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Final Rule: Health Care Financing Administration, Medicaid Program, FFP Rates

AT-85-20

Published: December 13, 1985
Information About:
State/Local Child Support Agencies
Topics:
Case Management, Medical Support, Funding, Cost Recovery, Federal Financial Participation (FFP)
Types:
Policy, Action Transmittals (AT), Regulations
Tags:
Cooperative Agreement

OCSE-AT-85-20

December 13, 1985

Medicaid Program; Third Party Liability for Medical Assistance

FINAL REGULATION

ACTION TRANSMITTAL

OCSE-AT-85-20

December 13, 1985

TO:STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED INDIVIDUALS

SUBJECT: Final Regulations issued by HCFA: Medicaid Program; Third Party Liability for Medical Assistance; FFP Rates for Skilled Professional Medical Personnel and Supporting Staff; and Sources of State Share of Financial Participation

ATTACHMENT: Attached are final regulations issued by the Health Care Financing Administration, HHS, which makes changes to Medicaid cooperative agreement regulations at 42 CFR 433.151 and 433.152. These regulations require State Medicaid agencies to provide for entering into cooperative agreements for the enforcement of rights to and collection of third party benefits. These agreements may be with the State Child Support Enforcement Agency or any appropriate courts and law enforcement officials. OCSE regulations on cooperative agreements at 45 CFR Part 306 are unchanged.

REGULATION REFERENCE: 42 CFR Parts 432, 433, 435 and 436

RELATED REFERENCES: OCSE-AT-85-16, dated October 21,1985

INQUIRIES TO: OCSE Regional Representatives.

Deputy Director

Office of Child Support Enforcement

42 CFR Parts 432, 433, 435, and 436 [BPO-500-F]

Medicaid Program; Third Party Liability for Medical Assistance FFP Rates for Skilled Professional Medical Personnel and Supporting Staff; and Sources of State Share of Financial Participation

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

ACTION: Final regulations.

SUMMARY: These final regulations- (1) Broaden the scope of services for which a State must collect from third parties the cost of medical assistance furnished to Medicaid recipients, revise the methods of paying claims involving third party liability, and make conforming changes to incorporate a statutory provision that requires the assignment of medical support rights and other third part payments and cooperation in establishing paternity and obtaining support as a condition of eligibility for Medicaid; (2) Revise and clarify criteria used in determining whether skilled professional medical personnel and directly supporting staff involved in the administration of the Medicaid program qualify for 75 percent Federal matching; and (3) Clarify policy to permit public and private donations to be used as a State's share of financial participation in the entire Medicaid program, instead of only for training expenditures.

These amendments are a combination of steps to remove unnecessary requirements in our regulations and to include provisions that will improve the administration of the Medicaid program. They also conform the Medicaid regulations to certain provisions of the Deficit Reduction Act of 1984 (Pub. L. 98~369).

EFFECTIVE DATES

1. The amendments to the regulations relating to Federal financial participation for skilled professional medical personnel and directly supporting staff under §§ 432.2, 4322.45,432.50, and 433.15 are effective on February 10, 1986.

2. The amendments to the regulations relating to the mandatory assignment of medical support rights and other third party payments as a condition of eligibility and to cooperative agreements under §433.135, 433.137(b), 433.145, 433.151, 433.152, 435.604, and 436.604 are effective on December 12, 1985. (In the case of a Medicaid State plan that HCFA determines needs State legislation in order for the plan to comply with the requirements in these amendments, the State will not be held out of compliance before the first day of the first calendar quarter beginning after the close of the first regular session of the State legislature that begins after July 18, 1981 (the date of enactment of Pub. L.98-369).)

3. The amendments to the regulations relating to payment of claims involving third party liability under 433.137(a) and 433.139, to general third party liability provisions under

§§ 433.136 and 433.149, and to sources of State Financial participation under §§ 432.60 and 433.45 are effective on December 12, 1985.

FOR FURTHER Information CONTACT:

Third Party Liability-Herb Shankroff (301) 549-6710.

Eligibility Conditions-Marinos Svolos (301) 549-9050.

Rate of FFP-David McNally (301) 597-1398.

Sources of State Share of Financial

Participation-Sue Knefley (301) 594-8504

SUPPLEMENTARY INFORMATION:

General Background

This document makes changes in certain regulations governing the administration of the Medicaid program to: (1) Remove unnecessary requirements in the regulations and include provisions that will improve program administration relating to third party liability. Federal financial participation (FFP) in the cost of compensation and training for skilled Professional medical personnel and directly supporting staff, and sources of the State's share of financial participation; and (2) conform the regulations to statutory provisions of section 2367 of the Deficit Reduction Act (Pub. L. 98-369 enacted on July 18, 1984) that require applicants and recipients of Medicaid, as a condition of eligibility, to assign any rights to medical support or other payments for medical care to the Medicaid agency and to cooperate with the State in establishing paternity and obtaining support or other payments and that require States to provide for entering into cooperative agreements for the enforcement of rights to and collection of third party benefits. These agreements may be with the State child support enforcement (title IV-D) agency, any appropriate agency of any State, and appropriate courts and law enforcement officials. (For purposes of title XIX of the Social Security Act, medical support is the legal obligation established under a court order or an administrative procedure under State law, of a spouse or absent parent to provide for medical expenses of a Medicaid recipient. This obligation is usually met through purchase of health insurance rather than through direct payment of medical expenses.)

These changes are a result of our ongoing review of the requirements in our regulations and changes to legislation.

On June 4, 1984, we published in the Federal Register (49 FR 23078) a notice of proposed rulemaking that addressed most of the amendments of the Medicaid regulations included in this document. We received 42 comments on the proposed regulations from State welfare and health agencies, a State Medicaid directors' association, medical and health care associations, a hospital, private welfare agencies, citizens' groups, and private citizens. We also held meetings with two State Medicaid advisory groups to obtain comments. A summary of these public comments, our responses, and an explanation of any changes made in these final regulations as a result of the comments are discussed under the section "Summary of Public Comments on Proposed Rules and Department Responses" presented later in this document.

Discussion and Provisions of Final Regulations

Third Party Liability

Section 1902(a)(25) of the Social Security Act requires that State or local Medicaid agencies take all reasonable measures to ascertain the legal liability of third parties to pay for care and services furnished to Medicaid recipients. This section requires the agency to seek reimbursement from a third party to the extent that the party is legally liable for services "arising out of an injury, disease, or disability."

Section 2367 of Pub. L 98-369 added a new section 1902(a)(45) to the Act to provide, as a Medicaid State plan requirement, for mandatory assignment of rights to payments for medical support and other medical care owed to recipients in accordance with section 1912 of the Social Security Act. Section 2367 also amended section 1912 to require (rather than allow as an option) the State Medicaid plan (1) to provide that, as a condition of eligibility for medical assistance, individuals must assign to the State their rights to any medical support or other payments for medical care and to cooperate with the State in establishing paternity and obtaining third party payments; and (2) to provide for States to enter into cooperative agreements for the enforcement of rights to and collection of third party benefits. These agreements may be with the State child support enforcement (title IV-D) agency, any other appropriate agency of any State, and appropriate courts and law enforcement officials. Section 2367 has a statutory effective date of October 1, 1984. However, in the case of a Medicaid State plan that HCFA determines needs legislation in order for the plan to comply with the statutory requirements, the State will not be held out of compliance before the first day of the first calendar quarter beginning after the close of the first regular session of the State legislature that begins after the date of enactment of Pub. L. 98-369.

Section 1903(o) of the Act prohibits Federal matching of State Medicaid payments if a private insurer would have been liable to pay for the care except that the insurance contract limits or excludes liability when the individual is eligible for Medicaid. Section 1903(d)(2) of the Act provides for consideration of the Federal share of any amounts recovered by a State from a third party for medical assistance as an overpayment to the State, and for appropriate adjustment of the quarterly Medicaid payments made by the Federal Government to the State.

In these final regulations, we have made changes in several areas relating to third party liability:

1. Broader definitions. We have broadened the definitions of "third party" and "private insurer" (§433.136) to eliminate the effect that they have had of restricting collections to expenditures for services relating to the diagnosis or treatment of an injury, disease, or disability. While the statute mandates collection in these situations, it does not preclude collections of expenditures for other services that are furnished to recipients under a State's Medicaid plan, e.g. prenatal care, well-baby visits, routine physical examination, etc. We have replaced the phrase "injury, disease, or disability" in the two definitions with a broader phrase that will require States to collect from third parties for the cost of any medical assistance furnished to a recipient under the approved " State plan.

2. Payment of claims involving third party liability. Current regulations (§433.139) provide States with two methods of paying claims that involve third party liability. Under the first method, if the amount of third party liability is established, the agency pays only to the extent that payment allowed under the agency's payment schedule exceeds the amount of the third party liability. The second method permits the agency to pay the total amount allowed under the agency's payment schedule and then seek reimbursement from liable third parties. States have flexibility to use either payment method under any circumstance. Program experience has indicated that, when third party liability is known or there is a reasonable expectation based on the nature of the claim and type of insurance, that third party payment on a claim will be made, it is more cost effective for the State to pay the claim only to the extent that the agency's payment exceeds the amount of the third party liability. Areas of potential savings from the use of a method of paying claims only to the extent that the agency's payment exceeds the amount of third party payment (sometimes referred to as a "cost avoidance" method) include:

o Administrative savings from fewer personnel and other resources to administer the filing of claims with third party payers and resulting receivable system;

o Program savings in interest loss because Medicaid program dollars are not outstanding with the providers before the third party payment is received;

o Administrative savings of claim processing costs for those claims that providers submit directly to the third party instead of to Medicaid;

o Program savings from small dollar claims that are not submitted to Medicaid due to the minimal individual amount left over after the third party pays; and

o Program savings because third party payers are more likely to reimburse claims from providers of services rather than Medicaid because assignment of rights problems are diminished.

