Medicare Program; Medicare Disproportionate Share Hospital (DSH) Payments: Counting Certain Days Associated With Section 1115 Demonstrations in the Medicaid Fraction, 12623-12637 [2023-03770]

Agencies

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

[Federal Register Volume 88, Number 39 (Tuesday, February 28, 2023)]
[Proposed Rules]
[Pages 12623-12637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03770]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1788-P]
RIN 0938-AV17


Medicare Program; Medicare Disproportionate Share Hospital (DSH) 
Payments: Counting Certain Days Associated With Section 1115 
Demonstrations in the Medicaid Fraction

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of 
Health and Human Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise our regulations on the 
counting of days associated with individuals eligible for certain 
benefits provided by section 1115 demonstrations in the Medicaid 
fraction of a hospital's disproportionate patient percentage.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below by May 1, 2023.

ADDRESSES: In commenting, please refer to file code CMS-1788-P.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation

[[Page 12624]]

to https://www.regulations.gov. Follow the ``Submit a comment'' 
instructions.
    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-1788-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-1788-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:  Donald Thompson or Michele Hudson, 
[email protected], (410) 786-4487.

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 
website as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that website to 
view public comments. CMS will not post on Regulations.gov public 
comments that make threats to individuals or institutions or suggest 
that the individual will take actions to harm the individual. CMS 
continues to encourage individuals not to submit duplicative comments. 
We will post acceptable comments from multiple unique commenters even 
if the content is identical or nearly identical to other comments.

I. Background

    Section 1886(d)(5)(F) of the Social Security Act (the Act) provides 
for additional Medicare inpatient prospective payment system (IPPS) 
payments to subsection (d) hospitals \1\ that serve a significantly 
disproportionate number of low-income patients. These payments are 
known as the Medicare disproportionate share hospital (DSH) adjustment, 
and the statute specifies two methods by which a hospital may qualify 
for the DSH payment adjustment.
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    \1\ Defined in section 1886(d)(1)(B) of the Act.
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     Under the first method, hospitals that are located in an 
urban area and have 100 or more beds may receive a DSH payment 
adjustment if the hospital can demonstrate that, during its cost 
reporting period, more than 30 percent of its net inpatient care 
revenues are derived from State and local government payments for care 
furnished to patients with low incomes. This method is commonly 
referred to as the ``Pickle method.''
     The second method for qualifying for the DSH payment 
adjustment, which is the most common method, is based on a complex 
statutory formula under which the DSH payment adjustment is based on 
the hospital's geographic designation, the number of beds in the 
hospital, and the level of the hospital's disproportionate patient 
percentage (DPP). A hospital's DPP is the sum of two fractions: the 
``Medicare fraction'' and the ``Medicaid fraction.'' The Medicare 
fraction (also known as the ``SSI fraction'' or ``SSI ratio'') is 
computed by dividing the number of the hospital's inpatient days that 
are furnished to patients who were entitled to both Medicare Part A and 
Supplemental Security Income (SSI) benefits by the hospital's total 
number of patient days furnished to patients entitled to benefits under 
Medicare Part A. The Medicaid fraction is computed by dividing the 
hospital's number of inpatient days furnished to patients who, for such 
days, were eligible for Medicaid but were not entitled to benefits 
under Medicare Part A, by the hospital's total number of inpatient days 
in the same period.
    Because the DSH payment adjustment is part of the IPPS, the 
statutory references to ``days'' in section 1886(d)(5)(F) of the Act 
have been interpreted to apply only to hospital acute care inpatient 
days. Regulations located at 42 CFR 412.106 govern the Medicare DSH 
payment adjustment and specify how the DPP is calculated as well as how 
beds and patient days are counted in determining the Medicare DSH 
payment adjustment. Under Sec.  412.106(a)(1)(i), the number of beds 
for the Medicare DSH payment adjustment is determined in accordance 
with bed counting rules for the Indirect Medical Education (IME) 
adjustment under Sec.  412.105(b). Section 1115(a) of the Act gives the 
Secretary the authority to approve a demonstration requested by a State 
which, ``in the judgment of the Secretary, is likely to assist in 
promoting the objectives of [Medicaid.]'' In approving a section 1115 
demonstration, the Secretary may waive compliance with any Medicaid 
State plan requirement under section 1902 of the Act to the extent and 
for the period he finds necessary to enable the State to carry out such 
project. The costs of such project that would not otherwise be included 
as Medicaid expenditures eligible for Federal matching under section 
1903 of the Act may, to the extent and for the period prescribed by the 
Secretary, be regarded as such federally matchable expenditures.
    States use section 1115(a) demonstrations to test changes to their 
Medicaid programs that generally cannot be made using other Medicaid 
authorities, including to provide health insurance to groups that 
generally could not or have not been made ``eligible for medical 
assistance under a State plan approved under title XIX'' (Medicaid 
benefits). These groups, commonly referred to as expansion populations 
or expansion waiver groups, are specific, finite groups of people 
defined in the demonstration approval letter and special terms and 
conditions for each demonstration. (We note in the discussion that 
follows, we use the term ``demonstration'' rather than ``project'' and/
or ``waiver'' and the term ``groups'' instead of ``populations,'' as 
this terminology is generally more consistent with the implementation 
of the provisions of section 1115 of the Act. Therefore, we refer in 
what follows to groups extended health insurance through a 
demonstration as ``demonstration expansion groups.'')

II. Provisions of the Proposed Regulation

A. History of 42 CFR 412.106(b)(4) and the Deficit Reduction Act of 
2005

    Prior to 2000, some States had chosen to only cover Medicaid 
populations under their State plans when State plan coverage was 
mandatory under the statute, and they did not provide State plan 
coverage for populations for whom the statute made State plan coverage 
optional. Instead, coverage for these optional State plan coverage 
groups (as well as groups not eligible for even optional coverage) 
could be provided through demonstrations approved under section 1115 of 
the Act. We referred to these demonstration groups that could have been 
covered under optional State plan coverage as ``hypothetical'' groups--
consisting of patients that could have been but were not covered under 
a State plan, but that received the same or very similar package of 
insurance benefits under a demonstration as did individuals eligible 
for those benefits under the State plan. Many other States, however,

[[Page 12625]]

