Medicaid Program; Final FY 2014 and Preliminary FY 2016 Disproportionate Share Hospital Allotments, and Final FY 2014 and Preliminary FY 2016 Institutions for Mental Diseases Disproportionate Share Hospital 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 fiscal year (FY) 2014 and the preliminary federal share DSH allotments for FY 2016, and corresponding limitations on aggregate state DSH payments to institutions for mental disease 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 November 25, 2016. The final allotments and limitations set forth in this notice are effective for the fiscal years specified.

FOR FURTHER INFORMATION CONTACT:

Stuart Goldstein, (410) 786-0694 and Richard Cuno, (410) 786-1111.

SUPPLEMENTARY INFORMATION:

I. Background

A. Fiscal Year DSH Allotments

A state's federal fiscal year (FY) disproportionate share hospital (DSH) allotment represents the aggregate limit on the federal share amount of the state's payments to DSH hospitals in the state for the FY. The amount of such allotment is determined in accordance with the provisions of section 1923(f)(3) of the Social Security Act (the Act). Under such provisions, in general a state's FY DSH allotment is calculated by increasing the amount of its DSH allotment for the preceding FY by the percentage change in the Consumer Price Index for all Urban Consumers (CPI-U) for the previous FY.

The Affordable Care Act amended Medicaid DSH provisions, adding section 1923(f)(7) of the Act which would have required reductions to states' FY DSH allotments beginning with FY 2014, the calculation of which was described in the Disproportionate Share Hospital Payment Reduction final rule published in the September 18, 2013 Federal Register (78 FR 57293). Under the DSH reduction methodology, first, each state's unreduced FY DSH allotment would have been calculated in accordance with the provisions of section 1923(f) of the Act, excluding section 1923(f)(7) of the Act; then, the reduction amount for each state would have been determined under the provisions of section 1923(f)(7) of the Act and implementing regulations at 42 CFR 447.294; and, finally, the net FY DSH allotment for each state would have been determined by subtracting the DSH reduction amount for the state from its unreduced FY 2014 DSH allotment.

The reductions under section 1923(f)(7) of the Act were delayed and modified by section 1204 of Division B (Medicare and Other Health Provisions) of the Pathway for SGR Reform Act of 2013 (Pub. L. 113-67 enacted on December 26, 2013). The reductions of states' fiscal year DSH allotments under section 1923(f)(7) of the Act that were applicable to FY 2014 and 2015 were repealed, and the FY 2016 reductions were increased. Subsequently, the reductions were delayed and modified by the Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 114-10 enacted on April 16, 2015) (MACRA). The reductions of states' fiscal year DSH allotments under section 1923(f)(7) of the Act that were applicable to FY 2017 were repealed and are instead scheduled to begin in FY 2018.

Because there are no reductions to DSH allotments for FY 2014 and FY 2016 under section 1923(f)(7) of the Act, this notice contains only the state-specific final FY 2014 DSH allotments and preliminary FY 2016 DSH allotments, as calculated under the statute without application of the reductions that would have been imposed under the Affordable Care Act provisions beginning with FY 2014. This notice also provides information on the calculation of such FY DSH allotments, the calculation of the states' institutions for mental disease (IMD) DSH limits, and the amounts of states' final FY 2014 IMD DSH limits and preliminary FY 2016 IMD DSH limits.

B. Determination of Fiscal Year DSH Allotments

Generally, in accordance with the methodology specified under section 1923(f)(3) of the Act, a state's FY DSH allotment is calculated by increasing the amount of its DSH allotment for the preceding FY by the percentage change in the CPI-U for the previous FY. Also in accordance with section 1923(f)(3) of the Act, a state's DSH allotment for a FY 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).

Furthermore, under section 1923(h) of the Act, federal financial participation (FFP) for DSH payments to IMDs and other mental health facilities is limited to state-specific aggregate amounts. Under this provision, the 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 specified in section 1902(h) of the Act (the applicable percentage is the IMD share of DSH total computable expenditures as of FY 1995).

In general, we determine states' DSH allotments for a FY and the IMD DSH limits for the same FY using the most recent available estimates of or actual medical assistance expenditures, including DSH expenditures in their Medicaid programs and the most recent available change in the CPI-U used for the FY in accordance with the methodology prescribed in the statute. The indicated estimated or actual expenditures are obtained from states for each relevant FY from the most recent available quarterly Medicaid budget reports (Form CMS-37) or quarterly Medicaid expenditure reports (Form CMS-64), respectively, submitted by the states. For example, as part of the initial determination of a state's FY DSH allotment (referred to as the preliminary DSH allotments) that is determined before the beginning of the FY for which the DSH allotments and IMD DSH limits are being determined, we use estimated expenditures for the FY obtained from the August submission of the CMS-37 submitted by states prior to the beginning of the FY; such estimated expenditures are subject to update and revision during the FY before such actual expenditure data become available. We also use the most recent available estimated CPI-U percentage change that is available before the beginning of the FY for determining the states' preliminary FY DSH allotments; such estimated CPI-U percentage change is subject to update and revision during the FY before the actual CPI-U percentage change becomes available. In determining the final DSH allotments and IMD DSH limits for a FY we use the actual expenditures for the FY and actual CPI-U percentage change for the previous FY.