Under these revised final regulations, which apply to claims involving third party liability that are processed on or after May 12, 1986, we require State agencies to use the cost avoidance method of payment in circumstances in which the agency (during the eligibility, claims processing, medical support collection, or third party recovery processes or any other third party related activity) has established the probable existence of third party liability at the time the claim is filed, unless a waiver is requested by the State within a specified time and approved by the HCFA Regional Office. (State agency procedures for determining the likelihood of third party liability and subsequent payment may take into account the type of medical expenses and type of insurance involved on a particular claim.) A State may request a waiver of the required cost avoidance method if it is using, as of the publication date of these regulations, the method of paying the entire claim and then seeking reimbursement, and if it submits appropriate documentation that its method is as cost effective as the cost avoidance method to the HFCA Regional Office within 60 days of the publication date of these regulations. The request to have the requirement waived must be approved by the Regional Office. The Regional Office will notify the State of its determination within 30 days of the receipt of a request for a waiver of the requirement. The waiver will be granted for an indefinite period unless otherwise specified in the approval notice. A State that is granted a waiver must notify the Regional Office of any event that occurs that changes the cost effectiveness of the approved method. The Regional Office may rescind the waiver at any time that the State's method is no longer as cost effective as the required cost avoidance method. If the waiver is denied or rescinded, the State has 6 months from the date of the denial or rescission notice to implement a cost avoidance method (a time period that is consistent with that allowed other States to come into compliance with the requirements for a cost avoidance method). (The waiver provisions were not included in the proposed rules. They were added in response to public comments.)

We believe that the increased cost savings in administering the provision for partial claims payment outweigh the benefit of permitting the option of full payment with subsequent recovery. States that do not have a cost avoidance method in place as of the publication date of these final regulations and that do not request a waiver of the requirement to use the cost avoidance method are required to either revise their current method or install a cost avoidance method for claims involving third party liability that are processed on or after May 12, 1986.

When the probable existence of third party liability cannot be established or third party benefits are not available to pay the recipient's medical expenses at the time the claim is filed, a State would pay the entire claim and then seek reimbursement from any liable third party. All States must submit documentation of their methods for paying claims involving third party liability (e.g., cost avoidance, "pay-and-chase") to the HCFA Regional Office by the date on which the requirements in the regulations must be implemented May 12, 1986.

We also have revised the prescribed 30-day time limit for filing claims to recover from liable third parties under §433.139. We believe it is more appropriate to allow time limits for filing claims for recovery of 60 days from the end of the month in which payment is made or 60 days from the end of the month that the State agency learns of the existence of the liable third party. This change will give States more flexibility. The 60-day limit is consistent with the average time limit under generally accepted insurance practices. (In the proposed regulations, we had originally proposed to delete the time limit. After further analysis, we now believe it is more appropriate to specify a limit that is consistent with generally accepted insurance practices.)

3. Assignment of medical support rights and cooperative agreements for third party collections. We have revised § § 433.137, 433.145, 435.151, 435.604, and 436.604 to conform them to the statutory provisions of Pub. L. 98-369 that require the assignment of medical support rights and other third party payments and cooperation in establishing paternity and seeking support and other payments' as a condition of eligibility for Medicaid, and that require States to provide for entering into cooperative agreements for the enforcement of rights to and collection of third party benefits. These agreements may be with the State child support enforcement (title IV-D) agency, any appropriate agency of any State, and appropriate courts and law enforcement officials. (Pub. L. 98-369 was enacted after the issuance of the June 4. 1984 notice of proposed rulemaking. Therefore, these provisions were not included in the proposed rules.) We also have revised §433.145 to clarify the terms of the assignment by stating that the assignment will be effective only for third party payments for services furnished to recipients that are reimbursed by Medicaid. In addition, we have deleted §433.149, which specifies that the agency must restore to an individual who has assigned medical care support to Medicaid his future rights to that support after eligibility for Medicaid ends. Since the assignment of rights is not effective for payments for services furnished after Medicaid eligibility ends as stated in the revision of §433.145, there is no need to cancel the assignment when eligibility is terminated.

We have revised §433.151 to conform to the language of the statute which requires rather than allows a State plan to provide for entering into cooperative agreements for the enforcement of rights to and collection of third party benefits. We are requiring State Medicaid agencies to have a written agreement or agreements with some appropriate entity. This entity may be the State child support enforcement (title IV-D) agency, any appropriate agency of any State, or appropriate courts and law enforcement officials.

We have revised §433.152, which contains detailed requirements for the terms of all cooperative agreements between the State Medicaid agency and the State child support enforcement (title IV-D) agency, any appropriate agency of any State, and appropriate courts and law enforcement officials for the enforcement of rights to and collection of third party benefits. The revision incorporates the requirements under section 2367 of Pub. L. 98-369 relating to cooperative agreements and makes other technical changes to allow States more flexibility in developing these agreements. Specifically, we have deleted most of the details on the terms of agreements because we believe that they are too prescriptive. We specify that the State may develop the terms of individual agreements at its own discretion, as agencies may wish to vary slightly the terms of the agreements to account for individual circumstances. We believe they should have that right. We have clarified the provisions of this section to indicate that the specific requirements of the Office of Child Support Enforcement for agreements with title IV-D agencies (45 CFR Part 306) are still applicable. We also have conformed the language relating to reimbursement requirements to make it consistent with provisions of the Child Support Enforcement Amendments of 1984 (Pub. L. 98-378) by specifying that Medicaid will reimburse the title IV-D agency only for the cost of those services necessary for Medicaid collection and medical support activities that are performed beyond the activities required under section 16 of the Child Support Enforcement Amendments of 1984.

Rates of Federal Financial Participation (FFP) for Compensation and Training of Skilled Professional Medical Personnel Section 1903(a) of the Social Security Act provides for variable Federal matching rates to States for administrative functions under Medicaid. The majority of activities that are necessary for the proper and efficient operation of a State Medicaid plan, including compensation and training for most of the agency's staff, are financed at the FFP rate of 50 percent. However, certain specific costs, such as compensation and training of skilled professional medical personnel and clerical staff directly supporting these personnel, administration of family planning services, and certain functions related to the Medicaid Management Information System (MMlS) are financed at higher FFP rates. Section 1903(a)(2) of the Act provides for Federal matching at 75 percent for compensation and training of skilled professional medical personnel and their directly supporting staff. It also provides for 75 Percent FFP for skilled professional medical staff and directly supporting staff of other public agencies with which the Medicaid agency contracts for administration of the medical phases of the Medicaid program.

The intent of these provisions is to encourage State agencies to employ personnel who have the professional medical expertise necessary to develop and administer Medicaid programs that are medically sound as well as administratively efficient. Professional medical knowledge is needed to shape the medical aspects of the program, including the determination of which medical services should be included in a well-balanced medical benefit program, coordination of available medical resources, and establishment of working relationships with the professional medical community. Although the Medicaid agency uses skilled professional medicaid personnel in various capacities, not all of them are skilled professional medical personnel whose costs qualify for 75 percent Federal matching.

Over the years, there has been diversity in interpreting and applying the criteria used to determine what types of personnel and job functions qualify for 75 percent FFP as skilled professional medical personnel and directly supporting staff. This has resulted, in some cases, in different matching rates being paid to States for the same types of staff.

The intent of the law is to provide increased FFP for medical staff, not nonmedical staff. This is evidenced in the Senate Finance Committee report that accompanied the 1965 Social Security Amendments (Report of the Committee on Finance to Accompany H.R. 6675, 89th Cong., 1st Sess., S. Rept. No. 404, Pt 1, June 30, 1965, p. 83). The term "skilled professional medical personnel" is not meant to include nonmedical health professionals, such as public administrators, medical budget directors or analysts, lobbyists. or senior managers of public assistance or Medicaid programs. We recognize that it is necessary to have a variety of nonmedical health professionals and that these personnel may possess an equivalent level of education, work experience, and certification as those in the medical care field. However, the law does not provide for 75 percent Federal matching for these personnel.

"Supporting staff' is defined in the Senate report as "clerical staff." We have interpreted clerical staff to mean secretarial, stenographic, and copying personnel, and file and records clerks that provide direct support to the skilled professional medical personnel. The costs of other subprofessional staff not performing clerical functions are not eligible for 75 percent FFP as "directly supporting staff."

The changes in FFP limitations addressed in this document do not apply to matching rates for States personnel who are involved in the survey and certification of facilities participating in Medicaid. The FFP matching rates for these survey personnel will be addressed in a separate document.

We have revised the regulations relating to 75 percent FFP for skilled professional medical personnel and directly supporting staff, other than State personnel involved in the survey and certification of Medicaid facilities, to clarify which personnel are eligible for the higher matching rate. We have clarified the definitions of "skilled professional medical personnel" and "directly supporting staff." "Skilled professional medical personnel" includes only professionals in the field of medical care. "Directly supporting staff' includes only those clerical job responsibilities that directly support skilled professional medical personnel (§432.2).