still elected to cover optional State plan coverage groups under their 
Medicaid State plans instead of through a demonstration. In order to 
avoid disadvantaging hospitals in States that covered such optional 
State plan coverage groups under a demonstration, CMS developed a 
policy of counting hypothetical group patients covered under a 
demonstration in the numerator of the Medicaid fraction of the Medicare 
DSH calculation (hereinafter, the DPP Medicaid fraction numerator) as 
if those patients were eligible for Medicaid.
    Such demonstrations could also include individuals who could not 
have been covered under a State plan, such as childless adults for 
whom, at the time, State plan coverage was not mandatory under the 
statute, nor was optional State plan coverage available. We refer to 
these groups as ``expansion'' groups. Prior to 2000, CMS did not 
include expansion groups in the DPP Medicaid fraction numerator, even 
if they received the same package of hospital insurance benefits under 
a demonstration as hypothetical groups and those eligible under the 
State plan.
    On January 20, 2000, we issued an interim final rule with comment 
period (65 FR 3136) (hereinafter, January 2000 interim final rule), 
followed by a final rule issued on August 1, 2000 (65 FR 47086 through 
47087), that changed the Secretary's policy on how to treat the patient 
days of expansion groups that received Medicaid-like benefits under a 
section 1115 demonstration in calculating the Medicare DSH adjustment. 
The policy adopted in the January 2000 interim final rule (65 FR 3136) 
permitted hospitals to include in the DPP Medicaid fraction numerator 
all patient days of groups made eligible for title XIX matching 
payments through a section 1115 demonstration, whether or not those 
individuals were, or could be made, eligible for Medicaid under a State 
plan (assuming they were not also entitled to benefits under Medicare 
Part A). Speaking literally, neither expansion groups nor hypothetical 
groups were in fact ``eligible for medical assistance under a State 
plan''--meaning neither group was eligible for Medicaid benefits. But, 
in CMS' view, certain section 1115 demonstrations introduced an 
ambiguity into the DSH statute that justified including both 
hypothetical and expansion groups in the DPP Medicaid fraction 
numerator. Specifically, CMS thought it appropriate to count the days 
of these demonstration groups because the demonstrations provided them 
the same or very similar benefits as the benefits provided to Medicaid 
beneficiaries under the State plan. As we explained in that rule (65 FR 
3137), allowing hospitals to include patient days for section 1115 
demonstration expansion groups in the DPP Medicaid fraction numerator 
is fully consistent with the Congressional goals of the Medicare DSH 
payment adjustment to recognize the higher costs to hospitals of 
treating low-income individuals covered under Medicaid. This policy was 
effective for discharges occurring on or after January 20, 2000.
    In the FY 2004 IPPS final rule (68 FR 45420 and 45421), we further 
revised our regulations to limit the types of section 1115 
demonstrations for which patient days could be counted in the DPP 
Medicaid fraction numerator. We explained that in allowing hospitals to 
include patient days of section 1115 demonstration expansion groups, 
our intention was to include patient days of those groups who under a 
demonstration receive benefits, including inpatient hospital benefits, 
that are similar to the benefits provided to Medicaid beneficiaries 
under a State plan. However, we had become aware that certain section 
1115 demonstrations provided some expansion groups with benefit 
packages so limited that the benefits were unlike the relatively 
expansive health insurance (including insurance for inpatient hospital 
services) provided to beneficiaries under a Medicaid State plan. We 
explained that these limited section 1115 demonstrations extend 
benefits only for specific services and do not include similarly 
expansive benefits.
    In the FY 2004 IPPS final rule we specifically discussed family 
planning benefits offered through a section 1115 demonstration as an 
example of the kind of demonstration days that should not be counted in 
the DPP Medicaid fraction numerator because the benefits granted to the 
expansion group are too limited, and therefore, unlike the package of 
benefits received as Medicaid benefits under a State plan. Our 
intention in discussing family planning benefits under a section 1115 
demonstration was not to single out family planning benefits, but 
instead to provide a concrete example of how the changes being made in 
the FY 2004 IPPS final rule would refine the Secretary's policy (set 
forth in the January 2000 interim final rule (65 FR 3136)). This 
refinement was to allow only the days of those demonstration expansion 
groups who are provided benefits, and specifically inpatient hospital 
benefits, equivalent to the health care insurance that Medicaid 
beneficiaries receive under a State plan, to be included in the DPP 
Medicaid fraction numerator. Moreover, this example was intended to 
illustrate the kind of benefits offered through a section 1115 
demonstration that are so limited that the patients receiving them 
should not be considered eligible for Medicaid for purposes of the DSH 
calculation.
    Because of the limited nature of the Medicaid benefits provided to 
expansion groups under some demonstrations, as compared to the benefits 
provided to the Medicaid population under a State plan, we determined 
it was appropriate to exclude the patient days of patients provided 
limited benefits under a section 1115 demonstration from the 
determination of Medicaid days for purposes of the DSH calculation. 
Therefore, in the FY 2004 IPPS final rule (68 FR 45420 and 45421), we 
revised the language of Sec.  412.106(b)(4)(i) to provide that for 
purposes of determining the DPP Medicaid fraction numerator, a patient 
is deemed eligible for Medicaid on a given day only if the patient is 
eligible for inpatient hospital services under an approved State 
Medicaid plan or under a section 1115 demonstration. Thus, under our 
current regulations, hospitals are allowed to count patient days in the 
DPP Medicaid fraction numerator only if they are days of patients made 
eligible for inpatient hospital services under either a State Medicaid 
plan or a section 1115 demonstration, and who are not also entitled to 
benefits under Medicare Part A.
    In 2005, the United States Court of Appeals for the Ninth Circuit 
held that demonstration expansion groups receive care ``under the State 
plan'' and that, accordingly, our pre-2000 practice of excluding them 
from the DPP Medicaid fraction numerator was contrary to the plain 
language of the Act. Subsequently, the United States District Court for 
the District of Columbia reached the same conclusion, reasoning that if 
our policy after 2000 of counting the days of demonstration expansion 
groups was correct, then patients in demonstration expansion groups 
were necessarily ``eligible for medical assistance under a State plan'' 
(that is, eligible for Medicaid), and the Act had always required 
including their days in the Medicaid fraction.
    Shortly after these court decisions, in early 2006, Congress 
enacted the Deficit Reduction Act of 2005 (the DRA) (Pub. L. 109-171, 
February 8, 2006). Section 5002 of the DRA amended section 
1886(d)(5)(F)(vi) of the Act to clarify the Secretary's discretion to 
regard as eligible for Medicaid those not so eligible and to include in 
or exclude from the DPP Medicaid fraction numerator demonstration days 
of

[[Page 12626]]

patients regarded as eligible for Medicaid. First, by distinguishing 
between ``patients who . . . were eligible for medical assistance under 
a State plan approved under subchapter XIX'' (that is, Medicaid) and 
``patients not so eligible but who are regarded as such because they 
receive benefits under a demonstration project,'' section 5002(a) of 
the DRA clarified that groups that receive benefits through a section 
1115 demonstration are not ``eligible for medical assistance under a 
State plan approved under title XIX.'' This provision effectively 
overruled the earlier court decisions that held that expansion groups 
were made eligible for Medicaid under a State plan. Second, the DRA 
stated ``the Secretary may, to the extent and for the period the 
Secretary determines appropriate, include patient days of patients not 
so eligible but who are regarded as such because they receive benefits 
under a demonstration project approved under title XI.'' Thus, the 
statute provides the Secretary the discretion to determine ``the 
extent'' to which patients ``not so eligible'' for Medicaid benefits 
``may'' be ``regarded as'' eligible ``because they receive benefits 
under a demonstration project approved under title XI.'' Third, this 
same language provides the Secretary with further authority to 
determine the days of which patients regarded as being eligible for 
Medicaid to include in the DPP Medicaid fraction numerator and for how 
long.
    Having provided the Secretary with the discretion to decide whether 
and to what extent to include patients who receive benefits under a 
demonstration project, Congress expressly ratified in section 5002(b) 
of the DRA our prior and then-current policies on counting 
demonstration days in the Medicaid fraction. As stated before, our pre-
2000 policy was not to include in the DPP Medicaid fraction numerator 
days of section 1115 demonstration expansion groups unless those 
patients could have been made eligible for Medicaid under a State plan. 
We changed that policy in 2000 to include in the DPP Medicaid fraction 
numerator all patient days of demonstration expansion groups made 
eligible for matching payments under title XIX, regardless of whether 
they could have been made eligible for Medicaid under a State plan. And 
for FY 2004, before the DRA was enacted, CMS had further refined this 
policy and included in the DPP Medicaid fraction numerator the days of 
only a small subset of demonstration expansion group patients regarded 
as eligible for Medicaid: those that were eligible to receive inpatient 
hospital insurance benefits under the terms of a section 1115 
demonstration. By ratifying the Secretary's pre-2000 policy, the 
January 2000 interim final rule, and the FY 2004 IPPS final rule, the 
DRA further established that the Secretary had always had the 
discretion to determine which demonstration expansion group patients to 
regard as eligible for Medicaid and whether or not to include any of 
them in the DPP Medicaid fraction numerator.
    Because at the time the DRA was passed the language of Sec.  
412.106(b)(4) already addressed the treatment of section 1115 days to 
exclude some expansion populations that received limited health 
insurance benefits through the demonstration, we did not believe it was 
necessary to update our regulations after the DRA explicitly granted us 
the discretion to include or exclude section 1115 days from the 
Medicaid fraction of the DSH calculation. We believed instead the 
language of Sec.  412.106(b)(4) reflected our view that only those 
eligible to receive inpatient hospital insurance benefits under a 
demonstration project could be ``regarded as'' ``eligible for medical 
assistance'' under Medicaid. Thus, considering this history and the 
text of the DRA, we understand the Secretary to have broad discretion 
to decide (1) whether and the extent to which to ``regard as'' eligible 
for Medicaid because they receive benefits under a demonstration those 
patients ``not so eligible'' under the State plan, and (2) of such 
patients regarded as Medicaid eligible, the days of which types of 
these patients to count in the DPP Medicaid fraction numerator and for 
what period of time to do so.
    We do not believe that either the statute or the DRA permit or 
require the Secretary to count in the DPP Medicaid fraction numerator 
days of just any patient who is in any way related to a section 1115 
demonstration. Rather, section 1886(d)(5)(F)(vi) of the Act limits 
including days of expansion group patients to those who may be 
``regarded as'' ``eligible for medical assistance under a State plan 
approved under title XIX.''

B. Uncompensated/Undercompensated Care Funding Pools Authorized Through 
Section 1115 Demonstrations

    CMS's overall policy for including section 1115 demonstration days 
in the DPP Medicaid fraction numerator rested on the presumption that 
the demonstration provided a package of health insurance benefits that 
were essentially the same as what a State provided to its Medicaid 
population. More recently, however, section 1115 demonstrations have 
been used to authorize funding a limited and narrowly circumscribed set 
of payments to hospitals. For example, some section 1115 demonstrations 
include funding for uncompensated/undercompensated care pools that help 
to offset hospitals' costs for treating uninsured and underinsured 
individuals. These pools do not extend health insurance to such 
individuals nor are they similar to the package of health insurance 
benefits provided to participants in a State's Medicaid program under 
the State plan. Rather, such funding pools ``promote the objectives of 
Medicaid'' as required under section 1115 of the Act, but they do so by 
providing funds directly to hospitals, rather than providing health 
insurance to patients. These pools help hospitals that treat the 
uninsured and underinsured stay financially viable so they can treat 
Medicaid patients.
    By providing hospitals payment based on their uncompensated care 
costs, the pools directly benefit those providers, and, in turn, albeit 
less directly, the patients they serve. Unlike demonstrations that 
expand the group of people who receive health insurance beyond those 
groups eligible under the State plan and unlike Medicaid itself, 
however, uncompensated/undercompensated care pools do not provide 
inpatient health insurance to patients or, like insurance, make 
payments on behalf of specific, covered individuals.\2\ In these ways, 
payments from these pools serve essentially the same function as 
Medicaid DSH payments under sections 1902(a)(13)(A)(iv) and 1923 of the 
Act, which are also title XIX payments to hospitals meant to subsidize 
the cost of treating the uninsured, underinsured, and low-income 
patients and that promote the hospitals' financial viability and 
ability to continue treating Medicaid patients. Notably, as numerous 
Federal courts across the country have universally held, the patients 
whose care costs are indirectly offset by such Medicaid DSH payments 
are not ``eligible for medical assistance'' under the Medicare DSH 
statute and are not included in the DPP Medicaid fraction numerator. 
See, for example, Adena Regional Medical Center v. Leavitt, 527 F.3d 
176 (D.C. Cir. 2008); Owensboro Health, Inc. v. HHS, 832 F.3d 615 (6th 
Cir. 2016).
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    \2\ For more information on this distinction, as upheld by 
courts, we refer readers to Adena Regional Medical Center v. 
Leavitt, 527 F.3d 176 (D.C. Cir. 2008), and Owensboro Health, Inc. 
v. HHS, 832 F.3d 615 (6th Cir. 2016).
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    We also note that demonstrations can simultaneously authorize 
different programs within a single demonstration,

