42 C.F.R. Subpart B—General Administrative Requirements State Financial Participation
Title 42 - Public Health
Source: 57 FR 55138, Nov. 24, 1992, unless otherwise noted.
(a) Basis. This subpart interprets and implements— (1) Section 1902(a)(2) of the Act, which requires States to share in the cost of medical assistance expenditures and permits both State and local governments to participate in the financing of the non-Federal portion of medical assistance expenditures. (2) Section 1903(a) of the Act, which requires the Secretary to pay each State an amount equal to the Federal medical assistance percentage of the total amount expended as medical assistance under the State's plan. (3) Section 1903(w) of the Act, which specifies the treatment of revenues from provider-related donations and health care-related taxes in determining a State's medical assistance expenditures for which Federal financial participation (FFP) is available under the Medicaid program. (b) Scope. This subpart— (1) Specifies State plan requirements for State financial participation in expenditures for medical assistance. (2) Defines provider-related donations and health care-related taxes that may be received without a reduction in FFP. (3) Specifies rules for revenues received from provider-related donations and health care-related taxes during a transition period. (4) Establishes limitations on FFP when States receive funds from provider-related donations and revenues generated by health care-related taxes. (c) Applicability. The provisions of this subpart apply to the 50 States and the District of Columbia, but not to any State whose entire Medicaid program is operated under a waiver granted under section 1115 of the Act. [57 FR 55138, Nov. 24, 1992; 58 FR 6095, Jan. 26, 1993] (a) Public funds may be considered as the State's share in claiming FFP if they meet the conditions specified in paragraphs (b) and (c) of this section. (b) 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. (c) The public funds are not Federal funds, or are Federal funds authorized by Federal law to be used to match other Federal funds. [57 FR 55138, Nov. 24, 1992; 58 FR 6095, Jan. 26, 1993] As used in this subpart— Entity related to a health care provider means— (1) An organization, association, corporation, or partnership formed by or on behalf of a health care provider; (2) An individual with an ownership or control interest in the provider, as defined in section 1124(a)(3) of the Act; (3) An employee, spouse, parent, child, or sibling of the provider, or of a person with an ownership or control interest in the provider, as defined in section 1124(a)(3) of the Act; or (4) A supplier of health care items or services or a supplier to providers of health care items or services. Health care provider means the individual or entity that receives any payment or payments for health care items or services provided. Provider-related donation means a donation or other voluntary payment (in cash or in kind) made directly or indirectly to a State or unit of local government by or on behalf of a health care provider, an entity related to such a health care provider, or an entity providing goods or services to the State for administration of the State's Medicaid plan. (1) Donations made by a health care provider to an organization, which in turn donates money to the State, may be considered to be a donation made indirectly to the State by a health care provider. (2) When an organization receives less than 25 percent of its revenues from providers and/or provider-related entities, its donations will not generally be presumed to be provider-related donations. Under these circumstances, a provider-related donation to an organization will not be considered a donation made indirectly to the State. However, if the donations from providers to an organization are subsequently determined to be indirect donations to the State or unit of local government for administration of the State's Medicaid program, then such donations will be considered to be health care related. (3) When the organization receives more than 25 percent of its revenue from donations from providers or provider-related entities, the organization always will be considered as acting on behalf of health care providers if it makes a donation to the State. The amount of the organization's donation to the State, in a State fiscal year, that will be considered health care related, will be based on the percentage of donations the organization received from the providers during that period. A State plan must provide that— (a) State (as distinguished from local) funds will be used both for medical assistance and administration; (b) State funds will be used to pay at least 40 percent of the non-Federal share of total expenditures under the plan; and (c) State and Federal funds will be apportioned among the political subdivisions of the State on a basis that assures that— (1) Individuals in similar circumstances will be treated similarly throughout the State; and (2) If there is local financial participation, lack of funds from local sources will not result in lowering the amount, duration, scope, or quality of services or level of administration under the plan in any part of the State. [57 FR 55138, Nov. 24, 1992; 58 FR 6095, Jan. 26, 1993] (a) A bona fide donation means a provider-related donation, as defined in §433.52, made