We also have incorporated in the regulations under §432.50 the criteria specified below to clarify further which costs for skilled professional medical personnel and directly supporting staff qualify for 75 percent FFP. All applicable criteria must be satisfied to establish whether the personnel and directly supporting staff qualify for increased FFP. These criteria are the same as those in the proposed rules, with the following changes:

o We have further clarified "supporting staff" by including copying staff and file and records clerks (in addition to secretarial and stenographic staff) as clerical staff to make the reference to the term "clerical staff" consistent with the generally accepted definition of the term. We also have referenced these staff as "directly supporting staff" to clarify the level of direct supervision (immediate first-level supervision) required for these staff, as specified in the statute.

o We have provide for recognition of "2 years or longer programs leading to academic degrees or certificates in medically related professions" as professional education and training.

1. Costs must be for activities directly related to the administration of the title XIX program. FFP at 75 percent is available only for the costs of compensation, travel, and training of skilled professional medical personnel and their directly supporting staff who are involved in activities that are necessary for the proper and efficient administration of the Medicaid State plan. Expenditures for the actual furnishing of medical services by skilled professional medical personnel do not qualify for Federal matching at 75 percent.

2. Skilled professional medical Personnel must have professional education and training in a medical field. Skilled professional medical personnel are required to have education and training at a professional level in the field of medical care or appropriate medical practice before FFP can be claimed at 75 percent.

The Social Security Amendments of 1965 which created the Medicare and Medicaid programs did not define "professional medical personnel." However, the Senate Finance report which accompanied the legislation, cited earlier, states that the "staff will include physicians, medical administrators, medical social work personnel, and other specialized personnel necessary to assure an adequate number of persons to do a quality

job. ***."

All examples of skilled professional medical personnel given in the Congressional Committee report and in existing regulations have one element in common: All indicate that these staff have education and training at a professional level in the field of medical care or appropriate medical practice.

"Education and training at a professional level" means the completion of a 2-year or longer program leading to an academic degree or certificate in a medically related profession. This may be demonstrated by possession of a medical license or certificate issued by a recognized National or State medical licensure or certifying organization or a degree in a medical field issued by a college or university certified by a professional medical organization. Experience in the administration, direction, or implementation of the Medicaid program will not be considered the equivalent of professional training in a field of medical care.

3. Professional medical expertise must be necessary to fulfill the responsibilities of the skilled professional medical personnel's position. The-intent of section 1903(a)(2) of the Act is to ensure the integrity of the many diverse medical aspects of the Medicaid program by providing an incentive to State agencies to employ skilled professional medical personnel with respect to those medically-related Program activities. The law did not intend to provide 75 percent FFP merely to any staff person who has qualifying medical education and training and experience, without regard to his actual responsibilities. Rather, the function performed by the skilled professional medical personnel must be one that requires that level of medical expertise in order to be performed effectively. Consequently, 75 percent FFP is only available for those positions that require professional medical knowledge and skills, as evidenced by position descriptions, job announcements, or job classifications.

Examples of functions that would meet these criteria include, but are not limited to, the following:

o Acting as a liaison on the medical aspects of the program with providers of services and other agencies that provide medical care.

o Furnishing expert medical opinions for the adjudication of administrative appeals.

o Reviewing complex physician billings.

o Providing technical assistance and drug abuse screening on pharmacy billings.

o Participating in medical review or independent professional review team activities.

o Assessing the necessity for and adequacy of medical care and services provided, as in utilization review.

o Assessing through case management activities, the necessity for and adequacy of medical care and services required by individual recipients.

It should be noted that none of the functions listed above includes the provision of medical care and services. Provision of medical care and services would always be considered medical assistance rather than administration.

When the function of skilled professional medical personnel is the application of administrative practices and procedures unrelated to the specialized field of medical care and requires no skilled medical training, the costs are matched at 50 percent FFP. For example, the costs of a physician in charge of an accounting operation are eligible for FFP only at 50 percent.

4. An employer-employee relationship must exist between the State agency and the skilled professional medical personnel and directly supporting staff As evidenced by the statutory language and legislative history of section 1903(a)(2), the 75 percent FFP rate is applicable to costs of specific personnel and staff of the Medicaid agency or any other public agency. We have consistently interpreted this provision to authorize the 75 percent FFP rate only for personnel who are employed by the agency. Therefore, in most cases, FFP at 75 percent is not authorized for contracts with private organizations or independent contractors. There are instances in which the agency contracts for personnel services as a common method of securing the services of skilled professional medical personnel without going through the formalities of merit hiring. If a Medicaid agency claims FFP at 75 percent for these personnel, it must demonstrate that a documented employer-employee relationship exists between them and the Medicaid agency.

It is fundamental to contract law that the substance of a transaction, rather than its form, is controlling. HCFA may conduct an examination of the actual duties performed, responsibilities assumed, and manner of performing the duties and responsibilities that have been established to determine if the facts, including the State's documentation of the employment relationship, indicate the existence of an employer-employee relationship. It is the substantive relationship between the parties under State law that is critical in determining, on a case-by-case basis, whether an employer-employee relationship exists, not the mere existence of a contract.

5. The directly supporting staff must provide clerical services that are directly necessary for carrying out the professional medical responsibilities and function of the skilled professional medical personnel As stated earlier, "supporting staff" is defined in the congressional report as "clerical staff." "Clerical staff' is interpreted to mean secretarial, stenographic, and copying personnel, and file and records clerks that provide direct support to the skilled professional medical personnel. It does not include the cost of other subprofessional staff not performing clerical functions.

Eligibility for increased FFP for directly supporting staff is based on the concept in the law of "direct support." "Direct support" means the provision of clerical services which are directly necessary to the completion of the professional medical responsibilities and functions of skilled professional medical personnel. There must be documentation showing that the clerical services provided by the supporting staff are directly related and necessary to the execution of the skilled professional medical personnel's responsibilities. In order for the clerical services to be directly related to skilled professional medical personnel's responsibilities, the skilled professional medical personnel must be immediately responsible for the work performed by the clerical staff and must directly supervise (immediate first-level supervision) the supporting staff and the performance of the supporting staffs work.

6. Skilled professional medical personnel and directly supporting staff, of other public agencies must meet all of the applicable criteria included items 1 through 5 and this must be verified in a written agreement with the Medicaid agency. Skilled professional medical personnel and directly supporting staff employed by public agencies other than the Medicaid agency (or, in the case of separate program divisions housed within an "umbrella" agency, employed in other than the Medicaid component) often assist the administration of the Medicaid program. FFP at 75 percent is available for the costs of compensation, travel, and training of these personnel and directly supporting staff if there is a written interagency or interagency agreement that specifically demonstrates that non-Medicaid staff and their functions meet all the applicable criteria, and that they assist the Medicaid agency, or the Medicaid agency's skilled professional medical personnel in activities that are directly related to the administration of the Medicaid program. "Directly related" means performing duties that are necessary to the operation of the Medicaid program for which the State Administrator of the Medicaid program is accountable. The agreement must outline the activities the other public agency will perform to assist in the administration of the Medicaid program.

7. FFP must be prorated for split functions of skilled professional medical personnel and directly supporting staff. If the skilled professional medical personnel or directly supporting staff time is split among different functions, some of which do not qualify for 75 percent FFP, the skilled professional medical personnel and directly supporting staff costs must be allocated among the various functions. The allocation must be based on either the actual percentage of time spent within each function or another methodology that is approved by HCFA.

Sources of State’s Share of Financial Participation

Section 1902(a)(2) of the Social Security Act requires States to share in the cost of medical assistance expenditures, but permits both State and local governments to participate in the financing of the non-Federal portion of the Medicaid program. This section specifies the percentage of the State's share of these costs and requires that this share be sufficient to assure that lack of adequate funds from local sources will not prevent the furnishing of services equal in amount, duration, scope, and quality throughout the State.

As State fiscal budgets have become more austere, Stage legislatures have looked increasingly to alternative sources for funding a larger portion of the Medicaid program. Questions have arisen regarding the use of public and private donations as sources of State share of financial participation. The definition of "State funds" generally used by States means funds over which the State legislature has an unrestricted power of appropriations. Therefore, in order for donations from public or private sources to be considered as the State's share of financial participation in Medicaid, we issued regulations

(§ 432.60) for determining when donations ceased being local or private funds and became State funds for purposes of a Federal program. In developing the regulations, we wanted to ensure that the Medicaid agency maintained administrative control end unrestricted power of allocation of all donated funds. Section 432.80 outlines the conditions under which public and private funds may be considered as the State's share of Medicaid expenditures.

At the time the regulations were formulated, there was some concern about potential for abuse. We wanted to prevent donations that could be conditional on some benefit to the donor. For example, we were particularly concerned that a "kickback" situation could result from private donations made by a proprietary organization, such as a long-term care facility or data processing company, in return for Medicaid business. Therefore, the regulations permitted use of public and private funds as the sources of the State's share of financial participation only for one category of cost training expenditures.

Experience has shown no abuse of public and private funds through conditional donations or kickbacks. Generally donated funds are commingled with all other Medicaid funds under the State agency's administrative control. By limiting the use of donations as State funds only to expenditures for training, the regulations have placed an administrative burden on the States in terms of cost allocation. Furthermore, if a State were to receive donations in an amount greater than its total training expenditures, the excess funds could not be used as the State share of other Medicaid expenditures.