[[Page 12627]]

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

C. Recent Court Decisions and Rulemaking Proposals on the Treatment of 
1115 Days in the Medicare DSH Payment Adjustment Calculation

    Several hospitals challenged our policy of excluding uncompensated/
undercompensated care days and premium assistance days from the DPP 
Medicaid fraction numerator, which the courts have recently decided in 
a series of cases.\3\ These decisions held that the current language of 
the regulation at Sec.  412.106(b)(4) requires CMS to count in the DPP 
Medicaid fraction numerator patient days for which hospitals have 
received payment from an uncompensated/undercompensated care pool 
authorized by a section 1115 demonstration, as well as days of patients 
who received premium assistance under a section 1115 demonstration. 
Interpreting this regulatory language, that was adopted before the DRA 
was enacted, two courts concluded that if a hospital received payment 
for a patient's otherwise uncompensated inpatient hospital treatment, 
that patient is ``eligible for inpatient hospital services'' within the 
meaning of the current regulation, and therefore, his patient day must 
be included in the DPP Medicaid fraction. Likewise, a court concluded 
that patients who receive premium assistance to pay for private 
insurance that covers inpatient hospital services are ``eligible for 
inpatient hospital services'' within the meaning of the current 
regulation, and those patient days must be counted.
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    \3\ Bethesda Health, Inc. v. Azar, 980 F.3d 121 (D.C. Cir. 
2020); Forrest General Hospital v. Azar, 926 F.3d 221 (5th Cir. 
2019); HealthAlliance Hospitals, Inc. v. Azar, 346 F. Supp. 3d 43 
(D.D.C. 2018).
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    As discussed previously, it was never our intent when we adopted 
the current language of the regulation to include in the DPP Medicaid 
fraction numerator days of patients that benefitted so indirectly from 
a demonstration. In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 
25459) (hereinafter, the FY 2022 proposed rule), we stated that we 
continued to believe, as we have consistently believed since at least 
2000, that it is not appropriate to include patient days associated 
with funding pools and premium assistance authorized by section 1115 
demonstrations in the DPP Medicaid fraction numerator because the 
benefits provided patients under such demonstrations are not similar to 
Medicaid benefits provided beneficiaries under a State plan and may 
offset costs that hospitals incur when treating uninsured and 
underinsured individuals. In the FY 2022 proposed rule, we proposed to 
revise our regulations to more clearly state that in order for an 
inpatient day to be counted in the DPP Medicaid fraction numerator, the 
section 1115 demonstration must provide inpatient hospital insurance 
benefits directly to the individual whose day is being considered for 
inclusion. We specifically discussed that, under the proposed change, 
days of patients who receive premium assistance through a section 1115 
demonstration and the days of patients for which hospitals receive 
payments from an uncompensated/undercompensated care pool created by a 
section 1115 demonstration would not be included in the DPP Medicaid 
fraction numerator. Because neither premium assistance nor 
uncompensated/undercompensated care pools are inpatient hospital 
insurance benefits directly provided to individuals, nor are they 
comparable to the breadth of benefits available under a Medicaid State 
plan, we stated that individuals associated with such assistance and 
pools should not be ``regarded as'' ``eligible for medical assistance 
under a State plan.''
    Commenters generally disagreed with our proposal, arguing that both 
premium assistance programs and uncompensated/undercompensated care 
pools are used to provide individuals with inpatient hospital services, 
either by reimbursing hospitals for the same services as the Medicaid 
program in the case of uncompensated/undercompensated care pools or by 
allowing individuals to purchase insurance with benefits similar to 
Medicaid benefits offered under a State plan in the case of premium 
assistance. Thus, they argued, those types of days should be included 
in the DPP Medicaid fraction numerator. Following review of these 
comments, in the final rule with comment period that appeared in the 
December 27, 2021 Federal Register, which finalized certain provisions 
of the FY 2022 proposed rule related to Medicare graduate medical 
education payments for teaching and Medicare organ acquisition payment, 
we stated that after further consideration of the issue we had 
determined not to move forward with our proposal and planned to revisit 
the issue of section 1115 demonstration days in future rulemaking (86 
FR 73418).
    After considering the comments we received in response to the FY 
2022 proposed rule, in the FY 2023 IPPS/LTCH PPS proposed rule (87 FR 
28398) (hereinafter, the FY 2023 proposed rule), we proposed to revise 
our regulation to explicitly reflect our interpretation of the language 
``regarded as'' ``eligible for medical assistance under a State plan 
approved under title XIX'' in section 1886(d)(5)(F)(vi) of the Act to 
mean patients who (1) receive health insurance authorized by a section 
1115 demonstration or (2) patients who pay for all or substantially all 
of the cost of health insurance with premium assistance authorized by a 
section 1115 demonstration, where State expenditures to provide the 
health insurance or premium assistance may be matched with funds from 
title XIX. Moreover, of the groups we regarded as Medicaid eligible, we 
proposed to use our discretion under the Act to include in the DPP 
Medicaid fraction numerator only (1) the days of those patients who 
obtained health insurance directly or with premium assistance that 
provides essential health benefits (EHB) as set forth in 42 CFR part 
440, subpart C, for an Alternative Benefit Plan (ABP), and (2) for 
patients obtaining premium assistance, only the days of those patients 
for which the premium assistance is equal to or greater than 90 percent 
of the cost of the health insurance, provided in either case that the 
patient is not also entitled to Medicare Part A. (87 FR 28398 through 
28402).
    In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49051), we noted 
that the agency received numerous, detailed comments on our proposal. 
We indicated that due to the number and nature of the comments that we 
received, and after further consideration of the issue, we had 
determined not to move forward with the FY 2023 proposal. We stated 
that we expected to revisit the treatment of section 1115 demonstration 
days for purposes of the DSH adjustment in future rulemaking (87 FR 
49051).

D. Current Proposal To Amend 42 CFR 412.106(b)(4)

    Consistent with our interpretation of the Medicare DSH statute over 
more than 2 decades and the history of our policy on counting section 
1115 demonstration days in the DPP Medicaid fraction numerator set 
forth in our regulations, considering the series of adverse cases 
interpreting the current regulation, and in light of what we

[[Page 12628]]