to the State or unit of local government, that has no direct or indirect relationship, as described in paragraph (b) of this section, to Medicaid payments made to— (1) The health care provider; (2) Any related entity providing health care items and services; or (3) Other providers furnishing the same class of items or services as the provider or entity. (b) Provider-related donations will be determined to have no direct or indirect relationship to Medicaid payments if those donations are not returned to the individual provider, the provider class, or related entity under a hold harmless provision or practice, as described in paragraph (c) of this section. (c) A hold harmless practice exists if any of the following applies: (1) The amount of the payment received (other than under title XIX of the Act) is positively correlated either to the amount of the donation or to the difference between the amount of the donation and the amount of the payment received under the State plan; (2) All or any portion of the payment made under Medicaid to the donor, the provider class, or any related entity, varies based only on the amount of the total donation received; or (3) The State or other unit of local government receiving the donation provides for any payment, offset, or waiver that guarantees to return any portion of the donation to the provider. (d) CMS will presume provider-related donations to be bona fide if the voluntary payments, including, but not limited to, gifts, contributions, presentations or awards, made by or on behalf of individual health care providers to the State, county, or any other unit of local government does not exceed— (1) $5,000 per year in the case of an individual provider donation; or (2) $50,000 per year in the case of a donation from any health care organizational entity. (e) To the extent that a donation presumed to be bona fide contains a hold harmless provision, as described in paragraph (c) of this section, it will not be considered a bona fide donation. When provider-related donations are not bona fide, CMS will deduct this amount from the State's medical assistance expenditures before calculating FFP. This offset will apply to all years the State received such donations and any subsequent fiscal year in which a similar donation is received. (a) A health care-related tax is a licensing fee, assessment, or other mandatory payment that is related to— (1) Health care items or services; (2) The provision of, or the authority to provide, the health care items or services; or (3) The payment for the health care items or services. (b) A tax will be considered to be related to health care items or services under paragraph (a)(1) of this section if at least 85 percent of the burden of the tax revenue falls on health care providers. (c) A tax is considered to be health care related if the tax is not limited to health care items or services, but the treatment of individuals or entities providing or paying for those health care items or services is different than the tax treatment provided to other individuals or entities. (d) A health care-related tax does not include payment of a criminal or civil fine or penalty, unless the fine or penalty was imposed instead of a tax. (e) Health care insurance premiums and health maintenance organization premiums paid by an individual or group to ensure coverage or enrollment are not considered to be payments for health care items and services for purposes of determining whether a health care-related tax exists. (a) For purposes of this subpart, each of the following will be considered as a separate class of health care items or services: (1) Inpatient hospital services; (2) Outpatient hospital services; (3) Nursing facility services (other than services of intermediate care facilities for the mentally retarded); (4) Intermediate care facility services for the mentally retarded, and similar services furnished by community-based residences for the mentally retarded, under a waiver under section 1915(c) of the Act, in a State in which, as of December 24, 1992, at least 85 percent of such facilities were classified as ICF/MRs prior to the grant of the waiver; (5) Physician services; (6) Home health care services; (7) Outpatient prescription drugs; (8) Services of health maintenance organizations and health insuring organizations; (9) Ambulatory surgical center services, as described for purposes of the Medicare program in section 1832(a)(2)(F)(i) of the Social Security Act. These services are defined to include facility services only and do not include surgical procedures; (10) Dental services; (11) Podiatric services; (12) Chiropractic services; (13) Optometric/optician services; (14) Psychological services; (15) Therapist services, defined to include physical therapy, speech therapy, occupational therapy, respiratory therapy, audiological services, and rehabilitative specialist services; (16) Nursing services, defined to include all nursing services, including services of nurse midwives, nurse practitioners, and private duty nurses; (17) Laboratory and x-ray services, defined as services provided in a licensed, free-standing laboratory or x-ray facility. This definition does not include laboratory or x-ray services provided in a physician's office, hospital inpatient department, or hospital outpatient department; (18) Emergency ambulance services; and (19) Other