II. Provisions of the Notice

A. Calculation of the Final FY 2014 Federal Share State DSH Allotments, and the Preliminary FY 2016 Federal Share State DSH Allotments

1. Final FY 2014 Federal Share State DSH Allotments

Addendum 1 to this notice provides the states' final FY 2014 DSH allotments determined in accordance with section 1923(f)(3) of the Act. As described in the background section, in general, the DSH allotment for a FY is calculated by increasing the FY DSH allotment for the preceding FY by the CPI-U increase for the previous fiscal year. For purposes of calculating the states' final FY 2014 DSH allotments, the preceding final fiscal year DSH allotments (for FY 2013) were published in the February 2, 2016 Federal Register (81 FR 5448). For purposes of calculating the states' final FY 2014 DSH allotments we are using the actual Medicaid expenditures for FY 2014. Finally, for purposes of calculating the states' final FY 2014 DSH allotments, the applicable historical percentage change in the CPI-U for the previous FY (FY 2013) was 1.6 percent; we note that this is an increase from the estimated 1.5 percentage change in the CPI-U for FY 2013 that was available and used in the calculation of the preliminary FY 2014 DSH allotments which were published in the February 28, 2014 Federal Register (79 FR 11436).

2. Calculation of the Preliminary FY 2016 Federal Share State DSH Allotments

Addendum 2 to this notice provides the preliminary FY 2016 DSH allotments determined in accordance with section 1923(f)(3) of the Act. The preliminary FY 2016 DSH allotments contained in this notice were determined based on the most recent available estimates from states of their FY 2016 total computable Medicaid expenditures. Also, the preliminary FY 2016 allotments contained in this notice were determined by increasing the preliminary FY 2015 DSH allotments as contained in the notice published in the February 2, 2016 Federal Register (81 FR 5448) by 0.3 percent, representing the most recent available estimate of the percentage increase in the CPI-U for FY 2015 (the previous FY to FY 2016).

We will publish states' final FY 2016 DSH allotments in future notices based on the states' four quarterly Medicaid expenditure reports (Form CMS-64) for FY 2016 available following the end of FY 2016 and the actual change in the CPI-U for FY 2015.

B. Calculation of the Final FY 2014 and Preliminary FY 2016 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 2014 and the preliminary FY 2016 IMD DSH limits determined in accordance with the provisions discussed above.

Addendums 3 and 4 to this notice detail each state's final FY 2014 and preliminary FY 2016 IMD DSH limit, 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 or burden. While discussed in section I.B. of this preamble and in Addendums 3 and 4, the requirements and burden associated with Form CMS-37 (OMB control number 0938-0101) and Form CMS-64 (OMB control number 0938-0067) are unaffected by this notice. Consequently, this notice, CMS-37, and CMS-64 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 Analysis

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 reaches the $100 million economic threshold and thus is considered a major rule under the Congressional Review Act.

The final FY 2014 DSH allotments being published in this notice are approximately $11 million more than the preliminary FY 2014 DSH allotments published in the February 28, 2014 Federal Register (79 FR 11436). The increase in the final FY 2014 DSH allotments is due to the difference between the actual percentage change in the CPI-U for FY 2013 used in the calculation of the final FY 2014 allotments (1.6 percent) as compared to the estimated percentage change in the CPI-U for FY 2013 used in the calculation of the preliminary FY 2014 allotments (1.5 percent). The final FY 2014 IMD DSH limits being published in this notice are approximately $563 thousand more than the preliminary FY 2014 IMD DSH limits published in the February 28, 2014 Federal Register (79 FR 11436). The increases 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. Since the final FY 2014 DSH allotments were increased as compared to the preliminary FY 2014 DSH allotments, the associated FY 2014 IMD DSH limits for some states were also increased.

The preliminary FY 2016 DSH allotments being published in this notice are about $36 million more than the preliminary FY 2015 DSH allotments published in the February 2, 2016 Federal Register (81 FR 5448). 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 preliminary FY 2016 IMD DSH limits being published in this notice are about $260 thousand less than the final FY 2014 IMD DSH limits published in the February 28, 2014 Federal Register (79 FR 11436). Although the DSH allotment for a FY is a factor in the determination of the IMD DSH limit for the FY and the preliminary FY 2016 DSH allotments are greater than the preliminary FY 2015 DSH allotments, the associated preliminary FY 2016 IMD DSH limits for some states decreased. This is attributable to a decrease in the FMAP rates for certain states.

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 less than $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 significant economic impact on a substantial number of small entities. Specifically, any impact on providers is due to the effect of the various controlling statutes; providers are not impacted as a result of the independent regulatory action in publishing 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, the application of the methodology specified in statute results in the decreases or increases in states' DSH allotments and IMD DSH limits for the applicable FYs. 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 2016, that threshold is approximately $146 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.

A. 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.

B. Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf ), in the Table 1, we have prepared an accounting statement showing the classification of the estimated expenditures associated with the provisions of this notice. Table 1 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 2015 to FY 2016.

C. Congressional Review Act

This proposed regulation is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and has been transmitted to the Congress and the Comptroller General for review.

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