We have revised the requirements under § 432.80 to permit public and private donations to be used as a State's share of financial participation in the entire Medicaid program, rather than just training expenditures. The revision permits States more flexibility in administering their programs and reduces the record keeping necessary to relate donated funds exclusively to training expenditures. Section 432.60 is in Part 432-State Personnel Administration of the Code of Federal Regulations. Because the revised requirements are no longer limited to training costs, we have redesignated them as § 433.45 of Part 433-State Fiscal Administration.

Summary of Public Comments on Proposed Rules and Department Responses

Definitions of Private Insurer and Third Party

Comment: Nine commenters supported the broadened definitions. One commenter expressed concern about the absence in the definition of a private insurer of a specific reference to self-insurance that meets the requirements published by the U.S. Department of Labor under title I of the Employee Retirement Income Security Act of 1974 (ERlSA). ERISA provides for self-insurance health benefit plans through unions and self-funded employer benefit plans in some large publicly and privately owned business entities.

Response: The provision under section 1902(a)(25) of the Social Security Act that requires State Medicaid agencies to seek reimbursement front third parties who are liable to pay for medical care and services to recipients is broad enough to permit a State to seek reimbursement from all forms of insurance. We have not made any additional change in the definition of private insurer because we believe that the specific language under the existing § 433.136 already adequately covers the commenter's concern-"any organization administering health or casualty insurance plans for professional associations, unions, fraternal groups, employer-employee benefit plans, and any similar organization offering these payments or services, including self-insured and self-funded plans."

Comment: One commenter objected to the effect that the application of the revised definition of third party might have on liability of an elderly spouse if a State implements the requirement for use of the cost avoidance method of paying claims involving known third party liability. The commenter believed that an elderly spouse could be considered a liable third party in determining probable existence of third party liability on a claim, and that this could result in withholding of reimbursement for services provided to an institutionalized spouse.

Response: The revised definition of third party has not changed from the previous definition in relation to the commenter's objection. The revised definition, as well as the previous definition, includes "any individual, entity, or program that is or may be liable to pay all or part......The only difference in the definition is the scope of services for which collection can be made, which not includes any medical assistance furnished beyond that relating to the diagnosis or treatment of an injury, disease, or disability, such as prenatal care, well-baby visits, routine physical examinations, etc. The approved practices that a State applied under the previous definition of third party may continue under the revised definition. The revised section 433.139 permits States to have the requirement to use the cost avoidance method waived if they are using, as of the publication date of these regulations, the method of paying the entire claim and then seeking reimbursement from any liable third party, if they can document that their method is as cost effective as the cost avoidance method, and if they receive the approval of the HCFA Regional Office.

Payment of Claims Involving Third Party liability

Comment: While eight commenters generally supported the overall third party liability changes, four of these and six other commenters objected to the requirement that States use the cost avoidance method in paying claims when the agency has established the probable existence of third party liability. They believed that the requirement would not be cost effective for most States and would increase the administrative burden on providers. Three commenters pointed out that States should be allowed the flexibility to make third party collections in a manner most cost-effective for them and suggested that States with "pay-and-chase" methods in place be granted waivers of the requirement to use the cost avoidance method if they can provide evidence that their methods are cost effective.

Response: We have retained the requirement that States use the cost avoidance method because program experience demonstrates that the method is cost effective. Nevertheless, we recognize that there are some State agencies with effective methods of making full payment with subsequent recovery and that an immediate required change to the cost avoidance method would impose on them unnecessary delays and costs because of system changes and implementation time. Therefore, we have revised §433.139 to permit States to have the requirement to use the cost avoidance method waived if they are using, as of the publication date of these regulations, the method of paying the entire claim and then seeking reimbursement from any liable third party and ifthey can document that their method is as cost effective as the cost avoidance method. A State's request to have the requirement waived along with documentation of the cost effectiveness of the existing method must be submitted to the HCFA Regional Office within 60 days of the publication date of these final regulations. Administrative costs must be considered in a computation of the cost effectiveness of the State's method before we will waive the requirement for use of the cost avoidance method. A request to have the requirement waived also will not be approved for a State that does not have in place as of the publication date of these final regulations the method of paying the entire claim and then seeking reimbursement from any liable third party. The HCFA Regional Office will make a determination within 30 days of receipt of the request to have the requirement for use of the cost avoidance method waived.

Comment: Two commenters recommended that pharmacy claims involving third party liability be excluded from being paid under the cost avoidance method. They pointed out that these individual claims are usually small dollar amounts and, therefore, the cost of recovery will usually exceed the actual amount of the claim. They asserted that the alternate method of paying the claim and then seeking reimbursement was more practical and just as cost effective. One of these commenters also recommended exclusion of nursing home claims from the cost avoidance method requirement.

Response: As discussed earlier in this document under "Discussion and Provisions of the Regulations: Third Party Liability," under the provision that a State agency must use the cost avoidance method to pay claims involving probable third party liability, we will allow the State agency to use procedures for determining the likelihood of third party liability and subsequent payment that take into account the type of medical expense and type of insurance on a particular claim. These procedures apply to all claims involving third party liability, including pharmacy and nursing home claims. If the State determines that the use of the cost avoidance method is not appropriate for paying a claim using these criteria, the State would have to use the alternate method of paying the claim and then seeking reimbursement. However, the existing regulations at § 433.139(c) (now redesignated as § 433.139(f) allow a State to terminate or suspend recovery efforts on claims for which it determines that the amount it reasonably expects to recover will be less than the cost of recovery. This section also allows a State to accumulate billings with respect to a particular liable third party (over a specified period of time and in a dollar amount chosen by the State) in making the decision whether to seek recovery of reimbursement This accumulation of billings could apply to pharmacy claims.

Comment: One commenter who supported the overall third party liability changes suggested that the regulations, particularly § 433.139(c) (now redesignated as §433.139(f)) relating to suspensions or termination of recovery action, could not be completely applied to liabilities arising in matters of tort or workers' compensation or, if applied, would be counterproductive to effective program operation. The commenter pointed out that relating the pu. cost of recovery to the amount of recovery is logical for health insurance but does not apply to non-no fault personal injury claims, and that it is always "cost effective" to seek payment to the full extent in available settlement money. The commenter suggested revised language that would delineate suspension or termination procedures for third party liability arising in contractual situations (typically health insurance) or no-fault cases and those that arise out of tort or workers' compensation.

Response: Section 1902(a)(25) of the Act requires that in cases where legal third party liability is found to exist after medical assistance is furnished to a recipient, and where the amount the State can reasonably expect to recover exceeds the cost of recovery, the State must seek reimbursement to the extent of any liability. This section contains no exceptions, hence all third party resources, including workers' compensation and tort liability, must be pursued to the limit of liability.

Comment: Five commenters objected to the responsibility that the proposed regulations under § 433.139(b) places on a State to predetermine or estimate the amount the third party liability in situations where probable third party liability exists. Two commenters suggested that "probable liability" be clearly defined; otherwise Medicaid agencies will, in most cases, place the burden of this determination on the provider.

Response: The proposed regulations did not include a requirement to pay claims on an estimated basis when probable third party liability is known to exist. Instead, they would have required payment to the extent that the payment under the agency's payment schedule exceeds the expected amount of the third party liability. We have revised the regulations to clarify the procedure under which a State will establish the amount of third party liability. The regulations specify that, if the Medicaid agency has established the probable existence of third party liability (that is, during the eligibility, claims processing, medical support collection, or third party recovery process or any other third party related activity), the State agency must reject the claim and return it to the provider. We interpret probable liability to mean the presence of an indicator in the case record that suggests a possible third party resource that is or may be liable for a recipient's medical expenses. The establishment of third party liability takes place when the State agency receives confirmation from the provider or the third party resource indicating the extent of liability available. The agency must then pay the claim only to the extent that payment allowed under the agency's payment schedule exceeds the payment of the third party payer.

Comment: Several commenters emphasized that, if the requirement for use of the cost avoidance method is maintained reasonable timeframes for implementation be allowed.

Response: We realize that States that do not have a cost avoidance method in place will require time to develop the method or modify a current method to comply with these regulations. Therefore, we are applying the requirements to claims involving third party liability that are processed 180 days after the publication of the regulations. We feel that making these requirements effective 180 days after the date of publication provides ample time for States to come into compliance with the requirements. In addition, States have been given previous notice of the proposed requirements through the notice of proposed rulemaking published in the Federal Register on June 4, 1984.

Comment: Two commenters objected to the absence in the preamble to the proposed regulations of a quantification of savings as a result of use of the cost avoidance method. They also pointed out that the inflationary impact on providers was not properly addressed.

Response: In this preamble we have listed the areas in which savings should be increased through use of the cost avoidance method. We believe our logic is sound and accurate because the majority of States are now using cost avoidance to some extent. We recognize that there will be some instances in which the function of collecting from third party payers will be transferred to the provider of service and increase its administrative cost. However, In many cases the provider's billing of third party sources will simply be a substitution for its billing of Medicaid.

Assignment of Rights to Benefits

Comment: Two commenters suggested that while the proposed regulations allow a State to require, as a condition of eligibility, that each legally able applicant and recipient assign his rights to medical support or other third party resources to the Medicaid agencies, this requirement cannot be met in those States where Supplemental Security Income (SSI) eligibility is determined by the Social Security Administration (SSA). They pointed out that SSA has made no provisions for applying these regulations to SSI recipients. One of the two commenters suggested that the State has a right to require information concerning possible third party payers as a condition of eligibility and requested revision of the regulations to incorporate this requirement.