proposed in the FY 2022 and FY 2023 proposed rules and our 
consideration of the comments we received thereon, we are again 
proposing to amend the regulation at Sec.  412.106(b)(4). In order for 
days associated with section 1115 demonstrations to be counted in the 
DPP Medicaid fraction numerator, the statute requires those days to be 
of patients who can be ``regarded as'' eligible for Medicaid. 
Accordingly, and consistent with the proposed approach set forth in the 
FY 2023 proposed rule and with our longstanding interpretation of the 
statute and as amended by the DRA, and with the current language of 
Sec.  412.106(b)(4), we are proposing to modify our regulations to 
explicitly state our long-held view that only patients who receive 
health insurance through a section 1115 demonstration where State 
expenditures to provide the insurance may be matched with funds from 
title XIX can be ``regarded as'' eligible for Medicaid.
    Similar to our statements in the FY 2023 proposed rule, in further 
considering the comments regarding the treatment of the days of 
patients provided premium assistance through a section 1115 
demonstration to buy health insurance, we are again proposing that such 
patients can also be regarded as eligible for Medicaid under section 
1886(d)(5)(F)(vi) of the Act. Therefore, we propose for purposes of the 
Medicare DSH calculation in section 1886(d)(5)(F)(vi) of the Act to 
``regard as'' ``eligible for medical assistance under a State plan 
approved under title XIX'' patients who (1) receive health insurance 
authorized by a section 1115 demonstration or (2) buy health insurance 
with premium assistance provided to them under a section 1115 
demonstration, where State expenditures to provide the health insurance 
or premium assistance is matched with funds from title XIX. 
Furthermore, of these expansion groups we are proposing to regard as 
eligible for Medicaid, we propose to include in the DPP Medicaid 
fraction numerator only the days of those patients who receive from the 
demonstration (1) health insurance that covers inpatient hospital 
services or (2) premium assistance that covers 100 percent of the 
premium cost to the patient, which the patient uses to buy health 
insurance that covers inpatient hospital services, provided in either 
case that the patient is not also entitled to Medicare Part A. Finally, 
we propose stating specifically that patients whose inpatient hospital 
costs are paid for with funds from an uncompensated/undercompensated 
care pool authorized by a section 1115 demonstration are not patients 
``regarded as'' eligible for Medicaid, and the days of such patients 
may not be included in the DPP Medicaid fraction numerator.
    As discussed previously, we continue to believe it is not 
appropriate to include in the DPP Medicaid fraction numerator days of 
all patients who may benefit in some way from a section 1115 
demonstration. First, we do not believe the statute permits everyone 
receiving a benefit from a section 1115 demonstration to be ``regarded 
as'' ``eligible for medical assistance under a State plan approved 
under title XIX'' merely because they receive a limited benefit. 
Second, even if the statute were so to permit, as discussed herein, the 
Secretary believes the DRA provides him with discretion to determine 
which patients ``not so eligible'' for Medicaid under a State plan may 
be ``regarded as'' eligible. Thus, the Secretary proposes to regard as 
Medicaid eligible only those patients who receive as ``benefits'' from 
a demonstration health insurance or premium assistance to buy health 
insurance, because--at root--``medical assistance under a State plan 
approved under title XIX'' provides Medicaid beneficiaries with health 
insurance, not simply medical care. Third, the DRA also gives the 
Secretary the authority to decide which days of patients ``regarded 
as'' Medicaid eligible to include in the DPP Medicaid fraction 
numerator. Using this discretion, we propose to include only the days 
of those patients who receive from a demonstration (1) health insurance 
that covers inpatient hospital services or (2) premium assistance that 
covers 100 percent of the premium cost to the patient, which the 
patient uses to buy health insurance that covers inpatient hospital 
services, provided in either case that the patient is not also entitled 
to Medicare Part A.
    We note this is a change from the proposal included in the FY 2023 
proposed rule, which would have required that the insurance provide EHB 
and the premium assistance cover at least 90 percent of the cost of the 
insurance. The feedback we received on that proposal from interested 
parties included concerns regarding, among other issues, the burden 
associated with verifying whether a particular insurance program in 
which an individual was enrolled provided EHB, how to determine whether 
a particular premium assistance program covered at least 90 percent of 
the cost of the insurance, and the difficulty in receiving accurate 
information on those issues in a timely manner. In light of this 
feedback, this proposal maintains the policy established in the 
regulations at least as far back as FY 2004 that days associated with 
individuals who obtain health insurance from a demonstration that 
covers inpatient hospital services be included in the DPP Medicaid 
fraction numerator. We do not believe that it would be unduly difficult 
for providers to verify that a particular insurance program includes 
inpatient benefits. (We refer readers to section III. of this proposed 
rule for more information on the burden estimate associated with this 
proposal.)
    For those individuals who buy health insurance covering inpatient 
hospital services using premium assistance received from a 
demonstration, we are now proposing that the premium assistance cover 
100 percent of the individual's cost of the premium. Indeed, it may be 
difficult to distinguish between patients who, on the one hand, receive 
through a demonstration health insurance for inpatient hospital 
services or 100 percent premium assistance to purchase health insurance 
and patients who, on the other hand, are eligible for medical 
assistance under the State plan: all patients receive health insurance 
paid for with title XIX funds, and all may be enrolled in a Medicaid 
managed care plan. We also do not believe that it will be difficult for 
providers to verify that a particular demonstration covers 100 percent 
of the premium cost to the patient, as it is our understanding that all 
premium assistance demonstrations currently meet that standard. In 
other words, as a practical matter, if a hospital is able to document 
that a patient is in a demonstration that explicitly provides premium 
assistance, then that documentation would also document that a patient 
is in a demonstration that covers 100 percent of the individual's costs 
of the premium. We also believe our proposed standard of 100 percent of 
the premium cost to the beneficiary is appropriate because it 
encapsulates all current demonstrations as a practical matter. If in 
the future there is a demonstration that explicitly provides premium 
assistance that does not cover 100 percent of the individual's costs 
for the premium, we may revisit this issue in future rulemaking.
    As we have consistently stated, individuals eligible for medical 
assistance under title XIX are eligible for, among other things, 
specific benefits related to the provision of inpatient hospital 
services (in the form of inpatient hospital insurance). Because funding 
pool payments to hospitals authorized by a section 1115 demonstration 
do not provide health insurance to any patient, nor do the payments 
inure to any specific individual, uninsured patients whose costs are 
subsidized by uncompensated/

[[Page 12629]]

undercompensated care pool payments to hospitals do not receive 
benefits to the extent that or in a manner similar to the full 
equivalent of ``medical assistance'' available to those eligible under 
a Medicaid State plan. Uninsured or underinsured individuals, whether 
or not they benefit from uncompensated/undercompensated care pool 
payments to hospitals, do not have health insurance provided by the 
Medicaid program. Thus, we continue to believe that patients whose 
costs are associated with uncompensated/undercompensated care pools may 
not be ``regarded as'' Medicaid-eligible, and we are proposing to use 
the Secretary's discretion to not regard them as such. Even if they 
could be so regarded and irrespective of whether the Secretary has the 
discretion not to regard them as such, the Secretary also is proposing 
to use his authority to not include the days of such patients in the 
DPP Medicaid fraction numerator: Such patients have not obtained 
insurance under the demonstration, and including all uninsured patients 
associated with uncompensated/undercompensated care pools could distort 
the Medicaid proxy in the Medicare DSH calculation that is used to 
determine the low-income, non-senior population a hospital serves.\4\ 
An uninsured patient who does not pay their hospital bill (thereby 
creating uncompensated care for the hospital) is not necessarily a low-
income patient.
---------------------------------------------------------------------------

    \4\ See, Becerra v. Empire Health Foundation, 142 S. Ct. 2354, 
2358 (2022) (the Medicaid fraction counts the low-income, non-senior 
population).
---------------------------------------------------------------------------

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

E. Responses to Relevant Comments to Recent Prior Proposed Rules

    Many commenters on the FY 2022 and FY 2023 proposed rules asserted 
that the statute requires CMS to ``regard as'' Medicaid eligible 
patients with uncompensated care costs for which a hospital is paid 
from a demonstration funding pool and to count those patients' days in 
the DPP Medicaid fraction numerator. These commenters draw support for 
these conclusions by asserting that uninsured patients ``effectively'' 
receive insurance from an uncompensated/undercompensated care pool, and 
thus, cannot be reasonably distinguished from patients who receive 
insurance from the Medicaid program. They also stated that the 
inpatient benefits uninsured patients receive are the same inpatient 
benefits that Medicaid beneficiaries receive because the inpatient care 
they receive is the same.
    We continue to disagree with the commenters' factual predicates and 
the legal conclusions that the statute requires a patient receiving any 
benefit from a section 1115 demonstration to be ``regarded as'' a 
patient eligible for medical assistance under a State plan authorized 
by title XIX and that all days of such patients must be counted in the 
DPP Medicaid fraction numerator.
    First, we disagree with the proposition that uninsured patients 
whose costs may be partially paid to hospitals by uncompensated/
undercompensated care pools effectively have insurance, and therefore, 
are indistinguishable from Medicaid beneficiaries and expansion group 
patients whose days the Secretary includes in the DPP Medicaid fraction 
numerator. Uninsured patients, unlike Medicaid patients or expansion 
group patients, do not have health insurance. It is quite clear 
insurance that includes coverage for inpatient hospital services is 
beneficial in ways that uncompensated/undercompensated care pools are 
not or could not possibly be to individual patients.\5\ Medicaid and 
other forms of health insurance are not merely mechanisms of payment to 
providers for costs of patient care: Health insurance provides a 
reasonable expectation on the part of the insurance holder that they 
can seek treatment without the risk of financial ruin. Hospitals may 
bill uninsured patients for the full cost of their care and refer their 
medical debts to collection agencies when they are unable to pay, even 
if some of their medical treatment costs may be paid to the provider by 
an uncompensated/undercompensated care pool. Thus, it remains the case 
that uninsured patients may avoid treatment for fear of being unable to 
pay for it. For example, if two patients receive identical care from a 
hospital that accepts government-funded insurance, but one of them has 
insurance as a Medicaid beneficiary or receives insurance through a 
section 1115 demonstration and therefore is financially protected, 
while the other patient is uninsured and spends years struggling to pay 
their hospital bill--even if the hospital receives partial payment from 
a demonstration-authorized uncompensated/undercompensated care pool for 
that patient's treatment--the two patients have not received the same 
benefit from the government or one that could reasonably be ``regarded 
as'' comparable. This distinction between insured and uninsured 
patients is meaningful in this context, and we believe it is a sound 
basis on which to distinguish the treatment of patient days in the DSH 
calculation of uninsured patients who may in some way benefit from a 
section 1115 demonstration-authorized uncompensated/undercompensated 
care pool and the days of patients provided health insurance as a 
Medicaid beneficiary

[[Page 12630]]

under a State plan or through a demonstration.
---------------------------------------------------------------------------