health care items or services not listed above on which the State has enacted a licensing or certification fee, subject to the following: (i) The fee must be broad based and uniform or the State must receive a waiver of these requirements; (ii) The payer of the fee cannot be held harmless; and (iii) The aggregate amount of the fee cannot exceed the State's estimated cost of operating the licensing or certification program. (b) Taxes that pertain to each class must apply to all items and services within the class, regardless of whether the items and services are furnished by or through a Medicaid-certified or licensed provider. [57 FR 55138, Nov. 24, 1992, as amended at 58 FR 43180, Aug. 13, 1993] Effective January 1, 1992, CMS will deduct from a State's expenditures for medical assistance, before calculating FFP, funds from provider-related donations and revenues generated by health care-related taxes received by a State or unit of local government, in accordance with the requirements, conditions, and limitations of this subpart, if the donations and taxes are not— (a) Donations and taxes that meet the requirements specified in §433.58, except for certain revenue received during a specified transition period; (b) Permissible provider-related donations, as specified in §433.66(b); or (c) Health care-related taxes, as specified in §433.68(b). (a) General rule. During the State's transition period specified in paragraph (b) of this section, a State may receive certain provider-related donations and health care-related taxes without a reduction in FFP. These provider-related donations and health care-related taxes must meet the conditions specified in this section and are subject to limitations specified in §433.60. (b) Transition periods for States. (1) Except as provided in paragraph (b)(2) of this section, the provisions of this section apply for the period beginning January 1, 1992 and ending— (i) September 30, 1992, for States whose State fiscal year begins on or before July 1, 1992; or (ii) December 31, 1992, for States whose State fiscal year begins after July 1, 1992. (2) The provisions of this section apply for the period beginning January 1, 1992 and ending June 30, 1993 for States that— (i) Are not scheduled to have a regular legislative session in calendar year 1992; (ii) Are not scheduled to have a regular legislative session in calendar year 1993; or (iii) Had enacted a health care-related tax program on November 4, 1991. (c) Provider-related donations during the transition period. Subject to the limitations specified in §433.60, a State may receive, without a reduction in FFP, provider-related donations described in paragraph (d)(3) of this section during the applicable transition period. (d) Permissible donations. To be permissible donations, the donations must be— (1) Bona fide donations, as defined in §433.54; (2) Donations made by a hospital, clinic, or similar entity (such as a Federally-qualified health center) for the direct costs of State or local agency personnel who are stationed at that facility to determine the eligibility (including eligibility redeterminations) of individuals for Medicaid and/or to provide outreach services to eligible (or potentially eligible) Medicaid individuals. Direct costs of outstationed eligibility workers refers to the costs of training, salaries and fringe benefits associated with each outstationed worker and similar allocated costs of State or local agency support staff, and a prorated cost of outreach activities applicable to the outstationed workers at these sites. The prorated costs of outreach activities will be calculated taking the percent of State outstationed eligibility workers at a facility to total outstationed eligibility workers in the State, and multiplying the percent by the total cost of outreach activities in the State. Costs for such items as State agency overhead and provider office space are not allowable for this purpose; or (3) Provider-related donations, even if the donations do not qualify under the provisions of paragraph (d) (1) or (2) of this section, that meet the following conditions: (i) The donation program was in effect on September 30, 1991, described in State plan amendments or related documents submitted to CMS by that date, or substantiated by written documentary evidence (as described in paragraph (e) of this section) that was in existence as of that date; and (ii) The donation program is applicable to the State's fiscal year 1992, as demonstrated by written documentary evidence as described in paragraph (e) of this section. (e) Written documentary evidence. The State must have written documentation, which was in existence on September 30, 1991, of a donation program described in paragraph (d)(3) of this section that includes the dollar amounts it received in State fiscal year 1992 and the amounts it intended to receive, as evidenced by one or more of the following: (1) Reference to a donation program in a State plan amendment or related documents, including a satisfactory response, as determined by CMS, to a CMS request for additional information; (2) State budget documents identifying the amounts States expected to be received in donations; (3) Written agreements with the parties donating the funds; and/or (4) Other written documents that identify amounts that the States planned to receive in donations from specified organizations