Response: The Deficit Reduction Act, which was enacted after we issued the proposed regulations, now requires applicants and recipients to assign their rights to medical support or other third party payments as a condition of Medicaid eligibility. (Sections 1902(a)(44) and 1912 of the Social Security Act.) We have made conforming changes in these final regulations. SSA is also making conforming references to regulations governing SSI eligibility determination under 20 CFR Part 416 and is developing administrative procedures to obtain the applicant's response and signature to assignment of rights during the eligibility process in States where SSA determines Medicaid eligibility.

Cooperative Agreements for Third Party Collections

Comment: Two commenters supported the proposal to delete the detailed requirements for cooperative agreements with title IV-D agencies and other agencies and officials under § 433.152. However, they pointed out that the deletion of the requirement for reimbursement by the State Medicaid agency to title IV-D agencies for services performed has created a discrepancy with child support regulations at 45 CFR Part 306 which require title IV-D agencies to be reimbursed by Medicaid for activities performed under optional cooperative agreements.

Response: We have revised the regulations to specify that the requirements of the Office of Child Support Enforcement under 45 CFR Part 306 are still applicable and to provide that cooperative agreements entered into with a title IV-D agency must specify that the title IV-D agency's reimbursement from the Medicaid agency will be limited to costs of services that are necessary for Medicaid collection and medical support activities that are in addition to those required to be performed by the title IV-D agency under the Child Support Enforcement Amendments of 1984 (Pub. L. 98-378). Section 16 of Pub. L. 98-378 authorizes the Secretary to issue regulations to require title IV-D agencies to petition to include medical support as part of child support orders and to provide for improved information exchange between State IV-D agencies and State Medicaid agencies regarding the availability of health insurance coverage, with reimbursement from the Office of Child Support Enforcement. We also have revised the regulation to emphasize that the terms of specific cooperative agreements may be developed at the discretion of each agency to account for individual circumstances.

Rates of FFP for Compensation and Training of Skilled Professional Medical Personnel and Directly Supporting Staff

Comment: Ten commenters objected to the more restrictive definition of supporting staff. These commenters recommended that the definition be broadened to include the category of "subprofessional staff" as defined and allowed in current regulations under § 432.2. In addition, these commenters pointed out that the commonly used definition of "clerical personnel" includes copying, file, and records clerks as well as the secretarial and stenographic personnel specified in the proposed regulations. The commenters recommended revising the definition to include all of these types of clerical personnel.

Response: The Senate Finance Committee report that accompanied the 1965 Social Security Amendments, cited earlier, clearly defines "supporting staff" as the "clerical staff directly associated with the professional staff." The legislative intent, as reflected in this report, does not indicate that the costs of other "subprofessional staff" not performing clerical functions are to be eligible for 75 percent FFP as "supporting staff." Therefore, we are unable to accept the commenters' recommendation to broaden the definition of supporting staff to include other nonclerical subprofessional personnel. However, we agree with the commenters that our interpretation of the term "clerical staff" to mean only secretarial and stenographic personnel was unduly restrictive as to the common use and understanding of the term. Therefore, in the final regulations we have broadened our definition of supporting staff to mean secretarial, stenographic, and copying personnel, and file and records clerks that directly support the responsibilities of skilled professional medical personnel.

Comment: Five commenters objected to the requirement that the supporting staff must be directly supervised by the skilled professional medical personnel in order to qualify for 75 percent funding. The commenters suggested that this requirement did not reflect legislative intent and that there should be no requirement that the supporting staff be directly supervised by or immediately responsible to the skilled professional medical personnel.

Response: The legislative history and the wording in the statute do not support the commenters' objections. The Senate Report (p. 83) refers to the supporting staff for the skilled professional medical personnel as "directly supporting such personnel" and "directly associated with the professional staff." Also, section 1903(a)(2) refers to "staff directly supporting such personnel." The legislative history and the statute consistently indicated that a direct relationship must exist between the supporting staff and the skilled professional medical Personnel in order for FFP to he allowable at 75 percent. This direct relationship is best evidenced by the supporting staff being directly supervised (immediate first-level supervision) by the skilled professional medical personnel. We note that is the same interpretation we have been applying under the current regulations.

To accept the commenters' recommendation would be contrary to the clear legislative intent of direct support and could result in a situation where a skilled professional medical personnel position headed the Medicaid agency and the entire supporting staff in that agency were claimed at 75 percent FFP. There is no indication that Congress intended to reimburse the entire cadre of supporting staff in the Medicaid agency at 75 percent FFP.

In order to ensure that there will be no misinterpretation, we have specified in this preamble that "directly supervise means "immediate first-level supervision." and we have clarified in the regulation text that the skilled professional medical personnel must directly supervise the supporting staff and the performance of the supporting staffs work. In addition, we have consistently referred to supporting staff as "directly supporting staff" throughout the preamble and the regulation to make the language conform to the state.

Comment: Nineteen commenters indicated that the regulations would have a negative financial impact on the States, as States would be required to provide additional State funds to make up the loss of Federal funds for those staff currently being funded at 75 percent FFP that would be funded at 50 percent under the proposed regulations. The commenters also indicated that if the States were unable to provide the additional funds, some State staff reduction would result.

Response: We agree with the commenters that the regulations may result in the need for additional State funds for those positions that no longer qualify for 75 percent FFP skilled professional medical personnel or directly supporting staff. However, the regulations clearly reflect congressional and statutory intent as to what personnel qualify for 75 percent funding a,sd there is no other authority to provide 75 percent funding for these personnel if they do not qualify under these regulations.

It is difficult for us to assess whether or not actual State staff reductions will result from the implementation of these regulations since State staffing and claiming practices and State budgetary constraints vary from State to State Some States may restructure their staffing patterns to accommodate the changes in these regulations but we do not know what specific State staffing decisions will actually he made.

Comment: Two commenters indicated that the HCFA regional offices were already "retroactively" applying the proposed regulations to current financial management reviews and were reducing funding to the States accordingly.

Response: The application of the proposed regulations before they are duly promulgated as final regulations is improper. However, we know of no instances where disallowances or financial adjustments have been taken against any State using policy changes included in the proposed regulations. Any disallowances issued before the effective date of these final regulations reflect law, regulations, and policy then in effect and States are provided opportunity an appropriate appeal of a disallowance to the Departmental Grant Appeals Board.

Comment: One commenter objected to the requirement in the proposed regulations that an employer-employee relationship exist between the Medicaid agency and the skilled professional medical personnel. The commenter suggested that individuals under consultant contracts for administrative services automatically be considered State employees for FFP purposes and that such contracts not be reviewed on a case-by-case basis.

Response: We disagree with the commenter since the legislative history of section 1903(a)(2) of the Act clearly requires that 75 percent FFP is available only for the costs of specific personnel and staff that are employed by the Medicaid agency. If the Medicaid agency claim 75 percent FFP for skilled professional medical personnel working for the State agency under contract it must document the existence of an employer-employee relationship between the Medicaid agency and personnel.

Comment: Commenters recommended that the regulations be revised to provide that State Medicaid Directors automatically qualify in all instances as skilled professional medical personnel.

Response: We disagree with the commenters' recommendation because there is no support in the statute or in the legislative history to automatically allow any personnel, including State Medicaid Directors, to qualify as skilled professional medical personnel. All personnel of State Medicaid agencies, including State Medical Directors, must satisfy the applicable criteria specified in the regulations to establish whether they qualify as skilled professional medical personnel or directly supporting staff before being claimed at 75 percent FFP.

Comment: Twenty-three commenters objected to the fact that the regulations would not allow States to count an individual's on-the-job training and work experience as qualification for the skilled professional medical personnel designation. They believe that this training and experience may be more relevant and important in doing a quality job than the expertise gained through professional education and training before working in a skilled professional medical personnel function. In addition, the commenters recommended that we clarify our meaning of "professional education and training" to provide for 2-year programs that lead to a certificate.

Response: We do not agree entirely with the commenters' statements. We believe that it was clearly the original intent of the skilled professional medical personnel provision in the statute that the enhanced funding for these personnel was to provide an incentive to States to hire personnel who had professional education and training in a medical field before being claimed at 75 percent FFP. These personnel would then bring this medical expertise to bear on the development and administration of the Medicaid program.

We can find nothing in the original legislation history of this issue that suggests that the Congress intended to encourage the States to hire personnel with various backgrounds who would somehow gain medical expertise on the job and become skilled professional medical personnel. Also, there is no indication that Congress intended to count an individual's on-the-job training and work experience gained in some other job outside the State agency as qualification for the skilled professional medical personnel designation. Therefore, these regulations require that an individual have professional education and training in a medical field before being claimed as skilled professional medical personnel. However, we have revised the regulations to provide that "professional education and training" means the completion of a 2-year or longer program leading to an academic degree or certificate in a medically related profession."

Comment: Six commenters emphasized that the regulations would have a significant negative impact on the EPSDT program by reducing the level of funding provided for EPSDT personnel and that this action indicates an increasing lack of support for the EPSDT program.

