[Code of Federal Regulations]
[Title 12, Volume 1]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR457.204]

[Page 371]
 
                         TITLE 42--PUBLIC HEALTH
 
  CHAPTER IV--CENTERS FOR MEDICARE & MEDICAID SERVICES, DEPARTMENT OF 
                 HEALTH AND HUMAN SERVICES--(Continued)
 
PART 457--ALLOTMENTS AND GRANTS TO STATES--Table of Contents
 
 Subpart B--General Administration--Reviews and Audits; Withholding for 
  Failure to Comply; Deferral and Disallowance of Claims; Reduction of 
                        Federal Medical Payments
 
Sec. 457.204  Withholding of payment for failure to comply with Federal requirements.

    (a) Basis for withholding. CMS withholds payments to the State, in 
whole or in part, only if, after giving the State notice, a reasonable 
opportunity for correction, and an opportunity for a hearing, the 
Administrator finds--
    (1) That the plan is in substantial noncompliance with the 
requirements of title XXI of the Act; or
    (2) That the State is conducting its program in substantial 
noncompliance with either the State plan or the requirements of title 
XXI of the Act. (Hearings are generally not called until a reasonable 
effort has been made to resolve the issues through conferences and 
discussions. These efforts may be continued even if a date and place 
have been set for the hearing.)
    (b) Noncompliance of the plan. A question of noncompliance of a 
State plan may arise from an unapprovable change in the approved State 
plan or the failure of the State to change its approved plan to conform 
to a new Federal requirement for approval of State plans.
    (c) Noncompliance in practice. A question of noncompliance in 
practice may arise from the State's failure to actually comply with a 
Federal requirement, regardless of whether the plan itself complies with 
that requirement.
    (d) Notice, reasonable opportunity for correction, and 
implementation of withholding. If the Administrator makes a finding of 
noncompliance under paragraph (a) of this section, the following steps 
apply:
    (1) Preliminary notice. The Administrator provides a preliminary 
notice to the State--
    (i) Of the findings of noncompliance;
    (ii) The proposed enforcement actions to withhold payments; and
    (iii) If enforcement action is proposed, that the State has a 
reasonable opportunity for correction, described in paragraph (d)(2) of 
this section, before the Administrator takes final action.
    (2) Opportunity for corrective action. If enforcement actions are 
proposed, the State must submit evidence of corrective action related to 
the findings of noncompliance to the Administrator within 30 days from 
the date of the preliminary notification. Corrective action is action to 
ensure that the plan is, and will be, administered consistent with 
applicable law and regulations, to ameliorate past deficiencies in plan 
administration, or to ensure that enrollees will be treated equitably.
    (3) Final notice. Taking into account any evidence submitted by the 
State under paragraph (d)(2) of this section, the Administrator makes a 
final determination related to the findings of noncompliance, and 
provides a final notice to the State--
    (i) Of the final determination on the findings of noncompliance;
    (ii) If enforcement action is appropriate--
    (A) No further payments will be made to the State (or that payments 
will be made only for those portions or aspects of the programs that are 
not affected by the noncompliance); and
    (B) The total or partial withholding will continue until the 
Administrator is satisfied that the State's plan and practice are, and 
will continue to be, in compliance with Federal requirements.
    (4) Hearing. An opportunity for a hearing will be provided to the 
State prior to withholding under paragraph (d)(5) of this section.
    (5) Withholding. CMS withholds payments, in whole or in part, until 
the Administrator is satisfied regarding the State's compliance.

[65 FR 33622, May 24, 2000, as amended at 66 FR 2674, Jan. 11, 2001]