during that period. (f) Application of rules to State fiscal year 1993. For any portion of a State's fiscal year 1993 that occurs during the transition period, the State may receive, without a reduction in FFP, the amount of provider-related donations that it received in the corresponding period in State fiscal year 1992, including the 5 days after the end of that period, subject to the limitations specified in §433.60(a). (g) Health care-related taxes during the transition period. (1) Subject to the limitations specified in §433.60, States may receive, without a reduction in FFP, health care-related taxes during the State's transition period if: (i) The health care-related taxes are broad-based and uniformly imposed, and the taxpayer will not be held harmless, as specified in §433.68; or (ii) The health care-related taxes are imposed under— (A) A tax program that was in effect as of November 22, 1991; or (B) Legislation or regulations that were enacted or adopted as of November 22, 1991. (2) A State may not modify health care-related taxes in existence as of November 22, 1991, without a reduction of FFP, unless the modification only— (i) Extends a tax program that was scheduled to expire before the end of the State's transition period; (ii) Makes technical changes that do not alter the rate of the tax or the base of the tax (for example, the providers on which the tax is imposed) and do not otherwise increase the proceeds of the tax; (iii) Decreases the rate of the tax, without altering the base of the tax; or (iv) Modifies the tax program to bring it into compliance with §433.68(f). [57 FR 55138, Nov. 24, 1992; 58 FR 6095, Jan. 26, 1993, as amended at 58 FR 43180, Aug. 13, 1993] (a) Maximum amounts. The maximum amount of total provider-related donations, as specified in §433.58(d)(3), and health care-related taxes that a State may receive without a reduction in FFP during a State fiscal year in the State's transition period specified in §433.58(b) is calculated by multiplying— (1) The State's total medical assistance expenditures for the fiscal year; by (2) The greater of: (i) 25 percent; or (ii) The “State base percentage” (as described in paragraph (b) of this section). (b) State base percentage. (1) The State's base percentage is calculated by dividing the amount of the provider-related donations and health care-related taxes identified in §433.58 and estimated by CMS to be received in the State's fiscal year 1992 by the total non-Federal share of medical assistance expenditures (including administrative costs) in that fiscal year based on the best available CMS data. (2) In calculating the amount of taxes specified in paragraph (b)(1) of this section, taxes (including the tax rate or base) that were not in effect for the entire State fiscal year, but for which legislation or regulations imposing such taxes were enacted or adopted as of November 22, 1991, will be estimated as if they were in effect for the entire fiscal year. (c) Deductions before calculating FFP. Before calculating FFP, CMS will deduct from a State's medical assistance expenditures the total amount of any provider-related donations described in §433.58(d)(3), and health care-related taxes in excess of the limit calculated under paragraph (a) of this section. [57 FR 55138, Nov. 24, 1992; 58 FR 6095, Jan. 26, 1993] (a) General rule. (1) Except as specified in paragraph (a)(2) of this section, subsequent to the end of a State's transition period, as defined in §433.58(b), a State may receive revenues from provider-related donations without a reduction in FFP, only in accordance with the requirements of this section. (2) The provisions of this section relating to provider-related donations for outstationed eligibility workers are effective on October 1, 1992, whether or not the State's transition period continues beyond that date. (b) Permissible donations. Subject to the limitations specified in §433.67, a State may receive, without a reduction in FFP, provider-related donations that meet at least one of the following requirements: (1) The donations must be bona fide donations, as defined in §433.54; or (2) The donations are made by a hospital, clinic, or similar entity (such as a Federally-qualified health center) for the direct costs of State or local agency personnel who are stationed at the facility to determine the eligibility (including eligibility redeterminations) of individuals for Medicaid or to provide outreach services to eligible (or potentially eligible) Medicaid individuals. Direct costs of outstationed eligibility workers refers to the costs of training, salaries and fringe benefits associated with each outstationed worker and similar allocated costs of State or local agency support staff, and a prorated cost of outreach activities applicable to the outstationed workers at these sites. The prorated costs of outreach activities will be calculated taking the percent of State outstationed eligibility workers at a facility to total outstationed eligibility workers in the State, and multiplying the percent by the total cost of outreach activities in the State. Costs for such items as State agency overhead and provider office space are not allowable for this purpose. [57 FR 55138, Nov. 24, 1992, as amended at 58 FR 43180, Aug. 13, 1993] (a)(1) Limitations on bona fide donations. There are no limitations on the amount of bona fide