Medicaid Program; Flexibility in Payment Methods for Services of Hospitals, Nursing Facilities, and Intermediate Care Facilities for the Mentally Retarded

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 447

[HCFA-2004-P]

RIN 0938-AI70

Medicaid Program; Flexibility in Payment Methods for Services of

Hospitals, Nursing Facilities, and Intermediate Care Facilities for the

Mentally Retarded

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

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SUMMARY: This rule proposes to amend the Medicaid regulations that deal

with payment for the services of hospitals and long-term care

facilities. It proposes to remove all references to regulations based

on the Boren Amendment and to add more flexible rules for States

changing rates or payment methodologies for hospitals and long-term

care facilities. These revisions will conform the regulations to the

Social Security Act, as revised by section 4711 of the Balanced Budget

Act of 1997.

DATES: Comments will be considered if we receive them at the

appropriate address, as provided below, no later than 5 p.m. on

December 6, 1999.

ADDRESSES: Department of Health and Human Services, Attention: HCFA-

2004-P, P.O. Box 7517, Baltimore, MD 21207-5187

If you prefer, you may deliver an original and 3 copies of your

written comments to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC, or

Room C5-09-26, 7500 Security Boulevard, Baltimore, Maryland.

Because of staffing and resource limitations, we cannot accept

comments by facsimile (FAX) transmission. In commenting please refer to

file code HCFA-2004-P. Comments received timely will be available for

inspection as they are received, generally beginning approximately

three weeks after publication of a document, in Room 309-G of the

Department's offices at 200 Independence Avenue, SW., Washington D.C.,

on Monday through Friday of each week from 8:30 a.m. to 5 p.m.

(telephone: (202) 690-7890).

FOR FURTHER INFORMATION CONTACT: Marge Lee, (410) 786-4361.

SUPPLEMENTARY INFORMATION: Copies: To order copies of the Federal

Register containing this document, send your request to: New Orders,

Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-

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Specify the date of the issue requested and enclose a check or

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guest (no password required). Dial-in users should use communications

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guest (no password required).

I. Background

A. The Boren Amendment

The Social Security Act (the Act) was amended by section 962 of

Public Law

[[Page 54264]]

96-499 (OBRA '80) and section 2173 of Public Law 97-35 (OBRA '81),

known collectively as the Boren amendment, that became effective on

October 1, 1980 and October 1, 1981, respectively. ``Boren'' required

the State agencies to pay hospitals, nursing facilities (NF), and

intermediate care facilities for the mentally retarded (ICF/MR), with

rates that were ``* * * reasonable and adequate to meet the costs which

must be incurred by efficiently and economically operated facilities in

order to provide care and services in conformity with applicable State

and Federal laws, regulations, and quality and safety standards * *

*''. State agencies were required to find, and make assurances

satisfactory to the Secretary, that their rates met those requirements

and that individuals eligible for medical assistance had reasonable

access to inpatient services of adequate quality.

The Balanced Budget Act of 1997 (BBA) repealed the Boren amendment

effective October 1, 1997. The Boren amendment still applies to

payments for items and services furnished before October 1, 1997;

however, we recognize that the intent in repealing the Boren amendment

was to reduce our role in the rate-setting process for inpatient

hospital and long-term care facility payments and to increase State

flexibility in this area. In light of the less restrictive requirements

now in place, we are committed to working with State agencies to

expedite the resolution of outstanding Boren issues in existing pending

amendments.

B. Effects of the Balanced Budget Act of 1997

The BBA, which became effective on October 1, 1997, repealed

sections 1902(a)(13)(A), (13)(B), and (13)(C) of the Act. Many of the

Federal requirements related to the State plan amendment process for

institutional payment have been eliminated, with the intent of allowing

greater State flexibility in setting payment rates. State agencies no

longer need to make an annual finding that their payment rates are

reasonable and adequate to meet the costs that must be incurred by

efficiently and economically operated providers. In addition, for State

plan amendments involving institutional payment with proposed effective

dates of October 1, 1997 and beyond, State agencies are not required to

submit assurances and related rate information to us.