Response: We do not intend for these regulations to have a negative impact on the EPSDT program or any other Medicaid program area, and we want to emphasize our continued strong support of and commitment to the EPSDT program, However, the statute and its legislative history do not automatically provide for enhanced funding for personnel working in special Medicaid program areas such as EPSDT. We believe that these personnel must qualify as skilled professional medical personnel or directly supporting staff as would any other personnel in the Medicaid agency. We believe that the regulations will have minimal effect, if any, on the health-related professionals involved in' the planning, implementation, and supervision of the EPSDT program. Additionally, we believe that any loss of revenue associated with EPSDT personnel costs that will no longer be matched at 75 percent may be offset by increased flexibility States have in the EPSDT program under, the new EPSDT regulations published on October 31, 1984 (49 FR 43654).

Comment: One commenter recommended that 75 percent funding be available for skilled professional medical personnel used in any position within the Medicaid agency, even if that position does not require medical knowledge and skills. The commenter reasoned that the skilled professional medical personnel can use their medical background in a myriad of situations within the Medicaid agency.

Response: We do not believe that the statute and legislative history support providing 75 percent funding for skilled professional medical personnel employed in positions that do not require the use of professional medical knowledge and skills. Clearly, it was not the intent of Congress to encourage States, for example, to place doctors in charge of accounting units or nurses in chase of computer facilities. Professional medical knowledge is needed to shape the medical aspects of the program and it is the intent of the skilled professional medical personnel funding to encourage States to place such professional medical personnel in jobs where their medical background and expertise would result in Medicaid programs that are medically sound and administratively efficient.

Comment: Thirteen commenters indicated that we were not following congressional intent because we eliminated specific reference to various types of skilled professional medical personnel (e.g., medical administrators, medical social workers) in the regulations. The commenters believe that these types of personnel should be explicitly defined as skilled professional medical personnel in the regulations.

Response: We have removed some references to specific job titles (e.g., medical administrators, medical social workers) in the definition of skilled professional medical personnel because of the varying and sometimes contradictory use of these titles among the States. In some cases, personnel who did not have professional education and training in the field of medical care or appropriate medical practice were simply given a medically-related job title. This resulted in inconsistent and differing claiming practices around the country. We believe that the congressional intent is to provide 75 percent FFP for personnel who have professional education and training in the field of medical care or appropriate medical practice and who are in positions that have duties and responsibilities that require professional medical knowledge and skills without regard to specific job or position title. Therefore, we have minimized reference to specific job titles in the regulations while at the same time providing for "other specialized personnel" who have the required education and training. This will enable us to review the qualifications of each individual on a case-by-case basis without regard to job title. The revision will more closely conform to the original congressional intent and will facilitate more consistent policy application by HCFA and claiming practices among the States.

Sources of State Financial Participation

Comments: Thirteen commenters supported the proposal to permit public and private donations to be used as a State's share of financial participation in any Medicaid program expenditures and not limit their use to training expenditures. One of these commenters pointed out a typographical error in § 433.5(b)(4) (relating to use by Medicaid of donor's facility)--the "violation" should be "volition".

Response: We have corrected the typographical error in

§ 433.45(b)(4).

Comment: One commenter suggested that the proposed change as written would preclude a for-profit private organization from participating in medicaid if it donates funds to the Medicaid agency because a donation, could result in the facility not being allowed to treat Medicaid recipients.

Response: Section 433.45(b) of the regulations does not prohibit a for-profit facility from participating in Medicaid. It serves only to define what non-State funds may be considered part of the State's share of financial participation. Our intent is to preclude "kickback situations" that could result from private donations made by proprietary organizations in return for Medicaid business.

Comment: One commenter expressed concern that opportunities for abuse will result if we allow private and public enterprises to make contributions unconditionally to the Medicaid Program. The commenter believed that gifts to the State should be restricted to gifts to the whole State and to the State General funds and that gifts to the Medical program should be prohibited.

Response: Donated funds will come under the administrative control of the Medicaid agency. The regulations clearly prohibit the reverting of private funds to the donor's facility or use unless the donor is a nonprofit organization and the Medicaid agency, of its own volition, decides to use the donor's facility. We will be able to identify any major violations of this provision through the HCFA financial management review. The regulations are intended to permit States more flexibility in administering their Medicaid program. Although public and private donations can be used as a State's share of financial participation, we are not mandating the States do this. If a State wishes to continue to use donated funds for training purposes only, this regulation also allows the flexibility to do so

Waiver of notice of Proposed Rulemaking

We have not issued a notice of proposed rulemaking on the provisions in these regulations that incorporate the statutory requirement for assignment of medical support payments and other third party payments and cooperation in establishing paternity and obtaining support as a condition of eligibility and the requirement for cooperative agreements between the Medicaid agency and other agencies for obtaining medical support. These requirements, which were optional provisions under previous legislation, are mandated under the Deficit Reduction Act of 1984. We do not believe that it would be the best interest of the public to delay these regulations to obtain public comment, as these provisions are mandated by statute and there is little or no leeway in applying the requirements. Revised procedures for implementing some of the previously optional provisions were addressed in the June 1984 NPRM. Comments on these optional provisions have been responded to in these final regulations and these responses are equally applicable even though the optional provisions were made mandatory after issuance of the NPRM. Therefore, we find that there is good cause to waive public rulemaking procedures and issue these requirements as final regulations.

Regulatory Impact Statement

Executive Order 12291

Executive Order 12291 requires us to prepare and publish a regulatory impact analysis for any major regulations--that is, those that will have an annual effect on the economy of $100 million or more; cause a major increase in costs or prices for consumers, individual industries, government agencies, or geographic regions, or have significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises in domestic or export markets. We have determined that, for the reasons stated below, these regulations do not meet any of the criteria for a major regulation. Therefore, a regulatory impact analysis is not required.

Third Party Liability

As noted earlier, to improve the administration of the Medicaid program we are broadening the scope of services for which a State must collect from third parties the cost of medical assistance furnished to Medicaid recipients. We also are revising the methods of paying claims involving third party liability, and making conforming changes to incorporate a statutory provision that requires the assignment of medical support rights and other third party payments and cooperation in establishing paternity and obtaining support as a condition of eligibility for Medicaid.

We anticipate that implementing these third party liability provisions will increase our ability to recover Medicaid expenditures. We also anticipate that the impact of these regulations will be enhanced through the interactive effects of other third party liability initiatives. We are unable to develop a precise actuarial estimate for these third party liability provisions. We project that these regulations with other third party initiatives will allow recovery of 80 percent of the amounts that are currently uncollected. We believe that between 1.0 percent and 2.5 percent of current Medicaid expenditures could be recovered through better collection practices.

We anticipate that these regulations will account for 25 percent of the combined effects of these regulations and other third party liability initiatives. We have developed the following projection of low and high values of potential Federal savings:

1986 1987 1988 1989 1990

Low (in millions)1 $25 $25 $50 $50 $75

High (in millions)1 50 75 150 150 175

1/Rounded to nearest $25 million

Each State's savings, while not readily estimable, would bear the same relationship to the Federal savings that their current Medicaid expenditures bear to total Federal expenditures. Actual State savings will also depend directly on the State's success in recovering third party liability.

FFP For Compensation and Training of Skilled Professional Medical Personnel

We also expect the changes in the definition of skilled professional medical personnel and directly supporting staff to result in program savings on the Federal level. Implementation of these changes will reduce the rate of FFP from 75 percent to 50 percent for many States' skilled professional medical personnel claims, resulting in some additional program expense for affected States. We estimate a program savings of at least $15.8 million in the first full fiscal year that these regulations are effective. These savings will be generated by disallowance of inappropriate State claims for enhanced Federal matching and an expected reduction in the number of personnel and staff for whom 75 percent matching is claimed and allowed.

Specifically, we estimate: (1) Savings of $11 million resulting from the elimination of 75 percent enhanced funding for EPSDT subprofessionals who do not qualify as directly supporting staff; (2) savings of $4.8 million by eliminating the "subprofessional" category of supporting staff and by defining directly supporting staff as only secretarial, stenographic, and copying personnel and file and records clerks that provide direct support to the skilled professional medical personnel; and (3) an inestimable savings generated by not paying 75 percent enhanced funding for skilled professional medical personnel who do not have the required professional education and training in a medical field related to their position in the Medicaid program. These personnel costs would be matched at 50 percent. We anticipate a possible increase in these savings if States no longer claim these staff at 75 percent FFP. However, we cannot provide savings estimates because we do not know what specific decisions States will make.

Sources of State's Share of Financial Participation

We expect little change from current levels of donations to State Medicaid programs as a result of these provisions. To the extent that donations increase, the individual State programs will benefit but we believe that the extent of the incremental increase will not be great enough to benefit affected recipient populations.

Regulatory Flexibility Act of 1980 (Pub. L. 96-354)

The Regulatory Flexibility Act requires us to prepare and publish a regulatory flexibility analysis (RFA) for any regulation that will have a significant impact on a substantial number of small entities. A small entity is a small business, a nonprofit enterprise, or a government jurisdiction (such as a county or township) with a population of less than 50,000. The purpose of the analysis would be to anticipate the impact and to seek alternatives that would have a less significant effect.

We do not expect the changes in these regulations to affect a substantial number of small entities. We expect large major health insurers and State Medicaid agencies, which are considered small entities to be the entities primarily affected. As mentioned above in the discussion of Executive Order 12291, the changes in skilled professional medical personnel will result in a shift to States of a portion of administrative costs that have previously been born by the Federal government.