provider-related donations that a State may receive without a reduction in FFP, as long as the bona fide donations meet the requirements of §433.66(b)(1). (2) Limitations on donations for outstationed eligibility workers. Effective October 1, 1992, regardless of when a State's transition period ends, the maximum amount of provider-related donations for oustationed eligibility workers, as described in §433.66(b)(2), that a State may receive without a reduction in FFP may not exceed 10 percent of a State's medical assistance administrative costs (both the Federal and State share), excluding the costs of family planning activities. The 10 percent limit for provider-related donations for outstationed eligibility workers is not included in the limit in effect through September 30, 1995, for health care-related taxes as described in §433.70. (b) Calculation of FFP. CMS will deduct from a State's quarterly medical assistance expenditures, before calculating FFP, any provider-related donations received in that quarter that do not meet the requirements of §433.66(b)(1) and provider donations for outstationed eligibility workers in excess of the limits specified under paragraph (a)(2) of this section. [57 FR 55138, Nov. 24, 1992, as amended at 58 FR 43180, Aug. 13, 1993] (a) General rule. Beginning on the day after a State's transition period, as defined in §433.58(b), ends, a State may receive health care-related taxes, without a reduction in FFP, only in accordance with the requirements of this section. (b) Permissible health care-related taxes. Subject to the limitations specified in §433.70, a State may receive, without a reduction in FFP, health care-related taxes if all of the following are met: (1) The taxes are broad based, as specified in paragraph (c) of this section; (2) The taxes are uniformly imposed throughout a jurisdiction, as specified in paragraph (d) of this section; and (3) The tax program does not violate the hold harmless provisions specified in paragraph (f) of this section. (c) Broad based health care-related taxes. (1) A health care-related tax will be considered to be broad based if the tax is imposed on at least all health care items or services in the class or providers of such items or services furnished by all non-Federal, non-public providers in the State, and is imposed uniformly, as specified in paragraph (d) of this section. (2) If a health care-related tax is imposed by a unit of local government, the tax must extend to all items or services or providers (or to all providers in a class) in the area over which the unit of government has jurisdiction. (3) A State may request a waiver from CMS of the requirement that a tax program be broad based, in accordance with the procedures specified in §433.72. Waivers from the uniform and broad-based requirements will automatically be granted in cases of variations in licensing and certification fees for providers if the amount of such fees is not more than $1,000 annually per provider and the total amount raised by the State from the fees is used in the administration of the licensing or certification program. (d) Uniformly imposed health care-related taxes. A health care-related tax will be considered to be imposed uniformly even if it excludes Medicaid or Medicare payments (in whole or in part), or both; or, in the case of a health care-related tax based on revenues or receipts with respect to a class of items or services (or providers of items or services), if it excludes either Medicaid or Medicare revenues with respect to a class of items or services, or both. The exclusion of Medicaid revenues must be applied uniformly to all providers being taxed. (1) A health care-related tax will be considered to be imposed uniformly if it meets any one of the following criteria: (i) If the tax is a licensing fee or similar tax imposed on a class of health care services (or providers of those health care items or services), the tax is the same amount for every provider furnishing those items or services within the class. (ii) If the tax is a licensing fee or similar tax imposed on a class of health care items or services (or providers of those items or services) on the basis of the number of beds (licensed or otherwise) of the provider, the amount of the tax is the same for each bed of each provider of those items or services in the class. (iii) If the tax is imposed on provider revenue or receipts with respect to a class of items or services (or providers of those health care items or services), the tax is imposed at a uniform rate for all services (or providers of those items or services) in the class on all the gross revenues or receipts, or on net operating revenues relating to the provision of all items or services in the State, unit, or jurisdiction. Net operating revenue means gross charges of facilities less any deducted amounts for bad debts, charity care, and payer discounts. (iv) The tax is imposed on items or services on a basis other than those specified in paragraphs (d)(1) (i) through (iii) of this section, e.g., an admission tax, and the State establishes to the satisfaction of the Secretary that the amount of the tax is the same for each provider of such items or services in the class. (2) A tax imposed with respect to a class of health care items or services will not be considered to be imposed uniformly if it meets either one of the following