Although these requirements were based on the Boren amendment and

therefore were eliminated with the Boren amendment repeal, we want to

clarify that certain requirements remain unchanged. All of the

regulations in 42 CFR 447.252, 447.257, 447.271, and 447.280 continue

to apply to payment rates for inpatient hospital and long-term care

services. Other requirements that continue, but are changed due to the

new public process requirements, are discussed in the ``Provisions of

this Proposed Rule'' section below.

The Omnibus Budget Reconciliation Act of 1987 (OBRA '87)

comprehensively revised the statutory authority that applies to nursing

homes participating in Medicaid. This revision, often referred to as

Nursing Home Reform, responded to general concern about the quality of

nursing home care paid for by the Medicaid and Medicare programs, as

well as findings and recommendations of a 1986 Institute of Medicine

report. The repeal of the Boren amendment eliminated the requirement

that States provide an assurance that, effective October 1, 1990, their

rates ``take into account the costs of complying with subsections (b)

[other than paragraph (3)(F) thereof], (c) and (d) of section 1919 of

the Act and provide, in the case of a nursing facility with a waiver

under section 1919(b)(4)(C)(ii) of the Act for an appropriate reduction

to take into account the lower costs (if any) of the facility for

nursing care.'' However, State agencies are still required to comply

with all of the subsections of section 1919 of the Act. The repeal of

the Boren amendment has not relieved States of the responsibility of

promoting quality of care for their beneficiaries served in nursing

homes.

We are concerned about the quality of care in nursing homes and

ICFs/MR and continue to seek ways to ensure high quality of care in

these settings. Towards that end, we are soliciting comments from

consumers and their representatives, providers, and States on including

a discussion of how quality of care will be maintained as part of the

State agency's justification of the new payment rates.

We want to clarify our position on the public notice requirements

in Sec. 447.205. We have reviewed our past position and have concluded

that while these requirements still have continuing validity with

respect to non-institutional providers, they have diminished relevance

to Medicaid institutional payment rates. The public notice requirements

in Sec. 447.205 were applied to Boren amendment payment rates because

section 1902(a)(13) of the Act did not speak to the process by which

State agencies were to adopt payment rates. Since this provision of the

statute was silent on this process, we viewed the public notice

requirements as being applicable to this part of the State agency's

program. However, with the repeal of the Boren amendment, we now have

in section 4711 of the BBA a provision that specifies the process that

State agencies are to employ in establishing rates for inpatient

hospitals and long-term care facilities. Therefore, with respect to

inpatient hospital and long-term care facility payments, the public

notice requirements in Sec. 447.205 have been superseded. Accordingly,

we propose to make a change to the text at Sec. 447.205(a) to clarify

that the requirements in that section no longer apply to institutional

payments.

Because we are now clarifying that Sec. 447.205 has applicability

only to non-institutional services, we want to be certain that the

public realizes that the exceptions that previously would have enabled

States to be excused from providing public notice would no longer

apply. Thus, the provisions, at paragraph (b), that would excuse a

State from compliance with the otherwise applicable public notice

requirements when changes are needed to conform payment rates to

Medicare methods or levels of reimbursement, or when changes are

required by a court order, would have force only with respect to non-

institutional services. Because section 4711 requires that States

engage in a public process that entails the publication of proposed and

final rates, methodologies, and justifications whenever a State wishes

to make payment rate changes, it does not seem to account for the kinds

of exceptions set out in the current rule nor any other type of

exceptions. Accordingly, we are making clear in the rule that the

exceptions to public notice set out in Sec. 447.205(b) only would apply

to non-institutional payment rates.