    \5\ See Health Insurance Coverage and Health--What the Recent 
Evidence Tells Us (https://www.nejm.org/doi/pdf/10.1056/nejmsb1706645); Economic and Employment Effects of Medicaid 
Expansion Under ARP [verbar] Commonwealth Fund (https://www.commonwealthfund.org/publications/issue-briefs/2021/may/economic-employment-effects-medicaid-expansion-under-arp). To be 
clear, we mention these studies only in support of our assertion 
that having health insurance is fundamentally different than not 
having insurance.
---------------------------------------------------------------------------

    Second, we also disagree with commenters who have stated that 
uninsured patients whose costs may be paid to hospitals by an 
uncompensated/undercompensated care pool receive the same benefits as 
patients eligible for Medicaid because the inpatient hospital care is 
likely the same for both groups. As stated above, within the meaning of 
section 1886(d)(5)(F)(vi) of the Act, the ``benefits'' provided to the 
individual by Medicaid and other forms of insurance a patient receives 
is the promise of a payment made on behalf of a specific patient to a 
provider of care for providing the care, not the care itself the 
hospital provides. Also, the provision of inpatient hospital services 
and payment for such services are two distinct issues, and simply 
because a hospital treats a patient presenting a need for medical care 
does not indicate anything about whether or how the hospital may be 
paid for providing that care. Thus, the similarity of care a patient 
receives is irrelevant to the question of whether the ``benefits'' 
provided ``because'' of a demonstration may be ``regarded as'' 
something akin to ``medical assistance under a State plan approved 
under title XIX.''
    Therefore, we continue to disagree, as we have explained both here 
and in previous rulemakings, that the statute allows us to regard 
uninsured patients as eligible for Medicaid, just because they in some 
way benefit from an uncompensated/undercompensated care pool authorized 
by a demonstration. We understand the statute to provide that we may 
only include patients who are regarded as being eligible for Medicaid, 
such as the expansion groups at issue in the Portland Adventist and 
Cookeville cases \6\ who received from the demonstrations health 
insurance benefits that were like the ``medical assistance'' received 
by patients ``under a State plan.'' The Medicaid program can--and does 
(through Medicaid DSH payments)--subsidize the treatment of low-income, 
uninsured patients without making those individuals eligible for 
``medical assistance,'' as that phrase is used in the statute. See, for 
example, Adena Regional Medical Center v. Leavitt, 527 F.3d 176 (D.C. 
Cir. 2008); Owensboro Health, Inc. v. HHS, 832 F.3d 615 (6th Cir. 
2016). Therefore, we disagree that patients whose costs may be 
partially offset by an uncompensated/undercompensated care fund receive 
``medical assistance'' as that phrase is used in the Medicare DSH 
provision at section 1886(d)(5)(F)(vi) of the Act.
---------------------------------------------------------------------------

    \6\ Portland Adventist Med. Ctr. v. Thompson, 399 F.3d 1091, 
1096 (9th Cir. 2005); Cookeville Reg'l Med. Ctr. v. Thompson, 2005 
U.S. Dist. LEXIS 33351, *18 (D.D.C. Oct. 28, 2005).
---------------------------------------------------------------------------

    As we explained in the FY 2023 proposed rule (87 FR 28108 and 
28400) and reiterate again above, we believe that the statutory phrase 
``regarded as such'' refers to patients who are regarded as eligible 
for medical assistance under a State plan approved under title XIX, and 
therefore, should be understood to refer to patients who get insurance 
coverage paid for with Medicaid funds, just as if they were actually 
Medicaid-eligible. In other words, they are people who are treated by 
the Medicaid program as if they are eligible for Medicaid because of a 
demonstration approved under title XI, not merely because they are 
people who might receive from a demonstration a benefit that is not 
health insurance (such as treatment at a hospital).
    While it is true that a few courts have interpreted the regulation 
that we are proposing to replace to require including in the DPP 
Medicaid fraction numerator days associated with uncompensated/
undercompensated care because they read the regulation to treat such 
days as those of patients regarded as eligible for Medicaid, we 
disagree with those holdings. As noted previously, the current 
regulation was drafted prior to the enactment of section 5002 of the 
DRA, and therefore, does not directly interpret the language the DRA 
added to the Medicare statute. Section 5002(b) of the DRA ratified CMS' 
pre-2000 policy of not including expansion groups, like those in 
Portland Adventist and Cookeville, in the DPP Medicaid fraction 
numerator. The DRA also ratified CMS' January 2000 policy, which 
reversed the pre-2000 policy and included all expansion group days; and 
it similarly ratified CMS's FY 2004 policy that limited the type of 
expansion days included in the DPP Medicaid fraction numerator. 
Therefore, it cannot be that section 5002 of the DRA requires that all 
days of patients that receive any benefit from a demonstration must be 
included in the DPP Medicaid fraction numerator, as some commenters 
have suggested. Rather, the DRA provides the Secretary with discretion 
to determine whether populations that receive benefits under a section 
1115 demonstration should be ``regarded as'' eligible for Medicaid, and 
likewise provides the Secretary further discretion to determine ``the 
extent'' to which the days of those groups may be included in the DPP 
Medicaid fraction numerator.
    For all of the reasons discussed herein and previously, to the 
extent commenters read the Forrest General case (Forrest General 
Hospital v. Azar, 926 F.3d 221 (5th Cir. 2019)) as interpreting section 
1886(d)(5)(F)(vi) of the Act to require that any patient who benefits 
from a demonstration is regarded as eligible for Medicaid and required 
to be included in the Medicaid fraction, we respectfully disagree with 
that reading. Rather, the better reading of Forrest General is that the 
court determined that any patient who is ``regarded as'' eligible for 
medical assistance under the regulation (which the court found 
uninsured patients to be under the current regulation) must be included 
in the Medicaid fraction. We also disagree with this conclusion, for 
the reasons already stated. Nevertheless, we are proposing the changes 
in this rule to clarify whom the Secretary regards as eligible for 
Medicaid because of benefits provided by a section 1115 demonstration, 
and which of those patient days the Secretary proposes to include in 
the DPP Medicaid fraction numerator.
    In light of our prior rulemakings on this subject, and Congress' 
intervention in enacting section 5002 of the DRA, we believe the 
Secretary has, and has always had, the discretion to regard as eligible 
for Medicaid--or not--populations provided benefits through a 
demonstration, and to include or exclude those regarded as eligible, as 
he deems appropriate. First, the statute clearly uses discretionary 
language. It specifies that ``the Secretary may, to the extent and for 
the period the Secretary determines appropriate, include patient days 
of patients not so eligible but who are regarded as such because they 
receive benefits under a demonstration project approved under title 
XI.'' As the Supreme Court recently explained, ``may'' is 
quintessentially discretionary language. The Supreme Court has 
repeatedly emphasized that the use of ``may'' in a statute is intended 
to confer discretion rather than establish a requirement.\7\ ``The use 
of the word `may' . . . thus makes clear that . . . the Secretary `has 
the authority, but not the duty.' '' Lopez v. Davis, 531 U.S. 230, 241 
(2001). So while the DSH statute specifies the Secretary must count the 
days of patients ``eligible for medical assistance under a State plan 
approved under title XIX'' in the DPP Medicaid fraction numerator, the 
DRA provides that the Secretary may count the days of

[[Page 12631]]

those ``not so eligible'' (that is, patients not eligible for 
Medicaid).
---------------------------------------------------------------------------

    \7\ See Opati v. Republic of Sudan, 140 S. Ct. 1601, 1609 (2020) 
(The Court has ``repeatedly observed'' that ``the word `may' clearly 
connotes discretion.''). See also, for example, Weyerhaeuser Co. v. 
United States Fish and Wildlife Serv., 139 S. Ct. 361, 371 (2018); 
Jama v. Immigration and Customs Enforcement, 543 U.S. 335, 346 
(2005).
---------------------------------------------------------------------------

