Medicaid Program; Disproportionate Share Hospital Allotments and Institutions for Mental Diseases Disproportionate Share Hospital Limits for FYs 2010, 2011, and Preliminary FY 2012 Disproportionate Share Hospital Allotments and Limits

AGENCY:

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

ACTION:

Notice.

SUMMARY:

This notice announces the final Federal share disproportionate share hospital (DSH) allotments for Federal FY (FY) 2010, 2011 and the preliminary Federal share DSH allotments for FY 2012. This notice also announces the final FY 2010, 2011 and the preliminary FY 2012 limits on aggregate DSH payments that States may make to institutions for mental diseases (IMD) and other mental health facilities. In addition, this notice includes background information describing the methodology for determining the amounts of States' FY DSH allotments.

DATES:

Effective Date: This notice is effective on August 23, 2012. The final allotments and limitations set forth in this notice are effective for the fiscal years specified.

FOR FURTHER INFORMATION CONTACT:

Richard Strauss, (410) 786-2019.

SUPPLEMENTARY INFORMATION:

I. Background

Under section 1923(f)(3) of the Social Security Act (the Act), States' Federal fiscal year (FY) 2003 disproportionate share hospital (DSH) allotments were calculated by increasing the amounts of the FY 2002 allotments for each State (as specified in the chart, entitled “DSH Allotment (in millions of dollars)”, contained in section 1923(f)(2) of the Act) by the percentage change in the Consumer Price Index for all Urban Consumers (CPI-U) for the prior fiscal year. The allotment, determined in this way, is subject to the limitation that an increase to a State's DSH allotment for a FY cannot result in the DSH allotment exceeding the greater of the State's DSH allotment for the previous FY or 12 percent of the State's total medical assistance expenditures for the allotment year (this is referred to as the 12 percent limit).

However, section 1001(a) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173, enacted on December 8, 2003) (MMA) amended section 1923(f)(3) of the Act to provide for a “Special, Temporary Increase In Allotments On A One-Time, Non-Cumulative Basis.” Under this provision, States' FY 2004 DSH allotments were determined by increasing their FY 2003 allotments by 16 percent and the FY DSH allotment amounts determined were not subject to the 12 percent limit.

Also, under section 1923(h) of the Act, Federal financial participation (FFP) is not available for DSH payments to institutions for mental diseases (IMDs) and other mental health facilities that are in excess of State-specific aggregate limits. Under this provision, this aggregate limit for DSH payments to IMDs and other mental health facilities is the lesser of a State's FY 1995 total computable (State and Federal share) IMD and other mental health facility DSH expenditures applicable to the State's FY 1995 DSH allotment (as reported on the Form CMS-64 as of January 1, 1997), or the amount equal to the product of the State's current year total computable DSH allotment and the applicable percentage.

In general, we initially determine States' DSH allotments and IMD DSH limits for a FY using estimates of medical assistance expenditures, including DSH expenditures in their Medicaid programs. These estimates are provided by States each year on the August quarterly Medicaid budget reports (Form CMS-37) before the FY for which the DSH allotments and IMD DSH limits are being determined. Also, as part of the basic determination of preliminary DSH allotments for a FY, we use the available CPI-U percentage increase that is available before the beginning of the FY for which the allotment is being determined to determine the preliminary FY DSH allotment. For example, in determining the preliminary FY 2012 DSH allotment, we would apply the CPI-U percentage increase for FY 2011 that was available just before the beginning of FY 2012 on October 1, 2011.

Section 5002 of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5, enacted on February 17, 2009) (Recovery Act), added a new section 1923(f)(3)(E) of the Act; that provided fiscal relief to States during the recent national economic downturn. In that regard, section 1923(f)(3)(E)(i)(I) of the Act, as created by section 5002 of the Recovery Act, required that, in general, States' DSH allotments for FY 2009 be equal to 102.5 percent of the FY 2009 allotments that would otherwise have been determined; this Recovery Act provision does not apply to certain States.

For a detailed description of the background of this notice, please refer to “Final FY 2009 and Preliminary FY 2011 Disproportionate Share Hospital Allotments, and Final FY 2009 and Preliminary FY 2011 Institutions for Mental Diseases Disproportionate Share Hospital Limits” notice published in the January 3, 2011 Federal Register (76 FR 148).

II. Provisions of the Notice

A. Calculation of the Final FY 2010, Final FY 2011 Federal Share State DSH Allotments, and the Preliminary FY 2012 Federal Share State DSH Allotments

1. Final FY 2010 and FY 2011 Federal Share State DSH Allotments

Chart 1 and Chart 2 of the Addendum to this notice provides the States' final FY 2010 and final FY 2011 DSH allotments, respectively. As described in the previous Federal Register notices in determining non-Low DSH States' DSH allotments for FYs after FY 2004 under section 1923(f)(3)(C) of the Act for DSH allotments, we determined States' DSH allotments under a “parallel” process. Under the parallel process, for each FY for each State, we determine whether the fiscal year specified (as defined in section 1923(f)(3)(D) of the Act) has occurred. Section 1923(f)(3)(D) of the Act describes the fiscal year specified is determined separately for each State and “is the first FY for which the Secretary estimates that the DSH allotment for that State will equal (or no longer exceed) the DSH allotment for that State under the law as in effect before the date of enactment” of MMA. The process in effect before the enactment in MMA is the process described in section 1923(f)(3)(A) of the Act; in this process each States' DSH allotment since FY 2003 is increased by the CPI-U increase for the prior FY and the result is then compared to the State's FY 2004 DSH allotment, as determined by section 1923(f)(3)(C)(i) of the Act. The fiscal year specified for a State is the FY when the FY 2004 allotment is no longer greater than the parallel process DSH allotment.