We want to clarify the circumstances in which a change in payment

rates for inpatient hospital and long-term care facility services would

not be subject to the public process requirements set forth in section

4711 of the BBA. If a State agency has a methodology in its State plan

that allows for rates to change solely due to the application of an

objective indicator such as the CPI, then those rates, that is, the

periodic update, the underlying methodologies, and justifications do

not need to be published. If, however, rates change for any other

reason, including any change in the payment methods and standards, then

those rates, methodologies, and justifications need to be published in

accordance with the State's public process.

[[Page 54265]]

It is our intent to provide substantial flexibility to State

agencies in development of a public process that fulfils the

requirements and purposes of section 4711 of the BBA. The least

burdensome approach to having State agencies assure us that they have

in place an acceptable public process is for State agencies to submit a

preprint page that becomes a part of the State plan and indicates that

the State agency has in place, and uses, a public process which meets

the requirements of section 4711 of the BBA. Alternatively, State

agencies may indicate elsewhere in the State plan that they have in

place, and use, a public process that meets the requirements of section

4711 of the BBA. This information will only need to be submitted to us

once, and once approved, will become part of the State plan. During

implementation of this provision, we weighed carefully the balance

between maximizing State flexibility and maintaining appropriate

oversight of Federal Medicaid expenditures. The repeal of the Boren

based regulatory provisions through this rule, significantly reduces

the burden on State agencies seeking Federal financial participation

for institutional services. Previously, each time a State agency chose

to amend its methods and standards for institutional payments, the

State agency had to include in its amendment, a five page check list

indicating its compliance with over a dozen regulatory provisions, as

well as provide information on the rate in effect as a result of the

amendment. With this regulation, we propose to require State agencies

to submit one page each for their inpatient hospital and long term care

sections of their State plan. These pages do not contain specific rate

information, but rather provide formal assurance to us that the State

agency is in compliance with section 4711. Furthermore, the proposed

options available to the State agencies in complying with he public

process requirements of section 4711 provide State agencies with

additional flexibility. State agencies may choose to implement one of

three suggested public processes, or create a similar public process

that conforms with section 4711.

II. Provisions of This Proposed Rule

The purpose of this proposed rule is to clarify in the Code of

Federal Regulations the increased State flexibility in setting payment

rates for inpatient hospital and long-term care services required

through section 4711 of the BBA.

We propose to amend Sec. 447.250 by removing the requirement that

States ``* * * pay for inpatient hospital and long-term care services

through rates that the State finds, and makes assurances satisfactory

to the Secretary, are reasonable and adequate to meet the costs which

must be incurred by efficiently and economically operated facilities in

order to provide care and services in conformity with applicable State

and Federal laws and regulations, and quality and safety standards.''

We also propose to add to that same section, language that would

require the State agency to develop and use a public process to

determine rates and publish proposed and final rates, the underlying

methodologies, and justification for the rates, and also to give

interested parties a reasonable opportunity for review and comment on

the proposed rates, methodologies, and justifications.

The State agency will comply with this provision if it elects to

use an administrative process similar to the Federal Administrative

Procedures Act, that satisfies the requirements for a public process in

developing and inviting comment. This will allow State agencies the

flexibility to follow current State public procedures. If a State's

public process is not currently being applied to rate setting, or does

not currently include a comment period, then the State agency would

need to modify the process for purposes of meeting the requirements in

this section.

Alternatively, State agencies may elect to use a public process

other than their regular administrative procedures. Examples of what we

consider to be an acceptable public process include the following:

Hold one or more public hearings, at which the proposed rates,

methodologies, and justifications are described and made available to

the public, and time is provided during which comments can be received.

Hold one or more additional public hearings, at which the final rates,

methodologies, and justifications are described and made available to

the public.

Use a commission or similar process, where meetings are open

to members of the public, in the development of proposed and final

rates, methodologies, and justifications.

Include notice of the intent to submit a State plan amendment

in newspapers of general circulation, and provide a mechanism for

members of the public to receive a copy of the proposed and final

rates, methodologies, and justifications underlying the amendment, and

an opportunity, which shall not be less than 30 days prior to the

proposed effective date, to comment on the proposed rates,

methodologies, and justifications.