    The additional clause ``to the extent and for the period the 
Secretary determines appropriate'' provides even more evidence that 
Congress sought to give the Secretary the authority to determine which 
``patient days of patients not so eligible [for Medicaid] but who are 
regarded as such'' to count in the DPP Medicaid fraction numerator. In 
other words, the statute expressly contemplates that the Secretary may 
include the days of patients who are not actually eligible for medical 
assistance under a State plan approved under title XIX (eligible for 
Medicaid), but who are treated for all intents and purposes as if they 
were eligible for such ``medical assistance.'' But the Secretary is not 
commanded that he must count such patients. Accordingly, we disagree 
with commenters who stated that the statute requires we count in the 
DPP Medicaid fraction numerator all patients who benefit from a 
demonstration. Rather, the statute authorizes the Secretary to 
determine, as ``the Secretary determines [is] appropriate,'' whether 
patients are regarded as being eligible for Medicaid and, if so, ``the 
extent'' to which to include their days in the Medicaid fraction.
    Furthermore, even if uninsured patients are regarded as eligible 
for Medicaid, we propose not including them in the DPP Medicaid 
fraction numerator for policy reasons. The DPP is intended to be a 
proxy calculation for the percentage of low income patients a hospital 
treats. Congress has defined the proxy to count in the Medicare 
fraction the days of patients entitled to Medicare Part A and SSI; the 
days of patients not entitled to Medicare but eligible for Medicaid are 
counted in the Medicaid fraction. Thus, not every low income patient is 
necessarily counted in the DPP proxy. If we counted all uninsured 
patients who could be said to have benefited from an uncompensated/
undercompensated care pool (whether low income patients or not, because 
one need not be low-income to be uninsured and leave a hospital bill 
unpaid), we could potentially include in the DPP proxy not just all 
low-income patients in States with uncompensated/undercompensated care 
pools but also patients who are not low-income but who do not have 
insurance and did not pay their hospital bill. This would be a 
significant distortion from how Congress intended the DSH calculation 
to work, where the DPP is a proxy for the percentage of low-income 
patients hospitals serve based on patients covered by Medicare or 
Medicaid. We note that in contrast to an individual who could afford, 
but elects not to buy insurance, and lets bills go unpaid, an 
individual who receives insurance coverage under a section 1115 
demonstration by definition must meet low income standards. By using 
our discretion to include in the DPP Medicaid fraction numerator only 
the days of those demonstration patients for which the demonstration 
provides health insurance that covers inpatient hospital care and the 
premium assistance that accounts for 100 percent of the premium cost to 
the patient, we believe we are hewing to Congress' intent to count 
some, but not necessarily all, low-income patients in the proxy.
    Section 5002(b) of the DRA's ratification of the Secretary's prior 
policy and regulations on including or excluding demonstration group 
patient days from the DPP Medicaid numerator further supports our 
proposal here to exclude days of uninsured patients. By ratifying the 
Secretary's prior regulation that explicitly stated that our intent was 
to include in the fraction only the days of those that most looked like 
Medicaid-eligible patients, the limits we are proposing here to exclude 
days of uninsured patients whose costs are subsidized by uncompensated/
undercompensated care pool funding fully align with Congress's 
amendment of the statute.
    Also, counting all low-income patients in States with 
uncompensated/undercompensated care pools could drastically and 
unfairly increase DSH payments to hospitals located in States with 
broad uncompensated/undercompensated care pools in comparison to 
hospitals in States without uncompensated/undercompensated care pools, 
even though the cost burden on hospitals of treating low-income, 
uninsured patients might be higher in States without uncompensated/
undercompensated care pools, precisely because they do not have 
uncompensated/undercompensated care pools. The purpose ``of the DSH 
provisions is not to pay hospitals the most money possible; it is 
instead to compensate hospitals for serving a disproportionate share of 
low-income patients.'' \8\ We do not believe that purpose would be 
furthered by counting uninsured patients associated with uncompensated/
undercompensated care pool funding as if they were patients eligible 
for Medicaid.
---------------------------------------------------------------------------

    \8\ Becerra v. Empire Health Found., 142 S. Ct. 2354, 2367 
(2022) (emphasis added).
---------------------------------------------------------------------------

    Thus, while we continue to believe that the statute does not permit 
patients who might indirectly benefit from uncompensated/
undercompensated care pool funding to be ``regarded as'' eligible for 
Medicaid, if the statute permits us to regard such patients as eligible 
for medical assistance under title XIX, the statute also provides the 
Secretary with the discretion to determine whether to do so. We are 
electing to exercise the Secretary's discretion not to regard patients 
that may indirectly benefit from uncompensated/undercompensated funding 
pools as eligible for Medicaid. In any event, the statute also plainly 
provides the Secretary with the authority to determine whether to 
include patient days of patients regarded as eligible for Medicaid in 
the DPP Medicaid fraction numerator ``to the extent and for the 
period'' that the Secretary deems appropriate. Thus, we are also 
exercising the Secretary's discretion not to include in the DPP 
Medicaid fraction numerator patient days of patients associated with 
uncompensated/undercompensated care pool payments.
    In summary, we are proposing to revise our regulations at Sec.  
412.106(b)(4) to explicitly reflect our interpretation of the language 
``regarded as'' ``eligible for medical assistance under a State plan 
approved under title XIX'' ``because they receive benefits under a 
demonstration project approved under title XI'' in section 
1886(d)(5)(F)(vi) of the Act to mean patients (1) who receive health 
insurance through a section 1115 demonstration itself or (2) who 
purchase health insurance with the use of premium assistance provided 
by a section 1115 demonstration, where State expenditures to provide 
the insurance or premium assistance may be matched with funds from 
title XIX. Alternatively, we are exercising the discretion the statute 
provides the Secretary to propose limiting to those two groups the 
patients the Secretary ``regard[s] as'' ``eligible for medical 
assistance under a State plan'' ``because they receive benefits under a 
demonstration.'' Moreover, using the Secretary's authority to determine 
the days of which demonstration groups ``regarded as'' Medicaid 
eligible to include in the DPP Medicaid fraction numerator, we propose 
that only the days of those patients who receive from the demonstration 
(1) health insurance that covers inpatient hospital services or (2) 
premium assistance that covers 100 percent of the premium cost to the 
patient, which the patient uses to buy health insurance that covers 
inpatient hospital services, are to be included, provided in either 
case that the patient is not also entitled to Medicare Part A.

[[Page 12632]]

Finally, we are exercising the Secretary's discretion to not regard as 
Medicaid eligible patients whose costs are paid to hospitals from 
uncompensated/undercompensated care pool funds authorized by a section 
1115 demonstration; and we are similarly exercising the Secretary's 
authority to exclude the days of such patients from being counted in 
the DPP Medicaid fraction numerator, even if those patients could be 
``regarded as'' ``eligible for medical assistance under a State plan 
authorized by title XIX.'' Thus, we are also proposing to explicitly 
exclude from counting in the DPP Medicaid fraction numerator any days 
of patients for which hospitals are paid from demonstration-authorized 
uncompensated/undercompensated care pools.
    In developing the proposal above, we considered counting the days 
of patients in the DPP Medicaid fraction numerator whose inpatient 
hospital costs are paid for with funds from an uncompensated/
undercompensated care pool authorized by a section 1115 demonstration. 
However, after consideration, as discussed in greater detail above, 
because of the Secretary's interpretation of the statute and electing 
to exercise his discretion for policy reasons, we are not proposing to 
include counting patients whose inpatient hospital costs are paid for 
with funds from an uncompensated/undercompensated care pool authorized 
by a section 1115 demonstration in the DPP Medicaid fraction numerator. 
We invite public comments with regard to our statutory interpretation 
and our election to exercise the Secretary's authority discussed above, 
as well as our proposal not to count in the DPP Medicaid fraction 
numerator days of patients whose inpatient hospital costs are paid to 
hospitals from uncompensated/undercompensated care pool funds 
authorized by a section 1115 demonstration.
    Finally, we propose that our revised regulation would be effective 
for discharges occurring on or after October 1, 2023. As has been our 
practice for more than two decades, we have made our periodic revisions 
to the counting of certain section 1115 patient days in the Medicare 
DSH calculation effective based on patient discharge dates. Doing so 
again here treats all providers similarly and does not impact providers 
differently depending on their cost reporting periods.

III. Collection of Information Requirements

A. Statutory Requirement for Solicitation of Comments

    Under the Paperwork Reduction Act (PRA) of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. To 
fairly evaluate whether an information collection should be approved by 
OMB, section 3506(c)(2)(A) of the PRA of 1995 requires that we solicit 
comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In this proposed rule, we are soliciting public comment on the 
following information collection requirement (ICR).

B. ICR Relating To Counting Certain Days Associated With Section 1115 
Demonstrations in the Medicaid Fraction

    In the preamble of this proposed rule, we are proposing to revise 
the criteria for a hospital to count section 1115 demonstration 
inpatient days for which the patient is regarded as being eligible for 
Medicaid in the numerator of the Medicaid fraction: for the patient 
days of individuals who obtain benefits from a section 1115 
demonstration, the demonstration must provide those patients with 
insurance that includes coverage of inpatient hospital services, or the 
insurance the patient purchased with premium assistance provided by the 
demonstration must include coverage of inpatient hospital service; and 
that for days of patients who have bought health insurance that 
provides inpatient hospital benefits using premium assistance obtained 
through a section 1115 demonstration, that assistance must be equal to 
100 percent of the premium cost to the patient. We estimate 310 
hospitals will be affected by this requirement, which is the total 
number of Medicare-certified subsection (d) hospitals in the seven 
States (Arkansas, Massachusetts, Oklahoma, Rhode Island, Tennessee, 
Utah, and Vermont) that currently operate approved premium assistance 
section 1115 demonstrations. The estimated total burden is $18,350,169 
a year (1,736,883 inquiries a year x 0.25 hours per inquiry x (wages of 
$21.13/hour x 2 (fringe benefits)) = $18,350,169/year).
    The number of inquiries is calculated by subtracting the total CY 
2019 Medicare discharges from total CY 2019 discharges for all payers 
for all subsection (d) hospitals in each State with a currently 
approved premium assistance section 1115 demonstration. We used 
annualized discharges for both Medicare and all payer discharge figures 
rather than actual discharges, as some hospitals' cost reports do not 
provide data for an entire calendar year. To determine whether a 
patient's premiums for inpatient hospital services insurance are paid 
for by subsidies provided by a section 1115 demonstration, we believe 
hospitals would need to conduct inquiries for all patients with non-
Medicare insurance for purposes of reporting on the Medicare cost 
report.\9\ The estimated difference between all payer annualized 
discharges and annualized Medicare discharges was 1,736,883 in CY 2019.
---------------------------------------------------------------------------

    \9\ CMS-Form-2552-10 OMB No. 0938-0050.
---------------------------------------------------------------------------

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

    \10\ https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

    To obtain copies of a supporting statement and any related forms 
for the proposed collection summarized in this rulemaking document, 
please access the CMS PRA website by copying and pasting the following 
web address into your web browser and search the CMS-Form-2552-1: 
https://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.
    If you wish to comment on this information collection with respect 
to reporting, recordkeeping, or third-party

[[Page 12633]]

disclosure requirements, please submit your comments electronically as 
specified in the ADDRESSES section of this proposed rule.
    Comments must be received by May 1, 2023.