In accordance to the parallel process provision, we determined that FY 2009 was the fiscal year specified for all non-Low DSH States (except Louisiana). Therefore, in section 1923(f)(3)(C)(ii) of the Act, the Final FY 2009 DSH allotment for all non-Low DSH States (except Louisiana) is equal to the prior FY 2008 DSH allotment increased by the CPI-U increase for FY 2008 (4.4 percent).

Chart 1 contains the final FY 2010 DSH allotments and Chart 2 contains the final FY 2011 DSH allotments. For the non-Low DSH States for which the FY 2009 is the fiscal year specified, that fiscal year and for following fiscal years, the FY DSH allotments are calculated by increasing the prior FY DSH allotment by the CPI-U increase for the prior fiscal year.

For Low-DSH States, the FY 2009 DSH allotments were calculated using the same methodology as for the non-Low DSH States for which the fiscal year specified has occurred. That is, for FY 2009 and following FYs, the DSH allotment for Low-DSH States is calculated by increasing the prior FY DSH allotment by the percentage change in the CPI-U for the prior fiscal year.

As discussed in the “Background” section of this notice, under section 5002 of the Recovery Act, the preliminary FY 2010 DSH allotment was determined as the higher of 102.5 percent of the FY 2009 DSH allotment (as determined under the Recovery Act) or the FY 2010 DSH allotment as would have been determined without application of the Recovery Act provisions. Accordingly, the preliminary FY 2010 DSH allotments were initially determined using the States' August 2009 expenditure estimates submitted by the States on the Form CMS-37, and the percentage increase in the CPI-U for the previous FY that was available before the beginning of FY 2010. Then, this amount was compared to the DSH allotment amount equal to 102.5 percent of the FY 2009 DSH allotments as determined under the Recovery Act provisions. For all applicable states the Recovery Act provision resulted in a higher FY 2010 DSH allotment.

The final FY 2011 DSH allotments were determined by first determining the FY 2010 DSH allotments as they would have been calculated without application of the Recovery Act provisions. That is, first the amount of the final FY 20 10 DSH allotments were determined by adjusting the amount of the final FY 20 09 DSH allotments (also determined without application of the Recovery Act provisions) by the CPI-U percentage increase for FY 2009; this final FY 2010 DSH allotment amount (determined without application of the Recovery Act provisions) was then increased by the CPI-U percentage increase for FY 2010 to determine the final FY 2011 DSH allotments contained in this notice.

2. Calculation of the Preliminary FY 2012 Federal Share State DSH Allotments

Chart 3 of the Addendum to this notice provides the preliminary FY 2012 DSH allotments determined in accordance with the section 1923(f)(3) of the Act. As described in the “Background” section of the January 3, 2011 Federal Register (76 FR 148) notice, the Recovery Act provisions which increased States' DSH allotments for FY 2009 and FY 2010 are not applicable for determining States' FY 2012 DSH allotments and following fiscal years. That is, the preliminary FY 2012 DSH allotments were determined using States' estimates of FY 2012 expenditures and increasing the FY 2011 allotments by the percentage increase in the CPI-U for FY 2011. States' final FY 2012 DSH allotments will be published in the Federal Register following receipt of the States' four quarterly Medicaid expenditure reports (Form CMS-64) for FY 2012 following the end of FY 2012.

B. Calculation of the Final FY 2010, the Final FY 2011, and the Preliminary FY 2012 IMD DSH Limits

Section 1923(h) of the Act specifies the methodology to be used to establish the limits on the amount of DSH payments that a State can make to IMDs and other mental health facilities. FFP is not available for IMD or DSH payments that exceed the IMD limits. In this notice, we are publishing the final FY 2010, the final FY 2011, and the preliminary FY 2012 IMD DSH Limits determined in accordance with the provisions discussed above, and for FY 2010 reflecting the DSH allotments for the FY determined under the provisions of section 1923(f)(3)(E) of the Act, as amended by section 5002 of the Recovery Act.

Charts 4, 5, and 6 of the “Addendum” to this notice detail each State's final FY 2010, final FY 2011, and preliminary FY 2011 IMD DSH Limits, respectively, determined in accordance with section 1923(h) of the Act

III. Collection of Information Requirements

This notice does not impose any new or revised information collection or recordkeeping requirements. The requirements and burden associated with CMS-37 (OMB 0938-0101) are unaffected by this notice. Consequently, this notice and CMS-37 are not subject to Office of Management and Budget review under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

IV. Regulatory Impact Statement

We have examined the impact of this notice as required by Executive Order 12866 on Regulatory Planning and Review (September 1993), 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 Order 12866 directs 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). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This notice does not reach the $100 million economic threshold and thus is not considered a major rule under the Congressional Review Act.