Include any other similar process for public input that would

afford an interested party a reasonable opportunity to learn about the

proposed and final rates, methodologies, and justifications, and to

comment on the proposed rates, methodologies, and justifications.

State agencies will be required to indicate in the State plan that

they have in place a public process that meets the requirements of

section 1902(a)(13)(A) of the Act. This information need only be

submitted once, and States may use the preprint page that we provide,

which makes this statement, or include the language from the preprint

page in their State plan at an appropriate location. In the case of

hospitals, these rates must take into account the situation of

hospitals that serve a disproportionate number of low income patients

with special needs.

While the intent in repealing the Boren amendment was to permit

States maximum flexibility in the rates they establish for

institutional services, section 4711 of the BBA is intended to assure

that the processes established by the State agency for setting those

rates will be conducted in a public manner, with meaningful

opportunities for public input. Therefore, we are adding to

Sec. 447.251, for purposes of this subpart, a definition of the word

``published.'' We interpret the word ``published'' to mean ``at least,

produced and made available in hard copy and, if possible,

electronically, such that any interested party may readily obtain a

copy of the proposed and final rates, the underlying methodologies, and

justifications.'' We feel that a definition which provides specific

guidance on what we consider acceptable forms of publication of rates,

the methodologies underlying the rates, and the justifications is

fairer and more workable than the course we initially recommended after

the enactment of the BBA. We recognize that this definition of

``published'' differs from the guidance we sent to State agencies in

our letter of December 10, 1997 regarding the repeal of the Boren

amendment. In that letter, we indicated that ``published'' means ``made

public'', without requiring State agencies to issue an actual written

publication to meet the new public process requirements. However, we

specifically want to solicit public comment on this proposed change in

the definition of ``published''.

[[Page 54266]]

We are removing Secs. 447.253 and 447.255 from the text. The

requirements contained in these sections are no longer applicable to

the setting of institutional rates.

We are adding a new Sec. 447.254 to address the new public process

that the State agencies must have in place to satisfy the requirements

of the BBA. In Sec. 447.254(a) we describe the steps in the public

process, indicating that proposed rates, methodologies underlying the

establishment of such rates and the justifications for the rates must

be published prior to the proposed effective date, giving a reasonable

opportunity for review and comment. State agencies may elect to apply

the notice periods specified in their State general administrative

procedures acts. The final rates and the associated methodologies and

justifications must also be published, but may be published following

the effective date.

In Sec. 447.254(b) we explain that State agencies must indicate to

us that they have in place a public process that meets the requirements

of Sec. 447.254(a). This language is to be submitted to us only one

time for approval. Once approved, the language will become a part of

the State plan.

In Sec. 447.256, we have removed the reference to repealed

Sec. 447.253 and replaced it with a reference to the new Sec. 447.254.

In Sec. 447.272, we have removed the reference to repealed

Sec. 447.253(B)(1)(ii)(A) and replaced it with a reference to section

1902(a)(13)(A)(iv) of the Act.

III. Response to Comments

Because of the large number of items of correspondence we normally

receive in response to Federal Register documents published for

comment, 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 ``COMMENT DATE'' section of this preamble, and,

when we proceed with a subsequent document, we will respond to the

comments in the preamble to that document.

IV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to

provide 60-day notice in the Federal Register and solicit public

comment before a collection of information requirement is submitted to

the Office of Management and Budget (OMB) for review and approval. In

order to fairly evaluate whether an information collection should be

approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act

of 1995 requires that we solicit comment on the following issues:

The need for the information collection and its usefulness in

carrying out the proper functions of our agency.

The accuracy of our estimate of the information collection

burden.

The quality, utility, and clarity of the information to be

collected.

Recommendations to minimize the information collection burden

on the affected public, including automated collection techniques.

Therefore, we are soliciting public comment on each information

collection requirement discussed below.