two criteria: (i) The tax provides for credits, exclusions, or deductions which have as its purpose, or results in, the return to providers of all, or a portion, of the tax paid, and it results, directly or indirectly, in a tax program in which— (A) The net impact of the tax and payments is not generally redistributive, as specified in paragraph (e) of this section; and (B) The amount of the tax is directly correlated to payments under the Medicaid program. (ii) The tax holds taxpayers harmless for the cost of the tax, as described in paragraph (f) of this section. (3) If a tax does not meet the criteria specified in paragraphs (d)(1)(i) through (iv) of this section, but the State establishes that the tax is imposed uniformly in accordance with the procedures for a waiver specified in §433.72, the tax will be treated as a uniform tax. (e) Generally redistributive. A tax will be considered to be generally redistributive if it meets the requirements of this paragraph. If the State desires waiver of only the broad-based tax requirement, it must demonstrate compliance with paragraph (e)(1) of this section. If the State desires waiver of the uniform tax requirement, whether or not the tax is broad-based, it must demonstrate compliance with paragraph (e)(2) of this section. (1) Waiver of broad-based requirement only. This test is applied on a per class basis to a tax that is imposed on all revenues but excludes certain providers. For example, a tax that is imposed on all revenues (including Medicare and Medicaid) but excludes teaching hospitals would have to meet this test. This test cannot be used when a State excludes any or all Medicaid revenue from its tax in addition to the exclusion of providers, since the test compares the proportion of Medicaid revenue being taxed under the proposed tax with the proportion of Medicaid revenue being taxed under a broad-based tax. (i) A State seeking waiver of the broad-based tax requirement only must demonstrate that its proposed tax plan meets the requirement that its plan is generally redistributive by: (A) Calculating the proportion of the tax revenue applicable to Medicaid if the tax were broad based and applied to all providers or activities within the class (called P1); (B) Calculating the proportion of the tax revenue applicable to Medicaid under the tax program for which the State seeks a waiver (called P2); and (C) Calculating the value of P1/P2. (ii) If the State demonstrates to the Secretary's satisfaction that the value of P1/P2 is at least 1, CMS will automatically approve the waiver request. (iii) If a tax is enacted and in effect prior to August 13, 1993, and the State demonstrates to the Secretary's satisfaction that the value of P1/P2 is at least 0.90, CMS will review the waiver request. Such a waiver will be approved only if the following two criteria are met: (A) The value of P1/P2 is at least 0.90; and (B) The tax excludes or provides credits or deductions only to one or more of the following providers of items and services within the class to be taxed: (1) Providers that furnish no services within the class in the State; (2) Providers that do not charge for services within the class; (3) Rural hospitals (defined as any hospital located outside of an urban area as defined in §412.62(f)(1)(ii) of this chapter); (4) Sole community hospitals as defined in §412.92(a) of this chapter; (5) Physicians practicing primarily in medically underserved areas as defined in section 1302(7) of the Public Health Service Act; (6) Financially distressed hospitals if: (i) A financially distressed hospital is defined by the State law; (ii) The State law specifies reasonable standards for determining financially distressed hospitals, and these standards are applied uniformly to all hospitals in the State; and (iii) No more than 10 percent of nonpublic hospitals in the State are exempt from the tax; (7) Psychiatric hospitals; or (8) Hospitals owned and operated by HMOs. (iv) If a tax is enacted and in effect after August 13, 1993, and the State demonstrates to the Secretary's satisfaction that the value of P1/P2 is at least 0.95, CMS will review the waiver request. Such a waiver request will be approved only if the following two criteria are met: (A) The value of P1/P2 is at least 0.95; and (B) The tax complies with the provisions of §433.68(e)(1)(iii)(B). (2) Waiver of uniform tax requirement. This test is applied on a per class basis to all taxes that are not uniform. This includes those taxes that are neither broad based (as specified in §433.68(c)) nor uniform (as specified in §433.68(d)). (i) A State seeking waiver of the uniform tax requirement (whether or not the tax is broad based) must demonstrate that its proposed tax plan meets the requirement that its plan is generally redistributive by: (A) Calculating, using ordinary least squares, the slope (designated as (B) (that is. the value of the x coefficient) of two linear regressions, in which the dependent variable is each provider's percentage share of the total tax paid by all taxpayers during a 12-month period, and the independent variable is the taxpayer's “Medicaid Statistic”. The term “Medicaid Statistic” means the number of the provider's taxable units applicable to the Medicaid program during a 12-month period. If, for example, the State imposed a tax based on provider charges, the amount of a provider's Medicaid