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 Analysis

A. Statement of Need

    This proposed rule is necessary to make payment policy changes 
governing the treatment of certain days associated with section 1115 
demonstrations in the DPP Medicaid fraction numerator for the purposes 
of determining Medicare DSH payments to subsection (d) hospitals under 
section 1886(d)(5)(F) of the Act. Specifically, we are proposing to 
revise our regulations to reflect explicitly our interpretation of the 
language ``patients . . . regarded as'' ``eligible for medical 
assistance under a State plan approved under title XIX'' ``because they 
receive benefits under a demonstration project approved under title 
XI'' in section 1886(d)(5)(F)(vi) of the Act to mean patients who 
receive health insurance through a section 1115 demonstration itself or 
who purchase insurance with the use of premium assistance provided by a 
section 1115 demonstration, where State expenditures to provide the 
insurance or premium assistance may be matched with funds from title 
XIX. Alternatively, the Secretary proposes to use his discretion under 
the statute to limit to these two groups those he regards as Medicaid 
eligible for the purpose of being counted in the DPP Medicaid fraction 
numerator. Moreover, of the groups ``regarded as'' Medicaid eligible, 
we propose that only the days of those patients who receive from the 
demonstration (1) health insurance that covers inpatient hospital 
services or (2) premium assistance that covers 100 percent of the 
premium cost to the patient, which the patient uses to buy health 
insurance that covers inpatient hospital services, be included, 
provided in either case that the patient is not also entitled to 
Medicare Part A. We are also proposing to revise our regulations to 
explicitly exclude days of patients for which hospitals are paid from 
uncompensated/undercompensated care pools authorized by section 1115 
demonstrations for the cost of such patients' inpatient hospital 
services.
    The primary objective of the IPPS is to create incentives for 
hospitals to operate efficiently and minimize unnecessary costs, while 
at the same time ensuring that payments are sufficient to adequately 
compensate hospitals for their legitimate costs in delivering necessary 
care to Medicare beneficiaries. In addition, we share national goals of 
preserving the Medicare Hospital Insurance Trust Fund.
    We believe that the changes proposed in this rulemaking are needed 
to further each of these goals, while maintaining the financial 
viability of the hospital industry and ensuring access to high quality 
health care for Medicare beneficiaries. We expect that these proposed 
changes would ensure that the outcomes of the IPPS are reasonable and 
provide equitable payments, while avoiding or minimizing unintended 
adverse consequences.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96 354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), 
Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with significant regulatory action/s and/or with economically 
significant effects ($100 million or more in any 1 year). Based on our 
estimates, OMB's Office of Information and Regulatory Affairs has 
determined that this rulemaking is ``economically significant'' as 
measured by the $100 million threshold. Accordingly, we have prepared a 
Regulatory Impact Analysis that to the best of our ability presents the 
costs and benefits of the rulemaking. Therefore, OMB has reviewed this 
proposed regulation, and the Department has provided the following 
assessment of its impact.

C. Detailed Economic Analysis

1. Benefits
     Incentives for hospitals to operate efficiently and 
minimize unnecessary costs will be created, while at the same time 
ensuring that payments are sufficient to adequately compensate 
hospitals for their legitimate costs in delivering necessary care to 
Medicare beneficiaries;
     The Medicare Hospital Insurance Trust Fund will be 
preserved; and
     The financial viability of the hospital industry and 
access to high quality health care for Medicare beneficiaries will be 
maintained.
    At this time, we are not able to quantify these benefits.
2. Costs
    Reporting and recordkeeping costs incurred by the hospitals are 
presented in the Paperwork Reduction Act analysis, above. The costs of 
reviewing these regulations are discussed below.
3. Transfers
    In section II. of this proposed rule, we discuss our proposed 
policies related to counting certain days associated with section 1115 
demonstrations in the Medicaid fraction. Specifically, we are proposing 
to revise our regulations to explicitly reflect our interpretation of 
the language ``patients . . . regarded as'' ``eligible for medical 
assistance under a State plan approved under title XIX'' ``because they 
receive benefits under a demonstration project approved under

[[Page 12634]]

title XI'' in section 1886(d)(5)(F)(vi) of the Act to mean patients who 
receive health insurance authorized by a section 1115 demonstration or 
patients who pay for health insurance with premium assistance 
authorized by a section 1115 demonstration, where State expenditures to 
provide the health insurance or premium assistance may be matched with 
funds from title XIX. Alternatively, we are proposing to use the 
statutory discretion provided the Secretary to regard as eligible for 
Medicaid only these same groups of patients. Moreover, irrespective of 
which individuals are ``regarded as'' Medicaid eligible, the Secretary 
is exercising his discretion to include in the DPP Medicaid fraction 
numerator only the days of those patients who receive from the 
demonstration (1) health insurance that covers inpatient hospital 
services or (2) premium assistance that covers 100 percent of the 
premium cost to the patient, which the patient uses to buy health 
insurance that covers inpatient hospital services, provided in either 
case that the patient is not also entitled to Medicare Part A.
    Seven States have section 1115 waivers that explicitly include 
premium assistance (we believe premium assistance in these States is 
100 percent of the premium cost to the patients): Arkansas, 
Massachusetts, Oklahoma, Rhode Island, Tennessee, Utah, and Vermont. 
Hospitals in States that have section 1115 demonstration programs that 
explicitly include premium assistance (at 100 percent of the premium 
cost to the patient) would be allowed to continue to include these days 
in the numerator of the Medicaid fraction, provided the patient is not 
also entitled to Medicare Part A. Therefore, there would be no change 
to how these hospitals report Medicaid days and no impact on their 
Medicaid fraction as a result of our proposed revisions to the 
regulations regarding the counting of patient days associated with 
these section 1115 demonstrations.
    For States that have section 1115 demonstrations that include 
uncompensated/undercompensated care pools, the patients whose care is 
subsidized by these section 1115 demonstration funding pools would not 
be ``regarded as'' ``eligible for medical assistance under a State plan 
approved under title XIX'' in section 1886(d)(5)(F)(vi) of the Act 
because the demonstration does not provide them with health insurance 
benefits. Even if they could be regarded as Medicaid eligible, the 
Secretary is proposing to use his authority to exclude the days of 
those patients from being counted in the DPP Medicaid fraction. 
Therefore, hospitals in the following six States would no longer be 
eligible to report days of patients for which they received payments 
from uncompensated/undercompensated care pools authorized by the 
States' section 1115 demonstration for use in the DPP Medicaid fraction 
numerator: Florida, Kansas, Massachusetts, New Mexico, Tennessee, and 
Texas.
    To estimate the impact of the proposal to exclude uncompensated/
undercompensated care pool days, we would need to know the number of 
these section 1115 demonstration days per hospital for the hospitals 
potentially impacted. We do not currently possess such data because the 
Medicare cost report does not include lines for section 1115 
demonstration days separately from other types of days. Therefore, the 
number of demonstration-authorized uncompensated/undercompensated care 
pool days per hospital and the net overall savings of this proposal are 
especially challenging to estimate.
    However, in light of public comments received in prior rulemakings 
recommending that we utilize plaintiff data in some manner to help 
inform this issue, we examined the unaudited figures claimed by 
plaintiffs in the most recent of the series of court cases on this 
issue, namely Bethesda Health, Inc. v. Azar, 980 F.3d 121 (D.C. Cir. 
2020), as currently reflected in the System for Tracking Audit and 
Reimbursement (STAR or the STAR system) as of the time of this 
rulemaking. Of the Bethesda Health plaintiff data in the STAR system 
that listed reported section 1115 demonstration-approved uncompensated/
undercompensated care pool days for purposes of effectuating the 
decision in that case, we utilized the reported unaudited amounts in 
controversy claimed by the plaintiffs for the more recent of their cost 
reports ending in FY 2016 or FY 2017. We then utilized the number of 
beds (2,490) reported in the March 2022 Provider Specific File to 
determine the average unaudited amount in controversy per bed ($2,477) 
for these plaintiffs. Based on the data as shown in Table 1, the 
average unaudited amount in controversy per bed for these plaintiffs is 
$2,477 (= $6,167,193/2,490). We note that there are Bethesda Health 
plaintiffs that do not have section 1115 demonstration program days 
listed in STAR, and one plaintiff that has section 1115 demonstration 
program days listed in STAR, but the most recent cost report with this 
data ends in FY 2012; therefore, these plaintiffs are not listed in 
Table 1.