Section 447. 252 State Plan Requirements

Section 447. 252(b) states that the State plan must specify

comprehensively the methods and standards used by the State agency to

set payment rates in a manner consistent with Sec. 430.10. This section

requires State agencies to maintain in their State plan a current

description of their payment methods and standards for institutional

services. State agencies generally amend their State plans between one

and five times during the fiscal year through State plan amendments

submitted to us for review and approval.

Section 447.254 Public Process Requirements

Section 447.254(b) requires that the State agency report to us that

it has in place a public process for determination of payment rates

under the plan for hospital services and long-term care facility

services.

This information is submitted by State agencies on a one-time basis

for the hospital payment section of the Medicaid State plan and a one-

time basis for the long-term care payment section of the Medicaid State

plan. It requires the submission of a single sentence in each instance.

State agencies have the option of signing a preprinted statement or

they may copy the statement into their plan and initialize the page

with the statement. Once approved, this statement will become part of

the State plan. Our best estimate is that it will take \1/4\ hour or

less for a State agency to submit each statement. At two per State (one

each for the hospital payment and long-term care payment sections of

the Medicaid State plan), that would result in \1/2\ hour for each of

54 States, or approximately 27 hours total.

We have submitted a copy of this proposed rule to OMB for its

review of the information collection requirement described above. This

requirement is not effective until it has been approved by OMB.

If you comment on this information collection, please mail copies

directly to the following:

Health Care Financing Administration, Office of Information Services,

Security and Standards Group, Division of HCFA Enterprise Standards

Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Attention:: Julie Brown, HCFA-2004-P, and

Office of Information and Regulatory Affairs, Office of Management and

Budget, Room 10235, New Executive Office building, Washington, DC 20503

Attn: Allison Eydt, HCFA Desk Officer.

V. Regulatory Impact Statement

We have examined the impacts of this proposed rule as required by

Executive Order 12866 and the Regulatory Flexibility Act (RFA) (Public

Law 96-354). Executive Order 12866 directs agencies to assess all costs

and benefits of available regulatory alternatives and, when regulation

is necessary, to select regulatory approaches that maximize net

benefits (including potential economic, environmental, public health

and safety effects, distributive impacts, and equity). The RFA requires

agencies to analyze options for regulatory relief of small businesses.

For purposes of the RFA, small entities include small businesses, non-

profit organizations, and government agencies. Most hospitals and most

other providers and suppliers are small entities, either by non-profit

status or by having revenues of $5 million or less annually. For

purposes of the RFA, all hospitals and long-term care facilities are

considered to be small entities. Individuals and States are not

included in the definition of a small entity.

Section 1102(b) of the Act, requires us to prepare a regulatory

impact analysis if a rule may have a significant impact on the

operations of a substantial number of small rural hospitals. Such an

analysis must conform to the provisions of section 603 of the RFA. For

purposes of section 1102(b) of the Act, we define a small rural

hospital as a hospital that is located outside of a Metropolitan

Statistical Area and has fewer than 50 beds.

We estimate that the following savings are attributable to the

repeal of the Boren amendment.

[[Page 54267]]

[Amounts in Millions]

----------------------------------------------------------------------------------------------------------------

FY1999 FY2000 FY2001 FY2002 FY2003

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Federal.................................................. 35 75 115 160 205

State.................................................... 30 55 90 120 155

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Total................................................ 65 130 205 280 360

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These savings have been included in the Medicaid baseline spending

projections for the President's FY 1999 budget.

The repeal of the Borden Amendment, by the Balanced Budget Act of

1997, is the reason for the estimated savings. The only regulatory

requirement imposed on the States, by this rule, deals with the public

notice process, which is unlikely to have any impact.

Nevertheless, although the savings described above are directly

attributed to the statutory change, and not to any rule placed on

states in conjunction with the statute, this proposed regulation is

economically significant and will have an impact of more than $100

million starting in FY 2000.

In accordance with the provisions of Executive Order 12866, this

regulation was reviewed by the Office of Management and Budget.

