[Federal Register: June 30, 2009 (Volume 74, Number 124)]
[Rules and Regulations]
[Page 31196-31199]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jn09-16]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 433
[CMS-2275-F2]
RIN 0938-AP74
Medicaid Program; Health Care-Related Taxes
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This rule finalizes our proposal to delay enforcement of
certain clarifications regarding standards for determining hold
harmless arrangements in the final rule entitled, ``Medicaid Program;
Health Care-Related Taxes'' from the expiration of a Congressional
moratorium on enforcement from July 1, 2009 to June 30, 2010.
DATES: Effective Date: These regulations are effective on July 1, 2009.
FOR FURTHER INFORMATION CONTACT: Stuart Goldstein, (410) 786-0694.
SUPPLEMENTARY INFORMATION:
I. Background
Section 1903(w) of the Social Security Act (the Act) provides for a
reduction of Federal Medicaid funding based on State health care-
related taxes unless those taxes are imposed on a permissible class of
health care services; broad based, applying to all providers within a
class; uniform, such that all providers within a class must be taxed at
the same rate; and are not part of hold harmless arrangements in which
collected taxes are returned, whether directly or indirectly. A similar
hold harmless restriction applies to provider-related donations.
Section 1903(w)(3)(E) of the Act specifies that the Secretary shall
approve broad based (and uniform) waiver applications if the net impact
of the health care-related tax is generally redistributive and the
amount of the tax is not directly correlated to Medicaid payments. The
broad based and uniformity requirements are waivable through a
statistical test that measures the degree to which the Medicaid program
incurs a greater tax burden than if these requirements were met. The
permissible class of health care services and hold harmless
requirements cannot be waived. The statute and Federal regulation
identify 19 permissible classes of health care items or services that
States can tax without triggering a penalty against Medicaid
expenditures.
On February 22, 2008, we published a final rule entitled,
``Medicaid Program; Health Care-Related Taxes'' (73 FR 9685). This
final rule amended provisions governing the determination of whether
health care provider taxes or donations constitute ``hold harmless''
arrangements, codified statutory changes to the indirect guarantee
threshold test and the definition of the class of managed care
organization services, and deleted certain obsolete transition period
regulatory provisions. The rule codified the reduction in the indirect
guarantee threshold test in order to reduce the allowable amount that
can be collected from a health care-related tax for the period of
January 1, 2008, through September 30, 2011, as required by the Tax
Relief and Health Care Act of 2006 (Pub. L. 109-432). The rule also
codified changes to the permissible class of health care items or
services related to managed care organizations as enacted by the
Deficit Reduction Act of 2005 (Pub. L. 109-171).
The February 22, 2008 final rule became effective on April 22,
2008. However, section 7001(a)(3)(C) of the Supplemental Appropriations
Act of 2008, Pub. L. No. 110-252, imposed a partial moratorium until
April 1, 2009, prohibiting CMS from taking any action to implement any
provisions of the final rule that are more restrictive than the
provisions in effect on February 21, 2008, with the exception of the
change in the statutory definition of the class of services of a
managed care organization and the statutorily-required change to the
indirect guarantee threshold test. This moratorium was extended by
[[Page 31197]]
section 5003(a) of the American Recovery and Reinvestment Act of 2009
(the Recovery Act), Public Law 111-5, until July 1, 2009. Although not
subject to the moratorium, a statutorily established transition period
was established until October 1, 2009, for those States with previously
enacted health care-related taxes under the previous definition of
Medicaid managed care organization services.
On May 6, 2009, we published a proposed rule (74 FR 21230) that
delayed the enforcement of the changes made in the February 22, 2008
final rule to the hold harmless tests under Sec. 433.54(c) and Sec.
433.68(f), other than the statutorily-required change to the indirect
guarantee threshold level, until June 30, 2010. This portion of the
regulation has been the subject of the Congressional moratoria and has
not yet been implemented by CMS. We explained that the delay was
necessary in order to determine whether additional clarification or
guidance is necessary or helpful to our State partners. In addition, we
explained that certain States were concerned that the regulatory
language is broad or unclear. Furthermore, we indicated that the delay
would allow more time to obtain information about the potential impact
of the rule and alternative approaches, and to ensure appropriate
implementation of the statutory restrictions on provider taxes and
donations.