charges paid during a 12-month period would be its “Medicaid Statistic”. If the tax were based on provider inpatient days, the number of the provider's Medicaid days during a 12-month period would be its “Medicaid Statistic”. For the purpose of this test, it is not relevant that a tax program exempts Medicaid from the tax. (B) Calculating the slope (designated as B1) of the linear regression, as described in paragraph (e)(2)(i) of this section, for the State's tax program, if it were broad based and uniform. (C) Calculating the slope (designated as B2) of the linear regression, as described in paragraph (e)(2)(i) of this section, for the State's tax program, as proposed. (ii) If the State demonstrates to the Secretary's satisfaction that the value of B1/B2 is at least 1, CMS will automatically approve the waiver request. (iii) If the State demonstrates to the Secretary's satisfaction that the value of B1/B2 is at least 0.95, CMS will review the waiver request. Such a waiver will be approved only if the following two criteria are met: (A) The value of B1/B2 is at least 0.95; and (B) The tax excludes or provides credits or deductions only to one or more of the following providers of items and services within the class to be taxes: (1) Providers that furnish no services within the class in the State; (2) Providers that do not charge for services within the class; (3) Rural hospitals (defined as any hospital located outside of an urban area as defined in §412.62(f)(1)(ii) of this chapter; (4) Sole community hospitals as defined in §412.92(a) of this chapter; (5) Physicians practicing primarily in medically underserved areas as defined in section 1302(7) of the Public Health Service Act; (6) Financially distressed hospitals if: (i) A financially distressed hospital is defined by the State law; (ii) The State law specifies reasonable standards for determining financially distressed hospitals, and these standards are applied uniformly to all hospitals in the State; and (iii) No more than 10 percent of nonpublic hospitals in the State are exempt from the tax; (7) Psychiatric hospitals; or (8) Providers or payers with tax rates that vary based exclusively on regions, but only if the regional variations are coterminous with preexisting political (and not special purpose) boundaries. Taxes within each regional boundary must meet the broad-based and uniformity requirements as specified in paragraphs (c) and (d) of this section. (iv) A B1/B2 value of 0.70 will be applied to taxes that vary based exclusively on regional variations, and enacted and in effect prior to November 24, 1992, to permit such variations. (f) Hold harmless. A taxpayer will be considered to be held harmless under a tax program if any of the following conditions applies: (1) The State (or other unit of government) imposing the tax provides directly or indirectly for a non-Medicaid payment to those providers or others paying the tax and the amount of the payment is positively correlated to either the amount of the tax or to the difference between the Medicaid payment and the total tax cost. (2) All or any portion of the Medicaid payment to the taxpayer varies based only on the amount of the total tax payment. (3) The State (or other unit of local government) imposing the tax provides, directly or indirectly, for any payment, offset, or waiver that guarantees to hold taxpayers harmless for all or a portion of the tax. (i) An indirect guarantee will be determined to exist under a two prong “guarantee” test. This specific hold harmless test is effective September 13, 1993. In this instance, if the health care-related tax or taxes on each health care class are applied at a rate that produces revenues less than or equal to 6 percent of the revenues received by the taxpayer, the tax or taxes are permissible under this test. When the tax or taxes are applied at a rate that produces revenues in excess of 6 percent of the revenue received by the taxpayer, CMS will consider a hold harmless provision to exist if 75 percent or more of the taxpayers in the class receive 75 percent or more of their total tax costs back in enhanced Medicaid payments or other State payments. The second prong of the hold harmless test is applied in the aggregate to all health care taxes applied to each class. If this standard is violated, the amount of tax revenue to be offset from medical assistance expenditures is the total amount of the taxpayers' revenues received by the State. (ii) If, as of August 13, 1993, a State has enacted a tax in excess of 6 percent that does not meet the requirements in paragraph (f)(3)(i) of this section, CMS will not disallow funds received by the State resulting from the tax if the State modifies the tax to comply with this requirement by September 13, 1993. If, by September 13, 1993, the tax is not modified, funds received by States on or after September 13, 1993 will be disallowed. [57 FR 55138, Nov. 24, 1992, as amended at 58 FR 43181, Aug. 13, 1993; 62 FR 53572, Oct. 15, 1997] (a) Limitations. (1) Subsequent to the end of a State's transition period (as defined in §433.58(b)), and extending through September 30, 1995, the maximum amount of health care-related taxes specified in §433.68 that a State may receive during a State fiscal year (or portion thereof), without a reduction in FFP, is limited to— (i) The greater of 25 percent or the State base percentage