     Table 1--Average Unaudited Amount in Controversy per Bed (A/B)
------------------------------------------------------------------------
                                                               Average
                                                              unaudited
 Unaudited amount in controversy by plaintiff       Beds      amount in
                                                             controversy
                                                               per bed
(A)                                                     (B)        (A/B)
------------------------------------------------------------------------
$2,174,897....................................          382  ...........
1,342,081.....................................          512  ...........
253,404.......................................          210  ...........
1,301,024.....................................          717  ...........
505,899.......................................          310  ...........
318,984.......................................          181  ...........
270,905.......................................          178  ...........
------------------------------------------------------------------------
  Total 6,167,193.............................  Total 2,490       $2,477
------------------------------------------------------------------------

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

                              Table 2--Extrapolated Unaudited Amount in Controversy
----------------------------------------------------------------------------------------------------------------
                                                                                     Unaudited
                                                                                  average amount   Extrapolated
                                                                   DSH hospital         in           unaudited
                              State                                    beds         controversy      amount in
                                                                                   per bed from     controversy
                                                                                      Table 1
                                                                             (A)             (B)         (A x B)
----------------------------------------------------------------------------------------------------------------
Florida.........................................................          50,352  ..............  ..............
Kansas..........................................................           5,881  ..............  ..............
Massachusetts...................................................          13,099  ..............  ..............

[[Page 12635]]

 
New Mexico......................................................           3,405  ..............  ..............
Tennessee.......................................................          15,718  ..............  ..............
Texas...........................................................          52,340  ..............  ..............
                                                                 -----------------------------------------------
    Total.......................................................         140,795          $2,477    $348,749,215
----------------------------------------------------------------------------------------------------------------

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

D. Regulatory Review Cost Estimation

    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the rule, we assume that the total number of IPPS 
hospitals, the majority of which are DSH eligible, will be the number 
of reviewers of this proposed rule. We acknowledge that this assumption 
may understate or overstate the costs of reviewing this rule. It is 
possible that not all IPPS hospitals will review this rule (such as 
those hospitals that consistently are not eligible for DSH payments), 
while certain hospital associations and other interested parties will 
likely review this rule. For these reasons, we believe that the total 
number of IPPS hospitals (3,150) would be a fair estimate of the number 
of reviewers of this rule. We welcome any comments on the approach in 
estimating the number of entities that will review this proposed rule.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this rule is $115.22 per hour, including overhead and fringe benefits 
https://www.bls.gov/oes/current/oes_nat.htm. Assuming an average 
reading speed, we estimate that it would take approximately 1.5 hours 
for the staff to review this proposed rule. For each entity that 
reviews the rule, the estimated cost is $172.83 (1.5 hours x $115.22). 
Therefore, we estimate that the total cost of reviewing this regulation 
is $544,414.50 ($172.83 x 3,150 reviewers).

E. Alternatives Considered

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

F. Accounting Statement and Table

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

[[Page 12636]]



  Table 3--Accounting Statement: Classification of Estimated Expenditures for Counting Certain Days Associated With Section 1115 Demonstrations in the
                                      Medicaid Fraction for Medicare Disproportionate Share Hospital (DSH) Payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Primary                                                      Discount rate
                        Category                             estimate      Low estimate    High estimate    Year dollar         (%)       Period covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized monetized transfers to the Federal government            $349            $262            $436            2022               7       2022-2023
 from IPPS Medicare Providers...........................
Annualized Monetized ($million/year)....................            0.54            0.41            0.68            2022               7            2022
Regulatory Review Costs.................................            0.54            0.41            0.68            2022               3            2022
--------------------------------------------------------------------------------------------------------------------------------------------------------

G. Regulatory Flexibility Act (RFA)

    The RFA requires agencies to analyze options for regulatory relief 
of small entities if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, we estimate that 
almost all hospitals are small entities as that term is used in the 
RFA. The great majority of hospitals and most other health care 
providers and suppliers are small entities, either by being nonprofit 
organizations or by meeting the SBA definition of a small business 
(having revenues of less than $8.0 million to $41.5 million in any 1 
year). (For details on the latest standards for health care providers, 
we refer readers to page 32 of the Table of Small Business Size 
Standards for Sector 62, Health Care and Social Assistance found on the 
SBA website at https://www.sba.gov/content/small-business-size-standards.)
    Medicare Administrative contractors (MACs) are not considered to be 
small entities because they do not meet the SBA definition of a small 
business.
    HHS's practice in interpreting the RFA is to consider effects 
economically ``significant'' if greater than 5 percent of providers 
reach a threshold of 3 to 5 percent or more of total revenue or total 
costs. We do not believe that the requirements in this proposed rule 
would reach this threshold. Specifically, based on data from the FY 
2023 final rule, we estimate that DSH payments are approximately 2.8 
percent of all payments under the IPPS for FY 2023. Therefore, the 
Secretary has certified that this proposed rule will not have a 
significant economic impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a proposed rule may have a significant 
impact on the operations of a substantial number of small rural 
hospitals. This analysis must conform to the provisions of section 603 
of the RFA. For purposes of section 1102(b) of the Act, with the 
exception of hospitals located in certain New England counties, we 
define a small rural hospital as a hospital that is located outside of 
a metropolitan statistical area and has fewer than 100 beds. We are not 
preparing an analysis for section 1102(b) of the Act because we have 
determined, and the Secretary certifies, that this proposed rule would 
not have a significant impact on the operations of a substantial number 
of small rural hospitals.

H. Unfunded Mandates Reform Act (UMRA)

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending by State, local, and 
tribal governments in any 1 year of $100 million in 1995 dollars, 
updated annually for inflation. In 2023, that threshold is 
approximately $177 million. This proposed rule does not mandate any 
requirements for State, local, or tribal governments, or for the 
private sector.

I. Federalism

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

Chiquita Brooks-LaSure, Administrator of the Centers for Medicare & 
Medicaid Services, approved this document on January 10, 2023.

List of Subjects in 42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, and Reporting and recordkeeping requirements.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
1. The authority citation for part 412 continues to read as follows:

    Authority:  42 U.S.C. 1302 and 1395hh.

0
2. Amend Sec.  412.106 by
0
a. Revising paragraphs (b)(4) introductory text, (i), and (ii);
0
b. Redesignating paragraphs (b)(4)(iii) and (iv) as paragraphs 
(b)(4)(iv) and (v), respectively; and
0
c. Adding new paragraph (b)(4)(iii).
    The revisions and addition read as follows:


Sec.  412.106  Special treatment: Hospitals that serve a 
disproportionate share of low-income patients.

* * * * *
    (b) * * *
    (4) Second computation. The fiscal intermediary determines, for the 
same cost reporting period used for the first computation, the number 
of the hospital's patient days of service for patients (A) who were not 
entitled to Medicare Part A, and (B) who were either eligible for 
Medicaid on such days as described in paragraph (b)(4)(i) of this 
section or who were regarded as eligible for Medicaid on such days and 
the Secretary has determined to include those days in this computation 
as described in paragraph (b)(4)(ii)(A) or (B) of this section. The 
fiscal intermediary then divides that number by the total number of 
patient days in the same period. For purposes of this second 
computation, the following requirements apply:
    (i) For purposes of this computation, a patient is eligible for 
Medicaid on a given day if the patient is eligible on that day for 
inpatient hospital services under a State Medicaid plan approved under 
title XIX of the Act, regardless of whether particular items or 
services were covered or paid for on that day under the State plan.
    (ii) For purposes of this computation, a patient is regarded as 
eligible for Medicaid on a given day if (I) the patient receives health 
insurance

[[Page 12637]]

authorized by a demonstration approved by the Secretary under section 
1115(a)(2) of the Act for that day, where the cost of such health 
insurance may be counted as expenditures under section 1903 of the Act, 
or (II) the patient has health insurance for that day purchased using 
premium assistance received through a demonstration approved by the 
Secretary under section 1115(a)(2) of the Act, where the cost of the 
premium assistance may be counted as expenditures under section 1903 of 
the Act, and in either case regardless of whether particular items or 
services were covered or paid for on that day by the health insurance. 
Of these patients regarded as eligible for Medicaid on a given day, 
only the days of patients meeting the following criteria on that day 
may be counted in this second computation:
    (A) Patients who are provided by a demonstration authorized under 
section 1115(a)(2) of the Act health insurance that covers inpatient 
hospital services; or
    (B) Patients who purchase health insurance that covers inpatient 
hospital services using premium assistance provided by a demonstration 
authorized under section 1115(a)(2) of the Act and the premium 
assistance accounts for 100 percent of the premium cost to the patient.
    (iii) Patients whose health care costs, including inpatient 
hospital services costs, for a given day are claimed for payment by a 
provider from an uncompensated, undercompensated, or other type of 
funding pool authorized under section 1115(a) of the Act to fund 
providers' uncompensated care costs are not regarded as eligible for 
Medicaid for purposes of paragraph (b)(4)(ii) of this section on that 
day and the days of such patients may not be included in this second 
computation.
* * * * *

    Dated: February 17, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2023-03770 Filed 2-24-23; 4:15 pm]
BILLING CODE 4120-01-P