We also emphasize that the rules on third party liability should have little impact on Medicaid providers. The changes to third party liability rules do not make recipients any more liable to pay for services furnished under a State plan than they have been in the past. The revised claims payment system will require providers to file claims with third party payers, but this system has proved workable in the States that now use it. Because only 10 to 15 percent of all Medicaid recipients have health insurance, we believe that providers can accommodate the new claims filing requirement with minimal disruption of billing procedures and no reduction in services furnished to Medicaid recipients.

Therefore, we have determined and the Secretary certifies under 5 U.S.C. 605(b), that these final regulations will not have a significant economic impact on a substantial number of small entities.

Paperwork Reduction Act of 1980 (Pub. L. 96-511)

Sections 432.50(d)(2), 433.139, and 433.145 contain information collection requirements that are subject to approval of the Office of Management and Budget (OMB) under the Paperwork Reduction Act. We have submitted a copy of these requirements to OMB for its review and approval. When OMB approval is obtained, we will publish an appropriate notice in the Federal Register.

List of Subjects

42 CFR Part 432

Grant-in-Aid program--health, Health Care Financing Administration, Medicaid, Subprofessionals, Training programs, Volunteers.

42 CFR Part 433

Administrative practice and procedure, Assignment of rights, Claims, Contracts (agreements), Cost allocation, Federal financial participation. Federal matching provision, Grant-in-Aid program--health, Mechanized claims processing and information retrieval systems, Medicaid, State fiscal administration, Third party liability.

42 CFR Part 435

Aid to Families with Dependent Children, Aliens, Categorically needy, Contracts (agreements--State plan), Eligibility, Grant-in-Aid program--health, Health facilities, Medicaid, Medically needy, Reporting requirements, Spend-down, Supplemental security income (SSI).

42 CFR Part 436

Aid to Families with Dependent Children, Aliens, Contracts (agreements), Eligibility, Grant-in-Aid program--health, Guam, Health facilities, Medicaid, Puerto Rico, Supplemental security income (SSI), Virgin Islands.

42 CFR Chapter IV is amended as set forth below:

PART 432--STATE PERSONNEL ADMINISTRATION

A. Part 432 is amended as follows:

1. The authority citation for Past 432 continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302).

2. The table of contents for Subpart C is amended by adding a new § 432.45 and removing § 432.60 to read as follows:

Subpart C-Staffing and Training Expenditures

432.45 Applicability of provisions in subpart.

* * * * *

432.60 (Reserved)

3. Section 432.2 is amended by adding an introductory phase and revising the definition of "skilled professional medical personnel" and "staff of other public agencies", removing the definition of "supporting staff" and adding a new definition of "directly supporting staff" in alphabetical order to read as follows:

§ 432.2 Definitions

As used in this part--

* * * * *

"Directly supporting staff" means secretarial, stenographic, and copying personnel and file and records clerks who provide clerical services that directly support the responsibilities of skilled professional medical personnel, who are directly supervised by the skilled professional medical personnel, and who are in an employer-employee relationship with the Medicaid agency.

* * * * *

"Skilled professional medical personnel" means physicians, dentists, nurses, and other specialized personnel who have professional education and training in the field of medical care or appropriate medical practice and who are in am employer-employee relationship with the Medicaid agency. It does not include other nonmedical health professionals such as public administrators, medical analysts, lobbyists, senior managers or administrators of public assistance programs or the Medicaid program.

"Staff of other public agencies" means skilled professional medical personnel and directly supporting staff who are employed in State or local agencies other than the Medicaid agency who perform duties that directly relate to the administration of the Medicaid program.

* * * * *

4. A new § 432.45 is added to Subpart C to read as follows:

§ 432.45 Applicability of provision in subpart.

The rates of FFP specified in this Subpart C do not apply to State personnel who conduct survey activities and certify facilities for participation in Medicaid, as provided for under section 1902(a)(3)(B) of the Act.

5. Section 432.50 is amended by revising paragraphs (b)(1) and (c) and by adding paragraph (d) and paragraph (e) to read as follows:

§ 432.50 FFP: Staffing and training costs.

* * * * *

(b) Rates of FFP. (1) For skilled professional medical personnel and directly supporting staff of the Medicaid agency or of other public agencies (as defined in § 432.2), the rate is 75 percent.

* * * * *

(c) Application of rates.

(1) FFP is prorated for staff time that is split among functions reimbursed at different rates.

(2) Rates of FFP in excess of 50 percent apply only to those portions of the individual's working time that are spent carrying out duties in the specified areas for which the higher rate is authorized.

(3) The allocation of personnel and staff costs must be based on either the actual percentages of time spent carrying out duties in the specified areas, or another methodology approved by HCFA.

(d) Other limitations for FFP rate for skilled professional medical personnel and directly supporting staff.

(1) Medicaid agency personnel and staff. The rate of 75 percent FFP is available for skilled professional medical personnel and directly supporting staff of the Medicaid agency if the following criteria, as applicable, are met:

(i) The expenditures are for activities that are directly related to the administration of the Medicaid program, and as such do not include expenditures for medical assistance;

(ii) The skilled professional medical personnel have professional education and training in the field of medical care or appropriate medical practice. "Professional education and training" means the completion of a 2-year or longer program leading to an academic degree or certificate in a medically related profession. This is demonstrated by possession of a medical license, certificate, or other document issued by a recognized National or State medical licensure or certifying organization or a degree in a medical field issued by a college or university certified by a professional medical organization. Experience in the administration, direction, or implementation of the Medicaid program is not considered the equivalent of professional training in a field of medical care.

(iii) The skilled professional medical personnel are in positions that have duties and responsibilities that require those professional medical knowledge and skills.

(iv) A State-documented employer-employee relationship exists between the Medicaid agency and the skilled professional medical personnel and directly supporting staff; and

(v) The directly supporting staff are secretarial, stenographic, and copying personnel and file and records clerks who provide clerical services that are directly necessary for the completion of the professional medical responsibilities and functions of the skilled professional medical staff. The skilled professional medical staff must directly supervise the supporting staff and the performance of the supporting staff's work.

(2) Staff of other public agencies. The rate of 75 percent FFP is available for staff of other public agencies if the requirements specified in paragraph (d)(1) of this section are met and the public agency has a written agreement with the Medicaid agency to verify that these requirements are met.

(e) Limitations on FFP rates for staff in mechanized claims processing and information retrieval systems. The special matching rates for persons working on mechanized claims processing and information retrieval systems (paragraphs (b)(2) and (3) of this section) are applicable only if the design, development and installation, or the operation, have been approved by the Administrator in accordance with Part 433, Subpart C, of this subchapter.

§ 432.60 (Removed and Reserved)

6. Section 432.60 is removed and reserved. (Its content is revised and redesignated as a new § 433.45 under Part 433.)

PART 433--STATE FISCAL ADMINISTRATION

B. Part 433 is amended as follows:

1. The authority citation for Part 433 is revised to read as follows:

Authority: Secs. 1102, 1902(a)(4), 1902(a)(25), 1902(a)(45), 1903(a)(3), 1903(d)(25), 1903(d)(5), 1903(o), 1903(p), 1903(r), and 1912 of the Social Security Act: 42 U.S.C. 1302, 1396 a(a)(4), 1396a(a)(25), 1396(a)(45), 1396b(a)(3), 1396b(d)(2), 1396b(d)(5), 1396(o), 1396(p), 1396b(r) and 1396k, unless otherwise noted.

2. The table of contents is amended by adding a new § 433.45 to Subpart B, revising the titles of § § 433.137, 433.145, and 433.151, and removing 433.149 under Subpart D to read as follows:

* * * * *

Subpart B-General Administrative Requirements

* * * * * Sec.

433.45 Sources of State share of financial participation

* * * * * Subpart D-Third Party Liability

* * * * * 433.137 State plan requirements.

* * * * * 433.145 Assignment of rights to benefits - State plan requirements.

* * * * *

433.149 [Removed and reserved]

* * * * *

433.151 Cooperative agreements and incentive payments-State plan requirements.

* * * * *

3. Section 433.15 is amended by revising paragraph (b)(5) to read as follows:

433.15 Rates of FFP for administration

* * * * *

(b) Activities and rates.

* * * * *

(5) Compensation and training of skilled professional medical personnel and staff directly supporting those personnel if the criteria specified in § 432.50 (c) and (d) are met: 75 percent. Section 1903(a)(2); 42 CFR 432.50(b)(1).

* * * * *

4. A new § 433.45 is added to read as follows:

§ 433.45 Sources of State share of financial participation.

(a) Public funds as the State's share.

(1)Public funds may be considered as the State's share inclaiming FFP if they meet the conditions specified in paragraphs (a)(2) and (3) of this section.

(2) The public funds are appropriated directly to the State or local Medicaid agency, or transferred from other public agencies (including Indian tribes) to the State or local agency and under its administrative control, or certified by the contributing public agency as representing expenditures eligible for FFP under this section.

(3) The public funds are not Federal funds, or are Federal funds authorized by Federal law to be used to match other Federal funds.

(b) Private donated funds as the State's share. (1) Funds donated from private sources may be considered as the State's share in claiming FFP only if they meet the conditions specified in paragraphs (b)(2) and (3) of this section.

(2) The private funds are transferred to the State or local Medicaid agency and are under its administrative control.

(3) The private funds do not revert to the donor's facility or use unless the donor is a non-profit organization, and the Medicaid agency, of its own volition, decides to use the donor's facility.