as described in §433.60(b); multiplied by (ii) The State's share of total medical assistance expenditures for the State fiscal year, less all health care-related taxes other than those described in §433.68 that are deducted separately pursuant to paragraph (b) of this section. (2) Beginning October 1, 1995, there is no limitation on the amount of health care-related taxes that a State may receive without a reduction in FFP, as long as the health care-related taxes meet the requirements specified in §433.68. (b) Calculation of FFP. CMS will deduct from a State's medical assistance expenditures, before calculating FFP, revenues from health care-related taxes that do not meet the requirements of §433.68 and any health care-related taxes in excess of the limits specified in paragraph (a)(1) of this section. (a) Bases for requesting waiver. (1) A State may submit to CMS a request for a waiver if a health care-related tax does not meet any or all of the following: (i) The tax does not meet the broad based criteria specified in §433.68c); and/or (ii) The tax is not imposed uniformly but meets the criteria specified in §433.68(d)(2) or (d)(3). (2) When a tax that meets the criteria specified in paragraph (a)(1) of this section is imposed on more than one class of health care items or services, a separate waiver must be obtained for each class of health care items and services subject to the tax. (b) Waiver conditions. In order for CMS to approve a waiver request that would permit a State to receive tax revenue (within specified limitations) without a reduction in FFP, the State must demonstrate, to CMS's satisfaction, that its tax program meets all of the following requirements: (1) The net impact of the tax and any payments made to the provider by the State under the Medicaid program is generally redistributive, as described in §433.68(e); (2) The amount of the tax is not directly correlated to Medicaid payments; and (3) The tax program does not fall within the hold harmless provisions specified in §433.68(f). (c) Effective date. A waiver will be effective: (1) The date of enactment of the tax for programs in existence prior to August 13, 1993 or; (2) For tax programs commencing on or after August 13, 1993, on the first day in the quarter in which the waiver is received by CMS. [57 FR 55138, Nov. 24, 1992, as amended at 58 FR 43182, Aug. 13, 1993] (a) Beginning with the first quarter of Federal fiscal year 1993, each State must submit to CMS quarterly summary information on the source and use of all provider-related donations (including all bona fide and presumed-to-be bona fide donations) received by the State or unit of local government, and health care-related taxes collected. Each State must also provide any additional information requested by the Secretary related to any other donations made by, or any taxes imposed on, health care providers. States' reports must present a complete, accurate, and full disclosure of all of their donation and tax programs and expenditures. (b) Each State must provide the summary information specified in paragraph (a) of this section on a quarterly basis in accordance with procedures established by CMS. (c) Each State must maintain, in readily reviewable form, supporting documentation that provides a detailed description and legal basis for each donation and tax program being reported, as well as the source and use of all donations received and taxes collected. This information must be made available to Federal reviewers upon request. (d) If a State fails to comply with the reporting requirements contained in this section, future grant awards will be reduced by the amount of FFP CMS estimates is attributable to the sums raised by tax and donation programs as to which the State has not reported properly, until such time as the State complies with the reporting requirements. Deferrals and/or disallowances of equivalent amounts may also be imposed with respect to quarters for which the State has failed to report properly. Unless otherwise prohibited by law, FFP for those expenditures will be released when the State complies with all reporting requirements.
Title 42: Public Health
PART 433—STATE FISCAL ADMINISTRATION
Subpart B—General Administrative Requirements State Financial Participation
§ 433.50 Basis, scope, and applicability.
§ 433.51 Public funds as the State share of financial participation.
§ 433.52 General definitions.
§ 433.53 State plan requirements.
§ 433.54 Bona fide donations.
§ 433.55 Health care-related taxes defined.
§ 433.56 Classes of health care services and providers defined.
§ 433.57 General rules regarding revenues from provider-related donations and health care-related taxes.
§ 433.58 Provider-related donations and health care-related taxes during a State's transition period.
§ 433.60 Limitations on level of FFP in State expenditures from provider-related donations and health care-related taxes during the transition period.
§ 433.66 Permissible provider-related donations after the transition period.
§ 433.67 Limitations on level of FFP for permissible provider-related donations.
§ 433.68 Permissible health care-related taxes after the transition period.
§ 433.70 Limitations on level of FFP for revenues from health care-related taxes after the transition period.
§ 433.72 Waiver provisions applicable to health care-related taxes.
§ 433.74 Reporting requirements.