VI. Anticipated Effects

In December of 1997, we issued written guidance to State agencies

informing them of the options available to them in complying with the

new statute. We provided a model preprint page that State agencies may

use in order to indicate to us that they have in place, and use a

public process which complies with the new statute. Over 80% of the

State agencies have voluntarily complied with our guidance, having

implemented rates established under the State's new public process.

We have reviewed this proposed rule under the threshold criteria of

Executive order 13132, Federalism. We have determined that it

significantly affects the rights, roles and responsibilities of States.

List of Subjects in 42 CFR Part 447

Accounting, Administrative practice and procedure, Drugs, Grant

programs-health, Health facilities, Health professions, Medicaid,

Reporting and recordkeeping requirements, Rural areas.

42 CFR chapter IV would be amended as follows:

PART 447--PAYMENTS FOR SERVICES

1. The authority citation for part 447 continues to read as

follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.

1302), unless otherwise noted.

2. In Sec. 447.205 B, the section heading and paragraph (a) are

revised to read as follows:

Sec. 447.205 Public notice of changes in Statewide methods and

standards for setting payment rates for non-institutional services.

(a) When notice is required. Except as specified in paragraph (b)

of this section, the agency must provide public notice of any

significant proposed change in its methods and standards for setting

payment rates for non-institutional services.

30. Section Sec. 447.250 is revised to read as follows:

Sec. 447.250 Basis and purpose.

(a) This subpart implements section 1902(a)(13)(A) of the Act,

which requires States to use a public process for determining rates;

publish proposed and final rates, the methodologies underlying the

rates, and the justifications for the rates; and give interested

parties a reasonable opportunity for review and comment on the proposed

rates, methodologies, and justifications. In the case of hospitals,

such rates must take into account the situation of hospitals that serve

a disproportionate number of low-income patients with special needs.

(b) Section 447.272(a)(2) implements section 1902(a)(30) of the

Act, which requires that payments be consistent with efficiency,

economy, and quality of care.

(c) Section 447.271 implements section 1903(i)(3) of the Act, which

requires that payments for inpatient hospital services not exceed the

hospital's customary charges.

(d) Section 447.280 implements section 1913(b) of the Act, which

concerns payment for long-term care services furnished by swing-bed

hospitals.

4. Section Sec. 447.251 is revised to read as follows:

Sec. 447.251 Definitions.

For the purposes of this subpart--

Long-term care facility services means intermediate care facility

services for the mentally retarded (ICF/MR) and nursing facility (NF)

services.

Provider means an institution that furnishes inpatient hospital

services or an institution that furnishes long-term care facility

services.

Published means, at least, produced and made available in hard copy

and, if possible, electronically, such that any interested party may

readily obtain a copy of the proposed and final rates, the underlying

methodologies, and justifications.

5. Section 447.252 is republished to read as follows:

Sec. 447.252 State plan requirements.

(a) The plan must provide that the requirements of this subpart are

met.

(b) The plan must specify comprehensively the methods and standards

used by the agency to set payment rates in a manner consistent with

Sec. 430.10 of this chapter.

(c) If the agency chooses to apply the cost limits established

under Medicare (see Sec. 413.30 of this chapter) on an individual

provider basis, the plan must specify this requirement.

Sec. 447.253 [Removed and Reserved]

6. Section 447.253 is removed and reserved.

7. Section 447. 254 is added to read as follows:

Sec. 447.254 Public process requirements.

(a) Steps in the process. The Agency must have in place, and use, a

public process for determination of rates of payment under the plan for

hospital services and long-term care facility services under which

proposed and final rates, the methodologies underlying the

establishment of such rates, and justifications for the rates are

published. The public process must give providers, beneficiaries and

their representatives, and other concerned State residents a reasonable

opportunity for review and comment on the proposed rates,

methodologies, and justifications prior to the proposed effective date.

The final rates, methodologies and justifications may be published

after the proposed effective date of the rates. Further, in the case of

hospitals, such rates must take into account (in a manner consistent

with section 1923 of the Act) the situation of hospitals that serve a

disproportionate

[[Page 54268]]

number of low-income patients with special needs.

