recovered an overpayment 
resulting from fraud within 1-year of discovery. The proposed rule 
would also amend the regulations by deleting the definition of 
``abuse'' from Sec.  433.304 so that the regulatory language mirrors 
that of the statute as amended by the Affordable Care Act.
    We are also proposing that interest will be due by the State on 
amounts of Medicaid provider overpayments that are not timely refunded 
by the State. A State that fails to timely refund such amounts 
improperly retains the use of such funds and will be presumed to have 
earned interest on that use. Such imputed interest will be deemed 
program income and must be refunded along with the principal amount. 
Interest will be assessed at the Current Value of Funds Rate (CVFR) and 
will accrue beginning on the day after the end of the 1-year period 
following discovery until the last day of the quarter for which the 
State submits a CMS-64 report refunding the Federal share of the 
overpayment.
    These regulations do not apply to overpayments involving 
administrative costs. Therefore, the Federal share of all overpayments 
involving administrative costs must be refunded immediately following 
discovery, as required by section 1903(d)(2)(A) of the Act. An example 
of administrative costs would include any item claimed on the CMS-64.10 
forms.

E. Technical Corrections to Medicaid Regulations

1. Grants Procedures
    The proposed rule updates references at Sec.  430.30 by striking 
``CMS-25'' and adding ``CMS-37.'' The CMS-25 was renamed to the CMS-37, 
but the changes were never codified in regulation. We took the 
opportunity in this proposed rule to make the correction. States are 
currently using the CMS-37 form.
2. Deferral of Claims for FFP
    The proposed rule would revise the delegation of authority for 
deferral determinations under Sec.  430.40 to reflect internal agency 
organizational changes. Authority to impose deferral of claims for FFP 
has been revised from the Regional Administrator to the Consortium 
Administrator responsible for the Medicaid program.
3. Inpatient Services: Application of Upper Payment Limits (UPLs)
    The rule proposes technical changes that remove UPL transition 
period language at Sec.  447.272 and Sec.  447.321. The last transition 
period expired on September 30, 2008.
4. Reporting Requirements for Disproportionate Share Hospital Payments
    The proposed rule would correct a technical error in the regulation 
text at Sec.  447.299(c)(15). This paragraph provides a narrative 
description of how ``total uninsured IP/OP uncompensated care costs'' 
is to be calculated from component data elements. The first sentence 
unintentionally and incorrectly references costs associated with 
Medicaid eligible individuals in the description of uninsured 
uncompensated costs. This reference is incorrect and could not be 
interpreted reasonably to contribute to an accurate description of 
``total uninsured IP/OP uncompensated care costs.'' Additionally, it 
erroneously contradicts section 1923(g) of the Act, Sec.  447.299, 42 
CFR part 455 subpart D, and longstanding CMS policy. The second 
sentence of Sec.  447.299(c)(15) accurately identifies the component 
data elements and correctly describes the calculation of ``total 
uninsured IP/OP uncompensated care costs,'' which does not include 
Medicaid eligible individuals.

F. Conforming Changes to CHIP Regulations

    The CHIP regulations at Sec.  457.210 through Sec.  457.212 and 
457.218 mirror Medicaid regulations at 42 CFR parts 430 and 433 related 
to deferrals, disallowances, and repayment of Federal funds by 
installments. We are proposing to make conforming changes to both the 
Medicaid and CHIP programs by striking Sec.  457.210 through Sec.  
457.212 and Sec.  457.218 and incorporating the requirements of 42 CFR 
part 430. We are incorporating these through reference in Sec.  
457.628(a).
    We are also incorporating the requirements of 42 CFR part 433 with 
respect to overpayments. Section 2105(c)(6)(B) of the Act incorporates 
the overpayment requirements of section 1903(d)(2) of the Act into 
CHIP. Therefore, we are also amending the CHIP regulations to reflect 
the overpayment requirements as revised by the Affordable Care Act. We 
are incorporating these through reference in Sec.  457.628(a).

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and

[[Page 46692]]

approval. In order to fairly evaluate whether an information collection 
should be approved by OMB, section 3506(c)(2)(A) of the Paperwork 
Reduction Act of 1995 requires that we solicit comment on the following 
issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements:

A. ICRs Regarding Disallowance of Claims for FFP (Sec.  430.42)

    Section 430.42 was revised in accordance with the Medicare 
Improvement for Patients and Providers Act of 2008 (MIPPA) to set forth 
new procedures to review administrative determinations to disallow 
claims for FFP. These new procedures provide for an informal agency 
reconsideration that must be submitted in writing to the Administrator 
within 60 day after receipt of a disallowance letter. The 
reconsideration request must specify the findings or issues with which 
the State disagrees and the reason for the disagreement. It also may 
include supporting documentary evidence that the State wishes the 
Administrator to consider.
    The burden associated with this requirement is the time and effort 
necessary for the State Medicaid Agency to draft and submit the 
reconsideration letter and supporting documentation. Although this 
requirement is subject to the PRA, we believe that 5 CFR 1320.4(a)(2), 
exempts the reconsideration letter as a collection of information and 
the PRA. In this case, the information associated with the 
reconsideration would be collected subsequent to an administrative 
action, that is, a determination to disallow.

B. ICRs Regarding Refund of Federal Share of Medicaid Overpayments to 
Providers (Sec.  433.322)

    Section 2105(c)(6)(B) of the Act incorporates the overpayment 
requirements of section 1903(d)(2) of the Act into CHIP. The 
overpayment regulations at Sec.  433.322 require that the Medicaid 
Agency ``maintain a separate record of all overpayment activities for 
each provider in a manner that satisfies the retention and access 
requirements of 45 CFR 74.53.'' We are incorporating these through 
reference in Sec.  457.628(a). Accordingly, it would require CHIP 
programs to comply with Sec.  433.322. States are currently required to 
maintain these records under current regulations for Medicaid (and by 
implication CHIP).
    The recordkeeping requirements set out under 45 CFR 92.42 (and 
Sec.  433.322) are adopted from OMB Circular A-110.

C. ICRs Regarding Medicaid Program Budget Report (CMS-37)

    The information collection requirements associated with CMS-37 are 
approved by OMB and have been assigned OMB control number 0938-0101. 
This proposed rule would not impose any new or revised reporting or 
recordkeeping requirements concerning CMS-37.

D. ICRs Regarding Quarterly Medicaid Statement of Expenditures for the 
Medical Assistance Program (CMS-64)

    The information collection requirements associated with CMS-64 are 
approved by OMB and have been assigned OMB control number 0938-0067. 
This proposed rule would not impose any new or revised reporting or 
recordkeeping requirements concerning CMS-64.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, 2292-P
    Fax: (202) 395-6974; or
    E-mail: OIRA_submission@omb.eop.gov.

IV. Response to Comments

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

V. Regulatory Impact Statement

A. Statement of Need

    This proposed rule: (1) Implements changes to section 1116 of the 
Act as set forth in section 204 of the Medicare Improvement for 
Patients and Providers Act of 2008 (Pub. L. 110-275, enacted on July 
15, 2008) to provide a new reconsideration proces