(5) Section 433.135 is revised to read as follows:

433.135 Basis and purpose

This subpart implements sections 1902(a)(25), 1902(a)(45), 1903(d)(2), 1903(o), 1903(p), and 1912 of the Act by setting forth State plan requirements concerning-

(a) The legal liability of third parties to pay for services provided under the plan;

(b) Assignment to the State of an individual's rights to third party payments; and

(c) Cooperative agreements between the Medicaid agency and other entities for obtaining third party payments.

(6) Section 433.136 is amended by revising the definitions of "private insurer" and "Third party" to read as follows:

433.136 Definitions

For purposes of this subpart-

"Private insurer" means:

(1) Any commercial insurance company offering health or casualty insurance to individuals or groups (including both experience-rated insurance contracts and indemnity contracts);

(2) Any profit or nonprofit prepaid plan offering either medical services or full or partial payment for services included in the State plan; and

(3) Any organization administering health or casualty insurance plans for professional associations, unions, fraternal groups, employer-employee benefit plans, and any similar organization offering these payments services, including self-insured and self-funded plans.

"Third party" means any individual entity or program that isor may be liable to pay all or part of the expenditures for medical assistance furnished under a State plan.

* * * * *

7 Section 433.137 is revised to read as follows:

433.137 State plan requirements.

(a) A State plan must provide that the requirements of

§ § 433.138 and 433.139 are met for determining legal liability of third parties to pay for services under the plan and for payment of claims involving third parties.

(b)A State plan must provide that, for medical assistance furnished on or after October 1, 1984-

(1) The requirements of § § 433.145 through 433.148 are met for assignment of rights to benefits and cooperation with the agency in obtaining medical support or payments; and

(2) The requirements of § § 433.151 through 433.154 are met for cooperative agreements and incentive payments for third party collections.

8. Section 433.139 is revised to read as follows:

433.139 Payment of claims.

(a) Basic provisions. (1) For claims involving third party liability that are processed on or after May 12, 1986, the agency must use the procedures specified in paragraphs (b) through (f) of this section.

(2) The agency must submit documentation of the methods (e.g., cost avoidance, pay and recover later) it uses for payment of claims involving third party liability to the HCFA Regional Office.

(b) Probable liability is established at the time claim is filed. Unless the agency has received approval to use an alternative method of payment as specified under paragraph (b)(2) of this section, the agency must pay claims involving probable third party liability as follows:

(1) If the agency has established the probable existence of third party liability at the time the claim is filed, the agency must reject the claim and return it to the provider for a determination of the amount of liability. The establishment of third party liability takes place when the agency receives confirmation from the provider or a third party resource indicating the extent of third party liability. When the amount of liability is determined, the agency must then pay the claim to the extent that payment allowed under the agency's payment schedule exceeds the amount of the third party's payment.

(2) The agency may pay the full amount allowed under the agency's payment schedule for the claim and then seek reimbursement from any liability third party to the limit of legal liability if it has obtained approval of a waiver of the requirement under paragraph (b)(1) of this section. The waiver must be in accordance with the provisions of paragraph (e) of this section.

(c) Probably liability is not established or benefits arenot available at the time claim is filed. If the probable existence of third party liability cannot be established or third party benefits are not available to pay the recipient's medical expenses at the time the claim is filed, the agency must pay the full amount allowed under the agency's payment schedule.

(d) Recovery of reimbursement. If the agency learns of the existence of a liable third party, or benefits become available after a claim is paid, the agency must seek recovery of reimbursement from the third party to the limit of legal liability within 60 days after the end of the month in which payment is made or 60 days after the end of the month it learns of the existence of the liable third party, whichever is earlier, unless it determines that recovery would not be cost effective in accordance with paragraph (f) of this section.

(e) Waiver of required use of cost avoidance method. (a) The requirement to use the claims payment method specified under paragraph (b)(1) of this section may be waived if--

(i) The agency is using the method of paying the entire claim and then seeking reimbursement from any liable third party as of November 12, 1985;

(ii) The agency submits adequate documentation that its method is as cost effective as the method required under paragraph (b)(1) of this section to the HCFA Regional Office on or before January 13, 1986 and requests approval of its use (Administrative costs must be considered in the computation of the cost effectiveness of the State's alternative method); and

(iii) The HCFA Regional Office approves the State's request for a waiver of the requirement.

(2) The HCFA Regional Office will review a State's request to have the requirement under paragraph (b)(1) of this section waived and notify the State of its determination within 30 days of receipt of a request. The Regional Office will request additional information from the State, if necessary.

(3) The HCFA Regional Office will grant the waiver for an indefinite period unless it specifies otherwise in the approval notice to the State. A State that is granted a waiver must notify the Regional Office of any event that occurs that changes the cost effectiveness of the approved alternative method. The Regional Office may rescind the waiver at any time that the State's method is no longer as cost effective as the method required under paragraph (b)(1) of this section. If the waiver request is denied or the waiver is rescinded, the State has 6 months from the date of the denial or rescission notice to implement the method required under paragraph (b)(1) of this section.

(f) Suspension or termination of recovery of reimbursement. (1) An agency must seek reimbursement from a liable third party on all claims for which it determines that the amount it reasonably expects to recover will be greater than the cost of recovery. Recovery efforts may be suspended or terminated only if they are not cost effective.

(2) The State plan must specify the threshold amount or other guideline that the agency uses in determining whether to seek recovery of reimbursement from a liable third party, or describe the process by which the agency determines that seeking recovery of reimbursement would not be cost effective.

(3) The State plan must also specify the dollar amount or period of time for which it will accumulate billings with respect to a particular liable third party in making the decision whether to seek recovery of reimbursement.

9. Section 433.145 is revised to read as follows:

§ 433.145 Assignment of rights to benefits--State plan requirements.

For medical assistance furnished on or after October 1, 1984--

(a) A State plan must provide that, as a condition of eligibility, each legally able applicant and recipient must assign his rights to medical support or other third party payments to the Medicaid agency and cooperate with the agency in obtaining medical support payments.

(b) A State plan must provide that the requirements for assignments and cooperation in establishing paternity and obtaining support under §§ 433.146 through 433.148 are met.

(c) A State plan must provide that the assignment of rights to benefits obtained from an applicant or recipient is effective only for services that are reimbursed by Medicaid.

§ 433.149 (Removed and reserved)

10. Section 433.149 is removed and reserved.

11. Section 433.151 is revised to read as follows:

§ 433.151 Cooperative agreements and incentive payments--State plan requirements.

For medical assistance furnished on or after October 1, 1984--

(a) A State plan must provide for entering into written cooperative agreements for enforcement of rights to and collection of third party benefits, with at least one of the following entities: The State title IV-D agency, any appropriate agency of the State, and appropriate courts and law enforcement officials. The agreements must be in accordance with the provisions of § 433.152.

(b) A State plan must provide that the requirements for making incentive payments and for distributing third party collections specified in §§ 433.153 and 433.154 are met.

12. Section 433.152 is revised to read as follows:

§ 433.152 Requirements for cooperative agreements for third party collections.

(a) Except as specified in paragraph (b) of this section, the State agency may develop the specific terms of cooperative agreements with other agencies as it determines appropriate for individual circumstances.

(b) Agreements with title IV-D agencies must specify that the Medicaid agency will--

(1) Meet the requirements of the Office of Child Support Enforcement for cooperative agreements under 45 CFR Part 306; and

(2) Provide reimbursement to the IV-D agency only for those child support services performed that are not reimbursable by the Office of Child Support Enforcement under title IV-D of the Act and that are necessary for the collection of amounts for the Medicaid program.

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, AND THE NORTHERN MARIANA ISLANDS

C. Part 435, Subpart G, is amended as follows:

1. The authority citation for Part 435 continues to read as follows:

Authority: Section 1102 of the Social Security Act (42 U.S.C. 1302).

2. Section 435.604 is revised to read as follows:

§ 435.604 Assignment of rights to benefits.

For medical assistance furnished on or after October 1, 1984--

(a) As a condition of eligibility, the agency must require legally able applicants and recipients to assign rights to medical support or other third party payments to the Medicaid agency and to cooperate with the Agency in obtaining medical support or payments. (Part 433, Subpart D, contains specific requirements for these assignments.)

(b) The requirements for assignment of rights must be applied uniformly for all groups covered under the plan.

Part 436--ELIGIBILITY IN GUAM, PUERTO RICO, AND THE VIRGIN ISLANDS

D. Part 436, Subpart G is amended as follows:

1. The authority citation for Part 436 continues to read as follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 1302) unless otherwise noted.

2. Section 436.604 is revised to read as follows:

§ 436.604 Assignment of rights to benefits

For medical assistance furnished on or after October 1, 1984--

(a) As a condition of eligibility, the agency must require legally able applicants and recipients to assign rights to medical support and other third party payments to the Medicaid agency and to cooperate with the agency in obtaining medical support or payments. (Part 433, Subpart D, contains specific requirements for these assignments.)

(b) The requirements for assignment of rights must be applied uniformly for all groups covered under the plan.

(Catalog of Federal Domestic Assistance Program No. 13714--Medical Assistance Program)

Dated: March 5, 1985

Carolyne K. Davis

Administrator, Health Care Financing Administration.

Approved: August 2, 1985.

Margaret M. Heckler,

Secretary

(FR Doc. 85-26603 Filed 11-8-85; 8:45am) Billing code 4120-01-M