(b) Report to HCFA. The State agency must indicate to HCFA that it

has in place a public process that meets the requirements of paragraph

(a) of this section. This language is to be submitted to HCFA only one

time for approval. Once approved, the language will become a part of

the State plan.

Sec. 447.255 [Removed and Reserved]

8. Section 447.255 is removed and reserved.

9. Section 447.256 is revised to read as follows:

Sec. 447.256 Procedures for HCFA action on State plan amendments.

(a) Criteria for approval. (1) HCFA approval action on State plans

and State plan amendments is taken in accordance with subpart B of part

430 of this chapter and sections 1116, 1902(b) and 1915(f) of the Act.

(2) In the case of State plan and plan amendment changes in payment

methods and standards, HCFA bases its approval on the Medicaid agency's

satisfaction of the requirements of Sec. 447.254 as well as the other

requirements of this subpart.

(b) Time limit. HCFA sends a notice to the agency of its

determination as to whether the State plan amendment is acceptable

within 90 days of the date HCFA receives the State plan amendment. If

HCFA does not send a notice to the agency of its determination within

this time limit and the provisions in paragraph (a) of this section are

met, the State plan amendment will be deemed accepted and approved.

(c) Effective date. A State plan amendment that is approved becomes

effective not earlier than the first day of the calendar quarter in

which an approvable amendment is submitted in accordance with

Sec. 430.20 of this chapter.

10. Section 447.257 is republished to read as follows:

Sec. 447.257 FFP: Conditions relating to institutional reimbursement.

FFP is not available for a State's expenditures for hospital

inpatient or long-term care facility services that are in excess of the

amounts allowable under this subpart.

11. Section 447.271 is republished to read as follows:

Sec. 447.271 Upper limits based on customary charges.

(a) Except as provided in paragraph (b) of this section, the agency

may not pay a provider more for inpatient hospital services under

Medicaid than the provider's customary charges to the general public

for the services.

(b) The agency may pay a public provider that provides services

free or at a nominal charge at the same rate that would be used if the

provider's charges were equal to or greater than its costs.

12. In Sec. 447.272, paragraph (c) is revised to read as follows:

Sec. 447.272 Application of upper payment limits.

* * * * *

(c) Disproportionate share. The upper payment limitation

established under paragraphs (a) and (b) of this section does not apply

to payment adjustments made under a State plan to hospitals found to

serve a disproportionate number of low-income patients with special

needs as provided in section 1902(a)(13)(A)(iv) of the Act.

Disproportionate share hospital payments shall be subject to the

following limits:

(1) The aggregate DSH limit using the Federal share of the

disproportionate share hospital limits under section 1923(f) of the

Act;

(2) The hospital-specific DSH limits in section 1923(g) of the Act;

and

(3) The aggregate DSH limit for institutions for mental disease

(IMDs) under section 1923(h) of the Act.

13. Section 447.280 is republished to read as follows:

Sec. 447.280 Hospital providers of NF services (swing-bed hospitals).

(a) General rule. If the State plan provides for NF services

furnished by a swing-bed hospital, as specified in Secs. 440.40(a) and

440.150(f) of this chapter, the methods and standards used to determine

payment rates for routine NF services must--

(1) Provide for payment at the average rate per patient day paid to

NFs, as applicable for routine services furnished during the previous

calendar year: or

(2) Meet the State plan and payment requirements described in this

subpart, as applicable.

(b) Application of the rule. The payment methodology used by a

State to set payment rates for routine NF services must apply to all

swing-bed hospitals in the State.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical

Assistance Program)

Dated: April 1, 1999.

Nancy Ann Min DeParle,

Administrator, Health Care Financing Administration.

Approved: May 25, 1999.

Donna E. Shalala,

Secretary.

[FR Doc. 99-25788 Filed 10-5-99; 8:45 am]

BILLING CODE 4120-01-P