II. Provisions of the Proposed Rule and Response to Comments
In the May 6, 2009 proposed rule (74 FR 21230), we proposed to
delay enforcement of certain provisions concerning hold harmless
arrangements, for 1 year. We received a total of 11 timely comments
from national hospital associations, State Medicaid Agencies, and the
National Association of State Medicaid Directors. The comments
supported our decision to delay enforcement of certain clarifications
regarding standards for determining hold harmless arrangements in the
final rule entitled, ``Medicaid Program; Health Care-Related Taxes''
from the expiration of a Congressional moratorium on enforcement on
July 1, 2009 to June 30, 2010. We appreciate these comments and agree
that the delay in enforcement of these specific provisions is merited.
A summary of the public comments we received, and our responses to
comments, are set forth below.
Comment: Several commenters expressed support for CMS in delaying
enforcement of clarifications regarding standards for determining hold
harmless arrangements. Commenters indicated that this delay would
enable the Agency to further examine the impact of changes on States
and providers. The commenters felt that any change to current policy
should be carefully considered to ensure that it would not negatively
affect the ability of State Medicaid programs to maintain coverage and
payment levels. Some commenters believe that the provisions of the rule
relating to the hold harmless provision overstepped the authority and
guidelines provided by Congress. Commenters encouraged CMS to work with
States to develop objective standards by which the hold harmless
provisions for health care-related taxes can be measured.
Response: We appreciate the commenters' support for the delay in
enforcement of the clarifications regarding standards for determining
hold harmless arrangements. We will continue to work with States to
ensure that Federal statutory requirements are met. We are committed
not only to applying objective analysis in determining whether State
tax programs contain hold harmless arrangements but also to working
with each State on a case-by-case basis, given the unique nature of the
programs, to ensure implementation of permissible tax programs.
As indicated by the commenters, the delay will provide us with time
to determine whether further clarification or guidance is needed and
would be of assistance to States. The delay will also allow more time
to obtain information about the potential impacts of the rule and
alternative approaches as well as to assure the appropriate
implementation of the statutory restrictions.
Comment: Several commenters stated that the current provisions of
the hold harmless test specified in the March 23, 2007 (72 FR 13726)
proposed rule do not represent a reasonable interpretation of Federal
statutory guidelines. Commenters believe that the hold harmless
clarifications should be rescinded in their entirety and returned to
the original regulatory language from the August 13, 1993 (58 FR 43156)
final rule. These commenters stated that the 1993 regulatory language
represented clearly understood and easily interpreted standards.
Response: Our responsibility is to ensure that the Federal
statutory requirements governing health care-related taxes are met.
Therefore, we believe it is necessary and appropriate for the Secretary
to issue regulatory provisions to provide States with clear guidance on
which health care-related tax programs are permissible and therefore
eligible for Federal Financial Participation (FFP). We understand that
certain States are concerned that the current regulatory language may
be overly broad or unclear. During the delay in enforcement, we will
work with States to learn more about the potential impact of the
current regulatory language and to explore other alternatives in order
to assure the appropriate implementation of the statutory restrictions.
Comment: One commenter resubmitted their original comments to the
March 23, 2007 proposed rule.
Response: Comments on the March 23, 2007 proposed rule were
previously considered and responded to in the February 22, 2008 final
rule; therefore, we are not responding to them in this rule.
III. Provisions of the Final Regulations
In this final rule, we are adopting the provisions as set forth in
the May 6, 2009 proposed rule (74 FR 21232) as final, with no changes.
IV. Waiver of Delay in Effective Date
We ordinarily provide a 30-day delay in the effective date of the
provisions of a notice in accordance with section 553(d) of the
Administrative Procedures Act (APA), at 5 U.S.C. 553(d). We can waive
the 30-day delay in effective date, however, if the Secretary finds,
for good cause, that it is impracticable, unnecessary, or contrary to
the public interest, and incorporates a statement of the finding and
the reasons in the notice.
We find there is good cause to waive the delay in the effective
date of this issuance because we find that, since the hold harmless
provisions of the rule for which enforcement will be delayed have been
subject to Congressional moratoria and are not currently being
implemented, it would be contrary to the public interest to implement
them briefly and then change them back. Such sudden, short-term changes
would result in public confusion and administrative chaos. Therefore,
under 5 U.S.C. 553(b)(3)(B), for good cause, we waive notice and
comment procedures.
V. Collection of Information Requirements
This document does not impose information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995.
[[Page 31198]]
VI. Regulatory Impact Analysis
A. Overall Impact
We have examined the impact of this final rule as required by
Executive Order 12866 on Regulatory Planning and Review (September 30,
1993, as further amended), the Regulatory Flexibility Act (RFA)
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social
Security Act, section 202 of the Unfunded Mandates Reform Act of 1995
(Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999),
and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Order 12866 (as amended by Executive Order 13258) directs
agencies to assess all costs and benefits of all available regulatory
alternatives and, if regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). A regulatory impact analysis (RIA) must be prepared for
major rules with economically significant effects ($100 million or more
in any 1 year).