There are no changes between the final FY 2010 DSH allotments and FY 2010 IMD DSH limits and the preliminary FY 2010 DSH allotments and FY 2010 IMD DSH limits published in the April 23, 2010 Federal Register (75 FR 21314).

The final FY 2011 DSH allotments being published in this notice are approximately $10 million less than the preliminary FY 2011 DSH allotments published in the January 3, 2011 Federal Register (76 FR 148). The final FY 2011 IMD DSH limits being published in this notice are approximately $1 million less than the preliminary FY 2011 IMD DSH limits published in the January 3, 2011 Federal Register on (76 FR 148). The decrease in the FY 2011 DSH allotments are due to the difference between the final percentage change in the CPI-U for FY 2010 used in the calculation of the final FY 2011 allotments (1.7 percent) as compared to the estimated percentage change in the CPI-U for FY 2010 used in the calculation of the preliminary allotments (1.8 percent). The decreases in the IMD DSH limits are because the DSH allotment for a FY is a factor in the determination of the IMD DSH limit for the FY, and since the final FY 2011 DSH allotments were decreased as compared to the preliminary FY 2011 DSH allotments, the associated FY 2011 IMD DSH limits for some States were also decreased.

The preliminary FY 2012 DSH allotments being published in this notice are about $64 million more than the final FY 2011 DSH allotments being published in the Federal Register. The preliminary FY 2012 IMD DSH limits being published in this notice are about $11 million more than the final FY 2011 IMD DSH limits being published in the Federal Register. The increase in the DSH allotments is due to the application of the statutory formula for calculating DSH allotments under which the prior fiscal year allotments are increased by the percentage increase in the CPI-U for the prior fiscal year. The increase in the IMD DSH limits is because the DSH allotment for a FY is a factor in the determination of the IMD DSH limit for the FY, and since the preliminary FY 2012 DSH allotments were greater than the final FY 2011 DSH allotments, the associated FY 2012 IMD DSH limits for some States also increased.

The RFA requires agencies to analyze options for regulatory relief of small businesses, if a rule has a significant impact on a substantial number of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $7.0 million to $34.5 million in any one year. Individuals and States are not included in the definition of a small entity. We are not preparing an analysis for the RFA because the Secretary has determined that this notice will not have a significant economic impact on a substantial number of small entities. Specifically, the effects of the various controlling statutes on providers are not impacted by a result of any independent regulatory impact and not this notice. The purpose of the notice is to announce the latest distributions as required by the statute.

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 Core-Based Statistical Area for Medicaid payment regulations and has fewer than 100 beds. We are not preparing analysis for section 1102(b) of the Act because the Secretary has determined that this notice will not have a significant impact on the operations of a substantial number of small rural hospitals.

The Medicaid statute specifies the methodology for determining the amounts of States' DSH allotments and IMD DSH limits; and as described previously, results in the decreases or increases in States' DSH allotments and IMD DSH limits for the FYs referred to. The statute applicable to these allotments and limits does not apply to the determination of the amounts of DSH payments made to specific DSH hospitals; rather, these allotments and limits represent an overall limit on the total of such DSH payments. In this regard, we do not believe that this notice will have a significant economic impact on a substantial number of small entities.

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 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2012, that threshold is approximately $139 million. This notice will have no consequential effect on State, local, or tribal governments, in the aggregate, or on the private sector.

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. Since this notice does not impose any costs on State or local governments, the requirements of E.O. 13132 are not applicable.

Alternatives Considered

The methodologies for determining the States' fiscal year DSH allotments and IMD DSH Limits, as reflected in this notice, were established in accordance with the methodologies and formula for determining States' allotments as specified in statute. This notice does not put forward any further discretionary administrative policies for determining such allotments.

Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf ), in the table below, we have prepared an accounting statement showing the classification of the estimated expenditures associated with the provisions of this notice. This table provides our best estimate of the change (decrease) in the Federal share of States' Medicaid DSH payments resulting from the application of the provisions of the Medicaid statute relating to the calculation of States' FY DSH allotments and the increase in the FY DSH allotments from FY 2010 to FY 2011.

In accordance with the provisions of Executive Order 12866, this notice was reviewed by the Office of Management and Budget.

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

Addendum

This addendum contains the charts 1 through 6 (preceded by associated keys) that are referred to in the preamble of this notice.

Key to Chart 1. Final DSH Allotments for FY 2010

Key to Chart 2. Final DSH Allotments for FY 2011

Key to Chart 3—Preliminary DSH Allotments for FY 2012

Key to Chart 4—Final IMD DSH Limit for FY 2010

Key to Chart 5. Preliminary IMD DSH Limit for FY 2011

Key to Chart 6. Preliminary IMD DSH Limit for FY 2012