The final rule on health care-related taxes was estimated to result
in savings to the Federal government, by reducing its financial
participation in the Medicaid program for amounts in excess of the tax-
related threshold, with corresponding responses by States that would
partially offset these savings. Specifically, the RIA for the final
rule estimated that Federal Medicaid outlays would be reduced by $85
million in FY 2008, and $115 million per year in FY 2009 through FY
2011. These savings resulted directly from applying the language in the
Tax Relief and Health Care Act of 2006 to reduce the maximum threshold
on exclusion of health care-related taxes from 6 percent to 5.5 percent
of net patient revenue. This final rule does not delay application of
this reduced threshold, which is already in effect. This final rule
delays the provisions governing the determination of whether health
care provider taxes or donations constitute ``hold harmless''
arrangements. Accordingly, we believe that the delay would not have any
substantial economic effect, and that this final rule is not
``economically significant'' under E.O. 12866 or ``major'' under the
Congressional Review Act.
The RFA requires agencies to analyze options for regulatory relief
of small entities if proposed or final rules have a ``significant
economic impact on a substantial number of small entities.'' For
purposes of the RFA, small entities include small businesses, nonprofit
organizations, and small governmental jurisdictions, including school
districts. ``Small'' governmental jurisdictions are defined as having a
population of less than fifty thousand. Individuals and States are not
included in the definition of a small entity. In the final rule on
health care-related taxes, we analyzed potential impacts on small
entities that might result from the change in the exclusion threshold.
Some effects (such as reduced tax burden) were likely to be positive,
and some (such as reductions in State reimbursement rates) could be
either positive or negative. All of these effects would depend on
future State decisions on taxation and reimbursement that could not be
predicted and would in any event be indirect effects rather than the
direct result of that rule. Regardless, this rule does not propose to
delay the change in the exclusion threshold. As a result, the Secretary
has determined that this final rule would not have a significant effect
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 rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. Our analysis of the final
rule concluded that it would have had no significant direct effect on a
substantial number of these hospitals. This final rule does not impose
any new requirements. Accordingly, we are not preparing an analysis for
section 1102(b) of the Act because the Secretary has determined that
this final rule would not have a direct impact on the operations of a
substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any one year of
$100 million in 1995 dollars, updated annually for inflation. In 2009,
that threshold level is currently approximately $133 million. This
final rule contains no mandates that will impose spending costs on
State, local, or tribal governments in the aggregate, or by the private
sector, of $133 million.
Executive Order 13132 on Federalism establishes certain
requirements that an agency must meet when it promulgates a proposed
rule (and subsequent final rule) that imposes substantial direct
requirements on State and local governments, preempts State law, or
otherwise has Federalism implications. EO 13132 focuses on the roles
and responsibilities of different levels of government, and requires
Federal deference to State policy-making discretion when States make
decisions about the uses of their own funds or otherwise make State-
level decisions. The original final rule, while limiting Federal
funding, did not circumscribe the States' authority to make policy
decisions regarding taxes and reimbursement. This final rule will
likewise not have a substantial effect on State or local government
policy discretion.
B. Anticipated Effects
As discussed in the February 22, 2008 final rule, States had a
number of options open to them in addressing any reduction in Federal
Financial Participation (FFP). They could restructure State spending
and shift funds among programs, raise funds through increases in other
forms of generally applicable tax revenue increases, or reduce
reimbursement to the tax-paying health care providers. Presumably, most
of those States have already made those decisions. The delay in this
final rule will not affect the tax threshold; it will provide some
relief to States in making other adjustments.
C. Alternatives Considered
In the May 6, 2009 proposed rule, we welcomed comments not only on
the delay in enforcement, but also on alternatives that may more
constructively address the underlying problems and their likely impacts
on States and other stakeholders. Some commenters recommended that CMS
rescind rather than delay the enforcement of the hold harmless
provisions. There were no other specific alternatives offered by
commenters. Commenters reiterated that we should work with States to
develop objective standards by which compliance with the hold harmless
provisions can be measured. CMS will take these comments into
consideration throughout the enforcement delay period to assure the
most appropriate implementation of the statutory provisions.
The only other option considered was to not finalize this delay in
enforcement. However, as discussed in the preamble to this final rule
and the response to comments, we believe that this is not the best
alternative at this time.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
[[Page 31199]]
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)
Dated: June 5, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
Approved: June 17, 2009.
Kathleen Sebelius,
Secretary.
[FR Doc. E9-15347 Filed 6-29-09; 8:45 am]
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